Tattertech Blog

I’d been meaning to write about this for a few days now, but haven’t had the time to put as much into it as I hoped.   For the moment, let me give the slightly shorter analysis:

Assuming that large properties such as Facebook, LinkedIn, and others actually follow through on a serious initiative to free user data in a meaningful way, I believe we’ll see significantly lower barriers to entry in the social app landscape and greater innovation.

First let me set out a few key characteristics (in my eyes) that define the industry at the moment-

• Relatively low development costs.  It’s fully possible to essentially bootstrap a social app’s development.  Although the investment may be high, it can be done in terms of time rather than initial capital.  A project I’m working on at the moment is completely unfunded, with a few main coders committing free time in exchange for future potential.   A debate on whether or not this is the best approach aside, it’s fully possible.
• The above low costs leads to a crowded space with plenty of me too clones.  Because just about anyone can develop a basic app either through an investment of time or actual money (outsourcing or hiring), and because of the constant buzz around social sites, everyone wants a way into the market.
• However, few of these sites actually gain any momentum.  A number of factors can contribute to this from little or poor marketing, too many identical services, shoddy design, etc.

But what I think we may see is one of the biggest barriers to success for social sites is the user’s social graph.  Even the trendiest early adopter will get tired of re-entering all their data - and rebuilding all their relationships eventually.   And not only do I need to do all that again if I sign up for a new service, but I have to bank of my friends doing it too.  And each new network/application sees an attrition rate as people stop wanting to port over to it.

But now (ideally) your social identity and relationships become easily portable.  That new web startup can just include a way to bring over all the user’s Facebook relationships.   Sure, someone still needs to actually come over and undergo some form of sign up, but the user’s investment is much smaller.  And it’s that much easier to encourage others to check it out.

On the one hand, some people have suggested that this seems bad for a Facebook or other similar site.   I think really this actually strengthens their position.  By opening their data up, they block entry for new competitors of the same type (by sheer scale they already do to some extent).  Personally, I don’t want to maintain the same list of likes, dislikes, hobbies, etc in ten different places.   I want one profile (or maybe two at most - one professional and one for personal friends) that goes wherever I think it should.  Why maintain two sets of profiles if the services are essentially the same between the sites?  Fewer people may maintain their profiles across similar properties and opt to use one as their master profile.

If that holds true, I see the large scale generic type networks consolidating from where they are now.  Where the benefit lies on the whole is that now specific niche services can boom.  Facebook can only have so many features and do so much.  However, other properties can rise up around it that leverage those existing relationships and provide unique services.  I think we’ll see greater success if the market takes this shape for very specific and unique web services.  Things that are too specific or niche for Facebook to bother cluttering their design/feature list with.

In the end, I think we end up with a less competitive top end of the market (I can almost see a Facebook becoming close to simply a data warehouse for some people), but a much more exciting and competitive ecosystem around the major networks that stay standing.

As of 1/2/08,
154,449 people chose to download Saul’s new record.
28,322 of those people chose to pay $5 for it, meaning:
18.3% chose to pay.

Above are the stats Trent Reznor released on his experimentation with a new distribution model outside of the record label. Chris Anderson of Long Tail fame, points out that this actually results in a $141,610 without a record labels interference. Reznor previously stated that on Saul’s prior album (released through the studio) for a $16 CD, he would get $1.60. Using Reznor’s data, Anderson says Saul would have made $54,235 on it. Anderson argues that Reznor/Saul worked out better this way most likely.

The problem is we’re missing some of the data. Trent only says that the studio costs to produce the album were extremely expensive along with setting up the distribution system (server/bandwidth/etc). It is possible that these are high enough to make this a net loss comparison for Reznor. But Anderson isn’t the only one missing part of the picture. Although he may have released adjusted numbers, there’s a chance the conversion rate Trent released is actually deflated. Many people may have downloaded the free version, listened to it, and if they liked it returned to purchase a higher quality version. These people should be removed from the free download statistics and placed in the paying column (not just place in both). This would create a rate of 22.5%, still not as spectacular as Trent/Saul likely hoped but not bad for a niche artist.

The numbers might not be done yet though. Keep in mind, they didn’t spend any time on traditional marketing, instead focusing on word of mouth in their respective fan bases. However, the experiment did get exposure outside of those channels simply by being a new experiment in music distribution. As a result, some of the free downloads (and ideally for them some of the conversions too) were people that would have had no interest in the album previously but checked it out just because it was being offered free from the artist. If a larger number of artists released this way, the number of free downloads might have been significantly lower (and the conversion rate presumably higher if we can assume fans are more likely to be loyal to users). I think that’s a big take away compared to what Trent says who seems down on fans not purchasing at a higher rate - a significant percentage of these might not be fans (especially considering Saul’s previous album sold so few copies). To some extent Trent does recognize this when he says, “Saul’s music is in more peoples’ iPods than ever before and people are interested in him. He’ll be touring throughout the year and we will continue to get the word out however we can.”

Maybe that’s the biggest lesson here. Take advantage of an exciting distribution system while it’s still exciting and you can get increased exposure. Sure, you won’t win everyone over, but you might grab people who normally wouldn’t have ever heard of or been interested in your work.

read more | digg story

I wasn’t going to touch behavioral as a topic again for a bit, but everyone’s talking about a recent story on Clickz (such as on Mashable, where I left several comments) I figured I would throw a things into the conversation.

While I am a huge advocate of the wonders of Behavioral Targeting, I have some issues with this concept aside from the privacy issues.  In regards to privacy, again as long as it’s opt-out I don’t see the tremendous concern.

A BT network today generally needs to establish specific behavioral contracts with publishers to make use of their users.  So if a network wants to gather behaviors from a major site (for the sake of argument) ESPN, they need to get a legal agreement with ESPN over the terms of use.  ESPN will then set up the behavioral coding from the BT network and the network can begin targeting the ESPN users across any site they touch.

The ISPs in this case will simply catch the packets on their own hardware between the end user and the publisher (say in this case ESPN) and resell that to the advertiser.  They will then pay whoever they buy the actual ad space from, but not the property that provided the relevant piece of data.  The argument I assume being that because the transaction occurred on the ISP’s hardware they have full right to mine that data.   The only disadvantage I see for the ISP is that one can assume they won’t be able to go to market with the name ESPN as a source of their behaviors, they can simply say, “Here are users who are interested in sports/sports related content.”  A ‘traditional’ BT network will most likely provide the advertiser with a list of publishers that make up the population bucket they’re selling.

If I were a major content provider with a huge brand name (say an ESPN, CNN, etc), I would be a tad upset at this development.  The ISP can capture their users with limited cost, buying remnant inventory from a ValueClick is dirt cheap, and yet the ISP can command a decent premium from an advertiser thanks to the potentially detailed targeting.  If I’m a major brand, this lowers the value of my users by creating a place to get them dirt cheap.  While a BT network could arguably depress the CPMs a publisher earned, the publisher has control to cease the deal and the receive an additional revenue stream (without using any inventory such that it’s essentially pure profit).  ISPs can easily undercut both the content provider and the BT network by avoiding the second payment.

All that said, I can’t say if publishers have any significant leverage against ISPs here.  With a typical BT deal, the BT network can’t use a publisher’s users without consent.  Theoretically, an ad network could compile behavioral data of users across the network they show ads on, however by going to market with this product (especially if it lists publishers by name) the publishers within the ad network can simply remove the tags and refuse to work with them.  As such the BT network is forced to seek the publisher’s opt-in.  The content providers may not have any means to cut off the ISP (short of damaging their own traffic and existing revenue streams) and could be locked into allowing someone else to monetize their users.

I’m not sure what the solution is to this, short of forcing the ISP to go down the route of a traditional BT network.  But forcing them to go down this route, by paying content providers for their users removes a good part of the competitive advantage the ISP has and probably makes the idea worthless.  In any case it will be interesting to see how this progresses.

Aside from this likely being another attempt to hit the front page of Digg (it’s at 25 as I write this), it brings up an interesting topic.

Essentially, Don is assuming that the dissenting comments on a Digg article about Digg are indicative of a serious movement that could potentially harm the site (in loss of traffic I assume).   First this ignores the general rule on the internet that those with negative opinions are disproportionally vocal compared to those content or even extremely happy with a service/product.  But let’s look more closely at the source of the angst some are having with Digg.

One of the most reoccurring complaints is that it’s moving away from its roots as a technology oriented social news site.   And while there is still a core of geeky tech focused articles, I believe it’s fair to say that proportionally they are falling compared to other categories.  What dictates Digg’s long term future here is dependent on what the actual cause is.

One the one hand, the audience may be relatively the same (although definitely growing) and as current issues in politics begin to die down in time things will return to normal.   The threat here for Digg is that it is possible that a political burnout could drive a significant portion of once loyal users to other properties such as Reddit and Mixx.  And once these users become comfortable in those new locations, will they ever care to come back as they build new social ties and loyalties away from Digg?

However, there’s a potential positive for Digg here also.  The positive is for Digg as a business, not as a geek brand we all love.  It could be that Digg is moving towards a more mainstream audience.  As more and more people are become savvy with social systems a great pool of people may be interested in using a site like Digg.  Especially if it’s covered in all the internet meme’s they love elsewhere.  Digg can position itself to become a major portal of social news sites (and although it was never as strong as they wanted- something like Netscape was until this summer).

Becoming a major mainstream social news site is not without its complications.  Is it even possible to appeal to such a large and diverse base while remaining socially driven?  Mixx has some features that I think will help better position them for such a dynamic, but Digg is working on a recommendation engine to better filter results to users. If successful, this could allow a broader user base while maintaining niche appeal.

Ultimately, Kevin Rose faces the problem any social content driven site faces:  Your audience dictates the direction of the site, and your audience might not like that direction.  By having a good system (some complaints aside) and a growing brand name, an influx of new users can derail what made the site popular in the first place. The key is to rapidly adapt to both retain the original loyal base, while welcoming the new audience, and somehow keeping your brand identity the whole way.

I took longer getting to this one than I planned, because shortly after writing the first post the FTC came out and (shockingly) did the correct thing on the topic of privacy.  The FTC announcement can be read here, but the general point is that the industry should have the opportunity to police itself.  This is a great way for the FTC to say they’ve looked at the issue while changing very little.  Most major players in the market already have opt-out language available, and shortly before the FTC announced these principles AOL even announced more robust opt-out abilities. As the news is fairly old at this point, I won’t go any further into the FTC announcement (plenty have covered it already).

Instead I’ll just cover some major points on the issue in general:

As it stands with most behavioral tracking, no personally identifiable data is stored in the cookie.  With a few exceptions, all that is tracked is that a browser navigated to a site that demonstrates something deemed of value (perhaps looked at a sports article).  That browser cookie space then carries either the data itself or a link back to data that ties the browser to sports content.   Advertisers are then targeting simply anonymous groups of browsers with a sports value.  No personal information is passed to the advertisers and it does track you anywhere outside of that browser’s cookie space.

Now with something such as Beacon the issue gets cloudier.  This no longer occurs behind the scenes with anonymous identifies but rather clearly linking your identity with the advertisement and worse yet, displaying to a third party (your friends).  Typical behavioral advertising is simply a transaction between the advertiser and your cookie space (resulting in only you see ads related to your behaviors).

Again, as the issue has been beaten to death lately, I’ll cut the privacy discussion short but in my opinion with a reliable opt-out provided, the benefits of better matching ads to me outweigh the non-issue of a cookie (that I can delete manually anyway if I don’t trust the company)  that just has some data about certain types of sites I’ve been on.