free html hit counter May 2012 - John Battelle's Search Blog

On Small, Intimate Data

By - May 29, 2012

Part of the research I am doing for the book involves trying to get my head around the concept of “Big Data,” given the premise that we are in a fundamental shift to a digitally driven society. Big data, as you all know, is super hot – Facebook derives its value because of all that big data it has on you and me, Google is probably the original consumer-facing big data company (though Amazon might take issue with that), Microsoft is betting the farm on data in the cloud, Splunk just had a hot IPO because it’s a Big Data play, and so on.

But I’m starting to wonder if Big Data is the right metaphor for all of us as we continue this journey toward a digitally enhanced future. It feels so – impersonal – Big Data is something that is done to us or without regard for us as individuals. We need a metaphor that is more about the person, and less about the machine. At the very least, it should start with us, no?

Elsewhere I’ve written about the intersection of data and the platform for that data – expect a lot more from me on this subject in the future. But in short, I am unconvinced that the current architecture we’ve adopted is ideal – where all “our” data, along with the data created by that data’s co-mingling with other data – lives in “cloud” platforms controlled by large corporations whose terms and values we may or may not agree with (or even pay attention to, though some interesting folks are starting to). And the grammar and vocabulary now seeping into our culture is equally mundane and bereft of the subject’s true potential – the creation, sharing and intermingling of data is perhaps the most important development of our generation, in terms of potential good it can create in the world.

At Web 2 last year a significant theme arose around the idea of “You Are the Platform,” driven by people and companies like Chris Poole, Mozilla, Singly, and many others. I think this is an under-appreciated and important idea for our industry, and it centers around, to torture a phrase, the idea of “small” rather than Big Data. To me, small means limited, intimate, and actionable by individuals. It’s small in the same sense that the original web was “small pieces loosely joined” (and the web itself was “big.”)  It’s intimate in that it’s data that matters a lot to each of us, and that we share with much the same kind of social parameters that might constrain a story at an intimate dinner gathering, or a presentation at a business meeting. And should we choose to share a small amount of intimate data with “the cloud,” it’s important that the cloud understand the nature of that data as distinct from its masses of “Big Data.”

An undeveloped idea, to be sure, but I wanted to sketch this out today before I leave for a week of travel.

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The Week in Wine, 5.26 Edition

By - May 26, 2012

Dinner with friends and a night in the band room proved bountiful when it came to trying new wines this week.

I tasted this Blackbird Vineyards Arriviste – a Rose that the gals had. They sure liked it. Proved a great start to the dinner for them.

We moved on to the Peay Sea Scallop, which I’ve already posted (it’s on my Wines Pinboard), then this swell finish, the Pahlmeyer 2009 Jayson (a blend), which held up to the steak we shared. It’s quite obvious the winemaker (Jason Pahlmeyer) spent a lot of time in Spain.

In the band room last night, we got lucky – our guitarist, a wine lover, brought out a rare beast: a 2006 Patricia Eason Pinot. This wine comes from a four acre plot in Willemette, Oregon. It’s very rich for a Pinot and just wonderful to relish. We drank it out of plastic cups and played music, which somehow worked.

Tonight is going to be a Pinot fest as we welcome a bigger group to the house, we had to find great drinking wines that weren’t going to break the bank, since there’ll be a lot of glasses flowing. Among others, we picked the Belle Gloss Clark & Telephone from Santa Barbara:

…the Hitching Post Cork Dancer, always reliable and also from SB (sorry for the image):

And the Etude from Carneros. Hard to do wrong with those.

Remember, Searchbloggers, I’ve got a new RSS feed that you can consume so as to miss these non-work related posts.

From Today’s Ride: 20 Miles O’ Smiles

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A good push on a demo’d 29er Marin this morning. A few highlights:

Mt. Tam, where I was headed, from Blithedale Ridge.

Tons of folks at West Point Inn today, which is about 2/3rds up Tam. It was the 100th anniversary of the Marin Municipal Water District and there was a band playing. But this shot looks South, away from the Inn, toward Tam.

Lastly, the view from near the top, on the way down Eldridge, toward Bon Tempe Lake and the open spaces of Fairfax and beyond. I do not recommend bombing down Eldridge on a hardtail 29er. Ouch.

Remember, Searchbloggers, I’ve got a new RSS feed that you can consume so as to miss these non-work related posts.

And Now, Your Moment of Zen

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TamWFall

Courtesy Mt Tam this morning. Sorry if it takes a bit to load, this is my first video post. If anyone knows how to make it just play natively, I’d love the tip. I tried it from mobile posting on my phone and it posted sideways….

Facebook’s Real Question: What’s the “Native Model”?

By - May 23, 2012

 

The headlines about Facebook’s IPO – along with questions about its business model – are now officially cringeworthy. It’s an ongoing, rolling study in how society digests important news about our industry, and it’s far from played out. But we seem at an interesting tipping point in perception, and now seemed a good time to weigh in with a few words on the subject.

Prior to Facebook’s IPO, I drafted a post about its core business model (targeted display advertising), but decided not to publish it. The main thrust of my post is below, but I want to explain why I didn’t post right away, and provide you all with something of a “tick tock” of what’s happened over the past few days.

The truth is, I didn’t post last week because I didn’t feel like piling on to what was becoming a media frenzy. Less than 24 hours before the biggest Internet IPO in history, the negative stories questioning Facebook’s core revenue model were coming fast and furious. My piece wasn’t negative, per se, its intention was to be thoughtful. And in the face of a media scrum, I often pull back until the dust settles. (There’s a media business in there somewhere, but I digress).

I figured I’d wait till Monday. Things would have settled down by then…

Well, that didn’t happen. Compared to Google’s IPO, which was controversial for very different reasons (they ran a “modified auction,” remember?), the Facebook IPO is quickly becoming the biggest story in tech so far this year. And unfortunately for the good people at Facebook, it’s not a positive one.

The starting gun of Facebook’s IPO woes was the news that GM planned to pull its $10 million spend – but would continue to invest around $30 million in maintaining its Facebook “presence.” Interestingly, that $30 million was not going to Facebook, but rather to GM’s agency and other partners. I’m not sure how that $30 million is spent – that’s a lot of cheddar to have a presence anywhere (you could build about 15 Instagrams with that kind of money, for example). But most have speculated it goes to staffing social media experts and working with companies like Buddy Media, buying “likes” through third party ad networks, and maintaining a burgeoning amount of content to feed GM’s myriad and increasingly sophisticated presence on the site.

Now, some folks have said the reason GM pulled its ads were because the auto giant failed to understand how to market on Facebook – but if that’s true, I’m not sure it’s entirely GM’s fault. Regardless, since the original WSJ piece came out, a raft of pieces questioning Facebook’s money machine have appeared, and they mostly say the same thing. Here’s last week’s New York Times, for example (titled Ahead of Facebook I.P.O., a Skeptical Madison Ave):

“It’s one of the most powerful branding mechanisms in the world, but it’s not an advertising mechanism,” said Martin Sorrell, chief executive of WPP, the giant advertising agency.

“Facebook’s a silo,” said Darren Herman, the chief digital media officer at the Media Kitchen, an agency that helps clients on Facebook. “It is very hard to understand the efficacy of what a Facebook like, or fan or follow is worth.”

It seems, just ahead of the IPO, folks were realizing that Facebook doesn’t work like Google, or the web at large. It’s a service layered on top of the Web, and it has its own rules, its own ecosystem, and its own “native advertising platform.” In the run up to the IPO, a lot of folks began questioning whether that platform stands the test of time.

I’ll have more thoughts on that below, after a quick review of the past few days in FacebookLand.

What Just Happened?!

As I outlined above, Facebook faced a building storyline about the efficacy of  its core revenue model, right before the opening bell. Not a good start, but then again, not unusual for a company going public.

One of the inevitabilities of negative news about a company is that it begets more negativity – people start to look for patterns that might prove that the initial bad news was just the tip of an iceberg. When word came out last week that demand for the stock was so high that insiders planned to sell even more  shares at the open, many industry folks I spoke to began to wonder if the “greater fool” theory was kicking in. In other words, these people wondered, if the bankers and early investors in Facebook were increasing the number of shares they were selling at the outset, perhaps they knew something the general public didn’t – maybe they thought that $38 was as high as the stock was going to get – at least for a while.

Clearly, those industry folks were talking to more than just me. The press started questioning the increase. As Bloomberg reported at the time: “…insiders’ decision to pare holdings further may heighten some investors’ concern over Facebook’s earnings growth, said Greenwood Capital’s Walter Todd.”

That quote would prove prescient.

As Facebook opened trading last Friday, the stock instantly shot up – always taken as a good sign – but then it began to sink. Were it not for significant supportive buying by the offering’s lead banker, the stock would have closed below its opening price, an embarrassing signal that the offering was poorly handled. Facebook closed its first day of trading up marginally – not exactly the rocketship that many expected (a crowdsourced site predicted it would soar to $54, for example).

Then things got really bad. Over the weekend, officials at NASDAQ, the exchange where Facebook debuted, admitted they bungled the stock’s opening trades due to the massive demand, citing technical and other issues. Monday, the Wall Street Journal, among many others, questioned Morgan Stanley’s support of the stock. To make matters worse, the stock slid to around $34 by the end of the day.  A frenzy of media coverage erupted – including a number of extraordinary allegations, first made late Monday evening, around insider information provided verbally to institutional investors but not disclosed to the public. That information included concerns that Facebook’s ad revenues were not growing as quickly as first thought, and that mobile usage, where Facebook’s monetization is weak, was exploding, exposing another hole in the company’s revenue model.

In other words, what my industry sources suspected might have been true  – that insiders knew something, and decided to get out when the getting was good – may have been what really happened. True or not, such a story taints the offering considerably.

Predictably, those allegations have spawned calls for investigations by regulatory authorities and lawsuits or subpoenas by individual investors as well as the state of Massachusetts. On Tuesday, the stock sank again, closing at near $31, $7 off its opening price and more than $10 off its high point on opening day.

Not exactly a honeymoon for new public company CEO Mark Zuckerberg, who got married last Sunday to his college sweetheart. Today’s early trading must provide at least some comfort – Facebook is trading a bit up, in the $32 range, a price that many financial news outlets reported as the number most sophisticated investors felt was correct in the first place.

Is the worst of it over for Facebook’s IPO? I have no idea. But the core of the issue is what’s most interesting to me.

Stepping Back: What’s This Really All About?

Facebook is  a very large, very profitable company and I am sure it will find its feet. I’m not a stock analyst, and I’m not going to try to predict whether or not the company is properly valued at any price.

But I do have a few thoughts about the underlying questions that are driving this whole fracas – Facebook’s revenue model.

Facebook makes 82% of its money by selling targeted display advertising – boxes on the top and right side of the site (it’s recently added ads at logout, and in newsfeeds). Not a particularly unique model on its face, but certainly unique underneath: Because Facebook knows so much about each person on its service, it can target in ways Google and others can only dream about. Over the years, Facebook has added new advertising products based on the unique identity, interest, and relationship data it owns: Advertisers can incorporate the fact that a friend of a friend “likes” a product, for example. Or they can incorporate their own marketing content into their ads, a practice known as “conversational marketing” that I’ve been on about for seven or so years (for more on that, see my post Conversational Marketing Is Hot – Again. Thanks Facebook!).

But as many have pointed out, Facebook’s approach to advertising has a problem: People don’t (yet) come to Facebook with the intention of consuming quality content (as they do with media sites), or finding an answer to a question (as they do at Google search). Yet Facebook’s ad system combines both those models – it employs a display ad unit (the foundation of brand-driven media sites) as well as a sophisticated ad-buying platform that’d be familiar to anyone who’s ever used Google AdWords.

I’m not sure how many advertisers use Facebook, but it’s probably a fair guess to say the number approaches or crosses the hundreds of thousands. That’s about how many used Overture and Google a decade ago. The big question is simply this: Do those Facebook ads work as well or better than other approaches? If the answer is yes, the question of valuation is rather moot. If the answer is no…Facebook’s got some work to do.

No such question hung over Google upon its stock debut. AdWords worked. People came to search with clear intent, and if you, as an advertiser, could match your product or service to that intent, you won. You’d put as much money as you could into the Google machine, because profit came out the other side. It was an entirely new model for advertising.

I think it’s fair to say the same is not yet true for Facebook’s native advertising solution. And that’s really what Facebook Ads are: the biggest example of a platform-specific “native advertising” play since Google AdWords broke out ten years ago.

But it’s not clear that Facebook’s ad platform works better than any number of other alternatives. For brand advertisers, those large “rising star” units, replete with video capabilities and rich contextual placements, are a damn good option, and increasingly affordable. And if an advertiser wants to message at the point of intent, well, that’s what Google (and Bing) are for.

It’s astonishing how quickly Facebook has gotten to $4billion in revenue – but at the end of the day, marketers must justify their spend. Sure, it makes sense to engage on a platform where nearly a billion people spend hours each month. But the question remains – how do you engage, and who do you pay for that engagement? Facebook is huge, and terribly successful at engaging its users. But what GM seems to have realized is that it can engage all day long on Facebook, without having to pay Facebook for the privilege of doing so. Perhaps the question can be rephrased this way: Has Facebook figured out how to deliver marketers long-term value creation?  The jury seems out on that one.

Now that Facebook is public, it will face relentless pressure to convince that jury, which now demonstrates its vote via a real time stock price. That pressure could force potentially new and more intrusive ad units, and/or new approaches to monetization we’ve yet to see, including, as I predicted in January, a web-wide display network driven by Facebook data.

As Chris Dixon wrote earlier in the month:

The key question when trying to value Facebook’s stock is: can they find another business model that generates significantly more revenue per user without hurting the user experience?

A good question, and one I can only imagine folks at Facebook are pondering at the moment. Currently, Facebook’s ads are, in the majority, stuck in a model that doesn’t feel truly native to how people actually use the service. Can Facebook come up with a better solution? Integration of ad units into newsfeeds is one approach that bears watching (it reminds me of Twitter’s approach, for example), but I’m not sure that’s enough to feed a $4billion beast.

These questions are fascinating to consider – in particular in light of the “native monetization” craze sweeping other platforms like Tumblr, Twitter, Pinterest, and others. As I’ve argued elsewhere, unique approaches to marketing work only if they prove a return on total investment, including the cost of creating, optimizing, and supporting those native ad units when compared to other marketing approaches. Facebook clearly has the heft, and now the cash, to spend considerable resources to prove its approach. I can’t wait to see what happens next.

An Appreciation of The “Home Phone”

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Last night on a whim I asked folks on Twitter if they had a home phone – you know, a “hard line” – the k ind of communications device that used to be ubiquitous, but seem increasingly an anachronism these days. The response was overwhelming – only three or four of about 35 responses, about ten percent, said they did, and most of those had them due to bad cel reception or because it makes people feel safe in case of an emergency (the “911 effect”).

The reason I conducted my unscientific poll on the home phone came down to my own experience – my home phone (yes, I have one) rings quite rarely, and when it does, it’s almost always a telemarketer, despite the fact that we’re on the “do not call list.” All of our friends and family know if they want to get in touch, they need to call our cels. Of course, our cels don’t work very well in the hills of Marin County, California, which creates a rather asynchronous sense of community, but more on that in a bit.

I set about writing this post not to bury the home phone, but to celebrate it. The home phone is relatively cheap, incredibly reliable, and – if you buy the right phone – will work for years without replacement. Oh, and far as I can tell, a home phone won’t give you brain cancer.

In a perfect world, the hard line should have become a platform for building out an entire app ecosystem for the home. And yet….it didn’t. Thanks to its monopoly nature and the resultant lack of competition, basic home phone service hasn’t changed much in 20 or so years – we got voice mail, call waiting, and a few other “innovations,” and that’s about it. It’s a dumb technology that is only getting dumber.

Now, I understand why the hard line is dying – mobile telephony is much more convenient for the consumer, and far more profitable for the telephone companies. Mobile phones are not a regulated monopoly (at least, not quite yet), so there’s a lot more innovation going on, at least at the platform level.

But I’m not sure we’ve really thought about what we’re losing as we bid adieu to the home phone (and I’m not talking about 911, which is a mostly solved problem). That one phone number – I can still remember mine from my earliest days growing up – was a shared identity for our family. When it rang, it forced a number of social cohesions to occur between us – we’d either race to answer it first (if we thought it might be for us) or we’d argue over who should get it (if we didn’t). An elaborate system of etiquette and social standards flowered around the home phone: how long a child might be allowed to stay on the phone, how late one could call without being impolite, and of course the dread implications of a late night call which violated that norm.

In short, the home phone was a social, shared, immediate technology, one that existed in rhythm with the physical expression of our lives in our most formative space: Our home. But it’s quickly being replaced by a technology that is private, mobile, asynchronous and virtual. Today, my kids don’t even look up if our home phone rings. But they’ll spend hours up in their room, texting their friends and chatting over the Internet. In other words, the loss of the home phone has sped up the phenomenon Sherry Turkle calls “being alone together.” We may be in the same physical space, but we are not sharing the same kind of social space we used to. And something is lost in that transition.

We may yet might decide there’s value in what the home phone once represented. I believe smart entrepreneurs will see opportunity in the “hard line,” and might help us rediscover the benefits of sharing some of our communications bounded once again in real space and time.

Epic Sunday Ride

By - May 20, 2012

Remember, Searchbloggers, I’ve got a new RSS feed that you can consume so as to miss these non-work related posts.

A few pics from a 25-mile mountain bike ride I just completed with my son…

On way up, White Hill Trail as it goes under Sir Francis Drake Blvd.

And up on Pine Mtn. Trail, after a good climb…Ian’s the blue dot way down the trail…and that’s Mt. Tamalpais in the distance.


Wines From Last Week, 5.20 Edition

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Remember, Searchbloggers, I’ve got a new RSS feed that you can consume so as to miss these non-work related posts.

Meanwhile, it was a busy week, with the CM Summit in New York. Here are a few of the wines I enjoyed:

The closing dinner for the CM Summit speakers was great, I didn’t pick the wine, but I sure liked drinking it. It included:

…the I Perazzi La Mozza 09. I don’t know anything about Italian wine, except how to drink them.

Next up was the Dolcetto d’Alba Brandini. I recall this being rather so so.

The Bastianich Adriatico, which I could not seem to get a good shot of. By this time, not sure my palate was quite wine-worthy.

When I finally got home, after five days on the road, I opened this 2007 Macauley Cab from good old Napa. Wow. It really delivered.

And then on Saturday, my pal Mark at our local family pizzeria turned me onto this nicely priced and very deep Benovia 2010 Sonoma pinot. He had three extra bottles, I bought them all.


Sea Smoke yum

By - May 18, 2012

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The Internet Big Five: Up $272 Billion in Six Months

By - May 17, 2012

Last December I posted on “The Internet Big Five,” noting their relative strengths and the market cap of each. Since that time, the Five have only gotten stronger, adding a cumulative $272 billion in market cap (much of that is Apple, but Amazon and Facebook – assuming the offering does as expected on Friday – have also increased quite a bit). All in all, nearly 30% increase in value for these five companies – sort of makes me wish I was an investor, rather than a writer and entrepreneur.

I’ll also check the number of engaged users for each platform, to see if there are any significant shifts, though I don’t recall seeing any in the news recently (save Facebook crossing 900 million users). It is interesting to note that Facebook, should it hold its supposed valuation, will be more highly valued than Amazon.

A reminder as to why I’ve made a point of watching the Big Five, from my original and secondary posts:

..there’s more to the selection of this Big Five than just market cap. In fact, there are four main criteria for making it into the Big Five.

First, as I began to describe above, the companies must have financial heft, both in terms of large equity capitalizations, significant cash on hand, and a defensible core profit making machine. This gives them the ability to throw their weight around: they can make strategic acquisitions (like Google’s acquisition of Motorola), and they can leverage their profit centers and cash positions in any number of ways that offer them flexibility to play the corporate game at the very highest levels.

Second, the companies must have scale in terms of direct reach to consumers. By this I mean their brands are used as meaningful platforms by hundreds of millions of people on a frequent basis.

Third, the companies must have deep engagement with those consumers, the kind of engagement that builds brand and creates massive stores of useful data. The relationship between the brand and its customer has to be meaningful and consistent (therefore creating permission to extract a premium and offer new products and services). It takes an ongoing service relationship for such engagement to occur….

 

More on the product strength of the Big Five here.