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Facebook is not at war with Google as both companies would like to think. It is really suffering more from guerrilla attacks from a set of small players that hit Facebook one functionality at a time. WhatsApp, Snapchat, Twitter, Quora, Path, Tango, Tumblr, Pinterest, Viber, Voxer, LinkedIn and even its own Instagram all chip away from Facebook. It’s the club of companies that are better than Facebook “at something” . And Facebook’s attempt to bury them all with a Facebook phone didn’t work out. Facebook has a billion users but these are many of the same users who more and more prefer the specialty formats of other platforms. While in Smartphones themselves the battle may be only between iPhone 5 vs Samsung IV, when it comes to apps people are much more picky. Facebook is losing dominance by the week to focused niche players.

For most people Facebook Swiss Knife approach is good, but given a choice, a tool set is better. What is Facebook to do? They are lucky enough to be sitting on a cash pile and it is a public company worth over $50bn. They have to do what Google has been doing for years. Buy, buy and buy. Instagram was a good start. Buy first and figure out how to monetize later, learn from Google’s acquisition of Youtube which for years was as struggle and now is a star.

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Everyone says that Facebook fights privacy because they grow by making you and everyone else, very public.  And that part is obvious, if they don’t encourage you to be less private they have no network.  But there is a countertrend to that and that is post IPO monetization.  Now that Facebook got 1 billion people to share their intimate and mostly irrelevant moments they hope to make money by you being so desperate for the attention that you got used to having that you start paying NOT to be private.  In order to achieve this Facebook is now making you less popular, or more private against your will.

So the new Facebook, the post IPO “have to meet the next quarter numbers” Facebook, is paradoxically more private, unless you pay of course. But if you don’t pay, less is disclosed about you to others because those who pay increasingly crowd you out.  And paradoxically a new privacy will be achieved.

I just paid $38 to Facebook to promote a post I wrote in Spanish about the iPad Mini and Surface. I did it because I find the business model kind of absurd but want to understand what the rationale behind this is. I also did it because I was surprised the price was $38, like the failed IPO price. You would imagine that Facebook would have given up on charging $38 for anything and I wanted to see what I would get for $38.

I still think that Facebook should offer a $5 per month no ads version of its service. I dislike the fact that Facebook gives me the service for free and is always trying to think how to milk me as a user an activity for which it has an incentive to invade my privacy in all sorts of way.  Especially in trying to make me as public as possible to sell me as a product to others.  Facebook’s ads are so irrelevant, so much worse than those of Google, so irritating.

And there is the language issue as well. I hope FB realizes that my post is in Spanish and does not spam everyone who reads in English with it. I know this sounds absurd and it is so easy to recognize languages. SpotRadio and RadioMe, apps that I developed for Android do this very well on the fly and for many languages at the same time. But Facebook frequently shows me ads that encourage me to learn Spanish. So how aware is Facebook of who I am? It also frequently shows me great looking women with no friends in common with me to befriend and ads for all sorts of ways of meet women even though I am happily married and said I found those ads offensive.

I should have said this at the beginning, I am debating to buy shares in Facebook which has an incredible asset but so far does not know how to monetize it. I bought at $25 but sold at $22 not convinced because all the well known insiders are selling. So I have decided to do this $38 experiment to test a part of their business model. Especially since ads on the web are so easily blocked with Ad Blockers and ads on mobile are tough to monetize at all let’s see what happens.  Will complete the post later as I find out.

My history with Facebook goes back to 2006 when I joined the service, then 2007 when I first visited their HQ in Palo Alto and wrote that I was so impressed with the company that I thought it would be worth over $10bn.  That number that sounded so crazy then is but a fraction of its vaue today.  And then a year later I helped Mark Zuckerberg launch Facebook in Spanish. Here’s a video of the two of us. Needless to say that Mark Zuckerberg is an absolute genius when it gets to build THE social network.

Still I did not buy Facebook shares in the IPO.  I should clarify that I am a long term investor, not a trader but $38 seemed to high a valuation for me.  I was waiting for the shares to come down.

Before the earnings announcement I had bought some Facebook shares at $28 and a few hours ago I bought more shares at $23. And I have another order to buy more if they get to $20.

Here’s my rational.

Image representing Mark Zuckerberg as depicted...

Image via CrunchBase

Facebook is an amazing company, it has a good chunk of the richest segment of humanity glued to its service. The share of global income of people with Facebook accounts must be, in my view, at least half of all global income.  Not only do they have a billion users but they have the billion with the most money.  The top billion.

That Facebook is so great at engagement but so bad at monetization sounds to me as a more solvable problem than the exact opposite and that’s why I am buying the shares.

Right now Facebook seems to get $2 per user per quarter. I can’t believe they are not going to be able to get double that in the near future. If Google owned FB, how much would they get out of its user base? Google gets over $40bn in revenues from its user base now but its users and time on site are comparable to FB. So a good guess could be that FB could get 10X more revenues from their user base when they grow up.

Risks? that they never get good at monetization and/or that somebody else “myspaces” them.  That’s why I only recommend owning at most 3% of your net worth in Facebook shares. My main holdings are Apple, Google and Amazon and my portfolio exposure to Facebook is very small. But now I am a shareholder.

This was surprising, I was speaking at a conference in Zurich and somebody from the audience came up with this video of Mark Zuckerberg and I in 2008. That was superkind of this person, to shoot this video I mean. You can see how Mark Zuckerberg was going around the world promoting Facebook, this was the Spanish launch at it took place at a theatre I owned in Madrid called Teatro Lara. The video starts in Spanish and I speak, then switches to English and Mark speaks.

Martin Varsavsky and Mark Zuckerberg present Fon and Facebook from Martin Varsavsky on Vimeo.

Skype Limited
Image via Wikipedia

My investors at Fon include most of the people and companies that were involved in the recent sale of Skype. At Fon we have eBay, Janus Friis and Niklas Zennstrom personally as investors and board members, Mike Volpi personally as an investor and board member, Danny Rimer as a board member and Index Ventures as an investor, and Marc Andreessen as an investor. So for me to talk about Skype after the recent dispute for the control of this company could be dangerous. But there´s no need to be concerned. This post is not about my opinions on what just happened at Skype as those are irrelevant here. Personally I think that Janus, Niklas, Mike, Danny and Marc are all awesome guys, amazing investors and board members. So what I will speak about is how I see the future of Skype and the dangers it may face and the opportunities it may have.

Before getting started I would like to say that I have been a user of Skype from the very beginning, from way before I actually met and became partners with Janus and Niklas, that I think that Skype is a remarkable product that is way ahead of the competition and that while not yet a highly profitable company, Skype has certainly been a gift to humanity. Now having sent my thank you note, let’s talk business.

Most communication on Skype as we all know, is totally free, only occasional calls to non Skype parties are the ones that generate the $740 million revenue run rate that allows Skype to make a living. The rest is love. And those revenues are under threat from three rivals.

The first one is called Facebook. While my friends inside Facebook have not disclosed anything to me, I think it is obvious that Facebook will soon have its own Skype. And what´s amazing about Facebook is that even though its pictures apps is mediocre in comparison to Flickr, its email pales in comparison to Gmail and its chat is way worse than that of Skype (no file attachments, no this, no this no that), the growth of those apps in Facebook is explosive. While I have been in Skype since 2004, on a recent check I had around 30 people I knew on Skype and 144 on Facebook chat. When Facebook incorporates a Skype like product, how many people will go on using Skype? Facebook is getting so big that soon there will be no Facebook Out. The threat that was Skype’s threat, namely how do you make money if everyone is on Skype and there is no Skype Out, is now being transferred to Facebook. But the thing is that Facebook, another gift to humanity, has a different business model, advertising, and they could really hurt Skype.

The second threat to Skype is flat rate pricing from telcos around the world. Why would anyone use Skype Out if they have an all you can eat tariff on their phone? And all you can eat tariffs are more and more frequent. In Europe all ADSL plans come with flat rates to all fixed lines, and in USA flat plans to fixed and mobile plans are more and more common. There are also community plans like calling anyone on AT&T for free that turns AT&T mobile into a Skype. It is remarkable that these plans are available to visitors such as myself and my family. We are six and when we go to USA everyone gets a phone with an AT&T card and we all call each other for free on prepaid! And telcos have one big advantage and that is that you don’t need a computer to make a phone call :)

The third threat is Google Voice. Google voice is interesting because it came out of the Google Talk fiasco and it shows how relentless Google is when it gets its mind set on something (disclosure Google is also an investor in Fon). What Google Voice is doing with the free phone calls attacks the very livelihood of Skype and that is Skype out. And the integration with Gmail and Gmail contacts is amazing. Skype is weak at that, it has no email. Google first copied Skype with Gtalk and it took off but not really. Google Voice is the second derivative of the Skype attack, and is going well. The $50 million acquisition of Grand Central that resulted in Google Voice stands up there with the acquisition of Keyhole that resulted in Google Earth as two of the best M&A moves of Google so far.

So considering that Skype is under attack from Facebook, the largest telcos in the world and Google how can it be a good business to buy Skype?

Well the key here for the new investors in Skype is not whether Skype will rule the world but whether it will be worth more than what the investors paid for it. And after giving you the cons here are some arguments and strategies in favor of the acquisition.

Skype is simple. Michael Arrington and all of Silicon Valley may find Google Voice amazing but is the average global citizen ready to use it? Massively use it? You download Skype, you find your friends on Skype, you talk. And if you don’t find them you Skype out. And when you talk you can also do video. I LOVE video calls on Skype. I used to use them for people I really cared about, relatives, close friends. Now I even do business calls on video with Skype. It just gives you more of a sense of what is going through the other person´s mind. And Skype is the leader on video quality. So simplicity plus video may be a good way to beat flat plans from telcos and avoid being Tivoed. If the video services can migrate to mobile phones Skype is on to something.

Skype can include advertising. If Gmail reads your emails and places ads why can´t Skype do the same thing on their chat or even their voice channels? How far are we from systems that listen to what you say and just as you finish saying “let´s go to Ibiza for the weekend” they start showing you cheap flights to Ibiza. Gmail proved that if you give people a great service they don’t care if you spy on them. That could be an enormous revenue source. So far Google has been kind to Skype even including it in the Google pack. Maybe a Google deal for advertising is in the making.

Facebook is not the only community in the world, there is Linked In, Xing and other business networks. Those “business types” work best with Skype. I believe that as Facebook squeezes everybody in its quest to Microsoft the world (Mark Zuckerberg told me that Microsoft is his model) a few Apples will emerge. Skype could be one of them. Apple has a tiny fraction of the PC market, Dell dwarfs it in revenues. But Apple dominates the over $1000 PC segment. Skype could position itself as the communicator of choice for businesses. And that has tremendous value.

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The Eye-Fi Card looks and acts like a standard SDHC memory card (up to 2GB) that you can easily plug into your digital camera, but it’s actually a great WiFi gadget that automatically transfers your photos and videos to the Web and your computer, as soon as your camera gets in range of a WiFi router like a Fonera.

When your pics and videos are uploaded they can be automatically shared on around 20  photo and video sharing services including Flickr, Facebook, Picasa, Photobucket and Youtube. When your computer is turned on your pics are are downloaded to a folder on your computer or directly into iPhoto if you are on a Mac.

Adding WiFi to your camera makes a lot of sense, as it lets you forget about the annoying downloading and uploading procedures necessary to put your pictures and videos on the Internet. Our own Fonera 2.0 will let you achieve the same results, but will work with any digital camera and any memory card. You’ll soon be able to plug your camera to an USB port on the Fonera 2.0 and your pics and videos will be automatically uploaded to Flickr and Youtube. No need to boot up your PC and waste time with forms and endless uploads, the Fonera 2.0 will take care of it for you. But the Fonera 2.0 is not just about uploading pictures and videos to the Web, it will also help you manage your storage, backup and downloading activities, thanks to a USB port and a selection of plugins developed by the community.

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There are many reasons why I believe that Facebook will be worth over $10bn, maybe as much as $20bn but I will focus on one, its open immigration policy. Joanna Rees (CEO of FON USA) and I went to see the folks at Facebook in order to make a deal on how Fon could appear in Facebook. The visit was amazing in the sense that we basically learned that we could do whatever we wanted at Facebook. All our ideas were greeted with a yes, yes and yes.

Basically, the Facebook system resembles a country with open immigration in which the best are allowed to thrive, kind of like USA who manages to attract the best of the best…and thrives. But of course you have to live by certain rules like for example disclosing who you are, a rule that we also have at Fon and that while potentially hackable Facebook told us that they frequently delete accounts of people they believe are not disclosing their true identity. Interestingly Second Life has the opposite principle, namely that people would like to live in an imaginary world of second identities, and some do, but most like to have a real relationship with real friends.

To me there´s no doubt that Facebook will be hugely popular and will overtake Myspace sometime during 2008 and become the largest social network in the world. The only lingering doubts center around monetization but with Google nearby and with the famous Myspace Google deal as a starting point I see that selling ads to people who disclose their identity and so much about themselves will be like shooting fish in a barrel.

The dudes at Facebook not only have done an amazing job in building the best social web site in the world, a site that, other than my 7 month baby, has managed to recruit all the other 5 members of my family, ages 13 to 47. But now, by allowing everyone else to come to Facebook, it has build a platform that within a year will become the most valuable social platform in the world.

What I wonder is, for how long is Facebook going to allow other companies to build businesses inside Facebook? Is Facebook going to begin asking for toll payments at some point in the future or will they be happy with the fact that, in any case, it all takes place there and they will find ways to monetize the new traffic? Seeing what they have done til now, my take is that the Facebook land grab will continue with the limiting factor here, being not acreage, but attention span.

There are many reasons why I think that Facebook will become the number one social network in the world and eventually surpass Myspace.com. One is that it has managed to integrate a developer community of apps that is unrivaled. Two is because, as opposed to Myspace, it managed to span accross generations going all the way from teens to baby boomers. Three is because it allows for many different levels of involvement. The only limitation I see is the language, that it´s only in English.

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