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The Business That Powers Local Social Media November 29, 2010

Posted by David Card in Uncategorized.
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“Local” and “social” go together like bread and butter. Add “mobile” and you’ve got your sandwich, or, better yet, a trio of hot technologies attracting capital from investors and big companies alike. For consumers, there are obvious synergistic experiences: Mobility is local by definition, as are many social activities like physical-world shopping and going out for entertainment. But what’s the business driving this trio right now?

The digerati like to talk about local social commerce and conjure up visions of Minority Report-style advertising and proximity offers. But those are largely still visions today — promising, but as-yet undelivered. The near-term payoff for local social media is coming from more mundane sources like small-business marketing budgets that used to go to Yellow Pages, newspaper inserts, circulars and coupon mailings. So companies in this space need to support local small-business advertising in their business plans.

Local Advertising Online Still Nascent

Most local ad spending is still on traditional media. Eighty-five to 90 percent of the roughly $130 billion in U.S. spending isn’t digital. Print Yellow Pages is still a $15 billion business. Sure, thousands of small businesses buy paid search listings from Google and Bing, but they’re usually small online businesses that can convert sales on their web sites. The vast majority of local small businesses are barely online, if at all.

At the same time that minimal local ad spending has moved online, many local advertising vehicles are struggling, making for weaker competitors or potential partners. Free classifieds and Craigslist are killing a local newspaper revenue stream, and most newspapers’ best display advertising customers were recession-hammered car dealers, real estate and big retailers. Yellow Pages remains a sluggish cash cow for companies like AT&T and Verizon Superpages. Dex One is shutting down one of its online initiatives, Business.com. Another player, Local Insight, is in bankruptcy, as is Vertis Communications, a company that specializes in free-standing inserts.

Check-In Deals Proliferating

Meanwhile, announcements of advertising and promotional deals with check-in companies are peppering the news. Location-based services companies like Foursquare and Gowalla still have pretty small marketing staffs. They’re better equipped to service national or online brands and retailers that target local markets from a centralized national marketing or advertising organization. That includes companies like PepsiCo, Starbucks, McDonald’s and auto manufacturers and banks.

An online local content company like Yelp, that built its business and audience around a web site before going mobile, is better-equipped to deal with local small businesses, and has relationships in place.

Groupon’s “Dirty” Secret: It’s Not Really Commerce

The hottest name in social commerce isn’t even really about commerce. When daily deal powerhouse Groupon makes its pitch to local merchants and national brands aimed at local customers, the pitch is about new customer acquisition. When the economics work, it’s a compelling story: since the shopper pays for the Groupon coupon, the resulting customer location visit guarantees a sale, and is thus pre-qualified as a prospect.

When rumors of a Groupon-Google matchup made the rounds last week, some were critical of the potential. An acquisition, rather than a less formal partnership, makes sense for several reasons. Google would get a big local salesforce. It could offer complementary paid search and display ad services for customer acquisition, and perhaps do a better job of tracking customer conversion across email, search and online display ads (Google bailed out of radio). Google might be able to help Groupon with its own customer acquisition, although Groupon has only recently started to buy paid search listings and online ads. And Google would have to balance the value of running “house” ads versus paid-for inventory, as well as appease Groupon competitors.

Additional Service Opportunities

Other local social revenue sources beyond customer acquisition offers could include:

  • Media buying. Local social companies could assist unsavvy local merchants with SEM, SEO, distribution, and online ad network buying. Digital Yellow Pages does this.
  • Ad creative services. Companies like BuyWithMe already work with merchants on crafting their emails, testing offers, subject headings, etc.
  • Store loyalty programs. Check-in services are heading this way already.

Question of the week

What revenue streams should local social media go after?

What Facebook Messages Is Really After November 22, 2010

Posted by David Card in Uncategorized.
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It’s not email. That’s what Facebook CEO Mark Zuckerberg said at last week’s introduction of Facebook Messages. He called it “a modern messaging system,” and half-jokingly added that the next generation of users would gradually drift away from email. But what Facebook is really trying to establish with its unified communications hub is presence management, which is why Facebook Messages feels at least as much like IM as it does email.

Driven by enterprise-oriented companies like Microsoft, IBM/Lotus and later Google, email evolved with the addition of PIM features like contact management and calendar integration. Those companies, along with consumer-focused ones like Yahoo and AOL, added spam filtering and began to integrate other communication types and transports, including instant messaging and voice. At the same time, the corporate companies built up collaboration facilities, beginning in the ’80s with Lotus Notes, and more recently with services like Microsoft SharePoint and Google’s ill-fated Wave.

But Facebook is moving in a completely different direction.

Intimacy and Immediacy

Facebook Messages focuses on intimacy and immediacy at the expense of formality, flexibility and history. Yes, Facebook’s social inbox pulls in different message types, but it weaves them into a thread that’s based on the sender rather than the topic, similar to IM or texting on a smartphone. To encourage immediate and recurring use and response, Facebook Messages eliminates subject headers and address look-up. Inbox folders are Friends, Other and Junk. That’s it.

And the approach isn’t aimed at only consumer (rather than professional) usage. Rather, it de-emphasizes important consumer communications like billing, newsletters, one-to-many emailing and forwarding. That’s because it’s more important in the long run for Facebook to be its users’ launchpad for personal communications and presence management than it is for the feature to be the management tool for all communications.

The Real Objective: Presence Management

By presence management, I mean the tools and platform a person uses to announce his availability to other people (and, potentially, to ‘bots and services). A powerful, unified presence manager would also enable the user to express how he’d like to communicate, and to manipulate that “how” and “when” availability to different types of contacts. Early examples of presence management tools were AOL’s IM and chat (though Buddy Lists didn’t make that availability very flexible) and Caller ID. Today’s email and social network apps also contain such tools.

If Facebook establishes Messages as a user’s primary tool to manage presence across multiple communications vehicles, it would be an incredibly sticky app, with huge customer lock-in potential. Facebook contacts are beginning to play an increasingly important role across communications. That’s one reason Facebook doesn’t want users to share them. Facebook Groups could be a step towards a presence-aware buddy list. For instance, after 6 p.m. a user could make himself instantly available for family, but available to co-workers only via email.

How Should Competitors React?

Email’s not going away, for many reasons. Even teenagers want their online shopping receipts, and likely won’t route newsletters to their Friends inbox.

Microsoft understands this, and the difference between corporate and personal email. It should continue to build collaboration into Outlook, bridges between Outlook and Hotmail, and make sure its Messenger presence infrastructure interoperates with Facebook’s.

Gmail is an extensible apps platform, and a Gmail address is a hub domain for non-communications apps. Google’s aggressiveness in voice communications might give it an advantage over Facebook in mobile presence management.

Yahoo and AOL need to integrate voice communications deeply, and push hard to get their IM apps used on smartphones, with ties as strong as possible to SMS.

At one point, carriers like Verizon and AT&T looked like they could play a role in presence management, or establish their address book as a user’s most critical one. But they’ve built little off those bases.

Question of the week

How can companies compete with Facebook Messages?

Why Browsers Don’t Matter Anymore November 15, 2010

Posted by David Card in Uncategorized.
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You might have heard, a company called RockMelt announced a browser last week, even calling it a “social browser.” Thanks in part to Marc Andreessen’s VC firm funding it (even though the funder should never be the story), the product got a lot of media attention.

Big deal. Browsers don’t matter anymore, and here’s why not.

Once They Coulda Been Contenders

Browsers used to matter a lot. Microsoft invested a ton of effort to kill off Netscape Navigator because it represented the first legitimate threat to Windows. (Remember, that was before Google, the iPhone and Facebook.) Microsoft built a great browser with Internet Explorer, integrated it tightly with Windows, and bundled the two for as long as that was legally allowed.

Just as important as its profitable revenues, Windows ruled as the desktop platform. That is, it delivered core technologies that created a successful ecosystem for both Microsoft and its developers, which, in turn, delivered the rich environment of applications and competitive hardware for users. The magic of Windows was that it delivered Microsoft’s APIs — which let it “control” developers — housed in a UI that effectively locked in users. This combination, along with Microsoft’s distribution through OEMs, developer support and programming tools, created a network effect that increased the overall value of the ecosystem, with winner-take-all marketshare for Microsoft.

Popular browsers offered the promise of a similar platform: an application that, with the rise of web apps and media, could act as a user’s primary UI. Browsers deployed core distributed computing technologies and APIs and acted as a distribution channel or launchpad for portals and search engines.

Today’s Platform Delivery Vehicles

But today’s platform is the web itself; key platform technology suppliers don’t depend on browsers to make or break their APIs and user interfaces:

  • Google has a browser, but Chrome isn’t necessary to feeding search, Gmail, Google Apps and distributed computing technologies. Google’s Android mobile OS appears to be the platform for tablets rather than Chrome running on some other OS. Google does its most important UI innovation in search.
  • Facebook hasn’t built a browser, nor an operating system for that matter. It uses its web site and mobile apps to establish and distribute its APIs and UI. Developers can tap into Facebook APIs like Facebook Connect across the web in a browser-independent fashion.
  • Apple too has a browser, but it relies on its desktop and mobile operating systems for API and UI implementation.

Other companies that deliver mass-market APIs for consumer apps, like eBay/PayPal, Amazon and Yahoo, don’t depend on specific browsers. Neither do enterprise suppliers like IBM, Oracle, SAP and Salesforce.com. Even Microsoft, which despite a lack of buzz still dominates browser market share, can’t depend on Internet Explorer to establish its standards or businesses. Silverlight and Bing underscore that fact. All that’s to say that the excitement about RockMelt arises from the potential of establishing a new browser, but it feels like that potential is based on an outdated model.

Where a New Browser Might Matter

OK, you may argue that I’m confusing cause and effect, i.e., because a couple of the platform companies’ browsers have lousy marketshare, they’ve had to rely on other means to spread their APIs. I can concede that, and admit that a browser can still be a platform hub, just not on a web desktop. A new browser could use that powerful API/UI combination on new devices:

  • Mobile. Conceivably, a browser could relieve some of the OS fragmentation across mobile phones. The mobile platforms of Microsoft, Google, and Apple are OS-based, while Facebook is building its mobile platform without either a browser or a mobile OS.
  • TV. Similarly, next-generation TV and gaming devices suffer from an OS fragmentation that’s slowing app development and deployment. This one feels like an OS war to me, as most of the middleware players are names that are unfamiliar to web or game developers. Google TV is built out of a combination of Android and Chrome.

Question of the week

What would it take to make a differentiated browser?

How to Reach Social Media Critical Mass November 8, 2010

Posted by David Card in Uncategorized.
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When it comes to consumer technologies, how big is big enough? When do they really start to gain momentum, and what happens when they do? These are questions of critical mass — the magical tipping point when user adoption starts producing that old cliche, hockey-stick growth that fosters sustainable businesses.

Last week, a new consumer survey by the Pew Research Center inspired many to ask those questions about location-based services, which, to-date have achieved only single-digit penetration of the online population. And while we have a little ways to go in considering how location can achieve critical mass, it’s worth considering just what defines it and how companies can achieve it.

Critical Mass Means Two Things

When a new consumer medium or technology reaches critical mass, two things happen: Adoption accelerates and new businesses or markets emerge. Historically, critical mass tends to occur when about 15 percent of households or users adopt the new technology.

VCRs illustrate the classic example of critical mass. In the early 1980s, U.S. household adoption of VCRs hit 15 to 20 percent. When that happened, a whole new business around home video rental was created. Blockbuster was born. Adoption accelerated and rental revenues flowed.

Social network usage showed a similar pattern. In 2005, social and professional networks like Friendster, MySpace and LinkedIn were used by fewer than 15 percent of the online population. Two years later, MySpace was generating more page views than Yahoo, and cutting billion-dollar ad deals with Google.

VCRs also illustrate another characteristic of products or services that reach critical mass: sometimes their core value proposition changes. While the original base of VCRs was sold for the purpose of time-shifting programming, their ultimate success came from a completely different utility. Time-shifting was attractive enough for the first 15 percent of households, but the ever-present blinking clock shows that home video rental was the VCR’s real killer app.

Social Media Technologies at Critical Mass

Location-based services have not reached consumer critical mass. However, other social media technologies that are reaching that point right now include:

  • Social gaming. Using Facebook as a launchpad, games like Zynga’s FarmVille and Mafia Wars have reached critical mass in the U.S. Unsurprisingly, they’ve become advertising and promotional vehicles for brand-name marketers like McDonald’s, and may finally prove the value of micro-transactions and virtual currency.
  • Micro-blogging. We’re really talking about Twitter here. Adoption is near or at critical mass. Some question whether Twitter will ever be truly mainstream, but it’s already gone from being tech- and social media news-only to celebrity-watching. Twitter’s just figuring out monetization, but feed-based user interfaces and news dissemination are two areas that micro-blogging has driven.
  • Social commerce. Groupon told me they have 15 million subscribers in North America, and that’s getting pretty close to 10 percent of the U.S. adult population. The daily deal aspect of social commerce is close to critical mass; cheap, effective customer acquisition by local couponing is about to arrive.

Things to Remember

A few other aspects of the critical mass concept bear noting:

  • Although it shares some characteristics, like rapid growth, critical mass is not the same as the network effect. Network-effect markets increase in value exponentially with adoption, and lend themselves to winner-take-all outcomes.
  • That seemingly magic 15 percent figure is based on the target market. Technologies can achieve critical mass and “in-market scale” within particular audiences based on things like geography, common interests and lifestyle.
  • That said, there are many markets that depend on absolute numbers of users. For example, major brand advertisers have little interest in audiences under 1 million, no matter how targeted they might seem.

Question of the week

What other tech markets are reaching critical mass, and which ones won’t?

How to Make MySpace Relevant (Again) November 1, 2010

Posted by David Card in Uncategorized.
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In the realm of might-have-beens, MySpace had even more promise than Friendster. But unlike Friendster, MySpace remains salvageable. Though it shouldn’t try to challenge Facebook for social network leadership, it can still be a valuable consumer media business, if not a technology driver. Here’s how — and why.

When MySpace supplanted Friendster as the leading social network, it did so by delivering an entertainment and communication combination, along with an early embrace of social media plug-ins and mash-ups. It became the de facto home of music artists and had an early lead on Facebook in ad targeting. But while MySpace stagnated under News Corp. and a Google ad deal that guaranteed revenues without encouraging advertising innovation, Facebook built a real platform of NewNet technologies. MySpace must return to its roots, and its recent relaunch hints that it might just do that.

What’s Good About the Relaunch

MySpace’s relaunch is smart in its focus. It’s trying to rebrand itself as an entertainment hub with a lot of social elements, rather than as general-purpose social network; it aims to complement rather than compete with Facebook.

MySpace has accommodated Facebook and Twitter updates, but it’s questionable whether much of its audience will use such features to aggregate social communications. That said, MySpace has adapted feed-based user interfaces in what appears to be a unique fashion: Users can toggle between magazine- and TV-like modes as well as a conventional stream. This mix of active and passive entertainment discovery — users already get update streams from friended bands, studios, entertainment personalities, etc. — could prove a useful launch pad for MySpace fans to spread comments and recommendations outside of as well as within the network.

What’s Still Needed

MySpace still has a large — if declining — U.S. audience that is younger and more geographically diverse than the web average. Various traffic data companies show it reaching 40 to 60 million people monthly (though that’s almost half the size of Facebook or Yahoo). To keep that audience entertained, MySpace must innovate on the following:

  • New ad vehicles. Two years ago, MySpace attracted attention with a campaign for luxury brand Cartier that integrated musicians like Lou Reed and Marion Cotillard. Today, MySpace gets rich homepage campaigns (with trailer, showtimes, behind-the-scenes info) for movie openings — Lionsgate’s “Saw 3D” for Halloween, of course — and big banners on its channel homepages from the likes of Samsung, Sprint and Fox Television. But it needs to create unique social sponsorship opportunities involving games, contests, interaction with stars and re-distribution outside the network.
  • Social commerce. MySpace delivers full-track music streaming that enables affiliate purchases on Amazon. But it needs to build out a marketplace for artist merchandise, and should consider adopting gimmicks such as Groupon-like daily deals and group purchasing. Easy-to-build storefronts from Payvment make sense. It should also be a leader in cross-category virtual currency for games and downloads.
  • Outbound syndication. MySpace wisely acquired viral music service iLike. But it needs more ways to spread content outside of its own site. It should copy, partner with or acquire GetGlue, a startup that offers Foursquare-like check-ins and badges for web entertainment content.

Who Should Care

With its young audience of entertainment consumers, the potential rebirth of MySpace is important to the following types of companies:

  • Entertainment marketers. This includes artists and managers, movie studios and theater chains, and TV networks. This is a base MySpace can hold onto.
  • Youth marketers. With proper sponsorship innovation and entertainment tie-ins, marketers like Coke, Pepsi, Aeropostale, Nike, etc. could open their advertising pocketbooks.
  • Ad networks. It’s not clear whether News Corp. will include MySpace ad inventory with the Fox online ad network it’s selling to optimizer The Rubicon Project.
  • Competitors. Facebook should have no worries; in fact, MySpace should adopt much of Facebook’s platform, and tie in tighter to its social graph. MySpace will compete with Yahoo, MSN and AOL for youth audiences.

Question of the week

What steps should MySpace take to make a comeback?