Advertisement holds web 2.0 in a death grip

Scott Karp has written a good post on why traditional advertisement fails on the web. I am not sure if I agree with all of his observations/explanations, but I do like his take on it. In the end it boils down to something I have written many times too, advertisement just doesn’t provide the user with any value.

The only example where advertisement works right now is in search. The difference there is that the advertisement itself provides the user value. If I’m already looking for something then advertisement can actually serve a purpose. It’s what Google has perfected.  There isn’t a single other example thinkable where advertisement is so effective. It is also the main reason why I believe that the true value of social advertisement lies outside of social networks. Advertisement should never, ever, interfere with social interactions between friends. It doesn’t belong there, it merely trespasses. Or as Scott puts it “Get out of my face!”.

A quote from Scott’s post:

Why do traditional advertising formats fail on the web? Because people have no patience for them, as they did in traditional media, where we were habituated to looking at print ads or watching TV commercials.

What strikes me most about the comparison between advertisement in the “traditional” media and on the web is that the behavior of users really hasn’t changed much. Just think about that for a second. What do you do when there are commercials on TV or in a newspaper? Right, you ignore them or even take action to avoid them. It is one of the most common uses of the remote control for a TV. It isn’t really to switch channels, it is used to get away from commercial breaks.  The same thing goes fro printed advertisement, I can easily read a newspaper and not notice a single advertisement within it. My brain just doesn’t register them anymore. It isn’t any different on the web. Just like on TV or in a newspaper, I’m in control. When I surfe the web I decide what is important for me. I never register advertisement. It might be there, but my brain filters it out for me. Technology helps too. I use Firefox with two of my all-time favorite add-ons: AdBlock+ and FlashBlock. These two block probably 90% of all advertisement on the web for me, with the additinonal bonus that my browser becomes faster. It doesn’t need to load the useless stuff anymore.

What I just don’t get is why we keep this dreaded web 2.0 free but ads based business model alive. It’s probably the biggest advertisement scam on-line. Over $ 16 Bln is spent on-line trough advertisement networks and there isn’t a single user interested in them. There have been a few reports of on-line advertisement boosting off-line sales, but I doubt the numbers are that positive across the web. It is pretty amazing that web entrepreneurs and investors have the balls to stuff $16 Bln in harassment down the throats of the user. It is by far the worst business model you can choose. BTW over 75% off all advertisement spent goes to Google! That leave only 25% to be divided across the thousands of web 2.0 services out there. You can easily calculate that that is not nearly enough to keep all of these services profitable. There are so many flaws in the business model that I could go on for a while. Just read my post entitled  “Would you be willing to pay for a web 2.0 service that provides you value?” . It’ll tell you about the flaws but also about possible alternatives.

The free but ads based business model holds web 2.0 in a death grip. If you want to be successful, you need lots of users. If you want lots of users, you need to provide a free service. If you provide a free service you need someone else to pay for your server costs. If you don’t have an investor that gets you ready to be bought by another company (that’s a web 2.0 business model too), you need another sucker to pay for your costs. And that would be the advertiser. And he would be harassing your own users, the people you really, really need to become successful in the first place. See the flaws in such a business model?

Off course marketeers are idiots. They won’t get this and will pour gazillions of dollars into this hole without actually creating any value with it. BTW, I didn’t mean you by that, I meant that other guy

Does all of this mean there isn’t an room for advertisers on the web? Sure there is. But in the current state of the web, when it comes to traditional advertisement keep it with search. That is the only place where advertisement makes sense. The rest of the web should be off limits for advertisement. Just think of this simple rule when you are thinking about deploying advertisement. If the advertisement itself provides value within the context of the user then it’s ok. If it doesn’t, then don’t do it. Instead, try a business model that leverages user value. BTW, I’m not talking about branding activities here, just bannering, display advertisements etc.

Tim O’Reilly is already looking one step further than the current web. He writes very smart stuff about the web 2.0 operating system. It is the system that combines all web 2.0 applications. It is the place where the next search battle will take place. Google is the king of search of the current web, but the question will be if they can become the king of search within the web 2.0 operating system.

Facebook wants to be the next king, and so do all the other services that try to get a grip on user interactions and user content (take Friendfeed for example). But the dilemma that each of these services has to face is how to commercialise all that user data and interactions without violating the trust of that very same user. It’s a Catch 22 that they all have to solve. The only viable solution to this is that they make sure the commercialisation doesn’t take place  within their own application. In that way they could keep the trust of the user and still exploit him. It wold mean taking down all advertisement on social networks like Facebook and making sure the value gets created outside that network.

But I doubt any of them will or can do that. They are all in a death grip forced upon them by advertisement.

Old school thinking in new broadband pricing strategy

I read a story this morning at the New York Times about Time Warner’s plans to change broadband subscriptions into rate plans where additional fees kick in when a user passes a provided limit in bandwidth. From the NY times article:

Time Warner said on Wednesday that it was going to start testing a new rate plan in Beaumont that would limit the amount of bandwidth each customer can use each month before additional fees kick in. Alexander Dudley, a Time Warner spokesman, said that the exact terms had not been set, but that packages would probably offer between 5 gigabytes and 40 gigabytes a month. The top plan would cost roughly the same as the company’s highest-speed service, which typically runs between $50 and $60 a month.

Scott Karp points me to an excellent older article written by Robert Cringley in which we find the following quote:

The Internet as we know it is a shell game, with ISPs building their profits primarily on how many users they can have practically share the same Internet connection. Based on the idea that most users aren’t on the net at the same time and even when they are online they are mainly between keystrokes and doing little or nothing when viewed on a per-millisecond basis, ISPs typically leverage the Internet bandwidth they have purchased by a factor of at least 20X and sometimes as much as 100X, which means that DSL line or cable modem that you think is delivering multi-megabits per second is really only guaranteeing you as much bandwidth as you could get with most dial-up accounts.

This bandwidth leveraging hasn’t been a problem to date, but it is about to become a huge problem as we all embrace Internet video. When we are all grabbing one to two hours of high-quality video per day off the net, there is no way the current network infrastructure will support that level of use. At that point we can accept that the Internet can’t do what we are asking it to do OR we can find a way to make the Internet do what we are asking it to do. Enter Google and its many, many regional data centers to fill this gap.

Robert’s article shows us that Google is making the right moves. They are already controlling more network fiber than any other organisation.

The cable operators, Time Warner included, are old school thinkers. Not only do they rarely deliver on their bandwidth promise to a customer, what is even worse is that they can’t control the quality of the bandwidth for their customers. If, for example, I want to download a large file which is located somewhere in the US, I can have all the bandwidth I need here in the Netherlands, but that file is still crammed through a few scarce fiber cables in the ocean.  If the bandwidth is exhausted there, then my end of the line isn’t really an influential factor in download speed. I might be paying for 20Mb/s download but I rarely get that!

The cable operators are saving a lot of costs by this shell game. When confronted with users that don’t follow the rules they have thought of (I bet they didn’t think that users would download 10-50 Gb per month using video and torrent applications), the cable operators simply fall back to the simplest and yet so outdated and consumer limited thinking business model of a tax on bandwidth. If you use more, you pay more. It is in essence a punishing tool, if you don’t behave according to our rules, you get punished. It is also scarcity thinking. Trying to make a profit by making something scarce is a bad, bad idea.  It gives the cable operator a false illusion that they are in control of that scarcity.  But with all the competition around, that model is bound to fail. And it is a model which basically limits the freedom of your customer.

Just like in any (web 2.0) business model  cable operators need to really look and understand their customer behavior, and start providing them value. Value can always be monetised, scarcity only if you are the only one controlling it. By understanding what customers want, the cable operators can start building rate plans that monetise the value the cable operator provides to its customer.

It is precisely for this reason I believe Google is trying to get a firm grip on broadband capacity via its regional data center strategy. As a customer, I’m not interested in the broadband limit I get from a provider. I’m interested in getting the content I want from the Internet immediately. I don’t like it if I have to wait very long to get content on my PC or screen. I don’t like it when a video that is streamed to me suddenly stops for a minute or so. I do not understand that my upload speed is significantly lower than my download speed. In this age of USG having an asymmetrical performance, favoring downloads over upload really sucks. I’m interested in keeping spam out of my mailbox. I want unlimited download and storage capacity for e-mail and other content. I want backup facilities for important stuff. I want to be able to connect as many as 10-20 or 100 computers to my network at home. I want easy installation procedures, and if needed an engineer that drops by my house to provide me service. I want to be able to attach my Internet capacity to any TV screen in my house so that I can get Internet content on my TV.

I could probably go on for a while. I understand that the cable operator isn’t capable of supplying me all these things. But, the thing is, I’m willing to pay for them, as each of these services provides me value! So Time Warner, stop messing around with rate plans that limit my experiences on-line. Star providing me value and you will see that a customer is willing to pay for that. Limiting bandwidth is old school thinking.

Let’s start using Twitter for what it is

A lot of talk this morning about the downfall of Twitter servers during the Steve Jobs Keynote speech. Apparently the Twitter servers couldn’t handle the traffic that build up. Especially people who were depending on Twitter to live blog the event complaint about this.

Dave Winer suggests that Twitter ought to be decentralised, to prevent it from breaking down. And at the same time he thinks it might be rebuild using the rss technology to make it more sustainable. From a user perspective this is probably a good thing to do. By decentralising it would seem that Twitter would never break down like this, allowing people to continue to use it, even during a hail storm of Tweets.

Scott Karp rightly says that the people that have invested in Twitter will not be too keen on decentralisation. The major asset Twitter, or any other web service, has is their centralised user database. And they won’t be willing to give that up so easily. If the Twitter team ever wants to be able to execute a positive business case, they need it to be centralised. The decentralised version will appear, no doubt about it, but there is another strength that Twitter now seems to have. It’s current brand strength is high. There are already other Twitter-like services around (Ponce Pownce, Jaiku), but even though these services have sometimes cooler features, they aren’t nearly as successful as Twitter.

I think that the current Twitter business model isn’t sustainable. It depends on the centralised user database and has already shown that this centralisation comes at great cost and reliability. I suspect that Twitter was designed to be bought by Google. That would make a lot of sense. Not only does it fit Google’s business model very well, I also think that Google is probably one of the few companies that could actually scale Twitter to a global level. Let’s not forget that Twitter currently has less than a million active users. It isn’t a big service. It’s users are mostly tech savvy people working in web 2.0, Internet or media companies. Bloggers make a great fuss about it, but my children, wife or family friends have never heard about it. Since they failed correct execution of their business model (get bought by Google, Google bought Jaiku instead), it is time for them to rethink what Twitter should be about. The Twitter team needs to reconsider how to start making money out of the service.

Twitter is a simple, cool, easy to use, messaging system allowing people to share their thoughts and follow other people’s thoughts anywhere and anytime. It is in that sense one of the most simple, yet brilliant, (mobile- and) web services around right now. It has enough critical mass now to scale it to much larger amounts of customers. Now all the Twitter team needs to do is start building a sustainable business model., and fix a few minor issues in the service. Not one that depends on a centralised database, but one that monetises user value. That is the only asset in the end that will make Twitter tick. They will need to find a way to decentralise it, and still make loads of money. I could imagine Twitter becomeing the new messaging system for any web 2.0 service. Why build your own, get it wholesale fromt he Twitter team. And remember, people are always willing to pay for value they receive.

I will keep on twittering and not minding it breaks down every once in a while. It is not a life depending communication service. The bloggers out there screaming in outrage should start using Twitter for what it is. A simple, easy to use, fun, and brilliant messaging system.

BTW, if you are interested, you can find me here on Twitter

Just a few minor wishes for 2008

As this is my first post in 2008 I will take the opportunity to wish you all a fantastic 2008. I hope that some of your wishes will come true (or else you wouldn’t have anything to wish for) and that 2008 turns out to be a great year.

The past week I have been disconnected from the Internet. I spend my time with family and friends enjoying Christmas and new year celebrations, the most important things in life. I also started doing some work on our house, we’re about to start to build four new bedrooms to fit our fast growing children in.  It was really relaxing not having to read e-mail, look at newsfeeds, or even Twitter. I found it quite easy to unplug. But I couldn’t help myself thinking about some of the things I have been writing about the past year. So I ended up making a wish list of things I like to see happen on the Internet this year.  I will spend some time at the beginning of this year to write them out. But here is the first one for 2008

1. Bring freedom and responsibility back to the user.
The current Facebook – Scoble data storm is the perfect example of that. Scoble is banned from Facebook for trying to export data of his friends to another application Plaxo. This has lead to a large discussion where people either agree with Scoble or Facebook. And some wonder who really owns the data. Scoble is back on again, Facebook let him back.

In my opinion we can learn a lot from this incident. First of all, applications that build their business models around walled gardens will increasingly have to fight of those that will try to tear down these walls. And they will lose. Human nature will always find a way to deal with walled gardens, just look at the brief history of the Internet (or any history really).  Walled gardens are broken down constantly and re-appear in different form. But the business model that comes along with it is not a good business model and will ultimately fail.

Secondly, the breaking down the walled gardens issue is really a data war as Scott Karp calls it rightly. It is about service providers trying to monetize user data and in order to do that they need that data exclusively.

Unfortunately, we are all fighting the wrong war. It shouldn’t be about who owns the data. Who cares? It should be about providing me the best value. What I simply cannot understand is that service providers don’t realise they can have ALL relevant data directly from me if they provide me value, and if I am willing to trust them. It is all about choosing the wrong business model (data, walled gardens, free but ad-based services) instead of providing the user true value (the best business model you can think of).

Thirdly, Nicolas Carr gets it (half) right when he says:

Facebook has an obligation to protect the data entrusted to it by its members. At the very least, members should have the right to decide whether or not their personal information can be scraped out of the Facebook database. Scoble did not give them that choice.

Users should be protected against possibly harmful automated data collections. Nicolas points out that Facebook has an obligation to protect its users. True, but only for the right reasons, e.g. the protection of its users. They are crossing a thin line when they are doing it really to enforce walled gardens around the user.But the user has no NEED for walled gardens, all he really NEEDS is freedom.

But with freedom comes responsibility. The user can’t just sit back and blame Facebook or any other service for not protecting him. He needs to actively enforce his own privacy and protection rules to ensure that he is in charge of his information.

My first wish for 2008 is that Service Providers build business models on user value instead of walled garden free but ad-based business models. In doing this they should provide the user with excellent, easy to use, transparent, privacy controls where the default is always set by the standards of the user. This wish would provide us with 3 major changes: The service provider becomes a partner that can be trusted and that provides user value instead of walled gardens, the user gets his freedom, and the user becomes responsible for his own actions and data on the Internet.

I read Dave Winer’s comments this morning, I really like his analysis. He says:

So Facebook has the opportunity to be a crossover company, part of the next generation — or a last gasp of the generation that’s about to run out of gas. It’s their choice. And it’s fitting somehow that Scoble is the poster child for users in this cycle.

I tend to think that Facebook is part of a generation of service providers that is unable to make the transition. To speak in terms of Jim Collins, they are a good company, but I doubt they are a great company (yet).

Twitter needs to be opt-out instead of opt-in

Scott Karp leads a TechMeme discussion when he confesses he has stopped using Twitter. Not because he doesn’t like it, but because there are downsides to it that outweigh the upsides. The addictiveness and relative ease to post and follow tweets lead to distraction of work. Furthermore he doesn’t like the signal-to-noise ratio, or in other words, the number of silly or non-interesting tweets outnumber the number of relevant and interesting tweets. Scott also notes that you often can only follow half of a conversation, as you might see the tweets of someone you follow, but you don’t see the tweets of the people that follow the person you are following.

It is this asymmetry that I do not like about Twitter either. It is very similar to hearing someone talking through a mobile phone in a public area. You can hear half of the conversation (even if yu don’t want to) and this becomes annoying. Better to hear nothing than half a conversation.

Twitter has another annoying feature build in. You can follow anyone you want, but the other person can chose not to follow you. Although this sounds the social thing to do, letting the user decide who he follows and who not, it has the drawback that you can become a groupie instead of a friend. Not much fun in that. I follow some really interesting people on Twitter but because they do not follow me, I’m unable to participate or react to anything they tweet.

You might now say, grow up dude, the guy doesn’t want to follow you because he doesn’t know or like you. But I don’t think that is always the case. The follow request can easily get lost or ignored in tons of mail. Leaving me with the fan status.

I am not a fan of opt-out as a default option but in the case of Twitter I would argue opt out is much better than opt in. By default everyone who decides to follow another person should be followed back by default. This has the advantage that true interaction is possible if wanted. At the same time the possible dislike or misbehavior of a person following you can easily be mended by blocking that person.

Twitter is a micro messaging tool. It allows free flows of ideas, words, sentences and conversations. If you don’t want to be part of that, simply ignore it. And if someone is a nuisance, just block him. But don’t ignore a follow me message. It is a compliment if someone is willing to listen to what you have to say! You can find me on twitter, and I ALWAYS follow you back!

On-line advertisement uncomfortable for traditional advertisement companies?

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?