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Monday, April 26, 2010

Twitter Ad Potential: Huge (Source: History, Users' Love of Searching)

Regarding that last post about Twitter and monetization, I haven't changed my mind on all of it, but for the projection/prediction part about Twitter potentially putting up very modest ad revenue numbers in the first two years. That part, I realize, is wrong!

Certainly, they're well behind Facebook in many areas (revenues included) and possibly will continue to be forever, but what they have going that Facebook doesn't have as much of yet? Search! (Fascinating piece today by Eli Goodman of comScore: What History Tells Us About Facebook's Potential as a Search Engine, Part 1).

Goodman's point so far seems to be that as search improves and as users come to expect it to be highly useful, usage increases, familiarity with the tools increases, etc. This is going to happen with Facebook, and it's going to happen with Twitter.

By contrast with Facebook, though, Twitter already gets 19 billion monthly searches -- about 19% of what Google does in a month. Astounding. That with a search platform that often doesn't work well, or sometimes return any results at all. Twitter searching is going to grow to incredible levels. And where inventory and granularity are that huge, even very cautious forms of monetization lead to sizeable revenues and positive feedback loops in CPM rates and user satisfaction.

So I'm coming to the realization that 2011 is going to be a strong year for Twitter's ad revenues, and 2012 could shock people.

A huge wrinkle here, though. Those supposed 19 billion monthly searches count API calls from third parties, and that would include standing queries from users, more like how people use feeds to display their favorite content. But hang on, isn't that a good thing? That's great contextual information and where there is such great contextual information, eventually there will be ad deals, and ad revenues. Sure, there will be ad-free ways to use third party tools, just as some advertising will actually appeal to users (or at least they will tolerate it).

Based on a more conservative definition of a "search," let's dial the 19 billion back, then, to around potentially one billion actual searches per month in 2011 for either Twitter or Facebook (so, more like 1-2% of Google's overall volume). That's still impressive. Based on Eli Goodman's logic, that could certainly lead to a snowball effect of bona fide search product development and bona fide user addiction. In essence, the search product and ad product teams at Twitter and Facebook alike won't be able to hire people and build products quickly enough.

Promoted tweets, then, should be viewed just a light pilot project to try something sort of "alternative" in the space for a reasonably guaranteed amount of cash. Down the road, Twitter can monetize something we're all very familiar with as the highest-CPM, win-winningest, digital advertising channel: search and keywords. I doubt Twitter's founders or any of the early adopters predicted this type of user behavior in the early going. Certainly, it's a credit to them and their far-sighted investors that they all bet big on the potential and the direction of user excitement, rather than trying to get too specific about how it would get used or how it would make money, too early on.

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Posted by Andrew Goodman




Wednesday, April 22, 2009

Twitter Auto-Follow Limits Rankle Some

Some third-party developers don't like it, but I think for those being limited to following 365,000 new people per year, life will go on.

I guess it all depends on what you call "getting your act together". To me, it looks like Twitter is doing just that. As for TOS p's and q's, it's a lot to expect of such a young company to have all of its ducks in a row. Twitter is significantly younger and has a far lower headcount (and burn rate) than Facebook.

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Posted by Andrew Goodman




Tuesday, February 17, 2009

But Will Facebook Make a Real Commitment to Protecting Users?

Sure, Facebook has reassured us that certain Terms of Service changes don't mean they'll rip off our original content.

But users' concern about Facebook as it matures should be much broader than that. Facebook has attracted quite a few ex-Googlers -- among them Sheryl Sandberg, instrumental in promoting the standards Google continues to uphold in the advertising program, on consumers' behalf. Sandberg is joined by a number of other prominent Googlers, who surely had a sense of pride working for a company that protected users from some of the web's worst evils.

But have a gander at all the things you're left vulnerable to as a Facebook user. Third party apps are inherently fraught with potential spyware, privacy invasions, and other mayhem, given the openness of the system. But then again, Google indexes the whole Internet, and attempts to warn users from even landing on known spyware sites.

Currently, Facebook has very low standards for both third-party apps and display ads. Display ads claiming to offer services with "no spyware" attached in fact redirect to spyware and nuisance-ware sites.

Google was a precocious adolescent only three years after its founding. By comparison, Facebook is playing the game like an ADD-riddled pre-teen.

Me and you? We'll survive. It's the hundreds of millions of less savvy users that appreciate a company that's looking out for them by shooing away malicious partners and advertisers.

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Posted by Andrew Goodman




Friday, November 21, 2008

Facebook's Long, Long Haul

Never let it be said that Silicon Valley companies aren't built to last.

Sheryl Sandberg, Facebook's COO, says they're in this for "20 to 30 years". In 30 years, Sandberg will be 68. Check back then.

In 30 years, even Zuckerberg will be getting short of breath.

Meanwhile, wags are wondering if Jerry Yang's recent re-appointment as Chief Yahoo makes him Yahoo for Life.

And everyone knows the three leaders of Google have made a pact among themselves to still be at the helm of the company in 20 (or was it 30?) years.

Promising never to retire: it's the ultimate Silicon Valley status symbol. I guess Steve Jobs must have started it.

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Posted by Andrew Goodman




Saturday, November 01, 2008

Facebook: What Would You Pay For?

Sam Diaz over at ZDNet specifies which premium services he'd pay Facebook for.

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Posted by Andrew Goodman




Friday, October 31, 2008

Is Facebook the Next Geocities?

Much like last time around, the most valuable (in investor valuation terms) Internet startups are building user bases first, and businesses second. Now Techcrunch is looking at Facebook's burn rate and recent new forays into the capital markets and concluding that even the half a billion dollars they've raised to date might not be enough to see the company through to profitability.

The real question is, of course: what's the best business model for Facebook? If you look at the Google example, they hit on basically one monetization method. It's not a matter of packaging together a bunch of ideas and putting them all together and reaching profitability that way: it's about hitting on the superior idea that leads to liftoff.

Otherwise, you're just a big property with a lot of potential that loses a ton of money every quarter. You're just a place people enjoy hanging out, that needs to get itself sold pronto... certainly before your evident lack of profit potential becomes persistent to the point of chronic. Facebook: the next Geocities? The next Xoom?

Even the Geocities example is poor because Yahoo doesn't have $1 billion or more to acquire this behemoth at this time. Yahoo is not, itself, worth all that many billions. Part of the reason for that is they have made a lot of overpriced acquisitions over the years. Many of them were of the "eyeballs and we'll monetize with display, or something, we'll figure it out later," variety. Yahoo's whole should have been greater than the sum of the parts, but looking at revenue trends, it sadly has not been.

Leaving Google aside, the real potential acquirer out there (if Facebook is a long term strategic money-losing play that eventually turns into a solid asset) is Microsoft. They already have a stake and are looking to be a big player online. While it might be a disappointing acquisition for Microsoft, it certainly wouldn't be unexptected.

But assuming they'd want to be attractive to anybody else, or just run a business and even go public with it, what business model is best? Back to this, the real question. A lot of clever people are debating it, but let's go through the alternatives:

  • User profiling, the social graph, and other detailed consumer information somehow being sold to companies without users throwing a fit at the privacy intrusion. Yes, this has value, but it's hard to point to many businesses of this scale that make a business out of this. You would think that a large company might get a lot out of this by keeping that data internally and using it rather than selling it to outside businesses. Certainly data-centric financial companies like Amex and financial direct marketing whizzes like Capital One approach it this way. This again points away from Facebook being able to make a business out of this inside of 10 years, and towards them being an acquisition target for a firm like Microsoft.
  • Targeted display ads are now available on Facebook but it looks like they aren't doing the job revenue wise. Part of the reason is, you can only intrude so much into a personal communications medium - it's why we don't have to listen to ads in our phones and tolerate only light intrusion with text ads in GMail, etc. Advertisers won't get huge, measurable ROI like they get from high-intent areas like search, so the CPM's will remain low. To make this work Facebook needs to either (a) cut its costs dramatically, especially on their money-losing international operations, or (b) get the mother of all sales forces to really push the inventory to the largest corporations looking to move budgets from traditional (even less measurable) media. (b) has some promise, and top quality sales execs are no doubt available today as other companies downsize in this tough economy.
  • Fees. I don't see why this won't work. A structure that allows you to pay $0, $15, $30, or $99 per year for an account with different privileges would not kill the company and might be a solid performer. Personally I am paying for Basecamp, my j2 fax number, an online billing solution, and a number of other things because entry was relatively painless and the service for the premium versions is excellent. I am a huge believer in this (I thought Yahoo in the aggregate could have even diversified their revenues this way -- I wrote about this seven years ago!). If an unknown little telecommunications provider like j2 can run a solid ship and climb out of the economic doldrums to become a $1 billion company, what's stopping Facebook from doing something similar at a much larger scale?
To me, the only thing stopping Facebook from easing into a fee-based environment is a lack of guts. Come on Facebook, grow a pair. Your user base is humongous enough. Go ahead and get x% of them paying at least $15 a year to belong to the club, and get back to me with how much money you raised. (Hint: with 100 million users paying an average of $15/yr. you'll be garnering $1.5 billion in revenues. A good start. And no, you don't have to shut off the ads.)

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Posted by Andrew Goodman




Tuesday, May 13, 2008

Meet the New Boss, Google -- And the Coming War of Free

Henry Blodget's post on the impending crisscrossing of lines on Google's and Microsoft's core businesses is timely. In 2009 sometime, Google's search ads business will be larger and more profitable than Microsoft's core Windows operating system business. (If Microsoft is lucky, that won't be the day Google launches a hostile takeover bid for Microsoft, a development Sergey Brin slyly alluded to several years ago, when such talk could easily be dismissed as a joke, or painful delusions of grandeur.)

Cloud computing, and ad-supported online business models are assumed to be a new naturally dominant business model. Chris Anderson has begun talking about the "power of free," as he gets set to release a new book on the concept.

But I think many analysts fail to grasp the complexity of the scenario. (Well, maybe it isn't that complex, actually. My wife, who teaches labour market theory among other things, notes that China can win a lot of business by simply undercutting other companies in the garment sector. But then India, or somewhere else, undercuts them. The result isn't beneficial to the guys who did the first round of undercutting.)

Today, Google is very wealthy, from a core economic driver. It is so wealthy, it is able to give away many products and services for free - sometimes, after acquiring a leading paid or freemium player in a space. This activity has been rampant. Blogger was acquired and its premium version was given away for free. Google Analytics continues to grow in sophistication. It costs $10,000 - $200,000 less than competing products; i.e. it's free. Google Checkout simply undercuts the pricing of PayPal on merchant services. Google Docs and Spreadsheets takes aim at Microsoft Office, and again, it's free.

This is what Microsoft used to do. It used to take out whole lines of business by adding them as a "feature" to Windows or Office. Now, it seems, the tables may have turned. Microsoft could only do that when it had a natural monopoly. That's being whittled away by open source, cloud computing, and giveaways galore. Much of that competition is going to come directly from Google.

So why do some analysts feel that Google itself is immune from tit-for-tat, any more than China can lose garment trade to an even cheaper competitor?

As consumers find ways of getting what they need from companies who choose to make it accessible with no advertising, ad supported models themselves are shaky. Brin has often said it himself: a competitor is only a click away. I can't avoid all commercial messages: I can't drive on a different highway, use a different subway platform, or wriggle out of my airline seat. It's a bit difficult to miss the glossy ads on the magazine I choose to read. And some messages, I actively seek. Google's business isn't going away anytime soon. But the real heyday of Google from a consumer standpoint might have been in the years when expectations of future profit (and some funding still in the bank) were subsidizing a search site that showed *no* ads.

[And as an aside, it's essentially the same phenomenon and "ethos" (an "ethos" that is more of an economic model dependent on acquisition or massive funding) that drives many Web 2.0 companies. Many of them make the mistake of divorcing "the power of free" from the need to be acquired. Others are smart enough to know when to fold 'em, for healthy valuations.]

If "free" is so great, then isn't even freer even better?

There is a certain false cleverness, then, about business models that smugly give stuff away to put others out of business, based on the knowledge that some other parts of an enormous (and hopefully, diversified) conglomerate can subsidize the insanely great deal consumers are getting on the other stuff. It works as long as that profitable part is safe! For most companies, it isn't.

Make no mistake though, for a handful of gigantic companies, these models are *very* clever and they work very well. The overall profitability comes from bringing a very large number of consumers and businesses into the "fold," and figuring out how to maximize profits from the few areas that consumers will actually "pay" for. Yes, in an era when everything seems free, I even have to put "pay for" in scare quotes.

That's why today I dub the large Internet companies (we used to call them portals) Super Funnels. It's far more complex than just the rather simplistic idea that we can offer cloud-based services cheaper, or free, or support whole lines of businesses with ads. But it is all about the rampant amount of investment capital and cash flow that makes it possible to create amazing user experiences and products that cost very little... as long as some element of the whole process, and hopefully many elements, are wildly profitable. Achieving this is not like falling off a log. The funnel has to be very well engineered, and the pockets have to be very deep.

Connected to my analysis (which basically says, beware of "the power of free" if all that means is an ad-supported model that assumes x% of users will tolerate and act upon advertising) is the rampant assumption that display ads online are holding up well as an economic model. What are the CTR's and ROI on such ads? So poor, metrics gurus have to come up with new measures that disguise the lack of engagement. Where people are really going to share and interact - platforms like Facebook - will let you bother users for a $0.30 CPM... and this may be the high-water mark.

Search ads are largely safe, for now, because they are quasi-classifieds, and because Google engineers the ad program to make the ads and the sites they lead to actually as good as or better than the sites in the organic/blended index results. That leads to the question, won't somebody eventually come up with more pleasing organic index results? What if someone releases something very, very good, and makes it available without ads for three years? They'll need a few hundred million dollars to try that stunt on any serious scale.

Can someone out-Google Google? Eventually, someone will, but for now the discourse of "the power of free" will sync up well with the next 5-10 years of Google hyperprofits. It's just a mischaracterization that "free" has true power, divorced from its rare, Super Funnel context. Google is the most efficient Super Funnel today, which will continue to be very disruptive to former dominant ones like Microsoft (other targets will be phone monopolies and the list goes on). To get back to a scale that can challenge Google's dominance, Microsoft has been rightly looking to bulk up to achieve more scale in today's dominant ("power of so-called free") business model. Hence its interest in Yahoo, Facebook, and others. Can Microsoft "go it alone" in this quest, as the current discourse of Ballmer and Gates suggests? It's highly doubtful. If they do not return to several bargaining tables soon, the buildout will take too long.

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Posted by Andrew Goodman




Tuesday, March 04, 2008

Facebook Lands Monetizer Extraordinaire

Facebook has done themselves a favor by hiring long-time Googler Sheryl Sandberg as their COO. Sandberg was one of the brilliant early thinkers in the Google AdWords program and part of the reason Google maintained its monetization "compass" for so long... leading to enormous long-term profitability.

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Posted by Andrew Goodman




Tuesday, February 26, 2008

Why Microsoft Will Press On

I'm taking in Danny Sullivan's keynote at SMX West right now.

He's talking about social search and the as-yet-unrealized potential of communities like Facebook to influence search results in deep ways.

Although this will raise privacy issues, it underscores the value of Facebook right now. It's leveled off slightly, maybe, but it hasn't backed off by much. MySpace, on the other hand, seems increasingly like the trailer park of social media.

That means someone's going to want a deeper partnership with Facebook, if not outright acquisition.

The only major search company that has a piece of Facebook, of course, is Microsoft.

To achieve big goals like increasing its stake in Facebook and incorporating data into a better overall experience, Microsoft needs to get other ducks in a row first, including consolidating forces with Yahoo. Hence, the resolve they are showing to push the acquisition through no matter what Yahoo wants. For the record, Danny wound up his keynote by expressing a hope that Yahoo can remain independent.

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Posted by Andrew Goodman




Friday, November 30, 2007

"Charlene Li bought a table" no more: Facebook retreats

So Facebook has revamped the workings of their Beacon. To all you bloggerati and digital doomsayers (like me) who raised a stink about this, looks like your sense of smell wasn't wrong. Some things need to be opt-in, not opt-out. Looks like "Charlene Li just bought a table" showing up in a newsfeed is in the former category.

Aside from the unwanted privacy invasion and the possibility of people's unusual personal buying habits being broadcast ("why is Joe buying infant formula? he has no kids!"), broadcasting some movements would be akin to giving too much business intelligence away. It's one thing to tell everyone what business books you're reading right now, but I'm sure you can imagine how letting some of your subcriptions, research, and software purchase slip out might give more away to your "Facebook business friends" than you had intended. And so forth.

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Posted by Andrew Goodman




Monday, September 17, 2007

The "Failed" Websites that Happen to Be in the Very Top Few Websites in the World

Facebook's in trouble if they hold their "poker hand" too long. Or so say smarmy analysts in the press, worried that the "fate" of Facebook may resemble that of the "failed" Friendster and the "who cares anymore!?" Orkut of Google origins.

The thing is, those who own these companies have long stopped caring what analysts say. No wonder they plan to cash out at only appropriate valuations, or just keep running these communities as they continue to grow and develop.

Caveat: you'll have to believe the Alexa numbers - Alexa gives me the prettiest graph on demand (see below). I believe these numbers when the ranks are below 100 or so. Especially when they are below 10! (When you're in the top 10 or 20 websites on the planet, who's counting?

"Failed" Friendster is, admittedly, only in the top 100 or so websites in the US. Its regional strength ("but" 9 out of 10 users are in the Asia Pacific region, says a news story) in the Asia Pacific Region puts it in the top 10, or even top 3, sites in several countries.

Forgotten Orkut is still the #1 website in Brazil. Weird, but I've heard of worse fates. It's also in the top 5 in India and Pakistan. It's in the top 50 in the US.

I could go on, but I think you see the point. Social networking is hot, and what the press call risks, or also-rans, or failed, are not only doing well, they're doing incredibly well - just not always on the same timetable, or with the same founders, or in the same places, as planned.

So, Friendster's "decision not to sell" (for the $30 mil Google supposedly offered) is touted as "one of the biggest blunders in Internet history." Moreover, the current valuation is pegged by at least one pundit at $1.5 million (?). While it's certainly too bad that Friendster was ahead of the curve and had frequent outages, and too bad that Jonathan Abrams was shoved out, the broader point is: the present ownership of this class of sites is playing their cards right. Hang on. You're worth it.

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Posted by Andrew Goodman




Friday, September 07, 2007

My Lack of Privacy is Now Official

So as Facebook announces it'll no longer be only on Facebook anymore (allowing search engines access to public profiles, similar to a recent move by LinkedIn)... it makes you kinda wonder.

CHRONOLOGY:

1. Robert Scoble predicts Google will meet its untimely demise, at the hands of Facebook, in four years.

2. Facebook opens up a whack of pages to be indexed by search engines, hopes for a real lift in new user adoption by virtue of organic love from Google;

3. Google decides just how relevant those pages seem to be;

4. We wonder what will happen next.

Fair and balanced coverage by Technology Evangelist gives us some clue. Although it's possible to scoff at the idea that a large number of pages indexed will lead to traffic ("where will they rank?!"), TE is quite right to point out the near-inevitability of it in this case. On many people's names there are so few quality results that these profiles are likely to rank reasonably well... well enough to give Facebook another growth spurt.

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Posted by Andrew Goodman




Wednesday, May 16, 2007

"I Hate LinkedIn"

In the wake of a stunning report that Toronto leads the world in FaceBook membership (we're as proud as Brazil is for leading the Orkut race), I've heard many fully-grown friends talking about a sudden uptick in their FaceBook usage. Old friends contacting them, etc.

As part of that discussion, usually someone will chime in with "I hate LinkedIn." Various reasons are given about cheesy insurance salesmen types trying to ride on one's coattails or intrude on one's "business privacy."

Meanwhile though the same folks are proudly talking about FaceBook.

I think I see what's going on here. 45 is the new 22. Isn't it!?!? Please say it is!!??

(The population is aging, after all. If a lot more people are turning 70 and 80, young is, well, a lot of people under 50. Just the other day, a neighbor announced that she thought I was an "angry, frustrated young man" for a minor jolt I gave to my own fence while parking my car. I was flattered!)

God forbid anyone be seen to be actively networking or doing their job. Talk about a dork-fest!

But being on FaceBook - this will be cool, for another 38 weeks.

One famous graybeard in the blogosphere actually announced that he couldn't use LinkedIn in his company because he'd be "made fun of". Self-esteem issues?!?

Personally, I don't hate Linked In. But that's because I'm not under the impression that the tools I use for business define me. Although I will grant you, I'm definitely not sending people emails from an AOL address using large, orange fonts.

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Posted by Andrew Goodman




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