So if you are an entrepreneur who has built your shiny new service and tested it out with a few “innovative” local businesses, you are probably now worried about “Early Adopters” and how to cross the distribution “Chasm” and acquire enough local businesses to scale. When dealing with local businesses, the decisions in this phase of your startup are crucial to determining if you are able to cross the chasm or perish in it. But have no fear, as I will walk you through 5 different distribution approaches that 5 different successful companies targeting the local space have taken. While some of the distribution approaches are dictated by the product choices you have made, there are always tweaks and elements of different approaches you can assimilate to make your approach better. Think long and hard about these options and pick the ones that work best for you:

1. Consumer first approach: The idea here is to first build a consumer-focused service and a strong consumer-base before approaching local businesses.  Some of the companies with this approach are Yelp, FourSquare, Foodspotting etc.  Keep in mind building a big enough customer-base with which to target local businesses is really hard because typical local businesses get their customers from a 2-mile radius. And so having enough users in 2-mile radius circles across America is a herculean task.  This is a great way to go if you build an engaging and utilitarian service that people want to use repeatedly and build viral loops to increase the utility as more people use the service. Yelp was able to do this by building reviews and using that content with SEO/Google to bring more people back to its service. FourSquare does it with publishing to Twitter and Facebook etc.
2. Direct sales to 1-2 location businesses:  The approach to business development here is to hire a sales crew to sign 1-2 location businesses. Some of the companies that have succeeded with this approach are GroupOn, YellowPages and OpenTable. The challenges here are all related to getting the numbers to work, as a dedicated sales-force tends to be expensive.  A rule of thumb to succeed with a direct-sales model is to have each sale be worth more than $5K (1 years value) with as much of the fees front-loaded as possible.  GroupOn is able to afford a dedicated sales force because a typical sale is more than $5K.  OpenTable is close to that number as well and so is YellowPages. So make sure you have a way to get to yearly revenue close to $5K before you embark down this path.
3. Distribution Partnerships: Another way to acquire local customers is to  make distribution partnerships where your product is either presented or actively sold by your partner. The partner, of course, gets a referral fee for all the customers they drive to the company’s service. One of the businesses that succeeded with this approach is ConstantContact. ConstantContact signed a partnership with Network Solutions and many other portals. And when local business owners visited Network Solutions to get their domain, they were offered ConstantContact email marketing services. This approach can work as long as your product is an easy sell and does not require a lot of sales support from you or your partner.
4. Affiliates: A popular way to acquire customers is to sign up affiliates and to enable these affiliates to make sales for you for a commission.  This model is fairly popular with local coupon companies like MoneyMailer or SMS based marketing companies. Typically the best way to do these affiliate deals is to take a regional approach where you sign regional managers, and have them recruit and manage individual affiliates. These affiliates own the local relationships and are often selling products and services from other companies in parallel. Typical affiliate fees comprise of a 20% cut to the individual; 10% to the regional manager with the rest going to the corporate offices. The challenge with this approach is that before signing up affiliates, a company needs to streamline and simplify its business, document the best practices and develop sales training materials and tools for the affiliates. This requires a huge investment and introduces the risk of having a 3^rd party represent you to a customer
5. Seed + self-service: A traditionally popular way to acquire customers is by seeding the marketing with some marquee deals. These deals give the company visibility, drive customer adoption and reduce risk for new local businesses considering using the service (If McDonalds’s is using a service, it should work for my burger joint as well). A number of Saas services like Fishbowl marketing use this approach. With this approach, the company needs to make sure that the service being delivered is easy to customize (if at all) and 1-2 location businesses can sign themselves up (not very successfully as yet though). The important thing to understand and model is the viral channel available to the service.

Local markets are complex. Make sure you model your customer acquisition strategy with care and foresight.  Your decision regarding the distribution of your service will likely makes or breaks your company.

http://blog.punchh.com/2011/02/17/restaurant-loyalty-program/

http://blog.punchh.com/2011/01/30/consolidate-and-conquer/

Good: Lots of data, Aggregated feedback (Yelp, CitySearch etc.)

Bad: Very basic interface, no checkin, very few pics and most of the pics are taken from outside

Ugly: Hard to use, search based interface with very little browsing support e.g. if you want to find Indian restaurants close by you have to do a search. A little bit better taxonomy would be helpful

Ways to go before it become a highly used consumer product.

The article talks about how

A single NFC chip on a mobile phone would hold a consumer’s financial account information, gift cards, store loyalty cards, and coupon subscriptions, say the people familiar with Google’s plans. Users may also be able to make online purchases from their phones. By scanning a movie poster, for instance, a consumer might read reviews and use the Google service to purchase tickets.

(For those who don’t know, NFC is the Near Field Communication technology which enables communication in close quarters between a cell phone and another device (active) or an RFID (passive) tag).

On the front end this means that Google will be developing a wallet application. This application will do something like the following:

• Store customer information like Credit Cards, Paypal, Google Checkout, Facebook Credits, SocialGold stuff etc.
• Provide an interface for users to use a payment source to pay a bill. The amount of the bill might be automatically send from the receiver or might be entered by the user. The user will have a chance to add a tip
• The user will then tap the device
• Tie all this payment information with coupons and ads shown to a user on their phones etc. This will enable end-to-end tracking of ad ROI for users.
• Enable loyalty programs etc although tying loyalty program to a fragmented payment market might be ineffective

(How will this flow work when users are dining at a nice restaurant and the payment does not happen at a checkout counter?)

At the storefront, Google will need to provide an internet connected device (see my previous article Google to hand out devices to local businesses . They will likely work with the existing processors in the beginning). This device will likely do the following:

• Handle Credit card transactions (This will likely disrupt the processors – they are going to fight this tooth and nail – interesting to see how this shapes up)
• Manage the communication with the phone based wallet app

(How will this interact with the POS systems, and who will retail what data? I think Google will eventually release a simple POS system as well with this)

If Google gets really ambitious and wants to get a bigger piece of the pie, they will need to take on the existing payment providers like Visa etc.:

• Become a massive credit card processor (This massive aggregation is going to challenge the payment networks like Visa, MC etc. and they will likely work against Google)
• Develop a currency like Facebook credits (Jambool acquisition?) to benefit from control of the end-to-end payment process
• Provide reporting, customer support, account management for all the local businesses.

This is going to be quite an undertaking for Google. This development does open a lot of interesting strategic questions for companies like Facebook, Paypal etc. But that is subject for another post.

These companies (e.g directory listing, web sie creation, coupon listing,  self-service location-based companies etc.) have mostly focused on targeting larger number of customers and getting a good conversion factor instead of the customer value proposition.

With the advent of social media these businesses are going to have a tough time staying relevant. Businesses will demand more and more measurable ROI. With location-based and mobile computing there are going to be more and more ways to deliver these services in a cost-effective ways.

This of course is great news for local business owners who will get a pick of services that deliver real ROI to them and finally we will new billion dollar companies developing by focussing on adding value to customers.

Mark makes a couple of really important points in his nicely written post:

1. With OpenTable, restaurants no longer own the relationship with customers. This means that the customer loyalty is to OpenTable and  in essence businesses are paying OpenTable to create a loyal customer for OpenTable. Once OpenTable has that customers, businesses need to keep paying OpenTable for access to that customer.

2. OpenTable is expensive. Mark talks a lot about typical margins at restaurants of about 5%. with these margins he finds it difficult to justify the payments to OpenTable.

The overall point that Mark makes is that network based businesses that own customers (like Yelp, GroupOn, MerchantCircle or OpenTable etc.) are not great for local business. This is because if a network owns the customers, business will be held hostage by the power of the network.

Could not agree more!!!!

1. This device could be

• A customer-facing  tablet kind of device running android with build-in integration of Google places for reviews and checkins
• A device to verify your location (ala ShopKick) so that users running a Google app on their phone or other devices can easily receive notifications (key), do checkins, validate coupons and write reviews. Something like this would be pretty cool but might require some standards work to get it working across different devices
• A device that not only enables user interaction but also allows businesses to run business apps like POS apps etc. on Google infrastructure

2. At the end of the day, this move by Google is about getting more data. Google is really worried about Facebook getting all the user/local data because of FB apps and they want to distribute these devices (they will be expensive to send and maintain) to get some of this data.

3. The important point here is what is in it for local businesses? I think they will be able to see much richer data on their own customers and Google will share the data they collect with each of the merchants.

4. The Apps delivered via such a device could be really powerful as these apps will enable Google to get their hands on the all important sales/market basket data. Businesses won’t mind as the traditional business apps are old and expensive to buy and maintain. If Google can deliver these apps cheaply and easily, it would be powerful.

All in all this looks like a huge gamble on part of Google (could be over several billion dollars worth), but might be justified given the size of the market we are talking about. Still though not having a social graph will likely handicap Google in making sense of this data because  most of the local business customers are driven by word-of-mouth.

This week I spoke to another big facebook app develop…Overall I think we need to look really closely at facebook claim of app developers generating over $500M this year.

With the preponderance of virtual currencies …

Over the last twenty years, Meyer and a host of other researchers have proved again and again that multitasking, at least as our culture has come to know and love and institutionalize it, is a myth. When you think you’re doing two things at once, you’re almost always just switching rapidly between them, leaking a little mental efficiency with every switch. Meyer says that this is because, to put it simply, the brain processes different kinds of information on a variety of separate “channels”—a language channel, a visual channel, an auditory channel, and so on—each of which can process only one stream of information at a time. If you overburden a channel, the brain becomes inefficient and mistake-prone. The classic example is driving while talking on a cell phone, two tasks that conflict across a range of obvious channels: Steering and dialing are both manual tasks, looking out the windshield and reading a phone screen are both visual, etc. Even talking on a hands-free phone can be dangerous, Meyer says. If the person on the other end of the phone is describing a visual scene—say, the layout of a room full of furniture—that conversation can actually occupy your visual channel enough to impair your ability to see what’s around you on the road.

The only time multitasking does work efficiently, Meyer says, is when multiple simple tasks operate on entirely separate channels—for example, folding laundry (a visual-manual task) while listening to a stock report (a verbal task). But real-world scenarios that fit those specifications are very rare.

But why do we have this urge to do multiple things?

I’m not ready to blame my restless attention entirely on a faulty willpower. Some of it is pure impersonal behaviorism. The Internet is basically a Skinner box engineered to tap right into our deepest mechanisms of addiction. As B. F. Skinner’s army of lever-pressing rats and pigeons taught us, the most irresistible reward schedule is not, counterintuitively, the one in which we’re rewarded constantly but something called “variable ratio schedule,” in which the rewards arrive at random. And that randomness is practically the Internet’s defining feature: It dispenses its never-ending little shots of positivity—a life-changing e-mail here, a funny YouTube video there—in gloriously unpredictable cycles. It seems unrealistic to expect people to spend all day clicking reward bars—searching the web, scanning the relevant blogs, checking e-mail to see if a co-worker has updated a project—and then just leave those distractions behind, as soon as they’re not strictly required, to engage in “healthy” things like books and ab crunches and undistracted deep conversations with neighbors. It would be like requiring employees to take a few hits of opium throughout the day, then being surprised when it becomes a problem. Last year, an editorial in the American Journal of Psychiatry raised the prospect of adding “Internet addiction” to the DSM, which would make it a disorder to be taken as seriously as schizophrenia.

The most promising solution seems to be meditation to get your executive attention control in shape

The most promising solution to our attention problem, in Gallagher’s mind, is also the most ancient: meditation. Neuroscientists have become obsessed, in recent years, with Buddhists, whose attentional discipline can apparently confer all kinds of benefits even on non-Buddhists. (Some psychologists predict that, in the same way we go out for a jog now, in the future we’ll all do daily 20-to-30-minute “secular attentional workouts.”) Meditation can make your attention less “sticky,” able to notice images flashing by in such quick succession that regular brains would miss them. It has also been shown to elevate your mood, which can then recursively stoke your attention: Research shows that positive emotions cause your visual field to expand. The brains of Buddhist monks asked to meditate on “unconditional loving-kindness and compassion” show instant and remarkable changes: Their left prefrontal cortices (responsible for positive emotions) go into overdrive, they produce gamma waves 30 times more powerful than novice meditators, and their wave activity is coordinated in a way often seen in patients under anesthesia.

Gallagher stresses that because attention is a limited resource—one psychologist has calculated that we can attend to only 110 bits of information per second, or 173 billion bits in an average lifetime—our moment-by-moment choice of attentional targets determines, in a very real sense, the shape of our lives. Rapt’s epigraph comes from the psychologist and philosopher William James: “My experience is what I agree to attend to.” For Gallagher, everything comes down to that one big choice: investing your attention wisely or not. The jackhammers are everywhere—iPhones, e-mail, cancer—and Western culture’s attentional crisis is mainly a widespread failure to ignore them.

Author suggests that some of the predictions associated with the attention problem might be overblown and may be our brains will just adapt to the new stimulus environment…I am not sure but I hope certainly that we can cope.

In 2009, more data will be generated by individuals than in the entire history of mankind through 2008. Information overload is more serious than ever.

Andreas is the former Chief Scientist at Amazon.com and an expert in data mining and computational marketing. He currently teaches the graduate course Data Mining and Electronic Commerce at Stanford University.

The second data revolution brought about a new dimension to data creation: users started to actively contribute explicit data such as information about themselves, their friends, or about the items they purchased. These data went far beyond the click-and-search data that characterized the first decade of the web.

There is no doubt that this data is going to help researchers better understand the human network and interactions. But will all this data help companies make money by enabling better targeting?

Well so far, opposite seems to be happening. The places where there is most amount of data – like Facebook etc. – are really struggling with their monetization efforts. In fact not only are these companies not profitable, they are also lagging well behind other traditional media properties in terms of CPM rates they can generate. Could it be that these companies really don’t know how to process this data and once they figure out the right ways to process the data, they will be rich?

I suspect the monetization woes of Facebook et al are not really related to inadequate processing of the data but rather motivation of the users. Its almost like the users of most social media platforms are equipped with a Tivo that ignores all ads no matter how relevant. As such I suspect that even though the ads on social media platforms are more relevant because of all the data, but they get far less traction because of the motivation issues.

So while this huge amount of  data will help us better understand our behaviors, it is unlikely to help resolve the monetization issues plaguing so many social applications.

How to monetize social media – Tencent example

To experiment, I changed the address to one shop before and I am seeing another ad:

I changed to a third address…again different ads based on the shop.

So if you look up the address of a shop in Google, google is going to show you an ad of a competing service (I guess one that paid Google)…Isn’t this the crux of trademark case against google? Can an address be a trademark? I would be annoyed if I owned any of these businesses…What do you think?

A lot of good stuff in this book…My summary below:

• Interesting information about the role of automatic nervous system and emotions in controlling human responses to events. It turns out the role of emotions is pretty pivotal in helping us make decisions and in reducing the time it takes to decide. Emotions provide pre-processed chunks of wisdom (I am copyrighting this ) and value judgements that obviate the need for a time-consuming and sometimes impossible top-down analysis.
• Even though emotions are critical, they are not infallible. There are a number of cases when emotions can lead to wrong decisions. E.g. Just think of people voting for Bush because he is guy who one would like to have beer with or people claiming that being anti-torture is the same as being pro-terrorists or people making irrational statements like fight terrorists in Iraq so we don’t have to fight them in the US.
• Humans are different from other animals because in addition to the emotions we have a powerful pre-frontal cortex that allows us to examine and at times control our emotions. In the book there are a lot of astonishing examples of imagination and creativity shown by people under duress. These people were able to subjugate their emotions in tough situations and come up with solutions that were not prescribed.
• While the pre-frontal cortex is very powerful, it also is not infallible. The books lists a lot of examples when over-thinking a situations can interfere with the natural emotional response and can result in “choking”. Also by over-thinking we can at times get distracted by irrelevant or marginally-relevant things and end up making wrong decisions.
• It turns out that our emotional machine is a freaking amazing pattern matching machine…It has a keen knack (based on pre-processed chunks of wisdom) to cut to the chase and quickly focus on the important stuff. The books lists a lot of great examples, studies and experiments that highlight different aspects of the brain.
• Expectations are key to how our emotional brain works. No wonder they stress so much on managing people’s expectations in business schools.
• Our emotional brain cannot handle randomness or the freaking amazing pattern matching machine cannot be turned off. Try seeing a list of random number one after the other. Now observe that even though you know that the numbers you are looking at are random, your emotional brain would try to find a pattern and predict the next number. One a new number comes up, again the emotional brain would try to fit that into some patterns and predict again…
  I suspect this inability to handle randomness is a big reason for the popularity of religion. A few weeks back I was having a conversation with a buddy of mine who has become fairly religious. He pointed out a number of coincidences. “These coincidences are signal from god and proof that god exists”, he concluded. I proposed that maybe these signals might be all random events and that he might just be selecting the events that fit into his theory. His response to me pointing out our brain’s inability to handle randomness – but you know god created the brain too (and he wasn’t smiling) – won him the debate.
  Another example of our inability to handle randomness is all these theories about stock market that rely on the shape and direction of the stock chart. Again I suspect people are coming up with these theories like market bottom, symmetrical triangles etc. because of the underlying urge of the emotional brain.

All in all, its one hell of a book. I highly recommend it. Also check out author’s blog for the latest updates on the subject.

—–

In his post on why the traditional CPM model doesn’t work anymore, Dave McClure breaks the CPM denial balloon, noting that the popular content-centric, keyword-based Google Adword model delivers a click-through rate of less than 1%. Dave posits that the problem is not Google-specific, but reflects the problem with the CPM model in the new world of social networks and distributed conversations.

As an answer to the problem with lackluster clicks, especially within social networks like Facebook, Dave looks to widgets to serve up content based on the interests of individuals:

“The Revolution Will Not Be Televised. It will be Widgetized. Fortunately, that revolution is already happening… it’s called widgets. and Facebook apps. it’s about engaging users via application workflow, and discovering intent. then you don’t have to advertise anymore, you just serve up the stuff that users find interesting.”

Social Networks

What’s clear is that while the appeal of social networks is growing — with 44.3% of U.S. Internet users expected to participate by year’s end according to eMarketer — the CPM model as a means to evoke a response from consumers is not just flailing, but failing.

Ad networks like Lookery, which target Facebook users, have cut ad rates nearly in half. It’s a move that has worked for Lookery in the short term—at least in providing relief to frustrated application developers.

However, cutting ad rates is not exactly the hallmark of a solid revenue model. These guarantees are more like a Band-Aid than the full-scale surgery that is required of online advertising.

Why CPMs Don’t Work

The reason CPMs don’t work in social networks is that they are trying to target new media users using old media technology and thinking. The CPM model asks, “What is the content on the page?” But social media conversations aren’t ON any one page anymore. They jump from one site to another, they take place on a variety of platforms and media types, across blogs and Twitter and FriendFeed and Facebook and MySpace.

In this AdAge article, Steve Rubel talks about the role of social search in the changing role of online advertising:

“Social-network advertising to date… has been a mixed bag. Everyone is innovating, but the draw on social networks is your group of friends. That makes it harder to be distracted by ads. Enter search. Watch for contextual advertising and programs such as Facebook’s social ads. New models will emerge where social algorithms and keywords trigger contextual ads.”

Finding a Solution

It’s clear that a solution to the social media monetization puzzle cannot be solved by content alone. Tools that track the context within which the social media participant engages within various communities are important. Context-based discovery and social search play a role in bringing relevant content to receptive audiences. Interest-based user engagement — based on user context, not content -– tracks interest across various conversations and among the plethora of social media sites.

Knowing – based on her participation across social sites – that a social media participant is a New England Patriots fan who vacations frequently in Hawaii and loves water sports and high-tech gadgets is invaluable to creating a tailored interaction between that participant and companies with offers that are relevant to her.

Universal Profiles

Universal user profiles can inform and strengthen the relationship between social media users, third-party application developers, and advertisers. In contrast to the fragmented identities we maintain in all of the social sites we participate on, universal profiles present a hyperlinked record of users’ participation across sites.

Universal profiles have supercharged the idea of “context” as it relates to the distributed Web, offering the best of both worlds. These profiles track and present the activity of users across communities, while leaving control of the data in the hands of the community or site owner. They are proving to increase traffic for site owners while providing the community with non-intrusive ways to monetize content and build reputation.

This context-based approach to social media advertising offers a creative, secure way to breathe new life into an old model. With a new way to seamlessly present meaningful offers, and even customized environments, to users, advertisers can now understand and appeal to an individual’s online and offline interests based on the fullness of their participation across social media sites. Greeting users on their own terms –- rather than force-feeding them ads based on key words and content — can, over time, transform Internet users from “mouse clicks” and “targets” to fully engaged participants and willing customers.

As founder and CEO of SezWho, Jitendra Gupta brings 13 years of experience in developing and managing software solutions. He holds an MBA from the University of and a B.Tech in EE from IIT Kanpur, India. Jitendra speaks frequently on the topic of context-based search, distributed conversations, and the changing nature of the social web. He has been blogging for nearly two years and occasionally contributes to ReadWriteWeb.com. Jitendra can be reached at jitendra [at] jitendragupta [dot] com.

Corporate Social Media Marketing: I Don’t Want A Social Relationship With My Hard Drive 

It highlights some of the difficulty with making money in social media. We will explore some more related issues in the next few posts.

I do think that Twitter is a great app (I have been using it for over a year now)  - beautifully designed and thought out – but things are getting a wee bit hysterical with all the hype. The reason for all this hype seems to be that twitter is really targeted to media personalities – to people who make money from influencing other people and are comfortable in the spotlight – and these people are the ones doing all the hyping. Imagine news written by students…It will be all facebook all the time.

Now is twitter really useful or popular with non-media types? If you are not looking to influence other people, does it makes sense to tweet? Can twitter provide value to students or plumbers or nurses? If you just want to talk with your friends or connect with a group, I just don’t see the value proposition being very strong. There are better tools like facebook, myspace etc. that provide much better tools and access control for your conversation.

Another angle that is getting hyped up is the real-time search.  A number of people seem to be suggesting that Twitter = Real-time Search. To me twitter is an important source of information for real-time search but its not real-time search. For my real-time search I would like to get a larger data set that includes information from facebook feed, LinkedIn, myspace, blogs, bulletin boards recently updated sites etc. Now given the current stage of search (Google) this kind of near real-time access to latest information is not available. Perhaps that is why Twitter with its real-time database that does not require any extensive crawling and indexing works as a proxy real-time search. Longer term, though, saying twitter is real-time search seems similar to saying yahoo directory (from 10-12 years back) was the internet. Remember how that worked out for Yahoo!.

Update: Check out this interesting post from MediaPost that echos some of the same sentiments.

Update: Check out this interesting post from Brian Solis’s blog (Brian has been an early adopter of twitter and is a passionate user)

73% of all users have read a blog

184M bloggers – which means a whole lot more blogs than that…Check out our old numbers here

Categorization of posts:

57.5% belong to a social network (pretty amazing)…What are these guys doing?

Overall pretty good report…

1. Election buzz is everywhere in India.

2. North India seems to be a whole lot more engaged in the elections compared to the south.

3. Roads, railways and airlines infrastucture is much improved in India…Now if they can solve the last mile problem for travel.

4. In the villages, a lot more people are excercising these days. Over a number of trips, I saw kids from villages and cities alike, getting up early in the morning and running on the roads, parks and streets. Gone are the days when I used to be the only person running. People and dogs no longer look at you with interest, if you are running. Very welcome change.

5. Yoga has taken off in India. All my relatives are all over it. Based on some convincing testimonials I decided to attend a yoga camp as well. 

Yoga is really focused on exercising the internal organs of the body and it really works. Interesting that all the voice training exercise for singers in the west are practically copied from Yoga (here, here etc.).

6. Lucknow is the place to go for authentic kababs. The kabab’s are called tunde kabab’s are somewhat like aloo tikkies and are served with special parathas  and roomali rotis. All I can say is yum!!! (check out the video of the scene of crime). 

7. Olive oil is still hard to find in India. In a superstore in Pilani, where the owner insisted that they had olive oil, I finally located it in the hair oil section. Apparently the shop owner believes that the only possible use of olive oil is for hair care. 

8. IPL cricket is doing really well this year despite being in South Africa. Its and interesting mixture of sports and entertainment with bollywood stars as owners of teams (great investment buying a team btw). There is even a gossip blogger for the IPL now. 

9. DVR’s and HD TV are finally available in India and they work good. 

10. Credit cards are accepted pretty much everywhere in cities these days…Not so much in towns and villages. (Not one store accepting credit card in Pilani e.g.)

Update your links….

Thanks Richard…Great job putting the piece together and with all the pics etc.

Irrational behavior at eBay

Updates on SezWho…here and here

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We will no longer be updating this blog…In any case, drop by and say hi at our new digs.

• How much are customer willing to pay to protect their privacy?
• How much do customers want to be paid to share their private information?

As expected customers wanted a whole lot more money to share their private information while very few were willing to pay to anything to protect that information. I think people have this assumption about privacy that its something they just have…and I think its an artifact of how things used to be before everything changed because of technology. We now need to reexamine our assumptions about how much we really value privacy and come up with a more rational value (rather then have endowment effect and other psychological factors skew our judgement) … This is too important for everybody.

So the current numbers are “Internet advertising has grown into a $16.9 billion industry — 5.9% of the $285 billion total U.S. advertising market in 2006, up from 4.7% in 2005, according to the Interactive Advertising Bureau.”

The article has a good cast of characters that make up the online ads space. Below is my summary of all the species:

Paid Search

1. Search Sites: Up until now, paid search has benefited just a handful of players, particularly Google and Yahoo because those ads have mostly attracted smaller businesses that don’t use ad agencies.
2. SEO Agencies: With bigger companies becoming more involved in paid search, agencies and search-marketing firms are playing a greater role. Also firms have sprung up to help marketers design their Web sites to make it easier for search engines to understand what information appears there. The goal of this “search-engine optimization” is for a company’s Web site to show up at the top of a search engine’s free results listings when a person is looking for information related to that particular company or industry.

Branding Ads (banner ads, animated adds,  etc.)

1. Digital Ad agencies: ads are usually designed by digital ad agencies and then transported to various Web sites through a circuitous route often involving a number of technology-focused companies. It is this area that has seen most of the acquisition activity in recent weeks, as bigger ad players try to streamline the online advertising process. For example, Avenue A/Razorfish bought ad space on a total of 863 individual sites last year for its clients, which include Kraft Foods Inc., Walt Disney Co. and Nike Inc. To line up all that space, Avenue A/Razorfish used firms that deal with hundreds or thousands of Web sites.
2. Ad Networks: Ad networks, buy space from sites and resell it to advertisers at a premium. Among the major ad networks are Advertising.com, acquired in 2004 by Time Warner Inc.’s AOL, and 24/7 Real Media.
3. Ad-serving firms: Ad-serving firms are technology companies that get the ads from the advertiser to the Web sites that the ad network firms have lined up. The top two ad-serving companies are DoubleClick and Atlas, another unit of aQuantive. Ad-serving companies save the digital information that creates an online ad on a computer server and then deliver that data to the sites where marketers bought advertising space. This lets ad agencies change the contents of an online ad or where it runs on a site by switching that digital information on the computer server instead of communicating with each of the hundreds of sites where an ad might appear.

Some ad-serving companies also have ad-network arms. DoubleClick, for example, provides both these services for advertisers and Web sites.

Based on the action in the space you can see where the online ad market is going towards…while paid search is the cash cow, Branding seems to be future opportunity…Looking at the numbers there is huge room for growth.

(Numbers etc. borrowed heavily from the WSJ piece).

Since we are talking about open source, a definition of the subject from Wikipedia is in order:

“Open source is a set of principles and practices that promote access to the production and design process for various goods, products, resources and technical conclusions or advice. The term is most commonly applied to the source code of software that is made available to the general public with relaxed or non-existent intellectual property restrictions. This allows users to create user-generated software content through incremental individual effort or through collaboration.”

In the area of computers and Internet, open source movement is almost as old as computers themselves. In the beginning there was Multics, Unix, BSD, Minix etc. Than came Richard Stallman’s GPL, GNU and FSF. That was followed by Linux, Apache and many more projects. Over time open source movement has begun extending to things beyond software and technology to include media (video, pics and blogs etc.), creative content (creative commons) and communities.

Since open source movement affects our lives in more and more ways, let’s take a look at how the open source model is interacting with our market driven economic system.

Open Source Business Models

The heightened level of interest in open source model has lead companies to start looking for ways to add value to the process of open source development and distribution in order to make money from it. Some of the models/approaches that have emerged are:

• Develop the product and open it up to the community: The main goals for the businesses here are two fold:
  • Generate marketing buzz
  • Leverage the skills/people in the community to enhance the product.

Businesses make money by selling add on software modules or services to customers using the open source technology. Some of the examples of this model are Eclipse (IBM), Netscape, Linux, and recently Solaris (Sun) etc. While this model sounds attractive as a way to reduce development costs, there are plenty of other expenses for the businesses. Businesses need to create and participate in boards (Sometime controlled by the business, sometimes not) to chart a sensible product direction, to manage licensing issues and to put together a well tested base distribution bundle. Working on a board staffed with community members and sometimes even competitors can be an expensive and time consuming process.

• Take an Open Source product and provide support and services to enterprises: There are a number of companies like MySQL, Zmanda, RedHat etc. that provide such services. The business model is all about building up the volume and driving up the percentage of paying customers (typically less than 2% of the customers pay) for customer support or other services.

• Provide open source platforms: There are a number of sites/projects like sourceforge.net, google code and even YouTube or FaceBook that provide platforms for open source like collaboration. The business model typically is to provide the basic services for free and make money via ads by driving the page views.

The value of the open source is pretty clear to customers as they get the product and services they want without having to pay for the underlying product…But who else is extracting the rents in open source related economic activity? Let’s look at the value accruing to three important stakeholders – Businesses, Customers and Contributors.

Value to open source businesses

Some have argued that businesses are capturing the lion share of the value of open source at the expense of contributors and customers. This point of view is expressed by Dirk Riehle (leads the open source research group at SAP Research) in his recent paper on the topic. Dirk argues that businesses derive the maximum benefit because:

• Customers want a deployed solution, so service companies (like IBM) that use the open source software, just make up for the free open source software by increasing the price of the service. This increase directly goes to their bottom line.
• Businesses benefit as employers, because larger talent pool due to non-proprietary nature of open source, enables businesses to have a stronger negotiating position compared to the individual developers.

Besides the obvious conflict on interests (Dirk works for SAP which isn’t big on open source and competes with IBM which is), Dirk makes the first point without pointing to any data. I find it hard to believe that customers don’t see a lowered bill when open source software is used compared to proprietary software.

For his point #2, Dirk again, provides no facts but makes a general assertion. I believe that the people who contribute to open source are self motivated people who enjoy programming and as such get a higher salary compared to people who do not participate in open source.

Also from the open source businesses point of view, if we consider the costs associated with managing, engaging and participating with the community, I am not sure the open source businesses will come out with lower costs, compared to non-open source businesses.

Overall it seems to me that open source businesses have significant costs and barriers to profitability and are certainly not capturing the majority of value in open source transactions.

Value to Customers

Customers using open source benefit a great deal.

• Free software makes it easy to get started.
• Using open source enables customers to avoid the dreaded vendor lock-in. So if customers are using open source they are able to change providers if they are not particularly happy with the service provided by the vendor. Open source provides them with huge leverage with service providers.
• The customers benefit as they have a larger talent pool to hire from and they don’t have to pay proprietary vendors for all sorts of “certifications” etc.

Overall the customers come out well ahead by using open source technology. In fact, were it not for the LAMP (Linux, Apache, MySQL and Php, Python, Perl etc.) stack, startups costs would have been a lot higher then they are today and we would not be seeing the amount of innovation we are seeing in the field of Internet and Technology.

Value to Contributors

Contributors to open source also benefit from participating:

• It used to be the case that contributors did not get paid for their contributions and had to work on their own time, but things are changing. With the popularity of the open source projects, more companies are paying contributors to support the community or are even contributing proprietary modules to the community. This provides direct incentives to contributors to work with the community.
• Open source participation is a great way to establish creadibility of you are a programmer…Have you seen ads like these?“With your resume, please include some php and javascript code snippets or refer us to an open source project you’ve worked on.”
• Most good open source developers have an opportunity to become public voice of the project. This extended role for engineers not only means an ego boost but also translates to higher salaries etc.

Overall developers working on open source come out ahead by participating in the open source projects.

Conclusion

Open source movement has become a powerful value creator. In addition it has created an interesting and somewhat egalitarian wealth distribution mechanism, where on one hand it has made it hard for one stakeholder to extract inordinate rent, on the other hand it has created right incentives for a lot of people to participate and have a stake in its success. No wonder it is becoming a popular model for more and more businesses and social activities.

Pic via MrFarber on Flickr

Grafman and others are using brain imaging and psychological experiments to study whether the brain has a built-in moral compass. The results — many of them published just in recent months — are showing, unexpectedly, that many aspects of morality appear to be hard-wired in the brain, most likely the result of evolutionary processes that began in other species.

No one can say whether giraffes and lions experience moral qualms in the same way people do because no one has been inside a giraffe’s head, but it is known that animals can sacrifice their own interests: One experiment found that if each time a rat is given food, its neighbor receives an electric shock, the first rat will eventually forgo eating.

…

Joshua D. Greene, a Harvard neuroscientist and philosopher, said multiple experiments suggest that morality arises from basic brain activities. Morality, he said, is not a brain function elevated above our baser impulses. Greene said it is not “handed down” by philosophers and clergy, but “handed up,” an outgrowth of the brain’s basic propensities.

…

In one 2004 brain-imaging experiment, Greene asked volunteers to imagine that they were hiding in a cellar of a village as enemy soldiers came looking to kill all the inhabitants. If a baby was crying in the cellar, Greene asked, was it right to smother the child to keep the soldiers from discovering the cellar and killing everyone?

The reason people are slow to answer such an awful question, the study indicated, is that emotion-linked circuits automatically signaling that killing a baby is wrong clash with areas of the brain that involve cooler aspects of cognition. One brain region activated when people process such difficult choices is the inferior parietal lobe, which has been shown to be active in more impersonal decision-making. This part of the brain, in essence, was “arguing” with brain networks that reacted with visceral horror.

Such studies point to a pattern, Greene said, showing “competing forces that may have come online at different points in our evolutionary history. A basic emotional response is probably much older than the ability to evaluate costs and benefits.”

…

Why is it that people who are willing to help someone in front of them will ignore abstract pleas for help from those who are distant, such as a request for a charitable contribution that could save the life of a child overseas?

“We evolved in a world where people in trouble right in front of you existed, so our emotions were tuned to them, whereas we didn’t face the other kind of situation,” Greene said. “It is comforting to think your moral intuitions are reliable and you can trust them. But if my analysis is right, your intuitions are not trustworthy. Once you realize why you have the intuitions you have, it puts a burden on you” to think about morality differently.

I guess we (and other animals) are really social beings…It also means that its easy for us to empathize and interact with people in face to face settings…This really presents a dilemma for social media where the geographical or even chronological proximity is not required for most interactions…I am pretty sure our genes provide no direction on what to do there? What do you think?

Pic via NYT

From an advertiser’s perspective, it sounds so easy: invite the public to create commercials for your brand, hold a contest to pick the best one and sit back while average Americans do the creative work.

In one of them, a teenage boy rubs ketchup over his face like acne cream, then puts pickles on his eyes. One contestant chugs ketchup straight from the bottle, while another brushes his teeth, washes his hair and shaves his face with Heinz’s product. Often the ketchup looks more like blood than a condiment.

Heinz has said it will pick five of the entries and show them on television, though it has not committed itself to a channel or a time slot. One winner will get $57,000. But so far it’s safe to say that none of the entries have quite the resonance of, say, the classic Carly Simon “Anticipation” ad where the ketchup creeps oh so slowly out of the bottle.

Consumer brand companies have been busy introducing campaigns like Heinz’s that rely on user-generated content, an approach that combines the populist appeal of reality television with the old-fashioned gimmick of a sweepstakes to select a new advertising jingle. Pepsi, Jeep, Dove and Sprint have all staged promotions of this sort, as has Doritos, which proudly publicized in February that the consumers who made one of its Super Bowl ad did so on a $12 budget.

But these companies have found that inviting consumers to create their advertising is often more stressful, costly and time-consuming than just rolling up their sleeves and doing the work themselves. Many entries are mediocre, if not downright bad, and sifting through them requires full-time attention. And even the most well-known brands often spend millions of dollars upfront to get the word out to consumers.

Some people, meanwhile, have been using the contests as an opportunity to scrawl digital graffiti on the sponsor and its brand. Rejected Heinz submissions have been showing up on YouTube anyway, and visitors to Heinz’s page on the site have written that the ketchup maker is clearly looking for “cheap labor” and that Heinz is “lazy” to ask consumers to do its marketing work.

“That’s kind of a popular misnomer that, somehow, it’s cheaper to do this,” said David Ciesinski, vice president for Heinz Ketchup. “On the contrary, it’s at least as expensive, if not more.”

I am not surprised that the Heinz Ketchup folks ended up not having a good experience with what they were trying to do. Their approach does not make any sense on so many different levels:

1. They are trying to take community content to put it on mass media outlet like TV. The content created by the community is not going to be polished or suitable for mass media. Its like taking square shaped, rough edged user generated content and trying to fit in in a round hole of mass media outlet. No wonder they are not happy…
2. Its kinda cynical approach to engaging the community to just do your Ads…if they were really interested in working with the community they should have empowered them more…and allowed them to have real influence in the direction of what they are doing. I am not sure what they are trying to achieve here.
3. If they are interested in really having a conversation with their user they should build up a process for interacting and really listening to them..it would also mean giving up some of the control…its really a tall order and not many companies are up for the challenge…

What do you think?

Peter and Maria Hoey (via NYT)

THE Internet search engine is an indispensable tool of modern life and an advertising gold mine for Google, the favorite first stop on the Web.

But searching accounts for only about 5 percent of the time people spend online; the other 95 percent is spent on the wider Web, where a different advertising landscape looms. Instead of the short text ads that appear on a Google results page after a search, visitors often find display ads that are the Internet’s equivalents of glossy magazine ads or television commercials. These are typically the province of brand advertisers like Cadillac and Coke.

Until recently, however, it was impossible to tell whether these ads were in fact reaching their target audiences because no one had applied the computing tools and powerful mathematical analytics that were needed to link online display ads to specific markets. But that is changing, and a number of small companies are standing at the forefront of this transformation.

Indeed, many in the industry regard display advertising that can reach specific audiences as the next big online opportunity — the postsearch wave, the Internet ad market 2.0.

The result…lousy RPM (revenue per 100 impressions for the site owners that provide great branding opportunities) and a lot of viable content and sites go under because of lack of monetization…

“The promise is to be able to measure the reach and effectiveness of brand advertising as never before,” said Rich LeFurgy, a principal at Archer Advisors, a digital-advertising consultant. “If that happens, it will really accelerate the migration of brand advertisers online.”

The big Web portals like Yahoo, AOL and Microsoft are working on it, trying to tease out which display ads should be shown and to whom. Last month, when Google paid $3.1 billion for DoubleClick, which specializes in software for display ads and has close relationships with Web publishers and advertisers, it declared that display ads would be crucial to its future strategy.

But besides the giant portals, there are scores of small, innovative companies — typically venture-backed start-ups — that are behind the revolution on Madison Avenue.

Industry analysts estimate that there are about 200 such companies. Many call themselves ad networks, while others are referred to as ad exchanges or optimization services. The roster includes Revenue Science, Tacoda, Tribal Fusion, Rapt, AdECN and x+1. In one way or another, they are all trying to bring more effectiveness to the online display ad market.

…

The ideal, Mr. Gabriner said, is to advertise only to prime customers. “Imagine an environment where the company that makes dentures and denture products only advertises to people who don’t have teeth,” he said.

The most common technique for identifying an audience is called behavioral targeting, which tracks, analyzes and predicts online behavior based on where you (actually your browser software) have gone before on the Internet. The ad targeters cull vast quantities of Web-viewing behavior and other data, like the speed of your Internet connection, the time of day you visited a site, whether it was done from work or home and even associated ZIP codes.

These defined audience clusters consist of people who share characteristics based on their behavior on the Internet, not personal information like names, ages, home addresses or telephone numbers. So, for example, a person who recently visited sports and auto Web sites and read global warming articles on news sites would most likely turn out to be an 18- to 45-year-old male. An algorithm would then determine that he would be a good candidate for an ad about Toyota’s hybrid-electric Prius. Advertisers are willing to pay much higher rates to reach such screened audiences.

Most of these companies are working on using the available context to target the ads better and then measure their effectiveness…While there is a lot of work going on in the area of targeting the ads based on available information, not enough work is going on figuring out how to understand the user better…This is another area that is likely to be big and will benefit users, site owners, and the advertisers…One idea has been the user controlled attention data, that users can share with any site they go to, in order to provide their context to the sites…in return they get better ads and service…This is really an interesting and exciting area that bears watching out.

(Pic via NYT as well)

The Hold Steady’s online audience has grown so huge that Kubler, like Jonathan Coulton, is struggling to bear the load. It is the central paradox of online networking: if you’re really good at it, your audience quickly grows so big that you can no longer network with them. The Internet makes fame more quickly achievable — and more quickly unmanageable.

…

To cope with the flood, the Hold Steady has programmed a software robot to automatically approve the 100-plus “friend” requests it receives on MySpace every day. Other artists I spoke to were testing out similar tricks, including automatic e-mail macros that generate instant “thank you very much” replies to fan messages. Virtually everyone bemoaned the relentless and often boring slog of keyboarding. It is, of course, precisely the sort of administrative toil that people join rock bands to avoid.

Things sure are a changing.

These days we want “transparency” in all institutions, even private ones. There’s one massive exception — the Internet. It is, we are told, a giant town hall. Indeed, it has millions of people speaking out in millions of online forums. But most of them are wearing the equivalent of paper bags over their heads. We know them only by their Internet “handles” — gotalife, runningwithscissors, stoptheplanet and myriad other inventive names.

Imagine going to a meeting about school overcrowding in your community. Everybody at the meeting is wearing nametags. You approach a cluster of people where one man is loudly complaining about waste in school spending. “Get rid of the bureaucrats, and then you’ll have money to expand the school,” he says, shaking his finger at the surrounding faces.

You notice his nametag — “anticrat424.” Between his sentences, you interject, “Excuse me, who are you?”

He gives you a narrowing look. “Taking names, huh? Going to sic the superintendent’s police on me? Hah!”

In any community in America, if Mr. anticrat424 refused to identify himself, he would be ignored and frozen out of the civic problem-solving process. But on the Internet, Mr. anticrat424 is continually elevated to the podium, where he can have his angriest thoughts amplified through cyberspace as often as he wishes. He can call people the vilest names and that hate-mongering, too, will be amplified for all the world to see.

This is a real problem with the Internet (Although I am not sure about “transparency in all institution” especially with the government)…With the lack of incentives to participate and lack of tools for the community to control the conversation, the vocal and vilest few take over the conversation and bring down the quality of discourse. Tom suggests a few solutions:

Until recently, many of the site’s posters identified themselves with anonymous Internet handles — which were the site’s default ID. Now, people must enter a “user ID” that appears with their comments.

Hal Straus, washingtonpost.com’s interactivity and communities editor, says the changes “move us in the direction of transparency.” But the distinction is not quite a difference, because washingtonpost.com user IDs can be real names or fictional Internet handles. While the site prohibits comments that are libelous, abusive, obscene or otherwise inappropriate, Mr. anticrat424 could still find a well-amplified podium at washingtonpost.com.

The news and opinion site Huffingtonpost.com requires posters to register with their real names but maddeningly assures them that it will “never” use those names.

Though not foolproof, there are ways to at least raise the bar. Gordon Joseloff, a former CBS News correspondent who owns WestportNow.com, a popular grass-roots site in Westport, Conn., used to employ the standard permissive registration process. But in late 2005, turned off by the venom of anonymous posters, Joseloff instituted a policy requiring anyone who wanted to comment to use his or her real name. Joseloff also requires registrants to give their phone numbers. Numbers aren’t posted on the site, but they give him and his team an additional check against false registration.

Only the big sites like the Washington Post or Huffington Post can pull off requiring users to register…And its really painful for readers to have to remember another username and password. So what is the solution? Also there is a need to strike the right balance between the need for anonymity and identification…At times Anonymity is justified, like with whistleblowers etc. but at the same time anonymity all the times provides perverse incentives…What do you think?

In March 2007, Google confirmed that since its inception it had stored every search query every user ever made and every search result she ever clicked on. Google remembers forever.

“хранить вечно“ (to be preserved forever) the KGB stamped the dossiers on its political prisoners. The Communist state would never forget the identity, believes, actions and words of those that had opposed it.

Like the Soviet state, Google does not forget. But unlike the Soviet Union that ceased to exist fifteen years ago, Google has become an indispensable tool for hundreds of millions of people around the world, who use it every day. We seem to have accepted that our digital society may forgive, but no longer forgets.

…

This has resulted in a drastic shift in our data retention behavior. For millennia it was difficult and costly to preserve. We would only do so in exceptional circumstances, and most frequently only for a limited period of time. For almost all of human history, most of what humans experienced was quickly forgotten. Today, however, retention of digital data is (relatively) easy and cheap. As a consequence, and absent other considerations, we keep rather than delete it. This is the central point: In our analog past, the default was to discard rather than preserve; today the default is to retain.

Credit bureaus store extensive information about hundreds of millions of U.S. citizens. Daniel Solove writes that the largest US provider of marketing information offers up to 1,000 data points for each of the 215 million individuals in its database. We also see the combination of formerly disparate data sources. Solove mentions a company that provides a consolidated view at data from 20,000 different sources across the world. It retains the data, he writes, even if individuals dispute its accuracy.

Companies keep our air travel reservations on file even when we decide not to buy the ticket, together with rich information about us and our previous travel patterns.21 Millions of cameras in public places – the UK alone is said to operate between 2 and 3 million produce records of our movements that are kept. Law enforcement agencies store biometric information about tens of millions of individuals even if these have never been charged with a crime. Search engines retain each of our search queries, and keeps archival copies of our web pages long after we have taken them offline.

This is only the beginning. With the advent of ubiquitous computing, of cheap GPS chips in our cell phones, cameras and cars, of RFID tags in everyday objects, and of tiny, networked sensors that surround us, a more comprehensive trail of our actions will be collected than ever before. Given low cost of storage, ease of retrieval and potential value in accessing information, much of the data that is being collected will be kept for months if not years, as our societal default has shifted from deletion to retention.

This has drastic consequences beyond the obvious ability to know much more about other people’s preferences, behaviors, actions and opinions than in the analog world of incremental forgetting. Living in a world in which our lives are being recorded and records are being retained, in which societal forgetting has been replaced by precise remembering, will profoundly influence how we view our world, and how we behave in it.

If whatever we do can be held against us years later, if all our impulsive comments are preserved, they can easily be combined into a composite picture of ourselves. Afraid how our words and actions may be perceived years later and taken out of context, the lack of forgetting may prompt us speak less freely and openly. This is the temporal version of a panoptic society, in which everything is being watched; it is a society in which most of what is being recorded and collected is being preserved. Regardless of other concerns we may have, it is hard to see how such an unforgetting world could offer us the open society that we are used to today.

So what is the solution? The author suggests a combination of legislative and technical approaches that restore the default of forgetting in our society. So if some entity or person wanted to remember things beyond certain time period, they would need to do some special action like writing down in digital terms…I think this makes a lot of sense and could prevent common people from becoming more and more like stage coached politicians who  plan and practice each and every one of their moves and utterances…What do you think?

The first postings appeared soon after Sue Scheff, who runs a Web-based referral service for parents with troubled teenagers, advised a woman from Louisiana to withdraw her twin sons from a boarding school in 2002. Scheff is “a con artist,” “a crook” and “a fraud,” according to the messages, which peppered blogs and Internet forums for parents of troubled teens.

Soon, calls to Scheff’s Parents Universal Resource Experts dropped by half, said Scheff, 45, who lives in Weston, Fla. “People would say: ‘You know, I just read this about you online. How do I know I can trust you?’ “

Scheff, whose 6-year-old service usually draws a lot of traffic, is a victim of an emerging phenomenon: online smear campaigns, which can wreak havoc in the victims’ professional and business lives at the touch of a few keystrokes.

We need an identity and reputation infrastructure that puts all opinions, expressed by all people, in perspective based on what they have done in the past. Such a system will help online communities maintain decorum by penalizing participants who don’t add value to the discussion (much like discussions in real community) and rewarding those who do…This is quickly emerging as an important requirement for wider adoption of social media…

(All images via Forrester)

This is interesting although a bit lower then I would have thought. Its clear though that the youth is leading the charge.

Another interesting breakdown below about further segmentation of participation. The breakdown below does not square with the 90-9-1 rule as its looking at the data related to participation at least once/per month, rather than aggregate number of visits.

Some interesting data here…nothing earth shattering though (slides have some additional details on each of the type of users)…somewhat surprisingly critics show up as the highest earners…In a way it makes sense as critics are too busy to be full-time creators but articulate enough to be good critics.

What do you think?

• Only a tiny fraction of people using social media actively participate.
• 0.16 percent of visits to YouTube actually involve people putting a video up on it, according to his online surfing data. All the rest are visits by people watching the videos of that tiny fraction.
• 0.2% of visits to Flickr are to upload new photos. Again, everyone else is watching.
• Wikipedia shows much higher active partipation–4.6% of all visits are for editing. But think a moment–that is still a very small fraction of the total number of people using Wikipedia.
• Visits to Web 2.0 sites constitute 12% of all web activity, according to Tancer, up from 2% two years ago. It’s soaring.

From Bruce’s blog:

So, the question is–who is shaping the conversation? These numbers suggest that only a very, very small number of people actively create content in social media. Nearly everyone watches.

So are we really just reinventing TV, with folks pretty much sitting back passively (like couch potatoes)? Is YouTube just another NBC or Fox TV network?

Could be. These YouTube and Flickr numbers are even worse than the 1% Rule–for every 100 users of social media, only ten actively participate, and only 1 actually creates something. Back in July, 2006, the ratio of creators to consumers on YouTube was 0.5%. Now it is 0.16%. Many more people are drawn to YouTube to watch than to create.

To be honest, the biggest surprise for me in these numbers is the Wikipedia number…4.6% users edit…Wow!!!. I am not sure its fair to use these numbers to discount the 90-9-1 rule of participation in social media. I think some of the specific participation numbers are skewed because of the type of media we are talking about(I think 90-9-1 rule writers had text content in mind)…Video is a lot harder to produce then to watch…same thing for pictures but probably to a lesser extent.

At the end of the day, the lack of participation reflects the lack of incentives to participate. While the ego benefits of creating a popular video are huge, the changes of doing so are fairly minimal and the skills/time required are pretty significant. For the text based context, like comments, social bookmarks or bulletin boards, its hard to prove ones identity and because of that its really hard to establish the benefits of participation. The result…90-9-1 rule.

What do you think?

A new article in IEEE Computer, “The Economic Motivation of Open Source Software: Stakeholder Perspectives,” sheds some interesting new light on an old question: Is open source software development good or bad for programmers?

The author of the IEEE Computer article, Dirk Riehle, a researcher with SAP, doesn’t look at that question directly. Rather, he examines, in a theoretical way, how open source changes the economics of the IT markets in which programmers participate. He first looks at why big systems integrators and other “solutions” providers, like IBM, have been promoting open source. He argues that these companies, which sell bundles of products and services to their clients, like open source because it allows them to reduce the amount of money they have to pay to software vendors without requiring that they pass along the savings to customers in the form of lower prices. In other words, the software savings turn into additional services profits, which fall to the solutions providers’ bottom lines. Ultimately, that means that open-source software developers are subsidizing the big solution providers at their own expense. Writes Riehle: “If it were up to the system integrators, all software would be free (unless they had a major stake in a particular component). Then, all software license revenue would become services revenue.” (I would think it’s an overstatement to say that all software license revenue turns into services revenue; assuming there’s competition between solutions providers, some of the savings would go to the customers.)

Riehle also looks at the economic effect of open source on software markets themselves. He argues that, by tearing down the barriers to entry in software markets (by obviating the huge up-front investments required to create a proprietary program), open source spurs competition, which in turn reduces prices and erodes the profits of software vendors. Riehle writes: “Customers love this situation because prices are substantially lower than in the closed source situation. System integrators love the situation even more because they can squeeze out proprietary closed source software.” For the programmers themselves, however, much of the savings reaped by customers and added profits taken in by integrators comes out of their own pockets.

Riehle also notes that open source (because of its openness) tends to diffuse knowledge of particular programs among a much broader set of programmers. That will tend to increase competition among the programmers and hence depress their pay: “Technical skills around the open source product are a key part of determining an employee’s value to a [vendor]. Anyone who’s smart enough can develop these skills because the open source software is available to people outside the firm. Hiring and firing becomes easier because there’s a larger labor pool to draw from, and switching costs between employees are lower compared with the closed source situation. Given the natural imbalance between employers and employees, this aspect of open source is likely to increase competition for jobs and drive down salaries.”

Its a very odd conclusion to an interesting analysis…I would have though that as open source software become popular, engineers who work on open source, can develop and sell their skills to a larger market…this makes their skill set more valuable over a longer period of time. Also the fact that open source reduces cost of the software means that more and more people will be willing to pay for people with skills with open source software…In my experience that is indeed what is happening.

Even the large enterprises seemed to have learned a lesson from the excesses of the boom times and seem reluctant to sign huge deals for proprietary software and then pay through the nose for services. In such situation the economic rent is accruing more widely and evenly to the open source engineers.

What do you think?

1. On average a user clear cookies about 2.5 times a month on one computer.
2. While 69% of the users don’t clear cookies at all, 31% of the users clear cookies at least once every month on a computer.
3. 7% of the users are frequent cookie cutters, meaning that they clear cookies more than 4 time each month.
4. Looks like users clear cookies indiscriminately, without regard to the source of the cookie as the data is pretty similar for first party and third party cookies.

Overall, this data sounds about right as it jives well with data I got from a buddy of mine at Yahoo!. Some of the business implications of the data above are:

1. Cookie based tracking of the number of unique visitors is unreliable
2. Browser side cache for web pages can be unreliable as my guess is that when users clear their cookies, they also clear all the cached files (anybody has specific data here?) as they are considered same sort of private data…This means that a web site relying on browser side caching for scalability and performance of web site might be in for a surprise.
3. Cookie based tracking services like MyBlogLog etc. perhaps need a better way to track users? May be using browser plug-ins?

What do you think?

Conventional marketing wisdom holds that predicting success in cultural markets is mostly a matter of anticipating the preferences of the millions of individual people who participate in them. From this common-sense observation, it follows that if the experts could only figure out what it was about, say, the music, songwriting and packaging of Norah Jones that appealed to so many fans, they ought to be able to replicate it at will. And indeed that’s pretty much what they try to do. That they fail so frequently implies either that they aren’t studying their own successes carefully enough or that they are not paying sufficiently close attention to the changing preferences of their audience.

The common-sense view, however, makes a big assumption: that when people make decisions about what they like, they do so independently of one another. But people almost never make decisions independently — in part because the world abounds with so many choices that we have little hope of ever finding what we want on our own; in part because we are never really sure what we want anyway; and in part because what we often want is not so much to experience the “best” of everything as it is to experience the same things as other people and thereby also experience the benefits of sharing.

The authors set out to test out the theory with an interesting experiment:

Because it’s not possible in the real world to test theories about events that never happened, most of what we know about cumulative advantage has been worked out using mathematical models and computer simulations — an approach that is often criticized for glossing over the richness of real human behavior. Fortunately, the explosive growth of the Internet has made it possible to study human activity in a controlled manner for thousands or even millions of people at the same time. Recently, my collaborators, Matthew Salganik and Peter Dodds, and I conducted just such a Web-based experiment. In our study, published last year in Science, more than 14,000 participants registered at our Web site, Music Lab (www.musiclab.columbia.edu), and were asked to listen to, rate and, if they chose, download songs by bands they had never heard of. Some of the participants saw only the names of the songs and bands, while others also saw how many times the songs had been downloaded by previous participants. This second group — in what we called the “social influence” condition — was further split into eight parallel “worlds” such that participants could see the prior downloads of people only in their own world. We didn’t manipulate any of these rankings — all the artists in all the worlds started out identically, with zero downloads — but because the different worlds were kept separate, they subsequently evolved independently of one another.

This setup let us test the possibility of prediction in two very direct ways. First, if people know what they like regardless of what they think other people like, the most successful songs should draw about the same amount of the total market share in both the independent and social-influence conditions — that is, hits shouldn’t be any bigger just because the people downloading them know what other people downloaded. And second, the very same songs — the “best” ones — should become hits in all social-influence worlds.

What we found, however, was exactly the opposite. In all the social-influence worlds, the most popular songs were much more popular (and the least popular songs were less popular) than in the independent condition. At the same time, however, the particular songs that became hits were different in different worlds, just as cumulative-advantage theory would predict. Introducing social influence into human decision making, in other words, didn’t just make the hits bigger; it also made them more unpredictable.

Where does this leave us with the rational choice and perfect market theory? Do you think people are more rational when it comes to money? What about making investments? How should VCs or any investor for that matter, evaluate a new consumer technology or a mass market product? This is powerful stuff.

1. The total number of blogs is increasing (we already were counting 80M). Technorati is now tracking 70M blogs. Below is how the growth curve looks and it is following kinda of the same pattern we expected.

2. While the growth rate is slowing down (law of large numbers) the influence of the blogosphere/citizen media/Live Web is increasing in a big way (22 blogs in top 100 media influencers compared to 9 last time)

3. Tagging of content is on the rise…It looks like tagsonomy is here to stay.

4. Blogosphere is becoming more global.

Net Net…Blogosphere is maturing. More people know about blogs so the kind of blog accounts where users were experimenting with starting a blog and then abandoning is slowing down and so the size is growing but more reasonably.

Update (more data from web 2.o via RWW)

David Sifry notes that influential bloggers post more frequently, on average twice a day. Whereas “magic middle” bloggers (about 3M) post on average once a day. Also influential bloggers have been at this at least 1-2 years. Finally, 88% of the top 100 is different than one year ago – i.e. it’s very fluid.

Home Depot’s (HD ) CEO goes into an emergency huddle with his crisis management team after 14,000 bilious customers storm an MSN (MSFT ) comment room.

The venom of crowds isn’t new. Ancient Rome was smothered in graffiti. But today the mad scrawls of everyday punters can coalesce into a sprawling, menacing mob, with its own international distribution system, zero barriers to entry, and the ability to ransack brands and reputations. No question, legitimate criticism about companies should get out. The wrinkle now is how often the threats, increasingly posted anonymously, turn savage. Even some A-list bloggers are wondering if the cranks are too often prevailing over cooler heads.

Most companies are wholly unprepared to deal with the new nastiness that’s erupting online. That’s worrisome as the Web moves closer to being the prime advertising medium—and reputational conduit—of our time. “The CEOs of the largest 50 companies in the world are practically hiding under their desks in terror about Internet rumors,” says top crisis manager Eric Dezenhall, author of the upcoming book Damage Control. “Millions of dollars in labor are being spent discussing whether or not you should respond on the Web.”

In the beginning, the idea of this new conversation seemed so benign. Radical transparency: the new public-relations nirvana! Companies, employees, and customers engage in a Webified dialectic. Executives gain insight into product development, consumer needs, and strategic opportunities. All the back-and-forth empowers consumers, who previously were relegated to shouting at call-center minions. Venom can be a great leading indicator.

Trashing brands online can also be high theater. Rats cruising around a Greenwich Village KFC/Taco Bell (YUM ) on YouTube (GOOG ). MySpacers (NWS ) busting their employers’ chops. Faux ads bashing the Chevy (GM ) Tahoe as a gas-guzzling, global-warming monster. Millions of people watch this stuff—then join in and pile on. Is it any wonder companies lose control of the conversation?

When the Web turns against them, executives are faced with the problem of how to manage the blowback. They have two choices: ignore the smaller furies and hope they won’t metastasize, or respond outright to the attacks. It’s rarely a good idea to lob bombs at the fire-starters. Preemption, engagement, and diplomacy are saner tools.

…But what happens when the uproar grows so noisy that the mainstream media is bound to pick it up? That’s exactly the position new Home Depot CEO Francis S. Blake found himself in last month. MSN Money columnist Scott Burns accused Home Depot of being a “consistent abuser” of customers’ time. Within hours, servers were caving under the weight of 10,000 angry e-mails and 4,000 posts, which took the company to task for pretty much everything. It was the biggest response in MSN Money’s history. Blake’s predecessor, Robert L. Nardelli, the guy who famously didn’t allow comments at the company’s annual meeting, simply would have ignored the mob. But Blake knew the controversy could quickly mushroom.

The only way over it, he decided, was through it. So Blake penned a heartfelt and repentant online letter to all Home Depot customers, essentially copping to the company’s less-than-stellar service. He promised to increase staffing and begged for the chance to make good. He created a site to deal specifically with service. He thanked Scott Burns.

In crisis-management circles, the gamble was viewed as a win. Blake actually generated rare applause on an unofficial Home Depot employee site called the Orange Blood Bank, where workers are more likely to post riffs knocking the company. (“You can’t do it, and we’ll never help.”)

I think this is a good thing for all parties, if you take longer view of things…This makes people more accountable and that is always a good thing.

This inequality in the way the page views are measured is further exacerbated by the difference in which web sites can vary in information density per page. The use of technology like AJAX can enable web-sites to pack a whole lot of dynamic information in just one page. Check out the Noisely…I love this web-site design and the whole application is just one page (except for informational pages like FAQ etc.). All this means that we need a better way to measure the user engagement in order to better evaluate the effectiveness of web-sites.

Last week Compete.com, a web measurement company, announced the first metric to measure of this important data. From the compete.com blog:

Today we announce that you can use Compete.com to measure a site’s Attention. Attention fuses engagement (measured by time) and traffic (measured by unique visitors) into a single, more complete picture of a web site’s value.

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Why is Attention Important?

• A site’s influence can be under/over stated by traditional metrics.
• There are only 24 hours in a day – our time is finite. Where we spend our time is where we find the most value.

Notice in the chart above how runescape.com only ranks 436th in unique visitors, yet based on Attention is the 15th most prominent site on the web. If we relied solely on traditional metrics we would overlook the real value and prominence of Runescape.

This is fantastic…I hope more companies follow suite and we can finally focus on truly important metric rather then the arbitrary page views.

If you want to follow this story further check out RWW coverage.

Via http://blog.leetsoft.com/2007/3/28/i-heel-you

(Picture from NYT)

SIX months ago, Microsoft stood in front of the world and rather bravely stated the question on everyone else’s mind: Why on earth does the world need another search engine?

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It cast the competition — read: Google — as eggheads whose “complicated mathematical equations” retrieve all too many results, which overwhelm the average user.

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But Microsoft deserves credit for trying to compete on the basis of the intrinsic quality of the search experience. The tag line for this campaign was: “Algorithm. Meet Humanity.”

This by itself is pretty funny…Microsoft competing by innovating in the area of usability (after following Apple for so long)…But it gets more interesting:

In that matchup, algorithm wins. Google had a 50 percent share of searches in the United States in October 2006, while Yahoo had 24 percent, and Microsoft, 9 percent, according to Nielsen/NetRatings. The most recent data, for February of this year, show that Microsoft had climbed a bit, to a 9.6 percent share, but that Google had jumped much farther ahead, to 56 percent. (Yahoo’s executives had something to ponder, too: its share slipped by three points.)

Watching your principal competitor widen its lead with organic growth, unaided by advertising, makes you receptive to trying something else — anything else. Microsoft has decided that the search business needs a sort of “frequent flier” rewards program to attract and hold on to users: Microsoft Service Credits for Web Search.

John Battelle broke the story last month on his Searchblog. Adam Sohn, director of global sales and marketing for Windows Live, confirmed that Microsoft would pay large companies $2 to $10 a user annually — the more searches, the larger the bounty earned — in credits that can be used for Microsoft products and training services.

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Microsoft is seeking 30 companies, each with at least 5,000 PCs, who are willing to sign up and install on employees’ computers a small program — a “browser helper object” — that will count the number of searches performed with Microsoft Live Search.

With this approach Microsoft is trying to get traction for its search products by leveraging their power center in the enterprises. It makes sense, sort of…although the devil really is in the details as pointed out by Prof. Lederman:

Mara Lederman, an assistant professor of strategic management at the University of Toronto who has closely studied the airlines’ programs, said one feature that has been essential to their popularity among business travelers is that customers earn the rewards but do not pay for the product — their employers do.

“If the fare for your preferred airline is $100 more, you don’t care because you don’t pay,” she said. “You just want the points because you want to take the family to Hawaii.”

Airlines have benefited from another feature: frequent-flier awards are more alluring than they deserve to be. The frequent-flier programs give away only empty seats, which is why the actual cost of the rewards is exceedingly cheap. (That’s also why it’s hard to redeem your miles for any flight that doesn’t leave at 5:30 a.m. on a Tuesday.) “Microsoft does not seem to understand this,” Professor Lederman said.

In the case of search, who pays isn’t an issue because the price is zero. But under Microsoft’s program, Professor Lederman said, “there’s no reward going directly to the individual carrying out the search.” She predicted that employers would have to take an active role, offering monetary incentives or applying administrative pressure, in order to obtain the desired outcome of full participation of the work force.

Even if the enterprises shared the financial bounty with the end-users, to provide them with the incentives to use Microsoft search, this kind of money can have a corrupting influence. I remember working at a large company that decided to pay employees for taking certain online training courses. Very soon, a few smart engineers developed a tool to take the tests associated with each course and soon people were finishing 30 courses in a day…Needless to say the financial incentives were gone in a quarter.

Another thing corporations might be able to do is to lock out other search engine like ones from Google and Yahoo! or even make MSN search the default. This might force more employees to use MSN search but on the flip side, such measures might make employees unhappy. Also the corporation might incur additional costs in terms of productivity loss with a brand new search engine.

Overall, my personal opinion is that the way the plan is setup, its unlikely to work. Let’s wait and see.