Yearly Archives: 2007

How to make $240M of Microsoft equity disappear

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Last week a few press articles described how Google apparently lost to Microsoft in a bidding war to invest in Facebook. (MS won – investing $240M in Facebook)

Did Google lose? I’m not so sure… by “losing” it may have just pulled off one of the savviest negotiations I’ve ever seen. Google may never have been interested in Facebook, only in pumping up its value to ensure Microsoft overpaid.

Why?

Because Google is planning to destroy Facebook’s value.

Facebook – like all social network sites – is a walled garden. It’s like a cellphone company that only allows its users to call people on the same network – for example if you were a Rogers cellphone user, you wouldn’t be allowed to call your friend who is a Bell cellphone user. In Facebook’s case you can only send notes, play games (like my favourite, scrabblelicious) and share info with other people on Facebook. Want to join a group on Friendster? To bad.

Social networking sites do this for two reasons. First, if a number of your friends are on Facebook, you’ll also be inclined to join. Once a critical mass of people join, network effects kick in, and pretty soon everybody wants to join.

This is important for reason number two. The more people who join and spend time on their site, the more money they make on advertising and the higher the fees they can charge developers for accessing their user base. But this also means Facebook has to keep its users captive. If Facebook users could join groups on any social networking site, they might start spending more time on other sites – meaning less revenue for Facebook. Facebook’s capacity to generate revenue, and thus its value, therefor depends in large part on two variables: a) the size of its user base; and b) its capacity to keep users captive within your site’s walled garden.

This is why Google’s negotiation strategy was potentially devastating.

MicroSoft just paid $240M for a 1.6% stake in Facebook. The valuation was likely based in part, on the size of Facebook’s user base and the assumption that these users could be kept within the site’s walled garden.

Let’s go back to our cell phone example for a moment. Imagine if a bunch of cellphone companies suddenly decided to let their users call one another. People would quickly start gravitating to those cellphone companies because they could call more of their friends – regardless of which network they were on.

This is precisely the idea behind Google’s major announcement earlier this week. Google launched OpenSocial – a set of common APIs that let developers create applications that work on any social networks that choose to participate. In short, social networks that participate will be able to let their users share information with each other and join each other’s groups. Still more interesting MySpace has just announced it will participate in the scheme.

This is a lose-lose story for Facebook. If other social networking sites allow their users to connect with one another then Facebook’s users will probably drift over to one of these competitors – eroding Facebook’s value. If Facebook decides to jump on the bandwagon and also use the OpenSocial API’s then its userbase will no longer be as captive – also eroding its value.

Either way Google has just thrown a wrench into Facebook’s business model, a week after Microsoft paid top dollar for it.

As such, this could be a strategically brilliant move. In short, Google:

  • Saves spending $240M – $1B investing in Facebook
  • Creates a platform that, by eroding Facebook’s business model, makes Microsoft’s investment much riskier
  • Limit their exposure to an anti-trust case by not dominating yet another online service
  • Creates an open standard in the social network space, making it easier for Google to create its own social networking site later, once a clear successful business model emerges

Nice move.

CNN's converage of Insite

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The Insite supervised injection site is starting to attract more and more attention. Last week CNN broadcast this 3 minute bit about the site.

What’s fascinating is how a simple parsing of the language in the video reveals the depth of the differing perspectives.

Listen carefully and you’ll notice how those opposed to the injection site deal in abstract terms whereas those who support it talk in tangible outcomes.

For example, in the clip, Dr. Thomas Kerr and Insite workers/supporters cite tangible benefits: a 45% reduction in public drug use in the area, users being 33% more likely to enter detox, the reduction of discarded used needles in parks and schools. This are measurable, tangible benefits and outcomes.

Contrast that to the quote from an unnamed US official: “It that is a cruel illusion. Because they’re still addicted, trapped trying to get help and dying by virtue of the drug itself.”

Here is a vague comment designed to appeal to your emotions. More importantly, it is devoid of fact, research, or for that matter, logic. Being addicted, trapped, and dying from drug use is a reality for users whether the injection site exists or not. The injection site at leasts gets users in regular contact with social workers – which is why users who use the site are 33% more likely to enter detox – those relationships build trust, which enables users to seek help.

But the worse quote is from Dr. Colin Mangham, director of the Drug Prevention network. His “research” shows that 800 people overdosed at Insite in 4 years.

First off, this isn’t research, this is publicly available information. Second, Mangham’s statement presumes that those 800 overdoses would not have occurred if Insite did not exist. This is pure fantasy. Indeed one of the main purposes behind creating Insite was to ensure overdoses would occur within the site as opposed to on the street. Those who overdose at Insite receive medical attention quickly and cheaply (a nurse is on hand who provides the necessary treatment). It is worth noting that despite these 800 overdoses, they has not been one death at Insite.

In contrast, when drug use occurs on the street, deadly overdoses are both commonplace and expensive. Victims invariably require paramedics, who in turn may require a police presence. In addition, overdose victims may get taken to an emergency room – the most expensive point of contant in the medical system.

I expect with the Olympics coming there is going to be more coverage of this type. One things the Federal Government will have to consider is that, if they shut Insite down, an army of international reporters swarming the downtown east side are going to want to know: what more effective policy did you replace it with? (Hint: there isn’t one).

Kandahar deal breakers: Op-Ed in Globe and Mail

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Taylor and I published a web-exclusive op-ed on the Canadian mission in Afghanistan in today’s Globe and Mail.

I’ve noticed that the Globe and Mail has implemented a “Recommend this article” button at the bottom of pieces so that readers can “vote” for articles they like. Interesting feature and great filter to see what people say they think is compelling

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Kandahar deal breakers: The Afghan poll is not a blank cheque

TAYLOR OWEN AND DAVID EAVES
Special to Globe and Mail
November 2, 2007 at 1:03 AM EDT

The results of the poll of Afghans by Environics on behalf of The Globe and Mail, the CBC and La Presse were surprising to many. Afghans are broadly content with their government, happy that Canada is in Afghanistan, and believe the work being done is beneficial and effective. Canadians should be proud. We are making a difference.

What is potentially worrying, however, is the fervour with which the poll was greeted in Canada by some of the mission’s supporters. While a useful reminder of why we are in Afghanistan, this poll is not a blank cheque for any and all future engagement.

Future actions, by us or our allies, could alter the political conditions in Afghanistan, negatively shifting indigenous public opinion. Consequently, this poll should reaffirm the necessity of debating how we engage, and under what conditions we walk away.

Two looming scenarios could derail the mission.

Consider, for instance, the spraying of poppy crops. This winter, under the leadership of the former U.S. ambassador to Colombia, the Americans plan to spray opium fields with herbicides. Needless to say, the spraying will have little to no impact on the global availability of illegal opiates.

But the impact on Afghanistan will be dramatic. Opium is critical to the Afghan economy. Kill the poppies and you impoverish the farmers, their families and the communities they support. This will undermine Afghan support for the NATO mission and destabilize the Karzai government.

Perhaps most important, the U.S. spraying campaign undermines the agreed-on division of labour within the NATO alliance. Under the Afghan compact, Britain was given responsibility for counternarcotics. Unilateral spraying by the U.S. violates this agreement. Such actions call into question the terms under which the alliance agreed to function, and on which Canada agreed to sustain its presence in Afghanistan.

In short, a policy in which we have had no input, and we are not executing, will make Afghanistan more dangerous to our soldiers and less conducive to achieving a lasting peace.

A second possible deal breaker is also on the horizon. After the 2008 U.S. presidential election, the Americans are likely to shift troops from Iraq to Afghanistan. The purpose, strategy and tactics of this surge will have dramatic implications on the nature and potential success of our mission.

This influx of American troops could secure the troublesome Pakistani border and enhance the security environment for reconstruction and development. Alternatively, this force, hardened in Iraq, could engage in the most counterproductive forms of counterinsurgency, driving support to the Taliban. In short, a sea change in the composition of American forces could alter the nature of the mission into one that is unacceptable to Canada.

Neither the opium problem nor the insurgency can be solved with magic bullets. The appropriate policies are complex and long term. There are, however, things we should clearly not do.

In order for us to effectively react to, or ideally influence, these scenarios, it is not enough to be clear on our strategy and objectives. Canada must also outline to its allies the policies that so harm our actions that they negate our involvement.

This is not an empty threat. As Canadians already know, no one is willing to take over our role. Either our work in Kandahar is valuable to NATO, in which case we have influence, or it’s inconsequential, and we should be reconsidering our involvement. If the former, then we possess political leverage with which to shape the mission. What’s more, it is an aberration of responsibility to deploy our troops in the field but allow others to determine the course and strategy of the mission.

The Afghan poll gave us reasons to stay in Kandahar and to be proud of our role, but it is not a blank cheque. We must use our hard-won influence to negotiate with our allies on the terms and implementation of the mission. Poppy spraying and widespread use of aggressive counterinsurgency tactics should be deal breakers. Our military has won Canada real influence in Afghanistan; will our diplomats use it to ensure the mission’s success?

Consolidated list of public service posts

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Someone asked me yesterday for all my blog posts on public service sector reform.

This isn’t all of them, but it is a list of many of my favourites:

Public Service Renewal – If you’re explaining, you’re losing

Crisis Management? Try Open Source Public Service

Don’t Ban Facebook – Op-ed in today’s G&M

Centralization of Foreign Policy & the Role of DM’s

Public Service Reform: The Myth of Failure

Public Service Reform: Starting at the Apex

the coolest pumpkin

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I was out accompanying my colleague Peter H’s nephew for Halloween when I can across what I think is the funniest pumpkin I’ve seen in my life.

It just so happens that in Pete’s neighborhood there has been a rash of pumpkin nibbling squirrels who have shown a distinct lack of regard for people’s hard carved art. Looks like one pumpkin decided to matters into its own hands.

I love the creativity.

* Photo by Alicia Chang.

Open source fun, Open source problems…

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I had a thoroughly enjoyable time at the Free-Software and Open Source Symposium (FSOSS) at Seneca college. I had a great time giving my talk on community management as the core competency of open source communities. The audience was really engaged and asked great questions – I just wish we’d had more time.

The talk was actually filmed and can be downloaded, but it is only available as an OGG file wihch is large (416Mb) but rumor has it they may get converted into a smaller more streamable format in the future. Once the video is available I’ll also post the slides.

Also, I want to thank Coop and Shane for blogging the positive feedback. I’m looking forward to building on and refining the ideas…

One of the key ideas I’m interested in pushing is how “open” open source communities are – and how they can make themselves easier to join. I actually had an interesting experience while at FSOSS that highlighted how subtle this challenge can be.

During one of the lunch breaks Mark Surman and I ran a Birds of a Feather session on Community Management as the Core Competency of Open Source Communities. In the lead up to the session, a leader of a prominent open source community (I knew this because it said so on his name tag) walked up to me and asked:

“Are you running this BoF?” (Birds of a Feather)

Not being hip to the lingo I replied… “What’s a BoF? I’m not super techie so I don’t know all the terms.”

To which he replied “Evidently.” and walked away.

And thus ended my first contact with this particular open source community. With its titular leader nonetheless. Needless to say, it didn’t leave a positive impression.

I’ll admit this is an anecdotal piece of data. But it affirms my thinking that while open source communities may be open – to whom they are open may not be as broad a cross section of the population as we are lead to believe (e.g. you’d better already know the lingo and cultural norms of the community).

There is another important lesson here. One that impacts directly the scalability of open source communities. At some point everyone has to have a first contact with a community – that first impression may be a strong determinant about where they volunteer their time and contribute their free labour. Any good open-source community will probably want to get it right.

The Dunbar number in open source

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For those interested in open-source systems (everything from public policy to software) should listen to Christopher Allen’s talk (his blog here) on the Dunbar Number.

Dunbar’s number, which is 150, represents a theoretical maximum number of individuals with whom a set of people can maintain a social relationship, the kind of relationship that goes with knowing who each person is and how each person relates socially to every other person.

Malcolm Gladwell brought the Dunbar number into popular discourse when he referenced it in his book The Tipping Point.

However, Allen’s talk tries to nuance the debate. Specifically, he wishes that those who reference the Dunbar number would be more aware that in he research literature, the mean group size of 150 only applies to groups with high incentives to stay together. As examples he cites nomadic tribes, armies, terrorist organizations, mafias, etc… in short, groups in which mutual trust and strong relationships are essential for survival. This is in part due to the fact that there is a cost group members must pay to maintaining this groups of this size: one must spend 40% of ones time engaged in “social grooming.” This means sitting around listening to one another, talking, being engaged, etc… Without this social grooming it is difficult to develop and maintain the unstructured trust that holds the group together.

More interestingly Allen’s research suggests that in modern groups there is a correlation between group satisfaction and the size of the group. Things work well between 3-12 people and from 25-80. But in between there is this hole. Groups in this “chasm” are too be too big to use many of the tools (like meetings) that small groups can use, but too small to successfully rely on the tools (such as hierarchies and reporting mechanisms) that allow larger groups to function.

Open source projects (and really any new project) should find this interesting. There is a group size chasm that must, at some point, be crossed. When I’m less tired I will try to wander over to sourceforge and see if I can plot the size of the projects there to see if they scale up nicely against Allen’s graph.

In addition, I’m curious as to whether some softer skills around facilitation would allow groups to function more effectively, even within this “chasm.”

Beasley on Affordable Housing in Vancouver

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Last weekend Larry Beasley gave the keynote speech at the Dream Vancouver conference hosted by Think City. Beasley the former head city planner has been credited with transforming Vancouver into the success story that it is.
Think City Logo

(As a brief aside, Dream Vancouver was a great exercise. Big kudos to the organizers. Any event that brings together and connects citizens who share a passion for Vancouver is a success in my mind.)

Affordable housing has become a significant issue in Calgary and Toronto, but in no city is the issue more problematic – or long running – than Vancouver. Beasley blamed this on a commonly understood fact – Vancouver has been blessed and cursed by its international stature. The property market in Vancouver is simply not restricted to the city’s population. For reasons of investment, political security, and sometimes just for a pad to crash, the whole world wishes to own a part of the city and it is driving up real estate costs. To fully grasp the magnitude of the problem, one developer informed me that up a 1/3 of some residential towers in downtown Vancouver sit empty. I’ve been unable to confirm this figure, but it is a startling number if true.

How can the city address this challenge?

Beasley offered three possibilities. First, he noted that the False Creek Flats – a large piece of industrial land to the east of downtown – is ripe for development. This is an area of land larger than downtown Vancouver and which, if developed appropriately, could provide a variety of housing to meet the demand of the market. A carefully thought through plan combining market housing, social housing, and a third hybrid model (outlined below) could turn the False Creek Flats into an vibrant urban centre – a neighborhood Beasley suggested be called Crosstown.

Second, he suggested Vancouverites from all political stripes re-examine Eco-Density. Beasley argued that Eco-Density is a tremendous piece of marketing that has captured the imagination of many people. He concedes, the term remains fairly vacuous (my word, not his) – but believes this is an opportunity, not a liability. What Vancouverites need to do is give the term substance and form. Obviously this means greater density – Beasley appears to favour row houses – but it could also mean much more. The question is: what more?

Finally, Beasley talked about aMadrid model for urban development. Madrid is probably even more of an international city than Vancouver, and consequently faces many of the same pressures around affordable housing. Spain in general is the recipient of many European snow-birds (although I presume mainly in the south) so the pressures created by foreign owned housing receives national attention. Beasley outlined how, in Madrid, the government builds and sells off apartments to owners that agree to live in them themselves. In addition, the owners must sell the property back to the government at a pre-agreed price. The re-sale amount ensures that the owners receive a modest return on their investment (Beasley didn’t share what the rate of return is) and that the government can resell the house to a new owner at a controlled price. This ensures property values increase at a controlled pace and keeps the costs of running such a program exceedingly low. Consequently, this hybrid of social and market housing is intriguing. Under the right circumstances it would attract buyers looking for housing and discriminate against those seeking only an investment. However, it remains unclear to me how one would allocate these properties (perhaps through a bidding process?). In addition, I’ve been unable to find any literature on this hybrid model… I hope to have more on it at some point.

All in all, an intriguing set of ideas. I’d never seen Beasley speak before – I can see why he’s got such a loyal following in the city.

The US Navy – Global Warming's Latest Convert

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Mark M. put me on to the US Navy’s recently published strategy document “A Cooperative Strategy for 21st Century Seapower.”

So what does the US Navy have to say about its global strategy?

The vast majority of the world’s population lives within a few hundred
miles of the oceans. Social instability in increasingly crowded cities,
many of which exist in already unstable parts of the world, has the
potential to create significant disruptions. The effects of climate change
may also amplify human suffering through catastrophic storms, loss of
arable lands, and coastal flooding, could lead to loss of life, involuntary
migration, social instability, and regional crises. (page 7)

Yes – the United States Commander-and-Chief may be uncertain about global warming, but his Admirals and seamen are confident that it is real and that it will/should shape their maritime strategy.

But then, given how reluctant Bush has never been one to listen to his Generals – it’s unclear why he would listen to his Admirals.

Another thought, courtesy of Michael Shellenberger and Ted Nordhaus: when the US Navy is planning around Global Warming you know the debate has moved on. Why even bother engaging the deniers – let’s focus on the problem, the US military is.

David Beers on Vancouver Eating its Young

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David Beers published a piece entitled “Why Does Vancouver Eat its Young?” in yesterday’s Globe and Mail. I agree with David’s sentiment, Vancouver does eat its young. Moreover, and many of his points are valid (e.g. the NPA’s closure of the Child and Youth Advocate office). But I chaffed at the partisan perspective of a news editor who founded a newspaper because he didn’t like the partisan perspective of other BC newspapers. I like the Tyee and even publish there, but its hard to not grow tired of its relentlessly partisan approach (Raif Mair, a balanced newspaper does not make) and its simplistic view of BC politics: Liberal=bad, NDP=good (or at least, not bad). While the investigative journalism is needed and deeply appreciated, I’m often left wondering if the Tyee is simply trying to become a left-wing version of “The Sun.”All the more so since it is funded by a silent, and secret, partner – rumored to be the BC Federation of Labour.

Take for example his op-ed. Both the provincial NDP and the BC Liberals have invested in social housing (the Liberals may be late to the game, but they’ve stumped up some serious cash). But neither has a track record of addressing affordable housing – the issue that could help Rachel, the op-ed’s protagonist.

In addition to the partisan swipes, the piece is premised on some highly problematic analysis and is factually wrong. Nowhere is this better illustrated than Beers choice of Montreal as a viable alternative to Vancouver. For an article whose theme is how Baby Boomers are shifting problems and costs on to young people, choosing Montreal as a positive counter example is, at best, questionable.

Montreal is a fun city to live in – I know, I’ve lived there. It has a vibrant arts scene and great nightlife. It is not however a utopia or sustainable policy alternative.

Montreal – and the province of Quebec – has the largest debt/per capita and deficit/per capita in the country (it ranks second highest in dept/gdp ratio) Despite having the highest tax rate in the country, Quebec is about to leave the next generation a whopping $117billion(!!!) debt, and a $2.1billon deficit (in 2005). If there is one place in the country that is mortgaging its young to satisfy the needs of Boomers, it is Montreal. Why? Because almost all this money goes into operational spending. Little is invested into infrastructure for the future. This is a city and province where, literally, bridges fall on citizens and universities place mesh nets around buildings to prevent crumbling cement from falling on students. Quebec’s tuitions may be low, but its universities are bankrupt.

Montreal is also not a homeowners’ paradise. It has one of the lowest rates of home ownership in Canada: only 50% percent of Montrealers own their home vs. 61% of Vancouverites. While public policy – such as the adoption of row houses – helps depress rents, one reason rental apartments remain easy to find is that an astonishing 200,000 people (11% of the population) left the city between 1971 and 1981. That loss still impacts the city today. It has yet to recapture it’s 1971 population peak of 1,960,000. Indeed, three and a half decades later it is still shy by 100,000. Not only has the city yet to recover demographically, it only recently climbed out of the referendum induced recession which saw jobs – for the young and old – dry up. This is a dramatic price to pay for affordability and it offers little in policy guidance to Vancouver’s city planners. (In contrast, Vancouver has grown by an astounding 35% since 1971)

Beers’ sentiment is right. Vancouver is not affordable. But is scoring cheap political points off the issue really the role for a newspaper editor? Especially one that is seeking to reframe the debate in British Columbia? There is a lot that can be done to tackle this issue… something I’ll dive into tomorrow while discussion the solution oriented speech Larry Beasley’s gave at the Imagine Vancouver conference this past weekend.