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FCC National Broadband Plan: some of your favorite ISPs respond

Yesterday, the FCC submitted its National Broadband Plan to Congress, essentially requesting that six goals be met over the next decade, including sizzlers like access for “every American” to “robust broadband services,”which apparently equals a minimum of 100 million US homes with “affordable” access to at least 100MBps down / 50Mbps up speeds. Pretty heady stuff, we know. We thought we’d contact a few of your friendly ISPs for comment, and we’ve got Comcast, Time Warner and Verizon going on record here — all in all, they’re rather predictable ‘rah rahs’ for the plan, especially considering that whole “affordable” bit. We also threw in part of Google CEO Eric Schmidt’s response. The statements are after the break, and hit the source links for the fuller, long-winded versions.

Continue reading FCC National Broadband Plan: some of your favorite ISPs respond

FCC National Broadband Plan: some of your favorite ISPs respond originally appeared on Engadget on Tue, 16 Mar 2010 16:45:00 EST. Please see our terms for use of feeds.

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Microsoft’s Keyser Söze Opportunity

“The greatest trick Microsoft ever pulled was convincing Apple that Google didn’t exist.“

If Microsoft plays its cards right, that may be a statement we’re saying years from now.

What does that mean? Aside from being a riff on one of the best lines in movie history, what I mean by that is: imagine if Microsoft was able to convince Apple to make Bing the default search engine on the iPhone, rather than Google. Leading up to Apple’s press event last month, rumors were swirling about this possibility. As is always the case with Apple, it’s hard to know how legitimate those talks were or if they were just some ploy to get something else it wanted. But from Microsoft’s perspective, it should be more than wishful thinking.

While the iPhone may not control the overall mobile sphere in terms of sale, it does control mobile web browsing. And increasingly, that’s becoming a popular way for users to browse the web. Basically since its inception, stats have the iPhone at the top of the pile when it comes to mobile browsing share. Yes, as more and better Android phones become available Android can and probably will leapfrog it. But the fact is that the iPhone is going to remain a huge factor in web browsing going forward. And certainly, Microsoft won’t be able to cut a deal with Google to feature Bing on Android.

Other recent numbers have Google seeing 1.46 million impressions a month from the iPhone alone. Bing? It gets just 2,387 impressions from the iPhone. That’s pretty incredible.

So how much are those million and a half impression worth to Google? Apparently, north of $100 million a year via a revenue share with Google, Silicon Alley Insider reported today. For Microsoft to woo Apple away from Google, it’s going to have to cough up a lot of money. But I would argue that it’s definitely worth it. And Microsoft actually has a history of such maneuvers.

Remember, when Microsoft bought a tiny share of Facebook in 2007, everyone was up in arms over the extrapolated $15 billion valuation it gave Facebook. But the truth is, Facebook was never worth that much (at least not at the time) because Microsoft was never interested in purchasing it at that price, nor was anyone else. Instead, Microsoft was making a strategic investment to secure the rights to Facebook search and advertising. More importantly, its $240 million investment for less than 2% of the company insured that Google wouldn’t be able to cut a deal with the social networking giant.

And that deal worked out well for Microsoft. Who knows if Microsoft made any money off of it, but it doesn’t really matter. What matters is that thanks to that initial deal, Microsoft and Facebook just got done renegotiating a new one, which will now see Facebook take over its display ads, but give a larger role to Bing for web search. With Facebook surging past 400 million users, this search deal is key for Microsoft and it undoubtedly blunts the loss of the display ad business (which probably wasn’t doing all that great anyway). Again, more importantly, it means Google can’t cut a deal with the social network to power its search.

And Google loves those deals. Not only did it strike one with MySpace (that didn’t work out so well), it has ones with AOL and others. But the key one for it may be the deal with Mozilla to make Google the default search engine within the Firefox browser. Google is paying something like $75 million a year to Mozilla for this privilege (based on 2008 revenues). That’s relevant because it’s the same type of deal Google now has with Apple for the iPhone. And it’s the deal Microsoft needs to get.

Despite pouring resources into its online division, Microsoft continues to bleed money there. And despite some success for Bing this year following its launch, the recent numbers indicate that it’s stealing search share from soon-to-be-search-partner Yahoo (assuming the deal goes through), rather than Google. Top search billing on the iPhone would ensure Bing is eating into Google share instead. And for that reason, price really shouldn’t be an issue for Microsoft if it’s serious about Bing battling Google Search. This is biggest and best opening it has.

There are no shortage of people who believe that Google, Bing, Yahoo, and the others are now all basically on par with each other when it comes to search results. Certainly Microsoft and Yahoo believe that to be the case (while Google, of course, does not), but others do too. The problem, as Microsoft and Yahoo see it, is that users are simply used to Google so they keep going back to it rather than trying something new. That’s exactly why Yahoo is moving away from the backend of search and more towards prettying up results on the front-end to give users a better experience. Microsoft has an even easier way to prove this: cut the deal to make Bing the default engine on the iPhone. If users don’t start complaining, we’ll know it’s true.

And the Microsoft/Apple deal could go farther. As long as both sides are cutting a deal for the iPhone, why not cut one to make Bing the default engine on the iPad as well? And how about Safari for the Mac in general? Every little bit of share gained is a good thing for Bing. And if the iPad proves to be a huge success, it could end up being a lot more than a “little bit” of search share.

But would Apple do this — cut a deal with its longtime rival?

Absolutely, provided it too believed that Bing’s results were at least on par with Google’s. In fact, at this point, Apple might even prefer a deal with Microsoft over one with Google given the war brewing between the iPhone and Android. With every search done on an iPhone, Apple is simply giving Google more fuel to pump into Android.

Microsoft’s alternatives aren’t pretty.

It can hope and pray that that Google will rest on its laurels and let its search engine much wither in the way that Microsoft itself rested on its laurels when it had 90% market share with IE.

Or it can hope that Windows Mobile stages a dramatic turnaround (Windows Mobile 7 is expected to be unveiled at Mobile World Congress shortly) and becomes the dominant mobile device for searching the web, with Bing in tow.

I don’t see either happening.

Or Microsoft could keep pumping money into advertisements about Bing and watch as it continues to eat away at Yahoo’s search share. But Microsoft would likely get much more bang out of those bucks if it simply cut the deal with Apple. And the time seems right for that to happen, if it ever will.

Microsoft could play the role of the villain that gets its longtime nemesis to do exactly what it wants. And just imagine if that helps Microsoft pull its entire online division out of its funk, thus giving the giant the thing it needs to battle the likes of Apple and Google going forward. That would be Microsoft’s ultimate goal in pulling such a deal off, after all.

And then Microsoft can exit the negotiating room — and like that *poof* be gone.

[images and videos: MGM]

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OpenTable Seats 2 Million Diners Via Mobile Apps

In less than six months, online restaurant reservation site OpenTable has seated an additional one million diners via its mobile apps. In late October, OpenTable had reached the milestone of seating one million diners via its mobile offerings, a year after its iPhone app launched. It took only four and a half months to seat another million diners. Additionally, the site says that based on an estimation of a $50 average check per diner, OpenTable claims that diners using its mobile applications have generated more than $100 million in revenue for its restaurant partners.

OpenTable allows diners to find and book reservations at more than 11,000 different restaurants in multiple countries via mobile applications for the iPhone, Palm, Blackberry and Android. Other smartphone users can book reservations through OpenTable’s mobile-optimized Web site.

The company also reported strong earnings this afternoon, with Q4 2009 revenue coming in at $19.2 million, representing a a 32% increase over Q4 2008 revenue, which was $14.5 million. OpenTable’s total revenues for 2009 were $68.6 million, up 23% over 2008 revenues of $55.8 million. In 2009, OpenTable increased its number of participating restaurants in North America by 17%, with a total of 10,850 partners by the end of 2009. The number of international partners also increased, rising by 44% to 1501 participating establishments. Total number of diners in North American were 11.8 million, a 39% increase from Q4 2008.

Last year, OpenTable filed for a healthy IPO, despite recessionary conditions in the markets. OpenTable is a solid internet company that has a viable business model. On the restaurant side, OpenTable delivers reservation management software to establishments through a Web browser and collects monthly subscription revenues, similar in theory to the offerings that software companies like Salesforce sell to clients.

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Ten-Year Venture Capital Returns Continue To Slide

Ten-year returns for Venture Capital firms continue to slide downwards for the 5 and 10-year periods ending on September 30, 2009 according to the Cambridge Associates U.S. Venture Capital Index, the VC performance benchmark of the National Venture Capital Association.

As investments in startups during the lucrative 1990’s tech boom are no longer included, ten-year returns slide to lower and lower levels, dropping by nearly half from the previous quarter. The 10-year return fell to 8.4 percent from 14.3 percent in the previous quarter and from 40.2 percent one year earlier. The 5-year returns also declined to 4.9 percent from 5.7 percent in the previous quarter and from 10.7 percent one year ago.

While returns are diminishing, investments continue to rise after a year when venture funding was in the doldrums. VC investments in fourth quarter of 2009 rose to nearly $15 billion, up 113 percent from a year ago.

These numbers aren’t surprising, considering the drought in IPOs over the past few years.But venture capitalists and tech entrepreneurs are hopeful that 2010 will be the year they rain down on the Valley once gain, with a handful of promising startups that could be ready to go public this year. In fact, Tesla just filed for a $100 million IPO on Friday.

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Q4 investments: Internet hot, cleantech cold

The end of 2009 brought a flurry of activity from venture capitalists hard at work closing funding rounds, according to a report released today by information services company ChubbyBrain.

Early-stage investments were in vogue as cautiously optimistic investors increasingly closed deals with startups looking for their initial venture rounds, the report says. While startups raised less money this quarter than in Q3, the number of funding rounds increased as venture capitalists bet hard on internet startups to make it big in 2010.

The report tracked venture led funding rounds in Q4 2009. Total venture funding dropped to $5.5 billion in Q4, down from $6.1 billion in the previous quarter. While total funding dropped, deal volume is a more appropriate indicator of the funding climate, as Q3 numbers were aided by a handful of large later-stage deals closed in the quarter like Solyndra’s $220 million, Twitter’s $100 million and Tesla’s $83 million rounds.

687 deals closed in Q4, the highest total of the last five quarters. Early stage investment was a strong driver of deal activity in Q4, accounting for 21% of funding and 37% of the deals, up from 13% of funding and 29% of deals in Q3. The rise in early-stage deals could signal a renewed optimism amongst venture investors as they increasingly dedicate capital to riskier ventures.

While investors were less risk averse, they were looking to deploy their capital in less capital-intensive sectors. Even as the healthcare sector maintained its rank in Q4 as the largest recipient of venture funding, deal volume in the sector dropped from Q3 as total funding remained flat. The shift to investing in capital-efficient startups particularly hurt cleantech, as funding dropped 38% from Q3 levels as deal volume remained the same. Internet sector investments surged ahead of cleantech to take the number two spot, with internet companies raising nearly $1.5 billion in Q4, an increase of 40% from Q3.

Venture capitalists were attracted to smaller deal sizes as they invested in 227 internet companies in Q4, the most of any sector. The median internet deal was $3.4 million, in comparison to $6.2 million in healthcare and $6.5 million in cleantech. Early stage investors were especially active, with early stage deals accounting for 49% of deals and 23% of funding in the sector during the quarter. Internet companies are often less capital intensive and easier to scale, leading to smaller initial funding rounds while investors diversify their portfolios over a larger number of companies.

Despite maintaining its fundraising supremacy, drastically reduced activity in California’s healthcare and cleantech sectors caused total venture funding in the state to drop 21% during Q4. The report noted both New York and Massachusetts had strong early-stage funding growth, a factor that led to an increase in overall fundraising levels in both states. Massachusetts came in second in fundraising, with healthcare leading the way and accounting for more than 50% of funds raised. New York was third, growing 26% over Q3 on the strength of increased internet investing. Texas and New Jersey were fourth and fifth respectively.

ChubbyBrain, based in New York, tracks high-growth private companies and investors.

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The Dark Side of the Late 2009 M&A Surge

With the year—and decade—coming to a close, the business press has been awash with stories about just how lousy the ‘00s were. As Paul Krugman details in the New York Times, it was a decade with a tiny amount of job creation, and the first decade on record where private-sector jobs shrunk. The typical family got no economic boost at all. And when the volatility rollercoaster ended there was also no appreciation in home prices and zero gains on stocks.

That pain was felt by venture capitalists as well. I’ve argued for a while now that once the gains from 1999 and 2000 fall off the ten-year index of VC returns, we’re going to be looking at an industry that has returns at or below the S&P 500. Given we’re coming out of a “decade of zero,” that’s a pretty bad thing. Especially for an asset class that is (supposed to) take huge risks in the name of potentially outsized returns.

Dow Jones VentureSource is releasing its year-end liquidity numbers for 1999 this morning and no surprise—it’s just another data point nail in the coffin.

At a high level you can put a good spin on the facts: In the fourth quarter acquisitions rebounded mightily. Public companies snapped up some 86 venture-backed companies for a total of $7.3 billion and three IPOs raised a—let’s be honest—paltry $220 million. And the median amount paid for a company in the fourth quarter was more than $100 million for the first time since 2000.

But as frequently happens in quarter-to-quarter surveys, that $100 million number was skewed greatly by a few large deals, most notably, Zappos’s $1.2 billion purchase by Amazon. Overall, for the year the median acquisition price was just $27 million.

And the overall rebound in fourth quarter liquidity is only impressive compared to the nine months prior. For the year, the industry produced just $17.1 billion in returns, 34% less than the $26.1 billion generated in 2008. And that wasn’t a particularly good year.

The surge in M&A and talk of some promising companies waiting in the wings to go public aside, this industry is in as much trouble as ever for three simple reasons. If these reasons don’t get addressed the 2010s may be worse than the ‘00s for the asset class.

1. The Math Doesn’t Work. An industry that invests roughly $20 billion a year (or even more), can’t survive on returns of roughly $20 billion a year. The basis of a portfolio investing business is that the hits have to make up for the losses—not just pay for themselves. It doesn’t matter how much you believe in innovation, how much you believe in the Valley and how much you believe in venture capital itself—the numbers are now and have for the last decade been hopelessly out of whack. Unless investors can discover an area that can produce many billion-dollar homeruns like the ecommerce, enterprise software and telecom did in decades past, there needs to be dramatically less money investing in early stage firms, period.

As we speak, many once proud venture firms are having a hard time raising their next funds, and many are turning towards less-desirable limited partners out of necessity. A host of funds were supposed to close in 2009 and haven’t yet. Watch the news in 2010 closely: If firms are taking money from state pension funds, raise an eyebrow. Back in the early 2000s state funds came under pressure from Freedom of Information Act requests to divulge information about underlying portfolio investments and privacy-conscious VCs turned their backs on those pension funds as a result. Anyone going back to them now was likely told no by nearly everyone else. Of course, those firms will still be in business. But not all firms will once their current funds are depleted, and ultimately, that’s a good thing for the industry.

2. M&As Alone Will Not Sustain VCs. While it’s true that the bulk of exits VCs get are from acquisitions, this is not where the bulk of returns come from. The economics of venture capital are based on homeruns. That’s why some 5% of the industry makes some 95% of the money. And those big hits come from IPOs or in some cases the threat of an IPO that makes a publicly-held competitor pay a huge premium for a startup. This is why M&A values surged so high in the late 1990s. Companies like Cisco had to shell out hundreds of millions or even billions to buy a company because it was so easy for them to go public. That’s not the case today and when you only have a handful of companies out buying, even a Google or Cisco shopping spree can only net so much in returns.

3. The Perilous Ripple Effect. There is a way that venture capital can adjust to a new normal of smaller exits with smaller multiples: Taking less risk and selling early. That means a switch of focus from building companies to building products. This is how much of the world outside Silicon Valley invests now. The benefit is it requires less capital and less risk. If you build something of value, there’s a likelihood you can get $5 million or even $20 million for it. But that’s the cap of what you’re going to get without a business to back that product up. But that’s OK economically, because you have fewer failures since you’re taking less risk.

Indeed in 2009, Dow Jones found that companies raised a median of just $18 million in venture capital before getting acquired. That’s 18% less than in 2008. And the companies sold faster. It took a median of five years to get an exit, versus six years in 2008.

A lot of entrepreneurs and angel investors argue there’s nothing wrong with this. With far less capital needed to start a company these days, what’s wrong with a smaller exit? You’re still making money, right? Not every idea has to be a $1 billion one to be worth starting.

That’s true for a bootstrapped or angel-funded startup, but not for venture backed deals and the Valley at large. That kind of thinking will eventually destroy an ecosystem that is built on a foundation of homeruns paying for all mistakes. Put another way, the reason we are so famously free to fail in the Valley is that a big homerun can economically make up for those failures. That is what has set Silicon Valley apart for decades. If that changes, the output of the Valley will change too.

And don’t forget: The companies providing these modest exits are the homeruns from previous decades. Without the past big hits of Google, Microsoft, Yahoo and Cisco, who’d be paying $20 million for your Web 2.0 app today? Consider that Facebook—a company that was ridiculed by the press and analysts for not selling for $1 billion or less back in 2006 —has already bid $500 million for Twitter and acquired FriendFeed. Good thing for the Valley Facebook didn’t listen to critics.

You don’t have to look too far to see what a world where VCs only build-to-flip would look like. It’s largely happened already in lifesciences. The industry that gave birth to Genentech, Amgen and a lot of promise for returns, job creation and cures, has now turned into big pharma’s outsourced R&D lab.

I’m not blaming investors. Because of the high costs of clinical trials, biotech companies used to go public to fund clinical trials. But in the post-2000, SarbOx chill it became all-but impossible for pre-clinical trial, pre-revenue companies to go public. That meant the work had to get financed another way, and that other way was licensing deals with big pharma. Unfortunately, that means a lot of the value from those breakthroughs goes to big pharma, all but ensuring the next Genentech or Amgen may never be created.

But tech doesn’t have those costly restrictions. Do we really want to embrace and celebrate an M&A only world of returns anyway?

Crunch Network: CrunchBase the free database of technology companies, people, and investors

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Privacy Theater: Why Social Networks Only Pretend To Protect You

Editor’s note: The following guest post was written by Rohit Khare, the co-founder of Angstro. Building his latest project, social address book Knx.to, gives him a deep familiarity with the privacy policies of all the major social networks.

I’d be wishing everyone a happier New Year if it were easier to mail out greeting cards to friends on Facebook and colleagues on LinkedIn. I’d like to use knx.to, our free, real-time social address book, but their ‘privacy’ policies prevent us from downloading contact information, even for my own friends.

At least those Terms of Service (ToS) that force us to copy addresses and phone numbers one-by-one also prevent scoundrels from stealing our identity; reselling our friends to marketers; and linking our life online to the real world. Right?

Wrong. When RockYou can stash 32 million passwords in the clear; when RapLeaf can index 600 million email accounts; and when Intelius can go public by buying 100 million profile pages; then our social networks have traded away our privacy for mere “privacy theater.”

With apologies to Bruce Schneier’s brilliant coinage, “security theater” (e.g. the magical thinking behind forcing passengers to sit down and shut up for the last hour of international flights), social networks have been dogged by one disaster after another in 2009 because they pursue policies that provide the “feeling of improved privacy while doing little or nothing to actually improve privacy.”

As long as the same information that social networks piously prohibit their own customers from using is being bought and sold on the open market by giant marketing companies, social networks are only pretending protect your privacy.

Industrial-Scale Identity Theft

Last week’s headlines brought news that RockYou had accumulated 32,603,388 identities over the past few years — and negligently stored them in plaintext in an incompetently protected database.

RockYou’s official bluster about “illegal intrusion” should fool no one: blaming Imperva, the firm who exposed the flaw, or accusing the hacker(s) of being the identity thieves is misdirection: it was actually RockYou who stole those credentials, and RockYou should be held to account.

I realize that I’m using the incendiary terms “identity theft” and “stole,” even though I would agree that users voluntarily consented to type their passwords into RockYou’s forms. I assume that both users and RockYou’s developers actually only intended to share some particular bits of information: a contact list, a user photo, a friend’s gender; but the bottom line is that instead of sharing that specific data, RockYou retained enough secrets to impersonate those users at will.

• Don’t blame the victims. Bemoaning the absence of open standards for users to share their own data; or complaining about the weaknesses of users’ password choices is merely changing the subject.
• Don’t blame “security” technology. More encryption, better encryption, or stronger firewalls would not help, since the default RockYou username in this case was a user’s primary email address. For anyone who chose to use a popular Webmail service, that granted access to every other online service they’ve ever used — because of those ubiquitous “Forgot your password?” buttons to email it back to you (just ask Twitter how much fun that is).
• Don’t blame RockYou’s partners, who hosted their widgets. They just wanted to give their users some fancy new slideshows and scoreboards and other features to put on their pages; that shouldn’t have required an all-out war for viral growth that demanded users to log in and advertise their new widgets to all of their friends.

The fault, dear Reader, is not in our stars; it lies with sites that pretend to waive all care and duty by idly warning their users not to share their account passwords with anyone else.

In the absence of vigorous enforcement of those ToS agreements, any RockYou developer who passed up the opportunity to, say, phish MySpace passwords was putting their own employer at a disadvantage to any other startup that was willing to race them to the bottom.

APIs: Automating Privacy Intrusions?

RockYou minimized the scope of this breach by maintaining that it only affected their “legacy platform” for widgets rather than its larger “partner applications platforms” that use “industry standard security protocols.” After all, the advent of social networks’ partner APIs was supposed to make impersonation and scraping obsolete.

Those APIs came with their own new ToS agreements that added new, overlapping, and sometimes-contradictory restrictions as they worked through all of the implications of letting third parties in on the fun. The ACLU released a fun quiz that makes quite clear how much information is at stake, from your hometown to your friends’ sexual orientation.

For example, if you upload a photo of me that I find embarrassing, I could prevent you from tagging me in it, but I can’t forbid you from keeping your own photo online (or keeping it private, bugs aside). I can’t even forbid another friend of ours from caching a copy in his or her browser.

However, the Facebook API ToS can (and does) prevent a third-party application from caching a link to the photo for more than a day (a week on Orkut). Unfortunately, direct links to the photo server didn’t double-check the privacy policy, so a third-party app would be at risk of leaking images users thought were private, unless the developer remembered to make a separate API call every time to re-verify every photo on a page.

He (or She) Who Must Not Be Named

In an ideal world, a third party developer shouldn’t have to store any personally-identifiable information (PII). In many jurisdictions, PII is akin to toxic waste, because of the regulatory burdens and civil, even criminal, liability for acquiring and disposing of it.

Here again, Facebook is the pacesetter: it’s possible to display “She liked 7 photos uploaded by Mr. Smith two weeks ago” using little more than a numeric user id. The developer writes a sentence in Facebook Markup Language (FBML), and Facebook’s servers will dynamically substitute the name, gender, item count, and ensure grammatical agreement of pronouns, singular/plural choices, and time intervals.

OpenSocial gadgets have to copy PII into the browser to format a sentence like that. LinkedIn’s partners even have to copy PII to their own servers, since their Open API is currently incompatible with AJAX authentication.

Even though copying PII is the root of all privacy risks, there are three reasons it can be necessary: latency, history, and agility. Without caches, slow API calls can make an app’s performance suffer. Without archives, analyzing only the most recent events can mislead an app’s trend detection or recommendation services. Without “offline” access, waiting for a user to log in again delays an app’s reaction to events in real-time.

There aren’t many technical countermeasures once data has been copied. LinkedIn spent more than a year tinkering with their public API, but the only substantial difference is that it now encrypts every member id with the identity of the developer and application to trace the source of a breach. I applaud them as an industry pioneer — though they’re so dependent on search-engine optimization that they still include the public numeric ids in the profile page URLs anyway.

Exporting PII with legal strings attached is the best policy we can hope for. While Amazon’s ToS requires its associates to display accurate, up-to-date prices, Twitter has only recently realized the implications of searching deleted tweets and doesn’t yet oblige its API partners to update their copies when tweets are deleted or protected.

Buying Back Your Own Data? Priceless.

If PII is so hard to protect, then the only way for social networks to protect their users’ privacy must be to prohibit partners from accessing contact information in the first place. I might not be able to export my holiday card mailing list from my favorite social network— a roach motel for our data — but giant marketing corporations can buy and sell our private information with impunity.

I could go to Rapleaf right now to buy an analysis of any list of email addresses to learn its makeup by gender, income, residence, and all manner of other demographic data. Who’s to say how short that list could be—it’s a slippery slope from aggregate info to personal info. Or I could shop at one of Intelius’ many fronts and affiliates who are selling PII explicitly (TRUSTe-certified!). Or I could barter some of the stray business cards on my desk on Jigsaw to fill in the rest of the puzzle. All of these businesses depend on PII data harvested from social networks.

How is that possible? None of the social networks that we’ve integrated with has an API for reading email addresses — but all of them have no problem asking you to “Invite your friends!”  After all, most social networks remain hypocritical enough to phish passwords to other social networks themselves as soon as they ask you to “Invite your friends” for their own viral growth!

Putting aside the hypocrisy of phishing passwords to scrape those friends’ email addresses in the first place, the subtler flaw is that social networks are more than happy to search their member database for those addresses to share a list of suggested friends. That’s how a Rapleaf could take a mailing list, pretend that those are all friends of theirs, and slowly accumulate a “reverse phonebook” that maps emails to social network profiles.

Or you could just crawl their websites. Social networks depend on search engines for traffic, so they almost universally have public pages for every member with well-known URLs and directory listings by name for crawlers to index. A mini-boomlet in funding “people search“ startups underwrote this massive exercise, but they sold their archives to less-than-savory marketers.

Now, merely indexing public web pages can’t be evil—but reconciling online identities and 3rd-party advertising cookies with real-world credit reports, government records, and other databases can be. Adding in all that information doesn’t increase Mr. Smith’s anonymity; Jeff Jonas has made a small fortune proving that semantic reconciliation dramatically collapses uncertainty. Just think about combining Spock’s 100M profiles with Intelius’ 20B other data points; or Wink’s 200M profiles with Reunion MyLife’s 34M members and 700M records…

Whose Data Is It, Anyway?

The philosophical question at hand is what rights do I have in my friends’ information. When I accept a business card from someone I’ve just met, I don’t believe I have the right to re-sell it on Jigsaw in good conscience (they’d disagree 18M times). If it’s a colleague’s card, on the other hand, I might take the initiative to forward a new lead, or even buy a gift subscription to a magazine. Does that constitute a violation of their privacy, or spam?

Social networks haven’t let their users make their own decisions on this issue. Through selective enforcement of their policies, some startups get locked out while big partners get exemptions. Power.com ended up in (and out of) court. Plaxo found out the hard way that they couldn’t assist their paying customers to OCR Facebook email addresses; or to synchronize with LinkedIn. It says a lot about LinkedIn’s draconian ToS that even with paying customers demanding it, Comcast hasn’t signed up for their API. Even if users manually download their own LinkedIn address books, it won’t even include links back to folks’ public profile pages.

Don’t Accept Incompetence

I also claim that social networks are engaging in Privacy Theater because there’s no shortage of examples of organizations on the Web that process vast quantities of PII while providing real privacy protection. Do you think that the “bad guys” haven’t gone after Webmail services to phish passwords and harvest contact information? Aren’t e-commerce sites sharing product information and reviews out to legions of affiliates without leaking your purchase history? How long do you think RockYou would have gotten away with it if they were asking for your online banking username instead of your email address?

Social network sites have not (yet) demonstrated the high degree of proactive surveillance and enforcement characteristic of other organizations that deal with PII on the Internet. Users see worms on MySpace and viruses on Facebook, but not on Hotmail — because they defend against cross-site-scripting attacks. Users find malware distributed on Slide, but not on Wikipedia — because they filter content aggressively. Users are blocked by DDoS attacks and DNS attacks on Twitter — but Amazon stays up because they can react in real-time (mostly). How much more quickly do Cease & Desist letters for putting up a fake PayPal logo go out than for impersonating a Facebook Page?

From personal conversations, I’m beginning to wonder if the recent rise of Hadoop is part of the problem, surprisingly. Trying to detect patterns of abusive crawling and suspicious bursts of activity from partner apps by analyzing yesterday’s log files alerts you too late to react. The culture of many social networking websites seems to emphasize page load times (especially after the great Friendster meltdown), which isn’t quite the same as the enterprise IT, networking, and transactional database backgrounds of other leading Web architects. And unlike the formal (and informal) networks of security officials at online financial institutions to track distributed threats, I fear we have little evidence of coordinated responses to privacy threats that correlate identities across social networks.

I have first-hand experience that it takes more time (and more money) to ship applications that comply with social networks’ privacy policies. If we weren’t living with Privacy Theater, that might not have been a wasted investment. Inevitably, Gresham’s Law kicked in, and the good guys are being driven out by the bad guys (spammy apps, scammy apps, sneaky apps, conniving apps).

Privacy Theater: The Show Must Go On…

Naturally, I prefer to think of myself as one of the ‘good guys.’ I prefer to believe that privacy protection is a competitive advantage that users (citizens!) really value. Until this outrageous RockYou breach, I didn’t fully realize how irrelevant that is.

I’d argue that the hapless state of ToS enforcement by the major social network platforms only provides the feeling of improved privacy while doing little or nothing to actually improve privacy: that’s privacy theater.

Unfortunately, that analogy is still unfair: TSA may screen children at the airport, but at least their security theater doesn’t obscure the fact we haven’t had a catastrophic security failure in the US air transportation system (yet). Our major social networks’ privacy theater is distracting us from ongoing, large-scale identity theft and misuse of private and personally-identifiable information.

If the industry expects self-regulation to forestall government regulation, well, here’s what I think it would take: An immediate ban on all of RockYou’s applications by all of their partners, pending a public audit of all of their apps. That’s taking a page from the audit provisions of LinkedIn’s ToS and adding sunlight by publishing the results.

Sounds harsh? I thought the market was supposed to provide swifter, surer justice than some pesky regulator with its clunky old notions of due process and presumptions of innocence. API agreements are a private matter between ruthless corporations. Heck, if they really wanted to put the rest of the ecosystem on notice, they ought to audit every application funded by Sequoia, Partech, DCM, and Softbank, all lead investors in RockYou.

It’s not like lawsuits are being filed, as Marissa Mayer announced by going after work-from-home scam artists in an interview with Mike Arrington at LeWeb. It’s not like this is Scamville 2.0, since this isn’t stealing users’ cash, only their dignity. It’s not like there’s a legal spotlight on the issue, since there’s only $9M set aside for a hazy new privacy foundation in the latest Facebook class-action settlement. It’s not like it’s a political issue in the headlines, since a Facebook Chief Privacy Officer is running for Attorney General, the top law-enforcement office in California. It’s not like it’s as complicated as “don’t be evil,” since I can give you one simple tip to eliminate privacy theater: enforce your ToS and obey others’ ToS — or else stop setting unrealistic expectations and just let users have their data back!

(Photo credit: Flickr/FaceMePLS).

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Malaysian Payments Company MOL Global Snaps Up Friendster

We heard reports that Friendster was going to shopping itself to an Asian technology company but tonight, the news was released that MOL Global, a Malaysian payments company, has purchased social network Friendster. The full press release is below. The terms of the acquisition were not disclosed but we’ve heard that the purchase price is around $100 million.

Friendster, which was founded in 2001, has raised over $45 million in venture capital to date, and is sitting on some potentially lucrative IP. The acquisition makes sense because while Friendster is no longer hot in the U.S., it’s most definitely still has members in the Asia/Pacific region.

The social network, which just rolled out a much-needed redesign, appointed Richard Kimber as its new CEO, who used to head Sales and Operations in South East Asia for Google.

MOL Global and Friendster already had a partnership power the payments ecosystem of the Friendster Wallet and its payments platform.

MOL Retail and Payment Channels and Leading Online Social Network Combine to Form Massive Content Distribution and E-commerce Platform in Asia for Over 100 Million Users

KUALA LUMPUR, Malaysia, Dec. 9 /PRNewswire/ — MOL Global Pte. Ltd. (”MOL Global”), an affiliate of leading online payment solutions provider MOL AccessPortal Berhad (”MOL”), and Friendster, Inc. (”Friendster”), the operator of a top global web site based on traffic and a leading social network in Asia, announced today they have entered into a definitive agreement under which MOL Global will acquire 100% of Friendster. The principal shareholder of MOL is Tan Sri Vincent Tan, the Chairman and CEO of Berjaya Corporation Berhad, a leading, diversified Malaysian conglomerate that has annual revenues in excess of US$1.8 billion. Following the acquisition, the operations of MOL and Friendster will be combined to create Asia’s largest end-to-end content, distribution and commerce network, pairing MOL’s offline retail channel partners and payment platform with Friendster’s large online footprint, social network and user community in Asia.

“The merger with Friendster will continue to transform the social networking industry, combining a highly intuitive and successful social media site and online marketing channel with an integrated payment platform and content network which includes games, goods, gifts, music and video. We are creating a unique company that will be well positioned to provide content to a huge, regional user base, here in Southeast Asia,” said Ganesh Kumar Bangah, president and chief executive officer of MOL.

MOL uses the leverage of a network of over 500,000 physical and virtual payment channels across 75 countries worldwide to collect payments for content and services. Its core markets are Malaysia, Singapore, Indonesia, Philippines, Thailand and India. MOL has relationships with over 70 online game publishers that have a suite of over 200 online game titles. It also has partnerships with music, movie and video content owners and distributors across the region.

“Friendster and MOL are both industry pioneers and are close partners. This combination is a natural progression of our relationship and will be an industry-changing event,” said Richard Kimber, chief executive officer at Friendster. “The new combined entity gives Friendster the kind of financial backing, retail distribution, and e-commerce infrastructure that will enable us to accelerate our strategy and create a locally relevant, fun experience for our users in Asia, both on and offline.”

In 2003, Friendster pioneered social networking, and today is a leading web site in Asia, with over 75 million registered users and over 90 percent of daily traffic coming from the region. Asian youths have embraced Friendster and use it as their primary means of connecting to and keeping in touch with friends, self-expression, sharing content and news with friends, and as a source of entertainment. Friendster users also enjoy local music, gifting, photo sharing, online games, and using Friendster on their mobile devices. All of these are incorporated in Friendster’s product suite and will be further developed over time with MOL, specifically with Asian youths in mind.

Friendster and MOL entered a global partnership in October of this year where MOL was appointed to provide an integrated payments platform, as a foundation for The Friendster Wallet and The Friendster Gift Shop, for Friendster’s users. The new combined entity will now build upon that initial set of products to deliver a content distribution network and e-commerce platform, enabling a wide array of content to be distributed to Friendster’s community and monetize via micro-transactions using MOL’s payment platform. MOL will use the leverage of its physical distribution networks to localize and extend the online reach of social networking in Southeast Asia to the physical world through Tan Sri Vincent Tan’s substantial assets across Malaysia and the region, including retail franchises in Malaysia and across Southeast Asia such as Starbucks, 7-Eleven, Borders, Krispy Kreme, Wendy’s and Papa John’s Pizza, just to name a few.

Friendster recently launched a new brand and web site packed with new features representing a significant milestone in the company’s history and further signifying the company’s evolution to focus on the Asian youth market. The notable changes include a new fun-centric brand, and a redesigned web site with a focus on local relevance, fun and simplicity.

The combined entity will maintain offices in various locations, around the world, including Mountain View, CA (USA), the Philippines, Malaysia and Singapore. Ganesh Kumar Bangah will become the Group Chief Executive Officer of the combined entity while Richard Kimber will become the Non-Executive Chairman.

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