Blue Screen Of Duds

Where the alter ego of codelust plays

Online Networking: Opportunities and challenges

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Why is everyone in the online space running crazed rolling out one social networking product after another these days?

Has technology suddenly found out the real altruistic reason for its existence — to bring all of humanity under a single digital umbrella that will allow everyone to easily communicate and identify with each other? Cheap potshots and the silly sarcasm apart, the reason why everyone is falling over each other is quite simple: the industry has gotten a whiff of its ultimate elixir in online networking: the end of the perpetual quest for ‘sticky’ content and users.

So, how exactly does online networking differ from other regular content properties? Let us take a look at a couple of the distinguishing factors:

Discovery: Unlike regular online content, online networking helps you find much more than a piece of text to read or pictures to ogle at. It helps you find new people with similar interests, new things to do with people who share the similar interests and also find new communities that will help you enrich yourself alongside people who share similar likes and themes. The Facebook News Feed is one of the best examples of this, even though it had a very controversial debut on its network. Till then, in other popular networks, you had to manually go and track each community joined by a contact and any other action performed by him/her. It is now next to impossible to evade the river of context that flows all around you because of the News Feed.

Context: The above-mentioned discovery element is encapsulated by containers of context that help you find them. You can find them through music you may like, through photos you like clicking and other numerous common themes. Even in the PhD paradise called Google, there are limits to context that is determined by the algorithm. For instance, even Google News can classify the data only into a handful of categories and most personalized and suggested content on the internet (like Findory) are still not up to scratch when it comes to discovering related content at the individual’s level. Even with an extremely good element of artificial intelligence in your system, you still can’t beat the quality of linked and contextual linkages that is generated with actual intent by human beings.

In an online networking scenario, every single connection is led by context. I am connected to (or I identify with) another person on my network in a variety of ways: geography, interest, work place or something else. That kind of sanitized, structured and relational data beats the pants off what any algorithm can do. Instead of being led by the algorithm and its vagaries, the connections can now be refined by it. If data in massive networks like Facebook can be mined, you can predict, with good enough probability, things that I or you would be interested in and the people you or I are likely to hook up with. None of this is possible on a regular news website or on a discussion forum, where you just consume the data and go home. There is hardly any way to connect or engage another person who has a lot of similarities with you. Hell, you can’t even know if there is another person with similar traits who has read the article at the same time or any other time.

Sticky != icky: To build any good and successful online property, you need a healthy mix of repeat visits and new visitors. Organic growth in traffic and usage is the lifeline of any online property and a steady percentage of it in your total traffic is always a sign of a property in good health. If this recipe is seasoned with more than 50% of return visits and a good page view per user number, the chances are that you would have by now on your hands a very successful website that has oodles of sticky content. What this essentially enables you to do is to grow on both counts: in terms of existing usage and in terms of new usage, with and new users steadily being converted to regular users.

The trouble is that this is a hard one to pull off with generic content sites, which tend to have a high number of regular visits, a low percentage of new visitors (the one hit wonders and the even-driven flash mobs) and low-ish page view per user number. Every time you check your Facebook inbox or your Orkut scrapbook what it does is to add another page view to the website’s page views and chances are that most online networking users are more likely to refresh their profile and message pages a lot more, compared to their actual email inboxes or a news website. And this lust for the page view love fest is from which the many new online networking love children are born.

The opportunity for new players

Uniquely addressable users: Unique users are like legendary golden geese in the online trade. And well-established networking communities are like mosquito larvae infested catchments of standing water filled with these users: they buzz with feverish activity and multiply in every possible manner and more rapidly than what you could ever imagine. Moreover, to make your profile work in such scenarios, you need to provide information that is every advertiser’s endless wet dream. You are voluntarily providing the kind of information to help profile yourself that collected otherwise would result in the companies doing that being dragged to court.

For example, if you check my profile you can see that I am currently part of the India network, that my location is uniquely identified as New Delhi, that I am single and you can also figure out my tastes in music, books, movies and political views. This is all structured and uniquely addressable data, broken down to the most granular of levels. If you don’t believe me, take a look at what Fox Interactive Media (FIM) has been up to recently. In an interview with Silicon Alley Insider, Mike Barrett, Chief Revenue Office of FIM, says they have figured out improved delivery methodologies for targeting based on such data and are looking to price these ads at a 20-30% premium, compared to regular banner ads. That is the kind of number any business person with half a business brain would find hard to say ‘no’ to.

The Indian online Godots: Yes, we revisit the pet target audience of every new product launch these days, the part of the billion who are not yet online, who probably won’t even know what online is at this stage of the game. We are constantly waiting for them to come and make us all rich. If you ignore such niggles that tend to rudely invade our digital fantasies, there is a fair bit of merit in the argument/expectation. We are diverse in ways you can’t even start to imagine. You can address the whole of India in terms of a nation, regions, language, caste, religion: the list is endless. Ergo, the opportunities to slice and dice the market are also endless. That is, once it manifests. So a lot of this is a punt on the future. Who knows whether it will pay off or not.

The social operating system: When Facebook launched F8, their platform to let third party applications interact with their users, it changed the rules of the game in such a way that every other online networking website is now falling over each other to release a similar product. Other than the nice positive for Facebook of shoveling off the burden of building a stream of new features to gullible souls who now do it for them for free, it has also now established a virtual operating system within the Facebook context that is now a decent launch pad for new sites and products. Once networks like Facebook become the start page/OS of the future it is going to be a hard ask to launch a new product without spending insane amounts of money (example: the bigadda.com creatives).

The Risks for the new players

Targeted advertising on such profiled networks are still not up to scratch and the technology is still being developed. Current delivery technology is based on either IP geo-location or tracking cookies, neither of which are right now in a condition to exploit an extremely finely defined profile like a 27-year-old girl who likes Harry Potter, lives in India, with a soft spot for Archie comics. The point is made more elaborately in the Mike Barrett interview and is surely a cause for concern, but I am also sure it is something that will be fixed over time. But till it gets fixed, advertisements on these networks tend to end up being seen as irritants and not a patch on the contextual advertisements that Google has spoilt everyone with.

Low Yield: On a related point, while online networking websites account for huge page views, the CPMs, click throughs and conversions are abysmal on the inventory. When you have pages and pages of content resembling lolcat lingo on some of the more popular networks, it is not surprising that even Google’s engines put up their hands and admit defeat. I can’t remember or find the story, but someone (from Google?) had once commented that a lot of impressions on Myspace was junk and did not amount to much. So it is kind of obvious that traditional methods of advertising are not going to work too well in this segment and the way Facebook is going about it, by inserting them in the News Feed, is bound to help them accumulate bad karma at a rapid rate from the users. In short, the page views are there, but a fair percentage of it is not really worth much.

Switching costs/exit barriers: The value of any network is directly proportional to the connections you have on it. Existing users have a lot invested in terms of their connections, ratings, groups etc in the older networks. Half the grunt work in switching to a new network is to find the old contacts once again. The problem is addressed to a minor extent by the email account-based importers, but that in itself creates more problems because it requires a one-to-one mapping between your profile email address and the profile email addresses of your friends. It is a problem that can only be solved by true interoperability and that is a pipe dream of the most unrealistic kind.

Identity: Bill Gates on Myspace need not necessarily be the same Bill Gates on Orkut. For that matter, neither the Myspace Bill Gates nor the Orkut Bill Gates are likely to be the famous Bill Gates from Microsoft. At some point, our core digital identities will be consolidated into a single space, much like how Openid works, but none of the networks support Openid as of now and as a result, since identities are not portable, it will eventually create yet another high exit barrier for the users.

On a final note, there would arise the obvious question as to why do crazy deals like Google gulping up Myspace’s inventory and Microsoft signing a deal with Facebook on similar lines happen? A lot of that has to do with volumes and the rest of it with presence and Google did goof up terribly with not buying out Myspace when they could have earlier for a tiny sum compared to what they are paying FIM now. Even with the junk page views, the volumes these networks pump in terms of sheer page views are enormous and if you are in the advertising space you’d want a bite of that, even if that bite feels a bit empty once it hits the stomach.

This is a space where everyone — content creators, sales people, advertisers, content distributors — can feel where the action is going to be. But how it will unravel is something that will be only revealed with time.

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Written by shyam

August 13, 2007 at 7:27 pm

One Response

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  1. Once again, great thoughts.

    The opportunity is big, but there is room for a limited number of players. I am not going to signup for a dozen of such networking sites. And as I see the market already has a dozen too many networks. There might be room for one or two big players who can completely redefine this space. Me-toos will head for coffin.

    And also, it doesn’t cease to surprise me the sheer number of companies who want to build a photocopy of popular service, even though recent past has provided with great learning.

    2000 – Everybody wanted to be Cisco.
    2003 – Everybody wanted to be Google.
    2007 – Everybody wants to be Facebook with YouTube as one of the features.
    2007 – Everybody wants to be YouTube with Facebook as one of the features.

    Shashi

    August 14, 2007 at 6:23 am


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