The Viability and Monetization Potential of Social Networks

Is there money to be made in social networks (SN)? Well if you are interested in SN’s and are a developer or an entrepreneur building tools that leverage SN’s in the web 2.0 world, or for the mobile arena, then that is a very important question for you. As an entrepreneur myself developing products for the mobile presence space, I am constantly quizzing myself with the single question “Can the business model work or sustain in this changing eco-system”? Well, if you are interested in finding out more, you should set aside the last Monday of this month (July 28th 2008) and come to the Mobile Monday event at the Samsung Experience Center (10 Columbus Circle, NYC) for an expert-panel discussion. Lubna Dajani of Stratamerge™ and Co-founder at mobilemonday-NY, will be moderating a panel of experts, entrepreneurs and others with the discussion centered on the subject “The Viability and Monetization Potential of Social Networks”. She does plan to share some of her initial findings of Stratemerge™’s study on social networks and debate the findings and potential market implications.

Current methods of monetization come from two areas. One is the advertisers, who flock to the sites despite the anemic response rates. The second method involves the user who pays for some premium service. SN operators, who rely solely on ad based revenue models, have to convince their customers that there is continued value in advertising on these networks.

A recent BusinessWeek article titled "Generation Myspace is Getting Fed Up" revealed certain shocking advertisement metrics; Response rates of 0.04% (on SN’s) compared to a 0.2% in general on the web. Response rate numbers like 0.04% to 0.2% cannot continue to be an acceptable ROI number for those who spend money on advertisements on the web. One industry executive put it right when he said, "it’s really hard to make money when the click through rate is that anemic". Read my article "Ad Deluge on our senses" written earlier this year. Another report in "VentureBeat", reported flat to falling ad revenues for June 08. What is interesting to note in that report is the pubmatic's ad price index of web publishers by site type. One can clearly see that SN sites have the lowest ECPM's among the other site types. You can find more details on the report at pubmatic's site.

Will consumers pay to play in a SN? The value of the extended social network fades over time unless there is a continued exchange of relevant and contextual dialogue. One has to ask the question, “What is my network’s NET-worth”? How exactly am I benefiting by participating in the SN’s? SN’s will need to continue to provide overall value to the community and unique value to each user. If this duality is not satisfied, the users will leave.

In my personal opinion, as the world moves toward mobile gadgets and phones, factors such as relevance and context become more important. Desktop centric SN users’ initial euphoric experience of finding and reconnecting with old friends is usually followed by information overload and eventual disillusion. The ad model will also have to change and provide users with a meaningful experience as opposed to pure product promotion. It is imperative that new applications provide a platform for intelligent information delivery, one that provides immense value to the user in their daily activities.

SN sites will also have to control spammers and unwanted business solicitation that irritate users. Twitter (a microblogging site), a service that I use, is an example where this happens. Many businesses hide their real identity, get accounts on twitter, try and get people to follow them so that they can spam them with the irrelevant material. As for me, my current rule is to periodically scan my followers and delete/block those who have no profile information. I try and control what’s relevant and contextual to me. Recent reports by bloggers and other SN site users have evidenced the fact that some of the SN application sites are resporting to spam themselves in an effort to increase their user base leaving a very bad user experience for the end user.

SN’s will have to create new forms of attention aggregation and inform, entertain and allow for fulfilling content consumption to effectively provide a platform for monetization.

Consumer Freedom and Choice in US Wireless market. Is it here yet?

Yes my dear friends, I have been in radio silence for the last few weeks due to a number of reasons. Over the last few months we have been busy at work at our mobile startup travelling and meeting people from NY to CA. We have spoken to a number of people about our project and assessed our current tack. We are also running into road-bumps and challenges that most every startup faces. Our market validation has proven that there is a need for the type of product that we are building. Well, enough of that. Lets move on to what I want to talk about now.

During a recent trip out to California to attend the TIECON conference, I sat through a panel discussion featuring some big-wigs from the telecom industry. During the open Q&A portion of the session, I sent in my SMS question to the panel and asked this of them: "Do you think that the american conusumer has the best experience and choice when it comes to wireless services"? Most people on the panel which featured representatives from multiple carriers and others including Google, agreed that the American consumer does not have the best in service, technology and choice when it comes to wireless services. For ex: Until recently consumers had to pay steep fees of upto $ 175 to change or stop the service midway through the contract. For years, carriers have charged steep fees as a means to either recover their costs for subsidizing the phones early on or to prevent churn. Another issue is that the American consumer has to buy the phones that the carrier issues. In most other developed and developing countries, you can walk into a store, buy a phone of your choice and then get service from the carrier of your choice. Once again, consumer choice is limited by this. Recent press announcements by Verizon and their CEO's words from the recently concluded D6 conference suggest that this control is on its way out and that real consumer choice with respect to handsets is coming soon. You can watch some of the video excerpts from the event at http://tinyurl.com/5jt3dv.

The other area of concern is the control exercised by the carrier in terms of what software you can actually load onto a device. With the advent of feature rich smart phones, these devices can do a lot more than regular phones. I mean these smart phones are actually mini mobile computers. Up until recently, carriers exerted control over what software one could load on these devices maintaining that it was imperative that any 3rd party software not jeopardize the phone operation. For a carrier the ability of the device to make or receive that call is very important. Due to this reasoning, many innovative third party companies had to play by the carriers' strict guidelines. In this "pay to play" scenario the carriers wanted the software manufacturers to charge the users for the software. For many innovative companies that may have not been the ultimate business model. This made it difficult for many of them to survive or succeed. Most recently, at the same D6 conference (http://tinyurl.com/5jt3dv), Verizon Wireless' CEO announced that by the end of this year (2008), they will have a two day turn around on certification of 3rd party software. This would enable consumers to download any certified application and use it. This quick turnaround in the certification process would enable innovative new companies to develop smart new applications, have them quickly certified and available for release to mobile phone consumers. Only time will tell if Verizon will keep to its word.

Change is visible on the horizon and many things are moving in the right direction. But any change in the communication arena is a slow process in the US.

Doing my part to combat Global Warming

Oh well, I am taking a small break from my usual tech-rants to rant about something else today. Today's blog is about doing my part to combat global warming. Last Thursday night, I picked up a box full of tree saplings that I had ordered about 2 weeks ago. I had ordered about 80 saplings of various tree types. They range in variety from dogwoods, oak, lilacs and some evergreens. I am doing this as part of my contribution to “Earth Day” (4/22/08) and “Arbor Day” (4/25/08). My goal with this sapling planting project is to drive carbon sequestration. I sincerely believe that many of the existing methods to fight “global warming” do not really address how to increase the utilization of Carbon-dioxide (CO₂). Excessive CO₂ levels in the atmosphere is one of the reasons often cited for global warming.

Yes, there are actually 80 saplings in this picture.
Each little stick will grow up to be a tree (aided by some serious TLC)

Let’s face it. We are massively dependent on oil as our main energy source. The alternate fuels market (ethanol etc) currently requires the use of precious resources such as clean water and arable land and therefore is not a truly viable substitute for oil. Wind and Solar are the main source of renewable energy which do not have substantial natural resources requirements. However, the input materials cost and maintenance costs for these energy sources are still high and these power sources are still out of the reach of most people as the end product is expensive. Many local zoning requirements (U.S) also prohibit or have controls on these installations as some people view them as an eyesore. Moreover, all of these alternate energy sources put together do not even come close to meeting our future requirements for energy.


As for me, I believe that it would not be prudent to suddenly change all our daily activities to accommodate a reduction in consumption of energy. Any temporary band-aid solution only goes so far and may in fact harm the environment in the long term while seemingly providing a short term remedy. I will try to reduce my carbon footprint, but however that will require a lot more thought than some random action that results in other kinds of environmental issues.


So, I have decided that from this year on, I will plant as many tree saplings as I can, so that in very near future, they will help in the generation of O₂ and utilization of CO₂. My aim at a minimum is to somehow balance my carbon output by planting enough trees that create oxygen. I truly believe that, by doing so I have acted in a way that provides a solution for the long term. So with this in mind, over the next week or two I will be planting these saplings. While we cannot change our methods in one day, we can certainly take small steps toward doing our part for the environment and for the future of our planet. I hope you do your part. Go plant a tree.

Cash is King. Cash-Like is Not

I am writing this article in an effort to refocus the blame on who is really responsible for the recent write downs and charges that companies have been forced to take due to the drop in demand for auction rate securities.

There have been posts by many VC's recently on this issue including one by Fred Wilson Our Run In With Auction Rates And What It Taught Me About Markets where he explained what actions he personally took on his holdings in such debt-instruments to avoid such write downs or losses. He was prudent and also his investment advisors called him in a timely manner so that he could act on it. I am sure there were others who understood the potential risk of "cash-like" financial instruments and took timely action to mitigate the risks.

It is absolutely important to understand the complete risk and the liquidity situation of all your finances and investments. I am sure if the right questions had been asked and answered, and if the papers signed at the onset of the agreement stated that there are certain inherent risks associated with these arcane debt instruments, then the people who signed them bear the ultimate responsibility. One can't blame an institution for writing down the auction rate debt instrument and hence a loss on the value of the original cash investment, unless a fraud has been committed.

Late Last year after, after some of the initial shudders in some of the banks and brokerages, I re-evaluated all my accounts that I hold at various institutions, verified that they met the FDIC insurance limits (for MMAs) and that all the other accounts were under the SIPC limits as well. I called the various institutions, asked them to reconfirm the federal insurance amounts that they had taken on accounts, asken them what extra insurance they carried and how I was protected in case of a bank failure. Basically I did a complete "risk assessment". I did this to fully understand my "risk picture" - so that I knew what was "SAFE" and what was risky.

This is the same mentality that should be exhibited by a start-up company. The management along with the investors must assess and fully understand the risks associated with different kind of debt instruments. Past safe practices of such instruments does not necessarily mean continued safety. If someone made a suggestion to put in the company's cash originally acquired through Venture Funding, into auction rate securities, here are the questions that I would have asked.

1: how different is this from a money market account or a CD?
2: Are these deposits insured by the government if the bank failed or there was a "run on the bank"?
3: I understand that this has been done for the last X number of years, but can you tell me what are the possible scenarios under which this so called "cash-equivalent" can lose its value? Please give me the scenario however remote it may be. If you can't give me a scenario, then you the "bank" has to give me in writing that this is truly "cash" and is fully convertible to cash equivalent at a minimum of the original deposit.

The bottom line is, if the debt-instrument cannot be federally insured, then the accounts are not the same as "cash". Hopefully the investment professionals who advice on the portfolio construction for the cash that a company is sitting on, are astute regarding the risks associated with these debt-instruments. Its more important for you to ascertain if "cash-like-investments" is "cash".

You need to have an investment policy which you should review and question constantly. Ask those questions regarding risk freely without hesitation at the risk of appearing stupid. After all it the money with which you plan to build your company. You should always assume that no investment is risk free and the higher the apparent return the higher the risk.

Cash is King. Cash-Like is Not

Are We done yet?

Recession (the "R" word) is a word easily bandied about these days by everybody. It seems that it has become the most used word for Q1-08 already. With job losses in the US, the sub-prime slime, and the recent Bear Stearns Circus, we seem to have our hands full with financial news on a daily basis. Some have started to use the other "R" word, Recovery and have predicted that we have hit the bottom and that Q2 and the second half of 2008 will lead to a recovery. As i thought about this, I just wanted to take a quick snapshot of how our markets have fared over the last 6 months v/s other major markets. So I did a quick computation of percentage drops of
1: % drop 52 week highs v/s the closing numbers for 4/4/08 and
2: % drop of index value at open on Jan 08 v/s closing numbers for 4/4/08.

Here's a rolling snapshot from East to west of some major market indices. Note the numbers are approximate. (All graphs & Numbers from Yahoo Finance)

The worst preforming index:
Shanghai Composite down almost 44% since its 52 week high and down 34.5% YTD

The best (of the Worst)
Dow Jones Industrial Average down 11.7% since its 52 week high and down 7.13% YTD

You decide if US markets have reached the bottom. I know there is no sense in comparing some of these indices directly, but still I thought it was interesting to show the difference in the percentage drops between the majors.

(JAPAN) NIKKEI 225 Index Value: 13,292.22 @ close on 4/4/2008

52wk Range: 11,691.00 - 18,297.00 [% total drop = 27.35%]

Year open at 15,155.73: [% drop YTD 2008 = 12.29%]

(CHINA) SSE Composite Index Value: 3,446.24 @ close on 4/4/2008

52wk Range: 3,271.29 - 6,124.04 [% total drop = 43.72%]

Year open at 5265: [% drop YTD 2008 = 34.5%]

(HONG KONG) HANG SENG Index Value: 24,264.63 @ close on 4/4/2008

52wk Range: 19,386.70 - 31,958.40 [% total drop = 24.07%]

Year open at 27,632.19: [% drop YTD 2008 = 12.18%]

(INDIA) BSE SENSEX Index Value: 15,343.12 @ close on 4/4/2008

52wk Range: 12,904.80 - 21,206.80 [% total drop = 27.64%]

Year open at 20,393: [% drop YTD 2008 = 24.76%]

(GERMANY) DAX Index Value: 6,763.39 @ close on 4/4/2008

52wk Range: 6,167.82 - 8,151.57 [% total drop = 17.02%]

Year open at 8,045.97: [% drop YTD 2008 = 15.93%]

(U.K.) FTSE 100 Index Value: 5,947.10 @ close on 4/4/2008

52wk Range: 5,338.70 - 6,754.10 [% total drop = 11.94%]

Year open at 6,456.89: [% drop from start of 2008 = 7.88%]

(U.S.A.) DJIA Index Value: 12,609.42 @close on 4/4/2008

52wk Range: 11,508.70 - 14,280.00 [% total drop = 11.70%]

Year open at 13,261.82: [% drop from start of 2008 = 7.13%]

(U.S.A.) NASDAQ COMPOSITE Value: 2,370.98 @close on 4/4/2008

52wk Range: 2,155.42 - 2,861.51 [% total drop = 17.16%]

Year open at 2653.91: [% drop from start of 2008 = 10.67%]

Well I sincerely hope that we have reached a bottom in some sense here. I say this because if U.S. markets continue to fall further to be more in line with India and China we have a long way to go to the bottom. Well is the economy in a recession? I was at an Apple store today and the place was humming. Kids and parents buying more gadgets. Heck I myself bought a few items.

As for India, Food Prices Drive India Inflation., rapid inflationary pressures recently forced the government to stop the export of all non-basmati rice. The finance minister even lashed out at western nations regarding the use of corn for ethanol production when the world's poorer countries were going hungry. The rise in food prices is not just in India, it's a worldwide phenomenon. Q&A Rising World Food Prices.

While the inflationary pressures are not so high in the U.S, the prices of wheat and other staples have increased in the past few months. Americans only seem to relate to prices of fuel with increasing urgency, but respond with the "Boiling Frog Syndrome" mentality with respect to the rise in the cost of food.

But some do notice and it's not the poor. It is real surprising that the ones who do notice are the real wealthy. One such person recently came back home after a long vacation and complained about the increased cost of a bagel (from a micro blog post that I follow). Maybe that's why they get wealthy in the first place.

Social Isolation - Physically present but mentally absent

The best laid schemes of mice and men often go astray

– Robert Burns

I sat down the other day reminiscing of a class during my MBA days. The Professor gave an analogy comparing the IT industry to the plumbing industry. He talked about a time when people became more absorbed in the details of the fitting and pipes, but forgot about the water. It made me think of how the world has built up network infrastructure for information without actually stopping to think of how much of the data that traverses it is actually relevant. The arrival of new gadgets and gizmos that utilize both the infrastructure of the wired and the wireless world are giving way to a new social isolation phenomenon sweeping the planet; Physically present, but mentally absent. Anywhere I go these days, in the city, at airports, restaurants, and malls, people are either peering into a mobile device or its hugging their ears. Even among groups of people there’s always one or more distracted by a device. As I pondered for a bit, Clint Eastwood’s “The Good, The Bad and The Ugly” came to mind.

The Good: One of the areas that availability of the network infrastructure is really making a difference is in the area of education. You can now have virtual class rooms half way across the world where students from distant countries join in via an interactive video conferencing classroom. An individual student or a classroom full of them can interact with the professor and other students who are hundreds of miles away as if every one of them were physically in the same room. Information delivered through this technology has made distance ignorable, while creating a highly productive educational session. The existence of the network infrastructure has also helped other industries such as healthcare, pharmaceuticals and many others.

The Bad: These days most everyone has a cell phone, and a personal laptop computer. I have personally seen instances when people are replying to text messages, talking on their phones and looking into their laptops while driving in vehicles at highway speeds. Does this “instant-gratification” world we now live in really make us that much more productive? I believe that the existence of these technologies have cut down the intrinsic delay that used to allow people to think over a query and respond in an astute manner. The perceived expectation of responses in real time has really cut down on the quality of the interaction between people. We have to question ourselves if technology has really increased productivity or caused more disruption? It is sad to note that the very same people who benefit from the education at virtual classrooms are also affected by the high tech distraction of texting and email while the class is in session.

The Ugly: One recent afternoon, as I came to the end of the running trail at a local park, I happened to notice a family setup on a bench near the tot-lot. The father was working on his portable computer with one child by his side playing a portable videogame. The mother was talking on a cell phone while minding the other child that played on the swing set. Each to their own space; Is social isolation the future we are building for our kids? The next generation of kids are going to be mere “Talking Heads”.

Conclusion: There are significant benefits and some bad side effects to society from technology. It is up to the people to control how technology will not become a disruption in their lives. Etiquette coach Colette Swan says that, "We are becoming an internalized society. We are living in our laptops, our cell phones, and in our texting". See Michael Parekh's blog Gadget Etiquette in meetings. Dan Saffer of Adaptive path coined the phrase topless, where companies and universities are forcing meeting or classroom participants to ditch laptops and phones. Some of the participants swear that their productivity has increased by leaving behind their electronic gadgets to such meetings. I am sure some other die hard tech fans will argue that Text messaging, emails and cell phones have not distracted the prioritization of activities.

Simplicity, will be key to success with Mobile Applications

These days there is a lot of buzz about the newest applications that are available or coming for the mobile phone. Hundreds of companies are getting venture funding for developing the next set of applications for the mobile device. Much of the focus here is on delivering fragmented applications that take the user away from the core phone use. Any application developed for the phone has to consider the core phone use and be designed specifically for the limitations of the device with respect to the form factor and usability. Fact is, typing on the small key board makes it more difficult for people to have to enter a lot of information or click through many levels of menus to get the information that they require. Applications need to keep power consumption in mind. As much as the battery life has improved, graphic intensive applications are draining them already. One of the fundamental issues that need to be accomplished is that the software for the mobile device has to be designed from the device out, not the desktop/internet in. It is not about having the internet on your phone. The application designed for a mobile device should allow access to all the information that a person normally wants at their fingertips, at the time that they want it, without having to search for it. Tie in location, and time and context and my mobile phone should do all the work for me. I don’t want coolness of an application to drain out the battery and keep forcing me to tether myself to a plug-point frequently.

On the other hand, the current crop of mobile social networking platforms do NOT enhance interpersonal communication or reduce the clutter of asynchronous communication. They only add more distraction and noise and completely drown out meaningful communication. Recently I have talked to some Myspace and Facebook users, who claim to have over 800 contacts. I probed further to note that the core group of people that they communicate with is very limited are listed on their mobile devices and after a while the interaction with all these contacts on facebook and myspace also gets limited. Now translate that to mobile. Would you really put up with more noise on your mobile device? Ask yourself if the unbounded network that mostly becomes irrelevant over time is what you really want to use the device for. Recently I saw an ad for Facebook on an iphone; Novelty YES. Usefulness ZERO. What personal value does that add to anyone’s daily routine, especially on the mobile device? Does having access to Facebook on your mobile device really enhance personal productivity? A “boredom-response” application does not enhance productivity.

Yahoo! also announced onePlace™ (to be released Q2 – 08) claiming that it brings together all your interests, passions and important information into a single location, creating a rich, highly personalized experience around it for you. What will that do to power consumption on the device if it has to constantly bring loads of data to your device?

Other mobile widget apps offer to take web based content from a variety of sources, restructure the data and then push so called customized content to the phone throughout the day. All they do is offer yet another fragmented application of force fitting the web based information infrastructure onto the mobile device. Relevance and context are once again left far behind.

It is very important to note that coolness of an application is not necessarily monetizable in the mobile world. Ability to provide value to the general user and designing with respect for the form-factor of the device is imperative. Connecting relevant people and the pertinent information behind them is what is needed. Successful applications for the mobile world will be those that keep it simple and relevant.