Subba’s Serendipitous moments

June 27, 2009

In Government spin zone

In the times we live, the quality of a first rate mind is to be able to identify spin. The only negative side effect is that in the process one gets labeled as cynical. What was once purely seen as creating an image to put a sheen on performance, has now degenerated into an orchestrated spin often to substitute performance.

The best way to do spin on a co-operating and conniving media is to use data. Since the art of spin was invented in the U.S. let’s start there:

The data dished out indicates that continuous claims for unemployment benefits dropped. The naive reader would be led to believe that job creation is happening and unemployment is declining. The reality however is that once continuous claims are made, the recipients drop out of the claims rolls. This is confirmed by my economist friend — Dr. Ananth in his column as well. So, the drop in unemployment claims has nothing to do with generating jobs. This disclaimer is not stated even in the fine print.

The US non-farm economy lost only 345,000 jobs in May though it was expected to lose 500,000. One just inflates the “expected” figures and when the real number comes it is seen as better than expected, notwithstanding the fact that even the real numbers are high.

The flurry of visits to China by important officials in the Obama administration goes beyond the apparent significance. The US Treasury Secretary’s visit and before that the U.S. Foreign Secretary’s visit reiterating their U.S. was committed to a strong U.S. dollar is laughable. This is crude spin at best.

The U.S. is the biggest debtor and China has no choice but to accumulate U.S. dollar assets and suffer erosion of value as its currency is pegged to the U.S. dollar. As long as U.S. outsources its manufacturing to China, and as long as vested interests dictate that China’s economy has to be export driven, a weak U.S. dollar serves both sides. The U.S. keeps asking China to revalue its currency is nothing but a meaningless side show. Another case of spin.

The reality is that job creation in the U.S. since 2000 has been very low, and yet to keep the economy expanding the interest rates were kept low which created the asset bubble. We saw the repercussions of the asset bubble. Despite the bubble and the meltdown, China didn’t seize the opportunity to build a domestic economy. It simply increased the export rebates and boosted manufacturing capacity. Making the shift from export driven economy (which helped China taste success) to a domestic economy is akin to making the step from a state led economy to a market led economy. The present Chinese ruling elite has chosen to postpone the inevitable.

So, to keep up with the fact that Governments are doing something and that the economy is recovering we are entering the “spin zone”. Markets have rallied sharply since March 2009 and this is often cited as saying that all the stimulus spending is working. President Obama’s stimulus may become the cause of another bubble.

However if there’s more transparency and if the governments follow the principles of Government 2.0, by sharing all data and empowering citizens, it would be hard pressed to reveal the truth and curtail the spin.

Investors like bubbles. Media, to be relevant loves them. And Governments these days are too willing to generate one. And did I say that getting firmly entrenched in the “spin zone” and expanding the zone is often the first step.

I would certainly like to hear about the other spins that the Government puts across.

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April 1, 2009

Gideon Yu — the Facebook CFO quits suddenly!

A veteran CFO of one of the hottest companies at a critical juncture quits. Such abrupt high level departures at a critical stage indicates more things than it meets the eye.

Mr. Gideon Yu is a star CFO with stints in Google, YouTube and Yahoo and was responsible for raising capital, which Facebook needs as I wrote here.

I guess his leaving has something to do with the fund raising as the latest news in NY times seems to indicate.

The quote by the Facebook spokesman is classic PR speak: “Gideon Yu, said the company did not need to raise more cash to get to profitability but would entertain the idea. “It’s all going to be a function of valuation and a valuation we are happy with,” he said.

March 31, 2009

Facebook’s positive and unique problem

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Most sectors globally are seeing a reduction in demand. Businesses are cutting down on expansion plans. Yet Facebook the poster child for social networking, continues to soar.

It signed its 200 millionth user this month, doubling its size in just 8 months. It has now established itself as the world’s most extensively used avenue for personal networking and has surpassed competitors like MySpace, hi5, Orkut etc.

Each day they are signing 500,000 users bringing in traffic, photos, data etc.

More users are getting addicted to Facebook. More than half the users use the site everyday and spend an average of 20 minutes on the site.

It is the 5th most trafficked site in the U.S. and is the largest photo sharing site on the planet.

Microsoft invested $240 million for a 1.6% equity stake in 2005 when Facebook was just making revenues of $50 million, effectively valuing them at $15 billion.

Who would not envy Facebook’s growth?

Yet paradoxically, growth seems to be the real problem.

Even with such a large subscriber base, it is not profitable. Its 2009 revenues are projected to be $350 million (based on very optimistic estimates) and its costs are spiraling upwards since it just needs to put in more infrastructure to cater to the bludgeoning subscribers. Experts reckon that the costs to run the infrastructure would be $600 million. Currently, it is still struggling to find a profitability model.

Based on Businessweek’s recent article, it is hunting for more money. It would be difficult to raise equity at the earlier valuation of $15 billion in current business environments. Hence it is looking for debt financing to lease the computers to run its sites.

The revenue projections are primarily based on advertising and is primarily for the U.S. audience which is estimates to be around 60 million. it looks like the growth in the U.S. has flattened and all the international users are not necessarily factored as prospective users for the revenue model.

Its revenue models– primarily advertising (self serve ad system) and their talks with various advertisers have been ‘soft” given the current business environment. A new kind of engagement advertising is being tested out, and is unproven.

More fundamentally, the company has been having an unprecedented challenge: It created a community and now the community has become so powerful that it is challenging the company and forcing the company to retract from several key business initiatives. It had to withdraw the Beacon advertising system in 2007 and also withdraw its earlier move to take commercial control over the user content.It also had to deal with a huge user protest over some design changes.

So, where is Facebook headed with all these positive challenges?

Will it reinvent the social networking space with some new killer applications.or just go the way other social networking platforms like Friendster and MySpace?

Will it be a candidate for acquisition either for Google or Microsoft or AOL?

What is needed to be done to monetize their user base, given that users have become dominant and aggressive in the way they would like to be treated?

And finally, is social networking as a business model viable?

October 4, 2008

Yoga leverages on Google

Filed under: Business,India,Innovation — Subbaraman Iyer @ 8:55 pm
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Saw this billboard advertising for a Yoga camp. It rides on the popularity of the new Google browser — Chrome.

Yoga needs Google!

Yoga needs Google!

An interesting way to sell a Yoga camp.

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