ImaginativePRO Blog

APPLE'S POST-iPHONE 5 HEADACHES: WEAK SALES, TECHNICAL GLICHES, BACKLOGS, APPLE MAPS FLOPS AND PLANT WORKERS REVOLT

 

On September 21, Apple launched the iPhone 5, amid the typical speculative feeding frenzy that is now par for the course for this company. Apple reported unit sales of more than 5 million iPhone 5 during the first weekend of product launch. Wall Street, of course, is not impressed.

UBS analyst Steve Milunovich hurriedly revised his Apple estimates downwards, while shares have cratered from $700 to $660 over the past week on heavy volume. To long-term investors, the scuttlebutt and hysteria are much ado about nothing. At worst, Apple will transition into the product maturity stage of the Web 2.0 business cycle. Only a fan boy would expect this gravy train to last indefinitely. For now, reports alleging rioting at a Chinese factory, alongside technical glitches in glass screen manufacturing, highlight questions surrounding the Apple iPhone 5 supply chain.

The Apple iPhone 5 Supply Chain

Wall Street analysts were calling for iPhone 5 sales of between 6 million and 10 million units during this past first weekend of launch. According to Tim Cook, CEO,

 "We have sold out of our initial supply."

Cook's statement may serve as evidence that either Apple fully intended to limit this launch, or that disruptive bottlenecks plague the iPhone 5 supply chain.

Wall Street is taken aback by the idea of Apple supply chain gaffes, considering the fact that Tim Cook is an operations man. Today's happenings are eerily reminiscent of the Steve Jobs mystique that seemingly revels in product shortages and consequent nightclub settings at metropolitan Apple stores. The Steve Jobs halo effect lives on.

Apple has already set up shop to sell its iPhone 5 in the United States, Canada, Australia, France, Germany, United Kingdom, Japan, Hong Kong, and Singapore. By the end of this year, the iPhone 5 will be available in more than 100 countries, with 22 of these countries welcoming product on September 28.

By nature of this schedule, Apple iPhone 5 sales receipts will appear weak over the next two quarters. Although Apple is leaving money on the table, the smartphone competition is not likely to pick up the slack.

The Smartphone Competition

According to recent comScore data, Apple iOS and Google Android lord over 33% and 52% of the smartphone market, respectively. Beneath this duopoly, Research In Motion, Microsoft Windows, and Nokia Symbian fight desperately over the remaining table scraps of 15% of smartphone subscriptions.

Click Image To Enlarge

Click Image To Enlarge

According to Gartner's Q2 2012 mobile phone report, 419 million mobile devices were sold, down 2.3% on the same period last year. Here are some key numbers from Gartner's Q2 2012 report:

• Open OS (smartphone) devices accounted for over 36.7% or 153.776 million of all mobile device sales.  
• Samsung sold 90.432 million mobile devices versus only 28.935 million for Apple.  
• Samsung's worlwide market share of mobile devices was 21.6% compared to only 6.9% for Apple iOS.   
• Android mobile devices were 98.529 million versus only 28.935 for iOS.
• Android mobile devices captured a 64.1% share of the total market compared to only 18.8% for Apple iOS

According to Gartner's Q1 2012 mobile phone report:

• 419.108 million mobile devices were sold in Q1 2012 compared to 427.845 million in Q1 2011.  
• Samsung sold 86.527 mobile devices in Q1 2012 compared to 33.120 million for Apple. 
• Samsung had a 20.7% share of the total mobile device market in Q1 2012 compared 7.9% for Apple.  
• Samsung sold 81.067 million smartphones in Q1 2012 compared to 33.120 million for Apple.
• Android mobile devices were 81.067 million versus only 33.120 for Apple.
• Android mobile devices captured a 56.1% share of the total market compared to only 22.9% for Apple.

According to Gartner, 

For its latest fiscal third quarterly period ended June 30, Apple reports sales of 26 million iPhone units. This performance amounts to $16 billion of Apple's $35 billion in total net sales for Q3 2012. The iPhone remains the centerpiece of Apple's closed ecosystem that includes the iPod, iTunes, iMac, and iPad. To steal Apple's shine, competing smartphone and ecosystem design are converging together. Going forward, results will therefore be largely reliant upon branding and what consumers perceive as "cool."

On August 24, a California jury ordered Samsung to pay $1.05 in damages to Apple on patent infringement charges. The following week, a Japanese court ruled Samsung innocent of these very same patent infringement charges. Obviously, the Apple iPhone 5 and Samsung Galaxy SIII handsets appear eerily similar, beneath the contradictory legal rhetoric.

Weighing in at 112 grams, the iPhone 5 stands 4.9 inches tall by 2.3 inches wide by 7.6 millimeters thick. This new look for the iPhone negotiates a compromise between the compact iPhone 4S and the vertical Galaxy, which Samsung promotes as a stand-in for an Olympic Track and Field baton. Both 16GB versions of the Apple iPhone 5 and Samsung SIII galaxy retail for $199, if you agree to the terms and conditions of a two-year phone service contract.

At this junction, Microsoft poses the most significant threat to today's smartphone status quo. On October 26, Microsoft is set to release its Windows 8 and Surface tablet. Windows 8 is an amalgamation of traditional personal computer, smartphone, and tablet interfaces. For example, a Windows 8 user is able to execute desktop commands through touch screen technology, before picking up the nearest smartphone and scrolling through tiles to open up Microsoft Excel.

The Samsung ATIV S and Nokia Lumia 920 Windows 8 phones are both set to launch this Holiday Season. The ATIV S is notable for its relatively large Super AMOLED 4.8-inch screen and brushed aluminum finish. Similar to the iPhone 5, Samsung's flagship Windows 8 phone converts into a camera that takes pictures with an 8-megapixel sensor.

Alternatively, the Lumia 920 is already being lauded for the picture clarity of its 8.7-megapixel camera. A Qualcomm Snapdragon S4 dual-core processor powers both Nokia and Samsung Windows 8 phones. Despite Windows 8 creativity, Wall Street is not exactly impressed. Nokia stock immediately lost 15% of its value earlier this month, simultaneously alongside Stephen Elop's New York City Lumia 920 demonstration.

Apple's Bottom Line

Apple remains on course to sell between 100 million and 150 million iPhone units over the course of the next year. I project that this iPhone performance will tally $95 billion in revenue and $25 billion in fiscal 2013 profits for Apple. If iPad sales were to grow at a 50% clip, Apple may then post $50 billion in earnings. At that point, Apple would then carry a market capitalization of $750 billion, if it were to conservatively trade at a price-to-earnings multiple of 15; $750 billion in Apple earnings on top of 929 million shares outstanding breaks down to a rough $800 per share one-year price target.

For now, shareholders can take solace in the fact that the Apple Way remains a cash machine. At Friday's $667, Apple now trades for 24 times trailing 2011 earnings. This stock remains relatively cheap, considering the fact that Apple is averaging 66% average annual net income growth over the past four years. For Q3 2012, Apple closed out its books with $117 billion in cash and investments to cover $51 billion in total liabilities on the balance sheet. One Apple share therefore represents $71 in built-in net liquidity, after Peter Oppenheimer, CFO, effectively writes a check to pay off all debt.

Apple Inc (NASDAQ:AAPL) stock price from 1/3/12 through 9/28/12 .  Price ending on 9/28/12 was $667.10 with a cumulative yield of of 64.72% since the start of 2012 (Click Image To Enlarge)

If anything, the Apple bandwagon is inevitably destined for a trip up The 5 Freeway to unite with Microsoft as a beta stock. By beta definition, Apple would then track the S&P 500 and offer regular dividend payment increases. A special dividend would signal that Apple is shifting into the product maturation stage of this Web 2.0 business cycle. In July 2004, Microsoft approved a one-time, $3 special dividend to help relieve itself of a bloated, $56 billion cash position.

Besides generate income, Microsoft, personal computer investments, and the S&P 500 Index have done nothing for more than one decade. Apple will follow a similar pattern, if the iPhone 5 proves to be this corporation's last hurrah as a blockbuster event.

COMMENTARY:  

Apple Maps Flops  

Shame on Apple for releasing Apple Maps before it was ready for prime time. The new Apple mapping app which was included with the new iPhone 5 has proven to be a disaster.   The fact is this folks:  Apple's new maps are simply not as good as those of Google Maps.   The release of iOS 6 was immediately followed by users complaining about the new maps, which lack a significant amount of detail and omit public transit directions.   Access to high-quality maps is a critical feature for modern smartphones, and Apple's decision to swap out Google Maps is a rare example of the company openly placing its own interests above those of its customers.  The Apple Maps blunder was so bad that on Friday, September 28, 2012, Apple CEO Tim Cook issued the following letter of apology to all Apple iPhone users.  

"To our customers,

":At Apple, we strive to make world-class products that deliver the best experience possible to our customers. With the launch of our new Maps last week, we fell short on this commitment. We are extremely sorry for the frustration this has caused our customers and we are doing everything we can to make Maps better."

"We launched Maps initially with the first version of iOS. As time progressed, we wanted to provide our customers with even better Maps including features such as turn-by-turn directions, voice integration, Flyover and vector-based maps. In order to do this, we had to create a new version of Maps from the ground up."

"There are already more than 100 million iOS devices using the new Apple Maps, with more and more joining us every day. In just over a week, iOS users with the new Maps have already searched for nearly half a billion locations. The more our customers use our Maps the better it will get and we greatly appreciate all of the feedback we have received from you."

"While we’re improving Maps, you can try alternatives by downloading map apps from the App Store like Bing, MapQuest and Waze, or use Google or Nokia maps by going to their websites and creating an icon on your home screen to their web app."

"Everything we do at Apple is aimed at making our products the best in the world. We know that you expect that from us, and we will keep working non-stop until Maps lives up to the same incredibly high standard."

"Tim Cook
Apple’s CEO"

Tim Cook's apology went further by recommending that its iPhone users download and use "alternatives" like Bing, MapQuest, Waze, Nokia Maps and even, God forbid, Google Maps.  Could you imagine if If the CEO's of HP, Lenovo or IBM recommended that its users use competing products while they improve or correct issues with their products?   

This begs the question:  Would the late Apple CEO and co-founder Steve Jobs apologized?  That's a magical question if there ever was.  I would love to hear from Apple evangelists.   

Foxconn Plant Worker Revolt

In a blog post dated September 25, 2012, I reported that a revolt by 2,000 plant workers at Foxconn Technology, a major Chinese manufacturer of Apple's iPod, iPhone and iPad, erupted into a full brawl with numerous injuries.  This does not bode well for Apple, because Foxconn is Apple's major producer and has encountered numerous technical gliches during the production of the iPhone 5, and has pushed plant workers to the limit to meet Apple's impossible demands for perfection, on-time delivery and lower costs.  Apple's announcement that it had completely sold out of iPhone 5's over the weekend following the release, points to possible backlog issues due to these labor and technical gliches, that could eventually come back to haunt Apple as it tries to fulfill prepaid orders on the iPhone 5. Keep tuned for more.

Will Apple's Fiscal 1st Quarter 2013 Deliver More iPhone 5's?

I think that expectations for Apple to keep its stock from tanking are so high, that Apple was under tremendous pressure to launch the iPhone 5 anyway it could, and did so knowing that it would not be able to keep up with orders.  If Foxconn Technology is able to resolve its plant labor issues and technical gliches (packing more electronics into a thinner phone), I have a feeling that Apple will deliver a huge fiscal Q1 2013 (ending December 31, 2012) like what it did back in Q1 2012 (ending December 31, 2011) when it sold 37.04 million iPhone 4's and 4S' (See my blog post dated January 25, 2012).   As you can see from Gartner's mobile device report for Q2 2012, Apple has clearly fallen behind in mobile phones.   If Apple continues to experience the above problems and issues, Samsung will only be too eager to fill in the void and steal away market share from Apple. Hopefully it will resolve the Apple Maps issue and include those revisions when it begins deliveries in Q4 2012 (Apple's fiscal 1st quarter 2013).

Conclusions

I am not about to write-off Apple, but just how much electronics can you pack into a mobile phone?  You cannot continue to make phones thinner and lighter without sacrificing something. The same holds true for Samsung, Nokia and BlackBerry.  If you ask me, I believe that the year 2012 marked a critical inflection point for mobile phones (growth remained in the low single digits in Q1 and Q2 2012), and that in 2013 phones will all have larger footprints and bigger and higher-resolution displays in order to accomodate the next generation of mobile ads and improve on the users's mobile experience without burying the display with too many ads.  

Keep in mind that Seeking Alpha's rosy projections that Apple will sell between 100 to 150 million iPhones are made by a stock analyst, and should be ignored.  Yeah, I think Apple will sell more than 100 million iPhone's, but it will have its work cutout for it to sell 150 million iPhone's. Samsung and Android phones now dominate the smarphone market and the similarities between Apple and Samsung have really narrowed, the Samsung Galaxy SIII in many respects is as good or better than the iPhone 5.  You can bet that Samsung will be out to beat Apple with their next Galaxy phone.  BTW, let's not forget the new Microsoft Windows 8 phones that are being introduced in October.  That new Windows 8 operating system is killer, dude.  Watchout Apple and Samsung.

Courtesy of an article dated September 29, 2012 appearing in Seeking Alpha and an article dated August 14, 2012 appearing in TechCrunch  and an article dated May 16, 2012 appearing in TechCrunch and an article dated September 20, 2012 appearing in The Verge

MOBILE ADS: WHAT WORKS AND WHAT DOESN'T, PLUS THE LATEST MOBILE ADVERTISING GUIDELINES

 The Mobile Advertising Ecosystem (Click Image To Enlarge)

Coupons, Pitches Tied to Smartphone Search Get a Yes; Don't 'Spray and Pray'

In 2010, Apple Inc. co-founder Steve Jobs proclaimed, "Mobile advertising really sucks."  Now, however, the rule book for what works in mobile advertising is slowly being written.

Some of the ingredients to success include ads that play on the unique properties of mobile gadgets, including location, or ads disguised as a game, coupon or information that consumers want, say ad executives and industry observers.

  

Advertisements on mobile gadgets have a bad rap. But slowly, the rulebook for what works in mobile advertising is being sketched out. Shira Ovide has details on The News Hub. (Photo: Getty Images)

What doesn't work?  The same old Web ads plopped into a smartphone.

Mobile advertising has been touted as the next big thing since Apple's iPhone debuted in 2007. Yet the promise remained unfulfilled because marketing companies have to navigate consumers' desires for privacy with the enticements mobile devices offer, such as fresh information about users' location and spending habits.

Accidental clicks on mobile ads, difficulties buying ads in big quantities, and fuzzy metrics also have kept a lid on mobile ad spending, marketers said.

This year, research firm eMarketer Inc. projects less than 2% of all U.S. marketing spending, or just $2.6 billion, to go toward mobile advertising. Meanwhile, consumers using smartphones and tablets now generate more than 10% of Internet traffic, according to data provider StatCounter Inc.

Click Image To Enlarge

Click Image To Enlarge

KC Estenson, who oversees the online and mobile business for Time Warner Inc.'s CNN said.

"The mobile ad market is just not fully formed yet." 

As users move to mobile faster than marketers, mobile ad prices are being pushed down. While rates vary widely, on average it costs $2.85 to reach 1,000 iPhone users with a mobile ad, according to mobile-browser firm Opera Software ASA.  By comparison, an ad in a national newspaper can cost as much as $50 or $100 for 1,000 viewers, a standard ad-rate metric.

Click Image To Enlarge

Here's a look at what types of mobile ads are resonating, and which pitches are getting the thumbs down from consumers or marketers.

Search Ads

Just as with the online-ad industry, mobile marketers are plowing the biggest chunk of spending into search ads, where it is easy to prove a person visited a website or bought a product in response to an ad.

About half of all U.S. mobile ad spending goes toward search ads, more than the roughly 47% of total digital spending going into Web search, according to eMarketer. Google takes a 95% share of all mobile-search revenue in the U.S., estimates eMarketer.

In some categories such as hotels, restaurants and auto insurance, "you're seeing bids for ads that are higher on mobile than on desktop," said Jason Spero, who runs Google's mobile-ad business. He adds that "as an industry, we have some work to get" such rates across the board.

Comcast Corp. has paid for mobile-search ads that allowed users to tap a button on a smartphone to initiate a phone call to the cable company.

The Philadelphia company this year said mobile users accounted for more than 10% of its online sales. The rate at which people clicked on its mobile-search ads was almost four times greater than on desktop ads, Comcast said.

Useful or Fun

Skittish about bombarding mobile users with seemingly random ads, marketers including Kraft Foods Inc. and Macy's Inc. are experimenting with messages they want consumers to believe are fun, pay rewards or help them find useful information.

Scott Nordby, president of Innovative Real Estate Group in Colorado, said he pays online-real estate company Zillow Inc. about $340 a month to ensure his thumbnail photo and contact information show up on 10,000 Zillow-powered home listings in a single Denver Zip code. With a few taps on the smartphone screen, a would-be home buyer can call or email Mr. Nordby and his team.

Mr. Nordby said he receives about 150 to 180 inquiries a month—or more than half his total referrals—from would-be home buyers who found him on Zillow.  Roughly one in 10 referrals from Zillow come through calls from would-be buyers' smartphones. He adds he's "thrilled" with the results.

Zillow Chief Executive Spencer Rascoff said people who use Zillow on mobile devices are three times more likely to contact agents like Mr. Nordby than people who surf Zillow on a traditional computer.

Big Is Beautiful

As smartphone screens get larger, companies have found some success with ads such as "takeovers" that briefly fill all or most of a device's screen.

San Francisco app company Fotopedia sells such ads on its iPhone and iPad apps, which let people flip through high-quality photographs of Paris, national parks or wild animals.

Marketers including National Geographic and travel websites Jetsetter and Expedia Inc. pay roughly $1 to $1.50 for each user who clicks an ad, which fill a full screen. Like fashion ads in a luxury magazine, the Fotopedia ads appear every 10 "pages" or so of the app.

As many as 18% of people who see an ad click on it, said Christophe Daligault, Fotopedia's senior vice president of global operations. On the Web, it isn't unusual for just 1% of people shown an ad to interact with it, marketers said.

Still, big ads should be used sparingly, some marketers said. Craig Bierley, director of General Motors Co.'s Buick advertising, said the auto maker tends to limit takeover ads to major product introductions because otherwise "people might find it annoying."

Unfamiliar Places

One approach mobile marketers are trying—with mixed results—is inserting ads in new places to overcome "ad blindness" by consumers used to tuning out marketing pitches in the usual spots, such on the edges on websites.

Start-ups such as Facebook Inc. and Twitter Inc. also are slipping ad messages into the flow of virtual conversations on their digital services.

Amazon Inc. is pushing into new territory with ads on its newest Kindle tablets and e-readers. In the U.S., the company's new $199 Kindle Fire HD device displays ads filling its 7-inch screen whenever a user lets it "go to sleep." In the wake of consumer complaints following the introduction of the new Kindles this month, Amazon offered a $15 option to turn the ads off permanently.

Some Kindle Fire HD buyers said they didn't mind the ads. But Steve Campbell, a 56-year-old resident of Naples, Fla., said,

"This thing is just constantly pumping ads at me."

Campbell is "tempted" to pay the $15 to opt out of the ads.

An Amazon spokesman declined to comment.

'Spray and Pray'

Banner ads—the boxes or rectangular ads on many mobile websites or apps—are known as the "spray and pray" approach. Marketers, consumers and companies all said these ads are cheap, crude and annoy mobile users. Still, banner ads account for nearly $2 of every $10 spent on U.S. mobile ads, according to eMarketer.

Mr. Rascoff said Zillow stopped showing generic banner ads about a year ago following consumer complaints the ads were irrelevant or hogged space on 4-inch mobile screens.  He said.

"There's good money to be made, but at what cost?"

Marketers and ad-dependent companies said banner ads are an inevitable first step in a new ad medium, just as the first wave of the Internet was dominated by now notorious pop-up and "dancing cowboy" ads.

COMMENTARY:      

Mobile Ad Formats

There are five different mobile ad formats in use today:

• Text Messaging (SMS) - Short Message Service (SMS) is a communications service that allows the exchange of short text messages, limited to160 characters, between mobile phones. It is also referred to as “text messaging” or “texting.” SMS messages can be sent and received between virtually all operator networks. Virtually every mobile phone in the world supports SMS, creating a ubiquitous market for SMS-based advertising campaigns. SMS supports messages sent from one user to another, as well as messages sent from a machine, such as a PC, application or server, to a user.  SMS ads are very popular because they are cheap and very easy to produce.
• Mobile Video - This video advertising format plays automatically before, in between, or after the app’s main content. The video starts without user interaction and can usually not be paused, skipped, or ended.
  • Pre-Roll: Loads before App starts
  • Mid-Roll: Loads during App
  • Post-Roll: Loads after App closes
• Expandable Banner - This is an interactive advertising format which allows the mobile ad unit to expand from a traditional size to a larger size. This ad unit utilizes the expansion feature.   The ad unit starts out collapsed and expands after a click. Collapsed size is 300x50px (MMA) or 320x50px (iab). Expanded size 300x250px (MMA) or 320x480px (iab).
• Interactive Banner - This interstitial ad unit can be seen in mobile apps. The user is encouraged to interact with the ad unit through playing a game.   The ad unit will then give the user the option to click out to video, or visit the advertisements landing page. Requires user action to iniciate / activate /execute the ad unit.
• Floating Banner - Interactive or non-interactive ad unit that anchors to the screen as the user scrolls through. This ad unit utilizes fixed ad placement technology. It engages the user without disrupting browsing.

Global Mobile Advertising Guidelines

Ever since 2005, the Mobile Marketing Association has published a set of Mobile Advertising Guidelines that includes universal mobile advertising formats for the worldwide mobile web.  Over the past three years, the guidelines have evolved to include display (mobile web and downloadables) and messaging (SMS and MMS).  The next revision of the guidelines will also include video/television.

The guidelines are released every six months and are the result of collaboration across the MMA Mobile Advertising Committees in Asia Pacific (APAC), Europe, Middle East & Africa (EMEA), Latin America (LATAM) and North America (NA). The guidelines have received global support and endorsement from MMA membership world-wide as well as supporting organizations including GSMA, dotMobi Advisory Group, IAB UK, IAB Mexico and so on. 

To download the MMA’s most recent global Mobile Advertising Guidelines released in February 2012, please click HERE.

Courtesy of an article dated September 28, 2012 appearing in The Wall Street Journal and an article produced by SMAATO 

FOXCONN TECHNOLOGY, MANUFACTURER OF APPLE'S NEW iPHONE 5, REOPENS AFTER LABOR TENSIONS RESULTED IN A WORKER BRAWL

Foxconn Technology Group, a Chinese manufacturer of Apple's (AAPL) iPhones resumed production Tuesday after a brawl by workers highlighted tensions that labor groups say were worsened by the pressure of a new iPhone launch.

Foxconn Technology Group and police said the cause of the unrest Sunday night was under investigation, but labor activists said the rollout of the iPhone 5 has led to longer working hours and more pressure on workers. Foxconn and police said as many as 2,000 employees were involved in the brawl and 40 people were reported injured.

Foxconn plant workers like these are often forced to stand for 14 hours straight (Click Image To Enlarge)

The iPhone 5 debuted last week in the United States and eight other countries and Apple has a three- to four-week backlog of online orders. Foxconn has declined to say whether its one-day suspension of production Monday in Taiyuan might affect supplies. It did not respond to a request for comment on the labor groups' claims.

News reports and witnesses said the violence Sunday night in Taiyuan in northern China stemmed from a confrontation between a factory worker and a guard that escalated. One employee reached by telephone said the violence was fueled by workers' anger about mistreatment by Foxconn security guards and managers.

A Foxconn employee who asked not to be identified said.  

"Foxconn, some supervisors, and security guards never respect us.  We all have this anger toward them and they (the workers) wanted to destroy things to release this anger."

Production at the Taiyuan factory resumed on Tuesday, Foxconn said in a written statement. It did not respond to a request for information on the status of its investigation or whether policies at the factory might be changed.

Foxconn, owned by Taiwan's Hon Hai Precision Industry Co., is the world's biggest assembler of consumer electronics, with about 1.2 million workers in factories in Taiyuan, the southern city of Shenzhen, in Chengdu in the west and in Zhengzhou in central China. It makes iPhones and iPads for Apple and also assembles products for Microsoft and Hewlett-Packard (HPQ).

Labor activists say the need to ramp up iPhone 5 production has increased pressure on Foxconn employees.

In 2010, Foxconn's parent, Hon Hai, pledged its guards would obey the law and refrain from using threats or harassment after a videotape showing several beating workers was circulated on the Internet.

Foxconn employees have complained about what some critics call "military-style management."

Crothall said.  

"Workers are expected to obey their manager at all times, not to question but simply do what they are told.  That atmosphere is not conducive to a happy or contented workforce. It's very dehumanizing way of treating workers."

A Hong Kong group, Students & Scholars Against Corporate Misbehaviour, in a report this month said.

"Because of the launch of the iPhone 5, the workload of workers suddenly surges."  

It said some employees interviewed at the Zhengzhou factory had not had a day off in the previous 30 days.

Foxconn has declined to say which products are made in each factory but another group, China Labor Watch, said the Taiyuan facility, which employs 79,000 people, is making the iPhone 5.

The group, based in New York City, complained that employees suffer "verbal and physical abuse" by guards.

It said in a statement.  

"These workers must be treated with respect.   And both Apple and Foxconn, with billions of dollars in profits every year, have both a legal and ethical obligation to uphold the rights of these workers."

Labor tensions in China have been aggravated by a slowing economy that is squeezing employers and a communist system that prohibits independent labor unions.

Many factories and other businesses have unions but they must be part of the state-sanctioned All-China Federation of Trade Unions. Workers complain leaders of local branches often are allied with management and fail to stand up for the workforce.

That means grievances over pay or other issues spiral into strikes and protests. In some cases, ACFTU representatives have scuffled with striking workers, trying to force them to return to work.

Geoffrey Crothall, communications director for China Labour Bulletin, a Hong Kong organization that promotes employee rights in China said. 

"They have no other way of voicing their grievances.  There are no formal channels of communication or ways of resolving grievances through peaceful negotiation."

Foxconn raised minimum pay and promised in March to limit hours after an auditor hired by Apple found Foxconn employees were regularly required to work more than 60 hours a week.

That review followed a rash of suicides at Foxconn facilities -- about a dozen since 2010 -- and an explosion at the iPad-making plant in Chengdu in May 2011 that killed four employees.

Foxconn's facilities are exceptionally large by the standards of a Chinese electronics industry in which most manufacturers employ hundreds or thousands of workers. Its flagship mainland factory in Shenzhen, near Hong Kong, has 250,000 workers. The Chengdu site has 100,000 and the company has said the Zhengzhou factory might eventually employ 300,000.

Foxconn also has faced criticism in the past over the conduct of its security guards.

COMMENTARY:    If 2,000 people brawled against the management in a U.S. factory, the National Guard would be called out, labor rights advocates would be filing class action lawsuits against management, and there would be organized efforts to unionize the workers.  However, unions are banned in China, and there are no laws protecting workers rights like those we here in the U.S.   When I heard about the brawl at Foxconn's plant, I said to myself, "Here we go again." Well, it looks like conditions at Foxconn really haven't changed much, but gotten worst.  I would call the brawl at Foxconn an outright uprising.  Whether Foxconn management will implement changes to improve plant worker conditions at its plants remains to be seen.  Earlier this year Foxconn announced that it was reducing worker hours after complaints by plant workers of excessive overtime, often without breaks.  

I wonder what Apple CEO Tim Cook will have to say about the latest brawl at Foxconn.  Truth be told, Tim Cook was specifically hired by the late Steve Jobs when he was rehired back in 1996 to eliminate waste and improve profit margins across the board.  Tim Cook's answer was to shutdown Apple's company-owned U.S. plants, reduce product lines and outsource all manufacturing overseas.   To his credit, Tim Cook has done a fantastic job. Apple's magical devices are revered throughout the world by Apple evangelists and they are leaders in their respective product categories.  

Hon Hai Precision Industry's profit margins now average 1.5% while Apple's average 30.8% since the iPhone debut in 2008 (Click Image To Enlarge)

For years Apple would not disclose the identity of Apple's overseas vendors, the working conditions at those overseas plants, and just how much environmental pollution those plants were creating.  Well, the shit hit the fan in 2010, when reports of plant worker suicides, accusations of sweatshop conditions at those plants and widespread environmental pollution were reported by the press.  

Of all of the Steve Jobs interviews, and believe me, there are not many videos of the King of Magical Devices being interviewed and put under the hot seat.  Steve Jobs would never subject himself to that, or admit any wrong doing.   However, Steve agreed to be interviewed by All Things Digital at the D8 Conference in 2010, about accusations of horrible sweatshop working conditions, unsafe working conditions, and 13 plant worker suicides at Foxconn International's plant in China, the company that manufacturer's Apple's iPhone, iPad and iPod.  

Here's the video and watch and listen to what Steve had to say.  Please, no more hateful mail or nasty comments.  

 

Don't get me wrong.  I love Apple products, I think they are beautifully designed and engineered products that people "absolutely lust for."   Steve Jobs was without any doubt the greatest entrepreneur and technology innovator of the modern era even though he did get some help from alien technology along the way.  

This infographic pretty much lays it all out for you to see.

Click Image To Enlarge

Click Image To Enlarge

The body of evidence that Apple's overseas vendors operate sweatshops, treat their plant workers like slaves and polluting the environment on a monumental scale is overwhelming and can no longer be disuputed.   In spite of rampedup plant inspections by Apple and claims of improved working conditions, it appears that nothing has really changed.   This overwhelming evidence should give Apple evangelists pause for concern and swear not to buy another Apple product ever again.  Join me in this crusade.  Swear by these words:  "I will never buy another Apple product again."  

If you haven't already done so, I encourage you to read my other blog posts about Foxconn here: August 14, 2012, April 2, 2012, March 29, 2012, March 30, 2012, March 3, 2012, January 31, 2012, October 12, 2011, 

Courtesy of an article dated September 25, 2012 appearing in the MercuryNews.com

THE STARTUP GENOME PROJECT ANALYZED 3,200 HIGH GROWTH STARTUPS AND DISCOVERED WHY 1 OUT OF 12 FAIL

Startup Genome analyzed 3,200 high-growth technology startups to answer this daunting question:

Why do startups fail?

It came away with this beautiful, informative infographic:

Click Image To Enlarge

COMMENTARY:    Here are some of the key finds from the Startup Genome report:

1. Founders that learn are more successful. Startups that have helpful mentors, track performance metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
2. Startups that pivot once or twice raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all. A pivot is when a startup decides to change a major part of its business.
3. Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves. Startups can prematurely scale their team, their customer acquisition strategies or over build the product.
4. Many investors invest 2-3x more capital than necessary in startups in the discovery phase. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.
5. Hands-on help from investors have little or no effect on the company’s operational performance. But the right mentorssignificantly influence a company’s performance and ability to raise money. However, this does not mean that investors don’t have a significant effect on valuations and M&A.
6. Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.
7. Business-heavy founding teams are 6.2x more likely to successfully scale with sales-driven startups than with product-centric startups.
8. Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups without network effects than with product-centric startups with network effects.
9. Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
10. Founders that don’t work full-time have 4x less user growth and end up raising 24x less money from investors.
11. Most successful founders are driven by impact rather than experience or money.
12. 72% of founders find out that their initial intellectual property is not a competitive advantage.
13. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
14. Startups that haven’t raised money overestimate their market size by 100x and often misinterpret their market as new.
15. B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the dynamics of customer interaction. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time requirements, market risk and team composition

Startup Genome Report: premature scaling v 1.1 . Copyright 2011, contents under creative commons license

Courtesy of an article dated June 15, 2012 appearing in Business Insider and an article dated September 1, 2011 appearing in BrilliantForge.com

SECONDARY MARKET BROKER SECONDMARKET RELEASES Q2 2012 PRIVATE STOCK TRANSACTIONS REPORT

August typically equals unbearable heat, last-minute vacations, and a lot of catching up with family and friends. With that said, we want to catch up with you and share what we’ve been up to over the past few months.

First off, we partnered with a number of dynamic private companies over the last six months who utilized our capital introduction or transaction management services to help them create liquidity programs tailored to their goals and objectives.

• Capital Introduction: When a company wants to utilize SecondMarket to bring buyers to a transaction, we work with the company to define the size of the potential investment and the desired investor profile. We then find buyers that fit the profile through our curated network of accredited and institutional investors, and present the buyers to the company, who decides which investors to include in their liquidity program on SecondMarket.
• Transaction Management Services: Companies utilize our online enterprise solution, which provides a centralized platform for automated transactions and better efficiency. Companies are increasingly using the services to perform block trades of stock, tender offers and company buy-back programs.

So why did companies use our services? Well, we surveyed our clients and found that they partnered with us in 1H 2012 for a number of reasons. Some companies’ sought to re-align their investor base in order to replace early shareholders with new strategic investors who are supportive of the company’s long-term vision. Other companies used SecondMarket as an effective tool to attract and retain key employees, and some simply wished to satisfy liquidity demands of their shareholders.

Although we don’t publicly divulge specific names of our clients, we are excited to reveal a six month company snapshot that, for the first time, paints a detailed portrait of the “typical” private company that uses SecondMarket. This composite was created by using data from the companies that we partnered with to create customized liquidity programs in the first half of 2012.

Click Image To Enlarge

Industry Breakdown

The next chart is a breakdown of the first six months of 2012, by industry of the companies. Companies in the Gaming industry made up nearly half of the liquidity events in 1H 2012, with 48.3%, and Consumer Web and Social Media came in second, with 21.8% of liquidity events. The Education and Financial Services sectors represented 21.8% and 10.9% of liquidity events, respectively, and the Entertainment and Music industry rounded out the pie with a small sliver of 0.6% in completed liquidity events.

Click Image To Enlarge

Buyer Type

The following chart provides detail on the types of buyers on SecondMarket in 1H 2012. Hedge funds comprised the lion’s share of transactions by dollar value, with 47.9%. Family offices followed suit (21.5%), with asset managers (15.3%), issuers (8.9%), accredited individuals (6.0%), and private equity funds (0.3%) among the investors who joined the companies’ shareholder bases.

Click Image To Enlarge

Seller Type

As for sellers, companies allowed a large percentage of current employees (59.8%) during the first half of the year to secure some liquidity and taste some of the success they created. Former employees (24.1%), investors (13.8%), and a small number (0.6%) of founders were also approved by the companies to obtain a controlled amount of liquidity through SecondMarket.

Click Image To Enlarge

We allow institutional and accredited individual investors on SecondMarket to submit Indications of Interest (“IOIs”) in private companies (regardless of whether the companies are currently running liquidity programs). Companies can use this information to help guide their decision-making and timing for capital raising and/or secondary liquidity.

Buyside Demand by Industry

The chart below breaks down the buyside IOIs by industry in the second quarter of 2012. Consumer Web and Social Media maintained the top spot in Q2, with nearly $265 million in buyside demand. Software saw nearly $50 million of interest from potential investors, and Mobile followed with $38 million of demand. Other industries, like Music and Entertainment ($23 million), Financial Services ($22 million), and Payments ($20 million) also saw increased buyside interest in the second quarter.

Click Image To Enlarge

Buyside Demand By State

We have also created a heat map that indicates investors’ demand based on their location. The map below highlights California, New York, and Texas as the top three states with the most investors submitting buyside IOIs on SecondMarket in Q2, but fair numbers of investors from burgeoning tech sectors like Washington, Illinois and Massachusetts also indicated their private company investment interests on the platform.

Click Image To Enlarge

Rising Stars

And now it’s time for the SecondMarket Rising Stars! Every quarter, we calculate the VC-backed startups with the largest quarter-over-quarter percent increase in total watchers on our platform, and provide you with a ranking of the most exciting startups. Previously a SecondMarket Newbie, Airtime scored the top spot in Q2, with a 207.7% increase in watchers (who says blowout, celebrity-filled launch parties are overrated?!). Warby Parker (+127.9%) and Stripe (+117.2%) held onto their second and third place spots, respectively. SoCal-based open-data platform,Factual, and Palo Alto-based creator of the Learning Thermostat, Nest, also graduated from the Q1 Newbies and made their debuts to the Q2 Rising Stars.

Click Image To Enlarge

Newbies

The SecondMarket Newbies list is all about momentum. These startups begin the quarter with less than ten watchers and gain significant traction over three months. Video “capture and share” startup Viddy, with 99 watchers, and video startup SocialCam, with 48 watchers, held the top spots on the Newbies list in Q2. SocialCam was subsequently acquired by Autodesk in July 2012. Cambridge-based Localytics, a mobile application analytics platform, stole the third spot in the Rising Stars ranking, and iCouch, a video-counseling site located in NYC, took fourth place. Rounding out the list was MyLife, an online personal relationship manager based out of LA.

Click Image To Enlarge

COMMENTARY:  After reviewing SecondMarket's Q2 2012 Report, there are some glaring changes from SecondMarket's Q3 2011 (See my blog post dated November 1, 2011), when Facebook, Twitter, Groupon, Zynga and Foursquare ranked #1, #2, #3, #4 and #5 respectively among the most watched startups.  Facebook had their IPO in May 2012, and we all know what a disappointment that was and continues to be.  Groupon and Zynga also had their IPO's, but they have also been huge disappointments and are now trading in low single digits. Groupon has yet to generate a profit and Zynga is losing gamers at incredible rates.  Poor foursqure.   The last time I looked, foursquare had 15 million users, but where are the revenues? LBSN's are mostly a fad, they were interesting when they first appeared, but their time has come and gone.  In 2011 I predicted there would be a "train wreck" among LBSN's, and I think I am dead-on again.  

Consumer web, gaming and social media continue to dominate the list of private companies but let's get real, there are no "real" stars among the private companies listed as stars by SecondMarket.  Facebook acquired Instagram for an unheard of price of $1 billion (most of it stock).  That's a key reason why social media did so well in Q2 2012.   Poo, poo.  I am willing to bet you a case of Chateau Margaux that not a single one of those so-called stars has generated significant revenues or even a profit.  I am truly disappointed that startup companies like Airtime, Warby Parker, Stripe, Factual and Nest were listed as the "stars."  If these are the best, then the tech IPO market is truly in trouble.   It's sad, but I doubt that SecondMarket is doing as well as it once was. Their old stars are all losers, every single one of them with the exceptions of Yelp and LinkedIn.  LinkedIn continues to maintain its high valuations, but for how long?  I am afraid that Facebook fucked it up for everybody.

Courtesy of the Q2 2012 Secondary Market Report issued by SecondMarket 

GOOGLE PASSES FACEBOOK IN ONLINE DISPLAY ADS, YAHOO, MICROSOFT AND AOL LOSING MARKET SHARE

Long dominant as the online search advertising giant, Google is on track to become the dominant player in the online display advertising business too, according to estimates released late Wednesday by online stats masters eMarketer.

Google is poised to become No. 1 -- again. Long dominant as the online search advertising giant, Google is on track to become the dominant player in the online display advertising business too, according to estimates released late Wednesday by online stats masters eMarketer. Actually, according to the eMarketer report, Google will achieve digital marketplace triple play -- becoming Madison Avenue’s top supplier for three digital marketing channels: search, display and mobile.

Ad revenues for Google's Display Network for Q1 2012 forged well ahead of Facebook by $2.9 billion versus only $1.06 billion for Facebook.  

Click Image To Enlarge

eMarketer's report says.  

“Google now holds more share than any other company in each of the U.S. search, display and mobile advertising markets.”

eMarketer reports notes that the display milestone is based on Google overtaking previous No. 1 supplier Facebook, which only overtook long-standing display ad champ Yahoo last year.

Click Image To Enlarge

The leap-frogging is based on a projection that Google will take in $2.31 billion in U.S. display ad revenues this year, a 38.5% increase from 2011, and giving it a 15.4% share of the total display marketplace.

• Facebook - Will earn $2.16 billion in U.S. display ad revenues this year.  And while that also is an impressive rate of growth -- jumping 24.4% over 2011 -- it’s not enough of a share gain to offset Google’s momentum.  Facebook, however, picked up 0.3 points of market share to further distance itself from third-place Yahoo with a 14.4% share of the U.S. display ad marketplace.
• Yahoo - Will drop to 9.3% in 2012, down from 11.0% last year, and a dominant 14.0% of display ad budgets in 2010.
• Microsoft - Will retain its fourth-place position, dropping 0.4 points to a 4.5% share.
• AOL - Will remain No. 5, declining 0.7 points to 3.6% of the online display ad marketplace.

Google’s and Facebook’s ascendency comes amid a rapidly expanding online display ad marketplace, thanks in part to Facebook’s push. eMarketer estimates the total U.S. online display marketplace will be $14.98 billion this year, up 21.5% from $12.33 billion last year.

Click Image To Enlarge

Looking forward, eMarketer expects Google to continue to build share of display ad budgets, expanding to a 21.2% of display in two years, and increasing its lead over projected No. 2 Facebook’s estimated 15.5% share in 2014 by a wide margin.

Click Image To Enlarge

eMarketer said its estimates were “driven by the expansion of both Google and Facebook as advertising platforms; the continued health of banner spending due to expansion of inventory, aided by mobile growth; and increased spending growth on digital video advertising, especially YouTube.”

Despite that growth, eMarketer has actually reduced its projections downward slightly from its previous display forecast due to a “mix of lower prices for display advertising on ad networks combined with the reluctance of some major brands to make extra-large investments in digital display advertising.”

eMarketer noted.  

“There are several factors underpinning Google's ascent to market lead, including the continued strength of its ad network, video advertising on YouTube and mobile display advertising on AdMob.”

COMMENTARY:   Like I have been saying before, online advertising is a "zero-sum" game.  The only way to increase online ad revenue market share is by stealing it from your competitors.  It clearly appears that Google is taking back market share that it lost from Facebook in 2011.   This proves once again that Google has a more stable, proven and sustainable revenue model than Facebook.

For its part, Facebook committed a huge blunder by not pivoting quickly to increase mobile advertising just when over half of its users were using digital devices to access Facebook. This was a huge strategic mistake that will cost Facebook dearly.  In a blog post dated September 19, 2012, I commented on eMarketer's U.S. mobile advertising revenue estimates for the years 2012 through 2014, and although Facebook gain market share, it will lag way behind Google in mobile advertising.   

eMarketer is so concerned about Facebook's mobile ad blunder, that it revised Facebook's ad revenues downward by nearly a billion.  You can read about this in a blog post dated September 1, 2012.

Courtesy of an article dated September 20, 2012 appearing in MediaPost Publications Online Media Daily and an article dated September 20, 2012 appearing in Marketing Land

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

HOW FACEBOOK'S DATA SCIENCE TEAM, WILL USE YOUR PERSONAL DATA FOR INSIGHTS TO ADVANCE ITS BUSINESS AND SOCIAL SCIENCE AT LARGE

Facebook's huge data center located in Prineville, Oregon (Click Image To Enlarge)

The company's social scientists are hunting for insights about human behavior. What they find could give Facebook new ways to cash in on our data—and remake our view of society.

If Facebook were a country, a conceit that founder Mark Zuckerberg has entertained in public, its 900 million members would make it the third largest in the world.

It would far outstrip any regime past or present in how intimately it records the lives of its citizens. Private conversations, family photos, and records of road trips, births, marriages, and deaths all stream into the company's servers and lodge there. Facebook has collected the most extensive data set ever assembled on human social behavior. Some of your personal information is probably part of it.

And yet, even as Facebook has embedded itself into modern life, it hasn't actually done that much with what it knows about us. Now that the company has gone public, the pressure to develop new sources of profit (see "The Facebook Fallacy") is likely to force it to do more with its hoard of information. That stash of data looms like an oversize shadow over what today is a modest online advertising business, worrying privacy-conscious Web users (see "Few Privacy Regulations Inhibit Facebook") and rivals such as Google. Everyone has a feeling that this unprecedented resource will yield something big, but nobody knows quite what.

Cameron Marlow calls himself Facebook's "in-house sociologist." He and his team can analyze essentially all the information the site gathers.

Known internally as the Data Science Team, it is a kind of Bell Labs for the social-networking age.  Cameron Marlow, a tall 35-year-old who until recently sat a few feet away from ­Zuckerberg heads the DST.  The group Marlow runs has escaped the public attention that dogs Facebook's founders and the more headline-grabbing features of its business.  The group has 12 researchers—but is expected to double in size this year. They apply math, programming skills, and social science to mine our data for insights that they hope will advance Facebook's business and social science at large.

Whereas other analysts at the company focus on information related to specific online activities, Marlow's team can swim in practically the entire ocean of personal data that Facebook maintains. Of all the people at Facebook, perhaps even including the company's leaders, these researchers have the best chance of discovering what can really be learned when so much personal information is compiled in one place.

Facebook has all this information because it has found ingenious ways to collect data as people socialize. Users fill out profiles with their age, gender, and e-mail address; some people also give additional details, such as their relationship status and mobile-phone number. A redesign last fall introduced profile pages in the form of time lines that invite people to add historical information such as places they have lived and worked. Messages and photos shared on the site are often tagged with a precise location, and in the last two years Facebook has begun to track activity elsewhere on the Internet, using an addictive invention called the "Like" button. It appears on apps and websites outside Facebook and allows people to indicate with a click that they are interested in a brand, product, or piece of digital content. Since last fall, Facebook has also been able to collect data on users' online lives beyond its borders automatically: in certain apps or websites, when users listen to a song or read a news article, the information is passed along to Facebook, even if no one clicks "Like." Within the feature's first five months, Facebook catalogued more than five billion instances of people listening to songs online. Combine that kind of information with a map of the social connections Facebook's users make on the site, and you have an incredibly rich record of their lives and interactions.

Marlow says with a characteristically serious gaze before breaking into a smile at the thought of what he can do with the data. 

"This is the first time the world has seen this scale and quality of data about human communication."

For one thing, Marlow is confident that exploring this resource will revolutionize the scientific understanding of why people behave as they do. His team can also help Facebook influence our social behavior for its own benefit and that of its advertisers. This work may even help Facebook invent entirely new ways to make money.

Contagious Information

Marlow eschews the collegiate programmer style of Zuckerberg and many others at Facebook, wearing a dress shirt with his jeans rather than a hoodie or T-shirt. Meeting me shortly before the company's initial public offering in May, in a conference room adorned with a six-foot caricature of his boss's dog spray-painted on its glass wall, he comes across more like a young professor than a student. He might have become one had he not realized early in his career that Web companies would yield the juiciest data about human interactions.

In 2001, undertaking a PhD at MIT's Media Lab, Marlow created a site called Blogdex that automatically listed the most "contagious" information spreading on weblogs. Although it was just a research project, it soon became so popular that Marlow's servers crashed. Launched just as blogs were exploding into the popular consciousness and becoming so numerous that Web users felt overwhelmed with information, it prefigured later aggregator sites such as Digg and Reddit. But Marlow didn't build it just to help Web users track what was popular online. Blogdex was intended as a scientific instrument to uncover the social networks forming on the Web and study how they spread ideas. Marlow went on to Yahoo's research labs to study online socializing for two years. In 2007 he joined Facebook, which he considers the world's most powerful instrument for studying human society. Marlow says,  

"For the first time we have a microscope that not only lets us examine social behavior at a very fine level that we've never been able to see before but allows us to run experiments that millions of users are exposed to."

Marlow's team works with managers across Facebook to find patterns that they might make use of. For instance, they study how a new feature spreads among the social network's users. They have helped Facebook identify users you may know but haven't "friended," and recognize those you may want to designate mere "acquaintances" in order to make their updates less prominent. Yet the group is an odd fit inside a company where software engineers are rock stars who live by the mantra "Move fast and break things." Lunch with the data team has the feel of a grad-student gathering at a top school; the typical member of the group joined fresh from a PhD or junior academic position and prefers to talk about advancing social science than about Facebook as a product or company. Several members of the team have training in sociology or social psychology, while others began in computer science and started using it to study human behavior. They are free to use some of their time, and Facebook's data, to probe the basic patterns and motivations of human behavior and to publish the results in academic journals—much as Bell Labs researchers advanced both AT&T's technologies and the study of fundamental physics.

Eytan Bakshy experimented with the way Facebook users shared links so that his group could study whether the site functions like an echo chamber.

It may seem strange that an eight-year-old company without a proven business model bothers to support a team with such an academic bent, but ­Marlow says it makes sense.  He says.  

"The biggest challenges Facebook has to solve are the same challenges that social science has."

He adds.  

"Those challenges include understanding why some ideas or fashions spread from a few individuals to become universal and others don't, or to what extent a person's future actions are a product of past communication with friends. Publishing results and collaborating with university researchers will lead to findings that help Facebook improve its products."

For one example of how Facebook can serve as a proxy for examining society at large, consider a recent study of the notion that any person on the globe is just six degrees of separation from any other. The best-known real-world study, in 1967, involved a few hundred people trying to send postcards to a particular Boston stockholder. Facebook's version, conducted in collaboration with researchers from the University of Milan, involved the entire social network as of May 2011, which amounted to more than 10 percent of the world's population. Analyzing the 69 billion friend connections among those 721 million people showed that the world is smaller than we thought: four intermediary friends are usually enough to introduce anyone to a random stranger.

The technical paper pithily concluded. 

"When considering another person in the world, a friend of your friend knows a friend of their friend, on average."

That result may not extend to everyone on the planet, but there's good reason to believe that it and other findings from the Data Science Team are true to life outside Facebook.  Last year the Pew Research Center's Internet & American Life Project found that 93 percent of Facebook friends had met in person.  One of Marlow's researchers has developed a way to calculate a country's "gross national happiness" from its Facebook activity by logging the occurrence of words and phrases that signal positive or negative emotion. Gross national happiness fluctuates in a way that suggests the measure is accurate: it jumps during holidays and dips when popular public figures die. After a major earthquake in Chile in February 2010, the country's score plummeted and took many months to return to normal. That event seemed to make the country as a whole more sympathetic when Japan suffered its own big earthquake and subsequent tsunami in March 2011; while Chile's gross national happiness dipped, the figure didn't waver in any other countries tracked (Japan wasn't among them). Adam Kramer, who created the index, says he intended it to show that Facebook's data could provide cheap and accurate ways to track social trends—methods that could be useful to economists and other researchers.

Other work published by the group has more obvious utility for Facebook's basic strategy, which involves encouraging us to make the site central to our lives and then using what it learns to sell ads. An early study looked at what types of updates from friends encourage newcomers to the network to add their own contributions. Right before Valentine's Day this year a blog post from the Data Science Team listed the songs most popular with people who had recently signaled on Facebook that they had entered or left a relationship. It was a hint of the type of correlation that could help Facebook make useful predictions about users' behavior—knowledge that could help it make better guesses about which ads you might be more or less open to at any given time. Perhaps people who have just left a relationship might be interested in an album of ballads, or perhaps no company should associate its brand with the flood of emotion attending the death of a friend. The most valuable online ads today are those displayed alongside certain Web searches, because the searchers are expressing precisely what they want. This is one reason why Google's revenue is 10 times Facebook's. But Facebook might eventually be able to guess what people want or don't want even before they realize it.

Recently the Data Science Team has begun to use its unique position to experiment with the way Facebook works, tweaking the site—the way scientists might prod an ant's nest—to see how users react.  Eytan Bakshy, who joined Facebook last year after collaborating with Marlow as a PhD student at the University of Michigan, wanted to learn whether our actions on Facebook are mainly influenced by those of our close friends, who are likely to have similar tastes. That would shed light on the theory that our Facebook friends create an "echo chamber" that amplifies news and opinions we have already heard about. So he messed with how Facebook operated for a quarter of a billion users. Over a seven-week period, the 76 million links that those users shared with each other were logged. Then, on 219 million randomly chosen occasions, Facebook prevented someone from seeing a link shared by a friend. Hiding links this way created a control group so that Bakshy could assess how often people end up promoting the same links because they have similar information sources and interests.

He found that our close friends strongly sway which information we share, but overall their impact is dwarfed by the collective influence of numerous more distant contacts—what sociologists call "weak ties." It is our diverse collection of weak ties that most powerfully determines what information we're exposed to.

That study provides strong evidence against the idea that social networking creates harmful "filter bubbles," to use activist Eli Pariser's term for the effects of tuning the information we receive to match our expectations. But the study also reveals the power Facebook has. "If [Facebook's] News Feed is the thing that everyone sees and it controls how information is disseminated, it's controlling how information is revealed to society, and it's something we need to pay very close attention to," Marlow says. He points out that his team helps Facebook understand what it is doing to society and publishes its findings to fulfill a public duty to transparency. Another recent study, which investigated which types of Facebook activity cause people to feel a greater sense of support from their friends, falls into the same category.

But Marlow speaks as an employee of a company that will prosper largely by catering to advertisers who want to control the flow of information between its users. And indeed, Bakshy is working with managers outside the Data Science Team to extract advertising-related findings from the results of experiments on social influence. "Advertisers and brands are a part of this network as well, so giving them some insight into how people are sharing the content they are producing is a very core part of the business model," says Marlow.

Facebook told prospective investors before its IPO that people are 50 percent more likely to remember ads on the site if they're visibly endorsed by a friend. Figuring out how influence works could make ads even more memorable or help Facebook find ways to induce more people to share or click on its ads.

Social Engineering

Marlow says his team wants to divine the rules of online social life to understand what's going on inside Facebook, not to develop ways to manipulate it.  He says.  

"Our goal is not to change the pattern of communication in society.  Our goal is to understand it so we can adapt our platform to give people the experience that they want."

But some of his team's work and the attitudes of Facebook's leaders show that the company is not above using its platform to tweak users' behavior. Unlike academic social scientists, Facebook's employees have a short path from an idea to an experiment on hundreds of millions of people.

In April, influenced in part by conversations over dinner with his med-student girlfriend (now his wife), Zuckerberg decided that he should use social influence within Facebook to increase organ donor registrations.   Users were given an opportunity to click a box on their Timeline pages to signal that they were registered donors, which triggered a notification to their friends. The new feature started a cascade of social pressure, and organ donor enrollment increased by a factor of 23 across 44 states.

Marlow's team is in the process of publishing results from the last U.S. midterm election that show another striking example of Facebook's potential to direct its users' influence on one another. Since 2008, the company has offered a way for users to signal that they have voted; Facebook promotes that to their friends with a note to say that they should be sure to vote, too. Marlow says that in the 2010 election his group matched voter registration logs with the data to see which of the Facebook users who got nudges actually went to the polls. (He stresses that the researchers worked with cryptographically "anonymized" data and could not match specific users with their voting records.)

This is just the beginning. By learning more about how small changes on Facebook can alter users' behavior outside the site, the company eventually "could allow others to make use of Facebook in the same way," says Marlow. If the American Heart Association wanted to encourage healthy eating, for example, it might be able to refer to a playbook of Facebook social engineering.  He says.  

"We want to be a platform that others can use to initiate change."

Advertisers, too, would be eager to know in greater detail what could make a campaign on Facebook affect people's actions in the outside world, even though they realize there are limits to how firmly human beings can be steered.   Duncay Watts, who works on computational social science at Microsoft's recently opened New York research lab and previously worked alongside Marlow at Yahoo's labs says.  

"It's not clear to me that social science will ever be an engineering science in a way that building bridges is.  Nevertheless, if you have enough data, you can make predictions that are better than simply random guessing, and that's really lucrative."

Doubling Data

Like other social-Web companies, such as Twitter, Facebook has never attained the reputation for technical innovation enjoyed by such Internet pioneers as Google. If Silicon Valley were a high school, the search company would be the quiet math genius who didn't excel socially but invented something indispensable. Facebook would be the annoying kid who started a club with such social momentum that people had to join whether they wanted to or not. In reality, Facebook employs hordes of talented software engineers (many poached from Google and other math-genius companies) to build and maintain its irresistible club. The technology built to support the Data Science Team's efforts is particularly innovative. The scale at which Facebook operates has led it to invent hardware and software that are the envy of other companies trying to adapt to the world of "big data."

In a kind of passing of the technological baton, Facebook built its data storage system by expanding the power of open-source software called Hadoop, which was inspired by work at Google and built at Yahoo. Hadoop can tame seemingly impossible computational tasks—like working on all the data Facebook's users have entrusted to it—by spreading them across many machines inside a data center. But Hadoop wasn't built with data science in mind, and using it for that purpose requires specialized, unwieldy programming. Facebook's engineers solved that problem with the invention of Hive, open-source software that's now independent of Facebook and used by many other companies. Hive acts as a translation service, making it possible to query vast Hadoop data stores using relatively simple code. To cut down on computational demands, it can request random samples of an entire data set, a feature that's invaluable for companies swamped by data. Much of Facebook's data resides in one Hadoop store more than 100 petabytes (a million gigabytes) in size, says Sameet Agarwal, a director of engineering at Facebook who works on data infrastructure, and the quantity is growing exponentially.  He says.

"Over the last few years we have more than doubled in size every year."

That means his team must constantly build more efficient systems.

All this has given Facebook a unique level of expertise, says Jeff Hammerbacher, Marlow's predecessor at Facebook, who initiated the company's effort to develop its own data storage and analysis technology. (He left Facebook in 2008 to found Cloudera, which develops Hadoop-based systems to manage large collections of data.)  Most large businesses have paid established software companies such as Oracle a lot of money for data analysis and storage. But now, big companies are trying to understand how Facebook handles its enormous information trove on open-source systems, says Hammerbacher.  He says.  

"I recently spent the day at Fidelity helping them understand how the 'data scientist' role at Facebook was conceived ... and I've had the same discussion at countless other firms." 

As executives in every industry try to exploit the opportunities in "big data," the intense interest in Facebook's data technology suggests that its ad business may be just an offshoot of something much more valuable. The tools and techniques the company has developed to handle large volumes of information could become a product in their own right.

Mining for Gold

Facebook needs new sources of income to meet investors' expectations. Even after its disappointing IPO, it has a staggeringly high price-to-earnings ratio that can't be justified by the barrage of cheap ads the site now displays. Facebook's new campus in Menlo Park, California, previously inhabited by Sun Microsystems, makes that pressure tangible. The company's 3,500 employees rattle around in enough space for 6,600. I walked past expanses of empty desks in one building; another, next door, was completely uninhabited. A vacant lot waited nearby, presumably until someone invents a use of our data that will justify the expense of developing the space.

One potential use would be simply to sell insights mined from the information. DJ Patil, data scientist in residence with the venture capital firm Greylock Partners and previously leader of LinkedIn's data science team, believes Facebook could take inspiration from Gil Elbaz, the inventor of Google's AdSense ad business, which provides over a quarter of Google's revenue. He has moved on from advertising and now runs a fast-growing startup, Factual, that charges businesses to access large, carefully curated collections of data ranging from restaurant locations to celebrity body-mass indexes, which the company collects from free public sources and by buying private data sets. Factual cleans up data and makes the result available over the Internet as an on-demand knowledge store to be tapped by software, not humans. Customers use it to fill in the gaps in their own data and make smarter apps or services; for example, Facebook itself uses Factual for information about business locations. Patil points out that Facebook could become a data source in its own right, selling access to information compiled from the actions of its users. Such information, he says, could be the basis for almost any kind of business, such as online dating or charts of popular music. Assuming Facebook can take this step without upsetting users and regulators, it could be lucrative. An online store wishing to target its promotions, for example, could pay to use Facebook as a source of knowledge about which brands are most popular in which places, or how the popularity of certain products changes through the year.

Hammerbacher agrees that Facebook could sell its data science and points to its currently free Insights service for advertisers and website owners, which shows how their content is being shared on Facebook. That could become much more useful to businesses if Facebook added data obtained when its "Like" button tracks activity all over the Web, or demographic data or information about what people read on the site. There's precedent for offering such analytics for a fee: at the end of 2011 Google started charging $150,000 annually for a premium version of a service that analyzes a business's Web traffic.

Back at Facebook, Marlow isn't the one who makes decisions about what the company charges for, even if his work will shape them. Whatever happens, he says, the primary goal of his team is to support the well-being of the people who provide Facebook with their data, using it to make the service smarter. Along the way, he says, he and his colleagues will advance humanity's understanding of itself. That echoes Zuckerberg's often doubted but seemingly genuine belief that Facebook's job is to improve how the world communicates. Just don't ask yet exactly what that will entail. "It's hard to predict where we'll go, because we're at the very early stages of this science," says ­Marlow. "The number of potential things that we could ask of Facebook's data is enormous."

COMMENTARY:   In an effort to tout its advertising programs, Facebook is sharing some of its current worldwide activity statistics.

Among the most interesting:

• Facebook users create 3.2 billion likes and comments every day.
• Facebook users spend an average of 6 hours, 35 minutes per month on the site, almost double Google’s 3:20. (These are desktop-only hours.)
• Of Facebook’s 955 million monthly active users, 58 percent visit the site daily.
• Facebook’s 588 million monthly active mobile users represents 67 percent y-o-y growth.

There are also a lot of ad-related stats included, all of which have been published via infographic (see below). Facebook watchers will surely have seen some of the stats before; they come from the company’s own legal/SEC filings as well as various sources including comScore and Nielsen.

Click Image To Enlarge

In a new report, market research firm eMarketer estimates that 88 percent of U.S. companies will be marketing on Facebook by 2014.

That’s more than double the estimated 43 percent that were using Facebook in 2009, and would be up from the 83 percent that are estimated to be marketing on Facebook this year. (And significantly higher than the 17 percent of marketers using or planning to use Pinterest that we reported earlier today.)

Here’s the eMarketer growth estimate for Facebook marketing adoption:

Click Image To Enlarge

And as you probably already know from reading my previous blog posts concerning Facebook, questions remain about the effectiveness of Facebook marketing/advertising.  But questions or not, eMarketer’s data suggests that uncertainty isn’t stopping businesses from getting involved on Facebook in some way.

Something to keep in mind:   Facebook was placed on 20-year probation (with annual privacy audits) earlier this year by the Federal Trade Comission (FTC) for numerous privacy violations, and the company is limited as to which data can be furnished to third-party brand marketers, advertising agencies and other users using such data in their consumer targeting and other analytical uses.  Having said this, if you have a Facebook account, you have the option to block Facebook from using of your private data.  Failure to do so could result in brand marketers targeting you on and off of Facebook. 

Courtesy of an article appearing in the July/August issue of Technology Review and a blog post by Facebook titled The Power of Facebook Advertising

U.S. TECH COMPANIES CONTINUE TO INCREASE AD AND PROMOTIONS SPENDING, PLUS MOBILE AD SPENDING BY OS PLATFORM

 

Last year, U.S. tech company advertisers continued to increase ad and promo spending so much so that Google, Amazon and Apple are listed among the six companies with the highest ad-spending growth rates.

The following infographic shows how and how much America's leading technology companies are spending on advertising.  

Click Image To Enlarge

COMMENTARY:    The iPhone is the top performer in the mobile ad monetization performance space, according to a new report from Opera Software. It is followed by Android devices, of course, and then a large gap in which the rest of the mobile devices are being left behind.

Click Image To Enlarge

In their first State of Mobile Advertising report, Opera Software writes.  

“The iPhone leads the smartphone OS pack with an average eCPM of $2.85.  Though it is closely followed by Android devices (at $2.10). The rest of the mobile phone field is significantly behind.”

Opera Software claims to be the world’s leading mobile ad publishing platform, with more than 9000 global customers, over 35 billion ad impressions per month and driving over $240 million of ad revenue dollars to mobile app publishers in the 2011.

The company attributes the dominance of iOS and Android mobile devices to their greater adoption and usability features, claiming that they allow more interaction between the ads and the device itself. They note that the rich media potential of HTML5 Canvas multimedia features are only supported by iOS Safari and Android 2.1 or higher devices.

The report continues, saying that the iPad, a highly used and usable device, has a high eCPM, a measure of advertising performance. As seen in the chart on Opera’s website, the iPad has an average eCPM of almost four dollars across the Opera mobile ad platform.

Opera Software writes,  

“The iPad is also achieving significant user adoption in user groups that are highly desirable to advertisers.  For example, 40% of physicians own or plan to own an iPad or tablet by the end of 2012, according to Nielsen projections.”

The report continues with more insight into its mobile advertising data, noting that North America has the market lead in advertising revenue, and that Business & Finance ads tend to do very well.

As this is Opera’s first report in this vein, it will be interesting to follow these trends over time, especially in regards to iPhone, iPad, and iOS performance in mobile advertising revenue.

Courtesy of an article dated September 6, 2012 appearing OnlineBusinessDegree.com

THE ASTOUNDING POWER OF PINTEREST, ITS RAPID GROWTH IN USERS, AND HOW BRANDS CAN USE IT TO TARGET WOMEN

PINTEREST HAS SEEN SO MUCH EXPLOSIVE GROWTH THAT THE NATURAL QUESTION IS: WHAT NEXT? PAY ATTENTION TO THE DATA, AND YOU MIGHT BE ABLE TO GUESS.

In our upcoming October design issue, one of the many fascinating feature stories we’ve lined up is a lengthy profile of Pinterest and its elusive CEO, Ben Silbermann. That story goes live later this week, but until then, I wanted to offer a teaser, in the form of an infographic about Pinterest, created by Fast Company's staff and designed by our own Ted Keller.

In this profusion of figures, you find out a few, key things about the image-sharing service. For one, it’s dominated by women. Second, something about its layout and culture stokes an enormous buying impulse. And third, major brands are getting in on the act. It’s not a stretch to say that soon, at least on retail sites, a Pinterest button might become as ubiquitous as a Facebook Like. Check out the infographic below, or tour the major findings in the slide show above.

Click Images To Enlarge

Due to a fact-checking error, this article previously included Dribbble in the chart of companies inspired by Pinterest’s grid layout. Dribbble in fact launched before Pinterest, and has been deleted from the chart in question. Fast Company apologizes for the error.--Ed.

Sources: ComScore (user growth June 2011–June 2012); Google DoubleClick AdPlanner, June 2012 (monthly page views; average visit; gender; affinity for aesthetics; age); AddThis (events drive activity); ComScore, February 2012 (vacation; preferred brands); Campalyst, July 2012 (most-followed retailers); AddThis, June 2012 (mobile sharing); Apple App Store, August 15, 2012 (days to No. 1 for iPad app); ComScore (top 15 Pinterest categories); Shopify, May 2012 (price-tag power); RichRelevance (selling power, based on a study of 374 million browser-based shopping sessions, which took place on U.S. retail sites between May 1 and May 30, 2012)

COMMENTARY:    If you are social media savvy, you would have to be living on Mars not to be aware of Pinterest.   According to Compete, Pinterest increased its unique visitors by 155% from December 2011 to January 2012 and the latest referral traffic and active user statistics as reported by Media Bistro claim that Pinterest has surpassed Linkedin as the 3rd most popular social media network in the world with an increase in daily users of 145% since January 2012.  With 31 million visitors per month, Pinterest is reported to now drive more referral traffic than Google+ and Twitter.

Pinterest’s USP is that it uses pictures rather than words, as its users’ curate tool. Users can share and discover new interests by “pinning” (the obligatory unique specialized lingo required by social media platforms) images or videos to their own or others’ virtual mood boards or “Pinboards” in Pinterest speak. Pinboards are arranged by common themes and users can either upload things from their own computer or pin things they discover on the web using the Pinterest pin it button or the URL. The viral magic happens because users can browse other pin boards and repinning items they find to their boards or like them or leave a comment and then interact with other social media networks by sharing their “pins” on them.

Pinterest capitalizes on the visual, encouraging users to pin things they are attracted to and that represent their lifestyle or the lifestyle they aspire to. The focus is on finding like-minded people who share your taste and interests; which is much faster and easier to capitalize on using images as opposed to text, hence the popularity and rapid growth of the platform.

Until recently you had to wait for an invitation from an existing user and then for it to be accepted in order to join. However, Pinterest now allows anyone with a Facebook, Twitter, or e-mail account to join directly.

Rapid growth and rapid sharing are normally good performance indicators of traffic generation, therefore should busineses that are serious about driving traffic to their site using social media seriously consider joining Pinterest? The simple answer is it depends if your audience is there.

By far the largest users of Pinterest are women. Figures vary between the US and the UK but statistics suggest that the number is between 68.2 percent and 90 percent of Pinterest users. Consequently, this suggests that Pinterest will probably work best for businesses with products aimed at women.

The biggest challenge for businesses seeking to use Pinterest to gain brand recognition and drive traffic to their websites is identifying visual content to pin that is directly related to their brand. This is a particular challenge to businesses that are in sectors that sell products or services that aren’t that visual. So here are some suggestions of what to pin to get started.

If there was ever any doubt just how much traffic Pinterest is referring to brand sites, this question may have been answered.  According to Shareah Lic, Pinterest now sends more referral traffic than Google+, LinkedIn and YouTube combined in January, Twitter in February and StumbleUpon, Bing and Google Referral Traffic in June. 

Click Image To Enlarge

Here is the breakdown of the percentage share of visits for each traffic source:

Click Image To Enlarge

Courtesy of an article dated September 12, 2012 appearing in Fast Company Design and an article dated August 21, 2012 appearing in WindMill Networking