Polygraph Media Blog

SXSW Panel on OPD (Other Peoples' Data)

SXSW Interactive2013 approaches... it's the the fifth year in a row I'm attending and the sixth in the last eight for me.  The event continues to thrive and is the one "must-attend" event of the year in my book.

A few quick thoughts on the panel I was invited to join by Carter Rabasa of Twilio and Hung Truong of NewFoundry -- it's my first time speaking at SXSW.  I straddle marketing & technology professionally, and am speaking on the tech side in this session.

Discussion will center on mashups and/or "OPD" -- other peoples' data.  To me, the term "mashup" is a little antiquated in sense that today's developers are doing far more with data than when the term "mashup" originated.  I remember, for example, when plotting points on maps was relatively novel. We've come a long way in the last 5-7 years.

Take for example the developer marketing paradigm that was of most interest to us during my ~4 years at Microsoft, ending in 2008. We wanted developers to write apps for .NET and in some cases Microsoft software... to build custom applications and experiences on top of the Microsoft stack.  Interestingly, the next cycle of web/mobile innovation has come from not building apps on existing software produts but rather from building apps on top of the data that apps and the web platform has enabled.  The apps and web frameworks are reduced in that paradigm to an infrastructure role, and themselves are not where the action is once the infrastructure is in place and mature.  Data is the star, not the infrastructure.

Think of it in a more tangible context -- the interstate highway system is built in the USA in the 1950s and enables interstate commerce.  This creates a trucking industry, rest stops, Stuckey's restaurants, the need for more cars, faster travel, and so on.  Infrastructure was the enabler -- tons of businesses followed.

When I was at Microsoft, we incorrectly focused on the infrastructure as the "star".  We did not recognize that the data contained in the applications was much more exciting than the platforms upon which the data were entered.  For example, the world's most interesting repository of information is arguably Microsoft Outlook.  Liberating that data & creating new things from it was the play back in 2008 (and arguably may be the case today).

I think today's major tech players differ from yesterday's in the sense that they value data as much as the underlying infrastructure that allows its collection.  Developers and platform providers are currently engaged in a natural tension -- one wants innovation from modest to disruptive and the other wants to participate in the economic benefit of having its data used in new, compelling ways. Some, like Craigslist, choose to optimize for control. Twitter will let you do more or less whatever you want, if you pay them. I'd contend LinkedIn and Facebook are taking more of a "wait and see" approach, both allowing developers access but keeping a lot of goodies to themselves. There are no right/wrong answers in my opinion -- it's really up to each company's strategy.

But if the open source model has one lesson for us, it is that the increased velocity and use of data creates economic value -- typically for all the stakeholders. Developers play a key role in the ecosystem, bringing new use cases and creative ideas to bear.  Overall, I think that's a good thing.

Social, the Salesforce acquisition of Buddy Media, and Real Value

Tonight, this blog post summarizing year 1 of the Salesforce acquisition of Buddy Media.  The numbers, if taken on face value, are brutal as the endeavor is a big money loser so far.

The picture painted is probably a tad on the pessimistic side.  If your Salesforce, you don't buy a Buddy Media to harvest but rather capture market share.  I'm sure a conscious decision was made to spend whatever necessary to win share asap -- so costs are going to be higher in the short-term than revenue.  This is why people invest in Salesforce.com, for the prospect of future cash flows and the benefit of capturing share now at the expense of optimizing short-term financial results.

Remember also that this particular business is super competitive with Salesforce, Adobe, Google, and Oracle all competing in the SMMS space against a few independents (Sprinklr, Spredfast).  Keep in mind also that a lot of SMMS work is still being done manually by service businesses from IBM to digital agencies to traditional agencies now competing aggressively in social marketing.

But I do think there is a lesson lurking in here -- that social is still an unproven commodity in the short-term.  Folks like us and others are doing what we can to find value in social media.  Investors who get into social media plays, whether through publicly traded companies or those selling privately held stock, do so on the belief that their picks will help the marketing ecosystem in some way.  But it's still the wild west when it comes to delivering real value.

Whether it's Buddy Media struggling or Facebook ads struggling or folks like Mark Cuban questioning whether or not he should pay for Facebook News Feed visibility, it all comes down to one critical and unanswered question -- what is the value of social marketing for marketers?

When the answer to this question is as simple as it is for search... i.e. Google Adwords... billions of dollars of new shareholder value will be unlocked.  Now where exactly will that be, and when?

What Will Win in the 2nd Great Tech Boom

I spent a lot of part I of my thoughts on 2011 & beyond in our industry focusing on what I don't think will work.  This blog post will be markedly more positive, at least for those companies that I think are going to make it after all.  Thinking about it, though, I think some commonalities are emerging.

But let's step back and review some concepts from Part I.  I spent a lot of time on the concept of economic viability as judged by two simple concepts -- customer acquisition costs and lifetime value (LTV).  Simply put, if your LTV after churn exceeds your fully loaded customer acquisition costs, you're a moneymaker.  If not, you're a failure.  There are lots of ways to analyze businesses, but if you comprehensively and accurately know marketing costs and LTV in what is of course an uncertain business environment, you're doing better than most.  That's easier said than done.

Now hold that thought for a moment.

I would argue to you that there is overwhelming evidence that we're in a mini-bubble, a lower-rent, better justified version of the first one (1997-2000).  There are a lot of sure signs -- new businesses getting huge valuations even in public markets, investors in those businesses trying to convince people that those valuations are indeed rational, the huddled masses listening in violent agreement (amazingly enough), venture capital raising huge new funds, and billions of dollars going into startups worldwide again.

And to repeat before I go too far, I don't think this is a terrible or irrational thing.  Social media, location services, smartphones, tablets, local/SMB services, and other sectors are getting turned on their heads a bit -- and the uncertainty/disruption creates opportunity for investors.  So please don't put words into my mouth that I'm opposed to what is happening or think it's insane, because I am decidedly *not* there.  I'm discerning, and that's fair.

Anyway, as we are at least in a mini-bubble, a lot of businesses have been created in a short period of time.  All have one thing in common: they are fighting like hell for market share.  They're fighting for attention alongside others in the startup community.  Enterprise startups need enterprise validation -- and fight for enterprises and/or agencies to adopt, promote, and pitch their products and services to decision makers.

And so what that creates is hypercompetitive frenzy, where there are probably at least 1-2 startups and often more for any opportunity you may perceive to exist in the world.  Tech is one of the most competitive markets in the world because barriers to entry are relatively low (no PP&E in the era of Amazon Web Services) and you can win with your brains, a good idea, and great sales execution.  Thus, the market is incredibly efficient at finding every glimmer of opportunity and taking advantage of it.  So you get a ton of startups seeking attention.

These startups fall into three categories in my mind, and I'm sure there are more.

• Destinations -- places that consumers and businesses are expected to visit repeatedly. Branding is critical, otherwise you're out of sight/out of mind.  Think modernized traditional media (Mashable, ReadWriteWeb, Techcrunch, Huffington Post) but also the hundreds of thousands of applications on the iPhone and Android (Gowalla, 4sq), game publishers, daily deals providers (currently), apps like Pandora, etc.  If you're a destination, you're only as good as your branding + your last trick.  Don't rest, because you can't.
• Service businesses -- organizations that provide human capital to solve specific problems for clients.  What's critical in these is to not be a commodity.  If you are providing a commodity service, you're racing to $0 margin.  If you have some competency that makes you among the best in the world, you're probably OK.
• Enablers -- groups that deliver a product, service, or data that fundamentally makes people more productive.  This can be a tangible time savings benefit, a cost savings benefit, or ideally both.  It can also be a "data benefit" -- removing barriers to data can be a huge enabler.  Think of Amazon Web Services -- it's a genius bet on the need for developers to quickly conjure processing and storage cycles to develop, run, and scale applications.  Same goes for the Apple App Store, Windows Azure, Facebook with social plug-ins that have now become ubiquitous and of course the Facebook APIs, LinkedIn for resumes and employment/employee data, arguably Twitter for media publishing and content discovery, local Austin startups Infochimps (data) and Famigo (publishing child-friendly content), and my favorite new startup, Twine.  All of these companies, in their own way and perhaps by accident, enable people to conduct business and be more efficient.

Not that all the destination business examples I listed are fads, but a vast majority will be nothing more than that because they're currently capitalizing on something that is presently *hot*.  Mashable is great and a must-read, but would it get 20m+ monthly unique visitors if tech was not hot?  We just saw Gowalla deadpool because it took advantage of the hot LBS market, but could not expand beyond that.  Arguably Groupon has cooled off because daily deals just stopped being compelling, and now as a result, they're dealing with the customer acquisition cost/LTV problem albeit as a public company.  Ouch.  Destination businesses have to grow rapidly and find ways to be essential and build brand, or they're ultimately dead.  The ones that go the VC route therefore raise a ton of cash but they're a lot more uncertain than they appear and are under a ton of pressure.

I'll defer a broader discussion of service businesses to 1Q 2012 for now.  My point today is more about disruptive technology providers anyhow.

Enablers, in my view, are where I'd focus dollars if I were an investor.  First of all, they're differentiated by their ambitions.  They are not trying to change the world, but rather to provide a useful service that other people can some way build upon -- be it technology, revenue, knowledge, data.    Ergo, their bet is on the opportunities they see more broadly.  They focus their efforts on the utility of and the benefits of the product/service they're offering *to other people*.  Some of those will win, some will lose.  But enough will win to make access and all the hard work that entails a worthwhile pursuit.  There is less direct interaction with the end customers, but rather tons of interaction with modern-day "channel partners" who can offer products and services to hundreds, thousands, or more end customers.  But the Enabler is not invested in any one per se -- it's a "portfolio theory" approach.

The one thing I think winners will ultimately have in common in the 2nd Great Tech Boom is precisely what winners of other eras have realized.  Infrastructure stands a greater chance of winning than apps, destinations, and other properties that are by definition perhaps more "opportunity" plays than "sector" plays.  It's not to say that all Destinations will fail and all Enablers will succeed.  But I'd make a pretty big bet that we'll think of Destinations fondly as relics of a past gone by, and that Enablers will as a group have much more lasting power.

The Dot-com bubble, the 2nd Great Tech Boom & Economic Viability

I suppose we are three years into the boom of this cycle in tech, and 2011 has finally given us a few IPOs -- Groupon, Zynga, Pandora, Angie's List, and LinkedIn.  Others like Facebook, Twitter, and Yelp reportedly intend to go public in 2012.  Investment continues to pour into startups, although there are signs that early stage investments are dropping slightly in favor of Series B and Series C investments into companies that are scaling to grow and eventually reach a liquidity event of their own.  Some startups like Gowalla have hit the deadpool.  Others like Hunch and ReadWriteWeb have modestly exited.  And a wide array of others are fighting for their place in the world.

If you've read this blog for awhile or seen some of my posts on Mashable and other publications, you know that I've been critical of a vast majority of new products and services that have been invented in this cycle.  But it isn't because I don't like the companies or their founders.  Quite the contrary -- I've interacted with many and like just about all of them personally.

The problem is that they all face the same underlying economic problem -- for many, customer acquisition costs are significant but there is little/no lockin.  At the end of the day, all of these businesses will have to face that core economic reality.  If it looks like there is not a chance these business can overcome the customer acquisition problem and become economically viable, I get skeptical.

Interestingly, almost all the local/SMB plays have heinous customer acquisition metrics as reported by their S-1s and other financial statements.  It's why Wall Street has not been kind to Groupon, Angie's List, et al.

As it happens in every boom cycle, a vast majority of us get intoxicated by the possibilities for both startups and newly-minted, publicly traded companies.  But those very possibilities dominate our thinking -- and we underestimate the risks and/or the costs associated with building audiences of loyal customers who won't migrate.  From a purely economic standpoint, the migration/churn problem is just as bad as the acquisition problem.

I had an exchange with Robert Scoble yesterday on Google+ where we briefly debated this very issue.  Robert is one of the better pundits out there, but in my view he's a tad optimistic because he thinks of the possibilities far more than the risks, alternatives, and customer acquisition costs.

I am perhaps the opposite -- I think in economic terms and am influenced by the last tech bubble.  People said the same thing about Priceline, vertical web sites like Pets.com and Living.com, Webvan, eBay, Amazon, etc.  The economically viable ones survived.  Those that were not died.  Optimists and pessimists were both correct, as I'm sure they are now.

When projecting ahead and thinking of the survivors of this cycle, ask yourselves which properties are truly economically viable in the long-term.  That's the only filter that matters.

It's why I continue to be bullish on Facebook -- they're mainstream and habitual.  Can they screw up?  Of course.  But the collective community of friends on Facebook makes it a part of our lives that is more or less impossible for us to leave.  Path can challenge Facebook as it is more about "close friends", but they still have an uphill battle to climb to gain mass mainstream adoption.

In the 2nd part of this blog post, which I'll release in a few days, I'll talk about other winners I foresee... and the thing that I think all will have in common when it's all over.

Google+, the shiny new thing, and the perils of business process innovation

We're all captivated by bright, shiny new things.  In the tech business, we've had a lot of them in a short period of time.   Some (like the iPod) shut off entrepreneurial activity and brought all the value of a number of industries (music/video marketplaces, DRM, MP3 players, etc.) more or less to a single company -- Apple.  Others (like the iPhone and iPod) create a ton of economic value as companies look to engage with customers better.  Consider also, the world of "self-publishing" has been unleashed with Twitter and YouTube.  Social context has been unleashed with Facebook.  Our resumes and business relationships have been captured by LinkedIn.  And the potential of local business services has kinda been unlocked by Groupon, LivingSocial, and location-based services.

If it all ended tomorrow, we will have lived through one hell of a run over the last 7 years.  We've come a long way in a short period of time.  I don't think it's over by any means, but let's call it for what it is.  It's great to be in tech right now.

Now there's another shiny thing, Google+, which from my vantage point appears to be a less functional version of Facebook with a good UI for putting people into Circles.  It has attracted a large audience of people in the tech industry, but the masses can't help but ask the question:

"Why should I use both this and Facebook?"

Google+ solves a problem that power users of social networks have -- easy ways to differentiate friends and to put them into groups easily.  The resulting data set that emerges from this would be rich.  But, of course, it has to scale beyond people in the tech industry.  And the everyday person has to see & understand the value in it to make someone migrate from Facebook primarily to Google+.  I haven't even mentioned the challenge of moving your entire social graph as well.  Social networks are a lot less interesting when your friends are not there.  I already see this phenomenon on Google+ -- pretty much the most active people there are folks in my Twitter stream, not people in my Facebook News Feed.

It's ambitious of Google to go after this market.  I think they originally wanted to unseat Facebook, but Google+ may end up being a bigger competitor for Twitter.  The audiences right now are almost identical.  The use cases are also -- I use both to listen, not so much to participate.

If Facebook truly feels a threat, I'm sure they'll introduce a slightly modified Circles equivalent and knock the legs out from under Google+.  That's the trouble with business process innovations -- they're so easily copied.  You have to have more than business process innovation to last.  You need a technical edge and a visionary roadmap to compete today, in addition to a world-class user experience for whatever it is that you are selling.

The bigger question this begs for me right now is really why Twitter has not innovated much.  And are they planning to do so anywhere other than ads?  Heck, it may not even matter.  As stale as Twitter may look these days, it's all over mass media and it remains the best way for average people to keep up with their favorite celebrities.  Those are two huge advantages.

AOL, the Huffington Post, and the assault on local

Today is a watershed day in new media, whatever it is that we're calling it in 2011.  Why?  Because AOL is now truly doing something interesting in the content business by buying one of this cycle's best content properties, the Huffington Post, for $315 million.

Sure, AOL spent 40% of its available cash on the property.  Yes, there will be a culture clash as HuffPo is integrated into AOL.  And of course, we've heard of issues with AOL's integration of TechCrunch.  

But this isn't the same AOL that distributed tons  of these discs via mail for more than a decade.  It's a company led by someone with experience at a market leader who has a vision for the future.  That vision requires that AOL repeatedly produce profitable content -- something that old media has certainly struggled to do lately.

The TechCrunch and now HuffPo acquisitions, however, tell me that AOL has determined that it is a better strategy to buy great properties than to build them.  Why?  I'd posit three reasons:  1) these are properties that have discovered how to create quality content sustainably, 2) these properties make money, 3) AOL's experiments with Patch and Seed likely have not succeeded as they've hoped.

But the last reason isn't necessarily a criticism of AOL.  If you look at business across the United States, one megatrend that we're seeing is that big, relatively antiseptic brands are winning the war for $$ and mindshare against local businesses with local/regional flair.  Like it or not, eyeballs and attention flock to Chili's, the HuffPo, and the NFL instead of Billy Bob's Bar & Grill, the Smalltown Gazette, and high school football.  The American experience is homogenizing right before our very eyes, and as such brands that specialize in products with mass appeal will likely win in the long-term over local providers that struggle to effectively reach a local audience.  Niche businesses will survive, but a vast majority of local businesses are going to continue to suffer as the local experience gets more corporate.

I'd argue that these trends are driving the content business and will continue to do so.

We will see what happens with AOL's play -- one that puts it in Demand Media's neighborhood and clarifies competition with old media.  It's on.  I think the early advantage is in companies like AOL & Demand who are driven by the unit economics of creating content far more than old media as a generalized whole.

Old media has two other distinct disadvantages: 1) significant overhead, and 2) traditional "journalistic" standards.  But as an industry it is much, much larger than AOL or Demand Media and can still compete if meaningful changes are forthcoming.  And you can argue that neither AOL nor Demand Media have quite yet figured out how to scalably create great content for profit.  It will be an interesting battle to watch in coming years.  Consider also that of the major tech players only Apple, Yahoo, and Amazon have made major content plays.  Are Google, Facebook, and Microsoft next to jump in?

It's possible that as old media continues to be disrupted, that content is the next bubble.  We'll see how the industry responds.

Strengths and Weaknesses

It's funny how the greatest things in the world all have one thing in common -- their greatest strength begets their weakness. It's a pattern that repeats itself everywhere.

The United States' great strength is personal freedom, but that's also its greatest weakness in the age of terrorism.

Microsoft's great strength was creating great software for computers, but that thinking kept the company from innovations in the Web and mobile devices.

Google's strength in search helped to revolutionize the information age, but is now being threatened because the very algorithms it uses to determine search relevance are being gamed by content farms and people/consultants doing search engine optimization.

Twitter's strength is in simplicity, but that's also its weakness. Facebook is a comprehensive social graph, but I'd contend the reality of that will begin to get scary for a lot of users in 2011 and beyond.

And now we have Quora, which is the latest social media darling. It was built on several social platform weaknesses: the simplicity & 140 character limit of Twitter and the inability to effectively interact with people who have similar interests on Facebook.

It is way too early to know whether or not Quora will become mainstream -- or what its weaknesses are. But it does underscore the weakness of the Web 2.0 era, namely that most major players find a business process catch that encourages virality. It can work for a leader as much as it can work against it and allow competition to emerge overnight that can slay the beast.

Social successes are business process innovations -- it's the strength and weakness of this era.

5 Ways Facebook Places Changes the LBS Game

I think just about everyone in the local advertising halo is digesting Facebook's announcement that they are jumping into LBS with two feet.  The LBS folks knew this was coming, yet the proposed "co-opetition" still scares the hell out of them.  In fact, I brought up this very point at a panel in May with Josh Williams of Gowalla.  The entrance of a major player with a HUGE audience is a massive gamechanger for the startups that popularized things like check-ins, mayorships, location-driven game mechanics, etc.

If rival tech giants such as Google, Yahoo, AOL, Microsoft, and Apple haven't considered Facebook a competitor yet, they're probably now realizing that, yes indeed, Facebook is perfectly willing and able to compete in the local advertising arena and they're a major, major threat.

Overall this is obviously a really big deal and a seismic shift in the LBS business, in local advertising, and perhaps in social networking in general -- although it will take several years to play out.

In May, I shared some thoughts about LBS on Mashable and followed up here on my blog.  I thought I'd spend a few minutes today talking about what I think the latest news means for the sector:

1) LBS startups forced into building an ecosystem like never before -- I have written before about how LBS startups have been riding the wave of popularity & innovation but have also to some degree tried to control how third-parties interact with their systems.  For instance, even today only foursquare allows write access to their API.  LBS startups are not by any means dead -- in some circumstances they will remain the "consumer front end" for LBS.  But to stay relevant, they will need to be a lot more aggressive fast about building an ecosystem that helps justify themselves long-term.

2) Legitimacy to LBS -- LBS startups have done a great job of exciting the early adopter market and showing the world the possibilities of local, mobile services.  But none have yet made it to the mainstream.  Why?  Because it is a HUGE undertaking.  Reaching moms in Kansas is just tough.  Facebook changes all of this significantly because they have such a huge audience.  150 million+ people are on Facebook Mobile and over 500 million experience Facebook on the Web.  Now those are mainstream audiences.

However, I do think that this is a situation where the "rising tide raises all boats."  This will legitimize the existing LBS startup players as well.  In fact, I think in the short term foursquare, Gowalla, MyTown, and others will experience growth.  The bigger question, of course, is the long-term impact for the LBS startups.

3) Facebook, the aggregator -- With this move, Facebook aims to be the center of all location-based activity.  The existing players are presently invited to "read" data from the Facebook Places API but will also be allowed to write data to Facebook.  What a great way for Facebook to build a robust database off the backs of the startups that popularized the sector.  I think the golden rule needs to be changed from "he who has the gold rules" to "he who has the users rules."

4) Twitter, the afterthought -- Twitter just gets a little more marginalized each day.

5) The Cold War begins in earnest -- There is absolutely NO WAY that this move will go unchecked by Google, Apple, Yahoo, AOL, and other major players who are eyeing the location sector.  To some degree, this move really forces relatively quick action by these companies who will need to do something to be relevant.  Otherwise, Facebook will own it.  I suppose you can argue that Facebook is already well on its way -- they have the audience, they are about to have a ton of data, and they've delivered an immersive experience to users so far.

We live in interesting times, that's for sure.

The Real Story behind the Facebook Privacy Backlash

A few quick thoughts this evening on Facebook and their privacy crisis.  Recapping the last few weeks:

1. f8 happened and Facebook announced its ambitious vision to more or less take over the Web
2. People got uneasy as more evidence surfaced that Mark Zuckerberg maybe can't be trusted
3. Some influential folks decided to quit Facebook
4. An open-source alternative, Diaspora, has raised almost $200k in donations in just a few weeks
5. The meme has spread so much that there is now a Quit Facebook Day on May 31
6. Nonetheless, Facebook is set to announce its 500 millionth user soon

So what the heck is going on here?  My theory is that you're seeing the confluence of a few interesting things all at the same time.

Historical Precedent

First, Facebook has gotten too big for everyone's comfort.  But we've seen this before.  Microsoft was a novelty until they became dominant on the desktop.  Google was fascinating until they owned search.  And now Facebook has social media on lockdown.  All of these great companies were loved until all of a sudden, they were too big to love.  Just wait until Apple gets there, because it *will* happen in the mobile device category once Apple products are offered by all mobile carriers.

Facebook - The "For Profit" Utility

As Facebook has come to own the social media space, it has asserted itself as a for profit business although it is also at the same time a utility as others have pointed out. But when in doubt, the perceived profit maximizing approach wins out.  This involves an IMO inevitable rewriting of the terms of service to allow for more aggressive use of data.  Again, this is not new.  How many times have you received bank statements or innocuous terms of service updates from your favorite web sites?  It happens because, much like software, businesses don't anticipate how they'll use data in advance.  In other cases, businesses can't get away with using data as a small company but they really want to do so as they become an important utility.  Are you listening LBS providers????? ;-)

But back to this case, I think it is pretty obvious that Facebook wants to use data more aggressively to grow their business more rapidly.  I don't necessarily blame them for this -- most of us would do the same if we were in the same position.

While I'm empathizing with Facebook, let me also add that privacy is complicated when you have a platform as immersive as Facebook.  There are an infinite number of possibilities when you consider the various classes of friends you have, the types of content you share, etc.  It's even worse when you assume that users will need to set privacy themselves.  Most users want something easy and effective.  Facebook privacy settings are not easy and they are not effective -- although the tools are more or less available to every user.

What Facebook Could've Done Better

That said, rewrites of Facebook's privacy policies have taken place wayyyy too often.  It's happened so often, it's hard to give them the benefit of the doubt now.  It's a paradox of Web 2.0 -- agility is respected and almost expected of any promising company today.  But if you're too cavalier & too big, it's seen as irresponsible... ESPECIALLY when a chat transcript surfaces calling the earliest adopters "dumb f*cks".

Not cool, Mark.  Even if it was said years ago and in a different context, it's too smug.  It's arrogant.  Overall, it gives people the impression that users are not respected, their wishes are not represented, and they're valued more or less for their data.  Use of that data is paramount while security of that data is in some way secondary.  This is why a number of pundits have left Facebook.  It's largely symbolic right now -- many of these folks do quite fine on the blogosphere, Twitter, and elsewhere.  But there are some cracks in Facebook's foundation -- I don't think anyone can deny that.

User lock-in is significant but Facebook has alienated a lot of people with its handling of the privacy issue.  It's worse because most of the data that drives Facebook is provided by its users, many of whom log in to Facebook every day.  So something must be done because this one likely won't just blow over like all the other encroachments of our privacy that have taken place in the era of the Web.

Where We're Headed

Diaspora got a lot of coverage for their funding of an open source social network.  And maybe somebody buys Diaspora right now while they're cheap & helps market the service to ultimately make it viable competitor in the social media space.  But I personally think this story got a lot more play than it should because of two sexy words "open source".  Very few "for profit" entities act altruistically.  Heck, very few non-profits act altruistically either for that matter.  ;-)

The real winners here in the short-term are Facebook's competitors:  Twitter, myYearbook, maybe Orkut, and to a lesser extent MySpace.  But the window to act effectively is small and execution is key for any of these to make a dent in Facebook.  My guess is that none of these can do lasting damage to Facebook by being the "good guy" alternative on the privacy issue.  At the end of the day, a lot of people care about privacy but not enough to make an inconvenient change to a Facebook competitor.

Although I think Facebook is as vulnerable as they have been, there is also not a viable alternative out there today.  So I think Facebook will be fine.  They'll capitulate a little and announce a few changes.  They'll more or less try to make people forget about the issue altogether.  Competitors will remind people of the privacy question, but they'll sound increasingly desperate as the tactics don't work.  All the while, Facebook will continue to grow and become that much harder to ignore.

Hal Varian on newspaper economics

Interesting blog post from Hal Varian, Google's Chief Economist, on newspaper economics.

http://googlepublicpolicy.blogspot.com/2010/03/newspaper-economics-online-and-offline.html

Hal points out a few things that I 100% agree with:

• special interest local advertising was the bell cow for the newspaper business,
• people consume news and information on social nets, mobile devices, etc. more and more today,
• experimentation is key to helping newspapers survive and thrive in the 21st Century.

Google has been demonized by folks in the newspaper business for making audiences mobile and destroying newspaper brand loyalty.  While this has in fact happened, I don't know that it's fair to blame Google. These are trends that were bound to be realized with Internet technology.

Now Mr. Varian is certainly not a "disinterested" party.  But he does make good points here.  Newspapers must continue to push the envelope and experiment with new models.  It's a cultural problem that must be overcome -- and it's tougher in some local media companies than others.