Running With Foxes

Every once in a while the same story pops up. “Advertising on social networks doesn’t pay that much” (allfacebook, valleywag, …). Unfortunately stories like this are usually backed up with logic like “CPMs on social networks are lower than other websites, therefore social networks are not valuable”. While the first statement is true, the conclusion is just sloppy reporting.

The confusion comes from thinking that lower CPM equals low revenue. What writers neglect to think through is the size of the audience being advertised to. A larger audience with a lower CPM still makes for a large revenue source. Do we wish it could be higher? Of course, and in fact that’s one of the main problems SocialMedia is tackling.

But developers and social networks are still making a significant amount of money. Social networks may pay less per unit when it comes to, but that doesn’t mean they earn less money than other sites. MySpace chalked up over $800 million in fiscal year 2008.

Good developers on the networks are also making significant amounts of money as independent developers. I’ve talked to developers making anywhere from $3,000 a month working part time to $3-5,000 a day developing apps full time. Still other devs like Spicerackmedia.com have at least exceeded the salaries of the jobs they left to develop applications.

They can do it because they’re good programmers making applications people want. These apps draw a lot more traffic than they otherwise could crafting websites from scratch on the internet at large, with better rates than they’d get through adsense. The math is pretty simple. High traffic X decent click throughs X decent cost per click = reasonable earnings.

Just because they don’t pay out at the same $10-$20 CPM rate you can get on a highly targeted destination site doesn’t mean they’re not valuable. (as an aside, even if you’re getting those rates, a $30 CPM on a blog that get’s 30,000 page views only gets you some good change, not a full time job. Look at the FM author database.). Developers can spit out an app in a couple hours to a weekend while destination sites require constant updating and evangelism. They’re apples and oranges compared to each other now.

So can people stop the social network bashing?

Thought I’d add to the conversation about community life cycles…

Old news, but some more outlets are reporting on the new NewsCorp startup incubator, SlingShot labs. Business Week has a good story.

MySpace plans to announce as soon as Feb. 13 that it has formed a business incubator called SlingShot Labs to spawn Internet startups for News Corp.’s growing empire of Web properties, which now includes The Wall Street Journal’s WSJ.com as well as the video game site IGN. Murdoch and MySpace CEO Chris DeWolfe plan to be closely involved in the venture, which News Corp. has seeded with $15 million to hire roughly 40 employees, mostly software developers, say people with knowledge of the plans.

Creating an incubator like this is often a wet dream for large companies tired of paying out large sums to acquire small startups. The logic is simple. Instead of acquiring the startups later, just grow the products internally. Boom! You save yourself a couple hundred million.

The only problem is that this isn’t the way the best products are created. The best companies and products are going to continue coming from the marketplace at large because the incentives are there and there are simply more companies to choose from. Incentives are big. While everyone says they’re doing startups because they “love” the business, everyone clings to some hope of a big cash out. Corporate incubators hire “entrepreneurs”, which is an oxymoron. The returns to these developers are capped by salary and any possible bonus tied to a successful product. When you sign up with a corporate incubator, there’s no bidding process that pays the market rate for your product, so no million dollar payout. It all strikes me as empty PR.

Also, incubators suffer from their partial relationship to the larger company. Example, Yahoo Brickhouse. Brickhouse is based out of San Francisco and is meant to develop new products at the beat of their own drum. The only problem is that new products don’t integrate with any of Yahoo’s existing products. Do they really need Yahoo Mash? Where does Fire Eagle fit with the rest of their mobile initiatives?

Trying to internalize the startup method means they’re going to experience a lot of the same problems faced by the community as a whole. A lot of companies don’t go anywhere. The same is true for incubator companies. At least in the real world, failures are done on someone else’s dime. When large corporations buy the “spaghetti that sticks” they’re effectively subsidizing those failures by rewarding the successful company and encouraging more entrepreneurs.

Corporations are much better off injecting themselves into the process by making smart investments in sectors or companies that fit with their objectives and then just continue to buy the good stuff.

Lets face it, building a business for acquisition was never a good idea. But while stock prices were rising, you can’t resist making a product that just solves a problem left over from one of the big internet properties (Google, Microsoft, Yahoo, AOL, IAC).

However, the recent layoffs at Yahoo fear of the little (or big) “r” seem to have placed a lot of acquisition talks on the table. Since the beginning of the year Microsoft, Google, AOl, IAC, and especially Yahoo have been on a downward trend. This makes acquisitions a strikingly more expensive endeavor.

Think of each stock as a devaluing currency in the current market. Many deals are paid out in cash, stock, and earnout. A falling stock price makes deals more expensive. Does Google really want to pay $1 billion in stock at today’s bottoms when it can get picked up when the stock recovers? (Goog has sunk about 20% since the beginning of the year)

The IPO market is essentially dead for startups. I have friends who are getting pink slips precisely for that reason. Now I’d assume the acquisition market will slow down as the potential upside from stock shrinks.

Looks like many startups will have to find a revenue model to wait out the “light” recession of the next year. Oh, the horror.

I don’t know how the 3D web surfing craze got started, but it needs to stop. I’ve already seen too much money and time wasted on it.

For those of you unfamiliar with the concept, 3D browsing takes the common task of web browsing or checking your email and “enhances” it with some 3D pizazz. Surfing the web? Why not walk through your web pages, or search Google images in a coverflow style. Thats what companies like SpaceTime, Web2Wave, 3B, and 3D mailbox want you to do.

Unfortunately their products don’t add any value. It already takes long enough for me to surf the web with bandwidth limitations. Adding on a processor-intensive (2.4 Ghz required) 3D browser doesn’t help. Watching your 3D emails land at a virtual airport can only be entertaining for so long.

Every task these programs try to do in 3D is done faster and better in 2D.

When the best alternative browser by far, FireFox, has a market share at around 17%, I don’t seen any Google acquisitions of these apps in the future.

I’m glad to see there’s finally some confirmation out there about the shift in the mobile phone market toward smart phones. Why is this important? Well, first, I’d argued about it before. Second, it means mobile content providers are going to be playing a different game in the coming years.

It’ a plus that phones will move toward open standards, but it’s going to essentially scrap any advantage mobile application builders had from getting a large install base for their J2ME app. (Mobile advertising may have a shakeup too) But there are millions of those “dumb phones” out there right? I’d argue that these aren’t the consumers you want to be catering too. Chances are if they can’t afford to upgrade their phone, they’re not the high value consumer you’re looking for.

Social Media seems to like the number two, because since I initially talked about joining the team, they doubled traffic and their staff size. They’re also opening a second office in San Francisco. Now they’re looking for even more developers to work on Social Media’s Ad server. I can vouch for a great company, benefits, and great working environment. Let me know if you have any other questions.

* Front End Software Developer
* MySQL DBA
* Social Data Engineer/Optimization Engineer
* Director of Engineering
* QA / Release Engineer
* Software Engineer
* Social Advertising Designer
* Director of Social Media Sales
* Social Advertising Account Executives (NY and LA based candidates encouraged)

(Job descriptions)

One of the causalities of blogging over the past year and a half has been my weight. When I’d first joined TechCrunch, I’d just gotten off the high of finishing the San Diego Marathon with my brother (Who runs Branch Business Technologies). But all the late nights and dinners at Jack-In-The-Box took their toll.

Before:

After:

So, I’m going to try eating some of my own web 2.0 dog food and try out some websites. To be honest, I’m skeptical. I’ve always just kept in shape with diet and exercise. But it seems like a good chance to have fun with some of these services.

Well, where to start. A site specific search for “exercise” on TechCrunch reveals the following sites: Traineo, Fat Secret, Diet Television, MeCanBe, iTrainHarder, and SkinnyR. Jason Calacanis also had a great posts on Fatblogging that included some sensible suggestions, such as laying out your exercise clothing, and setting small goals. Now, where to start…

After over a year and a half at TechCrunch, I’ve decided to try something new. After quite a bit of deliberation, today is my first day as part of the startup ad network, Social Media. Mike has also covered the transition.

Why the change?

Frankly, I need a break from writing the news. TechCrunch has been one of the greatest experiences of my life and probably the most awesome professional experience I’ll have. I love studying web businesses, but the chance to work with Mike was the sole reason I joined TechCrunch in ‘06 and toughed it out through the constant all nighters and even a winter of only Mike and me blogging in a house with no heat. I learned a lot from Mike about what a startup takes. I think Lorne Feldman really hits on what it takes to run a blog, or any business for that matter; Words of wisdom I experienced first hand.

Why Social Media?

However, after over 450 stories across the network and cataloging over 1700 companies, I’ve decided to take what I’ve learned on to a new company. It’s been in the works for a while and I spent a lot of time looking at opportunities in the startup and investment space before, but finally choose Social Media.

I looked at a lot of the social advertising networks out there before choosing SM. I found Seth and his team are the thought leaders in the social advertising space. They have an amazing team of coders and executives that knocked out a product (Appsaholic) a week after the Facebook platform launch.

That advertising application (now in a v 2.0) is monetizing a staggering amount of inventory across application platforms. Some developers I know are making as much as $20,000 monthly on Bebo. Others are paying their rent out of the income. Social Media also has a great list of investors, some of which I know personally, and all whom I hold in high esteem.

To me, Social Media is the convergence of two large themes in the web, a massive rethinking of online advertising and the socialization of the net. I believe that part of the future of advertising will be socially relevant advertising; Ads that are relevant by keyword search, but by social relationships. The market for these advertisements will grow as more web properties switch on social features and find these ads more attractive for their users.

Reaching Out To Developers and Early Stage Startups

At Social Media I’ll be reaching out to seasoned and first time developers along with our advertising partners to make sure everyone involved understands how Social Media’s ad platform works. Please check out my posts on the Social Media blog, where I’ll be covering thoughts on application development, advertising, and social media. I’ll be interviewing developers to find out what works and what doesn’t and answering any questions from the startup community. Developers in the Social Media network can consider me their part time consultant.

Apart from that, I’ll continue to help early stage (pre-launch or pre-series A) companies navigate the minefield of financing and launch coverage. So feel free to email or Skype me (Nick.Gonzalez). Twitter: http://twitter.com/nickgonzalez. Oh yeah, and maybe I’ll get in a post or two on TechCrunch.

P.S. Photo credit to Jessica Livingston of Y Combinator, who also has a must read startup book of founder interviews called “Founders At Work”.

On the face of it, Google’s Open Social initiative simply seems to be about providing a more attractive distribution model for application developers than Facebook. On Open Social you can build once and deploy everywhere. (Although, so far it’s vaporware and being developed in a selective Bretton Woods style “campfire” delegation).

However, a development platform is only part of what I see as Google’s aims with Open Social. Since Google has largely lost the social networking race, Open Social is more of a way for them to tap into and mine user’s social data, or rather “Activity Stream”.

Open Social’s documentation has shown support for activity streams since it first launched, but these were primarily meant as a means for applications to post user updates across their user’s widgets. (i.e. I give a gift to John; All of my friends are informed).

Open Social’s activity stream documentation is crafted more broadly. Their standard is designed so that activities can be posted or retrieved to or from any activity feed host. Activity entries include information on the user and the source of the activity, which sets the stage for a more general activity stream, what I expect to be Google’s “Universal Activity Stream”. Erick dug deeper into this and has reported on TechCrunch more broadly on what we know about it right now.

I suspect that Google will offer developers the option to post to their database of user activity streams as a matter of convenience. A universal stream will offer a centralized location where Google could offer spam control, social networks an easy implementation of a news feed, and developers exposure for updates to their application.

In exchange, Google could build its own applications on top of the feed and offer what so many other startups have been trying to offer, aggregation of your activity across multiple social networks. Think of it as Google Reader and Feedburner for your social life.