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

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

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

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insular, walled-garden approach to third-party content and services on carrier data networks and mobile handsets has been replaced by innovation around the mobile internet and applications.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

The Social Wave

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

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

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

The Mobile Wave

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

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

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

How can commerce make the best use of these innovations?

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

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

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

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

Some of the winners will be companies everyone knows…

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

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

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

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

…While other are just getting started

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

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

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

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

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

The answer to that question is: not exactly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Facebook Ads

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

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

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

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

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Developers Repeat After Me: App Platforms are Not Your Friend

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Ad-Supported Facebook Applications Are In For A Rude Awakening

Rude Awakening

Dear Facebook developer, if you’ve banked your livelihood on banner ad-supported applications get ready for a rude awakening. The deceptive advertising practices that have increasingly permeated Facebook applications, and driven effective CPMs on banner ad units to double-digit levels in some cases, are starting to get noticed outside of Facebook (Nick O’Neill of All Facebook has done a great job of covering this topic), which is leading to involved parties being shut down in the process. The longer-term ramifications of this put into question the business viability of many developers on Facebook’s platform.

How Did We Get Here. As recently as the 2nd half of last year Lookery, a Facebook ad network at the time, was guaranteeing developers a mere $0.15 CPM for their application inventory. The combination of inexpensive banner ad inventory and access to Facebook users’ friends (via the social graph) was all savvy direct marketers and ad networks needed to test converting Facebook users into unknowing subscribers of mobile services (among other things) costing upwards of $20 per week. These very well integrated ad experiences that imply your friends’ usage of certain applications and services (as in these examples) QuizCrushare converting well enough on a an impression basis to generate upwards of $10.00 effective CPM for many large Facebook developers. Several ad networks have beem more than happy to deliver these ads since they are in turn getting paid roughly $15 to $25 CPMs by the underlying advertisers. It’s rather amazing actually that in the midst of an overall global recession that has seen the broader U.S. market indices fall around 30%, the effective CPMs Facebook application developers have received has grown upwards of 6500% over the same timeframe!

What’s Going to Happen Next. Before getting to the ‘what’ we need to understand ‘why’, which is actually quite simple- Facebook wants to go public. For this to happen, Facebook needs to show potential Wall Street investors that it has a growing, sustainable business model (so the stock price will go up) and that it runs aclean operation (so as not to make the stock price go down).

From a business perspective, among other well publicized initiatives, Facebook needs to get traditional brand advertisers to spend some of their $550 billion in global ad dollars on its platform in an effort to fuel revenue growth and justify what is sure to be a high earnings multiple it will trade at. As long as there is a perceived risk of tarnishing a brand’s image by placing ads on the same website where deceptive offerings are being run, agencies won’t allocate brand ad dollars to Facebook. In terms of its operations, investors need to feel comfortable that Facebook can effectively monitor its platform and ecosystem to avoid any potential public relation embarrassments or legal issues (privacy concerns aside) that could adversely affect the company’s profitability and trading mutiple.

In terms of the ‘what’, Facebook will become increasingly active in policing ads, networks and advertisers in their ecosystem in an effort to eradicate any potential issues that could affect the ‘why’. A prime example of this was the recent banning of ad networks Social Hour and Social Reach from advertising on Facebook applications. Facebook might even consider launching its own ad network for developers, to ensure the quality of advertisers remains high, at the expense of other ad networks.

The result of these types of actions will be a significant decrease (over 50% in many cases) in revenues seen by developers as the remaining ad networks on Facebook will have to deal with an increase in application inventory in conjunction with a decrease in advertiser demand (as deceptive advertisers are removed from the site). While I am definitely not suggesting effective CPMs will crater back to Lookery guarantee levels, like the stock market, there will be a reversion to the mean for ad prices. Regardless of where CPM rates eventually settle, there will be a flight to quality from an advertiser, as well as user, perspective. Bad experiences with certain applications will drive ad dollars and users away from applications that continue these practices, creating a death-spiral scenario in some cases (the situation where fewer users lead developers to place more ads on their applications to make-up for the lost revenue, which in turn leads to a further decrease in users due to a worse user experience, and so on).

What to Do. If you’re a developer, here are your options:

  1. Stay the Course. Continue to accept these deceptive ads in an effort to make as much money as possible until these ad practices and/or networks are shut down by Facebook. If the user and/or platform backlash doesn’t kill your application business, then try one of the remaining options or follow these ads and networks to the next social platform for exploitation.
  2. Go Virtual. If it makes sense, incorporate virtual goods into your applications. Game developers like Zynga have built successful businesses around the selling of virtual items to their user base, which alleviates the need for, or at least reliance on, banner ads for revenues.
  3. Try Fremium. This option is more geared towards utility-based applications, but up-selling features and functions for your applications (especially if you can tether it to a service or experience outside of Facebook) makes a lot of sense since it establishes a recurring revenue stream.
  4. Get Professional. Build a great application experience that makes users want to use your applications over the long-term. Work with established, reputable ad networks that have broader web reach than just Facebook applications (like Rubicon Project), inventory rep firms (like Appssavvy) or gain access to individual engagement opportunities (through the like s of my company Clearspring) to build credibility with advertisers and increase the perceived value of your applications’ ad inventory. Once you have the user base and operational scale, consider building out your own sales team (like Watercooler) to get a larger percentage of campaign CPMs.

Let’s hope Facebook application developers take the high road on this one.

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What Will It Take to Become the Bloomberg Service for Social Media?

social-bloombergThere has been a lot of development and press coverage in the social aggregation and activity-streaming space over the last month, which peaked last week with the release of Nambu, Seesmic Desktop, Sideline by Yahoo, enhancements from TweetDeck, a redesign of FriendFeed and an iPhone app from TweetStack, that lets you import your TweetDeck columns, to boot. All of these services are trying to solve the growing problem of managing your personal and/or professional activity across various social networks. Twitter is the one constant network across all these applications though, due to its focus on enabling activity streams, growing popularity and ecosystem that turn the river of Twitter’s network noise into useful streams of information. It’s because of the 3rd-party service TweetDeck that I’ve actually started using Twitter on a regular basis over the past month even though I’ve had an account for almost two years (if you’re unfamiliar with TweetDeck, the New York Times had a nice write-up on it last week).

What has struck me in the process of TweetDeck becoming a permanent fixture on my computer is how I use it like a Bloomberg terminal from my years in finance. For the uninitiated, Bloomberg is the de facto system for finance professionals to monitor and analyze real-time financial market data movements, place trades and communicate with other Bloomberg users. Replace ‘finance’ with ‘Twitter’ in the previous sentence and the services sound a lot alike- instead of following stocks it’s users/topics/events and instead of the NASDAQ stock exchange it’s Twitter streams.

With TweetDeck’s recent integration of Facebook Connect, it got me thinking about what a service would look like that brought the best aspects of the Bloomberg terminal to managing a social media experience. Here are my requirements for the ultimate social media terminal:

  • Real-time. Information streamed in real-time, or in near real-time is a must. The “more results” notification Twitter search provides is fine, but I don’t want to have to refresh my browser every so often to get the latest streams from Twitter or Facebook (which is supposedly being addressed by Facebook in an upcoming release) or any other platform- I need it delivered as it occurs.
  • Multi-platform. Access to multiple networks (Twitter, Facebook, LinkedIn, etc.) is also key since I use each one differently (for industry, personal or professional communications respectively) so I need to be able to respond to information en mass or uniquely by network or by user across networks- which can’t be accomplish through just one network (though Facebook is trying!).
  • Filters. The more networks you tap into and greater access you have to other user’s information streams, the more important filtering of information becomes. Without filters it becomes unmanageable noise once again.
  • Neutral. My social media terminal should be built by a 3rd-party and not by one of the underlying networks it provides access to. This ensures, or at least provides the appearance of, neutrality in how streams are handled and delivered. It also frees the terminal provider to build a client that is unencumbered by any legacy interface or platform functionality, and instead optimized for the stream aggregation experience.
  • Actionable. Just aggregating or customizing the presentation of information is not enough- I need to be able to respond and react to this information in real-time leveraging each network’s native functionality (or at least what they expose to 3rd-party services) through a single interface. A dumb terminal is a non-starter.
  • Intelligent. While the first 5 requirements are valuable from a time management and user experience perspective in making it easier to see information, understanding that information in a way that helps you make decisions is the value-add requirement in the list- and leveraging analytics is the best way to achieve this. While there are plenty of Twitter tracking and analytic services, there isn’t a single solution that allow you to define reports or alerts on an ad-hoc basis that automates the tracking of sentiment (positive and negative) or velocity (increased and decreasing) around people/topics/events (though Juice Analytics has an interested blog post on this topic). I would imagine individuals and corporations involved in social media would consider this service a must have to be successful and would pay a premium for it.

TweetDeck has made a good start in meeting these requirements for me to date (not too surprising since its founder, Iain Dodsworth came from the finance industry), but still has some work left to do on the multi-platform services side and especially analytics (though I haven’t seen anyone who has addressed this functionality yet). As such I give TweetDeck, which I feel is currently the best of the bunch, a 4 ½ out of 6.

Because TweetDeck leverages APIs that are readily available to other companies in building its service, it does face a growing number of competitors focusing on Twitter as its entry strategy (though according to Twitstat it is currently the most popular 3rd-party Twitter application in terms of usage) as well as on the social aggregation side. You can also be sure that Facebook will use its amazing size and mindshare to try and own this space (especially in light of their failed attempt to acquire Twitter).

Bloomberg was in a similar situation but succeeded in part due to the value added services its users received from using Bloomberg’s proprietary platform (by way of its in-network email service, trading capabilites, etc.). If TweetDeck or anyone else can figure out what its value added service is to its networked users, in addition to meeting the 6 requirements I highlighted above, it has a great chance of building something special.

    So what does your social media service look like?

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