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”

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

While they don’t exactly have the same roles, I’m grouping business development and sales people into the same category. Both people end up doing a lot of the same things. The sales person’s primary job is to bring in advertising dollars. Whether it’s brands or advertising agencies that they are talking to, this group is generating the revenue for four out of the five primary types of companies in the social web economy (the only one they aren’t generating revenue for is analytics companies).

Analytics companies may or may not have a sales team depending on their strategy. They most definitely have a “business development team”. For the purpose of this post, the primary difference between business development and sales is that business development (or biz dev) focuses primarily on partnerships with other companies that help add value. Sales teams on the other hand bring in absolute dollars.

In small start-ups, the management team (or individual executive) does most of the business development. Advisory boards and boards of directors can also be leveraged to help perform business development operations. The bottom line is that this group is helping most of the companies in the social web economy keep afloat. For those companies that are in the red, these teams are most likely the ones taking the brunt of the beating after a CEO returns from their monthly board of directors meeting.

In order to generate substantial revenue, companies in the social web economy must have business development and sales teams. While the industry continues to search for alternative monetization models, it’s becoming increasingly clear that advertising dollars are the primary source of revenue. As such, companies are pitting one sales team against another, each attempting to offer creative new advertising solutions that will hopefully in the end bring in the big advertising dollars.

Unfortunately this space is becoming increasing competitive and in turn we are going to see a growing emphasis on hiring the top sales teams. No matter how you look at it, this group is driving the revenue. That’s the bottom line.

Next post in series: “The Social Web Economy: Investors”

Over the past few years, there has been increasing tension among the owners of social networks and the users that interact with their friends via the sites. The primary tension resulted from the disconnected set of relationships across multiple sites and the inability to have a central location to manage our multiple identities. Hundreds if not thousands of solutions have popped up.

Some have come in the form of branded products while others have been categorized as new standards. One thing that hasn’t changed throughout all of the discussion about resolving the problem? A solution. While some of these offerings have a clear advantage over others, none of them have succeeded at attracting mainstream adoption.

Social Networks as the Hub

The best attempt at centralizing the social graph has been Facebook who arguably has the most accurate mapping of the social graph of any of the social networks to date. With their Facebook Connect offering as well as MySpace’s Data Availability product, both companies now have a chance to own our online identities. It is not as simple as releasing the products though.

MySpace released their Data Availability product back in June. As far as I can tell, the service has seen little adoption by developers. While I’m not completely sure about the slow adoption, based on the developers I’ve spoken with, it appears as though Facebook Connect could experience much quicker adoption.

The potential for centralized identities is significant and given their position as the largest global social network, Facebook has a shot at centralizing the majority of users’ identities online. For once, it seems as though there is a company that may actually have the ability to centralize registrations as well as identities and also has the adoption to back it up.

The digital landscape is glorious and simply when you keep everything else constant. Unfortunately things are not that simple.

Let’s Mess Things Up Some More

There are a lot of products on the web that would benefit from having their own social networks integrated into their sites. There are also a lot of brands that would benefit from having their own social networks. It’s for this exact reason that a whole slew of white label social network solutions were launched. Jeremiah Owyang has done the work of compiling a list of white label social networking platforms.

The problem with all of these different solutions is that they each have their own login and their own closed off versions of the social graph. I shouldn’t be letting Facebook and MySpace off the hook though because even their new services result in large, closed-off versions of the social graph as well. The difference is that they actually have a chance at becoming the central location of users’ identities online due to their broad reach.

Last week a large discussion ensued about the soon to be ubiquitous, blog-based social networks. Sarah Perez of Read/Write/Web suggested that the new version of Moveable Type and the upcoming launch of BuddyPress would mark a new era for blogs. Mainly that a large number of blogs will begin launching their own social networks. Duncan Riley provided the counter-argument, suggesting that people don’t have the time to join multiple social networks.

Whether or not people have time, it is clear that the launch of new services by Moveable Type and Wordpress will most definitely complicated central identities further. Moveable Type will claim support of OpenID and Wordpress could theoretically centralize users across all the blogs users become members of. This makes it easy for both to claim that they really aren’t complicating things that much.

Conclusion

The web is still a cluster f*ck. With a bunch of disconnected groups trying to provide centralized identity services and a bunch of disconnected sites and services looking to connect users, digital identities have become even more complex. All the while Silicon Valley thought leaders are struggling to make sense of it all. While there are big players that have a chance at making centralized identities mainstream, we are still at the early stages of these things becoming a reality.

Thankfully both Wordpress and Moveable Type are open-source and as such, it will be trivial to integrate existing services into the site. With the average blogger finding it complicated to modify the code of their site though these things could further complicate our online social graphs. We now have communication among our numerous contacts spread across email, messages on Facebook and MySpace, instant messaging and multiple other locations.

There’s about to be yet another place for those communications to happen: blog-based social networks. How do you think all of these things will fit together? Do you thing blog-based social networks really complicates things?

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

In order for there to be an economy, there has to be money and advertisers are the ones that hold it. Advertising dollars are probably the most prized possession in the social web economy. Without it there is no business and all that remains is venture capital dollars. The advertisers spend money with four out of the five types of companies in the social web economy: agencies, ad networks, widget & application platforms, and media companies.

Advertising dollars are coming from two primary sources: advertising agencies and from brands directly. While some developers are paying other developers for installations, this amount should be considered negligible in the long-run. Advertisers are the life blood of the social web economy and it is one group of people who attract advertiser dollars: sales people.

So who are the advertising professionals working for? They work for the agencies and the brands. In the current economy they tend to be at the forefront of advertising when they invest advertising dollars in social media. One of the biggest challenges for these individuals is convincing traditional brands that they should be advertising in non-traditional channels (social media). Fortunately for these individuals, within the social web economy there isn’t much tension. Life is nice when you are the one that holds the money!

The primary challenge for advertising professionals is reporting back the results of social media and social networking campaigns. New metrics solutions are emerging to make this easier but the industry still struggles to quantify “engagement”. When you report to a brand that is used to spending money via the television, how do you explain advertising on Facebook’s news feed?

This is an industry wide challenge that all parties need to work together on improving.

Next post in series: “The Social Web Economy: Business Development and Sales People“

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

As I said in the last part of this series, “for the most part, developers are not businesspeople.” As such the social web economy turns to entrepreneurs to be the leaders. Just as in the general economy, they are the individuals driving the social web economy forward. They are frequently jacks-of-all-trades and they are willing to do pretty much anything to build a business.

I have the utmost respect for entrepreneurs (possibly because I am one myself). Entrepreneurs are involved in pretty much all the activities that start-ups participate in. They make day-to-day business decisions, secure funding, build partnerships and alliances, determine a company’s strategy and are the ones accountable when a company succeeds or fails (failing is what happens most often).

I should make a distinction between generic “entrepreneurs” and “entrepreneur leaders”. All members of a start-up are theoretically entrepreneurs. They too are taking a risk by joining a start-up but the entrepreneur leaders are the ones held accountable for the businesses. All members of the social web economy are taking a risk but the largest risk takers are frequently the “entrepreneur leaders”.

I’d equate these people to the philosopher kings that Plato speaks of in his book “The Republic”. While there isn’t really one “ruler” per say in this economy, I’d suggest that this could be the most important role. Then again, no single role in any economy is most important.

Next post in series “The Social Web Economy: Advertising Professionals“

Over the past few years there has been a rapidly emerging industry around events catering to the technology space. When the first bubble burst, the industry was left with a big void. No more lavish parties that were partially to blame for the Web 1.0 hype. As industry professionals young and old have begun to adopt social technologies it has become easier than ever to promote an event and attract hundreds and occasionally thousands of people.

The Internet Helps Connect People Offline

Following the collapse of the bubble, many were left to reflect what had happened and what should be done differently this time around. There was also a fear present that the internet was going to pull people apart and create disjointed communities instead of bringing people together. Around this time (2002) Meetup.com was founded and there was a resurgence in locally oriented events (there were other sites that were used as well, Meetup.com was one of the primary sites at the time).

It was surprising for many people that the internet would actually be used as a way to help people connect offline. Around the same time, a new type of media began to emerge: blogs. If you view the Wikipedia article on blogs as an accurate source of the history of blogs, 2002 was the year that blogs began to attract mainstream attention. This is due to “coverage for their role in breaking, shaping, and spinning news stories”.

The mainstream press began to realize that many blogs were relevant and could be used as a tool for spreading information. This would ultimately be a turning point for many of the mainstream media outlets but that’s for another article. What’s important is that soon enough there was the emergence of extremely powerful blogs that would soon begin leveraging that power to help congregate people.

A New Wave of Events Arrives

Prior to the rise of new media, there were a large number of event focused organizations that were used to spread information within industries. For example there was (and remain to be) a plethora of trade organizations that helped people stay in the loop on what’s taking place in an industry and help connect the people in those industries. The new media organizations (primarily blogs in the tech industry) are replacing what were once referred to as “trade organizations”.

I would argue that many of the popular blogs are becoming a new type of trade organizations. They help people stay up to date on what’s going on in the industry and they are also helping people connect offline through events. There is also another reason that the influential blogs get involved in events: they have a much higher margin.

While well read blogs can attract high advertising rates (typically measured by “Cost per Thousand Impressions” or CPM), it is still hard to run a large media company based solely on website ad revenue today. Just look at the large news organizations (Washington Post, New York Times, etc), they are all struggling to survive in the current environment. Many even wonder if they will survive (see Adage Special Report on Newspapers Future).

As a result of the challenges facing these new media companies, we are witnessing blogs large and small enter the events business.

Tension Emerges

Over the past year, technology events hosted by both blogs as well as strictly events production companies have become ubiquitous. Some events, like SXSW and CES, now attract thousands of attendees, while other events are targeted toward hundreds. The events also range from happy hour networking events like Tech Cocktail to Twiistup to full scale conferences like SNAP Summit, Graphing Social Patterns and our own Social Ad Summit.

Each type of event has different goals and targets a different group of people but within a short period of time there was the emergence of technology events hosted in cities around the world. Why has this happened? I would argue that there are three primary factors contributing to this boom:

1. Social Technology – If it weren’t for social technology, event promoters would have to rely on traditional techniques to attract attendees to events. Now thanks to Facebook, Meetup, Upcoming.org and other online event services, it has become easier than ever before for individuals to set up an event in minutes.
2. Increase in Self-Promoters – Generation Y and the tail-end of Generation X have realized the power of self-promotion. Whether it’s the books or blogs we read, seeing self-promoters become national celebrities who also attract wealth has encouraged many to become ruthless self-promoters. Call them narcissistic, call them egoists, call them conceited. Whatever you call them, we now live in a world filled with them. Perhaps the absolute number hasn’t increased, it’s just that social technology has made this group more apparent.
3. Sound Business Model – Events make money! Yes, event promotion can generate significant revenue. Whether local networking events or large conferences, all have their own model of generating money.

These three things have combined to create a boom in events. Whether it’s an unconference or a “real conference”, a happy hour or a networking event, everywhere you look now there is an event. This is beginning to generate some tension among the ranks on a local level as well as a national level. Just yesterday we saw this result in Mike Arrington’s public lashing of DEMO for false accusations.

On a local level we are seeing the emergence of competing events. While I was in New York City this weekend I learned that there is now two Facebook Developer events: one is officially “sanctioned” by Facebook, the other is a spin-off. Both attract a lot of people.

Bubble’s Growing, Will it Burst?

As the tension emerges, the only question that remains is what’s the end result? Will we have thousands of competing events locally and nationally? Probably. Will they all experience windfall profits? Probably not. In my opinion, all this means is that we have a healthy market. The people are the ones that will decide who succeeds, not the event promoters.

My guess is that we are going to start seeing a large number of event promoters that begin to overextend themselves. This will result in a loss of money for some and occasionally a loss of hope. There’s risk involved in business, so if you plan on hosting that next event, just keep in mind that there’s no guarantee about anything.

One thing that’s perfectly clear: the internet is not going to isolate humans, it’s going to bring us together, online as well as offline.

According to a study out today by comScore, social networking growth is beginning to level off. In comparison to the average worldwide growth in social networks of 25 percent, North America is growing at only 9 percent. This may also suggest that the huge shifts we saw of users from Friendster to MySpace and finally to Facebook may also begin to slow as users begin to settle into their favorite sites.

The largest source of growth abroad appears to be the Middle East and Africa which grew at a rate of 66 percent over the past year, growing from 18 to approximately 30 million users in June. Facebook also continued to expand its dominant position, growing 153 percent over the past year to attract over 132 million users in comparison to MySpace which attracted only 117 million users.

Another interesting statistic revealed by comScore’s release of June statistics is that Facebook has been growing phenomenally abroad. In Latin America the site has grown over 1,000 percent over the past year. The site has also grown more than 300, 400 and 458 percent in Europe, the Middle East and Asia respectively. Facebook is on the fast track to becoming the global social networking leader by a significant margin.

MySpace was only able to 3 percent worldwide growth over the past year. These statistics highlight the ongoing global competition for social network audiences. The discussion of monetization may still be premature for many as the battle for global leadership is ongoing.

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

“Developers, Developers, Developers!” This is probably one of the best known quotes of Steve Ballmer, CEO of Microsoft. Many people may find him crazy for the way he speaks about developers in the video that I’ve included below, but he’s right. Not just in the social web economy but in the digital economy, developers are some of the most important people. They produce the products and services that consumers use on the web.

When the social web was transformed overnight by the launch of the Facebook platform last year, many developers had mini-empires practically overnight. Whether it was individual developers or small teams of developers, these individuals now had businesses with relatively sizable revenue that they had to run. At f8 a couple weeks ago you could walk around the room and see how the passing of one year had impacted many of these developers.

Some had been acquired, others continued to go it alone. Those that decided to go it alone are now being pushed to their limits and realizing the challenges of trying to grow a small business on a global scale. The key takeaway is that developers for the most part are not businesspeople. While they may have the entrepreneurial spirit that burns in many of us, they are best suited at building the programs that we all have grown to love (or sometimes hate).

What is the source of developer tension? While developers have tension resulting from numerous sources (bugs in their applications, tight deadlines, etc), in the social web economy, the primary source of developer tension is the platforms. When a platform decides to revamp their entire system, or make sudden changes resulting from user feedback or malevolent actions by another developer, the rest of developers are impacted. On the Facebook platform the result was developers waking up at 3 am to fix their no longer functioning applications. Occasionally teams of developers worked around the clock in response to complaints from Facebook about terms of service violations.

While mature platforms don’t impact the developers as significantly, there will always be tension between the two parties.

Next post in series: “The Social Web Economy: Entrepreneur Leaders”

The MySpace platform has long-been a secondary platform for application developers. The primary reason is that most MySpace applications fail to attract as many users as they do on Facebook. Unfortunately there is no longer any way to determine the total number of users that have ever installed an application on Facebook and as such it will no longer be possible to do an effective comparison of what sites are more effective based on public data.

All we have left to go on is the last total install data that Adonomics provides on their site. According to Adonomics the top MySpace application has over 6.7 million installs whereas the top application on Facebook has more than 46 million. This is the last we’ll ever know about the top number of users a Facebook application has but it’s clear that MySpace is still a fraction of Facebook when it comes to application installs.

How about when it comes to Facebook monetization? According to Alley Insider, Offerpal Media (who is also a sponsor of Social Ad Summit) has been paying developers around $75 per 1,000 daily active users on MySpace and Facebook and $150-$200 for “higher engagement” applications. MySpace is generating about the same amount. So how much does this break down to for CPMs?

No idea because there is no measure of what “high engagement” amounts to on Facebook or MySpace. Both sites are known for having an extremely high number of pageviews and as such this could amount to $0.75 or $75 CPMs. Chances are good that it’s much closer to the former estimate. While some developers are rumored to be generating over $1 million a month on Facebook, the majority are not generating that much off of a single application.

It’s great to see that applications across multiple platforms are monetizing equally, but overall the industry needs to figure out a way to increase the overall CPMs.

Within our individual lives there is currently a division between the activities we do online and the activities we do when we aren’t connected. Just as online privacy is beginning to fade away we will soon witness the destruction of offline privacy. Last night I was speaking with a friend of mine from Webster Hall in New York City when an idea clicked.

If all of your general activities at an event could be tracked back through Facebook (or alternative social media services), there would be a huge advertising potential. Imagine reading your Facebook News Feed and seeing a story that says “Nick and 3 of your friends just entered the Smirnoff Vodka booth at the Everclear concert.” With the power of Facebook connect and competing services, we will soon see these types of activities become public.

Rather than just accepting a terms of service and privacy policy when you register for a site, you will begin to do the same thing when you register for events. How will this work? Through leveraging readily accessible technologies you can track the locations of people attending an event. This means that ads being displayed to them can be targeted and it also means you will soon be able to target those ads toward their friends.

Some of these concepts begin to sound like those out of recent science fiction movies. Malls for instance will soon become entire branded experiences. The moment you enter a store, your friends on Facebook and other social platforms will immediately see that you’ve entered. There are clear privacy issues with these forms of broadcast advertising. There are also questionable business practices at hand.

Should individuals be paid for this new form of referral-based advertising? Also, shouldn’t the consumer be able to opt-in to the public display of this information? The concept of the “social web” eventually begins to fade away as all of our offline and online activities become merged. We are only months into the launching of Facebook Connect, MySpace Data Availability and Google Friend Connect.

The recent “Congressional scrutiny over the intrusiveness of online advertising and behavioral targeting” that Erick Schonfeld points out will become increasingly important as the technologies transform advertising. So when has advertising gone to far? While many of those focused on monetizing the “social web” are willing to try anything to increase ad revenue, consumer interests may become a secondary concern.

Is there a line to be drawn when it comes to new advertising techniques? Will Congress be able to stop many of these activities prior to a multi-billion dollar industry being built around this?