The best thing Facebook ever did

May 16, 2010

What will let Facebook own the internet advertisement? How will Facebook displace Google from being the top advertising platform?

Well, that’s obvious now. With the help of their Like button placed all over the whole darn internet. OK, maybe it’s not that obvious, but there are only three pieces to this puzzle:

First, Facebook is the company that finally owns our online identity. Microsoft couldn’t do it with its HailStorm and Passport. Google couldn’t do it with Gmail/Google account. Facebook, with all the sites that use Facebook Connect is the 800-pound gorilla in the online identity market.

Second, web search is quickly becoming a commodity. It’s not hard for a large company to build a search engine or license someone else’s search engine. Its search quality won’t be as good as that of Google, but see the next point.

Surprise! The search quality as it has been understood by Google is not important to the consumers anymore. That’s why there are new players in the field, who innovate by delivering different search experience: Bing, Wolfram Alpha, and others. While Google does a good job of counting incoming links and clearing search results off spam, 99.99% of those search results are still irrelevant for me and you. But imagine what would happen if Google sorted the search results by bringing the posts “liked” by your friends to the top? Now, this would be like by thousand times more relevant! The only problem is that Google doesn’t know who my friends are, leave alone what pages they “liked”.

The mathematical approach of Google to the web search fails miserably when compared to the social approach. People always want to know what movies their friends watch, what music they listen to, where they go to dine, get excited. There will always be hardcore users who will use Google for search, but the rest of the population and advertisement dollars will go to Facebook.

P.S. Just when I was about to finish, I found this fresh post: Will Facebook Be Tomorrow’s Google, and Google Tomorrow’s Microsoft? , expressing similar ideas. It’s fun to read it too, especially since it comes from a former Google Group Product Manager.

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Posted by Oleg Kokorin

Startupers beware: your mothership will eat you for breakfast

April 14, 2010

The recent news and rollouts by major companies are going to have a huge impact on the startup surface, and sink a lot of them as well. Here are some I want to mention:

  • Microsoft’s roll-out of web-based and free Office is going to damage web office suites developers, like Zoho;
  • Microsoft’s new Outlook 2010 is going to include social network features. Bye-bye Xobni (which is a social Outlook plug-in);
  • Twitter buys one of the iPhone clients – Tweetie. It means all other iPhone twitter clients are screwed;
  • Facebook, in addition to their Credits system, is rolling out an offers system – a very popular way of monetization. Wait till they make their Credits the only way to take money from the users, and numerous startups will kiss good-bye.

However, the top prize for screwing its ecosystem and partner network goes to Apple:

  • Their are introducing their ad platform iAd. No doubt it will be the exclusive way for advertising on iPhones and iPads;
  • Their new SDK licence agreement clearly prohibits use of any development platforms except for Objective C. This is a major blow to Adobe with their new Flash CS5, which includes tools to easily port Flash apps to iPhone OS. It also potentially makes Unity – a new platform for 3D  game design outlawed.

The lesson we all can learn: when your application totally depends on some company’s product for monetization or value for users, the company can evaporate your business in a blink. Our MobileNoter also falls into this category. People like our product, but if Microsoft decides to port its OneNote to MacOS and iPhone OS, we’ll have to have a much better product than theirs in order to win the customers.

3 Comments | Competition, Social networks, Startups | Tagged: , , , , | Permalink
Posted by Oleg Kokorin

NSFW: The last “0 friends” South Park episode is hilarious

April 11, 2010

This episode became an instant classic. The quotes from it will be repeated for years.

Here it is: http://www.southparkstudios.com/episodes/267112. Made me ROFL. I mean it actually, literally did. Facebook, Farmville, chatroulette… The Mad Money and TRON touches are a masterpiece.

P.S. Have you been to the chatroulette? The South Park guys do  NOT exaggerate about it.

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Posted by Oleg Kokorin

iTunes to use your Facebook connections

April 9, 2010

Only a few days ago I discussed the idea of companies using people’s social graph for mass-scale marketing, and here comes the news: Apple is going to do just that in iTunes. This is huge. It will add more power to Facebook in their quest to become the world largest ad platform.

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Posted by Oleg Kokorin

How can companies use my social graph?

April 5, 2010

It’s interesting to see when the brick-and-mortar companies will start actively use people’s social connections. There are so many examples how it can be done.

1. Many mobile network carriers have plans with one or more “favorite numbers”. When I make a call to one of these numbers, the call is cheaper or entirely free for me. Why not offer me to make all my Facebook connections “favorite numbers”? Make them cheap to call if they are with other carrier and free to call if they are on the same carrier. It’s an incentive for all of us to stick with one carrier.

2. When I buy a vacations tour, why not offer me a discount if I make all of my connections know what agency I used for that? And if anyone from my connections buys at the same agency later, offer more discount or some bonus points? Same goes for anything, like when one buys movie tickets, insurance, or clothes.

The key here is to create incentives for people to promote products and services to their social graph. The reward should be paid for actions (my friend also bought certain something), not for clicks and views. When companies start doing that, they won’t need any other advertisement. Facebook will be the major ad platform of the future, not Google.

1 Comment | Marketing, Social networks | Tagged: , | Permalink
Posted by Oleg Kokorin

The future of StackOverflow?

March 21, 2010

What happens when you have a great knowledge-sharing site, where people can freely ask questions and other people are willing to answer them?

Let me ask again, what if you have “pioneered a unique web service that offers its members fast, qualified answers to questions … from a network of qualified technology experts”? And not just that, you also have a “patented knowledge-sharing process, combined with the advantages of the Internet”? And if it’s not enough, let’s imagine for a moment that you “received a $5 million first round investment commitment from  <drum-roll>  J.P. Morgan Capital“?

Well, mostly likely you end up being www.experts-exchange.com. The text in bold above is quoted from the site and from a Business Wire article.

The company is 14 years old now. It’s an eternity by the internet standards. The site was once the largest network of qualified technology experts, or so they claim. What lessons can we learn from its fate?

First, a few observations:

1. Is its traffic going up or down?

2. How does it compare to competition?

3. Was there an IPO or sale to a strategic investor?

I couldn’t find any traces of it in the internet. OK, this is certainly not a hard fact, and if you send me a link about the event, I’ll update the post accordingly.

What can we learn? Perhaps, that Q & A sites are too easy to build (say hi to StackExchange!). That the competition in the area is too fierce. That even patented IP and “smart money” from the investors won’t let you scale the business enough. You may be the leader one day, and a new kid on the block leaves you biting the dust the next day.

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Posted by Oleg Kokorin

StackOverflow revenue estimated

March 4, 2010

The question of whether a StackExchange-based site can generate a lot of revenue and my answer to it lead to a heated discussion on the OnStartups Answers. So I decided to estimate what kind of revenue StackOverflow actually generates. Apparently, it’s enough to try to go to VCs, but not enough for a self-sustained growth. Luckily, it is relatively easy to estimate.

Disclaimer: the following calculations are unproven, non-scientific, and cannot be used as a financial advice.

Despite a good and long list by Alex Lam of potential revenue possibilities for StackOverflow, they make money only via paid job posts and site ads (rectangle banner in the right column and sponsored tags).

1. Paid job listing is very easy to calculate. They have about 8-9 new job posts a day. One costs cool $350. So let’s estimate it at 9 * 350 * 30 = $94,500 per month.

2. Ad revenue is hard to estimate. Let’s start with the 26M pageviews per month they claim to have. A lot of these pageviews don’t carry any ads at all: pages like About, FAQ, list of users, etc.

2.1 I would take 80% are ad views and 20% non-ad views. This gives 20,800,000 pageviews with ads.

2.2 The ad inventory is not sold out. Every now and then they display an internal ad – ad for job.stackoverflow.com. To make matters worse, the ads are geo-targeted, showing different ads for different countries. This means that ad inventory and its sold out ratio is different for every country. My tests showed it is about 75% for USA and 45% for India and Russia. Let’s take these figures and assume 75% rate for highly ad-targeted countries and 45% for the other countries.

2.3 My estimation is that half of pageviews go from highly ad-targeted countries and another half from the other countries. Originally I thought that low ad-target countries would make most of the pageviews. However, I browsed through the list of registered users and was impressed with the big number of USA, UK, Australia, Canada users. So let’s take 50% – 50% split, which gives average of 60% sold out inventory ratio. Thus, only 12,480,000 pageviews carry paid ads.

2.4 Now the trickiest part, CPM – the cost per 1000 impressions. fabien7474 came up with roughly $5 CPM for StackOverflow and I tend to agree, not going into details.

Drum rolls: the estimated banner ad revenue is $62,400 per month.

2.5 There are also sponsored tags that display ads as well. I don’t think those are sold on CPM basis, and hardly a lot of people click those tags anyway. Also, consider that few tags are sponsored so far. A week ago I saw a bunch of tags sponsored by Adobe and them are gone. Let’s add ballpark $10,000 for the tags.

The total revenue is $94,500 (for job posts) + $72,400 (for other ads) = $166,900 or $167K per month.

A few observations:

  • The job listing brings more money than the ads!
  • I can try and estimate the costs (hosting, traffic, staff), but no matter what chairs you buy for your guys, the costs will be lower than $167K monthly. So, this is definitely cash-positive.
  • This revenue figure is nice and it is a good achievement, but looking for VC money to scale this business? You gotta be kidding.

In the next post I will go through competition and examples of similar sites to get the whole picture…

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Posted by Oleg Kokorin

Bill gives Facebook another try

January 21, 2010

Turns out, Bill Gates started using Facebook (again) and also just started using his Twitter account, which was created half-year ago. My guess is he’ll stop using them both soon, OR will assign a secretary or PR person to handle it. These services might be good for him to encourage people to do more charity, but it certainly doesn’t require his personal involvement.

I don’t see any value in Twitter, and only limited value in Facebook (unless you are a student). It might be fun, but it also distracts you from real life. This endless stream of status updates and messages is just resembling spam. Any sane person avoids spam.

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Posted by Oleg Kokorin