Ad agency takes stake in Facebook

This one seems to have been overlooked by everyone on techmeme.com, and even Rafat Ali at PaidContent missed it on Friday, but picked it up today: Interpublic Group, the global advertising conglomerate, has done a deal with Facebook — the social networking site aimed at university students that is the hottest thing next to MySpace.com.

Earlier this year there was an article in Business Week magazine that said Facebook’s frat-boy founders had turned down offers of $750-million for their company, and were looking for future offers in the $2-billion range.

This number was scoffed at by many, including former tech analyst and blogger Paul Kedrosky and some observers said that the Facebook guys were either trying to get publicity or their initial investors were trying to ramp the price up. The company later said that it had no intention of selling, and that the $2-billion figure didn’t come from Facebook.

The Interpublic deal, however, tends to support that rather large valuation (at least in theory). According to an article in Mediaweek magazine, the agency has agreed to buy advertising worth $10-million on the site, in return for one-half of one per cent of the company.

If you do the math, that would imply a valuation for all of Facebook right around the $2-billion mark. Crazy? Perhaps. But then, no one thought Rupert Murdoch would ever pay almost $600-million for MySpace, or that eBay would buy a money-losing Internet phone company for somewhere between $2.4-billion and $4.1-billion.

Update:

Josh of FeelingBullish.com makes a good point in the comments about the true value of this deal, since Interpublic gets advertising for their $10-million as well as a stake in the company. And a commenter over at PaidContent made a similar point at greater length, which Rafat posted in full, and it is well worth reading — the idea being that the deal actually seems kind of desperate, and perhaps designed to bolster the $2-billion valuation idea.

Update 2:

SiliconBeat has more info here — it seems the advertising deal and the ownership stake were two separate deals, not related at all, and npoo monetary figure was given for the purchase of the .5 per cent share, so no extrapolations can be made about valuation. Darn.

Nokia and Siemens dance, Nortel jilted

Poor old Nortel Networks — or “No-tell Networks,” as one wag dubbed it after the fourth or fifth time the company had to restate its earnings. It was bad enough when the company flamed out so quickly after becoming the king of the Toronto Stock Exchange (and of many people’s investment portfolios), but then that was followed by the repeated financial restatements, the firing of senior executives, and so on. Then there was the whole Bill Owens fiasco, in which the former Navy officer did virtually nothing to move the company forward, and in fact arguably set it back (by hiring two senior Cisco executives and then quickly showing them the door).

The end result is that Nortel has been unable to make much headway in the telecom or networking equipment market, and that hasn’t changed much lately, despite the best efforts of Mike Zafirovski, the new CEO. Now, the company finds itself even further behind, with the reported merger of the networking arms of Finland-based cellphone giant Nokia and German telecom equipment vendor Siemens AG. The deal as described would create a $30-billion equipment supplier that would rank up there with Lucent/Alcatel. And it removes the possibility of Nokia merging with Nortel, an idea that was recently floated by analyst Gus Papageorgiou.

It’s not surprising that Nokia would choose Siemens over Nortel, if it ever even considered a similar merger with the Canadian company. A history of financial restatements, allegations of improper behaviour by executives, lawsuits flying left and right including class-action lawsuits, and products that have fallen further and further behind the competition over the past few years. Not a great bio if you’re looking for a hot date with one of the telecom industry’s leading players. Nortel has raised even more question marks with some of its recent moves, including a short-lived partnership with China’s Huawei.

So now it seems that a merger with Nokia is off the table, and Siemens is also off the market. Who does that leave for Nortel to pair up with — Ericsson? Motorola? Mark Evans has some more thoughts here. I think Mike Z. had better put on his dancing shoes and start thumbing through that little black book.

Gates to leave MSFT — ho hum

“Gates leaving Microsoft” makes for a nice headline, and plenty of speculation and commentary over at techmeme, but it doesn’t really bear any relationship to reality. For one thing, Bill isn’t leaving his “day-to-day role” (whatever that really is) for another two years or so, and in any case he will likely remain chairman of Microsoft until he passes away or is accidentally crushed by a giant bag of money.

For a glimpse of what the announcement actually means in concrete terms, it’s always instructive to look at the share price. What did it do? The square root of you-know-what. Its movement on the news wouldn’t even qualify as a rounding error. In other words, it’s neither good nor bad because nothing much is going to change. Microsoft is still spinning off lots of cash, but seems otherwise “infirm of purpose,” as Lady Macbeth said of her husband.

I was talking about this latest development with Paul Kedrosky — who as some of you may know is no friend of Steve Ballmer’s — and he said that he found the phrasing of the announcement very interesting, in that Ray Ozzie and Craig Mundie were both elevated to higher positions (with Ozzie taking over Bill’s title as “chief software architect”) and Ballmer got nary a mention at all, not even lukewarm praise.

Is that a signal that Bill isn’t too happy with Steve’s stewardship of the great ocean liner known as Microsoft? Perhaps. It’s true that the software giant continues to spin out great gobs of cash flow almost without even trying (which is why I think it should become an income trust) , but it’s also true that Vista keeps slipping, Microsoft seems to be pursuing a shotgun strategy — if any — when it comes to the Web, and MSN continues to be an also-ran.

So what should Bill do? Fire Steve Ballmer and put Ray Ozzie in charge. That would shake things up. Unfortunately, in many ways, Microsoft is too comfortable and too handcuffed by its Crown jewels — Windows and Office — to do anything that interesting.

Is it journalism or is it something else?

You would think that someone like me — being a journalist and all — would have a pretty good idea what journalism is and what it isn’t. But I have to confess that something like the new Netscape beta created by Jason Calacanis and his team, which launched this morning and promptly caused an implosion of commentary on techmeme, has me stumped.

In a way, it’s a lot easier to dismiss Digg and its ilk, as Nick Carr and others have been more than happy to do, slamming it as the “hive mind” and all that sort of rubbish. But Jason’s rather brilliant move (I hate to add to the already legendary Calacanis ego, but I can’t help myself) is to add blogger/journalists who contribute comments, links and in some cases reporting to the stories as they develop. Okay, calling them “anchors” is dumb, but the idea is compelling. Take the stories people are talking about, add commentary and links, interview some people to advance the story — that sounds like journalism to me.

But is it “real” journalism? I don’t have a clue. It certainly is interesting though — and things are going to get even more interesting when Digg launches its revamped site later this month, which will extend the Digg/Slashdot model to other types of news apart from just technology. Will it be as successful, or is there something about tech and the geeks who follow it that makes something like Digg or Reddit or Slashdot only useful for technology-related news?

There are other sites in the same kind of space Jason is trying to fill, including Gather and Newsvine.com, but it’s hard to tell how those services are doing, or whether they have what VCs love to call “traction.” One of the things that Netscape brings to the table — and it’s not inconsequential by any means — is the tens of millions of existing AOL ssubscribers (although they have been fleeing by the millions every year), and the 800 million page views or whatever they generate. That’s no guarantee of success, however.

There are plenty of things not to like about the Netscape site, including all the annoying ads and the fact that the story links make you go to another Netscape page, and then further disguise the link to the actual story, which is the sort of roach motel crap that people rightly hate. But still, all in all I would agree with my friend Rob Hyndman and IPDemocracy that it’s an interesting effort, and one worth watching.

And I will just add in passing that the last time I looked, Jason Calacanis had posted a total of more than 120 comments on stories at Netscape, many of them responding to criticisms — and he has posted many more on various blogs (including Rob’s). You can’t accuse him of resting on his laurels.

Google-plex moves toward world domination

If you’re a computer nerd — or even just interested in the guts of what Google does and how it does it — there’s a great story in the New York Times today about the new server farms the search engine company is constructing on the shores of the Columbia River in The Dalles, Oregon. Two are built already and a third has received a permit. They are as big as two football fields, and each one has giant cooling towers four stories high attached to the end, in order to keep the massive farms cool as they search for all that porn information.

Microsoft and Yahoo are apparently building their own giant server farms upstream in Wenatchee and Quincy, Wash., which means that the Oregon-Washington region will likely need a few extra nuclear plants or dams or something pretty soon. Martin Varsavsky of FON says that when he asked Larry Page what the main factor limiting Google’s future growth was, the gazillionaire said it was electricity. The Times gives the latest estimate of how many servers Google is currently operating at its 25 locations around the world: about 450,000.

That figure has more than quadrupled since 2004, when Google’s server operation was already estimated to be one of the world’s most powerful distributed supercomputers. That’s a mind-boggling number. And based on estimates of the power that half a million servers would consume, that means Google’s electricity bill is likely somewhere between $50-million and $100-million every year — and growing