Video Content in a Mobile World: Diet-Sized and Distributed

100 Calorie Snacks

While the tech industry was buzzing over Facebook’s $19 billion acquisition of WhatsApp, the social network’s original blockbuster deal, Instagram, was quietly making some interesting news of its own. Action-sport channel Network A, a property of next-generation media start-up Bedrocket, announced the launch of a first-of-its-kind video series called ‘#goodstuff’. The lifestyle series, which focuses on event and product reviews in its first installment, will be exclusively distributed on Instagram over the course of ten, 15-second episodes.

Instagram Video, which only launched this past June, has had a couple of other ‘firsts’ on the branded, short-form content front in recent months. In December Mass Appeal launched the first animated video series on the app followed by the launch of Instafax, a news-clip series from BBC, in January. While watching videos over the internet has become commonplace thanks to YouTube, Netflix and others, these three video series are the first to be created specifically for a mobile-first social networking audience. The combination of Instagram’s photo/video sharing experience with user engagement and growth figures that exceed those of Facebook, as well as those of rival mobile social networking apps, makes the company and it’s 150 million-plus user platform a logical place to experiment with new forms of atomized content creation and distribution.

The typical process for distributing video content online usually includes developing a branded destination website and accompanying YouTube channel to garner views. That won’t work in mobile, where apps are preferred by users and competing for attention is further challenged by siloed experiences and navigation constraints relative to the web. Instead of introducing yet another app for consumers to hopefully download, content creators have the opportunity to leverage the popularity of the most engaged social apps to efficiently reach their intended audiences.

In a day an age where smartphones have enabled content consumption to proliferated (just look at music video site Vevo’s recently revealed 2013 viewership stats), some mobile applications have imposed functional constraints (Twitter’s 140-characters, Instagram’s 15-second videos, SnapChat’s disappearing content, etc.) to create unique, and successful, user experiences. Without these limitations on the web, content creators have never had to consider developing stories to fit this new mode. While Netflix has shown us that a full season of House of Cards (about 13 hours) might be the upper-limit for online video storytelling, consuming this type of content is still best suited for TVs and laptops. Mobile devices, with their smaller screens, slower data connections and app-centric usage already lend themselves to content ‘snacking’- so why not experiment with optimizing production for these mobile confines.

The onslaught of webisodic content during the aughts, which launched such companies as Blip.tv and EQAL, eventually proved to be overly optimistic. But the issue might have been one of timing more so than anything else. The social-mobile generation is more likely to trade quality for content brevity and platform convenience in a world of streaming digital distractions.  Recasting webisodes to fit the realities of mobile could enable such experiments as lonelygirl15 to succeed longer-term. If the right content experience can be created for audiences, the quality will follow. If ESPN’s SVP of Product Ryan Spoon comments are any indication, users are willing and ready. The question is- can you successfully condense something like Modern Family into 3-minute seasons?

Time will tell if the ‘mobisode’ makes its way into your stream.

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Why Viewable Impressions Won’t Matter

Reading the increasing velocity of articles written on the topic over the course of last year, ‘viewable impressions’ has displaced ‘ad verification’ as the hot delivery topic in the adtech industry for 2013. But when you start to consider how the media consumption habits of internet users are changing, does trying to determine which approach is the most accurate in identifying whether ads are being served within a viewing pane really going to matter in the near future?

Consumers are spending a growing amount of time on social networks- more than any other category of sites on the web and as such are becoming accustomed to a content consumption experience that differs from typical website content management systems. The traditional web page is an adaptation of legacy print media which pieces together multiple columns of static content with blocks of ads in a portrait layout. Led by Facebook’s News Feed, social networks are popularizing a different approach that displays standardized units of content, in the form of text, links and images, from a user’s social graph in a single column that updates with new information in real-time.

Quartz_AppThe pace of adoption of mobile devices is furthering the spread of this stream-based approach to presenting content, as digital media companies attempt to package all of the information embedded on a traditional web page into a mobile app or website which is limited by the smaller screen sizes of smartphones and tablets. An early example of this has been Atlantic Media’s launch of Quartz in September, which is a digital only business media property built specifically for the mobile web that just announced that it has already reached 1.4 million unique visitors as of December.

Facebook_SponsoredStoriesThe reason the adoption of a new digital consumption experience matters to the viewable impressions conversation is in how the content and associated ads are being presented to users. Both Facebook and Twitter have shown how this combination can work in the age of social streams and mobile devices with Sponsored Stories and Promoted Tweets respectively. Both ad units are integrated into the content feed from a look and feel perspective and targets users based on their social graph relationships. The ad units themselves can be fixed in the flow of the content stream, moving down the page as the feed refreshes with new updates, or fixed at the top of the feed. In either case, since the content cascades down from the top of the app or web page the ad is always being presented, and thus seen, in the user’s viewing area.

The stream-formatted approach to content presentation is also starting to make its way on to traditional digital media websites like ESPN which launched the beta of its SportsCenter Feed in September. ESPN, which has traditionally been an early adopter of digital technologies and experiences, is taking a similar approach as Quartz in delivering a real-time, ad-supported, news feed with the added capability to consume subsets of the stream via content-specific tabs as well as the ability to add skins to the background that further promote the content sponsor.

ESPN_SportsCenterFeed

In all of these stream examples, the ad creative is muted compared to the typical bright and flashy ad unit and consists of a single advertiser. So what the advertiser loses in ‘wow’ factor (or ‘ow’ from the user perspective) with a traditional ad experience is made up for in relevance (hopefully) and singular attention by not having to compete with other advertisers on a page and by being presented front-and-center to the user- ensuring the ad is seen. As the real-time news feed approach to presenting media proliferates, it will alleviate the need to utilize delivery verification services for viewable impressions for digital media entities adopting this new approach.

Remember, it wasn’t that long ago that the adtech industry was consumed with a different delivery issue- ad verification, with the likes of AdSafe Media and DoubleVerify raising over $50 million combined over the course of 2010-2011 to build a business around solving for this issue. In 2012 both AdSafe and DoubleVerify replaced their CEOs while AdSafe also underwent a rebranding as ad verification became commoditized at the ad server level and smaller problem, especially related to premium content publishers, than the industry led everyone to believe. Let’s not go through this again with viewable impressions.

Photo image source for Quartz: @erichfranchi

Twitter’s Evolving Broadcast Network

Last week signaled a big step in the evolution of Twitter as a broadcast medium. Starting with the announcement of a weekly email digest that summarizes the most relevant tweets from within each individual’s network, Twitter moved from being just a carrier of tweets to a curator of them as well. Combine this with the partnership announcements made at the end of the week, Twitter is starting to look less like a consumer technology platform and more like a traditional media platform. But what else does Twitter need to do to complete this evolution?

Slowing Down the Stream to Grow Faster

One of the primary challenges that Twitter needs to overcome to make this transition will be to develop a broader-based audience. Six years into its existence Twitter has reached 140 million users. But compare with Facebook which hit 500 million active users in the same time frame and Instagram, which will most likely pass 140 million downloads by the end of this year if they continue on their current growth trajectory– a mere 2 years into its own existence. So why hasn’t Twitter, which has similar brand recognition as Facebook and exceeds that of Instagram experienced similar growth? It boils down to simplicity and relevance. Facebook started out by focusing on photo-sharing and communication on the web while Instagram took photo-sharing to a new level in mobile. Both services were built in a manner that makes it easy for users to find and consume individual posts by highlighting the most relevant content in their feed based on their social graph’s interactions with it. Twitter on the other hand has always been about real-time distribution with little framework around how to use it, making it intimidating and not intuitive for newer, mainstream users. If Twitter hopes to reach 2 billion users it will need to focus less on what has made it popular to date (the real-time nature of the platform) and more on how the rest of the world consumes content (at their leisure). The new weekly digest feature, combined with the launch of the Discovery tab on Twitter’s apps at the beginning of the month should go far in simplifying the on-boarding process for new users by making the entire content experience more digestible.

The Reality of Real-Time Monetization

At the same time, Twitter needs to solve how best to monetize the real-time web experience beyond Promoted Tweets. For all the interest and excitement around real-time feeds, except for a few situations, no one has yet to prove there is a business model that can be built around it. Finance is the only traditional industry that operates in real-time to begin with, so companies like Stocktwits are in the enviable position of having already built their business around capturing the stream of stock market commentary on Twitter and providing additional analytics and services around that information that professional investors are actually willing to pay for.

The one area where Twitter seems to have identified opportunity around monetizing real-time communication is live events such as sports and award shows. The most popular events on Twitter, in terms of concurrent volume of tweets, have been sports-related, the Champions League soccer semi-final followed by the Super Bowl from this year, which had the highest tweets per second volume of any topic ever discussed on Twitter. The partnership announcement between Twitter and ESPN last week to create interactive programming around major sporting events is the first attempt to monetize this highly engaged audience on Twitter through advertising. Combined with the announcement the following day with NASCAR to curate tweets from a variety of sources around specific race events, you can see how Twitter could build a real-time business around curating the second-screen media experience.

Beyond these examples, all the other information being tweeted (except for natural or social emergencies like earthquakes and riots which cannot be monetized anytime) doesn’t require real-time distribution to be effective. The killing of Osama Bin Laden? The passing of Beastie Boy Adam Yauch? Great information to have, but isn’t any more critical or particularly more valuable when provided in real-time nor can it really be monetized appropriately. So by slowing down the stream experience, Twitter might actually be able to increase their monetization options beyond their current offering.

Continuing to Evolve Through Acquisition

Twitter’s broadening platform capabilities have benefited greatly from  acquisitions. The weekly digest looks like it is leveraging Twitter’s acquisitions of both Summify (a provider of daily summaries of the most relevant news from social networks) at the beginning of the year and RestEngine (a personalized email marketing service) earlier this month. For Twitter to continue down this path as a media broadcast network, additional acquisitions will be likely. While the biggest headlines Twitter has made on the acquisition front recently have been for the latest photo-sharing app it didn’t buy, the company should look at Pocket (formerly Read it Later) on the consumer side that allows users to save content for consumption at a later time- a sort of DVR for the real-time tweet stream- as an example of potential add-on services for its platform. On the business side, enhancing its analytics offering to compliment the tools and services it already provides to media publishers and advertisers should be Twitter’s primary focus.

From Content Carrier, to Curator, to Creator?

Ultimately, the type of broadcast network Twitter decides to evolve into will depend on whether or not the company gets into content creation. A recent job posting by Twitter aimed at journalists seems to indicate just that and may expand on the previously announced ESPN and NASCAR relationships. Luckily the evolution from carrier to curator to eventually a creator of content isn’t without precedent. Comcast was a carried content over its broadband networks until it decided to buy NBC a couple years back (after an unsuccessful attempt to acquire The Walt Disney Company years ago) to get into the curation and creation businesses. And as Matthew Ingram from GigaOM pointed out, YouTube has undergone the same progression with the announcement last fall of a $100 million fund via Google to invest in online content creators.

With each new step Twitter takes in its evolution as a broadcast network, the company exposes itself to greater business risks, but also greater financial rewards, by owning and further streamlining the process of getting content in front of consumers. Finding the intersection that optimizes the content consumption experience for users with Twitter’s own platform strengths and capabilities should be the main focus for the company going forward. If Twitter can find that optimal mix, it can become the internet’s answer to traditional media broadcasting.

With the Acquisition of Instagram Facebook is Only Halfway Done in Mobile

So Facebook decided to one-up its own IPO proceedings last week with the news that it had acquired the photo-sharing mobile application Instagram. By any conventional metrics, the $1 billion price tag for a company with no revenues, 13 employees and 30 million users at the time makes little sense. On a relative value basis though, the move is a brilliant one by Facebook. The company essentially paid 1% of its market value for Instagram which is well on its way to surpassing 100 million mobile-only users by the end of the year. To put this growth into perspective, it would make Instagram 1/10th the overall size of Facebook and potentially 1/5th the size of Facebook’s mobile audience by the end of the year- not bad for a company that’s been around for less than 2 years. More importantly though, by acquiring the most popular free app in Apple’s App Store, Facebook adds a critical capability that extends its platform experience in mobile.

Facebook was a child of the now officially-ended Web 2.0 era, so its website was built to be experienced on personal computers. Now thanks to smartphones an app economy has emerged that has enabled companies like Instagram to optimize the user experience of their applications solely for mobile phones. Alongside the acqui-hire of the team from mobile messaging app Beluga last year (which subsequently built Facebook’s Messenger app) Facebook now has apps that bring the company’s core features from facebook.com, photo-sharing and communications, to a complementary set of stand-alone mobile user experiences.

These acquisitions don’t solve all of Facebook’s mobile needs though. Since Facebook Messenger and Instagram, as well as Facebook’s own apps, are built specifically for smartphone operating systems half of the mobile subscribers in the U.S., and an even a greater percentage in the largest European Union countries, can’t access these apps because they don’t own smartphones. Even with sales expected to cross 1 billion devices worldwide in 2014, smartphone penetration will still only reach 15% of mobile users, meaning Facebook can’t rely on smartphones reaching a tipping point in the near-term to address the risk factors associated with its growing mobile audience.

As Facebook reaches market saturation in many developed countries, the company will need to rely on emerging markets for the majority of its future growth from a user acquisition, and eventually, a monetization standpoint, as the primary means of accessing the internet in countries such as Brazil, India and Russia will continue to be through mobile devices. That means creating mobile experiences that are ubiquitous across devices and not tied to any specific operating systems is paramount for Facebook to scale its mobile offering. The Instagram deal notwithstanding, Facebook has spent the past year putting the pieces into place to address the other half of the mobile landscape.

Starting in March 2011 Facebook acquired Snaptu, a provider of smartphone-like usability on feature phones for an estimated $60 to $70 million to expand the capabilities of Facebook for Every Phone. Then in October the company announced the release of its mobile app platform that enables social discovery of HTML5 and native apps. Facebook followed this up with the acqui-hire of the team from HTML5 app platform Strobe and the hiring of a head of Mobile Developer Relations from Strobe competitor Sencha in November. Since then Facebook has continued to support the launch of their mobile platform with a series of mobile hack days and the open-sourcing of their browser test suite, Ringmark, for building apps on the mobile web. With 1 billion HML5-capable phones expected to be sold in 2013 the open, mobile web will be just as important as native smartphone apps to Facebook’s success.

With Facebook’s IPO now expected to take place a month from now on the heels of a booming advertising business, the company is well positioned to support a $100 billion valuation. But for Facebook’s stock to continue to perform well one of the key non-financial metrics investors will focus on is active user growth. As the company’s mobile user penetration trends past 50% of its overall user base towards 100% due to increasing smartphone adoption and emerging market user growth, extending the Facebook platform capabilities in mobile will allow the company to create natural revenue extensions in mobile for both its advertising (like the recently announced Reach Generator) and payments businesses that leverage both apps and the mobile web. But with international representing a growing portion of Facebook’s revenue mix, developing an ecosystem around the mobile web will be especially important for the company to continue to drive engagement and revenues.

If Facebook can execute on the assets they have put in place now, the company can turn the most overanalyzed aspect of its S-1 registration statement into its biggest growth story. In the process Facebook just might be able to answer the question- who’s going to be the Facebook of mobile- with itself.

Photo image source: Johan Larsson on Flickr

Is Path (2.0) Mobile’s Path?

One feature of the recently announced Nike+ FuelBand, Nike’s new activity measuring wristband, is its social integrations that enable users to share their activity data on Facebook, Foursquare and Path. With over 800 million and 15 million people using Facebook and Foursquare respectively these tie-ins make sense for Nike. For Path though, which re-launched its app a mere 2 months ago, this represents a big coup considering it just passed the 2 million user mark. It also highlights the early stages of a user experience in mobile that mimics the content creation and consumption cycle on the wired web.

Path 2.0 incorporates a set of activities- Photos, People, Places, Music, Thoughts and Sleep/Awake status- that users can post to their timeline and share with their network. By initially focusing on these social services, Path’s mobile functionality either super-sets (in the case of Places and Thoughts) or competes with (for Photos and Music) some of the most popular mobile apps available:

  • Photos: The basis for the original Path app, Photos, which incorporates image-filters as well, competes with many other photo-sharing apps including the wildly successful Instagram.
  • Places: Popularized by location-based social networks, Path also offers check-in services inside its app and allows the location data to be posted to a user’s Foursquare account.
  • Music: Giving users the ability to insert song clips into their Path timeline competes directly with the relatively new but popular SoundTracking app.
  • Thoughts: Like any social network, commenting is a core functionality which Path supports and allows to be shared to both a user’s Facebook and Twitter accounts.

By leveraging design, for which the company has received rave reviews, Path has created a differentiated mobile user experience that consolidates these services into a single app. While competition between content creators and aggregators for audience attention is a relatively new phenomenon in mobile, it has played out over several cycles on the wired web already. Yahoo became a very popular web 1.0 destination by providing an online directory through which the initial content creators on the web could be found. Over time Yahoo evolved from being just an aggregator to a creator of content as well- launching successful finance and sports content verticals in the process. As the web matured, traditional media (magazines, newspapers and television networks) began bringing its offline content online, shifting consumer attention back towards these properties. Then came Google who re-aggregated the content experience for audiences by providing a better way to discover exactly what people were looking for through its search engine. Google has also tried leveraging its audience by acquiring (i.e. YouTube) or launching (i.e. Gmail) content and services that keep these consumers engaged with Google’s properties. When web 2.0 came along the balance of attention started to shift to socially oriented sites like MySpace and Photobucket where the users became the content creators. As last week’s S-1 filing reminds us, Facebook won the battle for social networking supremacy as they created a platform that not only aggregates individual content creation but enables professional content to be curated in the same experience as well. In the process Facebook took the aggregation idea one step further than in previous cycles by allowing other companies (such as Zynga) to build applications directly on the platform, thus ensuring users continued to engage with Facebook.

The ushering in of the mobile app economy by Apple has led to the development of hundreds of thousands of task-specific apps- from games and content apps to personal utilities and social networking services. Relatively few of these though have been built to aggregate individual app experiences. Path is attempting to do this, and take it a step further at the same time, by creating its own set of services (Photos, Music, Sleep/Awake status) alongside super-setting such well-established apps as Facebook, Foursquare, Twitter and now Nike+ through the use of APIs. A consistent, mobile-only experience throughout Path’s app allows users to still participate in these underlying networks but aggregates the engagement within its own app, which if successful, would allow Path to eventually drop their connection to these underlying social networks.

How valuable consumers find the aggregated experience versus using activity-specific apps will determine Path’s success ultimately. And while design may very well continue to win over users from competing web and mobile services, Path will need to grow beyond the Valley’s A-List of users and connect with the average American already using Facebook if it’s going to win the first wave of mobile app aggregation. If not, which companies stand to benefit in this cycle?

Time for Television Ratings to Get Social

The start of the current fall television season has highlighted the importance of social media in driving awareness and tune-in for new and established TV series as audience consumption habits continue to fragment across device and social platforms. With multiple apps being promoted by shows, networks and even TV service providers for checking-in to these broadcasts as well as fan pages and hashtags used to centralize the conversation around each episode, there is a growing need for audience measurement beyond the traditional Nielsen ratings.

The Nielsen Company is the de facto provider of the ratings system used to determine how the 60 billion in television advertising dollars are allocated amongst broadcast and cable network line-ups. The company relies on the behavior of 50,000 Americans across its sample of 25,000 households to extrapolate ratings for the nearly 115 million households with television sets in the U.S.  The resulting ‘share’ of audience Nielsen attributes to each TV episode on a nightly basis ultimately effects which series get renewed or cancelled (for a great primer on how Nielsen’s TV ratings system works, check out this ESPN-style animated video on the topic from local Washington, DC creative agency JESS3).

Though with the number of households with television sets dropping for the first time in 20 years, on-demand video platforms taking viewing time away from traditional television and multi-tasking across multiple screens a growing reality, traditional means of measurement are failing to capture this evolving consumer behavior. While Nielsen is working on ways to aggregate this distributed viewing audience through its ‘extended screen’ initiative, the company isn’t measuring the actual activity on the social web occurring around the episodes being watched. This represents an opportunity for services that provide a platform for social engagement as well as companies that aggregate TV show-related conversations from across the internet to address this information gap. While both Facebook and Twitter have their own media-related initiatives that allow fans to interact with one another as well as with the shows and their stars, neither network focuses on quantifying this engagement on an industry-wide basis.

Services like BuddyTV, GetGlue, Miso and Tunerfish, on the other hand, have been built in a manner that can address this need. Having ridden the check-in wave popularized by location-based service Foursquare, these event-based social networks (EBSNs) capture when consumers are tuning in to watch television and aggregating the activity being generated around each show within their respective apps and websites. GetGlue, the largest of these services, already has more users checking-in to the most popular shows on its platform than the size of Nielsen’s entire sample audience, making it statistically valuable to the ratings conversation.

Even though the demographic make-up of EBSN users is not representative of the overall U.S. population (which Nielsen does try to mirror in selecting its households), check-in services make up for this by highlighting the actual activity of the most desirable audience to advertisers (18 to 49 year-olds) and not just projections. For advertisers this represents a unique opportunity to target these consumers in a highly engaged environment by extending their TV advertising for particular shows to the equivalent social web channels and mobile devices. To bring the desired scale to this type of opportunity though, these social environments need to be aggregated somehow.

That’s where companies like Bluefin Labs, General Sentiment, Social Guide and Trendrr come into play by not only aggregating publicly available social commentary but filtering and normalizing this data from disparate sources (EBSNs, Facebook, Twitter, etc.) to identify the underlying sentiment of a broader range of web users. This provides a more complete view of the engagement associated with shows across the social web in real-time as well as beyond the initial airing time slot of each episode. The resulting findings might be just the data set necessary to become the de facto social television rating to rival Nielsen.

Even with Nielsen’s recent ratings calculation glitch, it’s unlikely that the company will be replaced as the ratings system for the television advertisers industry in the near future. But as audiences for traditional TV continue to disperse across more mediums and content experiences, the need to compliment the ratings discussion, and ultimately how advertising dollars are allocated, with additional data will only continue to increase. This creates an opportunity for actual engagement-related metrics to gain equal footing with passive stream and tune-in projections over time.

So how do we get there?

While results from a recent NM Incite (a Nielsen/McKinsey company) study confirms the correlation between social activity and TV ratings, the opportunity for social television start-ups is in identifying and explaining the variations in popularity between Nielsen’s most highly rated shows and those series being discussed online and how to benefit from it.

The combination of tune-in and conversation activity make EBSNs the most compelling data set for social television ratings. The challenge is that the company that popularized the check-in, Foursquare, only recently passed 10 million users worldwide itself, a far cry from Facebook’s 150 million users in the U.S. alone. For EBSNs to reach Facebook-like adoption, they need distribution and a more automated process for socializing around TV shows (beyond the manual download of apps and checking-in to services). While BuddyTV and Miso have partnered with AT&T’s television service offering U-verse, GetGlue and Miso have integrations underway with satellite television provider DirecTV that enables subscribers to check-in to shows through DirecTV’s remote control. Other companies, such as Dijit, are by-passing traditional TV service providers entirely and competing for consumers with their own universal remote that layers in check-in functionality.

What social analytic companies lacks in proprietary data, they make-up for in business model by already working with advertisers and media companies to help them understand the volume and sentiment of chatter occurring online about their brands and shows across the social web. Gaining access to data on an exclusive basis from EBSNs and other social communities would be a key differentiator in winning the battle for advertising and media clients- the same companies that subscribe to Nielsen’s television ratings data. With so many companies vying for client dollars and mind share, the social analytics provider that can get the right media outlets partnerships to adopt and distribute their version of social television ratings can become the industry standard through sheer perception and market momentum.

Based on these factors, Trendrr, which launched a TV industry-specific real-time dashboard before the start of the fall television season could be that company. Considering Trendrr’s breadth of data sources (Facebook, GetGlue, Miso and Twitter) and how well they’ve embedded themselves into the online media landscape (partnering with the likes of AdAge, Lost Remote and Mashable to distribute their data and findings), the company is best positioned to become the social television ratings provider of the future.

What are the most likely outcomes?

Absent Trendrr or another one of these start-ups gaining the necessary client or user clout to grow into the de facto social TV ratings provider, the most likely outcome for the companies with the most traction in this market is an acquisition.

If either Facebook or Twitter decided to focus on providing analytics as a value-add to their advertiser and media clients, they would make ideal acquirers of these types of companies. For Facebook, adding a media-oriented check-in service to their massive user base would fit nicely with Facebook’s recent overturns towards the television industry and turn the acquired ESBN into the immediate and undisputed winner in the social television data game. Twitter on the other hand would benefit from acquiring one of the leading social analytics companies, as it would fill a large analytics hole in their offering. Even though the company recently stated its intentions to stay out of the enterprise market, the opportunity might prove to be too lucrative to stay out.

Beyond Twitter, The Nielsen Company is a natural acquirer of a social analytics company since it compliments Nielsen’s existing ratings and research business. With the company having held an initial public offering at the beginning of this year, Nielsen also has the necessary capital to do this.

Beyond these entities, media companies and television platform could benefit from owning one of the EBSNs by leveraging these services to gain insight into user activity and drive additional tune-in for themselves or partners. Yahoo was the first to act on this, acquiring 12-week old IntoNow earlier this year and releasing an iPad app last week that integrates into Yahoo’s Connected TV framework. For GetGlue and Miso, who have raised capital from Time Warner and Google’s venture arm respectively, they already have likely acquirers in the fold. That being said, with the variety of relationships GetGlue (most recently with FX) and Miso (most recently with Showtime) have established with different broadcast and cable networks it’s not out of the question that one of these media partners tries to acquire either company to be their underlying social TV platform. The engagement data would be very valuable to any company negotiating with advertisers during the ‘upfront’ season as a way to justify advertising rates (beyond Nielsen’s rating data) for the next television season or provide brands with a new way to advertise to their intended audiences (for an additional cost or as a make-good).

Stay tuned. This market will only get more interesting.

Social Isn’t a Transaction

In late April Facebook celebrated a birthday as the ‘Like’ button turned one. The adoption (2.5 million websites) and engagement (250 million people) of the thumbs-up icon over those first 12 months has provided Facebook with a treasure trove of additional data related to its users’ interests. Combined with the social graph, this data can be leveraged by advertisers to target consumers on Facebook in a manner not available through any other web property or advertising medium. And with web surfers now spending more time on Facebook.com than any other website in the U.S., companies are taking notice, enabling Facebook to double its share of the online advertising spend domestically between 2009 to 2010. Beyond just delivering impressions though, marketers are looking for ways to stay connected with these users, which the Like button has enabled by allowing brands to re-message their ‘Likers’ within the Facebook News Feed. The goal of connecting with as many consumers as possible has led to the emergence of an entirely new sector of online advertising dedicated to helping corporations drive more ‘Likes’ to their brands’ Facebook Pages.

The result? Contests, giveaways and promotions of all types are requiring ‘Liking’ the company as part of the entry process. So what began as an opportunity for brands and fans to find and connect with one another in a social setting has turned into a competition between entities to see who can compile the most Likes in a 24-hour period. So thank you Frito-Lay, you’ve helped turn social into a transaction.

The socialization of the web was the most important development to come out of the web 2.0 era. The advent of blogging platforms and social networks allowed the internet to evolve from a read-only medium to a read/write experience for consumers who quickly became comfortable with blogging, posting and tweeting about every topic imaginable in the process. Inevitably some of these conversations turned to discussing experiences with, and opinions about, products and services, which corporations were not prepared to deal with, since advertising had traditionally been broadcast through a channel that didn’t allow for real-time user feedback.

To justify the time and money being allocated to understanding and managing this social activity, corporate departments, along with their agencies and social media consultants tasked with this job, have turned to quantitative measures such as number of friends, followers, Likes and subscribers as a way to validate their respective effectiveness in addressing the social web. As a consequence, advertising across social environments has quickly become a $2 billion business according to local media advisory firm BIA/Kelsey, which also forecasts that social media-related spending will grow to $8.3 billion in the U.S. by 2015.

The problem with this approach, as Steve Rubel, SVP of Digital at public relations firm Edelman, pointed out at The Next Web Conference earlier this year, is that social isn’t an industry, it’s a behavior. So instead addressing consumers at a personal level, web users are being treated as a metric by advertisers looking to fill their social media quotas. The difficulty for most companies in trying to adopt a customer service-oriented approach to social is that they don’t know how to quantify the return on investment for this type of activity (if you are interested in understanding the right approach to communicating with consumers on the social web I’d suggest reading The Thank You Economy, the most recent book from author, video blogger and wine enthusiast Gary Vaynerchuck, or watch him speak, as I recently had a chance to, about the ROI of his mother).

Worse yet, from an advertising perspective, these user metrics can be easily inflated, as there are plenty of companies that can acquire social connections in bulk for brands to show high Like counts. With the amount of time being spent by consumers in their Facebook News Feed, the ability to re-message these fans and the viral potential of content distribution through the social graph the Like has started replacing email as the most desirable means of communicating with potential consumers. Combined with low open rates, spam filters and unsubscribing options in email, the Like also become more valuable to marketers, leading to pricing of up to $1 per Like from social ad networks.

Buying Likes is the wrong means to building relationships with consumers though, as it is akin to offering kids on the playground gum to be your friend- it makes you feel good about yourself at that particular moment but doesn’t actually change the dynamic of the relationship. Certain users will use the Like button because they generally appreciate the brand, while others will use it in order to receive discounts and promotions, so paying for these types of fans doesn’t make sense, and in the long-term, could end up damaging the relationship between brands and consumers on Facebook.

Many consumers migrated from their initial ISP email accounts because of email spam resulting from signing-up for free services or giveaways, rendering these accounts unusable. By cluttering users’ News Feeds companies risks annoying consumers in the same manner and potentially causing users to leave Facebook over time for newer, less spammy social networks.

So where are the investment opportunities in social?

While Likes are a form of social currency, the business models being built around driving social connections are highly questionable. That’s because the continued growth and success of companies providing social cost per action pricing is predicated on finding the next great social action to arbitrage before advertisers lose interest in paying for Likes because of the lack of quantifiable return on investment.

Salesforce’s acquisition of Radian6 for $340 million earlier this year, to tackle social CRM, does highlight the value of being able to decipher the conversations occurring across the social web. Beyond just monitoring consumer chatter, start-ups need to help brands understand the sentiment of these conversations (both positive and negative), the change in velocity of the discussion associated with the sentiment and the influencers behind these topics. Only then can start-ups provide real value by automating some of the activity around information gathering and distribution across social platforms.

A couple of companies with recent announcements are trying to address this need for clients on the advertising and distribution side of the market as well. Taykey, which just came out of stealth mode with its $9 million Series B announcement, provides advertisers with ways to reach audiences across the social web in real-time by identifying users who are displaying an active interest around a product, service or topic at any given time. SocialFlow, which recently hired an online industry-veteran as President after raising $7 million in April, focuses on solutions for publishers and media companies who want to increase engagement with their audiences by putting new content in front of consumers at the appropriate time.

The automation being provided by these types of companies is intended to deliver better value to consumers and not de-humanize the social experience on the web (which is a risk for Taykey since they do provide cost per action Likes as part of their offering). Since the Like is here to stay, my only hope is that advertisers and consumers both engage with the button at the right time, and for the right reason- like in this ad.

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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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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