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Why Color Is More Than “Yet Another Photo-Sharing App” March 28, 2011

Posted by David Card in Uncategorized.
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Much of last week’s buzz surrounding the launch of Color was justifiably skeptical. The startup, after all, raised $41 million to enter a crowded space without a business model or customers, and many wonder whether the world really needs another mobile photo-sharing app. But two components of Color’s vision — implicit networks (connections created without user effort) and place/time tagging — extend far beyond photo-sharing, and make the company worth watching as a potential indicator of social media and data-mining trends.

The Color app for iPhones and Android lets users share photos in real time with other nearby photo-snappers. The sharing network is determined by proximity rather than by a user explicitly specifying who his friends are. Users are anonymous and all content is public.

Early reviews are pretty negative. Om writes that Color is attracting more attention from pundits than users because the app may not deliver obvious fun or utility. Matthew Ingram wonders if the big funding bet is on Color’s all-star team — which includes Bill Nguyen (Lala), Peter Pham (BillShrink) and former LinkedIn chief scientist DJ Patil — rather than its product or ideas.

But some of those ideas matter.

Implicit Networks

Angel investor and Hunch co-founder Chris Dixon says he’s intrigued by Color because it is pushing the envelope on implicit social graphs. Color’s implicit networks aren’t specified by users, but rather are based on underlying contexts like geography or shared interests. I’ve written before about context-based social networks, and how Facebook Groups is struggling to deliver them. Peter Yared, a VP at WebTrends, writes that Facebook is also experimenting with implicit neworks of friends.

If Color builds on its implict network concept it could deliver instant groups of friends for different occasions or interests, and expose recommendations based on common tastes. Marketers could target advertising or offers within a Color network to real-time groups around an event or location, or aimed by shared interests.

Place and Time Data

Search pundit John Battelle goes a little overboard on how Color could push augmented reality. But he’s right about the importance of geo-tagged data. In a presentation last week at GigaOM’s Structure Big Data 2011 conference, IBM Distinguished Engineer Jeff Jonas showed how adding place and time to data objects can power big data analysis, predicting a person’s likelihood of being at a give location with astounding accuracy, and assisting in identity management. Again, if Color is a leader in gathering this data, it could build out a powerful — yet still privacy-protected — targeted advertising network.

Business Model to Come?

Color chief Nguyen says the company is really about data-mining rather than photo-sharing. He says combining place and time data with implicit networks can help services or marketers parse the difference between entertainment and work activities. That information will affect the elasticity of Color’s networks — how broadly it expands or contracts its sharing range — and power its algorithms for ranking photos and, presumably, other content or advertising elements.

Nguyen also talks about a future news API that could spawn a curated news app for journalists. He describes a pretty dumb restaurant service that would help waitstaff know customers’ first names and interests. Before he sold Lala to Apple, reportedly for $85 million, Nguyen took the service through at least three different business models. Lala started as a CD trading service, morphed to a digital music locker, and then offered Web songs with perpetual streaming rights for ten cents each. With its talent and cash hoard, there’s no doubt Color will evolve as well.

Question of the week

Is Color more than just another photo-sharing app?
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Where Will Zynga Go Next? February 21, 2011

Posted by David Card in Uncategorized.
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Last week began with stories that social game maker Zynga was raising $250 million at a valuation north of $7 billion. By the end of the week, the company was close to raising twice that, at a $10 billion figure. But bubble talk aside, why would anyone think Zynga was worth that much?

“Gamification” is an early contender for this year’s buzzword, as companies apply game mechanics to businesses as diversified as media, shopping and job hunting. Zynga is the most prominent exemplar of social gaming. Bing Gordon, who used to head marketing for Electronic Arts and is now a Zynga investor, says Zynga combines four disruptions in one: social media, analytics, alternative payments and apps ecosystems. And Zynga may only represent the tip of the social gaming iceberg.

Why Zynga Dominates Social Gaming

Zynga says 45 million users play its social games on a daily basis. Building off Mafia Wars and poker, the company has delivered a consistent string of hits with franchise titles like FarmVille, and spun off even more successful sequels like CityVille.

Its games run primarily as apps on Facebook, where it dominates the apps charts. Zynga coexists successfully — if a little uneasily — with Facebook. When Facebook changed how games could access its news feed, Zynga had to find other customer acquisition tricks. Now it combines lots of Facebook advertising with aggressive cross-promotion. When Facebook required apps companies to adopt Facebook Credits as their currency system, Zynga integrated the one it had built for itself.

Another factor in Zynga’s success is its multiple revenue streams. Most of its estimated $850 million in sales comes from selling virtual goods like power-ups and farm critters. But the company is growing an advertising business based on sponsorships, and even has licensed accessories.

Competitors abound, but so far Zynga has fended them off. Disney has struggled to master social gaming even after acquiring Club Penguin, and traditional videogame leader Activision doesn’t want to get in the business. Electronic Arts does, via its Playfish acquisition, but only 20 percent of its revenues are online or digital.

What’s Next for Zynga?

Here’s what Zynga’s likely to do to maintain its momentum:

  • Expand its distribution channel: Zynga will add complementary channels to Facebook. It has signed up Yahoo and may be working on establishing its own site. A Zynga gaming hub would help in launching more mobile games and might even attract third-party studios.
  • Improve its advertising platform: Others are experimenting with offers as virtual currency “cash,” and Zynga hasn’t done much with in-game product placement. I’m skeptical that its customer data is useful for ad targeting yet, so an analytics play may require Zynga to deliver different styles of interactivity via quizzes, other entertainment formats, or shopping.
  • Create an affiliate network: if Zynga creates a gaming hub, it could achieve and track that needed variety of activities. Likewise, its virtual economy could embrace other kinds of goods, both digital (music, books, videos) and otherwise (offers, affiliate e-commerce, coupons).

How Others Can Respond

Social gaming has moved beyond critical mass into mass-media territory. There’s room for innovation from Zynga competitors like the gaming companies named previously, as well as companies like Google, MySpace, and others:

  • Without a hub, Zynga has to rely on advertising and cross-promotion. Consumers recognize the brands of entertainment titles and artists, not studios  — aside from Disney. That means others can build hubs, and/or use Zynga’s own distribution tactics.
  • Unlike previous online casual games, social gaming attracts both genders. Besides poker, there should be social gaming genres that appeal to hardcore-gamer guys but aren’t World of Warcraft. How about fantasy sports on social networks?
  • Likewise, someone should aggregate other time-wasters, and perhaps specialize them for women. GetGlue’s check-ins for watching TV shows, movies, and music could play here. And LivingSocial is missing an opportunity to integrate daily deals with its Facebook apps like Visual Bookshelf.
  • SCVNGR and, to a degree, FourSquare, mix location-based services with games around collecting things and leaderboards. They should add more rewards and loyalty programs, and explore other gaming experiences, like gambling and multiplayer competition.

Question of the week

How can companies compete with Zynga?

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?

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?