Wednesday, July 29, 2015

What is AirBnB's competitive advantage?

Cyrus Sanati, of Fortune, wonders what AirBnB's competitive advantage is, and if it will be able to ever earn the loft valuation is currently enjoys:
 I am not a fan of any business model where the person purchasing the service is expected to pay a  "fee" to a middleman, especially when that middleman (Airbnb), has no real competitive advantage whatsoever. Simply put, the barriers to entry online are way too low and Airbnb's sole revenue stream, the fees it charges its hosts AND guests, are very vulnerable to attack. I fear Airbnb will eventually be subject to vicious competition, forcing the company to lower those fees until its profit margins go to zero.

Is this true?
Real two-sided markets, like eBay (at least in the collectibles sector) have a very defensible middle man position, collecting fees both from buyers and sellers. I would add Uber in the same category, as I think the friction on the consumer side (multiple ride-sharing apps) and driver side (multiple ride-sharing apps), plus the positive externalities from network density, secure a strong middle man position.
AirBnB rentals would naturally cross-list on, or, and I'm willing to invest more time, at a website on a PC, to find something that's well priced. So I don't think I agree with Sanati that fee-for-service middle men businesses are destined to have low margins, I think it may be true for AirBnB in it's market.

Friday, July 24, 2015

The vector for financial contagion is hedge funds

This article sums up exactly my experiences at DE Shaw during the ruble default/LTCM melt down in 1998:
My Brazilian rate started trading. It blinked 17.40%, 1.50% wider than the prior day. I was out 3 million dollars, and I had no chance to trade. No chance to get out at 15.50% or 16.00%. The market had gapped.
The days following Lehman were notable not only because of the large moves, but because I, and many others, could never have traded at any price. Fists punched screens all across the globe.
It was a self-reinforcing problem. A feedback loop developed. I couldn’t sell my Brazilian rates so instead I sold another investment, Argentinian bonds. Others were doing the same, selling whatever they could, whatever was trading, moving the money into cash. The process devolved down the ladder of securities, from the least liquid to the most liquid. By the end, some of the largest stocks in the world, blue-chip stocks in the S&P 500 were also gapping.
The months following Lehman’s collapse saw the entire financial system start to fail, in a cascade of interconnected plummeting securities, and with them, the world economy.
Emphasis mine. The contagion has everything to do with the homogeneity of the financial investors, and nothing to do with actual market correlations between the assets.

Friday, July 17, 2015

Greece is a victim of Framing

SRW says that Greece, and the European crises, is a victim of framing:
The European crisis is a crisis of bad framing. Characterizing Europe-wide credit problems in terms of national actors, then fixing that characterization into place via intersovereign lending, were deeply pernicious, deeply destructive, errors. I don’t doubt these errors arose more from increments than ill intentions. There were pressures and interests and paths of less resistance — no need for any vast conspiracy. [2] The international framing was convenient to domestic constituencies throughout Europe. In every country, elites find it convenient to deflect passions to an external bad actor rather than take responsibility for mistakes at home. Sometimes on the merits they have a case, sometimes not. Regardless, inflaming passions against another nation is always a terrible choice. Even when a dispute really is a zero-sum conflict of interest between two nations, great diplomacy is called for. That may be a lot to ask for, but it is what civilized countries do.
I agree, but I don't think the problematic frames are "Greeks are lazy and corrupt" or "Germans are cruel and stingy". The problematic frame is "money is like gold" and "nations are like households".

The MMT crowd calls responsible management of fiat currency "functional finance" because it looks at the function fiat money plays in an economy -- as a general ledger entry to track obligations -- and rids it of the inherent value it holds as a store of value, implicit in the "sound finance" frame. In "sound finance", the nation, as a family, needs to have a rainy day fund of savings in case of bad times. In practice, this is disastrous as functionally, the nation needs to run deficits so it's people can net save and be employed, thus maximizing real value.

If you want a find a villain, look at the economics profession which continues to model money and finance as if it was a lump of gold instead of a spreadsheet entry. They are like the doctor's at Vienna General.

Thursday, July 16, 2015

Comments on Greece

Many comments on Greece have been morality plays of one sort or another but the most solid technical analysis comes from Warren Mosler:
[context: Greek debt reduction] 

As suspected, he’s was in it over his head.
My response would be to let the banks remain open with circumstances limiting withdrawals to available liquidity. Liquidity might come from earnings on assets, asset sales, and new deposits. The banks would be free, by mutual agreement, to issue IOU’s to depositors who didn’t want to wait for actual euro. The govt might issue IOU’s if it ran out of cash for operating expenses. To ‘seize control of the Bank of Greece from the ECB’ is nonsensical, as there’s nothing there but a computer with a spreadsheet. It would not give Greece the ability to clear funds outside of Greek member banks that are on that spreadsheet. Haircuts to bonds issued to the ECB and reducing Greek debt would also be meaningless in this context.
Mosler's point is that Greek needs to run larger deficits so it can address it's aggregate demand shortage. Debt reduction does not help this as it fundamentally still has Greece in a position to need surpluses, or too small deficits. So even if Greece had gotten it's haircut, it really would not have helped.

This aggregate demand manage is the prerogative (and responsibility) of any currency issuer, but Greece may not have anyone who knows how to set up a currency, and it certainly does not have anyone who knows how to run a fiat currency correctly. This is why Greece was talking about "seizing banks" when all it needed to do was issue IOUs (like California did briefly during it's budget crises).

Tuesday, June 16, 2015

Germans, Cash, and Debt

This article tries to explain why Germans strongly prefer to keep cash and avoid debt. Oddly, the explanation they offer suggests the opposite behavior:
But, of course, their attitudes toward currency must owe something to Germany’s tumultuous monetary history. During the Weimar-era hyperinflation that peaked in 1923, prices rose roughly a trillion-fold, as Germany attempted to pay its onerous war reparations with devalued marks.
Wouldn't hyperinflation mean you would not want any cash at all, and would want to take on debt (as it's real burden would just be inflated away?)

This reminds me of stories I heard about US mortgages in the late 70s, with interest rates topping 15%. While it might sound like a great time to take on a mortgage (high interest rates mean low house prices, and when rates fall you can refinance down) in practice people tell me that no one took out mortgages so no one bought houses unless the owner offered financing.

If anyone knows the real reason for German preference for cash, and/or US mortgages in the 70s, please let me know in the comments.

Grexit and the potential consequence

Mosler is unimpressed with Varoufakis asking that the ECB lower's Greece's debt burden:
Varoufakis completely misses the point.

First, the only way public debt, for all practical purposes, need be ‘paid back’ is via refinance.
Second, with the implied guarantee of the ECB’s ‘do what it takes’ policy, rates are down and market forces not applicable for those members ‘in good standing’ and not at risk of losing that ECB support.
Third, Greece, and the entire euro zone, is in desperate need of larger deficits/more public debt, either through tax reductions or spending increases (that choice is political). So even if Greece ‘wins’ on all points currently being negotiated the economy still deteriorates, just at a slower pace.
Fourth, if Greece attempts to go to drachma or any kind of ‘parallel currency’, based on discussion I’ve heard and read, it will most likely be a case of out of the frying pan and into the fire. The expertise required to do it right is not evident at any level.
Some of Mosler's points would make more sense in the context of a currency sovereign, which Greece is not once it joined the EU. However, he is correct that fundamentally, Greece needs more deficit spending to put the real economic resources there to work, and Varoufakis is not asking for that. He just wants less deficit reduction.

Suppose Greece defaults, what will be the impact on broader markets?

In 1998, Russia defaulted on its rouble debt (it did not have to, it did) and the US stock market cratered. The US economy is actually not that exposed to Russia, but some hedge funds are, and they had to make margin calls when they wrote down capital in their Russia bond portfolio, and sold equities to do so. This drove down the price of equities, which in turn forced even more forced selling to cover margin calls. If a similar dynamic happens this time, it's a buyers market so be brave, step in, and load up.

However, if banks have built up positions in Greek debt, and they need to write down capital to cover the loss at any scale, then they will have less ability to lend. I don't know how debt constrained the US economy currently is, but less bank lending is deflationary by definition so this could have real economic consequences in the US.

Wednesday, May 13, 2015

Unicorn valuations and the internet bubble

An interesting analysis of unicorn valuations and the term sheets behind them from Fenwick & West. Their conclusions:
  • Investors received terms that provided a fair amount of downside protection for their investment, especially in the event of an acquisition, but relatively few upside benefits.
  • These terms could result in a divergence in interest between early and late stage investors at the time of a liquidity event.
  • A significant percentage of the highest valuation unicorns had dual class common stock which provided founders/management and in some cases other shareholders with super voting rights.
  • Attaining a unicorn valuation appears to be a goal of promising companies raising money, as 35% of the companies we analyzed had valuations in the $1-1.1 billion dollar range, indicating that the companies may have negotiated specifically to attain the unicorn level.
The emphasis on downside protection over upside opportunity suggests that investors, most of whom are not traditional VC btw., are concerned about overvaluation. One wonders why they did the deal at all -- maybe just to add window dressing in their marketing materials?

Also interesting that the bulk of the downside protection is in the event of a white-knight/acquire. If Google buys Unicorn X, they are going to need to pay KKR.

Thursday, April 30, 2015

Should you be able to short internet Unicorns?

This article wonders if you should be able to short private internet stocks with (seemingly) excessive valuations:
Private tech companies could benefit from relaxing restrictions on stock transfers and allowing short-selling, bringing more investors into the market for their stock.
OK, so the summary is a little disingenuous, but more seriously, if someone thinks that a stock, public or private, is too high, then isn't the ability to short it both a good way for the market to capture that information and hopefully come up with a better valuation, and also getting naysayers to put-up or shut up? Also, aren't better valuations important for the economy as a whole, and the sector in particular?

I disagree with both assertions. Firstly, I don't believe that shorting is captured particularly well as market information. It didn't help with the Internet bubble of the 1990s, which is primarily a public market phenomenon, and it contributed to the real estate debt bubble that followed in the 2000s (by banks selling the securities with one hand specifically so they could short them with the other).

Secondly, I don't believe that asset bubbles in general, and this asset bubble in particular, are harmful to the broader economy. Unlike debt bubbles, which wipe out bank capital and so generate a systemic contagion effect, equity bubbles wipe out assets within individual entities, limiting their spread. We bounced back quickly from the crash of '98, but are still struggling with the crash of '08. Japan has yet to emerge from their crash of '91.

When/if this bubble pops, it will knock out some venture capital and private equity firms, will be a damper in a couple of overcooked real estate markets, but the broader economy will continue just fine. If you see stocks tumble, rush in to buy them.

Monday, April 27, 2015

Why does active asset management still exist?

At U Chicago, I was confronted with the paradox of 1) being at the intellectual ground zero for the efficient market hypothesis while 2) being at the vocational launching bad active investment managers. And yes, it was the same people in both classes.

Robin Hanson talks (briefly) about why index funds have not taken over the world:
Even employees who invest for themselves tend to pick at least one high fee intermediary: an active-management investment firm. Few take the low cost option of just directly investing in a low-overhead index fund, as recommended by academics for a half-century.
Whatever the reason, this is why the recent spate of Roboadvisors have come to the fore (that, and their very slick websites).

Looking at my own portfolio, I see lots of index funds, and the effort to patch together international index funds back when that was hard to create, plus strange situation specific hedges (REIT, Muni Bonds) and a handful of experiments (BP, Greece, Fannie Mae bonds).

Certainly time to rationalize it all, but tricky to do without triggering a lot of capital gains.

Friday, April 17, 2015


No idea how it works, but these will be great (.pdf).

Monday, April 13, 2015

LinkedIn acquires

Yesterday, on Crunchbase, I could sweat that the Lynda entry said it raised it's series B at a pre-money valuation of $1B in Jan 2015, giving it a post-money valuation of about $1.2B. The LinkedIn acquisition at $1.5B then represents a poor cash-on-cash return, it seems.

I wonder why the company sold for $1.5B just 4 months after raising money at a $1B-$1.2B valuation? What does this say about the online education space?

If anyone has insights, I'd love to hear them in the comments.

Friday, April 10, 2015

Job-to-be-done by the Economist

It's worth reading the entire interview of Economist deputy editor Tom Standage, but this really stuck out:
...what we actually sell is what I like to call the feeling of being informed when you get to the very end. So we sell the antidote to information overload — we sell a finite, finishable, very tightly curated bundle of content.
I have to believe that this came out of some deep customer insight work, because it is not normally how media organizations present what they do, or more precisely, what role they play in their readers' lives.

This level of understanding what job your product does, in the Economist's case, giving the reader all they need to know in 90 minutes a week, with a clear finish line, is very specific and insightful. As the Economist continues to move to move to digital, the question will become, is this job important on the phone? And if not, what new job takes its place?

Friday, March 20, 2015

California has plenty of water

I was driving through the Central Valley recently and saw an orchard of uprooted trees. I don't know what they were, but I assume that they'd been dug up because the farmer didn't want to irrigate them any more.

A pity. But California still grows rice.

Which is why I say California has plenty of water, it just does not use it particularly well. Since farmers do not pay for water in a metered way, or at market prices, they waste it. And since ground water is not regulated, they waste that too. Instead, we have a series of hairshirt awareness raising measures that do little to address the real, long term water needs of this area, and may actively hurt by crowding out such considerations with theater.

Some good references in this MR post.

Tuesday, March 17, 2015

Why MMT is still important

Mosler refers to individuals who understand MMT as being "in paradigm", which those who do not as "out of paradigm". I've had pushback from JKH about the term "paradigm" when talking about this, which is fine, but I think this post from Sankowski on China and consumer demand, who I would consider someone to understands this stuff, illustrates just how, well, paradigmatic the whole thing remains.

The issue is China switching from a production economy to a consumer one:
“China is changing from a producer model to a consumer model,” said Stephen Roach, a senior fellow at Yale University in New Haven, Connecticut, and former chairman of Morgan Stanley Asia. “That’s an enormous opportunity for the U.S.”
Surging Chinese exports blew a big hole in the U.S. labor market over the last quarter-century, all but wiping out some industries. As many as 2.4 million American jobs were lost from 1999 to 2011 as a result, according to calculations by David Autor, a professor at the Massachusetts Institute of Technology in Cambridge, and his fellow authors in a paper last year.
Sakowski adds:
“The bleeding has stopped” China is really the only economy large enough to do significant damage to the US at this point.
So who is next? Which countries can disrupt the U.S. economy with both low wages AND the the supply chain which supports those low wages.
But this whole notion of exporting countries, such as China, damaging labor markets in the US is completely out-of-paradigm. The MMT argument goes, that if China wants to trade real goods and services for US$, then the US Gov needs to run higher deficits to satisfy the Chinese demand for US$ while maintaining full employment at domestically. Any domestic labor market weakness is due to insufficient spending (as always) and not actions by the exporter. The terms of trade, in this case, are firmly in favor of the importer as deficit spending is easy, while the exporter needs to forgo the real output of their labor.

I think this highlights just how much of a mental shift you need to really look at fiat currency as what is it, instead of the various barbarous relics that continue to cloud our thinking.

Tuesday, February 24, 2015

Social in the Media Age

A number of interesting articles about how various social media phenomenon came into being and have grown over time.

1. The argument that Snapchat is like a TV channel and so may be better for brand advertising:
If the growth in Ads is primarily all driven by higher click-through rates due to better relevant ads on mobile, than all of the private mobile companies that have a great medium for advertising will be viewed much more favorably and be more valuable…Specifically if ads on mobile are more engaging for consumer and more relevant than desktop ads than the addressable ad market for mobile will be bigger than desktop ad market and the valuations of mobile companies will be greater than desktop all else equal on audience size etc. This would be a very positive factor for Snapchat.
If Facebook knows this to be true it would result in them being willing to pay higher valuation for mobile companies than other acquirers because Google won’t know nor will yahoo msft etc because none of them have scale in mobile to understand these powerful secular trends and in essence they under value mobile vs FB and thus under invest and fall farther and farther behind.
Viewers, particularly younger ones, may be viewing more media on Snapchat, but have there been any truly aspirational marketing messages on mobile (aside from the inherent "medium is the message" quality inherent in the device and popular apps themselves?). My experience with FB is that it's driven by being the only channel you can make a mass buy in which delivers installs because it has good size. And the buys are made because it's the only way to get into Apple's top 10 lists. If/when Apple develops it's own Adsense, FB's mobile market goes away.

2. Great essay on the history of YouTube. Nice to see how the positive feedback mechanisms created social economies of scale. This is something I see a lot of in consumer facing entertainment businesses.
The constant stream of copyright-infringing Family Guy and Daily Show clips fed YouTube’s exploding traffic. Uploaders of “user-generated content” (as YouTubers used to be called) were able to mooch off of some of that traffic, and so chose YouTube either when starting consistent projects or uploading potentially viral videos. YouTube built the initial audience, and the more content it had, the more that audience grew.
3. In music, the artist is now the product:
There have been numerous successes in the music industry in recent years that were clearly not built on music, but on the extreme popularity of an artist’s online profile. Some artists branded themselves and promoted themselves to the point of becoming veritable online reality stars, before they had even released any music. Some of these online reality stars were picked up by large record labels; their music was just good enough to release, and with the notoriety already established on social media, the artist became a marketing machine for the record label.
In these cases the music was a loss-leader; it was showcased as the product being sold, but all of the money the artist generated was through ancillary income: touring, merchandise, endorsements and live events, maybe even public appearance fees. Nobody was buying their music, people were buying their image. These artists essentially achieved some sort of twisted fame, but not on the strength of their music.
People were never buying the music. They were buying the zeitgeist. Art is called into being to fill the space which precedes it. Venue first, content second.

Thursday, February 05, 2015


Is Grexit (Greek Exit) the most wonderful sounding word since blog (web log)? Regardless, you'd expect to see more written about this from MMT circles but it seems not.

Krugman has some talking points about the possibility of Greece exiting the Euro, (which seems to be scheduled for Feb 28th?):
3. If the creditors do play hardball, their leverage does not come from the ability to refuse new loans to the Greek government. With Greece running a primary surplus, all new loans — and then some — are going to pay principal and interest on old loans, with less than nothing going to the Greeks. There was modest de facto aid to Greece in 2010-2012, but no aid is currently flowing, nor will it.
By "primary surplus" Krugman means that the Greek government will take in more via taxes than it spends, so Greece will shrink it's overall debt level. Running a surplus in this way is naturally contractionary, both in the direct sense (there will be less spending, which directly contributes to GDP) but also in the indirect sense that the non-Govt sector will have less money, and as a consequence, try to save more to get to their desired savings target as their budgetary constraint tightens.

The ECB can essentially cut Greece off from the euro banking system, but they cannot cut Greece off from it's drachma system, and as economists keep telling us, "money doesn't matter". Real assets are the same whether denominated in drachma or euros. This is a chance to show how true that is by simply exiting the euro, converting to drachma, and spending while at the same time dramatically improving the ability to tax (not to "raise revenue" but to create downstream demand for the drachma and manage inflation).

Monday, January 26, 2015

Technology and the unbundling of commercial banks

A quick thought on this piece by how technology is unbundling commercial banking. Specifically:


On the loans front, startups are of two types (1) those that help companies find the best loan terms (marketplaces) and (2) companies that either directly or indirectly give loans to businesses using data and by connecting businesses to those with funds (alternative lenders)
Some examples of the first type include:
  • Fundera is an online marketplace that connects small businesses with funding providers
  • Creditera which helps businesses build and monitor credit and find the best loan terms Some examples of the second type include:
  • OnDeck which leverages electronic information including online banking and merchant processing data to identify the creditworthiness of small businesses in minutes
  • Funding Circle which is an online marketplace which allows savers to lend money directly to small and medium sized businesses
  • Square Capital which uses a businesses transaction history on Square to offer funds with payments tied to sales volume
  • Kabbage which leverages data generated through business activity such as accounting data, social media, shipping data, and other sources to understand performance and deliver financing options for small businesses instantly.
  • Biz2Credit which is a marketplace peer-to-peer lending platform
  • Lendio is a platform that helps small business owners find lenders and secure loans
The primary purpose of commercial banks, the function that makes them banks, is making credit evaluations. Any company which takes on that function without the accompanying risk if the loan is not paid off, is in a moral hazard situation which will ultimately create a credit bubble. I'm not sure which of these does that, but worth keeping an eye on.

Wednesday, January 21, 2015

Market Risk vs Technical Risk -- the VC industry

Absolutely outstanding piece on the history of the venture capital industry. The whole thing is worth reading just for the quotes across the decades, but I'll post the final two paragraphs here:
Saying VCs used to take high technical risk and now take high market risk is both an overly optimistic view of the past–the mythical golden age of heroic VCs championing the development of new technologies–and an overly optimistic view of the present–gutsy VCs funding radical innovations that create entirely new markets. Neither of these things is true. VCs have never funded technical risk and they are not now funding market risk. The VC community is purposely avoiding risk because we think we can make good returns without taking it. The lesson of the 1980s is that no matter how appealing this fantasy is, it’s still a fantasy.
People in the VC industry talk about the ’60s, when institutional venture capital took off. They talk about the ’70s, when iconic companies like Apple and Genentech were founded and the microcomputer industry emerged. They talk about the ’90s and the Internet bubble. They don’t talk about the ’80s; the ’80s are the missing piece of the puzzle. You can have lots of plausible theories about what venture capitalists as a class can do to get good returns, until you take the 1980s into account. Then you can only have one: the only thing VCs can control that will improve their outcomes is having enough guts to bet on markets that don’t yet exist. Everything else is noise.
The 1990s are not our map, the 1980s are. Don’t worry about irrational exuberance fueling a bubble, that is not what is happening. Worry about fear of risk. We know where that leads: once again straight into the ditch.
What's creating new markets?

Wednesday, January 07, 2015

Private market intoxication, Public market sobriety

From Sigalow:
The number of privately-held companies valued at over $1BN is at an all-time high.  There are currently 40 venture-backed start-ups valued at over $1BN in the private markets, and 27 of these companies are headquartered in San Francisco. Investors assume that each and every one of these Unicorns will have a successful IPO at many multiples of its current valuation.

In case you believe the public market will absorb these companies at a premium, here is a point of reference. There are only 71 publicly-traded technology companies headquartered in Northern California with a market cap of at least $2BN… and this list is declining at the same rate as the market in general. Meanwhile SF-based VCs have been minting similarly-valued companies, in the private markets, at a rate of one per month for the past two years.

Earlier this year one of my partners made the comment that we are witnessing “private market intoxication and public market sobriety.” I have been struggling to explain why this is happening, and I think the answer lies in a structural difference between VC investors and public market investors.
40 private market companies, valued at $1B+, all with expectations that they will trade at multiples of that ($3B+? $5B+?) when the number of such extant companies is only 71 in California?

(Note the weird math. Why are we limited the number of public companies at $2B valuations to California? Quick googling does not give me an answer -- please post in comments if you know. Let's assume the actual number is 200. So 40 companies out of 200 is 20%. An optimistic amount.)

This is the private market bubble I've mentioned earlier in my blog. The incentives in the VC industry mean they have to swing for the fences to justify their fees to LP, which means the asset class as a whole is likely to underperform. LPs will then either adjust their portfolio out of the asset class, or remain inside it betting they can  beat the odds as they continue to reach for yield in our current ZIRP environment.

Friday, January 02, 2015

2014 Tech retrospective

Fred Wilson posts a thoughtful piece on 2014. Some of my own reactions, and then what that might mean for this new year:
1/ the social media phase of the Internet ended. this may have happened a few years ago actually but i felt it strongly this year. entrepreneurs and developers still build social applications. we still use them. but there isn’t much innovation here anymore. the big platforms are mature. their place is secure.
By this, I think Fred mostly means that there will be no new social networks beyond Twitter and Facebook, and such ventures are not going to be funded. He does not include messaging apps in this category as he talks about their growth explicitly in his next paragraph.

I think 2014 was the year Facebook fully evolved into AOL 2.0 and that's where it's going to stay (at least on the web. Who knows if it will launch a true messaging app, or do anything interesting with Whastapp or Instagram or Oculus). But Facebook itself has become essentially those email our grandparents used to send to each other (and us) of jokes, news stories, etc. Young people do not use it to communicate any more.

On the messaging side, the social graph is in the phone's address book, which means switching from provider to provider is very easy. This is where the young people are, and also where families and friends actually communicate. I think the monetization model here is still unclear -- interruptive display ads have usually not done well in a 1:1 communication medium, but I don't see metered pricing or bundled plans working either above and beyond what the carriers already charge (and which, these apps are a reaction against, particularly Whatsapp).

To this point, I think the money Facebook's been making on mobile is driven by display ads for paid downloads, particularly games, as that market is very aggressive at acquiring users because of how Apple's app store works. Being in the top 10 generates a large amount of additional traffic, because customers look at the top 10 list when figuring out what to buy, so it makes sense to spend a lot of money to get your revenues to where they need to be to break into that list, and then spend to stay there. This spend goes directly to whomever can deliver installs, and right now Facebook is the best channel in that market.

If other online destinations start beefing up their paid install market as well, and most importantly, if Apple supports proper discovery (or an ad market) then we'll see what happens to Facebook's mobile revenues as competition and inventory begin to drive down mobile ad rates.