Awesome, Facebook–But the Users Will Still Own the Web

Facebook CEO Mark Zuckerberg and his handlers clearly have found a way to replicate Steve Jobs’ infamous reality distortion field, that charismatic glow during the Apple CEO’s product introductions that seems to soften the hearts of even the most jaded skeptics. I didn’t attend the company’s F8 developers conference today, where Zuckerberg held forth on a number of new initiatives intended to extend its influence across the Web, taking people’s interests, likes, and online behavior beyond Facebook to many other sites. But watching the chorus of tweets on Twitter, it was clear that the young CEO had most of his audience in thrall.

And with some good reason. As paidContent.org sums it up:

Facebook is making it even easier for users to take their Facebook identity with them as they navigate the web. At its developers conference this morning, the company announced a set of “social plugins” that, among other capabilities, let visitors to third-party websites indicate to their Facebook contacts that they “Like” a specific piece of content, without having to log-in to the third-party site (The user does, of course, have to be logged in to Facebook). To add the plugin, websites only have to add one line of code. The “Like” button is just the start. Once a site has added that plugin, it can also add others so that visitors can see what their Facebook friends have “Liked” and also get content suggestions.

The upshot, says Mathew Ingram at GigaOM:

Facebook wants to own your activity on the Internet. Zuckerberg did his best to portray this as a great thing for users, but the corollary is inescapable: Facebook will be everywhere you are, watching what you do, keeping track of that data, and talking about what you’re doing to your friends and companies you “like.”

Already, some observers are saying that Facebook has just seized control of the Internet and that it’s about to conquer the rest of the world. For pete’s sake, let’s get a grip. I’m not going to stop searching on Google (I kind of like that Google’s algorithms produce results informed by the judgment of thousands or millions of people rather than just my dozens or hundreds of friends and acquaintances). I’m not going to stop using Yahoo Mail (unless it keeps getting slower and slower). I’m not going to stop tweeting (Twitter is a different service and a different audience than my circle in Facebook). And neither are you.

Maybe, even as a fairly active Facebook user, I’m missing something. Facebook’s moves no doubt will spread its tentacles across a large portion of the Web. But it’s by no means certain that most users (let alone all developers) will go along–especially once they realize how far and wide their likes and preferences and behavior could travel beyond where they expected.

One problem is that Facebook doesn’t yet command the complete trust of its users–not even as much as Google, which has come in for a lot of its own privacy-related criticism lately. Whether it’s because of multiple privacy gaffes or Zuckerberg’s recent statement that public sharing of personal information is the new social norm, the company still has to prove it’s not going to make people uncomfortable sharing stuff on Facebook–and now, well beyond. Even Facebook uberfan Robert Scoble notes, “What we’re really scared about is another very powerful company is forming. One that we don’t yet fully trust.”

And with privacy policies and controls so complex that many people are confused or simply ignore them, it seems likely there will be more privacy blowups to come. (Like these.) After all, notes Greg Sterling, with these new features,

Facebook will eventually be sitting on a mountain of secondary data or metadata: favorite restaurants, places, musicians and many more categories of information. All this data will be structured and associated with its millions and millions of users. What it does or doesn’t do with that information and data will also be interesting to watch.

Very interesting indeed. And this gets to an even more fundamental challenge for Facebook. Its very purpose is to make the Web (and the world, to hear Zuckerberg rhapsodize at F8 about creating heaven on earth) more social. That’s a fine goal. I really like the idea of a social Pandora, for example. But this can’t be done with too broad a brush, because life ain’t that simple.

The thing is, I don’t want most friends and certainly acquaintances (who honestly make up the bulk of my “friends” on Facebook) to know what I’m searching, or to know what articles I read on other sites or even what other sites I visit. For that matter, I don’t care what most of them bought or what movies they like, since I don’t choose friends (and certainly not casual or work acquaintances) based solely on their tastes, which often aren’t the same as mine. Most of all, I’ll share stuff with close friends that I don’t want anyone else to know.

I’m not alone here. Even younger people, whom so many companies whose businesses depend on open data access insist don’t care much about privacy, actually do. Indeed, they’ll care just as much as their elders when they get older and have kids they need to protect, careers they can’t afford to endanger, and longstanding relationships they don’t want to lose because of some offhand post on Facebook.

So we all have perfectly good reasons for not sharing everything with everybody. And yes, I know that technically, I have control over who sees what data. Facebook deserves credit for giving people more tools to control that. But that’s not even close to good enough if those controls are so complex or cumbersome or hard to find that relatively few people use them. The fact remains that what gets revealed by default too often goes against social expectations, and that’s got to come back to bite Facebook–especially since it was built originally on the promise of at least a certain amount of privacy.  As Marshall Kirkpatrick wrote on ReadWriteWeb in January:

By pushing your personal information and conversation through activity updates fully into the public, Facebook is eliminating any integrity of context that these conversations would naturally have. Posted updates can be directed only to limited lists of Facebook contacts, like college buddies or work friends, but that option is buried under more public default options and much of a user’s activity on the site is not subject to that kind of option.

Update: I just went to the personalized music service Pandora, one of several initial partners on the new Facebook features. Lo and behold, there’s my profile photo from Facebook, along with a suggestion that I “try an artist you like from Facebook,” namely Bob Marley, whom I recently “liked” on Facebook. I don’t completely dislike this suggestion. But it is disconcerting for me to see my Facebook mug and likes on another site when I didn’t specifically opt in for this information to be shared. And check out this timeline of changes in Facebook’s privacy policy.

So for all that Facebook announced today, its toughest job remains: Convince users it can be trusted. It’s still too early to count on that.

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LIVE: Display Ad Rebound Powers Yahoo Profit, But Investors Unimpressed

After five straight quarters of declining year-over-year revenues, Yahoo managed to return to growth in its first quarter, even if it was only 1%, to $1.6 billion. But the real upside for the tarnished Internet icon was in profits, which jumped 162%, to $310 million, or 22 cents a share–way ahead of analysts’ 9-cent estimate. You can view the conference call here; for more on that, check out the update below.

The news initially buoyed the stock, which was flat in trading Tuesday, by as much as 4% in after-hours trading before it began falling by more than 1%. Analysts had expected revenues to do better, but they were weighed down by a 14% drop in search-ad revenues. And investors quickly realized that Yahoo’s profit was lifted by 5 cents thanks to its sale of email unit Zimbra and by 2 cents from $78 million in payments by Microsoft related to its search deal with the company.

Indeed, the quarter showed how far Yahoo has to go to return to some semblance of its former glory. Yahoo’s quarter paled next to its key rival Google, which last Thursday reported a better-than-expected first quarter, with profits up 37% and revenues up 23%. Even that wasn’t nearly enough for anxious investors, who had hoped for more. Google’s shares fell almost 8% the next day.

What’s more, Yahoo provided tepid guidance for the second quarter. It forecast profits of $155 million to $195 million on revenues of $1.6 to $1.68 billion.

The best news was that Yahoo’s display advertising, including banner and video ads, grew by 20% in the quarter. Even more important, so-called guaranteed display, the ads that appear on Yahoo’s most-trafficked pages and are bought as much as months in advance, grew even more, by 24%. That’s a positive sign for online advertising, which has been in a slump thanks to the recession.

Update: CEO Carol Bartz is on the conference call (the transcript is now available at Seeking Alpha). “We delivered what I’d call a solid quarter,” she said, in an admission that it was far from spectacular. But she accentuated the positive: display revenues up 20%, higher than the overall market. Brand marketers’ purse strings are “starting to loosen up,” she added.

CFO Tim Morse comes on to admit that revenues came in 2% shy of the middle of Yahoo’s own forecast. He says search revenue should trend upward in the second quarter. His blitz of numbers apparently isn’t impressing investors. Yahoo’s stock is down almost 3% 15 minutes into the call.

Thankfully, Bartz returns, noting that not only is the display market coming back, but the quality of ads is rising as well. She repeats her recent mantra that Yahoo is the only Internet property with “science, art, and scale. “

But she says that moving off  a couple of ad platforms, which consumed much of Yahoo’s energy and investment the last few years, onto a new one will take into the second half of next year.

She also addresses concerns about management turnover at Yahoo–which has been near-total since she joined. She dismisses the critics, saying that few people are paying attention to the new talent coming in. (Kara Swisher, who correctly notes that she breaks most of these departures before they’re announced, decides to take this as a personal criticism, and it probably is. She’s liveblogging the call.)

There’s more, including analysts’ questions, but you’re not missing a whole lot.

Bottom line: It’s not yet apparent how much Yahoo, which more or less jumpstarted online advertising in the late 1990s, will benefit overall from the ad recovery. So Bartz still has a lot to prove.

Google Tops Earnings Expectations–But Not Investors’ Hopes

As expected, Google turned in a more than decent first quarter, with profits up 37%. But just as in the fourth quarter, investors were hoping for even better, sending the search giant’s shares down 3% or more in early after-hours trading. No big surprise here: If anyone were expected to beat already heady expectations, it would be Google. For one, it weathered the recession better than just about anyone, and for another, search ads–which can be stopped and started in a nanosecond–were expected to rebound quickly with the overall economy.

Now,  investors will be looking for guidance into the future, which Google is always cautious about providing. I won’t be able to tune into conference call, now underway, but you can here. And the Wall Street Journal is liveblogging it here. Here’s the release.

Update: The stock fell an eye-opening 7% Friday, though on a bad day for the overall markets. It seems that investors are most concerned about Google’s higher-than-expected expenses–understandable, given that the company added almost 800 new employees in the quarter, the most in years. Still, given the jump in profits, and the clearly optimistic comments from Google executives, several analysts remain positive, including S&P’s Scott Kessler, who wrote this in a note Friday:

GOOG is down 7%, as investors seem concerned about certain operating expense items that were well above our forecasts (as GOOG sequentially added 786 people, the most in two years), and the absence of CEO Eric Schmidt from the conference call. We think GOOG reported strong Q1 results, including its highest revenue growth since Q3 ’08, an operating margin of 41%, and well controlled capex. Given the notable growth prospects we see, talented and stable management, and $27B in net cash and short-term investments, we believe today’s sell-off is an enhanced buying opportunity.

Likewise, Broadpoint AmTech’s Ben Schachter remains upbeat on the long-term, but he says GOOG will be a show-me stock for the near future, until the company can demonstrate its next growth market–probably its still-nascent display-ad business, including mobile ads:

GOOG delivered solid revenue growth, up 22% ex-FX and hedging (an acceleration from 4Q’s adjusted growth of ~16%). There was broad strength across Google.com sites, partner sites, and many verticals and geographies. The operating margin came in at 54.9% as the company resumed hiring, adding ~800 heads. Additionally, we estimate that sales of ~200k Nexus One phones negatively impacted the gross margin by ~130 bps. Capex remained low at just $239mil, which will help the gross margin line going forward. The bottom line is that overall numbers were good, but with the stock up 5% in the past five days, expectations were on the rise heading into the call. Operating expenses were higher than expected, and the company failed to deliver enough top-line upside.

Our near-term concern is a lack of catalysts to drive the stock, while longer-term, many investors continue to worry about mobile threats and GOOG’s ability to grow emerging revenue streams fast enough to meaningfully move the needle. We remain convinced that the core business has many years of solid growth to come and that the emerging businesses of mobile, display, video, and enterprise offer tremendous opportunities. However, we suspect that the negative sentiment around the name will persist until GOOG can deliver meaningful upside or a new business ignites excitement about its longer-term potential. We are reiterating our Buy rating and $650 target, though the stock could tread water near-term.

Search Ad Spending Up Again. Good Quarter for Google Coming?

If you’re wondering how the famously tight-lipped Google did in its first quarter, which it will report on Thursday, here’s an early clue: Spending on search marketing overall–which Google dominates with nearly a 75% market share–rose 20% in the first quarter from a year ago, according to the search marketing firm Efficient Frontier. Although it fell about 8% from the seasonally strong fourth quarter, that’s about half the usual drop. The upshot: Investors may well get a bit of an upside surprise from Google.

“The market is picking up quite a bit,” Efficient Frontier CEO David Karnstedt told me Monday. More promising yet, the company has already raised its forecast for search spending growth to 15% to 20% this year, from its 10% to 15%  estimate last quarter, when it noted the best search business in a year. The strongest sector remains retail, a Google stronghold–yet another indication that the search giant’s quarter probably came in better than expected.

Nothing in the report indicates Google faces serious competition yet, though Microsoft’s Bing showed big yearly gains in share of clicks and ad spending. But Yahoo, whose search business Microsoft is taking over, continued to lose ground. So the net outlook for Microsoft remains uncertain.

Last year’s first quarter was particularly bad for search ads, so it would be too easy to overplay the turnaround. But as Efficient Frontier says in its report, there are several reasons for optimism:

One, impression volumes are higher in all sectors as compared to a year ago indicating greater consumer interest. Second, CPCs have made a broad recovery indicating greater demand and larger budget appetites from advertisers. Third, the broader economic conditions appear to have stabilized, a trend that will result in a lift in consumer purchasing and companies advertising online.

Google could still disappoint investors, who sold shares in January when its fourth quarter, despite easily beating analysts’ official expectations, didn’t meet their outsized hopes. As Broadpoint AmTech analyst Ben Schachter says in his most recent report on Google, that scenario could play out again:

We believe upside is likely when GOOG reports its 1Q’10 results, as the broader macro recovery has driven sequential CPC improvements and volumes remain solid. We are increasing our 1Q net revenue sequential growth estimate to flat (from down 1.5%), which implies modest growth after adjusting for the impact of a stronger U.S. dollar q/q. Our 1Q non-GAAP EPS estimate goes to $6.71 from $6.62, while our 2010 EPS estimate goes to $28.02. We expect numbers for GOOG will trend higher, but investors should be prepared for continued multiple pressure due to ongoing regulatory/legal headlines and fear of mobile usage patterns.

Regardless of what the traders do, however, it’s becoming clear that as Google and others always predicted, search ad spending is leading the online ad business out of the recession.

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