Facebook Ups Its Ad Game

Facebook is clearly focused on revenue ahead of its IPO. The massive social network has been hard at work innovating on it’s platform – it’s ad platform. Over the last few weeks there have been a slew of changes rolled out to advertisers with announcements of more right around the horizon. Is this a coincidence? No way. Facebook needs to ramp up its revenue capability as it enters the public market. Investors will demand fast growth for the multiple they’re going to pay, and Facebook is laying the foundation to grab as many ad dollars as possible with these new changes.

New Ad Units

Leaked Facebook documents show new Facebook ad units coming and old units sunsetting as Facebook attempts to find the ad units that drive more engagement (clicks) to pay off better for advertisers who are looking for measurable results. The new social units are actually already live on the site if you’re in the developer preview. I’ve grabbed one from my Facebook feed below.

These new ads, say Facebook, are poised to drive more clicks and actually work better than standard ads. I’m inclined to believe them. I’ve run a ton of Facebook ad experiments and I can tell you, in no uncertain terms, that the social ads work better. But that’s another post.

More Ads, More Places

Facebook has been thinking more about how it can leverage the most popular parts of its platform to drive more impressions for it’s ads. When it launched the new version of the photo viewer, it reworked the layout and bumped up the visibility of the ad units. You can see between the previous version and the new one how much visual priority has been given to the ads now, and yes, there’s even an extra ad unit in there for good measure.

That extra ad unit may not seem like a big deal, but when you take into account that 200 million photos are added to Facebook every day (6B/month) and that those photos are viewed on an average of some multiple of that, you’ve just added a ton of new inventory (and CPMs) from your platform to sell and monetize. It’s a big change.

Old Photo Viewer

Facebook's previous photo viewer

New Photo Viewer with Two Ad Spots

Facebook new photo viewer

We should not be surprised to see this ad creep continue to show up all across the platform.

Facebook Mobile Ads

With more than 400 million of it’s ~850 million users accessing Facebook via mobile, and with no current monetization opportunities to capture that audience, it’s a no-brainer that Facebook will unveil mobile ads at some point soon. You just can’t have that type of traffic to a site that you can’t monetize. I’m sure that’s the busiest team in the entire company.

Facebook also acquired a mobile payments company recently. And if they can strike a payments deal where they take a cut, it could be lucrative for them, and a model they’re very familiar with already (see Facebook credits.)

More Tools for Advertisers

In addition to the extra ads and new ad units, Facebook will continue to innovate to make the ad professional’s life easier and their campaigns more successful. Facebook’s treasure trove of data on users is becoming easier to tap and target with recent changes to the ad editor which has become much better at making suggestions for interests as you type. Users of the Facebook Power Editor can now mix and match broad based categories and precise interests, which let you target say small business owners who like search marketing (like the AimClear guys did.)

When Will the Ads Be Too Much?

The big question of course is when is enough, enough? An ad that shows you a funeral parlor when Facebook knows you’ve just lost a relative is going to be far too creepy and turn off a bunch of users. I’m sure there’s some healthy debate going on between ad sales and the product teams about where, when and how to best leverage the platform and drive revenue. Those debates have likely picked up since the S-1 filing.

One thing is for sure, unlike Twitter, Facebook has fully embraced it’s destiny as an ad serving platform. We won’t be paying a subscription any time soon, but we will be seeing more and more ads. The big question is when will it be too much? Will it be the ads that chase the users away? Or will we be perfectly content being served ads for merchandise of our favorite teams and tools that are built for professionals like us?

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Google Plusification, or It’s not about Latitude vs. Foursquare

Google+ logoForget gamification, the new marketing trend you should be thinking about is Google Plusification, the emerging social layer on top of every Google product. Yesterday it was revealed that Google Maps Latitude mobile product now came with check-ins for Google Plus users. This puts Latitude in competition (at least in terms of feature set) with Foursquare – a social game layer added to Google Maps. This comes on top of another announcement the same day which adds a +1 button to the main google.com page for some users. And all of that is on the heels of recent changes to Google Search which incorporate Google Plus results into the main Google search results and the addition of Circles to GMail. It’s clear that Google is making it a priority to weave Google Plus into the fabric of all of it’s products. And there’s no question that they’re only getting started.

The Impact of Plusification

Plusification is already having a profound effect on search engine marketing. A quick look at any SEO forum will give you a good sense that the plusification of Google search is completely rewriting the rules of that industry. Now thousands of words are spilled daily on how to optimize your Google Plus profile to appear in Google search, and any SEO worth their salt is racing to get their clients up and running on Google Plus. It’s not an overstatement to say that the Plusification of Google search is changing the SEO industry by the minute.

Just to drive this home, When’s the last time you really looked at a Google search result page? If it’s been a while, the results might surprise you. A simple search for AT&T reveals a home page packed with Google products – Google Maps, Google Places, Google AdWords and, yes, Google Plus, make up the vast majority of the content on that page. The only result above the fold? The actual AT&T website. The rest is Google. Try a search for “music” or “social media” or other generic terms – to the right, your AdWords have been replaced by Google Plus profile matches. The AdWords? Shoved down the page.

Let me say that again – Google has favored Google Plus over the thing the one thing it makes all of it’s money on. There’s no better indicator that their serious with their social initiative.

It’s not hard to look at the SEO industry as a model for how the Google social layer will profoundly impact their other products and industries they compete in. While the Latitude update may seem like a knock off of Foursquare, the implications are broader. Google is leveraging every opportunity to plusify every product it owns.

What’s Next for Plusification

So what next for Google Plusification? Well it’s easy to think of how the service could be weaved into other products. Here are a few examples:

Plusification of Google Places
Imagine local business search results and rankings being affected by the number of +1’s your business has. Looking for a local bakery? The bakery at the top might be the one with the most +1’s from people in your circles. How about reviews? Will reviews be filtered by the number of +1’s the user submitting the review has? The more +1 power of the user, the greater visibility and weight the review has. And photos? Sure, why not pull in photos from Google Plus geo-tagged with the address location of the business. And ownership? Tie your Google Plus profile to your page and let people see who the owner is.

Plusification of Google Docs
Share that doc of yours with a particular circle. Eliminate the current permissions logic and set permissions based on circle membership. Some can edit, some can view. Use it for soccer team call-down lists or product specifications. Share it with circles on Google+ for feedback and, well, sharing. It’s easy to see how current document commenting could morph into Yammer-like internal-only plusification of business documents that live in Google. In fact, the entire “Apps” suite could be leveraged in this same way – calendar, spreadsheets, presentations, etc. Now, commenting, editing and sharing are not confined to the individual document, but tied to your Google+ profile and the circles you choose to share permissions with.

Plusification of GMail
This is already underway, with the addition of Circles to your mail address book; but this is just step one. There is so much more Google can, and will eventually do, with the plusification of GMail. Priority inbox? The mail from your most important Circles clearly goes there. Individual users who have lots of +1’s probably get a better sender score and have a higher priority tied to their message. And what about spam and commercial mail? If you’re a brand with a ton of +1’s, maybe you skip the bulk or notification baskets and hit the inbox. No +1 power means you’re hidden with the rest of the bulk mail. These changes could be profound, and completely rewrite how people think about email and email marketing.

This is on top of the obvious competition against plugins list Rapportive, which can obviously be deprecated by Google+ profile information.

Plusification of Google Maps
While the Latitude points check-in launch is the first step, there is again, tons more that can be done with Google Plus and the platform. Look no further than Caterina Fake’s Pinwheel for inspiration on what Google can do with the plusification of Maps. Leave notes, photos and to-dos at the places you’ve been for your Circles, make them private or public. Save driving directions, favorite places and more. Share them or store them.

Plusification of Ads
Another area where plusification is under way. As a user you can +1 ad units, and supposedly these +1’s will impact the ad quality score, lowering the cost per click while increasing the visibility of the ad unit. There’s no reason this couldn’t go further. Have an ad that has been plus 1’d more than others by your friends? You’ll see that one first. Own a business that has more +1’s? You’ll probably get a better quality score as a default and enjoy those benefits. And that’s just AdWords. What about remarketing? Couldn’t that be optimized based on your profile information and +1 history? I think so. Here, the options seem to go on forever.

Plusification is Just Getting Started

All of the above are just the obvious ways that Google Plus can be integrated into their existing products. With more than a few minutes of thought, it’s not hard to go even further. Some changes will be small, some will upend entire industries. But one thing is certain, we’re in early days and Google is betting the house with Plus. We should expect more social layer announcements and launches in the coming weeks and years. And when it’s all said an done, Google Plus won’t be a URL you visit, it will be baked into the Google Products you use every day.

So when we see a new announcement about social in a Google product – like Latitude – we should stop and not look at it individually, but analyze it in the context of this proliferation of the Google social layer. Because Google is not out to take down Foursquare, or bury Rapportive, or any other individual pursuits. These are all just collateral damage. Google is focused on making everything you do with Google social and connected. Their plusifying their product set and the Web, and that is the trend worth paying attention to.

 

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Facebook Store Failures? Blame the Retailers, Not Facebook.

Image representing Facebook as depicted in Cru...

Bloomberg reporter Ashley Lutz filed a seemingly damming story about the failure of Facebook as a commerce platform by highlighting retailers who have closed their Facebook stores after a lack of success. Unfortunately the article fails to address the most important question, which is: did the stores fail because they’re on Facebook, or did they fail because they were bad stores? Lutz’s juicy, link bait title and high profile retailers make for compelling reading, but by only focusing on the platform, she completely ignores the role of the execution of the stores as a factor in their lack of success. And this is a big miss.

Facebook Stores are Where eCommerce Stores Were in 1997

If you’ve studied or used Facebook stores as they exist today, you know one thing for certain: they’re not very good. The experience isn’t unlike trying to shop on the original Amazon or eToys. It’s mostly clunky, and lacks the polish and refinement of today’s ecommerce sites. Worse, most Facebook stores represent nothing more than catalog pages from existing ecommerce sites shoe-horned into the Facebook chrome.  They are completely substandard around many best ecommerce practices including navigation, calls-to-action, ability to get product details and images, speed – the list goes on.

Many of these retailers, including GameStop, JC Penny and others, in their rush to get on the F-commerce train, launched stores that were doomed because the user experience was sub-par. The expectation that people would put up with a poor shopping experience simply because they were in the cozy confines of Facebook is where the real failure is – and not with Facebook.

In addition to a poor user-friendly shopping experience, few, if any of these sites took advantage of the benefits of being on Facebook. Many stores failed to integrate personalized recommendations, information about friend’s preferences and previous purchases, and any number of other social proof elements available on Facebook that could’ve helped these stores succeed.

These stores are truly the v1 efforts of F-commerce, and so we should not be surprised that they’ve failed. The failure of early Facebook stores doesn’t mean Facebook is a poor commerce platform, just like the failure of the first ecommerce stores proved that the Web was a bad platform for shopping.

Facebook Calls for New Ways of Shopping

Just like we’ve seen in 15 years of ecommerce, there’s a lot to learn and figure out about commerce in any new context, and old methods aren’t going to necessarily translate to a new medium. We should expect the same in a Web-to-Facebook transition, too. And until retailers get beyond the convention of ecommerce ported to Facebook, they’ll continue to fail. Their fine-tuned ecommerce paradigm will continue to falter in Facebook, which is a completely different medium. Just because Facebook lives on the Web does not mean that shopping on Facebook is the same as shopping on the Web.

Facebook Shares Responsibility in the Failures

For as much as I’ve blamed the failures of these stores on the retailers, Facebook must assume some responsibility for these failures. The Facebook chrome is unforgiving and difficult to work with for applications like shopping carts and store catalogs. There are few tools or special functionality built into the Facebook platform or API that make shopping on the site more valuable or enjoyable than shopping elsewhere.

Imagine, for instance, having the ability to shop with a friend on a Facebook store as easily as you can listen to a song with your friend on Facebook using Spotify. This is just one of many, easy-to-conceive ways that Facebook could make shopping easier on the site – not to mention the troves of data for recommendations, the social connections to leverage for social proof, etc. etc. The possibilities are limitless – and for their diversity all have one thing in common – none have been done well (if at all).

Until Facebook makes changes to make shopping easier and more interesting, retailers will continue to treat the platform as nothing more than a curiosity, and one that doesn’t have the same potential as the Web. When Facebook decides to focus on the online-shopping experience, and subsequently delivers tools to retailers that really leverage the platform is when we can expect more success.

Let Zynga At It

If there’s a company that understands the Facebook platform and how to best leverage it for commerce, it’s Zynga. The company already accounts for 12% of Facebook’s revenue, driven by virtual gifts and credits purchased for it’s host of viral games. There isn’t any reason that Zynga couldn’t turn it’s sights on creating a social ecommerce platform that made shopping as fun and engaging as it is to raise virtual cows. And whether they do or don’t get into ecommerce, the lessons of their success should be heeded by any retailer looking at F-commerce. Leveraging social connections, game mechanics and the other benefits of Facebook is what will make F-commerce an eventual success.

It’s Early Days

With the current shortcomings of Facebook stores it’s no wonder people opt for the brand website over Facebook. And while it may be an intriguing story to write when a few big brands shutter their v1 store-fronts, it’s important to look at all of the reasons for failure, including the user experience and the changes needed to make shopping on Facebook worthwhile. Hopefully this article will get Facebook focused on improving the tools for retailers so that there are new, innovative ways to shop rather than just replicating ecommerce on Facebook. But it would be a shame if brands took an article like this as any type of analysis that would suggest that they abandon Facebook as a potential platform for commerce. The potential is there, but it is, early days again.

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What No One is Saying About the New Twitter.

The new release of Twitter has, predictably, put the Web in an uproar. The Internet pundits have been focused on the new UI, with many rehashing two tired themes which amount to who moved my cheese, and utterly fail to grasp the bigger picture, which is a strategic shift in the product itself.

Twitter has shifted to a product posture that puts consumption ahead of production. With this release Twitter has made the leap from “micro-blogging” to discovery engine. You can see it happening with the reduced prominence and location of the composer box on the web version, and the increased prominence of the discovery UI. It’s an acknowledgement that many people who use Twitter don’t actually use it for expression, but rather information gathering. This is an important shift, and something that people who are the publishers will have to get used to.

When half of your daily users don’t Tweet, but just login to see what’s happening, you have to make that discovery easier. And I think this new release is a step in the right direction. As for the criticism? It’s myopic and self-centered and fundamentally misses the broader implications and use cases of the Twitter user base at large.

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Thoughts on Steve

Steve Jobs shows off iPhone 4 at the 2010 Worl...

Image via Wikipedia

There are a lot of words being spilled about Steve Jobs. From effusive praise, to gratitude, to speculation about why and what and how, there is a great bloodletting of emotion underway. And while I am grateful for Steve Jobs, I believe we have yet to learn the most important lessons he may have to teach us. It won’t be until we gain the benefit of time and perspective, and of Steve letting us in one way or another, to know for sure. But this is my hope.

One of the things I love to do is read biographies. Churchill, Carnegie, Hearst, Welch, Iacocca, Jordan, Roosevelt. I love reading them because, if they’re any good, they get past the veil and the persona that we perceive during their heydays to the actual person. And with enough perspective they tell a story that is far more fascinating and human than the person in their prime ever was. This is what I hope for Steve Jobs. That time will reveal him to be far more interesting and dimensional than he ever would want us to know – that it will reveal him as a man, with faults and shortcomings and idiosyncrasies that make him more, us. And, in turn, us more him.

Every generation has great men that are celebrated and lauded by society and mourned when they step out of their accustomed role. We have a tendency to reduce these men into their most visible parts, to create a caricature of them that fits with how we’ve known them for so long. It’s a lie we tell ourselves to reinforce the emotion we’ve put into believing and championing these people. And frankly, it’s boring. Far more interesting are the complete, fallible figures that are the actual men behind the personas. This is what biographies get at, and where we really can learn from these great figures.

Take any of the above men, and their story upon first retirement is rather simple and one-dimensional. Whether it’s Churchill and World War II, Carnegie and the rail roads, Hearst and a media empire, Welch’s ruthless business acumen, Jordan’s athleticism or Roosevelt’s personality and leadership, the story is simplistic and attached to who we think these men are, not who they really turned out to be. And with time, they all come back to earth, their imperfections appear and their stories become far more richer and instructive.

Welch goes from being “the last great CEO,” a hero of scorched-earth wannabes trying to imitate his practice, to a man who sacrificed his relationship with his kids, made some dubious bets on unsustainable business units and frequently let his ego get in the way, in the name of growing GE. Jordan goes from a perfect athlete to a man crushed by the loss of his father with a gambling problem. And on and on. The true man is always more interesting than the idealized persona. Just like our fictional super heroes, it is not their crime-fighting alter ego that is interesting, it’s the mortal man behind the mask that holds the intrigue. Iron Man is boring after a few battles. Tony Starck is where the real interest and opportunity to learn lies.

The same is true for all of our historical ‘super heroes’, Hearst, Carnegie, Churchill, Roosevelt, Iacocca. Those who we think are perfect are more human than we can ever realize at the time – it’s only with perspective that we learn who they really are, and when they do their greatest teaching.

And so that is my hope for Steve Jobs. That when the hubbub dies down. When the spilling of words ceases and when the benefits of time and perspective are finally on our side, that we will learn who Steve Jobs truly is and understand his life and those lessons in a way that he would never conceive or approve. That we will be able to see him as the human that he is, and take his incredible gifts with his shortcomings, and use them to learn more about ourselves. That he will teach us, like the biographies of the other greats before and those yet to come, that the persona is not the man, that in the end he is fallible, he is mortal, and he is not perfect, just like us. And yet. And yet. He is Steve Jobs. I wish him well. I look forward to learning from him for a long time.

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Facebook Product Changes Aimed at Maximizing Revenue

Image representing Facebook as depicted in Cru...

Image via CrunchBase

Brands love being on the Facebook platform. With Facebook reaching 3 out of every 4 Internet users in the US, it’s been a great way to reach customers where they’re spending their days. And the best part? It’s free. That combination has been a powerful driver, bringing brands and marketers on to the platform, with companies forsaking their own websites, driving traffic to Facebook to gain new fans. All with the hope that this new opt-in-lite “fan” asset will be a longterm winner, creating new customers and revenues. But two recent seemingly-unrelated changes on Facebook may signify the party is almost over, and that Facebook will be coming for it’s cut of the pie for the privilege of connecting with customers on Facebook.

The first change rolled out week’s ago to much fanfare and debate. The new Sponsored Stories. The Sponsored Stories product lets brands promote organic mentions, reviews and other shared information by users of Facebook, gaining guaranteed visibility for the item that may otherwise have gone unnoticed in the river of the hidden-by-default “Most Recent” news items. Most marketers loved this idea, because trying to get your items into their much more visible “Top News” feed is an art and science that has yet to be figured out completely.

With Sponsored Stories, Facebook gave brands a way to pay to get that extra visibility that everyone wants, in a consistent and guaranteed way. It was pitched as a boon to advertisers who wanted to stand out among the noise, and already, brands like Levi’s have lined up to take advantage. It was a smart move for Facebook in terms of wooing advertisers, and an innovative way to drive revenue.

But, then, just a few days ago, Facebook changed what users see in their news feeds. Switching the default view of the feed to “Show posts from: friends and Pages you interact with the most”, hiding tons of content that could’ve previously been visible to the user under the old settings. Of course, there are some obscure controls at the bottom of the News Feed that let you customize and restore the “Show posts from: All of your friends and pages”, but really, how many users even know they can change the global settings on their news feed, let alone know that something’s been changed for them that’s materially altering their experience on the site?

And this is punch #2 of the 1-2 product punch for Facebook. Because with a new, more restrictive filter on the News Feed, plus a new vehicle for driving revenue with Sponsored Stories, Facebook is making it harder and harder for brands to get organic mentions in front of casual fans – the exact people they want to reach and engage with on Facebook. It’s a shrewd and calculating move. Cut off organic access quietly, shortly after trumpeting a new, innovative way to get more visibility. And I predict that as brands see less engagement on their organic posts, more and more are going to be considering the Sponsored Stories as the de facto way to ensure key messages hit their target audience on the site. Driving tons of new revenue to Facebook.

But how will this sit with the advertisers who have been lured into a false sense of security where now the only way to leverage Facebook is to pay whatever the going rate is? Will brands feel taken advantage of now that their organic updates are less effective and the only way to the customer is through the Facebook sales department? Or will brands just merrily pony up cash to reach more people on Facebook, counting their number of fans like chits and assuring themselves they’re building a permission-marketing asset?

What do you think? Did Facebook intentionally roll these changes out together to drive more revenue? Or is one just a case of improving user experience by reducing clutter and the other a new ad model? That’s the benevolent angle I guess – but not the one I’m betting on.

It remains to be seen; but either way, the trap has been quietly set, and Facebook is counting on reaping a ton of cash from access-starved marketers who, now addicted to connecting with their customers for free on Facebook, will pay the going rate to keep feeling the love.

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Groupon’s Biggest Threats Won’t Come from the Web

Image representing YellowPages as depicted in ...
Image via CrunchBase

Now that Groupon has closed “Like, a Billion Dollars” it’s time for the company to get down to business. Mathew Ingram notes on GigaOm, that “now comes the hard part” for the company. And he’s right, now that you have the money it’s time to go out an execute and build a business that can provide a return on that level of investment. They’ve got competition and more and more wannabe’s are popping up with deal offers left and right. But the threat’s to be worried about won’t come from the Web companies. The threat’s to be wary of come from the yellow page directories themselves.

Ingram writes:

On top of Google presenting a competitive threat, there is also Facebook, which has experimented with Groupon-style discounts via Facebook Places, and could quite easily leverage its 600-million-user reach to compete with the company if it wanted to. And then there are competitors such as LivingSocial, the second-largest group-buying player, which recently got a $175-million investment from Amazon — another company that has the deep pockets and the reach to compete with Groupon — and Tippr, which has a white-label platform that allows merchants and website publishers to run their own Groupon offers, with Tippr handling all of the back-end and support.

And while, sure, Google and Facebook and LivingSocial pose legitimate threats from the online world, the fiercest competition is going to come from companies like AT&T YellowPages and Yellowbook. Because I believe that Groupon is going to go after the SMB business that is the lifeblood to those companies. I wrote earlier, when the $950 million news broke:

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won’t reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don’t ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

That’s where the threats and challenges will come from. Groupon is way out ahead of any of its web competitors; but now, to succeed at capturing a big chunk of the SMB market it has to go head-to-head with these massive companies that have sales teams, offices, infrastructure, relationships (oh, and experience) selling to SMBs. They’re the company that local businesses are comfortable investing with. Now, SMBs may not be happy with them, and their businesses may be dying; but they’re a force to be reckoned with and Groupon is going to have it’s work cut out for them to make their business a legitimate contender for the big chunks of SMB dollars currently being spent with YellowPages and the other directories.

So Ingram is right, “now comes the hard part,” but while they’ll need to keep an eye on their web-brethren currently in the rearview; it’s their brand-new competition that will require the most scrutiny. The directories have lost enough already—they’re going to try to leverage their head start to deploy their own deal offerings, and that’s where the battle really lies for Groupon.

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Does Google Want to Send You to Content Farms?

Matthew Ingram writes on GigaOm that Google and Demand Media are headed for an inevitable showdown, as the search giant tries to keep its results from being overrun by the prolific content-for-profit machine. Writing on the heels of comments by Paul Kedrosky and Marco Arment on the spammy nature of Google search results, Ingram echos the sentiment that Google needs to do something to maintain the value of their search results—their cash cow—especially in the face of threats to their traffic and utility from Facebook and Bing. In a conversation on Twitter the night before he published his article, Ingram had a brief exchange with Chris Dixon who posited that Google actually benefits from content-farm search results because visitors who hit these pages then click away from via AdSense units, of which Google gets a share.

Here is the exchange via Storify (if you can’t see it in reader, click through):

Dixon is quick to point out that Google of course cares about the user experience; but that inadvertently they’ve created a cottage industry of spammers that they in turn benefit from. It’s an intriguing argument, at least on the surface. Demand Media’s IPO filing states that the company generates 40% of their 550 million monthly page views via Google search.

The question becomes, then, how much money are we talking about?

Turns out it’s not that much, relatively speaking. Demand Media reports that it earned 18% of its revenue from Google in 2009 (and 26% from Google in the first 6 months of 2010.) On 2009 revenues of $198.45 million that works out to $35.72 million in revenue from Google. If we take Google’s stated AdSense revenue share numbers of 68% for the publisher/32% to Google, that puts the total revenue of Google-driven revenue at $52.5 million, leaving $16.8 million for Google. (Of course this could be different depending on the actual split of the Demand Media/Google agreement; but is probably in the right neighborhood.)

For Google, who’s 2009 annual revenue was $23.65 billion, this is a rounding error. And for a company who is willing to pull out of lucrative opportunities on principle alone (China, anyone?) it seems like eliminating or reducing the small monetary benefit that Demand Media generates for them in order to save their user experience is a no-brainer. So while the idea that Google actually “wants” Demand Media to stay around to drive revenues from AdSense is intriguing, it doesn’t really add up.

Whether Google devalues the Demand Media content in their search results I don’t think will ever be explicitly known. Google has to be careful about the implications of changes to the algorithm that reek of editorial governance. (SEO’s I know quipped that the DecorMyEyes fiasco just showed that all you need to get your competitor delisted from Google was a scathing PR hatchet job.) But clearly, as the chorus of influential users voice their dissatisfaction with search results, Google will be under more pressure to deliver cleaner, more valuable content or risk losing them altogether.

If Google does (and I believe they should) make this move Demand Media is in trouble. Looking at their IPO filing, the short of it is that without Google the business doesn’t have any real growth. And rather than being a unique content-on-demand business, their a incrementally growing domain registrar.

It will be interesting to see how this plays out; but one thing is for certain. Matthew Ingram is right—a showdown likely looms, either between Google and Demand Media or Google and it’s users, and there is a lot at stake for everyone.

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Will Beluga and GroupMe be this year’s big winners at SXSW?

Beluga LogoThe SXSW prognosticating season was officially kicked-off by TechCrunch’s MG Seigler just the other day; and I’m ready to throw my hat in the ring with my picks for this year’s darlings. Of course, there’s no real way to predict this; and entrants are likely to come out of the woodwork between now and the start of SXSWi, but recent trends point to a few promising possibilities. In my opinion, the big winners are going to be the micro-social network applications and sites. Why? Because group texting services like Beluga, GroupMe, and others will help attendees cut through the noise of the conference and connect with those closest to them.

Why do I think that inherently non-viral products will catch on at SXSW? Recent history provides the best clues. The launches of Twitter in ’07 and Foursquare in ’09 are examples of how the interactive crowd embraces products that help them make a large, overwhelming conference seem more intimate and personal. Twitter and Foursquare, at launch, allowed users to connect in new ways; ways that leverage connections weak and strong, provide real-time, high-quality information, and help cut through the noise and clamor of a crowded environment. These tools and services gave people the ability to create a personal, custom experience for themselves in a very noisy and chaotic space. And while Twitter and Foursquare are much more open than Beluga or GroupMe, my picks provide the next evolution of delivering those same important elements.

Twitter broke at SXSW in 2007 and was widely used at the festival in 2008 as attendees surfed and Tweeted the #sxsw hashtag to find the parties, venues, impromtu gatherings and panels that were most noteworthy. In ’07, people used it as not only a communication tool, but as a networking and real-time information network. A network that connected like-minded folks with one another in a way that wasn’t possible before. And the rest is history as Twitter blew-up, becoming the preferred communication tool for the digerati and, with later help from Ashton and other celebrities spread to the early-majority crowd as well.

But as Twitter blew up, it’s utility for connecting at SXSW ’08 diminished. Too much noise. Too much pollution. It’s value as an information source remained; but the #sxsw hashtag became unruly and less valuable to help ferret out the best events. It opened up a new opportunity for Foursquare to provide that high-signal, that more personal, manageable connection that Twitter delivered the year before.

Foursquare launched and provided a similar noise-filtered way to connect with friends at SXSW ’09 and again at SXSW ’10. Interactive conference attendees used the service to find out where their friends were. And the SXSW-specific rewards only helped to make using the service more fun. With the Twitter stream polluted and the quality and ease of groking it for useful information diminished, Foursquare stepped in and provided a better filter on connections and information. We had gone from Scott “Laughing Squid” Beale Tweeting about being at a bar next door, to people just watching their friends check-in to venues and forming impromtu gatherings as those check-ins reached critical mass.

Last year, at SXSW, one of the best parties was not a planned party at all. Brian Solis and a small group of influencers checked-in at The Driskill Hotel and within an hour the place was packed. The word was out and the party swelled. After an hour you couldn’t move. The power and faults of a service like Foursquare were evidenced in one short moment. The service worked brilliantly, connecting members of those people’s networks and letting them know where their friends were without any additional coordination or communication. On the flip side, as the message propogated and grew, the event tipped from a small gathering to an all-out free-for-all. The utility of the service fell apart. It went from an intimate gathering to a ridiculously jam packed event. And, for the rest of the conference, many of those people checked in off the grid to keep a similar scene from repeating everywhere they went.

Robert Scoble recently asked how SXSW could regain the intimacy of the conference in face of the ever-growing crowds.

Me? I want to get more of those intimate experiences we used to have. I remember when the entire Web Standards Project fit at one picnic table. I remember having a fun conversation with a small group, all huddled around Craig Newmark in the rain at a BBQ place across the street. I remember being able to get into parties without being a VIP and last year the VIPs even had to wait in line at nearly every party. Heck, I remember when Scott Beale Tweeted in 2007 that he was sitting all alone in an empty pub and I joined him and had a leisurely beer at a picnic table with him and a few other friends. Those days are seemingly gone.

Scoble doubts that we can, because there is too much opportunity cost. I think he’s wrong. I think we can with better tools. It’s not that we’re attention-deficited people who can’t decide where to go and what to do (ok, we are,); but that the tools we have have become too bloated to be effective. Twitter and Foursquare have lost their ability to create those unique, intimate moments because we’ve bent them out of shape with oversized followings and over-subscription. I believe the next wave of services that succeed at SXSW will be those that bring that intimacy back – that allow us to navigate the crowded noisy environment of SXSW and give us a better experience because of it.

Scoble starts to get at it here:

It seems weird for me to say this, but I’m tired of going to big massive parties where you collect a lot of business cards but don’t have any good conversations to show for it. I now have enough business cards. I don’t need more. I bet many of you are in the same place. In fact, this year we’ve seen companies like Pip.io and Path come along and try to serve smaller “micro” groups. Path limits you from sharing photos with more than 50 friends. I’ve come to like that constraint, somewhat. It’s just that I wish I could share with many small groups.

So, how about this as a proposal:

Kill the big parties. Instead, follow Zappos’ lead. This year they hosted a bus. It could only hold about 30 people (it had its own bar, after all). But the time I spent on that bus is still my favorite experience at SXSW. Why? Because it forced a small handful of people to sit together and talk. Even if it was just for 15 minutes it was nice to have an intimate experience with a small number of other people.

And it’s Beluga and GroupMe that can bring that intimacy and limited connection to the table – and create the passionate followings that ignite services like these to broad influencer adoption and buzz required to tip one of these services in terms of awareness and users.

Out of the two I’m picking Beluga for two reasons. First, because you connect your account with Facebook you can see which of your Facebook friends is using Beluga and automatically send them a message or add them to a group.  This is going to help the viral spread of the service.  Second, the ability to add friends based on email address or phone, over just phone makes the service more early-adopter friendly and allows you to add friends who you may have connected with online; but are not necessarily friends with on Facebook or whose phone number you don’t have. This will allow more loosely-connected groups to form to make dinner and other plans at SXSW and then disband just as fast. (GroupMe also has expiring groups, which are very interesting for ephemeral groups.) Other groups will persist as back-channel mobile chat rooms that will be running as its own data layer on top of the Twitter feed, Foursquare check-ins and other conference noise.

The benefits of a limited circle are most obvious when we’re in high-density network situations like SXSW. Over-subscribed friend and follower counts limit the effectiveness of the tools. When you’re in tight quarters, when you’re looking for high-quality information over the noise, when you’re looking for that quiet dinner party with your friends, more isn’t better. Better is better. Beluga and GroupMe and others can help give us a better experience. Can bring the intimacy of SXSW back and will be the darlings of this year’s conference.

Update: had my Foursquare launch years off.  
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Why Groupon Needs $950 Million More

Groupon logo.
Image via Wikipedia

The blogosphere is abuzz over tech-darling Groupon’s proposed $950 million Series G round. Many people have asked “Why do they need all that money?” And while expansion is the obvious answer, it’s a bit more nuanced than that. Groupon knows that in order to grow at scale in the SMB market you need a big sales organization with feet-on-the-street in the markets you’re hoping to reach. If you look at the successful small business advertising providers—the one’s that own large chunks of the market—they all have large sales forces. And it’s the large sales force that has stood between many a great, local-business-focused business plans and actual success.

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won’t reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don’t ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

What Groupon is doing is something that no other tech company has done in recent memory—made a real run at securing a big chunk of the SMB market. Sure, new local-business-focused companies pop-up all the time. But most of them are either niche providers or they partner with the big existing yellow page providers to get access to their sales organization. They become a B2B channel provider leveraging the existing sales force because few can generate or raise the cash necessary to build a sales organization to go out and reach those SMBs directly.

Even mighty Google has taken this approach until now. They’re either unwilling to, or culturally unable to, commit to the SMB market with a massive sales force. Google has targeted savvy SMBs directly with AdWords solicitations; but has also worked aggressively to partner with yellow page companies to sell AdWords as part of existing yellow page bundled services, and often resold as CPM-based impressions (e.g. spend $2,500/month to get a quarter-page ad in the yellow book, a bolded listing with a photo on the site and a bucket of impressions driven by CPMs). And they’ve supported that initiative with direct mail, SEM (of course) and some print advertising as air cover to increase awareness and trial of AdWords through one channel or another.

But it was not until just last week that Google started outbound telesales direct to small business owners. That is a direct response to Groupon spurning their offer, and the realization that if they’re going to get serious about local business they can’t solve it with an algorithm. They need to put people toward the business unit to succeed.

All of this of course sheds quite a bit of light on the Groupon/Google negotiations and why the deal fell apart. I think what Groupon’s board realized (and kudos to them for this insight) is that Google—at its core—is not a sales-driven company. They don’t have the internal buy-in to be a hardcore sales organization and they’ve never committed the resources needed to make small business a booming success. They’ve tried to do it every other way except invest in a massive sales force. And I think Groupon looked at what has worked in reaching SMBs at scale and they realized it’s not arms-length. They realized that SMB advertising is still old school. It’s still knocking and dialing for dollars.

Groupon realized that what they needed is a sales-focused organization, not a technology-focused one. And tying up with Google would be a mistake, because at their core the two companies are fundamentally different in what they know about going to market. Google knows that it’s tech and better and more tech; Groupon knows that it’s how many calls can we make in a day. Groupon’s board knew it wouldn’t thrive under Google.

Additionally, Groupon knew that tying up with a dinosaur of a yellow page business was a bad idea too. The margins are non-existent, advertising dollars are shrinking and moving online, and most observers are waiting for someone to drag those pre-Internet monoliths out behind the wood shed and put a bullet in them. So the only logical step for Groupon, between their options, is to go out and build the sales organization they need that supports the tech organization that they are.

So while everyone oohs and ahhs at $950 million and will continue to talk about bubbles in the tech space; I personally think Groupon has made a very savvy decision to truly be one-of-a-kind, to be the first tech company to go hard after the SMB market—and win.

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