Archive for January, 2011

After Deep Blue, IBM has designed a super-computer that understands natural language and semantic patterns to compete in the game show ‘Jeopardy’. While the tech is far from perfect, it is a sign of things to come. Imagine if IBM released Watson to compete with Quora!

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Today, Facebook launches a new ad unit called “Sponsored Stories” that turns Page updates, as well as Places checkins, Likes, and application activity by users into advertisements. Sponsored Stories will allow advertisers to augment viral buzz by giving greater distribution and visibility to posts that endorse their organization or business.

Sponsored Stories will initially be available through Facebook’s managed brand advertising services for display on the home page and profile, and in the coming weeks it will become part of the self-serve performance advertising tool for display across the site. Launch partners for the ad unit include Starbucks, Coca-Cola, Levi’s, and Anheuser-Busch, as well as social good organizations (RED) and UNICEF.

Facebook has been testing the ad unit for a few months and says it has resulted in brand lift and increased engagement, ad recall, and likeliness to be recommended to friends for the organizations that tried it.

When a user checks in to claimed Place, Likes a Page, or shares content to the news feed from an application that has paid for Sponsored Stories, that activity may appear as an advertisement to their friends. The ad is shown in special right sidebar module, and displays the user’s name and photo, any additional context or friends they’ve tagged, a picture of and link to the advertised Facebook Page or app, and the Likes and comments from the original post.

Similar to social context ads and Ads for Applications that Facebook launched this year, Sponsored Stories increases the relevance of advertisements to users by displaying a recommendation from one of their friends. Seeing that a friend has checked in at Starbucks is a much more compelling reason to visit than a standard advertisement telling a user to go get a coffee.

Jim Squires of Facebook Product Marketing says “all privacy settings are honored”, so the ads will only be visible to those who can see the original post they draw from. This means users will only see Sponsored Stories by their friends who haven’t restricted them from viewing their shared content. Advertisers can overlay any of Facebook’s standard demographic targeting parameters to further refine who sees a Sponsored Story.

Facebook plans to educate users about how Sponsored Stories respects their privacy through a blog post and explanation in the Help Center. However, there won’t be any link to this information within the ad unit. Some users may not want their content turned into ads, and since there’s no way to opt-out or turn off Sponsored Stories, some protest should be expected.

Page post Sponsored Stories are more straightforward. Pages can buy greater distribution for their latest news feed update, ensuring an audience for a particularly important link or announcement. Users who Like the Page will see the post in Sponsored Stories without having to Like it or take any other action.

Sponsored Stories co-opt a user’s actions, voice, and identity to create ads that resonate with their friends. While Twitter has diluted its content stream with promoted tweets in order to make money, Facebook may have found a significant new revenue stream without selling out the beloved news feed.

Interesting move from Facebook that will delight advertisers but users not so much. You can’t opt out of sponsored stories, unless you judiciously avoid clicking ‘Like’ on any brand pages/apps or activity … or you stop using Facebook altogether! (Oh the horror!) 

The ad will also include whatever text you use in your checkin, so expect some pranksters to mess around with that aspect. A suggestion from Twitter: “Just checked into the Starbucks around the corner and this mocha latte tastes like goat urine.”

Sponsored stories are currently available only to big-budget advertisers, but I hope this initiative is ported to self-serve ads soon. I definitely want to play around with this and see how it works.

Check out the official Facebook Marketing video for more info. (link in first line)

Sn_venn

The Internet went through some fairly predictable phases.  

The first was a research phase (the 70s) where some forward thinkers were working on early research projects for what was then called videotex, teletext, 2-way TV, etc These were experiments in labs as consumers did not have PCs or any practical way to access these services. Futurists like Alvin Toffler wrote about the notion of an “electronic cottage” (he wrote The Third Wave in 1979) but it was considered a pie-in-the-sky prediction.

Next was the pioneering phase (early 80s to early 90s) where a relatively small number of people were trying to build interactive services, but it was an uphill battle. Few people used them (and the Internet itself was still limited to government/educational institutions – indeed, it was illegal to use it for commercial purposes.) The conventional wisdom was that the market would always be limited to hackers/hobbyists. AOL was the first “Internet” company (it was actually called an “online services” or “interactive services” company at the time) to go public and I remember on the road show (in 1992) explaining why we thought this would be a large market someday. Given we had been in business 7 years and had less than 200,000 users, most were skeptical.

Suddenly interest in the Internet took off and we entered a growth phase (mid 90s). A lot of factors contributed to this: consumers started buying PCs in large numbers, PCs started shipping with pre-installed modems, network costs dropped sharply making access more affordable, software was developed to improve easy of use for mainstream users, the World Wide Web emerged, the first wave of start-ups were developed, etc. Suddenly a market that had been nascent for more than a decade was suddenly showing signs of life. As an example, AOL went from 200,000 users to 1 million in a 2 year period.

This sudden surge in interest led to the hype phase (late 90s), when people came out of the woodwork to be part of the Internet gold rush. Hundreds of companies were started, and everybody wanted to invest. Valuations shot up. Me-too companies became prevalent. Crazy ideas that had no business model and no realistic chance of success were viewed as the next big thing. As millions of people decided to go online virtually overnight, companies like AOL expanded rapidly. We were literally getting America online), adding 1 million new users every month or two. Our market value soared, from $70 million at the time of the 1992 IPO to $150 billion in early 2000.

Not surprisingly, this hype phase was followed by despair (early 2000s). Some called this the Internet’s nuclear winter. Investors ran from the sector and valuations plummeted. Some companies lost 99% of their market value in a matter of months. Dozens went bankrupt. The sector went from being the hottest thing on Wall Street to being cold. New companies could not raise start-up capital. Most people thought the Internet as a passing fad.  

That then led to a recovery phase (mid 2000s). Some of the companies started in the hype phase built large franchises (Yahoo, eBay, Amazon, etc), and a handful of newer companies got traction (Google, in particular). This was a slower, steadier, saner period of growth. Investors tended to be selective, betting on the winners that survived the bust that were consolidating their positions.

Now we appear to be in a boom phase again. The success of social media (Facebook in particular) and more recently social commerce (Groupon and LivingSocial) has reminded people of how quickly large, profitable, valuable franchises can be built. As a result, there is once again a rush to invest. This will inevitably lead to many disappointments, but the difference now vs a decade ago is the companies have real business models, significant revenues, etc Valuations are likely to move up – or down – quickly, but the underlying businesses are for the most part pretty stable.

This cycle – hope, hype, despair, rebound, etc – has been interesting to watch (and live through) over the past 25+ years. It is is worth pointing out though that what happened with the Internet is not unique to the Internet – the cycles just happened a little faster. Most significant inventions and industries (cars, etc) have undergone similar transitions. Success seems to require a mix of passion, perspective, and perseverance.

Beautifully written piece about the history of the Internet & the current phase we’re in by Steve Case, co-founder of AOL on Quora.
It is due to posts like this one that Quora is fast becoming one of my favourite websites (and also a big time-suck). But that’s a topic for another day.

The company will also announce that it has raised $800,000 in venture capital, the first step in moving along the path from building an app to running a profitable business.

The New York Times on Pulse growing and making the app free

I’m happy for the Pulse team. Pulse is great. But this quote, for which the blame lies more on this article’s author, is (probably unintentionally) ridiculous. Unfortunately, the media loves zeros and gets carried away by any announcement that involves a big figure.

Hundreds (if not thousands) of iPhone and iPad apps are made by profitable businesses that didn’t raise any venture capital. In fact, making the app free is going to remove its biggest revenue stream, which is likely to be generating at least $25,000 per month.

I’m sure the Pulse team put a lot of thought into this and have a good chance of making money later in other ways, as the article mentions. But in the short term, this move is likely to make them quite unprofitable. That’s why businesses raise venture capital: to cover their costs when they’re unprofitable so they can grow into something that’s hopefully larger and very profitable later.

It’s ridiculous, incorrect, and insulting to those who have chosen the traditional business model — charge money, spend less than you make — for this author to suggest that giving away your product for free and paying your expenses with VC money is the “first step” to make your app development “a profitable business”.

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