Alexander van Elsas’s Weblog on new media & technologies and their effect on social behavior

The dominant web 2.0 business model is the FREE business model. It comes in many different variants, but the most widely used are the freemium business model (I always thought Fred Wilson came up with that term, but he says it was Jarid Lukin) and the free with ads based business model. With freemium you get a service for fee, but for the real cool features you need to upgrade and pay a subscription. Flickr uses that business model. The free with ads based business model lets you use a service for free, but in return you get advertisement. Facebook is the most obvious example, but many other services use that model as well. For a much more complete overview of the many different forms of the FREE business model I recommend you read the extensive list compiled by Chris Anderson here.

The driving force behind the FREE business model is the (web) technology that enabled us to copy and distribute digital information at almost no cost. Don’t assume something is not valuable just because it’s free. But the effort to copy and distribute have dropped to zero.

Free has a lot of great advantages. It lowers the threshold for a user to try out your service. It lets you distribute easily and helps you create a user community much quicker than with a paid service. Free lets you provide value to a user while the costs for it are paid by someone else, for example an advertiser. Because of this 3-way relationship it becomes easier to distribute your service, making it visible for you potential user groups on all kinds of advertisement networks. And perhaps most important, most entrepreneurs delivers web 2.0 services for free now, so why charge your users for your service?

How does all of this work? On the web there are currently two main value drivers, attention and reputation. Attention is measured in page views, how many people looked at this advertisement, how many clicked on them etc. Reputation is based upon links. The more links the more value, Google Pagerank uses that measure (amongst many others). The on-line FREE business model is often executed in a 3-way relationship. The user, the service provider, and the 3rd party who pays for the costs of the service, in order to get attention.

But FREE comes at a cost too. The sun rises every day for free, but for all the other stuff happening on our planet, someone is paying the bill. In web 2.0 free leads to several related effects which occur due to the way value is calculated right now, attention and reputation.

FREE leads to destination sites with walled gardens

In the FREE business model attention is the most important currency. The focus of the user needs to be on the service. The more attention it gets, the more value is generated. As a result of this a service provider is not likely to let a user leave once he is in. The service is surrounded by large walls ensuring that the user and the data he produces can’t leave the premises. The user needs to go to the service instead of the service coming to him. Attention is measured in pageviews, so if you aren’t there, no value is created. Reputation is also important. That is probably why most web 2.0 services try to attract top tech bloggers on their network. It provides them with credibility for the service.

FREE makes the network more important than the user

Attention is key. You get more attention if you get more users. The focus of most free web services isn’t on user value. It’s on user addition. A service need gazillions of users and if you don’t have at least a few million users on board, you aren’t execution your business model right. But a service that is driven by new users tends to think less about the current user. It isn’t the user that is important, its all of his friends, his social graph, his interactions with others that is important. That is where the value lies. It also leads to API’s, third party development and dilution of the original value proposition of the service. Facebook is an example of that. While the original value of Facebook was to connect to your friends, it has now become a platform that seems to be driven for advertisers and 3^rd party developers. In other words, the network or social graph has become more important than the individual user. I’m not suggesting these services don’t provide the user with value, there has to be some. But the main focus isn’t to improve on that, it’s on user addition.

FREE leads to forced attention on advertisement

FREE can lead to a lot of things (see the overview at the beginning) but it often leads to advertisement. It sounds like a great deal. You get the service for free, and the costs are covered by the advertisers. Although it might work well in some cases I believe that in most cases this type of forced attention doesn’t provide the user or the advertiser any value. The click through rates of advertisement are not that high in social networks. And that is pretty obvious, social networks are for interaction. And when I interact with friends there is simply no room for advertisement. Its trespassing. There is of course one great counterexample to this. Advertisement does work in search. It is what made Google the mightiest company on the web. When I am looking for something advertisement can help. For this very reason Facebook doesn’t perform well on advertisement, while LinkedIn performs much better. Can you spot the difference? The first platform is about interaction, the second is about search, about business. A subtle but in my opinion important difference.

FREE leads to customer lock in instead of customer freedom

If I would have to sum it all up then to me FREE leads to customer lock-in. Instead of setting me free, the business model forces me to come to a destination site, to stay there, to leave my data, to expose my friends to the same mantra. The service isn’t coming to me, I can’t go where I want. FREE locks us in, and often we don’t know about it. I often hear that users don’t care (there are millions of people on Facebook right), but I refuse to believe that. There currently simply isn’t a viable alternative to those FREE walled gardens. If there was and people knew they had a choice, I am betting that a lot would choose a service where the user is more important than the network. A service that is entirely focused on user value and doesn’t enforce walls or attention.

What do you think?

I asked the following question on both Twitter and Friendfeed: “Would you pay for a web service that provides you value?”. It was not the best of questions (too open), but I still got a lot of great responses. The twitter responses were short and to the point. Erwin Blom thought it was a strange question, since he pays for many services (Flickr, Nozbe, Basecamp, Highrise, Mindmeister, Box.net). Many responded that they already pay for services like last.fm, iTunes, Flickr, Dreamhost, Blockbuster. Tokerud would pay for Twitter as much as for a professional Flickr account ($25 a year). MarkDykeman, jcvangent and sndrspk would pay for a web service, but only if it would provide significant value.

On Friendfeed there was a bit more discussion (it allows messages larger than 140 chars). You can find the entire discussion here. Most people are willing to pay for value, but the value needs to be significant. The freemium model seems to dominate thinking here A lot of people also mentioned that once a service with a subscription fee is up, it is likely copied by a free with ads version. Ran has a good point when he says that he would be more demanding if he paid for a service (A twitter outage of a few days would not be acceptable).

Are there possibly viable alternatives to FREE?

Sure there are. Kevin Kelly offers a range of great posts on this subject. I love his 1000 fan post in which he analyzes the long tail and argues that you only need 1000 true fans to make a good living on the web. He later wonders whether or not 1000 fans is enough, but he believes that its possible with a relative small number. If you want to conquer the entire world, you will probably need the FREE approach. But there is a great living to be made that doesn’t involve world domination.

Kevin Kelly provides in a post entitled “Better than Free” 8 generatives to the FREE model, a must read for anyone interested. An summary from his article (but read it, its really good):

Immediacy: Getting a copy of something you want immediately, even though it might be free later. Examples: go to movie theaters to see films on the opening night and pay a premium price for it, access to Beta releases, Hardcover books.

Personalization: A product or service tailored to your personal needs. Examples: A generic version of a concert recording may be free, but if you want a copy that has been tweaked to sound perfect in your particular living room — as if it were preformed in your room — you may be willing to pay a lot.

Interpretation: The content may be free, but the interpretation of it not. Examples As the old joke goes: software, free. The manual, $10,000.

Authenticity: You might be able to grab a key software application for free, but even if you don’t need a manual, you might like to be sure it is bug free, reliable, and warranted. You’ll pay for authenticity. Graphic reproductions such as photographs and lithographs often come with the artist’s stamp of authenticity — a signature — to raise the price of the copy.

Accessibility: Having access to your possession (data for example), tidy, up-to-date, orderly, backed up, provides us value that we are willing to pay for. The fact that most of this material will be available free, if we want to tend it, back it up, keep adding to it, and organize it, will be less and less appealing as time goes on.

Embodiment: The most obvious example. A book may be for free, but a presentation by the author is expensive.

Patronage: Kevin believes that audiences WANT to pay creators. Fans like to reward artists, musicians, authors and the like with the tokens of their appreciation, because it allows them to connect. But they will only pay if it is very easy to do, a reasonable amount, and they feel certain the money will directly benefit the creators.

Findability — Where as the previous generative qualities reside within creative digital works, findability is an asset that occurs at a higher level in the aggregate of many works. A zero price does not help direct attention to a work, and in fact may sometimes hinder it. But no matter what its price, a work has no value unless it is seen; unfound masterpieces are worthless. When there are millions of books, millions of songs, millions of films, millions of applications, millions of everything requesting our attention — and most of it free — being found is valuable.

Conclusion

It is my believe that in general users are always willing to pay for value. If you can find a proposition that provides true value, then a payed business model is to prefer over a FREE model. Why? because it forces you to think in user value. It forces you to provide the user the best experience he can get. It forces you not just to get new users but to keep providing the users you already have with value. And you don’t have to be affraid of a competitor offering the same service for free. You can use the trust and long-term relationship with the customer to innnovate and create new value that your competitors don’t offer. In other words, the business model makes the user and delivering value to this user much more important than the network.

This post has become longer than I expected. Thank you all for the willingness to respond to my question. Let me know what you think. Would you be willing to pay for a web service that provides you value?

So Facebook allows its users to import content into their newsfeeds now? Competing with aggregators like Friendfeed? Big deal. The service is already loaded with features that provide no value, so adding a new one isn’t going to make it any better. Let me provide you with five reasons I personally don’t like Facebook very much (hey, it’s just my opinion).

Facebook is a large walled garden that allows users in but never, ever let’s them out.

Even after deletion fo an account your data is still within the Facebook databases. Moving to another service with your data is impossible. Getting your data out leads to account deletion (not data deletion, that remains with Facebook). I don’t like customer lock-in, I want customer freedom.

Facebook is based upon a flawed business model.

They use the free but ad-based business model which is fine when you are a giant search company, but really sucks when your main objective should be allowing your users to interact. There is no place for ads in interaction. It’s merely trespassing in conversations between friends.
Facebook newsfeeds are highly overrated.

They might have been the first to implement them, but the newsfeed sucks. I recently took a picture of my own newsfeed and it has learned me that one of my friends is playing Scrabble, three people added an application, someone had changed his profile picture (which was sort of obvious as I could already see that it had changed), and some advertisement for large Facebook groups I should be in. I’m not interested to read ‘Alexander went to movie X”. I’m interested in personal message like “Hey, I went to movie X last night. Had a great time, you should go see it too”. The first message was an Orwellian Facebook Big Brother is watching you headline. The second one was a personal message from a friend. Pick the one you like best.

Facebook is spam.

Can’t say it any clearer. While a lot of Facebook’s intentions (and those that create Facebook applications), might be to provide the user a good time, it is spammy as hell. I get a lot of requests to look at things my friends send me, only to find out I need to forward it to other friends too. Often even before I get to see the content. I don’t want to harass my friends with that. Which reminds me that I need to talk to the person sending me that stuff too

Facebook is about data hogging, not about user value

Facebook isn’t there to provide its users with value. It is there to collect all the data it can get out of you, your social graph, your actions inside and outside the walled garden. It needs to do this in order to fuel it’s business model (that is why the business model is wrong). Facebook shouldn’t be hogging data, they should be providing user value. Instead of customer lock-in, they should be thinking about customer freedom. Instead of importing feeds from other sites, they should be opening up themselves to third parties. Instead of locking me down they should allow me to leave if I want to and taking my friends and data wherever I want to go. But they don’t, and you already know why.

I read a Business Week article this morning which suggests that the current MySpace generation is becoming fed up with the ad bombardments on the site. They seem to be spending less time on MySpace because of it. A quote from the article:

The MySpace generation may be getting annoyed with ads and a bit bored with profile pages. The average amount of time each user spends on social networking sites has fallen by 14% over the last four months, according to market researcher ComScore. MySpace, the largest social network, has slipped from a peak of 72 million users in October to 68.9 million in December, ComScore says. The total number of people on such sites is still increasing at an 11.5% rate, but that’s down sharply from past growth rates. “What you have with social networks is the most overhyped scenario in online advertising,” says Tim Vanderhook, CEO of Specific Media, which places ads for customers on a variety of Web sites.

I don’t really know if we are now seeing a decline that marks a steady downfall of the current social networking sites. There seems to be contradicting numbers around. TechCrunch, for example, showed in January that Facebook is still growing in traffic, while MySpace is going down. According to Mashable traffic is increasing and they use a totally different measure, using the traffic measures from one of the largest content delivery networks Akamai. According to Akamai, they have delivered 5 times more data over their network to social networking sites in the last year. this suggests that people are spending more time on social networking sites.

And then there is the information Google provided for last quarters results. It suggests that Google has trouble monetizing ads on MySpace:

CFO George Reyes said social networking advertising is not monetizing as expected. When questioned further Sergey Brin, president of technology, said: “We don’t talk about individual partners or anything like that.” Brin noted some things were tried that didn’t pan out. While Brin won’t talk about partners it’s fairly obvious that MySpace is an issue. Google is obligated to pay at least $900 million in minimum revenue guarantees to MySpace through 2010. Later, the question was revisited again. He noted that Google also has Orkut and other social networking partners. “We have an incredible amount of this inventory,” said Brin. “I don’t think we have the killer best way to monetize social networks yet. We have had a lot of experiments (and some disappointments).”

So what does all of this mean? Well, for starters, monetising social networks through ads is hard. If Google, best in class,  is still struggling with this then you can imagine others will have similar problems. I believe that ads in itself provide little value to the users in social networks, and for that reason it is a faulty business model. Essentially the same thing happens on a web page as on TV. People will ignore ads when the ad itself does not provide the user any value in his actions. Ads work in search because you are looking for something, but do not work when you are interacting with a friend. The ad itself doesn’t provide extra value to the interaction. It is as if you and I are having a drink in a bar together, and the bartender keeps drawing our attention with commercial messages. It’s annoying, and most likely, we will simply go to the next bar to grab a beer without commercial interruptions.

SocialAds launched by Facebook have, and will, experience the same problems. Although the underlying mechanisms might be smarter (Facebook watches you and your friends like a Big Brother and uses your profiles and interactions to match ads) it essentially doesn’t solve the real problem. There is no room for advertisement when people interact. And their first Beacon attempt wasn’t a success either. Facebook got an overwhelming negative response mostly because people didn’t like it that the feature couldn’t be turned off or that it would invade privacy.  In my opinion, the beacon system is build upon a wrong assumption. it assumes that mimicking the “advice from a friend” on-line will help increase sales or better targeted advertisement. As I have said earlier, the interaction you and I might have when I tell you about a new car I bought isn’t the same as the beacon message in my newsfeed that says that “Alexander just bought car X on site Y”. In the first example there is trust, talk, emotions, gestures, the opportunity to agree or disagree with each other, in other words true interaction. In the second case there is a “computer system” that tells my friends I just bought a car. Not the same, and not enough value to help my friends to buy a car too.

I believe for this reason current most popular social networking sites will either evolve into something better, or disappear all together. I don’t know if the figures I started out with are a measure that show this decline in popularity, but I’m betting on something that is a constant factor throughout. Social behavior. People have jumped on the social networking train to be part of its success. But now that the hype is over, the question becomes if these sites provide the user real value.

Building and looking at other people’s profiles is fun at first but becomes tiresome pretty quickly. I see this all around me. People joining a network, spending a lot of time to build a personal profile. But after a while the fun wears off, and less time is spend on that activity. So what do these people use social networks for? Interaction of course. They use the chat functionality to chat with their friends, send them messages etc. the profiling and all the applications that help you beef up your profile aren’t interesting enough. And I’m betting that current social networking sites do not provide the user enough value to keep him on board while the advertisement pressure is increased. Maybe new initatives like Friendfeed will do a better job at it.

What are we left with then? Interaction. It is always about interaction. People love to interact. Social networking sites will have to evolve into social interaction sites where friends can use any tool needed to interact with each other. Through feeds, sms, tweets, IM, e-mail, voice calls, video messages, you name it. The web entrepreneur that can think of a web business model that monetises user interaction will be the winner. Providing value can always be monetised. Social networking may be declining, social interaction won’t!

This morning a lot of posts discuss the announcement that Qtrax has signed deals with all 4 major music labels for the peer2peer free ad-based music download service. Interesting enough, after everyone has started quoting each other on this “break through”, the Silicon Ally insider reports that 3 of the four labels claim they do not have a deal with Qtrax. Oops.

But let’s move beyond the “breaking” news and look at the service offering itself. Qtrax claims to offer 25 Mln songs which can be downloaded. There are a few nags though. First of all the songs are DRM wrapped, meaning they can’t be played on any devide you want. Second, you need a specific piece of software to be able to download and play the songs. Third, the songs are free but ad-based, meaning there are ads wrapped along with the songs.

Now let us compare this to the current offering for any user with a PC and peer2peer software. You have access to over 25 Mln songs, you can download them and play them on any device you want. They are DRM free. You don’t need any specific software for it, and there are no ads. It is illegal, but millions and millions of Internet users do not seem to mind that.

Fred Wilson doesn’t like Qtrax offering much. I don’t either. Qtrax is making the same mistake many web 2.0 services are making. They aren’t thinking in terms of user value, but instead focus on advertisement value. Now I realise that the music industry has been defending their totally obsolete distribution empire for years and that it takes a nearly impossible effort to get things changed there, but that still doesn’t put Qtrax in the clear. They are going about it the wrong way. The service really doesn’t provide the majority of the Internet users any value over existing practices. In essence, they are re-creating a walled garden service (using DRM and their music player) allowing people free stuff, but with restrictions to make the business model work.  The problem with that is that it locks users in, and they don’t want to get locked in. They are already in a situation that everything is free (illegal, but they don’t care) and now they are suddenly restricted in their usage (but legal).

I have serious doubts such a service will ever become really popular. Peer2peer networks have reduced the distribution costs of music, or any relevant content for that matter, to 0. It means that there is no money to be made out of the distribution game anymore, making the major music labels obsolete really. Trying to overcome that by restricting downloads and serving ads isn’t going to change the reality of today. It is a defensive move if any. It is enforced by the music labels that still do not want to give up their false hope of controlling the game. And Qtrax is falling for that pressure or they can’t distribute the content legally.

In my opinion this is not the revolution we really need in the music industry. The battle of paying for music has been fought and lost. Instead music labels should focus on things that still matter to the consumer. Instead of distribution of music the major music labels should be thinking about the distribution of emotions. I’m a big fan of Ian Rogers who works for Yahoo Music. He understands the need to open up the music industry and won’t invest any longer in services that try to leverage digital scarcity.  I think that Yahoo is getting back into the game the right way.

There are infinite possibilities to create relevant and great business models in the music industry. But it takes leadership and the willingness to burn old ships behind you to start changing this world. Qtrax is not a revolution, it is merely a new wrapping around an industry based upon old school thinking. It won’t work.

I usually start writing new entries after the weekend, but yesterday just didn’t work out. I was in a car accident with 6 other cars on the freeway. Nobody hurt, but I parked my car in the back of the car in front of me, so I wasn’t going anywhere after that. It took a few hours of getting alternative transportation, and from the picture below you can see the damage to my car.

Anyway, I was planning to write something on human behaviour. It comes from observing my wife making her first moves onto a social network, in this particular case Hyves in the Netherlands. The observations are not statistically founded, but they depict, in my opinion, some basics that have some universal truth in them.

My wife uses Internet and mobile. She is not a tech person, but instead uses these means to an end. She doesn’t care about the technology itself, but if it helps her communication needs then she will try it. She has gotten numerous invites to join Hyves over the past year or so, but wouldn’t join. Main reason? “I can already call, SMS, e-mail, and IM my friends. I don’t need anything else”.

I think I might be responsible for her finally trying it out. I had told her that I joined Facebook and that a friend I went to High school with had found me there. It was curiosity that killed the cat. She went on to create a profile and started adding current friends.

So observing her trying to make it work (I didn’t help her ;-)) I noticed a few things:

• Initially she put a lot of work into the profile creation. Not so much in updating personal information, but more into the visual aspects of it. She added a number of widgets to make it look more personalised. She ended up adding mostly slide shows with pictures. That’s what makes it personal. But, it wears down quickly. Once satisfied with it, she hardly takes the time to update it.
• After adding current friends, she started using the search bar to find people she knew from the past and contacted them
• She doesn’t use it to look at other profiles, unless they are people she actually knows
• She really hates the UI, hates the complexity of adding widgets, customisation (too much one size fits all) and the slowness of the site and the way it loads changes
• She likes the interaction with new and old friends, but doesn’t understand why she always has to go to her hyves profile in order to interact with them (she gets e-mail alerts, but can’t see everything in the e-mail)
• She doesn’t trust the site itself, and she is concerned with privacy. She sets the privacy controls pretty tight, only friends can see it all. She has been contacted by people she doesn’t know. When that happens she blocks them.
• She talks about her hyves experiences with her friends, and they all seem to have the same types of issues with it.

Her behavior is probably quite different from the younger generation that now invades Facebook and MySpace, so there are bound to be differences. But I also think there are similarities that we can learn from:

• Interaction is the most important functionality for any social service. It is not the network, the profile, the widgets, gadgets, promotions or anything else. It is the ability to find friends and have meaningful interaction with them that provides the value. Interestingly enough, current social networks do not really concentrate on interaction but are more concerned with data collection from “social activities”. I have foudn freinds on Facebook, and now I need to answer these Social Graph question (please confirm you knwo each other from highschool). Yuk. On a related subject, Fred Wilson started yet another TechMeme leaderboard discussion noting that individual bloggers are falling of the top 100 TechMeme leaderboard. He has some concerns in finding the pearls in the blogosphere with everyone looking at the same blogs. I am not concerned with “breaking news” posts, I always pick up the analysis afterwards and the discussions in the comments that lead to new ideas, insights, experiences. Interaction is what it is about, not the “scoop”! On my blog I fortunately get more comments than the posts I write, and that is what makes it fun. And I always respond, because in this interaction we create new things.
• UI is key. I’ve said it before, UI is often the element that inhibits mass adoption of web 2.0 services. While the tech savvy people have no problem copying widget code around to create web items is not an intuitive interface at all.
• Interaction needs (fast) response. Not just from friends, but also from the application of the site. Social networking sites are often not designed well for this. Facebook is rumoured to have a 5000 friends limit because the applications start breaking down after you reach the 2.500 number of friends. I am not a frequent Facebook user, but I have seen quite a number of 404 page errors, and faulty applications. I like Twitter, but the way it tends to break down and stop pushing tweets to me on-line or mobile really sucks.There is a lot of talk right now about the capacity of the Internet and whether or not it will break down due to too high user demands. I’m not concerned with bandwidth issues. I’m concerned with interaction barriers. Closed networks, messages that don’t come across, the inability to respond anywhere and any way I like to is what concerns me.
• Privacy remains an important and unsolved issue. The most important issue here comes from the tension between the user who wants to be in control of his own data (but really isn’t) and the service provider who needs control of the data in order to monetise the service. Opening the walled gardens (thus forcing the service provider to think in user centric services and value creation) isn’t good enough. The user needs to be in control of his data. Data must be set free. That is the most important barrier (next to the interaction thing) that needs to be taken.

We need to support conversations, the conversation never stops. It is through interaction that we all create and experience value. Social networks and most web 2.0 applications are only one step into this new world. They have got to let go of the idea that it is the service or the advertisement deal that is important. Make the user and his interactions important, that is where the money is!

TechCrunch just posted an article in which they reveal that Google might be planning a “major assault” on the social networking scene.

I have written on the Google strategy before, and it seems that a lot of the things written down then are now becoming a reality. Google plans to open up all their applications, creating a social layer across all of them. But, in contradiction with Facebook, Google seems to have plans to open up the network two ways, not only allowing a user to us this layer across many different Google applications, but also across different social networks. It’s what many call “the web as a platform”. Scott Karp dismissed that term a while ago, quoting Google’s Jeff Huber:

A lot that you have heard here is about platforms and who is going to win. That is Paleolithic thinking. The Web has already won. The web is the Platform. So let’s go build the programmable Web.

This of course being a direct declaration of war on Facebook.

The most important asset according to Scott is data, and Google has plenty of it. Actually, I don’t really agree with Scott on this. Data is static, it is the application or usage of data that is important. It is not just about data, it is about interaction.

Google is definitely in a position to open up the social network space and even fill in some of my wishes to get out of the web 2.0 trap, I am wondering if they are going to make the right choices, especially when it comes to privacy. Google probably already knows everything there is to know about me, but can they handle my privacy as well?

And more importantly. Will they think user centric, or simply connect everything because technically they can create the APIs.

But my main interest will be on their plans of their mobile strategy. Opening up the web is one thing, being able to connect the web to the mobile space is much more interesting. That is where the money is. Through the mobile space we can get out of the web 2.0 advertisement trap and create working business models that are not based upon ad harassment.

Will Google understand this? They will, but as their business model is advertisement, I doubt they will fill it in the right (user centric) way.

Well the countdown has started. While the blogging and advertisement community seems exhilarated about the plans Facebook is about to reveal monetizing not only their user profile base but also the relations between its users (what is being called a social graph), I remain a skeptic of this move.

Ads and promotions in a personal space just do not work very well together. Imagine yourself hanging out with a friend in a bar and you are constantly distracted from your talk by the bartender waiving a poster in our face saying that the next Heineken sponsored concert of your favorite band is coming to town. What would you do? Embrace the barman for being so thoughtful, or leave his joint to get a beer somewhere else? Or imagine putting on your make up at home or somewhere in a bathroom and in the mirror there are these constant flashes of companies trying to get you to use a better product because it will make you look good (how does that make you feel)? Or, you are sending your friend a picture of the two of you together romancing in a beautiful restaurant somewhere in Paris, sponsored by “Nokia connecting people”.

It just won’t do! I am going to make a fool out of myself and predict the downfall of Facebook and the likes for pulling the advertisement trick on us. The countdown has started, lets see how long it takes for the user base to start moving to another place with no ads.

Just saw a valleywag post on the new Facebook ad system that seems to be coming out of stealth mode. The tone of the article being that Google should be paying attention to this new thread.

Come on guys. I would say that over 50% of the profiles on Facebook are juiced up to make user’s look better/different than they are in real life. People lie about who they are, what they like, what their preferences are. Furthermore, as a Facebook user is spending most of his time looking at other user profiles or pimping up his own, putting more ad pressure on them will not work. Their user profile is their personal territory. It is difficult to monetize that without annoying them.

Now compare that to the power of Google. People that are searching using the Google search engine are less likely to complain about commercial inks than people browsing Facebook profiles. Google reaches probably most of the entire Internet population and is able to spread ad pressure across many platforms and users, while Facebook is forced to increase ad pressure in the personal space of its (limited number of) users. Google uses user actions to define which ad fits, while Facebook uses user profiles (big mistake I think).

But most important of all, I don’t think Facebook is doing its users any pleasure with this, and that is precisely why it won’t work. From a “I want to monetize the Facebook network”point of view a logical step, but from a user centric point of view a no-go. Sorry guys, but in my opinion, you are no match for Google.

After the first Twitter and blog post of Robert Scoble about Google buying Jaiku the twitter space is full of Jaiku. Its everywhere. Lots of discussion on what this means for Twitter. Robert states in a second post that the deal isn’t about Jaiku versus Twitter, but more about Google versus Facebook.

While I don’t have the excellent sources Robert has, I think he is right about this. Google understands social networks much better than Facebook does. Lets see how the jigsaw puzzle pieces might fit together to describe the Google strategy with respect to Facebook.

1. First of all Orkut is (or will be) more open than Facebook is. For example, Orkut will allow application developers to let their services run on their own servers instead of on Orkut servers. Facebook doesn’t allow that. It is much more a walled garden than Orkut is. Why?Because Facebook needs the Facebook network to be valuable, while Google needs to be the connector across the entire Internet. Orkut is just another asset in that strategy.
2. Secondly, Google doens’t have to build a social networks as its primary strategy. Unlike Facebook Orkut is simply another means to an end. Google is the connectivity on the web, and Orkut only is one aspect of that strategy. Think Gmail, think Google earth, thin iGoogle. All major Internet platforms than can easily be integrated into one compelling service for the user.
3. Google is ready to launch its Google Phone. As said in several posts the strategy here is not to attack the iPhone, it is to attack Microsoft as a mobile platform.
4. Google is building up strength in Asia, the continent where (payed) mobile services are adopted quicker than anywhere else in the world!
5. Jaiku provides Orkut users with mobile presence information, which will add value to the connectedness in the social network. Let’s not forget that the mobile phone is the most dominant device worldwide (think communities dominate brand by Toni Ahonen)
6. Jailu does rss feed aggregation well, providing Google yet another advantage. It controls the world of Rss feeds with Google reader, Feedburner, and now on the mobile platform Jaiku
7.  I saw a post earlier on Engadget suggesting that Google is also working on a Google PC, which supports again their strategy of becoming the main platform on the Internet and Mobile.

While Facebook is building walls around their service, trying to increase the value of their network (instead of value for its users), Google is becoming the major operating system om the Internet (Search, Social Networks, mail, RSS) and Mobile (Google Phone, Jaiku). Given this strategy I would put my cards on Google, not Facebook. No way they will be able to match that. The big question now becomes whether or not Google will be able to integrate all these services and still remain open as a platform thus providing more value to its users.

After I posted some of my observations about flaws in web 2.0, I received a lot of positive and smart reactions. Becoming a bit overconfident I suggested that we might be able to aid future service design by exploring with more people how to move on to the next level of social interaction. I called them Open Social Interaction Networks (for lack of a better name, any takers?) where the value for the user is central in design, not the value of the network which has been the most important monetizing scheme in almost all current social networks such as Facebook or MySpace.

Since I asked for it I might as well start up the discussion by looking at perhaps the most important aspect of such services, the needs of the people using them. Rolf Skyberg wrote a really excellent presentation on this and took Maslov’s Hierarchy of needs as the basis to explain, that the market puts safety, prosperity and socialisation first.

I would like to look at it from another perspective and see what we can distill when we look at the behavior now on the Internet. It occured to me that there are many opposing beliefs. Some feels the social network is defined by the value and size of the network, while others looks more at quality. Some want their interaction to be public and stretched to the limit of what a human could possibly cope with (See Robert Scoble wanting to handle more than 5000 Twitter and 5000 Facebook relations. That is pretty amazing to me), while others will only be interested in a few qualitative friends. Some feel the network is the value, but it lacks ways to leverage it, others think that separating content form people will do the trick. There are people out there creating content like crazy, while others only consume it. Some want to gain celebrity status while others like being anonymous.

Lets see where this gets us. If I would draw two axes with a few of these parameters and look at what seems to be important to the user, I get:

I’m not in any way pretending to be complete, but it does provide some insight in that people will act differently under different circumstances and in different communities. We might aim to support just one type of interaction in a specific community, and design the possible interactions only for that specific community. But, as we are looking at an improvement for web 2.0, we would also need to look at the boundaries and unification of these interactions. It would need open networks and possibilities to use them privately as well as public.

For me, the following items might be important to a user (not complete I am sure!):

1. The user would need excellent and easy to use controls to set privacy in a contextual manner. In one occasion he might not want anyone else to know about his interaction with another person, in another he might want to let the whole world know about it. Same thing goes for a user profile. I don’t just mean the Facebook profile we have carefully constructed to be better than reality, but instead a user profile is defined by his interaction with others. Being able to switch between private and public interaction, thus forming both a private and public profile would be a powerful tool.
2. In some occasions the user might find simple interaction forms sufficient enough, while in others he might want to use more complex forms of interaction. Two things seem important here. The user can have access to all forms of communication without a “Geekness”factor. So Mobile Internet as an example will only do, if the user experience and handling are simple and intuitive enough to match some of the on-line interfaces available to me. And second, communication and interaction are basic services for all. So no forced Twitter account on the Twitter network, but a Twitter-like service across any network I chose to use.
3. There would be a need to be able to organise my friends and family, and distant or unknown relations into different categories. Again, simplicity is the key here. Allowing smart categorization of the people in my network will help me focus my energy on the type of interaction I want. I personally would like to get rid of the current practice of “asking permission to be your friend” It is awkward and defaults to limit my possibilities to interact. I’d trade it with better blocking options for abuse.
4. We would also need new ways to connect, explore and find information and people across many different networks. this calls for OpenID being implemented across the networks. While we might use conventional browsing and searching techniques for that, I am personally intrigued by the work of Jonathan Harris, who has done some amazing projects which allow total new ways of organising and exploring people and information on the Internet.
5. We need some sort of decentralization of services and social networks in order to be able to leverage them all as a user. this will also ensure the value is user centric, not network centric. One way of dealing with that might be to integrate services into our web browser. This immediately makes the Internet evolve around me, instead of me having to go to all these different portal destinations. DISCLAIMER HERE: I am involved in a (currently stealth) project that integrates cool interaction services into your web browser (more on that some other time) so I am positively biased to such solutions. Current integration on the web (take NetVibes or Facebook as examples) is not sufficient yet as they are essentially destination based making the destination more important than myself.
6. If my profile is created by interaction with others, then using it contextually during my explorations could be a powerful functionality. User controlled of course, but I might be interested in locating people, content or even advertisements while exploring the world based upon my current actions and previous interactions. It seems to me this would be a better matching factor than for example tagging or previous surfing behavior only.

Got to stop here as the story is becoming too long already. Let’s hear what you have to say on this. More to come in the next weeks on supporting such needs with tools and technology, and possible monetizing schemes.

A lot of posts appeared this morning on Steve Ballmer who has made some provocative statements about Facebook. They seem to contradict each other. Robert Scoble writes that Steve Ballmer still doesn’t understand Social Networking. Robert makes a couple of valid observations regarding quotes by Steve:

There can’t be any more deep technology in Facebook than what dozens of people could write in a couple of years. That’s for sure,” Ballmer said. Robert replies with a solid argument that it isn’t about technology, it’s about the community. I would add to that that it is also about the brand (Community dominates Brand right ). The Facebook brand is very strong at the moment. Robert also argues that Facebook isn’t just young people and that he is not moving away from Facebook unless his “friends”do so too. Facebook has become a LinkedIn (but better) to Robert. Although I perfectly understand this arguement, I cannot help but noting that Robert is not your average Facebook user. Most Facebook users have a very different motivation of using it (see how most Facebook users are spending their time on-line looking at other users profiles for example). The average Facebook user spends more time investing in updating his personal profile to make it look better than reality, looking at other profiles , and gets much less or no value back from the network. Not like Robert who can leverage the network for tech conversations and personal marketing (nothing wrong with that btw).

Finally this quote by Robert. “It also makes me realize that Ballmer has no clue about the future of advertising. If he did he’d be talking about how Facebook’s ability to concentrate people into buckets in a new way should be copied and studied. That’s where Facebook’s real advertising value is and Microsoft hasn’t demonstrated ANY ability to see that yet. Of course, Facebook itself hasn’t shipped its advertising platform that’ll demonstrate its vision there either, but I hear it’s coming. “ Now here is where it gets interesting to me. I have some serious doubts whether or not Facebook will be able to monetize their incredible amounts of user profiles. As I have argued before, Facebook users will see their profiles as their personal space. They will not like it a bit if they are harassed by advertisement. Looking at how most Facebook users are spending their time on-line looking at other users profiles, I don’t think advertisement will fit in. That is the strength of Google. If I am searching for something advertisement is much more convenient than when I am searching for/or peeking at other humans.

TechCrunch seems to disagree with Scoble on his analysis of Steve Ballmer not getting it. Their most important arguments include the “what if another social network craze pops up”and “the technology can be duplicated”. Sorry, I don’t agree easily with those arguments. Robert is right about the technology. Duplication isn’t a thread at all (more on that in a second). And, there will always be new startups or services becoming more popular than the largest one. that is a fact of life. The question is however if Facebook can withstand those by not becoming too corporate (inflexible) or closed (walled gardens will not do in the end).

Kara Swisher has published a few excellent article son the possible investment of Microsoft in Facebook, the latest, called “PopQuiz:Skype = Hype, then Facebook=?” I agree that investing $500 million in Facebook would be way over the top. But, as I commented here, it would give Microsoft and Facebook another more subtle issue. The ad pressure on Facebook users would have to increase with such an investment, and they won’t like it a bit.

So, what is the real threat to Facebook? It can be summarized in 2 simple points:

1. Facebook, as most other social networks, remains a closed network
2. Facebook is network value centered not user centric (see point 1). Facebook wants to leverage the value of the network, not necessarily bring value to its users. See my earlier post on that.

So is Steve Ballmer really smart or really dumb? I’d argue for smart. Either he gets social networks in the current state and doesn’t want to invest too much in it (talking down the Facebook hype, AND trying to keep Google away from Facebook), or he doesn’t really get it, but because of that will probably make the right choice by mistake and remain very suspicious of monetizing social networks. And if he does invest 500 Mln in a company that barely makes $ 30Mln a year right now, well……

Just saw an incredible presentation of Jonathan Harris, artist and storyteller on Picnic 2007. Jonathan has done several amazing projects regarding the feelings, memories, daily activities of human beings on a global scale.  One of his great projects is called “we feel fine“. Since2 005 he scans all blog posts containing the phrase “I feel”, or “I am feeling”. He has a an excellent application that visualises all these emotions. You can select any entry you want, but also do cool things like look at the people in the age of 35 living in the USA were happy in 2007. Check it out, read what he has to say about it on his site and take your time exploring the universe he has created.

Another amazing project is called universe. Jonathan explains how a completely different browsing and searching paradigm, based upon a metaphor of the stars and constellations provides a unique, intuitive method of exploration, finding information in global news and information.Iit helps you to find your own personal mythology, based upon your own interests and curiosities.

I am truly impressed by his work, thumbs up Jonathan, that was really inspiring.

Following all the discussions on on-line advertisement, Microsoft investing heavily in Facebook, Google making loads of revenues on search based ads. Guys, take a very good look at what Jonathan has been doing. It isn’t something a social network, platform owner or advertiser would have come up with, but hey, he knows about the feelings of millions of people. He is a very smart guy, intuitively understanding something most of us haven’t. If a company with large collections of information about people, need I say more, be smart, they would hire him immediately. I know I would!

Michael Arrington at TechCrunch has written a nice post on a user profiling in a social community Piczo. The idea is to let the user decorate his profile page in a similar way teenagers do with their bedroom. Hanging posters, playing music etc. Everything is tagged, you can share the decorations with others. This is beneficial to both the user (for he gets cool decorations) and for the advertiser (for he gets better profile information). Not a new idea, but I like it anyways. It’s good because the user takes the action and is in control. He decides how to decorate, and if the matching is done rightly, there might be a better connection between the user and the advertiser. Interesting to see if this will spread advertisement virally, as advertisers obviously hope. It sorta ties in nicely with one of my earlier post on matching user profiles to advertisement (here and here). Bottom line, profiles are not that accurate when used in advertisement matching, but user actions might be a better indicator. I had an interesting on-line conversation on it with Jordan Mitchel. His company works on context and behavioral advertisement.

Different sources (for example here, here, here) reported that Microsoft might be putting a large financial injection into Facebook. According to the Wall Street Journal, Microsoft might invest $300 to $500Mln to obtain a stake of 5% in Facebook. Thus valuing Facebook at approximately $10 billion!  In the lengthy article the Wall Street Journal provides a good analysis of the strategy behind such a deal. Microsoft wants to get big in on-line advertisement, and Facebook might be a platform that will give them a lot of leverage against Google.

I personally think it is a very risky strategy. Not only do I find the 10Bln value over the top, there is a more subtle issue here. Google turned over almost 4Bln $ in on-line advertisement  in the second quarter this year. But they are not concentrating all that ad revenue in one place. Instead they are capable of spreading their ad revenues over numerous platforms and places on the Internet. And people that are already searching, will not object to a few ads, especially if they match the search.

But if Microsoft is going to monetize their Facebook investment, I think that will be a very risky strategy. Now you are entering the profiles of people, their personal space, their on-line identity. They will not like it very much if there is too much advertisement there. When on-line at Facebook, you’re most likely looking at other people, you’re probably not searching for something. So advertisement there might be much more offending to the users. There is a risk involved here for both Facebook and Microsoft. It’s not a good idea to start annoying Facebook users with too much advertisement. I don’t think  I would value that opportunity at $10 billion.

John Battelle pointed me to an excellent article by Kevin Kelly called “A new corner in the future of advertising“. In this in-depth analysis Kevin suggests that the introduction of Google Gadget adds might lead to a future in which the publisher, that is you, chooses which adds can be displays. I talked earlier about such a future, although I speculated on it from a user/consumer perspective. For more on this see here. Kevin shows that the technology is there to do this. He also describes a model in which more traditional advertising (advertiser decides which ad goes where) can live side by side in a world where you decide. I really like this. Not only can it help reduce the number of non-interesting adds I am confronted with on the Internet, but I think if we can unleash the creativity of the community, adds might just become fun! I had a great time looking at some of the best community made commercials for Firefox. I like this one for example. Who knows, advertisement might just become fun again.

Scott Karp wrote a nice article called “who is a afraid of on-line advertising“. According to a survey done by McKinsey many advertisers are afraid to spend their dollars on-line, because of the lack of meaningful metrics and adequate capabilities. Scott breaks down the survey conclusion and argues that the companies find the transition difficult, as all transitions usually are.

I still think we need better metrics on the whole. Look at my earlier post on click fraud and on matching user profiles to advertisement. CPM is a metric like rain falling down. Someone is bound to get wet but mostly the results are scattered and pointless. If we can filter out all the click fraud, then the whole system deflates like a balloon. Google Gadgets are already better tooling, as here you might get some meaningful interaction between user and advertiser. But I’m still looking at an advertisement method that lets the consumer decide. As argued in my earlier postings, consumers can predict much better what their needs are than any automated system can do with user profiles. If you can leverage that, then the whole advertisement business may just benefit the consumer as well as the advertiser. What do you think?

Several posts about new advertisement initiatives today. Saw a post here discussing the announcement of MySpace that they will start using user profiles to customise the adds you get to see. And Google is now turning widgets into adsense, leveraging the media plan as the message as John Battelle says it. Looking at the discussions at Boing Boing here people seem to be skeptical about the MySpace move.

The main problem with user profiles being matched to advertisement is twofold:

1. Is the user profile representing the user in an accurate way. How many people do you know that fill out their profile with rubbish? Garbage in is garbage out.
2. Although the initial idea might sound good, I cannot help but wonder if “past” events predict “future” needs accurate enough. To clarify this, an example. Lets say I happen to be a sports fan according to my profile on MySpace. Based upon that I might get to see advertisements from Nike, Adidas etc. But if I have already bought running shoes last week, these adds really don’t match my current needs right? I was in the mood to select a vacation, but hey, that wasn’t in my profile. There is probably a trade off here between branding and advertisement.

Is there an advertisement model possible that might actually benefit the user, instead of the social network or the advertiser? User profile matching or widgets turning into adds might be a start. But there is a thin line there. If the matching is not done accurately according to the user, he will be annoyed. Amazon has used different techniques to the aid of the book searcher. I find The “people who bought this book also bought…”functionality useful and fun. But mainly because I am searching for a book, in other words it has purpose when I choose to buy a new book. If the purpose isn’t there, the functionality isn’t useful to me.

Maybe we should give the user control over the adds. He is already putting great effort in creating and updating his profile on every social network he is in. Why not provide him with options to decide what type of advertisements he is in the mood for now? Or make it searchable (I want to see advertisements on ’summer vacations” now)? Or suggest recommendations to him? Or allow him to get rid of advertisements all together (perhaps at a cost?). the network owner, e.g. MySpace wouldn’t like that. But, look at the upside. If a user willingly provide advertisers with directions, that would make them more valuable to the user and the advertiser right? In the end it should be about the value for the user, not the social network or advertiser. Any takes on this? What do you think about this, is there a way to make advertisements more interesting to the users?

After my earlier post on CPM becoming less useful as an advertisement metric, I just saw this excellent post on click fraud by Andy Greenberg. After reading it I cannot help but feel that the whole advertisement business is inflated too much. Where are the companies that are going to demand more value for their advertisement spent!

Just saw a nice article by Om Malik (will the adds slow down reach the web)? He points out that right now in traditional media advertisement spent drops, and he wonders whether this effect might cross over to the new (on-line) media. I agree with him that, since there are more platforms and all the advertisement spend need to be divided amongst them, some degeneration will take place.

An interesting question is whether or not the CPM metric is slowly becoming less useful in advertisement. I do think there is a need for advertisement to keep business models running, but there is a risk of saturation or dislike when advertisement starts failing the need of the consumer. I think this might even be a greater risk within social networks, as more people get involved spending more time updating and enriching their own profiles. I imagine that their Facebook, or MySpace profile becomes increasingly their own identity, not simply an extension of themselves virtually on the Internet. And if there is advertisement in their own space that doesn’t match in some way the needs of the user, it will in the end frustrate him or her.

It would be interesting to see if we could let the community itself come up with advertisement models that better serve their needs, getting rid of the CPM metric, and coming up with more of a pull metric instead of a push metric. Any thoughts on this?