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Social networks don’t threaten Portals, they threaten Home Pages June 25, 2007

Posted by jeremyliew in Consumer internet, facebook, media, myspace, platforms, portals, social media, social networks, web 2.0.

On Friday, Christopher Beam at Slate takes a stab at How Facebook could crush MySpace, Yahoo!, and Google, saying about the site:

Facebook will turn into a do-everything site with the potential to devour the whole Internet…

But a Facebook homepage would have a huge intrinsic advantage: The social network is already built in. Sure, the other portals incorporate Gmail and BBC headlines and YouTube searches and podcast directories. By adding a social context to all of this content, however, Facebook would immediately trump its main competition…

If Facebook adds e-mail, IM, and RSS, it’s one step closer to becoming as comprehensive as Yahoo! and as popular as MySpace. The rest of the Internet might as well surrender.

Of course, he is far from the first to suggest that Facebook could become a portal. David Sacks, the founder and CEO of Geni, suggested the same thing in a guest post on Techcrunch in late May:

For the last several years, Yahoo, MSN and AOL have all suffered a declining share of pageviews, but that does not mean the portal is going out of style. Rather it has been redefined, first by Google, and now by Facebook in potentially even more profound ways.

The core question a portal needs to answer for a user is “How do I find the information I need?”…

Facebook has a new answer to the portal question. The “social graph,” or your network of relationships, will push information to you. You’ll learn from your friends. Thanks to Facebook’s new developer platform, the types of information being disseminated now include not just news, photos, events, and groups but also music, videos, books, movies, causes, political campaigns — and the list is rapidly growing into almost every conceivable category.

Others put their money on Myspace as the new portal. As Safa Rashtchy said at the Piper Jaffray Global Internet Summit last year:

Social networks such as MySpace.com are already challenging traditional portals. MySpace, for example, has surpassed MSN and AOL by measure of monthly page views, Rashtchy said, and its traffic equals roughly 75 percent of Yahoo’s, the No. 1 site on the Web.

Despite the digerati’s preference for Facebook over Myspace, Myspace has been a lot more aggressive about adding channels that mirror the traditional portal experience, including news, weather, music, movies, jobs and many more.

These are all folks much smart than me, and I agree that AOL, Yahoo, MSN and yes, even Google, have something to fear from the social networks. But it’s not because they’re becoming more portal-like. Wikipedia defines a portal as:

… a site created to function as a single point of access to information on the web, internally and externally. Portals present information from diverse sources in a unified way. … Aside from the search engine standard, web portals offer other services such as news, stock prices, infotainment and various other features.

What the portals need to worry about is not the social networks adding content and functionality to match this criteria. It’s something much nearer term because its already happening. It’s that social networks are becoming the home page for many users.

According to Comscore’s May data, the portals still have more of their traffic coming from “Logon” than the social networks do.

Yahoo: 20.0%
MSN: 17.9%
AOL: 11.8%
Google: 10.5%
Facebook: 5.1%
Myspace: 4.1%

But the social networks are gaining a toehold, and there can be only one “homepage” for any user. Because of the power of the default, capturing the “homepage” centrality is an incredibly significant position; it offers the ability to direct a user elsewhere on the internet. Comscore does not let me cut the “traffic sources” data by age as it would be interesting to see if the “homepage” behavior is more widespread among the younger demographics that have adopted social networks more fully; this would be more troubling for the portals as demographics are destiny.

I’ve previously analyzed the websites most frequently visited by their users; here is how the portals and social nets stacked up then:

Yahoo: 29.2
MSN: 24.7
AOL: 21.4
Facebook: 20.9
Google: 19.2
Myspace: 19.1

If Myspace and Facebook’s numbers continue to trend upwards, there is a very real chance that more users will switch to using them as their home page, and that is the REAL challenge to the centrality of portals.

REMINDER: If you’re reading this through an RSS reader, please switch your feed to feeds.feedburner.com/lightspeedblog to help me with my stats analysis

Good SF Chron article on kids and casual immersive worlds June 1, 2007

Posted by jeremyliew in Consumer internet, gaming, Internet, kids, media, social media, social networks, user generated content, web 2.0.

For those who liked my previous post on how casual immersive worlds are hitting the mainstream in the US, there was a good article in Sunday’s San Francisco Chronicle, found via Ypulse.

My favorite comments was about webkinz, the plush toy that comes with a unique code for a matching online avatar:

“I don’t really play with it a lot,” Laurel said of her plush toy. “But sometimes, when I see it, it reminds me to go play (with the computer game).”


Social Media: Open platforms and distribution are opposite sides of the same coin May 28, 2007

Posted by jeremyliew in business models, Consumer internet, distribution, Ecommerce, Internet, media, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.

As I’ve said in the past, I think that distribution is the most important success factor in the early stages of any new consumer technology. Distribution used to mean getting a carriage deal done with a big portal. These days it can take a number of forms, but it always requires getting in front of potential users who may not be aware of you, and alerting them to your value proposition.

As social networks take an increasing percentage of internet users time, it’s more important than ever to factor them into a distribution strategy. Within Myspace, this has been through widget virality (one of the seven forms of virality that we’ve posted about in the past). Bebo has taken a more controlled approach, allowing select partners into their system in what looks closer to a traditional portal distribution deal.

Now, through its new platform, Facebook too can be a distribution platform. Apps are spreading in Facebook through a combination of virality from profile pages, promotion to existing user bases and position in the application directory, with iLike being the clear early winner. Happily for Lightspeed, Rock You and Flixster (both are portfolio companies) have three of the top ten apps on Facebook between them. Josh Kopelman says that Facebook’s open approach to partners has effectively increased their virtual R&D budget by around $250m, the amount invested so far into widget companies.

Another of our portfolio companies, Stylehive, is also taking the approach of opening up its platform (albeit on a smaller scale to Facebook). They are partnering with retailers and publishers, including the Gap, Shopbop, Instyle Magazine, Gen Art and others, inviting them into the Stylehive platform. These partners will be able to access Stylehive’s community as well as add a social media dimension to their commerce or content.

I think we’ll see even more communities opening themselves up as platforms over the next 12-18 months. It will be especially interesting to watch MySpace’s competitive response.

Not following Google; following AOL May 22, 2007

Posted by jeremyliew in advertising, Consumer internet, Internet, media.

Well it was a busy week last week, what with WPP agreeing to buy 24/7 and Microsoft agreeing to buy Aquantive. I was on vacation overseas, so didn’t get a chance to post my thoughts on it as it happened, but there was a lot of thoughtful coverage.

Since these deals came hard on the heels of Yahoo’s acquisition of Right Media and Google’s acquisition of Doubleclick last month, most of the coverage was in the vein of “watch everyone play catchup to Google”.

I have a slightly different take on this spate on transactions. I think that in the case of Yahoo and Microsoft, they are actually playing catchup to AOL’s acquisition of Advertising.com in 2004. This happened under Jon Miller’s watch (I was his chief of staff at the time). It has since proved to be a prescient deal.

It is no accident that AOL was the first big portal to move to acquire an ad network as they were the first to experience the trend of deportalization. The big three portals (Yahoo, MSN, AOL) are losing share (of total US pageviews), as the chart below shows.


They will likely never regain their lost share – their tried and true techniques of recycling traffic into their own sites don’t work anymore. Users want best of breed content and, thanks to search, they can get it – within or without the portals. Its been well documented that both Yahoo and MSN have seen flat/negative advertising revenue growth in the last few years. See the below chart from Valleywag for a comparison of Google vs Yahoo gross revenues for the last few quarters.

Yahoo vs Google quarterly gross revenues

AOL has fared better because it opened up its proprietary content, so its year on year comps look better, but it took its traffic hit earlier and will likely start to see similar trends once the growth spurt generated by opening up AOL’s content to the web slows down.

Public companies must show growth.

If you can’t grow by selling your own inventory, then you’re forced to sell other people’s inventory. That was the driver of AOL’s acquisition of Advertising.com, and it’s the driver of Microsoft and Yahoo’s recent acquisitions as well. It also explains the prices that they paid, which some fear to be too high. Fear of loss is always a greater motivator than the prospect of gain. The big portals are looking down the barrel of a loss of their share of total pageviews, and are willing to fight hard (i.e. pay up) to avert that loss.

Contrarian viewpoint on the future of newspapers May 8, 2007

Posted by jeremyliew in business models, Consumer internet, local, media, newspapers.

Walter E. Hussman Jr., the Publisher of the Arkansas Democrat-Gazette (the major paper in Little Rock), wrote a fascinating opinion column in today’s Wall Street Journal (subscription required) entitled “How to Sink a Newspaper“. He take a contrarian view to the prevailing trend for newspapers to embrace the web and make their content free to drive more online users. Indeed the Newspaper Association of America recently released a report saying that newspaper websites are growing twice as fast as other websites.

Instead, Hussman defends his paper’s practice of keeping the majority of his content behind a pay wall. Because the article require a subscription, let me excerpt a few key passages:

One has to wonder how many of the newspaper industry’s current problems are self-inflicted. Take free news. News has become ubiquitous, free, and as a result, a commodity. Anytime you are trying to sell something that becomes a commodity, you have lost much of the value in providing that product or service….

All of this would be fine if newspapers generated lots of additional revenues from offering free news. But the fact is newspapers generate most of their online revenues from classified advertising, not from news….

It turns out that a Web site is a very different medium from a newspaper. While consumers often find pop-up ads a distraction and banner ads as more clutter, readers often seek out the advertising in newspapers….

Our newspaper, the Arkansas Democrat-Gazette in Little Rock, does not offer our news for free on the Web site. We offer free headlines. On a few selected stories, we offer a few free paragraphs, designed to get people to read our paper. We also offer free classifieds…

So what are we doing with our Web site? We have hired a videographer to complement our text coverage in the newspaper. We have added photo galleries to increase the number of photographs beyond what we can publish. We offer an electronic edition where you can search the entire edition by keywords, something you can’t do in the print edition. And we offer breaking news email alerts, something else you can’t do in print. In other words, we are offering value on our Web site that complements, rather than cannibalizes, our print edition.

Collectively, the American newspaper industry spends $7 billion on news and editorial operations. This includes everything from copy editor salaries to sports travel expenses. In addition, the Associated Press spent about $600 million world-wide in editing and creating news. By offering this news for free, and selling it to aggregators like Google, Yahoo and MSN for a small fraction of what it costs to create it, newspaper readership and circulation have declined.

…it is not just the newspaper industry that gets hurt. Journalism will be diminished in America with less investigative and enterprise reporting; indeed, less reporting of state houses, city halls, school boards, business and sports. Clearly a lot is at stake.

It is time for newspapers to reconsider the ultimate costs and consequences of free news.

Hussman provides some data to back up his contentions, citing growth in his newspaper’s paid circulation against industry wide declines, and showing relatively better performance than the Columbus Dispatch (a comparable paper) in the 6 months after the Dispatch switched their website from free to pay.

Before reflexively dismissing Hussman as an old media dinosaur that “just doesn’t get it”, its worth while considering another newspaper transaction that is in the public eye, News Corps bid for Dow Jones and the Wall Street Journal. Since Murdoch bought MySpace, a move that earned him first ridicule, then praise, it is hard to accuse him of being an old media dinosaur. And as Hussman points out about the WSJ online, it has almost one million paying subscribers, more than all but three US newspapers (USA Today, WSJ and NY Times). Even the opinion piece that I’m quoting can’t be read unless you’re one of these one million!

Hussman gets to the core of an important point, but I disagree with him on the nuances. I don’t think that news has become a commodity because newspapers make it free. Rather, I think that news is free because its a commodity. In a world of wire news, where you read the story hardly matters. For most breaking news, a rewrite of a wire story by a staff reporter is not enough to differentiate one newspaper from another. One could argue that the wires shouldn’t sell to outlets other than newspapers, but that cat is well and truly out of the bag.

The important thing that allows papers like the WSJ, and like the Arkansas Democrat-Gazette, to continue to charge for subscription is that the content that they have is NOT a commodity. The journal covers business news to a depth and breadth that no other US paper does. It adds insight and analysis. What you read in the journal you often CAN’T read elsewhere. Similarly, I imagine that readers/subscribers of the Democrat-Gazette online are not turning to it for news on Iraq or the election, or topics that are well covered elsewhere, but rather news about local issues in Little Rock and in Arkansas that are NOT covered elsewhere. Its the local paper’s coverage of local news that allows it to hold its audience – not its coverage of commodity news.

What this gets to is one of the core premises of business – find your unfair advantage. For now, the Journal and the Democrat-Gazette have an unfair advantage; for the former in the coverage and analysis of business news, and for the later in coverage and analysis of Arkansas news. One could argue that over time these too could come under threat from bloggers both national and local, but for now their news is worth a premium. (As an interesting aside, the free daily BostonNow is now including some local bloggers in its print edition.)

The advice I would give to Huffman would be to take all the rest of his content, the commodity news (International, National, Business etc) and put that outside the pay wall and see what happens. He might be pleasantly surprised.

Slide Presentation at Web 2.0 Expo – “Show me the money”; business models for web 2.0 startups April 19, 2007

Posted by jeremyliew in business models, Consumer internet, Ecommerce, media, start-up, startups, VC, Venture Capital, web 2.0.

I spoke today at the Web2.0 expo on the topic of how this generation of internet companies can make money under both media and e-commerce models (Show me the money). This is an expansion of previous posts I have written on this topic.

The short form of my presentation is as follows:

1. Its easier than ever to start a consumer internet company
> 1.1. Not too hard to get to cash flow breakeven

2. For long term value creation, plan A can’t be “get bought by Google”
3. Need to have a roadmap to be an independent public company

> 3.1 Requires real scale
> 3.2 Revenue sometimes lags costs when you are growing
> 3.3 May need venture capital to bridge the gap

I go into more detail on this and lay out the math as to how big you need to be to both breakeven and to be a public company under both business models.

For those who are interested, slides are available here:

Web 2.0 presentation – Show Me The Money