Polygraph Media Blog

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.

Analyzing eMarketer SMB stats on useful social marketing tools

Those of you who have followed this blog for awhile and some of the guest posts we've written on Mashable, ReadWriteWeb, Forbes, and other places know two things about me:  1) I'm a data junkie, and 2) I don't really have a lot of respect for "spin" in the startup world.

It's why I questioned the utility of location-based services last year and asked for meaningful metrics (which we still haven't gotten).  It's also how yesterday's guest post on Mashable came about -- we're seeing metrics that indicate that although group purchasing as a sector is alive & well, it has peaked for individual providers and certainly local businesses.

I am not naturally a curmudgeon.  I just think that if you really want to know what is happening, you have to look at where the numbers are and how they are trending.  Metrics trump all -- the coolest technology, the best PR team, the best venture capitalist.  All win and lose most of the time based on numbers.

So I was interested to see some great numbers from eMarketer this morning on what small businesses  think of different marketing outlets.  Here's the chart in case you missed it.

This is great data.  I'd prefer a slightly larger sample size than 752, but it is good enough to draw inferences.

I think the way the data is presented is a little misleading -- so I did some basic number crunching of my own.

Specifically, I wanted to understand just what local businesses really think of each one.  For every person who likes each service, how many dislike it or find it ineffective.  I also wanted to correlate the numbers other criteria -- specifically what the service provides a small business, whether or not they sell directly to the small business or have a low-touch model, how large the audiences are, etc.  All of these things play into something that local businesses can regard as good opportunities for advertising/marketing dollars and attention.

First, I wanted to 
determine awareness/usage.  To do so, I'm making an assumption that anyone who comments one way or another on the utility of a platform for marketing is definitely aware of the core features of each platform, probably has tried the platform, and has *possibly* used it in a business context.  These numbers pretty much make sense to me, although I was surprised to see that people have an opinion of foursquare almost as much as Yelp or Groupon.  That isn't a stab at foursquare, but LBS adoption overall (foursquare + competitors) is something like 5% worldwide, yet 26%+ of local businesses feel qualified to opine on its usefulness for marketing.  So the concept of LBS is known more than adoption at the moment.

Next I wanted to understand what's known in quant research/customer satisfaction parlance as "the top two boxes"... i.e. what are the % of folks who think that something is either excellent or very good.  In this case, it's "very beneficial" or "somewhat beneficial."  See below for the results.  Column E is the % of all polled SMBs who regard each platform in the top two boxes.

But that isn't the end of the story.  These web services cluster into 3 groups when you look at the percentage of people who aren't users.  Facebook is more or less ubiquitous, but still almost 1 in 3 SMB owner/operators have not used it.  Roughly half SMBs have not used Twitter, YouTube, LinkedIn, and MySpace.  And roughly 3 in 4 SMBs have not used Groupon, Yelp, LivingSocial, or foursquare.  So we must normalize the data to give us a clearer picture of what the people who have used each tool actually think.

The chart above is really astonishing to me.  81.5% of SMB Facebook users think it is effective for marketing.  That's an amazing number.  On the opposite end of the spectrum, a little more than half of SMB users of Yelp, MySpace, Groupon, LivingSocial, and foursquare (in that order) think those products are effective for marketing.  Now let's look at the other end of the spectrum -- of SMBs that use all of these tools/services, which do SMBs think are relatively ineffective for marketing?  To assess that, we'll need to analyze the "Not Beneficial" numbers:

The "Not Beneficial" numbers in Column H all look similar across the various platforms -- but they have a hidden meaning when compared against the total % of respondents who have an opinion about each platform.  Of SMB users who responded to the eMarketer survey, almost half of the actual Users question the effectiveness of MySpace, Groupon, LivingSocial, and foursquare for helping them achieve their needs.

All in all, eMarketer's report was fascinating and gives us a good idea of what SMBs think.  Granted, SMB in and of itself is not a segment.  SMBs are in hundreds of types of businesses, many of which are not suited for individual local, social, or mobile platforms.  So the numbers don't necessarily tell the entire story.  But they do tell us who is winning so far and what constitutes a platform or platforms that SMBs should pay attention to.

One final note... it would be very interesting to compare these numbers to old media means of advertising:  yellow pages, billboards, newspapers, radio, television, etc.  I'd love to see how these "new media" services compare to old media.

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.

Facebook's new problem: social media fatigue

Facebook's announcements at f8 were stunning in their breadth and vision.  By expanding their reach to the Internet as a whole, they've morphed overnight from a social network to a pervasive part of the Internet.  In so doing, they're making their competitors (e.g. Twitter and even Google) look awfully amateur while scaring the heck out of established startups like Digg who all of a sudden have a new competitor I'm sure they didn't even consider until a few months ago.

Even the location-based community wasn't spared, although Facebook's reliance on RFID seems a little 3.0 given what they perhaps could've announced re: location on Facebook Mobile, which has over 100 million users.

I shared my thoughts on ReadWriteWeb yesterday as it impacts the newspaper business.  I think it could potentially be huge.

But after sleeping on it another night, I can't help but think of a few experiences I've had recently that make me pause a bit.  All of them are indications of "social media fatigue" that I think will be an increasingly significant issue as social technologies become more pervasive.

For example:

• In January, I spoke on a panel at the Texas A&M business school on the future of social media.  The panel was attended by students in the master's of marketing program.  Most were in their 20s -- the ideal demographic for Facebook circa 2008.  So these were people that, as opposed to most of the newspaper industry people I talk with every day, are now social media veterans who have used Facebook and in some cases Twitter for as much as a few years.

I started getting a few questions from the group that indicated a latent dissatisfaction with Facebook.  So I finally asked for a show of hands for this question -- "how many of you use Facebook less today than a year ago?"  Nearly everyone raised their hands.

• Consider also the case of Twitter, which achieved stratospheric growth and usage as it become part of the pop culture vernacular.  However, some folks began to ask as early as January 2010 if Twitter had peaked.  In fact, if you check Twitter's site traffic at compete.com, you'll notice it's an awfully flat chart over the last 9 months or so (although admittedly that's a poor measure of Twitter as its data is today accessed through a variety of client & mobile apps as well.)

• Also consider location-based services -- and for this I'll inject my own data point that I'm sure other people have experienced.  I have up to 100 friends on the range of current LBS providers.  At first, most people tend to check in quite a bit.  But after awhile, something interesting happens -- they stop doing it.  As of this morning, I have 6 friends who have updated their location in the last 24 hours on one service and less than a handful on all the others.  LBS products may have a lot of users, but I always wonder how many ACTIVE users they have because that is the important data point.  More on that later.

My point today is that social media fatigue is real, especially amongst the masses.  EVERYONE in the social media space has to have a strategy for dealing with it.

Facebook is dealing with it by attempting to become a pervasive force in the Web as a whole.  The skeptic in me just wonders if that will prove to be overkill, and the backlash that people are already reporting will become Facebook's biggest enemy.

While we're designed to be social creatures more or less, is there a point at which it is all too much? One thing is for sure - we're probably going to find out.

Quick Hits - February 10, 2010

It's been too long since I've made some random, unsubstantiated observations.  Lucky you.

• I have used Google Buzz for just a few hours, and I'm already convinced it's a game-changer.  Watch out Twitter... and Facebook, you'd better not get too comfortable.
• I really do think I could make a compelling argument for you that Twitter's best bet is for AOL or Yahoo or Microsoft to buy them.  Not that any of that would be inherently bad, but I just don't see Twitter surviving and thriving as an independent business over the next few years.
• Social media "fatigue" really seems to be an increasing trend among younger people who have used things like Facebook for awhile.  I spoke at an event at Texas A&M recently that really reinforced this point.  It will be interesting to see if this is a limited case or something that marketers will have to deal with in coming years.
• I have given up on working with my neighborhood association.  It involves the worst elements of  government, bureaucracy, volunteering, politics, incompetence, ego, and personal fiefdoms -- and very few benefits.
• Lots of people out there are willing to give advice to early-stage entrepreneurs... but if they haven't created an early-stage startup themselves, be careful how much you internalize.  There is nothing like starting a company from its earliest stages, and it's a very, very unique business experience.
• Writing a book while starting a company is hard.  At some point, I'll share the story of how I got this opportunity, how I made it work, and why I'll never do the two things at the same time again.  It's a rewarding life goal achieved, but everything has its costs.
• Facebook is a particularly tough topic for a book, since the platform and/or the rules change about every 3 weeks on average.
• The Austin Technology Incubator has significantly improved its portfolio in my opinion, and is rebuilding its brand around substantive member companies.  You heard it here first.
• I'm increasingly of the opinion that networking for the sake of networking is a really bad idea for early stage entrepreneurs.  I know this goes against conventional wisdom, but I have a good argument.  Later.
• Location-based services are in their v2 with foursquare, Gowalla, and MyTown.  No offense to the good folks in those companies, but I really think the act of "checking in" is too hard and lacks enough of a consumer value proposition for any of those services to "win".  You'll know you see a winner when 1) there is a real compelling reason for consumers to check in, 2) a lot of it is automated in some way, and 3) there are reasons to do so that will appeal to "Joe Public."  These are very much early-adopter technologies today.
• Speaking of location-based services, can Apple really get away with removing apps that surface location-based ads from the App Store?  I know they make their own rules, but that's unreal.
• I love the potential of Google Android.  My wife has one & it's a pretty neat device.  But it isn't quite there right now.  Let's see how it evolves before handing it the future. ;-)
• We're told that the economy picked up quite a bit in Q4 in the US... yet capital efficient startups are still in vogue.  I'm telling ya, this frugality thing is here to stay for a decade or more.
• Finally, I finally yesterday met the first woman I know who likes the iPad branding.  Ultimately, I think after the shock wears off it will be OK.  But gosh, how obvious is it that Apple's branding team is lacking???

Reviewing my 2009 predictions

It's time for the self-assessment of my predictions for the previous year.  Here goes...

Government 2.0 -- if the Obama administration earned a mandate of any kind, it is in the area of government intervention in the free market.  There will be opportunities in not just the modernization of government data systems/infrastructure, but also in helping government operate more efficiently and helping government help business.  I expect to see billions of public dollars move into areas where Web entrepreneurs can benefit.  This may be the biggest story in our industry in 2009.

Grade -- C 

Yes, modernization of government has been a key agenda item for the Obama administration.  But a few things made this somewhat of a non-story in 2009:

• Bigger problems in the economy and in unemployment,
• Government inertia despite the mandate,
• Policies driven to inject money into the economy quickly which (sadly) is counter to doing it efficiently.

The cycle begins to refresh -- the prospects for early-stage startups should improve throughout 2009.  Why?  We'll collectively snap out of the panic of 2008 and time will pass.  We'll all look ahead more optimistically to the future.  Remember, a lot of this panic has been the destruction of capital -- but a lot of it also has to do with capital sitting on the sidelines.  It will be increasingly unleashed throughout 2009.

Grade -- A-

By and large, I think this has happened.  Advances in real-time, social gaming, and social networking technologies have continued.  Economic value has been created.  In fact, a second tier of startups is emerging from these new platforms.  I don't think things have gotten crazy, but I do think that startup people are a lot more positive today than a year ago.

Forks in the road -- I don't remember a time when the major players in our industry all had tough strategic choices for the future.  Google needs a second trick.  Microsoft needs a way to make progress in advertising.  Facebook needs a business model.  Twitter needs a business model.  Loopt needs an acquirer?  Yahoo needs an acquirer.  Apple needs diversification beyond hardware.  Some will find the answers and there will be some consolidation.  The choices these major players make will determine quite a bit about the future of the Web.

Grade -- B-

Facebook and Twitter have largely figured out their business model issues.  Reportedly, Twitter is now profitable on the basis of the search engine deals and Facebook is rumored to be in a position to do $1 billion in revenue in 2010.  If that's true, WOW.

But the major players haven't really impressed me with their responses.  Clearly, Google is out in the front of the pack with a few innovations in local search and advertising that could respond to actions by the emerging social media giants.  Microsoft, Yahoo, and Apple have all done some rather incremental things to take advantage of social media in a big way -- but none have made big, bold moves to compete.  I am similarly waiting for Amazon to jump into the pool as well -- we shall see.

The cloud computing platform & developer attention fight intensifies -- "Use my API and host it on our cloud platform"  OK, I don't think we'll get to that point in 2009.  But the proliferation of web services and cloud computing platforms will only continue this year.  Open data has won just about everywhere on the Web.  Amazon Web Services will be joined by competitive offerings from Google and Microsoft.  What is common across all of this?  The need to win over early stage startups.

Grade -- C+

This has happened to some extent, although the battleground has been over social/local/geo data from startups and relatively new market entrants.  I do expect the battle over web application hosting to intensify -- just later.

All told, if I'm calculating my performance like a semester in school, I come up with a 2.68 GPA for 2009.  Eh.  The biggest issue here is my timing -- I was optimistic yet again about things happening fast.  We'll see.  Have a great remainder of your holiday!

Quick Hits -- September 14, 2009 -- Twitter & Facebook Lite edition

We have spent a lot of time in Twitter the last few weeks... a lot.  A few quick observations of things we've noticed:

• Twitter is down all the time.  I'm not talking about the consumer front-end... I'm talking about the API.  Folks there who work on stability/network operations must be some of the most nervous and downtrodden people you'll ever meet.
• I'm sure the cause for this is the rampant proliferation of applications built atop Twitter.  It will be interesting to see if Twitter purchases some of these companies or if they make the API more robust to allow for bigger, better things.  My guess is that both will happen.
• Twitter API limitations are understandable, yet curious.  Biographical data each Twitter user requires a separate API call.  I presume this is both a technical limitation and a business advantage for Twitter -- as long as they know who Twitter users are in real-time and you don't, they can develop more interesting applications.  I know a lot of developers who are circumventing this in one way or another.
• Twitter has far more junk/spam users than people think.  Based on random observation, my guess is that it is at least a 2:1 ratio, maybe more.  eMarketer assumes there are currently 18 million legitimate Twitter users.  That's probably just a little high assuming a 2:1 ratio and Twitter's recent estimate of ~45 million users, but my guess is that it's in the ballpark.

Finally, a quick note about Facebook Lite.  I have looked extensively at Facebook Lite and I'm not terribly bullish about it.  Facebook users are different than Twitter users IMO, and they don't need a streamlined interface.  Facebook built Lite as a reaction to Twitter, not as a reaction to customer feedback.  I think they really should stick to their strength and not worry about Twitter.  More on that topic later.

Don't confuse me for a social media zealot

I have had a few conversations with colleagues, ex-colleagues, and current clients that lead me to believe that they think I'm a social media zealot.  While a lot of what I do is tied in some way to social networks, I find it necessary to set the record straight tonight.  Here's what I believe:

• Social media is old technology, but mainstream adoption of it is a new phenomenon.  Nobody knows for sure if it is the next wave of computing or a fad.
• I *think* that Facebook has a few big advantages that make it the leading contender for social media dominance.
• But it is entirely feasible that the great advancement of the social networking age is not social networking, but rather the mainstream adoption of real-time data/information.
• Should things move in this direction, Twitter is undeniably in the lead here as they truly own (shaky as it is) the infrastructure for this along with a fairly large user base.  But it's too early to tell whether or not they'll actually win because switching costs are relatively low and Twitter is probably still a little too buggy to be considered "reliable infrastructure".
• I would not be shocked at all to see a major player (Microsoft, Google, Amazon, Yahoo!) launch and have some success with a Twitter-like product.
• The combination of blogging, micro-blogging, and social media have created a truly democratized platform that allows anyone to be a publisher.  This has been discussed ad nauseum by people in technology and observers.  However, changes to consumer behavior as a result of these things have made the dissemination of information far easier for "trusted" sources.  Very few things actually need to be printed anymore now that the infrastructure has caught up to consumer behavior.  Or is it the other way around?

Perhaps most importantly, all of this means that Internet Marketing has gotten a lot more complicated.  At one time, you just had to rank high on search engines.  Then the opportunity came about to buy space at the top of search engines.  Now to be totally effective, you have to do both of those *plus* make strategic decisions & execute on social media, Facebook, Twitter, employee blogging, and "real-time" customer service.

We don't have new social media opportunities today, but we do have new internet marketing opportunities.  Social media opens up bi-directional communication with previously anonymous customers.  It's an evolutionary, not revolutionary, change that requires you to think more holistically than ever before.

Another thing on the Yahoo-Microsoft Bing search deal

Think of this one from the internet marketer's perspective.  Just a few years ago, internet marketers exclusively focus on Google to conduct just about any internet advertising campaign.  Then Facebook emerged.  You could still ignore Microsoft and Yahoo because the two systems were different, difficult to master, and only offered an incremental gain in audience.  With the new partnership, you'll just have to log into AdCenter to run ads across both the Yahoo & Microsoft networks.  With 30%+ market share right out of the gate, it's easy to justify now. 

Google AdWords is a mature auction model whose prices may have been artificially high because of the lack of competition.  Now internet marketers have three viable options:  Google, Facebook, "Binghoo".  Two are much cheaper than the third, and both also now have a big enough audience to matter.  And I am making no assumptions yet about Twitter, which could become a 4th viable internet marketing option in coming years.

Overall, I expect margin contraction for Google.  Price/demand will gradually drop as internet marketers investigate and begin to use other viable opportunities.  This has been coming for awhile, but it's here now.  Google officially needs a new trick and fast.