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Archives for January 2011

Facebook Deals: Who gets what?

Rory Cellan-Jones | 15:50 UK time, Monday, 31 January 2011


Here's Facebook's view of your social networking future. You walk down the street brandishing your smartphone, and "checking in" via the Facebook Places app to shops, cafes and other businesses. In return you get 50% off a cup of coffee, extra dishes at the sushi bar, or even the loan of a sports car for a few months.

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"This is really, really exciting," said the eager young American woman unveiling Facebook Deals, as the product is called, at this morning's launch. Excitement is par for the course at these kind of events - along with applause from "supporters" in the audience. I struggled to share her enthusiasm - this is basically just another loyalty scheme for retailers, right?

Emily White, head of Local for Facebook went on to explain that "it allows businesses to start joining the conversation". I sat wondering whether having my local supermarket intruding into my social life was quite such a hot idea. But Emily went on: "Your life is not just about the people in it - it's also the experiences you're having and the businesses and places around you."

Many big brands apparently now have more Facebook friends on their fan pages than they have visitors to their websites - and the social network says it wants to help them get even friendlier with their customers. It has signed up the likes of Argos, Starbucks, O2 and Debenhams, which will now be offering rewards to Facebook users who check in with their phones.

So who gets what from this new service? It's obvious what is in it for the big brands - it gives them an easy way to tap into Facebook's social graph, learn more about their customers and perhaps get more traffic to their businesses.

For users, if they are prepared to share their location with these businesses - a big if - there is the prospect of a few deals. That might attract the dedicated bargain-hunters but I still find it hard to believe that most Facebook members want to be bothered with this kind of activity. Unless of course they find that all their friends are doing it, at which point it becomes a social activity, like posting photos or playing games.

The Facebook executives were asked at the press conference just how many people were using the service in the United States where it launched late last year. "Millions," was the closest we got to an answer, which left us none the wiser.

And finally, what is in it for Facebook itself? Nothing, apparently, in terms of revenue - it's a service offered free to businesses and users. The company isn't ruling out taking a cut somewhere along the line but insists that for now it's just about making Facebook more fun: "You see this with everything we do," explained Emily White, "we start by optimising the user experience."

The bigger picture is that this is an idea which has already been tried out by other companies, most notably FourSquare which turns your life into a mobile game, with rewards for turning up regularly at places like your local coffee bar. Facebook's sheer scale could mean that brands now ignore the New York-based start-up, endangering its mission to prove it is on the path to profitability. In other words, Places Deals could be just another small step in Facebook's mission to crush all opposition as it becomes the one network that rules the world.

Right through its history, Mark Zuckerberg's company has introduced innovations which have been attacked as having little appeal to users, and no obvious commercial benefits. And, as documented in episode two of The Secret History of Social Networking on Radio 4 this coming Wednesday, he has almost always proved the critics wrong - more users arrive, and opportunities to earn money from them come along eventually.

So perhaps checking in on Facebook and collecting free goodies all along your local high street will soon become as common as posting photos or playing Farmville. I just don't see that happening. Then again, I'm the one who told Mark Zuckerberg in 2008 that he was bonkers not to sell up while the going was good.

Only connect...

Rory Cellan-Jones | 08:54 UK time, Monday, 31 January 2011


I have just spent a week on holiday and offline, ski-ing in the French Alps. Cut off from e-mail, the web, and social media and too mean to use my phone overseas, I have luxuriated in the mountain air, able to relax without the constant stimulation and information overload of our modern connected world.

Skiers on chairlift


Actually, that is completely untrue. I took with me on holiday a smartphone and a tablet computer, just in case I happened to come across some wi-fi that was not ridiculously expensive. And then I happened to find that my hotel, 1800m up in the mountains, had just about the best free wi-fi network I have ever encountered.

And I'm afraid that is when it all started to go wrong. Each evening, instead of chilling out after my exertions on the slopes or reading a novel, I plunged into the connected world. I checked my office e-mail, deleting zillions of irrelevant messages, I downloaded editions of two British newspapers each day, and listened to Radio 4 via a streaming radio application. I made video calls home for nothing, using a Skype app.

I was also able to indulge my addiction to social media, updating my Facebook status, tweeting pictures of the mountains, even checking in on FourSquare so regularly that I ended the week as mayor of the hotel where I was staying. On Wednesday evening I downloaded the podcast of the first programme in my series on the Secret History of Social Networking - just to check it was there, you understand.

Even worse, I found a smartphone app that would track my progress across the ski slopes without using up expensive data. I proceeded to annoy the hell out of my fellow skiers - none of whom shared my thirst for connectivity - by continually updating them: "Oooh, we've now skied 41Km, with a total descent of over 8000m."

Late in the week, I began to ask myself whether it would not have been more of a holiday if the internet connection up in the mountains and the mobile phone signal had been cut off. Then I checked my e-mail once more and found something startling and fascinating.

A company called Arbor Networks which monitors internet traffic had sent me a blog post which contained this extraordinary graph. It illustrated what had happened when the Egyptian authorities effectively cut the country's connection to the internet. Coupled with the shutting down of mobile phone networks, it seemed that millions of people in a country with quite a sophisticated communications culture had now been deprived of the kind of connectivity I was enjoying.

Chart showing Egypt internet access on 27-28 January 2011


Already aware - via Twitter - of the unfolding story of civil unrest in Egypt, I now paid even closer attention to what was happening on the streets of Cairo and Suez. Despite the web black-out, it seemed quite a few ingenious Egyptians were still getting the news out.

Arguments about the impact of new media in uprisings like this one were raging all over the blogosphere once more, but it was clear that the Egyptian government believed that the internet posed a real threat to its control of the population.

By the time I got home, the authorities had abandoned their attempts to cut off Egypt from the 21st Century. Egyptians were once again using every means possible to communicate their anger about their rulers to their fellow citizens and to a world now connected to every movement on the streets of Cairo.

So, for me, connectivity in the Alps was a luxury, something which I might have done better to relinquish for a week. But for millions of others, in countries like Egypt, the ability to get instant access to information which could change the shape of their lives is becoming as much of a human right as access to clean water.

Pratfalls on CCTV: Public property?

Rory Cellan-Jones | 16:16 UK time, Friday, 21 January 2011


"If I fall into a shopping mall fountain while I'm engrossed in texting, do I have any right to feel aggrieved when the footage appears on YouTube?"

When I rang the Google press office today with that question, YouTube's owners told me it was the most unusual inquiry they had received all day. Apparently, they have been busy with some other news.

But seriously, the case of Cathy Cruz Marrero and the viral video of her tumbling into a fountain does raise important questions about privacy in the age of constant surveillance.

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Ms Marrero was walking through the Berkshire shopping mall in Wyomissing, Pennsylvania, totally absorbed in her mobile phone - a not uncommon sight. What she did not spot was that she was heading straight for the fountain.

The fact that she ended up drenched would have been a matter solely for her and a few passers-by, if the incident had not been caught on the shopping mall's security cameras. Someone connected with the mall appears to have filmed the CCTV footage on a mobile phone, and then uploaded it onto YouTube.

Where, of course, it has proved a huge hit. The unfortunate texter is not amused - in fact she is threatening to sue the shopping mall's management.

Some are accusing her of a sense of humour failure, but you can see her point. Closed circuit television is installed to catch criminals and give the rest of us an added sense of security, not to capture entertaining footage for viral videos. How happy would you be if you were pictured falling over in the street - perhaps while gazing into the eyes of someone you shouldn't be with?

Hence my phone call to YouTube's owners. They responded with this:

"YouTube has clear policies that prohibit inappropriate content on the site. A 'flag' button underneath every video to enable any user to report inappropriate content, or any content that they feel invades their privacy. If uploaders repeatedly break these rules we disable their accounts."

Now I am not sure what the legal situation is in the United States, but a call tot Britain's data protection regulator revealed that anyone who did something similar with CCTV footage here could be in deep trouble. The Information Commissioner's office told me that it's fine to release images to the police but "it would not be appropriate to disclose them to the media or put them on the internet for entertainment purposes."

In other words, if you're a bored security guard and you spot something funny on the camera, just have a laugh but put your mobile camera away.

Sale of Lovefilm: A champagne moment for UK tech?

Rory Cellan-Jones | 15:35 UK time, Thursday, 20 January 2011


Lovefilm, the fast-growing movie rental firm, has been sold to Amazon - and the champagne will doubtless be flowing in London's venture capital community. After all this is the most profitable "exit" from a technology start-up for some time. It is also proof that the UK is a place where you can, in the words of Lovefilm's CEO Simon Calver, take a good idea, build it into a successful business and attract the attention of a global powerhouse like Amazon.

Screengrab of Lovefilm website


But should the rest of the tech sector be celebrating as another of its clever young companies decides it can only grow up under the tutelage of a giant American parent? Let's have a look at a couple of reasons to be less than cheerful about this deal.

First, the price. For whatever reason, neither Lovefilm nor Amazon wants to go public with this information but I understand the deal values the business at $312m or £200m.

It may sound a lot - but look across the Atlantic at a similar venture Netflix. It has been a huge hit with investors, and has seen its shares quadruple in value over the last year, giving it a market capitalisation of around $10bn (£6.3bn). Now it does have about 10 times as many subscribers as Lovefilm, and is much further down the road from a postal service to a digital download and streaming operation.

Nevertheless, Amazon has picked up the British business for around one-30th of the price of its US equivalent - which will look a bargain if Lovefilm does succeed in its mission to become a digital one-stop shop for movie lovers.

It also looks quite cheap compared with sales of other European tech firms to US businesses. In 2005 eBay paid $2.6bn (£1.4bn) to buy Skype. Nearly four years ago CBS paid $280m (£140m) for, a music service which at that time had negligible revenues. And in 2008 the social network Bebo, another business which had yet to prove that it could make money, fetched $850m (£417m) from AOL.

Mind you, those purchases eventually proved either mildly disappointing or, in the case of Bebo, downright disastrous for the American buyers. So maybe Amazon is right to be cautious about over-paying for Lovefilm.

The bigger concern is the message sent out to UK and European entrepreneurs. Whereas the Mark Zuckerbergs of this world hang on in there, despite all invitations to sell up while the going is good, the founders of our smartest start-ups rarely seem to have staying power. Although you can understand the pressure from a venture capital community eager to make a return, it would be nice to see a little more patience.

But when I spoke to one of Lovefilm's founders and backers he told me it would be wrong to take a gloomy view. "We beat ourselves up a lot but this is a moment to celebrate," said Saul Klein of Index Ventures. As well as Lovefilm, he was also involved in getting both Skype and off the ground.

Mr Klein's point was that the entrepreneurs who had come out of those business were going on to start new business or to become angel investors. "To create a long-term sustainable ecosystem you need these companies that throw off talented people."

And he insisted that we should be more positive about our success stories. He pointed me towards an answer he had given to the question "Which London Internet start-ups are doing more than $10m in revenue?" on Quora, the hot new question-and-answer site. It was a long list, with impressive names like ASOS, Betfair and Moneysupermarket on it.

So maybe Saul Klein is right, and it does not matter who owns our best young web firms, as long as we keep creating new ones. But wouldn't it be nice if, just for a change, one of our start-ups got big enough to march over to Silicon Valley and buy one of their firms?

News as an app

Rory Cellan-Jones | 16:30 UK time, Wednesday, 19 January 2011


How do you get people to pay for news online? The fashionable solution touted by many anxious about the future of journalism in a world where so much news is free has been to offer readers an app.

Screenshot of The Times iPad app

A clutch of British newspaper groups have launched paid applications for smartphones and tablet computers - but the jury is out on whether any has found the right recipe at the right price.

At a media convention on Wednesday Britain's Culture Secretary Jeremy Hunt was praising the Times iPad app, available even on Christmas Day, as an example of innovation.

The Times app is perhaps the most successful aspect of Rupert Murdoch's paywall initiative, with tens of thousands of subscribers (the exact number is not clear) paying £10 a month to get their daily paper on the Apple's tablet computer.

I have been using it for some months, and cannot quite decide whether it is a hit or a miss. After some early teething problems, the newspaper now downloads onto the tablet easily enough and provides a reasonably slick version of a traditional reading experience.

What it does not do is take advantage of those things that online products can deliver which a paper cannot. Search, for instance, is absent - trying to find out whether today's Times has an article on a particular subject means flicking through every section.

More seriously, the app is not a "live" newspaper - what you get each morning is the edition that went to bed about the time you did. Take today's iPad Times for instance. There is a long article about Apple and the challenges it faces from rivals now that Steve Jobs is taking sick leave.

But not only does it quote a share price that is way out of date - the 6% fall at Tuesday's NASDAQ opening - it also fails to mention the startlingly good results published at 2130 GMT on Tuesday evening.

Still, that may not matter to the affluent, older crowd who presumably pay to get an iPad experience that is as close as possible to a newspaper.

Screenshot of The Guardian iPhone app

By contrast, two rivals are experimenting with apps that are closer to the web news model, while seeking to recoup some of the costs of their journalism. The Guardian, which launched its first iPhone app just over a year ago, has now brought out a new version with a different payment model.

The first app was trumpeted as a real success, downloaded 214,000 times at a price of £2.39. But a one-off fee to read the paper, theoretically forever, always looked a better deal for readers than for the Guardian's bottom line.

So now, once you download the app, you are invited to pay £2.99 for six months or £3.99 for a year. For that you get some improvements on the previous version, including video, live sports scores, and live blogging of big news stories.

It's that last feature which the Guardian's digital supremo Janine Gibson is really touting - "It's a better experience in the app now than it is on the site," she says.

Not everybody will have to pay readers in the United States can get an ad-supported version of the app for free. The Guardian has realised that its website may have a healthy audience of American readers, but very few of them are prepared to pay for the experience on their phones.

Now we will find out whether the UK readers who tried out the first app will rush to pay again for a slightly better version. The old app is still working, though it will gradually become obsolete. I imagine there have been plenty of agonised discussions at Guardian Towers about setting a price which will make economic sense without deterring too many of its existing customers.

Especially as the newspaper has been one of the louder voices insisting that news should not be behind a paywall: "We're not evangelical about it," says Janine Gibson. "if we have a product that we've spent a lot of money on designing for a platform where the user experience suggests we can charge for it, then we'll do that as well."

Screenshot of the Daily Mail's iPhone app

But the Guardian is not alone - or even first - in experimenting with this new way of paying for a news app. The Daily Mail, whose free ad-supported website has recently proved a huge crowdpuller, is already offering a subscription application for the iPhone.

It's packed with content, with a bias towards celebrities and sport, the mixture which has made the Mail's website such a success. But what really stands out is the price - £4.99 for six months, £8.99 for a year, substantially more than the Guardian's app.

Gradually, from the Times to the Guardian to the Mail, newspapers which once offered everything online for nothing, are experimenting with the price readers will pay to get easy access to their content. Soon, there will be another test, when Rupert Murdoch's new iPad newspaper launches - one rumour says it will have a daily price of $0.99.

News groups appear to be groping in the dark, unsure of what readers want from an app. But anyone who comes up with a compelling product at a price that attracts a crowd will be acclaimed in newsrooms around the world.

Update 1720: I've just made an embarrassing discovery. The Mail Online app is in fact free for now - the newspaper is offering readers a trial before they have to pay. But when I downloaded the app I somehow found my way to a subscription page and shelled out £4.99 for six months. Which makes me, I imagine, one of a very select few.

What is more, there is no guarantee that when it does start charging the Mail will not decide to lower its price, now that it has seen what the Guardian is charging.

One more point - both the Guardian and the Mail are also working on iPad versions, and both of them are likely to be quite a deal more expensive than their smartphone apps.

Wikipedia: Innovation without profit?

Rory Cellan-Jones | 00:00 UK time, Friday, 14 January 2011


If you're a frequent visitor to Wikipedia - like rather a lot of essay-writing students of my acquaintance - you may now be sick of the sight of a bearded man demanding cash.

The collaborative encyclopaedia, soon to celebrate its 10th anniversary, has been on a fundraising drive and its founder Jimmy Wales has been the face of that campaign.

When I met him this week, he laughed ruefully when I told him that some were getting a bit tired of seeing him on every page and apologised that his "ugly mug" had been cluttering up the site.

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He said he hadn't wanted his picture to be used but that his staff told him it had tested better than others and it had worked, raising a substantial amount of the money needed to keep the non-profit making venture running.

And that of course is the wonderful thing about Wikipedia, it has grown and flourished for a decade as a voluntary organisation, a shining example of how innovation can flourish without the profit motive. It's now the fifth most popular website on the planet, all as a result of harnessing the collective wisdom of thousands of volunteer editors around the world.

But let us take a step back and ask whether Wikipedia's achievements and its future might now be more secure if it was a commercial business. After all, there are suggestions that some of its volunteers are getting bored, now that so many subjects have been exhausted, and that the whole project could have peaked. There are certainly few signs of innovation in recent years.

When I put that thesis to Jimmy Wales he was sceptical: "We are a charity and that's a stable model," he said. "Look at the pressures commercial ventures would be under - suddenly there's a need to meet quarterly results, suddenly there's a need to bring in money." Instead, he maintained Wikipedia could be true to its mission, "a temple to the mind."

But don't underestimate the challenges a charity faces in trying to innovate while pleasing different constituencies.

As Mr Wales explained how tricky it was making changes to the software which would bring in new editors without offending veteran Wikipedians, my mind turned to a recent conversation with another huge web brand which has taken a different route.

Last month, on a visit to Facebook for a forthcoming radio series on social networking, I met the man whose job it has been to push through all sorts of changes to the website's interface. In just about every case, the users have hated them, but Chris Cox and the Facebook team have just pushed ahead, and eventually the changes have proved immensely popular

He told me: "We knew that in the history of innovation, it's never received well. But getting through those first few days, this is a lesson you want to tell anyone who's an artist or a creator or a builder - you just need to have your own vision, and you need to be willing to stick to it in the face of criticism."

Now, like Wikipedia's Wales, Facebook has a strong, assertive leader in Mark Zuckerberg. And, despite the fact that he's running a commercial business that needs one day to make a profit, he has been even more confident than his counterpart at Wikipedia in sticking to his vision of where the web is heading net, however unpopular that makes him in the short-term.

Perhaps Facebook's secret is that it has so far resisted pressure to become a public company and face those quarterly examinations by Wall Street analysts, that, in Jimmy Wales' view, can stifle innovation. It looks easier for private companies to think long-term.

In our interview Jimmy Wales did not rule out putting adverts on Wikipedia at some stage. But perhaps a better course of action would be to imitate Facebook, attract huge amounts of venture capital on promises of a profitable future and then pursue his own vision of Wikipedia's future, while resisting an IPO for as long as possible. At least Mr Wales would not have to pop up each year on the site, holding out his cap for funds.

Twitter proves its worth

Rory Cellan-Jones | 09:12 UK time, Monday, 10 January 2011


It's long been derided as a vehicle for the vacuous, and a web fad which will fade away as soon as its backers realise it has no realistic business plan.

Wikileaks page on Twitter


But over the weekend, Twitter proved its worth again - in two ways. First, as the place to be if you want to catch the latest news and the background to it. Second, in the eyes of web libertarians, as a doughty defender of its users' rights.

As the first reports emerged of the shootings in Tucson came in on Saturday, my Twitter stream began to fill up with the latest developments. As the minutes passed, the picture became more confused then clearer - at first it seemed Congresswoman Giffords had died, then it emerged that she was in surgery, and then details came through of the victims, and the man who had apparently fired the gun.

When I remarked - on Twitter - how useful a place it had been to watch the news, some immediately responded that it had been full of inaccuracies and that rolling TV news had been a better place to watch. True, you needed to have the television on as well, but it was just as guilty of running with lines that turned out later to be false. The faster the news cycle has become, on television and then online, the more we are likely to hear half-truths and untruths before the clear picture emerges - "never wrong for long", as some have put it.

The other criticism of Twitter, that in 140 characters you just cannot say anything important, really does not hold up. Because it's the links to other web addresses - shortened by services like - which are the website's most powerful tool. Within minutes, you could see America debating the causes of the incident - the liberal left posting links to Sarah Palin's "crosshairs" message, showing Gabrielle Giffords being "targeted" during the mid-term elections, the right responding with links to similarly inflammatory messages from Democrats.

Tweeters were also rapidly providing information about the background of the alleged shooter, with links to his bizarre YouTube videos and even grabs of a MySpace page before that was taken down. You can still argue that the television is still the best place to watch live news unfold - but you needed Twitter to get background and the arguments.

The other big story of the weekend concerned Twitter itself as it emerged that the social network had been served with a court order from the US government demanding that it hand over all sorts of details about the accounts and online activities of people connected to Wikileaks. That sounded like a huge crisis for Twitter, in the unenviable position of having to choose between obeying the law and losing its reputation overseas as a forum for free expression in countries like Iran.

Twitter's response - its lawyers fought successfully to get the order unsealed so that its contents could be made public - has turned that crisis into an opportunity. Suddenly, web libertarians are rushing to Twitter's side, and applauding it as a defender of its users' rights. And they are asking what rival companies would have done in the same circumstances - indeed whether the likes of Facebook and Google are currently wrestling with a similar dilemma.

Twitter may still be forced to hand over that information to the US authorities, but it will emerge with its reputation enhanced. All it needs now is a convincing business plan.

Spotify: 'We haven't given up on the US'

Rory Cellan-Jones | 15:33 UK time, Friday, 7 January 2011


Is Spotify giving up on its ambitions to launch in the United States, and does that mean the music-streaming service is doomed in the longer-term?

Screenshot of Spotify site

After years of pretty positive coverage, the great digital white hope of the music industry is now dodging rotten eggs from the media on a daily basis.

First, on New Year's Eve, there was the cruel mockery of the top US blog Techcrunch which laughed at Spotify's repeated failure to hit its promised target of an American launch.

Then it was the UK's Daily Telegraph claiming the agonisingly slow negotiations with record labels had led the company to "pause" the talks and think again about whether it was even worth going to the States.

Now I've been talking to some senior figures at Spotify, and they insist that this is not the case - the talks are continuing, albeit slowly, and they are still confident of reaching a deal soon. "We're close to signing on the dotted line...we've just got to get over it," was how one person put it.

The big mistake, the same person told me, was to have saddled themselves with a target of launching by the end of 2010. ""We should never have answered that question about a launch date," he lamented.

The real puzzle is just why an industry which had seemed desperate a year or two back to laud Spotify as its saviour from the scourge of illegal file-sharing now appears indifferent to its fate.

What does seem clear is that the same record labels which did deals with the "freemium" service in Europe are a lot more wary about doing the same in the United States. Just why Warner, to name one, should sign up with Spotify on one continent but be dismissive on another is a bit of a mystery.

Unless the ageing tycoons of the music business think it's about time they took charge of their own digital destinies. Having watched Apple create and then control the paid digital download business, maybe they think they can exert more control over the new model, where users pay a fee to stream unlimited music rather than own it.

One label, Sony has unveiled plans for its own streaming service in the United States, so its rivals may think it's worth waiting to see how that pans out before signing with Spotify.

But given the news we've had from the UK music industry this week of falling sales in 2010, and a disastrous Christmas for the last big retailer HMV, you'd think there would be a sense of urgency.

And what if the US deal doesn't happen - will the European market be enough to keep Spotify afloat? With around 850,000 paying customers, its owners think it may already be the world's biggest music subscription service. They are confident that they can continue to persuade a greater proportion of the millions who try the free ad-supported Spotify to upgrade to the premium service.

But fewer than a million people paying for music across the continent does not look too good when you compare it with the 10 million who pay Sky in the UK much bigger sums for premium television channels. If Spotify is to have a viable future, it either needs to get a lot more people subscribing in Europe - or to get access to the vast American market.

Off the record, the music labels grumble that they are getting miniscule revenues from their licensing deal with Spotify. But surely they ought to be asking themselves what it will say about their industry's digital future if the service which once excited both music fans and the labels is allowed to fail.

Is the Mac App Store a software game changer?

Rory Cellan-Jones | 08:22 UK time, Friday, 7 January 2011


Now why would Apple choose a day in early January for a significant launch? Could it be just a coincidence that the Mac App Store made its debut right in the middle of the Las Vegas Consumer Electronics Show, a huge event for the tech industry but one always boycotted by Steve Jobs and co? Of course not.

A computer displays onscreen the new Apple App store

For the Mac community - once a tiny group of zealots, now quite a mob - the arrival of this online store selling software for Apple computers caused a frenzy of excitement. The rest of the world stifled a yawn and pointed out that buying software online is hardly new. But, as ever with Apple, a flashy new twist on an old but hitherto poorly presented idea could prove a winner.

Because ask yourself this - when did you last buy any software for a home computer? If you're like the friends I've questioned your answer is "err, never" or "I think my wife once got Norton to put on the PC", or "my son got us a sneaky student discount on some outrageously expensive photo software so we got that."

For whatever reason, the software industry has been hopeless at selling its products to the general public, preferring to concentrate on getting businesses to shell out huge amounts to acquire licenses for enterprise products like Microsoft Office.

If you're a home user who wants to edit some photos, for instance, and needs something a bit more sophisticated than the free program bundled with your computer you might choose Adobe's Photoshop - and then find a bewildering array of products at prices ranging from £51 to £613.

Or you want to get some presentation software from Apple and find you have to pay more than £70 and can only get it bundled with a word processor and a spreadsheet that you don't need.

The result is that many people choose to live with what comes pre-loaded on their computers, acquiring the odd free open-source download or perhaps a pirated product passed on by friend. Like music for today's teenagers, software is something we have come to expect to get for nothing.

Until that is, the arrival of the App Store for the iPhone in 2008. By getting phone users to pay small amounts for apps - everything from a train time checker to the wildly popular Angry Birds game - Apple introduced millions to the idea that new software could enhance your device and might have a value.

So there will be a ready-made audience for the Mac App Store on computers which looks identical to those on Apple's mobile devices. What will people buy? It looks as though games are already popular with Angry Birds top of the sales chart' so that's yet another new source of revenue for Apple , which until now has failed to sell the Mac as a suitable platform for gaming.

Then there are cheap apps like Weather HD - a 59p weather forecaster. Why you would pay for something you could get for nothing by opening a browser isn't clear but I bet quite a few will. More revenue for Apple and more importantly another reason for the new army of app developers to concentrate on the Mac OS rather than Google's Android.

And then there are Apple's own products - and here there's a fascinating insight into the economics of software. Go into the Apple Store and buy the photo editing package Aperture and you will pay £173. But download it from the Mac App Store and you will pay just £44.99.

It's the oldest lesson in business - slash prices and you'll have consumers hammering on the doors of your store. If Apple can still make a profit on a product whose price has come down by 75% and I bet it can as Aperture is currently listed as the biggest earner in the App store - then surely others will be forced to follow suit.

So, yes, selling software online is nothing new, however well it's packaged. But if by clever pricing Apple can get people to buy it in large numbers then it will have done the whole software industry a service.

Is Facebook worth $50bn?

Rory Cellan-Jones | 13:13 UK time, Tuesday, 4 January 2011


Is Facebook really worth $50bn (£32.3bn), more than the likes of eBay or Yahoo, as its latest investment from Goldman Sachs and Russia's DST suggests? The simple answer is if they are willing to pay that price, then yes, just as a garage in Mayfair is worth £100,000 if someone is prepared to stump up the cash.

Facebook website log in page


Let's have a quick look at the opposing views of this sky-high valuation.

The case for

1. Unlike all those crazy dotcom businesses of the late 1990s, Facebook now has substantial revenues - thought to be $2bn in 2010. What's more, it's raced past the 500 million user milestone and is heading rapidly towards a billion - and that means there's a huge surge of growth in revenues on the horizon.

2. It isn't just earning money from display advertising, but from virtual goods sold in games and from all sorts of clever wheezes which allow businesses to exploit Facebook's social graph. And that will mean the social network will start sucking revenue away from that other great web money machine Google.

3. Google's history is of course another reason to be cheerful about Facebook's valuation. There was huge scepticism about the value put on the search firm when it floated - but those who invested back in 2004 at $85 a share are looking pretty smug now, with the price at roughly $600.

4. It's Mark Zuckerberg who provides the strongest case for yes. Throughout Facebook's history, its founder has been told by older and wiser heads that he should be selling up, or floating the company, that each new valuation - from $1bn to $15bn to $35 billion - is mad. And each time he has been proven right in his belief that Facebook's growth story has far to go.

The case against

1. The plain truth is we know very little about Facebook's finances because it is a private company - though regulators in the US are beginning to ask pointed questions about a business which appears to be enjoying all the benefits of an IPO (a stock market flotation) without any of the burdens. Even if that $2bn is accurate, that's revenues not profit, so we are back in the era of dotcom valuations, where analysts would think of a number and then multiply it by 25 to work out a company's worth.

2. Facebook has proved that it can lure advertisers to a social network, and that it can persuade millions to spend many hours on the site, where they can be engaged with by businesses. But the jury is still out on how eager Facebookers are to spend time "liking" Coca-Cola or Starbucks, rather than flirting with friends or discussing Justin Bieber's new hairstyle.

3. Google users are very different from the Facebook crowd - they see it as a utility rather than as a place to hang out. In other words, they are in the mood to look for products and services, which is what makes the search engine such a powerful advertising platform. Perhaps the Facebook crowd is changing, and it's certainly grabbing a lot more of its users' time. But Google saw revenue double in the year after its IPO - and more importantly it saw its profits treble. Can Facebook really do that in the next year? If not, it won't look like a $50bn company.

4. Ah, but this one is difficult - the sheer determination and focus of Mark Zuckerberg in sticking to his vision of what Facebook could become continues to impress. The case against such an outlandish valuation is strong. But those who have bet against Facebook's founder are not looking too smart today.

My bet is that we will see a Facebook IPO within a year - and at a value of $50bn or more.

What happens after that, though, is anyone's guess.

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