The Positive Beat

Posted: April 30th, 2018 | Author: | Filed under: apple, facebook, Investing, snapchat, writing | No Comments »

Beat reporting, also known as specialized reporting, is a genre of journalism that can be described as the craft of in-depth reporting on a particular issue, sector, organization or institution over time.

This month I’m taking a break from writing about tech to get meta. I want to write about writing.

My favorite content online is by those who have a beat. Writers with specialized knowledge on a subject. Writers with an expertise, not those summarizing a press release.

Throughout the years I’ve grown fond of M.G Siegler’s and John Gruber’s take on Apple. And Josh Constine’s take on Facebook.

There are two other commonalities about these writers that separate them from the pack. They have a distinct voice. I enjoy the way their writing sounds when I read it in my head. But perhaps more importantly, they all took a positive beat. M.G. and Gruber are known as being Apple Fanboys. Josh was able to see Facebook’s potential when many doubted them.

But, surprisingly, I find taking a positive beat rare. Even more of a bummer, M.G., Gruber and Josh are all spilling more ink on critical, negative beats. M.G. loves Amazon but hates Facebook and has grown more critical of Apple. Gruber is generally pro-Apple but detests Trump, Facebook, Guns and Google. Josh prefers to criticize Snap, and like the rest of the blogosphere, crucified Facebook over Cambridge Analytica.

After a newsletter where M.G. was bearish on the HomePod and MoviePass I wrote to him:

A lot of negativity in this one! HomePod is a flop, MoviePass won’t work out, etc.

Not that you always have to be a cheerleader but I think writing on things you are bullish about have always been your sweet spots. Back in the day you nailed the positives about Apple when the majority of your peers were pressed to write hit pieces.

I know you know this, but I think time will tell your take on the HomePod is wrong. Apple is playing the same strategy they’ve always played with devices. Go high-end, have good margins to start, don’t worry about market share. Marketshare comes with a superior product. I hope you write this down as claim chowder for yourself, if Apple shows a Watch-esque position with the voice-commanded speaker market, they pulled it off.

He replied:

I try not to think of things as negative vs. positive, I care far more about being proven right in the end! And yes, we’ll see how HomePod does — especially after the first price cut and launch of SiriKit at WWDC!

+1. Being right is more important than being positive. I’d never want to take an incorrect positive stance.

Haters Gonna Hate

Hating clouds your judgement. People are at their worse (and illogical) when they’re offended and outraged.

M.G. made his mark by making the Apple bears look like fools. While most were writing about “Peak Apple”, M.G. saved their claims as claim chowder. When their foolish predictions were proven incorrect, he call em out. Yet, here is M.G., three years ago, incorrectly claiming (by nearly 500mm users) that we reached Peak Facebook.

Gruber, Siegler and Constine all took bearish stances on Facebook the last couple of months. I decided to go against the grain and defend them. As Facebook’s latest earnings report shows, the media once again overreacted.

And there you have it, my negative take on negative takes. M.G. is right, stick to being correct first and foremost, but there is too much positive going on in this world to focus on the negative. Negative bias appears stronger than Positive bias. Those who hate tend to get it wrong.

As I write going forward, I want to concentrate on the following. Write about what I know. If I don’t have anything good to say, I won’t say it all. I’ll find something else to cover. Put your money where your mouth is. If I write positively about a company, I should own their stock. And finally, write using a voice. This last part, the most important, is also the toughest.


In Defense of Facebook

Posted: March 24th, 2018 | Author: | Filed under: facebook | 1 Comment »

The Criticism

Facebook’s in the hot seat. Facebook is catching heat for the way a third party used Facebook data. Cambridge Analytica used data from a Facebook connected app in 2015. This app allowed a developer to harvest data from the friends of those who signed up. This gave them information about 50 million people. Names, occupations, check-ins, posts and more. The public sentiment is that it’s wrong for a company to allow anyone to hand over your data to a third party. Your friend should not be able to do so. Note: Facebook stopped allowing third parties to grab friend’s data in 2015.
 
It’s believed Cambridge Analytica used this data to help the Trump Campaign. Cambridge Analytica used the profile data with other data to create psychological profiles. They believed these profiles allowed them to better target political ads.

Facebook Is Not Alone

 
Context is key. Although it doesn’t justify being loose with data, Facebook is not alone. Apple via iOS’s “Allow Access to Contacts”. Google via Android access to Contacts and Google+. LinkedIn. All have allowed developers access to their friends’/connections’ information.
 
There are companies who have created large databases of our information up for a price. FullContact is a leader in this space. Use their API here to find out what they know about you.

Theories on Public Reaction

Despite the lack of evidence that this targeting was effective, the public is furious. Despite other companies allowing people to share their friends information, Facebook appears to be singled out. I’m trying to put my finger on why now and have some working theories.

Google vs Facebook

Google Search helps you find things. It’s a utility. Facebook is a community of people. Communities like Facebook elicit emotions and sometimes these emotions are negative. When you read hate spewed by a distant friend, you associate that emotion with Facebook. Facebook can be a magnifying glass on your community, and it allows you to see the warts.
 
Facebook is also a mirror. Facebook can be addictive. It makes it easy to see you may care about what others think about you more than you care to admit. Instead of focusing the energy on improving, many choose to blame Facebook.

The Trump Connection

The Trump association to the public outcry is hard to deny. Obama’s campaign’s use of friend’s data has not caused an uproar. Obama’s campaign did not violate Facebook’s Terms of Service. But the app did use data that the “friend” didn’t approve of. Like many things connected to Trump, his association exasperates the public reaction.

Myth vs Reality

Myth – Facebook sells your and your friends’ data
Reality – Facebook does not sell data. Facebook sells access to advertise. Facebook no longer allows third-parties to have access to your friends’ data
Myth – You are the product
Reality – Facebook must serve their users. Without the 2 billion users, there is no one to advertise to. Zuckerberg has proven he is in it for the long haul. Zuckerberg will continue the balancing act of pleasing the 2 billion users. Not to mention the media, governments, businesses and advertisers.

Google, of course, poses similar threats to the journalism ecosystem through its own digital advertising industry. But Googlers can also make a strong case that Google makes valuable contributions to the information climate. I learn useful, real information via Google every day. And while web search is far from a perfect technology, Google really does usually surface accurate, reliable information on the topics you search for. Facebook’s imperative to maximize engagement, by contrast, lands it in an endless cycle of sensationalism and nonsense.

– Matthew Yglesias, Vox

Myth – Facebook has no value to the spread of information. Facebook focuses on maximizing engagement.
Fact – Facebook provides a platform for discourse. Those posting “Fake News” may learn from the hive.
 
Facebook may have focused on maximizing engagement in the past but no longer. Zuckerberg has said the new goal is “to make sure time spent on Facebook is time well spent.” Zuckerberg understands users will leave if he maximizes engagement in the short-term

Facebook Regulation

Facebook is a public company in the United States and used all over the world. Facebook is under SEC, FTC, EU and many more regulations. Will new regulations form that will affect Facebook? Yes. This has always been the case. The fear the market is having now about regulation seems irrational. Facebook makes money by allowing targeted advertising. Facebook does not make money by selling (or giving away) data.
 
Regulation as a response from this news may make Facebook stronger. As we’ve seen with Cable regulation, regulation can create a cycle that makes it more difficult for startups to challenge an incumbent.
What type of regulation makes sense to protect user data? Governments will most likely demand tighter control of user data. This may mean no exporting of data. Less data portability makes it harder for an incumbent to bootstrap their service using Facebook data.
Incumbents will have to spend money and time to meet any new regulations around user data. Facebook has the money and resources to do this easily.

Facebook Valuation

Facebook’s PE (price to earnings) is 25. In comparison, Google’s is 31, Microsoft’s is 26 and Amazon’s is 352.  Compare that to their growth rate the past ten years. Facebook’s revenue growth rate per year has been 80%, Google’s 24%, Microsoft’s 7% and Amazon’s 29%. Facebook is growing quicker than its peers yet the market is valuing its potential lower. The S&P 500 has a PE of 25.  Is Facebook’s growth going to be the same as the S&P 500 like currently valued? There is sentiment to back up this valuation, and sentiment alone. Sentiment and reality aren’t always connected.
 
Facebook’s core business has continued to grow like a weed. Instagram continues to grow and make revenue. WhatsApp and Oculus provide little to no revenue but have great potential. With a PE at 25, it’s as if the market values these assets at 0.

Bottom Line

Facebook discontinued the level of access that caused this leak in 2015. There is no evidence this targeting affected the election. The public outcry is not without merit but an overreaction. Few will #DeleteFacebook and those who do will come back or increase their Instagram use.
 
Facebook will continue to be a lightning rod for criticism. Facebook will continue to improve their PR game. People will continue to use Facebook. Facebook will continue to grow, make more money and be more of an influence on society. Zuckerberg will continue the balancing act.
Note – I own Facebook shares and I’m bullish…if you can’t tell 🙂

 


Keep Calm and Snap On

Posted: August 18th, 2017 | Author: | Filed under: facebook, Investing, snapchat | 1 Comment »
Keep Calm and Snap On

Keep Calm and Snap On

 

Snap has released their Q2 results. If you trust the pundits, it was “another failure on a long, downward path for the social media company.” Impatient journalists and those on Wall Street seeking the quick buck aren’t happy. The buy-and-hold types have a lot to be happy about.

The Good News

  • Daily Active Users grew 21% year-over-year from 143 million in Q2 2016 to 173 million in Q2 2017. An increase of 30.5 million users. For the quarter, DAUs was up 4.2%, adding 7.3 million users.
  • Average Revenue Per User grew 109% year-over year from $0.50 to $1.05. ARPU increased 16% over Q1 2017 when ARPU was $0.90.
  • Total revenue grew 153% year-over-year and up 21% from $149.6 million in Q1 revenue to $181.6 million.

Snap is growing in every way an investor would like (although not at the pace the greedy would like to see). The real story is the product evolution. Snap released 16 versions of Snapchat in Q2 compared to Facebook’s 6 releases. Not only is Snap moving fast with quick releases but some of the releases had massive features. Snap Map, a way to see where your friends are and what is going on at specific locations, was released in Q2 and well received. There has been much written about Snap being copied but Snap moves too fast. You can’t copy their soul.

Misunderstood – $FB vs $SNAP 166 Days Post-IPO

Snap isn’t the only tech company that was underwater 166 days after their IPO (the day of this writing). $FB IPO’d at $38 and closed down 42% from the IPO price at $22. $SNAP IPO’d at $17 and closed down 23% from the IPO price at $13. The $SNAP doomsayers emphasize the risk of losing top talent when the stock temporarily underperforms. $FB was able to weather a tougher storm than $SNAP is going through. If an employee is swayed to leave by short-term stock swings they are not buying into Snap’s potential like they should. They don’t get it, just like a lot of those on the Street.

After Facebook’s first two earnings reports the Street continued to be concerned about mobile monetization. Facebook had just started their mobile monetization efforts and the rewards were inevitable. This is similar with Snap. Some want revenue to grow quicker than it is but Snap just started to monetize. This will take time.

Analysts continue to speculate on User Growth, Revenue and Profit/Loss despite lack of guidance from Snap. Snap will “miss” these numbers and the market will respond (in the short-term). This is because Wall Street doesn’t understand Snap’s User Growth will not be like Facebook’s. Snap is for the savvy, smartphone owning, high speed bandwidth users. Facebook, with web apps, mobile apps on every platform, “Facebook Lite” etc, is for everyone. Snap is unlikely to have the 1.35 billion DAUS that FB has anytime in the next decade. Snap won’t dominate the masses but it will dominate the critical 18-35 demographic for sometime.

Bottom Line

Facebook is where the puck is. Snap is where the puck is going. User Growth for Snap will continue to feel the headwinds until the rest of the world catches up with high speed bandwidth. Snap would have to compromise the product too much to appeal to the emerging markets and it’s not worth their time in the long-run. Snap’s play is to continue to evolve the most modern social media app for the young and savvy. Continue to take advantage of the latest and greatest in tech and monetize those savvy users with deep pockets.

Snap’s market cap is currently ~$16 billion. Napkin math says Snap would need to get to 200mm DAUs at $20 annual ARPU for yearly revenue of $4billion and profit margin of 25% to justify that valuation (that would be a PE of 16). Despite being 5X away from that ARPU number, those seem like a layup for Snap. Someday we’ll look back at the market’s response to these early earnings reports and laugh, just like we do with Facebook now.


Young Users

Posted: March 31st, 2016 | Author: | Filed under: facebook, Product, snapchat, Uncategorized | Tags: , , | No Comments »

giphy (2)

Old habits die hard. As you get older your mental models of the world become more rigid. You know what you know but ya start becoming closed off to trying new things.

People making products, especially products with a shitload of users, run into this all the time. As processors and cellular networks improve, new features are possible but people are stubborn, they like the way they do X and they’re not trying to change it.

Facebook, with over a billion users, has a tough task on hand. They don’t cater to the lowest common denominator but they don’t cater to their advanced, or power users either. This means Facebook doesn’t release the most advanced product they can, Facebook makes concessions so they can release a product that will be widely used.

Snapchat, on the other hand, is doing an excellent job of capitalizing on bandwidth and smartphone improvements. “Stories” – a mixture of photos and videos that users create using the editing tools Snapchat provide are a perfect example of this. When Facebook came out, sharing videos was a pain in the ass, it was slow and cameras weren’t readily available. People form a mental model around what Facebook is as they use it and when things change it becomes difficult for companies to break out of the box their user base sees them in.

Facebook has done a great job pushing against that tide and have made huge inroads with videos, some say they’re even surpassing youtube, but taking a video of yourself and uploading it to Facebook is not the ubiquitous behavior you see in Snapchat.

Snapchat has a much younger and more open minded user base and this allows them to be more aggressive with their product. When Snapchat Chat 2.0 was released on 3/29 I was curious if they were going to push the envelope in the chat game. Sure enough, they delivered.

The chat game is crowded, as I pontified on before. It’s hard to make inroads but one of the ways to get started is to piggyback on your social network’s user base. Unlike Facebook and Instagram that have public ways of giving props, Snapchat lacks this which encourages users to send a chat if they like a Story or have something to say. It’s funny because, like the name implies, Snapchat started off as an ephemeral chatting app, evolved into a Social Network and is now getting back to its roots and beefing up its chatting abilities.

It’s one thing to release cool features it’s another to have them be used. At 33, most of my friends will be reluctant to embracing the new features. The majority in my age group insist on using feature-poor iMessage or SMS. Luckily I’m on the older side of Snapchat’s user base. Snapchat Chat 2.0 will be immediately embraced by their users. For whatever reason I find the stickers lame (too old?) but I look forward to seeing my (younger) friends live stream, create small gif-like videos, annotate em with Snapchat’s editing tools, audio notes and more.

 


Yentas, the Messaging Gold Rush

Posted: January 19th, 2016 | Author: | Filed under: facebook, messaging, Product | Tags: , , | 1 Comment »

yenta2

We’re all a bunch of yentas and inventors from Samuel Morse to Alexander Graham Bell to Brian Acton (WhatsApp) have made a ton of money making it easier for us to chit chat. Communication is a time-tested gold mine that’s changing with the rise of new paradigms (like smartphones). With so much at stake, we’re experiencing an intense battle between all sorts of players vying to solve our messaging needs.

To name a small sampling ya got iMessage, WhatsApp, Facebook Messenger, GroupMe, Line, Viber, Kik, Tango, Skype, Slack, Google Hangouts (Gchat), Tencent QQ, Snapchat etc etc etc. They all have different twists to them but the general use case is the same: help people directly communicate.

These players differentiate in a few key ways:

Communication styles is the first way these messenger services start to differentiate. People like to communicate differently depending on where they’re at and what they want to say. You have short text (SMS-style), longer texts, pictures, videos, gifs, voice, ephemeral messaging, and who knows what will be next…VR videos?

Cross-platform is a big differentiator in the messaging wars. Many of the newcomers are smartphone only (iOS and Android generally). Skype crosses a number of platforms (Windows, OS X, Windows Phone, iOS, Android, Blackberry OS). This cross-platform support ensures the vast majority of computer and smartphone customers can use a messaging service conveniently on the device they have on them.

Interoperability is the next decision all of these messaging services wrestle with. The majority of the popular ones are single-protocol –i.e. ya gotta be on Google Hangouts to talk to others on Google Hangouts. When you go multiprotocol, you allow your users to talk to people outside of your messaging service.

Deciding how to approach each of these areas of differentiation can be a challenge, and implementing too much can slow down your ability to do anything cool. Supporting multiple communication styles adds complexity to both the code base and the UI. More communication styles limits what platforms you’ll be able to support with parity. A cross-platform strategy adds complexity to the development process — instead of building a feature once you build it per platform. Supporting multiple platforms can affect your ability to support these features and can result in a “lowest common denominator” type effect if you want a consistent user experience. Same thing with interoperability, you ultimately hinder your ability to support numerous protocols well (e.g. if you want to use SMS, you’re limited to 160 characters).

In the messaging game, getting better distribution (cross-platform, interoperability) makes it harder to do cool stuff. If you want that premium, cutting edge experience, you go for the 80/20 rule when it comes to cross-platform and not worry about interoperability.

Facebook-logo-png-2

Of all these players, I’m digging Facebook’s approach. They have two massive horses in the race with WhatsApp and Facebook Messenger, which allows them to try out different strategies that will capture different segments of the market. WhatsApp is all-in on the cross-platform strategy and removing the $1/year fee removes the remaining friction there to get on WhatsApp. Sure, the experience won’t be great and definitely won’t be consistent for all users, but WhatsApp will continue to capture the low-end market where people want a cheap way to chat.

Facebook Messenger is going for the premium experience and taking the platform route. It’s single-protocol, it’s got a web presence and is on the major mobile platforms, but it’s focusing on the cool things. More importantly, Facebook is empowering other devs to do cool things within Messenger.

In the messaging space, being the best of breed might not mean squat. The network effect is too important, you go where your friends are. I love Facebook Messenger but I gotta admit, I’m a iMessage, Google Hangouts, email, SMS (non-iOS users) Facebook Messenger, Skype, WhatsApp kind of guy, in that order. I may like Facebook’s strategy the best but I go where my friends are.


Has Facebook’s Social Network Peaked?

Posted: April 1st, 2015 | Author: | Filed under: facebook, Investing | No Comments »

The big question mark in my mind is if Facebook can monetize the new Facebook Federation fast enough to counter the eventual decline of Facebook, the social network.

To be clear, as the network approaches 1.5 billion active users, it’s not going away any time soon. But I’d bet on a slow decline of the main product starting sooner rather than later. (Who knows if they’ll ever admit this though since Messenger users are technically Facebook users and many people I know have Facebook open on their desktops just to use Messenger.)

The Facebook Federation

MG did a good job avoiding the tiresome claim that Facebook the company would die, but did decide to vaguely predict the peak of Facebook, the social network.

Is Facebook diversifying and splitting up the Social Network a bit? Yes. Has Facebook, the Social Network, peaked? Not based on anything objective that I can think of – total users, daily active users and money per user.

Screen Shot 2015-04-01 at 1.33.45 PM

Facebook Daily Active Users

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Facebook Average Revenue per User

The numbers tell a much different story than MG’s gut feeling. Daily Average Users continues to grow, dollars per user also continues to grow and at an impressive rate. Although there are 1.5 billion people on the network already there are nearly 3 billion people with access to internet. There are also 4.2 billion people without access to the internet, which Internet.org is attempting to address. There are plenty of people that Facebook can go after to grow the network. Law of Large numbers be damned.

Perhaps MG has experienced Facebook fatigue, his usage of the Social Network may have peaked but the numbers do not indicate it’s peaked for the rest of the world.

Based on the post, it appears MG feels Facebook’s diversification is what signals to him the Social Network has peaked. Google and Amazon have also similarly diversified but I believe their cash cows – Google.com and Amazon.com are far from their peak.

The Social Network will evolve but I believe it’s far from it’s peak.

Disclaimer – I own $FB, $GOOG and $AMZN