Explaining Southern California's economy

Business Insider: Tech bubble? What tech bubble?

DLD Conference 2012 - Day 2

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Henry Blodget, CEO and Editor-In Chief of Business Insider, speaks during the Digital Life Design conference in Munich, Germany. He doesn't think there's a tech bubble.

Business Insider just wrapped its "Startup 2012" conference in New York yesterday, where it's promoting its new BI Intelligence service, which is being spearheaded by Pascal-Emmanuel Gobry, Alex Cocotas, and BI CEO Henry Blodget. 

They put together an entertaining presentation about whether there's a tech bubble a-swellin' up right now, getting ready to pop and make us scream and keen and cry out loud. (Is there a bubble? BI Intel says, resoundingly, "Nope!") But before I get into that, and a Twitter exchange I had two weekends ago with Leigh Drogan of Surfview Capital, about the whole bubble thing, I would be somewhat journalistically remiss if I didn't express one significant reservation about this whole BI Intel project.

For starters, I am Business Insider's number-one fan, in L.A. at least. Henry and his crew have figured out how to stitch together the wonky econoblogsosphere with the aggregational accumen of the Huffington Post and the jaunty and at times borderline slapdash (in a good way) tone of the early Gawker. I think the site looks like hell, but that's part of its charm. And anytime anything happens in the business and economy world — and even these days the wider world (SEO is alive and well) —I often check BI to get their take. Joe Weisenthal is a complete maniac, in the very best bloggy sense of that sleep-deprived sobriquet.

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Facebook wants to make everyone do everything for free...for Facebook

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters. The company is planning an IPO for May 18.

If you'd like to hear no end of dime-store philosophy and quasi-futurist blah-blah about our glorious networked future, then you really need to watch the video that Facebook produced for its IPO roadshow. It's designed to get investors excited, so bear that it mind while you watch tight t-shirt Mark Zuckerberg and his merry soon-to-be-millionaires hacker band outline a world in which billions of people spend considerable chunks of time providing Facebook with immense amounts of free content and labor in exchange for having their activities sold to advertisers.

I've conducted some informal surveys about this issue — the free-labor-and-content-being-turned-into-$100-billion thing — and found that, for the most part, people who use Facebook either haven't given that question any thought or don't care. They may be acting out of their economic self-interest, but the counterargument I generally get is that Facebook produces a product that they love and can't avoid using. 

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How the Facebook-Instagram deal shakes out

The home page for Facebook founder Mark

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The home page for Facebook founder Mark Zuckerberg. Facebook today revealed details of its purchase of Instagram.

Facebook "reported" quarterly financials today, as part of the prelude to its IPO in May. Through a required filing with the SEC, we learned that it's costing a lot more to be Facebook, as profits dropped 12 percent, to $205 million from $233 million. We also learned how the Instagram deal is getting done. This is from the LATimes:

The regulatory filing also disclosed details of Facebook's agreement to buy Instagram. The company paid for the $1-billion deal with $300 million in cash and 23 million shares. Facebook placed a value of $30.89 apiece on its shares as of Jan. 31. Facebook said it would pay Instagram $200 million in cash if the government blocked the $1-billion deal.

So only 30 percent of the deal is in cash, which still isn't too bad for a company — Instagram — that didn't exist two years ago and has no revenues and no real business model (besides being sold to Facebook for $1 billion after it ate Facebook's lunch for a year in mobile photo uploading and sharing). 

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Microsoft won the AOL patent bidding and is now selling to...Facebook

CeBIT 2012 Technology Trade Fair

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Visitors watch a presentaiton of fetaures of the new Windows 8 operating system at the Microsoft stand on the first day of the CeBIT 2012 technology trade fair in Hanover, Germany. Microsoft announced that its selling $550-million worth of former AOL patents to Facebook.

Microsoft recently beat out Facebook for the right to purchase 925 patents and patent applications from AOL. The winning bid? $1.6 billion. But now Microsoft has turned around and essentially flipped a large portion of that patent portfolio, and the buyer is...Facebook!

In the context of a declining stock market and problems in Europe, Facebook — and more accurately, Facebook's investors — has to be getting worried about its upcoming IPO, which is supposed to be able to value the company at $100 billion. The Instagram purchase was stage one. Now comes this big patent buy, with Facebook paying for $550-million worth of patents that Microsoft evidently doesn't really need.

That said, you could argue — as CNET's Paul Sloan implies — that Microsoft was just doing Facebook a nice, big favor by leveraging its balance sheet to vacuum up the AOL patents, sparing Facebook the need to spend any of its own cash. Microsoft is nowhere in social media, so a "long-standing alliance" with Facebook makes sense, as both companies pitch in to weaken Google. 

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2 brilliant takes on the Facebook-Instagram deal

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The Facebook website is displayed on a laptop computer on May 9, 2011 in San Anselmo, California.

This is from the Financial Times's Lex. It's a miracle of concision and by the most decisive take yet on the $1-billion Facebook-Instagram deal:

Retaining its own 845 [million] active users will require Facebook constantly to add new features, as brilliant alternatives sprout up on all sides. Facebook cannot really be planning to out-innovate every geek with a dream. Nor can it promise investors that the returns from internal investment will beat returns on acquisitions, or that, once the money really starts rolling in, the temptation to spend it can be resisted. There will be many more Instagrams in the years to come.

And this is from New York Magazine. Rather longer than the Lex piece. Also rather funnier, in a cynical sort of way:

Instagram has as many employees as you can count on your fingers (if you have polydactyly) and does a sum total of one thing. It’s beloved and hip, two things Facebook is not, and plus the company is pure nerd candy. It uses open-source software named after a jazz musician (Django!); uses the language Python, which is as beloved as [Facebook language] PHP is loathed; and posts about its technical exploits over on Tumblr (which, fun fact, recently announced its 20 billionth blog post — on Twitter). Instagram does everything "right," for a value of right that matters to nerds, and it does it with one product.

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