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Social networks are bound to fail in the long run

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While they seem to be the toast of the online world, it is only a matter of time before the social networking websites start losing their sheen and the crazy valuations they command these days.

The lifecycle of social networking activities on individual websites can be mapped under the following heads:

Insertion: Social networks are very much like nightclubs and if you have ever been a regular clubber, you would know that not all nightclubs are created equally.

The newer and fancier clubs are where most of the cool crowd will always head for, while the less exciting ones go away pretty much unnoticed or end up serving niches that never scales up either in terms of traction or in terms of revenue.

More often than not the case for being at a new club is to be one of the first ones to get in, granting those who manage it a feeling of exclusivity. And at least in the early days insertion is much more important than the stages that follow after it.

You can see the same behavior in the case of social networks. Both Orkut and Facebook have benefited enormously from the same exclusivity as a result of their restricted entry policies in the early days.

Replication: Once an individual joins a social network, he/she wanders about replicating connections they already have in real life. There are exceptions to this behaviour, especially in the dating, younger demographic. Quite a bit of the initial spurt of activity on social networks is just this – replication of your existing social graph.

Discovery: While almost every online social network is similar to the others, they also have their own little unique ways of doing things. For instance, you “scrap” on Orkut, “poke” and “banter” on Facebook. Everyone has their own little unique way of doing things and these days, with the introduction of various platforms, there are also truckloads of applications, alongside new users to discover on the social networking sites.

The determinants

Degree of participation: Each of the above three points have degree of participation numbers attached to it. Growth on social networks slows down primarily when the number of people being inserted (new registrations, invites) decline. Secondarily, growth also slows down when the replication is mostly done with as everyone you know is already on the network by then.

To counter this, social networks may try and induce more participation from users by rewarding more participation (like a more frequently updated social stream). This can end up being a counter-productive approach, with high risk of alienating the less-frequent users.

Degree of fulfillment: All three factors can also be measured in terms of fulfillment a user gets from them. When you join, (the insertion stage) has a high degree of fulfillment attached to it, which declines over time when it is not that cool anymore, it is not that new anymore.

Replication also has high fulfillment in the initial days, getting more people on to the same platform etc. But it comes at a price. After a while, everyone you know is on the same network.

Moreover, everyone being there also deprives you of privacy. With time, you need increasing degrees of effort to maintain your profile. It is not uncommon to see users withdrawing more and more from doing things which is reflected in the public activity streams.

Gradually, everything moves to the inbox and private messages, which is a need that is already excellently served by email.

Discovery also has a high degree of initial fulfillment with users finding their way around the new websites, exploring new applications, features and people. Eventually, users get bored of using the applications and they have already added most of the people they have wanted to discover and add, resulting in falling rates of fulfillment as time progresses.

The Eventual Failure

As demonstrated above, there is little use case for sustained high levels of usage on online social networks. Over time, it is hard to battle inactivity and increasing levels of boredom for existing users.

To offset this churn, and also to prop up their stellar growth numbers, it is imperative that these websites keep adding a steady or an increasing number of new users all the time. But that number is a finite figure, determined by the number of people who use the internet and not all of them are going to sign up with social networks.

Unlike a Digg, Gmail or a news website, the value addition accrued from sustained usage of social networks is comparitively low and the need that it addresses is fairly artificial.

Another major issue of privacy and it is an issue without having to bring something like Beacon into the equation. If you do not fine-grain access control on your social stream, it is hard to figure out who all are getting to see what all parts of your life.

And if you do fine-grain access controls on social streams, it is either too much of work or it ends up being a better deal to use specialized services for it (email for communication, Flickr/Smugmug/Picasa for photo sharing, WordPress.com for blogging and so on).

Lastly, advertising inventory on social networks has till date been a major failure. Google tripped on the expectations it had from the Myspace.com inventory, advertising on Facebook or any other social network has not taken off much and the click through rates have been pretty poor on them. Unlike search or news, users don’t get on social networks to find ancillary information related to their activities. You don’t have to try too hard to imagine why there is not much context to one person poking another. It is, well, just a poke at the end of the day.

Eventually, even nightclubs need to reposition and redefine themselves every couple of years to stay in the game. Unfortunately, that is not an option that online social networks get to have and that is what will kill them

Written by shyam

March 10, 2008 at 10:07 am

Will spirituality save the telco soul?

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Seems like the slowdown in revenue for mobile operators from existing services is not just an India-specific problem. Jupiter Research has recently done a correction for its forecast for Western Europe to 910M euros in 2011 as far as ringtones go.

It has been a known fact (keep hearing that at the various conferences and industry meets) for a while that the average revenue per user in terms of calls had been on the decline for a long time and services like SMS, ringtones and other downloads were meant to keep it booming for a long time to come.

And that is the reason why Vodafone is hitting the consumers hard with their new and lovely advertisements for services that stay within the network. All the things they are pushing at you — astrology, news alerts, Art of Living updates — are nothing new, they have been around for a while, but the way they have recast it says a story in itself.

Each of the new Vodafone service is priced at INR 30 per month to the subscriber. The costs that the company incurs in getting the service online is acquiring the content to support it, the management of the same content and the billing parts of it.

Content acquisition costs are normally never tied to the subscriber base, unless they happen to be be a ringtone or a download. Which would mean that their margins would go up with every new subscriber they add on for a service. The other cost point for them would be the billing and content management services, which I don’t think (okay, sue me for the blanket guessing here) is again based on volumes, leaving the service provider with decent margins all over again.

That leaves us with distribution, which is one factor that costs pretty much nothing to the company. Most of the services (maybe, even all of them?) are SMS based. These services are available only to the service provider’s subscribers, meaning that the traffic stays well within the service provider’s network, leaving all the interconnect and revenue sharing problems out of the window and a larger chunk of the revenue for the company to keep for itself.

That leaves us with an interesting set of projections. Even 20% of Vodafone’s subscribers singing up for at least one such service would earn the company truckloads of money. Current estimates are that by the end of 2007 Vodafone would have around 38 million subscribers in its network. Take 20% of that and multiply it by 30 and you’ll get the point that I am getting at.

Going forward, a smaller percentage of that 20% will probably subscribe to multiples of these services, kicking up the revenue per user even higher. And all of this is happening at near-zero or minimal cost to Vodafone. So, next time you wonder why Vodafone is going bonkers pummeling you with all the nifty ads that should be costing them a pretty penny, remember that some sucker somewhere is actually signing up for that service and giving plenty of reasons for Mr Sarin to smile about.

Written by shyam

January 4, 2008 at 8:08 pm

Posted in advertising, India, Mobile

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Wrecking a product launch online 101: The Mahindra Scorpio Mhawk edition

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Mahindra had recently launched an upgraded version of the Scorpio range called Mhawk and it is a perfect illustration of how not to handle a product launch online:

The vast majority of the content has been authored in Flash for the website. While Google does index content authored in Flash, it does not do an excellent job of it. There should always be a non-Flash version of your website if you have to get indexed effectively. And guess what? There are no search results right now on the first page that leads to the product page.

The pages are hosted on ifctest.com and rendered within an IFRAME on the mahindrascorpio.com domain. This deprives the company of even more Google mojo. Incidentally, the domain is owned by the company’s creative agency FCB-Ulka and they could have at least warned the company against doing something as silly as that.

And in a horrible snafu, details on pricing for the Mhwak model is buried deep in a pop up that has the FAQs and the existing pricing pages for the regular Scorpio is what that shows up in the main interface under the pricing link. Most people who would land up on the website obviously would be looking for the pricing. It is a pity that you have to dig so deep into the website to find it.

Written by shyam

December 21, 2007 at 9:56 pm

Online versus print advertising: A different perspective

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I do not normally buy magazines. The only time I tend to read them are when friends leave them behind or when I am flying and have nothing better to do other than to flip through one.

This is partly because in the past ten years, the quality of magazines (in terms of writing and coverage) has really gone down the drain. I don’t read a magazine to know what is happening or what has happened. I read a magazine for insight and deeper coverage than what a newspaper or a website will normally provide me and most magazines just don’t do that these days.

In the past couple of weeks, out of sheer curiosity, I happened to pick up two magazines hawked by kids at the traffic lights to see what was it that I could possibly have been missing out on. And to be honest, it felt not very different from the online experience in accessing content.

Most of the upmarket magazines (business, lifestyle and entertainment) have advertisements every second or third page and the only difference between the different segments seem to be in the brands that are associated with them.

Now, it is a well-known fact that the price at which any print publication sells these days is not enough to cover even the printing costs and that the difference is mostly made up through these massive advertising.

But what is interesting is that the same approach, of subsidizing production costs through advertising, when used in an online environment gets the goat of almost everyone.

Let us do a comparison:

  1. Standard spot banners online features prominently in print as single column or double column advertisements.
  2. Interstitials are present in print as full page advertisements. You need to flip or click through to get to the content.
  3. Shoshkeles are also present in print as the newfangled covers that wrap around the original cover.
  4. Cobranded sections/pages are also found quite frequently in print.

Curiously, the direct cost associated with buying a magazine or a newspaper is much more obvious than what it is compared to accessing a website. In doing the latter you are probably paying only your ISP, but the irritation quotient is much higher with online advertising than it is with advertising in print.

I can’t put my finger on this one, but what really does give here? Is it that you can ‘own’ a publication you bought, compared to a web page which is never yours? Or is it the heightened levels of interaction (or irritation?) that is to blame here?

Written by shyam

December 20, 2007 at 7:27 pm

Thoughts on the future of the news publishing industry

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These are thoughts that have been lingering in my mind for a while now regarding the future of the news publication business. I have been putting off publishing them for a while to write that perfect long winding essay, but spare time being such a luxury these days, numbered points will have to do for the time being.

  1. The newspaper as we know it, printed on paper and published once or twice a night, won’t survive it to the time when the generation after the next joins the workforce. It is an outdated endeavor that is mostly supported by a dying habit, which won’t find any resonance in the generation to come after the next. Additionally, we’ll also get to save so many trees and help better content to get published by means of cheaper publishing costs, compared to awful and painful experience that procuring newsprint is these days.
  2. The concept of a newspaper, though, won’t die. While Kindle is not the future, it is a pointer to the direction that we’ll head out in the future. While we have historically been happy to carry more than one portable device (mobile phones, MP3 players, pagers, walkmans etc), the trend definitely is pushing towards converged devices (mobile phones and PIMs, mobile phones and MP3 players, mobile phones and GPS units). Something really has to give here. The gazillion dollar question is how would it be possible to marry the existing form factor with the ease of distribution that is associated with newspapers these days.
  3. Wire agencies will no longer be firms that syndicate content to other publications. They are just another of the publishers out there, marking them as competition to the publications than be seen as a facilitator or as an ally. One of the silliest things they have done till date is to sue Google for indexing content that belonged to them. There is decreasing value in the wire copy content segment for publishers who use them and what Google did as a result, to ask publishers to put in the “NO FOLLOW” tag in wire stories, effectively meant that the publishers were losing out on additional revenue that Google got them. Ergo, they have increasingly lesser reasons to carry wire stories, especially with the restrictions that are pushed through in the terms of use, now that multimedia is a staple part of any news publication’s diet.
  4. Publications will do something dramatic to survive. In all likelihood, this will be to drop their agency deals and pool resources to cut costs. Think about it: newspapers and television channels push out some fifty reporters at a Prime Minister’s press conference to report the same boring bits and bytes. There used to be a love for the language the way in which was used in the old time that could have earlier justified it. But the new zest is for sharper, crisper language and not 900 word works of art that nobody has the time to read. The unions and the current generation of journalists won’t take to this one lightly, but they can do it the painless way and restructure in peace or do it the painful way: to fight it and make a mess of things. The news publication of the future will have most of its senior reporters covering non-unique stories, while a pool of common reporters will do what an agency does now, at a considerably lesser cost.
  5. Distribution will also undergo a major change. We could have, instead of newspaper stalls, subscription points where you can transfer content to your device from kiosks through bluetooth (imagine the security nightmare! Or, if you are smart, you would start investing in a company that provides secure and reliable bluetooth connects through some form of fingerprinting) or wifi. The displays will show leading pages, very much like a normal newspaper vendor’s stall these days, but you won’t be buying the edition, you would be transferring it. Once transferred, you can read, share and suggest the content, making you a subconscious editor of a virtual publication.

Written by shyam

December 14, 2007 at 2:53 pm

Posted in advertising, Google, Media

Is the Indian mobile advertising market _actually_ exploding?

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I normally tend to ignore studies done by market research firms since they are only an imperfect indicator of the market and it becomes your best buddy only when you have to selectively quote numbers during a Powerpoint presentation. A while ago, I had seen a report on Adotas (which quoted a Business Standard piece on a study by Thomas Wiesel) that mobile advertising in India will surpass traditional online advertising in 2009. Now, that is a tall claim for anyone to make, for various reasons that can fit easily in another post.

And as usual, I had ignored the post after giving it the regular ‘raised-eyebrow-followed-by-a-smirk’ treatment. That was till Russell started posting his mobile-specific website, Mowser’s, numbers. If you look at his numbers, it is a bit of a shocker. India leads the way in page views for the month of October with 611,319 page views, followed by South Africa at 303,380.

I do not quite know how to interpret this, but it is a whopper that we are at least 2x in terms of number of mobile page views, compared to any other country. Now, there is a possibility that Russell’s numbers are skewed, but if it is true I’ll have to start tracking one more segment.

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Written by shyam

November 3, 2007 at 8:56 am

Posted in advertising, India