Archive

Posts Tagged ‘social media’

Groupon vs Facebook vs Google: The Rush for Multibillion dollar valuations.

April 5, 2011 13 comments

Back in the 2000s, Google was the darling of Silicon Valley. Social networking was at its infancy. It was fragmented with Friendster, MySpace and a few other niche players. If we imagine ourselves a couple of years back at the pre-Facebook era, Google was so dominant that, to the ‘uninitiated’, it was synonymous with the Web. (Some of you nerds might be saying, “Wait a minute, I was thinking AltaVista, Excite, Lycos, Yahoo!, FTP and Bulletin Boards on my superfast US robotics 14.4kbps modem”. I said a few years back, not freaking time-travel.)

Google, the Pre-FB years….
I, like most people then, did not think Google would be eclipsed quickly. Instead of creating a portal-like destination on the World Wide Web, Larry Page and Sergei Brin, both Stanford PhD dropouts, sought to organise and index the World Wide Web. Due to the explosion of information on the web, it was originally a cluttered place and users had no real way of finding the information they wanted with ease. Page and Brin devised a method of ranking search results by relevance. How would they know what was relevant? Bearing in mind search engines were not new then and Google was not the first, in fact far from it. How would Google distinguish between quality information and junk? Page and Brin reasoned that by ranking the results of the query in the order of the number of links linking back to that page, Google was presenting its users with results that other website/users have referenced – therefore the more ‘linkbacks’ a site has, the more relevant it would be. Hence the higher it would rank. It made perfect sense, as quality information would attract more people. Sort of like the same concept with academic citations and ‘wisdom of crowds’ or crowd sourcing. (Disclaimer: SEO has evolved greatly since those early days.)

Google’s superior search ranking algorithm helped direct users to the right place. In exchange for that free search service, Google opted for text- (only) based advertising that relates to the user’s search query – Pure Genius. Google went against the prevailing trend of banner advertising, flashy images and animated GIFs that were quickly polluting websites during the early days of the World Wide Web. So they built a money-generating machine and, for a long time, most people were unaware that Google was in fact the largest ‘advertising’ company in the world. The rest is history. Google’s clutter-free website still stands today as a testament of how successful their model is.

Facebook’s exponential growth
Along came Facebook. MySpace and Friendster already had millions of users. In a business of critical mass, that can and often results in an unassailable lead. Facebook kicked off with the premise of ‘exclusivity’ and relevance. In order to sign up, you first had to be a member of that particular school/college with the right email domain address. It became a platform for its users to find out what their classmates or dorm friends were up to. I mean come on: ‘Pokes’, ‘Relationship Status’, ‘Sending Sheeps’, and ‘Status Updates’ (newsfeed was to come later) – that was pure genius on Zuckerberg’s half!!!

While most of my friends were still on Friendster and MySpace (you know who you are), I had already defected to Facebook. Two years ago, I wrote about Facebook – why it deserves its valuation and more and why Google should be afraid. Everything I said has come to pass. For reasons as to why Facebook’s advertising monetisation is superior to Google’s read my earlier post.

 

Facebook really only came to dominate our daily tech news in 2008, when it crossed the 100 m user threshold. At the same time MySpace (which Murdoch paid $580m for in 2005 – Ouch!) was at its peak. Murdoch even tried to play a white knight in the Microsoft-Yahoo! struggle by proposing to merge MySpace into Yahoo! and save Yahoo! from Microsoft as long as Yahoo! agreed to value MySpace at >$10 billion. (Yahoo! was not that stupid.)

Facebook’s valuation grew exponentially. In terms of the sheer speed of its growth as a tech company, Google was eclipsed. I’ll be honest, I never thought Google would be unseated so quickly. I knew it would be unseated maybe 10-20 years down the line, but NOT in such a short space of time.

Groupon
Just when I thought the rush for multiple billion dollar valuations cannot come any faster than Facebook, along comes Groupon. I mean c’mon: talks of a $25 billion IPO valuation within two years?? I am just in awe. Like Facebook, which fended off a $1billion takeover from Yahoo! in its early days, Groupon turned down a $6 billion offer from Google when it was two years old! (Groupon almost failed before it stumbled on its current business.)

Groupon is a spinoff from The Point, which started life as a fund-raising site. It used a “tipping point model” whereby a threshold amount has to be crossed before there was any ‘deal’ – a feature that forms the premise of Groupon today.

You know why I like Groupon more than I like Facebook? Because of its simple Win, Win, Win business model. What is the Win Win Win I am on about? We first have to dissect the already simple Groupon business model.

You sign up to Groupon and you receive daily geo-located deals that are offered at cutthroat prices. The offers only last for 24 hours. Advertisers can afford to slash their prices on Groupon because of the volume of business it can generate in return. You on the other hand leverage your buying power by joining forces with hundreds or thousands of other buyers made possible by Groupon. In short, Groupon provides economies of scale to both sides of the value chain – Buyers and Sellers. Groupon magnifies the retained value for everyone.

I mean, how else would a freaking tiny Fish Pedicure business in London generate over 2000 paying customers in 24 hours? Sure, Groupon takes a cut. But it is great business for the vendor and great for the customers because they pay a fraction of the original price. Groupon has leveraged the power of economies of scale for the individual. Groupon users collectively have the purchasing power akin to large businesses and they enjoy a huge discount in return. Customers are happy with the bargain. Groupon is happy for taking a cut of the revenue. The businesses are happy because they enjoy more volume than they can cater for.

It is a Win for the consumers, a Win for Groupon, and a Win for the supplier (advertising business in this case).

Now that is a winning business model! How many business models can actually proclaim that? Look around you, how many businesses can claim that they are not ripping their customers off AND not twisting the arm of their suppliers AND instead are beneficial to them both AND YET still make decent money for itself?

It is the simplicity and effectiveness that amazes me.

In addition, Groupon takes this further. It encourages you (the user) to help it advertise by giving you credits towards your next (already wholesale discounted price) purchase. Once you have bought a discounted item/service from Groupon you have the chance to get your friends in on it. And with every friend you recommended that makes a purchase, you get free credits. It is an ecosystem that feeds on itself. With enough credits, you literally get freebies!! This is as close to a free lunch that you will get on Wall Street or any street for that matter.

Like Facebook and Google before it, “We want to know what our friends are doing”, “We value their recommendations more than plain vanilla advertising”. This emerging theme of “wisdom of the crowds” appears dominant across all three Google, FB and Groupon business models.

Financials
And now for the financials… Facebook already has a $70 billion valuation if Secondmarket figures are to be believed. But Groupon is talking about a $25 billion IPO this year at just two years and three months old!!

I will spare you the financial modelling details on how analysts justify those figures. One thing for sure is that the assumption of revenue growth must keep pace with projections. According to WSJ, Groupon is “projecting that the company is on pace to make $1 billion in sales faster than any other business, ever!”

Are we talking about a mania? A tech bubble all over again?? Well, it is always and only a bubble in hindsight – never in foresight. Because given what we know now and based on the funnymentals (uh I meant fundamentals), we would avoid the bubble if we knew it was a bubble! DOH!

From the tulips mania in 1600s to the South Sea bubble in 1720, up until the housing bubble in the 2000s – it was never a bubble until it burst. To quote the greatest stock operator that ever lived –

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again” – Jesse Livermore 1877-1940.

I have been raving about Facebook’s valuation. However, I think that Groupon might be slightly ahead of itself (just a tiny bit).

One thing that concerns me with Groupon is the fact that LivingSocial.com is snapping right at its heels. Although you could argue Facebook came from way behind to trounce MySpace. Secondly, perhaps more importantly, unlike Facebook, Groupon does not have that ‘stickiness’ factor. I would hazard a guess that most of you who read this probably spend more time on Facebook than any other site on the Internet (including Google)!!! Groupon on the other hand, you get in, get your shit and get out.

I would go way out on a limb here and say Groupon’s rush to IPO is to cash in on what they ‘know’ is a replicable model. In other words, Groupon, LivingSocial.com and other social buying sites are cannibalising each other (even though they have created this new ocean for themselves). Plus, both Groupon and LivingSocial advertise on Facebook, thus driving up ad prices, which will only benefit Facebook.

Strategy wise, Facebook seemed to have really positioned itself to capture and monetise the migration of our social lives onto the Internet. Then again, Google’s success was a black swan, so is Facebook’s and now Groupon’s. I look forward to the next big idea…

UPDATE: I have always maintained that the next big tech company will be one that facilitates the migration of our lives onto cyberspace. When pundits were saying that Facebook was just another Friendster, MySpace or Bebo and MSFT overpaid, I knew they were wrong. I argued that if Zuckerberg wanted he could literally incorporate Skype, EBay or payment services into Facebook. Facebook can do to Amazon and EBay what Apple did to everyone else. Like Google’s vision statement of organising the world’s information, I think Facebook is quietly positioning itself to organise our digital social lives. The latest upgrade on Facebook takes us one small step closer. It has combined chat with email to facilitate our evolving online communication preference. It has a history of all our chats, emails, places, friends, status updates and whatever you care to put on it. It literally owns your social life! Furthermore, Zuckerberg is young and savvy enough that he does not have the corporate America image (yet), so if China friends Facebook all bets are off…

Update 2: As of August 2011, I have now turned around and think Groupon’s biggest mistake is to turn down an offer from Google. I would short Groupon all the way to zero if they ever went public. Great concept, poor execution.

 

 

Advertisements

The Use of Social Media in Academia (or the lack of it)

November 5, 2009 Leave a comment

Researchers have a lot to learn from Web 2.0 enabled Businesses

As an early adopter of technology, I am always one of the early users of new tech products and platforms such as Facebook, Twitter, Skype, Gmail, ICQ (yes I know), IRC (don’t even get me started). However, I never really appreciated the power and extent of social media. I even deactivated my Facebook account at one point, but that is another story. I recently gave a keynote speech in the Outdoor Advertising Forum at the SIM Expo in Abu Dhabi. The Social Media Forum, which was a parallel track, was taking place one day earlier. I had the pleasure of listening to speakers including some heavy hitters in the social media world. Amongst them are: Andrew Bleeker The New Media Director, President Obama Inaugural Committee and Director of Internet Advertising, Obama For America, USA, the Managing Director of Myspace-Germany, Google and Yahoo! executives. It was enlightening! Needless to say, I now see the benefits of social media in a totally new light and in multiple perspectives (and I reactivated my Facebook account).

Many of us take our modern technology for granted, little realising just how much we depend on it. Yet we do depend on it. While we may not all be eternally checking Facebook for the latest photo or tweeting what we are wearing, we are certainly all able to take advantage of Web 2.0 technologies. For example, checking the Internet for cheap holidays, car insurance or even ordering our shopping have become wholly embraced by modern society; many of us couldn’t even fathom returning to a time without it.

Yet despite this, as David Stuart explores in a ‘Research Information’ article,[1] not all areas of society seem so willing to accept Web 2.0.  The area of scholarly publishing, in particular, seems reluctant to utilise it to its full potential, despite the fact it offers unparalleled potential for existing researchers to show the world their ideas and creations, and younger upstarts the access to an almost infinite wealth of information. The open-data highway allows the full study process to be seen globally, and other researchers can comment upon the results. Yet this group has almost entirely overlooked the tool of Web 2.0, with the exception of the more adventurous providing largely ignored blogs and basic websites that give an overview of a study and its researchers. This is most odd, especially when one considers that videos can be uploaded, daily blogs – and vlogs – can be hosted online and potentially a large gathering of students and the public could form.

It is incredibly perplexing, especially considering that the Internet has developed to such a point as to be useful to everyone. There now exist academic websites with large scientific publishers backing them, such as citeulike.org (sponsored by Springer) and connote.org (part of the Nature Publishing Group). For the researchers who don’t want such credentials, there are social-networking academic sites like academia.edu and myexperiment.org which allow academics to share their research methodology and results with other users. And, of course, there is the fact that the large medical journals like the British Medical Journal are online. Such journals also offer fellow science minds to comment on the work, explaining its strengths and weaknesses and forming a network of scientist contacts. So the issue is clearly not because there is nothing on offer to academics.

Despite the potential, and the existing webpages and journal sites, the response from academics has been largely underwhelming. Web traffic website alexa.com shows that as of yet there is no single academia-based website that is universally popular. Perhaps predictably, the most popular ones are those with the scientific-publisher backing; this is down to the fact that they benefit both teams and solitary researchers. Even then, their added popularity over the others does not mean they are generally popular and in fact they are not ‘big’ websites at all.

This is perhaps not as surprising as we may initially think, though. Certainly, it is not an accidental result. Nature Publishing Group ran a voluntary open peer-review trial and the vast majority opted out; of those that did partake very few comments were received.  Furthermore, institutional repositories have admitted that persuading academics to submit their research papers is incredibly difficult. It is as though they want to exist in an enclosed world, researching for their own purpose and not wanting others to see it. It seems that while all academics want to benefit from open access, they do not want to include their own in the databases.

It is important to realise that not all academics are so reluctant to embrace technology. Indeed, many are staunch advocates and see it as a great tool. But the numbers are few and it is the rejecters that are the clear majority. Perhaps one reason is simply because the traditional research paper is still heavily emphasised; it is the holy grail of academia. Maybe it is this preconceived notion of what it is to be a serious researcher that causes hesitation in the field, the idea that embracing technology would be going against the long-held tradition of research paper and submitting to journals. And while their main argument will be that this has worked well in the past, it is overlooking how times have moved on and just how wide an audience they could have if they succumbed to the Web 2.0 revolution.

But maybe the root cause is simple fear: scholars worry that they will become victims of plagiarism, and they possibly believe that with untold millions of people using the Internet at any given moment they are at extra risk of this happening, and they still think books are more ‘academic’ than the Internet. With this point in mind, the Research Excellence Framework (REF) should place more emphasis on the necessity of webometrics, in conjunction with bibliometrics. This may provide a much-needed push for the academics to embrace the technology, without leaving the current methods behind. It will be a long process, though, and the largest change in attitudes will result from the next generation coming forth from their technological upbringing of social-networking to drag the academia world into the 21st century.


[1] http://www.researchinformation.info/features/feature.php?feature_id=236

 

%d bloggers like this: