The JP Morgan “Twitter Fund”

The announcement last week that JP Morgan is launching an investment fund for certain digital companies has proponents of the “greater fool” theory crawling out of the woodwork and pointing to the wreckage of the tech bubble from ten years ago.  This announcement closely follows the news that Goldman Sachs is offering clients an opportunity to buy into Facebook at a valuation of $50 billion.  While many have pointed to the copycat nature of the JP Morgan fund, I believe that the bigger theme is a nearing peak in valuations for social media companies.

First, the facts.  The fund is going to have no more than six companies in it, and Twitter alone will represent over half of the fund.  Not surprisingly, this opportunity has quickly been named “the Twitter fund.”  JP Morgan intends to raise $500-750 million from wealthy investors from its Private Banking division, each of whom must pony up a $1 million minimum.  The other companies have not been identified publicly and may not be known yet even within JP Morgan.  Fund manager Larry Unrein has confirmed that the terms of the investment give Twitter a notional value of $4.3 billion, up slightly from $3.7 billion in December, based on an earlier round of funding.

A quick dive into the numbers show some frothy sentiments from investors.  Twitter had actual revenues of $45 million in 2010, and the most aggressive predictions put the upper limit for 2011 at $150 million.  Using this assumption, JP Morgan investors value Twitter at nearly 29x revenues.  By way of comparison, Goldman Sachs investors value Facebook at 12x 2011 revenues of $4.1 billion.  Keep in mind that we are talking about revenue multiples, not earnings multiples.

Now, this lofty valuation could be justified if Twitter opens up its ad platform to the general public and starts bringing in billions of dollars of ad revenue over the next three years.  And it could be justified if one assumes that either Google or Facebook will buy Twitter very soon and integrate its functionality.  But neither scenario is likely to happen.  Twitter doesn’t have the eyeballs necessary for advertisers to pay top dollar, and most Tweets don’t occur on twitter.com anyway, so potential users won’t see the ads.  All user metrics point to far lower levels of engagement on Twitter than on other leading social media sites.  As for a buyout, Google and Facebook have both had on-and-off talks with Twitter for over two years now, but there has been no offer.  Why?  Both companies are wary of overpaying for a company that isn’t likely to ever hit a billion dollars of revenue.

So ten years after the collapse of the tech bubble, why are investors lining up to take more pain?  Isn’t it obvious that when retail investors buy companies at insane valuations, most experts call the top?  Is it different this time?

No, it isn’t different this time.  Twitter management insists that its consumer database alone is worth billions, but in the end, valuations always come down to multiples on earnings.  JP Morgan itself isn’t putting any money at all into the Twitter fund – that should represent a clear warning sign.  Unless there is someone else out there willing to value Twitter at $6-8 billion, the JP Morgan fund could take a beating if consumer sentiment changes directions quickly.

The Internet of Things

“Meet George Jetson!” “Jane, his wife!”

As the familiar tune of Hanna-Barbara’s classic space-age cartoon joyfully bounces in your ears, it is likely that you will remember the futuristic themes scattered throughout the show. An alarm clock that communicates with your daily planner – waking you up early for your 5am flight. A washer and dryer that reads your tags and gives you advice about stain removal. Or even the ability to turn your home lights on and off while you are sipping Pina Coladas 1,000 miles away. But If you thought these one-time seemingly outrageous and unimaginable concepts were only possible in cartoon land, think again.

In 1999, a Jetsons-like idea known as a the Internet of Things was introduced to the world. The idea states that one day our physical surroundings will be able to communicate with our digital life – and is becoming a feasible reality.

The beginning of the ultramodern theory suggests that all things in our daily life will eventually come equipped with small identifying devices powered by radio frequencies – the same idea as tagging animals in the wild. These identifiers would enable us to easily keep track of general things like keys, shoes, the remote control, and ideally assist businesses by identifying inventory and wasted goods across the globe.

Over a decade later, with over 1.7 billion people connected to the Internet and 2015 predictions in the 2.6 billion range, the Internet of Things is beginning to show signs of realism with a major corporation seeing potential in the idea.

IBM has publicly made its presence known to take charge of the Internet of Things theory by saying “data is essential.” In a recently submitted video to YouTube, IBM explains that the driving force that makes the Internet of Things possible is the ability to access user data.

IBM then maps out what they call an idealistic morning: Your alarm clock waking you up early for a meeting by syncing with your digital calendar. The alarm clock also checking ferry times and calculating these to determine your wake time. While driving to catch your ferry, your vehicle interacting with the ferry system and advising you whether your ferry is on-time or delayed.

Jumping from the idealistic to the realistic, many products are beginning to emerge that would make George Jetson feel right at home.

Ambient, a highly regarded gadget and device company, has designed a clock that pulls data directly from Google Calendar, and displays colorful notifications which inform you about your upcoming events.

SmartLabs technology company has come up with a way to illuminate your home and control your entertainment system though a web-enabled phone.

Touch Revolution built a Google Android powered washer/dryer, fully equipped with a stain guide, touch screen controls, and a tag decoder for those hard to read labels.

But will the Internet of Things catch on?

As our world becomes more connected to the Internet, so will our things. It is only a matter of time before our gadgets have a data plan attached to them, with rebates being offered for light switches and two year agreements for door knobs.

Over the next few years while you are watching TV on your toaster and looking up recipes on your microwave, pay attention to how dependent you are becoming on these devices.

I believe we should strive to remember that as our things become more connected to us, we should not become overly connected to our things.

Rock You acquires Playdemic

Last week, Rock You acquired Playdemic, a social gaming company based in England with 16 employees. What makes this acquisition interesting is that Playdemic has only created one game with about 500,000 active users. Gourmet Ranch is a hybrid game that combines cooking and farming, much like FarmVille. The strategy behind the acquisition appears to be to add active gamers to the stable of applications that Rock You launches.
Most Rock You apps are not games, however, which brings the overall strategy into question. Social gaming has proven to be very profitable at firms like Zynga and Playfish. Apps such as Super Wall and MyGifts for Facebook have hundreds of thousands of users, but little to no revenue. Rock You might be better served by developing its own games from scratch. While the purchase price was not disclosed, it makes little sense to step into the overbuilt farming genre at this point, unless the company was able to get a very favorable price (terms of the acquisition were not disclosed), or unless there are multiple games with huge potential that Playdemic is prepared to launch. Barring these scenarios, it doesn’t make much sense to acquire a tiny company with one minor hit.

The Goldman Sachs – Facebook deal

Goldman Sachs upped the ante for Facebook earlier this month with its investment of $450 million for 0.9% of the company, giving Facebook a notional value of $50 billion.  A Russian investment, Sky Digital, chipped in another $50 million for 0.1% of Facebook, giving the rapidly growing social networking company a total of $500 million to use for growth.  The consensus revenue estimate for Facebook for 2011 is $4.05 billion, giving it a revenue multiple of 12.3x.  (For comparison, the most valuable tech company in the world is Apple, trading at about 3x revenue.)  12.3x is mighty steep, and brings back memories of the tech bubble in 1999 and 2000, but it may be justified, given that nearly all of Facebook’s revenue comes from advertising, and the company has not even begun to tap into other, more lucrative sources.

Google closes on Zetawire

It was announced on Monday that Google bought Zetawire for an undisclosed amount. The founders of Zetawire had received a patent for a mobile payment technology for mobile banking, advertising, identity management, credit card, and mobile coupon transaction processing. In other words, they were in the process of figuring out a way to replace the entire personal wallet with software when Google bought them.
This is a smart purchase for Google, because they plan to outfit the later versions of the Android with this technology once it is perfected. In a world in which the iPhone has a significant lead on the Android, this technology could prove to be the great equalizer. If men don’t have to carry their wallets around anymore, and if women require far fewer items in their purses, then carrying around the Android could be the next cool thing. Google may become the leader in cashless and cardless financial transactions with this technology in its stable.

MegaPlayer Builds Blog Off Site for Sunglass Hut’s Popular Full Time Fabulous Campaign

MegaPlayer is proud to have been selected as the web development partner for Luxottica Brands’ Sunglass Hut for their high profile Full Time Fabulous Ultimate Blogger contest.

The Sunglass Hut campaign will result in one lucky contestant who will take on a $100,000, one-year contract as the Ultimate Fashion Blogger. In addition to the cash compensation, the winner will receive a number of swanky benefits and insider access to the fashion industry. Sunglass Hut, part of Luxottica Group S.p.A., which also includes LensCrafters, Pearle Vision, ILORI, and EyeMed, is recognized as a leader in specialty sun retailing with almost 2,000 Sunglass Hut locations around the world.

“We are excited to work with Sunglass Hut and this ground- breaking blogging contest.  Not only is the contest a great way to find incredible talent, it will also greatly enhance Sunglass Hut’s brand and social marketing profile,” said Jennifer Osbon, CEO, MegaPlayer.

“Blog-Offs like these offer so many terrific opportunities for the brand; the benefits go far beyond finding great talent,” said Osbon.

Facebook acquires event tagging specialist Divvyshot

Facebook recently completed its acquisition of Divvyshot, a relatively new group photo-sharing operation with 40,000 users. While terms were not disclosed, it is clear that Facebook is buying technology and talent, not revenue or subscriber base. Divvyshot specializes in event tagging in photos, and has made a name for itself in maintaining photo quality, an area in which Facebook has struggled. With just three employees, Divvyshot gives Facebook a way to stay ahead of its would-be competitors in photo technology. This purchase makes a great deal of sense – buying Divvyshot before it gets big is the least expensive way to improve photo sharing technology. Facebook users upload 3-4 billion photos a month to the website. The ability to perform group tagging at events will keep users happy and ward off other competitors.

Visit MegaPlayer at Ad:Tech NY

Are you planning to attend Ad:Tech NY  November 4-6?  The conference marks the industry’s largest gathering of online marketers where brands, agencies, publishers and service providers come together to share, network, learn and do business.

If you will be there, please stop by to say hello to the MegaPlayer team at booth #2144.

MegaPlayer Certified as a WBENC Organization

MegaPlayer, an interactive agency specializing in  social marketing, received national certification as a Women’s Business Enterprise by the GWBC, a regional certifying partner of the Women’s Business Enterprise National Council (WBENC).

WBENC’s national standard of certification implemented by the GWBC is a meticulous process including an in-depth review of the business and site inspection. The certification process is designed to confirm the business is at least 51% owned, operated and controlled by a woman or women.

By including women-owned businesses among their vendors, corporations, and government agencies demonstrate their commitment to fostering diversity and the continued development of their supplier/vendor diversity programs.

OMMA Global in NYC

Social networks, social media applications, microblogging services and other communications platforms become our central means of engaging online. Of course, anyone wanting access to this world of private and proprietary information needs to be invited, presenting a massive conundrum for marketers, who desperately want to reach the hundreds of millions of users who volunteer personal information on sites like Facebook, MySpace and Twitter every day.

Nevertheless, many industry watchers believe the answer to online advertising’s oldest problem lies inside social media’s walled gardens: that is, how to bring the estimated $500 billion spent annually on offline brand advertising to the Web. Others would argue that an even larger question looms: in ceding the means of content production to the masses, have social media services created marketing’s greatest opportunity, or do they represent the final nail in the coffin of big media as we know it?

Join us in NYC September 21-22 as we discuss these topics and more.