Futuristic Play by Andrew Chen

Followup to social network monetization

As a followup to my previous post, "5 things that make your social network monetize like crap" there's been some recent news about the Google financial results for this quarter related to social networks.

Here are some excerpts, the first from Techdirt:

In the discussion, what we agreed on, was that the social networking sites had done a good job in doing an "upfront" monetization, with MySpace getting a guaranteed ad deal from Google and Facebook getting a guaranteed deal from Microsoft. However, all the details suggested that on the backend things were pretty ugly. It's not hard to figure out why.

Ads work on Google because people are looking for information. They do a search, and if the advertisement shows information that helps with the query, that makes everyone happy. However, when it comes to a social network, usage is quite different. People aren't looking for information about products -- they're looking to communicate with friends. In that environment, ads are seen as an intrusion -- which is the exact opposite of ads in a search world.

... and the second from CNet:

Chief Financial Officer George Reyes referred to "a few AdSense partners" to whom Google is required to make guaranteed payments. "We have found that social-networking inventory is not monetizing as well as expected," he said.
Under further questioning, co-founder Sergey Brin said the company was disappointed in experiments it had run on some of the approximately 20 social networks it works with, which include MySpace and its own Orkut.
"I don't think we have the killer best way to advertise and monetize social networks yet," Brin said. "It's a big opportunity because it's so much inventory."
MySpace executives were not available for comment Thursday night and a Facebook spokesman did not return a call seeking comment.

Worth thinking about how these monetization issues ultimately impact the growth potential of the social network industry. Absolutely these are some tough problems.

Quick thought on blindly copying Facebook features

Quick thought on MySpace “News Feeds” - it seems as though right now, there's a huge amount of pressure to copy a significant chunk of Facebook's differentiated features, particularly:

• Newsfeed
• Self-serve advertising
• App platform

I very much wonder how useful it is to blindly copy Facebook's features, and treating the audience growth issue like it's a technology problem.

After all, consider the Newsfeed, which is a really interesting feature - it seems to mainly work in the case where you have a lot of personal friends where you care if they updated something in their profile, etc.

But in the MySpace case (and in fact, probably for all social networks who embraced the "open friends" strategy), it seems as though you'd end up getting a lot of news from people who you really don't care about. Because it's fun to be Barack Obama's friend on MySpace, but it's not as common as Facebook.

So the question is, when does it make sense to copy those features? Or are there situations where it'll very much disrupt the community because it's taking something that doesn't belong and trying to integrate it?

Just something I'm thinking about...

What do Yahoo's monetization woes have to do with social networking sites?

Yahoo's woes
Here's an interesting excerpt from a recent NYT article on Yahoo's troubles: Yahoo’s Vision-Goes-Here Strategy.

... Mr. Yang and Ms. Decker’s strategy is essentially “vision goes here.” They want to be the “starting point” for users on the Web. They want to be the “must buy” for advertisers. And Mr. Yang said he would assume an “aggressive investment posture.”

The only thing missing from that is the substance. Why would users start at Yahoo? How are advertisers going to find Yahoo superior? And what will the company invest in?

The fascinating part is that Yahoo absolutely *is* the starting point for many users on the web, particularly when it comes to e-mail, IM, and news.

The problem is bridging the gap between two "modes" of user behavior:

Communication:

• e-mailing
• IM
• news
• entertainment
• etc.

to:

• search
• shopping
• reference

... the latter which are better for monetization, because ultimately it combines motivation and intent with sending traffic off of the site.

Sound familiar?
Of course, this problem exists not just within Yahoo, but for any company that focuses on a high-traffic, high-growth area which has poor monetization.

This includes companies like:

• Hotmail
• Geocities
• MySpace
• Skype
• Facebook
• etc.

All of these companies ended up with big valuations, but never made the jump to monetizing the way Google's able to. In Yahoo's case, this is particularly depressing because the core of the company was always a place to jump off to other sites via a directory - but now it's a communications hub.

I think the woes of Yahoo are one in a long string of companies that have had huge traffic, but the wrong KIND of traffic. Question is, who will figure out how to cross this gap? This is probably the single most important monetization issue facing the social networking and UGC industry.

MySpace's new platform - what a difference 6 months makes!

History of MySpace's relationships with widget companies
Let's review the history so far:

• Dec 23rd, 2005: MySpace blocks YouTube
• Oct 2nd, 2006: MySpace blocks Stickam
• Feb 26th, 2007: MySpace blocks Imeem
• April 10th, 2007: MySpace blocks Photobucket videos

MySpace was both hostile and inconsistent towards outside widget companies, and seemed to mostly treat the outside companies like they were stealing users without creating value.

Along the way, the company also did two interesting things:

• Rewrote all links as msplinks.com
• Removed outgoing links inside widgets

... both of which seemed like hostile actions designed to thwart the viral growth of widgets.

Then the world changes!
Then of course:

• May 24th, 2007: Facebook announces Facebook platform

... and then, as a response, finally MySpace announces their own platform - with an amusing quote from their new COO Amit Kapur:

Yeah, I think ultimately that may be an area where we are able to differentiate. If you look at the past, companies like Photobucket and YouTube did contribute to the success of MySpace. They were continuing to build on the user experience in ways we were not focused on. Philosophically, we want to make that easier for companies.

It really tells you how fast the tech world can change.

In 6 months, the largest and meanest gorilla on the block goes from actively trying to kill developers building on its platform to embracing and encouraging them to make money. Hilarious!

Of course, it took a worth competitor to emerge that showed that you can drive a ton of value (and valuation!) from opening things up and thinking strategically and long-term about your business.

Who else can learn from this?
It strikes me that there are many situations in which companies are being treated like platforms, but don't realize that's what they are. And as a result, they end up being very aggressive against developers when in fact they should probably be embracing them and trying to figure out the next generation of their business.

These include activities like:

• Startups scraping e-mail addressbooks to find peoples' friends and the larger companies getting annoyed
• Companies WANTING to syndicate ads (or near-ads) like music videos, movie trailers, etc but unable to do so because the content isn't embeddable
• People crawling flash games online (aka stealing flash games?) and posting them somewhere else
• Companies "spamming" the Google index using SEO techniques

All of these different scenarios are ones in which large companies are being leveraged by lots of smaller companies. And of course BigCo typically doesn't respond well.

Question is - what's the best way for them to start taking advantage of this developer base that wants to engage their distribution platforms, their content, and their audiences?

The sad answer is - we'll probably never know until these companies are weakened and are significantly challenged enough by competitors to reverse course as MySpace did.

Declining stats on Facebook apps?

Interesting analysis and speculation: F8ce the music. The articles includes this article, which shows that a number of top Facebook apps have now fallen from their peak:

It strikes me that a lot of these apps have now gone through most of the "carrying capacity" of the Facebook audience. Everyone's seen them now, and the novelty has worn off a bit.

Definitely worth thinking about more - how do you create apps that are both viral and are good at driving engaging experiences that last a long time?

Quants versus brand folks on viral marketing

My sister Ada sent me this interesting article: Is the Tipping Point Toast?. Thanks sis!

Marketers spend a billion dollars a year targeting influentials. Duncan Watts says they're wasting their money.

Worth a read.

Quantitative approaches to consumer internet

(Stolen from Uncov)

After the Techcrunch Bump
Josh Kopelman writes a great post titled "After the Techcrunch Bump" where he talks about some key quantitative measures of how your site is doing:

• usage growth
• viral coefficient
• engagement level
• cohort analysis

Absolutely worth reading in more detail, particularly for folks who primarily focus on blog "buzz" or PR in order to generate traffic...

My position on this topic
I've written on some similar issues, taking a more extreme viewpoint here, where the point is to say, forget Techcrunch, just focus on metrics and building your business.

My take on it is that if you can quantitatively measure user acquisition, retention, and monetization to your site, and optimize towards that, then the entire decision whether or not you want to talk to press and bloggers is an independent decision. What are the advantages and disadvantages of making what you're doing public? And for the most part, until you've perfected your traction, why alert your potential competitors on what you're up to?

Instead, it strikes me that one of the smartest things to do is to keep a low-profile, gather millions of customers, and go from there. The caveat to this being that you can often find interesting partners, investors, and employees by going public.

How quantitative are consumer startups?
The heart of the issue in Josh's post, however, is that consumer internet startups are very very quantitative. Another smart VC, Vineet Buch from Bluerun, recently remarked to me over coffee:

It's a myth that enterprise companies are more metrics-driven than consumer companies - in fact it's the other way around.

I totally agree with this, because when you have millions of users driving billions of pageviews, that's actually trillions of datapoints to track, analyze, and act upon.

Companies like Amazon and Google, with real revenue streams attached to their businesses, track a ton fo data and optimize. But for a small startup, it's often overlooked even though the process of validating user-traction is often the #1 job of a seed-stage company.

An alternative approach
I'd like to see more startups actually start with a wonderful, artistic idea for a consumer product, but then spend the first 4-6 weeks working on an analytics architecture around that idea. It's something that very few companies are willing to do - stats often ain't fun - but is obviously hugely useful.

Know of anyone doing this??

PS. Cutest thing ever!

For-profit app developers versus For-attention app developers

Max Levchin recently launched his blog - which I'm sure will be excellent - with an article called, "How to successfully launch a social networking development platform." It's absolutely worth reading, so go click here and read it.

If you're lazy, here's the quick summary:

1. Create a feeling of technological openness.
2. Treat developers equally, but leverage the best ones by letting them closer in.
3. Plan and manage a community, and introduce a community manager early
4. Shift the support/documentation load onto the early developers.
5. Respond very quickly to platform issues, and take the early scaling problems seriously.
6. Emphasize the money-making nature of the platform.
7. Make your campus a place that developers very much want to visit.
8. Pre- and over-communicate policy changes and make major changes with at least the perception of open debate.
9. Make the #1 measurable goal of your PR team the amount of coverage that successful (or just interesting) developers get.
10. Hold frequent developer events and invite leading developers to speak at those.

Looking at this list, it strikes me that there are really two different types of developers, the for-profit type and the for-attention type. Different tools (listed above) appeal to the different groups.

For-profit developers
These days, there are many companies in the Bay Area that are building app companies, completely without destination sites. Many of these have gotten angel funding - I personally know of at least a dozen and a half. And a few have even gotten venture funding.

For these companies, particularly the ones with venture funding, there are significant issues to overcome:

• How do you generate significant revenues? ($50MM+/year)
• Is Facebook ultimately friend or foe?
• How can I beat my other for-profit competitors?
• Does more PR in this space generate higher valuations or advertiser interest for me?
• etc.

So as an archetype, you can think of these teams as highly experienced serial entrepreneurs with lots of money, offices in SF, staff of dozens, millions of app installs, etc. Kinda like Max ;-)

Thus, the list that Max writes include some of these issues - openness to make dependent companies feel good, money-making nature to appeal to revenues, etc.

For-attention developers
But compare this to the other group, who are the for-attention developers - or as you might call them, enthusiasts. These folks have vastly different concerns:

• Do people like my app?
• Am I meeting interesting people via my app?
• Do I have enough money to pay the server bills?
• etc.

This group is interesting because I think they are the ones actually hanging out on the Facebook Developer Forums ;-)

I was also able to meet a bunch of them at the recent CommunityNext conference on platforms, where we had dozens of Facebook teams present. They seem to be very small teams - like 1 or 2 - who end up working on a cool Facebook project because they think it's interesting. In these cases, they're almost as interested in the technology as an art, rather than being successful. Thus, the process of app creation is almost as fulfilling as being successful itself - that's why I'm finding many hackers trying out new apps all the time.

For this group, I'd argue that fame/status/respect are more important than money. While it's fun to think they can make a buck, the more important part is that they have X million users using their Pokewallgift application, and it makes them feel good. Building a $50MM revenue stream or the strategic implications of Facebook's moves are less important than to the folks who are really trying to build businesses.

Viral channels and scoreboards?
One thing I found curiously missing from Max's list was viral channels - obviously it's very easy to build social websites without easy ways for apps to spread themselves. In fact, the OpenSocial spec has a newsfeed, but no invitation and messaging system, both of which can be critical for growth. After all, what's the point of building on someone else's platform if you don't also have access to their audience for growth?

Also, as I've commented to friend before, being able to generate a "score" of millions of users is critical, even if those millions of users don't actually equate to huge revenue. IMHO, one of the biggest mistakes MySpace has made in this has been not publishing a scoreboard with how many millions of users have whatever layout site, music widget, virtual pet, slideshow, etc. I know for a fact there are internet companies with millions of widgets on MySpace, but the press can't report on them, and people don't talk about them.

How many subscribers did Scoble bring to this blog?

Here's my Feedburner graph of # subscribers over time:

As you can see, in the first 12 months, this blog slowly built up (linearly, pretty much), an audience of about 1000 readers. The big spike that you see is when Scoble linked to this blog - since then, in about 2-3 weeks, the blog picked up its 1500 subscribers.

The traffic was actually more than I've ever gotten being on Techmeme or Hacker News, which tells you how much traffic he gets. Pretty amazing!

Quantcast and its cousins in the analytics space

I love this headline from Valleywag: Quantcast gets $20 million in funding -- and more attention than it deserves. Haha!

What is absolutely true is that the analytics space has been changing very rapidly. Traditionally, there's been one main axis for analytics, which depended on whether or not you were publisher-leaning or if you were advertiser-leaning:

publisher leaning <----> advertiser-leaning
omniture/google <--------> comscore/nielsen
(pardon the ascii art!)

Publisher-leaning analytics
Under publisher-leaning bucket, you have companies like Omniture, Coremetrics, Urchin (acquired by Google), etc. These are companies that primarily focus on the usual things, like:

• pageviews
• conversions
• unique users
• etc.

And as to be expected, these analytics providers charge on a monthly basis to publishers, who take the data and publish it in media kits as well as for internal purposes.

Advertiser-leaning analytics
On the other side of the coin, you have companies like comScore and Nielsen, which traditionally help advertisers figure out CROSS-site metrics, so that they can figure out where to buy advertising. As a result, many of the stats they offer include things like:

• demographics (age/gender/etc.)
• audience composition
• cross-site overlap
• etc.

Their primary goal is to answer things like, "I'm trying to reach teenagers - which sites should I be talking to, for buying advertising?" This cross-site process has necessarily ended up with the panel-based measurement that everyone freaks out about ;-)

Other interesting divergences
And of course, advertisers and publishers have a little bit of an adversarial relationship. After all, if advertisers can "find the needle in the haystack" before the publisher does, they can buy crappy advertising inventory that's in fact, really targeted inventory. And similarly, the publisher would love to obscure some of their ad inventory as to force the advertisers to buy both good and bad advertising at a premium.

So across a variety of tools beyond analytics, you have mirror-versions of each tool. A good example of this: A lot of publishers have their own internal ad servers like Doubleclick's DART, but a lot of advertisers use so-called "third party ad servers" like aQuantive's.

Analytics by channel
Similarly, I'll expect that any new analytics product - be it in video, social network analysis, widgets, etc. - to always have an advertiser-side version of the company as well as a publisher side.

This is where things are very interesting for Quantcast. Seems as though the highest margins for them are going to be facilitating the ad-buying process, yet they are also having the publishers do a pixel implementation to track more specific information. Question is, long-run are they more of an advertiser-leaning company? Or a publisher-leaning company? Only time can tell...