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John Sciacca Writes...

Features, Reviews and a Blog by John Sciacca

Random Thoughts (Blog)

Random Thoughts (Blog)

Where's all that money coming from?

Posted on August 11, 2011 at 4:45 PM

“You tell me what you know, and I'll confirm. I'll keep you in the right direction if I can, but that's all. Just... follow the money.” – All The President’s Men

One of the most common investigative strategies used to try and solve a big case or track down some hidden nefarious Don Mega is to follow the money. Because it has got to go somewhere. (Mattress hiding having been out of vogue since the 20s.) And the more of it there is, the more paths you can trace down until ultimately, you’ve got Al Capone sitting in Alcatraz dying of syphilis.

But more than just where the money GOES, sometimes you have to wonder where the money comes from. Big giant piles of money don’t just usually show up for having a great personality.

The simple fact is that very few people or things in this world do something – or ANYTHING – for nothing. There is almost always a catch involved. Sure, you might get to the Bill Gates level of Benevolent Magnanimous Benefactor where you can spread your billions around the globe like soothing cash balms, asking nothing more in return than perhaps a giant tax offset and raising your own legacy and legend of good will. But, for the rest of us, there is usually some kind of payola involved. People wants ta gets paid.

This becomes even MORE true when you are not dealing with an individual but rather a faceless, soulless, money-and-power seeking company. With a board of directors. And investors. Those people have the do-it-for-the-good-of-man sense of Genghis Khan. Except with generally better tailored attire and superior grooming habits.

So, I was looking through another issue of the Bloomberg Businessweek the other night – I know, I have GOT to get to the library – when I came across story after story of $100+ million dollar tech company valuations and buyouts and takeovers and mergers and it got me to thinking…how the hell do these people make all of this money?

Not from the, “Wow! I wish I had 100 million dollars!” mindset, but from the purely analytical, just mind-boggling curious HOW do they ACTUALLY get their money? Where does it come from? They aren’t selling anything, they aren’t charging anything, they don’t have a “click to donate” button. What makes them worth $1 let alone $100 million?

I used to wonder about Google. I mean look at ALL of the things that Google offers to you for totally free. There’s the search, of course. Almost everyone uses Google to the point where searching for something – “I’m gonna Google it” – has become the ubiquitous equivalent of asking for a Kleenex. They also offer blogging and analytics services. There’s G-Mail. There’s Google Earth and Maps. They have YouTube and Picasa. Now there’s Google+ which may circle itself into the next big thing or it might just end up being the most giant, uber-funded middle-finger pointed at Zuckerburg ever. They have Books and Translators and Doc readers and GooglePhone and… Seriously an AMAZING wealth of services. And it all costs you….absolutely nothing. Not…one…red…cent. Yet it costs Google money. Real money, not AdSense credit money. $1.65 BILLION for YouTube alone. Plus you’ve undoubtedly read what a sweet-ass-sweet place Google is to work. What with the chefs and the masseuses and the relaxation and stimulation rooms and whatnot. Plus, I’m guessing a starting salary at Google has got to be at least 70-80 grand. And that’s probably for someone running the sweet cap machine in the relaxation room. Programmers probably make well over 6-figures. How about all of the Google Doodles? Those clever little uses of the Google name that change almost daily don’t come up with themselves, nor do they code themselves, nor track their own popularity as an Internet meme. (Wait. They probably actually do that last bit.) Some team somewhere is coding those things. Cute? Sure. Clever? Absolutely. Brining one penny to the Google bottom line? Not that I can see.

But, even with all of those non-money-makers, when it comes to Google, you CAN follow the money. They make an ASS load of money off of the ads on searches and AdSense. It is pretty much THE 21st Century advertising vehicle. But still, even with all of that, I still don’t get the wealth of other services. Like, how does mapping the world and then providing all of that info totally free of charge help them? Uploading and viewing videos on YouTube is free – and devoid of ads as far as I can tell – so, again, why? Where’s the money? Would you stop using Google search if they took away your Picasa account or if they suddenly decided to charge you $5 a month for G-Mail? Probably not. And, Google WANTS you to keep your Gmail account, as they have acknowledged scanning the content and context of your email as part of their ad system, allowing them to TRULY target you. Alex Gawley, Google's senior product manager overseeing Gmail, commented Gmail analyzes context as well as the content of an individual message looking at “signals in your inbox, like whether you open messages with particular keywords and don't open those with other keywords." But, that’s a small price to pay, right? You know, letting a Google-bot read and analyze your every in and out message. (Sarcasm...)

But, we’ll just take Big G off the table. I SEE how they make money. I may not fully understand why they spend all of it the way they do, but, it’s like Nelson Muntz said, “Meh, gotta nuke somethin’.”

But how about other things like FaceBook, LinkedIn, Twitter, Pandora, AOL, and Wikipedia...

FaceBook has like more users than the national debt, but they don’t charge any of them a penny. I’m not sure how many server farms or redundant backup facilities or staff or whatever it takes to house and manage all those members and all their information, but that’s got to be a ton of overhead. Plus, you know they’ve got a couple of employees that probably want to be paid in more than just Facebook credits, so there’s that cost. And they are valued at many MANY billions. Just ask the Winklevoss twins; those guys LOVE talking about how much FB is worth. Obviously, their money in coming in in truckloads from somewhere. Are that many people really buying stuff for Farmville and Mob wars?  Is it from ads? Cause do you seriously know anyone that has ever clicked on one of those ads? From the (is it true, is it a hoax?) threatened attack by Anonymous, Facebook clearly seems to take a very laissez-faire attitude towards privacy concerns. Actually, that’s not right; that implies a let-it-be attitude. FaceBook has a more Soviet Union KGB approach to gathering information. You know, they’ll just take EVERYTHING and then decide what to do with it. Hey, don’t blame them; YOU clicked on that Accept bubble! Maybe they are just turning around and selling all that info to people. Over and over. Using your info like Matrix-human-battery-juice to run the empire.

LinkedIn has premium access you can pay for, but seriously, why? So you can send an InMail or an introduction or maybe see who has looked at your profile or something? I’ve used the service for a couple of years, have made a lot of “friends” (using the loosest definition of the word imaginable) and have never felt the need to pony up more than the $0.00 it took to open my account. And yet LinkedIn just had an IPO that ended the day valued at $8.9 BILLION. For a service that is FREE to the majority of its users. Seriously….WHAT AM I MISSING HERE?!

I just recently started using The Twitter (@SciaccaTweets yo!) and while I have noticed that any mention of iPad will almost immediately return some form of spam-tweet – Note to Twitter users: if the graphic is a quasi-attractive girl followed by some link, don’t bother! – I haven’t noticed any ads or pop ups that resemble any way of Twitter making money. Just, you know, a ton of people jibber-jabbering away, 140-free characters at a time. Who’s paying for the infrastructure and those cute little blue bird graphics?

Pandora has a pay model, but I don’t know anyone that actually pays. Do you? And what is it, like $10 a year or something? Honestly, I like Pandora, I do, but they repeat the same songs over and over and if you’re gonna pay, use Rhapsody or Napster or Spotify. (Well, read my post first. Then decide which one to use. That's me; I'm a giver.) They say you get like 40 hours of free listening a month, but I’ve never been cut off. (Though, to be honest, I only really run it at home, so I’m probably not anywhere near pushing the cap.) I think it says that it’s ad supported, but I never hear any ads. I stream using my Marantz processor and I put a station on and it just plays and plays… Sure, there’s a ton of Jack Johnson, and maybe that’s their hook. Maybe o’le JJ is paying them $1000 every time one of his tunes comes on. At that rate, invest HEAVILY in Pandora, because JJ tunes are inescapable.

AOL used to charge but now doesn’t. I’m sure there are people still out there paying – Hi, dad! – but I think most people have migrated away from sending AOL any checks to free service like, oh, anything else. (For the record, yes, I have an AOL e-mail address. And, no, I don’t pay anything for it. And, yes, I realize that is about as newb as it gets. But I’ve had it for like 17 years now, and it is now like one of those roots that is so deeply intertwined in a plant that if you tried to cut it out, you would just end up killing the plant. So, I’m stuck with it. And, I don’t have to be like [email protected]; my address is simple and easy just the way I like it. And is always up and running. And get off my back about it! Hey, look, there's something over there...) AOL also owns MapQuest and AIM instant messaging, a couple of free services you might have used from time to time.

Wikipedia at least makes their finances known; they are fully supported by voluntary donations. I use the service a bunch – and love it – but have never donated to the greater good. It’s just that, uh, well, um, I’m actually a little light this month, Wikipedia. Can I catch you next time? Yeah? But I can keep using the service anyhow? Thanks, you’re a real pal!

These companies are definitely cool, and they are absolutely driving ideas forward and I’m thankful for them. But at the same time, I’m still totally confounded and confused by them. Because there are billions of tech dollar valuations going round and round, and I can’t understand where any of it is coming from. Or who’s paying. You got any ideas? I'm all ears...

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