All Things Digital

Web 2.0 will be known as the name of a bubble. And 3.0 would only be a marketing disaster.”
Ross Mayfield’s Weblog, Nov. 12, 2006

Web 2.0 acolytes who shelled out 1,100 euros for admission to Web 2.0 Expo Berlin, which kicks off today, will no doubt be dismayed to learn that the term “Web 2.0″ is no longer an enchanted aegis under which to quest for venture capital. Seems the VC community has finally had it with Web 2.0, its hobbies masquerading as businesses and start-up brands with a reclusive letter “e.”

To wit, Kleiner Perkins Caufield & Byers, one of Silicon Valley’s most prestigious venture capital firms, is reportedly no longer investing in Web 2.0 start-ups. “We have absolutely no interest in funding Web 2.0 companies,” KPCB partner Randy Komisar recently told Silicon Valley Watcher’s Tom Foremski, adding that he’d recently told John Battelle, conference chair of Web 2.0 Summit, that the term is viewed with disdain in the VC community.

As the Globe and Mail’s Mathew Ingram notes, Komisar’s remark is for Web 2.0 devotees “a little like King Arthur telling you he’s really not that hot on the whole Grail thing any more, and you can stop looking now.”

It’s also more than a little ironic. Because, according to a report from Dow Jones VentureOne and Ernst & Young, emerging Web 2.0 companies snared almost $1 billion in venture capital worldwide in the first six months of 2007. That said, very little of it was from KPCB, which seems to have sat most of Web 2.0 out. “I’m personally not doing much in Web 2.0 at the moment,” Komisar told VentureBeat in January. “I’m looking for more fundamental innovations. I’m less interested in the content and media fallout. There are no strong barriers to entry in Web 2.0. If by Web 2.0, you mean companies that build an audience to be monetized by Google, I am not actively pursuing them; though I should never say never. I’m not sure how long YouTube would have remained an independent business had they not been bought by Google. Google has an efficient search engine to monetize large audiences. If you’re creating Web 2.0 products and media, its tough to build anything of sufficient scale to remain independent–you are more likely to end up being a feature on Google, Microsoft or Yahoo.”

There can’t be any more deep technology in Facebook than what dozens of people could write in a couple of years. I think these things are going to have some legs, and yet there’s a … faddish nature about anything that appeals to younger people.”

–Microsoft CEO Steve Ballmer, Oct. 2

“So how’s that Facebook deal working out for you?” Web 2.0 Summit conference program chair John Battelle asked Microsoft CEO Steve Ballmer last week. “Are you making money?”

“Rumor has it that we’re not,” Ballmer replied, adding “Mark [Zuckerberg, Facebook CEO] says we’re happy with it, so I guess we’re happy with it.”

Or, rather, happy enough. Because Microsoft has beaten Google out for an ownership stake in Facebook in a just-announced deal (see below).

Horrifyingly to those who are scrutinizing it, the deal puts Facebook’s valuation at around $15 billion.

UPDATE:
According to the release that just landed in my inbox, Microsoft is taking a $240 million equity stake in Facebook.

Facebook and Microsoft Expand Strategic Alliance

Microsoft to take equity stake in Facebook; companies expand advertising deal to cover international markets.

“Palo Alto, Calif., and Redmond, Wash.–Oct. 24–Facebook and Microsoft Corp. today announced that Microsoft will take a $240 million equity stake in Facebook’s next round of financing at a $15 billion valuation, and the companies will expand their existing advertising partnership. Under the expanded strategic alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States. Financial terms were not disclosed.

“ ‘We are pleased to take our Microsoft partnership to the next level,’ said Owen Van Natta, vice president of operations and chief revenue officer at Facebook. ‘We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook.’

“ ‘Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only our two companies, but also our collective users and advertisers,’ said Kevin Johnson, president of the Platforms and Services Division at Microsoft. ‘We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.’ ”

What is Net neutrality? This from AT&T CEO Randall Stephenson, one of its staunches opponents, and the guy who paid Lent Scrivner & Roth LLC $100,000 to lobby against it in the first half of 2007.

Onstage at Web 2.0 Summit, Stephenson again argues for a two-tiered Internet, rehashing the incumbent telecoms’ talking points. Net neutrality=BAD. Telecoms deserve the option, he says, to charge some users more money for loading certain content or Web sites faster than others. “We all want the same thing,” says Stephenson. “We all want this Internet thing to grow. But I don’t want anyone to interfere in how we monetize our investment. You shouldn’t regulate something until there is a problem.”

Moving on to the iPhone and AT&T’s partnership with Apple. “How’s the iPhone deal going,” conference co-sponsor John Battelle asks. Going great, replies Stephenson. “Not sure I could have asked for more from it than I’ve got.”

“Some people are a little … unhappy with AT&T’s EDGE service,” says Battelle. “Why isn’t it better and when will it be better?”

[Laughter]

“Well, [Apple CEO] Steve Jobs wanted it on the EDGE network. He wanted a broad ubiquitous data network. I don’t particularly like the speed; 3G is a lot better, but Wi-Fi is a pretty darn good surrogate.”

Apparently, Stephenson doesn’t use an iPhone.

Battelle asks about Stephenson’s feelings about Google. “You [AT&T] have a $250 billion market cap, $117 billion in revenue. They have $200 billion in market cap, on revenues that are about 10% of that. How do you feel about that?”

“I’m envious,” says Stephenson.

Battelle pushes a bit harder. “Are they riding your capital investment [on telecom infrastructure]?”

Stephenson concedes, “Of course,” he says.

“Does it tick you off?”

“No.”

Unflappable, this Stephenson.

One last exchange worth noting here. Battelle asks Stephenson about claims of government access to AT&T user data. Stephenson ducks for cover and offers this terse reply: “The law is clear on this: I can’t comment on matters of national security. The law is also clear on how we respond to requests from law-enforcement agencies.”

Odd that the final day of Web 2.0 Summit in San Francisco begins with a conversation with J. Craig Venter, a genetics pioneer whose idea of a Facebook app would be one that sequences your DNA and compares it with that of your friends.

So what’s the founder of the Institute for Genomic Research doing at a Web 2.0 conference? Shilling for his new book, “A Life Decoded” (Viking), which arrives at market today, and chatting about the implications of DNA sequencing on medicine.

Venter, widely known for his work on the Human Genome Project as the former president and founder of Celera Genomics, takes the stage with conference co-host Tim O’Reilly (founder and CEO of O’Reilly Media).

O’Reilly opens with a question about the relevance of knowing your genome. Venter replies that it affects your attitude toward risk. Without knowing your entire genetic code, he explains, you can’t know what’s at risk. Venter, who famously sequenced his own DNA as part of his research, says the costs of sequencing DNA are dropping–his cost around $70 million, but with refinements in the process he expects that in a couple of years, the cost per sequence should go down to $100,000 or less. It won’t be long before it will become part of a standard medical work-up. And when it does, it will change the medical world. Genetic medicine is truly preventative, he says: “We like to pay for disasters, but we don’t like to pay to prevent them.” Venter cautions, however, that the nonscientific public may be challenged in interpreting all the new information.

On the subject of customized genome sequences, Venter says that companies like 23andMe that are commercializing genome sequencing need to be taken seriously. But this “revolution” should be approached with caution. At first, it was believed that we all had the same genes with minor variations, “but now we know it’s much more complex. Some companies are using just a fraction of the code, and that could be misleading.”

What about the obvious next step, taking the genome from read to read/write? “I’ve been trying to digitize biology for the past 15 years now. With synthetic biology, we can remake the analog genetic code in the form of DNA. … We are learning how to design life. We’re currently weeks to months away from being able to synthesize bacteria.”

Synthesizing bacteria? To what end? To change “everything,” says Venter. Replace the fossil fuels on which we currently rely, for example. “We now have biological fuel cells driven by bacteria that can take human wastewater and make electricity or clean water out of it. Each home can generate its own fuel in the future.”

But as for bio-engineered fuels, he says that ethanol is not the one you’d develop if you were looking to design a fuel from scratch.

(To read more on Venter’s conversation, see the blogs by Eric Savitz of Tech Trader Daily and Bobbie Johnson.)

John Battelle (conference programming chair and chairman and publisher of Federated Media Publishing), Ram Shriram (partner, Sherpalo), Thomas J. Tauke (Verizon Executive VP) and Martin Varsavsky (FON founder/CEO) take the stage to discuss the 700 MGHZ MHz spectrum auction and the battle over network neutrality.

Shriram describes the 700 MGHZ MHz spectrum as beachfront property and the most exciting spectrum auction we’ll likely see for the next decade.

Verizon’s Tauke and Shriram are already sparring. Shriram mentions Verizon’s recent suit over the rules of the wireless auction. Tauke bristles, complains about the rules of the auction and seems to suggest that Verizon would like to move toward open access–presumably at its own glacial speed.

Shriram shakes his head. Either you have open access or you don’t, he says, noting that Apple was forced to decide between Verizon and AT&T for the iPhone. As long as there is no open access, even powerful, influential companies like Apple will have to go through incumbent wireless gatekeepers to launch new devices and services.

Trip Hawkins, Founder & CEO of Digital Chocolate, and Robert Kotick, CEO of Activision, take the stage to discuss “core gaming” with Webb Alert host Morgan Webb.

A bit slow getting started here, but Hawkins soon gets things moving by claiming traditional content is dead. We’re headed toward a world of immersive, social content, says Hawkins, a world in which content isn’t something that we pay to watch or listen to, but something we pay to participate in–a social experience.

Rumor has it Kotick is a huge fan of Activisions Guitar Hero game, but you wouldn’t know it from his demeanor. No axeman, he’s perfectly suited to discussing “casual gaming.” Webb asks if Kotick feels threatened by such gaming, which isn’t really Activision’s forte (at least not yet). The video business as you would traditionally define it is a $30 billion business, says Kotick, and we’re the No. 1 player in that market. To the extent that anything extends that market, we’re happy, he adds.

John Heileman, contributing editor at New York magazine, begins the conversation with Viacom CEO Philippe Dauman by discussing the plan unveiled today to post Comedy Central’s “Daily Show With Jon Stewart” on the Web. As owner of Comedy Central, Viacom is seeking to spread the cable channel’s content on many platforms, thus creating a “richer” experience for viewers, according to Dauman.

Dauman also comments on the recently announced guidelines protecting online copyrights, which Viacom has signed, saying he believes it’s an effort to address the concerns of consumers and content providers alike. But Heileman slyly interjects that Google did not sign on to the guidelines, issuing instead its own “video identification” tools to be used on YouTube. Dauman notes that although the timing of the new system is “interesting,” he’s not so sure it will definitively settle the matter (or the lawsuit Viacom has filed against YouTube for copyright infringement).

Speaking of money: Dauman tells the crowd that Viacom expects to boost online revenues from $250 million to $500 million this year. How, exactly? By developing a multitude of sites related to Viacom properties and driving traffic to them. (For a more detailed description of this business plan, see Eric Savitz’s Tech Trader Daily post.)

One thing all that new dough won’t be spent on is a play for Facebook, Dauman says. Facing competition from Microsoft, Google and Yahoo, he notes such a bid is “beyond our capacity.”

Discussion is led by entrepreneur and start-up adviser Dave McClure, with Seth Goldstein (CEO, SocialMedia.com), Ali Partovi (CEO, iLike), Keith Rabois (VP, Slide) and Lance Tokuda (CEO, RockYou) as panelists.

McClure: How many of you in the audience think the Facebook platform announcement was the most important tech event of 2007? Smattering of hands. Clearly, the audience hasn’t yet realized the vast implications of Vampires, Zombies, iLike and Pop Ur Zit.

McClure then says the announcement of the Facebook platform was the most important tech event of 2007 and perhaps even the most important event since Google’s IPO.

(For Mark Zuckerberg, maybe.)

Sweet! Lance “If you told me you were going to write me a check for $10 million for my Facebook widget, I’d say, ‘Forget it’ “ Tokuda is a panelist! (Wonder if he’ll take $10-million-and-1 for his Super Wall widget during the Q&A.)

Oh my. Lots of irrational Zuckeruberance onstage right now. Apparently Kara Swisher’s “Facebook Apps Are for Toddlers” post did not go over well with the current panel, which is giving her a big ol’ Facebook developer pig pile for colorfully describing their work as “silly, useless and time-wasting.” To these folks, “silly, useless and time-wasting” is apparently a business model. “Kara’s argument is ridiculous,” says Rabois. “Why do people watch movies and TV? Because they’re bored or looking for something to do to relieve stress in their lives. Apps are providing entertainment to users.”

High point: Takuda volunteers to build a Facebook widget just for Kara. Wonder if it will be anything like Super Wall–based on a pre-existing Facebook application and easily obsoleted.

Feels like a good time to duck out and boost my Facebook Vampire stats …

What an inopportune time for a conference appearance. As eBay CEO Meg Whitman takes the Web 2.0 Summit stage, eBay shares are trading down more than 6% amid concerns that the company’s core online auction business is slowing. Though eBay posted earnings yesterday that exceeded Wall Street expectations, its auction listings fell year over year for the second consecutive quarter and it suffered its first sequential dip in active eBay.com users ever.

Huh. We’re already 10 minutes into the conversation and Tim O’Reilly, CEO of O’Reilly Media, hasn’t even mentioned yesterday’s earnings. We have learned, however, that Whitman actually uses eBay and once sold her Mickey Mouse skis on it.

Is there a social-networking play in PayPal? O’Reilly asks.

Whitman responds that the “question is, over time, could PayPal become not only your wallet, but your reputation and your identity as you move around the Web? And I think that’s possible. There’s a huge opportunity here, but you have to be careful because you’re dealing with identity, financial identity, presence and reputation.”

Wow. Turns out eBay has a law-enforcement division that apparently includes some former FBI people. That said, eBay believes people are basically good, but that doesn’t mean EVERYONE is basically good. “We’ve developed expertise to help fight bad buys on the Web,” Whitman says, adding that eBay has some 2,000 people who do fraud modeling, etc., to keep eBay free of “bad actors on the Net.”

Then, onto other areas of the company: Are you still bullish on Skype? O’Reilly asks.

“Sure we’re stull bullish,” Whitman parries. “We’re a bit dissapointed, but bullish. We’re better positioned after the earnout to delight customers. We don’t have to worry as much about revenues and operating margins at this juncture. Skype still has great potential, and Skype 4.0 is on the way.”

O’Reilly: You’re looking for a new CEO?

Whitman: Yes, we are looking for a new CEO. There has been tremendous interest.

(I wonder if she’s got Jeff Citron’s CV sitting on her desk.)

Microsoft CEO Steve Ballmer takes the stage and, after a few strained references to his infamous “Developers, developers, developers, developers” video, the conversation begins.

“So how’s that Facebook deal working out for you?” conference program chair John Battelle (of Federated Media Publishing) asks. “Are you making money?”

“Rumor has it that we’re not,” Ballmer replies, adding “Mark [Zuckerberg, Facebook CEO] says we’re happy with it, so I guess we’re happy with it.” (See, what’d I tell you: Microsoft’s got itself a hell of deal there.)

Battelle asks about Microsoft’s massive aQuantive acquisition, wondering what its next $6 billion acquisition will be. Ballmer dodges a bit. Battelle circles back: “OK, how about the next $15 billion acquisition?”–referring to Facebook’s supposed valuation.

Ballmer evades again, saying: “E-mail me at Microsoft.com if you think you’ve got something worth buying.”

Moving onward, Battelle recalls Ballmer’s infamous “one-trick pony” description of Google. Is that one-trick pony in search still a one-trick pony?

Well, Ballmer replies, let me tell you what I meant when I said that. (Ah, we need to revisit that one now that Google shares are at $600-plus, do we?) According to Ballmer, everyone is a one-trick pony: Cisco with its routers, etc. Correction, he clarifies: Everyone but Microsoft is a one-trick pony. Microsoft is a two- to three-trick pony.

Is search one of those kids you’d hit on the back of the head and tell to do better? Battelle asks. Uh-oh, Ballmer’s getting his “Developers-developers” face. “Absolutely not,” says Ballmer. “Absolutely not. I would say to our search team ‘Hey, you’re just 3 years old and we’ve got you in there playing basketball with the 12-year-olds. You’re growing up quick, you’re getting better every day, EVERY DAY! And hey, you might not be able to dunk now, but when you’re 6 or 7 or 8, you’re going to dunk, and YOU’RE GOING TO DUNK ON THE OTHER GUY!’ That’s what I’d say.” Laughter and applause all around. A great moment, really.

Battelle: What are you happy about and unhappy about Microsoft?

Ballmer: At end of the day, happy with anything, but everything needs a little bit of improvement. Like asking someone what they think of their kids. Vista and Office 2007 had a phenomenal launch. … There will be more operating system and Office releases. … In enterprise business is going gangbusters. … In advertising and online, in some sense more nascent, but the work is cut out for us. … We’re a relatively small player relative to the leader. … We’ll sell 20 million Windows Mobile devices. … What’s not to like about Halo 3?

Conversation shifts to a demo of Microsoft’s new Popfly mashup tool, a piece of software that allows nonprogrammers to build applications without having to code. “This is designed for some of that end-user ‘programmer’ somebody who doesn’t necessarily have to be a conehead,” says Ballmer.

Battelle asks about the new online personal productivity application suites that have been popping up lately, suites like Google’s. Is Google Docs a good product?

Ballmer: “For our customers? No. If users want to do something they would do in Word or Excel, Word and Excel is the best place to do it.”

How will Rupert Murdoch, head of the world’s largest media empire and soon-to-be-owner of Dow Jones improve The Wall Street Journal?

• Make it better in what it does now. Financial news.

• Add more national and international news.
• Kill the New York Times? “Yes, that would be nice.”
• Expand the culture section.

How will he improve MySpace?

• Renew co-founder Chris DeWolfe’s contract for another two years.

• Roll out a “MySpace Platform” that will allow third-party developers to create applications for the social networking service.
• Kill Facebook?

Imagine that would be “nice” too.

Now that Ted Leonsis, vice chairman of AOL and president of its “fast-growing” Audience business, has retired from his active management role, he’s got plenty of time to shill for his “Web 2.0 payment platform,” Revolution Money. It’s “PayPal meets MasterCard without the high fees,” says Leonsis, who claims Revolution will completely overhaul the online payments industry with its PIN-protected anonymous credit card and payments platform for social and instant-messaging networks.

But I suspect it’s going to take quite a bit more than that to unseat institutions like Visa and MasterCard, even with merchant fees of just 0.5%.

It is Google’s vision that these two core capabilities–reliable, unambiguous, computable medical data and safe systems for trust and authentication and controlled access–will dovetail with the consumer needs for discovery about everything in their health arena. As this rolls out and consumers truly can discover what is the state of the art and what they should know about their treatments, where they are being treated, how they are being treated and how they will manage their diseases or recovery, this consumer awareness will lead to far greater consumer control, far better health data and, inevitably, to a very different health world than the current one.”

–Former Google VP Adam Bosworth, Google Health architect

Google’s mission, as you’ve likely heard, is to organize the world’s information and make it universally accessible and useful. And let’s face it: in what area of our lives is the world’s information more disorganized, inaccessible and useless than health care?

It’s nice to hear, then, that Google’s long-expected health initiative is set to go live in early 2008. Noting the incredible rate at which the health industry generates data (two billion X-rays per year, 200 petabytes of data), Marissa Mayer, Google’s vice president of search products and user experience, said Google is developing a prototype online platform that will organize it. “If you look at health care, there’s already a huge user need, people are already using Google more than any other tool on the Web to find health information,” Mayer said. “And the health-care industry generates a huge amount of information every year. It’s a natural core competency for us, to understand how to organize all that data.”

Beyond that, Mayer had little else to offer but a schtick-in-need-of-a-laugh-track “Top 10 List of Things You Might See From Google Health.” Among them, Google paternity search, Viagra spam for Gmail users who truly need it, and an “I’m feeling yucky” button.