Tag Archive for 'analysis'

Facebook needs to be more like the Byzantines

Published on January 13, 2009 in DataPortability, with 0 Comments. Tags: , , , .

Flickr graph Chris Saad wrote a good post on the DataPortability Project's (DPP) blog about how the web works on a peering model. Something we do at the DPP is closely monitor the market's evolution, and having done this actively for a year now as a formal organisation, I feel we are at the cusp of a lot more exciting times to come. These are my thoughts on why Facebook needs to alter their strategy to stay ahead of the game, and by implication, everyone else who is trying to innovate in this sphere.

Let's start by describing the assertion that owning data is useless, but access is priceless.

It's a bold statement that you might need to get some background reading to understand my point of view (link above). However once you understand it, all the debates about who "owns" what data, suddenly become irrelevant. Basically access, just like ownership, is possible due to a sophisticated society that recognises peoples rights. Our society has now got to the point where ownership matters less now for the realisation of value, as we now have things in place to do more, through access.

Accessonomics: where access drives value
Let's use an example to illustrate the point with data. I am on Facebook, MySpace, Bebo, hi5, Orkut, and dozens of other social networking sites that have a profile of me. Now what happens if all of those social networking sites have different profiles of me? One when I was single, one when I was in a relationship, another engaged, and another "it's complicated".

If they are all different, who is correct? The profile I last updated of course. With the exception of your birthdate, any data about you will change in the future. There is nothing 'fixed' about someone and "owning" a snap shot of them at a particular point of time, is exactly that. Our interests change, as do our closest friends and our careers.

Recognising the time dimension of information means that unless a company has the most recent data about you, they are effectively carrying dead weight and giving themselves a false sense of security (and a false valuation). Facebook's $3 billion market value is not the data they have in June 2008; but data of people they have access to, of which, that's the latest version. Sure they can sell to advertisers specific information to target ads, but "single" in May is not as valuable as "single" in November (and even less valuable than single for May and November, but not the months in between).
Network cable

Facebook Connect and the peering network model
The announcement by Facebook in the last month has been nothing short of brilliant (and when its the CEO announcing, it clearly flags it's a strategic move for their future, and not just some web developer fun). What they have created out of their Facebook Connect service is shaking up the industry as they do a dance with Google since the announcement of OpenSocial in November 2007. That's because what they are doing is creating a permanent relationship with the user, following them around the web in their activities. This network business model means constant access to the user. But the mistake is equating access with the same way as you would with ownership: ownership is a permanent state, access is dependent on a positive relationship - the latter of course, being they are not permanent. When something is not permanent, you need strategies to ensure relevance.

When explaining data portability to people, I often use the example of data being like money. Storing your data in a bank allows you better security to house that data (as opposed to under your mattress) and better ability to reuse it (ie, with a theoretical debit card, you can use data about your friends for example, to filter content on a third party site). This Facebook Connect model very much appears to follow this line of thinking: you securely store your data in one place and then you can roam the web with the ability to tap into that data.

However there is a problem with this: data isn't the same as money. Money is valuable because of scarcity in the supply system, whilst data becomes valuable from reusing and creating derivatives. We generate new information by connecting different types of data together (which by definition, is how information gets generated). Our information economy allows alchemists to thrive, who can generate value through their creativity of meshing different (data) objects.

By thinking about the information value chain, Facebook would benefit more by being connected to other hubs, than having all activity go through it. Instead of data being stored in the one bank, it's actually stored across multiple banks (as a person, it probably scares you to store all your personal information with the one company: you'd split it if you could). What you want to do as a company is have access to this secure EFT ecosystem. Facebook can access data that occurs between other sites because they are party to the same secured transfer system, even though they had nothing to do with the information generation.

Facebook needs to remove itself from being a central node, and instead, a linked-up node. The node with the most relationships with other sites and hubs wins, because with the more data at your hands, the more potential you have of connecting dots to create unique information.

Facebook needs to think like the Byzantines
A lot more can be said on this and I'm sure the testosterone within Facebook thinks it can colonise the web. What I am going to conclude with is that that you can't fight the inevitable and this EFT system is effectively being built around Facebook with OpenSocial. The networked peer model will trump - the short history and inherent nature of the Internet proves that. Don't mistake short term success (ie, five years in the context of the Internet) with the long term trends.

Byzantine buildingThere was once a time where people thought MySpace was unstoppable. Microsoft unbeatable. IBM unbreakable. No empire in the history of the word has lasted forever. What we can do however, is learn the lessons of those that lasted longer than most, like the forgotten Byzantine empire.

Also known as the eastern Roman empire, its been given a separate name by historians because it outlived its western counterpart by over 1000 years. How did they last that long? Through diplomacy and avoiding war as much as possible. Rather than buying weapons, they bought friends, and ensured they had relationships with those around them who had it in their self-interest to keep the Byzantines in power.

Facebook needs to ensure it stays relevant in the entire ecosystem and not be a barrier. They are a cashed up business in growth mode with the potential to be the next Google in terms of impact - but let's put emphasis on "potential". Facebook has competitors that are cash flow positive, have billions in the bank, but most importantly of all are united in goals. They can't afford to fight a colonial war of capturing people identity's and they shouldn't think they need to.

Trying to be the central node of the entire ecosystem, by implementing their own proprietary methods, is an expensive approach that will ultimately be beaten one day. However build a peered ecosystem where you can access all data is very powerful. Facebook just needs access, as they can create value through their sheer resources to generate innovative information products: that, not lock-in, is that will keep them up in front.

Just because it's a decentralised system, doesn't mean you can't rule it. If all the kids on a track are wearing the same special shoes, that's not going to mean everyone runs the same time on the 100 metre dash. They call the patriarch of Constantiniple even to this day "first among equals" - an important figure who worked in parallel to the emperor's authority during the empire's reign. And it's no coincidence that the Byzantine's outlived nearly all empires known to date, which even to this day, arguably still exists in spirit.

Facebook's not going to change their strategy, because their short-term success and perception of dominance blinds their eyes. But that doesn't mean the rest of us need to make that mistake. Pick your fights: realise the business strategy of being a central node will create more heart-ache than gain.

It may sound counter intuitive but less control can actually mean more benefit. The value comes not from having everyone walk through your door, but rather you having the keys to everyone else's door. Follow the peered model, and the entity with the most linkages with other data nodes, will win.

Advertising on the Internet needs innovation

Published on May 27, 2008 in Innovation, with 0 Comments. Tags: , , , , , , , , , , , , , , , , , .

On the weekend, I caught up with Cameron Reilly of the Podcast network , and he was telling me about his views on monetising podcasts. It got me thinking again about those things I like to think about: how content can be monetised. Despite the growth in online advertising which is tipped to be $80 billion, I think we still have a lot more innovation to go with revenue models, especially ones that help content creators.

Advertising is a revenue stream that has traditionally enabled content-creators to monetise their products, in the absence of people paying a fee or subscription. With the Internet, content has undergone a radical changing of what it is - digital, abundant, easily copied - whilst the Internet has offered new opportunities for how advertising is done. However, the Internet has identified the fundamental weaknesses of advertising , as consumers can now control their content consumption, which allows them to ignore embedded advertising altogether. Content on the other hand, still remains in demand, but means of monetising it are slipping into a free economy which is not sustainable. I make that point to illustrate not that professional content creation is a sunset industry - but rather there's a big market opportunity as this massive industry needs better options.

time mag

"Hey man, there's this new thing called the Internet. Sounds pretty cool"

One of the biggest innovations in advertising (and enabled by the Internet) is of contextual search advertising. This has been popularised by Google, which now makes 98% of its $17 billion revenue from these units. This advertising dominates online advertising (40% of total) because of its pull nature, whereby key-words stated by a consumer in effect state their intention of what they are interested or would like to purchase. Whilst this is a highly efficient form of advertising, it also has its weaknesses - for example, it is not as effective outside of the search engine environment. Google makes 35% of its revenue from the adSense network , where these contextual ads are placed on peoples personal websites. Evidence from high traffic bloggers suggests they barely make enough money through this type of advertising. Another point to consider is that aspects of the Google network include significant partnership agreements like the one with AOL which accounts for 10% of Googles revenue (this is a 2005 figure which has likely changed, but Google does state in their 2007 report "Our agreements with a few of the largest Google Network members account for a significant portion of revenues derived from our AdSense program. If our relationship with one or more large Google Network members were terminated or renegotiated on terms less favorable to us, our business could be adversely affected.". AOL most recently reported for Q1 2008 half a billion dollars largely from search advertising ).

Other attempts at creating more efficient advertising which have existed for over a decade, have come in the form of profiling or behavioural tracking. However, these forms of advertising has also highlighted the growing awareness of consumer privacy being eroded, and is under heavy scrutiny by activist groups and government. Facebook is a company that is best posed to deliver new forms of advertising because of the rich profiling data it has, but it itself has faced massive backlash .

My view is that the majority of online advertising for successful individual publishers at least, has largely come from traditional approaches to advertising - a masthead blog with a sales team that uses display advertising. How effective this display advertising is is debateable with widespread banner blindness and consumer control over their content, but it would appear that this is more a case of advertisers seeing this as the least bad on the overall scale of opportunities. The fact it replicates the mass media approach of number of unique consumers viewing the content, and not the types of users, means this isn't anything new other than being done in a digital environment.

Digital content is in need of a better monetisation system.
Targeted advertising is the most efficient form, yet consumer privacy is a growing force preventing this. What we need, is not a new advertising technology, but a new way of thinking about advertising - in a way that can help the content economy rather than riding on it without giving benefit. Contextual advertising sounds great in theory as it calculates key-word frequency of words on a website, to match it to a key word ad - but it's proving in practice these ads are not very relevant. Yet trying to think of a smarter way to advertise, may be the wrong question - perhaps half the problem itself is advertising as a concept?

perspective

Are we running down a tunnel, only to find there is nothing there?

Content which comes in the form of news (historical and breaking), analysis, and entertainment can be monetised via a persons attention or through a transaction (ie, subscription, fee, etc). Both this approaches have different barriers.

- Attention: The key driver is increased dollars per unique person, over a period of time. The barriers to this approach is the challenge of identifying the individual in a way that gives advertising that is highly relevant and will result in a conversion. In other words, privacy privacy privacy.

- Alternative payment: Requiring consumers to pay for content is a barrier due to the paid wall. What is more problematic for digital content, is that the ability to replicate it freely makes it not just easy to do for the masses but has created a culture of if it's not free, it's not worth purchasing unless its really necessary. There needs to be a strong value proposition for a consumer to purchase content, and in the absense of a brand and marketing, the restriction of what value the content offers is a barrier for consumer demand as they don't know what they are missing out on.

So as you see above, content creators are in a difficult position. Charging people reduces their opportunity unless they are really established, but even then, due to the digital environment they don't have any control over subsequent distribution (with rampant piracy). Yet advertising is fraught with being irrelevant and hence not effective (so advertisers go to other forms) and any attempts to make it more relevant, gets held back by the concerns of privacy advocates (and rightly so). Whilst the Internet parades itself as an advertising growth machine, it's growing in new areas but not the old areas that have traditionally been the medium for advertisers.

This advertising growth is largely being driven through utility computing products that aim to make information retrieval more efficient (ie, search). However, the growth for the content creators, is not happening. As Cam was telling me, in a market like Australia - small content organisations like TPN and Bronwen Clune 's Norgs , don't have access to the big end of town for a sales team. And he didn't have to tell me, those Google ads for the smaller guys, are not enough to pay the bills. That small to middle end is not being really catered for.

But before you jump on the phone and create some mid-tier advertising network that caters for a niche, think about the real problem: content creators need a better solution to monetise their content. But advertisers also need a better way of selling, other than some slick-talking sales person who can sell ads on pageviews (a broken model with weak alternatives ) They need advertising that is suited for their product, but the market now includes other products media outlets never had to compete with like marketplaces now happening online and utility computing products. Whilst the technology community obsesses about search , let's also remember we have yet to see a new way to monetise content that is superior to the old world. Contextual advertising of text is the latest new thing area, but that technique is nearly a decade old. As I prove above, outside of the search environment, it is showing to not be that effective.

Where is the innovation going to come from? Not through technology but with a new paradigm shift like how content creators operate . New ways of thinking about the way we 'sell' like what the VRM Project is challenging. But perhaps more fundamentally, is an understanding that the holy grail of targeted advertising has got a speed hump called privacy - and that may actually be a sign of not going faster towards better targeting, but changing the vehicle all together.

Analysing the user experience from two social networking sites

Published on May 1, 2008 in social computing, with 0 Comments. Tags: , , , , , , , , , , , , , , .

Yet again, MySpace has e-mailed me a useless e-mail that frustrates me more than it gives me value . But what I noticed recently, was another social networking site, taking a different approach.

geni

Whereas MySpace is simply alerting me, which is forcing me to painfully log into their service, Geni is actually alerting me the information without me having to take another action.

A few points of reflection on this:
1) Using my business analysis on the consumer Internet , MySpace is offering a content model (hypermedia is how I referred to this in my post) whereas Geni is offering a Utility computing product. Both these businesses consider themselves "social networking" sites and yet both offer a different product model.
2) This also highlights two different business models: MySpace is a platform whilst Geni is working on a network model. Meaning, MySpace's business model is premised on you visiting them for you to get value; Geni's isn't. To be perfectly honest, both MySpace and Geni are irrelevant for me. However platforms can come and go, but network models always stick around. As irrelevant Geni is to me, I still value it - a network business strategy (meaning you follow the user, rather than expecting them to come) builds a long term relationship.
3) Social networking sites when it's the core product, work best as utility services and not a content business. Look at what a different user experience it is for me, because I can get benefit from my Geni account despite not having to log in. Although I am not giving them pageviews, I am giving them my attention which is translating into greater brand equity for them. When you treat social networking as a content business, this distorts the service offered to users, as misaligned business views on generating revenue drive strategy in a way that is harmful to the consumer ie, I feel like saying "f**k off" whenever I see those e-mails for MySpace . But "thank-you" to Geni.

The main point I want to get at though, is that the user experience is just as important when the user is not on the site as it is when they are on the site. People shy away from the recently-recognised network model of business, because they don't get the same traffic. I say embrace it, because the market will eventually correct itself to recognise this is a superior type of strategy.