John Hagel wrote a good post back in March on the future of advertising, web2.0 monetisation and the trend towards free (thanks to Bart for the pointer). He picks up on a lot of themes we have discussed here and the full post is well worth a read. This bit really stood out for me though:
if entrepreneurs want to build enduring businesses that will change the world, resist the temptation to become too dependent on advertising. It’s OK to offer many products and services for free (in fact, that will be essential for success) but just be sure you understand your role in a broader ecosystem where someone (even if it is not directly you) is making a ton of money with platforms and services that people will pay for.
I am more bullish than John on the potential of advertising dollars to sustain at least part of the web2.0 ecosystem, although I think it will look different to today’s ads, but he is spot on with the notion that somebody had better be making money. If not there is nothing to filter down the value chain – simple as that.
Innovation in business models will also be necessary to make sure everyone gets compensated for the value they add. There was an article in the FT this week which noted that web2.0 has had a huge impact on behaviour, but has yet to generate much in revenues. If behaviour is changing then value is being created – we just have to figure out how to get it into the hands of the companies that are changing the behaviour.
From eMarketer, via VentureBeat.
In summary still rising fast, but not quite as quickly as they had thought previously. $920m last year.
And Myspace is the premier destination, although Facebook is taking market share.
Note also that widgets only accounted for $15m last year, and will still be small this year.
Finally, as Venturebeat points out social networks make money via ecommerce and other areas in addition to advertising and therefore these numbers do not equate to total revenues.
Esther Dyson penned an article for the Wall Street Journal in February. It is a great article, and you should read the whole thing if you are interested in this area, but there are two pieces in particular I wanted to pull out.
1) The current model of advertising is heading into a dangerous place:
This market will get more competitive, and users will be barraged by ads to which they will pay less and less attention. Call that public space, a world of billboards and cacophony. Even though the ads will be more “relevant” than ever, users will increasingly tune them out.
This plays to a couple of themes I have been discussing off and on for a while. Firstly users increasingly don’t see the ads on the page. Their eyes tune them out. Secondly we need something more radical than behavioural targeting – I suspect that the improvements of increased relevance will struggle to keep pace with the losses from people tuning ads out.
2) The answer to this problem lies in recasting our notion of privacy:
The discussion about privacy is changing as users take control over their own online data. While they spread their Web presence, these users are not looking for privacy, but for recognition as individuals — whether by friends or vendors. This will eventually change the whole world of advertising.
All of which brings us back to VRM.
Facebook is open sourcing its application platform and calling it FBOpen. From Techcrunch:
Facebook will turn the year-old Facebook Platform into an open source project, multiple sources have told us. The immediate effect will be to allow any social network to become Facebook Platform compatible – meaning application developers can easily take their Facebook applications and have them run on those social networks, too.
This is a nearly inevitable response to Open Social, which is backed by Google, MySpace and Yahoo. Open Social is also an open source platform, run by the Open Social Foundation
Given that the FB platform is up and running with thousands of apps on it my guess is that many other social networks will start to think seriously about whether they are better to join the FBOpen bandwagon than get involved with what one of the commenters to the Techcrunch post described as the ‘Open Social mess’. Remember that Bebo already uses the Facebook platform.
If adopted by other social networks the FB platform will become more attractive to application developers – which is a (maybe the) key battleground between Myspace and Facebook these days.
Interestingly, as ReadWriteWeb points out whilst the war for social network supremacy is between Myspace and Facebook, the current battle over standards is between Google and Facebook.
Where I would disagree with ReadWriteWeb, though, is in their assertion that this standards battle between Open Social and Facebook is not beneficial to app developers and end users. Whilst I agree it would have been better if there had been a single well implemented standard from the beginning, given where we are today Facebook’s move to open source it’s platform will force Open Social to up its game and may even result in the community improving FBOpen. I think that will be good for everyone.
Where I am in agreement with ReadWriteWeb is in the belief that data portability is the bigger issue. I am hoping that as open-ness becomes the natural state of affairs we will see progress in this area too.
That is a lot.
From an old article on VentureBeat:
- The Hype Machine
- Media Master
Update – at least one of them has given up the ghost already. And they said goodbye in style. This was from Ezmo:
On March 14th 11:00 CET Ezmo was declared dead by Dr Alban.
The Ezmo team has decided to put their acquired skills in Wii Tennis to commercial use and will be going on a tour of shopping malls in their native Norway.
We encourage all our users to go outside and play!
Thanks for your encouragement and support, we love you all.
Hugs and kisses,
The Ezmo Team
Newspaper companies are often seen as soon-to-be-extinct relics of a bygone age, but at least two of them have read the tea leaves correctly, and are embracing the new order. I am thinking of the Guardian and the New York Times.
I’m writing this because of two bits of news I just read.
Firstly, the latest circulation figures for American newspapers make grim reading for the old guard. The New York Times was about the worst hit:
The New York Times lost more than 150,000 copies on Sunday. Circulation on that day fell a whopping 9.2% to 1,476,400. The paper’s daily circulation declined 3.8% to 1,077,256. [the declines are over the last twelve months]
And, secondly, the New York Times will soon release an API:
Once the API is complete, the Times‘ internal developers will use it to build platforms to organize all the structured data such as events listings, restaurants reviews, recipes, etc. They will offer a key to programmers, developers and others who are interested in mashing-up various data sets on the site. “The plan is definitely to open [the code] up,” Frons said. “How far we don’t know.”
Granted, it isn’t exactly clear what people will be able to do with the NYT API, but this is at least a step towards making all their content available for anyone anywhere on the web.
This leaves a couple of business models open to them – 1) as Fred Wilson has been saying for some time the future business model for content is to microchunk it, syndicate and embed the monetisation in the feed, or 2) go the Chris Anderson route and embrace free as the future.
Embracing free means using your content to build your brand and leveraging that to make money in other ways – like recruitment or dating. The Guardian is doing very well with both of these. I heard the other day that their growth in the recruitment revenues is now more than offsetting the decline in physical newspaper sales.
Marshall Kirkpatrick wrote an interesting post yesterday on ReadWriteWeb entitled Towards a Value-Added User Data Economy. He applies network theory to data portability to show that all companies will be better off if they all allow data to be ported in and out. Essentially each social application will add value to the data making the overall experience richer on every site. To adopt this strategy a site needs confidence in the quality of its offering and its ability to keep innovating, but the alternative is to try and lock the user in, and we all know where that ends up – eventually.
The eventually is important here – it took a long time for AOL’s walled garden to fail and their investors and management made a lot of money in the meantime.
Marshall also discusses the privacy issues created by data-portability. Until I read his post my thoughts on this topic had been limited to the simple point that porting data from one application to another creates more copies in more places, thereby increasing privacy risks. Marshall makes the additional point that because these applications are social our personal data is inextricably bound up with that of our friends – thereby increasing the complexity of the problem.
All of which makes me think of personal data stores – the idea that we store our core personal data in a single place and allow services to access it on a permissioned basis. The sites that access that data and add value to it might store the derivative data they create, but the core data would be in one place. Replacing the many to many relationships of multiple social apps talking to each other with a hub and spoke architecture like this would give the user better control over their private data whilst maintaining the network benefits that data portability offers.
I feel an example might aid understanding.
Let’s say I’m a music fan – the core data would be the music I listen to – maybe scrobbled by LastFM, or scanned from my harddrive. That should live in my personal data store and be accessed by derivative services that might generate recommendations. The recommendations wouldn’t constitute core data and could live in the application that generated them.
The personal data store might be an existing service like Facebook (or even LastFM) or a new service created specifically to form this function. And different people might choose to use different applications as their hub.
This model of a personal data store where the user allows different service to access the data on a fine grained persmissioned basis has a lot in common with the VRM vision of how advertising might evolve.
I’m attracted to the conceptual elegance of this view of the future, as well as the efficiencies and benefits I describe above. I think we will get there eventually, but it may be we don’t take the straightest path.
Traffic to the BBC’s broadband TV catchup service iPlayer continued to
rise during April, the broadcaster said today, with 21 million requests
for streamed and downloaded shows during the month.
It is being so successful that the UK’s IP networks are getting flooded and ISPs are up in arms. As a result the net neutrality debate is finally being held in earnest over here.
We are living in the middle of the largest increase in expressive capability in the history of the human race. More people can communicate more things to more people than has ever been possible in the past, and the size and speed of this increase, from under one million participants to over one billion in under a generation, makes the change unprecedented, even considered against the background of previous revolutions in communications tools. The truly dramatic changes in such tools can be counted on the fingers of one hand: the printing press and moveable type (considered as one long period of innovation): the telegraph and telephone; recorded content (music, then movies); and finally the harnessing of radio signals (for broadcasting radio and TV). None of these examples was a simple improvement, which is to say a better way of doing what a society already did. Instead, each was a real break with the continuity of the past, because any radical change in our ability to communicate with one another changes society. A culture with printing presses is a different kind of culture from one that doesn’t have them.
Our social tools are not an improvement to modern society; they are a challenge to it. New technology makes new things possible: put another way, when new technology appears, previously impossible things start occurring. If enough of those impossible things are important and happen in a bundle, quickly, the change becomes a revolution.
The hallmark of revolution is that the goals of the revolutionaries cannot be constrained by the institutional structure of the existing society. As a result, either the revolutionaries are put down [sic], or some of those institutions are altered, replaced or destroyed.
Clay goes on to talk at length about Wikipedia, and how web enabled collaboration has changed the world of encyclopedias. Indeed how it has changed the very nature of an encyclopedia – articles have gone from being artifacts to being processes, and wikipedia has added a partial commentary on current affairs to the traditional facts and history of the the hard bound encyclopedias of our youths.
For me, formerly venerable and seemingly invulnerable institutions at
risk include record companies, TV broadcasters and newspapers.
More important (and inspiring) is the reminder that the web will change the world beyond recognition – as the printing press, telephone and TV have all done before. We are still at the start of that revolution.