Friday, February 29, 2008

Social Networking and On-Line Advertising

On-line Advertising is a big business. Actually, it is a HUGE business. And the big and small Social Networks are trying to take their cut of the pie.

There are many estimates of On-Line advertising:
- Rayport estimates the US market to be $28 Billion, with the Big Three (Google, Yahoo and Microsoft) commanding 85% of that market. (Business Week)
- Jerry Yang estimated the worldwide on-line advertising market to be $45 Billion this year and growing teo $75 Billion by 2011 in his recent letter to Yahoo! stockholders.
- Google had revenue of nearly $5 Billion last Quarter – so a $20 Billion run rate by themselves that is mostly advertising based. Yahoo is at a nearly $7 Billion run rate.
- "Google, Yahoo, Microsoft, and AOL each regularly see a minimum of 100 (sic) million unique visitors each month, according to research firm comScore (SCOR). Advertisers that want to reach a big audience are still likely to gravitate toward an established portal.” (Business Week)

Advertisers are spending a larger portion of their budgets online versus traditional Print, TV and Radio. I was discussing with one large advertiser (over $200M annual advertising budget) that they were shifting their online ad budget from 10% to 35% of their overall budget.

The large social networks (MySpace, Facebook, Hi5, Bebo, etc.) have between 10 Million and 80 Million members each. And the time spent on these social networking sites is above the traditional portals. It is no wonder that advertisers are shifting an increasing portion of their budgets to social networks. It is certainly the core reason why Microsoft valued Facebook at $15 Billion with their recent investment. With the amount of clicks on their site, and the ability to do valuable target advertising, it is easy to see how Facebook revenue will continue increasing rapidly. If Facebook could grow to claim 10% of the online advertising market by 2011, it could be worth $7.5 Billion in very high margin revenue. Which means that News Corp. got a “steal” with MySpace at a valuation of $600M, and Microsoft might actually see a decent return on their $240 M investment in Facebook.

There is also the rise of mini-social networks. These are targeted communities that are bound by some sort of common interest, passion or need. Glam is an example of this, with estimates that they will grow to $100M in advertising revenue this year from a number of targeted web sites. Ning provides a platform for over 160,000 of these types of communities. They provide a simple mechanism for the community web site to be hosted for free, with Ning producing revenue from the ads. Alternatively Ning provides a mechanism for the community to make money directly from selling their own ads. The 2 Million users that visited Ning last month are many, many mini-social networks all bound by a common hosting environment.

Social Networking is a new market that is being crowded by start-ups and venture capitalists hungry to chase after this advertising gold rush. Certainly there will be a lot of shake out. And it is uncertain as to the long term sticking power of any one brand. As we have seen over the past 13 years of the Internet since Netscape was first created, the web allows for users to change quickly with even dominant brands like AOL and Yahoo! coming under pressure from new forces over time. However, it is clear that Social Networking as a fundamental part of the Web will continue to grow and thrive.

Thursday, February 28, 2008

Why Build Social Applications into a web site?

Social Networking is something that any company can build into their web site. The questions is: Why?

We are seeing 4 core benefits from the companies implementing social networking as a part of their web sites:
1. Engagement. Users find social applications more engaging. This keeps users on your site for longer periods of time.
2. Loyalty. Turn your customers from web site visitors into web site contributors. This has a way of increasing the loyalty that your customers have for your products by becoming a closer part of your organization.
3. Viral. Have your web site visitors invite their friends and colleagues. This type of referral is much more meaningful and sticky than a search engine advertisement.
4. From Personal to Social. Many web sites have become personal. My web site says “Welcome, Bob” with a list of the hotels I have stayed at over the last year so it is very easy to click on one to make a new reservation. Social takes it the next step and can turn this into recommendations from friends on where to stay in San Francisco.

All of this adds up to enhancing the value of your web sites – with more clicks by your users, more meaningful content to your users, with a better way of drawing new users.

Tuesday, February 26, 2008

What are Social Applications?

While Social Networking is all the rage, there is a second phase coming – the Social Application.

Of course the social networking sites like Facebook and MySpace offer a variety of social applications – like connecting with friends or colleagues, blogs, picture sharing, walls, event sharing, polls, etc. There are three main features to this new social wave of the web:
1. User generated content – allowing for self expression
2. Social connections – friends, groups and ways to organize and communicate between them
3. Social applications – combining user generated content and social connections with traditional content and applications

The large social networking sites provide the generic social applications. By opening up their API’s, they have allowed others to create social applications. Many of these new applications have targeted fun and interesting ways of getting user generated content with applications like “Super Walls” or connecting to friends (and enemies) with “Vampire Bites”.

However, Social Applications are starting to become more interesting. You might think of this new wave as a web site mash-up with social networking. Where a traditional application or business meets up with social networking. For example, an ecommerce application might have some user generated comments on their site, but with social networking I can narrow that view down to people I know and trust – or I could be kept up to date on my friends buying habits interactively.

Many web sites today are designed for the manufacturer to provide product information to users. Take a look at how has extended this traditional branding view into a much more engaging, “sticky” web site by using social applications. Jeep customers are able to post their favorite Jeep pictures, there is a list of local Jeep events across the country all generated by users who invite their friends. Jeep has even developed game applications that help to reinforce their brand.

Web sites will have to be clever in how they make the social applications relevant to their users and truly engaging. Take a look at a relatively new web site that allows people (women mostly) to assemble a collection of clothing and accessories in interesting ways - A very rapidly growing community has built up around this already – something a Macy’s could be doing for their customers to engage them much more closely! Which is more engaging? Would Macy's benefit from having an engaging social application like this on their web site? Ringside Networks is betting the answer is yes, and hopefully we will make that easier for your web site by the end of March...

Do you want to make your web site more engaging?

I was meeting with the CMO of a large e-commerce company yesterday talking about the use of social networking approaches for existing web sites. He echoed what he felt was most compelling about Ringside’s plans:

“If you go to any person responsible for a major web site and ask them if they want to find a way to make their web site more engaging to their users and create better ways to lead new users to their site, they will all say ‘YES!’. And it is obvious that making social applications a part of the web site will do just that.”

Of course being in the e-commerce business he needs to see proof and an ROI on the promise of increased user engagement and virality with the big social networks. Right now this company is dipping their toe in the water by opening up their own web services to allow affiliates to build applications in the large social networks – thus driving traffic and sales towards them.

Later this week and into next week I plan on doing a series of blogs about the benefits of social applications for existing web sites, and then look at some of the financial trade-offs of investing in your own web site versus spending money on advertising. Basically, does it make sense to make your own web site better by using social networking approaches?

Tuesday, February 19, 2008

Social Apps for a Running Store

Building our running store site convinced me to join some others to start Ringside Networks. I figured if a little running store web site could use social applications, then almost any web site could use social.

But what are some examples of social applications for a running store?

Well, of course there is the ability for runners to keep profiles of themselves and to make friends. Kind of a different set of information than a typical Facebook profile - like how many miles per week do you run, what pace, what are your PR's, what are your favorite runs, etc. These all potentially allow runners to hook up for runs with compatible runners. I'm not talking eHarmony here - just someone to run with.

One of the other things that runners like to do is keep track of their mileage in logs. I've started keeping mine on Facebook with Runlicious. If I could run this Facebook application on the running store web site, that would be pretty cool. We have thousands of runners in South Jersey who regularly visit our site, and many of them are middle-age like me and don't have Facebook accounts. Plus runners like to share their achievements. There are also extended social applications where a coach could potentially look at each of their athletes running logs, but not have access to their full Facebook profile. This is something I know the Moorestown High School runners that I coach would like to make sure never happens!

As a final example, how about modifying the basic Event in Facebook and target it specifically for road races and triathlons? Maybe have information like distance, awards, how many participated last year, etc. And then give people a wall to post comments about the race, and a mechanism to upload photos and videos after the race. And of course I would love to make it easy to cross-post races into Facebook. Last fall we were doing a Turkey Trot in Moorestown. My college daughter posted it as a Facebook event and invited Moorestown friends. Within 30 minutes there were over 50 responses, and the viral networking had begun. Every race should be able to take advantage of this.

The common thread is that these are all social applications, but just a bit different than the "off the shelf" social applications that you typically see. It is when I began to wish there was something that let me build and deploy social applications easily. Hmmm, maybe it is a good idea for a company...

Wednesday, February 13, 2008

How Many Social Networks?

A lot of people in the social networking space talk about the need for only one social network (Metcalf's Law), or that we should all have one user profile (OpenID). They talk about how this is limiting social networking because if a site gets too big and powerful because of the network effect, then it loses what originally brought people there, becomes too commercial, etc. This of course gives rise to lots of "mini" social networks (Ning hosts 160,000 of these!).

I think there is another phase to social networking that is coming - social applications, not social networks. Facebook unlocked this first with the open API that allows developers to develop "social apps" that cooperate with the social network.

The next limit to bust thru is to federate the social networks more. Open Social's promise is to do that - of course that is still very new and the social networks supporting it are still developing it. So the developer community building social applications is a tiny fraction of the Facebook community.

The real eventual promise is to enable social applications to be built and run anywhere and to interoperate with multiple social networks. This would allow the power of the Internet to truly take over. A federation of social applications working with a federation of social networks. I guess that was the promise of Web 2.0 (or Web Services or E-Speak for those old enough to remember).

Tuesday, February 12, 2008

Social Notworking

Jeremiah Owyang of Forrester had an interesting blog on "The Many Challenges of Social Networking". Several of the replies referred to a growing trend of "Social Notworking".

Well, of course social networking is growing rapidly, but I still like one of the tenants that Google keeps repeating - it is all about the Internet. One site - even as great as Facebook or MySpace are - will never satisfy all of the needs of users. The Internet has created a level playing field.

To me, there is tremendous value in this new wave of social networking. But it can not be the captive domain of a few megasites, even if those megasites are dominant. Every web site needs to be able to take advantage of the power of social networking. And it is more than just blogs and walls. Companies will weave social networking into their applications to make their web sites more engaging. This may mean some of the ad money spent on banner ads - even targetted banner ads on the mega-social networks - will get spent on companies building social networking into their own sites. Not to compete with the Facebooks - but to be more useful to their existing and hoped-for users.

Monday, February 11, 2008

Social Networking Advertising

Social networking and the advertising money behind it are growing very, very fast. Ad spending on social networking sites like MySpace and Facebook is going to grow from $1.2 in 2007 to $2.1B in 2008.

However, a recent article in Business Week talks about the growing disillusionment of online ads. Average time spent on sites is actually decreasing. And click-thru rates are anemic - averaging as few as 4 click-thrus in 10,000 page views. While there is promise in the increased targeting (I like running, therefore my friends should get Asics running shoe ads on their Facebook pages), I'm still not sure banner ads will continue to provide growth in this market.

Perhaps what is needed is something even more open to unlock the power of social networking for web sites other than MySpace and Facebook...

Back in the Technology Business...

Thru a series of events, I am back into the technology industry. When I left JBoss nearly two years ago, I had a goal of spending more time with my coaching of high school runners ( and investigate becoming a high school teacher. Well, my high school daughter thought it would be a good idea for me to wait until she had graduated before I entered that profession. So I decided to extend the running theme in my life by opening up a running store.

Last Spring I was building a web site – for the store. I had partnered with Dave Welsh from the Haddonfield Running Company to open the Moorestown Running Company. We run old-style running specialty stores on tree-lined Main Streets in quaint towns. We did not want to sell on-line, but create an extension of the running communities in our stores. Having daughters on Facebook, I naturally started thinking about putting some social features onto the site.

Well, it turns out that is easier said than done. You can throw some widgets on your pages to do things like polling, you can install a php forum, and so forth – but it winds up being very disjointed. Of course you can build a Facebook Group – but then they wind up owning all the data and there is no good way to integrate it with the rest of our web site. I tried some of the “white label” community builders and hosting environments like Leverage and Ning. Those are great for “out of the box” communities with a ton of nice features and cool social apps. But the problem was I still could not very neatly tie that into my web site. I got the feeling that if our dinky web site needed social, then many, many web sites needed social applications built into their web sites and integrated with the rest of the emerging social capabilities on the web.

So, I started talking with some of my old friends from Bluestone and JBoss – Rich Friedman, Jason Kinner, Rich Frisbie, and Mark Lugert. They saw similar issues and we started thinking about a way to address this need. I went and talked with David Skok of Matrix Partners who I had worked with at JBoss and have developed a very deep level of respect for. Together we all decided to form a company to address the need for a more open, more integrated approach to social networking. We’re still in “stealth mode” so I can’t talk too much yet about what we are doing. But we hope to have some early stuff out this quarter (Q1 08).

We’ve talked with a number of potential users of this technology as well as analysts and people we’ve met in the industry. They all tell us that what we are building is needed, and that no one else is taking this approach today. It is exciting to work together with a good bunch of folks in this exciting space.