Groupon throws Zynga a Shovel. Facebook Gets its Affairs in Order

soldiers firing a shovel out of a rocket launcher

In our last post we wrote about how Groupon had managed to wipe off about $6 billion from it’s stock. That loss is now currently at $6.5 billion (On Monday it was $7 billion but Tuesday some small gains were made). Groupon (GRPN) is not the only one in trouble however. It is bookended by two other failing IPO’s – music discovery service Pandora and the lesser known Angie’s List (ANGI). Pandora’s stock closed at $10.52 yesterday, down 47.5% from a high of $20.04 on 1st July. Angie’s List stock closed at $11.80 yesterday, down 28% from a high of $16.26 at close of it’s first day only 8 days ago. Although neither two have bludgeoned the market cap quite like Groupon has, the trend is becoming more apparent.

Now that Groupon is public it is also going to have to be a little bit more open about its losses. It will have to file with the SEC a Form 10-Q quarterly & Form 10-K at the end of the fiscal year. This is going to offer a lot of insight for it’s competitors as well as for traders. Groupon has dug it’s grave quite nicely, but soon it will be time to pass the shovel-shaped baton and make room for the next questionable company eager to go public – Zynga.

Zynga has been in the news a lot lately whether it be for changes at the top or just generally being assholes. However, unlike Groupon they have reported making a profit of $121 million since 2010. But, just like Groupon their costs are huge if you consider that they made $828.9 million in the first 9 months of this year alone. Still, a profit’s a profit and in this modern era of ‘growth before profitability’ it’s a better sign than one could expect. As Zynga heads out on an IPO roadshow they will be fighting a war on both fronts – dispelling investor anxiety caused by Groupon & convincing talent within the company that they should stay after the company has gone public.

Zynga are going to be the ones to watch because the mothership that is Facebook will be looking to go public next year also. With an evaluation of over $100 billion ($10 billion in IPO) and Zynga being a major contributor to Facebook’s revenue there is a lot riding on their performance. Facebook certainly will not want to befall the same fate as IPOs of startup’s past. But you may be thinking, “But it’s Facebook, why wouldn’t i invest?” As compelling an argument as that is Debra Borchardt over at The Street warns of pitfalls belying the rookie traders. In short, if you’re going to buy on the first day then sell on the first day too otherwise you are better off waiting it out until the price drops. There is a clear rise and fall trend.

Facebook could be the company to quash rumours of ‘another bubble’ if it does well. But are the companies really the ones to blame? What on earth could have driven people to buy and hold onto Groupon shares after the 1st day? What if the majority of investors ignored the hype and looked at the facts and simply refused to buy? The price would not have soared so high and the losses would have been much smaller with less fingers burnt. I rarely give Groupon any credit but they did a great job of swindling billions of dollars out of people stupid enough to hand over the money. Something akin to robbing a bank with a banana.

If selling time shares on the Titanic is a real strategy then it’s a good time to own some stock in a startup. For eager beaver traders, maybe they’d be better off sending a million quid the KLF’s way. Lets face it, that would probably offer a better ROI!

 

Piracy is the Product of Supply Ignoring Demand

You wouldn't download a bear

IN BRIEF:

  • Piracy is the product of supply ignoring demand whereby people demand an alternative to what is currently being supplied and supply does not react
  • Entertainment industries must learn to iterate more to better match demand
  • People are willing to pay for things they really want provided price is within their parameters of expectation
  • Piracy is inevitable, Piracy is soluble
  • Supply must be cheaper, faster & more secure
  • Piracy is a positive change agent for consumers & new businesses

 

IN FULL:

“Piracy is the Product of Supply Ignoring Demand” is a statement i made on twitter leading up to the SOPA blackouts. The common response was ‘I disagree’. The reason for this response is because most people just see piracy as a bad thing that people are willing to participate in whether there is supply or not. This therefore presumes that most people are inherently dishonest. I find that quite hard to believe. But we are very good at making our own paradigms for what is acceptable whether it be taking stationary from the office or downloading a movie. Here is the paradigm i work within when downloading content for free:

  • Movie: Content is foreign and unavailable to purchase
  • Movie: Content is foreign and the cost to purchase + delivery do not meet my needs
  • Movie: Why would i pay for something if i do not know whether it’s worth buying?* I am not a gambling man
  • Music: I have already purchased the content on another medium (CD, Vinyl, Tape)

I don’t want too dig deep down into the moral, ethical, psychological & legal mines for this post but i am sure many of you out there who are ‘against’ the general idea of piracy have similar ‘rules of thumb’ that help you dictate whether you think something is right/wrong/phone a friend. In fact you definitely will because these ‘rules of thumb’ are commonplace in all aspects of our lives.

Whether they are right or wrong really is irrelevant. They exist and they are common.

So this is what i demand and if you can’t meet it i will find an alternative route much like a river forms by cutting through the weaker parts of terra firma. The obvious response then is to ‘react’ and consider my demands and how best you can appropriately meet them right? Customer is always right?

WRONG. VILLAIN. DIE!

This is not how the entertainment industry works. When they sense change they walk to the windows of their towers and cast out their winged monkeys to hunt down those who stand against them. Fly my beauties FLY! Muahahaha. It’s this arrogance that gets you killed.

Piracy listens to me, or at least others with similar desires listen to me & we find alternative solutions. The entertainment industry in fact has piracy to thank for a lot of their current business models. PIRACY forced them to reconsider. It was a positive change agent and will continue to be one for the consumer and the industry. Without piracy there will be far less innovation. Just think about the amazing impact the VHS had, think about Napster! Now we also have Spotify & Netflix trying out legitimate versions of pirate models. Without Napster we’d probably still be buying CD’s or flashdrives for £1.50 a track in HMV!

I hope piracy continues

I hope businesses learn

I hope the consumer wins

& thus businesses win

 

SOPA: Birth of an American Terrorist

Video courtesy of Fight For The Future explaining concerns around PIPA

In Washington politicians have been breast-feeding a pair of monstrosities, becoming more hideous by the day like the picture of Dorian Gray. The cosmetically engineered face of Hollywood has been fooling itself for years that the same old business models aren’t broke and everything else needs to be fixed. But now it has seduced government like the Sirens of ye olde Greece.

Aversion to change is common in established and post-successful businesses but nothing stays the same forever. It’s evolution baby. Well, it would be if Hollywood wasn’t able to just walk up to Capital Hill and ask to relieve the environmental pressures bearing down on them. The beasts they are rearing to be unleashed on the world are SOPA (in the House of Representatives) and PIPA (in the Senate). These bills if passed into law would essentially give control of the internet to the entertainment industry and make all intermediaries liable for the content it’s user post. That’s the same as making car manufacturers liable for all accidents on the road, American Airlines responsible for the twin towers tragedy and who knows, maybe they would finally pin down Marilyn Manson for students walking into schools with guns and killing their classmates. But what that’s just skipping over the problem.

Piracy is a problem. For all nations. But people who want pirated material will get pirated material regardless (like all ‘crimes’). Even if you destroyed all the money in the world people would still figure out a way to do fraud. Not everyone wants to play by the rules. But you can’t change them so change yourself. Boohoo, it might not seem fair but grow up and get on with it. It’s what everyone else has to do to survive and who knows, you may come off all the better for it. To try to change the rules to suit only yourself at the expense of others is nothing short of terrorism. In evolution you need change agents and it’s the same in business whether it’s piracy (bad) or new market opportunities (good).

But if i live in Britain why should i care about what goes on in the States of America?

Well, If you’re British you’re constantly reminded of the Americanisation of the internet. In-browser spell checking tells you to drop ‘u’s after ‘o’s and put zeds (like the rapper Jay – Zed) where ‘s’s should be. Nowhere is life more globalised than on the internet with the majority of services that i use (like this one) being American. Like all the electrons in the universe if you change one thing somewhere it affects everything else everywhere else. No matter where you are in the world you will undoubtedly be affected should SOPA and PIPA go through in their current state. If they do then don’t be surprised when run into your favourite website and blow it up.

But the worst thing of all is that by not being an American citizen i am relatively powerless to do anything. Although there is one thing that i can do:

Affect My Network.

I know there are American people that follow me on twitter (43.8% of my followers to be precise), i have American friends on Facebook and Path and some Americans even read this blog. I may be helpless to do anything directly but i am certainly trying as much as i can indirectly. This is especially important because the US has really exposed itself to be more like China than i first thought in that it is impossible to find very much coverage of SOPA or PIPA on the news networks because they are all in FAVOUR of the bills. So in essence they are censoring that information from the general public in the hope that they will pass and be able to gain more control. And when you’re voting for people like this to run the country you really need all the help you can get:

 

Scary Isn’t it.

I didn’t want to go into too great a detail about the contents of PIPA and SOPA because there are already so many great articles that have already been created. Instead i have created  a STOP SOPA page on this blog where i can host links to all the relevant articles i have found which i think will be useful. In addition i will also be joining in with the blackout of this blog along with reddit and any other companies that follow. Obviously this is not going to affect many people (our readership is not massive) but it is a gesture to show my support for stopping these bills from going through.

Remember, you might not think it now, but the internet is everyone’s responsibility so this is everyone’s problem.

STOP SOPA
STOP PIPA

VC’s in the Front Seat, VC’s in the Back Seat

This video is all kinds of cringe and awesome. There are some real awkward moments in the video and you’re not sure whether you think ‘hahaha’ or you just want to put your fist through your monitor. To Be Honest though, i LOVE crappy annoying internet memes and just look at all the companies in this video! It’s pretty ‘star’ studded.

So yes, this is for real, thank you First Round Capital for your contribution. I kind of don’t want to hear from any other investors or any companies for that matter unless they have an awesome crappy viral.

Sapient Nitro nearly had my respect for their terrible ‘Idea Engineer’ video but they deleted it under growing pressure from the internet on just how bad it was. Luckily the internet always wins and never forgets so here it is:

Product as a P(a)lace

Potala Palace, Tibet

The joy of products. Well, ok, that is pretty rare. Why do you think that is? I personally believe it is because creators of products often do not think about the relationship between user and product. A relationship I hear you cry?! Yes, a relationship. We all have relationships with the environment around us whether it be our favourite mug, our car or simply the dustbin. We interact with these entities on a daily basis. However some, we interact with more.

Some we actually enjoy interacting with.

That’s right, enjoyment from interacting with non-human objects, how bizarre. But the interesting thing is that better products do not always build better relationships. Imagine, if James Dyson had created his bagless vacuum cleaner but it looked and felt the same as any other cleaner on the market. The impact would have been minimal. In fact, the bagless bit is probably the least important. Dyson’s styling of the cleaner made it a desirable item, something we would be happy to spend time with, even look forward to interacting with. It was a shift in relationship with an otherwise ugly and cumbersome object often hidden away.

Dyson changed the relationship from distaste to desire.

So what happens when we come to the web & mobile? If you follow me on twitter you will undoubtedly have heard me complaining about the user experience of websites, apps, CRM. You name it, if I’ve interacted with it, and it’s been bad then I have probably mentioned it. It all seems so simple to me and I really find it hard to comprehend why some products are made so badly?!

The twitter app for iPhone is an example of how to continuously make a good product worse. The latest iteration of ignorance has seen a shift so big in awfulness that I deleted the app altogether. I’ve used that application since I ‘bought’ it when it was called tweetie 2 (before the curse of the twitter acquisition). The biggest issue is that they have now hidden direct messages! HIDDEN! Also if once you have found them and someone has spammed you then if you click on their profile image it no longer takes you to their account so you can block them. No. You now have to remember their username and then search for them and then block them.

Good product to terrible product, so bad I could no longer spend any more time with it.

This matter of spending time with products leads me on to why I have titled this piece ‘Product as Place’. It’s because when I use an application or product I am there, in the moment, in that place and I rely on good architects and interior designers to make my time there a pleasant one, regardless of what it is i am trying to do. The difference is that I am choosing to be in these places rather than it being just circumstance. This concept really doesn’t sound that complicated to me, nor obtuse. Those who build applications have already been given the titles of architect, engineer and designer but more often than not I find myself being pushed towards the brutalist equivalent of a hi-rise council flat. Far from ideal.

Would you spend your time in the sewers if you didn’t have to? I very much doubt it. But for some reason product creators seem to think that we do.

An ugly website is a cave, a bad UX a labyrinth

If you know better is achievable then it’s like sitting in a cave facing a palace. It makes you mad to get lost in the labyrinth when you know they could have built a straight path. If you wonder what a palace might look like (for an application) then download Path which has just been refreshed to show the best UI i have ever seen on a touchscreen device. They have really understood what it is to treat product as a place. You know this as a user when you start pressing buttons not for their functionality but for the joy of the animation when you do so. This delight is what makes a product become a palace.

If you need further evidence of this philosophy then look no further than apple. They NEVER offer you the best technical spec on any of their devices and rarely the best price to boot. But what they are selling you every time is a palace, with no mazes or hidden doors. That is what you are really buying when you purchase one of their products.

Please please please, everybody, spend some time with your products and ask yourself. Do you enjoy being there? Is it a pleasant experience? If given the choice would you happily come back?

If you’re answer is yes to any of these then you are probably in the wrong job (i.e. delusional) or lucky enough to be in the 1% of people who do make decent products.

Groupon’s Stock Crumbles, Pretend to Look Surprised

Screengrab of Bloombery dash for Groupon displaying slump in stock

“For some, the IPO has now become the destination not the path. But without a sound business model, that destination seems to be increasingly seen only on the horizon. Good luck getting there.” me.

If you’ve ever come across this blog before you may well have heard us mention how badly this was going to go for Groupon. A few weeks ago, after doing the math we questioned whether Groupon would even reach an I.P.O whilst a caricatured Warren Buffett suggested maybe they should sell coupons for their stock! The title of that first post was called ‘Groupon & Zynga – A Guide to Losing Money’. I wasn’t making it up, i wasn’t being over-zealous or over-critical i was just stating fact. The proof is in the pudding. Yesterday, Groupon’s (GRPN) stock crumbled by -15.50% taking it below the Initial Public Offering price of $20. In doing so it wiped off the tidy sum of just under $2 billion. 2 BILLION DOLLARS! But that’s nothing, if you consider the amazing gains it made on day 1, the actual damage is closer to $6 billion (Down -46%).

$6 billion.

Gone.

Vamoose.

That’s pretty impressive even for Groupon who are experts at losing money. I calculated that this year they’ll still lose roughly $585.2 million all by themselves. Some people refuted us naysayers to state that the market was down as a whole (bloody Europe!) so i thought it worth while checking out some other businesses on the Nasdaq which i have listed below for comparison and relativity’s sake:

•  Google (GOOG) -1.70%
• Microsoft (MSFT) -1.29%
• Apple (AAPL) -2.54%
• IBM (IBM) -1.85%
• News Corp -2.37%
• Groupon (GRPN) -15.50%
• LinkedIn (LNKD) -3.92%

Which one stands out? Even LinkedIn are doing ok! They may not be a money making machine but at least they have several different business models and very few competitors. The only reason why stocks surged on day one was because investors wanted to capitalise on those first day gains and then get rid of them quickly in order to turn a profit. Those are the smart ones who know full well that Groupon is a terrible business but there is money to be ‘sucked’ out of it. Sorry, there was.

But maybe now is a good time to buy? That totally depends on your outlook – can Groupon really start to turn a profit and will other traders devalue your stock more? Many companies bounce back so there is still potentially some profit to be made but for those who bought early and didn’t sell – the loss is massive. If Groupon fails then it could be colosal, FOR EVERYONE.

The ramifications do not just affect Groupon but the technology industry as a whole. Living Social seems to have dropped it’s plan for an I.P.O, Zynga just ‘reshuffled’ it’s board pre-I.P.O and are looking scared and of course, there is the big one… FACEBOOK. I honestly don’t think Facebook will have many problems due to its size, lack of competitors and most importantly its profitability. Unlike the others it is a real business and has gone about things the right way – the I.P.O is just a part of the path, it’s not solely relying on it.

For the smaller companies however, it might be time to make some money first and worry about the I.P.O later. The story continues…

 

 

 

 

Seamless Sharing: The Legitimisation of a Malware Model

Father Ted - Peaceful Protest (Careful Now)

At F8 this year Facebook announced several new updates, one of which was what it dubbed ‘Seamless Sharing’. This is Mark Zuckerberg’s vision of the future. A future in which we no longer need to curate the web (sorry web 3.0) but instead share what we are doing instantly & effortlessly. Obviously this may sound great to a user but it’s much greater for Facebook (tonnes more data) and publishers/developers the world over who also want their content shared more freely, more easily.

It all sounds lovely and rosey. That is, until you realise something about the nature of how this vision works. Something i only truly realised today. Seamless Sharing is merely copying one of the many malware models: The Worm. Now, i am going to give you a brief explanation of how a worm works because i see so many tweets being sent to friends that have spammed them saying “you’re account has been hacked” that it’s quite clear most people are clueless. I’ll stick with twitter as a platform for explaining worms. So, when most people say they have been ‘hacked’ what they really mean is “I don’t know enough about how the internet works and i have fallen foul to a phishing/worm combo”. Here comes the science…

The phishing bit: The user clicks on a link they see from a virtual chum, they are then sent to a spammers site which is made to look like a twitter login page, they stupidly don’t check the URL, enter their account details & then they land on an error page or a funny pic for example. Because nothing bad happens they don’t even think they have been dumb enough to freely give their details to a spammer.

The worm bit: The worm is a programme/script that takes the login details the user has supplied it with, logs into the users account and then ‘replicates’ by sending out links to all of the users followers. The cycle then continues.

I haven’t fallen foul to this so i do not know whether they try to install Rootkit‘s later down the line but that would be the natural progression for anyone running a worm op. Check out the Rootkit link if you want to learn more about what i am on about (if you don’t already know).

 

But how does any of this relate to Facebook?

Today i was having a quick browse through Facebook and as per usual the top of the stories feed was clogged with news articles. With the new Seamless Sharing features having been lapped up by the likes of The Guardian & The Independent i can now see who has ‘read’ what articles by which publishers. One of them catches my eye. It’s an article by the Independent entitled “Ireland mourns comic talent as ‘Father Ted’ actor dies, aged 45“. Instantly i think this is weird because i remember that he died ages ago. So i click on the link out of curiousity, accept the ‘app’ request and am taken to the article where it is confirmed to me that indeed, this is old news. Monday 2nd March 1998 to be precise, which is over 13 years ago! At this point i would normally have just thought it was weird and gone on my merry way. That is, until i looked at my timeline. Not only had the article been added to my ‘recent activity’ list but it had also been posted to my timeline (wall) as a main feature. WTF.

Now you see how the worm starts to turn. My friends then see the article and replicate the process. If you think this is a one off case then you’ll be pleased to know that this article (13 years old) is currently the most viewed on The Independent’s website and the 4th most shared! This was not just coincidence. This was a worm in action and a legitimate one at that. Not only is it legitimate but it is the basis of the very future Facebook has planned out for us. How can such an old article which bears no relation to any current events become this popular so quickly and more importantly gain access to so many people’s accounts? It may be a old article today, but what about tomorrow? Remember, this is the nature of how a worm works.

This makes me question the sustainability of the Seamless Sharing model.

Either Seamless Sharing will just become legitimised spam (if it isn’t already that) in which a higher degree of content is auto-posted and human interactions become diminished or another layer of curation will need to be placed on top of it (which defeats the object for the user).

I don’t believe the future is spam so for the time being Seamless Sharing can feck off.

 

 

 

You’ve been Facebooked!

No matter how much people around me try to convince me of the fact that You’ve Been Framed is no longer funny, I’m sorry but it is. Why? Quite simply because we all love watching people make silly mistakes (especially if this includes them smacking themselves in the face) which in turn produce such monumental belly laughs at times I start to doubt what kind of person I really am.

In a weird way the research for this post has evolved pretty much like an episode of YBF and I’m ashamed to say that I’ve spent a good hour reading comments from various employees and customers that for whatever reason, appear to have dodged the gaze of the overarching brand or company. There have been highs and there have been lows, but most importantly I’ve had a good few giggles from these.

In no way am I trying to highlight mistakes or errors by including any of the below examples, or indeed label myself as some angelic being who can do no wrong (why do you think I purposely don’t say where I work!), however I’m sure we can all learn from some of these and are instead designed to act as a reminder of some simple things we should all do and not do.

1. Don’t like your own posts!

 

FBSS1 - london electrician
It still shocks me how many page owners think it’s ok to like your own posts. I mean, it’s one thing giving yourself a mental bit of kudos when you come out with a witty one-liner that impresses your friends, but can you imagine if you were to instead bring out the black marker pen and start drawing ticks on yourself to remind yourself of how funny you can be? Hmmm.. Maybe not!

Aside from this obvious own patting of ones back, there is of course the viral reach purpose of shares and likes and the whole fact of liking your own comments means that it’s still only you seeing them!

2. Don’t pretend to be a person when you’re a business!

FBSS2 - tesco

 

Again, this is still happening a lot. However, I’ve decided to highlight this example as I feel Tesco should have been a bit hotter on this and how their sub-brands are being represented.

3. Don’t be afraid to report rogue pages for your brand!

FBSS3 - hmv

 

I thought this example was perfect since the rogue page has over 16,000 fans of it’s own and is in itself a powerful community, however the fact that it’s listed as HMV.com is incredibly misleading, which if you read through the comments you will see has clearly been the case for several customers. I can’t see any evidence of HMV answering questions from customers or directing them to the official page which leaves me wondering if they’ve made the decision not to get involved. To me this looks like a silly move for HMV as customers who have posted on the rogue page will just be left thinking that as a brand HMV really don’t care and as such made no effort to reply to their post.

4. Don’t just set up a page and then leave it!

FBSS4 - foxton

 

If there is one lesson you take away from these examples, be it this one. I don’t think it needs a lot of explaining, but I will add that scrolling down the page I discovered more and more complaints of which none had been answered. Alarmingly, it looks to be the case that Foxtons set up shop and then forgot about it, never actually posting a single comment themselves. The worst of all of this is that the customer is literally crying out for Foxtons to make the situation better, and if they did then I’m sure this would go a long way in helping perception of their brand.

5. Do pay attention to your staff and what they’re saying!

FBSS5-whsmith

Listening to what your customers have to say about you is one thing, but listening to what your staff have to say can be just as, if not more, valuable.

This example of a WHSmith group for employees is completely open to the public, hence my ability to trawl through posts and now feel like I actually work there myself. Not only do I know all about WHSmith employee’s worst ever customers and which branch they visited, but I also now know all about their grievances with till equipment, internal incentives and how much they all actually enjoy working there. Sounds frivolous and in a way a lot of it is, however there are some really important insights that should be taken from this internally. The topics covered in this group include HR issues, flawed processes and the general lack of perceived understanding from senior management of how one of their stores runs on a day to day basis. This information is so incredibly valuable!

On the negative for WHSmith however, by keeping this group open any competitor can instantly pick out the key flaws in their structure and company as well as how morale levels of staff are looking. Perhaps more scarily though, if I was a customer, I could go on there and witness a group of employees having a whinge and laugh about me because I came in and asked where the card section was.

 

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