Despite the loss, Groupon’s revenue in the fourth quarter 2011 grew 194% to $506.5 million, up from $172.2 million in the fourth quarter of 2010. In fact, the fourth quarter 2011 was the company’s first quarter of operating profitability since it opening international operations in the second quarter of 2010. This brings everyone back to the same question: Is the daily deals model a real, legitimate business, or is it just a trend? Only the numbers will tell.

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On the earnings call, CEO Andrew Mason mentioned the company’s expansion into Silicon Valley. In regards to the losses, Mason pointed out that Groupon is “still in the early days” of personalized commerce. It is an area that Groupon is rapidly expanding into. Earlier this week, it acquired Adku, a start-up focused on big data for ecommerce. Last month it acquired personalization service Mertado, which is focused on providing a better social shopping experience. With more personalized data comes two things: Greater responsibility surrounding privacy, and additional opportunities for Groupon to know its users.

On the earnings call, Groupon reported that the Grouponicus holiday promotion, which hit 40 North American markets, helped boost fourth quarter 2011 earnings. CFO Jason Childs said that because Grouponicus was such a success, Groupon is considering “occasional themed promotions throughout the year.”

Groupon also mentioned why it had a 1600% effective tax rate. Apparently, this was a result of building its international headquarter in Switzerland and profits in overseas countries. It expects that to to eventually drop into the “low 30s.” Keep in mind that the U.S. corporate tax rate is 35%.

The company says that it will be spending big on technology hires, referencing the new Silicon Valley facility but also mentioning an “initiative we’ve yet to announce.” Groupon says it is not planning on acquisition-related expenses in the near future.

And what of high marketing costs, the area that concerned many? Marketing spent as a percentage of revenue was only 31% in the past quarter versus more than 100% a year before. Will it shrink even further? “Whether it will get down to the 5-10% you see at Amazons or Netflix…that’s going to take a little while,” says Groupon’s CFO Jason Childs.

When Groupon went public last November, it raised $700 million in its IPO. That number is now up to $1.1 billion. One year ago, that number was a mere $119 million.

For the first quarter 2012, Groupon expects revenues between $510 and $550 million, which is 73%-86% more than first quarter 2011. Will Groupon make their goals? Either way, it’ll be interesting to watch.

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“The Internet is the most powerful tool we have for creating a more open and connected world,” writes Zuck. “We can’t let poorly thought out laws get in the way of the Internet’s development.”

Facebook is full of images and videos, many of which violate copyrights. Users peruse the news feed and their friends’ walls for content. When they find images or videos that they “like,” they share them to their walls and their friends’ walls. They’re not thinking about whether or not this content violates copyrights, and what posting it to their wall would even mean. No, Facebook users are too busy thinking about what they “like.” In 2011 alone, Facebook users shared 30 billion pieces of content every month.

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Many people use Facebook to express themselves creatively. Freedom of expression doesn’t usually coincide with copyright laws, especially for artists who use appropriated imagery in their work, which is currently being protected under Fair Use law but would be wiped out completely if SOPA/PIPA passed.

Facebook’s Washington DC office echoes Zuck’s statement while acknowledging the fact that much content on Facebook violates copyright laws. “Facebook takes online piracy and copyright infringement very seriously, but we believe the PROTECT IP Act (PIPA) and the Stop Online Piracy Act (SOPA) are not the right solution.”

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Budke thinks that same kind of content, simple video about how things work, can be delivered in new ways thanks to new technology. “Tivo changed how we watch things 15 years ago, but studios still program for TV networks and the theaters,” he says, “it’s not being made for how we consume content today.” Budke’s new company Project Comet has raised venture financing and is producing video for the way he believes content is consumed today: across multiple mobile devices, rich with visual learning and by subscription. His first public offering is called Looking Glass. It’s a children’s iPad app with more than 100 high-production, by-subscription, short videos about how the world works. It’s probably not good enough to succeed yet, but the business model is interesting and there’s clearly a lot of potential.

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The Changing and Challenging World of Online Content

Budke has been in the online content game for years. He was one of the earliest members of the team at Weblogs Inc, the giant blogging network led by Engadget and sold to AOL. Budke wrote at TVSquad, a blog about TV shows. He then became an Editor at Netscape’s Digg clone Propeller, left there to manage and direct product development at MySpace and for the last nine months has been the captain of his own ship.

To be frank, none of those past experiences are synonymous with quality. I was at Weblogs Inc myself and, though it did a lot for me, it was a content farm. Propeller had the same feel, despite its best efforts. And MySpace may not get the credit it deserves, many critiques of it may be rooted in classism for example, but it just hasn’t been a place with an emphasis on high quality content either.

Budke’s new company, Project Comet, took north of $1 million in investment from a new fund led by Budke’s old boss, former MySpace CEO Mike Jones.

Comet has produced more than 100 short videos for Looking Glass, which it will release to iPad users at a pace of ten per month to subscribers who pay a $3.99 monthly fee. IPhone and Android apps are coming in weeks. The videos are high in production quality but produced relatively cheap, Budke says, at about $15,000 each.

100 times $15k is $1.5 million spent already on short videos. At roughly $50 per year per subscriber, that means Looking Glass is going to need 30,000 people to subscribe for a full year before it recovers the production costs of just the videos the company has made so far. That’s going to be tough.

“We want to show as many things in the real world and how they came to be as we can,” Budke says.

“I want to create content for these new digital distribution means with mainstream audiences as the end goal. And I will never post ads on this. I’ve been in these big companies that depend on advertising and I don’t like it, I think it can distort the content. By putting a very discrete price tag on it, we have precise metrics we have to hit. We’re the Show Time or the HBO of new video content.”

Unlike Show Time or HBO, though, no one speaks in the Looking Glass videos. Budke says that’s an asset, making the content open to children all around the world. He says there have been early concentrations of interest in China and Brazil.

The lack of spoken dialogue may come at a price. The four to nine year-olds Looking Glass is targeting may not find video and music alone as engaging as something with some narration. Even my adult brain had to really concentrate to try to follow the visual thread in the demo videos on the app and without narration, I just didn’t know what was going on half the time. What is that thing I’m looking at and how does it relate to the larger system of the cable cars in SF or the ice cream sandwich making process? The app left me confused – and I really tried to get it.

“This app, while beautifully executed, does under-use the powers of the device,” says Nat Sims, CEO of competing children’s app development firm Night and Day Studios. “Delivering another version of TV on what is a touch-sensitive, interactive, powerful computer is definitely a missed opportunity. In addition, by not using any voice-over or dialogue, kids are missing out on potential vocabulary and language comprehension, and it makes the experience less interactive overall.”

Night and Day agreed that the subscription business model is probably going to become more common. “I hope to see this model become more common in the kid’s app space,” says that company’s Director of Business Development Erin Rackelman, “we are working on a project organized similarly.”

Not everyone agrees that Looking Glass’s content is so worthy of critique. Geek hero Wil Wheaton, who played Star Trek’s Wesley Crusher and is now a friend of Budke’s, helped spread the word about the app online and said he thought it was “incredibly cool.” I liked the idea a lot too, but it didn’t stand up for long after I tried it out.

The next apps in Comet’s pipeline might delivery things differently. Budke says there is a cooking show app coming soon that will “do things with the Web that Food Network can’t do.”

First, though, will come a Looking Glass Junior app, which uses “gorgeous B-roll of things like babies playing with bubbles.” That does not sound very interactive. And to be honest, the content that’s already in the Looking Glass app today looks like B-roll already. B-roll set to music borrowed from a hotel lobby. In an app interface with a logo that look like they were designed by an outsourced spec-work shop. Some of the video is cool, but some of it is confusing and some of it looks like Muzak to pipe into your child’s brain.

Maybe everything dosen’t have to be interactive, though. Maybe good TV is good enough for part of a child’s media diet. It’s not clear that this is good enough TV though, though. Sesame Street wasn’t just the visits to the crayon factory from beginning to end. That was just a part of a show full of diverse, magical content – with dialogue. (That organization has produced 17 different iPad apps of its own, in fact, all of which look far more interactive than Looking Glass.) Mr. Rogers is a national hero and not just because he showed video montages of the grown-up world. To be frank, it’s much harder to make Sesame Street than it is to make the content on Looking Glass.

When I handed my iPad to my wife and asked her to look at it, she said “this reminds me of the crayon factory tour from Sesame Street [nice work, sweetie] but I can’t see our nieces watching it much without some dialogue.”

The business model is very interesting – but for a content company, I don’t think that what Looking Glass has created looks like good enough content so far.

It’s undeniably true that new publishing and distribution platforms are enabling incredibly liberating new business models and opening up opportunities for content producers and consumers to connect with all kinds of new media. But in the end, however it arrives, that content has to deliver a magical experience in a very crowded marketplace if it’s going to compete.

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