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WAYN

CPM in the doghouse

By | Advertising, WAYN | 6 Comments

image As you may have seen, display advertising was the only part of the online mix to show negative growth in the UK in H1 this year (negative 5.2% as per the IAB).  I think there are lots of reasons for that, not least the economy and growing questions over how much value gets delivered, but an important factor is the obsession with CPM as the measurement tool.

A couple of weeks ago Shellie Bonnie wrote a popular guest post on Techcrunch: Let’s Kill The CPM addressing precisely this issue.  The full post is well worth a read, but for those of you who like a quick summary his main arguments are:

  • Counting impressions is the wrong way to measure the effectiveness of ad campaigns and dissuades people from being creative
  • Publishers deliver what they are paid for – page views – but in reality low quality top 10 lists, and photo galleries don’t do much for the consumer or the advertiser
  • Inventory is limitless and we see so many ads that very few stand out
  • Pay for performance (CPA and CPC) is not the answer.  It has its time and place but that is limited to situations where people know what they want and are close to buying.

All great points, and behind it all lies the fact that the much vaunted measurability of internet advertising is something of a red herring.  It is true that for certain classes of advertising it is possible to track the user and understand the effectiveness of your ad spend more effectively than was possible offline (mostly), and that part of the market should continue to trend towards CPA and CPC, but for the rest it isn’t sensible to be looking for immediate correlations with transactions.  It is more akin to brand advertising, e.g. sponsoring Wimbledon or the Superbowl.  Understanding how many people have been exposed to a message remains part of the story, but needs to be weighed alongside other factors including quality of impression and engagement.

As an example of this, for the past year WAYN has been selling packages to tourist boards which combine all of these elements – quality impressions via home page takeovers and default skins, engagement via competitions and chat rooms, measurement from a combination of impressions on WAYN, engagement metrics (quantitative and qualitative) and traffic out to the client’s site.

This is also part of a shift that Fred Wilson has started describing as a transition from paid media to earned media.  A good part of the scepticism over the value delivered by display comes from the growing hostility to being on the end of broadcast messages.  Brands’ alternative way of getting their message across is to get people talking about them voluntarily by doing cool things with and for their customers – event sponsorships, competitions, forum participation, social media engagement and so on.  This is one of the reasons the tourist boards like WAYN.

The upshot of this is that brands will divert budgets from buying media to many different kinds of participation.  By this logic CPM will remain in the doghouse for a long time to come and brand advertising might be the next market to get shrunk by the internet.

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A final word on ‘free’

By | Business models, Venture Capital, WAYN | 21 Comments

When I left to go on holiday two weeks ago I had one chapter left to read in Chris Anderson’s ‘Free’ so instead of taking the book with me I picked two that I hadn’t started yet to save space (Tara Hunt’s The Whuffie Factor and a novel called Little Bee by an author called Chris Cleave who I went to school with but subsequently lost contact with) – but I picked it up when I got home and read the final section, which is all about where ‘free’ as a business model goes from here, and I now stand convinced that Chris is right to argue that it goes from strength to strength.

The first point is that I want to make is that the argument for ‘free’ is complex and nuanced, and that it is easy to produce soundbites which purport to shoot down the theory by attacking it in misleadingly simplified form.  The core of the thesis is that as variable costs drop the price of many things, and in particular of digital goods, is heading towards $0.  The book is partly a justification of the thesis using economic theory, but it is more a discussion of how companies can make money with $0 price, and indeed how they have been doing so for over a century. 

Two quotes from the book to make this point:

What about those companies trying to build a business on the Web?  In the old days (that would be until September of 2008) the model was pretty simple: (1) Have a great idea; (2) Raise money to bring it to market, ideally free to reach the largest possible audience; (3) If it proves popular, raise more money to scale it up; (4) Repeat until you’re bought by a bigger company.

Now steps 2 through 4 are no longer available.  So Web start-ups are having to do the unthinkable: come up with a business model that brings in real money while they’re still young.

From the final section “Fifty Business Model’s Built on Free” (emphasis mine):

Free 1: Direct Cross-Subsidies

  • Give away services, sell products (Apple Store Genius Bar tech support)
  • Give away products, sell services (free gifts when you open a bank account)
  • Give away software, sell hardware (IBM and HP’s Linux offerings)
  • Give away hardware, sell software (the video game console model where devices such as the Xbox 360 are sold far under cost)
  • …..

Free 2: Three-Party, or “Two-Sided” Markets (One Customer Class Subsidises Another)

  • Give away content, sell access to the audience (ad-supported media)
  • Give away credit cards without a fee, charge merchants a transaction fee
  • …..

Free 3: Freemium (Some Customers Subsidise The Others)

  • Give away basic information, sell richer information in easier-to-use form (BoxOfficeMojo)
  • Give away generic management advice, sell customised management advice (McKinsey and the McKinsey journal)
  • Give away online games, charge a subscription to do more in the game (Club Penguin)
  • Give away demo software, charge for the full version (most video games which allow you to see the first few levels to see if its you)
  • Give away computer to computer calls, charge for computer to phone calls (Skype)
  • Give away ad-supported service, sell the ability to remove ads (Ning)
  • …..

This list makes it crystal clear that someone always pays.  Too often in the past that has been the venture capitalist, and that has now changed with the result that there will be fewer free offerings without an associated revenue model, and probably fewer startups overall, but I expect that the percentage that offer something for free will continue to rise.

The other big takeaway that will influence my thinking about startups and markets is the importance of distinguishing abundance from scarcity – recognising that you can charge for scarce resources but not abundant ones, and that each abundance creates a new scarcity.

As I have been writing this post I’ve been thinking about our portfolio and it is interesting to note that internet infrastructure software vendor Zeus Technology offers free developer licenses (throughput limited) and test licenses (time limited) and sells licenses for unlimited software, social network WAYN offers free social networking, sells advertising and charges for a VIP service, natural food ecommerce company graze gives the first food box away for free to new customers, DVD rental business Lovefilm offers a free trial and Tribold has recently started offering selected telcos free trials of it’s hosted product life cycle management software.

 

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Facebook, OpenID, data portability and the future of socnets

By | Facebook, Identity, MySpace, Social networks, Twitter, WAYN | 8 Comments

facebook open id

ReadWriteWeb broke the news a couple of days ago that Facebook is going to allow users to log in with their OpenID credentials granted by other sites, such as GMail, AOL, Yahoo, or dedicated OpenID providers.  You’ve probably seen this on other sites and the main benefit of reducing the number of passwords you have to remember (and making it easier to change).

The other benefit is that your OpenID account can carry some of your data, for existence your contact list.  The ReadWriteWeb speculates that Facebook has taken this step because it will enable them to more quickly provide utility for new members, thereby improving retention and increasing their growth.

I think this could change the face of social networking.  We are already seeing a shift towards tools that allow you to interact with multiple socnets from one place (our portfolio company WAYN now allows you to interact with Twitter and Facebook from within WAYN, and Tweetdeck and Friendfeed operate as social media dashboards) and data portability via OpenID could accelerate this trend.

I’ve long thought that we have multiple social graphs and most of them we just ignore, getting little value from the data they contain.  The longlist of my social graphs includes email, mobile phone, Facebook, Twitter, Friendfeed, LinkedIn WAYN and this blog.  If contact lists become portable via OpenID then tools that allow me to consolidate and manipulate each of these for their different purposes would be very valuable.

For example if I was using the new Plans feature on WAYN to organise a night out it would help if I was offered a list of people I might like to invite based on those who I call and email most often, whereas if I was organising a work oriented cocktail party a set of recommendations derived from my LinkedIn activity would be more useful.

According to this vision of the future socnets are less like portals and more like messaging hubs, with a variety of different modes for input and viewing content (including games and videos).  Right now the trend is towards consolidation – the larger guys are growing fastest, with Facebook and Twitter leading the way – but the logic above would lead you to expect that trend to go into reverse.  If things do pan out this way then tomorrows successful social media sites will be the ones that do one thing really well – Flickr for photos, maybe MySpace for music, maybe WAYN for making plans.

Right now data isn’t nearly this portable, as one of the commenters on the ReadWriteWeb piece points out Facebook is only really open on the way in – getting data out is more difficult.  Contrary to what I might have expected a year or two ago the trend is increasingly towards greater portability though – hence this post.

Facebook watch – it is still growing really fast

By | Advertising, Business models, Facebook, Twitter, WAYN | 2 Comments

There is a long eulogy to Facebook on CNN today which should give heart to the company’s fans.  Here are some highlights:

  • They are adding 5m new members per week
  • Average time on the site is 169 minutes per month
  • Older people are now joining in droves – the fastest growth segment is women 55 and older – up 175% since September 2008

These are some big numbers.

Furthermore Zuckerberg is articulating a MASSIVE vision for the company (from CNN):

But Zuckerberg makes it clear to me that he’s still intensely focused on connecting the entire world on Facebook – only now his vision goes well beyond the site as a digital phone book. It becomes the equivalent of the phone itself: It is the main tool people use to communicate for work and pleasure. [Emphasis mine] It also becomes the central place where members organize parties, store pictures, find jobs, watch videos, and play games. Eventually they’ll use their Facebook ID as an online passkey to gain access to websites and online forums that require personal identification. In other words, Facebook will be where people live their digital lives, without the creepy avatars.

Wow.

Switching to the negative case, there are two obvious challenges for Facebook, which the article also covers.

Firstly – they need to start making profits at some point.  They have raised a whopping $400m already and that can’t continue indefinitely.  Facebook, along with the social media industry generally, would really benefit from some business model innovation.  It is something we are working on hard at WAYN and I’m sure Facebook have got some of their best people on it too.

Secondly – they need to stay fresh for the younger generation as the oldies join the site.  An unkinder version of this post might have been headed “Facebook hollowing out?”  The CNN article asserts that Facebook is relatively safe here because there isn’t a new site that the young and hip are flocking to – but (and I barely need to write this) they have clearly missed Twitter.  The growth there is phenomenal and I frequently hear people talking about abandoning FB for this new flavour of the month.

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Track your friends on mobile with Google Maps

By | Google, Mobile, Privacy, WAYN | 10 Comments

The blogosphere is awash with talk of Google Latitude, their new service that allows friends to see each other’s location on Google maps on their mobiles.  The screenshot below says it all.

I think this service will be a big deal.  After all the hoo-ha about privacy and nervousness about how people will use it dies down everyone will come to see that a service like this has real utility.  New behavioural protocols will be required, and that will be uncomfortable to start with, but people will get over this, they always do.  Look at telephones, mobiles, Facebook and now Twitter.

It doesn’t look like it has an API though.  I hope one is coming as this would be a great tool for social networks like WAYN.

Facebook’s traffic

By | Facebook, MySpace, WAYN | 4 Comments

The web is abuzz this morning with news of Facebook’s traffic, with most headlines focusing on the 10% decline in US unique visitors from March to April.

However, as the chart below shows, year on year traffic still grew at 56%.

The interesting question therefore is whether the decline in uniques is being covered by the increase in activity per user. If it is then the news isn’t all bad and you could argue we are just watching the novelty value wear off as the community coalesces around a core group of heavy users. The growth in uniques might then return once the tire kickers have all left.

However due to the different time periods (unique visitor decline is month on month, traffic growth year on year) the data doesn’t allow us to answer the question. Given that Facebook saw a growth in uniques from Feb to March that was bigger than the March to April decline the balance of evidence we have suggests that Facebook is still in good health.

The stats don’t look so good for Myspace though.

From the perspective of our investment in WAYN I hope this is more evidence of the shift in activity towards sector or niche focused socnets.

Socnet usage patterns

By | Facebook, MySpace, Social networks, WAYN | 2 Comments

A couple of weeks ago Alan Patrick wrote an interesting post on socnet usage patterns. Back in November in a post on the essence of social networks I wrote about the difference between object-centred socnets (e.g. Flickr, Delicious) and ego-centred socnets (e.g. Myspace, Facebook, bebo) and commented that:

most of the activity on ego-centred sites is about self expression, self investigation and building groups of friends. These are ‘burst of energy’ rather than ‘keep doing it for years’ activities and hence questions about the sustainability of the traffic and page views on these sites are legitimate.

Alan has taken the same thoughts and built a theoretical model of what that means for traffic on ego-centred sites. He writes:

Consider the chart below – of the 100% of time most people spend on any one social network, most is in the early days – setting up the friends, playing with the features etc – and then erodes over time. Below is a theoretical graph, showing an average halving of activity every 3 months over the 2 years average time that a person exists on a social network in any meaningful way. (Note – I don’t mean people necessarily leave after 2 years, just that activity – on average – is fairly low. You can make less extreme power laws if you like, but the result described below is much the same until a fairly low tailoff rate is assumed)

Now imagine how that curve works in a Social Network that grows from next to nothing to say 50m users over 4 years until growth tails off. As you can see, the traffic initially grows far faster than the new user growth, so its boomtime in impressionsville….but as growth starts to slow down those users’ reduced activity starts to kick in, and the great crash in usage traffic then kicks in (see below).


All of which means that the long term value of these sites is all about how low traffic goes in the tail on the right hand side of the first chart – i.e. what is the steady state sustainable activity. Alan commented on my recent post about niche social networks that there is likely to be more activity in the tail on niche sites (which is what we hope and believe with WAYN).

I would also say that as the major ego-centric socnets increasingly recast themselves as portals it will depend on the quality of the content they bring – be it music on Myspace, games and other apps on Facebook or TV on bebo. Further you have to consider the full user experience which goes beyond the quality of the content to include ease of discovery and the added benefits of consumption in a social setting.

Social network traffic – maybe not declining after all

By | Facebook, Social networks, WAYN | 3 Comments

Last week I wrote about Forbes reporting declining social network traffic.

In the comments some of you said that traffic to niche social network sites is increasing – and this is certainly something we are seeing at WAYN (DFJ Esprit portfolio company), where monthly unique visitors this month will be up circa 185% on a year ago at around 6.3m.  All the other metrics there are moving in the right direction as well, total hits, page views, photos uploaded, comments on photos etc. and many of them with higher growth rates than the 185% figure for uniques.

And finally my partner Cedric pointed me to a Telefonica Tumblelog (dont’ know if this is anything to do with Telefonica??) with the following stats which cast doubt on whether Facebook is going backwards:

  • 25m users, growing 3% per week, which is 100,000 new users per day
    (up from 7.5m users in July 2007), projected to reach 50m by end of
    2007
  • The fastest growing demographic is the 25 and over age group
  • 1% of all time spent on the internet is facebook
  • 50% of registered users come back to the site every day.
  • 60 billion page views per month, 50 pages per user every day
  • 6th most trafficked site in the U.S
  • 1 bn photos hosted on the site, 6m uploaded each deay, 70k photos
    served per second, making facebook the biggest photo sharing site on
    the web
  • 1-2 m people are on facebook simultaneously at any one time
  • $100m per year advertising deal with Microsoft
  • Internal valuation of $8bn, based on projected revenues of $1bn p.a. by 2015

Unfortunately these are not sourced.  That said there is a good degree of overlap with the offical Facebook stats.

To try and sum up this contradictory picture, I guess it looks likely that niche networks as a category are growing, and we will have to wait for more data to know about the big guys.

Social objects and social gestures

By | Facebook, MySpace, Social networks, WAYN | 4 Comments

As you probably know Hugh MacLeod writes a great blog at GapingVoid – and he has been writing a lot about social objects recently, including a good post on social gestures and then yesterday one on social markers.

The social object concept is a powerful one when it comes to understanding social networks. Despite only really taking off last year it is not a new idea, and for an academic perspective I strongly recommend Jyri Engestrom’s seminal post on this topic from 2005.

For a recap on definitions I’m going to borrow a sentence or two from Hugh:

The Social Object, in a nutshell, is the reason two people are talking to each other, as opposed to talking to somebody else. Human beings are social animals. We like to socialize. But if think about it, there needs to be a reason for it to happen in the first place. That reason, that “node” in the social network, is what we call the Social Object.

and

Social Networks form around Social Objects, not the other way around. [his emphasis]

Examples from Jyri’s post include Flickr which made photos social objects with tagging etc. and built a network around that, and del.ico.us, which did the same for URLs.  Our portfolio company WAYN did the same for trips.

That much I get, but until reading Hugh’s posts I struggled to extend the concept to the most successful social networks.  Myspace, Facebook, Bebo, etc didn’t seem to have a social object at their core (I don’t buy the argument that music is the social object Myspace – there is too much else that goes on).

What dawned on me whilst reading Hugh’s posts is that in the big networks like these are about multiple social objects.  On Facebook there are pokes, walls, all sorts of applications and even profiles themselves – plus I’m sure I’ve missed a bunch.  On Myspace music is an important one, but the coloured tapestry of the Myspace profile is right up there too.  The recent Bebo TV initiative adds another talking point to the site, i.e. another social object.

The other big take aways for me from Hugh’s posts are probably the more interesting ones – they concern how the notions of social objects and social gestures can help get a consumer internet startup get to critical mass (or help me predict which ones will get there).

  • Social gestures beget social objects – successful communities have social objects at their heart and objects become social when they are associated with social gestures
  • It is possible to make boring products into social objects – look at what Nike and Adidas did to the boring plimsoll, and this is what Hugh did with Stormhoek.  The trick – add social gestures and/or (in Hugh’s words) raise the conversation.  The classic social gesture on consumer internet has been the beta invite – if the underlying service has even a little cachet people feel good about sending and receiving beta invites, so lots get sent, and adoption increases.  Unfortunately this tactic is now so widespread that it has lost it’s meaning, and new ones are needed.  Gestures that share a little bit of the sender could be the way forward – e.g. sharing future journeys on Dopplr.
  • Really successful products become social markers – people use them to identify themselves e.g. I’m on Facebook as a personal statement, or wearing Nike trainers as a personal statement – you could do worse than to define success in this way.

Companies that get this have a much greater chance of success than those who don’t.

Buy.at and advertising in the long tail – including on TheEquityKicker

By | Advertising, Content, Portfolio, Social networks, WAYN | 16 Comments

BuyAt logo

I have been thinking for a while now that I should start experimenting with advertising on TheEquityKicker – and the observant amongst you who have visited my site rather than just reading me in a feed will have noticed that there is now a banner for Lovefilm in my left sidebar. This is an all portfolio affair as the ad is an affiliate link from buy.at and we have also invested in Lovefilm. Because it is an affiliate link it is performance only – i.e. the advertiser (in this case Lovefilm) only pays if they get a new customer (in this case defined as someone signing up for a free trial).

All money I make from advertising on this blog will be donated to charity. In the first instance that will be a nightshelter scheme operated by churches where I live in North London (or rather the charity that runs it). The NightShelter provides accommodation for homeless people during the post Christmas winter months. It is a worthwhile cause where I have volunteered for the past couple of years and if/when the money starts flowing I will post some photos so you can all see what you have helped with.
I am making the move into monetisation for two main reasons. Firstly if there are advertising dollars to be had it seems wrong to just leave them on the table, and secondly it will be fun to experiment with the different options available.

As I say I have been thinking about doing this for a while, I got around to doing it now because of a cool new widget coming from buy.at that we hope will help push the affiliate advertising model much further down the long tail of websites. (Today I have put up a simple banner, but the widget will follow soon.)

The drive at buy.at to push monetisation further down the long tail isn’t only about blogs, it extends to social networks as well. Last week buy.at announced a deal with travel focused social network WAYN. Through this initiative the ten million WAYN members will be able to promote products on their own profile pages and get a cut of any advertising revenues generated. It is early days, but this is could be huge and I will write more on it another time, but this just might be the way to unlock the advertising potential of social networks.

For full disclosure, we also have an investment in WAYN.