Google Gears

I didn’t have time last week to make a big point about the announcement of Google Gears, an open source software project aimed at enabling online web services (such as Google Reader, an RSS client, and eventually all the other Google Apps) to work offline.

This is a big deal. More and more people are trying to find ways to stop paying Microsoft hundreds of dollars per PC for its operating system and its Office applications. It has been difficult to do business without both. I have mostly XP machines (haven’t yet upgraded to Vista–too many mixed reviews). I bought a Lindows machine a couple of years ago from Wal-Mart, but never used it. OpenOffice doesn’t impress me, though I have it on one of my machines, and have used it a bit recently. I’m actually typing this blog post from the airport (love free Wifi) on my first ever Macbook. (No, I don’t have Windows XP on my Macbook.) I’m trying to like this Macbook, but it’s still weird for me. I still prefer Windows XP.

But like many entrepreneurs, I’m always on the lookout for new reasons to save money, including not paying Microsoft so much for all the computer systems we buy. I’d really like to be able to add cheap computers for our call center, for example, that run Linux (maybe Ubuntu). Through their web browser, our reps would be able to use Skype Unlimited for all their outbound calls, and use our CRM system to track their calls. We use Google Notebook extensively in our company for organizing information that we find while browsing the web, and we use Google Spreadsheet for tracking many things.

As more good online services appear, we’ll be able to get the software we need without paying much at all. And if that software works offline too, it will make it possible for our mobile users to take work with them.

By making Google Gears open source, Google will accelerate the extension of thousands of online applications to mobile, offline versions, thus striking a blow to Microsoft’s revenue streams, including eventually, their Office Applications.

It sounds like Google Gears is still a young open source project, but I think it is a great move, and will generate a lot more interest in online software.

(Sorry, this post is just a draft, but my plane is boarding.)

Prediction: Facebook will be the largest social network in the world

I saw history in the making today.

For some reason, I was lucky enough to be in San Francisco for the Facebook f8 Platform launch event. This announcement was at least an 8.0 on the Richter scale. It was a whopper.

In fact, I haven’t come away from an event so excited since September 21, 1995, after attending the Online Developers II conference, also in San Francisco, when it hit me that my CD ROM publishing days were ending, and that I would soon become an internet entrepreneur. In the next five years, our team quickly shifted from publishing to online, launched Ancestry.com and MyFamily.com, and then went on to raise $90 million, acquire Rootsweb (and later Family Tree Maker / Genealogy.com) starting what has since become the largest genealogy company in the world. (Note: I left the company in Feb 2002 and have recently started a competing firm, with two properties: WorldVitalRecords.com and FamilyLink.com)

For me, that journey all started at Online Developers II.

That story doesn’t necessarily have a happy ending for any of the company’s founders or even its early employees or investors. Like Ray Noorda used to say, “Finders Keepers, Founders Weepers.” Crossing The Chasm by Geoffrey Moore explains why pioneers (company founders and innovators) don’t often do well in the end, while settlers (who are usually better are operations) do. I’m actually fine with that, and reading that in Moore’s book was one of a dozen things that helped me move on emotionally.

Today felt just like September 1995 to me.

And it makes me wonder what the next 10 years might bring.

I sat on the third row and drank deeply of the kool-aid as Mark Zuckerberg, who turned 23 years old just 11 days ago, presented what may be the best business opportunity for internet entrepreneurs in the past ten years.

A huge new opportunity was presented to the few hundred people in the room, including 65 companies that have spent the last few weeks developing applications for the launch of Facebook Platform.

Facebook is inviting anyone to develop applications for their users on top of what Mark calls their “social graph”–the core of their service which basically keeps track of real people and their real connections to each other.

Facebook has 24 million active users (meaning they’ve used the site in the last 30 days–I like how they aren’t overstating numbers like SecondLife) and 50% of them login each day. Mark says the next most active social network is not more than 15%.

Last fall as I taught Internet Marketing at BYU we learned that a UCLA survey showed that 50% of college age females said Facebook was their #1 most important web site (even more than Google, Wikipedia, or anything else) and that 1/3 of college age males said it was their #1.

Look how many “addicts” Facebook has, according to Quantcast. 63% of visits are from addicts. eBay is only 56%.

Facebook is adding 100,000 new users per day. That’s 3% growth per month. And the fastest growing segment is over age 25. At this rate, they’ll have 50 million users by the end of this year, and 75% of them will be out of college. I read just on paidcontent.org that Facebook is the fastest growing social network in the UK, and today Mark said that 10% of Canada’s population is using it.

With 40 billion pages view per month, Facebook has passed eBay in page views, and is now in 6th place, just behind Google.

So this is no small thing for a 3 year old web site. Facebook is absolutely for real. I like Facebook a lot; while I can’t stand MySpace. Facebook is clean and nicely designed and architected. MySpace in my opinion is messy and mostly full of garbage. Facebook is a real social network for real people. And it is really, really popular.

And it’s growth will be dramatically accelerated by the Platform announcement. If Facebook is adding 100,000 new users per day with its own few simple applications (like its photo sharing, a very simple service that has given Facebook twice as many photos as all other photo sharing sites combined), what will happen when thousands or tens of thousands of developers start building apps in Facebook and marketing them to more users?

Facebook will reach 50 million, then 100 million, then 200 million users, and beyond.

Rather than continue to try to develop features within its own proprietary, closed network, basically keeping all of its users to itself (and kicking out widgets they don’t like, like MySpace does), Facebook intuitively gets the concepts that are so brilliantly discussed in Wikinomics (which are so non-intuitive to old school business types), and has chosen to open up its network for all to participate in. Because they embrace the winning philosophy, they will win.

Application developers can now have access to core Facebook features, such as user profiles and user connections, and even publishing to the News Feed, all with the control and permission of Facebook users. So if a Facebook user chooses your app, it will show up on their profile for all their friends to see, and they can enable that app with a single click, and so your application can spread virally to the 24 million other users.

When Facebook has 100 million users, in the not too distant future, having the ability to develop an App in their system will almost be like being able to get a link on Google’s own home page.

Can you imagine Google ever doing that? No way. They have too much at stake. Their $147 billion market cap couldn’t take it. Google’s philosophy was to not be evil. But I think Facebook’s philosophy is a decade fresher and even more in line with where things need to go than even Google–a company that I admire more than any other.

When Clayton Christenson spoke at the first Open Source Business Conference (again in San Francisco) about three years ago, he spoke about how the LAMP stack has provided a powerful low-cost platform for companies to develop applications on top of. Linux, Apache, MySQL, and PHP enable companies to develop applications that used to cost millions, but by building on top of all these projects, companies could move “up the stack” and focus on providing unique value that wasn’t in the stack already.

There are more and more free layers being added to the stack all the time, powerful services that can be embedded in your own new applications, like Skype, Maps from Google or Microsoft, storage and utility computing from Amazon, and video layers like YouTube and Google Video.

When anyone develops an application on top of the LAMP stack, like a CRM system for example, they always risk being disrupted by someone who provides that for free on top of the already existing stack.

Any new open source application or creative commons layer can be added to the stack, which might commoditize that application and put some companies out of business, but then that enables everyone else to again add more value on top of the stack.

This process continues, and all the while the consumer benefits greatly, and developers can continue developing innovative and valuable services on top of the ever-growing application stack.

The way I view the Facebook Platform announcement is this: the LAMP stack has just been extended by the huge and growing “social graph” that Facebook is opening up to the world. (It’s not completely open, because you have to develop apps within Facebook, but it’s a start in the right direction.)

Now, instead of application developers having to each build their own web site and try to get people to find it and use it and share it, the viral marketing of any good application site will come right from the Facebook interface itself. As users adopt new apps, they will spread quickly through the network.

Mark made three big announcements. 1) Applications can be deeply integrated with Facebook 2) Distribution of the applications will occur through the network, and 3) The business opportunity Facebook is providing will give 100% of advertising revenue (for third party applications) and 100% of transaction revenue to the application developers.

Now that is the true spirit of Wikinomics.

VPs from Microsoft and Amazon were present to express their support for the Facebook Platform. Microsoft will enable application develop with Silverlight and Popfly, and Amazon discussed how its web services enable Facebook Platform apps.

The CEO of Slide mentioned that the Platform developer wins big, but that applications developers also have a huge business opportunity here.

Microsoft’s market cap is $280 billion. But the top three application developers on Microsoft’s platform have a combined market cap of $40 billion.

I don’t think Facebook’s market cap vs it’s application developers will be nearly that lopsided. In fact, the way they are treating their own applications versus Platform applications makes it a pretty level playing field. Facebook users can deselect apps they don’t want to use–even Facebook’s own apps–and sign up to any other.

The core asset Facebook wants to own, extend, and leverage, is the social graph–who is connected to whom.

It is even possible that some future Facebook app developers could end up with a greater market cap than Facebook–if they permanently maintain the 100% of revenue going to the partner model. For example, a MMORP game built into Facebook might someday have 10 million users paying $10 per month, or $1 billion in revenue, when Facebook might at that point have $500 million in advertising revenue. (Reportedly it will make $150 million this year.)

Okay, not likely, but maybe possible.

The cool thing is that the marketing costs for these application developers will be basically nothing. All viral. All courtesy of Facebook’s users.

One of the self-serving reasons why companies like Google and Amazon create so many APIs and web services is to get a vast community of developers doing R&D for them and prototyping applications to see what works best. Then, they acquire the ones the like best.

Facebook will certainly be in a strong position, once it has a liquid currency, to acquire some of the most interesting application developers using its Platform.

If you haven’t read it recently, read Chapter 7 of Wikinomics, “Platforms for Participation” in the context of today’s announcement.

Here are a couple quotes.

“The winners in this evolution will be companies that can create the most comprehensive incentive frameworks to adequately reward all stakeholders.” (p. 207)

How about letting them keep 100% of their ad and transaction revenue? That’s quite an incentive.

“Winning in a world of cocreation and combinatorial innovation is all about building a loyal base of innovators that make your ecosystem stronger.” (p. 210)

Like I said at the beginning, I felt very lucky to be invited to this event. I got the invitation because we invested in YackPack last year, which is one of the companies that is launching its application within Facebook.

I didn’t see anyone else from Utah there, partly because every internet entrepreneur and marketer in the state was probably attending Seth Godin’s speech in Salt Lake City, which was probably very good.

If you are from Utah and went to the Facebook f8 event, please comment here or email me. I really want to connect. I think we need a Facebook Platform Developer Community here in Utah.

I searched LinkedIn tonight and found 140 Facebook employees, board members, etc, on LinkedIn. I’m 2 degrees away from many of them. But then I searched for “facebook api” to see how many people in my 2 million + network have any experience developing for Facebook and only 1 person came up.

Hopefully there will be some developer forums that emerge quickly so that more people can get guidance on how to proceed.

So here is my final thought. I’ve been pretty fortunate in my career to kind of see the big waves and trends coming and to get positioned to take advantage of them. I think I have pretty good instincts, because my brother Curt taught me to read everything (and he buys me new books from Amazon almost every month) and to go to conferences all the time. I already mentioned the transition from CD ROM publisher to Internet Publisher. After reading Net.Gain in 1998, we created Ancestry.com’s user generated content strategy (it became our most popular database) and launched MyFamily.com which was really an early social network for families. At our peak we were adding 20-30,000 new users per day. Unfortunately, our investors stopped supporting that free site because it wasn’t making money. Doh.

After reading an article in Industry Standard in 1998, I decided to attend the first ever affiliate summit held in New York City, where Commission Junction, Be Free, and LinkShare all presented. We chose Be Free, launched our affiliate program, and over the next few years, affiliate marketing was our #1 source of new customers at Ancestry.com.

In the last few years, I blogged before Google’s IPO that it would disrupt Microsoft by offering free software (including Office apps) and said it will one day pass Microsoft in market cap. And, more recently, in my latest example of prescience, I blogged about Lindsay Campbell of Wallstrip after her first day as anchor, and suggested that she might one day rank up there with Soledad O’Brian and Diana Sawyer, and now CBS paid $5 million for Wallstrip, and Lindsay’s career will soar. Way to go, Lindsay!

The only reason I’m reciting these past predictions is to try to lend a little weight to my next prediction: that Facebook will become the #1 social network worldwide (and the first to get 1 billion users–I love Facebook mobile, by the way) and that thousands of entrepreneurs will become extremely successful by developing to this new platform.

I hope that Facebook won’t be acquired. I hope it will go public and become the next major Internet company along with Google, Yahoo, Amazon and eBay. Another hugely profitable company that can potentially acquire lots of other great smaller companies.

I like Mark Zuckerberg a lot. I met him tonight as he was just visiting with lots of the individual companies supporting the launch event, and thanking them for their support. He was very genuine. I can see him in 10 years with the influence of the Google founders and in 20 years with the influence of Bill Gates. He is just getting started. At the recent Startup School, he advised startups to hire coders — even in the marketing department — and he talked about time he spends thinking about philosophies and how at this young age his life is not cluttered with things and family responsibilities.

Can you imagine in a couple years when Facebook has 200 million users worldwide, with half of them logging in every day, and a 25 year old will be CEO of this company? I can’t think of a parallel in world history where someone this young had this much influence. Oh wait. Alexander the Great.

Ok. I’ll stop now. It’s 2:40 am. And my post is going on and on and on, and all over the place.

But I’m serious about this Facebook Platform. Check it out. Mark’s philosophy of openness is an open invitation to co-create something remarkable with him and his 24 million users.

Quotes from Business Leaders

I just noticed that a fairly large selection of quotes from business leaders has been added to the StrategyTree.com wiki. The beauty of a Wiki project is that any individual can add content and make the Wiki grow and become a useful resource.

I want to thank the person(s) who created this section and encourage
others who have collected inspiring quotes from business leaders and
entrepreneurs to add them to this growing collection.

Finding Angels and VCs

I think LinkedIn.com is one of
the best ways to find angel investors in your area. With 3.5 million
members, including many investors, this is a great service and a great
way to get introduced through a mutual trusted acquaintance.

But in addition to LinkedIn.com, I have found value in owning a copy of
the 1998 Pratt’s Guide to Venture Capital Sources, a 600+ page hard
bound book that probably cost about $50. Of course, this edition is
almost useless since it is so out of date. There are probably more
current editions. Vfinance.com sells a current database of venture
firms on CD ROM for $299.

It’s much harder to find a directory of angel investors, and since they
are many times more likely than VCs to fund your startup company, it
can be frustrating if you are an entrepreneur looking for potential
angel funding.

Our solution? Let’s all work together to create a free open-access
directory of angel investors (both organized groups and individuals)
and venture capital firms around the world.

We are launching a directory of venture capital firms called VCWiki.com and a directory of angel investors called AngelWiki.com.

FundingUniverse.com will
appoint a part-time editor to manage the volunteers who want to
participate in building these community resources. We will use Wiki
technology so that anyone can easily add their own information to these
directories.

Sites like this have limited value at first. But over time, as people
contribute what they know, they can become invaluable sources of
information for entrepreneurs. We hope they will become useful to you.

An Experiment in Open Source Business Ownership

I don’t have time to blog today…I’m preparing to fly out for the AlwaysOn Network event at Stanford…but I got this email about a very cool “wisdom of the crowds” concept where a group of 2,500 or so individuals will build and manage a new business by voting on the plan, who to hire, products to create, how to market them, etc. It’s really a wild notion. I hope some journalist will pick up on this, interview the creator, watch the creation of this business over time, and write some interesting story about it.

Here’s the email I got from the founder. I don’t know enough about it yet to endorse it, but I like the experiment at first glance:

I’ve been searching the blogosphere for people interested in entrepreneurship and unique ideas to promote something new, www.thebusinessexperiment.com. It’s an open source, “wisdom of crowds” approach to business. It may fail miserably, or it may change the way we think about business. I don’t know, but it is my attempt to get these ideas more attention. I hope you will check it out and, if you like it, register and participate.

My initial post explaining it can be found at http://www.businesspundit.com/archives/002142.htmlBest regards,Rob May

Check it out and tell me what you think.

Ourmedia vs Google; Wikipedia vs Britannica

Google announced that it will host personal video content soon, but Ourmedia.org (a non-profit) is already offering free permanent hosting of any personal audio and video content. Check out the Ourmedia.org Alexa chart showing its rapid growth.

If Google’s service is free and Ourmedia’s is free, the winner will be the one that is easiest to use or has the most features, or perhaps is best integrated into consumer habits. So the winner will likely be Google (because their usability is second to none). Google will make more money on this particular feature than Ourmedia because its ability to monetize traffic and eyeballs usings its brilliant advertising model is much greater than Ourmedia’s–therefore it is more sustainable.

It’s interesting when a non-profit or open source project becomes the most popular service in its genre. It forces commercial players to build additional value on top of the free or commoditized service in order to generate revenue. In the end, while it’s disruptive in the short term, in the long run, consumers benefit a great deal.

One of my favorite disruptions right now is Wikipedia, the open source encyclopedia which I have blogged about before. Wikipedia.org will soon become one of the top 50 most popular web site in the world soon. (It’s one week average is #80). I actually think it will hit the top 20 in the next couple of years. This site is a great gift to mankind. It already has more than 500,000 articles compared to Britannica’s 60-80,000, and thouands of improvements are made every day.

Wired Magazine posted an excellent article recently about the creators of Wikipedia–who some of top contributors are and what makes them tick.

One of the best books I have ever read is the Professor and the Madman: A Tale of Murder, Insanity, and the Making of the Oxford English Dictionary. It is a fascinating account of the 70-year history of the Oxford English Dictionary. Comparing the OED story with the making of Wikipedia shows how dramatically the internet has affected the pace of knowledge creation and organization.

7 Reasons Google Will Rule the World

Once again Google surprised the street with much higher than expected earnings. The stock price has jumped $20 today to more than $210 per share and the market cap is almost $58 billion.

I will not be surprised to see consistent positive earnings surprises coming from Google for many years.

I believe that Google is on track to being the most valuable company on the planet. I blogged last year my prediction that within 10-15 years Google will surpass Microsoft in market cap. Here are 7 reasons why it won’t even take 10 years for this to happen:

  • Google Philosophy. Google has the right philosophy for our time–they want to change the world by helping everyone in the world have access to the information they need at any time. By giving us all access to extremely valuable data and tools, they are amassing the largest customer base in the world. After providing a service and attracting an audience, they figure out smart ways to monetize it. But that is not their first priority–changing the world is.
  • Efficiency of Advertising Model. Once they have eyeballs, the Google self-service model allows hundreds of thousands of businesses to manage their own accounts. New advertisers can set up an account and have traffic coming to a site in just a few minutes. Overture’s staff of humans often takes days to approve a new campaign. Google pays almost nothing to get new customers and almost nothing to generate this revenue–the customers themselves do all the work. The profit margins here are breathtaking.
  • Good Partner. Google is unbelievably generous with partners–content sites who accept Google ads in exchange for a percentage of the revenue. Because Google is not evil, and they want all sites to accept their ads, they share most of the revenue with their content partners.
  • Employee Pet Projects. Long term, this is the #1 reason why Google will become the most valuable company in the world. I have read that every employee at Google is allowed (or maybe even required) to spend 20% of their time each week working on a pet project. Most companies operate from the top-down. Managers tell employees what to do. Executives make all the resource allocation decisions. But Google has embraced a philosophy which I think can revolutionize the business world–if other companies are smart enough to adopt it. While the most talented, creative, and entrepreneurial people leave companies like Microsoft in frustration in order to start their own enterprises, Google has created an environment where the most talented, creative, and entrepreneurial employees can play in their own sandbox, attract attention and support from top management, and have their pet projected funded within the company. I understand that Larry and Sergei keep a list of the top 100 pet projects in the company. Many of the existing services which Google offers (including Orkut and Google News) were developed by employees. I expect to see hundreds more innovating and exciting free services coming from Google in the coming years. I see more innovation here than from almost all the other top internet companies combined.
  • Speed of Decision Making at the Top. Once a pet project or an outside company catches the imagination of Google’s founders, its maybe only a matter of days before they make a decision to invest in something or make an acquisition. Consider Google’s acquisition of Blogger and Picasa. I don’t think a dozen MBAs took weeks or months to build extensive financial models to justify the decision to get into blogging or free photo sharing. Google’s founders’ instincts are so good and they have the ability to make decisions so quickly–that the rest of the world–slow and bureaucratized as most of it is–better watch out as Google makes big moves and does business at the speed of thought.
  • Cash Flow Funds Pet Projects and Acquisitions. Google’s cash flow is so amazing that anything the founders want to do in terms of funding employee pet projects or making acquisition, they will be able to do. While Microsoft is distributing tens of billions of dollars to its shareholders through dividends (signalling the end of their ability to generate high returns from investing the cash internally), Google will be investing more and more in its world changing strategies–like scanning millions of books from the major research libraries in the world and offering free voice over IP (free telecommunications) to people around the world. No doubt they will become a leader in instant messaging; they will launch a browser to steal market share away from Internet Explorer; they will be prominent in blogging, online photo sharing, and in online communities. Eventually they may even offer an operating system or network computer with application functionality that will compete head on with Microsoft Windows and Office.
  • Open Source and Declining Hardware Costs. All the services Google rolls out are being launched on cheap hardware using open source software. The costs of providing services to the world are declining at an astonishing rate. And Google is there at the right time, investing like crazy. I heard a Berkeley professor in 1999 talk about how CPU, storage and bandwidth costs were approaching zero over time. I don’t think most companies understand what this means. Google is on track to having a million or more cheap computers configured into one great network computer system that will store our personal data, host the knowledge of the world, and provide us with tools for communicating with each other. And the cost of deploying such a world-wide network is decreasing all the time. Which means profit margins at Google will be breath-taking for years to come and the street will continue to be surprised.

In the spirit of full disclosure, I’ve sold my Google stock and invested the profits in Infobase Ventures’ own startup companies. Even if Google increases in value over the next few years and passes Microsoft in market, the return on equity for a good startup company should be much higher than the 5-6 fold returns that Google might provide, the way I see things.

The main risk I see in investing in our own startup companies is that the thousands of smart Google employees might beat us to the punch in executing on most of our good ideas. They seem to be everywhere these days; and I see their pace of innovation only accelerating.

Acquisition Creates Blogging Powerhouse

Six Apart which produces the Moveable Type publishing system and TypePad blogging service raised $10 million in venture funds in October. Today it announced the purchase of LiveJournal, a blogging service built on open source that claims 2.5 million users. Together they have 6.5 million blogs, according to TechNewsWorld.com. That seems way high, considering that Pew Research says about 8 million U.S. adults have a blog. (The vast majority of them only post once, however.)

Universal Access to All Knowledge

I’ve never met Brewster Kahle, inventor of WAIS, co-founder of Thinking Machines, founder of Alexa and digital librarian for the Internet Archive. But I’ve watched his contributions over the years and have admired his Vannevar Bush-like vision. (If you have never read the 1945 Atlantic Monthly article by Vannevar Bush titled “As We May Think”, you’re missing out on the original “access to all knowledge” brainstorm.)

I recently bought a biography of Bush entitled “Endless Frontier: Vannevar Bush, Engineer of the American Century” but haven’t read it yet.

Brewster spoke earlier this month at the Library of Congress on the topic of universal access to all knowledge. I am planning to watch the video of his lecture.

I played around with some new features of the Internet Archive the other day and was very impressed that they not only index web pages but they also index audio and video recordings. For example, here are the results of a search for “roosevelt” in the presidential recordings media type.

Google may have the means (and the business model to sustain it) to do more digitization of the world’s knowledge than all other efforts combined, but the efforts preceding it, like Michael Hart’s Project Gutenburg, a 20-year effort to create free digital version of all public domain texts, should be warmly regarded.

(When Google announced its massive scanning project in five major libraries I wanted my next blog headline to read “Goodbye Project Gutenberg; Hello Project Googleberg” but I didn’t get around to it.)

I have never been more excited about the prospect of knowledge flooding the earth than now, with this Google announcement. And I’m not worried, as some are, about information overload.

To me, public domain content is a lot like open source software. The more freely available content or code there is, the more opportunity there is for companies to add value to the raw content — like writing application software on top of the LAMP (Linux, Apache, MySQL, PHP) stack which is available for free.

In the case of the full text of millions of books, imagine that kinds of search engines and software that can be built on top of the freely available text.

The opportunity for individuals to build software or services around the knowledge core has never been greater. As open source matures and as these massive content projects proceed, knowledge workers and entrepreneurs will have more powerful tools at their fingertips than ever before.