How Mobile and Real-Time are Helping Maximize Revenues and Utilization

Yesterday an interesting set of announcements hit the tech world that highlighted some of the early successes start-ups are seeing in helping businesses maximize revenue opportunities and service utilization.

  • Overnight, Uber, a provider of high-quality, on-demand car service officially announced the availability of is service in a second city- New York.
  • Then Gigwalk, which turns iPhone users into an instance mobile workforce announced that it had exited its beta period and raised $1.7 million in seed money in the process from an all-star list of early-stage investors.
  • Finally TaskRabbit, which offers a marketplace for people to outsource their errands announced its own $5 million Series A funding round to help expand its service beyond Boston and San Francisco.

Each of these companies is attempting to apply the same concept behind peer-to-peer computing projects, such as the search for alien life forms, in utilizing available bandwidth. But instead of leveraging unused computing power, these start-ups are leveraging excess capacity in service-oriented businesses. For any type of service business, time not allocated or used to generate revenues are opportunities that are lost forever, just like when an airplane takes off with empty seats on it. In the case of Uber, the company is trying to alleviate this problem by matching professionally licensed drivers who have idle time while at work with new, short-term, fare opportunities. Meanwhile Gigwalk is pairing people with availability in a specific location with large corporations that need specific, once again short-term, tasks completed in that area. In the case of TaskRabbit, it’s allowing consumers who have free time on their hands to run errands on behalf of other consumers who don’t.

The opportunity to provide a service and generate revenues in a given period of time isn’t limited to these types of jobs though as other capacity-based service industries are benefiting from real-time yield maximization as well. Daily deal service LivingSocial has already tested its Instant Deals in D.C. offering lunch at participating restaurants for $1.00, while industry leader Groupon is developing a similar service called Groupon Now that enables restaurants, spas, and other retailers to drive business to their establishments through the use of real-time incentives. This makes perfect sense when these service businesses are not operating at full capacity. Taking the same concept of driving utilization through discounts, Hotel Tonight has launched a mobile app for booking same-day hotel rooms in a number of cities across the U.S.

The underlying enabler of all of these start-up services is the smartphone. Without the ability for consumers and service providers to communicate in real-time based on one or both parties’ location and availability, the opportunity to match the two entities wouldn’t exist. This would leave service providers without a way to generate additional revenues or complete certain projects in real-time and consumers without a way to benefit financially- either through service discounts or by generating additional income for themselves. The economic potential for retail and capacity-based services will only grow as smartphones and tablets become more ubiquitous and enable new business opportunities and economics to be created around simple, short-term, service-oriented tasks.

I’m excited to see what other service industries (airlines, data collection in the real world, movie theaters, tourist attractions, etc.) will benefit from start-ups that can help bridge the gap between existing sales opportunities and maximizing a service providers revenue potential by creating what are essentially real-time exchanges for specific services. For established service industries, there will always be a market for start-ups that can bring new revenue opportunities to the table. For entities willing to pay consumers to perform services on their behalf, the key will be to make the task short and easy to complete to attract the widest applicant pool for these jobs.

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Android: Winning the Smartphone Battle, But Losing the Mobile OS War

Earlier this week I received a long-awaited text message from Verizon Wireless notifying me of a credit I had available towards a new phone if I renewed my contract for another two years. After 9 ½ years of BlackBerry devices (my first BlackBerry actually ran on the Mobitex network, for the old-school mobile-types out there) I’m ready for a change. With a relatively paltry selection of native apps and a mobile web surfing experience reminiscent of dial-up internet access circa 2000 the question I’m left with is which smartphone do I go with- one from Android or Apple?

With the Android-based Motorola Bionic delayed until the second half of the year and rumors of the iPhone 5 shipping anywhere between September and the next year, the immediate decision seems to come down to whether I should get the 4G LTE network-enabled HTC Thunderbolt or iPhone 4. But is this the real question I should be asking myself?

The speed of Android’s rise to prominence in the U.S. smartphone market has been nothing short of amazing, growing from a 9% market share in February 2010 to 33% in February 2011, vaulting Android’s operating system from 4th to 1st place in the process according to comScore. Over that same period of time Apple’s U.S. smartphone market share has stayed flat at 25%. This had led to people like venture capitalist Fred Wilson of Union Square Ventures to suggest that developers should build for the Android operating system first.

What Fred’s analysis, this market share data and my question fail to address though is the broader market dynamics of mobile. The battle everyone is focusing on is Android versus iOS smartphones- and why not? With 70% of the U.S. still using feature phones, according to the same comScore data, the market opportunity for smartphones remains massive. Even so, the war between Apple and Google is actually taking place at a much broader level, as decisions made by consumers like myself and developers alike will decide who the eventual market leader will be for the entire mobile operating system (OS) market- not just smartphones.

While Android might be winning the smartphone market share battle, it’s at the mobile OS level that iOS holds the advantage over Android. Google’s primary market for distributing its mobile OS is the smartphone via HTC, Motorola, Samsung and other handset manufacturers. Apple on the other hand distributes iOS across three markets through its own devices- handheld entertainment devices (via the iPod Touch), smartphones (iPhone) and tablets (iPad). Because of this Apple’s outlook is much broader in scope- to get its other iOS devices into the hands of the 80% of the market (70% of the feature phone users in the U.S. plus the 1/3rd of the smartphone market not on Android or Apple smartphone) not using an Android or iOS smartphone. By getting consumers to purchase an iPad or iPod Touch, Apple can create a barrier to entry for Google through high switching costs.

With every app install, especially paid ones and those that can be used across device types, consumers increase their switching costs for leaving Apple’s ecosystem. So when the time comes for iPad and iPod owners to upgrade their mobile phones, the iPhone is the natural choice since these users are already familiar with Apple’s App Store and iOS user experience. With the iPod’s market share pegged at 70% of the digital music market last year according to NPD and iPad’s at 85% of the tablet market in 2010 according to ABI Research, Apple has a huge advantage over Google in getting consumers onto its mobile OS platform through these types of devices. As iPod sales begin to decline though, the growth in iPad sales will be the key complimentary product in Apple’s effort to gain market share in the smartphone market.

According to a different study released by comScore earlier this week, there is evidence to corroborate iOS’ network effect for Apple in the U.S. iOS’ reach is 59% greater than that of Android when you combine iPad, iPhone and iPod users. This translates into approximately 38 million iOS users overall in the U.S. versus nearly 24 million Android users. More importantly though, in looking at iPad sales specifically, BlackBerry users account for the second highest percentage of iPad owners, behind iPhone customers, followed closely by Samsung and LG. This represents a great opportunity for Apple to convert these users into iPhone customers once their contracts are up or they ready to switch to an advanced smartphone. Update: comScore just released a similar study for the European market showing Apple’s reach being 116% greater than Android in France, Germany, Italy Spain and the UK- albeit on a smaller user base (29 million consumers) than in the U.S. As it relates to iPad adoption, Nokia users closely follow iPhone users in iPad ownership, providing Apple with a huge opportunity to take market share from the largest mobile handset manufacturer in the world.

So how can Android better compete with iOS at the mobile OS level?

  • First, Google needs to nail down agreements with the music industry’s four main record labels in order to launch its cloud-based music competitor to iTunes. This will allow manufacturers to create devices that can finally compete with the iPod and eliminate the biggest feature advantage of the iOS platform.
  • Second, Android tablets need to be synched with the smartphone’s OS platform. The Motorola XOOM, which launched with much fanfare towards the end of February as the first real competitive threat to the iPad (after winning Best of Show at CES in January), seems to have come up short. Sales of the tablet have been estimated at 100,000 devices in its first 5 weeks on the market compared to the iPad which sold 300,000 devices its very first day and nearly 5 million devices in the just announced second quarter. By running a newer and completely different version of Android than its smartphone siblings (Honeycomb 3.0 versus Android 2.0 thru 2.3.3) the device hasn’t been able to leverage apps from the smartphone Android Marketplace. According to Apple’s COO Tim Cook a fragmented ecosystem where Android tablets have less than 100 apps to choose from while iPad customers have 65,000. Without a cohesive OS platform across device types, Android will lack the switching costs afforded to Apple’s OS ecosystem.

For developers, the 189 million cumulative iOS devices sold through the end of March 2011 represents a huge market opportunity. Add in ease of monetization and payment mechanisms in addition to a formal app discovery process that is still lacking in Android’s marketplace, you can see why companies like Color and Instagram chose to launch in the iOS App Store first and why there continues to be more apps available for iOS than Android even though Apple has a more stringent app vetting process.

As for myself, the decision was easy once I took a step back and looked at the broader mobile OS ecosystem options. Even though I already owned an iPod Touch, I’ve decided to go with iOS primarily because I was planning on picking up a new iPad in the first place. So by default, the iPhone it is for me. With three different types of devices being tied to iOS when it’s all said and done I will be Apple’s ideal customer. The only question I have left? Do I wait for the white iPhone.

Apple’s Game of “Heads I Win, Tails You Lose”

Remember as kids when you were given the know-how to always win at coin-flips? By uttering those 6 simple words “heads I win, tails you lose” you were able to set-up the rules of the game in a manner that seemed fair, in that it provided an outcome for both participants, but always resulted in you being the winner of the coin-flip and your opponent the loser (until of course they realized what was going on).

This is essentially the game Apple is playing in the tablet market right now. The company, which launched the industry with the unveiling of the iPad last April, has yet to see a truly competitive offering after selling 15 million iPad units in 2010. The only notable rival last year was Samsung’s Galaxy Tab. This Android-based tablet, which launched in November at a slightly lower price point than the iPad but at the expense of comparable features (smaller touchscreen display and less internal memory though it does include front and rear-facing cameras), has not met sales expectations.

The Motorola Xoom, which gets released today, is expected to be the first viable alternative to the iPad after winning Best of Show at CES in January. This device comes equipped with Android’s tablet-specific Honeycomb operating system and hardware specs to match current versions of the iPad, with the addition of memory expansion capabilities and front and rear-facing cameras, but accomplishes this at the expense of price (higher compared to iPads) and app offering (a handful versus the iPad’s 60,000).

In both of these instances, a trade-off between product and price had to be made by the manufacturer. To compete on price, Samsung had to sacrifice on product (i.e. screen size and memory). To compete on product, Motorola had to give on price (i.e. be more expensive). Throw in research that shows the iPad has 90% awareness among consumers, and you can see why tablet manufacturers must beat Apple on both product and price to beat the iPad.

Heads Apple wins, tails tablet manufacturers lose.

While Apple competitors might be able to match, or even exceed the design and hardware capabilities of the iPad at some point in the future, doing so at a lower price point would be challenging. Apple understands their strategic price advantage and is continuously looking to expand on it.

Case in point- based on iSuppli’s research, the single most expensive component in the iPad’s manufacturing process is the touchscreen display. So it’s no surprise that Apple revealed on its most recent earnings call that it has made long-term financial commitments of $3.9 billion dollars with three suppliers believed to be display providers. If correct, this means Apple would control 60% of the global touch panel capacity according to Taiwanese industry website DigitTimes. Controlling this amount of supply would have two major effects on the tablet market as (1) it would lock in favorable pricing and predictable supply for Apple going forward in manufacturing future versions of the iPad and (2) create supply constraints and pricing pressure on tablet manufacturers.

Once again, heads Apple wins, tails tablet manufacturers lose.

The concept of vertical integration is nothing new to Apple which acquired Intrinsity last year, a semiconductor chip design firm responsible for developing the iPad’s original A4 processor, in an effort to bring the skills and development costs in-house. This became another component cost advantage over the Motorola Xoom which leverages NVIDIA’s Tegra 2 for its processor.

With Apple’s event next week expected to showcase the next iteration of the iPad, which should once again place the product’s feature set ahead of its competitors, the question to Android, Tablet OS and WebOS tablet makers is: want to flip again?

Photo credit: Algie Moncrief/Flickr

Mobile Video: The Final Frontier for Ad Networks?

Earlier this month TechCrunch broke the news that mobile video ad platform Transpera had been acquired by online video ad network Tremor Media. The deal came almost exactly three months after Tremor’s last transaction, the purchase of video ad network ScanScout. The Tremor-ScanScout merger was part of a string of announcements in the online video ad space last fall which began with top 10 online display advertising network Specific Media acquiring video ad platform BBE and ending with another leading ad network, Undertone, buying Jambo Media, a video solutions company.

With advertising a major theme at last week’s Mobile World Congress in Barcelona could this latest Tremor news set off the next round of capabilities expansion and provider consolidation amongst ad networks?

With online video projected to grow 55% annually through 2014, making it the fastest growing online ad format worldwide, it’s easy to see why there’s interest from both traditional display and pure play video ad networks in acquiring online video market share. Looking at recent industry trends and projections, mobile video might be poised to follow this same type of growth trajectory, creating a similar opportunity for ad networks looking to provide cross-platform digital ad solutions to agencies and advertisers.

  • Devices: Worldwide smartphone shipments passed PCs in total volume for the first time in the 4th quarter of last year while tablet shipments, led by Apple’s iPad, are expected to reach nearly 56 million this year and 172 million by 2014.
  • Network Traffic: In Cisco’s Visual Networking Index Forecast, updated this month, the company predicted that, by 2015, two-thirds of all global mobile data traffic would be video.
  • Advertising: Mobile ad spending is projected to exceed $18 billion worldwide by 2015, representing over 15% of digital advertising’s spend. While in the U.S. video is expected to continue growing faster than any other mobile segment through 2014.

Together, these data points confirm that the PC-based era of the web has been officially replaced by the mobile web, which consumers are already taking advantage of through the proliferation of mobile device types. According to The Nielsen Company, Americans, led by teens and young adults, watch an average of 3 ½ hours of video a month on their mobile devices. To understand just how quickly video consumption habits are evolving look at YouTube’s announcement last month that it has reached 200 million video views per day on mobile devices- an increase of 300% over the beginning of 2010.

Media companies and marketers are looking at ways to quantify this audience in aggregate in an effort to bring advertising economics to parity across all “three screens” (television, web and mobile). This represents a big opportunity for ad networks willing to put forth the technical and execution effort to target mobile audiences fragmented by app-type (mobile web versus native apps), device (smartphones versus tablets), operating system (Android, BlackBerry, iOS, etc.) and ad unit interactivity (passive versus touch-screen).

Because ad guidelines and standards for the mobile web are still maturing in comparison to display and online video, ad networks interested in entering the mobile video space would benefit from acquiring video delivery expertise and an embedded distribution network. Any M&A activity would involve one of these three types of acquisition strategies:

  1. Buy capabilities and market share: This tact was used by Specific Media to enter the online video market by acquiring a top 10 video ad provider and instantly gaining reach. If leading online video advertising networks BrightRoll and YuMe, which launched their respective mobile advertising solutions last fall, don’t see adoption of their offerings, they might be forced to take this route in order to match Tremor Media’s cross-platform scale in video. From the display advertising perspective, only Microsoft and Yahoo as well as the largest ad networks will be able to afford this type of acquisition due to lofty valuations in mobile and video.
  2. Buy capabilities, leverage market share in current business: Undertone took this route by leveraging its own scale on the display advertising side with its video technology purchase to become a top 10 online video ad provider of its own within a couple of months of the acquisition. This is the most capital efficient way for any ad networks to enter the mobile video business, though acting quickly will be the key to successfully executing this strategy due to the limited number of acquisition options and venture capital being invested in the segment.
  3. Extend capabilities and market share: As for Tremor Media, already a leader in the online video advertising space, its deal allowed the company to add product expertise (video overlay ads) while growing its reach and video ad volume. Millennial Media, the largest independent mobile ad network which raised $27.5 million earlier this year, and has raised $65 million overall, is the best positioned mobile ad network to take advantage of this strategy due to its profitability, exit options and capital on hand.

While Google bought its way into a dominate position in the U.S. mobile advertising market (including interactive video ad capabilities) with its purchase of AdMob last year, the growth of YouTube’s mobile website has allowed Google to become a cross-platform provider of mobile video monetization solutions. Apple on the other hand used its acquisition of AdMob competitor Quattro Wireless to build the iAd Network solely for its own mobile operating system (iOS). With two of the largest ad networks having been acquired by the two leading mobile operating platforms what merger opportunities still exist in mobile video advertising?

  • JumpTap: The company added video to its suite of mobile ad formats last year in an effort to broaden its appeal to clients. JumpTap, which delivers ads across all major smartphone platforms (Android, BlackBerry and iOS) as well as the iPad, is considered the largest independent mobile ad network in the U.S. after Millennial Media. As such, the company will most likely have to wait and see what happens with Millennial (which will either go public or get acquired) before drawing interest from the likes of Microsoft, Yahoo and potentially Research in Motion (maker of BlackBerry) who have all been rumored acquirers of a mobile ad network and the only companies large enough to digest JumpTap’s $69 million in capital raised.
  • Mogreet: The company provides mobile video advertising solutions through SMS and MMS mobile messaging services, allowing Mogreet to address the feature phone audience as well. Considering the limitation of their offering, especially when you consider the growth of the smartphone and tablet markets, and the $7 million invested in the company thus far, an acquisition of this company would be a stretch for a U.S.-based ad network but maybe not for a network in a large developing market such as Brazil, India, Indonesia or Russia where feature phones dominate the market.
  • Rhythm NewMedia: From a pure play mobile video ad network perspective, Rhythm NewMedia has built the most envious, cross-platform network out there of the remaining independent players. The company, which recently raised $10 million, only works with premium brand advertisers and publishers across Android and iOS mobile platforms covering both smartphones and iPads. Having raised $37 million in total funding makes Rhythm a pricey acquisition for anyone not named Microsoft or Yahoo at this point though.
  • Vdopia: While the company is an online video ad network with extensive operations and market share in India, it also operates iVdopia, a mobile video ad network. Its mobile offering covers both Android and iOS platforms (including iPads) as well as mobile websites. Claiming it has reached profitability, and with only $4 million raised, Vdopia would be a prudent acquisition for an online global ad network.

Beyond these mobile video ad companies there are several other start-ups that focus on providing rich media advertising solutions for smartphones, tablets and the mobile web that could provide the framework for a video offering for ad networks interested in getting into mobile video. Greystripe which focuses on rich media banner ads primarily for the iPhone, while supporting Android  and Java feature phones as well, has raised the most venture capital of the group ($18 million), followed by Medialets ($10 million) and Crisp Media (at least $5 million). Greystripe’s strength is in its ability to transcode Flash ads into HTML5 in order to support Apple’s Flash-restriction on iOS devices. Both Crisp Media and Medialets, neither of which are an ad network but instead earn revenue from serving rich media ads to mobile devices, do provide video ad solutions for both smartphones and tablets. The biggest challenge facing these companies will be potentially pricing themselves out of the M&A market if they continue to raise capital. Based on this, Crisp Media might be an ideal technology pick-up for an ad network with a strong client-base and distribution network.

With the display inventory component of mobile advertising already being automated through demand side platforms like DataXu and real-time bidding exchanges like Mobclix, mobile video might be the last digital ad segment where ad networks can extract additional margin out of the industry through ad effectiveness and audience scale. Perfecting the online and app video experience will be important beyond just mobile as internet television, the next great digital ad opportunity, will leverage these advertising frameworks for its own platform monetization. As agencies begin to provide digital services at global scale to their advertising clients, ad networks that can deliver audiences across devices and digital formats, at scale, will garner the lion’s share of ad campaign dollars coming from these agencies going forward. To accomplish this ad network’s need to boldly go where most networks haven’t gone before.

Photo credit: fdecomite/Flickr

Facebook’s Effect on Consumer Internet IPOs

Regardless of whether or not you believe in the long-term viability of Demand Media’s content creation platform (more widely referred to as a “low-cost content farm”), one thing is certain: there is a healthy demand for consumer internet stocks. Having priced its offering above the expected range of $14 to $16 per share last week, Demand Media (trading under the ticker symbol DMD on the New York Stock Exchange) ended up 33% on its first day of trading, valuing the company at $1.5 billion- the highest market capitalization for an internet company since Google’s IPO in 2004. Neither the company’s questionable account practices around how it amortizes its content costs, nor Google’s announcement that it would take stronger action against low quality content sites and content farms (which could also include the ability for consumers to blacklist these domains) appearing in search results seemed to dampen investors’ appetite for the stock (according to Demand Media’s S-1 filing, Google made up 28% of the company’s revenues in the first 3 months of 2010).

So why does this matter?

Investing beyond Facebook

Interest in stock of consumer internet companies needs to exist beyond just Facebook for the overall health of the capital markets. Facebook, which recently confirmed that it had raised $1.5 billion in an oversubscribed round led by Goldman Sachs that included $1 billion from non-U.S. clients, will most likely not file for an IPO until the end of April 2012 when it has to begin disclosing its financials to the public due to the company exceeding the 500 shareholder threshold this year. Investors are left with the decision to either wait for Facebook’s offering or participate in the overall growth of the consumer internet sector by buying into other companies” IPOs. Even if Demand Media is a beneficiary of pent-up demand for Facebook stock, the fact that investors are buying up shares in the open market is a positive sign, especially for the likes of LinkedIn (which filed its registration statement the day after Demand Media went public) and Skype (which has already filed its paperwork and is expected to go public in the 2nd half of this year) which have healthier overall financial profiles than Demand Media.

Market opportunity validation

The phrase “a feature not a product,” which has been attributed to friend and venture capitalist Chris Fralic of First Round Capital as it relates to investing in start-ups, is a concept than can be extended to evaluating potential IPO candidates as well. Over time, the public markets are the most effective way to determine whether an entity is “a product line not a company”. The consumer internet, like other sectors, needs public companies to validate whether or not capital being deployed by venture investors in a particular sector is warranted or not. The validation comes by way of each company’s financial performance and associated market capitalization as well as that of the entire sector- public data points that do not exist in tandem in private companies (even though secondary markets do exists for shares of private company stock, in companies such as Facebook, LinkedIn and Zynga, there is no accompanying financial disclosure requirements as with public companies).

It’s this market validation that keeps venture capitalist investing in start-ups that compete with Google in search for example, even though the company holds an ever-increasing grip on the U.S. search market. AdWords, Google’s  search advertising product, represented the majority of the nearly $20 billion in revenues the company earned from its own websites in 2010.  The validation of search advertising’s market size by Google enables companies such as Blekko to raise $24 million in funding even though their goal of reaching third place in the search business sounds modest, though worth billions of dollars in revenues.

Acquisitions, which are a much more common type of liquidity event for start-ups, don’t provide the same type of market proof because they are completed for a variety of reasons, some of which are not purely economic or accretive to the acquiring company (i.e. acquiring companies for the talent, for access to a particular customer or as a defensive measure against a competitor).

Business theory versus reality

Whether Demand Media deserves to be worth more than the New York Times makes for entertaining debate (especially after it was revealed that the New York Times almost bought into Demand Media over three years ago), but it misses the point. What Demand Media’s public offering is really about is whether or not the theory behind the internet being a more efficient, scalable way to do business is a reality for the content creation business. If Demand Media can prove skeptics wrong and build a sustainable, profitable business as an online media company, it will open up opportunities for other pure-play online media companies such as The Huffington Post to go public and keep venture capitalists investing in the sector.

With Facebook’s revenues on track to exceed $1.5 billion and net income to reach nearly $500 million in 2010 investors are correct to anoint the company the darling of this consumer internet class as Facebook’s financials and growth story far exceeds anyone else’s in the industry (Groupon doesn’t factor into this conversation because it is an e-commerce company). In the process Facebook has also validated the business opportunity around social networking, which LinkedIn will benefit from in its upcoming IPO. For Skype, which provides a different type of social communication utility, their public offering will put one of the most often  used business models existing on the internet today to the test, the “freemium” model, along with trying to fulfill on the business promise of paying for communication over the internet (which Vonage never really was able to accomplish). The success or failure of Skype’s business model of charging consumers for only premium services and giving away the rest for free to users will have a major effect on start-up funding across the entire consumer internet sector going forward.

With the countdown to Facebook’s inevitable IPO having already started, the company  has indirectly provided other private consumer internet companies with a chance to leverage the demand and go public themselves (granted  they meet some of the traditional financial metrics of approximately $100 million in revenues and profitable). This is a short-term opportunity though as companies that are able to complete their IPOs in the months before Facebook goes public or starts disclosing its financials should do so to benefit from the investor appetite for consumer internet stocks but do it far enough in advance to not be drawn into direct comparison to Facebook’s financial success. In addition to the aforementioned companies, several start-ups that have benefited directly from the success of Facebook’s platform over the past several years, namely Buddy Media and Zynga, could benefit further from the Facebook effect by going public in 2011.  The clock is ticking.

Photo credit: David Kirkpatrick/The Facebook Effect

Game Time for Foursquare

When Facebook Places launched in August, the media wasted little time in calling game, set and match on Foursquare and its location-based social network (LBSN) brethren. With over 500 million users, the theory went, Facebook would become the most popular check-in service due to its sheer size alone. While Facebook hasn’t released any initial stats regarding the number of users or check-ins being generated through Places thus far, personal and anecdotal experiences from early tech adopters suggests the uptake hasn’t been significant. Having survived the unveiling of Places by growing its own user base from 3 to 4 million users in less than 2 months, and with plenty of money in the bank, Foursquare has a shot at growing beyond its early-adopter community and becoming a mainstream network. So how does Foursquare become the next Twitter and not end up like Friendster?

Make A Few Enemies (If You Want 500 Million Friends)

The launch of Places was a direct shot at Foursquare by Facebook. To return the favor Foursquare should go after Facebook’s core audience of college students (something I suggested to Foursquare CEO Dennis Crowley in a conversation last year). Beyond revenge, this actually makes a lot of sense if you remember that Facebook’s success was built on its ability to capture the college crowd before opening up to other audiences.

Considering that (1) with 165 million Facebook users in the U.S. alone there is bound to be some backlash by young adults against parental “friending” as well as overall loss of interest in the platform and (2) Foursquare’s raison d’etre is to help people find new things to do in cities, Foursquare can offer college users a unique experience. Students who already use Facebook now have the chance to create a new, curated social graph based on people they want to interact with socially- and one that doesn’t include their parents. By leveraging Foursquare’s discovery element, which the company has started rolling out across several campuses with the launch of Foursquare for Universities, students can develop relationships based on sharing new experiences.

The result is the creation of a real social network- one that occurs in the real world and not just online or through social games. Facebook is accurate in not calling itself a social network as it operates more like an ambient network- one that allows people to communicate and interact with their accumulated social graph from afar. Because Foursquare’s purpose is to enable face-to-face social interaction it has the opportunity to become the place where your real friends are– i.e. people who you’d actually want to grab a drink or hang out with if you knew they were nearby. This statement can’t honestly be made by anyone trying to socialize beyond Dunbar’s number on Facebook. Time will tell if Facebook’s just announced Groups rectifies this situation or is too cumbersome for average users to implement. If not, they can resort to playing dirty by enforcing their newly granted LBSN patents.

Show Me The Money (Or At Least a Discount)

Not to be lost in the social aspect of Foursquare’s service is the underlying business opportunity. While Mayor-ships and virtual badges have been the drivers of Foursquare’s early successes, to a maniacal level in some instances, I agree with early stage investor Dave McClure, though not in such eloquent terms, that game mechanics will only take LBSN’s so far and that tangible financial rewards are how these networks can turn into more mainstream services.

That’s not to say that Foursquare should abandon its game mechanics. In fact the social activity driven through these features of Foursquare’s service should be leveraged by local businesses because these mechanics can create the right type of incentive structure. Local merchants are eager to tap into in-discretionary spending habits (especially those of college kids), but in a cost efficient manner that creates loyalty beyond just the initial lead generation. In the same breadth, consumers are interested in deals at local establishments- especially promotions they can opt-in to. That’s where leveraging Foursquare’s Swarm Badge to drive group participation makes sense.

The concept around Swarm Parties, in which businesses offer discounts to customers once a minimum number of users have checked-in on Foursquare in a given time period, has proven to be effective in increasing sales for local businesses in both the U.S. and overseas. This hasn’t been lost on the likes of recently launched GroupTabs which is looking to provide group discounts for local merchants by combining the check-in features of Foursquare with the deal incentives of Groupon. While Groupn itself has shown how effective it can be in driving one-time sales for local businesses it does also have its drawbacks. Foursquare can help businesses foster the long-term loyalty with consumers that is missing from Groupon-type offerings by helping merchants create incentives that can exist beyond virtual badges. This could include leveraging relationships merchants already have with consumers through loyalty cards, which CardStar is already doing by integrating Foursquare into its service, or creating new reward structures based on check-in frequency.

Find Other Ways to Help Users Grab Life… (And Experience New Places)

Beyond group incentives, Foursquare needs to find other ways to be useful to users and businesses in discovering one another. The recently launched “Add to My Foursquare” button is a great way to transfer an individual’s web-based interest in a venue, by adding it to their Foursquare To-Do list, into an actual visit to the physical store when they check-in nearby that business. Beyond web surfing, Foursquare’s recommendation engine, which is still being tested, could offer search engine-like opportunities for users to find, and merchants to pay to promote, businesses based on matching users’ check-in activity with potential interests. Combined these capabilities can not only enable better discovery and thus socialization opportunities for current users but also act as a starting point for new users who don’t have a check-in history but want to benefit from the wisdom of the local crowd.

Foursquare’s ultimate success, in addition to keeping the service up-and-running, will depend on its ability to create tangible benefits for its current users, before they start losing interest, while simplifying the value proposition for mainstream Facebook users to understand and start using Foursquare. If not, companies like Google Ventures-backed SCVNGR, which now has 500,000 users of its own, has the pieces in place to compete with Foursquare through its own brand relationships, university outreach program and group-buying functionality, are waiting in the wings to take on Facebook Places.

Ball’s in your court Foursquare. I’m rooting for you.

Photo credits: Dunny/WeeklyShot, The Social Network/Columbia Pictures, Jerry Maguire/TriStar Pictures and DodgeBall/20th Century Fox Film

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How Online Advertising Ecosystems Evolve and the Death of the Ad Salesman

 

Last week Clearspring Technologies [disclosure: I used to work there] publicly announced its new direction as an audience buying platform, leveraging the widespread distribution of its AddThis social sharing tool (which I include at the end of each of my blog posts) to aggregate intent-oriented data from keyword searches performed by web users (AddThis accomplishes this by capturing search query information contained in the referring URL string when a visitor lands on a web page where the tool is embedded). Search re-targeting has become a big driver in the growth of data-augmented display ad campaigns this year as advertisers look to find consumers that exhibit particular characteristics across the web versus targeting visitors to a particular website based on traditional geographic and demographic parameters. The incorporation of data into online advertising has been greatly aided by the creation of self-service platforms that allow advertisers and their agencies to define their audiences and buy access to these users, as well as the accompanying ad inventory, in the process.

These platforms are able to bring efficiencies to the demand side of the of the equation by automating components of the online display advertising ecosystem, something that wouldn’t have been possible without the standardization of display advertising units (which the IAB has achieved by defining such things as ad unit pixel dimensions, file weight and animation length). Without this type of inventory standardization neither the evolution of ad networks, ad exchanges and now demand side platforms (DSPs) would have never occurred, nor the ability to leverage data sources like Clearspring when buying online ad impressions.

This type of evolution hasn’t only been limited to the online display market though.  The IAB began the process of standardizing video advertising in online video players two years ago, creating guidelines that enabled online video ad networks to emerge. These specifications have matured enough to enable the likes of Adap.tv and BrightRoll, who coincidentally enough is a major video ad network itself, to launch video ad exchanges in an effort to bring efficiencies to the scale already available through these video ad networks. On the heels of launching BrightRoll Exchange (BRX) last week, BrightRoll announced this week that it will be leveraging search data from Magnetic to allow video advertisers to re-target audiences across the BrightRoll Video Network as well as BRX in the same manner they do with display advertising today.

As you can see the online video advertising market is following a very similar path as online display advertising has in its maturation- leveraging ad unit standardization to bring scale to the industry, which in turn has led to platforms being launched in order to bring efficiencies into the marketplace and incorporate data to enable audience targeting at scale- albeit in a much more condensed time line. Where online video advertising trails display advertising in delivery effectiveness is in the nascent state of its exchange marketplaces and integrations with DSPs and data sources, which should both evolve rapidly over the course of the next 12 months.

Based on this pattern, mobile applications should be the next advertising segment to follow this evolution as mobile ad networks focusing on the Android and iPhone platforms have proliferated. The biggest thing holding back the mobile application advertising industry from further efficiencies is ad unit standardization as the IAB is not yet willing to go down that path, only providing best practices as of yet.

This automation and scale being brought into buying online advertising inventory has started coming at the expense of ad sales people. Case in point, in June the Fox Audience Network disclosed that it would be laying off 5% of its staff, all from direct online ad sales, as a result of the success the company was seeing from the self-service display advertising part of its ad network business. So is there a future for ad sales people in online advertising or will they be a casualty of efficiency like blue-collar line workers of the industrial age?

To survive and thrive, ad sales people need to re-orient their thinking from selling impressions to creating experiences for brands and advertisers that focus on two core concepts: integration and social. Integrated campaigns enable advertisers to achieve higher engagement and mind share than through individual ad placements. In traditional display advertising this can be accomplished by implementing branded skins into websites or sponsoring sections of content. In video this might mean product placement in episodes or storylines and for mobile it might involve sponsoring the give-away of previously paid apps or premium features. The key is subtly associating the advertiser with the site and content so as to create a positive connection versus an annoying one elicited by standard display and pre-roll video ads.

In terms of social, I’ve previously written about the lack of innovation in online advertising since its advent 15 years ago and that the focus should be on creating socially-oriented ads (since social networking is what most web users are spending their time doing online these days). Developing ways for users to interact with and provide feedback on ads in real-time as well as leveraging a web property’s user base to collaborate in the creation of campaigns, which I’ve also written about, creates engagement because the users who participate have a vested interest in the outcome- just ask the Old Spice Guy.

Regardless of finding the right experiences to drive success for advertisers, ad sales people need to evolve ahead of these online advertising ecosystems or they will end up like Willy Loman.

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Rise of the Event-Based Social Networks

With interest in location-based social networks (LBSNs) hitting an all-time high with Foursquare’s recent funding announcement valuing the company at $115 million, a new type of social networking has emerged that borrows some of the mechanics and incentives from location-based services: event-based social networks (EBSNs). While LBSN users notify their personal networks where they are physically located by “checking-in” to the service, earning virtual badges in the process, EBSN users earn their virtual rewards by identifying themselves to other attendees and participants by also using check-in mechanics, but without having to actually be physically present at the event.

We see from studies and personal experiences that recommendations from social networks do influence our television viewing habits. Combined with the abundant, on-demand nature of information available on the internet today, it’s easy to understand how the changing content consumption habits, from the ‘day after’ to the ‘day of”, have affected the media industry. While much of the demise of print news media can be attributed to these changing habits (and nowhere better explained than on The Daily Show with Jon Stewart), it has actually had the opposite effect on live television event broadcasts.  Here is audience data from some of the most widely-known sports and entertainment events from this year that were broadcast live:

  • Golden Globes (January): This year’s television audience was 17 million, 14% higher than in 2009;
  • Grammy Awards January): Almost 27 million viewers tuned in, a 35% increase over last year’s broadcast and the highest TV ratings for the event since 2004;
  • Super Bowl XLIV (February): Became the most watched television program in U.S. history, beating the finale of the TV show ‘M-A-S-H’ with a total audience of over 150 million and an average of over 106 million viewers;
  • Academy Awards (March): Had over 41 million viewers, up 14% over the 2009 Oscars;
  • NBA Finals Game 7 (June): The deciding game between the Los Angeles Lakers and Boston Celtics pulled in a viewership of over 28 million, the largest basketball audience in 12 years (when Michael Jordan won his last of six NBA championships);
  • World Cup Final (July): The finals between Spain and Netherlands became the most-watched soccer game in U.S. history with over 24 million viewers, topping the previous record of 19 million viewers from United States’ match against Ghana in the elimination round only weeks earlier.

While some might argue that the economy (i.e. people staying home more often for entertainment purposes) or content quality (i.e. offensive-minded Super Bowl match-up, the popularity of Lady Gaga and Avatar for the Grammys and Golden Globes/Oscars respectively, deciding game of a classic NBA Finals match-up and final of the most-followed sporting event in the world, the World Cup) are better explanations for this renewed interest in live television programming, the fact is that most of these events are leveraging social media hubs like Facebook, Twitter and YouTube more and more as part of their tune-in marketing campaigns to engage with fans and would-be viewers.

And it’s working. The network effect caused by the interest of the most engaged fans is bringing indifferent audiences on the sideline that are connected to these fans into the viewing experience. The real-time nature of information flow on the web and the ability to extended social connections through Facebook and Twitter has made it increasingly difficult for people to avoid watching or hearing about live television event broadcasts or even attempting to try to watch them in a non-linear, time-shifted manner without having the outcome spoiled by social media channels. Combined with the social pressures around participation, additional audiences are being influenced to engage with these events via social networks.

Some recent engagement figures from Facebook and Twitter seem to confirm this. Facebook has shared that about 30% of all status updates on the site during the U.S. versus England match included a World Cup-related term. More impressively Twitter saw the number of Tweets-per-second (TPS) it handles cross 3,000 as a result of the Lakers beating the Celtics in the NBA Finals. This record was broken a week later on the heels of two World Cup matches that generated almost 3,300 TPS.  To put this into context Twitter’s normal activity is 750 TPS, which is big reason why the service has experienced over 6 hours of downtime since the beginning of the World Cup.

With live television event broadcasting benefiting greatly from social networking, can EBSNs become the next big opportunity in social media?

Even though the most well-known companies in this segment of social networking have positioned themselves in a slightly different manner from one another, at the most basic level Fanvibe, formerly known as FanPulse (sporting events), GetGlue by AdaptiveBlue (home entertainment such as movies, books and music), Hot Potato (general events), Miso by Bazaar Labs (TV shows and movies) and Tunerfish from Comcast (online video and TV shows), among others, all address some type of live event participation through their services. As ReadWriteWeb points out in its recent coverage of some of these apps, their current lack of users adversely affects the social value of their respective networks. With Facebook and Twitter already driving the lion’s share of social media status updates, and check-in functionality becoming a commodity, these EBSNs will need more than virtual badges and threaded conversation capabilities around events to drive adoption.

The “more than” is partnering with the leagues and organizations behind these events as well as the television networks with the broadcast rights. Being promoted by the events or built into the digital experiences of the broadcasts is the ideal way to drive mind share and user growth.  For this reason Tunerfish is best positioned of the group to succeed since it comes out of Comcast, which has the largest television subscriber base, and is in the process of acquiring one of the biggest TV network broadcasters, in the U.S. Being part of Comcast helped Tunerfish land its first promotional partnership with HBO when the service went live last month. Owning NBC could bring a lot more of these types of opportunities to Tunerfish. With an iPad app also in the works from Comcast, adding Tunerfish’s functionality to the application could automate the check-in process for millions of TV viewers across every television show and network available in the U.S.,creating an enviable interest graph.

There is hope for some of the other services as well. AdaptiveBlue, which has been around the longest, probably has the most robust underlying platform. The company leverages semantic technologies to generate social recommendations for its users based on their check-ins and ratings. By covering a broader range of interests than just TV shows and movies and strong platform usage resulting from its recently launched GetGlue iPhone app, AdaptiveBlue can create a much deeper interest graph than some of its competitors. Hot Potato could find early success amongst sports leagues as its founding team comes from MLBAM, the digital media arm of Major League Baseball. That being said, MLB, which is the most tech-savvy of all the major sports leagues, did announce it has integrated its own check-in functionality into its iPhone app just last week. Miso’s best opportunity for success is tied to the investment it took from Google Ventures last month. With the announcement of GoogleTV earlier this year, Miso should have the inside track in doing for GoogleTV what Tunerfish could do for Comcast- to be integrated directly into the television guide and discovery experience for set-top boxes.

What’s at stake in becoming the real-time conversation service and recommendation engine for television?

Over $400 billion in television advertising and on-demand video revenues worldwide according to a recent report published by media researcher Futurescape. As I’ve mentioned in previous posts and tweets, live TV event programming such as sports championships and entertainment award shows will only increase in value to broadcasters as produced, series-based programming becomes even more accessible on-demand in a non-linear viewing experience. Live television represents the best opportunity for advertisers to find and connect with an engaged audience in the present. Combined with real-time status updates, event producers and advertisers can receive immediate feedback from users on their TV viewing experience. This social feedback loop will be critical in delivering better television programming and advertising in the future.

With nearly half of Facebook users simultaneously watching television while on the site and Twitter showing its impact during the recently concluded NBA Finals and World Cup, it’s their game to lose at the moment as each brings a respective interest and sentiment data set that can add tangible value to traditional TV audience metrics. For EBSNs to succeed they will need to leverage Facebook and Twitter’s platforms as distribution channels, much like Foursquare did initially, in order to drive utility for its users and interest for their own services. By becoming the interface between users and their Facebook and Twitter accounts, ESBNs have an opportunity to get users to build sub-networks within their respective platforms that are unique and more valuable to those on Facebook and Twitter- once again, something Foursquare is starting to do with its own LBSN. The ultimate benefit in evolving a platform in this manner is that an event-based social network can become the audience and data provider to event creators and distributors as well as advertisers while delivering better programming recommendations and socially targeting advertising to its users in the process.

Whatever the eventual outcome, it will unfold live.

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Where the New Commerce Opportunities are in the Current Wave of Innovation

At TechCrunch’s Disrupt conference a few weeks ago legendary venture capitalist John Doerr of Kleiner Perkins Caufield & Byers spoke about what he considers to be the next, and third, great wave of innovation- the intersection of social, mobile and new commerce. Like swells in an ocean, technology innovation is not comprised of a single wave or event, but instead a series of them. Smaller, initial waves enable those in the middle of a set to generate the largest swell and associated impact, while the smaller waves at the end benefit from all the efforts of the preceding waves in the group.

While I would agree with GigaOM’s Om Malik that we are already in the throes of John Doerr’s third wave, the areas of social, mobile and commerce each represent a unique wave in time within this current innovation set. Social is an important, but early wave that will help mobile, the middle wave, generate the largest impact in this third technology wave. One of the benefactors of both the social and mobile innovation waves will be commerce, which well-known early stage investors Josh Kopelman of First Round Capital and Fred Wilson of Union Square Ventures have both identified in recent months as being areas of emerging opportunity.

In 2007, two events helped propel this commerce wave forward more than any others- the launch of Facebook’s platform and Apple’s release of the iPhone. Though Friendster and MySpace preceded Facebook in the area of social networking, the ability to create and extend the social graph of what is now 500 million users to third-party websites and services has enabled Facebook to become the social identity layer for the worldwide web today. Meanwhile Apple changed the mobile landscape forever by enabling applications to be developed for the iPhone that leveraged the smartphone’s capabilities as well as those of the wireless carriers’ networks. The traditional insular, walled-garden approach to third-party content and services on carrier data networks and mobile handsets has been replaced by innovation around the mobile internet and applications. This has resulted in enhanced functionality and value to consumers from not only the iPhone but other smartphones and mobile operating systems looking to benefit from this new ecosystem- all while driving additional data revenues for wireless carriers in the process.

The Social Wave

Internet commerce websites like Amazon were actually early adopters of social technologies- empowering their customers to post reviews and ratings on product pages to help other Amazon shoppers determine whether or not to buy a particular item. This crowd-sourcing feedback model hasn’t evolved much since first being launched though, keeping the relationship between reviewers and shoppers fairly anonymous and thus limiting consumers’ trust factor. Allowing users to layer their social graph on top of the commerce experience would enable potential buyers to see feedback from family and friends or their extended social network first, further enhancing the shopping experience for consumers and inevitably driving better revenues for commerce sites.

Recently launched Blippy and Swipely both aim to capitalize on this theme by enabling their users to share purchase transactions with their social graph. While these companies are focused on creating a discussion around purchases post-transaction, there is an opportunity in being able to curate this commentary and incorporate it into product feedback loops across commerce sites, making the shopping experience even more personal and dynamic.

Probably the hottest area in online commerce though has been the group buying segment with the likes of Groupon and LivingSocial raising $135 million and $39 million respectively this year alone. While the business model isn’t new (Mercata and MobShop, founded in the late 1990’s were the original group buying platforms that became casualties of the internet bubble), the ability to tap into consumers’ social graph to enable the group buying mechanics to work is.

The Mobile Wave

After years of promises, mobile finally seems ready to deliver on the cliché “get-a-Starbucks-coupon-on-your-phone-when-you-walk-nearby.” With the ramp in mobile internet subscribers already exceeding the speed of traditional desktop internet adoption and global smartphone sales expected to surpass personal computing in 2012 according to Morgan Stanley Internet analyst Mary Meeker, how mobile is being thought of and used in commerce is changing dramatically. With most commerce companies already having a mobile version of their website and native applications available across various mobile app platforms, the biggest opportunities in mobile going forward are in bringing real-world and digital experiences together via augmented reality and enabling a variety of payment capabilities through mobile phones.

Augmented reality brings information from the web into the real world in real-time. This can be accomplished by (1) adding visual data elements to the visible world (i.e. through Layar’s Reality Browser) while looking at something through a mobile phone camera, (2) leveraging QR (quick response) codes located on storefront decals (which Google makes available through Google Places) or outdoor ads to access additional information about a place or item via the mobile internet and (3) adding data to physical objects via bar codes (the idea behind recently launched StickyBits) or associating data with locations people have visited (a la Foursquare ‘tips’). In each of these instances the opportunity is to quickly and conveniently provide additional information to help consumers make more informed decisions.

Mobile payments represent the largest, albeit most fragmented, opportunity as Generator Research predicts the market will grow almost ten-fold from last year to $633 billion in worldwide revenues by 2014, driven by nearly 500 million users. The types of payments users are able to initiate vary from physical dongles like Square that allow phones to function as cash registers for merchants, to buying virtual goods for apps through Boku or Zong using a consumers’ mobile phone bill instead of a credit card, to paying friends through platforms such as PayPal or Venmo.

How can commerce make the best use of these innovations?

The underlying theme with many of these commerce examples, from aggregating audiences for sales to sending users mobile coupons, is their focus on addressing the supply-side of the commerce equation. Instead of trying to find new ways to incentivize demand for products and services through price elasticity or information overload, the more interesting and challenging opportunity in commerce is creating solutions to identify demand pre-transaction. If consumers had efficient ways to signal their intent on an individual or aggregate basis prior to making a purchase, a whole new commerce paradigm could be created around real-time demand fulfillment. Some possibilities include:

  • A group of co-workers decide to go out and have lunch together and broadcast their intent to restaurants at the local mall who in turn have the ability to offer coupons or discounts to these consumers before they make their decision;
  • A family on vacation in New York City is interested in sight-seeing as well as catching a show on Broadway. The father sends out a prioritized list of attractions and a budget to local travel agents, which respond with multiple itineraries based on the given parameters.
  • Several people in the same city are looking to buy the same toy. They query their phone to find the cheapest price. Participating stores are notified of inquiry and are given the ability to offer a discount if a minimum number of these consumers buy today, which can be completed on the phone and the toy held for pick-up.

The key distinction with these futuristic examples is that instead of making consumers proactively pull information from disparate sources to get answers, the information is pushed to consumers based on their stated intent. Pleet, which launched earlier this month out of the UK, looks to address this opportunity by “socializing vouchers” around consumers’ intended action in a specific location. Well-known tech blogger Robert Scoble also explores the possibilities of real-time, in-the-moment commerce that leverages context aware apps and services  in a guest post on TechCrunch this month. In either user case (pre-sale or during an event) the default requirement is that the consumer has control over which apps and services can share what type of data with one another and what information (updates, offers, etc.) is allowed to get pushed to users and their social graphs.

Mobile’s role in all this is to tie these web services to a user’s physical location to enable various types of commerce opportunities to occur as well as provide a way for consumers to add information in real-time to enhance the value of the data. For this reason augmented reality (AR) does have a viable future, despite some of the early hype around it. AR can pick up where intent-based, push-oriented commerce opportunities leave off by providing consumers with the ability to pull dynamic information from the internet into their real-world situations. That is why services like Foursquare and StickyBits that allow users to access data related to places and objects via barcodes respectively have a great chance to succeed- because they can generate a large network effect not only from social connections on the platform but also due to the information users are augmenting these respective services with. So for those instances where someone doesn’t have the ability to request offers and information from restaurants on lunch discounts they can instead leverage an augmented reality app that contains information on proximity to restaurants in the area as well as any reviews from friends, general feedback or coupons and make reservations in the process.

Some of the winners will be companies everyone knows…

Amazon– Even though Amazon has been accused of missing the boat on social commerce, they still have the very enviable position of being the largest pure-play ecommerce company, and fastest growing retailer, in the U.S. With all the product information and review data they have collected over the years and experience in managing online storefronts, Amazon could not only empower other sites and apps with this data but also manage the supply chain for consumers looking to transact via mobile yet pick up products at a physical location. The value of the company’s data set could be further enhanced for its own financial benefit by enabling Facebook users to access their social graph through the Amazon.com website.

Apple– The company’s inclusion is due to its recent acquisition of Siri, a voice-activated personal assistant application, rather than being the leading smartphone and app platform. Siri’s value to Apple is in its ability to integrate various APIs from a variety of restaurant, movie, weather, taxi and event services to enable voice-activated search which can lead to a variety of commerce opportunities. In the process of integrating Siri into the iPhone, Apple is also laying the groundwork for an entirely new user experience in mobile search.

Facebook– The company has already proven the power of combining the social graph with commerce by enabling a billion dollar economy in virtual goods to arise. With the launch of Credits, which could become one-third of the company’s revenues over the course of the next 12 months, Facebook has an opportunity to become a big player in mobile payments by enabling alternative payment options for its virtual currency. Combined with the fact that Facebook not only has the most popular mobile app out there but also provides authentication for a number of other mobile apps, there is tremendous upside in what the company can achieve in the commerce space.

Google– The launch of Android, Google Latitude, Google Maps and Google Places over the years are all efforts to bring location into the search equation. Being able to marry search intent with location data opens up a new revenue opportunity around local search advertising and commerce for Google, which despite their forays into display advertising, needs to continue to rely on search advertising to grow its business.

…While other are just getting started

Some of the aforementioned companies in the social transaction, group buying, augmented reality and mobile payments spaces all have opportunities to succeed in this new wave of commerce innovation. The broad category of augmented reality is the most interesting because it operates at the intersection of both worlds (real and digital) so is best suited to incorporate social and mobile features from these other businesses. While most success stories will be through acquisition, companies like Foursquare have the potential to succeed on their own by focusing on the demand and intent side of the commerce equation. Since the company has created a user experience around “checking-in” to locations and venues as well as leaving “tips”, it would require only a slight modification in behavior to have users instead display their intent by “pre-checkin” and aggregating the demand they already capture to drive additional utility around commerce. Even though the company has focused on the game mechanics of its service, the fact that it has nailed social and mobile interaction gives it a leg-up on other competitors.

While I can see why Josh Kopelman believes the past 10 months have shown greater innovation in online shopping than the past 10 years, I believe the wave has yet to come and that the next 18 months is where the greatest innovation will occur around real-time, intent-oriented commerce.

Photo credits: Madeleine1912/Photobucket, centralasian/Flickr and chizzachong/Flickr.

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Where Does Online Video Go From Here?

Google’s acquisition of YouTube in October 2006 was supposed to usher in a new era of opportunity for video creation, distribution and monetization that leveraged the power of the internet. Now, three and a half years later, the biggest benefactors of the boom in online video consumption have primarily been YouTube’s founders and investors as profitability still eludes YouTube and revenues are scant in comparison for most others in the online video ecosystem. With webisode creators closing up shop or changing business models, television networks removing or withholding their content from partners and distribution channels, and well-funded online video aggregators Joost and Veoh shuttering their businesses, what role will the internet play in the video content experience going forward?

Here are today’s realities:

  • Television will not go the way of the newspaper industry. Clay Shirky, an internet and media consultant and professor at NYU, recently suggested that the television industry faced the same disruption in its business models as newspapers are experiencing today. What he failed to acknowledge was that the production value of video content creation cannot be commoditized in the same manner written content can (Avatar didn’t become the highest grossing movie of all-time by cutting corners on cost). In fact the cable industry seems to be strengthening its position with consumers- delivering record audiences for sports leagues, including the largest audience for a single cable network event (last year’s Vikings vs. Packers game on ESPN) and the signing of Conan O’Brien to host his new later night show on TBS. This performance is leading advertisers to commit an even greater share of their television ad budgets to cable networks in the coming upfront season.
  • There are no free lunches for online video consumers. Cord-cutting is somewhat of a fallacy. While a lot has been written about the growing minority of consumers who have given up their cable subscriptions in favor of accessing video content over the web from the likes of Hulu and Netflix, the fact of the matter is that consumers are still paying their cable or phone company to access this video content over their networks. Though monthly internet access can cost a quarter of the price of a monthly cable subscription bill, as they say, you get what you pay for. Without the ability to watch live events (American Idol, Super Bowl, etc.), or specific content from cable networks (Mad Men on AMC, It’s Always Sunny in Philadelphia on FX, etc.), in addition to no quality of service considerations for video playback on the web (when was the last time you experienced buffering while watching television through your cable service provider?), we are starting to see stories about consumers who have given up on the internet-only video experience.
  • The internet will be one of several distribution channels, not a panacea. While many consumers expect to find all content online, and for free, these people tend to forget that television’s economics continue to drive the decision-making process for broadcasters. It’s for this reason I’ve previously suggested companies such as Blip.tv should look to traditional television networks to extend the distribution and reach for their clients’ webisodic content. With the launch of the iPad and associated apps from video providers, and discussions around broadcasters working together to build a mobile television network, the number of ways consumers will be able to access movies and TV shows will continue to proliferate. While this should drive additional content consumption opportunities for consumers, it will be done so on the television industry’s terms.

And tomorrow’s opportunities:

  • Delivering “DVR economics” will bring more premium video online. For television networks to get comfortable with making more of their content available online after its original broadcast, the revenue opportunity needs to be comparable to what broadcasters are generating from their DVR-viewing audience. This makes sense since watching video online and via DVR are both non-linear viewing experiences intended for consumers to catch-up on missed shows. This will be an important metric for online video services to achieve in order to be considered distribution partners for broadcasters and networks going forward. With online consumers showing a willingness to sit through additional advertisements and both Hulu and TV Everywhere expected to charge for certain content, achieving parity with DVR economics seems to be an achievable goal as the dual revenue model  employed by the television industry (users paying for access to programming in addition to being presented with commercials while watching that programming) proliferates into new channels. This could become a recipe for enabling virtual MSOs like Apple TV and others to gain access to television shows that haven’t been previously made available online. Over time a bifurcated business model could emerge between real-time and time-shifted viewing with different price points for each experience.
  • Social TV will be the key to enhancing the video viewing experiences. Because the internet is a proactive, lean-forward experience most of the time, it is best leveraged as a companion to live event broadcasts to create a social television experience. With more and more people spending time online while watching television there’s an opportunity for programmers to engage audiences by allowing viewers to share their experience with friends or other fans in a meaningful way, creating larger and more loyal audiences. Events such as the Grammys and Oscars have benefited greatly by combining the social features of Facebook and Twitter with live broadcasts. Apps such as Hot Potato and Miso have been launched to aggregate these types of experiences on behalf of viewers, though broadcasters are now developing these services on their own as well. Regardless of the social network or app being leveraged, these services should be incorporated into devices such as mobile phones and tablets, and not necessarily directly into the television set via TV widget platforms, to not inhibit either experience individually and allow any service to compete for audience attention.
  • Unified audience measurement will be paramount. While video ad networks have probably been the greatest benefactors of the growing online video ecosystem, with over $90 million invested between BrightRoll, TidalTV and YuMe in Q1 of this year and Tremor Media earlier this week, until there is a way to merge audiences across different platforms (television, laptop, mobile phone, etc.) online video revenues will remain insignificant in comparison to broadcast television. Nielsen announced a solution to address this problem earlier this year that is expected to be rolled out for the fall television season. Looking to make buying video inventory online comparable to traditional television, two different online video ad networks have partnered with third-parties to create  an online equivalent to Gross Rating Points, called iGRP, which is used to sell prime-time ad inventory, to match online audiences with that of traditional television. As agencies and advertisers get more comfortable with quantifying users online in a similar manner as is currently being done through traditional television broadcasting more ad dollars will continue to flow to online video. This will allow online ad networks to compete for even more upfront ad dollars during TV’s traditional outlay season.
  • Opportunities exist for online video technology providers- to an extent. Brightcove, founded before YouTube ever existed, is arguably the most well know enterprise technology provider to the online video industry. In raising a fourth round of funding recently, the company disclosed it expected worldwide revenues of $50 million this year. Considering the company already works with most major media companies, what does this tell us about the market opportunity for the most important component of the online video ecosystem? If you concur with Frost & Sullivan analyst Dan Rayburn’s estimate of $300 million in total revenues for online video platforms this year, then it’s not that significant. It doesn’t mean that Brightcove won’t have a successful IPO, it’s just that for the amount of capital the company has raised ($100 million) the revenue potential ought to be 10 times Frost & Sullivan’s estimates. That being said, companies that can automate content encoding (i.e. Elemental Technologies) and distribution (i.e. TubeMogul) across disparate platforms and formats, provide rights management (i.e. Widevine) across access points and deliver aggregated audiences and reporting for advertisers will have the best chance for success, though primarily through acquisition. Companies such as Akamai will be the biggest benefactors as they can leverage their public currency to add these services to their CDN delivery business, allowing them to move further up the value chain with clients.

Add it all together and where do we end up? Most consumers don’t differentiate between what content they are accessing, broadcast network television (ABC, CBS, Fox and NBC) or cable networks (Discovery, ESPN, MTV, etc.), since in today’s digital environment you need a set-top box from a cable, satellite or telecom company to access any television programming. The same will hold true for how consumers access programming tomorrow, be it over dedicated coaxial cables, wireless carrier networks or over the public internet. As such, consumers will have tiered pricing (as either a bundle, how monthly subscriptions are currently provided, or a la carte as Apple is attempting to do) that incorporates how content is being accessed (real-time or on-demand) and from where (television, laptop or mobile phone). Whatever the model, viewers will be able to interact with audiences around the content, creating a more fulfilling experience. Advertisers will benefit from better audience targeting capabilities already being used on the web today across all these viewing outlets with the added value of unified reporting.

While the nirvana of free access to all video content over the internet will probably never be realized (except for one-off cases like YouTube’s wildly successful live streaming of a cricket tournament) the internet will play a major role in improving the online video experience from both a consumption and monetization perspective.

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