All Things Digital

This is an amazingly hip and funny video from the Sermon Series on Families at North Point Church of Springfield, Mo., posted on GodTube.

GodTube, which describes itself as a Christian video-driven social-networking site, “where users find inspiration, interact, chat, share and upload” Christian video, has about 2 million users per month.

GodTube also lets churches stream sermons and other events live on its “Godcaster” subscription service.

Also, its motto is “Broadcast Him,” but GodTube also calls itself “Jesus 2.0.” Get it?

Perhaps more in the holy-grail territory, GodTube just nabbed $30 million this week in funding from GLG Partners (GLG), which is also an investor in the less-holy Glam Media site, according to paidContent.

That gives the Dallas-based GodTube a $150 million valuation, putting it right up there with other miraculous start-up valuations like yesterday’s $500 million valuation for the online ad agency Spot Runner.

Praise the VC (and, for GodTube fans, JC too)!

Here’s the North Point Church video on GodTube:

It’s Bubble Time!

As BoomTown broke the news in its post earlier today, Slide grabbed a big pile of cash from new investors–$50 million from Fidelity and T. Rowe Price–which puts the value of the company at $550 million.

In our post, we said the San Francisco start-up, whose widgets are among the most popular on Facebook and MySpace, was completing a round of funding that could value it at many times a multiple of its most recent $60 million to $80 million valuation.

The investment from the pair of private equity funds gives them a 9% stake in the maker of widgets and other social-networking applications.

Allen & Co., the media-connected New York-based investment firm, helped Slide execs in raising the latest round.

Don’t think we did not notice that the venture investors already in Slide did not pony up more funds at this–let’s just say it, shall we?–crazy valuation.

But it is noticeable that such mainstream investors are jumping into the giant pool of Kool-Aid that the social-networking industry has been swimming in over the last year.

Slide’s last round–an investment of $20 million–took place in November of 2006 with investors that included Khosla Ventures, BlueRun Ventures, Founders Fund and the Mayfield Fund.

So Slide’s investors, of course, were smart to get in on the ground floor to take advantage of the bubble that is expanding at alarming rates.

The ground-zero of that trend came when Facebook got a $240 million investment from Microsoft that valued the company at $15 billion.

Of course, while garnering revenues, neither Facebook nor Slide has the kind of business yet to deserve being worth this lofty amount, except for the fact that investors are counting in its potential and recent quick growth.

Slide’s business plan includes making money from selling premium versions of its widgets, as well as selling advertisers on its large, although disparate, audience.

The company calls itself the “largest personal media network in the world, reaching more than 134 million unique global viewers each month and 30% of the U.S. Internet audience.”

But the company recently said reports had put that number at 144 million, excluding its 50 million users on Facebook. Its competitors include other widget-makers like RockYou.

Slide makes a wide range of software, called widgets, that have been attracting many millions of users each. They include everything from slide shows to a program called SuperPoke that allows a user to, well, poke another in a super way.

A lot of Slide’s current growth has been through taking advantage of the huge spike in users first at MySpace and now at Facebook, which is promising, but also not certain.

To say that we have seen this story of fast growth, insane valuations and then the inevitable drop-off would be an understatement.

But Slide Founder and CEO Max Levchin and his team consider the company to be a new kind of distributed content and application company that is not dependent on large platforms like Facebook and MySpace and has huge potential.

Minor blogging annoyance: Of course, in a fit of pique since we revealed the funding without their help, Slide hand-fed the details of the deal to the New York Times and BusinessWeek, both of which somehow forgot to link to our post that said Slide was landing the deal. (Brad, Sarah: Please, please don’t tell us you figured it all out on your own this morning over eggs.)

UPDATE: A New York Times deputy tech editor just wrote an email to tell me its reporter already had a “previously scheduled” meeting with Slide about the deal–like I said, hand-fed!–this morning, which “inspired” its post and did not know of BoomTown’s news of the funding (even though it was up since 12:06 a.m. and noticed by everyone else, including Slide). Also, they had the hand-fed details! They did! I admit it! I went hungry, since I did not agree to an embargo! “In light of this we didn’t feel that a link was warranted,” he wrote me.

But we’re not bizarrely ungenerous like that, so here is the link to the New York Times story, in which Slide’s Levchin said his company makes Facebook and MySpace worth using. (And here is the BusinessWeek link too.)

“It’s impossible for social networks focused on scaling the network itself to build all the niche applications that bring people and keep people on these sites,” Levchin said, noting Slide widgets “add the bulk of perceived value to the consumers of these Web platforms.”

He also said he would use the money to expand its repertoire, but said Slide would try to develop in-house.

But others close to Slide said this was not exactly so, and that the company would also look around for good acquisition targets, using stakes in the newly valued Slide as currency.

As inevitable as air, Silicon Valley likes to build them up and then tear them down.

Thus, the bell now tolls for Facebook Founder Mark Zuckerberg.

We at BoomTown have been consistent and persistent in voicing our various worries about the young entrepreneur, from one of our very first posts, questioning (we think fairly) the unproven business underpinnings of the hot social network, the juvenile nature of its much vaunted third-party widgets, the insanity of its $15 billion valuation, its inane legal fights and the problems with its worrisome ad efforts.

We’ve also taken (we think probably unfairly) shots at those flip-flops he wears. And we did call him a toddler CEO, also a low blow, we have to admit.

But now, it seems, a mob is forming, sparked by the issues around Facebook’s controversial Beacon ad program, which can track your purchases on some external sites and send the information back to your Facebook profile’s news feed.

While it made some changes in Beacon last week, Facebook has not given users a global opt-out of the controversial marketing system in which the social network is seeking to link behavior and advertising more tightly for supposedly bigger payoffs.

The mainstream media and blogosphere, which recently were feting him, have now turned and ire has been growing over Beacon, which seems to be focusing everyone on the inexperience of Zuckerberg and the challenges facing Facebook.

Read more »

What can we say about investor Peter Thiel, when it is much better to listen to him talk?

Here’s a longish video I made at Thiel’s office on San Francisco’s Presidio (no Sand Hill Road mundanity for Peter!) yesterday with the man who has become Silicon Valley’s most interesting venture capitalist and all-around great character of late.

Now running the VC firm called the Founders Fund, as well as a hedge fund called Clarium Capital Management, Thiel has a lot to say about everything from the painfully slow decline of old media (likening them to train companies in a plane world!) to the underhyping of Web 2.0 companies like Facebook (a 10-times-10 valuation from its current $15 billion if the hot social network, in which he was the first investor, keeps up its torrid pace of growth!) to the state of venture capital (needs a shake-up!).

My favorite quote from the interview comes from Thiel right at the end: “There’s absolutely no bubble in technology.”

Read more »

Please see this disclosure related to me and Google.

Well, we’re glad it’s done, our conflict of interest shoved aside by the hey-big-spenders at Microsoft and we can again resume our incredulous analysis of the insane $15 billion valuation of Facebook.

No matter who would have gotten to make nice with founder Mark Zuckerberg in the hefty ad-investment deal–Google or Microsoft–we will be sticking to our guns on this ridiculous roundelay of hype and circumstance.

That’s because this valuation, while a paper windfall for its investors and those currently employed at Facebook, has exactly no meaning until the company actually performs financially to keep up with the lofty figure and then, presumably, goes public in a great rush of glory.

Of course, that does not mean this bump–which could only happen in a very bubbly Silicon Valley–will not help the company pick up some tasty acquisitions now using its overpriced stock, as long as targets are willing to play along with the still-questionable dream of future riches.

And, of course, in the here and now, Facebook will get an even bigger slug of guaranteed ad dollars from international as well as U.S. markets from Microsoft, which will be losing a giant amount of money in the arrangement.

As a plus to Facebook and an important element in Microsoft signing this deal, by the way, sources confirm that the start-up got much better terms in its U.S. ad deal that basically lets them control the whole partnership without any hooks for Microsoft.

Does any of this really matter? From a perspective of big, cash-rich companies throwing huge dollars at hot start-ups, it is, as one investor told me last night, meaningless.

“It’s trivial to Microsoft to spend this money and worth the gamble,” this person said.

Indeed.

Because while execs at both companies talk about the potential–and there is a massive amount of it in the Facebook business model–both Microsoft and deal-loser Google, too, were willing to bankroll a loss leader in the hopes of later return, a whole lot of important education about the social-networking space and also likely solid returns in an IPO scenario.

And for Microsoft, that is OK, given that the software giant needed to land this deal for all sorts of reasons (seeming relevant in the fast-moving Web 2.0 space and, of course, the sweet-sweet feeling of actually beating out Google) and has more than enough money to burn.

That’s obvious too with the $240 million cash investment (with more to come from other greedmonger private investors, of course, in another round now being arranged by Facebook) that bought Microsoft exactly 1.6% of Facebook.

That puts Microsoft behind Greylock Partners’ and Meritech Capital Partners’ 1.7%, Founders Fund’s 5% and Accel Partners’ 11%–Accel partner and Facebook board member Jim Breyer also has a personal 1% stake, now valued at $150 million–and Zuckerberg’s 20% (not the 30% that has been widely reported), which is now worth $3 billion.

So what can we say but: Party on, Garth!

But let’s not lose sight of the fact that for all the fabulous growth, Facebook is still a very small business now carrying a very large valuation on its slight shoulders. So far, it has only $150 million in annual revenue, half of which comes from its guaranteed ad deal with Microsoft, and is break-even on a cash-flow basis.

So more cash in the kitty is a good thing, allowing Facebook, as one of its execs said yesterday, to double its work force to 700, jack up its international business and better service its 50 million active users.

This is all well and good for turbocharging a business that is growing like gangbusters. But while Facebook executives argue that all trends point upward, I still maintain that potential is not actual.

As I have previously written: “While the minions at Facebook under its young leader are laboring mightily to come up with new ways to make revenues and its strong growth is laudable and I loved the splashy widgetmania Facebook unleashed, let us try not to be too jaded when we say we have seen this story of spiky growth followed by less-than-spiky growth before.”

So excuse me for being worried about this deal and what it might do to the business discipline and attitude of Facebook, making it sit too long on the laurels of being able to gin up an investor frenzy and not focus on making the service one that is consistently innovative and useful to users and, of course, building a truly different kind of advertising business.

Frankly, while spending on social-networking sites is supposed to triple this year, I have still not seen a breathtakingly groundbreaking new kind of advertising from Facebook (or anyone else) that merits this valuation.

All the rich data Facebook collects and parses back out is amazing, but I still need to see actual ad programs and results that blow the mind and change the game.

I have talked to Facebook investor Jim Breyer many times about this concern related to this cart-before-the-horse valuation, so let me quote him directly about it, from one of our conversations:

“Companies always need to separate valuation from strategic and performance issues, and this is obviously a valuation we need to grow into and we hope we will,” he said. “But we know it is an aggressive valuation.”

That’s what you might call an understatement, Silicon Valley-style.

I got a lot of reaction from my piece earlier this week poking holes in the recent round of funding that hotsy-totsy social-networking site Facebook was looking for.

Two weeks ago, I broke the news that the start-up was looking to raise more investment dollars at an insanely high valuation from patsies–oops, I mean investors–like Microsoft, Facebook’s ad-serving partner.

And earlier this week, The Wall Street Journal followed up with a piece putting actual numbers on the board–Microsoft was interested in investing at a $10 billion valuation and Facebook founder Mark Zuckerberg was holding out for $15 billion.

My initial reaction? Eek. Why wait for a puffed-up IPO when you can demand ridiculous prices like that from supposedly savvy investors?

Some of the commenters on our site mostly seemed to agree that this was all a little frothy.

Noted Tom Coseven: “Good piece, Kara, sometimes you must wonder if there are any adults left [in] Silicon Valley.”

Tom, I don’t wonder at all. Let’s review: Exercise balls as furniture, unless it is a beanbag chair; free fun food and energy drinks for all; volleyball in the courtyard; flip-flops.

But another poster, Yuval Romik, pointed out that I was underestimating the romantic pluses of Facebook on his way to making a more salient point: “A person in college without a FB page is a non-person. It’s a truly disruptive offering–a sky-rocketing would do it justice.”

While I am with Yuval on the afternoon-delight aspects and college popularity parts of Facebook, I would have to respectfully disagree on the sky rockets in flight.

Alexander van Elsas noted the danger to software giant Microsoft of doing such a deal: “It is also a very risky strategy for Microsoft to invest a large amount in a single platform. While Google makes a great deal more in advertisement revenues each quarter, Microsoft will be forced to monetize their investment by increasing ad pressure on Facebook users. Given that a Facebook user is spending lots of time on his online identity, I don’t think they will like that very much.”

Yes, indeed, an ad-serving nightmare. My read was simpler: Microsoft desperate=cash forthcoming.

Again, others have a different view.

Wrote Dave McClure: “While an acquisition at $10 billion to $15 billion without Facebook having defined a long-term monetization strategy might be irrationally exuberant, an investment of $500 million that simply values the company at $10 billion to $15 billion is not such a huge risk, for either Microsoft or Google (or in fact, at $500 million, even for Yahoo). That’s chump change for a piece of the Facebook action…noting the previous market insanity surrounding Google’s IPO a few years back, and the subsequent rocketship Google was for the next two to three years, most retail investors have unfortunately forgotten the lessons of the dot-com bust–they’re going to pile into any Facebook IPO thinking this is Google 2.0 all over again. They might be irrational, but there’s no question they’ll be similarly bullish for a Facebook IPO.”

Ah, the greater fool theory! Dave, you’re right on the money here, but it is a profoundly cynical way of looking at it and has nothing to do with the underlying business of Facebook. If the company does not live up to its hyped promise, as Google has done, it is also extremely dangerous for the company’s long-term future.

Nirav Bhavsar makes an excellent point about the international market. “Google gets 45% revenue from international market. Facebook doesn’t have that kind of growth prospects internationally and given its inability to monetize in the U.S., it is definitely not worth $15 billion,” he writes. “Facebook has no presence in Europe, China, India or Brazil. Bebo in Europe, Orkut in Brazil-India and MySpace in China are formidable. Also, people forget that Google was already making $3 billion in 2004 when it took the IPO route. If Facebook goes for [the] IPO route: I’d buy shares and sell within one week before the bubble bursts.”

I could not have said it better myself, so I will not.

Lastly, John Minnihan makes points as both a user and an entrepreneur.

As a user: “I’m using Facebook today as an interesting way to communicate with and track the doings of some of my friends. But the ones that I *really* want and need to communicate with, I’ll simply call, email, or IM. Facebook has absolutely no influence upon this. That’s what I did before Facebook and it is what I’ll do when it is gone. Beyond serving ads, which I don’t click and, in fact, completely ignore, what is the value in Facebook for me? I’ll quit using it when it becomes boring (maybe sooner), or when the ad placement becomes too obnoxious to ignore.”

As an entrepreneur: “Take the money and run (as you pretty much said yourself). We dream of billion-dollar valuations, so if this is really happening, don’t be foolish. Settle on an amount and take the investment. And cash out as soon as you legally can, because this house of cards is in the direct path of a very fickle consumer ‘big wind.’”

Indeed, that wind will eventually huff and puff and blow your house down if you don’t build it well and in a way that is less about valuation and more about what comes after all the hype has died down.

And here’s a certainty: It always does die down, often taking promising companies with it to oblivion.

Please see this disclosure related to me and Google.

We had much news we broke here on this blog last week (and much more to come, folks, so tune in early and often).

That included our exclusive report that Facebook was raising a massive round of funding at an even more massive valuation.

The news, which comes as no surprise (make hay while the sun shines is my motto, too!), apparently brought a boatload of all new offers to the company execs at the hot social-networking site.

So much so that CFO Gideon Yu–whom I have nicknamed “Death Cat” for his uncanny ability to land a big job at the hottest company of the moment, much as that nursing-home feline can sense death–has been fielding requests to shower founder Mark Zuckerberg with cash from everyone and his uncle and from across the globe.

I got a lot of them, too, that I did not pass on, but sorry, DC!

Also very amusing was the comment by Gabe Rivera of Techmeme about the Yahoo acquisition of BuzzTracker, which I also broke last week, on a posting by HipMojo’s Ashkan Karbasfrooshan on the deal. Techmeme was one of the rumored sites Yahoo considered, some speculated (not me!), before Yahoo decided they had too-pricey valuations.

I repeat Rivera’s comment in its entirety below, as it is very funny:

Ash, please, enough speculation! I suppose at this point I can share some of the details.

“I didn’t ask for ‘too lofty a valuation.’ I informed Yahoo that I would agree to sell given (1) $4 million up front (2) $2 million earn-out over no more than two years (3) a lifetime supply of the delicious Y! peanut butter Brad G. wrote about and (4) a purple and yellow unicorn.

“Tom Cruise, Yahoo’s lead in the negotiations, made it clear some of my requirements were not acceptable. Discussions ended amicably.

“Warmest congratulations to both BuzzTracker and Yahoo, of course!”

Also, we liked that the very excellent David Shabelman of the Deal blamed the whole anticipation at what would happen at Yahoo on BoomTown, because we have initiated our 100-day countdown, based on CEO Jerry Yang’s comments to investors this summer.

Wrote Shabelman:

Yes, Yang is responsible for getting hopes up for some kind of substantial announcement, when he said in July he would spend the next 100 days coming up with a fresh strategic plan for the company. But what he probably wasn’t counting on was Kara Swisher writing about what she thought Yahoo should do ad nauseam in her BoomTown blog, creating outsized expectations.”

Ad nauseam!? David, as you must know, nobody expects the Spanish Inquisition! Our chief weapons are fear! And surprise! And ruthless efficiency! But no red uniform. (See below.)

But wait until you see what we have on tap for Day 75! And, we already have called in Hollywood stylists for Day 99.

Now, Yahoo, how do you plead?