inSSIDer

If you are Windows, you may want to check out MetaGeek's free Wi-Fi app, inSSIDer. The open source app is compatible with all the modern versions of Windows, from XP and up, and will help troubleshoot any WLAN problems your network may encounter. The app shows you various signal strengths of nearby networks, as well as channel allocations. Sometimes boosting your signal is as easy as switching channels, and this app can help you find the less busy ones.

Chanalyzer Lite

Also from MetaGeek, Chanalyzer Lite does a lot of what inSSIDer does, but it works in tandem with USB Wi-Spy Spectrum Analyzers and Wi-Fi cards to provide richer data. It even picks up the RF signals produced by phones, microwaves and anything else that could be causing interference with a wireless network. Another added bonus? It works with both Windows and Mac.

Cisco Network Magic Pro

With a broad suite of features that allow you manage and protect your wireless network, PC Magazine is right to call Cisco Network Magic Pro the "software Swiss Army knife for your network." The app, for Windows only, provides administrators with a birds-eye view of a network, and allows for easy file and printer sharing, network troubleshooting and security alerts. Users can even control access to various devices and track activity with remote screenshots.

Connectify

This one's pretty straightforward. Need to extend your wireless network but don't want to buy another router or bridge? Connectify, which works with Windows 7 machines, turns your Wi-Fi enabled computer into it's own hotspot that can be accessed by other computers, printers, cameras and any other Wi-Fi device. The network created can still be protected under WPA2 encryption and best of all, it's free to use.

Meraki WiFi Stumbler

If you've noticed one thing about the previous tools, many are designed to work with Windows. Meraki WiFi Stumbler is a quick and free tool that is platform agnostic - it works within a Web browser. While this Web-based tool may be a little limited compared to its software brethren (data cannot be exported and it's mostly a read-only experience), it can certainly come in handy when you're looking to quickly troubleshoot a problem on whatever device you have handy at the time.

What Did We Miss?

There are a lot of tools out there for Wi-Fi network administrators, and we've merely scratched the surface on some of the best ones. If you have a suggestion for a great way to monitor, manage or secure wireless networks at the SMB level, please leave us a comment below!

Photo by Flickr user fboyd.

According to McDowell, the partnership will increase foot traffic to small businesses that adopt the service by at least 10%.

Specifics about how the technology will be implemented and distributed were not delved into in any detail, but at one point McDowell referred to this suite of services as an "app." The app will connect businesses to potential customers over multiple channels, including social networking services like Facebook and Twitter, as well as SMS and email. Location-based services will also play a role, which will be tied into Nokia's Ovi Maps, something that McDowell said will be an important part of the new offering.

Businesses are hungry for tools that increase customer loyalty and increase sales, but often don't have the technological infrastructure to support this, the execs explained in their joint presentation. That is, businesses in emerging markets don't necessarily have PCs, they have phones.

For Nokia, providing a valuable service like this to the estimated 500 million small businesses worldwide will help increase customer loyalty and sell more phones. For Intuit, it's about bringing their experience with small business-focused products like QuickBooks to a new market.

The offering is set to launch in the 4th quarter of this year with a larger rollout following in 2011.

There are currently 1.3 billion Nokia devices in use today and the company announced new products this week running an updated mobile operating system (OS), Symbian^3. Nokia execs said yesterday they expect to sell 50 million smartphones running the new OS. Symbian is also a current mobile market share leader, with 40% of the worldwide smartphone market.

Disclosure: Nokia paid for this reporter's travel and accommodations to Nokia World 2010.

Trada CEO and founder Niel Robertson will join the webinar to go over Google's AdSense and AdWords programs and how small businesses can take advantage of them. Trada is a Boulder startup that helps businesses of all sizes better manage pay-per-click ad campaigns by leveraging the power of crowdsourcing.

Also joining the webinar will be Expensify co-founder David Barrett. Expensify is a service that can integrate with Google Apps to help make the process of tracking expenses within small businesses quick, painless and seamless. Expensify is part of a larger collection of tools which live in the Google Apps Marketplace, and David will explain both how the marketplace works and how it can help small businesses.

And finally, the third guest is Caige Nichols, a serial entrepreneur and lead web developer at Zion & Zion, a Phoenix-based ad agency. Caige will provide the webinar attendees with context for using Google Apps with a startup - a process he has lots of experience with from his history of entrepreneurship.

The hour long webinar is free and is hosted on Verizon Wireless' Small Business Center. Attendees will be able to follow along with our presentation via Webex and can interact with the webinar by submitting questions in real-time. If you are a small business owner and want to learn how Google's tools could impact your workflow, please register and participate in this Wednesday's webinar!

One element that was not much covered was Yelp's concurrent announcement that it had assembled a Small Business Advisory Council.

It seems to have taken a lawsuit and its attendant bad publicity to get the company to reverse its policies on promoting or withholding certain types of reviews and on making filtered posts visible. Perhaps the company has decided having a number of involved small business types busting their chops a little every day would be preferable to one goliath and unpredictably-timed crotch shot that does great damage to their credibility.

Matt McGee of the Small Business Search Marketing blog quoted a letter sent out to small business owners with Yelp accounts.

The Yelp Small Business Advisory Council "will be composed of 10 members representing diverse geographies and industries. The group will serve for an annual term. In addition to regular correspondence with Yelp's executive team, the council will be relied upon to provide valuable input on changes to Yelp."

They are apparently still soliciting members for the council.

Bottom photo by Marcelo

Over the past decade, the Internet has evolved at a rapid pace, and if you didn't jump on the bandwagon in years past you may be feeling like it's a bit too late to establish an online business. That's not the case, however, and 2010 is the perfect time to start doing business online. The underlying technologies of Internet architecture are well-established and are more affordable now than ever to end-users.

From an economic perspective, now is also a good time to consider starting or growing your business. The global economy is showing signs of recovery from recession, and catching an economic upswing when growing a small business is always a good thing. Small business loans from banks and other creditors may still be difficult to come by, however, which makes an online business an even better choice due to low start-up costs. In recent history, a great deal of attention has been paid to the massive growth in large social networks, but now the Internet appears to be shifting towards a more local or hyperlocal focus with smaller communities inside bigger networks becoming more common. As a result, small businesses offering local products or services can find a targeted audience of potential customers to engage with.

All these factors make now a great time to start your business online. Follow through on a 2010 resolution to make money from what you enjoy doing by starting a complete business from the ground up, adding an online component to your existing physical business, or just using a website to supplement other income and test the water for your idea. Below are a few steps you can take to get started.

9 Steps to Getting Your Business Online

Find a little cash: It's probably going to cost a lot to get started with a business website, right? Not so much. Don't fool yourself into thinking that you can't afford to start a business online just because you see startups with millions of dollars in venture capital funding featured on ReadWriteWeb or other tech blogs. A huge number of successful online small businesses were started out of a home office or garage workspace. The Internet is massive, and if you can find a good niche, you don't have to be everywhere at once to be successful. Costs for getting started with a domain name, hosting, basic website creation and online marketing can easily be kept under $1,000 in your first year of business if you plan well.

Get a strong domain name: If you're in the early planning stages of your business, always keep potential domain names in mind when choosing a business name. If you move forward with a great business name only to find the domain name is taken, it could mean back to square one on name planning. Instead, keep a domain search handy as you brainstorm and get creative with names to find a great fit. Your domain name will be your website's permanent address on the web, so it's important to get it right the first time.

Get Web hosting: You'd be surprised how many people think the domain name is all they need to build a website. What you need next is a place to store website files online. That could be something as simple as basic web hosting or a more powerful solution such as a virtual private server - both of which we offer at MyDomain. There are many other options as well, including self-hosting on your own server. There's a decent chance you know these basics already, so if that's the case, make sure to share your knowledge with others who are looking to get started online.

Build a website: There are a huge number of options when it comes to creating a website in 2010. Most hosting packages come with some a website builder that will create a decent, if not slightly dated looking website from a template. If you're not experienced in web design but want to create a good-looking site yourself, look into content management systems such as Drupal, Joomla, or even WordPress as viable options that are easy to keep updated. The best - and not-surprisingly most costly option - still remains to hire a Web design company or freelancer. But if you're serious about your online business, your website design and usability should be a top priority.

Create an e-commerce strategy: Now comes the fun part: figuring out how to let other people pay you. If you want to have an integrated shopping cart solution, you'll be able to sell directly through your site and manage complete product listings. However, this type of solution is the most expensive and complex way to sell online, and a simpler solution may be a better fit for a small business just getting started. A great place to start is simply integrating services such as Paypal or Google Checkout into your website to accept payments. Another viable alternative is to use a website as an informational source for your business, but sell through another online vendor like Amazon, eBay, or Etsy. A final option is to choose to not sell online, but instead establish a website to promote and market your physical business.

Secure your site: If you're planning to sell through your website or will even be collecting sensitive information from visitors, you'll want to look into getting an SSL certificate for your website. SSL encrypts data transmissions to and from your website and is most commonly used to protect credit card and financial data. Varying levels of encryption and visible security indicators for your website are available.

Network like crazy: Traditional networking can be crucial to the early success of a business, and social media can enable you to network effectively online. Talk about social media for business use is everywhere, and there are a huge number of resources and articles available to help you get started. Make sure that above all else, you go where your customers are. Utilize the tools that will allow you to most effectively communicate with those customers.

Track like crazy, too: Make sure you're using website analytics to track your website visitors and sales. Part of the beauty of the web versus a traditional storefront is the ability to easily track, sort and analyze all of the data collected from visitors to your website. Analytics can help you improve your website design, track your sales conversion, see where you're ranking in search engines and much more. Google provides some of the best options available with Analytics, Webmaster Tools and Website Optimizer that all provide invaluable data for any online business.

Grow and organize for the future: If you've made it to the point where you have a website set up, sales are coming in and your business is growing, it's the perfect time to make sure you're fully organized online. Use custom email addresses for your business, and make use of powerful collaboration, calendar and task management tools such as Open Xchange, Microsoft Exchange or Google Apps. Stay on top of the latest Internet trends and changes as things will continue to change rapidly for the foreseeable future. From there, carry your 2010 success long into the future as the Web continues to expand as a great place to do business.

If you have discussed social media with small-business owners, you almost always get two questions:

1. How do I manage all these social networks without going nuts?
2. Are any tools out there that can help me be more productive and save time?

I polled a few folks who know a thing or two about social media, especially for small businesses, and collected a list of 10 tools, technologies and platforms that can help your small business succeed in social media and Internet marketing. These experts in the field include John Jantsch of Duct Tape Marketing, Becky McCray of Small Biz Survival, Mack Coller of The Viral Garden, Drew McLellan of Drew's Marketing Minute and Kyle Lacy, author of the upcoming book "Twitter Marketing for Dummies."

Based on their favorites (and some of my own), here are 10 killer tools for small-business success.

1. Jott
Have you ever called yourself and left a voice mail so that you wouldn't forget something? Jott takes that idea a step further, transcribing the voice mail and sending it to your inbox. Instead of sending a quick memo to yourself to remember to email your vendor, you can dictate the email and save time. Upgrade to Jott Assistant and you can dictate to-do lists, automatic Web postings to your social networks, calendar items and more. Jott is a subscription-based service, and it starts at only $3.95 per month for a small Assistant account. For small-business owners on the go, it can be a life-saver.

2. Grasshopper
Grasshopper not only gives your business its very own toll-free 800 number, but it allows your customers to reach you even when you're on the go. Voice mails are delivered to your inbox, as are faxes (in PDF), so you can stay connected everywhere. You can have multiple extensions and extend the service to your employees as well. The service starts at $9.95 per month (plus a $25 activation fee) for 100 minutes. Other plans are $49 and $199 per month.

3. Monitter
If your small business is on Twitter, keeping an eye on the conversations related to your product or service there makes sense. But if you're geographically focused like most small businesses, you probably hate having to weed through similarly named companies and mentions of your industry from folks 1,000 miles away. Monitter lets you search Twitter for keywords, but filters them by specified distances from a zip code. You get tweets about your category, industry and company from within your home territory, where it matters. Monitter is free to use.

4. HootSuite
For anyone who runs a Twitter account for business, a tool like HootSuite can be a productivity boon. Not only can you manage multiple people contributing to the same Twitter account (so that one person isn't solely responsible for tweeting), but you can manage multiple accounts with ease. The software has a bookmarklet for quick link-sharing and offers some cursory stats on your Twitter account as well. It's free to use.

5. Survey Monkey
Perhaps the one luxury that many small businesses can't afford is market research. Survey Monkey enables you to conduct your own online surveys to gain insight into your customer base for free. The tool is easy to use, looks professional and produces a bevy of charts and graphs to help you understand your results. If you have trouble with online tools, Survey Monkey has several video tutorials that make it a snap to tap into customer insights.

6. Simple Online Accounting Solutions
McCray told me about a number of good online tools for bookkeeping and accounting, two really stand out for her. She recommends Outright.com for single-person businesses and WorkingPoint.com for more complex companies. The reason? Simplicity. Speaking as a business owner who is math-averse myself, I'll just say, "Amen!" The simpler, the better. Both of these are outstanding in that category. Outright is free to use. WorkingPoint is free for one user, $10 per month for two and only $80 per month for 10 users.

7. ReQall
Never before has a smart phone app been so incredibly useful! ReQall is a memory aide that enables you to record voice memos via a smartphone or regular phone, have those messages transcribed and then sent to you via email (a la Jott). But wait! There's more. The software uses natural-language processing and some additional analysis to determine whether you're dictating a calendar item or to-do list entry. It then adds those items to your calendar or to-do list. If you say, "Pick up milk at Circle K on Belmont Avenue by 4 pm," you'll get a calendar entry, probably with a Google map link, and a reminder beforehand. For the small-business owner on the go, this app is a must-have.

8. Milog (iPhone App)
While I hate to recommend an application that is limited to iPhone users, this one is worth mentioning. Milog, from SymplySoft, allows you to track your mileage simply, then email yourself neatly organized reports to print or send to your accountant for tax papers. When my CPA told me, "No one tracks their mileage well," I decided to prove her wrong. Milog helps me do that in literally a few seconds per day. The app stores locations for easy trip entry and allows you to add fields for parking, tolls and more. The full version is just $2.99 at the iPhone app store.

9. Minggl
This tool is new (the beta was released two weeks ago) but is very promising. A browser sidebar plugin, Minggl allows you to post status updates across six major social networks (Twitter, Facebook, MySpace, Flickr, Digg and Delicious) but, unlike other broadcast services, also allows you to check your inboxes, notifications and public updates from friends on those networks. Add a Google Sidewiki-style annotation service and you've got a pretty useful tool that you won't have to change your habits much to use.

10. Backupify
Whether you're dabbling in social media for your business, conducting full-scale sales calls via Twitter or Facebook or running everything you do through project management software like Google Docs, Zoho or Basecamp, you'd probably get mighty frustrated if one of those services went down and lost your data. Backupify.com serves as a daily or weekly (you decide) backup service for a variety of social media and Web 2.0 services that many small businesses depend on. The service is available at a low cost (accounts start at $4.95 per month) and backs up your important company data (Gmail, Google Docs, Basecamp, Zoho), plus your entire database for services like Flickr, Twitter and even WordPress. (Disclosure: Backupify is a ReadWriteWeb sponsor and a client of mine.)

These applications, programs and platforms only skim the surface. I'm sure you have favorites of your own. Please share them in the comments for your fellow readers and help make this post a one-stop shop for killer small-business tools.

Jason Falls is a social-media consultant based in Louisville, Kentucky. He blogs regularly at SocialMediaExplorer.com. He is also chief evangelist for Backupify.com, a ReadWriteWeb sponsor.

In addition, you can post short text messages to your activity streams.

Box.net Is Now a Social Network

With this update, Box.net positions itself as a small social network for businesses. As Jen Grant, Box.net's VP of Marketing, explained to us, the reasoning behind this is that, according to Box.net, social networks work best when they are built around a certain type of content (like MySpace and music). Thanks to its integration with other online productivity services including Zoho, EchoSign, and Scribd, you could potentially run a large part of your business through Box.net and its affiliated services.

According to Box.net's press release, the company currently provides services to over 50.000 companies. As Jen Grant pointed out to us, these are usually small to medium-sized businesses, or groups within larger enterprises. The new features in Box.net will surely help the company to expand its business

Validas is ideal for the SMB (Small Medium Business) market. That includes all the bootstrapping Gritty Entrepreneurs as well as the VC funded start-ups that just got the "cut costs" memo from their pals at the VC fund. But it is also the 27 million Small Medium Businesses that employ 50% of Americans.

Validas can be used by a consumer. But an individual can probably spend a few minutes and figure it out themselves.

Nor is Validas ideal for Fortune 500. They can get the data from the carriers in a form that they can analyze any way they want, they can employ people to haggle with the carriers and have the clout to get results.

What if you are the CEO with 20 employees? You have other priorities. You can tell your Admin/Finance person to do it, but maybe his priority should be chasing receivables? You can tell all 20 of your people to figure out how to reduce all their cell phone bills? Well, if you are the kind of CEO that sprays employees with constant priorities that all get ignored, you could employ consultants to do it, but their fees might outweigh the savings.

Automating A Small Boring Job

Validas does what you would do if you took the trouble or if you employed somebody to do it. They just automate it, so they can do it fast and efficiently and thus make money in the process.

This is boring and it is small. So it should be really easy. It should fit into that quadrant that is Minor Impact/Easy To Do.

That is easy to say, but hard to pull off. Validas has the experience to deliver this. The founders, Tom Pepe and Todd Dunphy, left their safe jobs at Verizon Wireless to start Validas. They know all the tricks that carriers use to get those extra fees.

How It Works

To use Validas, you will need to be set up for online billing. Online billing is free from your carrier and you do not need to cancel your paper bill to use Validas. You can use Validas for bills from: AT&T, Verizon, Sprint, T-Mobile, and US Cellular.

Then you upload to Validas and view your potential savings. You can download this information into Excel or print out the reports.

Validas claims that the Current Average Yearly Savings Per Customer = $505. Presumably that is not per user and is for a small business of some type.

Validas pricing is simple, with various plans. The one they promote as best value costs $24 for 24 reports, audited every month. So that would work for a 24 person company. You can test it out with a $5 One Time Audit.

Validas fits the trend we are seeing of a return to simple "every day low prices" rather than fancy Freemium models supported by advertising. If it has value, charge for it.

The End Of Information Asymmetry

Validas looks like it is part of a big trend towards transparency, the end of "information asymmetry" that we noted in our Ten Trends To Bet On For Your Most Audacious Start-Up. We have seen start-ups doing this well in the car market. We suspect we will see more in financial services. In all cases, the start-up takes the side of the small buyer to get better deals from a large seller. Validas is a welcome entrant in the cell phone market.

But what about now? This is the time to be audacious. The world has changed, totally and irrevocably. Change is the entrepreneur's friend.

I call these Micro Trends. They are not the big obvious trends that everybody is riding - such as mobile, online advertising, search, social networking, globalization etc. If you spotted those 10 years ago, great. Now it is too late. Think surfing. If you see the wave building early on, you get a chance to ride it. If you catch it too late, you get crushed.

How Does The Last Few Weeks Change This List?

For some time I have had a list of Micro Trends on my personal blog. It seems a good time to revisit them to see what might change based on the global credit crisis.

1. Transparency. This wave has been building for a while, but it just got a big boost by recent events. Transparency in financial markets obviously. Then there is Obama's Google for Government initiative. Some of the smartest recent startups we have seen use a mix of technology, insight and hard work to expose the inner working of industries to eliminate information asymmetry and get lower prices for buyers. You can bet that there will be more.

2. Relocalization. We have already written about this here. Tough times will accentuate this trend. The solutions are not obvious (so Momentum VC won't touch them), they could be game changing.

3. Reduced power of gatekeepers. This relates to Transparency. Reduced information asymmetry reduces the power of gatekepeepers/intermediaries/tollbooths. The Financial Services industry is the mother of all gatekeepers. The Economist states that in the early 1980s, the financial services industry accounted for 10% of GDP, but last year it rose to 40%. One change arising from the recent turmoil we can be totally confident about is that the current financial services intermediaries are weakened and new models will arise. Who will do a craigslist on the financial services industry (or at least segments of that vast industry)?

4. Micro-trend Slopes replace Chasms. Alex Iskold started an interesting conversation about whether the Internet has made the Chasm adoption model less relevant. Biking up and down slopes may be the better analogy today. Catch a new trend and you can cruise down a slope, picking up speed effortlessly. As trend-spotting me-too ventures join the race (the Internet spreads ideas instantaneously) the slope flattens out and curves uphill. In good times, a bit of pushing gets you over the top and catching another micro trend slope on the way down. If your up slope coincides with a cyclical down turn (and we are certainly in a big cyclical downturn today), you will get a flat tire and have to carry your bike up the hill and mend it at the top. Don't worry, the other racers will have given up at that point. Starting in a cyclical downturn, make sure you are on a down slope!

5. Changing balance of power between big and small businesses. Yes we have been "banging on" about this for a long time. For the most long-winded description (sorry), read this. This could be the biggest micro trend, even a Tsunami that few people have spotted. Which the current crisis just accentuated. Which the incoming President might actually do something positive about for a change.

6. Self-organizing networks beat command and control structures. This is the story of Enterprise 2.0 - aka, social media meets the enterprise.

7. The end of mass markets. This relates to most of the other trends. Small, niche, specialist will beat mass produced. This is why Etsy may be a big winner from this Web 2.0 cycle. There are probably other opportunities around this trend.

8. Ad $$$ will flow to measurable ROI models. OK, that falls into the no-duh category! But surely Google Adwords is not the only winner in this category? There must be a better ad targeting model out there somewhere? Not better search, you can just use Yahoo Boss for search - that game was totally over well before the credit crisis. But better ad targeting that does not infringe privacy is a big winner.

9. Bubbles will form and pop faster. Bubbles are like booze. With a horrible hangover we say "never again". But guess what.... They don't reappear in the same place until a generation that was bruised has moved on. So the big bubble may be a thing of the past. But we will get lots of small ones. That is kind of like moderate drinking, actually quite good for us. My motto is "moderation in all things, including moderation".

10. The end of 11 point lists. I used to do 10 point lists until a commenter showed me this wonderful Spinal Tap video. Seriously, 10 point lists indicated limits and space on the Internet is unlimited. But then I noticed many people doing 11 point lists. In the spirit of back to basics discipline, 10 point lists will make a comeback.

Image credit: Thomas Hawk

See also: What's Next After Web 2.0

The first big question that jumps out is: where are the profitable VC funded web ventures?

We heard from lots of gritty entrepreneurs building business the old fashioned way, keeping costs low and funding from revenue. I have done that and know how hard it is to do, so here is a big cheer of recognition for all who are going that route. I hope we can profile some in the future.

When you make it to profitability via bootstrapping, you have a wonderful independence and freedom. You have to keep clients happy every day, but you really do get to call the shots. You don't have a money guy in the boardroom. This is why many people become entrepreneurs.

But what we want to focus on here are VC funded web 2.0 ventures that got to profitability as standalone ventures.

Surely Jigsaw is not the only one?!

We chose Jigsaw to kick off this series because they were VC funded and profitable. (Many people don't like Jigsaw, it seems like a tool for spammers, but that is another story and a bit out of date from what we can see). The point here is, what other Web 2.0 companies have been funded by VC and have reached profitability? Surely there must be some more? Did all the 2003/2004 era Series A funded ventures either exit or fail? Or are some on the cusp of profitability, with enough investor cash to get them there? Even with revenue forecasts that may need to be to brought down as a result of a slowing economy?

Please tell us about any VC funded web 2.0 ventures that are profitable today standalone. Here are the hurdles:

1. "VC Funded". A minimum $3m Series A from a recognized VC fund.
2. "Web 2.0 venture". We will be as loose as possible in this definition. In fact, any web venture funded after 2002 is OK as any venture after that date is likely to have some features of user generated content, social media, SaaS or other 2.0ish characteristics. "Web 2.0" is like the definition of art "I cannot define it, but I know it when I see it and I know what I like".
3. "Profitable". On this criteria we will be tight. We mean the Warren Buffet definition of profitable, which means "free cash flow", otherwise known as "owner earnings". It is really simple and you cannot fake it. You either get more cash from operations (cash from investors does NOT count) than you spend, or you don't. Accounting conventions like EBITDA don't count. More on this later.
4. "Today". That means this quarter. Even better last quarter. Or more than a few quarters.
5. "Standalone". Skype maybe profitable within EBay or YouTube within Google. That is a separate subject. We are looking for standalone ventures that have not exited. They made it to profitability on their own.

Why Free Cash Flow Is The Measure

EBITDA (Earnings Before Interest Taxation Depreciation and Amortization) is an accounting convention that is used a lot in the private equity business. "Private Equity" used to be known as "Leveraged Buyout". The L word is not in vogue today (Ed, using understatement as humor seldom works). Seriously, Private Equity deals have been based on their ability to raise debt at low cost. That game is over for a while.

EBITDA is supposed to be a measure of how much debt you can put on a company. It is usually applicable to well established businesses in traditional industries. Recently it has been used in relation to Facebook and other large web ventures. This is where it gets interesting for web entrepreneurs and their investors.

Is Facebook Profitable?

According to a report in BoomTown in January 2008, based on an interview with Mark Zuckerberg:

"Revenue for Facebook for 2007 will be $150 million, as has been widely reported. But for 2008, Zuckerberg projected revenue to be increased to $300 million to $350 million.

More interesting was the news that Facebook would spend $200 million next year on capital expenditures, which is a whole lot of servers.

By the way, more expenses, noted chatty Mark, those employee levels would rise to more than 1,000 in 2008 from 450 now.

And Zuckerberg also said the company's EBITDA-earnings before interest, taxes, depreciation and amortization and a number widely used by Wall Street as an indication of operating performance-would be $50 million in 2008.

That means the company would have a negative cash flow of about $150 million (EBITDA minus CapEx), rather than break even, as it does now."

Is Facebook profitable today, in the last quarter of 2008? Well it is almost certainly EBITDA positive, butthat is not the true measure. The answer is "maybe". If Facebook is hitting $300m to $350m this year (2008) and their operating costs have doubled from $50m to $100m (which is reasonable assumption as they said they would more than double employees from 450 to 1,000), they would have EBITDA of $200m to $250m. That sounds pretty good. But after $200m in Capex for servers, they are only breaking even on free cash flow at the bottom of their revenue forecast range. And, given the failure of Beacon and declining CPM rates on social networks, my guess (it is only a guess) is that Facebook revenues will be at the lower end of their forecast or even below.

But enough about Faceboom. The more generally interesting business issue highlighted by their story is that Capital Expenditure ("Capex") does matter for web ventures. In fact, it is a mission critical issue, with good software design at the heart of the issue.

Servers Are An Operating Expense For Web 2.0 Ventures

With user generated content, you don't pay people to create content that you use to generate advertising revenues. So your operating costs are R&D (developers), advertising sales and all those senior management overhead lumped into the General & Administrative (G&A) cost bucket. I don't really understand what 1,000 people do at Facebook, but that is another story.

As you scale, people costs should not scale. Servers do need to scale. That is where Facebook must be suffering from some sloppy early software design. That is fine, the initial win is all about user traction and a scalable design is secondary. But today it is a critical issue for Facebook. It is also a critical issue for any venture starting out today. Spending a few bucks early on to get a scalable architecture seems sensible. This is not rocket science, any competent software architect knows how to do this.

Should Servers Be Outsourced Or Leased?

Capex sounds old-fashioned. Why buy servers when you can lease or rent? If Facebook leased rather than bought servers, they could have positive free cash flow even at the lower end of their revenue forecast. The credit crisis will make leasing a bit tougher. Renting via Hardware As A Service (HaaS) is the ideal route for startups you benefit from the scale of the HaaS vendor. But it is unclear how the economics scale for the buyer? It is unclear whether Amazon AWS or any other HaaS is a serious option at Facebook's scale (or the scale of any VC funded venture that is nudging profitability).

Scale Or Profits - The New Choice?

It seems that ventures that can see a fairly quick way to profitability, simply ignore the VC route. The feeling seems to be mutual. VC look at a lot of the businesses that got to profitability and say "too small".

So, you have to choose either big and unprofitable or small and profitable? That does not make sense. If that is true, is this an issue with Web 2.0 models? Some VCs have seen this as a failure of IPO markets, meaning that public market investors won't trust unprofitable ventures promising they will be profitable in future. This "won't get fooled again" view is natural after the Web 1.0 bubble burst.

Trade sales for unprofitable ventures are unlikely to be the solution in the next few years. Not good trade sales at any rate (fire sales are technically trade sales, but they are not a good result). The buyer will be much less willing to fund losses because their investors will be less willing to fund losses for an uncertain period of time. If the venture is close to profitability it does not need to exit and nobody wants to exit in a down market unless they have to. VC have plenty of cash so this is not a financing issue, if the path to profitability is clear.

Maybe profitability for a lot of Web 2.0 ventures is really close? Maybe it just takes longer for Web 2.0 ventures to get to profitable - but that they will be fantastic cash cows when they get there?

Image: mlitty