Outside the Lines

Prior to a Churchill Club event, I chatted with Kara Swisher about who she believes will succeed the deposed Jerry Yang as Yahoo CEO. From her BoomTown perch at All Things Digital Kara has been all over the story. She thinks that News Corp. Chief Operating Officer Peter Chernin could be the man. Chernin has spent the last 12 years by the side of Rupert Murdoch and may be leaving his embrace. Kara also evaluates a number of other possible candidates in the video below and in this blog post.

Whoever takes the job will have to be capable of spiritually healing a wounded company. Too many talented people have left the tent, and he or she will need to attract and bring in first class replacements. Om Malik phrases what Yahoo needs in a CEO simply: "Look outside for someone with spark." Add to that criteria the ability to be decisive in short order and keep the Yahoo board from further compromising the future of company. Jerry Yang may be a co-founder and now former-CEO, but the board, which has been recently reconstituted with some fresh blood, has been pulling his strings.

Eariler this month, I spoke with Brendan Eich, CTO of Mozilla and creator of JavaScript. We discussed the development process for the open-source Firefox browser, the status of Firefox mobile, and new competition.

Eich maintained that increasing competition from Google and Apple, as well as Microsoft, is good for developers and users. It also helps that the nonprofit Mozilla Foundation garnered $75 million in revenue, mostly from its search partnership with Google, which ironically just launched Chrome, a competitor to Firefox. With $33 million in expenses last year, it appears the Mozilla team is well funded to continue development at a rapid pace and attract top talent.

Regarding competition with Google's Chrome and other browsers, Eich said:

It's really a neck and neck race. There is a contest going on not only between Google and Mozilla but also Apple to have the fastest JavaScript engine, to have the best performance on various benchmarks. This is great. Competition is good for users and for Web developers. Another focus for us, especially for me is the Web developers...We are right in there, we are slugging it out. On the Google benchmarks their JavaScript engine is faster, on Apple's benchmarks we're faster than Google currently. It is going to vary, you are going to see it go back and forth, so it is only going to go up, which is the best thing for developers and that is what we are focused on.

Watch the video

Guest post: Frédéric Filloux, editor of Monday Note, which covers media, tech and business models, explains why death reports of paid-for models on the Internet have been greatly exaggerated and how Facebook might need subscription fees to survive in the current economic climate.

Death reports of paid-for models on the Internet have been greatly exaggerated. Granted: the network's genome carries the "free" nucleotide. As in both freedom and free goods and services. Like it or not, its publicly funded origins (universities and the Pentagon) led to the emergence of widely adopted services such as search engines or Wikipedia. In turn, these have sealed the fate of the paid-for model as the dominant one. Right. I intentionally emphasize dominant. Because like everywhere else, hybrid forms are likely to emerge.

In the news media sector, we've seen many attempts to make readers pay for Internet content. From Slate to The New York Times, almost every publisher tested its own recipe. They all came back to free. Truth is: the fully paid-for model doesn't work online, unless it is: a) highly specialized (financial information and services, for instance), or b) provides unarguable value added (e.g. premium dating, tax or accounting services). Now the free model is facing a new hurdle: with this recession, advertising is suffering way more than expected. Further, alarming trends preceded the recession: click-through rates were falling, and the display ad system was labeled as a no-future thing. Now, the stream of ads is drying up quickly: double-digit drops are not uncommon. All business models built on advertising are now in grave peril.

Take Facebook. The tip of the iceberg is shines brightly: 100 million users, most of them active, a trillion page views per year, about two hours spent per month and per user. (Write down "engagement", a new word, soon to be the de rigueur metric.) As it turns out, this assiduous crowd loves photography: 300,000 images are uploaded every second, creating by far the biggest photo library in the world with more than 10 billion images, four times Flickr's.

Under the surface (the huge part of the iceberg, expenses), numbers are equally staggering:
• 13,000 servers were running few months ago, and analysts say the company will need 50,000 machines next year (no wonder why Rackable Systems, the leading provider of datacenter equipment enjoys a 44 percent growth for Q2 08 vs. Q3 07 -- it draws 17 percent of its revenue from Facebook)
• a $1m monthly electricity bill
• another half-million per month for bandwidth
• the 2 terabytes of data (mostly photos) uploaded every day require the purchase of one NetApp 3070 (a mammoth storage systems) each week
• maintaining this infrastructure, dealing with the output of a half-million developers, requires a big staff. For this activity only, Facebook 's headcount is between 700 and 800, costing about $80m a year.

In other words, Facebook is burning cash like a furnace.

What about the coal, you might ask? Good question. Advertising was supposed to feed the beast. Which leads us back to this note's item #2: a shrinking supply of ads, a superb ignorance of the target group (just look at your kids -- or yourself -- how often do you click on a banner?) As a result, the financial community keeps raising questions. Emarketer estimates the 2008 revenue of Facebook to be about $265m. Unlikely to be enough to cover expenses. According to Techcrunch, most of the $500m raised by Facebook is already gone, and the company would turn to Dubai investors to get a cash infusion.

Facebook is learning the hard way that eyeballs, once they are counted by millions, are expensive to serve. What's the solution?

The online magazine Slate came up with an interesting idea: charging people. In fact, a small fraction of them. Introducing another flavor of the hybrid model: a tiny proportion of users paying a fee that will subsidize the vast majority of non-paid ones. This is the idea outlined in the story "A Radical Business Plan for Facebook":

"Judging from some of the folks in my social network," wrote Farhad Manjoo, "a sizable minority of Facebook users have hundreds of 'friends' and check in to the site multiple times a day--call them superactive users. Let's imagine that Facebook became a tiered service. A free plan would limit you to 200 friends, one status update per day, or some other non-Draconian combination of restrictions. But for $5 a month, the limits would be lifted. Certainly, many users would balk; tens of thousands would join Facebook groups to protest the new pay model. Let's assume that 95 percent of users will refuse to pay a dime. That still leaves 5 percent, or 5 million people, to pay $60 a year. That's $300 million in the bank."

Farjoo confesses to be inspired by David Heinemeier Hansson, a developer for 37signals, and advocate of the paid-for model.

Nothing quite new, in fact. In China, the software industry has been working that way for long: 80 percent is bootlegged versus 20 percent generating license fees, but the market is so huge that even a tiny monetized slice is sufficient to insure a sizable revenue stream for software makers (that goes also for entertainment products).

These are not the only examples where the free model can be a powerful commercial engine. Last week, at the Monaco Media Forum, Avinash Kaushik, Google Analytics' chief evangelist, mentioned the example of TurboTax, an American tax filing software and service company. For a limited period of time, TurboTax decided to give away its basic application. It has two effects: of course, taxpayers rushed to download the free version -- a zero-cost massive promotion campaign, since the production and delivery costs of the software are close to zero -- but more surprisingly, at the same time, the sales of the Deluxe version ($59.95) rose significantly. That was the free model as a sales engine.

To what extent the examples mentioned above could inspire the media industry is a complicated question. A part of the answers lies in the publishers' ability to conceive not only great news services but also clever applications and services that could draw an audience willing to pay for it, that will, in turn, subsidize the bulk of the readers/users enjoying free basic (and bait) content.

Frédéric Filloux is currently editor for the international division of the Norwegian media group Schibsted ASA and of Monday Note. In 2002, he was part of the team that launched the free daily 20 Minutes, which is now the most read newspaper in France with 2.5 million readers (the online version, 20minutes.fr, has about 200,000 visitors per day). Prior to that, he spent 12 years at Liberation, successively as a business reporter, New York correspondent, editor of the multimedia section, manager of online operations, and, finally, editor of the paper. He also has an experience in the advertising business after a one year stop at the Paris group BDDP agency (now TBWA). He is a graduate from the Bordeaux school of journalism. He lives in Paris.

OpenSocial is growing up fast. What started out as Google's effort to create a common application programming interface for developing small applications that can tap into multiple social-networking services is becoming a full-fledged development platform.

(Credit: Ben Metcalfe)

According to the OpenSocial Foundation, it has garnered a potential audience of 600 million users, with 7,500 compliant applications developed so far and 20 containers (hosts for social applications) supporting the APIs within the last 12 months. The Google spin-off incorporated itself as a nonprofit foundation to ensure support from a broad range of social-networking competitors, including Yahoo, MySpace, Hi5, LinkedIn, Ning, and Xiaonei, China's largest social network.

Giants Facebook and Microsoft, however, have so far not jumped on the OpenSocial bandwagon. Facebook has 125 million active users around the world, but CEO Mark Zuckerberg is seeking to establish Facebook as an "open" application platform and so far is holding off on endorsing OpenSocial. Facebook investor Microsoft, which last week introduced a social dimension to its Windows Live platform, is in the midst of rolling out a cloud services development platform.

David Glazer, director of engineering at Google

(Credit: Rafe Needleman / CNET News )

The large OpenSocial contingent, plus Facebook and Microsoft, are all advocates of open Web standards, but they are in a competition for developers. "Everyone doing social stuff is interoperable at some level of the stack," said David Glazer, director of engineering at Google. "Facebook and Microsoft are using a big chunk of the open stack. Open architectures are all converging. It's moving fast--last year, there was no such thing as a social platform."

He pointed to collaborative efforts on OpenID, OAuth, and Portable Contacts as examples of open Web standards that are in various stages of adoption. But the OpenSocial notion of "write once, run anywhere" doesn't fly without Facebook and Microsoft joining in, or the three major platforms providing a level of interoperability and compatibility beyond common Web standards.

OpenSocial is also being positioned as more than a platform for basic widgets (gadgets in Google parlance). "We are going to see application-to-application hooks, which will blur the difference between things in the box (container) and lots of different surfaces working together," Glazer said. "We will definitely see enterprise applications."

There might come a day when Microsoft Office or Google Docs & Spreadsheets are among the top OpenSocial applications, said Alan Hurff, senior vice president of engineering at MySpace and president of the Board of OpenSocial. However, enterprises more slowly adopt new technologies, such as social networks and mashups, and must have a return-on-investment justification to fund deployments.

Some of the future improvements to the OpenSocial platform will include better development tools (Visual Studio-like tool to speed development), payment platforms, analytics, cross-container portability, and mobile-application support. "We need to make it easier for developers to build applications, reach users, and make money. From where we started, the platform has gone a long way in the right direction," Glazer said.

In regards the OpenSocial code, version 0.9 is due out at the beginning of next year. Glazer was asked to speculate on when version 1.0 would be released. "The functionality of 0.9 feels 1.0-worthy. But we don't want to stretch beyond what we know," he said.

OpenSocial is still an infant, but it has big ambitions to stretch out as a major application development platform for the cloud.

Updated at 11 a.m. to clarify that the change.gov site with the YouTube video of the Obama's radio address has text links to the same video on AOL, MSN, and Yahoo. YouTube still has premier position as the secretary of video...

It's great that President-elect Barack Obama is delivering his regularly scheduled Saturday address in both audio and video form. After using the Internet to help him get elected and connect with younger voters, it's clear that his team will continue to exploit the media to deliver its messages and stimulate dialog.

Obama has chosen to upload the video of his Saturday address to Google's YouTube, by far the most dominant video-sharing service, and embed the video on his Change.gov transition site.

The video has already garnered more than 500,000 views, and this is just the beginning of the Obama's administration's use of video. Post-inauguration, there will likely be a White House YouTube channel to push the administration's agenda and to hopefully to provide more transparency.

My question is why favor YouTube? It's obvious that YouTube is the way to reach the most people. According to Nielsen Online's VideoCensus, Google's service served 5.35 billion video streams in September 2008. Yahoo, the closest competitor, had 264 million.

But why should the incoming president, or public official, favor one Internet video service over another? Yahoo, MSN, Blip, Veoh, and other video-sharing sites shouldn't have to lobby the White House for equal time or at least some time. I am sure the choice of YouTube was practical, and has nothing to do with Google CEO Eric Schmidt's very public support of Obama.

Implicit product endorsements are difficult to avoid for any public official. If Obama prefers a BlackBerry, Apple can't do much to fix that problem. But, Obama is rarely seen in pictures with his Blackberry and The New York Times reports that he is going to have to give up his favorite communications device.

In the case of uploading video, the Obama team can create its own branded, video-sharing service neutral video player that allows anyone in the world to embed the content. That might be a more equitable way for Obama to spread his message, and he could still have a YouTube channel.

(Credit: change.gov)

Sun Microsystems is a pioneering tech company that is having trouble getting any respect.

A Forbes article on Thursday notes that the company's market cap has dropped below $3 billion: "The company has become so toxic that no one dares to swallow it."

As Sun CEO Jonathan Schwartz likes to say, the Forbes writers "over-rotate." But Sun has fallen further and harder on Wall Street than its main competitors over the last few years and months. Schwartz has bravely pushed Sun down the path of open source and created demand for its hardware and service via free software, but the big payoff has been slow in materializing. Add in the crumbling economy, and Sun has no choice but to take cost out of its business model.

From a stock market perspective, Sun has fallen further than its competitors.

(Credit: Yahoo)

This morning, Sun revealed that it is taking the headcount reduction route to profitability, letting go of 15 percent to 18 percent (up to 6,000 employees) of its global workforce and taking a charge of $500 million to $600 million over the next year. The headcount reduction will reduce annual expenses by $700 million to $800 million.

The economic reality is that 2009 isn't going to be a good year for the tech industry. Sun is facing reality with the cuts. Other tech companies will follow with headcount reductions too. This week, IDC cut its 2009 growth rate for spending on tech by enterprise companies worldwide from 5.9 percent to 2.6 percent. The U.S. growth rate for next year was revised from 4.2 percent to 0.9 percent.

Sun CEO Jonathan Schwartz

(Credit: Dan Farber/CNET News)

In the Forbes article, various analysts who cover Sun suggest ways, in addition to headcount reduction, that the company could become more profitable. Among the suggestions: selling the Sparc microprocessor business to Fujitsu, spinning out the Java language group, dropping the low-end hardware business, and selling more customized servers to cloud computing providers.

In an e-mail response Thursday night to my query about the Forbes article--and just hours prior to announcing the layoffs--Schwartz gave his take on the substance of the Forbes piece:

Various analysts have told me our revenue was $299 million last quarter (it was $2.9 billion), that we should lay off 50,000 employees (that would be more than 100% of our employees), that no "real" companies use open source (I guess Google and GE don't count), that we're losing customers in droves (we gained customers last quarter), that we're losing cash (we generated more than $150m last quarter), that Niagara/SPARC is a niche (it was a billion dollar a year business, growing 80% last quarter), that we're losing share on x86 (our biggest competitor was down 18% last quarter, but we grew more than 4%), and that we lost $1.7 billion in cash last quarter (no - we impaired a goodwill asset, just like CNET's parent company, CBS, wrote down $14 billion - it's an accounting change).

So, I'm a tad skeptical of folks looking for sensational column inches... we're very comfortable we're on the right path. We had more than 1,000 requests for our new ZFS-based Storage platforms just a day after launch. And we're deluged with requests from big customers wanting to talk about open source adoption as a vehicle to reduce proprietary licensing fees.

But with even larger companies pre-announcing 15% revenue declines, it's evident the whole industry's got some challenges. I understand everyone's worried, but sensationalism belongs on grocery store checkout counters, not in the business press.

Schwartz is waiting for the world to change, to move to more of a cloud computing model where Sun can power millions of data centers with its hardware, software, and services. This model requires that Sun get more than a fair share of the market compared with competitors like IBM, Hewlett-Packard, Dell and eventually Google. Open-source, free software is Sun's disruptive element. Schwartz maintains that free software brings the marginal cost to acquire a customer to zero and helps drive revenue.

"The majority is going to buy hardware (to run the free software), and not just from Sun," Schwartz said earlier this year.

If Sun cannot intercept enough of the enormous demand for its hardware and services in the coming cloud era, no amount of headcount reduction will earn Sun the respect it craves.

On this week's EIC Squared podcast, ZDNet's Larry Dignan and I talk about the tanking economy, the challenges facing an Obama administration CTO, and Microsoft's search quests with Verizon Wireless and Yahoo.

The holiday shopping season is looking grim as Circuit City files for bankruptcy and Best Buy lowers its forecast for its fiscal year. When will it ever end?

President-elect Obama has called for a national CTO. Given the complexity of technology infrastructure, the abundance of projects, the squeeze on budgets, and policy controversies, this will be an extremely challenging position.

We also discuss Microsoft's next moves to increase its share of the search market, with Verizon Wireless or Yahoo, or both.

ObamaCTO.org provides a forum for defining, ranking and discussing the key tech priorities for the nation.

While the technology pundits are debating the role of an Obama administration CTO, a few programmers in Seattle yesterday decided to do something more useful. Using an application from UserVoice, they launched ObamaCTO.org, a site, unaffiliated with the Obama machine, that allow citizens to list and vote on what should be the top tech priorities for the new administration.

"User voting is an easy way for people to prioritize ideas," said Matt Lerner of Frontseat.org, which created the site. While the voting on this site is more like on Digg than a scientific sampling, and can be gamed, it is part of the Internet-fueled movement to give more of voice to the populace. The Obama campaign provided ample evidence of the benefits of using the Web for massive outreach. Now the question is how much weight the wisdom of the crowd will carry in influencing the direction of government policy.

Lerner and his co-workers are focused on making use of public data for civic good. "We have been interested in all the government data that is available," he said. "There is a treasure trove, such as data on campaign finance and voting records, but it is not standardized or structured, and doesn't have any APIs. Many innovations would be created if the data were available to programmers."

He gave a few examples of applications built around government data. Voting records are publicly available but must be accessed from each county in the U.S. and then normalized. "You could have maps of a block and see who hasn't registered to vote as a way to get out the vote," Lerner explained. Voter data is available from private firms such as Catalyst Consulting, Lerner said, but is expensive.

With census data on whether people drive, walk, or take public transportation to work, activists could encourage people to be more environmentally responsible. Frontseat.org developed Walk Score, which ranks the "walkability" of 2,508 neighborhoods in the largest 40 U.S. cities.

Walk Score rates thousands of neighborhoods and ranks them on how walkable they are.

See also: Micah Sifry--Obama's CTO: Never Mind Who; What Should S/he Do?

Guy Kawasaki, the oracle of technology startups, is publishing a new book, Reality Check: The Irreverent Guide to Outsmarting, Outmanaging, and Outmarketing Your Competition. It's a robust collection (450 pages) of posts from his blog, "How to Change the World." If you are seeking to change the world, especially in this economy, Guy's advice will be very worthwhile and entertaining. Check out the BNET video below with some tips from Guy:

Google CEO Eric Schmidt is out of the running for the chief technology officer (CTO) position that the Obama administration is planning to create. In an interview with CNBC's Jim Cramer, Schmidt said, "I love working at Google and I'm very happy to stay at Google, so the answer is no." Schmidt will remain a close adviser to President-elect Barack Obama, but his first call to duty is Google.

Based on the job description below, it could be difficult to find a worthy candidate from the private sector willing to take on a task of such enormous scope in an environment known to chew up and spit out White House policy czars.

Obama will appoint the nation's first Chief Technology Officer (CTO) to ensure that our government and all its agencies have the right infrastructure, policies and services for the 21st century. The CTO will ensure the safety of our networks and will lead an interagency effort, working with chief technology and chief information officers of each of the federal agencies, to ensure that they use best-in-class technologies and share best practices.

The Obama administration's CTO job could be one of those bureaucratic positions that ends up consumed by turf wars rather than making real progress against initiatives. CNET News' Stephanie Condon noted the overlaps, which could turn into conflicts, between a White House CTO and CTOs working in various agencies:

The jurisdiction of a CTO could overlap with other agencies or executive positions in areas such as innovation policy, cybersecurity, or intellectual property enforcement. To avoid those overlaps, the Obama team will have to decide, for instance, whether the CTO would focus on goals like making agencies more efficient or take on a broader agenda such as dictating policy.

Just creating and implementing a coherent technology plan and policy for the numerous agencies under the Department of Homeland Security is an incredibly daunting task for a CTO. The DHS Directorate of Science and Technology, for example, has a budget of $830 million. It has 250 projects in process and 50 percent of them are expected to fail, according to Jay Cohen, Under Secretary for Science and Technology for the DHS.

The Department of Homeland Security organizational chart. The DHS is trying to achieve information flow across 87,000 different federal, state, and local governmental jurisdictions.

(Credit: Department of Homeland Security)

The Obama administration has a long list of tech initiatives (see below). The focus should be on having the best technical minds and management working on each initiative--the White House CTO as chief tech policy evangelist, inter-agency liaison and human capital recruiter.

Advance Stem Cell Research

Speaking at the Web 2.0 Summit, HP CTO Shane Robison, who has been touted as a White House CTO candidate, believes that a White House CTO would need to focus on a few key tech initiatives and not just serve as an administrator or liaison between CTOs across the government.

This approach to the White House CTO job makes the most sense in terms of being able to accomplish specific objectives. In addition, Obama is fielding his own technology council of private and public sector titans, as his predecessor did with his President's Council of Advisors on Science and Technology (PCAST), to advise and help out on key issues.

(Credit: CBS News)

As the rookie U.S. senator who was catapulted into the White House on the back of the Internet, Obama knows that technology is a key enabler for his President 2.0 administration. He keeps a BlackBerry or iPhone on a holster on his hip, although his campaign Flickr photo library appears to devoid of pictures of Obama using his smartphone. (It must not yet be considered appropriate to show the president-elect text messaging.)

The technology to accomplish his long list of goals exists, but the funding, expertise, focus and political will is lacking in many areas. Transforming the U.S. government technology infrastructure from a plodding battleship (outside of the NSA and a few other high-tech agencies) into a speedy, adaptable ship built for the Internet age isn't going to be solved in the Obama era. But great progress can be made if the White House CTO can recruit into agencies the kind of people who helped Obama transform the way electoral campaigns are run and stimulate young people to study science curriculums.