Online Display Advertising’s Data Game- Who Will Be Left Out?

2010 is likely to go down as the Year of the Audience in online display advertising as marketers, looking for better returns from their investments in a challenging economy, are turning to search advertising’s strengths to help reach specific individuals across the internet. Search is the largest, and continues to be the fastest growing, segment of the $20 billion online advertising market in the U.S. because it brings advertisers results. The move toward delivering ad impressions on a unique visitor basis across disparate websites is an effort to improve the results of display advertising campaigns by leveraging what makes search advertising so effective- matching web users’ displayed interests and intentions with an advertiser’s defined audience.

This trend in data-driven ad targeting, which is expected to be the primary growth driver for display advertising going forward, has given birth to a number of new intermediaries in the online display advertising ecosystem:
As one can see, depending on an advertiser’s needs and requirements, there are many components to delivering ad impressions to targeted audiences. The new companies that have launched to fulfill the roles of these new intermediaries, especially around data, are capturing most of the additional value being created in the ecosystem. With so many new entrants competing for a piece of the display advertising pie who are the winners going to be?

Before answering this question, it’s worth defining what data is actually being captured and how it’s being leveraged by intermediaries on behalf of advertisers. When someone performs a search query through a search box on a browser or through a website the URL associated with the results page will contain the keywords used in the search request.

When the searcher clicks on any link on the results page, this URL string is passed to the destination website along with the user. While the keyword data is being captured by the web publisher, social tool services, such as commenting and sharing services, can also gain access to this data if their service requires JavaScript implemented on the web page. Marketers, through various demand side intermediaries can reach this searcher by having the intermediary place a cookie on that individual’s computer once they land on the publisher’s site to identify that person when they visit a different website where the advertiser has the ability to serve a banner ad based on the interest the user has shown through their search activity.

Here’s an example of how it would work. Johnny searches for “cell phone” on Google.com and clicks on a link on the result page that sends him to Engadget.com, where a cookie is placed on Johnny’s computer by Invite Media on behalf of AT&T’s agency. When Johnny visits Yahoo.com, a website through which the agency has the ability to buy inventory via Invite Media, he sees an ad from AT&T for a cell phone.

Because audience targeting revolves around intent-oriented data, the intermediaries that have arisen within the ecosystem to fill various data needs are going to experience the greatest consolidation as some of the services being provided morph into one another or become more standardized across other demand side intermediaries. Anticipating and addressing the needs of this evolving marketplace will be the only way for companies to survive and prosper.

Stand-alone data selling is not a viable business. While selling intent-oriented data to online display advertising intermediaries can be a low-effort revenue stream, it’s an ancillary business even for the largest data providers. As more web publishers and social tool providers begin to offer advertisers access to user search data, that data starts to become commoditized as advertisers and their intermediaries have more partners to choose from to create their audiences. Automation around identifying data from appropriate partners and delivering audiences for campaigns will only hasten the commoditization of keyword data. Google on the other hand, by keeping its search-related data proprietary rather than selling it to third-parties, has been able to determine the value of its data through the development of AdWords. Companies that sell their data to third-parties are allowing these parties to determine the value of the data to their own detriment.

Data exchanges must evolve or die. Being a broker between data suppliers and intermediaries is a short-term business model. Because the whole notion of using intent data to target users is in its infancy, data exchanges have become an easy starting point for advertisers to find data to test display campaigns against. The problem is that as other intermediaries within the ecosystem get more experience and smarter about audience targeting, they will seek out direct relationships with the largest and most effective data providers, thus bypassing data exchanges all together. For data exchanges to survive they need to evolve to provide value-added services to their clients such as those being offered by Demand Side Platforms (DSPs) and Social Data Targeting companies.

Adding social data points will prove to be valuable. While keyword data has the potential to become commoditized as previously explained, data culled from users commenting on articles and sharing links into Facebook and Twitter provides unique additional value to display advertisers. Continuing with the “cell phone” search example, if Johnny ends up on a web page after searching for “cell phone” and then shares a link  to a positive article about the iPhone, the additional information associated with the link being shared (iPhone versus just cell phone) helps better define Johnny’s interest and provides a stronger signal of his purchase intent. Even though social data can provide a higher degree of confidence related to search intent, the data itself is not as structured as search data. As a result, being able to package the information effectively and make it actionable will be the key to success.

But can social data targeting companies find the holy grail? A number of companies are exploring how to leverage social data, in combination with search data in many cases, to provide better conversion and larger audiences for targeted campaigns. While the approaches to finding the best algorithm might differ (Media6 Degrees looks for network neighbors while 33Across creates influencer social graphs and Lotame categorizes user activity on social networks), any sign of superior, and repeatable, results will quickly drive acquisitions of these companies by one of the GYMs (Google, Yahoo or Microsoft) to be leveraged internally or by their respective ad exchanges. DSPs looking to expand and enhance their platform offering could also be an acquirer, but would need to do so before valuations get to high.

Demand-side platforms’ dilemma. The proliferation of DSPs is not without warrant as they hold the promise of tying together disparate ad exchanges and ad networks, as well as data providers, into a single interface to enable real-time bidding of online display inventory for targeting purposes by media buyers. The key to how this market evolves will depend on which companies will be the first to be acquired and which ones decide to make a go of it alone. The two most natural types of acquirers, GYMs and agency holding companies, each face their own potential challenges in purchasing one of the players in this space.

Agencies would benefit the most from owning one of these platforms, but are unlikely to pay the full or potential value that the venture-backers of these companies are looking for because any revenue being generated from competing agencies on these platforms would disappear upon acquisition by another agency. Even though Google is a likely acquirer at some point this year, they, along with Microsoft and Yahoo, risk alienating clients and partners of potential acquisition targets by bringing the neutrality provided by the DSP platform into question. Preferential treatment of intermediary services from the GYMs, such as ad exchanges that are integrated into the DSP, would destroy the platform’s business and partnerships. Companies such as AppNexus, Invite Media and MediaMath have the early client adoption and capitalization (i.e. they haven’t raised too much money) necessary to be likely acquisition candidates.

Because DSPs are already enabling data to be combined with inventory acquisition on their platforms, one or two of these companies have the potential to incorporate the capabilities of Data Exchanges as well as Social Data Targeting companies (the latter through acquisition) to create a more robust offering that simplifies the demand side of the display advertising equation. With its early success and strong management team, AppNexus could be the one to create a viable, stand-alone entity.

The supply side will strike back. The early days of data-driven targeting has enabled advertisers to find audiences across premium websites that charge higher CPMs for ad impressions and target those same individuals across ad networks and websites with cheaper advertising inventory. This has created an opportunity for inventory yield optimization companies to help publishers retain some of the revenue opportunity and CPM value being lost to the demand side platforms. This is likely to include enabling audiences to be created and targeted across disparate websites of premium publishers as well as the development of supply side exchanges, as suggested by Will price, CEO of Widgetbox. Companies such as AdMeld, Rubicon Project and Yieldex will be the biggest benefactors of this in addition to their publisher clients at the expense of ad networks and ad exchanges.

As competing offerings begin to look and sound the same within and across intermediaries, analytics and transparency will be the keys to building a successful business. Analytics will not only need to serve as a dashboard for campaign results, but also provide insight into which aspects did or did not perform well and potential reasons as to why. With so many parties involved in every transaction, transparency will grow in importance from a trust and verifiability perspective as well as enable insights to be drawn from each aspect of the value chain.

Beyond this, determining the winners in the online display advertising ecosystem will be somewhat dependant on Google’s actions as they have made it apparent that display advertising is the company’s next growth opportunity. Google has not been afraid to pay top-dollar to acquire the pieces they need or build these services themselves, thus driving potential acquisition targets into the arms of Microsoft or Yahoo and leaving the rest of the competition out of the game.

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How the Mobile OS Wars Will Be Won

The future of the mobile industry is pretty clear- it’s all about data. Data revenues have allowed U.S. carriers to keep subscriber ARPU’s relatively stable in the face of 30% declines in voice revenues over the past five years. Look no further than Verizon Wireless’ recent announcement to allow unlimited Skype-to-Skype voice calls over its 3G network to see the future revenue prospects of voice, now a commodity service.

Data revenues, in contrast, are expected to continue their explosive growth, more than doubling by 2013 according to a recent Telecommunications Industry Association report. It’s no coincidence that over the same period smartphone sales are projected to account for more than 40% of all wireless devices sold domestically as the underlying mobile operating systems on these devices are providing the necessary functionality and services that are enabling greater data consumption by mobile subscribers.

At the recently concluded Mobile World Congress, Microsoft made the mobile OS market a lot more interesting with its unveiling of Windows Phone 7 Series, a completely rethought and overhauled, mobile operating system. Having met with glowing first impressions, the largest software company in the world has positioned itself to compete across the entire smartphone OS spectrum- from Research in Motion’s productivity devices to mass market offerings leveraging Google’s Android platform to feature-rich iPhones from Apple. However, without the ability for manufacturers to upgrade their handsets from Microsoft’s current operating system, Windows Mobile 6.x, to Windows Phone 7, Microsoft will need to build adoption for its new platform from scratch. Microsoft, like the entire mobile OS market, has to successfully address three key relationships in the mobile ecosystem, and not just build a great technology platform, in order to win market share.

1. Device manufacturer access. To get an operating system into consumer hands, most mobile software providers need to partner with device manufacturers. Google has attempted to remove any potential barrier for these OEMs to adopt its Android platform by making it free to use, open source and fully customizable. Microsoft on the other hand is continuing with its licensing model for the Windows Phone 7 operating system as well as imposing stringent hardware requirements on its device partners going forward.

It is these requirements, in conjunction with recent events, that make it unlikely that HTC will continue as Microsoft’s primary device partner. First, HTC, which built the Nexus One for Google, just launched its own version of the Android device at the Mobile World Congress. Dubbed the Desire, this handset incorporates HTC’s Sense, a design experience the company is implementing across all of its future devices, regardless of the underlying operating system, which could run afoul of Microsoft’s new partner standards. Secondly, HTC’s soon to launch HD2, the most feature-rich smartphone running the Windows Mobile 6.5 operating system, does not meet Microsoft’s Windows Phone 7 requirements to qualify for an OS upgrade.  Considering the close relationship HTC fostered with Google in developing the Nexus One, Microsoft would be prudent to look elsewhere for access to consumers.

Fortunately for Microsoft, LG, the third largest mobile handset manufacturer in the world, and second in the U.S., has announced its intention to be the first OEM to launch a Windows Phone 7 handset this fall. This could result in faster adoption for Microsoft’s new mobile OS especially if other OEMs decide to diversify their operating system portfolio due to Google’s directly competitive Nexus One mobile offering.

Unlike Google and Microsoft, Apple and Research In Motion view their primary businesses as being mobile. Due to this  both have vertically integrated the development of handsets and the underlying operating system. This has enabled both companies to enjoy a more direct relationship with consumers and helps ensure a more consistent user experience across their respective handsets. It’s no surprise that combined, Apple and RIM control two-thirds of the U.S. smartphone market.

2. Retail outlet distribution. As Google learned in launching the Nexus One device, working with the network carrier on distribution and marketing is essential for driving sales and adoption. Google’s internet-only, direct-to-consumer approach to selling the Nexus One on T-Mobile’s network resulted in less than 100,000 of these devices being sold in the first month. Contrast that with the launch of Motorola’s Android-based Droid which resulted in over 500,000 units being sold in its initial month. The Droid’s relative success to the Nexus One can be attributed to the coordinated support from Verizon Wireless which (a) has the largest subscriber base and arguably the best wireless network in the U.S. (b) provided distribution for the device through its retail outlets and (c) was backed by a $100 million marketing campaign.

More than any other mobile OS provider, Research In Motion has benefitted from its wireless carrier relationships. With BlackBerry devices available on every major carrier’s network in the U.S., and thus distribution provided through every wireless retail outlet imaginable, RIM has reached over 40% share of the domestic smartphone market.

Apple on the other hand has succeeded in spite of its exclusive relationship with AT&T Mobility in the U.S., primarily because it revolutionized the smartphone experience with the iPhone, but also because it has been able to drive distribution for its device through its own Apple stores.

3. Developer retention. While device manufacturers and wireless carriers are the critical factors in driving smartphone OS adoption, the iPhone exemplifies why developers are the key to retention. In spite of all the grief and anger directed at AT&T by iPhone users, most customers are unwilling to switch wireless carriers due to the personalization functionality provided by the iPhone through its app store. Even with Apple’s frustrating application approval process, developers continue to focus on building for the iPhone platform because it offers the most lucrative revenue opportunity, according to interviews conducted by Gizmodo at the Mobile World Congress, with interest in Android a distant second but growing due to its potential reach now that 60,000 Android-enabled devices are shipping daily.

Microsoft will need to create the same enthusiasm with developers for its new operating system in order to get these individuals to allocate some of their development time and efforts to learn yet another platform. Unfortunately Microsoft lost a chance to jumpstart its efforts by not having a path for them to port their current Windows Mobile apps to Windows Phone 7.

…and the winner is? I agree with Accel Partner’s Richard Wong that fragmentation in the mobile space is here to stay due to technology but also because of varying business models.

Domestically, Apple will determine how the mobile OS market plays out. If it were to end its exclusive arrangement with AT&T and go with a multi-carrier approach, which has proven to be successful from a market share and financial perspective overseas, Apple would control the most lucrative smartphone market in the world due to its strong relationships within the mobile ecosystem versus its competitors.

Worldwide, Gartner Inc.’s prediction that Google’s Android platform will surpass BlackBerry, the iPhone and Windows Mobile in market share in 2012 is fairly safe due to Google’s approach and the economics of its operating system. Google’s interests in the mobile space are squarely focused on search and location-based advertising. As such, giving away its platform makes complete sense. The biggest risk Google faces is getting into its own way by pushing corporate agendas that come at the expense of partner relationships. Developing its own mobile handset, acting like a telecom company by acquiring wireless spectrum or building its own broadband network, and allowing the fragmentation of the Android operating system are all examples of how Google could quickly lose favor with each of the three key relationships in the mobile ecosystem.

Through sheer size alone Microsoft should be able to rebuild most of the market share it has captured with previous iterations of its mobile operating system with Windows Phone 7, but not to the point that will make it a market leader. Microsoft’s continued reliance on a licensing model for its mobile OS and restrictive design parameters will hurt adoption as it competes against a free and open Android platform. While integrating the Xbox experience directly into the Windows Phone 7’s capabilities might be enough to convert some iPhone gaming enthusiasts, Microsoft’s Zune is a distant second to iTunes’ content portfolio, making it difficult to compete with Apple’s overall smartphone offering.

With Microsoft committing $1 billion to develop its new mobile operating system, Research In Motion faces the greatest market share risk. Not only is an acquisition of RIM by Microsoft highly unlikely now, but Windows Phone 7 Series OS is best positioned to compete with BlackBerry’s biggest strength- mobile enterprise email. By bringing Outlook to its mobile operating system, Microsoft can woo traditional BlackBerry users with native email capabilities and additional functionality through its Office productivity suite. Research In Motion has not only taken a preemptive strike against Microsoft but Google as well, which has integrated Google Apps into Android devices, by releasing a free version of its enterprise server for small businesses. With a relatively small application store, RIM will have an even greater difficulty in retaining its mobile OS market share lead in the U.S. over the next few years.

Whatever the outcome the consumer wins, as the competition will continue to breed innovation and enable smartphones to further evolve from productivity devices into personalized mobile experiences- courtesy of the mobile operating system.

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Nevermind the iPad, What’s Next for Apple?

Now that the long-rumored Apple tablet has finally been unveiled as the iPad, we can turn our attention towards figuring out what Apple’s next big product launch might be. Based on the evolution of the company’s devices, software and recent business discussions the answer actually seems pretty clear: Apple should build a true web-enabled home entertainment television experience- the iTV. Here’s why:

Apple TV has been a failure. For a company that loves to reference stats regarding the success of its products, Apple has been very reticent about the sales performance of Apple TV, repeatedly referring to the product as “still a hobby.” The device, which competes with over-the-top (video delivering over a broadband network and not through a cable box) offerings from the likes of Boxee and Roku, has not met with nearly the same success as other Apple products since its launch 2 ½ years ago- primarily because it functions as a peripheral device and not as an end-to-end Apple experience.

Apple’s corporate success has been built upon its desire to create elegant and simple user experiences around its products. The development of the iPad, iPhone/iTouch, iPod and Mac is entirely controlled by Apple from the moment a user turns them on to when the device is powered down. This allows the company to design products that tightly integrate the aesthetic design and functionality of the hardware with the software and services, making it intuitive and easy for consumers to use. All that users have to do is connect the device to a network (broadband or mobile- if even that) to get going. Apple TV on the other hand functions as a peripheral device within a broader television viewing experience that Apple does not have complete control over. This leaves consumers to deal with separate controls for Apple TV, the television set and potentially their cable set-top box, creating a very un-Apple-like experience from the integration of the hardware’s aesthetics, to the rendering of content on the display, to delivering additional value through applications.

iTunes has a robust video content offering. What started out as a music catalog for the iPod has grown to include podcasts, audio books and, most importantly, video content from television networks and movie studios. While the iTunes store has successfully been selling access to televisions shows and movies on a per unit basis over the years, there are persistent rumors that Apple is in discussions with these same video content providers to offer a subscription-based service through iTunes, mimicking cable’s content offering, but at a lower price point. Since the iTunes software is integrated with Apple’s operating system already, connecting it to an iTV device becomes trivial.

The AppStore already competes with TV and gaming consoles. One of the big trends at the Consumer Electronics Show earlier this year was web-enabled televisions that offer not only video streaming services over the internet but access to widgets through the likes of Yahoo’s Connected TV. With 140,000 apps on its platform, Apple has a massive head-start on potential competitive offerings from television manufacturers. With the iPad now expanding the opportunity for game developers while also providing a scaling solution for  apps currently in the App Store, Apple has become an even greater threat to traditional gaming consoles from Nintendo, Sony and Microsoft. By also leveraging apps or hardware, iPhones and iTouches can be turned into remote controls, enabling these apps to work in a more traditional television viewing experience as well as allowing for multi-user games to be played on a single screen, a capability that has been an exclusive feature of gaming consoles to date.

The iPad is a personal entertainment experience. While the iPad offers a great medium through which to consume a variety of content (apps, books, photos, magazines, movies, websites, etc.), because the display is only 9.7 inches it doesn’t make for a great experience when more than one person wants to participate. For an entire family to enjoy watching television or playing games together there needs to be a larger screen.

The iMac’s monitor is already big enough. Even though Steve Jobs referred to Apple as the largest mobile device company during the iPad’s launch event, the company still sells a fair amount of Macs. The current 27 inch display is large enough to already compete with smaller LCD and plasma television displays on the market today. The iMac also offers a great example of how Apple would approach designing-away the clutter associated with today’s television and gaming console cords and cables, creating a much more  aesthetic and desirable device for display at home.

With a complete line of mobile devices now available to consumers as well as content and app catalogs that render across Apple’s entire portfolio of hardware products, Apple will need to find new growth opportunities beyond its current line of ‘iProducts’ in the future. With internet-enabled televisions expected to be a $29 billion worldwide business by the end of next year, and with an average of almost 3 television sets in the over 110 million households in the U.S. alone, Apple can make a multi-billion dollar business out of home entertainment-enabled televisions- especially when you take into account the recurring revenue opportunity provided by video subscription services.

Considering Steve Jobs’ almost maniacal, hands-on approach to launching products, it’s doubtful that we would see a version of the iTV before January 2012. Until then Apple fans can enjoy the launch of the iPad and the evolution of Apple’s content offering in (hopeful) anticipation of a better home entertainment experience.

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Even with Android, and now Nexus One, Google Still has Apple Envy

While the media has enjoyed positioning the recent launch of Google’s Android-based Nexus One “superphone” manufactured by HTC as a direct competitive threat to Apple’s iPhone, I agree with Bill Gurley of Benchmark Capital that this is the wrong question to try to answer as Apple and Google are taking very different approaches to the mobile market. Apple, as in the personal computer market, has focused on developing the most well designed, highest grossing margin, products they can imagine at the expense of market share. Google on the other hand, by open-sourcing the Android operating system to handset and device manufacturers for free, is aiming to become the most widely used mobile operating system at the expense of Microsoft’s Windows Mobile and, to a lesser extent, Nokia’s Symbian (which is more widely used internationally) platforms. As Fred Wilson of Union Square Ventures alludes to, by leveraging its ability to tightly integrate its applications (Calendar, Gmail, Maps, etc.) into Android, Google can extend the operating system to provide a solution for not only consumers, but the small/medium business market as well, right out of the box. Having also signaled their intent to develop an enterprise version of Nexus One, Google will be able to challenge Research In Motion’s Blackberry platform for larger, more lucrative business clients as well this year. Combined with a strong pipeline of Android-based handsets being released by device manufacturers over the course of the year, it’s more a question of when rather than if Android will become the largest mobile operating system in terms of market share in the United States.

With such a bright outlook in mobile, why would Google be envious of Apple? Because Google wants to be more than just a search company.

Google’s mission has always been associated with organizing the world’s information and making it accessible, which enables users to more easily find content to consume. Apple, whose mission statement has evolved to include spearheading the digital media revolution, focuses on delivering this content in the form of applications, music and videos to consumers through its own devices and services. It’s this difference in how content is discovered and where it is consumed that has enabled Apple to establish a more direct relationship with both consumers and content owners than Google has achieved and, in the process, extract more economic value from both by way of hardware sales to consumers (iPhone, iPods, etc.) and distribution fees (through iTunes sales) from content owners.

Google is attempting to eliminate this relationship discrepancy primarily through acquisition. DoubleClick and, most recently, AdMob were acquired to provide Google with online and mobile display ad monetization capabilities, respectively, wherever the content is, regardless of device. In an effort to keep a larger revenue share, and further bridge the relationship gap it has with consumers who use Google to search but consume content elsewhere, Google has also entered the content business by, most notably, acquiring YouTube to help keep consumers within its network. Combined with the company’s recently failed attempt to acquire Yelp, I agree with Simon Dumenco’s assertion in his Advertising Age article that Google is attempting to become a media company in the process. Because Google’s content efforts have focused on user generated content though, the company has entered into partnerships to match Apple’s content offering- cutting deals with television networks and movie studios for premium content for YouTube, supporting an open app ecosystem on the Android platform and exploring partnership opportunities in the music space (though an acquisition of an iTunes competitor such as MOG or Spotify would make sense for Google and Android at this point).

Regardless of the number of phones that are eventually sold with the Android operating system and applications that are added to the platform, the truth is Google will never be able to replicate what Apple does, as the two organizations have completely different cultures which is evidenced in their respective approaches to mobile. Google’s left-brain, quantitative, engineering-driven approach to business isn’t organized to compete with Apple’s right-brain, qualitative, design-driven model. It’s in the design process Apple is able to foster an emotional connection between its products and consumers, something Google is unable to achieve because it provides software-based services. And because Apple design approach integrates both the hardware and software components of its devices, content providers, including Google, must work directly with Apple in order to reach these consumers. Apple’s design prowess will be on display again next week when they finally unveil the long-rumored tablet device which is expected to bring additional types of premium content from print publishers directly to consumers through these devices- adding more fire to Google’s Apple envy.

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It’s the End of Viral Sharing Tools for Widgets. And I Feel Fine.

Last month Joe Marchese, President of SocialVibe, authored a guest article on MediaPost entitled The Widget is Dead. Then earlier this month Clearspring announced that it was deprecating Launchpad, its original widget sharing platform [disclosure: the company pays my bills], adding fuel to the question- have widgets become relics of the Web 2.0 era?

The answer to that question is: not exactly.

To completely answer this question it’s worth defining what widgets are and are not first.

  • Widgets are typically described as portable chunks of code that can be installed and executed across third-party websites. The most well-known widget out there is YouTube’s video player that has enabled videos to be embedded and played across social networks, blogs and a multitude of other websites.
  • Widgets are not applications, like those found on Facebook, as they do not leverage the native functionalities of social app platforms, such as a user’s social graph, which ties these application’s capabilities and usefulness to one particular website.
  • Widgets do come in two distinct types based on their execution: content and utility widgets.

Content widgets (flash games, video players, etc.) provide the same functionality and end-user value, regardless of where they are embedded. Utility widgets on the other hand, are configured to each user’s identity or website’s needs. Some examples of these include Facebook Badges, MyBlogLog and SocialVibe widgets.

This difference in functionality between these widget types impacts their virality though not necessarily their adoption. Utility widgets are not viral by nature because each instance is unique, so there is little value for someone besides the owner to embed that specific version of the widget. These widgets gain adoption through a hub-and-spoke model where anyone who wants their own version must go to the widget providers’ website to create a new, tailored one to embed on a third-party page or site.

Content widgets on the other hand are predisposed to be viral because they do not require any configuration. If someone finds a widget embedded on a site they can directly share that instance of the widget to the destination of their choice. Services like Clearspring’s Launchpad and Gigya’s Wildfire were created to enable this sharing process to be more automated for users across social media destinations such as blogs, social networks and start-pages in an effort to enhance their viral adoption.

Since Newsweek declared 2007 The Year of the Widget a lot has changed in the social media landscape. MySpace, the most popular destination for widgets back then, has seen its user growth stall while Facebook and Twitter have experienced explosive growth around their platforms which have redefined content discovery and distribution. Widget sharing services have also been redefined in the process around the hub-and-spoke model, even for content widgets, as Facebook and Twitter have enabled virality to occur natively with their platforms with the introduction of activity streams.

As actions are taken by a user, such as sharing a video into these platforms, their social graph is notified of the activity. If any member of that user’s social graph plays (in the case of Facebook) or forwards (in Twitter’s use case) the video, this action is broadcast to that member’s own unique social graph which in turn enables the widget’s content to be perpetuated virally across other users’ social graphs based on their actions. If a widget becomes popular enough, the virality can reintroduce the widget several times  into a  person’s activity stream over a period of time.

Even the notion of a widget is being redefined as advertisers and publishers do not necessarily have to create a new, standalone Flash asset to enable their content to be distributed. With the sharing of links becoming a standard activity within Facebook and Twitter the need for widgets has taken a back seat to links that drive users back to a web page that contains the appropriate content or provides the ability for users to pull pictures and videos directly into these platforms or associated applications.

This evolution is actually good news for the widget ecosystem, especially content widgets, as costly projects that repackage content into widget form will give way to driving value for existing assets and web pages through link sharing. The sharing experience also becomes more standardized for users across different sharing services as the onus for generating virality shifts to the platforms themselves. As for utility widgets will be the least affected by these changes but will continue to be an important component of websites, blogs, start-page and even television experiences as these platforms try to extend their capabilities across the web. Finally, services like Clearspring’s AddThis that aggregate the various social media destinations for sharing as well as analytics into one service will become even more of a standard feature across websites as everyone looks to participate in the activity stream.

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Now That Banner Ads Have Turned 15, It’s Time for Them to Get Social

Head in the SandA couple weeks ago the advertising industry celebrated 15 years since the first display banner ad was presented online. In the years since then as the ads themselves have become more creative and dynamic through the use of Flash and JavaScript technologies, and the units through which these experiences are being delivered has been standardized across the web, how consumers engage with these ads hasn’t actually changed.

For the most part agencies and their clients have treated advertising on the internet much the same way they have older content mediums like print, radio and television: as a one-way channel to broadcast a marketing message to consumers. Since the internet has been a read-only environment for most users over much of its existence, it’s easy to see why advertising online evolved in the same manner as these other content channels. With the rise of blogs and social networks though, web users now have both read and write capabilities that allows anyone with an internet connection and keyboard to give their two cents online. Advertisers have been slow to acknowledge the two-way relationship that now exists on the web with consumers, whether they want to take part in the conversation or not.

Some social media-focused companies have taken it upon themselves to develop more engaging ad experiences on behalf of advertisers, such as enabling video ads to be shared across social websites [disclosure: my company Clearspring powers this feature for VideoEgg]. While this does create value for advertisers through individual endorsement, since the ad is being perpetuated by a person versus an ad server, the messaging doesn’t provide for any feedback. The same could be said for ads which aggregate Twitter commentary or Dugg articles around a particular brand, event or topic. Even though these ads dynamically insert content from specific sources into traditional banner ad units, the information is  moderated before being broadcast and isn’t necessarily oriented to the actual campaign.

Getting agencies and advertisers to embrace the idea that making their ads social will actually benefit their business requires participation from the largest social media sites with the necessary social capital (i.e. a big or growing coolness factor) to experiment with non-standardized advertising. Facebook and Twitter are obvious candidates to lead this effort not only because of their large audiences but because they incorporate the most prevalent user experiences on the social web: community-oriented, information streams of shared content.

Facebook has already put a lot of effort into creating new display ad units and ways for advertisers to engage with their audience, allowing Facebook users to not only interact with ads (by watching videos, RSVP-ing to events, voting in a polls, becoming fans of companies, etc.) but also provide feedback on uninteresting ads.

Facebook Ads

Since Facebook has created a self-service platform to manage the entire advertising process, ads can automatically be delivered at scale across  the entire site. And with Facebook focusing on providing the social identity layer to the web via Facebook Connect it’s easy to see how they could standardize and distribute their own ad units and engagement across participating Connect sites- much like Google has done with search and AdSense.

While Twitter has thus far avoided placing ads DiggAdson its platform, many Twitter apps are primarily monetizing their service through traditional display advertising units. To create a unique and more valuable advertising experience though, ads should be integrated into the actual functionality of these apps. Since tweets consist of text and links, the most logical type of ad unit would mimic sponsored search ads. Digg, whose community is similar to Twitter’s in that they share the most popular content on the web, offers the best example of what socially oriented, stream-based ads might look like.  As with Facebook ads, Digg allows its users to provide feedback on the sponsored articles on the site in real-time.

Whether it’s Digg, Facebook, Twitter or someone else, whoever can define the new display and in-stream social ad standard has a tremendous financial opportunity as Digg understands in contemplating syndicating their ad format to third-party websites via its own ad network. Developing ad standards are important for agencies as it allows them to execute campaigns on behalf of their clients at scale, with minimum creative friction, across a wide variety of websites.  For  most social media web properties that can’t command their own ad standards this gives them a framework for incorporating more relevant monetization experiences into their sites and services. Let’s not forget that Facebook leveraged standard display ads as a way to generate revenues when the site first launched.

These examples are just a starting point for social ads and will evolve over time. The key is that experimentation is occurring now with willing advertisers (whether they are participating because they truly care about the feedback or just want access to consumers on these sites is another story).  While some advertisers will be brought kicking and screaming into the socialization of advertising, early adopters will yield the greatest benefit from capturing the data and engagement directly from their audience versus pretending the conversation doesn’t exist.

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Developers Repeat After Me: App Platforms are Not Your Friend

Remake of Apple's 1984 Super Bowl commercialThe numbers speak for themselves- apps are popular. Facebook now has over 350,000 active apps on its platform with 70% of Facebook’s users engaging with these apps on a monthly basis. Apple recently announced that the number of downloads from its App Store had surpassed 2 billion for the 85,000 applications on its platform. Add in 30,000 apps from Google-backed initiatives Android and OpenSocial, and over 11,000 apps being built off of Twitter’s API, you have nearly half-a-million apps out there across the most popular social platforms!

Consumers have benefited greatly from the entertainment and utility value provided by developers on these platforms, propelling applications to the forefront of the user experience for many of these services. The value to these mobile and web platform providers has been evident in the accelerated user growth these services have seen since opening up access to developers.

Developers for the most part haven’t shared a comparable level of success as these platforms though. With VentureBeat pegging the value of Facebook’s app ecosystem at approximately $500 million this year, similar in size to Facebook’s expected 2009 revenues, little opportunity is left for the remaining 350,000 applications once you get past the success of Zynga, Playfish and Playdom, the leading developers on Facebook and OpenSocial platforms. A similarly distorted distribution of applications and success exists on Apple’s platform where the size of the app economy has been projected as high as $2.4 billion per year by GigaOM. Based on this optimistic projection and assuming only 50% of downloaded apps are free, there still isn’t enough money for the average developer to prosper over the long-term. The opportunity for most developers in the long-tail of the App Store is further skewed when you consider some of the outsized success stories from the most popular apps on the platform. Because Android’s ecosystem is relatively young and Twitter lacks its own business model, it’s too early to see if developers can make a living off of these platforms.

Even the virtual goods sub-economy that has been allowed to emerge on centralized platform ecosystems like Facebook and MySpace, which Inside Network has valued at $1 billion in the U.S. this year– even before Apple’s announcement of in-app purchasing capabilities for all App Store applications, the opportunity is disproportionately concentrated with the most popular applications and largest multi-app, multi-platform developers.

Making matters even more difficult for developers is the not-so-friendly actions being taken by platform companies in wielding power over their ecosystems:

So why do developers keep building apps for these platforms? Because of the effort (low development threshold and time commitment  to launch) and opportunity (built-in, captive audiences) compared to building a stand-alone business. Fortunately for developers who want to build their own audiences, and not be reliant on a particular platform, there are two primary ways to leverage these mobile and web services for their own benefit:

  1. Port your success. If a developer has been fortunate enough to find success on any of these platforms, they should convert those users into visitors of their own domain or service like LivingSocial has done. LivingSocial was a big benefactor of Facebook’s redesign of their home page back in March, vaulting LivingSocial into the top 10 most popular developers on the platform in the month following the change. The company was able to turn some of those users into customers of LivingSocial.com, which saw its unique visitors to the site almost triple between March and April of this year.
  2. Port the platform. Foursquare have leveraged social graph data from Facebook and Twitter via Facebook Connect and Twitter OAuth respectively to enable users to build their own unique social graph on Foursquare.com. Additionally the mobile service encourages its users to send notifications of their whereabouts into their Facebook and Twitter streams, which results in free exposure and viral marketing for Foursquare’s service.

Though the threshold for success will vary for developers, based on whether or not they have taken institutional funding, the risks associated with developing on another entities’ platform or costs associated with developing for multiple platforms remain the same- the long-term value of a product or service cannot be maximized when its business success relies on a platform it can’t control or pay for service level assurances. Look no further than MySpace’s acquisition of iLike this past summer, for a small premium to its invested capital, for market validation of this. While these social platforms should absolutely be leveraged as part of any web or mobile strategy, remember that each platform’s goal is to maximize its own value and not that of the application developer. Luckily, as Andy Weissman, founder of Betaworks, points out, some of the most successful applications can and do become platforms themselves, so a bigger opportunity awaits those developers that understand the ecosystem relationship.

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Television Programming Will Require Better Discovery in the Future

The ability to access any television program or motion picture on demand is more of a question of ‘when’ rather than ‘if’’ as internet-based delivery of digital television (known as Internet TV or IPTV) is enabling a variety of companies to already offer converged video viewing experiences to consumers.

  • Cable & Satellite Companies. While digital television services have traditionally been delivered by cable and satellite providers, these companies have also been at the forefront of providing non-linear television and movie watching capabilities through digital video recording (DVR) and video on demand (VOD) services. Now the likes of Comcast, DirecTV and Time Warner Cable are joining forces to launch TV Everywhere, a service that will enable their respective subscribers to access their television content on the web.
  • Telecom Providers. AT&T and Verizon are leveraging IPTV to build the most direct competitive offering to that of cable and satellite television. These subscription services include DVR and VOD functionality while also leveraging internet connectivity to allow users to access social networking services and video content from web aggregators through their set-top boxes.
  • Device Manufacturers. Television sets, Blu-ray disc players, video game consoles and digital media boxes are all incorporating Internet TV into their devices to offer consumers alternatives to traditional subscription-based linear programming. LG is producing TVs and Blu-ray players with internet capabilities to enable access to certain video websites and services. Microsoft’s Xbox system is repurposing its broadband connection used for multi-player gaming to deliver a similar video experience while also extending the social nature of the console to allow gamers to watch shows and movies with other Xbox users. Devices from Apple, Roku and Vudu offer dedicated alternatives to traditional cable and satellite boxes, providing their own content catalog to consumers in some cases or partnering with other video service providers in others.
  • Internet Properties. Sites such as Amazon, Boxee, Hulu and Netflix are also leveraging the internet to provide consumers PC-based options for streaming and downloading video content as well as partnering with device manufacturers to extend their respective web offerings.

As set-top boxes and other devices become more powerful and broadband connections get faster, business models will be forced to evolve to address the control consumers have in a converged video experience. So what could slow down the adoption of on demand television by consumers? The actual user experience of finding and discovering programming.

Think about how people discover what to watch on TV today. We know what day of the week, time slot and channel a particular show is broadcast primarily through television marketing. During the airing of any show on TV the network providing the programming for that channel will advertise other shows within its portfolio along with the appropriate tune-in information (typically the show being promoted will be broadcast on the same channel on the same evening or in the same genre as the show you are watching but on another night). Word of mouth marketing from friends, coworkers, etc. fill in the rest of our content discovery needs. Now fast forward 10 years when channels and time slots in a converged video experience give way to on demand programming- how do we discover what shows and movies to watch and recommend?

Current discovery options, available primarily on video websites, are basic filters (find by name, genre, latest and most popular) associated with each site’s content catalog. Clicker, runner-up for audience favorite at TechCrunch50 recently, is trying to enhance this type of discovery by structuring the underlying data associated with video content across websites to make it easier for users to search for content as well as build their own playlists to watch.

TVGuideFiltering only provides a partial solution though. Recommendation engines that offer video suggestions to users based on particular attributes completes the discovery equation. Netflix believes in the power of recommendations enough to award $1 million to a team that was able to improve Netflix’s current movie recommendation results by 10%. While user preferences are the key to Netflix’s recommendation results, other attributes do exist. Word of mouth discovery through friends can be equally, if not more, effective. Based on the homophily principle that “birds of a feather flock together”, if your friends highlight certain shows and movies as favorites then you might be inclined to watch them as well. TV Guide, the original provider of television programming information before the internet existed, offers a web-based solution for discovery through association by leveraging Facebook Connect to allow users to access their social graph on Facebook to see what shows are their friends’ favorites.

Interestingly enough I’ve yet to see anyone combine the power of push and pull (recommendations and search filters) discovery into a single solution. The company that creates an intuitive user interface that incorporates both types of discovery mechanisms to enable the programming of a television has a tremendous opportunity to own the converged video experience across multiple providers or directly with the consumer. An internet company such as Netflix, which has distribution partnerships with video service providers, a large subscriber base and a recommendation engine, is best positioned to provide this type of solution. Some might consider Hulu an option, but it has focused its efforts on being a technology and web distribution platform up to this point. From a start-up perspective, Boxee, a favorite of the early-adopter community still lacks the service distribution partnership, established media relationships and easy set-up to be considered a serious threat in the short-term.

In an on demand environment television networks and movie studios face an equally daunting task regarding discovery- how to promote their content to subscribers. Recently launched Simulmedia is attempting to address this problem for media companies by better targeting users with on-air promotions through data mining. This methodology could easily be applied to a non-linear viewing experience that could really benefit networks and studios. Services that can leverage subscriber data to target users with the appropriate programming promotion will be important as audiences are only willing to tolerate so many interruptions while watching television. Each pre-roll, mid-roll or overlay that is used for marketing television shows takes away from potential advertising dollars that could be placed there instead.

Where networks will have leverage with audiences and advertisers is in broadcasting live events. Securing rights to sporting events, award shows and the like can mitigate some of the effects of non-linear viewership. Knowing the day and time when an audience will be watching television opens up a tremendous opportunity for timing the release of shows, movies and advertising campaigns around the event.

Regardless of whether a discovery solution being implemented for consumers or provides, in a converged video experience both parties have the benefit of leveraging various user and content data sets to create a more efficient discovery process than is available to us today.

Now if I could just figure out my remote.

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Want to Monetize User Generated Content? Make it Consumer Generated Media!

Users_AdvertisersOne of the biggest things Web 2.0 will be remembered for is its proliferation of user generated content (UGC). With falling bandwidth and storage costs, the thinking was that entrepreneurs could amass a large audience fast, and lock-in users in the process, by offering visitors a place to create, upload, manage and/or share their personal content (articles, photos, videos) with friends- and provide it all for free. The network affect would drive adoption as users invited friends to the site to check out their content, who in turn would sign up for the service themselves (thus the user acquisition costs could be defined as the per user cost for hosting and delivering the content). Once a site’s audience reached a certain threshold, the idea was to monetize these visitors through advertising and, to a lesser extent, premium services (i.e. get people to pay for more storage, additional features, etc.). Sites like Blogger, Photobucket and YouTube were launched to meet specific user needs around content verticals (articles, photos and videos respectively), while social networks like MySpace enabled the content to be aggregated by allowing their users to embed widgets from these UGC sites for everyone to see on the social network. While this tactic was a boon from a user adoption perspective, the revenue opportunity hasn’t proved itself for the acquirer of these web properties (both Blogger and YouTube were acquired by Google, while MySpace and Photobucket were acquired by News Corp/Fox) as of yet. While adjacency issues (displaying a brand advertisement banner next to objectionable content on a website) have been a primary excuse for poor CPM rates on UGC sites, the real issue has been the lack of higher value, integrated branding opportunities available to advertisers to leverage the unique behaviors of these communities. Since visitors to UGC websites are there to develop their content and interact with other users, standard ad units that push contextually irrelevant content are completely ignored. Considering that the Internet population is increasing the amount of time it spends on these types of properties, advertisers need a way to reach these users in a manner that is consistent with how people use these sites. So what’s the solution that provides UGC sites with more revenue, advertisers with better value for their ad spend and users with a enjoyable ad experience? It’s consumer generated media (CGM). While some might consider the difference solely semantic, there are differences between CGM and UGC in how the content is produced. Consumer generated media is created based on explicit and/or implicit sets of guidelines while user generated content has no such restrictions. These parameters enable producers of user generated content to create three types of consumer generated media.

  1. Participation. Self-promotion is a big reason why people upload their content creations to sites like YouTube. So what better way to help some of them realize their 15 minutes of fame than by having them participate in an ad campaign! YouTube_ContestThe typical model for participatory campaigns is to create a contest where users upload their videos or photos with explicit guidelines around what content qualifies, how winners are chosen and whether the prize is fame and/or fortune. Doritos was an early adopter of this model, leveraging fans to create Super Bowl ads on behalf of its brand, with the top 5 entries getting a monetary prize ($25,000) and a grand prize winner having their creation aired during the Super Bowl (in fact this year’s contest winner was also named the best ad by consumers, resulting in an additional $1 million prize!). According to Forrester Research, consumer generated video campaigns are are a popular way for a wide range of industries to drive brand loyalty. With the growing popularity of Twitter, even commenting-based campaigns are gaining traction as advertisers include a filtered set of publicly available tweets in widget-based ads. In both cases, you can see how leveraging the participatory nature of UGC sites can provide a quick and cost effective method for reaching and engaging with an audience, and in the process create ads that are more relevant to the intended audience.
  2. Endorsement. Out of those seeking fame and fortune online a few have actually achieve celebrity status. Due to the open, promotional nature of UGC sites, individuals such as Justine Ezarik (iJustin), Rhett McLaughlin and Link Neal (Rhett & Link) and Gary Vanyerchuck (Gary Vee), have been able to grow their popularity from within specific communities. As such there is a stronger perceived relationship and level of trust afforded to these individuals by their followers than you would find with more mainstream celebrities. This has also enabled these internet celebrities to leverage their success on one content platform to create devoted followers across other UGC sites (Facebook, Tumblr, Twitter, etc.). Thus, an endorsed campaign centered around one community’s platform offers an opportunity for the endorsement overflow into the individual’s other audiences as well. But because of the relationship these personalities have with their followers, advertisers interested in leveraging the endorsement model need to trust these internet celebrities to communicate the value of the advertiser’s brand in their own voice. Scripted endorsement could be construed as disingenuous and risk damaging both the celebrity’s and the advertiser’s brand. In putting together this type of program explicit guidelines should only be placed on the topic and context the online celebrity will be communicating to their audience, while implicit guidelines should be used around the content itself (the individuals’ thoughts, experience, etc. with the brand). Companies such as Carl’s Jr. and JetBlue have both recently experimented with this type of consumer generated media to promote their respective brands. For UGC properties, highlighting these celebrities or power users (if the former doesn’t exist) as potential brand advocates can yield high engagement- as long as the brand is willing to give up a certain level of control in the messaging. In addition to the monetization opportunity for both the web property and its endorsing personalities, this type of campaign can further strengthening the relationship of the site with its community as users see how the time and effort they put into the site can be rewarded.
  3. Mashup. Combining user generated content with elements of professionally produced media (user generated video that incorporates a popular song into the experience is an example of this) can create an unexpected branding and, more importantly, revenue opportunity if embraced by the copyrighted content owner. These UGC productions are traditionally taken down by the UGC site host at the request of the professional content owner before the mashup has a chance to gain any traction in most cases. But the viral success of the JK Wedding Entrance Dance (choreographed to Chris Brown’s ‘Forever’) shows what can happen if allowed to flourish with the appropriate technology capabilities and business relationship in place to identify and capitalize on the opportunity. The popularity of this video mashup resulted in increased music sales for Chris Brown and his record label in addition to providing YouTube with a new revenue opportunity. In fact, YouTube is encouraging future mashups by allowing producers of viral video hits to participate in the revenue generated from their creations. Imagine the creative mashups that would be produced if content from media companies and the like were readily made available to a site’s users to mashup on a consistent basis? A scenario could evolve where the professional content owner wouldn’t need to spend marketing dollars to promote their content as a site’s user would essentially be doing it on the company’s behalf. This could evolve into more of a participatory model, though with a focus on revenues versus branding. Because the mashup model is user-initiated, the only parameters a brand can place on the experience is implicitly around the content as the professional production can only be spliced or layered into UGC content but the quality cannot be altered. The key for UGC sites is to have identifying and tracking technologies in place to enable monetization (instead of inhibiting it as most copyrighted content owner seem to do) and the right business partnerships to execute and share in the revenues.

While the ability for advertisers to control the brand message and user experience decreases as they progress from the Participation to the Mashup model, the potential brand engagement value actually goes up as the ad unit becomes pull-oriented versus the typical push model (where a user proactively grabs the content ad to consume versus landing on a page where an ad is ad served) making the experience more engaging. The key for advertisers is to find their comfort zone with these guidelines and the right UGC web property to help plan, deliver and report on the appropriate model.

Here’s to the evolution of consumer generated media!

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Making User Profiles Public: The Case Against Facebook’s Acquisition of FriendFeed

friendfeed-facebookBefore I play devil’s advocate, I will state that I am a fan of Facebook’s acquisition of FriendFeed from both a business and strategic perspective. Most tech journalists have already provided great coverage on the value of the deal from an acquisition of talent, feature capabilities and search functionality perspective– so I won’t rehash it here. That being said, only Marshal Kirkpatrick of ReadWriteWeb commented on the potential downside of the acquisition as it relates to Facebook’s other big move from the same day- launching improved search functionality across its website. With these two announcements, Facebook officially entered the fray in the battle with Google and Twitter over real-time, socially relevant search.

In the process Facebook also signaled its intent to make user profiles and associated content more public- and therein lies the potential problem. Facebook’s success as a social networking platform has been built on the philosophy of having users connect with one another using their real digital identities, which is in contrast to MySpace and many other social networks that allow users to create anonymous identities. This has led to Facebook evolving into a platform where people connect and share their personal interests and experiences with actual friends and family. This creates a sense of privacy within and beyond Facebook’s walled garden (Google can’t index the site’s content for search purposes) that isn’t found on MySpace, Twitter or FriendFeed where user profiles and content are publicly accessible.

By introducing ways for strangers to initiate and participate in conversations with other users in real-time and enabling search along these same lines, both core strengths of FriendFeed’s service, Facebook risks alienating the core audience that has made it the largest social network in the world. We’ve already witnessed the privacy backlash Facebook faced over Beacon, which attempted to push users’ activity from across the web into Facebook. So it’s not a reach to think users might react similarly to their data being made available outside of their social graph on Facebook.

Since Facebook’s core audience of college-aged users are more interested in extending their current relationships online than meeting new people outside of their school and personal social circles, the company is left with a data set problem. Facebook needs its users to expand their social graphs to include casual connections as well as enable consumption of additional content channels (creating additional link value) to better position its social search results with a richer and larger data set than is available today (just do a keyword search on Facebook and compare the results to that of Twitter’s to see the current data set disparity).  As Facebook attempts to broaden its reach and associated monetization opportunities, it risks compromising what has made it so popular and differentiated from other social networks. The worst case scenario for Facebook is that the push to make users and profiles more public creates the larger, richer data set to compete with Google and Twitter but in the process drives Facebook’s core, more private, users off the platform, neutralizing the growth of its public data set.

Luckily for Facebook there isn’t a viable alternative to the site that could capitalize on this potential opportunity in the near-term (we know teens and college kids are under-represented on Twitter due to the same identity and trust issues present on MySpace). That doesn’t mean Facebook can’t or won’t be overtaken someday as Friendster and MySpace were before them. It will be interesting though to watch the timeline for rolling out FriendFeed features on Facebook and whether the next generation of social network users (high school and junior high school students) flock to Facebook or look for alternatives. At the end of the day though, maybe Facebook doesn’t care about these younger users as it becomes large enough to focus its efforts on the older portion of its audience that controls the discretionary spending advertisers are so eager to reach. Time will tell how this case is resolved.

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