Twitter was great for communicating with the West, but other online tools aid increasingly sophisticated activists

By Jia Lynn Yang, writer

During protests in Iran this summer over the re-election of President Mahmoud Ahmadinejad, social networking tool Twitter’s raison d'être overnight went from frivolous to vital: The world outside Iran followed every spurt of  information that trickled out on mobile phones outfitted with the Twitter application.

Since then, activists have only grown more sophisticated in how they organize protests and spread information online. These days all the action—inside the country and among politically active émigrés—is on Facebook and a Digg-like site called Balatarin.com.

Nikahang Kowsar, an Iranian political cartoonist based in Toronto who also runs an Iranian news hub, has more than 11,000 friend connections on Facebook. The limit per profile is 5,000, and so Kowsar runs three profiles, spending 11 hours online a day, responding to emails, running his news site and maintaining his profiles.

Iranian journalist Masih Alinejad, who’s been living in exile in London for two years, also maintains three profiles. Alinejad says she asked Facebook to lift the limit, arguing her profile was a tool for political protest. She says Facebook denied the request.

How protesters protect themselves on Facebook

The Los Angeles-based founder of Balatarin, Mehdi Yahyanejad, attributes Twitter’s rise last summer to the fact that it was the only English-language source of information during the first few weeks after the disputed June 12 presidential elections. And so the Western media instantly gravitated towards it.

But, in fact, other social media are more popular among Iranians, especially educated, middle-class folks who support opposition leader Mir-Hossein Mousavi.  “In Iran people use Facebook,” says Yahyanejad.

Iranians also like Yahyanejad's Balatarin, a community site that helps users find online news and information about Iran and issues of interest to Iranians around the world. Though Balatarin (the name means "highest" in Persian) officially has been blocked inside Iran for three years, politically and tech savvy Iranians have found ways to get to the site.

To protect their anonymity, some politically active Iranians still inside the country adopt pseudonyms, such as changing their last names to “Irani.” The fear is that the government will use Facebook as a tool for spying on its citizens. Journalist Alinejad says that when one of her friends in Iran was arrested, her brother sent a message to her through Facebook saying he was removing Alinejad from his sister’s profile, so the government couldn’t use the connection to incriminate her.

Balatarin's Yahyanejad and others also said that people entering Iran have been stopped at airports and asked about their Facebook profiles. As a result, there is advice spreading that people take down their profiles before entering the country and then reactivate them after they leave.

Accounts suggest the site is blocked inside the country, although protesters can use software to get around the filters.  Facebook told FORTUNE it could not release the number of users in Iran, or confirm whether the site was being blocked.

Alinejad recently organized a whole campaign from London using just Balatarin, which focuses on political news coming out of Iran, and Facebook. In the most recent wave of demonstrations, centered around National Student Day last week, the Iranian government apparently arrested Majid Tavakoli, a student leader, and forced him to go on TV wearing a hijab, traditionally an item of women’s clothing. Alinejad wrote a post on her blog suggesting that other men wear hijabs too in solidarity. A link to her site wound up on Balatarin, where a debate ensued, and soon the campaign moved to Facebook, where men began posting pictures of themselves wearing hijabs. Alinejad says more than 500 people have sent photos as part of the campaign.

Says Alinejad, “[The government] thinks if they arrest journalists, they can stop news from spreading around the world, but they can’t.”

Can media companies thrive online by reaching the right people at the right time?

By Ramana Rao, Co-founder and CEO, iCurrent

Rao sees opportunity in tracking online readers' interests. Photo: iCurrent

Amid the sturm and drang of traditional publishers squaring off against Google (GOOG) and others in a game of high-stakes business, it’s easy to lose sight of the opportunity the Internet offers for a much more satisfying news and information experience.    Although resolving new models for content production and distribution is important,  the even bigger story will ultimately be about how the industry produces new experiences that are more personally relevant while retaining many of the values we so appreciate in traditional media.

This story requires a new lens.  In his influential 2006 book, The Long Tail, Chris Anderson paints the picture of how the Internet is turning us “from a mass market back into a niche nation, defined now not by our geography but by interests.”   Yet the book doesn’t quite explain the elusive concept of interests and this is critical to understanding what’s ahead.

What are interests?

We could just say interests are what we’re interested in, but that’s simplistic.  An interest is a commitment to give attention to something and that this commitment flows in time – deepening or drying up, widening or narrowing, or changing its route altogether.  Interests live in our heads, hearts, and hands and are what create a demand for information.

Consider a typical palate of interests.  You may be interested in astronomy generally and the Mars Rover specifically.   You may be interested in places you’ve lived or causes you care about.   You may attend for a while to a world disaster or each year to the World Series, or continually to professional interests like regulation of markets or technology-fueled transformation of culture.

Your interests have natural boundaries you understand, e.g. Bill Gates in the context of philanthropy, or the iPhone in the enterprise, or Facebook as you raise teenagers.

These examples together illustrate that interests are dynamic flows on the demand side, in contrast to the supply-side concepts of The Long Tail’s expanding inventories of items such as books, songs, and movies.

From "items" to "flows"

Our interests create demands for information flows.  The publishing and information industries, as opposed to the hit-making entertainment or the hard goods retail industries, have long served this much more subtle proposition.   Rather than seeing the actual product as items, they essentially package flows and build value and loyalty through their responsiveness to their audience across time.

“Periodicals,” as they’re called, filter and organize streams of items.  Consider the daily newspaper, the Sunday paper, and monthly magazine and how well they have fit in our lives for many years.  Add radio news programs as we commute, TV as we cook, and now content streams to us from all directions.

The people producing newspapers, magazines, and programs have always considered the audience—you had to in an age when you couldn’t so easily fail small.  And there has long been pressure on decreasing costs and meeting underserved interests—over time lower circulation projects were not just viable but launched with much less risk and achieved much greater profits.  Technology and new practices have fueled a steady tightening of the interactive loop between publisher and audience and thus a qualitative shift toward being less pushy and more responsive.

From push to pull

The Internet is the latest disrupting technology and it is the most powerful.  Not only for the reason that is well underway—the proliferation of content creators and outlets—but more importantly because as the ultimate interactive media it enables the true flip from supply push to demand pull.

We can view this as a different long tail, a long tail of interests.  The “items” on the x-axis of this new long tail are flows that match the interests of their consumers.  The crest of the curve would include traditional newspapers and radio stations that persist.  And out along the tail would be interest-based flows that might have audiences of one, some that flash and pop, some that stay unique and stable for long periods.

The industry is just now igniting on the possibility of serving the long tail of interests.   In the entertainment industry, Pandora — a personalized music-streaming service — produces such flows in the form of its stations for each unique listener.  You start out with a generic station based on genre, artist, or song and then through “thumbs up” or “thumbs down” reactions to songs that are played, you tune the station.    In our own effort at iCurrent, we have pursued a similar approach to serve interest-based flows of information based on direct user signals.

Our pursuit has attuned us to two major challenges for personalized information delivery.

First, with information experiences, much more so than with entertainment experiences, there are a rich and subtle set of factors that we are all directly aware of that determine whether or not something meets our needs and interests.  Characterizing interests upfront may seem challenging, but it is quite easy to know that something is or isn’t of interest as you see it.

Second, greater personal relevance doesn’t mean we want to throw out what traditional media serves so well.    Personalized does not mean isolated nor self-created.   Along with new sophisticated search and filtering technologies that match against our interests, we want the value added by the work of others.

Very likely the information industry will stabilize in the next few years on new business models for content creation.  The pursuit of achieving holistic experiences and business models around interest-based flows will last longer especially as the mobile Internet is integrated into the picture.  Though interests and experiences may be confounding and harder to sell than, say, books or products, in the end, those that understand them will be the ones that make the future.

Rao is co-founder and CEO of iCurrent, an online personalized news service based in South San Francisco, Calif.

The newest trend in e-commerce: Social media meets local networking.

Social commerce site Groupon offers daily deals to nearly two million subscribers in 27 U.S. cities.

When David Morton, owner of the Pompei chain in Chicago, signed up with an Internet startup to offer a coupon online, he expected to sell a few thousand at most. Instead, during the 24 hours the coupon was posted on November 22, more than 9,000 local consumers purchased an offer that got them $10 worth of pizza for $5.

The coupon was an all-time sales record for Chicago-based Groupon, a hot startup that brings the buying power of the masses to the social web. After launching with local merchants in its hometown one year ago, Groupon today offers deals to nearly two million users in 27 cities in the U.S. including New York, Charlotte and Austin.

Here’s how it works: Groupon sends a daily email to subscribers with a deal, or “Groupon,” for a local business or event, like a salon, restaurant, class or concert. If they want in, users then sign on to Groupon’s site to pay by credit card and have a year to redeem the coupon.

Before “the deal is on,” however, a minimum number of users must agree to buy. This spurs buyers to post the deal to social networks like Facebook and Twitter (or go the old-fashioned route: email) so the quota will be met. Many of Groupon’s offerings also tend to be social in nature, like attending a class or an event or checking out a new restaurant, making them ideal for rallying Facebook friends.

“Groupon layers nicely on top of the social graph that’s developed over the last few years,” says Groupon CEO Andrew Mason.

The site shows nearly one million Groupons sold, claiming to have saved users over $42 million. The company, which takes a cut of the deals it sells, is profitable and predicts revenue of $100 million over the next 12 months.

Investors get their Groupon

These numbers caught the eye of exalted venture capital firm Accel Partners, which led a $30 million investment round with New Enterprise Associates, announced last week. The infusion will go towards hiring, investing in technology, growing the customer base and expanding geographically.

Accel, an investor in Facebook, doesn’t need to be convinced of the social web’s potential: Another portfolio company, Playfish (it makes "social games" for Facebook and other social media platforms) last month sold to Electronic Arts (ERTS) for $400 million.

“We’re in the middle of another transition, of search to the social web,” says Accel’s Kevin Efrusy. “Just as Google [through its search business] enabled a whole new crop of businesses, the social web is enabling a lot of things that just weren’t possible before.”

Groupon’s model is appealing to investors in part because of is its operational efficiency. There is no need for inventory or shipping–users simply print the Groupon and take it to the vendor. And unlike other group buying sites, because most of the offers are services or experiences, there’s a nearly unlimited supply. (Some offers do need to be capped though, as Mason experienced when the company sold 4,000 Groupons for a nail salon with only two technicians, which was booked solid for months after).

Groupon might not the best idea for impulse buyers on a budget. But much of what the site offers are things you might do anyway: get a haircut, go out to eat, attend a sports events. And Groupon claims a high threshold of quality. “We knew that if we did bottom of the barrel, that would be self-fulfilling, we would be bargain basement, cheap stuff site,” says Mason, referencing past Groupons for James Beard award winning-restaurants and the Art Institute of Chicago.

Word-of-mouth, Facebook-style

For all Groupon’s promise and buzz, it’s still early days for the space and not everyone is convinced. Forrester analyst Nate Elliott points out that buying clubs and word of mouth marketing have been around for years. “Look at Avon, Tupperware, Amway—these are five to ten billion dollar companies. Marketers have long understood the power of influence marketing.”

But Groupon's advantage seems to be its ability to harness the power of local communities online. “Groupon really cracked the code because they realized it was about local business,” explains Efrusy. “Local has been difficult to make money on since beginning of the Internet. How do you find out about yoga, a hair salon, a spa? Word of mouth.”

In addition to being an untapped source of ad revenue, local businesses are an attractive target for Groupon because they are highly relevant to users, who enjoy discovering new places and events in their hometowns.  This also helps create the perception that Groupon's deals are more about content and information, rather than advertising.

“We’ve been a Chicago institution for 100 years, but we thought this was a way to reach new customers,” says Pompei owner Morton. “It’s much more powerful and direct than traditional media.”

The social gaming company behind FarmVille is seeking the spotlight. Some analysts sense an IPO.

Mark Pincus, founder and CEO of Zynga

If ever a company had a moment, this is Zynga’s.  The small, privately held company that makes games for Facebook and other social networks is getting publicity and attention companies many times its size would love to have.

The force behind the FarmVille sensation has appeared on the front page of the New York Times, and been featured in Time, a BusinessWeek cover story, The Economist, and this website's magazine. During a recent trip to New York, Zynga’s spunky CEO Mark Pincus was scheduling meetings with reporters until he reportedly lost his voice.

Then there are the billboards on Highway 101 in Silicon Valley. Both showcase animated characters from Zynga’s games and attempt to lure employees. Earlier versions showed a black silhouette of a bulldog against a red backdrop (Zynga is named after Pincus’s deceased American Bulldog, Zinga).

The promos – and the flood of (mostly) positive press – have gotten more than a few tongues wagging: Is Zynga priming the public for a stock offering?

One of Zynga's new billboards in the San Francisco Bay Area

“Zynga is on the forefront on the business, the clear number one leader,” says ThinkEquity LLC analyst Atul Bagga. “They’re a cash flow positive company, with potential for high leverage in the business model, and are generating revenue at a rate that would allow them to go public.”  Zynga, which declines to comment on such speculation, is on track to surpass $100 million in revenue this year, and the company is profitable.

Go public, sell out, or raise more capital

But Ben Bajarin, director of consumer technology at analysis and strategic planning firm Creative Strategies, thinks it’s too early for Zynga to take its business model to the public market. “There’s still a lot of economics to be worked out,” he says. “IPOs that have done well lately have been companies that have been in business for a while and have a proven revenue track record.”

Wags suggest Zynga's charm offensive in the press might also be a way of reminding rivals of its prowess and potential.  The big game publishers haven’t kept pace with the industry shift to the so-called "social games" that Zynga and others develop. In early November, gaming giant Electronic Arts (ERTS) acquired Playfish, a major Zynga competitor, for as much as $400 million.

Or Zynga could be looking to add to its coffers. The company recently received a $15 million infusion from undisclosed investors, on top of an earlier $39 million. Another social gaming contender, Playdom, announced $43 million in venture funding in early November, valuing it at $260 million. Should the battle turn on which company can snatch the best games first, having cash in the coffers could be crucial. (Playdom acquired Green Patch and Trippert Labs after announcing its financing, while Zynga has snatched YoVille, MyMiniLife, and GoPets.)

At the very least, Zynga has a bit of defensive marketing to do. In early November, the startup was at the center of controversy when players discovered that in the process of attempting to earn in-game currency, they had signed up and were being billed for unwanted mobile services.

Scam offers embedded in games

Zynga has since discontinued the scammy offers in its games, allowing that it may reinstate some of the more qualified partners. Although it could be written off as a blunder typical of any young company, Yankee Group analyst Carl Howe recommends caution. “They need to clean up their act because a tarnished brand will hurt both of their exit strategies.”

Whatever path Zynga chooses, the clock is ticking. Today there may be 68 million would-be farmers tending their crops, but tomorrow, who knows?

“Five years from now, I can safely say a lot of us will still be using Facebook, but I can’t say that a lot of us will still be playing FarmVille,” says Gartner analyst Ray Valdes. “The longer term challenge is how they can create follow-on titles that are good replacements from a business perspective when the current novelty has worn off.”

Then there is the omnipresent specter of new platforms and technology like Twitter, which Valdes points out, the social gaming developers have yet to figure out.

Zynga, to be sure, is more than a one-trick pony: including FarmVille, it boasts four of the top 10 social games. But in this hits-driven business, it will have to keep churning them out. “These consumer attachments don’t go on forever,” says Yankee Group’s Howe. “You either capitalize on them or say, ‘We should have sold.’”

Yes, you can create new products and services without betting the farm

By Ilana Westerman, CEO, Create with Context

Westerman: Innovation doesn't have to be risky. Photo: Create with Context

Many companies remain shell-shocked from the past 18 months of economic disaster.  As such, innovation – despite its potential rewards – is not exactly in fashion right now.

Though gurus like Jim Collins and others extol the virtues of using the downturn to capitalize on market opportunities or a competitor’s weakness, companies today are more likely to take a wait-and-see approach to innovation:  “Look for the quick bucks and the low-hanging fruit,” you might say to your management team.

But wait a minute: why not invest in innovation? And I'm not talking about focus groups and customer feedback surveys and Friday afternoon brainstorming sessions.

Economic indicators suggest that we are slowly pulling out of this global economic downturn. Despite the uncertainties ahead, this is the optimal time to think about innovation in a different light: what new groundbreaking product or service would truly resonate with your customers? It's probably something they can't articulate themselves. But it's worthwhile to take the time to discern what motivates your customers and how you could meet a need they don't even realize they have. In our work with clients, we call this calculated innovation.

When executives think about innovation, what often comes to mind is not far from the truth: engineers and marketing chiefs sit around a table and pontificate on the next big idea. This is fuzzy and abstract, and often not grounded in reality. Where do these ideas come from and how can you measure your risk?

No wonder innovation is scary for many companies. It could be a huge waste of money and time. Calculated innovation, on the other hand, is a process founded upon research to determine customers’ beliefs, motivations, and needs. That customer view is then mapped against the world in which your customers live: the cultural context and larger societal trends.

We have an alternative energy client, Mariah Power, a young company that manufactures wind turbines for businesses and residential use. The company came to us because they wanted to develop better awareness about the power of wind, which to many people is pretty abstract. While a potential customer could go to the company's website to learn all about the Windspire turbines and how much wind was required to run one, the context was missing. What's wind power going to do for me?

Research first, innovate later

To help find a solution to the problem, we started with in-depth ethnographic research. This involved in-home observation of consumers in three different states related to "green" behaviors such as recycling and environmentally-friendly products. The resulting research helped us define two different customer groups: one that goes the extra mile to be green, and another that needs an easy way to go green.

Using that research, we came up with a design for an application for Apple’s (AAPL) iPhone  called Windspire Me, that allows a user to simply hold the phone's microphone up in the air to gain a reasonably accurate measure of the wind speed in their location.

The app gives the user a sample wind speed, with contextual information: this will power your microwave and toaster for a year, for example. For green enthusiasts, we included a button on the app that allows them to share their readings with friends. As more readings are shared, users can then see maps of wind speeds across their community to inspire grass roots lobbying for local green power. The app has just been submitted to the App Store, yet Mariah Power is already seeing some benefits.

“All we can say now is that interest has been really high,” the company’s spokesperson Amy Berry told me. “And for us, awareness is a big objective.”

Innovation is in the details

What we've also uncovered over the years is that calculated innovation is not just about the big picture but also the fine details. Execution is everything. During user testing for the Windspire Me app, we noticed that people were obstructing the microphone with their fingers when trying to measure the wind speed. As a result, we included a design change to show a visual in the app instructing people how to use it correctly. This iterative process of design is what makes a product in the end successful and valuable for users.

The point here is that innovation takes a thoughtful process. It takes macro-thinking and micro details. Most of all, it requires a deep, contextually-rooted understanding of your target customer groups.

We worked with Adobe (ADBE) Software on a several-month research project to determine how young people below the age of 18 use technology. The research uncovered many factors that defy conventional wisdom about software: the emerging generation could care less about a product with 20 new features but what they absolutely need is collaboration.

The next generation also sometimes wants to buy a piece of a product based on a specific need, versus the whole package. Adobe didn't request the research to merely influence its next software versions– but to help shape the course of products over the next 10 years.

Surely, the company’s design strategy will change repeatedly in the next decade, but this long view of innovation is what will set companies apart from their competitors.

If you spend more time thinking about the future and researching what your customers will be doing and needing, you'll have the proof to back up your plans for innovation, and that mitigates both the fear and the risk. This is the power of calculated innovation. What are your thoughts?

Westerman is co-founder and CEO at digital products consulting firm Create with Context, based in Santa Clara, CA.  The company helps clients develop and design products based on customer behavior, context, and technology.

A few years ago rivals mocked Jonney Shih, chairman of Asustek, and his purse-size laptop computers. Millions of netbooks later, Shih is having the last laugh.

Jonney Shih, CEO of Asus, in Taipei.

On a hillside above the Hsing Tian Kong temple in the northern reaches of Taipei, Jonney Shih sits on a wobbly stool next to an ornate low wooden table. Dressed in a taupe suit, white shirt, and silver tie emblazoned with jaguars, Shih, 57, cheerfully waves off three umbrella-wielding employees who try in vain to shield their boss from the hot sun and a swirl of menacing bees.

But Shih, who is waiting to be photographed for this magazine, sits serenely, perspiration-free in the sun, intent on a game of Chinese chess. "In Buddhism you learn to accept everything, to let it flow through you," Shih says. "Then you can slow down and think clearly."

It turns out the ferociously driven Shih is a less-than-model Buddhist. (Buddhists aren't supposed to be thinking about technology while they're meditating — something Shih is known to do.) But his ambition, combined with engineering skills and spot-on business instincts, also makes him the most brilliant technology executive you've never heard of.

He is the largest shareholder and chairman of Asustek (pronounced a-soos-tech), the $21-billion-a-year tech conglomerate that introduced the first netbook three years ago, ushering in a revolution in the stagnant PC industry. When it hit stores in the fall of 2007, Shih's $399 EeePC was derided by rivals as a low-power plaything. But Asustek, or Asus for short, went on to sell millions of the mini-notebooks and soon vaulted to No. 5 in worldwide PC market share.

Today virtually every PC manufacturer on the planet, including Dell (DELL), Hewlett- Packard (HPQ), and Toshiba, offers its own version of netbook. (The exception is Apple (AAPL).) But the biggest netbook maker, with 38% of the market, is another Taiwanese tech company, Acer, which also happens to be Shih's former employer. Asus, which had the market all to itself for about eight months, is now in second place, with a 30% share.

So Shih, after creating what has grown into a $10 billion category in two years, needs to come up with another breakthrough, and he'll apply his own flavor of Buddhism to the challenge. "Most people think Buddhism is passive or about escape," he says. "It's not. It's about confronting what's in front of you with a clear and flexible mind. That might be a hot day or your competition, but you accept it and do everything the best at that moment."

That sounds fairly magnanimous, but whether it's in Chinese chess or the PC world, Shih's best effort has a way of crushing the life out of whoever gets in the way. Shih's "not that well known in the West because he doesn't put himself first," says Jen-Hsun Huang, CEO of chipmaker Nvidia. "He's humble, but he always has a mental model for exactly what he wants his company to do."

The Giant Lion
Asus was started in 1989 by four former Acer engineers. (The name "Asus" comes from the mythical Greek horse, Pegasus.) At the time Acer, one of the original companies to transform the island of Taiwan into the center of computer manufacturing in the world, had already gone public on the Taipei exchange.

Many Acer employees took their stock gains and launched their own businesses. At a café in Taipei, four subordinates tried to persuade Shih, who was running R&D at Acer at the time, to join them in starting a company to design and manufacture motherboards — the central circuit boards in PCs that connect crucial components, including the processor and memory.

Shih demurred out of loyalty to his mentor Stan Shih (no relation), co-founder and chairman of Acer. But he did encourage his former reports to start Asus and took a stake in their new company. In 1994, after three years as president of Acer's business unit — selling Acer technology rather than designing it — Shih joined Asus as CEO.

When a chip company comes out with a new processor, it's up to the motherboard designers to integrate that chip into a standard circuit board that can run the computer. Whichever company can get its motherboard out first and squeeze the highest performance out of a chip set wins the business of the PC makers.

Back when Shih was at Acer, he made his reputation by building killer motherboards. When Intel (INTC) was rolling out its 386 processor in 1985, Shih and a group of engineers showed up at the Computer Electronics Show in Las Vegas ready to do battle. "We didn't sleep much that voyage," Shih recalls.

In the competition among motherboards, Dell's offering was the highest performing, but it wasn't a technology suitable for mass production. Shih's was, and it beat out the best from IBM (IBM), Compaq, and everyone else. (At the time, many PC makers produced their own motherboards, which they sold to other manufacturers as well.) The orders came pouring in, and Shih's reputation around Intel and the rest of the PC industry was made.

After moving to Asus, Shih continued his success with Intel's 486 processor, and computer makers such as Hewlett-Packard, Sony (SNE), and Dell found that if they used Asus motherboards, their computers performed better. By the mid-'90s, Asus sold more motherboards than anyone, and its revenue and profits climbed steadily throughout the decade.

But in 2001 other companies, ECS and Foxconn, started undercutting Asus's prices in the motherboard business. Asus's share in unit volume fell to No. 2, and annual profit dropped dramatically to $300 million in 2002, from $500 million the prior year. In response Shih launched what he called the "giant lion" strategy.

"You need to be a lion. A lion has position in the jungle," Shih says. "So we kept driving the performance, quality, and innovation of our motherboards — we kept our leading position in the jungle. But I realized that at the same time you have to have big market share. You need to be a giant lion." Shih founded a subsidiary, ASRock, to compete at the low end, leveraging Asus engineering and manufacturing.

The giant lion mauled the competition: Within two years Asus was back as the No. 1 revenue producer in the motherboard business, and its volume exceeded the output of the second, third, and fourth companies combined.

Meanwhile the company started making "white label" consumer electronics for the likes of Dell, HP, and Sony. Named Pegatron after the first part of "Pegasus" (the wholly owned subsidiary was spun out in 2008), it manufactured notebooks as well as routers, MP3 players, gaming consoles, and whatever else big brands wanted made. But Shih wasn't satisfied to be a mere contract manufacturer, and in 1997, Asus started making laptop computers under its own brand.

A computer for the masses
Asus is Taiwan's HP and Apple rolled into one. It is the No. 1 seller of notebooks there, but its laptops win for their performance, reliability, and style, not their discount prices. Asus has notebooks covered in leather, hand-polished steel, even bamboo.

But Shih's ambitions extend beyond what clearly is a maturing market. He wanted to build a machine for the next billion PC customers. His breakthrough notion was to provide a device that offered good enough performance to surf the web and do simple computing tasks in a very easy-to-use, affordable package.

Fortuitously, Intel at the time was working on a chip that would help Shih accomplish his goal. "Behind the scenes we had been working on Atom, our low-cost, lowpower chip," says Sean Maloney, Intel's executive vice president. "Jonney immediately wanted it." The question was how to package a machine around it.

For three months Shih and the head of Asus's motherboard business, Jerry Shen (now the Asus CEO), personally worked out the basic concepts: what features to include (Wi-Fi, a touchpad, and a solid-state drive) and what to throw out (Microsoft Windows, initially, and a full-size keyboard). Then they brought in a team of engineers to make their ideas real. At one point, as they struggled over the machine's software interface, Shen locked the team in a Taipei hot-springs hotel for two days. They finally emerged with their answers. When the first few thousand EeePC netbooks went on sale in Taiwan in October 2007, they sold out in 30 minutes.

Like other tech companies, Asus was hit by the global recession, and last winter it posted its first quarterly loss in the company's 20-year history. The company has cut costs through layoffs and salary cuts, and has scaled back its inventory. More recently, however, Asus has rebounded, blasting through analyst estimates for its third quarter, and its stock is trading at a 52-week high on the Taipei Exchange. (Asus has made Shih rich, but his only concession to his wealth is a chauffeur-driven Volkswagen Phaeton. "It's 80% of a Bentley and half the price," he jokes.)

Asus, which gets 40% of revenue from Asus-branded technologies, is forecasting a 30% increase year over year in netbook and notebook sales in 2010. Of course, rival Acer also forecasts growth, and the maker of the Aspire One model isn't likely to cede its No. 1 position in netbooks anytime soon. And so Shih is spending his time meditating about Asus's next industry-changing hit.

The next netbook
At Asus headquarters in a bright corner room filled with fabric swatches and beanbag chairs, the next phase of Shih's clear thinking is being prototyped. This is the company's top-secret design lab. Lying on counters are notebooks that look as if they are folded, origami-style, from sheets of aluminum. Others have keyboards that slide back and slightly up when the case is opened for a more ergonomic position. An international team of designers swap ideas on couches.

Shih's instinct tells him that the "next netbook" won't come from an engineering specification but from understanding how people use devices to communicate, get work done, and play. More than ever he is pouring company resources into design.

He pulls out a prototype of the forthcoming Eee Keyboard, an aluminum-clad keyboard with a touchscreen on one side. Via a wireless connection, it turns a flat-screen television into a websurfing, Facebook-friendly device. From his pocket emerges a smartphone that Asus developed with navigation company Garmin (GRMN).

The Asus-Garmin phone has been a dud, and the keyboard isn't out yet, but those items suggest that Shih is thinking about more easy-to-use, affordable products that are integrated as part of a digital lifestyle. "My competitors are doing their own version of the EeePC," Shih says, "but I don't know if they have the vision of how everything can work together."

Is Shih's insight about integrated technology the "giant lion" that will help Asus regain its leadership position in netbooks? It hardly sounds revolutionary, but by now rivals know better than to underestimate Shih, especially when this "bad Buddhist" is thinking clearly.

The women-centric collection of sites is shaking up the web — and traditional media.

Lisa Sugar's celebrity blog morphed into an online empire. Photo: Sugar Inc.

The state of affairs in publishing is beyond depressing. Unless, of course, by publishing you mean the shiny new online-only startups who are behaving as if it were boom times for journalism. An example is Sugar Publishing, the 3 1/2-year old blogging company that focuses on young women. Run by the husband-and-wife team Brian and Lisa Sugar, the San Francisco company has 12 sites, 114 people, and boasts an online audience that's approaching that of Time Warner's (TWX) People.com (almost 8 million monthly visitors in October for Sugar versus 12 million for People, says comScore).

It gets better. According to Brian Sugar, his little company will be profitable this quarter as well as all of next year. What's more, only half the company's revenues come from advertising against the work of its journalists — a shocking figure given that traditional media companies get, well, all of their revenues from their scribbling. "Editorial is a marketing expense to drive people to something bigger," he says.

Sugar started as former ad-agency media-buyer Lisa Sugar's dream to be a writer. In 2005 she created a celebrity-oriented blog, PopSugar, which, once it started picking up steam, told her marketing-veteran husband that she was on to something. By this point the online world already was littered with sites that mimicked what trade publications have done forever. Sports sites also were plentiful. The "women's" category was wide open. Sugar added additional sites, focusing on fashion, beauty, food, mommying, and the like. Along the way the company attracted a venture investment from Sequoia Capital — which is doing pretty well these days, despite what you might have read in a certain traditional business magazine.

Generalists, not specialists

Two broad themes define what's cool and exciting about Sugar: the way it does journalism and how it makes its money. According to Brian Sugar, every staff writer is trained on how to do everything it takes to produce a  blog post, from writing and Photoshop to editing videos. That is so antithetical to how it works at big-time magazines, where specialization rules. Sugar's money-making tactics also signal a break from the past. It recently bought a company called ShopStyle, whose site allows users to shop for products they like and takes referral commissions from retailers. ShopStyle is so popular that Sugar licenses it to other sites, creating a lucrative revenue stream for Sugar off the audience of other online publishers. Sounds like Google's (GOOG) AdSense, right? Sugar calls the licensing product ShopSense.

More is in store. The company is rapidly building out its video capabilities. It plans to launch a video game on Facebook next year. (Shopping and gaming have similarly addictive qualities to them.) It has sites in the U.K., France, and Germany and plans to open in fashion-conscious Japan next  year. The company also provides a platform for its users to create their own blogs on Sugar's sites. Brian Sugar says a quarter of the posts on Sugar's sites are "curated" from blogs on its platform.

Not everything works for Sugar, but online it's easy to thin the herd. Sites devoted to politics (CitizenSugar) and recommendations (SugarLovin') flopped, so Sugar killed them.

Sugar is a nascent success and an example of what magazines may become. It doesn't provide an answer to the question of what will become of long-form journalism, because it chose a segment that wasn't exactly bubbling over with ponderous feature stories to begin with. All the same, that something is working in publishing these days, and that's at least some hopeful news.

Only if industry players successfully balance content, customer experience and revenue models

By Tom MacIsaac, CEO, ExtendMedia

MacIsaac: "TV Everywhere" is a logistical challenge that media companies need to face. Photo: ExtendMedia

Add this to the list of things the Internet has changed: Your cable or satellite company now wants to let you, as a subscriber, watch the content you’ve paid for on any device you want, any time you want.

The cable crowd has little choice: consumers are accustomed to time shifting their television viewing using DVRs, and now sites like Hulu make it easy to access network television and old shows on the web.

But getting cable and satellite companies to buy into “TV Everywhere” was the easy part. The hard part comes in executing the concept.

The first step is to determine how to authenticate users at multiple sites and ensure they are subscribers before providing access. Although it is often suggested that this is a huge barrier, in reality the technology part can easily be solved using a standards-based approach once a basic approach is agreed upon.
Once basic authentication is resolved the real work can begin. The challenges then are less about technology and more about launching a viable service that people want to use and capturing and distributing the revenue accordingly. First, several unlikely bedfellows –competing service providers and their shared content partners—must agree on a business model that makes sense. This task dwarfs any other technical issues.

Who makes money, and how?

How will these services be monetized? Cable companies have said repeatedly that subscribers won’t pay more for entitled services like TV everywhere. Is this scenario really likely? What does it mean now that Hulu is publicly stating they’ll switch some content to a subscription based model? What if Comcast (CMCSA) becomes a part-owner of GE's (GE) NBC and Hulu as has been rumored?

What is clear is that the successful video services of the future must rely on several different revenue models to build a viable business. For evidence of this, look at three of the most successful video offerings – Hulu (ad-supported), Netflix (rental) and iTunes (purchase). Three of the most popular video services leverage three different business models. If you dig further, you will find that each is contemplating expanding their models to include others.

For example, Apple is rumored to be considering a subscription offering. Going forward, I fully expect this trend to continue. These transactional models will also need to be carefully blended with up-sell/cross-sell capabilities that encourage consumers to try new subscription services while continuing to “snack” on a la carte offerings. Consumers now expect the ability to select specific shows and this behavior must be tied into the more predictable revenue stream of a subscription model.

Content remains king (sorta)

With a multi-revenue model approach nailed down, service providers can then focus on building a compelling content library.

The best services have the widest content catalog—period. Look to Netflix (NFLX), Hulu and iTunes for inspiration, but understand that building a platform that can manage the aggregation of dozens, if not hundreds of content sources is a complex exercise. Complex, but necessary, because these guys have set the bar high and consumers expect no less. The studios obviously have to buy into this, however and some – especially the cable networks – are still reticent to risk the golden goose of carriage fees for nascent online offerings.

Finally, our industry must embrace true cross-device portability. Again, Apple (AAPL) has set a high bar here, but I think it can be improved. When I have a subscription for premium content with my cable provider, I want to be able to access it freely on my portable media player, move it to my home theater or watch it on my PC.

This is the first step towards what I call “stateful content consumption.” I can program my DVR remotely, start a show at home and finish it on my phone, and bookmark my favorite clips like surfing the web. In order for this to occur the consumer electronics manufacturers and wireless providers need to jump in with both feet as well. This in turn triggers new requirements for DRM protection, different payment methods, and mobile bandwidth improvements.

"TV Everywhere" is a compelling catchphrase that means different things to different people, but at its core means, what I want, when I want, where I want.

Doing it right, means everyone needs to win – the content providers, the service providers and most importantly, the consumer.

MacIssac is CEO of ExtendMedia, a Boston-based company whose technology enables content providers and distributors to create, deliver, manage & monetize online content offerings over many devices.

Hulu touts about TV anytime, anywhere. But hooking your TV to the Net? Crazy talk!

Funny pages: Hulu offers web video, but doesn't encourage Net TV. Image: Hulu

I had an epiphany early last year when I visited Hulu for an article David Kirkpatrick and I were writing about the unexpectedly successful young venture.

Watching TV shows on Hulu was such a pleasant experience with Hulu that the company should encourage users to connect their PCs to televisions. Technologically it's not a difficult thing to do, but it's not terribly convenient. A PC needs to be near the TV, the remote-control experience isn't good, and so on. I remember Hulu executives smiling kindly at my suggestion but not offering much in the way of feedback.

With hindsight, I see how naive I was.

Hulu's owners are Fox Televion (a unit of News Corp. (NWS)), NBC Universal (controlled by General Electric (GE)), and, more recently, Disney (DIS), which owns ABC. The last thing these media conglomerates want is for their Webby startup to go around encouraging people to watch Internet videos on their TVs.

Technology is not the problem

Internet ads are small potatoes compared with TV spots. Online advertising may be growing, but it doesn't replace the big bucks from broadcast, cable and satellite TV. Hulu talked a good game about doing what was right for consumers, and it did build nice video viewing software on the Web. But when it comes to encourage folks to  use Hulu on their TVs? No way.

So as we head into 2010 the long-assumed dream of an "Internet bypass" or "over-the-top video" remains just that, a dream.

Consider:

* Boxee, a startup whose software makes it easy to connect TVs and PCs has been playing a cat-and-mouse game with Hulu for the very reasons described above.

* Apple (AAPL) has had next to no success with Apple TV, a niche product that enables TV viewing of videos in an iTunes playlist — and nothing else.

* Sony (SNE) recently introduced an Internet-enabled TV with the promise of customers being able to  purchase a Sony movie. Yet the movie comes with an exorbitant price tag so as to avoid upsetting Wal-Mart, the nation's largest seller of DVDs and therefore an important Sony vendor.

These are all baby steps for something that, technologically at least, seems inevitable. As Richard Greenfield of Pali Capital  told The New York Times: “The time when a majority of consumers have Internet-enabled TVs is a long way off. “But it’s moving the ball in the right direction.”

Why does it have to be so hard? That's easy. Incumbent video providers will hold on to their diminishing profit margins as long as possibly can even while saying they are embracing new technology, like Hulu. Introduced eight Bravia models that are Internet-enabled won't solve the problem.

What will?

Rajeev Goel, CEO of upstart PubMatic, thinks his company can help print publishers recapture advertising revenue from their glory days.

Print media is dead! Yawn.

Goel says he can boost media companies' online ad revenue. Photo: PubMatic

You’d think media analysts and bloggers would find another catchphrase. This executioner’s call is as tired as Jon and Kate’s tabloid tussles.

So when Rajeev Goel, co-founder and CEO of PubMatic, told me that not only would print publications survive, but he knew how they could, he definitely got my attention.

PubMatic offers what it calls "real-time ad price prediction technology." In other words it lets publishers of premium content (read: traditional magazine and newspaper companies) decide in real time which ad networks on which to sell unused advertising inventory.

Others, including Google's (GOOG) DoubleClick and the Rubicon Project, make similar promises. But Goel touts that PubMatic is the only advertising optimization company completely devoted to publishers, pushing his close competitors into a separate category. Not to mention he’s doing this all in real-time.

Still not convinced? I wasn’t either. But Goel says his two-year-old company has already been able to increase publishers’ advertising revenue from 30% to 70%. (In one case, PubMatic was able to catapult revenue by 300%.) He only charges a 15% commission fee.

We sat down with Goel to see how he thinks PubMatic can help the ailing print industry.

Fortune: What trends and mistakes do you think publishers are making in choosing ad networks?

Goel: As people spend more and more time online, there’s a huge growth in the supply of inventory, which is changing the pricing dynamics. Second, publishers typically have a wide audience in terms of their global reach of their readership — and that’s typically an under-monetized opportunity for the publisher, where they might not be focused on selling that ad inventory. And third, a place where we place an increasing amount of importance is in ad quality. We’ve all seen the not-so-desirable ads online and I think typically the large premium brand publishers are looking to not only maximize revenue but also protect the user experience.

We’ll source the right networks and then pass information to those networks in real-time about the audience that’s on the website — such as household make-up and income of the users and other demographics — so the right ads can be targeted.

Fortune: Many have tried to take the route you are doing right now and have either failed or changed their business model. What makes you think you’ll succeed?

Goel: Where most others have failed is that they felt they could deploy a couple of engineers on the problem for six months without a clear understanding of what is required to be successful. Our ongoing technology investment and investment to-date are a significant competitive barrier that makes it very difficult for most newcomers to be successful. What’s unique to PubMatic is our patent-pending Ad Price Prediction technology, which looks at every impression in real-time along with dozens of factors and predicts how each ad network or exchange will price that impression. We do this for every single impression on a unique basis in less than four milliseconds. This is what is unique relative to any other solution provider, including DoubleClick or the Rubicon Project.

Fortune: What’s the advantage of being real-time?

Goel: We are consistently able to outperform non-real-time solutions, such as publisher’s in-house ad operations team, through our real-time optimization. One of the latest trends in online advertising is known as “real-time bidding,” in which a buyer of media will evaluate an ad impression in real time and determine what they are willing to pay for that ad impression. The vast majority of publishers can earn approximately 50% more revenue from real-time bidding advertising campaigns.

Fortune: Tell us about the technology behind this.

Goel: The technology is a predictive ad server. It looks at the demand across these hundreds of ad networks and in real-time, it predicts how each network is going to price the next impression that comes in. So when the user goes to the page, the publisher will call our system and our system will look at all the networks that they’re working with, predict which network is going to best monetize that impression — based on the geography, time of day, what the page is about — and we select that network to serve the ad. Doing that, we process over 100,000 data transactions per second. It’s just a huge amount of data to know about the site, to know about the audience, and also know about the networks and in terms of what is their demand.

Fortune: Has the advertising slump given you an opportunity or, adversely, has it brought down business?

Goel: Clearly, online advertising has gone through quite a spike and a downward slope in the last couple of years. I think there are a couple of things that are driving that. One is the dramatic growth in the supply of inventory and that’s led to a precipitous drop in pricing. What we found for the industry as a whole is that in’07 and ’08 pricing decreased anywhere from 30% to 40% in annual pricing. So pretty steep declines in pricing. Every month since January of this year, there’s been an uptick in pricing. The pricing hasn’t returned to the level it was to ‘07, but it’s clearly bottomed out. Everyone is waiting for the recovery to take root.

Fortune: Do you think advertising can support publishers online the same way it used to in print?

Goel: I do believe with the right model of content creation and the distribution of it, there can be online-only, advertising-based models that work. One of the things we advise publishers to do is to figure out ways to deliver differentiated ad products to your premium sponsors — to sponsors that really want to engage with your audience. If you’re trying to sell the same ad product or the same ad unit via the direct sales force or the ad network, then it’s no surprise that there’s going to be conflict there. But if you can differentiate the ad products sold, then I think you can have a very successful ad strategy.