Does Facebook's Revenue Matter?

The Power, Drugs & Money conference at the Seaport Hotel has brought together an interesting mix of people ... Jim Gordon of Cape Wind is speaking now, and I just bumped into someone from the Boston Redevelopment Authority and Noubar Afeyan from Flagship Ventures in the hall.

The first morning panel focused on innovation in New England, and was moderated by Chris Gabrieli of Bessemer Venture Partners and the Massachusetts 20/20 Foundation. Panelists included Bob Buderi from Xconomy, Doug Banks from Mass High Tech, Bob Krim from the Boston History and Innovation Collaborative, and me.

Krim said that Boston has a good track record of gravitating to new ideas once old ones lose steam. (For a long time we fished for cod... then we focused on the telegraph and telephone... later, we invented minicomputers and e-mail.) Krim also has a nice term for the interactions that happen here between investors, entrepreneurs, tech users, and academic researchers. He calls it the "bump and connect."

Doug Banks had a nice turn of phrase when he said that developing technologies that produce cleaner power is "the noble pursuit of the day." I agree, even if some worry about it becoming a bubble.

We bashed Harvard a bit, which Gabrieli suggested looks down upon the process of commercializing new ideas. I mentioned Facebook at one point ... if Harvard had more VCs prowling the hall, or had more of an entrepreneurship infrastructure forging connections with the local innovation economy, would more than one local investor have seen the Facebook deal before the founder moved to California?

Banks said that Facebook doesn't have impressive revenues, and is probably overvalued. He mentioned that the #2 e-commerce vendor, after Amazon, is Staples.com, headquartered right here in Massachusetts. I said to Doug afterwards, that's great, but how many smart young people are moving from Kansas to Massachusetts because they want a job with Staples.com? And how many smart young people are moving from Kansas to California because they want a job with Facebook, or one of the zillions of Facebook app developers out there?

Someone in the audience complained that as venture firms raise larger funds, they tend to be less interested in backing early-stage companies started by wet-behind-the-ears founders. I mentioned some of the new early-stage, smaller venture funds that have started up in the last year or two.

The opening keynote speaker was John Kao, author of 'Innovation Nation.' He offered a picture of what other countries, like Singapore and Finland, are doing to try to build hubs of innovation.

I see countries like those, and states like North Carolina and Michigan, playing offense: trying to attract smart people and fast-growing companies. Our job here (in the US, and in Massachusetts) is to play both offense and defense.

Peabody on Facebook

The buzz in the blogosphere today is about whether Microsoft or Google is about to make a big investment in Facebook, valuing the site somewhere in the neighborhood of $10 billion. The Wall Street Journal's Deal Journal blog looked to Bo Peabody (founder of Tripod, an early homepage-building site acquired by Lycos, and Village Ventures) for some perspective. A snippet:

There are two ways to look at it. There is the purely financial decision, and the other is something different than that. If those guys were doing the risk-adjusted thing, financially they would sell. I just think that the market, if you look at the history of media, it is by nature a consolidating force. Typically things get consolidated. I don’t think that’s a great thing for consumers, but there is serious economy to ad sales. And they haven’t built a real ad sales organization. In order to do that it’s very expensive. Very expensive. Digital ad sales at the entry level are getting multiple six figure salaries. They have to think carefully about that.

Today's Globe column: Why Facebook Went West

Ever since I moved back to Boston from San Francisco, I've been wondering about the story behind why Facebook was started at Harvard but has been based in Palo Alto, CA ever since the summer of 2004. So that's the topic of today's Globe column. Here's the opener:

In April of 2004, two Harvard undergrads walked into the Charles Hotel for a meeting with a venture capitalist. What happened next either highlights Boston's deficiencies as a greenhouse for a new generation of Web start-ups, or illustrates the incredible magnetism of Silicon Valley - or a bit of both.

I didn't get to talk with Facebook CEO Mark Zuckerberg for the piece, unfortunately, but pretty much everyone I spoke to said that he had his heart set on going to Silicon Valley for the summer after his sophomore year. (I do believe that for aspiring techies, Silicon Valley exerts a powerful pull the way Hollywood does for aspiring actors.) Scott Tobin of Battery Ventures, the one VC firm I could find that was aware of Facebook in early 2004, wrote in an e-mail:

Zuckerberg was into going out to Palo Alto for the summer if I remember correctly, however it’s impossible to tell if whether he had influential advisors in NY or Boston working with him & suggesting to him that Boston was his place – that he would have considered doing so.

Peter Thiel, co-founder of PayPal and the first investor in Facebook, said:

I think there was a sense that it made sense to start an Internet company from California. It was seen as a friendlier environment. It is really amazing that people in Boston missed out on it, even though it was a very risky deal, with lots of open questions.

David Sze, a partner at Greylock, said, "There is definitely an ecosystem advantage [in Silicon Valley]. There isn't a history for consumer Internet on the east coast, and I think Mark sensed that and wanted to have every advantage."

I mention the large number of local companies now building Facebook apps in the story....while I don't want to try to be comprehensive here, there are apps from Kayak.com (just launched today - a nifty one that lets you spin an animated Globe and then answer travel trivia), Tourfilter, Fafarazzi, TripAdvisor, StyleFeeder, OurStage, Finetune, GoLoco, Geezeo, and Plum.com.

The video that accompanies this week's column is an interview with Stephen Kaufer, co-founder and CEO of TripAdvisor, a Web 2.0 company founded here in Boston that stayed. In it, he talks about raising money, building a team, and staying flexible enough to find a business model that would work. (TripAdvisor was acquired a few years back by InterActiveCorp for $200 million.)

Facebook faces the music

Today's the day, in US District Court in Boston, for a hearing in the legal dispute between ConnectU, a social networking site with 70,000 users, and Facebook, a Palo Alto company with about 31 million users. Both sites were founded at Harvard, by undergrads. The issue in dispute is whether Facebook founder Mark Zuckerberg stole ideas from ConnectU's founders, for whom he was writing software code, and then created Facebook.

Valleywag has a chronology of the charges and the legal wrangling, and the Cape Cod Times has an AP story.

The social networking site is experiencing hyper-growth ever since it opened up registration to anyone -- not just high school or college students. Zuckerberg moved Facebook from Boston to Silicon Valley in June 2004. This lawsuit was initially filed in September of that year.

Update: Judge seemed unimpressed by ConnectU's argument, according to News.com, and case won't see much more action until the fall.