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Facebook and Google: lessons to learn from Myspace July 5, 2011

Posted by David Card in Uncategorized.
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Last week, News Corp. unloaded Myspace for a pittance. Understanding why Myspace failed to maintain its early dominance in social networking is critical to determining whether Facebook is similarly vulnerable, and whether Google+ is on the right track.

BusinessWeek’s cover story on the fall of Myspace blames the usual reasons: Rupert Murdoch lost interest, Myspace got a rep for sleaziness, it went through a crippling technology transition and users lost interest and migrated en masse to Facebook. Other critics fall back on the tired idea that Myspace’s do-it-yourself design led to garish personal pages that scared away mainstream users.

The real story? Myspace was done in by technology and business model failures that Facebook is explicitly countering. Google’s social strategy is less clear. Although Myspace embraced third-party developers’ apps and widgets, it never built out a robust technology platform of APIs and services they could use, let alone syndicate across other sites. And Myspace signed an initially lucrative advertising deal with Google that distracted it from cultivating relationships with “classier” advertisers instead of cheesy direct marketers, and from building out innovative social marketing programs.

Not every online media business has to be a platform, but an ambitious social network does, and it can’t ease up on the innovation pace. Myspace was never a very connected network: it focused on self-expression at the expense of communication and everyone “was in your extended network.” More like Geocities than Friendster, Myspace only recently adopted a feed-based UI.

In contrast, Facebook launched APIs early, syndicated them offsite with Connect, Likes and Comments, copied and/or acquired its feed – and pushed it, despite initial user resistance – and is a leading contender as a unified communications hub. Google’s first social technologies were flawed as platforms: Orkut was a standalone effort, Wave was too complex, and Buzz had no central viewing place or reason to participate. Now, Google appears to want its innovative, communications-oriented Google+ to gain traction among digerati users before it shows any APIs, but its distributed +1 Like-button wannabe has a better pitch for publishers (use it and improve SEO) than for users.

On the business side, Facebook has surpassed Myspace’s early lead in ad targeting, though it’s still highly dependent on low-priced cost-per-click advertising. But Facebook is building relationships with brand advertisers and agencies through an advisory council and social marketing test bed. Moreover, Facebook collects ad revenues and virtual currency fees from its apps ecosystem members, something Myspace never mastered.

Meanwhile, some of Google’s social impetus is defensive, geared to protect its paid search business by ensuring access to social “signals” for ranking search results. While it’s currently unconnected to Google+, YouTube counts as social media and is signing big deals with premiere advertisers and experimenting aggressively with video ad formats. Unlike Facebook’s social platform, Google’s search, maps and mobile platforms offer its ecosystem a ready-made revenue stream from Google’s ad networks, a boon for developer relationships and lock-in. Presumably, Google will offer that for its social platform. I’d give Facebook an A for its social tech platform and a B- for its social media business model. Google gets an incomplete on both fronts.

As for Myspace, it’s been acquired by Specific Media, a top-ten online ad network that already reaches 79 percent of the U.S., according to comScore. Myspace’s user information will be useful for Specific’s ad targeting, although Specific says it’s more interested in becoming a media company like Yahoo than in Myspace’s data. Myspace had some interesting ideas on curating entertainment content via professional and semi-pro editors – if Specific is smart, that effort won’t succumb to layoffs.

Myspace doesn’t seem poised to regain much past glory. Under Specific, it could survive as a low-cost, medium-sized entertainment portal. It still gets about 30 to 35 million monthly users in the U.S. and has fairly strong relationships with the music industry and Hollywood. If it works hard on sponsorships and can secure access to some entertainment exclusives, it may be able to overcome the baggage of its tarnished brand.

Question of the week

Why did Myspace fail, and what does that imply for Facebook and Google+?
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Handicapping Facebook’s Next Billion-Dollar Business(es) May 2, 2011

Posted by David Card in Uncategorized.
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Amidst reports that it was having trouble unloading $1 billion worth of shares at a very rich valuation, Facebook last week tweaked an existing advertising service and started testing its first home-grown social commerce product: Facebook Deals. Will that be Facebook’s next billion-dollar business? Possibly. But it already faces stiff competition from Groupon and LivingSocial, not to mention a new Google entrant. More importantly, other growth- and revenue-generating opportunities exist that could be worth exploration on the part of Facebook, too.

Let’s examine each of these potential new revenue streams.

Big New Businesses for Facebook

Facebook dominates social media and the advertising spending that surrounds it. The company makes its money from low-priced display advertising (estimated at nearly $2 billion in 2010) and the 30 percent commission it takes from social gaming companies using Facebook Credits for virtual goods (forecast to be $250 million in 2011). Its three best new business opportunities are:

  • Rich-media brand advertising: To get at ad budgets that need more than the low-priced display ads driving social networks, Facebook needs to offer brand advertisers big, rich-media ad units like those of the New York Times and AOL. If it’s worried about user resistance, Facebook could show the ad only once a day, leave it over on the nearly empty right-hand sidebar or even reserve it for Friday movie openings and holiday promotions. Other than Yahoo, Microsoft and AOL, no other site has inventory with the audience reach for this kind of advertising, which commands $30-plus cost-per-thousand pricing and is usually sold out. This one should be a slam dunk.
  • Deals and social commerce: Facebook’s toe is barely in the social commerce water — it’s testing Deals in only five cities, sourcing some of the offers from partners and not charging merchants anything yet. Facebook is differentiating its deals by not demanding they be deeply discounted, and focusing on more social, shared-experience offers like restaurant deals or concert tickets. Local deals require an expensive local sales force that Facebook doesn’t have. While the company can deal directly with national retailers and merchants that target locally — a good opportunity otherwise — most of them don’t make the kind of “shared experience” products mentioned above.
  • Connect-based ad network: Unlike most ad networks, which make do with remnant ad inventory scraped from the bottom of online publishers’ barrels, Facebook has access to ready-made, desirable space through Connect services such as its Like button, sign-on and comments. Even without getting into behavioral targeting, Facebook could show ads targeted by context just like Google’s AdSense network. For example, it could serve up a hotel ad in an online newspaper’s travel section. If publishers balk, and weren’t cowed by their need for the traffic that Likes generate, Facebook could always share a piece of the revenue.

Potential Partnerships

I’ve talked about Facebook’s need for brand advertising and its potential to create an ad network before, and this piece by Jason Calacanis and his Launch team also likes those two opportunities and tries to put a dollar figure on their near-term revenue. He also suggests Facebook do in-stream advertising, which I suspect Facebook would deem too intrusive and competitive with Like messages and other promotions. Other potential revenue streams? Facebook has never charged for company pages (it sells them ads), I’m skeptical that it could do search effectively, and it has been very selective about data licensing.

But it needs partners to tap into the three new businesses identified above. Companies like:

  • Microsoft, already working with Facebook on search, who could build the ad network. These days, however, Microsoft seems focused almost exclusively on search after outsourcing some ad network functions.
  • Gilt Groupe, whose Gilt City deals unit is part of Facebook’s trials. Unlike other deal companies, Gilt also is a retailer, which could open other social-commerce doors.
  • Other online ad technology companies that could help Facebook’s advertising platform. Those that do data mining (e.g., Experian, Audience Science, BlueKai) and social targeting (e.g., Lotame, 33Across, Media6Degrees, Rapleaf) may need to do direct deals with Facebook to accommodate potential privacy legislation.

Question of the week

What will be Facebook’s next billion-dollar business?