Tech Toinks!

What to do with that $500 cash balance burning a hole in my IRA?

Buy Facebook. It ended up being so much easier than they said it would be.

My initial limit order with a maximum price of $45 for 10 shares was placed early this morning after I heard a report on Bloomberg television that Facebook was allotting anywhere from 15% to 25% of its 421 million shares for retail customers, and that lots of average Joes were filling orders for the $38 per share opening price.

A lot of people must have had the same idea, as that order was canceled with a backup of orders, cancellations and changes that delayed Facebook’s open by a full 30 minutes. But at 1 p.m. EST, I resubmitted my order for 10 shares, and within seconds I had confirmation from Sharebuilder that I now owned a very small slice of Facebook.

I got in at $40.94 per share. With the brokerage commission, I have sunk $419.35 into the third biggest IPO of all time.

Disappointing First Day

Why was it so easy to get in? Because it turns out that Facebook as an IPO wasn’t that hot after all, at least from a Wall Street point of view. Facebook still walks away with its $16 billion and its valuation of more than $100 billion, but many people who thought their Facebook shares were winning lottery tickets are disappointed.

Facebook closed at $38.21 today, up just 0.61% and nowhere near the $100 that Bloomberg News was predicting at one point early this morning. The average tech stock finished its first day of trading up 32%, and the average one-day increase among the relatively few social media companies that have gone public had been 42%.

While the volume set a first-day record as analysts had predicted, the volatility was nowhere near what analysts had expected. Facebook never dipped below its original price of $38 and traded as high as $45, but spent most of the day hugging the $40 mark. In the final hour of trading the price started falling as big investors opted to get out before the weekend.

Facebook’s lackluster performance dragged down other social media stock prices. Facebook didn’t dip below its $38 offering price because of underwriter overallotments that propped up the price, and delays by Nasdaq in confirming orders may have also kept the price down. But by every Wall Street definition the IPO was a bust. Typically, stocks that don’t post double-digit gains on their first day of trading take longer to offer returns, if they ever offer returns. 

Why I Bought (and Why I’m Keeping) Facebook Shares

Warren Buffett I am not: I have a 401(k) from a previous employer and an IRA which, until today, was divided between (what I am told) is a healthy mix of index funds. I have been covering business for 15 years and about the only thing I know is that predicting the intricacies of the stock market is best left to the pros.

Or left to chance.

But definitely not left to me.

At the same time, there was that $500 that hadn’t yet been automatically invested in the index funds….

This was an experiment, not an investment for me. I’m not concerned that I’m down for the day, and those 10 shares will most likely sit in my IRA for years to come. I know my three-figure investment may one day grow to four, five or even six figures. I also know it may not.

And, after all, I still cover Facebook for ReadWriteWeb. For now, my paltry 10 shares aren’t enough to keep me from being objective, and I’ll continue to be one of the company’s biggest critics. 

Of course, if Facebook explodes and eight years from now is trading at about 100 times its IPO price, as Google now is, we may have to reconsider my ability to cover Facebook objectively.

A guy can dream, after all, can’t he?

Venture capitalists have been getting a black eye to go with their blue shirts. A recent report from the Kauffman Foundation slammed VCs for “shortchanging” investors, pointing out that public markets deliver better returns. The next day, Fred Wilson, general partner at Union Square Ventures and prominent VC blogger, suggested that a flood of crowdfunding money unleashed by the JOBS Act could sweep away venture capitalists altogether.

It could happen.

“The game has changed,” says Paul Kedrosky, a senior fellow at the Kauffman Foundation who’s focused on entrepreneurship, innovation and the future of risk capital. “It’s obvious to everyone in the industry that crowdfunding is no longer just a toy.”

For startups, it’s now a realistic option to traditional sources like first-tier VCs. And that could spell trouble for the guys on Sand Hill Road. “For the most part, VCs add very little value, so it’s not surprising that if you can get a high-liquidity, low-maintenance form of early-stage funding for your startup, that will pretty quickly push aside more traditional capital providers like bad VCs,” Kedrosky says.

Fred Wilson pointed out that if every American decided to allocate one percent of his or her liquid net worth to crowdfunding, that’d add up to $300 billion – 10 times the amount now sloshing around in the venture sector. And while the chance of that happening has been pooh-poohed by some observers, Kedrosky calls $300 billion “a credible number.”

Going Mainstream

Crowdfunding has yet to hit the mainstream, but it’s getting there. There are vehicles on the way that will help casual investors allocate a piece of their paycheck to startup ventures the same way they deduct now for a 401(k). “Then,” Kedrosky says, “this becomes a tsunami.”

But Kedrosky thinks it’d be “a disaster” if it happened. “It could end up destroying the marketplace. I love vandalism as much as the next punk, but I’m very leery of embracing the idea of even more money flowing into the venture industry. The problem fundamentally is subpar returns – and the reason for that is there’s already too much money in the industry.”

Back to Wilson’s point. What will happen if and when the crowdfunding fire hose gets turned to full blast? Will VCs be crowded out?

Some of them will.

If the market is made more liquid, bid-ask spreads will contract. Deals will be priced higher, returns will drop and the market will be an option for only the top players. Big-brand VC firms will survive but others will go the way of Palm – or be forced to become Series B and C investors.

Who Is This Good For?

So, more freewheeling crowdfunders and fewer meddlesome VCs. For startups, that might seem a positive trend.

Not so fast.

Crowdfunders are fickle. They may crawl all over you on a first date but not take your calls when it’s time for follow-on rounds. “Crowdfunding is great for the shiny new thing,” Kedrosky says. “But the acid test is, if you hit a speed wobble with your company, can you raise a subsequent round of funding? The early record on multiround financing is not good.”

VCs have noted this and tuned their pitches accordingly, telling startups that only they will be there in sickness and in health. “While VCs are not as good about sticking around in bad times as they claim they are,“ Kedrosky says, “they are still much better than crowdfunding seems to be.”

VCs – at least the good ones – won’t be going away. But Kedrovsky finds it entertaining to watch the industry confront the creative destruction that so many of its evangelists preach:

“The amusing part for me is that if you go back to orthodox disruptive-innovation thinking, which VCs love – the old Clay Christensen stuff – the hallmark of innovation is that incumbents dismiss it initially as a toy… Look how VCs have responded to crowdfunding. They call it a toy. They say, ‘Sure, it’s good for little lifestyle companies, but it’s not good for venture-type companies.’ It’s lovely how disruptive thinking has come back to bite them in the ass.”

Image courtesy of jan kranendonk / Shutterstock.com. 

If you are thinking about changing your online payment provider, you should take a moment to look at an interesting infographic from application performance management company New Relic. Turns out the most popular provider, PayPal, isn’t even close to being the fastest processor. That distinction goes to Google Checkout. PayPal has the market share, but if performance is the critical metric for your company, you might want to consider the alternatives.

New Relic pulled data from more than 20,000 enterprise customers during one day in April and examined which gateways were the most often used, along with their associated transaction speeds. The company monitors 38 billion transactions every day and its larger customers include Nike, Groupon, Zynga and Intuit.

As you can see from the infographic, PayPal is certainly popular, with more than 66,000 transactions and nearly 60% of the market share. But Google Checkout is the fastest, at a quarter of a second on average, and even its longest time to process a payment was a relatively speedy five seconds. (PayPal’s longest time was nearly 10 seconds, which was still faster than some of the other processing gateways.)

Obviously, you aren’t going to choose a payment gateway based solely on performance. There are plenty of other factors to consider, including what kind of banking and credit card relationships you have, whether you use any merchant software, and where in the world you are located (New Relic included statistics from Australian companies, for example, which had some of the slowest connections).

But speed is certainly an important consideration when selecting how you will process your transactions. Studies done by StrangeLoop Networks, Amazon and Google found big drops in sales and traffic when their Web pages took longer to load. For example, a half-second delay will cause a 20% drop in Google’s traffic, and a tenth-of-a-second delay can cause a drop of 1% in Amazon’s sales. Shaving a few tenths of a second to finish processing someone’s payment can mean the difference in some big dollars.

Of course, you can easily waste any performance edge if other parts of your website are sluggish, since your potential customers may drop off before they even get to the payment page. But savvy e-commerce operators do everything they can to speed throughput, and payment processing times are an important component of that. Food for thought.

If Facebook’s massive IPO represents the wealth created by the rise of social networking, mobile computing and the consumerization of IT, these tectonic shifts hold dramatic challenges to old-line technology companies built on yesterday’s revolutions. So even as Facebook mints a crowd of new millionaires and billionaires, Hewlett-Packard is preparing to send pink slips to some 30,000 of its employees.

All those people busy social networking on smartphones and tablets are spending less time accessing Web pages on a PC. And while companies like HP and Dell are counting on the release of Windows 8 later this year to help stem the tide, many observers believe a new PC operating system simply won’t be enough to reverse the waning clout of Windows PCs.

The contrast is stark. In Menlo Park, 3,500+ Facebook employees are celebrating their record-setting initial public offering. But just down the freeway in neighboring Palo Alto, HP is targeting the elimination of almost 10 times as many positions. The company is reportedly considering eliminating 25,000 to 30,000 of the company’s 320,000 jobs, about 8%. Apparently, CEO Meg Whitman’s plan is to use the savings to direct more than $1 billion toward building the tablets and cloud services that are reshaping the Internet. Details are expected to be revealed next Wednesday when HP releases its earnings.

Saving Money for Investment?

But is money the real issue here? Or is it about trying to deal with unprecedented levels of creative destruction?

So far, HP’s attempts to chase the new directions in computing have failed miserably. The company paid $1.2 billion for Palm in 2010, hoping to take its WebOS into tablets and other mobile devices. Roughly a year and a half later, HP shuttered its TouchPad tablet and tossed plans to make WebOS the software engine in consumer hardware products.

While many of HP’s wounds are self-inflicted, they also reflect the remarkable speed with which the computer market is shifting to mobile devices. In the next five years, tablets are expected to displace notebook-style computers to become the dominant personal computing platform, according to Forrester Research.

The trend is already well underway among the millennial generation, people born between 1980 and 2000. In the U.S., 30% of tablet owners in this age group have purchased a tablet in place of a PC. These young adults don’t want unwieldy laptops. They want computers that are light, easy to use and capable of sharing pictures and video on social networks. They want apps on a mobile device, not a new version of Windows.

Windows 8 Won’t Fix Things

That’s why many analysts no longer expect the release of Windows 8 to jumpstart PC sales for HP – or anyone else. Whatever slick features Windows 8 introduces, a new PC operating system just doesn’t have the market power it used to have. “Windows 8 will prove to be a disappointment, at least out of the gate,” Keith Bachman, an analyst for BMO Capital Markets, wrote in a research note, according to Reuters.

HP can still make lots of money off PCs for a few years. Tablets need more time to get the power and applications needed to be able to handle all the tasks performed on laptops. But the growth is clearly coming in other areas.

In the meantime, HP needs a credible iPad-killer tablet and a laptop in the relatively hot ultrathin and light category, where Apple’s MacBook Air is king. Finding an entre back into the smartphone market wouldn’t hurt either.

Time Is Running Out

In addition, HP has to move faster into cloud computing to hold onto enterprise customers less willing to shell out big bucks for HP services centered around on-premise software and hardware. Those expensive solutions are increasingly competing against (perhaps) less powerful but much cheaper consumer-class services.

It won’t be easy. And it won’t be without pain, as 30,000 HP workers are about to learn the hard way. But time is running out for old-fashioned computer vendors like HP.

Whitman photo by megwhitman2010. Zuckerberg photo by Crunchies2009. Photo illustration by ReadWriteWeb.

Procter & Gamble should be kicking itself for not developing a mobile operating system when it had the chance: More people worldwide own mobile phones than toothbrushes. Get ready for a tsunami of mobile marketing and commerce to crash on the shores of retail.

The beauty of mobile devices from a marketing perspective is that you can reach consumers at a more personal level – right in their pockets. The Holy Grail of marketers used to be a home telephone number and address. Direct mail and telemarketing, despite being some of the most hated forms of advertising, are historically effective. Now mobile takes marketers closer to consumers than direct mail ever will.

But mobile isn’t just one marketing channel. It’s several. Think about how you use your smartphone. You use apps, you search the Net, you visit websites. You text friends and family. 

“The challenge for global brands in mobile is finding relevancy to the various activities a consumer may be performing at any given time.  The misconception is that mobile is a new marketing channel, when in reality it is several new channels, all with vastly different implications for brand marketers,” said Jeff Peden, CEO of Boston-based local advertising startup Crave Labs.

The trend toward mobile marketing and commerce is significant, and it’s only going to grow. According to research firm Deloitte, 19% of merchants said they plan to invest $100,000 or more on mobile platforms. The money will go toward building apps, delivering through the various marketing channels that mobile affords and providing services for other businesses. About 22.5% of businesses are seeing the most traction in business-to-business mobile solutions while 33.7% are gaining mobile momentum in the business-to-consumer sector. Overall, 37% of enterprise companies have seen significant impact on their top and bottom line revenue through mobile.

Reaching consumers is a big part of the game, but it is only a start. The goal is to generate transactions. This is where relevance comes in. How do marketers achieve relevance through mobile?

“Tying into the context of the consumer (location, time of day, et cetera) improves relevancy in these cases,” Peden said. “In the case of search, brands should be directing consumers to the closest place of action, turning that immediate local intent into a physical transaction. In other modes, such as gaming or video, the content of an ad has to be just as rich and compelling as the app in which it’s running.”

These observations aren’t just theoretical. Nearly 29% of consumers who research a product in a retail location through a smartphone end up purchasing that product online. Mobile commerce is expected to be a $163 billion market by 2015. Companies that focus on mobile solutions for consumers will reap the greatest reward. Procter & Gamble could sell more toothbrushes if it used a location-aware price comparison app for shopping lists. Amazon has been a leader in price-comparison shopping and its strength in m-commerce should only grow as the ecosystem expands and smartphone users come to rely on their devices’ in-store utility.

The infographic below, courtesy of Deloitte, serves as a rough map to the biggest m-commerce opportunities for developers, brands and retailers. 

Click here for a larger version of the infographic.

Startup entrepreneurs live, eat and breathe their companies. Catching a quick catnap under your desk counts as a good night’s sleep. But how do you get the same level of commitment from mere employees?

Typically, the answer has been to award them significant chunks of the company in the form of stock and options. It’s not just greed. Sharing equity in your business early on can lead to complex problems as your company grows. Luckily, there are ways to motivate workers without giving away the store.

1. Show them you care. Tech entrepreneurs are notorious for their lack of social skills, so if you’ve got your head buried in your laptop all day, pull it out and spend some time with your team. Find out about the personal stuff. Ask what they like to do in their free time. (Not only will this help you better bond with your team, but it will also give you new ideas for how to motivate them.) Managing by walking around isn’t a quaint idea from the 1990s, and shouldn’t just be lip service.

2. Tailor your rewards. Not everyone is motivated by the same stuff. By finding out what your employees like to do, you can tailor how you reward them to match their interests. (And you lower the possibility of making an oafish mistake, like giving a recovering alcoholic a bottle of wine.) For example, if one of your guys is a surf nut, cut him slack to hit the waves early in the morning. If another employee loves baseball, tickets to the local team’s next game – and the afternoon off to attend it – could go a long way to keeping her revved up.

3. Give the gift of time. Employees at a growing tech startup don’t get much time off, so when you do hit some downtime, let your team take advantage of it. If everyone’s been crunching on a project all weekend, let them come in late on Monday. Finish a big job? Celebrate by sending everyone home early. Yes, they might be back working early the next morning, but they’ll be more refreshed.)

4. Get flexible. When you can, let your staff work from home, from Starbucks, from the beach or wherever. In the early stages of a startup, it does often help to all be in a room together, but when the project doesn’t call for that, be flexible. Even if you do need your entire team to work in one place, that place doesn’t have to be your company’s office. Sometimes you can get more out of people by changing the scenery. With Wi-Fi just about everywhere today, you may be able to work at your apartment’s pool, your favorite bar or a park.

5. Be understanding. If you’re going to make extraordinary demands of your team (and we all know you are), there will come a time when they crack. Learn to spot the signs that someone is about to go over the edge, and take steps to deal with the situation before it gets out of control. Whether a team member needs to vent, run out the door (literally) or just knock off for the day, let them do what they need to get back in the game.

6. Barter for stuff. Trade favors with other business owners you know to get perks for your team. For example, you might offer to update a spa’s website in return for them giving your team massages every Friday. Get creative.

7. Eat, drink and be merry. When all else fails, don’t underestimate the healing power of hanging out. No, it’s not free, but a little recreational togetherness is relatively cheap. Bring in pizza, have Friday keggers or head out for happy hour once in a while — on you. It’s an affordable investment in your employees’ sanity that will pay off in greater dedication and productivity. 

Image courtesy of Shutterstock.

Facebook became a $104.2 billion company Friday in much the same way it became the world’s biggest social network and a cultural game-changer: by stubbornly forging ahead despite criticism and calls that it couldn’t be done.

Last week, rumors turned into full-blown financial news stories that the initial public offering was getting a lukewarm reception in road-show presentations to investors in New York City, Boston and Palo Alto, Calif. CEO Mark Zuckerberg was criticized for wearing his trademark hoodie to the event in New York and skipping the event altogether in Boston, and some analysts said Facebook could open with a value as low as $75 billion.

And yet, by this week Facebook had raised its expected share price and was making more shares available to meet demand. By the close of markets Thursday afternoon, Facebook had set its opening share price at $38 (after considering levels as high as $40). Whatever happens in trading today, Facebook will be the third-largest IPO in history and will net the company $16 billion.

“It shows tremendous confidence in the guy wearing the hoodie,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, told Bloomberg. “He hasn’t specified how he’s going to do it, but he’ll have to do it to justify this price.”

Market Cap Now More Important than Number of Registered Users

But share price doesn’t really matter. The most important number for now is that $104.2 billion. The $100 billion marker is symbolic, as is so much that surrounds Facebook’s evolution into a publicly traded company. Beyond the hoodie, Zuckerberg has been sending all sorts of signals that he’ll be a different kind of CEO, from his decision to not travel to New York to ring today’s opening Nasdaq bell, to celebrating the IPO not with champagne but with Red Bull (the company had one of its famed hackathons last night).

And while $104.2 billion can (and will) change as Facebook ebbs and flows through the ups and downs of being a publicly traded company, at least for now it makes the eight-year-old company more valuable than all but a handful of U.S. companies. Facebook is bigger than McDonald’s, bigger than Citigroup and – also symbolically – bigger than Amazon, arguably the biggest success story from the first dot-com boom.

“Facebook is here to stay,” Navin Chaddha, a managing director of the Mayfield Fund, a venture capital firm, told The New York Times. “It’s a virtual economy where people are spending more time than any other Internet property.”

Still, its stock is still highly speculative, leaving investors unsure of what to do. A steady stream of them have been interviewed on cable television and all make the same basic point: Invest in the company and you may see it wither, much as Groupon, last year’s IPO darling, did. Skip putting money down, however, and you may kick yourself if Facebook ends up like Google, which now trades about 100 times higher than its IPO price.

At its open this morning, Facebook was trading at 100 times its earnings for the previous 12 months. By comparison, the Standard & Poor’s 500-stock index trades at 14 times earnings. People who run the price up today are mainly buying into the hype, and may be too late: The true short-term winners are the company’s early investors, people who bought shares on private exchanges and Zuckerberg (his stake is now worth about $19 billion).

“It could take many years to calculate Facebook’s impact,” Martin Sorrell, chief executive of advertising company WPP, told The New York Times. “There’s a lot of pressure for them to monetize their content and demonstrate productivity, but you can’t do it overnight.”