Belief and trust melts digital divide for the Warrior King

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LinkedIn is in some kind of trouble these days with 6.5 million passwords being stolen, but to me LinkedIn is a hero. Because it was thanks to LinkedIn that I discovered something incredible today: The Meltwater entrepreneurial school of technology or MEST in Accra, Ghana. This school is a NGO spin-off from the Meltwater Group, a highly successful software company founded in 2001 in Norway – started with just US $15,000, a trusty coffee machine and a really exciting vision:

“The Meltwater Group enters growth markets where new technology enables outsiders to challenge existing business models and market leaders sleeping in class.”

Today, over 800 employees in 55 offices work for the Meltwater Group. This is impressive and still, they took it to the next level with MEST. Not only do they invest money in new start-ups and entrepreneurs in Ghana, which means ‘Warrior King’ , just in case you wondered about the title of the post. But they provide training, mentoring and education in this region. And this is in my opinion even more important. Having started his own business with little capital as well, Meltwater’s CEO John Lyseggen, who developed the MEST concept, probably thinks the same way and consequently follows his belief that talent is everywhere and that people can achieve great things everywhere with the right support and guidance.

There seem to be a few more initiatives of this kind  in Africa already. It looks to me, as if these are mostly limited to financial funding and don’t share the same belief and trust in people. But in general and for Africa in particular, the combination of financial investment and altruistic training, mentoring and education is the winning formula. And I am so glad to see this happen with MEST.

Thank you, John and Meltwater. Your MEST NGO is melting the Global Digital Divide.

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At 81, Warren Buffet has the balls

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I don’t know much about Warren Buffet, except the boring things that the press tells us – things like that he is one of the richest guys in the world, he is the “Oracle of Omaha”, he gives away all his wealth, et cetera. Apparently the media is content with this sensationalism and superficiality. But I found something really surprising and in its way fascinating in Warren Buffet nobody else seemed to care to write about. Maybe because it is a simple thing, but it is powerful.

I recently looked for the first time at Warren’s latest Shareholder Letter from 2011 which he publishes openly (disclosure: I am not in any way affiliated to Berkshire Hathaway, Inc.). It is a pretty long letter, but if you find time you should look at it in detail here – it is totally worth it. Not because it provides a great investment advice how to become as rich as Warren, in fact I couldn’t find much of advice in it that you could use.  But it is an example of what character traits one person needs to be able to come as far as Warren Buffet. Reading through this letter to his shareholders, you find text passages such as:

A few years back, I spent about $2 billion buying several bond issues of Energy Future Holdings, an electric utility operation serving portions of Texas. That was a mistake – a big mistake.

Wow. When was the last time you’ve seen any external manager telling publicly “yes, I made a mistake, let’s go on”? Let alone any politician! I’d even say no politician in the last 20 years has come up with that level of truth. People are simply no longer straight forward.

And it goes on:

I totally miscalculated the gain/loss probabilities when I purchased the bonds. In tennis parlance, this was a major unforced error by your chairman.

So this is not just a one-time thing, this is an essential feature in Warren Buffet’s character and certainly one of his secrets to success. It is fascinating and living proof that being honest, straight forward, direct but not unfriendly are the foundations to build the necessary trust among whoever surrounds you to achieve great things. At 81, Warren Buffet has the balls.

What’s your story now, Facebook?

Facebook Stock PerformanceLong time, no post, I know. No excuses here, but hopefully now at least a piece you enjoy….

There has definitely been some hype around the IPO of Facebook in the last days and at least the same level of disappointment. While I wasn’t following the IPO that much, I also wasn’t surprised by all the downs. I already expressed my doubts five months ago in my last post and if you still plan to invest in Facebook, read it now, please, it is free and good advice for a strategic long-term “value investor“.

So, what happened exactly?

Following the all-so-much-hyped IPO attributing a ridiculous valuation to Facebook, its shares dropped significantly. Media had something to talk about and found some poor people who they held responsible for the disappointment, but it’s all relative.

The truth is sometimes simple. There are three players here, Facebook, the financial markets and us users including the media. We all love Facebook. Facebook is social and as human beings we love social. Plus it’s the story of Silicon Valley, the story of a  dream for many of us. The financial markets, on the other hand, are not stupid. They are not social but driven by simple financial metrics such as dividends and increases in company value. We all know that much of the trading today is computerized trading anyway, so it is really the contrary of social. Facebook on the other hand embraced social as its “raison d’être” and never worried too much about what financial markets wanted.

So, what went wrong, exactly?

It is as one colleague recently told me as well: “I have to sell these guys a story!” That is what Facebook didn’t do or perhaps isn’t even able to do. What would be worse, I don’t know. But the markets have just made it clear that they want to have a story for them and not for the users. And that story must include profitability, revenue growth and a strong and stable business model. That’s what they appreciate and what they didn’t get. As I said in my previous post, Facebook needs a new easy-to-understand-and-still-full-of-dreams formula, but this time one for the financial markets. I am curious to see that.

So, what is your story now, Facebook?

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Will Facebook’s market saturation saturate Wall Street’s greed?

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So, it seems Facebook has achieved market saturation in the US in 2011. Now the fun begins, at least I am beginning to smile. While some already ask for more and different social networks, I could fall in love with the idea of a giant failing to fulfill dreams, expectations and desires from now on and taking some of its investors with him. Market saturation for a company which hasn’t gone public yet is a very interesting constellation and, at least to me, it is new. That makes it dangerous, as markets don’t like new that much, they are rather conservative. From now on it will be much harder for Facebook to convince sometimes irrational, conservative markets. Because imagination and dreaming potential is now reduced to more boring and sublime facts which in addition might also be more difficult to communicate. Instead of user growth, Facebook will need something else, another edge, another angle where it can excel, to convince public markets and its traders in the future, when it will be a public company. That is really hard to do, even for Facebook.

Previously, in the era before market saturation, investors could argue with impressive figures from Facebook and build up dreams that were fueled by user growth. It is simple math. Take existing, impressive figures and multiply it by an expected user growth rate and you get imaginary, but even more impressive figures. It is what you call a ‘run rate’ and Wall Street likes that. Private Investors certainly have taken into account future user growth when they valued the company in the many private rounds in the past. Facebook’s impressive ‘run rate’ was always priced into the pre-IPO valuation.

In the era post market saturation, that formula is no longer viable, the run rate slows down, the goal is achieved. Facebook made it and achieved market saturation. Yet the question will be if investors and Facebook itself can make the switch to a different formula that will have as much dream potential and imagination and at the same time is easy to communicate? No doubt, Facebook is a valuable asset. For some, it is indispensable. But for years, Facebook’s value was only limited to its impressive user growth and ‘run rate’ by too many people. Back then, it was good, because it is an easy to understand parameter where Facebook outpaced competition every time. And it is easy-to-understand parameters that Wall Street loves.

Now, it will be very interesting to see if sometimes irrational markets are ready to evolve and apply to Facebook different valuation standards than before market saturation and if Facebook finds that other easy-to-understand-and-still-full-of-dreams measure or formula. No doubt it will be interesting to see, as dealing with a company that achieved market saturation is something Wall Street hasn’t much experience in, at least to my knowledge.

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2011 is past, embrace 2012!

2011 is past. Gone forever. Nothing you can change anymore.

If you look back now and don’t want to change anything you have done 2011, well, then I would call that a great year – or a year where you haven’t done much at all.
If in looking back you find a few things you would do differently if you were in the same situation again, then 2011 was an even greater year, because of the whole lot of experience you gained.
If in looking back you want to change almost everything, well, then 2012 is now here. Let’s embrace it with everything we have – cheers to a great, healthy, peaceful, incredible and awesome 2012!

Hello EU, haven’t you seen the relationship between democracy and debt?

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2011 has been a strange year.

A year full of strange words nobody wants to hear such as ‘debt crisis’. ‘Greece‘ is no longer a beautiful country with white-sand beaches, blue Mediterranean Sea and great sunny weather. In 2011, ‘Greece’ has become the synonym for a country where the only thing that still grows is its debt. During all the intellectual discussions made around the debt crisis not only in Greece, but also in the whole European Union and as well in the US, it is fascinating how politicians find all kinds of causes but never question probably the biggest reason for debt: themselves and democracy.

To be exact, the lack of direct democracy in a state.

I’ve always been a fan of direct democracy because I believe that the mass is always more intelligent than a few elected intellectuals. James Surowiecki is of the same opinion and has illustrated this pretty impressively in his book ‘The Wisdom of Crowds’. Also, it is much more difficult and expensive for lobby groups to bribe a whole society than influencing some politicians in order for a favorable vote. Another convincing argument is that in a representative democracy a few decide on spending the tax money of all. Spending money you have never earned yourself inevitably leads to waste and the more you get used to it to debt.

In a direct democracy the society has the ultimate veto right, which leads to a more reasonable way of spending tax payers’ money and as a consequence less debt. Now a great, recent extensive study by Patricia Funk and Christina Gathmann revealed that there is in fact a relationship between direct democracy and government spending. Who is interested can download the complete study here (PDF).

Basically, the study revealed that the more direct the mass in a direct democracy can exercise its veto right towards spending, the more reasonable is government spending as a whole and the ‘leaner’ or less ‘bloated’ is government itself. That is bad news for the European Union bureaucracy beast. Politicians keep thinking they are indispensable and try to resolve the debt crisis with more government. The contrary should be done. And while the masses will realize the validity and importance of this study and would reasonably act and apply it, we will have to wait a long time until EU politicians will accept this truth. They will neglect any relation in order not to lose their power or influence. Their individual motivation will be more important to them than the good for the community.

And there is it once again. The lack of direct democracy harms us all.

The value of a Twitter follower? Possibly as much as $30 per year…

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Hm, it seems I wasn’t so wrong after all after I wrote about the ‘value of users’ in a different context here.

Today I read in the news that a man by the name of Noah Kravitz was really successful in the past while working, tweeting and blogging as an employee for Phonedog, a popular mobile phone site. He managed to accumulate the impressive number of 17,000 Twitter followers during his time at the company . Now, he is being sued for keeping these followers also after he left Phonedog. There are various versions explaining more in detail what has been going on so I won’t comment on moral, ethics and ownership of these followers as, well, a court will rule on that in the future. But what is very interesting to see is the value that Phonedog attributes to each of their Twitter followers – it is as much as $30 per follower and year.

This is really impressive and ridiculously unrealistic. It is also right and wrong at the same time. Let me explain.

The suing company actually states that their ‘damage’ is as high as $2.50 per follower and month which would end up to a theoretical value of $30 per follower and year. Of course this is just a theoretical value. As there is no court ruling yet, we don’t even know if this claim holds true and if the court really applies this or a similar value for a user. But, if two parties fight in court over Twitter followers (or any other followers of social media sites), this shows that they are fighting over something definitely valuable and this confirms my thesis made previously.

To continue, let’s just assume a more ‘moderate’ price of $15 per follower and year. By the time I wrote about Ashton Kutcher’s Twitter followers, he stood at 8,070,032 followers – which would correspond to a value of $121,050,480 – over a hundred million dollars! While I am writing this article, his Twitter followers are closer to 9 million (8,913,879 to be exact) which means he’s accumulated another 843,847 followers in the last two months alone, a value of over $1,000,000 per month! You see that these figures are ridiculously high. All that is just hot air for the moment but of course one cannot deny that there has in fact been created value here. So even if they settle for a fraction of the $2.50 per follower and month, let’s say for 25 cents, Ashton Kutcher would be several million dollars richer than he already is and can grow his ‘follower wealth’ by approximately $200,000 per month.

It is kind of crazy when you consider how much work it takes to bring home $200,000 per month. I don’t expect the court to accept a figure anywhere near that area but the good news is some way or the other we will learn how much a Twitter follower is worth. At least to Phonedog and poor Noah Kravitz.

This ‘Tipping Point’ is freaking me out…

Did you read Malcom Gladwell‘s book “The Tipping Point” ? No? Good for you. Because I’ve read it and it is driving me crazy ever since.

The ‘Tipping Point’ Gladwell is referring to is that magic moment every entrepreneur is dreaming of achieving. It’s the small event or action that finally gives you, your product, your service or any other adventure that critical mass to spread like wildfire. And when you read through the examples in this book, you certainly learn why this observation is perfectly reasonable and that very little things can really make a big difference. You begin to understand a bit how trends evolve, how products can become popular and all this is very interesting and insightful. I don’t want to criticize anything in this book, it all makes perfect sense. It is just that now I am in a situation, where I believe it would be better for me not knowing about all this stuff. But I cannot erase these thoughts and ideas anymore, they stick in my head and I have tried everything, including drinking.

So I am screwed.

I am screwed because right now I am in a situation where one of my goals is to get exactly that critical mass, to pass that very threshold. But now, that I know how very little things can have a huge impact, this very thing starts driving me crazy. Seriously. You change your way of working to the extent that you reformulate every sentence in an email a dozen times because you think that maybe the recipient doesn’t understand what you were trying to say in your first version. And maybe this recipient is just your tipping point. And because you haven’t reached that tipping point yet, you try different things and apply changes very often because, you know, sometimes it could be just that you used a different word than before that could tip the whole thing and make it work, right?

I don’t even have a remedy for you. As much as I try not to think of the tipping point, it always remains in my head. The more you work and the more decisions you make per day, the more ‘possible tipping point” situations appear. It is a book that is driving someone crazy, even three years after reading it. I guess that is what you call a ‘powerful book’.

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A Black Swan making the world green…

Black SwanNo, I am not color-blind.

Yes, the headline is still logically correct.

I’ll explain.

“Green” in this context is used as a synonym for “more energy-efficient” or “less CO2-consuming”, whatever you prefer.  A “Black Swan” here is not the bird in the image, but the phenomenon of a highly improbable, totally unexpected event with a huge impact on an  existing market or industry. Nassim Nicholas Taleb coined the term in his book  “The Black Swan: The Impact of the Highly Improbable”.

So, why is this important?

While the financial industry had its “Black Swan” in 2008 with the crash of Lehman Brothers, by then one of the most important banks in the world, with all its negative consequences on the world, we just witnessed another “Black Swan” in a different industry and this time, it is actually good that it appeared.

In the storage industry, that is the IT hardware manufacturers producing all the hard disk drives ending up in our computers, an unwritten rule was that prices for these disks fell continuously due to increased demand. As the world saves more and more data, companies in this industry could still make profit, despite falling prices and low margins. Falling prices required more and more economies of scale to remain profitable. Over time, this resulted in high barriers of entry for potential new companies and more and more concentration within the industry itself. This led to a de facto oligopoly where the remaining players in this industry felt comfortable – too comfortable in fact to innovate which is why we still use basically the same disk  technology from 30 years ago, just with more and more capacity.

Now, a “black swan”, a highly improbable event with a major impact, has occurred to this industry, in form of a severe flooding in Thailand, where the majority of disks are produced. The result is a externally-driven shortage of supply for hard disk drives and a consequent extraordinary price increase for the same. The “unwritten rule” completely flipped and the oligopoly’s old-fashioned, non-innovating companies find themselves suddenly out of their comfort zone. On a sidenote, the managers of these companies probably collected a lot of bonuses over the years, just by sticking to the “unwritten rule” of falling prices for hard disks while demand increases and are now completely “surprised”. Well, that is a black swan.

But this black swan, as uncomfortable as it is for the industry itself, is great for the world and offers a huge opportunity –  that is the big difference to the Lehman Brothers’ black swan and its extremely negative impact. Here, a non-innovating industry can be forced to innovate again through this external shock and produce better, more energy-efficient and maybe revolutionary products. At the same time, the other side, the consumers of hard disks or better disk space, can, in sight of rising prices, be forced to become more aware of how much and what to consume and also contribute to more efficient use of data by eliminating waste.

A “greener” world after a black swan arrived. I really like that idea.

Learning from Ashton Kutcher – Escaping inflation with users

Bank crises, Public Debt crises, currencies under pressure – certainly something is not going in the right direction at the moment. While I am not really clear yet who is making the money on all that, I am pretty sure we will have inflation, a lot of inflation. Thinking about this and its consequences for the web world, I came to love Twitter. Why? Read on.

What bankers suggest to do about inflation, is to invest in “real” things, a house, company shares, and gold. In fact, they suggest to invest in the opposite of liquidity, in things that inflation can’t eat away. But, you know what? None of them says to invest in users. Yes, users. Users are inflation-resistant. And while investing in users was something for businesses only in the past (where it was called customers), thanks to Twitter, Facebook and Co., today everybody can do it and add followers.

One of the first to realize this value is Ashton Kutcher. He’s got now over 8,000,000 followers on his twitter account.

What will be the inflation of those 8 million users? Will they be worth less if inflation rises to 5, 10, 20% ? No. They will be worth the same, they will not be affected by inflation. Let’s do an example to understand this a bit better.

Today, Ashton Kutcher “tweeted” about the new episode of Two And a Half Man, the famous TV series starring him now. He tweeted the following:

With this tweet alone, he reached out to his +8m followers and a good deal of them will probably enjoy the show.

Do you know how much it would cost to use for example Google Adwords to reach out to such a large audience? Let alone other traditional forms of advertising. As well, you’d need to pay Google with real money, money that inflation will eat up quickly. Ashton Kutcher will be able to continue to send tweets to his followers, even if Google’s Cost per Click rises due to inflation. That is a rock-solid investment where you wouldn’t even need to spend money on.

Disclosure: All this, of course, as long as these are real users, not fake ones, as TechCrunch correctly observed. Fake followers/users to your user base are what inflation is to currencies – it depreciates its value a lot.