I got this comment left on my post about Ning being $500M from Jean Hughes Robert about my post on Ning:

Why are you so negative about Ning?

They are not the only service that provides free service and then sell premium services, are they?

It this a flawed business model according to you? Or is it the $500m valuation that is too high?

PS: That’s assuming you are not just being provocative.

Hey Jean

Thanks for the comment. I’m glad you asked - cause what’s obvious and apparent to me - may not be to the rest of you. I wrote that post - after I returned from a day of the DataSharing Workskshop - where I was hanging out with practitioners, independents and people who work for large companies who are doing something to make our world a better place.

BTW No one from Ning was there and they have not participated in any of the open efforts that we have been trying to initiate. Ning supports OpenSocial and they have talked in the past about exporting Ning network data - but we shall see how open they are - in the future. I just hope FastCompany and TechCrunch publicize that event - as much as they’ve glorified this absurd valuation.

To summarize - I don’t see Ning making our world a better place.

1. Sure - the Diabetes folks and hookers and others who could never have their own social network, now do with Ning (and its a nice simple design BTW - so there’s nothing wrong with that) - but there’s a reason why they never say how many of their nets have more than 2 or 5 people in them. There’s a reason why they don’t disclose details on how much money they’re making or how much money they’re losing - cause Ning is about selling out.

That’s why it was created. That’s what they live for. Its all about the exit strategy and here’s a company that appears to have no intention of ever making money (Andreessen refers to it as ‘cash flow positive‘) - just staying alive.

This recent round of fund raising just admits the fact that they’re raising this cash to see them through the upcoming nuclear winter - so that they can be left standing when (theoretically) they’ll be one of the last ones left standing - and THEN someone will come in and buy them out.

This is so diametrically opposed to who I am and what I do - that I’m sorry Jean Hughes - I get to complain about it. That’s why God invented the blogosphere - so folks like me can point out what’s horrible and evil about this strategy.

2. For the rest of us folks - we have to maintain cash flow POSITIVE - in other words - we don’t see what’s so bad about making money. If Ning was using their money to build great products, reach out and help others, participate in changing things - then we could look upon their money raised as a good thing. But this current round just discloses the pure greed and gluttony of Ning.

The Ning platform seems to be the LEAST amount of social network that they could come up with - and still offer something to end-users. But that makes sense - right? Why do TOO much when you can save the money for yourself?

3. Marc Andreessen being the founder of Netscape - seems to be able to raise as much money as he wants. This is because he apparently has made a lot of money for folks like Legg Mason and Allen & Co in the past. Marc recently sold OpsWare to HP for $1.5B - after failing to find success in the market and more or less giving up on OpsWare. The fact that HP was willing to pay that much for OpsWare is endemic of our industry - all the more which has been highlighted by Ning’s valuation. OpsWare failed at what it was trying to do - so they just started buying companies creating what’s known as a rollup.

That rolllup combined a bunch of other failed companies - which at the end of the day - provided little value to anybody except to HP - who had failed at keeping up with the Jones’ (in this case - in the world of managing data centers.) Oh gee - looks who’s down right now! The point here being that innovation has been lost in large corps, and that folks like HP need folks like Marc to sell them companies that they should have been building themselves. No great harm here - just shareholders getting returns on their investments. And HP making up for lost time and opportunity (you have heard about Carly right? And what she did and didn’t do for HP? Right?)

4. OK part 4 of this drama has to do with usage of capital and whether or not companies should even make a profit - at all. Clearly many of the dot bomb companies felt as though they didn’t need to make money and we heard over again things like ‘customer acquisition costs‘ and ‘loss leader‘ and we know what happened to those companies - right? Even Amazon had to start making money at some point! So this strategy of Ning’s just exacerbates the situation.

Fred Wilson bragged that he had made his investment in del.icio.us without knowing how it was going to make money. Clearly Twitter doesn’t either. But why is that a good thing? Should we be starting companies that are designed to NOT make money?

Why is that a good thing?

5. I create software to better the world - to provide mechanisms to connect people together. Ning sees social networking as the latest fad - and they exploit that notion to better themselves. Now the Libertarians and Republicans out there are now saying: “what’s wrong with that? Isn’t that what it’s all about - money?” I can just visualize Jason Calacanis rubbing his grubby hands together saying “money - money - money” And since this is a free country Ning certainly has the right to do whatever they want - sort of like how the Gun lobby and Military industrial complex has the right to build arms that kill people. Only this time- the weapons are social networks.

So in conclusion - I feel that companies should make a profit - clearly Marc and Gina and their investors - don’t. That hurts and upsets the natural order of things.

As an innovator and someone who’s idea was ‘copied’ by Ning - I fear for my future ideas and what it means when folks like Ning just sit there and ‘copy’ ideas - rather than innovate themselves. That effects us all. This validates the strategy of ‘copy’ rather than innovate.

This whole notion of bragging about how many networks they have - is also pretty sick. What they should be bragging about is what people are DOING with their networks - not treating these users as some statistic they show off to their investors “Hey look - see how many we’re exploiting! Isn’t that terrific!”

I believe that social networking platforms should be open - to provide freedom and flexibility to their users their users (which can also benefit the platform as well!) To me - Ning supporting OpenSocial looks like a grab for publicity to help them raise more money. They certainly have not been participating or helping us out in any way whatsoever in our efforts to get systems and players to interconnect with each other. Google, Microsoft, Plaxo, the BBC and Digg were there yesterday. Where was Ning? Celebrating their $100M war chest?

To someone who is fighting hard to build a profitable company, treating business as some sort of numbers game is also sick. How one could possibly lose money - year after year - is not only mind boggling, but does not bode well to how the company is run, what they spend their money ON and who they’ve hired and manage. I’ve heard of expensive programmers and office space before, and we know Brooke Hammerling demands top dollar - but lordy lordy - how can they POSSIBLY need $100M in cash?

That only spells for trouble if you ask me.

And since you did ask Jean - that’s what I think.

This entry was posted on Saturday, April 19th, 2008 at 5:39 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.