I was recently at Web 2.0 and I heard Ev’s conversation with John Battelle. Not much has changed. He seemed very coy about his plans to figure out a business model or solve Twitter’s scalability issues. Even during his talk I could see several people in the audience getting the Twitter Fail Whale trying the access Twitter. But one of Ev’s problems might be solved sooner rather than later. The two search titans Microsoft and Google struck deals with Twitter to get access to its valuable real time data. Both Microsoft and Google most certainly had to pay for it. Sheryl Sandberg made it a point to say she didnt believe in charging for data. Early this year Ev closed another round of financing putting the total at $100 million with a whopping $1 billion valuation. With all this hype Twitter is seeing their growth plateau  and they are getting more and more competition from Facebook.

The T-Mobile Sidekick disasteris turning into one of the biggest train wrecks in recent years. In the era of cloud computing and people dependent on their mobile phones Microsoft is in the middle of  a PR disasters.

Its not everyday Perez Hilton breaks a tech story wide open by ranting on his blog how for seven days he has not been able to access email or contacts on his T-Mobile Sidekick. He immediately ignited the twitt-o-sphere by telling all his loyal fans to tweet #TmobileStillSucks. What came next was so unbelievable it had to be considered a sick joke to Sidekick customers. T-Mobile issued a letter to all of its Sidekick customers saying that based on Microsoft/Danger’s recovery assessment, they basically lost all of peoples’ data. And to make matters worse they have no backup.

Update: T-Mobile halted selling Sidekick devices. T-Mobile is now saying that “Recent efforts indicate the prospects of recovering some lost content may now be possible.” CNet reported that those who do suffer permanent data loss will get a $100 “customer appreciation card” good toward T-Mobile service or products.

Google said, “We’ve identified and fixed a bug which may have caused you to share some of your documents without your knowledge. This inadvertent sharing was limited to people with whom you, or a collaborator with sharing rights, had previously shared a document.”

This is a huge debacle for Google and they seem to be less than transparent about the impact. Google responded to a TechCrunch inquiry, by saying that it was an isolated incident affecting less than .05% of all documents. The damage may not be widespread, but it’s still an unsettling lapse in security.  

Google has a tendacy to keep these types of things very quite. Like when Gmail goes down it takes them forever to admit something is wrong. There have been several mishaps in the last year that should call into question Google’s coding and testing practices.

Gmail which is still in beta after more than 5 years has been having a huge growth spurt. Over the last year Gmail has grown over 43% and with offline access I am sure the growth will continue. Gmail is one of Google’s only success stories out of their core search business. If I was Yahoo or Microsoft I would be more concerned than ever about Google taking more market share and more effectively monetizing those new users.

Now Twitter is raising more money to keep afloat after turning down a rumored $500 million offer to be bought by Facebook. Twitter’s new valuation is $250 million and IVP has given them $20 million. This should keep the lights on a little longer as they try to scale their user base and find a business model. Erick Schonfeld of TechCruch, pointed out that Twitter’s user base is growing fast and by some metrics Twitter passed Digg in number of users. Regardless, Twitter is destined for the dead pool or it will get bought by either Facebook, Microsoft, or Google. There is nothing they have which is a real competitive advantage. Twitter is nothing more than a feature in someone else’s product.

In the last few months, we’ve been taking a long, hard look at all the things we are doing to ensure we are investing our resources in the projects that will have the biggest impact for our users and partners. While we hoped that Print Ads would create a new revenue stream for newspapers and produce more relevant advertising for consumers, the product has not created the impact that we – or our partners – wanted. As a result, we will stop offering Print Ads on February 28. For advertisers who have campaigns already booked, we will place their ads through March 31.

Perhaps the dagger in the heart was when FM’s crown jewel TechCrunch gave a hint that they are considering alternatives. Michael Arrington wrote in his blog post, “I’m nervous about our ad partner Federated Media, which supplies about a third of our total revenue. They’re going through layoffs and payments from them have dipped substantially in recent months.” He goes on to say that they give FM a 40% cut on their advertising revenue. For one of the leading tech blogs this seems like a steep price to pay for driving a bulk of FM’s revenue. If TechCrunch bolts from FM like Giga Om and Digg did then I would say that FM’s days are numbered.

Michael, I think you deserve to keep more of your money and I think FM is getting greedy. FM will soon find themseleves going out of business if they don’t keep their best partners happy.

I am sure this is the start of a bigger trend to re-focus and prioritize engineering resources across the company. Some of the lavish perks I am sure will also be on the chopping block as Google positions itself to weather the tough economic storm ahead. Google’s quarter looks to be under pressure according to Piper Jaffray analyst Gene Munster, who said in a research note that “Google’s paid clicks are tracking down in December, and that may put pressure on the fourth quarter.”

Regardless of what happens anyone who is in the advertising bsuiness will suffer in this economic down turn. The easiest thing for a CEO to cut in tough times is the marketing budget.

Last October Microsoft solidified Facebook’s value to the world, $15 billion. Microsoft got a paltry 1.6% stake in the company for $240 million.  Some thought that Steve Ballmer had lost his mind. But what people didn’t realize is how smart he really was. To Microsoft, $240 million is a rounding error, so if they were really crazy they would have bought more of Facebook at an insane valuation. What was brilliant about this move was it established a public valuation for Facebook that was so high and unjustified no one on the planet would touch them. Unless you are Li Ka-shing the Chinese billionarie that put up $60 million at that valuation. Essentially it was a poison pill for anyone that would try to acquire them. (hint, hint, Google)

Even Facebook internally didn’t believe the $15 billion valuation. According to inside sources they were offering employees options at $10 billion and some employees got options at $5 billion. Mark Zuckerberg recently canceled a employee stock buying program when no company would agree that Facebook was worth $4 billion. So what is it worth now? Valleywag was reporting rumors of of people willing to sell their stock at $2.50-4.00, that would put Facebook’s valuation at $1.3 billion. If you look at the numbers Facebook is worth much less. 

They are buring a ton of cash adding new employees and increasing CAPEX spend on new servers to support their growth. Michael Arrington highlighted there burn rate back in October but matters get even worse with their valuation plummeting. Facebook has raised around $500M in funding. They probably have only about 100-150M still in the bank. Their global expansion could easily get more pricey and put them in a cash crunch. Facebook will be forced to do a down round in financing or raise debt. And in this market unless maybe Microsoft or Google would be Facebook’s bank to bootstrap their growth they are going to run out of options fast. Here is my take on their 2009 outlook.

Facebook’s 2009 Projections:

• 250M users
• 1B page views
• $.40 revenue per thousand page views
• $400M revenue – (Microsoft contributes 80% of revenue)
• $200M COGS
• $250M OPEX
• $-50M contribution margin

The key question for Facebook is will they have a breakthrough on the business model. Because right now that are just building a social portal business which will never scale and be as profitable as search. All of their previous attempts to add “the social” to advertising have backfired. Facebook’s Beacon product was a PR disaster.

The other big impact this will have on Facebook is recruiting. Hundreds of the best and brightest people bailed from their day jobs at Yahoo, Google, and other tech companies in the valley to ride the Facebook wave in hopes to get rich. With the valuation plummeting and fear that Facebook might run out of cash it is certainly a riskier option now. Several key people have already left the company including Adam D’Angelo co-founder and CTO, Jeff Hammerbacher, and Matt Cohler. The future does not look bright for Zuckerberg and team.

For the past two years they have been trying every strategy in the book to try and get traction in the market. First it was consumer free then it was an enterprise paid model. With all the P/R hype, all the data points to Google Apps being an utter failure. According to Compete, Google only gets 4M unique vistors to their Google Docs & Spreadsheets Web sites. Still the irony is while jouranlists were busy predicting web based apps would make Microsoft Office obsolete, they were busy typing away using Microsoft Word. Google even got on the feature treadmill and started banging out must have features like “print” and “charting”. Still no one is showing up to their party.

Microsoft has not been sitting still. They launched Office Live Workspace in March 2008 and later in October announced Office Web apps at their professional developer conference. People have also not been shy about buying Microsoft Office 2007, it doubled sales over the 2003 version. Even still Microsoft Office 2007 is a hot product this holiday season topping #2 on Amazon’s best seller list. Who says paying for software is a dead business?

With all the hoopla about Google Apps so far its really not been a threat to Microsoft Office. The future also does not look bright. Microsoft has a history of being a fast follower and closing the gap quickly. Once people have both a rich client and a web based version of Office at an affordable price, Google really has no chance. It seems like Microsoft finally got their act together just in time to suck the wind out of Google’s sails.