Making Social Media Pay Off

Last week, my colleague Steven Baker wrote a cover story with the provocative question: What’s a Friend Worth?

The latest Internet dream was that social networks such as Facebook and MySpace, with all of their tons of user data, would create an advertising gold mine. But the answer, so far, is that despite the huge and growing amount of interest in social networks, your social friends are not worth that much. People are just not in a buying mood on social networks so they don’t click on those ads that often at all.

The good news is that that social networks are coming to grips with this hard realization and developing new ways to make money from all those friends–beyond advertising. The recent $200 million investment that Facebook received from Russian investment firm, Digital Sky Technologies, which says it has developed several profitable social networks, was driven in some part by the company’s expertise in generating non-advertising revenue.

Check out the rest of this post on BusinessWeek’s TechBeat blog, in which I talk about the new emerging business models of social media.

New June ComScore Numbers Shows Facebook Still Has the Mojo

I just got a first look at the June ComScore numbers for the top social networking Web sites in the U.S.

The big story is that Facebook saw a nice jump in unique visitors and it continues to grow faster than MySpace and the overall market.

In June, Facebook claimed 37.4 million unique visitors, up from 35.6 million in May. Year over year, Facebook saw its uniques rise 34%, up from 27.9 million last June. By contrast, the total number of Americans visiting social networking sites grew 6% over the previous June to 189.9 million. Meanwhile, MySpace only saw 3% annual growth in its visitors, rising to 72.8 million from 70.5 million.

Clearly, MySpace is still the leader in terms of the U.S. social networking audience. Even if Facebook continues to outpace MySpace at these growth rates, Rupert Murdoch’s prize acquisition is in no danger of losing its billing as the largest U.S. social network any time in the near future. Even so, Facebook clearly has the mojo, and continues to nip at it heels.

The engagement numbers are sort of a mixed bag. MySpace, Facebook, and Orkut are clearly grabbing the lion’s share of attention in the U.S. social networking space. In the second quarter, MySpace saw a nice jump of 15% to 677 minutes spent on the site compared to the year-ago quarter. However, engagement dropped 2% compared to the first three months. As for Facebook, the average minutes per visitor fell 8% in the second quarter to 527 minutes, compared to the year-ago quarter. However, engagement increased 5% over the first quarter of 2008. Bottom line: people continue to spend a lot of their time on these sites.

I asked ComScore senior manager Andrew Lipsman what he made of Facebook’s gains. He said it’s hard to pinpoint exactly, but it’s probably a seasonal bump enjoyed by leisure-type Web sites. “Leisure–oriented sites (gaming, social networking) sometimes have a tendency to see seasonal gains in the summer when people have more leisure time,” wrote the 28-year-old Lipsman. “Anecdotally, it does seem as though my contemporaries have very recently been flooding onto the site. I wonder if there is any increased word-of-mouth effect due to people being out more during the summer? Just a guess, but I suppose it’s possible.”

I have to agree with him on the second point. Since joining Facebook more than a year ago, I have seen a steady increase in my friends. But over the last few months, my friend requests have seemed to spike. I’m getting a lot of friend requests from old high school friends I haven’t spoken to or seen in many years.

This seems to show that Facebook is following the traditional adoption curve. The innovators and early adopter crowd have already joined the party. Now, Facebook seems to be attracting the early majority crowd—the folks who are not the first on the block with the slick new gadget but over time they tend to come around and adopt whatever the early adopters deem cool or useful.

Final notes: Among the other top social networking sites, LinkedIn and Orkut are seeing the highest growth rates. LinkedIn more than doubled its U.S. audience, hitting 4.1 million users in June, up from 1.7 million the previous June. And Orkut, Google’s social networking play, also doubled in size, reaching 1.2 million users, up from 588 million the previous June.

Micro-Hoo: The End of Tech’s Soap Opera? Or the Beginning of the End?

In this week’s broadcast of the Digital Dish, BusinessWeek reporters Spencer Ante, Heather Green, Arik Hesseldahl and Catherine Holahan wonder if the Microsoft/Yahoo dance is really over, and then size up Microsoft vs. Google and News Corp.’s slumping Internet revenues.

Not to trumpet our horn too loudly, but we warned you about MySpace twice over the last six months. In fact, last November we first raised red flags about MySpace and how the pressure was on Rupert Murdoch to turn his prize quarry into a profit machine.

Social Networking Throwdown: AOL Acquires Bebo for $850 Million

Talk about coming out of nowhere. This morning, AOL announced it acquired the social network Bebo.com for $850 million–the most money ever paid for a social networking site (if you don’t count YouTube).

I actually think is a pretty smart strategic bet–though it comes with its share of risks. This is AOL’s boldest move yet as it shifts from selling Internet access to an advertising-based business model on the open Web. It has already spent more than $1 billion scooping up online ad firms such as Quigo, TACODA and Third Screen Media. And it recently appointed the head of Advertising.com, Lynda Clarizio, to run AOL’s broader ad-network group, Platform A. But this puts a large stake in the ground that AOL intends to be a leading player in the global social media market.

It’s also a good tactical move. As Microsoft and Yahoo! do their mating dance, AOL can use the distraction of a merger to steal a beat on its rivals in the online ad market. Lord knows AOL will need it–as Google just closed its acquisition of DoubleClick.

In fact, this deal could make AOL the most popular Web site on the Internet. Right now, AOL claimed about 109 million unique visitors, making it the fourth largest Web property, after Yahoo! (138M), Google Sites (135M) and Microsoft Sites (119M). Add in Bebo.com’s 40 million worldwide users and that puts AOL on the top of the heap.

“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media,” said Randy Falco, Chairman and CEO, AOL. “What drew us to Bebo was its substantial and fast-growing worldwide user-base, its vision of a truly social web, and the monetization opportunities that leverage Platform-A across our combined global audience. This positions us to offer advertisers even greater reach and marketers significant insights into the desires and needs of consumers.”

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Sure, this deal gives AOL scale. And Bebo’s growth will likely pick up as it “will be featured prominently in AOL’s international expansion efforts after the deal is closed,” according to the press release. AOL is in the midst of a big global push right now. Over the last year, AOL has launched 17 international web sites, and it has plans to expand to 30 countries outside the U.S. by the end of 2008, says today’s release.

But the advertising model for social networks is not fully baked. Growth rates on these networks are slowing. The ads suffer from very low click-through rates compared to other parts of the Web. And the current enthusiasm for advertising on social networks may be exaggerated by guaranteed ad deals and hopeful experimentation. Like MySpace and Facebook, AOL must now figure out how to crack the code of social network advertising. That is the Holy Grail of the Internet now. And AOL just announced it is part of the chase.

Zuckerberg: Being a CEO is “Hard”–enter Google’s Sheryl Sandberg

Yesterday, Facebook announced the hire of a new chief operating officer, Google vp Sheryl Sandberg. The New York Times, which buried the story on p. 6 of the Business Section, argued that Facebook’s 23-year-old CEO Mark Zuckerberg was “following the Bill Gates model and holding the top post.”

But you have to wonder how long Zuckerberg will follow the Gates model. He clearly wants to hold on to the reins and he may grow into the role of being a true CEO. But my gut tells me that the company and its investors will bring in a more seasoned exec to take the company public, if and when it goes public. Sandberg, while highly respected and successful, has never been a CEO before and has never taken a company public. And with so much at stake, you’d think the company would want to have someone in the role who’s done it before.

The Wall Street Journal, which gave the story huge play on p. 1, got Zuckerberg to admit that the CEO job “is hard.” Last December, the Journal’s Vauhini Vara reported that Zuckerberg held a meeting with Roger McNamee, a powerful Silicon Valley investor who Zuckerberg considers to be a mentor. During the meeting, Zuckerberg complained about the pressures he felt as a CEO, asking McNamee: “Is being a CEO always this hard.”

That one admission is another sign that Zuckerberg, however brilliant he is as a technologist and visionary, is probably not up to the task of running a multi-billion company with thousands of employees. What did he expect? That management would be any easier than slinging code? The comment just sounds naive.

I see Sandberg’s hire as more of a replacement upgrade for Facebook’s previous COO, Owen Van Natta, who recently left the company to pursue opportunities as a chief executive somewhere else. Van Natta was a former Amazon exec, and he did a fine job helping to grow the company and build a great brand. But Sandberg, the vp for Google’s global online sales and operations, is the perfect person to take the company to where it needs to go next–to create a advertising and marketing model that scales into the billions of dollars.

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Obama: Master of the Web?

In this week’s Digital Dish, BusinessWeek reporters Steve Baker, Heather Green, Catherine Holahan and Spencer Ante discuss the merits of News Corp’s dalliance with Yahoo! and how the Internet is helping to change the art of presidential campaigning.

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Another Tech Bubble? History Says No

A few months ago, Fred Wilson blogged about fears of a coming downturn in technology. Then last month the hilarious tech bubble video began circulating throughout the Web. That tech stocks have plummeted early this year suggests we are heading for some stormy weather in techland. What’s going on?

Like a lot of folks, I’ve been wondering the same thing myself. But if you look at history, we’re probably not headed for a sustained downturn in technology. One of the things that struck while me researching my book was that there’s been a strong and clear technology cycle at work over the last 40 years or so. Typically, a disruptive technology is invented and commercialized, helping to drive a 6-8 year cycle of sustained growth.

The first high-tech boom happened in the 1960s, with the craze over “new issues” and “electronics”. The market went on a six-year run before it stalled. Then the commercialization of the integrated circuit and the dawn of the computer revolution sparked another boom from late 1966 to 1972. The blockbuster IPO of Digital Equipment Corporation in August 1966 was a seminal event. DEC came out at $22. By March of 1967 DEC shares topped $50, over the summer, they hit $80, and in September they crossed $100.

In 1973, the bottom fell out of the venture capital market and the economy at large. The twin economic evils of inflation and recession joined hands to create a new type of monetary demon dubbed “stagflation.” Then OPEC’s oil embargo in October of 1973 sent the booming economy over a cliff. Between 1973 and 1975, the Dow Jones index was nearly sliced in half.

All the while, entrepreneurs and technologists were working on a whole new range of innovations that would spark another boom starting around 1979 and lasting until the 1987 crash. In the late 1970s and early 1980s, venture capital helped finance the creation of four new industries that boosted the economy: microprocessors, video games, personal computers, and biotechnology.

Then we had a recession in the early 1990s, which didn’t end until 1994/1995–the same time that the Internet and Web browser were unleashed on the world. We know that story pretty well.

So where does that leave us now? Well, if you assume that today’s boom started in 2003/2004, we’re probably in the middle to late stages of the current cycle. Of course, history isn’t always a useful guide. But it feels right to me. The rebirth of the Web has driven the current boom. But there are still several groundbreaking technologies that haven’t reached escape velocity yet–I’m thinking of wireless computing, and green technology in particular. If those two areas fulfill their promise, it could help extend the current cycle for a few more years.

Now, don’t get me wrong. Even though I think there is no widespread tech bubble like there was back in 2000, I think there are mini-bubbles. The most obvious one is in social networking. Valueing Facebook at $15 billion–with a 500+ price-to-earnings ratio–is insane! That p/e surpasses even some of the ratios we saw with telecom companies in 2000. (I think JDSU boasted a 400+ p/e at one point.) So while we will probably see a pullback in certain areas, with some inevitable consolidation, I think the trendline for tech will be upwards for a few more years. Unless of course some new black swan (i.e. another major terrorist attack or financial crisis) appears out of nowhere and throws everyone for a loop.

What do you think?

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