I Spent a Few Hours in the Future and I Liked It

Tuesday I was in New York City for the day on business. After finishing up my last meeting it was time for me to make my way to the airport to head home. The process of getting from 34th and Madison to my seat on Delta flight #6054 at LaGuardia took me through a series of events over the course of a few hours that gave me a hopeful glimpse into how we will perform everyday transactions in the near future thanks to mobile consumer technologies.

I started things off by launching Uber’s smartphone app to request a town car. With the evening taxi cab shift-change in full effect (good luck tracking down a cab that will take you out of Manhattan at that time of day) and an expiring promotion from Uber that would make the entire trip cheaper than a taxi ride anyway (thanks Ed!) I requested one of their contracted drivers pick me up through the app. With Francisca, my driver-to-be, estimated to arrive in 13 minutes (an unusually long wait for Uber by the way) I went across the street to grab an ice coffee from Starbucks for the ride. After ordering my drink I paid for it by showing the barista my phone which displayed a barcode from the downloaded Starbucks app for her to scan. The barcode contained my Starbucks card information and credit balance for her to deduct the appropriate amount from. After picking up my drink I went outside to meet Francisca who had called to confirm my location and her momentary arrival. Once we arrived at LaGuardia I thanked her and went inside Terminal D- no payment transaction required. That’s because the fare was calculated by Uber based on the time, distance and tolls incurred during the trip (which was tracked via GPS) and charged to my credit card on file with Uber, who emailed me a receipt of the transaction with all the details by the time I made my way inside Terminal D.

To get to my boarding pass I skipped the ticker counter and kiosks and headed straight to the security line where I opened up an email from Delta and launched the link to my QR code-based boarding pass. Aside from my driver’s license for identity purposes, that’s all I needed to get to my flight’s gate. Since I made it with time to spare I decided to grab some dinner at a restaurant called Bisoux. At my table, and every other seat in the restaurant for that matter, was a tethered iPad and electrical outlet. So while my phone was recharging I pulled up the restaurant’s app on the iPad to order my meal. I paid for my food, including tip, by swiping my credit card through the credit card reader attached to the outlet and had the receipt emailed to my work address. While I waited for my food to arrive (about 15 minutes), I used the iPad to catch-up on some email (and Twitter once my food had arrived). After I was done eating I got up and left without having to track someone down for a bill and payment. Heading over to the seating area at my gate I was greeted by more iPads and outlets (in fact the entire Terminal D at LaGuardia is outfitted with iPads, credit card readers and electrical outlets thanks to OTG Management, an airline food service company) to catch up on my news feeds until it was time to board my flight. One more showing of my QR code boarding pass to the gate attendant and I was off for DC.

In total, during my 2 ½ hour experience that took me from Manhattan to LaGuardia:

  • I conducted 4 transactions (buying coffee, transportation to the airport, buying dinner and boarding a flight)
  • Used 5 physical items to complete these transactions (smartphone, driver’s license, iPad, credit card and credit card reader)
  • Paid for everything using 2 mechanisms (smartphone and credit card)
  • Used 2 wireless networks (Verizon’s mobile network and LaGuardia’s WiFi network)
  • And in only 2 of these instances could I not control the timing of the entire experience (ordering at Starbucks and waiting in the security line at the airport)

With a few realistic software updates and better planning though, these four transactions could have been completed using just one device, a driver’s license and one wireless network by (1) incorporating the payment mechanism directly into the restaurant’s ordering app from OTG Management and making the app available for my smartphone, (2) enabling drinks orders through the Starbuck’s app and (3) enrolling in TSA Pre√ to avoid the traditionally slow security line experience.

Some other insights about the future I came away with from this experience:

Battery Life: This continues to be a huge issue with smartphones, which are increasingly being instrumented to perform computer-like tasks as a result of apps, GPS utilization, mobile browsing and multi-tasking (I drained half of my phone’s battery in a matter of 3 hours due to my little experiment). Without quicker improvements in battery life technology or in the development of wireless charging capabilities, which uBeam is attempting to tackle, the adoption of many of these types of consumer applications, especially those that leverage location, will be hindered. Until batteries can meet the daily demand of consumers the proliferation of charging stations at airports are an adequate solution but needs to be more broadly deployed across additional public and retail spaces (coffee shops, malls, etc.) to be truly valuable.

WiFi Networks: Connecting to publicly identifiable WiFi hotspots is unnecessarily challenging for laptops, let alone smartphones as quickly degrading connections and networks that require “additional information to log on” are a drain on productivity. Add to this the disparate WiFi policies across venues, such as WiFi being free at Washington’s Dulles airport but not at New York’s LaGuardia, consumers’ ability to enter and complete transactions is severely curtailed when a wireless carrier network isn’t available (like in a building or subway for example). Ideally the wireless carriers would take it upon themselves to aggregate various WiFi networks and offer up access as part of a mobile plan. Until there are better, more consistent solutions, companies like Connectify, which aggregates multiple broadband connections into a single high-bandwidth link, and Open Garden, which provides crowd-sourced mobile connectivity, are attempting to meet consumer demands for greater availability and throughput by leveraging the current publicly WiFi infrastructure.

Payments: Two types of mobile payment experiences are emerging in the real world depending on whether you are purchasing a product or service. When buying physical goods, like a cup of coffee, QR and barcodes are being used to facilitate digital payments at the register or provide proof of purchase. In these scenarios services like LevelUp from SCVNGR and Square, which recently announced a deal with Starbucks, are providing the underlying payment processing and generating the associated user codes. For transactions that involve purchasing a service, like a car ride, the entire payment experience can occur within the mobile app itself with companies like Braintree, which is used by Uber, and Stripe providing the transaction processing and merchant notification. At the end of the day what all these companies are vying for is a piece of the worldwide mobile payment transaction market which is expected to reach $1.3 trillion in 2017 according to Juniper Research.

Mobile Wallet: While every transaction I performed was through a specific app, the future of mobile payments is `all about the mobile wallet. Companies at every point in the mobile commerce value chain are joining forces to get their cut of the fast-growing mobile payment market by attempting to aggregate consumer activity and demand. Isis, the wireless carrier-backed initiative, is slated to debut next month on the heels of this month’s announcement from a group of brand name retailers and merchants regarding the launch of Merchant Customer Exchange, which is building its own consumer mobile payment application. Sitting between the carriers delivering the underlying mobile service and the retailers at the point of sale are mobile operating system providers Google, which provided an update on Google Wallet earlier this week, and Apple, which demoed Passbook this summer for the much rumored new iPhone, who are launching their own competitive mobile wallet initiatives. The key to the success of any of these services will be their ability to go beyond just providing a frictionless payment mechanism. The applications that seamlessly incorporate payment options, purchasing preferences, loyalty programs and promotional offers directly into the mobile app and transaction process will be the most successful wallet solutions.

Identification: While the mobile wallet has the ability to create a contact-less payment society, the one physical item it won’t eliminate any time soon is the government issued ID. A truly digital form of personal identification (be it a driver’s license or passport) would be too easy to forge or replicate by criminals and implementing fingerprint or retina scanning as an alternative form of identification is wrought with infrastructure and privacy concerns. So until biometrics can become a viable and cost-effective solution, the physical wallet is here to stay- unless you decide to use a mobile phone cases that doubles as a wallet.

It’s interesting to see how software development and hardware advancements are continually being leveraged to simplify and speed up the experience of completing transactions by challenging legacy models and removing manual steps in the process. Combined with business innovations, consumers are finally able to control when and how these activities are being executed which further enhances the overall experience. While not perfect, from what I was able to do over those few hours, I like where our future days are headed thanks to mobile.

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Not All Users Are Created Equal (For Ad-Supported Consumer Businesses)

Facebook’s first earnings announcement as a publicly-traded company last week was not well-received by investors, as the company’s stock hit new all-time lows after only being able to meet analysts’ already lowered financial expectations.

Most of the discrepancies between Facebook’s growth trajectory and stock performance can be summed up in these two slides from the company’s earnings release:

While directionally these charts look good, going up and to the right, a closer look reveals a growing problem in the relationship between Monthly Active Users (MAUs) and Average Revenue Per User (ARPU). The MAUs chart shows quarter-over-quarter user growth in each of Facebook’s four geographic regions over the past two years. The largest of these regions, Rest of the World, is growing the fastest though (at 9% over last quarter) while US & Canada, which is the smallest region in terms of MAUs, is growing the slowest (at 2%) which is an issue since Facebook is able to monetize US & Canada users over seven times better than Rest of World users on average according to the ARPU chart. Optimizing per user monetization is further exacerbated when you consider that growth is increasingly coming from mobile-only users where advertising is still in its infancy.

Facebook’s ability to attract and monetize a large U.S. audience is what has enabled the company to go public. Whether Facebook becomes a successful publicly-traded company will rest largely on how quickly it’s able to reduce the ad monetization gap between U.S. users and every other region of the world. Until then, the financial markets will continue to recalibrate Facebook’s valuation (downward) to reflect the realities of the company’s current revenue capabilities.

This situation isn’t unique to just Facebook though. For example Twitter, the second largest social network out there, recently passed the 500 million account mark according to analyst group Semiocast, which also saw the proportion of U.S. user accounts decline relative to the rest of the world since the beginning of the year and identified Jakarta, Indonesia as the most active tweeting city- statistics that have a similar looking trend to what Facebook has experienced, growing but mostly in less mature advertising markets. As any free consumer tech services starts to grow quickly, they too will eventually face this same situation.

If you’re fortunate enough to be involved with such a consumer product that is gaining millions of users, focus on growth in countries where advertising is a mature industry so mobile will also be monetized more quickly (places like the U.S., Japan, Germany, and U.K.) and also accessible (so not China). If growth takes off in less-mature ad markets, but sizeably populated countries such as India or Indonesia, find a local advertising partner with strong ties to large conglomerates and marketers in the region before committing resources.

So when Josh Elman, venture capitalist at Greylock Partners, blogs about getting meaning from growth numbers provided by startups, we should probably add users by region to the discussion for ad-supported consumer start-ups in order to better understand the real opportunity and value being created for investors.

Disrupting Retail Commerce and Real Estate

At last month’s TechCrunch Disrupt the best interview of the multi-day conference was that of Chi-Hua Chien, partner at venture capital firm Kleiner Perkins Caulfield and Byers (if you haven’t seen it yet, I urge you to put aside twenty minutes to watch it here– it’s that good). In the interview Chi-Hua discussed Kleiner’s investment thesis in the context of technology’s ability to democratize industries. Previously technology had been leveraged to disrupt information (through the internet and search), distribution (through social media) and computing (through PCs and mobile devices). Now he says we’re in an era where commerce is being democratized. Through the “unwinding of that aggregation of commerce” companies such as Home Depot, Safeway and Walmart, which have succeeded historically by aggregating consumer demand through credibility and inventory, now have to compete with new demand aggregators coming from smartphone apps. The effects of this are already being felt by the retail electronics industry as Best Buy recently announced it was in the process of shrinking its physical footprint due to a drop in same-store sales which some are attributing to internet retailers benefitting from ’showrooming’. This disruption isn’t just be limited to physical commerce though, as retail financial services are also undergoing their own transformation thanks to more activities (such as depositing checks) being performed via mobile devices, which is reducing the number of transactions taking place inside bank branches across the U.S.

As a result retail real estate is becoming less important as a marketing and demand generation vehicle. So what will become of big box stores and strip malls?

Chi-Hua, during his interview, and start-up founder/angel investor Chris Dixon on his blog recently,  both alluded to the answer- companies that can create differentiated and superior customer experiences and not just compete on price will be the ones that succeed in this new retail environment. Starbucks was the first modern-day brand to successfully build a business around creating an experience for mainstream consumers (even resulting in a book being written about The Starbucks Experience). Then there’s Apple, the best example of how to build a successful retail presence. In the 11 years since the first Apple Store was launched, the company has opened up over 360 retail outlets worldwide and has become the most profitable retailer in America in the process while competing with electronic retailers such as Best Buy.

New opportunities to disrupt commerce will open up as a result of this excess capacity in real estate and Amazon might just be one of the biggest benefactors of this. As the company continues to grow its Amazon Prime subscriber base and potentially extend its Kindle line of devices this will increase Amazon’s need to grow beyond its current 34 warehouses in an effort to get the most popular inventory closer to its customers for faster delivery (for Prime subscribers), in-location pick-up (for consumer convenience) and product testing (for newly launched Kindle devices). An even more likely scenario will be an increase in temporary retail store experiences (also known as ‘pop-up shops’) where brands can leverage physical presences for short periods of time in order to support the launch or promote new products or services, which Samsung is looking to do in order to better compete with Apple for example.

The most exciting opportunity that could further transformation the physical retail experience is the democratization of manufacturing through technology. This next wave of disruption will come courtesy of 3D printing, which aims to digitize manufacturing and enable individual production quantities of many objects at massive scale. Currently 3D printers from the likes of MakerBot and Shapeways are used primarily used by hobbyists to create single-compound objects (usually plastic or metal). From this you can imagine a point in time in the future where more complex objects (made of multiple compounds, colors, etc.) are offered by developers through specialized retail store-fronts where consumers can submit orders for pre-fabricated products or design their own specifications to be printed out and picked-up. Each 3D retailer could specialize by type of product (ie plastic toys such as action figures or Legos) or production capabilities (ie motors for remote control vehicles) depending on their capabilities and demand.

The beauty in all this is that there will always be a need for retail real estate and technology will play a part in its evolution.

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.

Rise of the Middle Class (Ad Inventory)

In the past month or so I’ve had the chance to attend several online advertising industry events where a recurring topic of conversation has been how can publishers better monetize their remnant ad impressions. While technologies like real-time bidding (RTB) have made accessing and transacting this type of inventory easier for buyers, the corresponding growth in the use of RTB has not translated into increased revenues for online publishers. There is hope though.

By applying the same underlying technologies that power RTB, a new class of ad inventory has emerged that exists between traditional direct-sold (tier 1) and remnant (tier 2) inventory that is being referred to, conveniently enough, as tier 1.5 inventory that might be able to bring together the best of both inventory worlds. In a traditional RTB environment, ad inventory from one publisher to the next becomes indiscernible outside of pricing, removing the contextual relevance of each ad impression in the process. Even if you incorporate audience data for targeting specific web visitors, without knowing the context or even website that will be surrounding the ad prior to bidding on the impression, campaign performance, and thus publisher CPMs, will remain poor. It will be the ability to automate the entire process of targeting the right user on the appropriate website alongside relevant content that will improve the fortunes for all parties involved.

That’s where private exchanges come into play. They bring the efficiencies of RTB into an environment where advertisers know the context of where their ads will be delivered and publishers can set parameters as to which advertisers can have access to their audience and at what prices. Entities like quadrantONE for local news in the U.S. and the just announced pact between three of Canada’s largest broadcast companies are taking this one step further by pooling impression inventory from multiple online publishers across the same content types to provide a larger audience pool for advertisers to target in hopes of garnering larger portions of ad budgets. Layered on top of this, semantic technologies from the likes of Crystal Semantics, Peer39 and Proximic, can be leveraged as part of the set-up and bidding process within private exchanges to better organize content into categories in an effort to complete the contextual picture for the available ad inventory.

Instead of relying on advertisers coming into their web environments, others like the New York Times are looking at new ways to expose their content for monetization by leveraging social media. The company recently announced the release of Ricochet from their R&D Ventures group, which allows advertisers to wrap their ads around relevant articles from any Times Co. publication that these brands can then distribute across social media channels to interested fans and followers.

All of these opportunities don’t mean that publishers can get away with just enabling technologies for ad buyers at the transaction level in hopes of improving their indirect revenues though. In addition to building audiences through more engaging content, there are a number of services being brought to market by start-ups at the user interaction level that can help drive a better web experience, which can translate into more ad revenues. Companies like Visual Revenue are helping online publishers determine what content to highlight on their homepages through predictive analytics, while Sailthru’s Concierge provides content recommendations to keep users engaged once they are on the site. Finally, Yieldbot is attempting to tie all this activity together into the appropriate context for advertisers to target users on an impression or even session basis to create an on-going advertising experience.

In society, a growing middle class is beneficial to the overall health of the economy. The same can be said for online advertising where the rise of middle class ad inventory will benefit the entire online ad ecosystem. This doesn’t mean that tier 1.5 inventory will be a panacea for all remnant inventory nor will it replace direct sales relationships. Instead it will offer buyers and sellers more choice around how inventory is bought at scale thanks to the ad standards developed over the years by the IAB. There will always be a need for full service ad sales teams that can create a native advertising experience that guarantees audiences for those advertisers willing to pay for better access and services. It’s those companies that figure out the right experience for their site and users and can optimize revenues across these 3 tiers of ad inventory that will be able to gain the advantage in a still nascent ad market.

Photo image source: Time Inc.

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

How To Convert Underpants Into Profits

Yesterday I was invited by Fortify Ventures to speak to some of the start-ups at their accelerator The Fort where I am a mentor. Since I am the Chief Revenue Officer of my company they thought I could cover the topic of revenue models. The title for my presentation (embedded below) comes from the classic South Park episode ‘Gnomes‘ where gnomes that are stealing underpants from one of the boys try and explain their business model of turning these underpants into profits (to no avail). Swap ‘users’ for ‘underpants’ and you have the dilemma that most start-ups not named Instagram face in converting a user base into a profitable business.

Let me know what you think and how I can improve the presentation for future use.

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.