This is a continuation in the series “The Social Web Economy“

Ad networks are the primary source of revenue for most of the product companies on the social web. While some companies have their own internal sales team, the majority of the product companies rely on these ad networks to manage most of their sales. They are too small to handle this part of their operations. Smaller media companies also frequently outsource their ad sales to an advertising network.

Distribution companies and social web agencies typically have their own in house sales team and as such they are not in need of outsourcing their sales operations. Frequently distribution companies and agencies will build their own advertising networks to manage their advertising distribution. Sales teams are important because they are able to negotiate higher CPMs.

For product companies, advertising dollars are redistributed from the advertisers through the sales teams to their companies at lower rates since the ad networks/sales teams have taken a cut. On the social web the majority of companies generate their revenue through advertising. I am regularly critical of the lack of traditional business models on the social web. Regardless, advertisers continue to put advertising dollars into this space.

Each product company and platform in the social web economy tends to have their own type of advertising which ultimately conflicts with one another. For example, some chat platforms provide advertisers with the ability measure the conversational impact of an advertising campaign run on their platform. Facebook measures conversations as well in their new video advertising solution.

There’s feed advertising and other forms as well all which in my own opinion end up confusing the advertiser more. Back in August when I wrote about the state of social advertising, I highlighted the challenges presented by inconsistent offerings among these companies. While social advertising cannot currently compete with search, an increasing amount of advertising dollars continues to pour into this space.

A substantial portion of this money is going directly to the sales teams and ad networks. Not such a bad place to be!

Next in this series: “The Social Web Economy: Analytics Companies”

This is a continuation in the series “The Social Web Economy”

Social web agencies are the companies that help develop branded products on the social web. Currently large traditional media companies are the most prevalent organizations on social platforms and elsewhere on the social web but that is slowly beginning to change. These agencies specialize specifically on leveraging the distribution platforms for exposure and the product companies to purchase reach.

The social web agencies sell the development of a product and user exposure to those products as advertisements. This is because there is no way to guarantee that an application (product) is going to succeed in the long-run. In the best case an application will take off and maintain and active user base. How that works for the brand beyond their initial install buy will depend on how the contract between the agency and the brand was structured.

There are some fundamental challenges facing the social web agencies though including those suggested by Seth Goldstein this morning. When advertisers and brands are used to buying IAB-standard ads it’s an uphill battle in convincing them to build custom, non-standard applications. Thankfully large brands and advertisers in general are willing to experiment.

The agencies have tension on two fronts: distribution platforms and ad networks. The reason for tension is that these companies are taking away ad buys directly from the platforms as well as the ad networks. While some agencies combine ad buys with development, there are many clients that simply seek the development of high quality applications.

That’s not to suggest that there isn’t enough room for all companies to exist but in many circumstances each company is offering an advertising option that can be substituted for the other.

Next in this series: “The Social Web Economy: Ad Networks & Sales Teams“

This is a continuation in the series “The Social Web Economy“

On the social web, widget companies and application platforms are the primary distribution companies. Facebook, MySpace, Clearspring and Gigya are all examples. These companies strive to expand their reach either through partnerships or through sheer force. Facebook for instance has enough momentum that they can grow virally.

Widget platforms on the other hand are forced to sign agreements with large product organizations and media companies to expand their reach and incentivize developers to build on their platforms. Just as there is tension between product and distribution companies, so too are there tensions between widget platforms and broad social platforms.

The reason is that they are all battling for developer attention as well as the attention of large product companies. This is an extremely challenging role because not only do they need the developers and product companies (which are essentially large teams of developers), but they also need to attract the attention of advertisers.

The benefit of this position is that attracting advertisers is as easy as calling them. Most brands managers will pick up the phone if somebody from Facebook calls. The problem that many of these companies are running into is that the product companies who are building reach through the platforms are now undercutting their run rates on advertisements. Whoops!

This isn’t completely horrible though as a side-effect is that it is in everybody’s best interest to work together to try to increase the overall run rates (cost per thousand impressions (CPM), etc) across the board. Unfortunately there are some substantial hurdles to get past before this happens.

One other interesting note about distribution companies/platforms is that these are the companies that attract the largest investment dollars. Investors are looking to put their money in platforms for the most part, not product companies. That’s not to say that product companies don’t get funding, it’s just that they don’t receive as much funding. That’s because platforms will always be larger (at least they should be).

Next Post: “The Social Web Economy: Social Web Agencies“

This is a continuation in the series on “The Social Web Economy“.

This is one type of company that entrepreneur leaders run. On the social web product companies are those that help give meaning to our media, they provide context. They are also the services that we frequently refer to as “applications” or “apps” for short. Product companies rely on the large distribution companies (as described in the next post) to grow.

There is a constant tension between product and distribution companies. Given the product companies’ reliance on the large platforms they are constantly monitoring the environment to make sure their reach isn’t wiped out overnight by subtle changes by large platforms. Product companies have substantial influence in a number of ways.

First and foremost, these organizations have become the lifeblood of many distribution companies. As such, the platforms have to balance the demands of users and the demands of product companies (which are sometimes referred to as “developers”). We have been watching this play out on the Facebook platform where it has taken more than six months to roll out their new design as they receive feedback from developers and users.

The second form of influence that product companies have is with agencies and advertisers. Successful product companies are ultimately building mini-platforms that compete directly with the platforms that they relied on to build their company. The competition is for advertising dollars and ultimately the team with the best negotiators and best portfolio of advertisers wins.

Next Post: “The Social Web Economy: Distribution Companies“

This is a continuation in the series on “The Social Web Economy“

Over that past few weeks we have defined all of the participants in the social web economy but now we’ve got to figure out what exactly they are building. Often times it is difficult to understand what exactly is being built and given that this is still a nascent industry roles overlap both of individuals as well as companies.  Along with roles of individuals, the positioning of products frequently overlap but in a rapidly growing industry there’s enough room for everyone to participate.

While this fast growing environment can’t continue to grow indefinitely, there has never been a better time to be a participant or a company in the social web economy (unless of course you count the bubble as good times).  As this industry begins to solidify itself, I’m confident that we will see the rapid consolidation of companies as well as many companies that will join the what Techcrunch has coined the “deadpool”, the place where failed startups go to retire.

Over the coming weeks I will cover the various types of companies in the social web economy which includes:

• Product Companies
• Distribution Companies
• Social Web Agencies
• Ad Networks & Sales Teams
• Analytics Companies
• Media Companies
• Communications/Public Relations Firms

Each of these companies contribute in some form to build the products and services that millions of users will hopefully end up using on a daily basis.  I’ll cover what’s the biggest challenges facing each type of company and how where they fit in the social web landscape.

Next Post: “The Social Web Economy: Product Companies“

This is a continuation in the series on “The Social Web Economy“

I didn’t forget them! I chose to put this last because so often in the social web economy and the general digital economy this is where “average” consumers get placed. Outside of the people and companies that I listed above (who also happen to be consumers), the general consumer frequently gets left out of the equation. The systems are frequently built for the digital experts not for the average Joe.

These are probably the most important individuals in any economy. Without them there are no advertising dollars to be spent. On the social web the users spend their time playing games, viewing media (photos, videos, audio, text) and creating media. All of these things can be boiled down to one thing: communicating. As opposed to traditional media, new media is all about two-way communication.

The products and platforms being built for consumers currently help make communication more efficient.  While in the main economy, consumers pay for their goods and services, most often users don’t pay for products in the social web.  This is because most revenue is driven by advertising.  All that consumers are limited to is attention and that’s what sites are competing for in the social web economy.

While the sustainability of an advertising driven economy is questionable, for now the battle is over attracting the users.  This is the single most significant challenge for any product or platform in the social web economy.  Even if you can get developers to build great products on your platform, there’s no guarantee that consumers will use it.

Next Post: “The Social Web Economy: What Are These People Building?“

This is a continuation in the series on “The Social Web Economy“

You can’t have a good product if it doesn’t look good. While the initial launch of the Facebook platform brought about applications with poor design but broad success, the quality of design has slowly begun to improve. The reality is that designers give products that extra bit of appeal necessary to get users to try it out. Absolutely everybody in the social web economy wants to have a good image and design is the best way to instantly get a great image. While a great logo doesn’t mean you run a great company, having a good initial image is important part of any business.

Since everybody wants their company to look good, designers frequently get to know just about everybody in the social web economy. They design everything from websites to applications, from user interfaces to color combinations, from logos to brochures. Everybody can give you their own opinion on how important design is for your company. A venture capitalist may tell you that having an amazing looking presentation with great slide transitions isn’t as important as having good content. That doesn’t mean they will take you seriously if your presentation looks like a third grader designed it.

While developers are hard at work ensuring that products work properly, the designers are making sure that the product looks good. Interestingly enough, developers are frequently one of the sources of tension for designers. Some times extravagant designers are not easily implemented and as such designers are forced to work with constraints, which is something no designer enjoys.

The primary source of design for designers? Clients. Regularly, a client will come to a designer with preconceived ideas of how they’d like something to look. This immediately places more restrictions on the designer, something I just said they don’t enjoy. You will find designers working within just about all the companies in the social web economy. While you can debate the importance of top tier designers, you can’t debate whether or not design is an important aspect of the social web economy.

Next Post: “The Social Web Economy: Consumers“

This is a continuation in the series on “The Social Web Economy“

Communications and public relations professionals have one of the most interesting positions in the social web economy. The primary role of these individuals is to gain exposure for their clients and ensure proper image. In the past few years we have seen the emergence of a number of firms focused strictly on companies participating in the social web economy or simply looking to leverage the social web.

These individuals typically work for agencies or firms but a few have decided to go it alone, often times resulting in full-time, temporary positions in the companies they are consulting. On the social web, the emergence of influential blogs has transformed the dynamic between journalists and PR professionals.

New technologies have also made it easier for companies to engage directly with their consumers. All of these things have combined to transform the role of the communications and public relations professionals. From helping prepare executives to speak to the press, to engaging increasingly accessible journalists about a negative article, the communications professional’s job is a challenging one.

While communications and public relations professionals are not directly tied to any sort of revenue generating activities, they help protect their clients’ image so that revenue generating activities can go on as usual. The main source of tension for these individuals is with the journalists and analysts, as they are frequently the gate keepers of the client’s image.

Next Post: “The Social Web Economy: Designers“

This is a continuation in the series on “The Social Web Economy“

Analysts jobs are relatively straight-forward: they analyze everything that is taking place in the social web economy and produce reports on them. They can work inside or outside of companies. The companies can be any of the primary companies in the social web economy or they can even work at actual analyst companies (like Forrester Research).

Analysts pay attention to detail and they can also double as a journalist sometimes. Unfortunately for journalists, there are too many stories to write to have anytime to do in depth analysis. Occasionally though journalists overlap with analysts and they end up producing substantive reports. Both journalists and analysts cover their space obsessively.

In my own opinion, the primary distinction between the two is that journalists focus much more of their effort on working their sources and writing articles. The analysts spend a lot more time doing research which can include working the same sources as journalists but for other types of information.

In the social web economy, I would say that one of the most substantial differences in comparison to other industries is how bloggers are accepted as journalists. While they may not always hold the same standard for reporting, blogs have a substantial reach in the technology field. As such web attending any conference that pertains to the social web economy you will see as many bloggers as traditional journalists if not more bloggers.

No matter who they write for, analysts, journalists and bloggers all are important because they help quickly spread information regarding the companies and people in the social web economy. The primary tension for this group is with other analysts and journalists as they compete for valuable information. Additionally, there is occasionally tension between analysts and journalists and their sources as the journalist will push to expose information that the source didn’t initially wish to reveal.

Next Post: “The Social Web Economy: Communications & PR Professionals“

This is a continuation in the series on “The Social Web Economy“

These are the wealthy people in the social web economy. They have a lot of cash on hand from either creating their own companies (or being part of a successful start-up) previously or they were fortunate enough (or not fortunate depending on how you look at it) to become a partner at a venture capital firm. No matter how they reached wealth, they now have access to a substantial amount of money that they like to invest in the five types of companies in the social web economy.

They are looking for a substantial exit down the road through acquisition or public offering that will help make their pockets fatter. In the case of venture capitalists this also means making their investors’ pockets fatter. The investors are necessary though for the most part because they not only bring money with them, they bring experience and they bring valuable connections that can make or break a company.

Whether you like them or not, investors are a critical component of any economy and there is no exception in the social web economy. Investing is also an extremely competitive “business”. While some invest based on referrals, there are other investors that are actively seeking new investments on a regular basis. In the social web economy, attracting the top teams to invest in is an extremely competitive process.

Most of the investments go to an elite group of investors but fortunately for the other investors, not all investments go to the top investment groups. In the current environment there has been far fewer exits than there has been investments. Obviously, exists are alway fewer than the total number of investments but exits have been significantly infrequent in the recent past.

In fact during the second quarter of 2008, for the first time in 30 years, no venture-backed companies went public. This could be a bad sign for things to come but it also may just be an indicator of a poor economic environment. Fortunately for investors acquisitions have provided an equally sufficient exit opportunity. Recently, acquisitions have served as the primary source of exits in the social web economy. As such, IPOs may not be the best indicator for the investment environment.

Whether or not exits or taking place, investors are the primary driver behind growth of the social web economy because they are providing the majority of the cash flow. Hopefully we will begin to see an increase in cash flow from venture-backed companies but for now, this group continues to be the source for growth. That’s why the social web economy needs investors!

Next Post: “The Social Web Economy: Analysts & Journalists”