More Fallout from the Zuckerberg Files

Should the unintended consequences that emerge in the course of a company’s evolution be a primary concern of management?

Is the exponential creation of shareholder value still the overriding force when a wildly successful company grows even faster than its own outsized vision?

Are the naive philosophical aspirations of under-experienced entrepreneurs a get-out-of-jail-free card from the ramifications of otherwise noble intentions?

In answering these and similar questions, is Facebook somehow a different animal?

These are some of the issues examined by a new Frontline documentary recently aired on PBS that frames a deeply damning critique of Facebook and its leadership team. While purposefully steering past the warm-and-fuzzy aspects of Facebook’s innocent exchanges of family photos and recipes, The Facebook Dilemma dives into Facebook’s structural roots.

The critique presented is strident but not unfair: Why didn’t Facebook as an enterprise heed the many early warnings of the pervasiveness of its influence and more strongly consider mitigation strategies, and now that the political chaos has been unleashed, is there any possibility of getting the bad genie back in its bottle?

When Facebook launched, founder Mark Zuckerberg braved a bold and curious global community manifesto:

“Our mission is to make the world more open and connected.”

That sounds good on the surface, and it sounded so good to so many of Facebook’s early employees that they rallied around the life-affirming purpose. They believed they were building a platform toward the betterment of humanity.

Simultaneously, the size of the audience embracing the platform created a media opportunity unlike any other in history. No company has ever thought about achieving monetization of a billion (heck, now two billion) individuals. To make sure no money was left on the table, Zuckerberg hired Sheryl Sandberg from Google to build that side of the equation.

The inherent conflicts soon became apparent. Facebook claimed to be a technology company, not a media company, even though its business model was selling advertising, which is what a media company does. To be the most valuable media company it could be, it needed two things: the world’s most in-depth data warehouse, and a rule set of utilizing that data with the fewest possible restrictions.

As a business, this all made sense. As you can see every day in the public company’s enterprise value, it worked beyond all expectations. The problem remains, it was initially fueled by another slogan:

“Move fast and break things.”

This ethos is not unique to Facebook. One of the tenets of Silicon Valley is to drive value from what is called an MVP, a minimum viable product. The point is to get a functional offering in the market quickly, find where it is successful, worry little about its failings, and start to iterate while building cash flow. Success is defined first by penetration (audience reach) and second by monetization (lifetime customer value). When things go sour, startups try to fix them, but because success is winner take all, most teams unapologetically expect there will be a lot of sourness to sweeten.

The question Facebook has encountered is unsettling: Is its very business model antithetical to fixing the byproducts of its success?

The Frontline documentary illustrates many of the ways Facebook has gone sour. Arab Spring. Fake news penetration in the 2016 U.S. presidential election. Russian intervention in media buying in the same election and outrageous exploitation of privacy by Cambridge Analytica. Violence in Myanmar.

Even Roger McNamee, a celebrated early investor in Facebook, took it upon himself to act counter to his own financial interests and ask Facebook management to step back and rethink the implications of its mindset. They did not heed his warnings. They were either too optimistic, too idealistic, too hooked on winning, too greedy, too ambitious, too arrogant, too busy to see the light of day, or a combination of all of those.

Facebook management has been reactive on all these fronts and done what it can to play whack-a-mole as crises emerge. Executives and managers there admit repeatedly they have been “too slow” to address the ramifications of their global viral adoption. The “too slow” apology parrots Zuckerberg’s appearance before Congress. It was a well-played chess move. It reveals no ethos of a fundamental commitment to a proactive playbook of innovative solutions. It’s a cost center, not a profit center.

Traditional media companies work under the direction of a qualified, responsible editor. When a journalist makes a mistake, the media brand runs a retraction. Facebook doesn’t want to be a media company, and it doesn’t want to be an editor, but any way you slice it, the algorithm that sits under News Feed is a robotic editor more likely to show you what it thinks you want to see than what is true or real. Then a perfectly targeted ad is inserted. That is how the game has been won at Facebook. It’s a winning formula. Any risk to changing that is far riskier to the company’s stock price than a few incidents of political unrest.

The real question remains: If Facebook’s mission requires that the company remove most obstacles to the free flow of information, the result of which is to facilitate unfiltered speech, the result of which is chaos, can it both stay true to its values and smooth over the chaos? And if the company is selling some of the most valuable ads in the world because the vast archive of privacy data is what makes those ads click, how can it impose limits on the interests of its ownership?

It’s a greater good question, one that capitalism believes is best left to the free market to solve, but in this case, it’s almost impossible to see how that gap is bridged.

Zuckerberg likes to say that Facebook is an “idealistic and optimistic” company. He said it when we was hauled before Congress to address the breach of privacy trust. When he was a younger man, it was a quaint proclamation I could have believed were it not for the true origin of Facebook as a college hook-up site. When he says it today, it sounds cynical. People who work for him might still be drinking the Kool-Aid. He’s selling advertising, justifying it, and trying to dodge regulation. To wit, he’s doing his day job as CEO.

Part of the problem might be social media itself. Its greatest strength is its greatest weakness. While pure democracy of publishing without a filter is liberating, audiences can easily be misled and mislead each other in chaotic exchanges of raw opinion. Add in bad actors buying access for covert agendas and the danger can become uncontainable.

Shortly before Zuckerberg testified earlier this year, I wrote a post entitled Is Facebook the Next AOL? At that time I wasn’t sure. Now I am. The byproducts of Facebook are so pernicious and likely unresolvable, I do think at some point the vast audience will abandon the platform. The cost of trading one’s privacy for family photos and recipes is too high. I don’t know when that will happen, and Facebook has a ton of cash so it can last a long time, but I expect the devoted masses will eventually exit their loyal addiction in self-defense. I don’t think this invention can adequately address the inherent conflict of interest it has created to thrive. Creative destruction will replace it with a better, more respectful product.

A brand is a promise. When trust is eroded, a brand dies.

I remain active on Facebook, but the broad notion that the world would be better as an open and connected place has always troubled me. Maybe it’s because I grew up as a kid learning of Nixon’s enemies list. Privacy to me always seemed to matter. Today’s political climate almost makes the Nixon era seem welcoming.

I’ve long subscribed to the notion that technology is advancing much faster than our ability to understand its implications. I saw that in my early career with the addictive nature of computer games. We see it all around us with people’s attention glued to mobile screens as they bump into each other and fall into fountains. We don’t really know what this stuff is doing to us. We buy it and use it and another tech company goes public.

Silicon Valley moves fast and breaks things because it’s good for business. Collateral damage is expected and as long as a company survives and grows few real tears are shed. Expecting it will change is unrealistic. It’s a form of realpolitik. Expediency wins over ideology because of the vast money at stake.

Since you’re probably staying on the social media playing field indefinitely, protect yourself. No one else will.

_______________

This article originally appeared on The Good Men Project.

Image: Pixabay

Advertisements

Whose Ad Is It Anyway?

Investors and company executives are cheering of late for the resurgence of Facebook above its IPO price from about a year ago.  Mobile growth is the story at Facebook, and many are pleased with the associated revenue progress.  I wish everyone well tallying their riches.  I am still not sure how much significant value is being created, particularly as it applies to the company’s core advertising business.  And hey, I was a very early believer in this business model and all the promise it held as the definitive interactive media platform of a generation — kind of like the first time as I kid when I saw a movie on HBO, a complete movie on television with no commercials, I just  knew something good had happened and someone was going to get rich as a result.  Uh, that was for taking the ads away.

If you are active on Facebook, particularly mobile, you probably weren’t surprised by the earnings improvement.  You’ve seen the ads — oh, have you seen the ads — you can’t miss them, right there in your news feed, as intrusive as the interface mandates.  Recently an ad for a salacious French maid’s costume was offered to me with the following copy — pretty much full screen — and I was kindly given the opportunity to Like the page:

“This five-piece At Your Service set from Dreamgirl comes with a sexy babydoll with apron, maid’s hat, ruffle back thong, and feather duster.”

Curiously this clever bit of sponsored media appeared above a friend’s timely post on racism and below a post from a financial journal I follow on how to avoid manipulated options.  I suppose under certain circumstances this might be considered targeting, but I can honestly assert I was not in the market for such an outfit, either for myself or as a gift, nor had any click stream I created left a trail for the behavioral targeters.  Perhaps they could have offered me a nice bottle of Bordeaux, which would have made sense since I am a wine enthusiast and often post articles about my favorite varietals on Facebook, and I’m guessing their database knows I have a Pinterest board on the subject of value excellence (“Good Wine, Good Price“), but no such luck.  I am a middle-aged male, heterosexual, and married, so maybe that’s the profile they sold to the advertiser.  I would guess that the CPM (in ad-speak, that’s “cost per thousand” impressions, where the M is the Latin numeral) was very, very low, offset by volume that was very, very high.  Again in ad-speak, we sometimes call that “dollar-a-holler.”  In these cases, maybe a nickel.

Just so it’s clear that I am not picking on Facebook, my friends at AOL Mail where I have maintained the same email account for about a quarter century, now offer a curious feature: After I send an email, the confirmation screen is filled with singles looking for a date.  It’s nice to see that the advertiser is not presumptuous; sometimes they offer me women and sometimes men.  The fact that the advertising delivery system is ambivalent toward my preference is unusually progressive.  It also is quite genially unconcerned that my wife continues to see my email send pages resolve to these artifacts on our shared monitor.

Note to New Media Companies, with love, from Old Media Companies: Some things have not changed, including that there are still four key constituents in the advertising equation:

1) The manufacturer or seller of products and services.

2) The ad network or agency.

3) The media delivery vehicle or platform.

4) The viewer of the ad.

For full value to be created, all four have to be satisfied by the results of the supply chain.  For real ongoing business, it is most essential that #1 and #4 are happy, so that #2 and #3 can speak to a job well done.

Let’s look at all four in the French maid and available-singles ad examples and see who is happy working backward:

4) Me: Not happy, except that it gave me an idea for this story.

3) Facebook and AOL; Happy (except if they read this post); they got paid by #1.

2) Agency or network: Happy; they found plentiful inventory in the form of my news feed and mail page, and they also got paid by #1.

1) Advertisers: Should not be too happy; they paid the bill, and I am making fun of them for it.

So the owner of the bill and the receiver of the message are not happy (#1 and #4), but the middle-folks are just fine with it (#2 and #3).  Oh, they’ll tell you they are working on it, improving their targeting technology and all that, but they aren’t losing sleep, because they got paid.  They should be losing sleep, lots of it.

There is also an implicit fifth constituent, the expanded community surrounding the nucleus of the supply chain, particularly of significance in our interconnected world of social media.  When an offer is useful and enticing, like many of the tested e-coupons on RetailMeNot, pleased customers will gleefully pass them along.  That’s free evangelism from existing fans to unlimited prospects, making ad dollars work even harder through leverage.  When ads are garbage, they are terminal, mercifully so.  In fact, bad-vertising can hurt a brand through negative association — poor word of mouth is difficult if not impossible to combat.  Wonder if your would-be customers are laughing at you?  You may not know until the community turns on you, then it’s costly to recover, or perhaps too late.

When advertising works — the right, relevant message in front of the right, engaged human being — it can be an excellent experience.  Absent concerns about privacy, you might embrace the very respect involved in not having to see ads you don’t care about.  But all this posturing about collecting intelligence on customers to deliver better leads — how come I’m still getting ads for reverse mortgages on My Yahoo homepage, which has every financial feed coming through loud and clear to tell them I’m a reasonably well heeled owner?  That page is still sold as remnant inventory (in ad-speak, leftovers) at bargain-basement prices, maybe less than the French maid costume or the singles ads.  Some money being left on the table there?  They’ll probably tell you no.  They would be wrong.

As the national dialogue on privacy invasion is reaching fever pitch, even POTUS has been dragged into the ruckus with a defensive “Don’t worry, we respect you while we protect you” mantra.  That dialogue is likely to resolve itself in the dialectic, because it is a civil rights discussion grounded in our cherished democracy.  I actually think that problem is going to get solved before the ad targeting starts to get it right, because there is too much money at stake for annoying and disrupting us that no one really wants to give back.  Like the story goes, always follow the money — the real today-money, not the theoretical long-term-value, someday-we’ll-get-this-right money.  Why would you want to do that?

Maybe I’ll just watch HBO.  The price has skyrocketed, but the shows are pretty good, and it is still ad free.  I am always willing to pay for that.

HBO Image

Built to Launch?

I aspire in this post to be among the elite—one of the few business bloggers on the planet currently not commenting on Marissa Mayer becoming CEO of Yahoo. I have never met Marissa, but her reputation speaks strongly for her. I wish her well because I always want good people to succeed, and in this case I also want to see Yahoo succeed. I hope she reads my article about Yahoo from last year that predated her last two predecessors and figures out a way to restore much-needed competition to the landscape of search. Hmm, seems I’m writing about her. Okay, enough said. Got get ’em, Yahoo! Stop.

Now my real topic for the week—not surprisingly, also about succession.

Venture investors Marc Andreessen and Ben Horowitz have been steadfast in their support for keeping Founder/CEOs at the helm of the companies they back, from early blog posts on their site that state their philosophy to more recent comments in the Wall Street Journal that reinforce their sometimes contrarian assertions. Not only do they believe most deeply in the Founder/CEO success model, they have championed multiple class shares that keep CEOs in authority with majority control even without majority ownership. Their point of view is clear, consistent, and well-argued—and thus far their financial returns in aggregate have been extraordinary. They want vision, they want independence and long-term creative thinking, and they want continuity.

I am not sure I have an absolute opinion yet on absolute power for a start-up CEO; we’ll have to see how those play out over the next ten or twenty years. I do worry that without senior team loyalty and continuity, it may not matter whether a CEO stays or goes. Teamwork is what matters in today’s intellectual property centric companies, and if your team is not stable, I wonder if your company can remain so. Surely new blood is a great infusion when parsed appropriately, but it needs to be in balance, at equilibrium with a set of players we can count on.

What about the top-tier executives, perhaps a level down, who seem to jump freely from ship to ship, following their own personal muses, particularly after liquidity gives them the ability to set themselves free? Is this good for companies and long-term shareholder value, for companies with massive capitalization that are taking on investment—public or private—ostensibly with some hope of being Built to Last?

Clearly within our pressured and fragile economy, the bonding relationships between employers and employees have become increasingly tenuous. “At-will employment” is not just boilerplate in an offer letter, it means what it says, that jobs are temporal. Employees not under contract may depart a gig when they wish without much obligation, and employers may equally freely dismiss them (to the extent those decisions are not discriminatory) without much warning or explanation. Companies are predisposed to protect earnings and cost-cutting can be a tactic to achieve those goals, the favor of which gives employees good reason to always be in the market. Although there are any number of topics I can extract from that thread and will do so in the future, that is not my key focus here. This is not about everyday turnover and the anxiety it creates, it is about senior level turnover as a litmus test for investors.

Reality is, a lot of high-profile employees in high-profile start-ups seem to jump ship early these days. I am not so sure that they are cashing in as much as their attention spans or personal desires lead them from one thing to the next. Some examples:

• Two of Twitter’s co-founders who served as CEO left the job and their day-to-day roles, although one returned, not as CEO, but as head of product. The third co-Founder also left day-to-day responsibilities.

• Facebook’s most recent CTO, who joined the company in 2008, departed voluntarily almost immediately following the IPO. Facebook also lost an extremely high-profile CFO in 2009, and a number of other prominent C-level executives have churned through in the years leading up to the IPO.

• Groupon’s former COO, a Silicon Valley veteran brought in to steady the ship, spent about a year on the job day-to-day before moving to an advisory role.

• Yahoo continues to make headlines with five CEOs in five years, although the situation here is different. The last one to leave on his own timeline was media veteran Terry Semel, who preceded the five. Perhaps more curious at Yahoo is the level below CEO, where the turnover has been even more active, voluntary or otherwise.

• Google is now being celebrated as iCEO University, for which it has reason to be proud with strong executives like Sheryl Sandberg, Tim Armstrong, Dick Costolo, and now Marissa Mayer all willingly accepting significant challenges. My sense is this is sustainable as long as founders Larry Page and Sergey Brin stay on the job (guided by the advice of Eric Schmidt), but at some point the spinning off of entrepreneurs may take a toll as it did at once great legendary giants like Sun and Silicon Graphics (also keep an eye on HP).

It is hard to fault someone with talent and wealth for leaving a position with an “old company” to tackle a brand new start-up concept. They have the creativity, they have the yearning, and they can absorb the personal risk. Yet these aren’t exactly old, mature companies they are leaving, even in internet time. If talent retention is critical to continuity and leadership is demonstrated by example, what does it say about loyalty to the “rank and file” millionaires of Silicon Valley hungry to pursue their dreams when so many of the top dogs or near top dogs are endemically antsy?

Can you build a company that is Built to Last when many of your brightest employees—especially those made wealthy with capital they can reinvest—are thinking Built to Jump? Should shareholders in emerging high-valuation private and public companies be concerned with the New World of high turnover that is largely viewed as the way things are? There is already risk enough in holding stakes at the high valuations these companies will need to grow into, but if these are essentially knowledge-based companies where the key assets go home to their families each night, how much should owners worry whether they come back tomorrow or start a new company that’s more fun? Are these companies Built to Last or Built to Launch—launch themselves to early prominence, and launch the careers of the stars who emerge from their ranks?

Retention and the war for talent are surely talked about a lot, but I wonder if these are just buzzwords now, if key stakeholders really are losing sleep over the next spun-off employee or just prepared to roll with the punches. For anyone who has ever led a company, the notion of culture is no small issue, and companies where the culture is strong have a heritage of continuity that gives them a shot at longevity. Do we now assume Creative Destruction is such a powerful force that short-lived companies are a norm, regardless of culture and continuity? I wonder, and look forward to checking the Fortune 500 again for a few more decades to see how this plays out—not to mention the long-term trend on aggregate net job creation we so desperately need for our economy to go the distance.

I am not suggesting that employees should stay past their welcome or interest level, and in no way would I ever want (or tolerate as a manager) any form of stagnation in the form of tenure-based retention or retention for continuity’s sake. The case I am trying to make is for a tiny bit of balance in an Old World concept known as loyalty—which has been very good to me on both sides of the desk for most of my years on the job. It has been said that in today’s world loyalty is between individuals, not within companies, and there is every reason to understand how that has come to be. Yet if companies are not loyal to employees and employees are not loyal to companies, can these kind of companies really be long-term investments for shareholders? Said another way, if the system and talent are not demonstrating loyalty and commitment, should investors?

Warp Factor Ten: The New Cruise Control

“Here’s a tune that’s really moving fast. When I say fast, it was recorded at 9 o’clock this morning. At 12 noon, it was No. 15. At 3 o’clock, it was the No. 1 sound in town. And now it’s a golden oldie!” — George Carlin, FM & AM (1971)

What a difference a month makes. A week. Even a few hours.

Prior to its first day of public trading, Facebook was pure glamor. Individual investors who could not get into the IPO were camped out in the lobbies of retail brokerages. Where they couldn’t get shares prior to the first day open, some were moving cash into their accounts ready to buy at the commencement of trading. We loved Facebook, all 900 million of us with an account. We may have heard a bit of light background noise about how its advertising wasn’t working all that well for some clients like GM, or whether the company was making enough strides in mobile, but few people listened. It was frenzy. We had to have it. Then it all changed.

The question is, what changed? Did the facts change? Did the market conditions change? Did the technology change? In 24 hours? Sure, there were analyst reports that didn’t find their way to everyone, but how many individual minds would those have changed, for the people who had to have it? Not many, I suspect. One Wall Street Journal story that especially caught my attention noted: “… a 30-year-old actor in Toronto, bought 15 shares of Facebook on its opening day. Before then, he had bought just one stock, yet saw the market as a place to make his savings rise in the long run. Now he feels burned.”This fellow is upset, yet his investment strategy was to own two individual stocks in minimal quantities to increase his net worth. As they say on SNL, really?

For my mind battle, Facebook was as exciting and pioneering a company before the IPO as it was after—the critical question was whether enough people considered what its stock was actually worth. We like to believe in fundamentals, until we don’t. What changed was the hangover. We sobered up and asked the questions we should have asked after we acted. Opinion reversed in this instance to an unprecedented polar opposite, a trend we now see too often.

Around the turn of the millennium, we experienced astonishingly rapid adoption of the commercial internet. The public couldn’t wait to buy stock in this emerging set of companies. Earnings be damned, this was the new economy! We used new online brokerage platforms at our fingertips to day-trade nascent listings on something called momentum. About a year later came the dot-bomb implosion and we couldn’t dump these equities fast enough. As soon as mass opinion declared most of them worthless, it was a self-fulfilling prophecy.

In the mid 2000s, popular opinion declared home real estate values going in one direction, to the stratosphere. Credit was easy, because with prices rising, properties could be flipped quickly, debt retired and profits tabulated with presumed certainty. When home prices crested and credit markets began to freeze, homeowners found themselves “underwater,” owing more on properties than they were worth. It happened that fast. People asked themselves how a home they bought for $600,000 could be worth less than $200,000 when only a year ago it was assessed at $400,000. How did prices go up so quickly, then down so quickly, then lock up without some form of fair warning?

JP Morgan Chase escaped the mortgage-backed securities meltdown and CDO liquidity crisis largely unscathed, only to follow-up this year with a series of disastrous derivatives trades that resulted in billions of dollars in losses. The company’s CEO, James Dimon, went on record saying the bank’s strategy was “flawed, complex, poorly reviewed, poorly executed, and poorly monitored.” Does that sound like a dependable financial institution gone temporarily astray, or a speculative gambling pit operating without normalized controls?

How do we make choices in a world where assessment can change this rapidly and radically? What is a grounded opinion?

Is the public manipulated? You bet we are. Witch’s brew opportunism is all around us. Are well-meaning individuals subject to baffling contradiction and confusion? To my knowledge it has never been any other way. The problem now is the fever pitch, the speed at which information and misinformation travels, the global pace of relentless throbbing that blinks and bubbles and burns and overwhelms our better judgment. We act because the parade is leaving town and the horns are blazing, not necessarily because we have decided it’s a good parade celebrating a cause we wish to trumpet. We don’t want to get left behind, until we too late discover there’s no place like home.

How fast is fast? In the original Star Trek series which debuted in 1966 and was set in the 24th century, Gene Roddenberry envisioned Warp Factor One as travel at the speed of light. Any kid who had taken high school physics got the joke, but for sheer late night discussion it seemed a decent enough way to talk about speed in the extreme. Warp Factor Ten was considered unachievable, a “purely theoretical” value, yet in the later sequels, Warp Factor Ten was used all the time, no big deal. I don’t think stretching of the metaphor over time was accidental. When fantasy portrays the speed of light no longer as a milestone, any definition of fast requires new parameters. I think we’re getting there, or at least the hyperbole is catching up with our perceived experiences that don’t involve beaming up our bodies, just harnessing some constancy in our opinions.

The 24 hour news cycle is well understood by those who create it, so much so that top public relations firms often suggest just waiting for a worse story to wipe out your current bad news. Rapid and seismic change has been a recurring theme in this blog since its launch, where the patron Pre-Socratic philosophers Parmenides and Heraclitus now have us wondering if you can even step in the same river once.

We like, we don’t like. We know we are fickle, but we allow conflicted voices all around us to vacuum us in one direction, then whiplash us in another. We become certain something is worth our hard-earned money, then we see our money vaporized and want it back. With all the experience we have around vast shifts in sentiment, why do we still allow ourselves to act before we have enough facts to make a reasonable judgment?

Robert Burgelman, one of my former board members who teaches business strategy at the Stanford Graduate School of Business, likes to define the shift between strategic thinking and consequence as the moment when valuable resources are committed to action. In a company, that’s when you move from the planning and consideration phase of a project to the substantial deployment of capital—financial, material, and human. These decisions are not trivial. There are experts involved, and even then, too many times they are wrong. In your own life, it’s when you go from liking a company for what it does to investing your savings in an equity stake. That too is a big leap, one you want to think about very hard.

Indeed, creative destruction is a norm, we know we have to move fast or risk missing opportunity. How do we apply the essence of urgency, the realities of internet time, to factor out hype and not be shifted into a higher gear than makes sense?

For starters, don’t be afraid to take an extra breath. Be appropriately careful with your convictions. It’s admirable to be resolute, but if facts are going to be relative, how really certain can you be today when someone else with a vested interest is bound to change the story tonight? Living in a world where unformed argument too convincingly sells itself as conventional wisdom can make skepticism a virtue. I am not one to resist change, but when I listen to opinion, I want convincing debate, not anxious pressure. Opinions can be interesting, facts are better. When you don’t understand something, never let others make you feel inadequate because “You Don’t Get It” and the clock is not on your side. You might be getting it just fine.

Your pace of decision should be your own. If you don’t like the story, don’t buy the book solely because someone stacked the deck with a stockpile of boilerplate reviews. Opinions will keep changing at lightning pace. Anticipate change in the assessment of change; you can bet on that because you have evidence. Beyond that, there’s a reason they call it the cloud.

Facebook just might beam itself into a valuation you wish you could have seen coming. Mortals like us can no more see the future than travel at the speed of light. If you want to win long-term in a race against noise, listen more closely to what’s under the noise. Cruise control at top speed will never be as comfortable as the manual suggests.

Facebook After The IPO

I bought a small amount of Facebook in the IPO.  It was a flyer.  It was unscientific.  It was counter-scientific.  It wasn’t meant to be a life-changer either way.  It was kind of like a lottery ticket, with a long time until the ticket would be drawn, and at the worst some remainder value on my ticket if I lost.

I really like Facebook.  I’m addicted.  I confess to being one of the first “grown-ups” on the site with an account going back to 2005 using a .edu email, investigating for business purposes (yeah, right).  I love to write and I love to read so Facebook is made for someone like me.  I tremendously enjoy sharing ideas, give and take, so that works for me, text more than pictures, it’s all good.  I marvel at the ability to stay in touch with people from all phases of my life, kind of like sending Christmas cards all year round, and without obligation to respond when I don’t have the time.  It’s a great platform.  I have invested a significant amount of time in carefully building my friends list (100% known to me, so don’t friend me if we aren’t at least acquaintances) and my much too long list of Likes.  I tried Google+ and it’s fine, I have an account and I post my blog entries there, but I’m not going to rebuild my Facebook network somewhere else, too much work, the switching costs are real.  Facebook is doing the job for me.  Not sure if I am doing the job for them, but we’ll get to that.

A lot of people asked me what I think about the > $100B valuation.  Here is what I wrote as a comment on Facebook in response:

The question is whether you believe FB can grow into its valuation. The answer is, who knows, but the multiples are very tough on any kind of fundamentals. No one has ever had a proprietary audience of almost 1B, that’s unheard of. The questions are: 1) can they hold them, or at least the valuable ones, without alienating people on privacy or losing them to the next big thing; 2) can they attack TV ad budgets with innovative, targeted campaigns that are both effective and not off-putting; 3) can they diversify beyond display ad revenue into transactions, research, and virtual currency; and 4) how will they deploy their cash for accretive acquisitions, particularly in mobile. That’s a lot to do, but at least they know what not to do having studied those who came before and puttered out. History (AOL, Netscape, the portal wars, et. al.) would suggest no, but remember when the smart money bailed on Apple and called it for dead. Suppose FB triples profit this year and next — well, at this price they’d be trading at less than 10x income, which is still aggressive, but not out of reality for a high growth company (today’s price is “augmented reality”). You’re paying a huge risk premium, so you have to believe they can deliver against that — which is a question no one can answer, hence the risk premium. If you think FB will perform like MSFT, AAPL, GOOG, INTC, WMAT and be one of the greatest companies of the early 21st century it’s ground floor, if you think it’s a fad, it will be an expensive adventure. Gee, I think I just wrote a blog entry!

Let me add a few more comments about Facebook.  I think they are doing a good job pushing the envelope on new horizons, but like all great software companies, they hit and miss.  Facebook aims to build community, which is noble, but it really wins on narcissism, that’s their secret sauce, and it’s primal.  People like to talk about themselves.  And post pictures of themselves.  We really, really do.  Okay, maybe not everyone, some just want to stay in touch with their kids halfway across the country, or meet new people with common interests, or reconnect with a pal from elementary school, or keep tabs at their own risk on an old flame, or support a political cause.  There’s a haute blend of secret sauces, but most of the recipe involves a chance to make yourself seen or heard where this previously required a lot more effort and guts.

The Like Button was brilliant, in one smooth swipe adopting the Fax Machine Factor — with each individual instance being more valuable as the aggregate network expanded exponentially.

News Feed was seminal, the turning point which bought them a shot at Built to Last.  Initially resisted, it was bold and visionary, a finishing move against direct competitors.  The true genius of News Feed remains the simple control that lets you quietly code out anyone’s posts that don’t interest you without hurting their feelings or having to drop them as a friend.

Facebook Connect was audacious.  Imagine if any of the portals had tried this earlier, expanding global registration beyond their own confines to widen the walled garden, and having that embraced by would be competitors!  All the web surfer experiences is they don’t have to create another user name and password, but if they want to do that, they still have the option (this is of course a two-edged sword, noted below under privacy).

Creating a robust platform for third-party app integration with an accessible and broadly supported set of APIs was sheer genius.  Facebook knew they weren’t going to be great at everything, why not let others create games and tools that feel like Facebook without being Facebook?

How do we know these features were game-changers?  Look how widely adopted and copied they have been.  That’s the rest of the digital social world confirming you got something right, all to your benefit.  On the other hand, true innovation at lightning pace means any developer will get some things wrong, and not be afraid of that.  Facebook has proven it’s in the club, with some less than customer friendly features that need attention.

Timeline makes little sense as a consumer experience, perhaps it’s meant to be something else, a comprehensive framework to compile marketing data, I don’t know.  What I do know is that it took away something useful, our ability to quickly scan someone’s self organized profile for affinity, and redeployed it as a pastiche of artifacts.  It reminds me of what a resume is not — it’s not a memoir.  All they had to do to make Timeline great was make it an option for those who wanted it and let the rest of us just keep our profiles.

The Facebook mobile app is not very good.  It was late to market, and the user interface appears cobbled together.  Data I/O is slow and cumbersome.  It does not update predictably or stay current with alerts.  It is still not optimized for tablet displays.

Privacy Settings remain pretty rough, albeit less so than one or two years ago.  There was even a joke with Muppet stand-up comic Fozzie Bear going around Facebook on IPO day declaring the reason the company went public is, “They couldn’t figure out the privacy settings, either.”  Granted the surprises of late have been fewer, but the third-party stuff via FB Connect can be woefully weird to control — do you really want your friends to see every song you’re listening to on Spotify or every article you’re reading on HuffPo?

This past week I spent a full day with some twentysomethings reviewing technologies that were and weren’t appealing to them for e-commerce.  The discussion of Facebook was unlike anything I had ever heard, immensely contradictory.  They could not imagine a world at any time in the future without Facebook, it was as much a part of their lives as food, which they currently couldn’t afford.  Yet they admitted they were using Facebook less each year that went by since high school, and they expressed vast mistrust for the Facebook brand, terrified of what would happen to all the personal information they had unveiled and were becoming predisposed to hold back.  How’s that for twisted logic?  Can’t live without it, using it less, and minimal trust for the brand — some action items there for the development and marketing teams.

It’s barely the second inning for Facebook so there’s a lot of time to recover.  Here’s my advice: win the trust war and you will go from being Good to Great.  Edward R. Murrow and Walter Cronkite helped CBS get there — even when there was little question that what William S. Paley wanted was what the Man Men were selling.  The namesake founder of my beloved corporate alma mater went on TV every Sunday night and became Uncle Walt, which resulted in many millions of folks subsequently vacationing at highly developed former swampland in Central Florida.  Facebook can win a big piece of the ad game if trust is front and center, central and foremost, and transparency is not buzzword.

A motto like “making the world more open and connected” is cool, but be careful that these don’t just become words in your press kit, literally about 1/7 of the world is watching.  Do it, don’t say it, win us over and hold us forever so your name goes on the list with the unforgettable.  Miss that and the stock price will be the least of your concerns.  Now you’re playing for legacy, where Like has to become Love.

I am purposely publishing this after a single day’s trading and before the market opens again.  With the FB stock price a hair above the IPO price for a deal everyone desperately wanted, it’s now everyone’s deal on a level playing field.  The only thing that will hold or improve that stock price over time is consistent greatness.  It’s commencement.  It begins.

Like Is Not Enough

AllYouNeedAll You Need Is Love” — Lennon/McCartney, The Beatles

Facebook over the past several years has done the unexpected in creating exponentially vast usage of the noun/verb Like. This has been fun for those of us who indulge in broadly stamping our personal approvals on anything from a friend’s single syllable utterance to the launch of a new wave of flavored taco shells. Some argue the Like button has diluted the very significance it is meant to convey by spawning misguided promotions to increase click tallies, while others maintain it is the metaphysical fuel that rocketed Facebook into the stratosphere as the place advertisers have to be to mine explicit commendations. Regardless of the ultimate conviction it conveys, Like is an ultra easy way to express a soft high-five in public without any substantive commitment, and if you change your mind, you can Unlike something just as quickly.

While the full measure in a Like action remains on the light side of hand-waving, for marketers it can nonetheless provide an easy litmus test to note directionally if their intended messages are registering at all. Registering is not necessarily resonating, but it is a decent stride across the starting line. Getting someone to Like your brand for the long haul—on Facebook or along the purchase funnel—will never be a small task, but my sense is there is one constant in consistent success: For star marketers to get a Like, they must first Love.

I wrote about a similar topic not long ago in a post about eating your own dog food, where I suggested if you don’t use your own products, how could you expect anyone else to pay you for the privilege. This is a tangent to that thread, where of late I have observed entire marketing teams dogged by cynicism. They are charged with brand evangelism, but in their own minds, they are either not engaged in the true value proposition of their products and services or they have given up on their own futures, proclaiming themselves victims of an ice age they believe is imminent and unavoidable. I believe we often refer to this malady as the self-fulfilling prophecy.

Recently in a meeting with a team of executives who had invited me to help them with some seismic strategic planning issues, I noticed a through line where all of the many accomplished marketing executives in the room found a way to get on each other’s bandwagon, lamenting that their company’s future was not bright. I thought this was simply a down cycle in the conversation which is normal in brainstorming, but the negative energy was a contagion. Here we were, charged with helping reinvent the company, a blue sky path to infusing new levels of Like into brands that were already broadly embraced, but no consensus was emerging on how past Like could become new Like, or dare I say it, Love. As an outsider, I saw that their brands were certainly challenged in the market place, they had seen some decline, but they had in no way collapsed. Yet here the brand stewards being paid quite well for their presumed passion had convinced themselves their brands were dying—a sickness that was terminal and could not be reversed. Where I really got myself in trouble was asking the team how many of them still loved these brands. The rest of the assignment was awfully quiet.

If a brand steward does not start the day in Love with a brand, by the time that apathy translates and diffuses itself into a campaign of communication tactics, Like is not going to be there with the public. Better the executives hand in the baton and give the assignment to someone else who might find a way to convince themselves there is light ahead, yet throwing yourself on the sword for lack of conviction is not a road well-traveled in business. Instead it is likely that these brands will die, even though they could fight on, because no one behind them has the Love to fight. I wonder if the CEOs at the top of these companies know their chief lieutenants have already surrendered to creative destruction rather than rallied to next generation rebirth. Even if the beaten executives are right and the brand is destined to die, shouldn’t someone else who doesn’t believe that be given the chance to prove otherwise—to try with honest enthusiasm to wrestle imagination and go a different route that might just work despite the naysayers? Perhaps some of the CEOs are biding time as well, but my sense is most of those wouldn’t last too long in a board meeting. Love has to be real, and it has to start at the top.

Can someone in a marketing job walk away nobly from a lack of Love? Sometimes I think it is necessary and essential. A very successful friend recalled for me recently how early in her career she was working for a multi-national corporation on a vastly successful billion dollar brand that had of late stalled in its growth, years after it had gone wild and saturated market share. The team brainstormed and came to the conclusion that to reignite growth, marketing programs would have to implicitly suggest that the brand being marketed met the needs of a more healthful alternative already for sale, and that by shifting use from the believed healthful product to the growing brand, nothing would be lost and everything would be gained. Mind you, nothing illegal was being plotted and the campaign would by default have to meet truth in advertising laws, but the very idea that the only way to grow the brand was to pull attention from a more healthy alternative did not sit well with my friend. She understood the strategy, but she fell out of Love, and even out of Like. She did the right thing and left the company. Today she runs her own company and I can tell you this—she Loves her brand.

Remember this: a brand is not a logo or a trademark or a pithy name—a brand is a promise. You can stop loving a product line because it needs to change, indeed loving a product line too much can be a trap, but products are directed to evolve because loving the brand is a driving force. A brand is a set of choices that begins and ends with meeting customer needs. The branding process begins with ideation, continues through product development, then translates into communication (these days bidirectional feedback loops, like we see in social media, more than soap box broadcasting) and ultimately does or doesn’t result in customer loyalty. When you make a promise to your customers, you are obliged to make good on that promise. My sense is for that to happen repeatedly and predictably, if you are part of the creative cycle, you must Love, Love, Love your brands. If you don’t, no one else will.

If for some chronic reason you’re convinced a brand truly is at end of life, the right thing to do is protect working capital and advocate to take it out of commission mercifully. It is wrong to shovel high-priced coal into an engine you believe will no longer run because you’re pretending to believe a directive handed down that you knowingly disavow. Don’t try to fake it! If you don’t Love your brand, go find another that you can Love. If you are biding your time waiting to be found out, don’t worry, you will be found out. Your customers will do that for you. You need their Like. They deserve your Love.

Love, Love, Love.

Do I Have To Eat It?

A recent opinion piece in the Wall Street Journal by Jesse Kornbluth, a onetime devoted and inspired employee of America Online, pondered the question of “How AOL—aka Facebook 1.0—Blew Its Lead.” Kornbluth does a good job acknowledging the irony of overlap between the fallen angel and the rising star—the staggering power of community, the seduction of the walled garden, the financial reward of vast momentum—but more importantly, he gets his head around what he believes to be the downward turning point for his former employer. It was not so much the bursting of the bubble, nor even the distractions of failed promise in the historic merger with Time Warner. As a product person, Kornbluth saw the blood start to flow when those who loved product began to be overruled by those who lived by argument. Those arguments were not the healthy tension of developers debating the relative merits of features and benefits. The conflict shifted to initiatives in product strategy that were driven by individuals who had assured themselves their creative ideas would lead to success, even though they did not much have time to embrace and use AOL they way its creators had previously.

When the consultants arrived, strategy was not driven by those who embraced the product and its audience; strategy became a set of theoretical suppositions evidenced by the competitive landscape. There were only two problems: 1) the consultants were no more obsessively using competitive products than those of AOL; and 2) the competitive landscape was crumbling because it was just as inorganic in construct, itself no more than the conclusions of observation. Using a product is not trying it once, it is using it every day and using competitive products to fully internalize how bad becomes good and good becomes great. Data, analysis, reconnaissance, and interpretation are all essential in responding to hyper growth, but if you aren’t eating your own dog food, all bets are off.

Yes, you must Eat Your Own Dog Food.

Alpo Lorne GreeneSome people trace this edict to the television commercials for Alpo in the 1970s and 1980s where Lorne Greene made a point of showing us that he fed the very product he endorsed to his own dogs. No, he didn’t actually eat it himself, but the way he looked at it, you could tell he might be considering it. His dogs were an extension of himself. That love made it clear he would only feed them a product he trusted, and he would only endorse it publicly because he trusted it. I am not saying he was right. I am just noting than his conviction was visceral.

In the software spectrum, the phrase “Eating Our Own Dog Food” is more commonly traced to a 1988 memo from then Microsoft Manager Paul Maritz, encouraging his team to obsess over use of Microsoft’s products. His basic tenet was that to win a category and perfect your work, you had to be the consumer. The memo spread widely throughout Microsoft, over the gate and through the industry. It resonated with many of us, and began being accompanied by such observations as, “If you won’t use the software when it’s free, why should anyone pay you for it?”

Soon after came the dawn of the Dot-com age in the mid 1990s, quickly followed by the implosion of Web 1.0 known as the Dot-bomb era circa 2000. Interesting to note, a few of the companies that survived the turmoil and went onto become the great first generation brands of the Internet like Amazon and eBay made it a point to eat their own dogfood. While third-party consultants poured into corporations to sort out their tanking business models and rationalize their value propositions, far too many of those consultants were busy writing decks and compiling spread sheets. When you asked them what online products and services they loved, they often couldn’t respond, because they were too overwhelmed by time commitments to use the products they would evaluate, let alone love them. For those who had already been through a product development cycle or two, the writing was on the whiteboard.

The absolute necessity of eating your own dog food is anything but limited to software. If you design cars for a living and are not planning to drive your own creation when it comes off the line, how can you attend to every nuance and detail that sets apart your vehicle from the vast number of choices already available for sale? If your team designs a new line of workplace apparel intended to be marketed as more comfortable, durable, and stylish than everything else already hanging on the rack, will you not be planning to wear what you have produced proudly at least a few days each week out of pure joy? When you have the privilege to be creative and innovative in your occupation, you are quickly humbled by the fact that an idea for a new product or service however inspired and brilliant is in fact almost worthless. Customers seldom buy or become loyal to the ideas you pitch. Until a concept is executed expertly and embraced by those who will champion it, it really is just a first draft—perhaps filled with promise, but nonetheless in need of refinement, iteration, and polish. There is a long and winding road from pitch to product, and all along the way details have to be vetted first by those who most love the work, the creators.

Apple long ago coined this notion as Evangelism, and no Apple Evangelist in his or her right mind would try to get you excited about a product they weren’t already using themselves. To be fair, Evangelism is a beginning, not an end, after which customer feedback must become part of the process, but if our goal in social marketing is to engage our community in a supportive and seamless dialogue, then we owe it to them to initiate the dialogue with honesty, commitment, and passion. There will always be pain to share in early releases, but the more defects we extract ahead of release because we already know they are there, the more our customers can trust us to take them seriously in allowing our own needs to be met before we presume to address theirs.

Design is not cynical; its true elegance is purely self-reflective because form and function are easily evaluated in day-to-day use. If something is good enough for your dog, it might be good enough for someone else’s dog. Now imagine if you ensured it was good enough for you before you topped off the can. That would be some seriously tasty dog food. Go on, take a byte.