What is Facebook’s business worth? An interesting question brought into focus by the impending Facebook IPO and it’s surrounding media frenzy. A lot has already been written but I’ll add my thoughts before the opening bell.
A recent poll showed that the American public was nearly evenly divided over the 100 billion dollar valuation of Facebook. Which suggests it is fairly priced. Even experts seem to be split though most seem to be leaning towards overvalued. One way of looking at the valuation is through the lens of its users.
At a 100 billion dollar valuation, each Facebook profile is worth approx 110 dollars. Using the latest revenues of 3.7 Billion for “face value”, each profile was worth approx 4 dollars.
This 106 dollar “value gap” needs to shrink considerably or Facebook needs to convince Wall Street that it has a plan to shrink the gap - otherwise face a major selloff from a loss of confidence.
Facebook’s challenges lie not just in growing it’s user base but in increasing the value of that user base (without losing it, or spending much more to get it).
Interestingly, this is much the same challenge that the telecom companies have. Telecoms have an audience with high switching costs in a saturated market. They have become a “dumb pipe” of wireless information and are now struggling to become more than that even as next-gen companies are being built using those pipes.
Telecom’s big mistake in the early days of the battle for the mobile web was in constructing “walled-gardens” from which it directed users to buy stuff (remember the AT&T Store?). Of course this didn’t work because the telecoms could never provide the full variety of the web experience which is what users wanted and so people never used them. The telecoms also never thought to create a piece of hardware that could browse the web while mobile, or use the network they owned. They didn’t think it was their business. Apple eventually cracked that problem with the iPhone and promptly built the ultimate open-platform walled-garden of its own, the App Store, and dictated conditions that the industry now openly regrets.
Facebook’s biggest hurdle is the fact that it is effectively a walled garden on the web - what Facebook users do outside Facebook is largely unknown to people who advertise or build onto Facebook. Social Graph was an attempt at breaking this silo down but the social graph is opt-in by the user (you need to “like” an article on CNN for example) and therefore not very robust for deep data mining.
That leaves Facebook to live or die on its ability to turn itself into a platform so vast and deeply integrated in peoples’ lives that it effectively becomes the new web. The good news is the first step has been taken; most apps developed for the iPhone or Android already demand a Facebook sign-in to leverage the users’ existing social network. The biggest risk for Facebook is they stall out and become uncool - MySpace has shown us what that looks like already.
What’s cool about Facebook is not Facebook but that my friends are with me everywhere I go. As many have said, figuring out mobile is absolutely critical for Facebook - and players like Path have a head start. Facebook can’t buy all the Instagrams that crop up so they will have to own it eventually. Then there is the question of monetizing mobile in a way that doesn’t destroy what makes it cool.
It makes me wonder if Facebook is at the same crossroads as the telecoms - knowing what business they are really in will determine if you can avoid becoming the world’s next commodity. If Facebook can eventually own an end-to-end mobile experience that delivers truly “happy, unscripted moments” that are both social and commercial, Facebook’s valuation at 100 billion dollars may be very low.
There is far more at stake here than Facebook because as Facebook goes, so will the fortunes of all startups - the fortunes of web 2.0 really. The startup world of silicon valley, NYC, Shenzhen are highly inter-connected in unexpected ways. If Facebook ultimately disappoints, we will all look back and shake our heads at the famous line in the movie “the social network” - “you know what’s cool? A billion dollars”, and call it the great second bubble.This would be deeply unfortunate.
I’m really rooting for you Facebook.
On the hunt for the perfect cup of Turkish coffee, I ended up at the 600 year old Grand Bazaar in Istanbul and stumbled upon an object that offered clues to creating culturally meaningful design.
The Grand Bazaar of Istanbul
Wandering through a labyrinth of aisles, stalls and touting shopkeepers my wife and I found a small lane with several crowded Turkish coffee shops in a row. We found couple of seats no higher than my knees and sat down, wedging between a Turkish family and a carpet salesman. Quickly we ordered two Turkish coffees from the handsome (according to my wife handsomeness seems to run with Turkish men) shop owner. “Sweet?” he suggested.
Sitting down for a cup of coffee
While he was preparing the coffees we had a clear view of his actions. He began by placing two teaspoons of what seemed like coffee dust into a tapering, cylindrical copper container with a long handle coming from two-thirds the way up its side. I later learned this is called a cezve (pronounced Jez-veh). He then placed two small espresso-cup full of water into the copper vessel and placed it over the burner of a small stove. He kept the cezve low on the flame until it began to boil when he deftly lifted it, allowing the frothing tarry foam to recede. He repeated this once more and poured the thick black coffee into two espresso sized cups set into a tiny metal cage. When he placed these cups before us he also gave us tiny glasses of water as well. “It prepares you for the coffee” he said.
The foam that defines great Turkish coffee
The cup was perfect. At the bottom was a deep sandbar of coffee dust that left a thin coating in my mouth. The last of the water washed it down.
So began our next hunt – I wanted to buy a cezve so I could learn to make Turkish coffee at home.
The first cezve I found was also copper and beaten on its side with hundreds of dimples around it with a shorter handle that had a knot of metal coming together. It was a ubiquitous model found throughout the Grand Bazaar, Istanbul and the tourist shops all over the world. It was cheap and looked it. I moved on. The next cezve was similarly decorated. And the next. And the next.
This is the most popular cezve design I found
I found decorated cezves everywhere I went. I was looking for something more modern, without decoration. From Kappadokya to Pamakkule to Ephesus I looked in vain for an undecorated cezve.
I finally gave up at the international airport in Turkey. As we departed for Slovenia I had crazy ideas for designing my own cezve, one finally free of decoration.
Slovenia is a world apart from Turkey. It is like landing in the forest of Hansel and Gretel, whom you half expect to greet you in customs. As we toured through the museum of Slovenian history I was surprised by the spare and simple design aesthetic that the Soviet Union had shaped from the Austro-Hungarian and Ottoman culture.
Slovenian design is striking and modern, influenced by the austerity of communist USSR
While exploring the capital of Lubljanja, we stopped for a coffee near the main square. To our surprise they had Turkish coffee. Wanting a fix, I ordered one. Seconds later my eyes bulged with shock.
The barrista pulled out a beautiful spun copper cezve that was completely devoid of decoration. The spout was even visibly formed by bending from its original cylinder. Would they sell me the cezve? And come to think of it, why is there Turkish coffee so far from Turkey? Most importantly, where did they get it? Yes, they could sell me one she said and they are designed and made locally in Slovenia.
The Slovenian designed cezve
It turns out Turkish coffee is quite popular all over Eastern Europe from the influence of the Turks of the Ottoman Empire. Over the 600 years of the Ottoman Empire, the cezves and coffee customs slowly localized. At its breakup in 1929, the Ottoman Empire left behind a deep and rich culture firmly embedded into the lives and objects of people all over Europe and Asia.
The cezves of the Ottoman Empire share a basic form in common – a wide, heavy base tapering to a narrower top with a long handle to hold the cezve over the flame. All of these features have a function. The heavy base distributes heat evenly, the copper material efficiently transmits it. The narrow top traps the coffee grounds and the spout lets as little grounds out as possible. The handle is long to dissipate the heat generated by the conductive copper as it’s held over the flame. Its form evolved to perfection over hundreds of years. But that’s where the similarities end. The Turkish ones tend to have hammered marks and decorated handles using the motifs found in their architecture. The further north you go the less decorated they become, until the Slovenian models have the austerity of the Bauhaus and machine efficiency of modernism.
Black enamel cezve
Brass cezve with motif
Enamel cezve from Czech
Recent cezve design with sticks for handles representing today’s values of environmentalism and nature
The globalization of the cezve designs through time and distance leads to an interesting hypothesis:
If form preserves function, decoration preserves culture.
Form is born from what the design must do – it is the (obvious) result of the interaction between people and problem to solve. Decoration (or lack thereof) is added to a design to make it something people love and relate to. It humanizes the design. If we examine design through history, the first art could be found in the decoration of the human body and soon after, in the decoration of pottery, bowls and tools. Archaeologists found decoration to be so tied to the cultures that produced them they use it to identify the origin of ancient objects. During the industrial revolution in 1919, the Bauhaus designers began a rebellion against decoration, with Adolph Loos going so far to call it a “crime”. But this is really just the latest in the fashion of decoration made global by the mass production of the industrial age. It certainly will not be the last trend. But it brings up an interesting problem unique to the globalized present.
Pottery sherds grouped according to motif and cultural origin
In the age of a global market, what culture do we design for? Will we end up with an averaged global culture that continues exporting Western culture remixed with local tastes? Will we be able to use decoration to package culture and experience it through design?
A quick examination of websites may provide a clue. If we look at shopping websites throughout the world we begin to see formal similarities and massive decorative (stylistic) differences.
USA - www.amazon.com
China - www.dangdang.cn
Russia - www.ozon.com
India – www.flipkart.com
Although the overall layout of these pages are largely the same, preserving the function of navigating online shopping, we can see culture being preserved in the style of the pages around the world. Dangdang has popups, flashing lights, and an endless scroll page meant to impress with quantity and the boldness of modern China. Ozon has a central blonde cowgirl in ripped jeans, almost comically Russian. Amazon focuses on economy and whitespace effusing American modernism. Flipkart resembles Amazon the most, reflecting the broad English literacy and westernization of India but with less skin.
These qualities were designed into the sites unconsciously by their designers. We are products of our culture; designers create the beauty that they know.
Hopefully, by understanding the relationship between form, function, decoration and culture, our future global designers will be able to create designs that are locally meaningful while remaining globally relevant.
“It’s a city built of pieces of cities. A corner from one place, another from some place else. So, you don’t really know where you are…its like every time you travel, you’ll be lost”
- Patrick Tatopoulus, Dark City
In the movie Dark City, aliens rebuild the city in which the residents live every night. Every morning the residents awake to a new city, vaguely confused and beginning their days trying to keep up, as if they need to catch up to something but not sure what it is. This could very well describe life in Shanghai, Shenzhen or any one of China’s surging mega-tropolises. If you live in one of these frontier cities you will agree that seemingly overnight entire neighborhoods are built, reshaped or torn down.
For better or worse, we are now in a society where the rate of change is outpacing our ability to learn (fast), domestic and global markets are complex - interdependent in hidden and surprising ways (blind), and the competition for diminishing human and natural resources is intense (dense).
The sheer scale and speed of this reshaping of the emerging economies is warping the rules for business and society in unexpected ways. The tidal shift in global redistribution of wealth from West to East has created new market conditions that move so quickly that businesses and consumers are now spending more time catching up than thoughtfully moving ahead.
The crazy part is that it’s going to get even faster, blinder and denser.
The development of fast, blind and dense markets is the latest ripple extending out from the industrial revolution and extended by the internet revolution and was brought on principally by an increasing population in resource scarce regions. Couple these regions with new wealth from commodities and you have a new wild west shaping the consumers and cultures of the future.
Paying to compete for attention.
The consumers of tomorrow will look fundamentally different than those of today. They will be demanding products and services that are globally relevant, yet locally meaningful. They will have far more choice than their parents did - from what they consume to what they do for a living to how they express themselves.
If we continue on our current path of abundance, how will our societies grow in the super-prosperous conditions brought on by the emerging economies?
One answer may be provided by Universe 25, a city of mice built by John B. Calhoun, a researcher at the National Institute of Mental Health in Rockville, Maryland. Universe 25 was designed to be a Utopia - unlimited food and water in a 10 by 14 foot enclosure. He placed 15 mice into this city and within a year and a half there were over 2000 mice all competing not for the plentiful air, water and food but for space, attention and affection.
In short, this Utopian paradise turned into mice hell. When the mouse population outstripped the available space, the mice fell into what Calhoun called the “behavioral sink” where "explosive violence, hypersexual activity followed by asexuality, and self-destruction" became the inevitable outcome.
For a full account of Calhoun’s work read the excellent article in Cabinet by Will Wiles here: http://www.cabinetmagazine.org/issues/42/wiles.php
There is a silver lining though, if you could call it that. Maybe more of a glimmer of hope. Calhoun found that creativity and social connectedness emerged spontaneously in the mice and they were able to stave off the collapse of their mouse society. He came to believe that creativity and design can solve our future problems.
The creativity needed in this future doesn’t look like what you think. It isn’t rainbows of genius shooting forth from the pens of scholars in ivory towers. The New creativity is dirty, messy and scrappy trial and error that is crowdsourced and networked across society - enabling collaboration and openness. Leadership will become a recognized skill necessary to rally the creative potential of society and focus it on a purpose (people like Oppenheimer and JFK come to mind). Continual evolution of ideas rather than incubated perfection is the norm in Fast, Blind and Dense markets.
The never-ending cranes of Asia.
Asia contains the fastest, blindest and densest markets in the world. As competitive pressures increase it is up to us to become more creative and trusting to literally keep our sanity in this new world. And in Asia we will be able to experience the future first, and also solve its problems first. I believe we are more than capable of avoiding the fate of Universe 25 and Dark City by using our collective imagination and optimism; and in doing so, attain a new global prosperity.
A few weeks after I arrived in Shanghai I was given the opportunity to speak at a TEDx Salon event about technology and society where I met David Li, founder of the Shanghai Hackerspace and dedicated to increasing indigenous innovation. So I listened closely when he spoke to me about a concept he called “Shanzhai-Innovation” which turned the ugly idea of copying on its head to empower a new breed of Chinese innovators.
TEDx Salon held in September 2011, Shanghai
Shanzhai (roughly pronounced Shawn-jai) is a controversial term referring to “fakes, or copies” of a well-known branded product. From products like sunglasses to consumer electronics to IKEA to entire Apple stores, it seems nothing is out of reach for Shanzhai these days.
Over lunch, David introduced me to the concept of Shanzhai-Innovation. At its core, Shanzhai-innovation is the copying of a core technology like cell telephony and rapidly iterating it to suit local needs. As David and I spoke, the tremendous power I found in this approach was not the act of copying, for which the Chinese are much maligned, but in the iteration of the technology to meet local needs. When this iteration is coupled with a blistering fast-paced market like China, radical innovation emerges through evolution - innovation that can outstrip the imitated.
Origins of Shanzhai
A painting depicting the smuggling of goods
Shanzhai (山寨) is a word in Mandarin literally meaning “camp on a mountain” and is loosely rooted in the outlaw’s camp that smuggles or makes fake goods. The closest English translation of Shanzhai today might be the word “tinker”.
G’Five in India
Lately these copies are no longer just cheap knockoffs but are becoming a credible alternative to the original. Over lunch, David Li related to me the remarkable story of G’Five, a Shanzhai phone manufacturer learning to innovate almost by accident - and becoming a global force because of it.
A Chinese G’Five Tablet for India
G’Five is a mobile phone manufacturer that quickly evolves its products for the Indian market (as short as 45 days from idea to launch), producing small runs of phones that contain a new feature in addition to a regular run. By measuring the sales velocity of the experimental run relative to the regular run, G’Five is able to determine which mixture of price and features will work best at that moment. Iterating like this has helped G’Five go from market entry with no marketing or presence into the 2nd largest phone provider in India, gaining market share in the country at a much faster rate than mature brands like Nokia and Sony Ericsson. An interesting interview with their India MD here.
Copying Runs Deep through History
Through copying, cultures are able to transmit knowledge and technical know-how. Of course, without the West copying the East, paper nor gunpowder would have never left China in the 13th century.
Shanzhai IKEA store in Kunming, China
China is not the first country accused of stealing technology and copying its way to success with cheap knockoffs. Japan’s now famed industry quality was considered cheap imitations of the goods made in the USA for years and then held in suspicion for corporate espionage. “Made in Korea” meant junk when I was a kid, but now Samsung leads the world in core technologies like DRAM and LCD panel development, supplying the likes of Apple with their components.
If we look outside technology to the arts we see an even deeper history of copying, or plagiarism. “Good artists borrow, great artists steal”, as Picasso or TS Eliot may have said.
Three Ball Total Equilibrium Tank, 1985 by Jeff Koons
The Physical Impossibility of Death in the Mind of Someone Living, 1991 by Damien Hirst. Inspired by Koons?
The music industry has recently seen an explosion of the remix genre from sampling sound bites to entire mixtapes. When sampling first became popular with Hip-Hop in the 70’s and 80’s, there was a public outcry over the “plagiarism” of music. Over time sampling has become an inspirational part of world culture giving birth to entirely new branches of music. DJ Danger Mouse launched to international fame with his Grey Album, an unauthorized remix of the Beatles’ White album and Jay-Z’s Black album. In the art world, Damien Hirst borrowed from Jeff Koons’ Three Ball Total Equilibrium Tank for his own formaldehyde series. Andy Warhol re-contextualized Campbell’s products to make a new statement. It makes me wonder, can Shanzhai products be seen as re-contextualized products for a new consumer? If products become remixable, what will be their value?
SinaWeibo - The Once and Future Twitter?
To really get a feel for the power of fast markets and rapid evolution of businesses we turn to the phenomenal growth of Sina Weibo. Launched in 2009 as a “copy-cat” of Twitter, the team at Sina Weibo didn’t stop there – they pushed the pace of iterating the design of the site based on Chinese user feedback and learnings in the competitive market.
Sina Weibo’s website evolved into a blend of Facebook and Twitter
140 characters in Chinese is more like 140 words - a richer type of message was being delivered. As a result, Chinese used Sina Weibo more like a place of self-expression than broadcasting very short messages. In response, Sina Weibo quickly added features like rich multimedia posts and the ability to verify your identity with V+. The result is an SNS that combines Facebook behaviors such as games, likes, and apps with a Twitter-type following system. Sina Weibo is no longer copying Twitter but leading by leveraging the unique forces of the Chinese market. Just three years after it was founded, Sina Weibo has 300 million users sending an average 86 million messages a day. As Twitter evolves its service, it is ironically now looking to Weibo for inspiration - it was just announced Twitter has acquired Posterous, a USA based blogging platform with tight iOS integration.
From Breakthrough-Innovation to Evolutionary-Innovation
By thinking about innovation as the rapid evolution of an idea we can free ourselves from having to start over every time. Starting with what already exists and evolving it in the “wild”, we can leverage rapid prototyping and market forces to create human-centered, market-proven innovation. Life itself has evolved by (imperfectly) copying itself over and over in different environments leading to innovations that succeed in new conditions.
An early evolutionary tree of life showing the relationship between life forms
Shanzhai- Innovation can be viewed as a form of this copy/paste/evolve mechanism leading to inspiring new goods and services for the rest of the world.
An evolutionary tree of video game controllers (Via Pop Chart Lab)
We may end up in a co-created world where we literally become part of the products and services we use, with these “service-objects” (to borrow a phrase coined by my colleague Robert Suarez) adapting to our specific needs at any moment. Web and app developers have already embraced an evolutionary approach to innovation. Zynga and other game developers now build their games using live A/B testing as a way of forcing “survival of the fittest” features.
Charles Darwin. Amazing Beard.
The physical world is not far behind the virtual. And when it does catch up, smart designers and organizations will see fast, blind and dense market forces as just another designer on their team. Darwin will be proud.
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One of millions of Indian merchants selling goods from Yiwu through local “Tippers”.
Needing some sandals because it was hot and sticky, my cousin took me to the mall. I was taken aback by an unexpectedly familiar sight. Everywhere I looked were the exact goods I had seen in Yiwu, now imported by Indian “Tippers” that buy container-loads from China and resell them across India. I was amazed to see the exact same goods from Yiwu for sale throughout this mall, except now I could buy one pair of sandals for 1 USD instead of 10,000 pairs for 5,000 USD. These Tippers were building an economic bridge with China enabling cheap goods to enhance daily life for India’s citizens. My relatives told me everything plastic was made in China. They said “China is the Hare and we are the Tortoise. They are way ahead but one day we will win”. Most importantly, “They have shown us we can progress, India’s massive population can move”. China had inspired the people of India into action.
While many of the goods from Yiwu are ultimately disposable and transient in their owner’s lives, I have seen a growing desire for choice beyond color of plastic. My cousin told me how she can feel the difference between a luxury watch like a Rolex and a knockoff even if you can’t see it. And how others can too - if you are caught wearing a knockoff you are ostracized.
What will ultimately activate what could be the biggest engine of growth the world has ever seen is communication between these demographic giants. As in the Silk Road of antiquity, what begins as economic trade invariably ends in the more important trade of ideas. Ideas like gunpowder, paper, the compass and Buddhism.
Sandals for sale in Kolkata, imported from Yiwu on the New Silk Road
Having chai and chatting with my family later that evening, it snapped together. There is a New Silk Road re-connecting and re-shaping our world, and I was standing on it.
The New Silk Road doesn’t look anything like the old Silk Road. Fiber-optic cables, satellites, railways, oil pipelines, and ships the size of small cities criss-cross the globe at breathtaking speed. The Silk Road of old has become a new idea binding the future of our world to the emerging economies, and it is happening fast. The speed of this new silk road is one of its outstanding characteristics, and one of its greatest dangers.
This New Silk Road, ever expanding, is connecting China, India, the states of Africa, Asia, the Middle East, and finally the West in an impenetrable web of trade driven by the desire of its people to have a better life. This manifests in entrepreneurial spirit that isn’t about making a billion dollars but making their family and country proud. It manifests in factory workers that threaten mass suicide at Foxconn supplying iPhones to the world. It shows up in Angola as freeways, hospitals, and schools built by Chinese in exchange for oil and it surrounds us as the failure of banks in the US cascade to Europe and finally to Asia.
You and I are connected on the New Silk Road, whether we like it or not. The road is fast, blind, dense and is yet to be finished. Smart companies and governments will alter its course, like a dammed river, to point the New Silk Road wherever they want it to go. We could end up in a future where China and India dominate growth, innovation and outsource its jobs to the West. Or it could enable a new global prosperity where all countries benefit from each others resources through frictionless trade.
I invite you to join me in traveling this road to discover the new world order and discover the forces at play in shaping it. It won’t be straightforward, it won’t be obvious but it will certainly be exciting.
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