Hans Hoffmann's Blog

Well it finally happened on Friday May 18th, the biggest IPO ever. Facebook is now a public company and the good old days of the wild, wild west are gone for Facebook. They will now on a quarterly basis be held accountable to their shareholders, mainly big financial institutions. They will have to report earnings, disclose where the money is coming from, What their future prospects are. How will they combat competition.  Can they diversify or are they a one-trick pony.  In short all the fun is gone.   This was about as hyped a IPO us they come.  With over 900 million users  Facebook was big even before they hit Wall Street.  Their founder and CEO, Mark Zuckerberg was already a household name with an Academy Award nominated film about him (The Social Network).  He lost $2 billion on the second day of trading.  He will be in the Forbes Magazine top 100 richest people list for easily the next decade.    Yet despite all this hype by the media by day two of trading, Facebook was being called disappointing.   My view is don’t buy into what is being said, but this is time to pause and analyze what has taken place.

First you can always blame the Greeks, and so I shall.  Timing is everything in life.  The problem is time is rarely within ones control.  And so it was with the Facebook IPO.  As people complain bitterly about the US economy in an election year, it has become increasingly difficult and complex for the average American worker to understand why Greece matters so much.  But the reality is it does.  It affects all the global financial institutions who hold Greek debt.  It jeopardizes the stability of the Euro.  If  Greece is to be bailed out it means Germany will have to intervene, then the question of who is next, Spain , Italy, Portugal, etc…  In the end though it creates jittery financial markets.  Jittery markets are not local they are global and therefore Europe’s jitters come to American shores. Which is exactly what Facebook entered into, a jittery global market.  I think many thought Facebook would create a “new” dotcom boom.   However the current global crisis has deep roots and deep wounds that will scar the global economy for a long time.  The expectations of the Facebook IPO were too great and never realistic.

The second issue was the NASDAQ’s handling of the IPO.  When I first heard Facebook was going public I thought it would race towards Apple and Google prices of over $500 per share.  However after the first day of trading it was apparent it would not get anywhere close to those levels,  Some said the opening price of $38 per share was too high.  Others, and I count myself in this group, said too many shares were made available.  Even at $30 a share you are still looking at a company valued at $90 billion. You are looking at over 2.74 billion share that were made available.  To put in perspective after all the split and buybacks Microsoft has 8.4 billion outstanding shares, two splits and Facebook will be at that number.  Do not expect  a Microsoft with splits on a yearly basis over a decade for Facebook.  It seems as the NASDAQ caved into the hype and now will pay the price in the form of numerous lawsuits.

There is also the glamorous side of things with CEO Mark Zuckerberg marrying his fiance Pricilla Chen.  Makes for nice press and it may seem charming to marry your love on the same day as your baby goes public making you a mega multi-billionaire.  Then surprisingly disappearing from site for a while.  He is young and he may be smart, but some of his wisdom is lacking when it comes to life’s experiences.  Though I am a bit confused as to why the press thinks his missing status a few days after getting married….try a bedroom?  Just suggesting as the press is oh so smart.  Don’t trust the Wall Street Journal on this one, go with People magazine or dare I say the Enquirer?

With all the negative attention I am not too concerned about Facebook’s future prospects.  Some have asked or questioned Facebook’s mobile strategy as this is the next holy grail.  I think Facebook was one of the first companies to get the need for mobile applications.  Early on in the iPhone craze Facebook was the “killer” app.  Can they monetize mobility?  I think it will be relatively easy for them to do this.  When I use Pandora for music on my iPhone I see a lot of ads that I find relatively non intrusive.  There is also the persistent rumor of a Facebook smartphone.  Could be interesting lets just hope it is not another Microsoft Kin.  In the end though I have always viewed Facebook as a leader in the mobility space and I expect that to continue and I expect them to monetize mobility.

It also seems in the ad business right now that the place companies want to be is Facebook.  This will be a major threat to Google as there will be less perceived value for search ads versus an internet application where people hang out, in large numbers.  Despite Microsoft’s investment in Facebook it is a double edge sword as companies are even less likely to maintain or increase budget to advertise via Bing or MSN.  The attraction for advertisers is people literally hang out on Facebook  For ad execs that is a more understandable revenue model as it in some ways is just like watching television.

Looking down the road given its audience size I see other prospects.  Video content seems the obvious one, but maybe more broadly entertainment in general.  I have long felt that we will soon have a day where a movie is released straight to the internet by passing theaters (I find this sad, but the writing is on the wall).  Facebook with 900 million subscribers would be a very attractive channel.  Music Entertainment could be the same.  A key for all this will be hooking up to my flat screen, though I love my laptop the entire family cannot gather around it.   In this regard it will be interesting to see what Facebook defines as its channel strategy.

In the end despite the negative publicity around the Facebook IPO I am optimistic about its future prospects.  Things will turn in Facebook’s favor, unless at the executive management level there is a complete meltdown.  All eyes will be turned to when Facebook announces its Q1 earnings and I think they will be good and start the path to having a predictable growth model.  We know already that they generate $4 billion in revenue with a net income of $650 million, so it will be interesting to see the cost structure of the company in more detail.  Maybe more impressive is that it is doing this with a little over 3500 employees. We do know that once an internet based company gets rolling the momentum can carry a company forward quite rapidly.   Then we can start getting excited about the next big IPO, Twitter.

Good Night and Good Luck

Hans Henrik Hoffmann May 25, 2012

I remember years ago when Scott McNealy was still CEO of SUN Microsystems, he was speaking at some large industry conference.  At the time we were starting to see the fruits of video surveillance technology, people were getting a little worried. Big brother was here and people did not like it, especially if you had just got a “photo” ticket in the mail. In front of a large audience Scott’s comment regarding video surveillance technology was to everyone, who was concerned, “Get over it”.   It’s always nice to be scolded  by a keynote speaker.  Scott was not really known as a touchy feely kind of guy. For that matter most corporate executives are not.  However his comment did speak to the nature of technology in that once the train leaves the station progress is hard to stop.    It takes on a life of its own and the rest of the world is left trying to catch up.  Video surveillance has only grown since those comments were made raising the question, “where are the boundaries”?

The borders are becoming increasingly blurred even as video becomes more pervasive in our day-to-day lives.  This is something I pulled off of the Yale – New Haven Teachers Institute sight, written by Angelo J. Pompano, but it does a clear job of illustrating a point:

No, this is not your father’s Candid Camera. Privacy in the Age of Video Surveillance is a serious concern. With the proliferation of video surveillance equipment in every conceivable situation of our daily lives, concealed video cameras are not a source of amusement as on the old Candid Camera television show, but a real restriction on our right to privacy. Consider a hypothetical, but possibly typical day: you wake up and walk out to your mailbox. A neighbor’s private security camera is trained on his driveway across the street and picks you up. Later, you drive to work and when you get to the light on the corner, a video camera is watching to see if you went through red. You stop off at an ATM and you are taped. You go into the 7 Eleven-taped; pump gas- taped; get on the interstate and the traffic control cameras are focused on you. You get to work and the camera in the parking lot follows you into the building. Then you finally get you your desk and once more you are monitored. Let’s not even consider the possibility of hanging out at the water cooler or going into the bathroom. It’s only 8:15 AM and you have already had more TV exposure than Regis Philbin. You begin to think that maybe you shouldn’t have worn that plaid tie with the checkered shirt.

This example is current. It exists today.  We bask in watching reality TV shows when in actuality we are already living it.  We just fail to notice or simply do not care.  Thinking our lives dull.  However everywhere we go we are being watched.  And not just in real-time.  The video content is stored so if we need to, we can access later. As time goes by more and more of our lives will be caught on video, until the point we can stitch them all together to create a complete view of our life, however interesting or boring it may be.

This does raise concerns, and in today’s world when we have concerns it is usually a question of how it is defined in our legal systems. When my life is in the public domain what rights do I have to say what can be viewed and what cannot?   Can someone take some of eth embarrassing clips of me and post to Twitter or on YouTube?  Many states have laws erected around hidden cameras and surveillance cameras.  More interesting may be that many states do not.  Video Surveillance is being discussed at both state and federal levels with arguments on both sides.  Employers would argue that video surveillance can be used most anywhere on corporate campuses (yes..including locker rooms and bathrooms).  The one that so far has been determined off-limits is intrusion into people’s private homes.  However it is apparent that the boarders of video surveillance are expanding not contracting.  Beyond places of business it has morphed into our daily lives.  It may be just the video app on your iPhone, but that in and of itself is a new form of surveillance.  When we got our iPad at home I was amazed at my young boys ability to quickly find and create home video’s with the iPad.  It seems video technology, like it or not is everywhere.  We may not be able to depend on our governments to regulate because to do so will require us to regulate individuals.  Can government keep up with the  fast pace of technological change?

When we think of technology it is an industry that never sleeps.  An industry built on dreams, of dreaming a brighter and better future for mankind.  Of course it is odd, to me, that these technological advancements often happen in our military establishment. Things that we associate with military advancement make their way back to domestic products.  That is what makes this area very difficult for lawmakers as congress does not work as fast as technology.  When they have get involved it is not clear if they had a positive impact (The Microsoft DOJ comes to mind).  When I think of video and where it is today and where it could be in five to ten years it is pretty daunting.  In a commercial today for healthcare they actor talks about swallowing a pill that has a camera that can capture and send video of your internal systems.  That is pretty useful and amazing.  What if the military could create a robotic fly or mosquito that had a camera?  That would be pretty cool for military intelligence?

Today when you look at directions via Google Maps the level of detail you can drill down to is pretty specific.  I can see my house, my lawn etc..But these are still just photographs.  However the question is how long before I can actually see activity going on around my house?  I have seen numerous demos that show 3-dimensional views of a city, what would the natural evolution of this be?  How long before it captures me leaving the house for work or to walk the kids to school? How zoomed in will the view be?  Will the camera view capture a smile or a frown on my face?  Who will be watching me?  Today when police arrest someone who may have stolen a TV from a home, they can view in detail where the person has been by viewing the recent log files of Google Maps, to show where the suspect has been recently.  This could be a boon for couples where one suspects the other of cheating…just a thought.

In the end how far will all this go?  All you have to do is imagine. In the end reality TV is going to die because we will all be on it 24 by 7.  Will we enter Orwell’s, “1984”?  Or maybe Suzanne Collin’s “The Hunger Games”.  We may have to, for I fear when we are all on video ,the reality will be that many of us will not be worth prime time viewing.  Will we need social security cards anymore when we can in real-time pull up fingerprints, or maybe more realistically swipe our thumb and have it cross referenced with some centralized (and distributed) master database?  What about a PIN for your ATM?  That brings some gruesome mobster kind of thought when your thumb is a valuable piece of information.  As has been pointed out there will be many benefits but at the same time we always have to weigh in with at what cost?  In today’s world we are great at figuring out the financial costs, but we seem to have lost sight of the social costs.  But then who needs to see what’s on mans mind since we seem to think we know everyone when they are on video.

Good Night and Good Luck

Hans Henrik Hoffmann April 19, 2012

Well they are finally rolling out the Nokia Lumina 900 series running the Windows Phone OS. They are doing this with AT&T and offering cut-rate prices.  You will be able to pick these phones up for $100.  I think the price point reflects that fact that Nokia is desperate in the US market and Microsoft is desperate to catch up with Apple and Google. I It was Google VP (and former Microsoft GM) Vic Gudotra who tweeted when this unlikely partnership was announced, “Two turkey’s do not make an eagle”. For the record I support t turkeys, if you have seen them in the wild they are a damn cool bird.  But the quote did summarize the state of Nokia and Microsoft in the mobile space at the current time

I was actually meeting with an old co-worker at AT&T who let me handle the Windows Phone. It was the HTC Titan.  The screen was bigger than my iPhone3 (I am always running behind the latest and greatest). When the iPhone5 comes out I may upgrade.  In any case back to the HTC Titan.  The much discussed Metro interface was nice, is it a game changer? No, but nice and I guess it comes down to personal preference.  Some will like the iPhones, others Android and yet others will like the Metro interface.  There does seem to be high hopes around Windows 8.  I remain skeptical, but Microsoft has the clout to make the new operating system a success.  Not just on the desktop but the smart phone and the tablet.  Back to my friend, he let me hold the device. Which was the first time some one had let me do that.   Note to Microsoft phone people stop withe the demo’s and geeky talk, let people experience the phone.

Can either of these two companies create an Apple size comeback?  Nokia is more Apple like in that it is spiraling towards rock bottom.  Microsoft still has Windows and Office generating over $20 billion so though not a company with a lot of “panache”, they are not dying yet.  My fear for Nokia has always been the move away from software and going head to head with Samsung, LG, HTC and the Chinese handset manufacturers.  It will be hard to distinguish themselves as different from the others.  Of course they did do just that when they selected Microsoft as their phone OS vendor.  Nokia had also blown the US market years ago when they refused to make a flip phone.  For a decade Nokia was a much bigger provider outside the US than inside.  For a time it seemed to be ok, “hey we don’t need the US market”.  Odd, but it is what they did.  Then like so many things in mobility, the iPhone hit and changed the landscape.

Moving forward it is apparent that Nokia will need a tablet play as the idea of just providing smart phones is simply not enough.  Due to their relationship with Microsoft, Nokia is in a holding pattern until Windows 8 arrives in the fall.  If I have a concern here for Nokia/Microsoft it is that no one is holding off on their purchase of the new iPad 3 in hopes of a better Windows 8 tablet.  The iPad has garnered so much mind share that I think many people do not realize Microsoft and its OEM partners are coming out with a tablet.  It does not hurt that Apple stock is now trading over $600 a share and they just announced a quarterly dividend of $2.64 a share.

What about Microsoft in this space?  Well as discussed they will not go broke anytime soon, but this is a last stand in the phone space.  Never has Microsoft attached its sails to one strategic partner like it has with Nokia.  For Microsoft it is important that Nokia maintain and start to regrow its international footprint.  An area where Windows Phone has traditionally been weak.  It i also a major reason for partnering with Nokia.  Nokia invested early and heavily in India and China so it makes sense, this unique partnership. It also needs success in the US market, it only to offset the market presence of both Apple and Google.  Apple really rocked the industry with the iPhone, but no company was caught as off guard as Microsoft.  I was there at the time and there was a flippant view towards Apple in this space, thinking they were naive and would fail.  Revolutions happen and if you don’t anticipate them you will be over thrown.

In conclusion, the next 12-18 months will determine if this partnership will succeed or fail.  There will be challenges.  Microsoft has other mobile handset partners.  What if one of them makes the ultimate Windows Phone experience?  How quickly would Microsoft dump Nokia and how quickly would Nokia run to Google’s arms?  If share doe snot grow but remains stagnant when does one throw in the towel?  AT&T is the largest carrier and promoter of Windows Phone in the US, but how long will their commitment be if the Windows phone continues to falter?  Will Nokia and Microsoft be able to build up a strong developer community to build applications?  There are a lot of unanswered questions and only time will tell.  Some say this partnership needs to succeed, to create an alternative eco system to what Google and Apple provide.  I have always found this a perplexing and humorous notion.  Why do we need a third system?  That is something only the technical people say.  The “people” I cannot see really care one way or the other.  If they did care the Microsoft Zune would still be around.

Good Night and Good Luck

Hans Henrik Hoffmann March 27, 2012