Zuckerberg says the future is sharing via 100B messages & 1B Stories/day

The News Feed won’t sustain Facebook forever, and that’s scaring investors. Today on Facebook’s earnings call, Mark Zuckerberg stressed that sharing is shifting to private chat, where people send 100 billion messages per day on Facebook’s family of apps, and Stories, where he says people share 1 billion of these slideshows per day (though it’s unclear if that includes third-party apps like Snapchat).

But that means Facebook will have to realign its business towards these mediums where monetization is more complex and it has less experience. The result of Zuckerberg’s comments was a reversal of Facebook’s initial 2 percent share price gain after earnings were announced that dragged it down to a 3.5 percent loss. That was only reversed when Zuckerberg said Facebook would reduce limits on video advertising, pushing shares up 3 percent in after-hours trading.

Facebook’s year-over-year revenue growth has already slowed from 59 percent in Q3 2016, to 49 percent a year ago, to 33 percent now as Zuckerberg admits it’s hitting saturation in developed markets, plus it’s running out of News Feed space. Now it will both have to deal with the sharing medium shift, and that the new users it’s adding in the Asia-Pacific and Rest Of World regions earn it 10X less than users in North America.

Facebook shares climb despite Q3 user growth and revenue

Battling iMessage

In messaging, Zuckerberg says “People share more photos, videos, and links on WhatsApp and Messenger than they do on social networks.” He sees Facebook’s position as strong, saying “We’re leading in most countries”, though that’s mostly in the developing world Android market where people choose their own default messaging app. “Our biggest competitor by far is iMessage. In important countries like the US where the iPhone is strong, Apple bundles iMesssage as the default texting app, and it’s still ahead” Zuckerberg notes.

The “bundled” language harkens back to to antitrust lawsuits against Microsoft for bundling computers with Internet Explorer. With Apple CEO Tim Cook constantly harping on the poor privacy practices of ad-supported companies like Facebook, Zuckerberg might be gunning to draw regulator attention to iMessage.

Facebook is starting to more aggressively monetize Messenger through inbox ads, and its now selling enterprise tools to brands on both Facebook and WhatsApp that let them pay to ping users. But Facebook risks its chat apps seeming annoying or intrusive if it packs in too many ads or allows too much Message spam. Users could stray to status quos like iMessage and Android Messages if it puts monetization above the user experience.

Dominating Snapchat

On Stories, Zuckerberg says Facebook is doing even better. Over 1 billion people use its Stories features across Facebook, Messenger, Instagram, and WhatsApp each day, compared to 186 million daily users on Stories inventor Snapchat as a whole. Stories are where the majority of Facebook sharing growth is happening, and Facebook Stories are gaining momentum after a slow and buggy start. That’s why Zuckerberg never mentioned Snapchat, and instead talk about YouTube as its primary competitor in video.

The problem is that creating attractive video ads, especially vertical full-screen ones for Stories, is beyond the capability of the long-tail on small businesses that have fueled Facebook’s News Feed ad revenue. Users often rapidly skip through Stories ads, and Facebook currently doesn’t offer unskippable ones like Snapchat. Many people don’t think to tap or swipe up to visit a link from a Story, or simply don’t want to lose their place in ways that didn’t happen on desktop or even mobile feed ads.

Chasing YouTube

Beyond Stories, Facebook salvaged its after-hours share price by discussing how it plans to show more video, and therefore more of its lucrative video ads. Back in January, Facebook admitted its Q4 user count had declined and revenue might stumble in part because it had decided to show people fewer viral videos that they watch passively. This came as part of its drive for Time Well Spent. But now, Zuckerberg says that Facebook has cracked the code for how to make passive video consumption a positive experience, so Facebook will lift some limits:

“People really want to watch a lot of video. To a large degree we’ve had to rate limit its growth, and we need to do the things so we can stop limiting it. The things that have caused us to limit it are on the one hand, when we see passive consumption of video displacing social interactions . . . We needed to figure out a way that video can grow but people can also keep on interacting and doing what they tell us that they uniquely want from Facebook. And now I think we’re starting to work through what the formula is going to be so we can take some of those rate limits off and let video grow at the rate that it wants to. I feel that that’s a very exciting opportunity ahead.”

Across Facebook’s other products, Zuckerberg noted that 800 million people now use Marketplace, its Jobs feature have helped people find 1 million jobs, and its birthday fundraisers have raised $300 million alone this year. But it will be teaching advertisers how to effectively create sponsored messages and Stories ads that will define whether Facebook’s revenue keeps growing.

Facebook shares climb despite Q3 user growth and revenue

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NASA’s prolific planet-hunter Kepler has finally earned its retirement

After nine years of service, half a million stars surveyed, and thousands of planets discovered around those stars, NASA’s astonishingly successful Kepler space telescope is finally taking a well-earned rest. Out of fuel but in a safe orbit, the spacecraft will drift through the solar system looking at nothing in particular as its immense trove of data continues to drive discoveries here on Earth.

Kepler launched in 2009 after, as is so often the case, decades of preparation, studies, and delays. Its mission, slated to last three and a half years, was to stare unblinkingly at one small patch of sky, watching each star for the minute changes that could indicate a planet briefly blocking its light.

The mission was successful beyond all expectations, and once the telescope was operational the data began producing exoplanets not by the dozen but by the thousand. And some came closer to an Earth analogue than astronomers had dared hope — suggesting rocky planets about our size aren’t all that rare. (Good news if we need to relocate.)

Kepler’s “first light” image showing its original field of view.

In 2014 the original mission was complete but Kepler was still going strong, largely due to robust construction and frugal fuel use. A second mission, dubbed K2, was approved, different from the first: instead of looking at a single patch for years, Kepler would shift its view to a new location every three months. Naturally the number of stars catalogued and observed skyrocketed.

Not all was well aboard, though: The craft lost one of its four reaction wheels, used to reorientate the craft against the pull of the sun and other forces, though fortunately it was designed to function without all of them. It was only the later failure of another wheel that essentially put a hard time limit on K2.

Without a reaction wheel to change its direction along all three axes, Kepler would have to burn precious fuel every time it needed to change its view or spin around to send data home.

Fuel or no fuel, Kepler was still churning out the data. Scientists verified and announced the existence of more than 1,200 more exoplanets in one go, while AI tools like Google’s were working to find others hidden in the noisy data.

But the end has come at last, and Kepler used the last of its reserves to maneuver into position to relay its final batch of data through the Deep Space Network. This, like the rest, will soon be available to citizen scientists and research organizations as well as NASA’s own teams.

As for the exoplanet hunt, that’s been taken up by the Transiting Exoplanet Survey Satellite, or TESS, launched earlier this year and now in operation. There’s every reason to think it’ll be as productive and inspiring as its predecessor and perhaps more so.

“When we started conceiving this mission 35 years ago we didn’t know of a single planet outside our solar system,” said Kepler’s founding principal investigator, William Borucki, since retired. “Now that we know planets are everywhere, Kepler has set us on a new course that’s full of promise for future generations to explore our galaxy.”

Having delivered its last package, Kepler has completed its final duty and now enters a rather pleasant retirement. Unlike Cassini, which ended up a new crater on Saturn’s surface (a sudden but glorious end), Kepler will simply fall into an Earth-like orbit some distance behind its home planet, likely to remain stable (barring the extraordinarily unlikely possibility of a cosmic debris strike) for many years to come.

We won’t hear from Kepler, and Kepler won’t hear from us. But it’s nice to think it’ll still be looking.

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The hybrid cloud market just got a heck of a lot more compelling

Let’s start with a basic premise that the vast majority of the world’s workloads remain in private data centers. Cloud infrastructure vendors are working hard to shift those workloads, but technology always moves a lot slower than we think. That is the lens through which many cloud companies operate.

The idea that you operate both on prem and in the cloud with multiple vendors is the whole idea behind the notion of the hybrid cloud. It’s where companies like Microsoft, IBM, Dell and Oracle are placing their bets. These died-in-the-wool enterprise companies see their large customers making a slower slog to the cloud than you would imagine, and they want to provide them with the tools and technologies to manage across both worlds, while helping them shift when they are ready.

Cloud-native computing developed in part to provide a single management fabric across on prem and cloud, freeing IT from having two sets of tools and trying somehow to bridge the gap between the two worlds.

What every cloud vendor wants

Red Hat — you know, that company that was sold to IBM for $34 billion this week — has operated in this world. While most people think of the company as the one responsible for bringing Linux to the enterprise, over the last several years, it has been helping customers manage this transition and build applications that could live partly on prem and partly in the cloud.

As an example, it has built OpenShift, its version of Kubernetes. As CEO Jim Whitehurst told me last year, “Our hottest product is OpenShift. People talk about containers and they forget it’s a feature of Linux,” he said. That is an operating system that Red Hat knows a thing or two about.

With Red Hat in the fold, IBM can contend that being open source; they can build modern applications on top of open source tools and run them on IBM’s cloud or any of their competitors, a real hybrid approach.

Microsoft has a huge advantage here, of course, because it has a massive presence in the enterprise already. Many companies out there could be described as Microsoft shops, and for those companies moving from on prem Microsoft to cloud Microsoft represents a less daunting challenge than starting from scratch.

Oracle brings similar value with its core database products. Companies using Oracle databases — just about everyone — might find it easier to move that valuable data to Oracle’s cloud, although the numbers don’t suggest that’s necessarily happening (and Oracle has stopped breaking out its cloud revenue).

Dell, which spent $67 billion for EMC, making the Red Hat purchase pale by comparison, has been trying to pull together a hybrid solution by combining VMware, Pivotal and Dell/EMC hardware.

Cloud vendors reporting

You could argue that hybrid is a temporary state, that at some point, the vast majority of workloads will eventually be running in the cloud and the hybrid business as we know it today will continually shrink over time. We are certainly seeing cloud infrastructure revenue skyrocketing with no signs of slowing down as more workloads move to the cloud.

In their latest earnings reports, those who break out such things, the successful ones, reported growth in their cloud business. It’s important to note that these companies define cloud revenue in different ways, but you can see the trend is definitely up:

• AWS reported revenue of $6.7 billion in revenue for the quarter, up from $4.58 billion the previous year.
• Microsoft Intelligent Cloud, which incorporates things like Azure and server products and enterprise services, was at $8.6 billion, up from $6.9 billion.
• IBM Technology Services and Cloud Platforms, which includes infrastructure services, technical support services and integration software reported revenue of $8.6 billion, up from $8.5 billion the previous year.
• Others like Oracle and Google didn’t break out their cloud revenue.

Show me the money

All of this is to say, there is a lot of money on the table here and companies are moving more workloads at an increasingly rapid pace.  You might also have noticed that IBM’s growth is flat compared to the others. Yesterday in a call with analysts and press, IBM CEO Ginni Rometty projected that revenue for the hybrid cloud (however you define that) could reach $1 trillion by 2020. Whether that number is exaggerated or not, there is clearly a significant amount of business here, and IBM might see it as a way out of its revenue problems, especially if they can leverage consulting/services along with it.

There is probably so much business that there is room for more than one winner, but if you asked before Sunday if IBM had a shot in this mix against its formidable competitors, especially those born in the cloud like AWS and Google, most probably wouldn’t have given them much chance.

When Red Hat eventually joins forces with IBM, it at least gives their sales teams a compelling argument, one that could get them into the conversation — and that is probably why they were willing to spend so much money to get it. It puts them back in the game, and after years of struggling, that is something. And in the process, it has stirred up the hybrid cloud market in a way we didn’t see coming last week before this deal.

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Waymo, take the wheel: Self-driving cars go fully driverless on California roads

Self-driving startup Waymo, a Google spin-off owned by parent company Alphabet, has been granted the first permit in California to begin driverless testing on public roads. Yes, that means self-driving cars without a human behind the wheel will be cruising around California, beginning with a limited geographic area in Silicon Valley.

The company’s autonomous vehicles are a common sight on public roads in and around Google’s headquarters in Mountain View, California. The startup, which began as a moonshot project under X, has been testing on public roads for years now. But this permit, issued by the California Department of Motor Vehicles, allows Waymo to test these self-driving cars without a human test driver behind the wheel.

New California DMV regulations that took effect in April allow companies to apply for fully driverless testing within carefully defined limits. Waymo is the first to get approval. At least one other company is waiting in the wings.

Where you’ll find them

Waymo said its driverless test cars will initially hit the streets near its Silicon Valley headquarters, including parts of Mountain View, Sunnyvale, Los Altos, Los Altos Hills and Palo Alto. See the map below for the initial driverless launch.

Perhaps anticipating wariness from the public, Waymo emphasized that it knows this area “well.”

“Mountain View is home to more than a dozen autonomous vehicle companies, and has supported safe testing for years,” the company said in its announcement.

Waymo will eventually expand its driverless testing territory. Before it moves into a new area, Waymo said it will notify the new communities where this expansion will occur, and submit a request to the DMV.

Members of the public won’t be invited into these driverless cars just yet. However, Waymo is working toward that goal. The first driverless rides will be for Waymo employees. Waymo said it will eventually “create opportunities for members of the public to experience this technology,” similar to its early ride program in Arizona.

What Waymo is allowed to do

The driverless permit allows Waymo to test its driverless vehicles during the day and night on city streets, rural roads and highways with posted speed limits of up to 65 miles per hour. Waymo is also allowed to test in fog and light rain, conditions that the company said its vehicles can handle.

If one of its driverless vehicles encounters a situation it doesn’t understand it will come to “safe stop,” Waymo said, adding that it has well-established protocols that include contacting fleet and rider support.

The company announced earlier this month that its autonomous vehicles have driven 10 million miles on public roads in the United States since it began working on self-driving technology in 2009.

California is not the first state to test true driverless vehicles on public roads. Arizona gets that distinction. Waymo began testing self-driving Chrysler Pacifica Minivans in Phoenix suburbs, notably Chandler, in 2016. The company launched an early rider program in April 2017. Later that year, Waymo removed employees and passengers from its test fleet, sending empty self-driving minivans onto the streets of greater Phoenix.

By May of this year, Waymo began allowing some early riders in Phoenix to hail a self-driving minivan without a human test driver behind the wheel.

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Coinbase is now worth more than all but three cryptocurrencies

With its shiny new $8 billion valuation, Coinbase is now worth more than all but the top three cryptocurrencies that trade on the platform.

That’s right, the only cryptocurrency assets that are worth more than the platform that trades them are Bitcoin, Ethereum and Ripple. Bitcoin Cash, the currency forked from Bitcoin, is a distant fourth in valuation at $7.3 billion.

Coinbase’s Series E is nearly three times as much as the company raised in its Series D, and the fresh cash brings Coinbase’s total-capital-raised-to-date to over $520 million.

That’s a lot of money. Indeed, if Coinbase’s capital raised figured is compared to the market cap of the world’s various cryptocurrencies and other similar assets, it would rank around 20th.

But the bet for investors is, and should be, that if cryptocurrencies are indeed the next big idea in the ways that humans determine value, then Coinbase should be worth far more than any of the assets that trade on its exchange.

The fact that it’s neither indicates how much farther the company has to grow, or the limits of the thesis that cryptocurrencies will take over the world.

It shows that the wager on a particular crypto company is looking like a better investment than putting money to work in nearly any of the other crypto assets that are for sale. During the last few crypto booms, some investors said that it was probably simpler to just invest in various tokens instead of companies working on blockchains — faster returns and your money would be more liquid, to boot.

However, at least in the case of Coinbase, that wager likely wouldn’t have worked. Coinbase is also the company that every investor has wanted to invest in; it’s been a known winner for a while now, so its performance isn’t a huge surprise.

And now with $300 million, Coinbase is well-capitalized to survive either a market downturn (one will come eventually), and the current Crypto Interregnum.

Coinbase’s chief executive certainly thinks the market will grow. As we noted, Coinbase currently allows trading to just a handful of cryptocurrencies, but it has long harbored ambitions to expand beyond that.

Speaking at TechCrunch Disrupt SF in September, CEO Brian Armstrong revealed that he sees a future in which every cap table will have its own token. Based on that, he said he believes that Coinbase could host hundreds of tokens within “years” and even potentially “millions” in the future.

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Facebook shares climb despite Q3 user growth and revenue

After last quarter’s bloodbath earnings report that cut 20 percent from Facebook’s share price, the social network stumbled in Q3 2018, reaching 2.27 billion monthly users, up 37 million users or 1.79 percent — only slightly better than Q1’s slowest-ever growth rate of just 1.54 percent, and compared to an 2.29 billion Wall Street estimate. It added 24 million daily active users hit 1.49 billion, up 1.36 percent compared to Q1’s 1.44 percent, missing the 1.51 billion estimate.

But the real growth story depends on its core US/Canada and Europe markets where Facebook saw zero growth and lost 1 million monthly users respectively last quarter. In Q3, Facebook added 1 million monthly users to reach 242 million in the US/Canada region, but held flat at 185 million dailies there. It lost 1 million users in Europe in both dailies and monthlies. Those markets make up over 70 percent of its revenue, which is why the slow growth and shrinkage is scaring Wall Street.

[Update: Facebook did make an adjustment to its user count measurements this quarter to disclude some misclassified activity, reducing counts by 0.3 percent to 1 percent. Notably, without this correction its daily US & Canada count would have grown by 1 million instead of staying flat this quarter, its daily Europe users would have grown 5 million instead of shrinking 1 million, and its monthly Europe count would have grown 1 million instead of shrinking by 1 million.]

Revenue Slows Alongside Western User Growth

As for Facebook’s business, the company earned $13.73 in revenue, compared to Refinitiv’s consensus estimate of $13.78 billion, and saw $1.76 EPS compared to an estimate of $1.47, making for a mixed report. Revenue was up 33 percent year-over-year, but that’s much slower than the 49 percent YOY gain it had a year ago, and the 59 percent it had in Q3 2016.

Facebook blamed foreign exchange headwings for $159 million in Q3, which was the difference between its miss and a beat on revenue. Mobile accounted for 92 percent of Facebook’s ad revenue, up from 91 percent last quarter, so when you think of the social network, be sure you’re not thinking of a desktop website.

Long-term, Facebook can’t exchange growth in its core markets for expansion in Asia-Pacific and the developing world. Facebook average revenue per user worldwide is $6.09, but the regional differences are stark. It rakes in $27.61 per users in the US and Canada, and $8.82 in Europe, but just $2.67 in Asia-Pacific and $1.82 in the Rest Of World region. In fact, ARPU dropped 4 percent in the Rest Of World, indicating users there may be spending fewer minutes per day browsing the News Feed and seeing ads.

A Wild Earnings Call

Facebook’s share price closed at $146.22 before earnings were released, still massively down from its $217 peak for before it announced user growth troubles and slowing revenue growth in Q2’s earnings report. Facebook shares climbed 2 percent upon the announcement of earnings, in part thanks to Facebook pulling in $5.14 billion in profit and it adding 1 million users in the North American region after going flat last quarter, but oscillated wildly throughout the earnings call.

There, Zuckerberg stressed that sharing is shifting towards private chat where users send 100 billion messages on Facebook’s apps per day, and Stories where people share 1 billion slideshows per day. He cited Apple’s iMessage and YouTube, but not Snapchat, as Facebook’s big competitors going forward. Those comments drove shares down 5 percent, reversing early gains. But later, he noted that Facebook believes it’s found the right formula for showing people more meaningful passive video, so Facebook will lift some restrictions on how many lucrative video ads it showed. That pushed Facebook’s share back to 3 percent up in after-hours trading.

Facebook hoped to show that its business can keep growing even as amidst a wide range of troubles. It did note that “more than 2.6 billion people now use Facebook, WhatsApp, Instagram, or Messenger each month” compared to 2.5 billion last quarter. It also revealed another new stat: “more than 2 billion people use at least one of our Family of services every day on average.” The goal of both of these stats is to distract from Facebook’s own slow growth by reminding people that some of those users who leave are going to its other properties.

But still, the company’s revenues and profits have been overshadowed by the non-stop parade of scandals ranging from election interference to its biggest security breach ever. Next quarter we’ll see if the breach scared users away or if Facebook logging them out for safety led some to never log back in.

Let’s remember that the company should be lauded for investing so much to beat back fake news and election interference, and cutting back on viral videos and clickbait that juice engagement but are terrible for user well-being and society. It doubled its security and content moderation staff from 10,000 to 20,000 this year. They now make up over half the company, as headcount grew 45 percent year-over-year to 33,606. Twitter’s shares soared on last week’s profitable Q3 earnings report, but it’s made no such measureable commitment to fight harassment and misinformation. Facebook is still constantly screwing up when it comes to privacy and security, but at least it’s putting its ample money where its mouth is.

Zuckerberg says the future is sharing via 100B messages & 1B Stories/day

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