Facebook buys Oculus VR: What now?

Earlier today, Facebook announced that it had acquired virtual reality headset maker Oculus VR for $2 billion, in the form of $400 million in cash and 23.1 million shares of Facebook common stock worth $1.6 billion. Oculus VR's shareholders could earn an additional $300 million based on achieving several unspecified performance objectives. Oculus started with a Kickstarter campaign in 2012 that raised $2.4 million; last year, the company closed A and B rounds worth a total of about $93 million.

Ever since the announcement, comments about Oculus's acquisition have been flying around the Internet. The general tone is that Facebook will destroy Oculus's independence and load its software up with links to Facebook content. Some game developers have gone so far as to say that they've either stopped or won't begin software development for the Oculus Rift. My take is that Facebook's acquisition will be good for Oculus and its third-party developers, although a few years down the road, Oculus's shareholders may wish that they had kept ownership of the company.

But first, why did Facebook acquire Oculus? Facebook's not a hardware company, and when it's tried to specify smartphone hardware or design smartphone user interfaces, it's come up short. It'll take years for Oculus to become a meaningful generator of revenues and profits for Facebook, if it ever does. However, Facebook believes that VR is the next big hardware platform after mobile devices. VR is Facebook's "blue ocean," an undeveloped market opportunity that could be the basis of tens of billions of dollars in revenues. And, Facebook is buying the recognized market and technology leader: Even though there have been VR devices for almost two decades, the Oculus Rift is the first device that can truly begin to exploit virtual reality without all the physical discomfort that's come to characterize VR systems. As I've written previously, Oculus is six months to a year ahead of Sony and other VR headset manufacturers. And, Oculus is already generating revenue: Some 75,000 developers kits have been sold, at $300 each. Most other VR developers have only dozens or a few hundred developers working on their platforms.

As for Oculus and its shareholders, Facebook's $2 billion represents a nice return on their investments (Spark Capital and Matrix Partners are said by Bloomberg.com to both have received a 20-times return on investments made from a year to just a few months ago,) although I believe that if Oculus had remained independent and had become successful, the company's valuation would have easily been ten times what Facebook paid. However, Facebook brings to Oculus enormous financial resources. The company will be able to expand its development facilities and hire more aggressively. It will also have more influence on component manufacturers, because Oculus will be able to commit to much bigger purchase quantities and bigger non-recurring engineering costs than it could before Facebook. This is critical, because Oculus doesn't have the ability to build its own displays, camera and sensors, and some of the components it needs simply aren't yet available as off-the-shelf products.

Oculus's hardware development is likely to dovetail nicely with Facebook's rapid software development philosophy. At Sony's announcement of its "Project Morpheus" at GDC, the company said that it's been working on VR longer than Oculus, but most observers would agree that Oculus is still significantly ahead of Sony. The combination of Oculus and Facebook should be able to iterate hardware and software faster than Sony (and most other big companies) can even imagine. So, Oculus will most likely be able to get its first consumer version of the Oculus Rift out faster, and possibly at lower cost, with Facebook's backing.

But what about Facebook's influence on Oculus? After all, Facebook is hardly a benign presence. In Boing Boing, Dean Putney wrote a scathing takedown of the Facebook-Oculus deal; here's a quote:

The problem isn't that Facebook is going (to) ruin Oculus, by plastering it with ads and making it a pain in the ass like everything else they've shat all over. Although that wouldn't be a surprise. The problem is that this was an opportunity for something different. And it just died.

I don't think that the acquisition is as "soul crushing" as Putney believes; Facebook has said that Oculus will be run independently, and its offices will likely remain in Orange County, at least for a while. In addition, we're unlikely to see the consumer version of the Oculus Rift until next year, and that gives competitors an opportunity to catch up. However, paradoxically, the same funding that makes the Oculus Rift less risky as a development platform increases the risk that Facebook will turn it into a platform that you wouldn't want to develop for. I don't have a good counterargument to give to the people who believe that Facebook will "shit all over" Oculus, other than you should be okay if you develop for multiple headsets, not just the Oculus Rift.

What determines whether a Kickstarter project will succeed or fail?

A paper published in July (PDF link) by Wharton professor Ethan Mollock tried to identify the elements that determine whether or not a Kickstarter project will be successfully funded. Professor Mollock and his assistant Jeanne Pi compiled information on 24,503 projects that were fully funded, 26,483 that failed, 4.073 that were still raising funds at the time that the research took place, and just over 100 cancelled projects. After removing projects with very small (under $100) and very large (over $1 million) goals, and foreign-based projects, the researchers were left with 46.902 projects representing $198 million in pledges.

Here's a summary of the team's findings (note that I use the term "average" instead of "mean"):

• 47.9% of the projects studied were fully funded.
• Projects tend to either fail by a large amount or succeed by a small amount:
• 87% of the projects that failed raised less than 30% of their goal. Only 10% of projects that failed raised even 30% of their goal, and only 3% raised 50% of their goal.
• 25% of projects that did get funded were 3% or less over their goal, and 50% were about 10% over their goal. Only about 11% reached double their goal. The remaining 4% achieved more than double their goal.
• The average level of funding for all projects was 10.3% of the goal.
• The average amount raised by an unsuccessful project was $900, and the average raised by successful projects was $7,825.
• No very small projects (goals of $100 or less) or very large projects (goals of $1 million or more) were funded.
• The maximum project duration has been shortened by Kickstarter from 90 to 60 days, but 30-day projects were a bit more likely to be fully funded than 60 days (35% vs 29%.)
• Perceived project quality, defined by the researchers as having a video, was very important in determining whether or not a project reached its goal. Projects with a video had a 37% chance of success, while those without videos had a 15% chance of success.
• Featured projects were far more likely to be successful than those that weren’t featured (89% success for featured projects vs. 30% for unfeatured projects.)
• There’s a direct correlation between the number of Facebook friends that the project founder has and the chance of success: A founder with 10 Facebook friends had a 9% chance of success; 100 friends gave a 20% chance of success, and 1,000 friends gave a 40% chance of success.
• Projects based in cities with a high percentage of workers in creative professions had a greater chance of success than those in cities with a low percentage of creative professionals.
• Only 5% of fully funded projects failed to deliver their intended goods or services, but there were usually substantial delays in delivery. Of the projects that the researchers measured that delivered products, the average delay was 1.28 months.
• Only 24.9% of the projects delivered on time, and 33% had yet to deliver as of the end of the study.
• The more complex the project, the greater the delay in delivery. The more that the project exceeded its goal, the greater the delay in delivery.
• Project category has a direct effect on project success: Based on four different models, video projects have the greatest probability of success, followed by dance and then theater. Design, film & video, music, comics and food follow in a fairly tight cluster. Publishing projects have the lowest probability of success.

Based on the researchers' findings, there are some practical suggestions for people considering Kickstarter campaigns:

• Don't go for a very small goal, hoping that it will make it easier to get funded. The average amount that funded projects raised was almost $8.000.
• Go for a 30- to 45-day project duration rather than 60 days.
• The more Facebook friends (and, by extension, other social media contacts) that you can promote your project to, the better.
• Projects that were featured by Kickstarter had by far the best chance of success--89% of featured projects were funded, vs. 30% that weren't featured. The Wharton team didn't look at which attributes make it more likely that a project will be featured.
• If your project doesn't get featured, the more publicity that you can get from sources outside Kickstarter, the better.
• Having a video to promote your project will more than double its chances of getting funded. However, the study didn't look at whether the quality of the video has an impact on funding success.

Togather lets authors crowdsource book tours

Here's an interesting idea for author promotion--although it's just entering beta testing. Togather is a new website that brings crowdsourcing to book tours. Authors post their profiles and calendars of days available for promotional events. Fans can then propose events, or authors can create their own events. Togather lets authors negotiate terms and conditions for appearances within the service, including pricing (which is going to be moot for most authors, especially new ones.) Once the events are created, people are encouraged to promote them to their friends on social networks. Authors can set criteria for confirming their appearance--number of tickets sold or RSVP, or number of books sold--and when the goal is reached, ticket and book sales are processed by Togather and the event is on.

I can see Togather as being very valuable to established authors as bookstores close and the number of legacy venues for book tours declines--although authors with big social media presences can do much the same thing from their own Facebook pages and websites. I'm not sure how valuable Togather is going to be for new authors, unless it's one component in a much bigger marketing campaign.

HarperCollins Launches Epic Reads, a Community Reading Site for Teenagers

PaidContent reports that HarperCollins has launched a digital community site for teenagers called Epic Reads. The site serves as an "umbrella" for three "channels": The main epicreads.com site; pitchdark.com, which features “a curated list of titles that appeal to readers of dystopian and paranormal fiction”; and storycrush.com, which focuses on the “romance, realistic and contemporary fiction genre.”

The site allows users to log in with Facebook or Google, share and "Like" content, review titles, post comments, take polls and quizzes, enter contests, and search or browse for specific authors and titles. Each HarperTeen author has their own page, although the content on the pages is currently limited to links to their books and a picture of the author.

HarperCollins will be able to use the postings and activity on the site to build profiles of its readers. There's currently no eCommerce capability on the site and no sales links to external resellers, but its likely that the publisher will add one or both of these capabilities to Epic Reads over time.

Be careful when you partner with startups

There are so many startups launching new products and services every day that it's incredibly tempting to work with them. In many cases, they offer their services for free or at a very low cost in order to get customer feedback and build a user base. In the past, the big problem with startups has been the risk of their going out of business, but that was usually visible long before the companies actually failed--for example, they couldn't find financing, their reference accounts were weak, or they were asking for investments at the same time they were trying to make the sale. Today, however, there's a new trend that magnifies the risk that successful startups will go under, and if you're not careful, they could take your business with them.

In the last two days, "talent acquisitions" have resulted in the closure of two well-regarded web startups. Talent acquisitions happen when startups are acquired, not for their products but for their people. The acquirers tend to be industry giants, such as Google, Facebook, Microsoft or Apple. On Tuesday, Facebook acquired the talent running Strobe, a startup that had built a cross-platform app development system based on HTML5. Facebook didn't acquire the Strobe platform itself, and Strobe (or what was left of it) said that its service would remain available indefinitely in beta. However, with no one working on it, bugs aren't going to be fixed and new features won't be added. In other words, that parrot is definitely dead. There's still a possibility that the Strobe team may sell the software to someone else, but it's very unlikely given that the entire development team is gone. If you were developing your apps using Strobe, you're now faced with finding another development platform, and likely, rewriting your apps to work with that platform.

Today, Google acquired Apture, which offered a plug-in for browsers that enabled pop-up searches for almost every word on webpages, and a JavaScript add-on that allowed multimedia content from many sites, including Wikipedia, Google and YouTube, to be integrated into pop-up windows on blogs. Apture had customers using its service including The Economist, the Financial Times, Reuters, Scientific American and Scribd. Unlike the Facebook-Strobe deal, Google acquired all of Apture, but Google has decided to discontinue the Apture services within the next month, according to TechCrunch. The Apture development team with join the Chrome browser project.

The lesson is that you can no longer use the funding or success of a startup as an indicator that the startup will remain in business. A "successful" startup can be acquired and its services can be shut down or left in limbo by the acquirer. So, what can you do to protect yourself?

• Be very cautious about building your product or service on top of an API offered by a startup. If anything happens to the startup or API, you may have to go into crisis mode to replace it.
• Make sure that you have a way to export any data that you don't already have copies of, and keep a local backup.
• Closely review the terms of service for any startup that you work with. If necessary, you should propose a revision or addendum that gives your company non-exclusive rights to continue using the service or software if the startup, or its acquirer or investors, decide to discontinue it. That may require you to host the service yourself or take possession of the software and source code from an escrow account.
• If the startup is providing hardware that's essential for your business, you should buy sufficient additional units and/or replacement parts to meet your needs long enough to transition to other hardware.

I'm not suggesting that you shouldn't do business with startups, but you should exercise caution. A good "Plan B" is an essential insurance policy.

Why the Burson-Marsteller/Facebook blow-up won't change anything

You've probably read about Facebook's botched attempt to smear Google by planting stories about alleged privacy threats in a little-used Google service called Social Circle. Facebook hired public relations firm Burson-Marsteller to plant the stories, and the PR firm assigned two recently-hired former journalists, Jim Goldman and John Mercurio, to execute the plan.

The two reporters-turned-flacks had no success in getting the story picked up by conventional media outlets--in fact, Goldman's pitch to USA Today turned into a story not about Google but about Burson-Marsteller's fevered attempt to convince the magazine to write negatively about Google. When USA Today independently investigated Burson-Marsteller's claims, it found them to be "largely untrue", at which point Goldman stopped talking to the newspaper. As an alternative, Burson-Marsteller turned to bloggers. Mercurio pitched the story to blogger and security expert Chris Soghoian, going so far as to offer to assist in the writing of the blog post, which Mercurio would then pitch to a variety of sites, including the Huffington Post. Soghoian asked Mercurio who his client was, Mercurio refused to answer, and Soghoian published his email correspondence with Mercurio on the web.

Dan Lyons at The Daily Beast picked up on the story, and got Facebook to confirm that it was the client behind Burson-Marsteller's efforts. Once Lyons' story hit the web, interest in what had happened exploded. Burson-Marsteller announced that, in essence, the problem was all due to Facebook, and it would no longer work for the firm. Facebook announced that it hadn't instructed Burson-Marsteller to plant the Google story in the way the PR firm attempted, but that it (Facebook) was justified in its actions, in large part because Google was mining Facebook's own data in order to offer Social Circle.

Industry observers were expecting both Burson-Marsteller and Facebook to fire some of their employees as a result of the fiasco, but it hasn't happened so far. In fact, Burson-Marsteller has announced that it won't fire anyone, but will give the involved employees "additional ethics training." The question is, why not fire them? The probable reason is that any employee who Burson-Marsteller fired would file suit against the company for wrongful termination. The discovery process for the suit would in turn reveal that Burson-Marsteller management approved the plan, and possibly even conceived of it in the first place. It would further reveal that Burson-Marsteller runs these kinds of campaigns for its clients on a regular basis, and that the problem with this particular campaign wasn't that it violated the company's ethical standards as actually practiced, but that the company and its client got caught.

But what about the ex-journalists who executed the scheme, Jim Goldman and John Mercurio? They were almost certainly hired specifically for their journalism experience and connections. Goldman was most recently CNBC's Silicon Valley reporter, and worked for a number of publications and networks over the years, including the San Jose Mercury News, Silicon Valley's hometown newspaper. Mercurio was most recently the Executive Editor of the National Journal's Hotline, and prior to that was Political Editor for CNN; Burson-Marsteller itself claims that Mercurio has more than 20 years of journalism experience.

Shouldn't Goldman's and Mercurio's decades of journalistic experience have led them to conclude that the campaign they were executing on behalf of Facebook was unethical? And if it didn't, will a few hours of ethics training make either man any more ethical? (Update, May 18, 2011: According to Burson-Marsteller's own website, Jim Goldman got a B.A. degree from Brown University in Ethics in Political Journalism and Political Philosophy. I guess the saying that "most people don't retain much of what they learned in college" must be true, at least in Goldman's case.)

My belief is that neither man objected because Burson-Marsteller's tactics are, in fact, common practice. They no doubt were on the receiving end of such campaigns, and quite possibly actively participated in them as journalists. They saw no ethical conflict because that's how things are actually done.

The reputation of the journalism profession in the U.S. has fallen to the level of used car salespeople. If you want to know why, you need to go no further than to consider how many other reporters and editors with Goldman's and Mercurio's ethical standards, or lack thereof, are writing the news that you're reading, listening to and watching. If those two men are in any way representative of the journalists employed by this country's media outlets, the journalistic profession deserves its reputation.

As for Facebook, no one should be surprised that it would be behind a smear campaign, and that it would react with righteous indignation when asked to apologize for its conduct. Anyone who has followed Facebook knows that the company has a habit of regularly changing its privacy controls and rules to make it harder for users to control how much of their information is made public, and of positioning users' losses of privacy as "improvements" until third parties reveal the truth. To say that Facebook is "ethically challenged" would be an understatement.

Given all that, I have no expectation that this fiasco, compared by Dan Lyons to a Keystone Kops episode, will result in any meaningful changes at either Burson-Marsteller or Facebook, other than that both companies will work harder not to get caught in the future.

Google and Facebook: More similar than you might think

Google and Facebook are physically located fairly close to each other, in Mountain View and Palo Alto, California respectively, but they do very different things: Google is primarily a search engine, and Facebook is a social networking site. Dig beneath the surface, however, and you'll find that the two companies are actually very similar: Both of them sell your personal information in order to make money.

Google uses your search queries to feed you targeted advertising. If you use Gmail, Google displays ads based on the subject and contents of your emails. It targets ads to you on YouTube based on what you watch. If you use a Google location service, such as Google Maps, it points you to advertisers in your area. Google claims that it doesn't warehouse or mine the information that you give it, but it sucks up enormous amounts of data, and it's nonsensical to believe that Google isn't correlating that information.

Facebook, on the other hand, gets you to give it as much personal information as it can so that it can send you targeted advertising. The company also sells your information to its partners so that they can send you advertising and target their sales messages to you. Facebook correlates the information that users provide with that of their friends to build a comprehensive demographic and psychographic profile of each user. Most of Facebook's "initiatives" over the years have been attempts to convince its users to give it more of their personal information, changes in policies to make more of that information public, or programs for monetizing that information.

Whenever either company introduces a new product or service, it's important to ask: How it will generate more salable information or offer more opportunities to monetize that information? At their core, that's what Google and Facebook are all about.

What do Mark Zuckerberg and "The Producers" have in common?

I now direct your attention to the curious case of Paul Ceglia, who filed suit on June 30th in New York state Supreme Court against Mark Zuckerberg and Facebook, asking to be awarded 84% of Facebook. Ceglia submitted a copy of an agreement that he claimed he entered into in 2003 that required Zuckerberg to create a website for Ceglia's company. Tied together with that project was an agreement for Zuckerberg to sell Ceglia a 50% interest in "The Face Book". Ceglia paid Zuckerberg $1,000. In addition, a clause in the contract required Zuckerberg to give up an additional 1% ownership for every day after January 1, 2004 that "The Face Book" didn't go live. The website, at thefacebook.com, finally went live on February 4, 2004, and Ceglia claims that due to the delay, he's owed an additional 34% of the company. The entire lawsuit, including the contract, is viewable at Scribd.

Ceglia has his own problems; he's under investigation in New York state for fraud relating to his wood pellets business. Ceglia waited more than six years to file his lawsuit, and it was filed in a New York state court, not U.S. Federal court. The contract itself is a mess (I'm not an attorney, but I've read a few business contracts in my day, and this one could be an example of "Ten things not to do in a contract.")  The easy conclusion would be that Ceglia had faked the contract, faked Zuckerberg's signature, or otherwise engaged in some kind of fraud. However, that's not what appears to have happened.

Neither Facebook nor Zuckerberg's attorney have come out and said that the contract is a fake. When asked directly by the U.S. Federal Court judge who's taken over the case if Zuckerberg actually signed the contract, his lawyer said "Whether he signed this piece of paper, we’re unsure at this moment." That's a pretty startling statement by defense counsel. If Zuckerberg didn't enter into the contract, his statement to his counsel would be a straightforward "No", and that's what his attorney would have told the judge. However, it appears that Zuckerberg and Facebook are hoping that Ceglia can't produce an original copy of the contract. If not, and all that Ceglia can provide is a facsimile, it makes the case for the authenticity of the contract much weaker. In essence, what Zuckerberg's lawyer said is that they don't know if he signed that particular piece of paper, not that he signed a contract in general. In fact, Zuckerberg's attorney has admitted that Zuckerberg entered into a contract with Ceglia to build a separate website for him.

Facebook and Zuckerberg's counsel are also arguing that the statute of limitations has already run out on any claim that Ceglia could make. In addition, given the enormous amount of publicity that Facebook has had over the years, and the publicity that sales of equity holdings in Facebook have had, Ceglia had an obligation to take action to protect his interests and mitigate losses of other investors.

There's a good chance that Facebook and Zuckerberg will prevail on their arguments, even if Zuckerberg did enter into the contract...but if did he enter into the contract, why? Facebook has already had to pay a $65 million settlement to the Winklevoss brothers, who originally contracted with Zuckerberg to create the website that eventually became Facebook. If Paul Ceglia's contract is shown to be authentic, even if it can't be enforced, Zuckerberg sold him 50% of Facebook for $1,000. Why was Zuckerberg apparently selling Facebook to everyone he could find? It sounds like the plot from "The Producers"; perhaps he thought that "The Face Book" would fail, and he'd keep everyone's money, or perhaps he desperately needed the money for some reason.

In any event, would you like to have this man running your $20 billion dollar valuation business?

Monthly time spent on site: Good for Google and Facebook, Bad for Yahoo and Aol

According to Silicon Alley Insider, comScore's monthly report for total time spent on popular U.S. Internet sites as a percentage of time spent on all Internet sites is a mixed bag: Good news for Google and Facebook, bad news for Yahoo and Aol, and more disappointment for Microsoft. Here's the chart:

Google is now the leader in terms of total time spent on its sites; in June, its share passed that of Yahoo for the first time. Facebook is an even more impressive story; its share is close to that of Google, and if the two companies stay on their trend lines, Facebook is likely to pass Google within a year.

Yahoo's share has been trending down for six quarters, and in June, the company had its lowest time spent on site since comScore started keeping records. Aol is on an almost three-year-long downtrend, and now has the smallest share of any of the leaders. It's hard to argue that, unless something radical happens, Aol could drop to a 2% share by the middle of 2011.

As for Microsoft, despite the billions of dollars that the company has invested in its online businesses over the past few years, the company's share of time spent was almost identical in Q2 2010 to what it was in Q3 2006. In other words, all that money just kept Microsoft even.

The traffic contest has turned into a three-horse race, and one of the horses (Yahoo) is starting to pull up lame.

Who will be the next Facebook?

So, what happens if Facebook doesn't change direction and starts taking its members' privacy more seriously? If it keeps talking about the "wonderful gifts" it's giving the web without taking responsibility for the problems that it's causing? If it responds to the current firestorm with a few kind words and empty gestures, and then goes right back to what it's been doing?

Let's be clear: Facebook can be replaced, and it is expendable. MySpace replaced Friendster, and Facebook replaced MySpace; ergo, Facebook can be replaced. There's no major technical challenge to building a social network. Unlike a search engine like Google or Bing, whose value is based on the years of development that has gone into its algorithms, the value of a social network resides in its members. The more members, the more valuable the network is. If Facebook loses its members' trust, they will find alternatives. They're not the "dumb fucks" that Mark Zuckerberg and some members of the press seem to think they are.

I hate to use the "critical mass" cliche, but Facebook doesn't need to lose a lot of members for it to become "last year's" social network. Social networks, almost more than any other institution, live or die on the appearance of momentum. There are alternatives already in the market that could take advantage of the situation, and new ones that are likely in development that have learned from Facebook's mistakes.

Facebook can become MySpace, and it's on the road to doing so unless it makes major structural, not superficial, changes. Investors should keep their chips warm, because the social network business, which has become "Facebook and everybody else", could change dramatically.

Four simple things that Facebook can do to regain its users' trust

There's no doubt that Facebook is in a "heap of trouble" due to changes in its privacy policies, but there are four simple things that the company can do to regain trust and help to prevent future flare-ups:

1. The company has to stop assuming that "what's mine is mine and what's yours is mine" when it comes to personal information. It has to stop making more and more of its members' information public.
2. When the company introduces new features that will expose more personal information, it needs to make the announcement well ahead of implementation, and give its members an easy way to opt-out.
3. There needs to be a way for members to say "I want my information to be made available to friends ONLY" without having to make dozens of selections. The current fine-grained controls are confusing and are leading members to deactivate their profiles or leave altogether for fear of missing some critical settings.
4. Mark Zuckerberg needs to make a public statement that he and the company have heard the complaints, understands them and is taking action, now and in the future, to anticipate privacy issues and protect users' privacy.

Here's the downside: If Facebook does a "mea culpa" and then changes the rules again a few months from now, the company is likely not to survive the firestorm, at least in its current configuration.

Go where the talent is

TechCrunch wrote today about two companies opening new geographic outposts: Facebook is planning to open an engineering office in Seattle, and Chicago's Groupon has acquired mobile application developer Mob.ly, which is currently based in San Francisco, and will move it to a new Groupon Silicon Valley office in Palo Alto. In Facebook's case, the company is probably looking to tap into engineers that work at MySpace's Seattle offices, as well as talent from Microsoft and Amazon. Groupon's CEO Andrew Mason made it clear that has company has had difficulty getting talent to relocate to Chicago from Silicon Valley, so Groupon will go where the talent is.

Opening up satellite offices is hardly a new tactic; Google has had a Chicago office ever since it purchased Feedburner, and has large operations in New York, Pittsburgh and other cities. Microsoft's Silicon Valley engineering center is in Mountain View, a couple of miles from the Googleplex. Amazon's A9.com search engine operation is headquartered in Palo Alto, and it designs its Kindle hardware at its Lab126 in Cupertino, not far from Apple's headquarters. The point is that all these companies found it easier or more cost-effective to find the talent they needed in cities other than their headquarters.

You don't have to have a billion-dollar valuation to play at this game. Chicago's 37signals is perhaps one of the best at using virtual offices to get the talent it needs without relocation expenses or physical offices. Probably half of 37signals' team is scattered across the U.S. and Europe; they use the company's own tools to communicate and keep in sync.

VCs often demand that startups relocate to Silicon Valley, New York or Boston so that they can be close to investors and talent. However, it's far more cost-effective to create outposts where the talent is than it is to move everything to a region that quite often has much higher costs of living and doing business.

Hey kids, let's play Facebook Privacy Roulette!

Let's put two Facebook tricks together to violate a random person's privacy:

1. Type "http://graph.facebook.com/nnn" into your browser, where nnn is a number from 1 to who knows how big (try 4 and see who you get). If Facebook returns "false", try another number.
2. Open up another browser tab or window and type in "http://zesty.ca/facebook/". When the page opens, type the same number (nnn) that you typed in step 1 above, and find every piece of public information stored about that person on Facebook.
3. If you know your own Facebook ID number, type it in and find out everything that Facebook knows about you that it's making available to others.
4. If you don't like what you see, change your privacy settings or disable your profile.

Facebook's new initiatives: Is the safest approach to wait and see?

I've been traveling for a few days, so this is the first opportunity that I've had to cover the announcements that Facebook made on Wednesday at its F8 Developer Conference. The biggest announcements were:

1. The Open Graph protocol, which enables website developers to integrate their sites and content into the Facebook social graph, primarily by providing descriptive metadata and adding "Like" buttons that allow Facebook users to share content and preferences with their friends.
2. A library of plugins that provide drop-in access to Facebook features for website developers and bloggers.
3. A new, simplified Graph API that's dramatically easier for developers to use and supports industry-standard OAuth 2.0 authentication.
4. Removal of the requirement that developers purge the personal data that they get from Facebook every 24 hours, requiring users to reauthorize access. Now, developers can keep and use the data indefinitely.

With these announcements, Facebook has become both a much richer social services integration platform and a much easier platform for developers to use. However, the response to the announcements has been mixed. The reason is Facebook's "shoot first and ask questions later" approach to privacy protection. You may remember Beacon, an ill-fated Facebook initiative launched in late 2007 that sent member's information to selected websites in order to allow those websites to personalize ads and content, and that sent web browsing history from the participating sites back to Facebook. Initially, Facebook members had no way to opt out of Beacon, but the company was forced to offer an opt-out option a few months later after enduring a firestorm of criticism. Facebook shut down Beacon entirely in September of last year.

Late last year, Facebook made dramatic changes to its default privacy settings, which made public an enormous amount of personal information that had previously been private. The company promoted the changes as a big benefit for members, but a backlash from privacy advocates forced the company to publicize its changes in more detail and make it easier for members to restrict access to their personal information.

Now, Facebook has introduced these new initiatives, which will enable potentially all the information that members have listed as "public" in their profiles to be shared with participating websites. In light of yesterday's announcements, Facebook's actions on privacy defaults last year now make more sense...for Facebook. By making much more personal information available publicly by default, Facebook's new services are far more valuable to partners and advertisers.

Facebook's previous "tone-deafness" about privacy issues and inability to think through the ramifications of its actions suggest that there could be some dangerous consequences, both intended and unintended, for Facebook's members, partners and the company itself. If I were considering implementing Facebook's new features on my website, I'd wait a few months for the inevitable privacy and technical issues to be addressed. As for Facebook members, they should go to their profiles immediately and decide whether or not they want to share their "public" information with Microsoft, Pandora, Yelp and who knows who else in the future.

Update: The Electronic Freedom Foundation is weighing in on some of the changes made by Facebook. It turns out that under Facebook's new scheme, there is no way for members to prohibit sharing of certain information, including (but not necessarily limited to) current city, hometown, education and work, and likes and interests, with Facebook's partners. In other words, that information becomes public, and you have no way of limiting access to just your Facebook friends unless you remove the information altogether. EFF is recommending that Facebook members protest the changes and/or remove the information, while TechCrunch reported that the changes are causing a number of Google's engineers, including some of the company's best-known privacy advocates, to leave Facebook altogether.