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Signal and SXSW: What Should I Ask WordPress Founder Matt Mullenweg?

By - March 08, 2011

Screen shot 2011-03-08 at 6.34.10 PM.pngOn Thursday at Signal Austin, and then again on Friday at SXSWi, I’ll be having an onstage conversation with WordPress founder Matt Mullenweg, who continues to be the driver of the WordPress community. WordPress is a unique platform – Matt works for Automattic, a for profit company that owns the rights to the hosted version of WordPress, at wordpress.com. There’s also WordPress.org, which is an open source, not-for-profit foundation that boasts a vibrant community of developers and hackers who merrily create hacks, plugins, and any number of patches to the WordPress code.

When WordPress.com was split off into the for-profit company, many were concerned it would quickly become clogged with ads, but Mullenweg and his partners have been extremely careful in how they’ve introduced marketing into the community. Experiments include FoodPress, EcoPressed, and others in partnership with my company, Federated Media, as well as one-off sponsorships with Microsoft around IE9, and some clever use of Google’s AdWords and other ad networks. Clearly media is a business WordPress will get into more, especially with the traffic and uniques it attracts (see chart at bottom).

Instead of advertising, so far WordPress has focused on tools – including a “freemium” model for key plug ins such as backup, polling, and spam protection. But as the platform has grown, it has taken a considerable amount of investment capital, and those investors will at some point demand a significant return. Furthermore, WordPress has earned the dubious honor of being large enough to become a target for hackers with less than honorable intentions (not to mention ongoing battles with black hat spammers).

I could go on and on – I am fascinated by WordPress, as well as by the publishing platform space it inhabits. The same habitat is populated by a clutch of super interesting companies, including Tumblr, which recently surpassed WordPress in pure number of pageviews (though not engaged uniques) and of course Twitter. It’s my sense these three companies are due to run into each other in the marketplace over time, in particular as the independent web matures into a real media play (more on that another time).

But rather than have me ramble on about WordPress and Automattic, instead let me put the question to you: What would you have me ask Matt at Signal and SXSW? Please leave your questions in comments, or tweet them to me at @johnbattelle with the tag #FMSignal or #SXSW. Thanks!   

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File Under: Metaservices, The Rise Of

By - February 04, 2011

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I’m beta testing a new service called Memolane, which collects the breadcrumbs we drop around the web (from Foursquare, Twitter, Facebook, Flickr, RSS, etc) and visualizes them as a timeline. It’s not fair for me to review the service at this point – I’ll save that for later. Rather, I’m interested in what it augurs: The rise of metaservices.

The problem/opportunity addressed by metaservices has been worked to death by folks far smarter than I – in particular by well-intentioned developers looking to create better standards for services to share data. But so far solutions have failed to address the market opportunity. I think this is going to change, in the main, because we’ll demand it does.

Let me step back and describe the problem. In short, heavy users of the web depend on scores – sometimes hundreds – of services, all of which work wonderfully for their particular purpose (eBay for auctions, Google for search, OpenTable for restaurant reservations, etc). But these services simply don’t communicate with each other, nor collaborate in a fashion that creates a robust or evolving ecosystem.

The rise of the app economy exacerbates the problem – most apps live in their own closed world, sharing data sparingly, if at all. And while many have suggested that Facebook’s open social graph can help untangle the problem, in fact it only makes it worse, as Fred put it in a recent post (which sparked this Thinking Out Loud session for me):

The people I want to follow on Etsy are not the same people I want to follow on Twitter. The people I want to follow on Svpply are not my Facebook friends. I don’t want to sharemy Foursquare checkins with everyone on Twitter and Facebook.

Like nearly all of us, Fred’s got a social graph instrumentation problem and a service data-sharing problem. Here’s what he suggests:

I would like to be able to run these people through all my social graphs on other services (not just Facebook and Twitter) and also my phone contacts and my emails to help me filter them and quickly add those people if I think they would make the social experience on the specific service useful to me.

When you break it down, what Fred is asking is this:

1. That each service he uses will make the data that he creates available to any other service with which he wishes to share.

2. That each service he uses be capable of leveraging that data.

For that to happen, every app, every site, and every service needs to be more than just an application or a content directory. It needs to be a platform, capable of negotiating ongoing relationships with other platforms on behalf of its customers in real time. This, of course, is what Facebook does already. Soon, I believe, every single service of scale will work in a similar fashion.

When you think about a world in which this idea comes true, all sorts of new services become possible: Metaservices, services which couldn’t exist unless they had the oxygen of other services’ datastreams to consume. At present, I can’t really think of any such services that are currently at scale. (I can think of some promising stuff in early stages – Memolane and Percolate come to mind.)

Sure, tons of services use Facebook connect to leverage our social graph. But that’s a half step. So is authorizing or logging into a site via Twitter. Solves a simple problem, but doesn’t add much value beyond that.

But I’ve noticed a trend of late. While a year ago I’d only see a “service connection” happen between an app and Facebook or Twitter, lately I’ve noticed such connections happening all over the place – with LinkedIn, Google, Foursquare, and many others. I think it’s only a matter of time – and not much of it – before we have a “metaservice” hit on our hands – an entirely new and delightful service that curates our digital lives and adds value above the level of a single site.

Perhaps it’s already out there. What have you seen that qualifies as a metaservice today?   

Remember Googlezon?

By - January 25, 2011

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Lately I’ve become a bit obsessed with predicting the future. Not the present future, as in one year from now – I do that every year, after all. But the long-ish future, as in ten to twenty years out. That kind of a time horizon is tantalizing, because it’s within the reach of our reason – if only we play the right trends out, and anticipate new ones that could defensibly emerge.

I’ve often found that predicting the future is a waste of time, but reporting the future is a worthy endeavor. More on that in another post, but I learned this distinction from my mentors an co-founders at Wired back in the early 1990s.

Late last year the Economist asked me to predict what the world might be like in 2036. When they asked, I of course said yes, because heck, it’s very rare for anyone to get a byline in the Economist (most pieces run without credit). I think my predictions were OK, but I have to say I can’t defend them with any kind of rigorous framework.

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Over the past week or so, however, an idea has grown inside my mind, and I can’t shake it. I spend a lot of time thinking about where this Internet Economy is going, and I’ve grown tired of the short view. I’m itching for a wider vista, for a time frame that spans years, if not decades. Most of the blogs, news outlets, and pundits I read day-to-day are stuck in the short now. I want to think more about the long future.

So I’ve started looking for predictions that spanned at least a decade. And of course the first one that came to mind was EPIC 2014. I remember covering this short film in 2004, when it first came out. It caused quite a stir back then, because the scenario it painted seemed so…possible. And given that it was predicting events an entire decade later, it had a certain whiff of science fiction to it. We want to believe in science fiction – after all, it’s nothing more than proof that the future is already here, just unevenly distributed.

EPIC 2014 focused on one thread of our ever-changing Internet Economy – our relationship to media. Some six-plus years of heady change later, I wondered, how does it hold up? And what can we learn from watching it now, just a few years from its predictive date of 2014?

Well, depending on how you grade it, it’s either an utter failure, or pretty smart, given the constraints of the time.

Remember, after all, that in late 2004, Facebook didn’t really exist. Certainly the idea of the “social graph” was years from cultural currency. Twitter was utterly foreign. EPIC 2014 is interesting for the assumptions it makes, and what it got right, and what it got wrong. Here are few choice ones:

- The New York Times “goes offline.” This seemed vaguely possible only a year ago. Now, the Times seems quite a bit more healthy, and it’s certainly not going anywhere soon. In fact, most news outlets look to the Times as forging a new model for news, one that just might work.

- Google buys Tivo. Nope, but damn, I bet many wish they had. This assumes Google wants to be a really good interface to TV. Apparently, no one at Google got that memo, yet. Because all I have heard about Google TV is that the interface is way, way too hard to understand.

- Microsoft responds to Google by buying Friendster and creating “social news.” If only! That might have saved Friendster, if only for a year or two. But the thinking that social news would be really important was prescient. Microsoft would create this social news service by 2007, EPIC predicted. Well, the company did a major deal with Digg in early 08. How did *that* work out, eh?!

- Google will create a service called “Google Grid” – a smart prediction of cloud computing; with “subscriptions” to “editors” who add value to the grid. This presages Twitter and Tumblr, or the rise of social editors and supernodes, as I’ve written previously.

- Google and Amazon would join forces, with Amazon lending its recommendation smarts, and Google lending its grid computing. Oddly, Amazon is now the leader in cloud, with Google a close second. And so far, Google and Amazon haven’t become real partners, in fact, if anything they are poised to be mortal enemies given the fight over media distribution coming with Kindle, Android, Google TV, and Amazon’s streaming media ambitions.

Overall, what I find fascinating about EPIC is how it got the overarching trends right, in the main, but the timeline and the details, while supporting a compelling narrative, were utterly wrong. Yes, the cloud is coming, but man, it ain’t gonna take over the world in a mere five or six years! Yes, social news and social editing will be critical, but NO, the winners of the current day – Google, Amazon, and Microsoft – would NOT rule that world. Totally new and unpredictable startups – Facebook, Twitter, Tumblr – own that space now. And in the meantime, a shooting star – Digg – came, flamed, and went!

All in all, I love EPIC 2014 just for the fact that it was made. Here and below is a link, again, to the video, this time on YouTube, which, of course, didn’t exist when EPIC was made.

I love the Internet.


The InterDependent Web

By - January 23, 2011

When I wrote Identity and The Independent Web last Fall, I was sketching out the beginnings of what I sense was an important distinction in how we consume the web. This distinction turned on one simple concept: Dependency.

Of course, the post itself was nearly 2500 words in length and wandered into all sorts of poorly lit alleys, so one could be forgiven for not easily drawing that conclusion. But since that Thinking Out Loud session, I’ve continued to ponder this distinction, and I’ve found it’s become a quite useful framing tool for understanding the web.

So here’s another attempt at defining one corner of the “Independent Web,” as distinct from the “Dependent Web.” In my original piece, I state:

The Dependent Web is dominated by companies that deliver services, content and advertising based on who that service believes you to be: What you see on these sites “depends” on their proprietary model of your identity, including what you’ve done in the past, what you’re doing right now, what “cohorts” you might fall into based on third- or first-party data and algorithms, and any number of other robust signals.

The Independent Web, for the most part, does not shift its content or services based on who you are.

Yahoo, for example, will show you one of a possible 38,000 home pages, depending on who Yahoo believes you to be. Yahoo Mail (or any other mail, for that matter), is an utterly dependent service: it will only show you your mail (we hope). Facebook, of course, creates an entirely different experience for you than it does for me, because what Facebook shows us depends on who Facebook thinks we are. And search, in general, is a dependent service – what you see as results depends both on what you input as a query, as well as who the search service believes you are (personalized search).

And while I believe this idea of a dependent service being defined as “one that changes depending on its profile of you” is important, this isn’t the only feature that distinguishes Independent sites from Dependent ones.

Another way to understand the distinction is that Dependent sites tend to be ones we, well, depend on for some basic service in our lives. You might depend on Yahoo or Google for mail. We depend on Facebook for our social graph, and Twitter for our “interest graph.” Of course we depend on Google (or Bing) for search. And I’m starting to depend on StumbleUpon to surface sites I might like.

In fact, most of us “depend” on Dependent-web services to discover independent sites – a fact we may as well call “the interdependence of the independent and dependent web.”

Whew. We employ both kinds of sites, and each type depends on the other for value. What would Google be without the billion points of independent light out the rest of the web?

Not much, to my mind, and I think that’s essentially the point of both Fred’s call out today (see his piece on The Independent Web) as well as his partner Albert’s advice to Larry Page.

The funny thing is, Dependent web sites crave the dollars that big marketers spend on branding, but their services don’t complement brands, in the main. Yet up until recently, brands haven’t have many other places to spend their dollars online (brands love scale), so they’ve spent them at large dependent web services, and, in the main, bemoaned their comparative weakness to television. Yahoo Mail is a famously terrible place to put brand advertising. Google is a direct marketing machine, but it’s not a great environment for brands. Brands love Twitter and Facebook, but are still trying to figure out how to leverage those services at scale – Facebook’s “engagement ads” are not exactly brand friendly, though they can serve as great distribution for a branded story somewhere else (same for Twitter’s promoted services).

So where does that brand story live? My answer: On the Independent web.

Consider the sub-category of “content” on the web. It’s a very large part of what makes the web, the web – millions of “content sites,” ranging from the smallest blog to ESPN.com. Most of these sites don’t change what they show us depending on who they think we are. So does the “independent/dependent/interdependent” framework help us distinguish anything interesting here?

I think it does. To me, an independent content site is one driven by a sense of shared passion around a subject or a voice, one that a consumer independently chooses to visit and engage with.

Publishers pay close attention to what visitors choose to do independently on our sites – we covet “repeat visitors,” “high engagement,” and “low bounce rates.” Do visitors come back independently, or do we, as publishers, depend on acquiring one-time traffic from SEO, SMO, or other “tricks”? Once visitors come via a dependent service like search or social or StumbleUpon, do they independently elect to consume more than just the one page they’ve landed on?

When it comes to “engagement”, dependent sites tend to have more of it, at least if you are measuring in user minutes. Folks stay on Facebook for a long, long time. Twitter users go back over and over again, especially power users. The average Google user goes back again and again. Most of Yahoo’s engagement is in mail – take mail out of Yahoo, and Yahoo would lose a huge chunk of its user minutes.

But there’s a big difference between engagement on a dependent site, and engagement on an independent site. And in a word, that difference is what makes a brand.

When we engage with content, we engage with a shared narrative – a new story is told, an old story is retold or re-interpreted. And that shared narrative shifts what we believe and how we see the world. We are in the space of shared symbols – brands – and it is in this space that marketers can tell their stories and shift our perceptions.

I’m fascinated by how brands can leverage Dependent services in conjunction with the Independent web, and if there’s one conclusion I’ve come to, it’s this: Brands must be robust actors in the Independent web, underwriting its ecosystem and participating in its ongoing creation and curation. It’s not enough to “have a presence in Facebook” or “do an upfront with Yahoo and Google.” Brands must also engage where ideas and narratives are born and shaped – and learn to join the Independent web.

Sure, that idea is self-serving – FM’s tagline is “powering the best of the Independent web, at scale.” But that doesn’t mean we don’t love us some Dependent web services. We’ve been pioneers in working with all kinds of great services, from Digg in 2006 to Facebook Platform in 2007; Twitter in 2008 to Foursquare in 2010. If you’re going to succeed as a publisher or a brand on the web, you need to work with both. They’re interdependent, and wonderfully so.

Some might argue that you never need to leave a particular service or domain – that you can “get all you need” in one place. I certainly hope not. That sounds like a movie we’ve seen before, and don’t need to watch again.

Make My Baby – Is The Baby Facebook? Updated: No, It's Myspace…

By - January 18, 2011

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Over the weekend, as I pondered an eMarketer report estimating Facebook’s advertising revenue at $1.86 billion (seems low), I wondered to myself: When will Facebook start to drive the kind of widespread graymarket activity which proved Google’s immense worth? Or will it ever?

Allow me to explain. Back in the days when Google and its rival Overture were on the rise (this would be pre-IPO for Google, so around 2002-3), an army of small time arbitragers were gathering, leveraging Adwords (and in 2003, Adsense) to make money in any number of ways. But the basics were pretty easy to grok: Say you could purchase a click on Adwords for the term “cute kitty” for fifty cents. And say further that when someone clicked on your Adword, they’d show up at a third-party site, and 10 percent of the time, they’d follow instructions to fill out a mortgage application. And say that further, you could sell that filled-out application to a lender for $15.

If you do the math – ten clicks costs you $5 on Adwords, but you make $15 for selling that lead, which converts one in ten times – it explains why a huge business sprang up around Adwords and Adsense. If you are paying attention, redirecting attention from cute kitties to mortgage brokers will pay extremely well. The same proved true for all manners of lead generation, from cel phone plans to life insurance to automobiles.

It’s legal, but it leaves a kind of queasy feeling in your stomach, don’t it?

Now, just that feeling has risen up around Facebook advertising in the past (in particular around social gaming), but I was waiting for it to break out full blown into the “real world” outside of Internet ponziland. When would Facebook become a hotbed of affiliate arbitrage across the board? To me, that would be a sign that Facebook was breaking out just like Google did in 2003.

So it’s funny how this story from RWW breaks just this weekend. And funnier still how it’s all about Google’s competitor, Bing, which has changed the economics of the Internet advertising ecosystem by pricing conversions well above previous floors. It’s all just too rich. Literally. (Google’s Matt Cutts points this out in his own way right here).

The details: RWW found the fact that a random website called “Make-My-Baby.com” was the third largest advertiser on Facebook in Q3 2010. Turns out, it’s an affiliate play driven by Microsoft Bing bounty money. In short, Microsoft offers a certain amount of money, per user, to anyone who can convert that user into a Bing customer. The company behind Make My Baby, Zugo, seems to be a vintage arbitrageur. In fact, Zugo hasn’t even updated its terms and conditions, which date back to 2009 and seem cut and pasted from a program they ran in England doing for Ask.com that they are now doing for Bing.

Clearly, Zugo has found that buying ads on Facebook pays well. The question remains, however, whether that is true for a whole new class of arbitrageur.

Ah, me loves me some Interwebs.

Update: Bing has terminated its relationship with Zugo, SEL reports. And Zugo was using MySpace inventory, NOT Facebook….

No, In Fact, We Haven't Seen This Movie Before

By - January 13, 2011

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Thanks to monster private financings from Groupon and Facebook, as well as the promise of major IPOs from Demand, LinkedIn, Zynga and others, the predictable “watch out, here we go again” buzz is rising up in the press. This article from Ad Age, subtitled “With Billion-Dollar Dot-com Valuations Back in a Big Way, It’s Time for Alarm Bells to Start Ringing,” is typical of the bunch. With a “we’ve seen this movie before” tone, it points out that most of the successful companies of today had models that were tried ten years ago, and in the main they failed.

But I’d like to point out a couple pretty obvious differences between the dot com busts of a decade ago, and the companies that are now earning billion dollar valuations. To wit:

- Each of the companies earning these valuations have revenues in the hundreds of millions or more, and operating profits in the tens of millions, if not more. Most also have operating histories of many years, and/or executives and boards who have extensive histories operating in the Internet economy.

- The markets overall have changed dramatically, on many different fronts. First of all, nearly every consumer in the developed world is comfortable spending money using the web. Second, the web is firmly a mobile medium, enabling business models that were mere dreams a decade ago. And third, the markets have been mostly closed to public investment in the “Internet thesis” for most of the past ten years, so there is a very strong pent up demand to invest in what many see as the future of how business will be done.

Combine these factors and you have what I view as a pretty solid environment: a strong demand for quality companies, and quality companies to fulfill that demand. Is $50 billion too high for Facebook, or $5billion too high for Groupon? Well, we’ll see. As the initial surge of IPO demand abates, newly public companies will prove their value in the long term by delivering growth. At least they have strong platforms of revenues and profits, as well as extraordinary market positions, from which to start. Remember, Google went public in 2004 at under $100, and nearly everyone thought the company was overvalued.

Back in the dot com era, most retail Internet investors were buying on the come, on promises that the hand waving and affirmations of Web 1.0 entrepreneurs would magically come true. Almost none of the companies that went public back then could boast the metrics today’s private winners do. Truth be told, the promises of the Internet hand wavers are coming true, but for investors in the 1990s, it’s a decade too late.

We’re in an entirely different place, as an industry, than we were ten years ago. I very much doubt we’ll see the same mistakes made again. If money losing companies with nothing but an idea and some VC backers manage to go public, I’ll be the first to write a post about our collective amnesia.

And this is not to say that marginal companies won’t attempt to go public in coming years, or that there won’t be flameouts and losers over time. There always are. But compared to the late 1990s, the companies lining up to offer themselves to the public look healthy, well positioned, and very, very real.

Predictions 2011

By - January 03, 2011

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InnostraD-tm-3-tm-tm-tm.jpg the eighth version of my annual predictions, I’ll try to stay focused and clear, the better to score myself a year from now. And while I used the past two weeks of relatively fallow holiday time as a sort of marination period, the truth is I pretty much just sat down and banged these predictions out in one go, just as I have the past seven years. It works for me, and I hope you agree, or at least find them worth your time. So here we go:

1. We’ll see the rise of a meme which I’ll call “The Web Reborn” – a response to the idea that mobile and apps have killed the web as we know it. In fact, we’ll come to realize that the web is the foundation of nearly everything we do, and we’ll start to expect, as consumers, that all our service providers honor and build in basic principles of “web friendliness” – data portability and user-controlled identity most important among them. Call it a return to the original principles of “Web 2.0″.

2. Voice will become a critical interface for computing (especially mobile apps). This is just not true now, but in a year’s time, there will be a handful of very popular apps that are driven by voice, and in particular, by weaving together voice, text, and identity.

3. DSPs (Demand Side Platforms) will fade into the fabric of larger marketing platforms. In the end, DSPs are the handle by which we understand the concept of technology-driven ad networks. And those have been with us for over a decade. Exchanges, DSPs, SSPs, etc. are all important, but in the end, what matters is that advertisers have scale and efficiency, and consumers have control.

4. Related, MediaBank will emerge as a major independent player in the marketing world, playing off its cross channel reach (outside of digital) and providing an alternative to the conflicted digital platforms at Facebook, Microsoft, Google, and Yahoo. I could imagine a major tech or telco player trying to buy MediaBank as the world realizes that marketing is, in essence, a massive IT business (among many other things).

5. The Mac App Store will be a big hit, at least among Mac users, and may well propel Mac sales beyond expectations.

6. Related, Apple will attempt to get better at social networking, fail, and cut a deal with Facebook.

7. Also related, Apple will begin to show signs of the same problems that plagued Microsoft in the mid 90s, and Google in the past few years: Getting too big, too full of themselves, and too focused on their own prior success.

8. Microsoft will have a major change in leadership. I am not predicting Ballmer will leave, but I think he and the company will most likely bring in very senior new talent to open new markets or shift direction in important current markets like media/marketing/social.

9. The public markets will be surprisingly open to major new Internet deals, despite the current rise of “private IPOs” and the growing belief that the IPO process is broken. In the end, there’s just too many good reasons for public companies to be, well, public. (See Gurley).

10. The tablet market will have a year of incoherence. Apple will dominate with the iPad due to a lack of an alternative touchstone. Google will focus on providing a clear, consistent experience through Android for tablets and mobile, but it will take a third party to unify the experience. I don’t see that happening this year.

11. “Social deals” will morph to become a standard marketing outlet for all business, and by year’s end be seen as a standard part of any marketer’s media mix. Groupon will lead here, but nearly every major player will have an offering, often by partnering with leaders. I’m tempted to say Facebook will abandon its own Deals offering for a deal with Groupon, but I’m not sure that will unfold in one year.

12. Related, Groupon will fend off an acquisition by a major carrier, probably AT&T or Verizon. It’s possible they’ll sell, but I doubt it.

13. Facebook will decline as a force in the Internet world, as measured by buzz. The company will continue to be seen as Big Brother in the press, and struggle with internal issues related to growth. Also, it will lose some attention/share to upstarts. However, its share of marketing dollars and reach will increase.

14. Related, we’ll see major privacy related legislation in the US brought to the floor of Congress, and then fail for lack of consensus. But that will drive a significant shift in how our culture understands its relationship to the world our industry is building, and that’s a good thing.

I’d love to keep going, but I think those are the major ones, at least from my vantage point. Thanks for reading, it was a great year. I’m not going to make predictions about my own work this year, as I’ve got too much inside knowledge on that topic! Let me know your thoughts in comments, and have a great 2011!

Related:


Predictions 2010

2010 How I Did

2009 Predictions

2009 How I Did

2008 Predictions

2008 How I Did

2007 Predictions

Thinking Out Loud: What's Driving Groupon?

By - December 17, 2010

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In the current issue of the New Yorker, columnist James Surowiecki, who I generally admire, gets it exactly wrong when it comes to Groupon.

He writes:

” But it seems unlikely that it’s going to become a revolutionary company, along the lines of YouTube, Facebook, Twitter, and Google. ….Groupon, by contrast, is a much more old-school business. It doesn’t have any obvious technological advantage. Its users don’t really do anything other than hit the “buy” button. And its business requires lots of hands-on attention…”

Well, that’s a defensible opinion, but after visiting CEO Andrew Mason this week in Chicago, and thinking about it a bit, I must say that I wholeheartedly diasagree.

Many folks think of Groupon as a relatively simple idea. A daily deal, a large sales force, and that’s about it. Too easy to copy (there are scores of “Groupon clones”), and too labor intensive (the more small businesses you want to work with, the more sales and service people you need).

All this is true. But it fails to understand the power of Groupon’s model. To sum it up: Groupon has built a new channel into the heart of the the world’s economic activity: Small businesses. And it is that channel where the true power lies.

First, the economic math: Small businesses create more than 50% of US GDP and create more than 75% of net new jobs each year. But small businesses represent a fragmented, maddeningly difficult sector of our economy – 23 million small pieces loosely joined. Any platform that has connected them and added value to their bottom line has turned into a massive new business.

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Over the past century, there have been two such new platforms. The most recent is Google, a proxy for the rise of the web as a platform for small business lead generation. Before that, it was the Yellow Pages, a proxy for the rise of the telephone as a platform for lead generation.

Groupon, I believe, has the potential to be a new proxy – one that subsumes the platforms of both the Internet and the telephone, and adds multiple dimensions beyond them.

I know that’s a stretch, but hear me out.

First, let’s review the Yellow Pages. What is it? Well, for the most part, it’s a paper-based publishing platform that combines a curated local business phone directory with advertising listings. Nearly every single small business with a phone number is listed in the Yellow Pages, and a large percentage of them also buy advertising to promote their wares as well.

In short, the Yellow Pages is a platform that connects every single consumer with a phone to every single local business with a phone.

As a business, the Yellow Pages consists of folks who manage the listings and produce the books, as well as a very large sales force which calls on local businesses. Once a year, the product turns over, and a new book is made.

That’s it. Simple (and certainly not technologically defensible), and while it’s clearly in decline, the Yellow Pages is currently a $15 billion revenue business in the US alone. Now, the Yellow Pages is also an online business, but they were late the party, and have pretty much lost to Google when it comes to the platform play.

Google represents a second new platform which connects consumers and small businesses. Many forget that it was small business that drove early adoption of AdWords (as well as Overture, its early competition). And while not every small business is yet online – 36% of US small businesses still don’t have a web site – a the clear majority of them do, and milllions of them use AdWords, as well as organic search, to drive leads to their business. Google makes billions of dollars leveraging its platform, which, by the way, has subsumed the Yellow Pages business and grown well past it into any number of other markets, including most major international regions.

Google alone is on a $30 billion revenue run rate, and it’s only ten years old. That’s twice the US revenues of the Yellow Pages, which were built up over more than 50 years.

So to review, the Yellow Pages leveraged the telephone to create a massively scaled and profitable platform connecting consumers and businesses. Google did the same, but leveraged the Internet (and subsumed the telephone as well).

And Groupon is doing it again, subsuming the telephone, the Internet, and leveraging an entirely new platform: the mobile web. google_logo1.jpg

Now, before you yell at me and claim that Groupon is anything BUT a mobile-driven company (the company sends email to 40mm US subscribers, for example), recall my definition of mobile is a bit more complicated than most.

Remember MOLRS? As I said in that post: “if you are going to think about mobile, you have to think about social, local, and real time.” In short, mobile is meaningless without context: Where someone is (or is about to go), who someone is with (or about to go meet), and why someone is where they are (or with who they are with). And, of course, when someone is where they are (and with whomever they are there with…).

Whew. Sorry, but you get the picture.

Now, let’s think about MOLRS in relation to small business. First, small business owners (SBOs) care deeply about location. Are they in a good location? Will customers be able to find them? Is there parking? A good neighborhood? Strong foot traffic?

Second, SBOs care deeply about relationships and word of mouth (or what we will call social). Do people refer their friends and family to the business? Are people happy with the service? Will they say nice things?

Third, SBOs care very much about timing (what I call “real time” in my MOLRS breakdown). What are the best hours for foot traffic? What are the best times to run promotions? How can I bring in more business during slow times? How does seasonality effect my business? When should I have a sale?

In short, SBOs are driven by local, social, and real time.

Turns out, so is Groupon.

Now, ask any small business owner what they wish for more of, and they’ll give you a resounding answer: More customers. It’s why they pay for the Yellow Pages ad, and it’s why they buy AdWords from Google.

And it’s why they are starting to buy Groupon’s product, at a breakneck pace. Sure, some of them buy too much of it, or fail to do the math and lose money on the come. They’ll adjust, and if they don’t, smarter SBOs will eat their lunch, and the world will move on.

To my mind, the proof is in Groupon’s growth rate. I’ve never seen anything like it – well, since Google. And just as Google lapped the Yellow Pages in a fraction of the time, Groupon seems to be on track to do the same to Google.

Good sources have told me that Groupon is growing at 50 percent a month, with a revenue run rate of nearly $2 billion a year (based on last month’s revenues). By next month, that run rate may well hit $2.7 billion. The month after that, should the growth continue, the run rate would clear $4 billion.

Google’s run rate, when revealed in its IPO filing six years ago, was staggering – it grew from under $200 million to $1.6 billion in less than three years. Groupon is on track to do the same – but in less than one year.

That’s pretty extraordinary. But remember, Groupon has figured out a way to deliver what SBOs want most: more customers in their stores. And unlike Google or the Yellow Pages, Groupon doesn’t sell advertising. Instead, it takes 50% of the actual revenue driven by its platform. Trust me, that’s potentially a much bigger number.

Actually, it’s pretty interesting to see how the business model of driving leads to business has shifted as each platform has risen to dominance. The Yellow Pages charge a set price for a display ad, with no guarantee that the ad would drive any leads. Google turned the model upside down, and charged only when people clicked on the ad. Groupon doesn’t charge anything at all: It simply takes half the revenue generated when a deal is fulfilled by its platform.

So to summarize, I think those who claim Groupon’s business is too simple are focused on the wrong things. Sure, there are other deal sites. But none have Groupon’s scale. Sure, Groupon’s model of one deal in one city on one day is limited, but it’s easy to see how the product scales against category, zip code, time of day, and many other variables. And sure, Groupon has a lot of people who have to touch a lot of businesses and a lot of customers every day. But to me, that’s the company’s strength: SBOs are in the people business, and therefore, so must Groupon be.

And this, to my mind, is why Facebook or Google can’t compete with Groupon. Imagine Facebook or Google with 1,000 people who do nothing but talk to customers all day long? Yep, I can hear the laughter from here….

While I was visiting earlier this week, CEO Mason told me that a significant percentage of Groupon’s customer service reps are members of Chicago’s vibrant improv scene. That makes sense to me – if you are going to deal with possibly upset people all day, it helps to have a culture of humor and thinking on your feet.

That culture will serve Groupon well as it attempts to deal with world record-breaking growth. While there is no certainty the company won’t blow its lead, it’s already a major international player. And while Mason would not comment on the rampant speculation over a $6 billion offer from Google that reportedly fell apart last week, in the end, it may be that the idea of Groupon being purchased by Google is as silly as the idea that the Regional Bell Operating Companies, who originally had the monopoly on the Yellow Pages market, could or should have bought Google.

In the end, it wouldn’t have been a fit.

Signal, Curation, Discovery

By - December 11, 2010

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This past week I spent a fair amount of time in New York, meeting with smart folks who collectively have been responsible for funding and/or starting companies as varied as DoubleClick, Twitter, Foursquare, Tumblr, Federated Media (my team), and scores of others. I also met with some very smart execs at American Express, a company that has a history of innovation, in particular as it relates to working with startups in the Internet space.

I love talking with these folks, because while we might have business to discuss, we usually spend most of our time riffing about themes and ideas in our shared industry. By the time I reached Tumblr, a notion around “discovery” was crystallizing. It’s been rattling around my head for some time, so indulge me an effort to Think It Out Loud, if you would.

Since its inception, the web has presented us with a discovery problem. How do we find something we wish to pay attention to (or connect with)? In the beginning this problem applied to just web sites – “How do I find a site worth my time?” But as the web has evolved, the problem keeps emerging again – first with discrete pieces of content – “How do I find the answer to a question about….” – and then with people: “How do I find a particular person on the web?” And now we’ve started to combine all of these categories of discovery: “How do I find someone to follow who has smart things to say about my industry?” In short, over time, the problem has not gotten better, it’s gotten far more complicated. If all search had to do was categorize web content, I’d wager it’d be close to solved by now.

But I’m getting ahead of myself.

Our first solution to the web’s initial discovery problem was to curate websites into directories, with Yahoo being the most successful of the bunch. Yahoo became a crucial driver of the web’s first economic model: banner ads. It not only owned the largest share of banner sales, but it drove traffic to the lion’s share of second-party sites who also sold banner ads.

But directories have clumsy interfaces, and they didn’t scale to the overwhelming growth in the number of websites. There were too many sites to catalog, and it was hard to determine relative rank of one site to another, in particular in context of what any one individual might find relevant (this is notable – because where directories broke down was essentially around their inflexibility to deal with individual’s specific discovery needs. Directories failed at personalization, and because they were human-created, they failed to scale. Ironically, the first human-created discovery product failed to feel…human).

Thus, while Yahoo remains to this day a major Internet company, its failure to keep up with the Internet’s discovery problem left an opening for a new startup, one that solved discovery for the web in a new way. That company, of course, was Google. By the end of the 1990s, five years into the commercial web, discovery was a mess. One major reason was that what we wanted to discover was shifting – from sites we might check out to content that addressed our specific needs.

Google exploited the human-created link as its cat-herding signal. While one might argue around the edges, what Google did was bring the web’s content to heel. Instead of using the site as the discrete unit of discovery, it used the page – a specific unit of content. (Its core algorithm, after all, was called PageRank – yes, named after co-founder Larry Page, but the entendre stuck because it was apt).

Google search not only revolutionized discovery, it created an entire ecosystem of economic value, one that continues to be the web’s most powerful (at least for now). As with the Yahoo era, Google became not only the web’s largest seller of advertising, it also became the largest referrer of traffic to other sites that sold advertising. Google proved the thesis that if you find a strong signal (the link), and curate it at scale (the search engine), you can become the most important company in the Internet economy. With both, of course, the true currency was human attention.

But once again, what we want to pay attention to is changing. Sure, we still want to find good sites (Yahoo’s original differentiation), and we want to find just the right content (Google’s original differentiation). But now we also want to find out “What’s Happening” and “Who’s Doing What”, as well as “Who Might I Connect With” in any number of ways.*

All of these questions are essentially human in nature, and that means the web has pivoted, as many have pointed out, from a site- and content-specific axis to a people-specific axis. Google’s great question is whether it can pivot with the web – hence all the industry speculation about Google’s social strategy, its sharing of data with Facebook (or not), and its ability to integrate social signal into its essentially HTML-driven search engine.

While this drama plays out, the web once again is becoming a mess when it comes to discovery, and once again new startups have sprung up, each providing new approaches to curate signal from the ever-increasing noise. They are, in order of founding, Facebook, Twitter, and Tumblr, and oddly enough, while each initially addressed an important discovery problem, they also in turn created a new one, in the process opening up yet another opportunity – one that subsequent (or previous) companies may well take advantage of.

Let me try to explain, starting with Facebook. When Facebook started, it was a revelation for most – a new way to discover not only what mattered on the web, but a way to connect with your friends and family, as well as discover new people you might find interesting or worthy of “friending.” Much as Google helped the web pivot from sites to content, Facebook became the axis for the web’s pivot to people. The “social graph” became an important curator of our overall web experience, and once again, a company embarked on the process of dominating the web: find a strong signal (the social graph), curate it at scale (the Facebook platform), and you may become the most important company in the Internet economy (the jury is out on Facebook overtaking Google for the crown, but I’d say deliberations are certainly keeping big G up at night).

But a funny thing has started to happen to Facebook – at least for me, and a lot of other folks as well. It’s getting to be a pretty noisy place. The problem is one, again, of scale: the more friends I have, the more noise there is, and the less valuable the service becomes. Not to mention the issue of instrumentation: Facebook is a great place for me to instrument my friend graph, but what about my interests, my professional life, and my various other contextual identities? Not to mention, Facebook wasn’t a very lively place to discover what’s up, at least not until the newsfeed was forced onto the home page.

Credit Twitter for that move. Twitter’s original differentiation was its ability to deliver a signal of “what’s happening”. Facebook quickly followed suit, but Twitter remains the strongest signal, in the main because of its asymmetrical approach to following, as opposed to symmetric friending. Twitter is yet another company that has the potential to be “the next Yahoo or Google” when it comes to signal, discovery, and curation, but it’s not there yet. Far too many folks find Twitter to be mostly noise and very little signal.

In its early years, things were even worse. When I first started using Twitter, I wrote quite a bit about Twitter’s discovery problem – it was near impossible to find the right folks to follow, and once you did, it was almost as difficult to curate value from the stream of tweets those people created.

Twitter’s first answer to its discovery problem – the Suggested User List – was pretty much Yahoo 1994: A subjective, curated list of interesting tweeters. The company’s second attempt, “Who To Follow,” is a mashup of Google 2001 and Facebook 2007: an algorithm that looks at what content is consumed and who your follow, then suggests folks to follow. I find this new iteration very useful, and have begun to follow a lot more folks because of it.

But now I have a new discovery problem: There’s simply too much content for me to grok. (For more on this, see Twitter’s Great Big Problem Is Its Massive Opportunity). Add in Facebook (people) and Google search (a proxy for everything on the web), and I’m overwhelmed by choices, all of them possibly good, but none of them ranked in a way that helps me determine which I should pay attention to, when, or why.

It’s 1999 all over again, and I’m not talking about a financing bubble. The ecosystem is ripe for another new player to emerge, and that’s one of the reasons I went to see the folks at Tumblr yesterday.

As I pointed out in Social Editors and Super Nodes – An Appreciation of RSS, Tumblr is growing like, well, Google in 2002, Facebook in 2006, or Twitter in 2008. The question I’d like to know is….why?

I’m just starting to play with the service, but I’ve got a thesis: Tumblr combines the best of self expression (Facebook and blogging platforms) with the best of curation (Twitter and RSS), and seems to have stumbled into a second-order social interest graph to boot (I’m still figuring out the social mores of Tumblr, but I am quite certain they exist). People who use Tumblr a lot tell me it “makes them feel smarter” about what matters in the web, because it unpacks all sorts of valuable pieces of content into one curated stream – a stream curated by people who you find interesting. It’s sort of a rich media Twitter, but the stuff folks are curating seems far more considered, because they are in a more advanced social relationship with their audience than with folks on Twitter. In a way, it feels like the early days of blogging, crossed with the early days of Twitter. With a better CMS and a dash of social networking, and a twist. If that makes any sense at all.

Tumblr, in any case, has its drawbacks: It feels a bit like a walled garden, it doesn’t seem to play nice with the “rest of the web” yet, and – here’s the kicker – finding people to follow is utterly useless, at least in the beginning.

Just as with Twitter in the early days, it’s nearly impossible to find interesting people to follow on Tumblr, even if you know they’re there. For example, I knew that Fred Wilson, who I respect greatly, is a Tumblr user (and investor), so as soon as I joined the service, I typed his name into the search bar at the top of Tumblr’s “dashboard” home page. No results. That’s because that search bar only searches what’s on your page, not all of Tumblr itself. In short, Tumblr’s search is deeply broken, just like Twitter’s search was back in the day (and web search was before Google). I remember asking Evan Williams, in 2008, the best way to find someone on Twitter, and his response was “Google them, and add the word Twitter.” I’m pretty sure the same is true at present for Tumblr. (It’s how I found Fred, anyway).

Continuing the echoes of past approaches to the same problem, Tumblr currently provides a “suggested users” like directory on its site, highlighting folks you might find interesting. I predict this will not be around for long – because it simply doesn’t solve the problem we want it to solve. I want to find the right users for me to follow, not ones that folks at Tumblr find interesting.

If Tumblr can iron out these early kinks, well, I’d warrant it will take its place in the pantheon of companies who have found a signal, curated it at scale, and solved yet another important discovery problem. The funny thing is, all of them are still in the game – even Yahoo, who I’ve spent quite a bit of time with over the past few months. I’m looking forwarding to continuing the conversation about how they approach the opportunity of discovery, and how each might push into new territories. Twitter, for example, seems clearly headed toward a Tumblr-like approach to content curation and discovery with its right hand pane. Google continues to try to solve for people discovery, and Facebook has yet to prove it can scale as a true content-discovery engine.

The folks at Google used to always say “search is a problem that is only five-percent solved.” I think now they might really mean “discovery is a problem that will always need to be solved.” Keep trying, folks. It gets more interesting by the day.

* I’m going to leave out the signals of commerce (What I want to buy) and location (Where I am now) for later ruminations. If you want my early framing thoughts, check out Database of Intentions Chart – Version 2, Updated for Commerce, The Gap Scenario,and My Location Is A Box of Cereal for starters.

Google, China, Wikileaks: The Actual Cable

By - December 08, 2010

Guardian Cable Google China.png

When the Wikileaks story broke, I wrote a short piece chastising folks for blogging the assertion that one of the cables proves the Chinese government was behind the Google hacking which preceded Google’s pulling out of the country. The cable is based on single sources, who are anonymous and second-hand, and that doesn’t pass the journalistic sniff test.

My colleague Matt McAlister at the Guardian has sent me the link to the entire cable, and while I stand by my original take on the story, it sure is intriguing to read. In fact, the details I find most interesting are the interactions alleged between Baidu and the Chinese goverment.

From the cable:

….

Another contact claimed a top PRC leader was actively working with Google competitor Baidu against Google.

….

Google’s recent move presented a major dilemma (maodun) for the Chinese government, not because of the cyber-security aspect but because of Google’s direct challenge to China’s legal restrictions on Internet content. The immediate strategy, XXXXXXXXXXXX said, seemed to be to appeal to Chinese nationalism by accusing Google and the U.S. government of working together to force China to accept “Western values” and undermine China’s rule of law. The problem the censors were facing, however, was that Google’s demand to deliver uncensored search results was very difficult to spin as an attack on China, and the entire episode had made Google more interesting and attractive to Chinese Internet users. All of a sudden, XXXXXXXXXXXX continued, Baidu looked like a boring state-owned enterprise while Google “seems very attractive, like the forbidden fruit.”

….

XXXXXXXXXXXX noted the pronounced disconnect between views of U.S. parent companies and local subsidiaries. PRC-based company officials often downplayed the extent of PRC government interference in their operations for fear of consequences for their local markets. Our contact emphasized that Google and other U.S. companies in China were struggling with the stated Chinese goal of technology transfer for the purpose of excluding foreign competition. This consultant noted the Chinese were exploiting the global economic downturn to enact increasingly draconian product certification and government procurement regulations to force foreign-invested enterprises (FIEs) to transfer intellectual property and to carve away the market share of foreign companies.