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Why Facebook’s $19 Billion purchase of WhatsApp reminds me of NewsCorp buying MySpace

On the face of it, the two companies could not be more widely apart. One is the paragon the new paradigm, while other is an old dying breed! I am, of course, talking about Facebook and NewsCorp. That is what all the pundits will tell you. They will also explain the logic of why News Corp bought MySpace in those terms.

Admittedly, NewsCorp business model was broken in 2005 and it had hoped that MySpace would provide the much needed fillip. That never happened, as it could not have happened. NewsCorp let MySpace go after 6 years for $35 million, a fraction of the $580 million it had originally paid. People have their own opinions on what MySpace has become by now, and I have nothing to add to that discussion.

However, Facebook is a company of intense interest at the moment. If you have studied the business networks for as long as I have (in fact I wrote the book ‘The 5-STAR Business Networks) you will also start thinking of it as a company more akin to NewsCorp than to MySpace.

Most people think that Facebook has a minor problem that teens are losing interest in the platform. I think the problem runs deeper – its business model is not sustainable. As explained by 2veritasium in this 7-minute video

(great Australian content – original, thought provoking and myth-shattering) which has already had more than 1.3 million views in nearly 6 weeks, the problem with Facebook is that it is already starting to resemble the old-age companies – almost like The Curious Case of Benjamin Button.

As the video hints, companies do resort to desperate measures in desperate times. That is the reason why Facebook’s purchase of WhatsApp reminds me of the deal between News Corp and MySpace. Only time will tell whether Facebook’s decision to start a new chapter with WhatsApp will lead to a bitter “divorce” or not.

EBay and Amazon beware, Alibaba’s coming IPO means time to protect home turf

Australia leads the way to Globalisation with triple FTA with Asia’s big threeThe world’s biggest e-commerce company is set to go public in the world’s biggest retail market, the latter is true at least for now. Alibaba announced its decision to “commence the process of an initial public offering in the United States” on Sunday.

After last year’s failed attempt to persuade Hong Kong, Alibaba turned to the US for what set to be the biggest IPO since Facebook’s 2012 feat.

The Chinese giant will work with Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. in finalising the IPO, which could launch as early as April.

“Alibaba has evolved from a company selling two dozen items back in 1999 to a truly 5-star business network, with a transaction volume bigger than Amazon and eBay combined in 2012.

The essence of Alibaba’s success lies in its super network, connecting millions of consumers, retailers and suppliers. Its value addition strategy has moved beyond synergy and into something known as value synchronicity”, said Vivek Sood – CEO of Global Supply Chain Group.

Analysts expect the e-commerce giant to raise around US$15 billion, making it the top 4 biggest IPOs ever behind Visa, General Motors and Facebook.

The company also signaled its intention to list in China. “Should circumstances permit in the future, we will be constructive toward extending our public status in the China capital market in order to share our growth with the people of China”, Alibaba said in a statement.

Worth as much as US$200 billion, behind Google in the Internet field, Alibaba boasts annual profits five times those of Amazon last year after increasing its revenue by 61% and gross profits by 71%.

Serving more than six million retailers and 300 million consumers worldwide, Alibaba’s empire extends beyond its well-known e-retail operations on Taobao and Tmall sites.

The company also has its affiliate payment system Alipay, comparable to EBay’s PayPal, as well as financial services, logistics, mobile phone operating systems and TV set top boxes.

“China will soon become the world’s biggest retail market and Alibaba’s US IPO will lay a crucial springboard to gain a bigger share of the pie in China, which is currently 5%.

Amazon, whilst still upheld as a prime example of a 5-star business network, should level up or risk being outwitted in the game,” said Sood – the author of widely acclaimed book “The 5-Star Business Network”.

Sheer number of consumers, and their increasing purchasing power provides the fuel to Alibaba machine. Combine these numbers with the fact that in most cases Alibaba is not replacing a traditional business model, but rather creating blue ocean new business models and you can see the immense potential of the company. Now combine that with the access to the producers and understanding of production economics and you can truly see a challenging behemoth emerging.

It remains to be seen whether Amazon’s consumer understanding will trounce the above advantages that Alibaba enjoys.


girl-facebookI always start my analysis with a simple disclaimer that no matter how many Ivy League degrees one has, none can predict the future. With my near perfect GMAT score in quants, when it comes to analytical capabilities, I am confident that I am close to the top level. Yet it is necessary to note down this simple caveat at the beginning.

Because no one can predict the future, every acquisition is essentially a leap of faith – just like every marriage is. And, the parallel does not end there – similar to a marriage, probability of success of an acquisition is also rated just below 50%. Thankfully, that scary statistic does not stop people from marrying out of love, and companies from acquiring other companies out of – whatever leads them to get the urge to merge.

The cheer squad is out justifying the deal – rolling out measures such as MAU (monthly active user), revenue per MAU, valuation per MAU and such numbers. It reminds me of the go-go days of the last internet boom where valuations per eyeball led companies such as Webvan, pets.com and others to use similar statistics as the justification of their valuations and shaky business models. As an example, here is one list of top ten dot com flops. Here is another one compiled by CNN. Curiously, both of them missed Myspace.com, the Facebook of 2005, acquired by News Corporation for an astronomical sum of $580 Million.

Here is a snippet from Andrew Beattie:

In the year 1999, there were 457 IPOs, most of which were internet and technology related. Of those 457 IPOs, 117 doubled in price on the first day of trading. In 2001 the number of IPOs dwindled to 76, and none of them doubled on the first day of trading.

Why do I quote these numbers and examples? Only to remind you how short memory can be despite figures and statistics being set in stone. I will not go on and on with digging the graves because I have a couple of very important points to make.

First is this – what are other comparable businesses to WhatsApp? You could say none – but that is not true. Essentially, both Viber and Skype do similar things and have a wide reach. I have been using Skype since 2000 and Viber for at least 3 years before I started using WhatsApp. In addition, there are many other apps, including iMessage that allow online messaging. So what is the source of magic in this deal?

Let’s first compare the number of users, because they are the sole reason for astronomical valuation. Skype has reported more than 300 legitimate users. Many of them pay substantial sums for the privilege of using its services. For example I pay between $50 and $200 every year for its service. Yet Skype was sold to Microsoft for $8.5 Billion in 2011.

Yes, there are nearly 450 Million users of WhatsApp – but what do WhatsApp users pay? Zero, nada, zip – most of them pay the company nothing. In fact that is its biggest attraction! And, also the reason why it is so popular in Africa and parts of Asia. How much revenue can derive from serving ads to populace with limited buying power?

Now this is where the story gets very interesting. Indeed, as pointed out by Prahlad in his book “The Fortune at the Bottom of the Pyramid“, there is indeed a fortune to be made there. WhatsApp’s business model was finely tuned by its careful founders. And they have made a fortune by selling to Facebook at the right time, at a very fortunate price.

The key question is will Facebook be able to make a fortune out of its purchase? The demographics of Facebook users and WhatsApp users are significantly different. As I said in one of my recent posts on QuoraI think social media will start differentiating itself further. Facebook is fast becoming a housewives’ platform while LinkedIn is fast becoming a recruiters’ platform and Twitter is becoming a journalists’/politicians’ platform. I know this is still a gross generalisation, but consider this – many Facebook groups (such as HARO) have now started their own social platforms that are growing very successfully. This phenomenon is only going to accelerate as the technology evolves. Generic social platforming technologies as not yet commercially available easily. But they will be. Similar to what happened with message board technologies, blog technologies and countless other similar plug-ins. Once that happens – potentially every LinkedIn group, Facebook group, Yahoo group and Google+ group could evolve into an independent social platform with its own sub-culture and rules.”

For this reason I think the current deal is yet another case of Easy come, Easy go. In this article, the authors (Andrew McAfee, associate director of the Center for Digital Business at the M.I.T. Sloan School of Management, and Erik Brynjolfsson, professor at the M.I.T. Sloan School of Management, director of the Center for Digital Business) note that WhatsApp is a company of 55 employees and $19 Billion valuation, asking “Are we building a jobless economy?”

My view is different. I think in this case, we are barely building any economy at all. As noted in my Quora post above – when the dust on social media segregation settles, and the users self-select to fall in the right camp for the right activity the valuations will settle down closer to the norm. At the moment, driven by relentless quantitative easing, and lack of real investment opportunities, anything that looks remotely promising is being valued way higher than it should be. In this dot-com bubble on steroids, looking for logic in investment valuations is akin to hang gliding in the eye of a storm – you may think you are safe, but that is just a temporary illusion.

5 Things You Must Know About Social Media

Although social medias are obviously helpful tools of communication for your business, there are some things you should know before initiating any strategy. In fact, you cannot implement an appropriate social media strategy if you do not know the bases and the common traps. Then, this article aims at underlining a few important points people usually ignore about social media, especially in businesses.

 1. Practically free communication tool

Traditional medias are more expensive for your business than social medias. Obviously, you will have to pay people to carry this work. However, compared to traditional media, like advertising in print, social medias are much less expensive. The only thing you will have to pay for will be your staff and the management of the team who will be dealing with social medias. However, the price is very low compared to the earnings provided (and compared to what traditional medias would provide).

2. There are many

When talking about social medias, people first think about Facebook and Twitter, which is understandable. However, many other social media are available for your company to interact with customers and partners. Social networks like LinkedIn are very important, but there are also social news, etc. Besides, despite the fact it is not the first thing we think about, people watch a lot of videos and this cannot be neglected. Youtube and Vimeo, for example, can be very helpful in your communication strategy.

 3. They are for everyone

Social Medias are not websites for kids or teenagers, everyone – or almost – uses them nowadays. For example, according to Facebook the age group users who are increasing the fastest  are people over 35 years old. Then, if those people are your customers, you have to use social medias to interact with them. There is no other option for your business to make its place on the market.

4. Social Media keeps evolving

You – and even more the team in charge in your business – must keep an eye on what is happening in the world of social media every single day. In effect, the age of 2.0 is evolving very fast and all the time. If you want your business to survive against competition from all over the world, you have to adapt to this continuous evolution. See what others are doing for their business, and if you are not already doing it, then you are late, and if you do not catch up fast, you will quickly be left behind. Social media devices also evolve over the time. A few years ago, your presence on social networks may have been enough, but today, social media is going further. In effect, for example, applications for Smartphones are becoming more and more important. Social medias keep evolving, as well as business networks themselves. Vivek Sood’s book, The 5-STAR Business Network (http://bit.ly/5-STARBN), will give you a better view of the evolution and importance of business networks.

5. A Two-way communication tool

They are great channels of communication in which you can exchange with people. It is not just about communication, but also sharing and discussing. This is amazing because nowadays, this is what causes progress. You can finally be aware instantaneously about what people say about you, your products, and your company. Thus, this is a great communication tool, which involves many actors from everywhere. by Anais Lelong

5 tips for social media use in business

Social media are amazing because they allow you to interact directly with visitors, which could be a great help for your business. This term covers a large range of websites, and it can refer to social bookmarking (Del.icio.us, Blinklist, Simpy), social news, social networking (Facebook, twitter, etc.), social photo and video sharing (YouTube, instagram etc.), or any other specific websites that enable you to interact with visitors (which concern a tremendous amount of websites these days).

Executives should get involved personally in social networks

CEOs and other executives are those who embody the organization. People want to see who is representing what they are buying. They want to get to know they are, what they look like, and what they stand for. There is the example of the French businessman Alain Afflelou who embodies this brand in his tv campaign. At some point the audience  has  so seen him so much that there was a buzz about the fact to know if he was an actor or not. That is why you should not be afraid of getting involved in social media and social networks. It is good publicity for your company. Besides, future partners want to know who you are. It is a matter of communication, but also a matter of company identity. You are the person who represents your brand the best.

 Adopt an intimacy strategy with your customers

The goal of social media is to interact, and with whom? “Your customers” seems to be the first answer. In effect, through social media, you can tell your customers about what you sell. It is a communication tool, so use it as such. Social media will help you transmit the qualities and values of your products and services. On the other hand, interaction also means customers can give their opinion, which is good news. Then, you will be able to know what your customers think about your company and your product, which will enable you to get better. You can build stronger relationships with your existing customers through the utilization of social media. In fact, Facebook is a way for keeping your products top of mind among already loyal customer and thus build a tighter emotional relationship between your brand and your customers. Besides, thanks to these feedbacks and customer’s opinion and tips, you might be able to reach new customers. There is no choice but to admit that social media is an amazing tool of communication because it can reach millions of people anywhere in the world, it makes you able to target particular groups in particular locations, and it is very fast for all this.

 Think about your social media strategy beforehand

Although intervene in social media is becoming essential today, you cannot decide it on an impulse. It has to be deeply thought and requirements must be analyzed. In fact, all companies will not act the same way on social media. There are differences according to your target and your industry. Your presence is crucial on social media, but which ones? How do you choose a social media? What would be the best for your specific company? On which websites are your customers and what do they need?  Learn more about that matter, read Vivek Sood book The 5-STAR Business Network (http://bit.ly/5-STARBN).

Evaluate the results

After your strategy is implemented and you are present on social media, you should be able to analyze the efficiency of your strategy. You have to evaluate it your presence on social media is helping your business or if the added value is disappointing. This is about ROI calculation. You can measure different outcomes, like revenue growth, profit, customer acquisition cost, or any other key parameter for your business. If something specific is important to your business, you must be able to evaluate the impact of social media use on it.