Don Dodge on The Next Big Thing

Social Networks 1% rule or The Community Pyramid

What is the social network 1% rule? Generally in a group of 100 people online, one will create content, 10 will "interact" with it (commenting or adding to it) and the other 89 will just view it. But, everyone benefits from the activities of the whole group.

Bradley Horowitz,  an old friend from my AltaVista days, and one of the smartest guys I know uses this simple illustration to convey the idea.

I have seen this natural hierarchy many times. My experience with SiliconInvestor, one of the first investment discussion boards on the web, matches these findings. The contributor to commenter to reader ratios were about the same. Later at Napster I saw a similar pattern. Very few people shared their music collections while millions downloaded.

Web 2.0 social network sites are finding the same thing. It takes a relatively small group of contributors to create the content. These contributors attract the commenters or editors, which in turn attracts the huge audience.

At Wikipedia about 50% of all article edits are done by 0.7% of users, and more than 70% of all articles have been written by just 1.8% of all users, according to the Church of the Customer blog (http://customerevangelists.typepad.com/blog/).

Fred Wilson says his vision for social media is; "every single human being posting their thoughts and experiences in any number of ways to the Internet." TechMeme has picked up Fred's post, contributors are sure to follow, and thousands of readers will enjoy the benefits.

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Xobni social networking for Outlook users

Xobni - is an organizer for Microsoft Outlook email. The beta is now available to the public. I have been using Xobni for 6 months and love it. Xobni is inbox spelled backwards. Xobni compiles a summary for each email sender, extracts phone numbers, photos, organizes attachments in several different ways, and ranks each sender by how many emails they send to you, and how many you send to them. People connected to the email sender are listed, along with email threads from each of them. See all the attachments associated with these people. Search is an integral part of Xobni and can be done in several different ways.

Robert Scoble has a great video interview with Xobni founders Matt Brezina and Adam Smith. I knew the instant I first saw Xobni at the TechCrunch40 Conference that we should be partners. I talked to Adam Smith immediately after his presentation, and had dinner with Adam and his partner Matt Brezina that night. We sketched out how Microsoft could help Xobni, and started executing on the plan the very next day.

Xobni is now a Microsoft Startup Accelerator Program partner. There are lots of benefits to the program like free software, consulting help, press releases, introductions to Microsoft people, partners, and even VCs. But this is one benefit that we didn't anticipate...a demo by Bill Gates at the Microsoft Office Developers Conference. Check out this 2 minute video of Bill talking about Xobni.

Try out Xobni and let me know what you think. What additional features would you like to see? What other email productivity tools do you use?

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Can Social Networks generate $1M in ad revenue?

Facebook, MySpace, LinkedIn, Beebo, Plaxo, Orkut, and MSN Spaces are the biggest well known social network spaces. But what about the 800 other sites scrambling for audiences in the social network space? Can they generate $1M in advertising revenue per month? Will they ever be profitable?

USA Today says "Social Network Sites Work To Turn Users Into Profits" and summarizes the problem with this quote;

"Short of striking it rich with online ads or creating a new revenue stream, how can so many sites leverage their vast audiences? In many respects, it is the same query that dogged portal companies in the mid-1990s and search engines in the early '90s. Some were sold. Some went public. Some went belly up.

The ongoing challenge is to concoct a potion — be it through banner ads, premium subscriptions or licensing agreements — that no one has perfected. Facebook, crown jewel of the field, is valued at $15 billion but barely turns a profit."

CPM versus CPC - Big audiences are great but how you monetize them is the key to financial success. Google and the search companies are able to sell Cost Per Click (CPC) ads and command very high rates. Content sites and social networks don't have a search term to key off so they charge Cost Per Thousand (Mil) or CPM rates. In some cases it can take 1,000 page views to generate the same revenue as one click on an ad.

A penny for your thoughts? I talked to a Facebook App developer at the ReMix conference a few weeks ago. He told me his app is generating 300 million page views per month. Wow! Then I asked what kind of CPM (Cost Per Thousand) ad rates he was getting. He shrugged and said somewhere between $0.02 and $0.05 per thousand. That pencils out to between $6K and $15K of advertising revenue per month for those 300 million page views.

How much traffic is needed to generate $1M in ad revenue? It all depends on how well you can target your audience and how much you can charge for CPM rates. But, based on a survey of social network sites let's assume an average CPM of $0.40. You would need 2.5 Billion page views per month to earn $1M in ad revenues. That is 2,500,000,000 page views...and how many sites can sell out all their page view inventory?

A New Revenue Model? - Google revolutionized the search business by banning display ads sold on a CPM basis, and instead offering text based ads where you only pay when someone clicks on the ad, what we now refer to as CPC.

It will probably take a new revenue approach to make many Social Networks profitable. From the USA Today story;

"Facebook's ambitious plan to reshape advertising — via a new approach to social marketing, called Beacon — was a bust. The idea was to inform friends whenever a Facebook member purchased something from online retailers. When consumers protested its invasion of privacy, Facebook CEO Mark Zuckerberg acknowledged the miscue and promptly apologized.

Even Google, as close to a money mint as anything online, has struggled. Google has a deal with Rupert Murdoch's News Corp. to place ads on MySpace, and owns Orkut, which flopped in the USA. Co-founder Sergey Brin recently admitted the "monetization work we were doing there didn't pan out as well as we had hoped."

Which new model will work? No one knows at this point, but there will be billions of dollars for whoever figures it out.

Beacon was innovative, but privacy concerns killed it. We are often influenced by what our friends buy, maybe just a slightly different approach will work.

Social recommendations are very powerful. Back in the early days of the web there were several attempts to consolidate buyers into groups to get better prices. Could social networks do something similar?

Businesses and advertisers are anxious to tap into the power of social networks. The social networks are building huge audiences but can't figure out how to monetize them. When they learn how to connect effectively the benefits will be amazing for everyone involved.

This is a business problem, not a technology problem. The answer will be simple and obvious. In fact, it has probably already been considered and rejected several times. Someone will come along and put a slightly different twist on it and...Eureka!!!  Don't you just love business? How do you think this will play out?

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Xobni demo by Bill Gates at Office Developers Conference

Xobni is a Microsoft Startup Accelerator Program partner. There are lots of benefits to the program like free software, consulting help, press releases, introductions to Microsoft people, partners, and even VCs. But this is one benefit that we didn't anticipate...a demo by Bill Gates at the Microsoft Office Developers Conference. Check out this 2 minute video of Bill talking about Xobni;

 

I knew the instant I first saw Xobni at the TechCrunch40 Conference that we should be partners. I talked to Adam Smith immediately after his presentation, and had dinner with Adam and his partner Matt Brezina that night. We sketched out how Microsoft could help Xobni, and started executing on the plan the very next day.

Microsoft is a big company, but we care deeply about startups. We can move fast and bring real value in the right situations. It doesn't always work out this well...but we try.

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Who owns your data on Google, Facebook, Netflix?

The blogosphere is raging about Facebook's use of "my data". Doc Searls is promoting the idea of VRM (Vendor Relationship Mgmt) and says "Time to write our own rules".

The bargain you made in exchange for free services. Consumers sometimes forget the bargain they made in exchange for the free services. Sometimes it means your personal information can be sold or marketed. Other times it means your content is not really yours anymore. Sometimes it means you get to pay for additional services once you are hooked. Or maybe that the rules change over time and the service is unreliable. Most times things work out OK and consumers don’t complain too much.

Free services always come with strings attached, limitations, service outages, advertising, etc. Facebook seems to be attracting all the attention now, but do people realize what Google is doing with “your data”? Your search history…your click stream data…the sites you have visited? Do they understand what information DoubleClick has collected on “your data”?

Dave Winer says "I want control of my data" and states in part;

I want Netflix and Yahoo to give me an XML version of my movie ratings, for me to decide what to do with. I've been asking for this for a couple of years, I still don't have it. This is information I created. I want to keep a copy. I want to make sure that Netflix knows about all my Yahoo ratings and vice versa. I'd like to give a copy to Facebook (assuming they agree to not disclose it) and maybe to Amazon, so they can recommend products I might want to purchase (again keeping it to themselves). I want to begin a negotiation with various vendors, where I give them something of value, and they give me back something of value.

Being able to export your Netflix ratings or Facebook friends list is mildly interesting, but inconsequential when compared to what is happening with your real important data. Maybe Doc Searls, Dave Winer, and the rest of the blog cognoscenti should focus their cannons in a different direction?

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TechCrunch Boston

Mike Arrington organized TechCrunch Boston on Friday night, attended by 800 tech people, and sponsored by IDG Ventures. It was the best tech party of the year in Boston.

The IDG Ventures Boston team was out in force.  I talked with Michael Greeley, Chip Hazard, Jeff Bussgang, David Aronoff, and Kate Castle. Pictured here is Mike Ford (TownConnect), Mike Arrington, and Michael Greeley (IDG Ventures).

This was definitely an event for startups and entrepreneurs but I did talk to some other VC's including; Michael Skok (North Bridge), Lucy McQuilken (Intel Capital), Steve Schlafman (The Kraft Group), and Charley Lax (Grandbanks Capital).

Punchbowl Software was one of the startups doing demos at TechCrunch Boston. Here is David Aronoff (IDG) and Matt Douglas, CEO of Punchbowl (center) hamming it up with Mike Arrington of TechCrunch.

Mike was like a Rock Star. There were entrepreneurs and pretty women crawling all over him. Towards the end of the night Mike made me his manager/agent in charge of all photos and  meet/greets. I was sitting at Mike's table at the after party eating a late night dinner and Mike could barely get two bites before someone else approached. Mike was actually loving it. He is a great guy and will talk to anyone anytime. I went to the bar to order tequila shots for the table...Mike insisted on Patron. Only the best. Mike shouted to  Heather Harde, the brainy beautiful CEO of TechCrunch, that he had managed to spend $1,000 in the first 45 minutes of the after party. He was loving it!

On the way back to the table I bumped into Steve Schlafman (Kraft Group), Eunice Chou (Massive), and Danny Moon (UpNext). By the time I finally got back to the table they were on the next rounds of tequila.

There were some press people and lots of bloggers at the event. Scott Kirsner (Boston Globe) was interviewing and doing video. I also talked to Nick Carr, Francois Gossieaux, Halley Suitt, Doc Searls, and Wade Roush.

I talked to over 200 people at the event and saw another hundred or so with a quick wink or nod. It was a wild night. Startup entrepreneurs were everywhere. Off the top of my head I remember talking to; Ben Saren (CitySquares), Reed Sturtevant (Microsoft Labs), Doug Levin (Blackduck Software), Shawn Broderick (TrustPlus), Jeremey Allaire (Brightcove), Matt Douglas (Punchbowl), Mike Ford (TownConnect), Pito Salas (BlogBridge), Chris Herot (Zingdom), Danny Moon (UpNext), Eduardo Saverin (Firefly Health), Michael Kokernak (BackChannel Media), Mark Pascarella (Gotuit), John Zib (GetMemo), Scott Durgin (OffshoreTP), Nikhil Roy (Spendview), Sarah Meyers (PopSnap), Sean Ammirati (FeedHub), Dave Evans (TheProgressBar), and Ted Morgan (Skyhook Wireless).

I know I talked to more people but after 5 or 6 Martinis my memory was a little foggy. Here is Jeff Bussgang (IDG Ventures) and me towards the end of the night.

Next stop for the TechCrunch Party tour is Los Angeles in December. See you there!

More blog coverage of the event at Chris Herot's blog, and Doug Levin. 

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MacroMyopia overestimating the short term and underestimating the long term

There is a severe case of MacroMyopia spreading across the blogosphere. Today it is The Death of Email. Yesterday it was Inbox 2.0 - Email meets Social Networks. Macro-Myopia is the tendency to overestimate the short term impact of a new product or technology, and underestimate its long term implications on the marketplace, and how competitors will react.

Straight up and to the right - It is human nature to extrapolate the early success of a "new thing" to world domination, and to the death of the "old thing". Insert any variable for "new thing" like; Facebook, Twitter, Text Messaging, Open Source, Linux, YouTube...and you can finish the sentence with the death of the "old thing".

The best of both worlds - In most cases the early innovator of a product or technology wins some early success in a narrow market segment. The big winners come in later by incorporating the new technology into an existing product or service and creating a best of both worlds solution that appeals to a much broader market. I call this the "Innovate or Imitate - Fame or Fortune" scenario.

Will Social Networks, Twitter, and SMS rule the world? No, I don't think so. But, elements of each of them will be blended into existing business applications like Email, CRM, Knowledge Management, recruiting, and other enterprise services.

Email is ripe for innovation. As I wrote yesterday, Email is your natural social network, and there are big opportunities at the intersection points of social networks and business applications.  Brad Feld, Fred Wilson, Tom Evslin, and a bunch of smart people are getting together in NYC to think about ideas and investment opportunities at those intersection points.

But kids don't use Email...so Email is dead, right? Yes, it is true that the younger generation does text messaging and IM, not email. It is also true that they use MySpace and Facebook, not discussion boards and workspaces. So, Facebook, Twitter, and SMS will rule the world, right?

In a word, No. Those communication modes work great for kids, but kids grow up and get jobs. Work requires a different form of communication and collaboration. Social Networks are fun, but business networks get things done, and ultimately make money. Lots of money. Email might be one of those forgotten markets that could be a huge opportunity in the future.

Zoli Erdos agrees and has some neat graphs to tell the story. Mathew Ingram, a professional newspaper writer, has an interesting perspective too.

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Email contacts - the natural social network

Email is our natural social network. Our email contacts are already organized by work, professional, and personal friends. Email could easily adopt some of the useful social networking features to become a more powerful business network and collaboration environment.

The New York Times says "Inbox 2.0 Yahoo and Google to Turn Email into a Social Network"

Ignore Orkut, OpenSocial, Yahoo Mash and Yahoo 360. Google and Yahoo have come up with new and very similar plans to respond to the challenge from MySpace and Facebook: They hope to turn their e-mail systems and personalized home page services (iGoogle and MyYahoo) into social networks.

Web-based e-mail systems already contain much of what Facebook calls the social graph — the connections between people. That’s why the social networks offer to import the e-mail address books of new users to jump-start their list of friends. Yahoo and Google realize that they have this information and can use it to build their own services that connect people to their contacts.

Om Malik was an early and vocal proponent of making email the basis of your social network. His story "Google and Yahoo Finally Get The Memo: Email Is The Social Environment"

I had talked about this very same concept back in September: Is Email The Ultimate Social Environment? While Yahoo and Google are still talking about it, one start-up, Xoopit has already done it, and another one, Xobni, is well on its way to making that a reality.

Larry Dignan at ZDnet has it right in my opinion. "Social Networking: Quietly being subsumed by your everyday apps"

Social networking features will be dropped into corporate applications to the point where they become commonplace. A company like Trampoline Systems is an early social networking mover in the enterprise, but it’s not a reach to figure the startup will be acquired by a larger player someday. Social networking won’t be a hot topic as much as its just something you do. Don’t be surprised if social networking is built into Microsoft Outlook at some point in the future.

Email is where we work, communicate, organize, establish relationships, seek new business, approve things, and ask questions. It is the natural place to leverage our social network and collaborate to get things done.

LinkedIn is great as a business network. Why aren't those features built into our Email Contacts? Wouldn't it be great to be able to find anyone and connect with them through our existing network of contacts? Why not have pictures attached to each email contact?

Collaboration and Social Networking should be in Email - Prior to joining Microsoft I worked with Ray Ozzie at Groove Networks. Groove is a cool P2P collaboration environment where you can set up secure workspaces focused on a specific topic or project. Participants can be invited into the workspace where all the information about a project is stored and kept up to date. Groove is a great tool for managing projects.

The problem is that people LOVE email and spend most of their working time there. Most people don't want to leave email and jump into a separate application to collaborate on projects. Email is where they naturally communicate and collaborate.

Social networks are another isolated island of information. I use Facebook, MySpace, LinkedIn, Plaxo, and Flickr. They are fun, but not very productive. Why not combine the best of all of them in one place where I naturally work...in email?

Social Networks are fun, but I want a Business Network. Isn't that what Inbox 2.0 should be about? What do you think?

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My Friends List is not like an OPML of RSS feeds

Google's OpenSocial API initiative got a lot of buzz and hype last week which I thought was misguided. This week my friends Mark Cuban and Tim O'Reilly cut through the hype and get right to the heart of the matter with two excellent posts.

Mark Cuban's idea - 

I thought that if you put the 2 together, enabling Yahoo to access the Facebook database of users within the current API constraints, Yahoo search and ad serving would improve considerably. Expand the Facebook database with an opt in option to add further personal data that could be used FROM WITHIN THE YAHOO WEBSITE, the results for Yahoo could be extraordinary. A Yahoo search box within Facebook , or a search from a Yahoo site that recognizes you are the owner of a Facebook profile and customizes the results according to information culled from your profile would be incredibly powerful.

Great idea Mark. Substitute Microsoft for Yahoo and that sounds like a great plan :-)

Tim O'Reilly's idea - Tim agrees that Mark has a good idea, but extends it further. Tim says;

We all want what Mark describes: a definitive place under our own control where we can describe who we are and what we care about so that applications can use that data to provide us with smarter services. We don't really care whether that repository is at Facebook or Google or any other site, or perhaps even if it's an aggregation of data from many places, but we do want it to become more useful to us. Not just more useful to the holder of our profile, but to every site we touch on the internet. Whichever company gets there first, to a truly open, user-empowering, internet-turbocharging social network platform, is going to be the net's next big winner.

I like both ideas. I also have two concerns - security and privacy.

Security - The first OpenSocial app on Plaxo was hacked within 45 minutes, and quickly taken down. We are talking about personal information here...names, pictures, contact information, friends lists, etc. Security is important here. It can't be just an afterthought.

Privacy - Tim O'Reilly nails it with this quote "What would it take for me, as a user, to have fine grained control over that authentication, so that some applications could see all of it, and some could see only a little? What kind of system would make it easy for me to manage the data that appears about me, to reduce duplication of effort, yet to give me a single credential that I could proffer as a proxy for "the real me"?"

My Friends List is not like an OPML of my RSS feeds. Everyone is talking about data portability of "my data". Some have used the example of being able to take their list of RSS feeds in an OPML file and export it to another RSS reader of their choice. They want to be able to do the same with their Friends List. Be careful. The concepts are similar but the data and implications are very different.

My RSS feeds are a list of my favorite blogs. I can show that list to anyone without exposing anything personal about those blog authors. My Friends List is different. It includes the names, pictures, activities, and contact info of my friends. Even if it were just the names and pictures, and even if they can't interact or access the friends, that is still too much personal information to expose anywhere without their permission.

What if? - OK, what if I am a friend of someone on MySpace. Cool, my name and picture appears on their friends list and anyone can see it. But what if this MySpace friend joins a PornSpace social network site and wants to import his friends list to that site? Now my name and picture shows up on his PornSpace page as a friend of his? Hey, wait a minute, I didn't agree to that. How do I control where my name and picture go once I become a friend of someone? Will there be guilt by association?

Social Networks are fun and will evolve to be even better. I like Mark and Tim's ideas. However, security and privacy must be considered in these new initiatives.

50M Facebook users don't care about OpenSocial APIs

There are 50 Million Facebook users who don't know what OpenSocial APIs are...and don't care. There are about 5,000 tech bloggers and developers who think it is a revolution that will "Checkmate" Facebook and leave them with no moves. TechMeme has over 100 stories saying that OpenSocial is awesome and Facebook is dead. MySpace joins Google on OpenSocial initiative. OK, surely that settles it, Facebook is dead toast. Nope, not in my opinion.

Are Facebook users going to cancel their account? No, I doubt it. Facebook was a runaway success long before they allowed 3rd party apps and widgets. I don't see Facbook users leaving because some widget might not be available, and I don't see widget developers abandoning Facebook just because there is a new OpenSocial API.

OK, so is every tech blogger and social network developer going to cancel their Facebook account...and go to what? Orkut? Ning?  Even if they did, that would amount to about 5,000 users which is less than one/one hundredth of one percent of Facebook users. Or put another way 99.9999% of Facebook users will be happy to stay right where they are. And, Facebook probably adds 5,000  200,000 new users a day anyway. So the impact (revolution) will be over in one day half an hour. By next week this is old news.

Facebook is about the user community. Facebook has always been focused on the user community and providing a great user experience. Does this user community know or care that the apps are built using FBML vs. XML? Nope. There are already at least 20 other social networks out there to choose from. Are they fleeing Facebook for these alternatives? Nope. It is all about the community, and where your friends are.  Are there some users who would like to transfer their Facebook friends list to another social network? Probably some. Maybe even 5,000.

Did Facebook users approve this? When I agreed to be a friend of Robert Scoble, Mike Arrington, Marc Andresseen, and others on Facebook, that was just Facebook. Did I agree to have my "friend relationship" exposed on Orkut or 20 other social networks? No. Don't get me wrong, I am proud to be friends with Robert, Mike, and Marc. But, I think most users would agree that they didn't expect that their "relationship" would be exposed on other social networks. Or, that their name, picture, or any part of their personal profile would be exported to another social network. There may be a significant privacy issue here, or some questions about the use of PII (Personally Identifiable Information).

Will developers stop building Facebook apps? No, of course not. Facebook provides a pretty good API set and a pretty simple way to develop applications for Facebook. Does anyone really think that developers will abandon Facebook and instead only write to the OpenSocial API set? Seriously, what are these tech bloggers thinking? Developers are very skilled at building web apps that work on both Internet Explorer and FireFox, or Windows and Linux. It really isn't a big deal to use Facebook's FBML which is just XML with extensions.

Developers, developers, developers - To use a line from Steve Ballmer, yes, developers are critically important to the success of Facebook, or any other application platform. Facebook was first to open up their platform to developers and has done a good job providing developer support. They must continue to innovate and provide good tools and resources to developers. I think they will.

Here comes Google, and Vic Gundotra - Google hired Vic Gundotra from Microsoft to lead their developer evangelism and support organization. Vic is an expert at this and knows what developers want. This is important far beyond OpenSocial. Vic will be recruiting application developers for all of Google's platforms and services. This is how Google will attempt to move beyond being just a service...to a full platform ecosystem. Just like Microsoft did many years ago.

Not one single app has been written and not one single user has left Facebook, and already the tech cognoscenti is saying Facebook is dead. Get a grip guys.

UPDATE: Be sure to click through and see the reader comments to this post. Very insightful, and good additional information. Thanks to James Beyers for pointing out Facebook's rapid growth - 200,000 users per day.

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