Archive for Business

Is Bitcoin Really “Real Money”? and will it last?

Joe Nocera in the New York Times points out that the internet needs a digital currency but that the key trait behind bitcoin could be why it doesn’t fulfill that need:

Whenever I read a story about bitcoin, the virtual currency that has been so much in the news these days, I think about a man named Dee Hock. In the early 1970s, Hock created the credit card system that we now know as Visa. Hock was a man who liked to think grandiose thoughts. When it came to Visa, and credit cards in general, Hock used to describe them not just as a way to get a short-term loan but as a new kind of payment system, an exchange of value that was on par with, and that competed with, cash.

As it turns out — and the bitcoin experience is helping to illustrate this — Hock’s description of credit cards was more than a little hyperbolic. Yes, you could now use a small plastic card instead of cash to buy something, but that card had value because it connected both the buyer and the seller to a fiat currency. People trusted it because they believed in their country’s currency and financial institutions. The exchange of value was never the credit card itself; it was still the dollar, the pound, the yen.

Bitcoin, on the other hand, is truly a new form of payment system, unconnected to any currency or any government. Its libertarian proponents in Silicon Valley love that about it; they talk about it as a potential disrupter of traditional financial institutions. It has value not because a government has decreed and backed its value — the classic definition of a fiat currency — but because a community of users has decided to give it value. Its current travails, however, suggest that may also be its inherent flaw: that however much we say we mistrust governments and banks, when it comes to our money, we trust them a lot more than we trust some clever lines of computer code.

Larry Kudlow says Bitcoin is not real money:

Venture capitalist Ezra Galston writes in the Wall Street Journal, “without a regulatory framework, credible payment processors — such as PayPal, Dwolla or Square — cannot service bitcoin exchanges. And because payment processors are vital for converting fiat currencies into virtual deposits, bitcoin operators will be forced to move downstream into the black market.” Mr. Galston concludes by asserting that “the bitcoin community must embrace external regulation to ensure that credible vendors may participate in payment processing.”

Hundreds of bitcoin supporters have tweeted attacks at me for arguing that bitcoin is not real money. But historically, money must be a reliable medium of exchange, and a reliable store of value. Bitcoin meets neither of these definitions.
How can you transact using so-called digital money when prices fluctuate by hundreds of dollars in the space of an hour, or less? You might think you bought something for $500. But by the time the retailer processes payment, the so-called digital-currency price drops to $100.

Both buyers and sellers lose big because bitcoin is not a reliable medium of exchange with a dependable store of value. It is backed by nothing but pure speculation. You can’t even hedge it, because there’s no interest rate. You can barely even get a price quote — not for the value of the product being bought or sold, but for the value of the monetary medium of exchange.

Career Paths of 5 Self-Made Billionaires (Infographic)

Funders and Founders also analyzed all 1,426 billionaires in the world. From there, the company segmented out the 960 that are self made and determined that 830 of them earned their wealth from more than one business.

Via: Entrepreneur.com

Small business spotlight: Tito’s handmade American vodka

Founder and master distiller Tito Beveridge on the difficult road to create the American-made vodka

Randi Zuckerberg: The only way to get girls excited about technology and business is to make it “cool” and “glamorous” with Reality TV

Welcome to Silicon Valley — hub for entrepreneurs, technological advancements … and the newest Bravo reality show.

Produced by Randi Zuckerberg’s, (yes, Mark’s sister), the show will feature a $17,000/mo. rental that plays host to five roommates with dream. The goal? Show the “raucous reality of the tech industry in 2012.”

As the New York Times article explains, many in Silicon Valley fear it will make them look like laughingstocks, but Randi’s not worried: “Trust me, enough people in this industry make laughingstocks of themselves. We’re just capturing reality!”

“It’s more important than ever to get girls excited about technology and entrepreneurship and the only way you’re going to do that is by, you know, really making technology cool in pop-culture and showing women working at startups and making it a little glamorous” -Randi Zuckerberg answering a question from Forbes about misrepresentation in social media. Read more

Amazon Expands Amazon Lockers

Amazon is expanding its use of Amazon Lockers for picking up packages at 7/11s, drugstores, grocery stores and more. The online retailer is targeting apartment dwellers and those in high-theft areas with a possible strategy for Japanese and European markets. Via the WSJ:

Amazon’s locker program works fairly simply. Customers who ship their item to a locker—typically in 7-Elevens, grocery or chain drugststores—are emailed a code after a package arrives that unlocks the door holding their merchandise. The lockers can hold only smaller items that weigh less than 10 pounds, such as books, DVDs or electronic devices like iPads. Users have several days to retrieve their merchandise.

Users don’t pay extra to use the service but the locker program helps Amazon save on certain shipping costs. ShopRunner’s Ms. Dias said UPS and FedEx Corp. FDX -0.49% charge retailers as much as 20% more to deliver packages to residential addresses because it is more efficient to deliver multiple packages to a business address. Failed deliveries are also more expensive for online retailers because those consumers are more likely to call customer service, switch to a competitor, or get a replacement item.

Amazon avoids much of that with guaranteed delivery to its lockers, often housed in locations operating 24 hours a day. “When customers ship Amazon orders to an Amazon Locker, they can pick up their packages at a time and place that’s convenient for them,” said Amazon’s Ms. Osako.

Amazon pays a small fee each month, akin to rent, to 7-Eleven and other store owners where it has lockers. Store owners declined to say what the fee was and a spokeswoman for 7-Eleven declined to comment.

Wine salesman Robert Thorpe, 35 years old, last month had his Sonicare electric toothbrush delivered to an Amazon Locker in a grocery store in Manhattan instead of his typical apartment-building drop-off.

“This seemed convenient. I didn’t even realize this was an option so I thought I’d try it,” said Mr. Thorpe, who said he frequently misses package deliveries for which the building superintendent signs while he is at work. “If I knew I was going to be away from home, I’d do it again.”

What Prostitutes Can Teach About Economics

Freakonomics author Steven Levitt discusses what prostitutes can teach us about economics:

Freakonomics: What Prostitutes Can Teach About Economics from on FORA.tv

Facebook acquires Face.com (for somewhere between $50m and $100 million)

The Israeli facial recognition technology company producing the App at Face.com has been acquired by Facebook, following the $1 Billion acquisition of Instagram, showing a clear move for the social network into the world of Mobile.

The cost isn’t public knowledge at this time, but TechCrunch has the following:

We’ve heard from multiple sources that the acquisition price was around $100m, with others reporting that the price was between $80m-$100m. (Update: We’re now hearing from a source familiar with the matter that the price was between $55 and $60 million, and that it was a mix of cash and stock. The exact value of the deal will be changing depending on the price of Facebook’s stock.) This is absolutely not an acqui-hire, as Facebook will be taking full advantage of the company’s technology and the advancements it’s made on mobile — perhaps to finally include mobile tagging options for photos.

As Face.com’s speciality is mobile facial recogition, it could potentially allow you to upload a photo to Facebook while on the go, instantly receive suggestions of whom to tag, and confirm the tags with one click.

This is important to Facebook because right now there’s probably a ton of untagged mobile photos getting posted. Those are lost opportunities for engagement because when you get notified that you’ve been tagged in a photo, you probably visit Facebook immediately to check it. These tags also help Facebook understand who a photo is relevant to, so it can feature it in the news feeds of your closest friends.

The Official announcement from face.com:

Facebook has acquired Face.com! Our mission is and has always been to find new and exciting ways to make face recognition a fun, engaging part of people’s lives, and incorporate remarkable technology into everyday consumer products. If you’re anything like us, Facebook is a part of your life every single day. We keep up with our friends and family, share interesting (or mundane) experiences from our daily lives, and perhaps most importantly for us, we share a LOT of photos.

We love building products, and like our friends at Facebook, we think that mobile is a critical part of people’s lives as they both create and consume content, and share contentwith their social graph. By working with Facebook directly, and joining their team, we’ll have more opportunities to build amazing products that will be employed by consumers – that’s all we’ve ever wanted to do.

Now, lots of developers use Face.com technology to power various apps and make wonderful products. We love you guys, and the plan is to continue to support our developer community. If there are new developments you can expect to hear from us here, on the developer blog, and through our developer newsletter.

Thank you to all of our supporters, our amazing dev community, to our employees and to our friends and family who have seen us through many long days and longer nights. The next steps are going to be exciting for all of us.

- Gil and the Face.com team

Facebook’s first week is the worst of any IPO in 10 years

Bloomberg reports:

Facebook Inc. (FB)’s initial public offering, which set a record for technology companies by raising more than $16 billion, also has the distinction of producing the worst return among the largest U.S. deals of the past decade.

The CHART OF THE DAY compares the first five days of trading for the 10 largest U.S. IPOs from the past 10 years. Shares of Menlo Park, California-based Facebook have fallen 13 percent since underwriters sold them for $38 on May 17. The decline exceeds the 10 percent drop by MF Global Holdings Inc. in its first five days. Visa Inc. (V) did best among the biggest deals, rising 45 percent.

Facebook’s Mark Zuckerberg has sold 30.2 million shares and director Peter Thiel has sold 16.8 million shares of the social-networking company.

Facebook Inc. Chief Executive Mark Zuckerberg has sold 30.2 million shares and director Peter Thiel has sold 16.8 million shares of the social-networking company, according to securities filings published late Tuesday.

The company is being sued under the claim that it misled investors:

Facebook stock has been on the market for less than a week and the company is already facing a lawsuit.

Three investors are suing Facebook and its initial public offering underwriters for allegedly hiding unfavorable growth forecasts before the company’s $16 billion IPO last Friday, according to Reuters.

Investors Dennis Palkon and Brian Roffe bought 1,800 and 200 Facebook shares, respectively, at the IPO price, and Jacob Salzmann paid more than $123,000 on Friday for 2,961 shares at an average $41.77 each.

They allege that Facebook told their underwriters to reduce their 2012 performance estimates because more users are using the mobile apps, which do not generate advertising revenue, and left some investors out of the loop while sharing the data with preferred investors. The investors say they received a “false and misleading” registration statement and prospectus, according to ABC.

Law firm Robbins Geller Rudman & Dowd filed the class-action suit Wednesday in a federal court in Manhattan. The suit is against against chief underwriter Morgan Stanley, as well as Facebook’s board, which includes CEO Mark Zuckerberg and CFO David Ebersman, according to ABC. Reuters says Goldman Sachs Group is another defendant.

Due to the controversy, the stock offering will be reviewed by a Senate panel:

Lawmakers are concerned about reports that banks underwriting the deal may have lowered growth forecasts on Facebook’s revenue and only told some large investors — and not retail investors — in a way that violates securities law. In addition, they want a better explanation about technical glitches that botched the first day of trading.

“I have instructed my staff to conduct due diligence regarding issues raised in the news about Facebook’s IPO,” said Sen. Tim Johnson (D-S.D.), chairman of the Senate Banking Committee, noting his staff is now coordinating “bipartisan staff briefings with Facebook, regulators and other stakeholders.” Johnson said he would wait for more information before making a decision on a hearing.

Could Facebook really destroy the US economy?

Behavioral economics is the new “psychology of denial.” Yes, it’s like falling in love. You can’t hear, can’t see the warning signs. Till after. After months of hype building up to this IPO, you’re convinced Facebook is your soul mate, that not getting shares in that IPO would leave you devastated, rejected by your true love. And nothing anyone says about the risks will change your mind. That’s the “psychology of denial.”

There are four main reasons for this pervasive psychology of denial among Main Street’s 95 million investors: First, investors hate admitting we’re irrational and ill-informed, so they cling to the fiction they’re rational. Second, optimism is the investor’s worst nightmare, but Americans still act optimistic no matter the odds. Third, Wall Street loves investors who are irrational, uninformed and optimistic; they’re easy to manipulate. Fourth, American investors are by nature trusting folks who want to believe Wall Street’s telling the truth, even though most of the time that’s not the case.

The Facebook mystique is so powerful today that in our minds Facebook truly is too big to fail. Facebook will never fail. Facebook will just keep growing indefinitely at rates that would remind us of the old dot-com mindset of 1999. Hail, Facebook — you are too big to fail, and nothing will change our minds.

And, paradoxically, that’s exactly why Facebook is the ultimate economy killer.

Facebook Bankers Secretly Cut Forecasts For Company In Middle Of IPO Roadshow:

This by itself is highly unusual (I’ve never seen it during 20 years in and around the tech IPO business.)
But, just as important, news of the estimate cut was passed on only to a handful of big investor clients, not everyone else who was considering an investment in Facebook.

This is a huge problem, for one big reason:

Selective dissemination.
Earnings forecasts are material information, especially when they are prepared by analysts who have had privileged access to company management. As lead underwriters on the IPO, these analysts would have had much better information about the company than anyone else. So the fact that these analysts suddenly all cut their earnings forecasts at the same time, during the roadshow, and then this information was not passed on to the broader public, is a huge problem.

Any investor considering an investment in Facebook would consider an estimate cut from the underwriters’ analysts “material information.”

The AT&T Verizon Duopoly

Facebook buys Instagram for $1 Billion

Instagram made the announcement today on their blog:

When Mike and I started Instagram nearly two years ago, we set out to change and improve the way the world communicates and shares. We’ve had an amazing time watching Instagram grow into a vibrant community of people from all around the globe. Today, we couldn’t be happier to announce that Instagram has agreed to be acquired by Facebook.

Every day that passes, we see more experiences being shared through Instagram in ways that we never thought possible. It’s because of our dedicated and talented team that we’ve gotten this far, and with the support and cross-pollination of ideas and talent at a place like Facebook, we hope to create an even more exciting future for Instagram and Facebook alike.

It’s important to be clear that Instagram is not going away. We’ll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photos experience.

The Instagram app will still be the same one you know and love. You’ll still have all the same people you follow and that follow you.You’ll still be able to share to other social networks. And you’ll still have all the other features that make the app so fun and unique.
We’re psyched to be joining Facebook and are excited to build a better Instagram for everyone.

Best,
Kevin

CEO, Instagram

The popular photo-sharing app maker Instagram will be acquired by Facebook for $1 billion in cash and stock in what is the social network’s biggest acquisition to date.

Facebook Chief Executive Mark Zuckerberg made clear in a statement that while he plans to integrate some aspects of Instagram into Facebook, he expects it to operate as an independent company.

“We will try to learn from Instagram’s experience to build similar features into our other products,” Mr. Zuckerberg said in a statement. “At the same time, we will try to help Instagram continue to grow by using Facebook’s strong engineering team and infrastructure.”

Facebook said the deal is expected to close later this quarter.

The deal caps a startling rise for a 15-month-old start-up with barely a dozen employees, a free app and no revenue.

Since being founded in the fall of 2010, the company has amassed more than 30 million users of its app.

Like many early-stage tech companies quickly building up large user bases, monetization has taken a back seat. While major retailers have taken to opening Instagram accounts to promote their brands, it’s not clear how the company was planning to create significant revenue, especially since its smartphone focus—the company doesn’t offer its content on a website—limits its ability to present advertisements.

In early 2011, Instagram raised $7 million in venture funding from Benchmark Capital that valued the company at about $25 million. It had also raised about $500,000 in seed money from Andreessen Horowitz and Baseline Ventures.