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DOES GOOGLE GLASS HAVE A BRANDING PROBLEM? MARKETING EXPERTS MAP STEPS TO MAINSTREAM SUCCESS

Google Co-Founder Sergey Brin wears a pair of Google Glass AR glasses (Click Image To Enlarge)

Still in its test phase, Google Glass may be dorked to death before it gets the opportunity to take off. Here, marketing players from a range of agencies provide their assessment of Glass’s chances and some suggestions for paving the way to mainstream success.

Google’s much-hyped wearable computer, Google Glass, has been touted by the tech elite as one of the leaps forward of recent times, but those same elites may hobble mainstream adoption of the device.

While privacy concerns have blossomed (the device may be on its way to being banned at a number of locations), it may comfort those worried that we are all about to become spies for Google that the early adopters of Google Glass are helping to give it an image problem it might not recover from.

Technology venture capitalists Marc Andreessen, Bill Maris and John Doerr model Google Glass AR glasses (Click Image To Enlarge)

Marc Andreessen, a partner in the venture capital firm Andreessen Horowitz, said, 

”You put it on and you’re like ‘Oh my God, I have the entire Internet in my vision. Where have you been all my life?’ ”

Kleiner Perkins venture capitalist John Doerr noted last month when unveiling Kleiner Perkins’ Google Glass-focused investment fund. 

"For paraplegics and quadriplegics, Glass could be a stunningly useful way to get information and interact with it."

The futuristic-looking headset can augment our everyday reality by putting data in our field of vision as well as allowing us to take pictures, and translating the spoken word on the move. But unfortunately, it also appears to have unintended contraceptive powers, as illustrated by this Tumblr featuring members of its decidedly unhip core fanbase.

Google CEO & Co-Founder Larry Page wears a pair of Google Glass AR glasses (Click Image To Enlarge)

It’s all very well having wearable technology that lets you livestream yourself hang gliding. But if it has all the sex appeal of orthodontic headgear, it’s unlikely to catch on. Google’s Glass Explorer program has put Google Glass in the hands and on the heads of developers and tech pundits who Google has selected to test it and have paid $1,500. Google chief executive Larry Page has indicated that the product won’t be in stores for about another year, by which time it may be hard to separate it from its association with tech fanatics.

Arguably, success in wearable technology hinges on making people look and feel good as much as providing a functional service. Developers might be happy to fork vast sums for the privilege of being a Google Glass owner, but when the product goes to mass market, fashion, or at least some sort of coolness and covetability will be as critical as functionality.

Tech pundit Robert Scoble wrote a glowing review about the augmented reality glasses and said, "I will never live a day without them." He then showed off a picture of himself showering while wearing the glasses.  Google co-founder Sergey Brin looking cool wearing a pair of Google Glass AR glasses onboard a bus (Click Image To Enlarge)

With this in mind, we asked five marketing experts: How would you position Google Glass to make sure it achieves mainstream success?

AFTER NAILING THE EARLY ADOPTERS, FOCUS ON LESS-EXPECTED APPLICATIONS.

Jinal Shah, digital strategy director, JWT New York

Google is embracing its influencers. Make no mistake though--they aren’t just going after the nerds. They are strategic in who they’ve invited to their Glass Explorers program, an influencer program that allows a handpicked group to use the first generation of Google Glass. Google has carefully curated a group of people who sit at the intersection of nerd and celebrity. For example, tech celebrity Soraya Darabi, among others. People like her not only bring their passion for technology but also their massive audiences (500K+ followers in the case of Soraya) into the conversation.

California Lieutenant Governor Gavin Newsom, and former mayor of San Francisco, tries the glasses on Current TV (Click Image To Enlarge)

There’s incremental innovation and there’s wow-your-pants-off innovation. Google Glass is in the latter category. We tried it on last week at Google and it was pretty amazing. Mainstream success will happen as it expands the breadth of its audience and also as its simplifies its technology. What we’ll end up with in a few years is just a tiny camera that we’ll be able to attach to any eyewear. To the broader point, wearable technology is the future. Making it as nerdy as possible at the outset is a smart strategic move to get those who will engage most with the glasses to develop their capabilities and advance them to a place of general adoption. It should be no surprise that Google has already developed a partnership with Warby Parker. The aesthetic will change over time, and this will be one of the many norms of wearable tech.

The Google Glass initial approach has focused on driving exclusivity in select communities. And they’ve nailed it. In the next stage, I’d focus on creating desire by introducing a library of plain interesting to bizarre applications of Glass. Think government, music, Hollywood, retail partnerships--maybe even an episode of Family Guy with Stewie touting Glass.

THERE’S SOMETHING ABOUT NERDS.

Jonah Disend, CEO and Founder of Redscout

When we look at the challenge of extending Google Glasses out of nerdom, we believe that the challenge is first, one of execution and second, one of positioning and targeting.

• First, in terms of execution, Google Glasses inherently plays in two worlds--fashion and technology--and they haven’t created “cool kid” lust in either area.  It is neither an incredible fashion accessory that you would want to wear, nor is it a beautiful or obviously useful gadget that you would want to own.
• Second, in terms of positioning and targeting, today Google Glasses is seen as a barrier to social engagement as opposed to an enabler. While it may make your world more exciting and dynamic (as the promotional video might suggest), it does not currently enhance socialization nor have they shown how the value of the glasses increases with additional users (there is currently no clear Network Effect).

Now for our gross generalization about nerds versus everyone else. Nerds actively look to create barriers to protect them from the world, mitigate social engagement, and connect through virtual worlds (thinkWorld of Warcraft). In this context, Google Glasses are the ultimate tool for nerds to add a layer of protection between them and others and potentially seal the fate of Google Glasses as something that only the geekiest of the geeks would ever want to wear (or even own).

WORK WITH TRENDSETTERS.

Lloyd Salmons, Director of Digital, Saatchi & Saatchi London

I love Google. It gives me convenient access to a world of information and that’s something I want. I don’t love their glasses, because they don’t give me what I want. What I want is my glasses. If you’ve ever chosen a pair of glasses you’ll know how long it takes, how many opinions you seek, how many photos you’ve texted and images of celebrities you’ve looked at, be they fashion, sport or sunglasses. What I want is the Google I love, in the glasses I love. I want Google in my glasses.

Open APIs, products as platforms, and cocreation are the norm for tech companies. There is no way Apple or Android could have brought the level of innovation needed to create so many apps personalized to individual needs. Just because Google Glass is a physical product doesn’t mean Google should change the approach to creating the range of glasses needed to facilitate individual tastes.

To facilitate this, we’d build a platform allowing us to work with a range of individuals and the people who make their glasses. These people would range from well-known celebrities in fashion and sport, to everyday style leaders. The content generated across the journey from inception, build, and trial to launch would provide both broadcast content and ways to engage.

Google in Bradley Wiggins’s glasses: We follow the journey of Bradley and his glasses climaxing at the start of the Tour de France. Google in Elton John’s glasses: No one has more glasses than Elton John; he’s given us a hundred of his best to create a range of Google glasses and we’re going to find the perfect person for each of them. You get the picture. Google in P.Diddy’s glasses. Google in Sven Göran Eriksson’s glasses. Google in Victoria Beckham’s sunglasses.

If you try on anyone else’s glasses, you look like a nerd; that’s just a law of the universe. If you don’t believe me, try it. What I need is Google in my glasses.

IDENTIFY AND EMBRACE THE USAGE SWEET SPOT.

Brian Carley, SVP, Executive Creative Director, Rokkan

It’s a challenge, specifically because of the stigma that was quickly attached to them. Putting aside all flaws in its physical appearance, it would be ideal to tap into how people would realistically use them day to day. Very few people are going be wearing them ALL the time, but there are times when it would be useful to have a device such as this and also have complete use of your hands. We all assume that our mobile devices have no boundaries, but there are instances when we are apprehensive about having them on our person. I think that utilizing those moments is the sweet spot for this product. It’s a more useful Go-Pro and those are wildly popular within their specific usage, which is quite broad. There’s no real need for these beyond enjoyment, and so it would be wise to illustrate the truly hands-free experiences that surround the product beyond the dorkiness we’ve experienced already. At least they’re not as cumbersome as a Segway.

DON’T CHANGE A THING.

Bud Caddell, SVP, Director of Invention and Digital Strategy, Deutsch LA

Yes, white middle-aged men love Google Glass. Is it a problem? Of course not. Wearable tech has hardly fallen down Geoffrey Moore’s chasm. We’re seeing early adoption, and in tech (if we’re not counting Pinterest), white men from the Valley with disposable income tend to be first in, first out. And that didn’t stop iPads, laptops, or the mobile phone from reaching mass adoption. Yes, Robert Scoble in the shower is frightening. But take a breath. Google has already tapped Warby Parker, who I personally trust in putting things on my face, and I think Google Glass (in one iteration or another) is here to stay.

COMMENTARY:    

What Tech Guru's Are Saying About Google Glass

I am discounting by about 95% the positive comments made by most of the above technology pundits, expecially some of the above VC's in favor of what other technology pundits are saying:

Marcus Wohlsen, a tech reporter for Wired, on May 2, 2013, gave some hints that Google Glass could end in failure by making these comparisons: 

“The Segway. The Bluetooth headset. The pocket protector.”  

Rebecca Greenfield of The Atlantic, called the secret photo-taking application a “privacy nightmare,” and she also said:

“The Creepiest Google Glass App Is a Stalker’s Dream.” 

Jason Perlow of ZDNet wrote:

“Google Glass: Let the evil commence."   

Perlow also noted that in the “Explorer” version of Google Glass that shipped in early May to first generation of users,

"There is no recording LED indicator light on the device, so that one could stealthily record without any indication to the subject that they are being captured on-camera.”

Jason Zada, an award winning director, wrote on Twitter.  

 ”White Men Wearing Google Glass. This doesn’t make me want a pair.”

Another person simply wrote that Google Glass looks “lame.”

The Google Glass Is Banned List Grows

Privacy and security have become major concerns and as the list of concerned protesters continues to grow, we began to wonder: Where will we be most likely to see this Glass resistance moving forward?  This is a short list of businesses and places who will ban Google Glass:

• Movie theaters and concert venues - It's interesting to consider what Glass could do for film piracy and that annoying guy in front of you who waved his phone snapping photos through an entire two-hours concert. But these are two of the most obvious examples of places that traditionally prohibit cameras.
• Public schools - Or nurseries, or playgrounds. Really, anywhere with an influx of children is going to be a potential hotbed of legal headaches.
• Behind the wheel - The West Virginia legislators' attempt to ban Glass while driving will inevitably gain favor within other states, which will likely include many of the country's 39 states and Washington, D.C., where texting while driving is prohibited.
• Hospitals - Hospitals house boatloads of some of our most personal data, including medical records and insurance information. A stray paper or tilted clipboard could easily find its way into a Glass photo.
• Banks and ATMs - Similar to the hospital example, it's not unfathomable to imagine a Glass-clad someone hovering a little too close to your left shoulder to peep a glance at (not to mention a photo of) your credit card.
• Dressing rooms, locker rooms, and other rooms with people who are potentially naked - Think everywhere from department stores to your gym to strip clubs.

I might also add to the above list:

• Law enforcement - The police will absolutely hate Google Glass.  They don't want you recording their every move and what they say, because this could be used against them in court.
• Courts rooms - Court rooms often ban photographers from their court rooms, especially high-profile and controversial cases.  This is often necessary in order to protect the identity of the jurors and individuals making testimony.  
• Military bases - Any military personnel on military bases who enter or work in highly classified and secured areas will definitely be banned from wearing Google Glass. 
• Schools and colleges - Google Glass will definitely be banned from the classroom. Instructors will be weary of students who might use Google Glass to teach on tests.

On the other hand, I can definitely see immigration inspectors, airline security, law enforcement and even retailing establishments benefiting from Google Glass, in helping them identify criminals, security risks, people of interest and shoplifters before they commit crimes. Companies that want to protect their valuable intellectual property as a matter of practice will ban Google Glass.    

In my opinion, any technology that raises the high level of privacy and security concerns and could lead to consumer litigation potentially in the billions, has a huge PR image and this has the ability to permanently damage or destroy a brand.  This is what I see happening with Google Glass.  If Google wants to market Google Glass to the masses, they will have to severely limit or block its use in certain situations.  

Google needs to be careful that it does not damage its own brand reputation as the company whose motto is: "Don't Be Evil."   Google Glass has the potential to turn Google into the feared "Big Brother,"  that Steve Jobs warned us about when he tried to portray IBM as "Big Brother" in the famous TV commercial.  The company has to be very careful how they launch Google Glass. The company has a social responsibility to uphold (its motto) and it should not take us for granted.   The small cadre of tech geeks and very early adopters who now love and applaud Google Glass as the next big thing, may later learn to hate if they are not too careful.

I keep hearing that Google Glass represents the next evolution of the social network. Bringing the social network experience into the real world and sharing what we see and do with others.  Is this what Google (and Facebook) really wants?  God help us if this is where social networks are headed.  I don't want that kind of "social media experience" biting me in the butt, and I am sure you don't either.   Left to its own accord, without any controls, I believe that Google Glass crosses a line in the sand where our privacy is not only violated, but completely destroyed.  We lose our individuality as human beings, and we become an open book to anyone and everyone.

So keep in mind the old adage: "What goes around, comes around."       

Courtesy of an article dated May 15, 2013 appearing in Fast Company, an article dated May 4, 2013 appearing in CNN Tech, and an article date May 3, 2013 appearing in The New York Times Bits and an article dated May 15, 2013 appearing in VentureBeat

 

GOOGLE UNVEILS THE FACIAL RECOGNITION FEATURES OF GOOGLE GLASS, BUT LAWS TO PROTECT CONSUMER PRIVACY OR OUTRIGHT BANS WILL BE NEEDED

For those who wish they could better remember names and faces, a new demo app for Google Glass gives you notes on how you know each person.

Although the concept seems perfect for party or networking events, the app — called MedRef for Glass — was actually designed for hospital employees. By using facial recognition technology, staffers wearing Google's high-tech specs can pull up patient folders with photo, voice and text notes.

 

For example, a doctor might want to record that a certain patient likes to be rolled over on one side of their body or is allergic to nuts. And because the data is shareable with Google Glass, other nurses and physicians can have immediate access to this information.

The app was created by a team of computer programmers at a medical hackathon.

Here's how it works: MedRec adds timeline cards and sharing contacts via Google Glass. By saying a patient's name or taking a picture of their face, the device will bring up their records.

Lance Nanek, a computer programmer who worked to develop the app says. 

"Hospitals are full of very busy people — often with their hands full — who work with a lot of information.  Google Glass and making [data] wearable is especially being looked forward to there."

For a full look at how the app works, check out the video above.

Do you think Google Glass and its apps will revolutionize how we use technology across various fields, including the medical world? Let us know in the comments.

COMMENTARY:   So far Google Glass is not illegal, but some businesses have began posting "Google Glass Is Banned On These Premises" signs.  Despite a front page story appearing in the May 7, 2013 issue of the New York Times suggesting that Google is already facing a bunch of legal pushback over its face computer of the future, there are no laws on the books that make Google Glass illegal -- Yet.  

Click Image To Enlarge

A Los Angeles privacy lawyer tells the New York Times's David Streitfeld.

"This is just the beginning.  Google Glass is going to cause quite a brawl."

It's unclear how true that is, of course, because there hasn't been much actual courtroom brawling so far — mostly just Internet whining, really.

The New York Times cites a proposed bill from West Virginia statehouse politicians who "were not joking at all" about a ban on Glassing-while-driving. Except the bill seriously hasn't made it to the house floor yet. And while the New York Times cites the bill's sponsor in saying he's "likely" to reintroduce the legislation, well, Rep. Gary Howell has also said that he will introduce a study resolution to see how dangerous Google Glass really is. You know, in the meantime, and in the reality outside front-page privacy freak-out trend stories:

"If we do that, I would like to invite Google to provide a demonstration and explain if they will have some type of feature that will turn off everything."

Howell has said, in addition suggesting that he's open to other alternatives outside of the anti-Google Glass law.

But even if Howell takes his law back to the West Virginia state legislature and it passes, that hardly makes Google's new device illegal. After all, according to the New York Times,

"This is the most anticipated piece of electronic wizardry since the iPad and iPhone we're talking about here." 

And by the logic of the New York Times's scare tactics, cell phones would be considered illegal in all these states that ban use while driving. Even the group Stop the Cyborgs, which has launched an anti-Glass campaign, doesn't want to outright ban the devices.

"We don't want a total ban but do we want people to limit it's use."

the group insists (in bold), in the About section of its website. While other, logical places — like strip clubs, or casinos — have banned Google Glass, people don't necessarily need laws or formal prohibitions to tell them how to properly regulate their usage of the world's foremost walking computer.  Already a whole bunch of people have written about their inclination to have specific etiquette while using Google Glass. 

However, even Google admits that its much discuss hardware is still in beta — and that the company is open to changes to better suit our apparently myriad privacy fears. That's basically all the Stop the Cyborgs of the world want, anyway. The Cyborgs group has three main points suggesting ways in which Google can build in enough privacy to placate the interests of privacy hawks the tech world over:

• They will never allow any face recognition system or any app which automatically identifies people to work on Google Glass or on any server system connected to Glass.
• They will implement a do not track system which allows people to opt out of being tracked or having information captured about them by Glass. This system should not require the person to identify themselves.
• That all information gathered by Glass will remain the property of the owner or subject and will be encrypted so that it is impossible for it to be data-mined, made available to security services or used for commercial purposes.

Google chief Eric Schmidt sounds equally as open to those kind of changes himself. Schmidt said in response to a question about the scary future of data-tracking that Google will help create. 

"I think you're describing a world of tracking which I think is highly unlikely to occur, because people will be upset about it in the same way you are."  

He continues: 

"Governments won't allow it, and it'll be bad business. And ultimately, in a competitive market, companies want the consumers to be happy. So it's true tracking in this context...you're taking a much broader view of the word ['tracking'] than any I would use. A situation where you go to people and say, 'Oh, here's our phone, and we're going to track you to death,' people are not going to buy that phone. It's just a bad business model."

I am in total agreement with The Cyborgs group recommendations to limit how Google Glass can be used.  We certainly do not want automobile drivers to know the identity of random people by glancing at their vehicle plates.  Individuals have a right to their privacy and preventing the disclosure of their identity to the masses.  Google Glass' face recognition technology opens a can of worms that will become a legal nightmare for Google.  I understand that Google has over 100 attorneys on their staff.  They better get them ready for the onslaught of lawsuits that are likely to come if face recognition and private information about individuals is disclosed without permission.  

Courtesy of an article dated May 13, 2013 appearing in Mashable and an article dated May 7, 2013 appearing in The Atlantic Wire

FACEBOOK KEPT THE TRUTH ABOUT MOBILE RISKS HIDDEN PRIOR TO IPO, THE SEC FORCED FACEBOOK TO AMEND IPO FILING

Before Facebook’s botched IPO, which was widely documented on a global scale, the social network had been secretly waging a series of battles with the SEC. While the market was bubbling in anticipation over the tech world’s largest IPO in history, a rather frustrated Facebook Inc (NASDAQ:FB) was fighting the SEC to keep the details about mobile risks hidden. This perhaps explains why Facebook Inc (NASDAQ:FB)’s early investors bailed on the social network right before the IPO. In essence, venture capitalists are privileged to information that public investors are not.

At the heart of Facebook Inc (NASDAQ:FB)’s struggle with the SEC was Barbara Jacobs, an assistant director for corporation finance at the organization. Jacob’s undisguised skeptical take on Facebook drove her to thoroughly veto the social network’s February 1^st proposal to go public. The filing, which highlighted the effectiveness of ads, was purportedly backed by research from Nielsen, a reputable audience-counting company. Jacobs and her staff vetted the filing and concluded that the claim was seemingly sourced from marketing materials and not studies from Nielsen. This finding prompted Jacobs to write to David Ebersman, Facebook’s Chief Financial Officer.

In her letter that was penned on February 28^th, a no-nonsense Jacobs gave 42 year old Ebersman an ultimatum. Jacobs told Ebersman that if he was not ready to provide Nielsen’s official consent for use of the data, then he might as well not mention the audience-counting company in the filing. Despite a little resistance, Facebook Inc (NASDAQ:FB) dropped the Nielsen reference. This suggested that there was something dubious issues in its filing.

Jacob’s probing was an essential element of a two and a half month long exchange of letters between the now embattled social network and the SEC officials. All through, the exchange of messages between the two parties painted a picture of a company that was not willing to disclose vital information ahead of its IPO.

On the critical issue of mobile users, Jacobs noted that Facebook Inc (NASDAQ:FB) had even gone to the extent of counting mobile users twice.

She noted in her March 22^nd letter.

“Please explain how you determined that your metrics are not overstated.”  

According to her, Facebook was not surefooted in its mobile numbers and instead decided to doctor them to its advantage.

Mobile represents a key segment of Facebook Inc (NASDAQ:FB)’s business model, and the company expects it to be a high revenue earner because of the high number of people who use mobile. The mobile issue has gathered momentum in light of Facebook’s increased user base this year. In fact Facebook’s swelling 1 billion user base, including 600 million mobile users, is one of the factors that pushed CEO Mark Zuckerberg to consider developing a search engine.

COMMENTARY:    In an article dated May 9, 2012, TechCrunch reported on the important changes to Facebook's Sixth Amendment to its S-1 filing, in which Facebook highlighted the potential investor risks surroundings its mobile business:

Page 14: “We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered. If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.”

Page 17: “Our culture also prioritizes our user engagement over short-term financial results, and we frequently make product decisions that may reduce our short-term revenue or profitability if we believe that the decisions are consistent with our mission and benefit the aggregate user experience and will thereby improve our financial performance over the long term. As an example, we believe that the recent trend of our DAUs increasing more rapidly than the increase in the number of ads delivered has been due in part to certain pages having fewer ads per page as a result of these kinds of product decisions. These decisions may not produce the long-term benefits that we expect, in which case our user growth and engagement, our relationships with developers and advertisers, and our business and results of operations could be harmed.

Page 57: “Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of DAUs increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions. For additional information on factors that may affect these matters, see “Risk Factors—Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results” and “Risk Factors—Our culture emphasizes rapid innovation and prioritizes user engagement over short-term financial results.”

Page 78, regarding the RSUS: “On May 3, 2012, we granted an aggregate of 25,257,815 RSUs. We will determine the fair value of these grants during the second quarter. If the fair value of our Class A common stock was $31.50, the midpoint of the price range set forth on the cover page of this prospectus, the aggregate grant date fair value would be approximately $796 million.”

Here's a copy of Facebook's sixth amendment to its S-1 Registration Statement:

[TechCrunch] Facebook's Sixth Amendment to its S-1 Filing to IPO 

You can jump to the Risk Factors section of Facebook's sixth amendment to its S-1 by clicking HERE‎.

On May 9, 2012, VentureBeat's headline to Facebook's sixth amendment to its S-1 read:  Watch out, investors:  "Watch out, Investors: Facebook says mobile users could hurt revenue."  Truly prophetic words.

On May 9, 2012, Daily Finance published an article with the headline:  "Is This Why Facebook's IPO Flopped?," referring to Facebook's sixth amendment to its S-1 pertaining to mobile advertising risks.

In the following video dated May 10, 2012 titled  "New Facebook IPO Filing Highlights a Huge Profitability Challenge," analysts at Yahoo! Finance discussed Facebook's sixth amendment to the S-1: 

  

Wall Street's Facebook Horrendous IPO Revenue Revisions

In a blog post dated June 17, 2012, I reported how Facebook’s sneaky underwriters, with guidance from an unidentified Facebook executive (probably Facebook CFO David Ebersman), reduced their 2012 earnings estimates, shared that material information with a few, preferred investors, and let institutional and retail investors take the hit as Facebook’s stock value tanked.  This has resulted in a series of class action lawsuits naming the underwriter's, Facebook and Facebook executives as defendants.

According to the projected numbers of four banks, as shared with Reuters by an anonymous investor, Facebook could report 5.45 to 7.28 percent less revenue in the second quarter of 2012 and 3.61 to 6.13 percent less revenue for the full year than originally anticipated. The underwriters also reportedly reduced Facebook’s 2013 earnings per share estimates by has much as 7.35 percent.

The reduced figures, as shown in the table below, dramatically change the valuation of the company. 

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He said.  

“The reduction to Facebook’s forecasts of this magnitude — reducing the revenue growth rate by over 6 percentage points — is so material that it should absolutely have been disclosed in a revised S-1 filing before the IPO pricing.   The combined net effect for Facebook in this case of both the reduction in the financials and the valuation multiple would have lowered Facebook’s valuation by at least one third.”

If the underwriter's revised Facebook revenue forecasts are correct, Facebook will not reach $5 billion in revenues as many social media analysts had projected.  If you average the four new revenue forecasts, it works out to an average of $4.840 billion.    

On May 24, 2012, the Atlantic Wire reported that Chon, Strasburg, and Das named Capital Research and Management along with Fidelity Investments as firms that got the news of Facebook's declining future. Business Insider's Henry Blodget was a bit more explicit with what kind of warning these firms got.  Though he didn't name names, Blodget wrote: 

"The analysts cut their estimates because a Facebook executive who knew the business was weak told them to."

"Put differently, the company basically pre-announced that its second quarter would fall short of analysts' estimates. But it only told the underwriter analysts about this."

"The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors."

Facebook Daily Active Users (DAUs) and Monthly Mobile Active Users (MMAUs)

In a blog post dated September 12, 2012, I reported that Facebook's Monthly Active Users (MAUs) have been declining significantly while its Monthly Mobile Active Users (MMAUs) have been increasing rapidly as  internet users have began switching their online time from their desktop computers to mobile devices.  

 Click Images To Enlarge

Secondary Stock Brokers Share Blame

In a blog post dated May 21, 2012, I posted the question:  So why did FB shares flop so badly?I blame the prices of FB shares on the secondary market (SharesPost and SecondMarket) for driving the price of FB shares to unsustainable levels.  The secondary market deals in the sale of stocks of private companies, and shares are auctioned in large blocks of 100,000 to 250,000 shares at a time.  The buyers tend to be institutional investors like hedge funds, mutual funds firms and very wealthy individual investors.  The secondary market brokers hyped up FB shares to the high heavens, and were able to drive share prices to levels that could not be sustained in the public markets.  Here is what I am talking about:

• On SecondMarket, Facebook's pre-IPO shares traded at an average price of $42.72 in the first week of April. The last trade was April 5.
• On SharesPost, the last transaction took place at $44.10 per share on March 30.

Although they were frequently badgered to reveal where Facebook shares were trading in the private market, neither SharesPost or SecondMarket disclosed the above pricing until Facebook shares began trading publicly on Friday, May 19, 2012.

All of this added to the anticipation that the Facebook IPO would be a blockbuster with a huge pop. However, history shows that we only got poop, and the subsequent collapse in Facebook's stock price, although painful for many Main Street investos, is well justified, and should not come as a surprise to anyone.

Courtesy of an article dated October 10, 2012 appearing in ValueWalk, an article dated May 9, 2012 appearing in TechCrunch and an article dated May 24, 2012 appearing in Atlantic Wire

FEDERAL TRADE COMMISSION (FTC) CLAMPS DOWN ON ENVIRONMENTAL MARKETING CLAIMS WITH REVISED GREEN MARKETING GUIDE

The Federal Trade Commission’s Guides for the Use of Environmental Marketing Claims, commonly referred to as the “green” guides, were first published in 1992 to help marketers and advertisers avoid deceptive and far-reaching eco claims without proof or qualification. The final revisions were released Monday with a press conference outlining the changes. 

FTC Chairman Jon Leibowitz said.

“The introduction of environmentally friendly products into the marketplace is a win for consumers who want to purchase greener products and for producers who want to sell them.  But this win-win can only occur if marketers’ claims are truthful and substantiated. The FTC’s changes to the Green Guides will level the playing field for honest business people and it is one reason why we had such broad support.”

To cite three examples from the revised guidelines:

• “Marketers should not make broad, unqualified general environmental benefit claims like ‘green’ or ‘eco friendly.’ Broad claims are difficult to substantiate, if not impossible."
• “Marketers should qualify general claims with specific environmental benefits. Qualifications for any claim should be clear, prominent, and specific.
• “When a marketer qualifies a general claim with a specific benefit, consumers understand the benefit to be significant. As a result, marketers shouldn’t highlight small or unimportant benefits.”

The Guides contain new sections on:

• Certifications and seals of approval. 
• Carbon offsets. 
• Free-of claims. 
• Non-toxic claims. 
• Made with renewable energy claims. 
• Made with renewable materials claims.

They do not address use of the terms “sustainable,” “natural,” and “organic,” as claims made for textiles and other products derived from agricultural products are covered by the U.S. Department of Agriculture’s National Organic Program.

 

The new Guides take into account more than 5,000 total comments received since the FTC released the proposed revised Guides in the fall of 2010 as well as information from three public workshops and a study of how consumers perceive and understand environmental claims.

The FTC edicts on deceptive advertising and marketing can result in fines if those orders are violated under Section 5 of the FTC Act.   Leibowitz added.  

“If enough deception or uncertainty surrounding environmental claims creeps into the marketplace, consumers will tune them out altogether.”

In the past few years actions have been brought in relation to deceptive recyclability, biodegradable, bamboo, and environmental certification claims.

James Kohn, the associate director of enforcement for the FTC’s bureau of consumer protection said.

“Our purpose is to make sure consumers that want to buy green products are getting truthful information.  There are two kinds of companies; those that live over the line and those that step over the line. The guides are written for companies that are trying to get it right."

Christopher Cole, partner in Manatt Phelps & Phillip’s, as noted by Adweek commented. 

“It is certain [the new green guides] will change behavior among marketers over time.  For those who ignore the new rules, one can predict that rigorous law enforcement activity will begin soon."

Next up for the FTC: Updating the agency's "truth in advertising" guidelines to reflect mobile and social media platforms, reportedly by year-end.

COMMENTARY:    The new FTC "Green" Guides are far-reching and are sure to change the green products landscape by preventing scrupulous product marketers from making unsubstantiated, false, deceptive or misleading claims regarding the "greenness" or "eco-friendliness" of their products.    

The revised "Green" Guides caution marketers not to make blanket, general claims that a product is “environmentally friendly” or “eco-friendly” because the FTC’s consumer perception study confirms that such claims are likely to suggest that the product has specific and far-reaching environmental benefits. Very few products, if any, have all the attributes consumers seem to perceive from such claims, making these claims nearly impossible to substantiate.  In short, if the marketer cannot provide proof of substantial environmental benefits to the consumer, they should not be labeling their products "green" or "eco-friendly." 

The proposed "Green" Guides also caution marketers not to use unqualified certifications or seals of approval – those that do not specify the basis for the certification.  The Guides more prominently state that unqualified product certifications and seals of approval likely constitute general environmental benefit claims, and they advise marketers that the qualifications they apply to certifications or seals should be clear, prominent, and specific.

Next, the proposed revised Guides advise marketers how consumers are likely to understand certain environmental claims, including that a product is degradable, compostable, or “free of” a particular substance. For example, if a marketer claims that a product that is thrown in the trash is “degradable,” it should decompose in a “reasonably short period of time” – no more than one year.

The FTC's requirement that "biodegradable" products must biodegrade within one year is going to create problems for some biodegradable product producers.  There are many products that can take up to five years or longer to biodegrade. All you have to do is check our landfills.

I am very disappointed that the FTC's Bureau of Consumer Affairs did not address the use of the terms “sustainable,” “natural,” and “organic,” in the revised Green Guide.  There are virtually thousands of such products in the marketplace using those claims in their product labels, and there are no established guidelines by the Federal Trade Commission, the regulatory agency responsible for overseeing those products, to protect consumers.   I have a feeling that Trader Joe's and Whole Foods had a huge sigh of relief.

You can download a PDF file of the new 193-page FTC "Green" Guide by clicking HERE.   The FTC prepared the following Green Guides Summary of Proposal to walk you through the major revisions to the Green Guide.

Click Image To Enlarge  

If you are a green products marketer, I strongly urge you to read the FTC's revised Green Guides to determine how the new green marketing guidelines will affect your business.  

Courtesy of an article dated October 1, 2012 appearing in Brand Channel and the Federal Trade Commissions new revised Green Guide

FACEBOOK HAS 5.6 MILLION CHILDREN WITH ACCOUNTS IN SPITE OF BAN, AND PARENTS' CONCERNS CONCERNING KIDS' SAFETY ON FACEBOOK

Facebook Inc. (NASDAQ:FB) does have prohibitions and a tiered screening process in order to try to filter out children under the age of 13 from setting up accounts and accessing its social-networking site. However, the company has a secret that it hasn’t disclosed to investors in its SEC paperwork  and refused to acknowledge due to federal law – Facebook (NASDAQ:FB) has about 5.6 million accounts in the U.S. (about 3.5 percent of its U.S. total) that belong to children who are under age 13.

A 1998 federal law called the Children’s Online Privacy Protection Act (COPPA) requires Web sites to give special treatment to Internet users under the age of 13. Facebook Inc. (NASDAQ:FB), like many Web sites, prohibits younger Internet users  from using their sites or building accounts. However as the 5.6 million number indicates, despite Facebook’s tiered screening system, there are ways that children can work around the system and have access to Facebook and other sites. The goal of the law was to prevent online marketers from targeting children in their advertising. The Federal Trade Commission is due to finalize some new rules to further compel Web sites to restrict access to their sites by young children, though Facebook Inc. (NASDAQ:FB) claims that the new regulations wouldn’t apply to it because it has explicit warnings and prhibitios of younger users.

However, Reuters tested the Facebook Inc. (NASDAQ:FB) protocol, and while a fake child’s account registration was denied, an hour later that account was allowed with the same information (name, e-mail address,etc.) except for the birth year. The reason? Facebook Inc. (NASDAQ:FB) is not allowed by COPPA to save data from younger users or account registrants. A study revealed, though, that Facebook’s screening process does seem to eliminate about 800,000 child accounts on an annual basis, which is apparently progress from the company.

Filtering out children from the Facebook Inc. (NASDAQ:FB) account records might reduce its user numbers by nearly 4 percent, but it’s possible that investors in Facebook stock, like hedge-fund manager Chase Coleman of Tiger Global Management LLC, will appreciate the efforts that Facebook makes to cleans its Web site of the most vulnerable demographic.

COMMENTARY:    The new revelation that 5.6 million children under 13-years of age have been able to open accounts on Facebook shows just how poor Facebook's security has become.   If I were Facebook, and if it were possible, I would be contacting the parents about this immediately. Furthermore, I would establish a safe harbor for children by moving these 5.6 million under-13 accounts into a separate social network just for kids.  This would prevent children from otherwise interacting with children over 13 and adults.

MinorMonitor.com, a crusader for kids online safety, prepared this interesting infographic which analyzes the concerns of a sampling of 1,000 parents concerning kids' safety on Facebook: 

 Click Image To Enlarge

Courtesy of an article dated September 20, 2012 appearing in Insider Monkey and an article dated April 4, 2012 appearing in MinorMonitor.com

WHAT IS YOUR STATE DOING TO PREVENT THE SEVERELY MENTALLY ILL FROM BUYING GUNS?

In the wake of the recent mass shootings, reasonable people have been asking whether their state is doing everything it can to prevent people with severe mental illness from getting guns.

Unfortunately, according to latest data from the FBI, the answer right now is clearly: “No.”

When someone tries to buy a gun from a licensed dealer, they have to undergo a
background check.

However, most states have failed to submit millions of mental health records into the national do-not-sell gun database – making these gun checks alarmingly incomplete.

Every missing record is another tragedy waiting to happen.

And what’s worse, leaders at the state and national levels have not told us how they
plan on closing these fatal gaps.

Find out the risk level in your state – and then share the following map with friends and family so they can take action too. 

Click Image To View an Interactive Map, then click on your State

COMMENTARY:    If you click on the dark maroon colored states, you will find that some of them do little or nothing to screen gun applications for individuals with mental illnesses.  Many of the individuals involved in mass killings by firearms had histories of mental illness.  This includes the infamous Cho Seung-Hui, a Korean student who killed 34 students and teachers and wounded countless more at Virginia Tech and James Holmes, the University of Colorado medical school dropout who shot and killed numerous moviegoers in Aurora, Colorado.  

If you are concerned as I am about how easy it is to obtain a gun if you have a mental illness, violent history or previous felony conviction, then fill out the short questionnaire next to your state.  This will bring this matter to the attention of POTUS Barack Obama, ex-governor Willard Romney and your own State governor.  Pass the link of the map to your friends who feel the same way.   

NOTE:  I am NOT against gun ownership, or legislation to prevent you from owning a gun, but I am for tougher gun registration legislation and preventing the sale of guns to individuals with violent pasts, mental illnesses and felony convictions.  The right to bear arms is protected by the U.S. Constitution.  However, many states (marooned-colored states) have very liberal gun ownership laws.  Some states like Kentucky, don't even require gun ownership registration at all.      

Courtesy of an infographic titled "Demand A Plan To End Gun Violence" prepared by DemandAPlan.org

TEXTING AND DRIVING STATISTICS, WHY ITS DANGEROUS, STATE LAWS, AND TIPS TO STOP TEXTING WHILE DRIVING

Texting and driving has become commonplace among teenagers after more than half of high school seniors admitted to sending messages behind the wheel. 

A national survey, carried out anonymously, found that 58 per cent of seniors said they had texted or emailed while driving in the month of May 2012. 

Some 43 per cent of high school juniors in the U.S. also acknowledged that they had the dangerous habit, according to the study by the Centers for Disease Control and Prevention today.

Aaron Deveau, 18, was sentenced to a year in prison yesterday after he killed a father of three while texting and driving last year in Haverhill, Massachusetts.  (Click Image To Enlarge)

CarInsurance.org prepared the following texting and driving stastics, and the numbers are just appalling.

COMMENTARY:    Texting while driving is a serious crime.  How serious, you ask?   Aaron Deveau, an 18-year old teen, was convicted of motor vehicle homicide by texting – the first driver in Massachusetts to face such charges, the Boston Globe reported.  Prosecutors said Deveau, who pleaded not guilty, was texting on Feb. 20, 2011, when his vehicle swerved across the center line of a Haverhill, Mass., street and crashed head on into Daniel Bowley’s truck, killing the 55-year-old New Hampshire father of three.   On June 6, 2012, Deveau was sentenced to a year in prison and loss of his license for 15 years for causing a fatal crash by texting while driving.  This is the kid being carted off to prison.

Aaron Defeau, the 18-yr old Massachusetts teen shortly after sentencing to one year in prison for texting while driving (Click Image To Enlarge)

Bowley’s sister, Donna Burleigh, said her brother suffered severe head trauma and lingered in a Boston hospital for 18 days before dying.

Before imposing the maximum sentence on Deveau, District Court Judge Stephen Abany said he was sending a message of deterrence to Massachusetts drivers.

Abany said, according to the Globe report.

"Deterrence really seems to come to play in this case.  People really want to be safe on the highways. People need to keep their eyes on the road, keep their eyes on the road.’’

Courtesy of an infographic appearing in CarInsurance.org

FACEBOOK SETTLES "SPONSORED STORIES" LAWSUIT, WILL GIVE USERS MORE CONTROL OVER THEIR PERSONAL DATA

Facebook Inc has agreed to allow users more control over how their personal information is used in its "Sponsored Stories" ad feature, part of a deal to resolve litigation against the social networking company.

The value to Facebook members resulting from the changes is about $103 million, in the opinion of one economist hired by the plaintiffs. But the amount Facebook will actually pay to settle the case is just over $20 million, according to court documents filed on Wednesday.

A "Sponsored Story" is an advertisement (see sample below) that appears on a member's Facebook page and generally consists of another friend's name, profile picture and an assertion that the person "likes" the advertiser.

Five Facebook members filed a lawsuit seeking class-action status against the social networking site, saying it violated California law by publicizing users' "likes" of certain advertisers without paying them or giving them a way to opt out.

The case involved over 100 million potential class members.

Under the terms of a settlement agreement filed on Wednesday, Facebook members will be able to control which content can be used for Sponsored Stories. Facebook agreed to maintain these changes and other new disclosures for at least two years, according to court documents.

Attorneys for the plaintiffs say the changes to "Sponsored Stories" are worth $103.2 million, based on an economist's analysis of the revenue each ad brings to Facebook. Those figures were redacted in the court documents.

A Facebook representative declined to comment, and an attorney for the plaintiffs could not immediately be reached.

Facebook has agreed to pay $10 million to organizations devoted to educating people about how to use social networking technology safely. Groups set to receive money include the Electronic Frontier Foundation and the Center for Internet and Society at Stanford Law School, according to the court documents.

Facebook will also pay an additional $10 million for plaintiff attorneys' fees.

The settlement agreement must be approved by U.S. District Judge Lucy Koh in San Jose, California. She must weigh whether the deal's terms adequately benefit class members.

In the lawsuit, Facebook Chief Executive Mark Zuckerberg was quoted as saying that a trusted referral was the "Holy Grail" of advertising.

In addition, the lawsuit cited comments from Facebook chief operating officer Sheryl Sandberg, saying that the value of a "Sponsored Story" advertisement was at least twice and up to three times the value of a standard Facebook.com ad without a friend endorsement.

Koh said the plaintiffs had shown economic injury could occur through Facebook's use of their names, photographs and likenesses.

Plaintiff attorneys argued in court filings on Wednesday that the policy changes and charitable awards will constitute "significant benefits" for the class members.

The case in U.S. District Court, Northern District of California is Angel Fraley et al., individually and on behalf of all others similarly situated vs. Facebook Inc., 11-cv-1726.

COMMENTARY:   The Sponsored Stories lawsuit brought against Facebook by Angel Fraley is just like the one brought against LinkedIn for using the photos of its users in its ads in 2011.  You would think that Facebook would've learned from the LinkedIn class action lawsuit.  Zuck zucked up again.   

I should also mention that Facebook is on a 20-year probation by the FTC for various privacy violations.  That sanction includes annual privacy audits to show that they are in compliance with the requirements of that probation.  Didn't take Facebook long to violate that sanction.  If the FTC decides to make an example out of Facebook it could be very, very costly.  As I recall, the FTC can fine $15 per privacy violation.  If you do the math, this would amount to a fine of approximately $1.50 billion (100 million violations x $15).  No problem.  Facebook has $20 billion in cash in the bank.  

Courtesy of an article dated June 22, 2012 appearing in Reuters

 

THE FACEBOOK IPO TRAIN WRECK, FULL OF LAWSUITS AND SEC INVESTIGATIONS, MAIN ST GOT IT RIGHT, WALL ST DEAD WRONG

Hey, America. Don’t you just love the train wreck that has ensued following Facebook's humongous IPO?

You can’t get enough of it, the hand-wringing, the squirming the whole public spectacle of embarrassment.

Of course, you love it.

And here’s why: We all know that you — the heartland, the people we fly over, Main Street — got it right and Wall Street got it wrong.

Wall Street, Silicon Valley and the media all look bad. Each one contributed to the hype.

These days, social-media tools represent a pretty good cross-section of America and allow ordinary people to have an opportunity to express their opinions.

The Pew Research Center’s Project for Excellence in Journalism pointed out on Monday that the social-media behemoth’s May 18 IPO, which placed the worth of Facebook (NASDAQ:FB) at $105 billion, “sparked significant discussion on Twitter, blogs and Facebook itself, with more expressions of skepticism than confidence about the stock’s value.”

Twitter users were the most skeptical of all, as nearly four times as many users said that Facebook was overhyped as said it was worth buying, Pew noted, adding tellingly:

“Even on Facebook, the gap was nearly two-to-one.”

There is a lot of pain to go around on this debacle of an IPO. But for once, Main Street is having the last laugh.

I asked veteran Silicon Valley observer Paul Carroll — a former Wall Street Journal tech reporter, a consultant and the co-author of “Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 years” — what he thought of the Facebook flop. (The Wall Street Journal, like MarketWatch, is owned by News Corp.)   Carroll said, speaking as if he echoed the view of the heartland.

“I think it’s a good thing, the only way to kill the hype that goes into some of these goofy IPOs is to make the people pay for getting sucked in. It’s a hard lesson, but next time people might pay more attention.” 

The Facebook flop — the “Gigli” of IPOs — was drenched in arrogance from the start. For one thing, it was priced way too high, considering that there were so many questions about its bottom line, growth prospects and long-term strategy.

The Nasdaq, where the shares are being traded, couldn’t get out of its own way long enough on May 18 to smoothly execute the trades.  At the very start of trading, NASDAQ's system could not handle the huge volume, and sputtered to a halt.  Brokers did not know if their sell or buy orders had gone through.  When Facebook's stock plummeted they had no way of knowing if their clients were still in the marketing or out of it.  Chaos ensued. 

From the start on the debut day of trading, there was chaos in the air. There had already such build-up to the start of trading that the last thing Facebook needed to see were any technical glitches in what should have been the mundane act of executing trades.

Wall Street wasn’t alone in taking a hit on the Facebook IPO. Silicon Valley deserves some blame, too for pushing these crummy investments onto the market. Facebook’s road show merely reaffirmed what a lot of us thought: it is a haven of 25-year-old billionaires, who invent time-suck gadgets.

One more faction should come in for grief as well: the media.

Well, where to begin? America despises my brethren for a good reason:  We are the dopes who hyped the Facebook IPO, with our misplaced priorities and panting coverage of such nonsense as whether CEO Mark Zuckerberg’s was out of line to wear his trademark hoodie during the pitch sessions on Wall Street.

Maybe the journalists should have been more concerned about the state of Facebook’s financial data than the fashion whims of a 28-year-old CEO.

As it turned out, Main Street got it right, trumping the professional investors on Wall Street.

COMMENTARY:   Facebook was a failure as an IPO.  The bottom line is that the underwriters floated too many shares and offered the stock at too high of a price.   These factors caused big money to stay on the sidelines rather than jumping into the stock. 

You knew there would be lawsuits after this IPO:  

• Class Action Lawsuit by Facebook Investers vs Morgan Stanley and Goldman Sachs Group - On May 22, 2012, A lawsuit has been filed by three Facebook investors who say that analysts at Morgan Stanley (NYSE:MS) and Goldman Sachs Group, Inc. (NYSE:GS) reduced theire forecasts on Facebook's revenues and earnings during the company's road show to promote the IPO. Late Tuesday night, the Attorney General for the State of Massachusetts sent a subpoena to Morgan Stanley after the news broke.  In addition, more investors filed suit after feeling cheated by the underwriters about the true valuation of Facebook.  The lawsuit that came out this morning is seeking class-action status as the underwriters’ mislead investors allegedly on the valuation of the stock.  The lawsuit alledges that these underwriters’ did not properly disclose any changes to forecasts and expectations of Facebook.   A Morgan Stanley spokesman said in response to the lawsuit that the bank followed the same procedure as it has done with all its IPOs.  Furthermore, the spokesman said that the standard procedure follows all laws and regulations.
• Class Action Lawsuit by Facebook Investors vs Facebook Inc, Individual Defendents and Lead Underwriters - On May 23, 2012, Law Offices Bernard M. Gross, P.C. filed a class action lawsuit in the United States District Court, Southern District of New York, 12cv4081, on behalf of all persons who purchased the common stock of Facebook, Inc.pursuant and/or traceable to the Company's May 18, 2012 initial public offering (the "IPO" or the "Offering"), against the Company and certain individual defendants and the lead underwriters of the IPO for violations of the Securities Act of 1933.  The Complaint alleges that the Registration Statement and Prospectus contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and were not prepared in accordance with the rules and regulations governing their preparation. Specifically, defendants failed to disclose that Facebook was experiencing a severe reduction in revenue growth due to an increase of users of its Facebook app or website through mobile devices rather than a traditional PC such that the Company told the Underwriters to materially lower their revenue forecasts for 2012. And, defendants failed to disclose that during the roadshow conducted in connection with the IPO, certain of the Underwriter reduced their second quarter and full year 2012 performance estimates for Facebook, which revisions were material information which was not shared with all Facebook investors, but rather, selectively disclosed by defendants to certain preferred investors and omitted from the Registration Statement and/or Prospectus.

These lawsuits are probably just the beginning of the legal iceberg.  You can bet that there will be more including investigations.  

On May 18, 2012, shortly after the stock markets closed, the Securities and Exchange Commission (SEC) indicated after the market close of trading on Friday, May 23, 2012, that it would review trading issues on the Nasdaq related to Facebook’s initial public offering.  There were reports that some confirmations about order execution were late in coming from the exchange when Facebook shares began to trade earlier in the day.  An SEC spokesman told CNBC when asked about the complaints.

“As is our practice, staff will review the incident with Nasdaq to determine its cause, and steps that will be taken to address it."

There were 2.58 billion shares traded at the Nasdaq Friday — the highest level since Dec. 16. Of that, about 573 million shares were Facebook trades, accounting for over 22 percent of the volume.

NASDAQ has set aside money to compensate customers, but some on Wall Street are warning its ability to snag future big IPOs is at risk. Meanwhile, a suit filed late Tuesday in Manhattan federal court seeks class-action status for anyone who lost money due to a mishandled order.

Former SEC Chairman Arthur Levitt said of the IPO and its handling by banks and Nasdaq. 

"It's dreadful for the markets.  It's an event with long-lasting negative implications for an industry that can ill afford this kind of blemish, and the last chapter hasn't been written. Nobody looks good here."

NASDAQ had its annual shareholders' meeting on Tuesday, May 22, 2012, but the shareholders gave the stock exchange a pass on the Facebook technical gliche, discussing it only for a few minutes, top executives did not get any questions at all on what went wrong with Facebook or what they were doing to correct it.

Nasdaq Chief Executive Bob Greifeld said at the shareholder meeting.

"While clearly we had mistakes in the Facebook listing, we still want to highlight the fact that it was the largest IPO ever and on Friday of last week, we processed over 570 million shares." 

I have yet to see a report on the SEC's investigation of the NASDAQ technical gliche that created so much havoc for the traders during the huge Facebook IPO.  For the sake of stock investors, brokers and traders we must determine the exact nature of that problem, what caused it, what is being fixed or changed, and the present status of the problem.. 

It's my opinion that the SEC needs to come down very hard on both Morgan Stanley and Goldman Sachs Group, if as claimed in the above class action lawsuit, they selectively provided revised Facebook forecasts to some of their key institutional investors without providing this information to the general public.   If the charges are true, both firms are in direct violation of SEC regulatinos, and should be severely fined, their CEO's should be asked to step down, and both firms should be prevented from underwriting future IPO's for a period of one year or longer.

As far as I am concerned, Facebook's huge pre- and post-IPO market valuations needs to be fully evaluated and brought into question.   If you have been following my blog posts, I have attacked the ad-supported revenue model of social networks, in particular Facebook.   In a blog post dated May 20, 2011, I told my readers that I thought that the ad-supported revenue model was deeply flawed and had already reached a "critical inflection point," where both future user growth and advertising revenues will plateau and eventually reach a peak.   I don't know if the two analysts for Morgan Stanley and Goldman Sachs read that blog post, but they obviously felt that Facebook's future revenues and earnings needed to be revised.

Courtesy of an article dated May 23, 2012 appearing in The Wall Street Journal's MarketWatch and an article dated May 23, 2012 appearing in ValueWalk and an article dated May 23, 2012 appearing in The Wall Street Journal's MarketWatch and an article dated May 23, 2012 appearing in Yahoo! Finance

 

 

FACEBOOK REPORTS Q1 2012 REVENUES AND EARNINGS, REVENUES AND PROFITS DOWN 6% AND 32% RESPECTIVELY FROM Q4 2011, EXPENSES DOUBLED

Facebook’s first-quarter revenue increased 45% from a year ago to more than $1 billion, but both sales and earnings dipped from the fourth quarter on higher marketing and other costs during the period. 

A month before its expected IPO, Facebook reported quarterly revenue of $1.06 billion, down 6% from the prior quarter despite a gain in monthly active users to 901 million from 845 million at the end of 2011.

Advertising sales, which make up the bulk of Facebook’s revenue, slipped to $872 million from $934 million in the fourth quarter.

In its regulatory filing Monday, the company said the fall-off reflects a seasonal pattern of typically strong growth in the third and fourth quarters to a slowdown or decline in the first quarter. It stated.  

“The rapid growth in our business may have partially masked these seasonal trends to date and the seasonal impacts may be more pronounced in the future.” 

Net income in the first quarter dropped to $205 million from $302 million in the fourth quarter and from $233 million in the year-earlier period. That translates to a decline to 9 cents from 11 cents per share.

Facebook’s total expenses for the quarter nearly doubled to $677 million from $343 million a year ago, and $583 million in the fourth quarter, on higher spending on operations, marketing and sales, research and development costs. The company said the higher overhead also reflected significant increases tied to share-based compensation expenses in 2012.

Earlier this month, Facebook agreed to acquire Instagram -- maker of the popular photo-sharing app of the same name -- for $1 billion in cash and stock. In its filing, the social network revealed that $300 million would be paid in cash and the balance in 23 million shares of common stock. If the deal fails to win government approval, Facebook has agreed to pay Instagram a $200 million termination fee.

Just today, Facebook announced it would agree to pay Microsoft $550 million for its rights to 650 patents and patent applications that the software giant recently acquired from AOL. That deal, along with its recent acquisition of other patents from IBM, is aimed at helping the company gear up for its patent battle with Yahoo.

Facebook payments and other fee-based revenue on Facebook nearly doubled to $186 million from a year ago. App maker Zynga alone accounted for 11% of total Facebook revenue from processing fees related to its sale of virtual goods and from advertising directly purchased. That proportion is down from 13% a year ago, suggesting that the social network is slightly less dependent on Zynga games like "CityVille" and "FarmVille" for revenue.

When it comes to mobile use, Facebook said monthly active mobile users in the first quarter had increased to 488 million from 288 million a year ago. (The most recent publicly stated figure had been 400 million). Despite adding Sponsored Stories ads to users’ news feeds in March, Facebook acknowledged that it still generates no meaningful revenue from its mobile products.

COMMENTARY:   The first quarter is typically one of the slowest for advertisers, so I didn't find it too unusual that Facebook's revenues dropped by 6% between Q1 2012 and Q4 2011.  I would like to review Zynga's Q1 2012 revenues and earnings to see if there is any negative trends that might negatively impact Facebook's future earnings from the sales of virtual goods.  

I am not too surprised that Facebook's expenses doubled between Q1 2012 and Q4 2011.  The company is incuring substantial legal, accounting and syndication fees related to the IPO. Facebook also moved from Palo Alto to its new headquarters in Menlo Park in December.  It is probably still incurring substantial expenses related to that relocation.  I have been through several corporate moves, and they are costly and there can be a lot of overflow between quarters.  

Still, I don't find any significant signs that things are going sour for Facebook on the eve of its IPO, which is now scheduled for May 1012.   

Courtesy of an article dated April 23, 2012 appearing in MediaPost Publications Online Media Daily