Investing: The Net Wisdom of Peers

November 19, 2007

by David Bogoslaw

Two years ago, Eric Wolff, 25, was handed the reins of a $5 million family trust after his family saw how badly it had been managed by a full-service brokerage firm. For the four months ended Oct. 31, the $1 million in accounts that he directly oversees has returned 13%, something he attributes to advice he received on Covestor.com, an online investing community, and top-notch research he’s found at other financial Web sites such as Valueinvestorsclub.com and Seekingalpha.com.

People saving for retirement are equally inspired to find the best investment advice. Increasingly, they’re less willing to trust brokers who they believe are motivated by greed and tend to put their own interests ahead of their clients, according to a 2004 study commissioned by the Securities Industry Assn.

Burned Retiree Tries His Hand

Bob Craft, 64, a retired pilot for Delta Air Lines, joined online investing community ValueForum.com in early 2004 after losing 82% of his defined pension when Delta filed for bankruptcy. At the time, his assets were invested in mutual funds. Nervous about his retirement savings, he split his portfolio three ways—between Fidelity Investments, Bank of America, and his own trading account—to compare the investment results.

Craft’s brokers told him that over the long run, he wouldn’t be able to beat their performance because they invested for a living. At the end of the first year, his account had increased 30%, while the money managed by the brokerage firms was up just under 8%. His returns far outpaced those of his brokers in the second year as well. “The highest return every year has been by me, so I just moved all my money to me,” he said, adding that he couldn’t afford his brokers’ low gains.

Craft now manages 100% of his portfolio, spending about six hours a day reading up on stocks he hears about from fellow members at ValueForum and placing orders through Fidelity’s ActiveTraderPro. Year-to-date, his portfolio is up 38.2%, he says, and he no longer worries about his retirement nest egg.

Communities’ Key Asset: Transparency

As more individual investors like Wolff and Craft take control of researching and buying stocks, options, exchange-traded funds, and mutual funds online, they’re joining a new generation of online investing communities to help them reach their goals. So instead of following recommendations from full-service brokers or advisers, for investment advice they’re turning to people who are putting their own money on the line. The online investing communities take the old forums and message boards to the next level by offering tools to verify the track records of and rank up-and-coming investing gurus.

Unlike the social networking platforms TradeKing.com and Zecco.com, these new investing sites don’t execute trades. What they’re selling is the ability to pull in and aggregate trading data from members’ existing brokerage accounts so they can track each person’s total portfolio.

Tracking capability is important because these communities aim to level the playing field, paving the way for a new type of investment adviser, one who’s more credible because you know what stocks he owns. Full-service brokerages and other incumbents are afraid of this, since nontransparency protects their profit margins, says Rikki Tahta, chief executive of New York-based Covestor.

What Investors Want

Before launching publicly in mid-September, CakeFinancial.com, a San Francisco-based online investing community, conducted several focus groups to see what online investors were really seeking. Steven Carpenter, Cake’s founder, said investors want to find peers with the same basic outlook or trading strategy, but better performance results. Cake also learned they want advocacy—the assurance that the customer’s best interests, not the adviser’s, come first—more than education.

Cake tracks stocks, ETFs, and mutual funds and plans to add options and fixed-income trades in the future. While all the trading activity that Cake imports can be measured, members don’t have to reveal their net worth, the amount they’re investing, or the number of shares they’re trading. Eliminating the sensitive information allows users to communicate freely with each other, says Carpenter.

Cake’s service is free, but once membership has grown to at least 10,000, Carpenter says he’ll create low-cost, customized asset-management services based on the aggregated performance metrics of Cake’s members. The idea is to take aggregated performance data and overlay it on a member’s portfolio to show what stocks he should sell and which ones he should hold on to. A premium service would show members the asset allocations of their top 10 model investors and notify them via e-mail whenever one of these people buys or sells a stock, or even adds a stock to his watch list.

Fund Management Insight

For Covestor, the imperatives are verification and evening out the playing field for retail investors. By giving them the same tools that a hedge fund manager has, such as the analytics that help them understand the risk they take vs. the returns they get, and how those compare with their peers, benchmarks, and professionals, Tahta hopes to “burst open the fund management world.”

Covestor is currently a free service, but plans to go to a compensation business model sometime in 2008, under which members would pay a fee to follow top performers’ portfolios, and Covestor would collect a small percentage of the fees charged by its top performers.

When ValueForum launched in late 2003, it offered a flat fee for lifetime membership to the first 200 people to sign up for the service, and within six weeks it had sold out. Through those early adopters telling friends, the community has grown to 1,400 members—most of them age 55 and older and retired with an average portfolio of $1 million, says co-founder and Chief Operating Officer Adam Menzel. Members pay an annual fee of $220 to use the site.

ValueForum doesn’t import and track members’ investment accounts, but it gives members the chance to gauge each other’s performance in other ways, such as quarterly contests where each person chooses three stocks they think will rise during that three-month period.

Growth in Self-Directed Portfolios

Another reason that investors are looking for new ways to exchange financial advice is that broker-advisers are showing less interest in handling portfolios valued under $1 million. That leaves 15 million U.S. households with assets between $100,000 and $1 million looking elsewhere for investing advice. These households’ assets total $4.5 trillion, or 35% of U.S. retail assets, most of which is being serviced by the mutual fund industry, according to a study by Forrester Research published in March, 2006.

Institutional investors are also getting involved in online investing communities. Marketocracy.com, a San Mateo (Calif.)-based investment company that launched in July, 2000, uses a social network to generate the research that informs its funds’ investment decisions.

Marketocracy’s founders, Ken Kam and Mark Taguchi, opted for an alternative to Wall Street research based on what they learned while co-managing a top-rated technology fund at Firsthand Capital Management in the late 1990s. Kam, who had previously worked in the medical devices industry and was running the fund’s health-care/medical portion, found that the best ideas about a company and its business prospects came from people working in that particular industry, not from Wall Street analysts and brokers.

“It’s a process of asking the right questions of the right people,” says Kam. “People on Wall Street aren’t the right people because they rarely have the experience to ask the right questions.”

Kam and Taguchi believe it takes at least five years of tracking a person’s trading decisions to be able to discern their skill level. But after a year and a half, they felt confident enough in the collective wisdom of a select group to pick the top 100 out of about 40,000 members to serve as model portfolio managers for the mutual fund they set up. Six years later, the Marketocracy Masters 100 Fund has roughly $45 million under management and, since inception, has returned 92.42%, compared with a 53.37% return by the Standard & Poor’s 500-stock index, including dividends, over the same period.

Wisdom of Crowds vs. the Individual

One bone of contention among the next-generation investing communities is whether the financial rewards of following a single individual match those of tapping into the collective wisdom of the crowd. Cake believes in taking what seem to be the best practices among groups of like-minded investors and showing members how they compare to others who are doing better than they are, both as individuals and in the aggregate, says Carpenter. It’s not a herd mentality that Cake enables members to tap into, but the collective wisdom of the few who resemble them and consistently outperform the markets over time, Carpenter says.

To identify such model investors, Cake has a feature that gathers up to 10 years of back data from the trading accounts members have opened at 11 of the top brokerage firms. Data extending over that long a time span are more convincing than the three months’ worth of back data that most other sites import, Carpenter says.

For Covestor’s Tahta, it’s the idiosyncratic thinking of individuals with insights into particular sectors that’s paramount. He cites one member, a doctor in Wisconsin, who has a unique understanding of relative strengths and weaknesses among medical equipment makers. Given all the factors that inform investment decisions, such as goals and risk tolerance, he believes it’s a waste to limit this information to a single investor’s account when it could help others with the same basic approach.

Marketocracy believes it’s beneficial to be able to access the group’s aggregate wisdom and that of individuals at different times for different reasons. Their model portfolio managers, a rotating group of the top 100 performers, tend to know the right questions to ask, based on their trading experience in certain sectors. But they often turn out not to be the people with the right answers, says Kam.

“Through our forums, increasingly what we’re finding is that you want to let everybody post [comments], because the person who has the answer might have a poor portfolio overall but may have the key piece of information that will make a great investor have conviction in the stock idea,” he says.

High-Quality Discussion

It’s likely that even without the functional bells and whistles, online communities would attract investors based solely on the quality of the discussions—a welcome refuge from the junk many say is clogging the message boards on financial portals at Yahoo.com and AOL.com. ValueForum even allows members to vote to dispatch off-topic posts to a separate discussion board called the “Coffee Shop” so that the main discussion threads stay focused on investing matters.

Online investing communities have also begun to extend their reach beyond the virtual into the physical world. Take InvestFest, an annual conference organized for and by ValueForum members. Now in its third year, the conference offers presentations not only by members who specialize in certain investing topics, but also by industry professionals such as investment newsletter editors and occasionally a company chief financial officer. Cake is also envisioning local investor cocktail parties around the country in the future.

Many people tout the Internet, and message boards in particular, as tools that are democratizing the flow of information. But for Kam and Taguchi, research by social network is more about meritocracy than democracy. It’s about weighting people’s voices by their track records and giving commensurate attention to the most talented. Says Kam: “Other social networking sites looking to make a play in investing are interesting and share the same goals as us, but it’s going to be years before they have anything substantial to prove to investors that they can add value.”

Source:


Social Networking with the Elite

November 19, 2007

by Douglas MacMillan and Paula Lehman

Are you on the digital A-list? It’s no longer enough to get invited to exclusive conferences or be asked to join professional organizations—many movers and shakers are taking their hobnobbing online, where a new crop of social networks aim to keep out the riff-raff by demanding credentials at the virtual door. As MySpace, LinkedIn, and Facebook have expanded to people of all ages, classes, and affiliations, there’s a backlash against the open culture of social networking. Walls are going up. The scene is more velvet-roped club, not open-mic night. These three gated sites are among those with tough membership requirements and, presumably, more elite social networking.

REUTERS SPACE

In October, British news giant Reuters launched a private online networking community for hedge fund managers, traders, and analysts. Dubbed Reuters Space (space.reuters.com), the industry-specific site leverages its own pool of proprietary data on thousands of companies to verify the employment status of applicants, be they futures traders or chief investment officers. Members each have a feeds page, where they collect news from Reuters and other sources tailored to their financial specialty. Each one also has a profile page—a personal blog where they post notes to colleagues and close industry contacts and set privacy controls to determine who has access to their contact information. The site has potential for companywide rollouts: For example, London-based Schroders Investment Management, a global asset management firm, is planning to adopt the platform to give more of a sense of community to its employees in 24 offices around the world.

INMOBILE.ORG

Launched in April, 2006, INmobile.org is a network of more than 900 executives who work in or close to the wireless industry. To qualify, you have to be at least a director at a large company, a vice-president at a midsize company, or in the C-suite of a startup. So far, members include executives from carriers such as Verizon Wireless, content providers such as Walt Disney, and handset makers such as Nokia. Arthur Goikhman and Stephen Dacek, co-founders of New York mobile-games startup Cellufun, joined in February. They were able to make connections with Yahoo! on the site and struck a deal with the search giant to place ads with Cellufun’s games. “I’m glad it’s not a free-for-all,” says Dacek. “It really does make it a lot easier to network.”

DIAMOND LOUNGE

This invitation-only social and business network, making its debut this month, relies on a selection committee elected by all members on the site. The committee has already chosen 100 members out of more than 7,000 applications that came in before Diamond Lounge (diamondlounge.com) went live. Members, who pay a monthly $60 fee, can hail from any industry and have two identities: a social profile in “the Lounge” and a business profile in “the Boardroom.” For the social profile, members set limits on who can view them based on such characteristics as age, physical build, and gender; for the boardroom they provide their income, industry, and job title. They can exchange gifts, much like Facebook, where members buy icons of cakes and teddy bears, for example—but Diamond Lounge gifts include real Gucci bags or tickets to business events.

Source:


Citizen Media: The High School Years

November 16, 2007

By Kevin Smokler

It wasn’t long ago that “citizen media” meant a gang of political bloggers fact checking Dan Rather–and maybe a chubby kid doing a wild dance with a light saber. But my stars, how they’ve grown. Citizen media is about the aggregating, licensing and management of content created by everyday people for advertisers, marketers and product developers as well as the brokering of citizen media makers for live events. It’s about the shift from a diffuse cacophony of voices to a viable business opportunity. A look around the Internet’s homerooms confirms that citizen media has plunged into adolescence with business plans, VC money, and Hollywood waiting to cash in when they become of earning age. Of course, we’ve seen this pep rally before and know that today’s valedictorian can be tomorrow’s yearbook memory. But before the zits and angst set in, we present how citizen media really is like high school.

Student council

The BMOCs angling to be the Viacom and Disney of citizen media

Pod Show: Adam Curry’s podcast network could be Citizen Media’s first conglomerate, but it risks getting passed by medium-of-the-moment videoblogging and whatever comes after it.

Podtech: Pod Tech is looking to be the digital lifestyle’s media of record with a network of corporate-branded podcasts, event coverage, and interviews with tech honchos. Most notably, it grabbed blogebrity Robert Scoble away from Microsoft (NASDAQ:MSFT). Its focus on b2b content could be more stable than consumer-focused media, but double check that after the next recession.

Weblogs Inc: AOL bought the blog publisher in 2005 and tapped founder Jason Calacanis to “save Netscape.” Netscape’s conversion this spring to a social bookmarking site has angered Kevin Rose, founder of Digg, the genre’s heavyweight.

Gawker.com: The first publishing conglomerate of the Citizen Media has slimmed down to 10 blogs and stayed proudly independent. Still making mirco-celebrities of its editors and hauling in big name advertisers but is text-based blogging the future or so 2003?

9 Rules: Older and scrappier than Gawker or Weblogs Inc, 9 rules doesn’t broker ads for its network of blogs but acts as a curator and promoter of independent content. Non-commerical and proud of it.

A/V Club

The video kids that want to create your home for uploading, hosting, and sharing video.

YouTube: The Library of Congress of citizen video clips and a ton of professional ones illegally uploaded too. If you haven’t heard of them, we can’t help you.

Dailymotion: Think Friendster with videos as the currency. This may be a prime example of late-to-the-party-piggybacking or just the mashup the space currently lacks.

Blip.tv: If YouTube is the public access cable of the Internet, then Blip is taking a TV-network approach. It focuses on serialized programming, distributing videos from such folks as CNN, Conde Nast and William Shatner’s SciFi DVD Club (!) to iTunes, Dabble and other content aggregation spots. Producers can include opt-in advertising and license their videos through creative commons.

Vimeo.com: A subsidiary of New York-based Connected Ventures (who also has a little-known project called College Humor), Vimeo claims nearly 70,000 registered users but is, at the moment, yet another site for sharing video clips. The madness created around a Google-You Tube acquisition may make short work of their anonymity.

Grouper: Sony’s August acquisition of this YouTube lookalike may foretell what will happen to the online video space once the big boys crash the party.

(Class of 2007) FireAnt.tv: Will bring the “network TV” model to video, catapulting it to success like those who followed this model for audio (Podshow) and blogging (Gawker Media).

Campus radio

These audiophiles want to make creating podcasts as easy as Web surfing.

Hipcast: Its simple interface lets bloggers create audio and video posts in seconds. Formally audioblog.com, Hipcast predates Odeo and was created by citizen journalism pioneer Eric Rice.

Libsyn: An open-source podcast creation and hosting site. It offers four tiers of paid memberships, podcast length, and audio quality.

Class of 2007 Odeo.com: Has all the tools and talent to bring podcasting further into the mainstream, giving us no shortage of “Will Clear Channel (NYSE:CCU) buy Odeo?” rumors next year.

Newspapers

Their blogging tools began the citizen media revolution. How will they evolve?

WordPress: The latecomer to blogging software is now the platform of choice among the blogerati and a San Francisco-based, five-person company headed by former Web 1.0 veteran (onetime Outpost CEO) Toni Schneider.

Six Apart: The husband-and-wife-founded company behind popular blogging tools Movable Type, Typepad and Vox, it acquired Web-based news aggregator Rojo this fall and mobile blogging client Splash data in the spring. Valley buzz predicts more grabs for this “little giant” of citizen media, long rumored a target themselves.

Blogger.com: Has the the Model T of citizen media gotten too comfortable at the Googleplex while social and mobile devices alter the meaning of the verb it helped invent? Or will potential new sibling You Tube rev it up again?

Playground

Where the media you create becomes the center of socializing

Dabble: Aggregates video from YouTube, blip.tv and other hosting services and lets members tag and organize their clip collections into playlists. It could become the flickr of video, but are we ready for another media locker to keep tidy?

Imeem.com: Social networker Imeem has many of the same moves as its competitors (blogs, photos, media swapability) but is looking towards music sharing and hosting communities around large media properties to set it apart. For example, it’s recently partnered with Virgin Records and Warner Independent Pictures.

(Class of 2007) Yelp.com: The people-powered Citysearch is grabbing more metros by the day. Its Myspace take on cities could make local expertise the new digital currency.

Clubs

City guides, dating and whole worlds created entirely by users. They just hand ’em the tools.

Second Life: Only two years old, this user-created universe has a GDP of $64 million and the real-world recognition that its forerunner Everquest never had. Marketers are suitably obsessed: The latest X-Men movie had a Second Life premiere and Adidas and American Apparel sell their virtual wares here. Maybe-presidential candidate Mark Warner has also been making the rounds.

People Aggregator: This pet project of Macromedia co-founder Marc Canter, People Aggregator’s looking to be the giant bucket for your digital life. It includes a downloadable component for creating your own social network or stitching together others. The big question: Is this a great leap forward for an already crowded space or a ho-hum lateral slide?

Vox: The newest entry into Six Apart’s portfolio of blogging tools, Vox gives personal publishing easy photo and video integration and a social network of private “neighborhoods.” Still in invite only beta, Vox may be the all-in-one digital life People Aggregator is after or an even smaller slice of the blogging pie.

Consumating: Ostensibly began as a dating site for the geekily inclined but it’s evolved into the too-old-for-MySpace social network of choice for nearly 20,000 users. CNET (NASDAQ:CNET) Networks acquired it last year.

Future Entrepreneurs

If there’s gold in citizen media’s hills, these guys are selling both the map and the shovels.

(Class of 2007) Federated Media: CEO John Battelle’s standing in the blogosphere helped him build a boutique ad network on tech, parenting, business and automotive sites in just over a year. The Internet’s the limit.

The Deck: An advertising network of bloggers with A-list standing in the Web and design communities. Run by Chicago-based agency Coudal Partners.

Blogads: An early advertising network for bloggers and other citizen mediamakers to build an ad-based business model to support their content, it became the preeminent player, repping citizen celebs like Daily Kos, Perez Hilton, and GoFugYourself. But recent gains by Federated Media and The Deck indicate that its hold on the social media advertising space is hardly firm.

Fruitcast: Aiming to be the Google AdSense of sound by making it easy to insert small ads in podcasts. Will need to develop critical mass or savvy partnerships soon. Company blog hasn’t been updated since May.

Feedostyle: Turn rss feeds into syndicated content! Post that content on your blog! Premium members get content ad-free!

Feedburner.com If it can reassert that the RSS feed is the backbone of both podcasting and video blogging, it could set itself up as a prime acquisition target. But thus far, the geeks have done a terrible job of explaining what a feed is and what it’s good for.

Radiotail: Utilizing more of an agency-model than competitor Fruitcast, Radiotail sells podcast advertising for both independent broadcasters and manages campaigns for media companies. Nikon (OTC:NINOY) and Microsoft have bought time.

Guidance counselor’s office

Taking media to the next level by putting a price tag on it

Blogburst: Syndicates blog content to major media outlets, including the San Francisco Chronicle, Gannett newspapers, and Parade Magazine. Its parent company Pluck also sells a number of tools for building communities around user-generated content, from user blogs to community photo galleries.

(Class of 2007) SocialRoots.com: If it can get the right partners and management lined up, plan on seeing them invent the monetization of citizen media content the way Ebay (NASDAQ:EBAY) did for the junk in your attic.

Hall monitors

Who’s worth paying attention to and who’s still a kid with a light saber? Ask them.

Tailrank: “Finding the best content from blogs so you don’t have to” is the motto of San Francisco-based Tailrank. It ranks the top 150,000 blogs according to its own algorithm, and then publishes a scrolling ticker-tape of influential technology, political and general news memes. Users can also create their own news filters.

Rapleaf.com: No one has been able to communicate to the old media what are the most influential blogs, which is what Technorati should be doing. Rapleaf could grab this ground right out from under Dave Sifry and co.

The Attendance Board

Technorati.com: If you’re not on technorati, you don’t exist.

Student who makes the morning announcements

Conversations Network: The non-profit wing of for-profit GigaVox Media, the Conversations Network has been called “The NPR of Podcasting.” Plans are in the works for GigaVox to distribute nearly 60 monthly programs of recorded lectures and presentations on business, technology and social entrepreneurship by the end of 2006.

Work crew repairing and cleaning up around school grounds

Wikimapia: Combines Google Earth and Wikipedia. Pick any spot on the planet and give it a tag. This is either mindless fun–if used for good–or the beginning of 1984 if used for evil.

Reader Riff
“Napster just doesn’t have it anymore. No matter what they try, they aren’t going to be the ‘rebel’ company that they were–and that’s what attracted people to it. Anybody can do what they are doing; why would anybody want to do it through them?” –Gary Bourgeault

Source:


Internet companies: Social graph-iti

November 2, 2007

A NEW fad is sweeping across Silicon Valley, causing excitement, confusion and hyperbole not seen since the dotcom bubble. It began in May, when Mark Zuckerberg, ten days after turning 23, took the stage in a San Francisco warehouse and announced that he was opening up Facebook, the social network he founded at Harvard University, to outside programmers. Anyone can now build little programs, or “widgets”, into the network. To illustrate his idea, Mr Zuckerberg projected onto the wall behind him a “social graph”—a pattern of nodes representing Facebook users and the links among them.

Since then Facebook and the idea of the social graph have become the favourite, if not the only, topic of conversation among the valley’s geeks, venture capitalists and internet moguls. Mr Zuckerberg compares his graphing of human connections to the work of Renaissance mapmakers. Facebook is growing furiously and may catch up with MySpace, the biggest social network. Outside programmers have added about 5,000 widgets.

One of Facebook’s investors estimates the social network’s revenues in 2007 at only $100m, mostly from selling ad space, with tiny profits. Nevertheless, the internet’s giants—Yahoo!, Microsoft and Google—are offering to buy Facebook or a stake in it for a price that would value the firm at many billions. At a Facebook conference on “Graphing social patterns,” panellists said the firm may be worth $100 billion and that it is the new Google.

How much of this is hype? Facebook has made two genuine breakthroughs. The first was its decision to let outsiders write programs and keep all the advertising revenues these might earn. This has led to all kinds of widgets, from the useful (comparing Facebookers’ music and film tastes, say) to the inane (biting each other to become virtual zombies). The entire internet industry reckons this was clever and is planning to copy it. This week MySpace said it would open its site to outside programmers. Google, which owns Orkut, a social network extremely popular in Brazil and parts of Asia, is expected to do the same soon. Facebook’s second masterstroke is its “mini-feed”, an event stream on user pages that keeps users abreast of what their friends are doing—uploading photos, adding a widget and so on. For many users, this is addictive and is the main reason they log on so often. Jerry Michalski, a consultant, calls the mini-feed a “data exhaust” that gives Facebook users “better peripheral vision” into the lives of people they know only casually. This mini-feed is so far the clearest example of using the social graph in a concrete way.

Silicon Valley’s craze for the “social graph”, however, is overdone. The term has been around in computer science for decades, says Eric Schmidt, Google’s chief executive, so it is puzzling that Mr Zuckerberg should get any special credit for using it. “We have address books, and the sum of the address books is the social graph,” he says. Companies such as Plaxo, which help to synchronise address books, and Google itself, which has a primitive address book in its web-mail service, plan to turn these books into fully fledged social graphs that can do useful and productive things, perhaps including new variants of mini-feeds.

This analogy to address books points to an important limitation for social networks, such as Facebook, compared with older sorts of network, such as the postal or telephone systems. These benefit from Metcalfe’s Law, which says that the value of a network is proportional to the square of the number of its users. In other words, the more people have phones, the more useful they become. This “network effect” leads to rapid adoption and puts up barriers for new entrants.

But unlike other networks, social networks lose value once they go beyond a certain size. “The value of a social network is defined not only by who’s on it, but by who’s excluded,” says Paul Saffo, a Silicon Valley forecaster. Despite their name, therefore, they do not benefit from the network effect. Already, social networks such as “aSmallWorld”, an exclusive site for the rich and famous, are proliferating. Such networks recognise that people want to hobnob with a chosen few, not to be spammed by random friend-requests.

 
 

This suggests that the future of social networking will not be one big social graph but instead myriad small communities on the internet to replicate the millions that exist offline. No single company, therefore, can capture the social graph. Ning, a fast-growing company with offices directly across the street from Facebook in Palo Alto, is built around this idea. It lets users build their own social networks for each circle of friends.

So are Facebook and its graph really worth many billions? From an advertiser’s point of view, says Rishad Tobaccowala, the boss of Denuo, the new-media unit of Publicis Groupe, an advertising company, Facebook is so far anything but the new Google. The search giant does have traditional network effects in its advertising system, he says: it aggregates advertisers and sends them to potential customers who have expressed specific intentions by typing search queries. But Facebook has only “large crowds who are communicating without expressing specific interests”, says Mr Tobaccowala. On Google, advertisements are valued; on Facebook they are an annoyance that users ignore.

Facebook might nonetheless be suited for other sorts of marketing. Reuben Steiger, the founder of Millions of Us, a marketing agency for social networks and virtual worlds, says that brands need to design “experiences” that use the social graph to engage groups of friends. If a wrestling association, say, wants to drum up ticket sales for an upcoming bout, it could build a widget that turns users into wrestlers and lets them fight bad guys and win gifts, while making them aware of the brand and the match.

But that possibility hardly justifies the sorts of valuations bandied around for Facebook and other social networks. Such valuations, indeed, may reflect a misunderstanding of the social graph. For bigger companies such as Google, the graph is simply the web of links among its many users. It can be used to make existing services more useful. But Google increasingly views such utilities as “features, not products,” says Sergey Brin, its co-founder. Facebook, like many hot start-ups in Silicon Valley, has some fantastic features, but maybe not much more.

Source:Economist.com


Will Google’s OpenSocial API Program Kill Ning?

November 2, 2007

By Stephen Wellman,

Google this week stormed into the social networking world and stole Facebook’s thunder with its new OpenSocial API program, an effort to create an open standard for creating and integrating applications into social networking platforms. While the rest of the blogosphere is pondering Facebook’s fate, I want to ask another question: Does OpenSocial spell the death of Ning?

For those of you who don’t know, Ning is startup that offers a platform designed to let users create and manage their own social networks. Ning has been around since 2004 and it has a list of big Silicon Valley boosters and investors, including Marc Andreessen of Netscape fame.

Ning is targeted at both consumers and businesses.Ning is trumpeting the OpenSocial platform and its participation in it. Ning’s leadership thinks that OpenSocial will allow Ning to explode (in a good way).

I am not as convinced that OpenSocial will be so good for Ning — or other social networking upstarts either. But for the sake of this post, I will focus on Ning.

Ning’s real value prop to date has been its ability to let users build fully custom, white-label social networks. While competitors like Facebook are aggregations of social networks (not just one social network), Ning’s advantage has been its ability to offer more user customization. Lots of different networks using the same platform behind the scenes vs. bunches of networks on the same interface.

Now, with the addition of Google’s OpenSocial APIs, Ning will offer the same kind of functionality as the rest of its rivals, including Facebook’s arch-nemesis MySpace. So if the entire social networking universe will soon offer integrated application functionality using the same standard (assuming Facebook signs on, which I think it will) what does Ning bring to the party?

Hear me out on this. I see how OpenSocial benefits MySpace. And I can see how Facebook might benefit from this too, despite all the naysayers who claim this move could kill Facebook. But, how does Ning really benefit from this?

As I see it, OpenSocial potentially gives Facebook and MySpace the ability to beat Ning at its own game. Assuming Facebook and MySpace integrate OpenSocial and these APIs give users the ability to create and integrate new kinds of applications and functionalities, why not give users the ability to create their own standalone networks in these respective platforms? Why not launch custom networks on both of these platforms and skip Ning all together?

As I see it, all Facebook, MySpace, Orkut, etc. have to do is add an additional level of interface customization and they can easily take Ning’s market right out from under it. Why use Ning when you could build a professional network for a large company on Facebook or a custom network for a movie or TV show on MySpace?

What do you think? Will OpenSocial spell the end of Ning?

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Facebook’s dilemma: To be OpenSocial or not to be

November 2, 2007

By Dan Farber

Facebook is now the lone wolf, the only major social network not to partake of Google’s OpenSocial APIs. This is understandable. A radical change of course is not easy to contemplate. Facebook is the social networking leader, not in raw numbers but in momentum, demographic goodness and potential. The company was greatly lauded for opening up its platform and social graph to empower developers with APIs and a markup language.

Now Facebook is facing the hordes, 200 million foot soldiers–members of competing social networks. Google, MySpace, Six Apart, Ning, Bebo, hi5 and other social networks are giddy with delight in that now, in the name of greater openness than Facebook and comparable functionality, they have a Trojan horse to stalk Facebook, which has been rapidly colonizing members across the globe.

Developers are obviously delighted because they can leverage their code across multiple social network “containers.” Users will far more utility as popular applications spread beyond Facebook, and more developers get into the game.

Facebook’s has some immediate challenges. From a press perspective, the company has not been very transparent regarding its thinking on OpenSocial.

Facebook’s official statement as of yesterday was:

Despite reports, Facebook has still not been briefed on OpenSocial. When we have had a chance to understand the technology, then Facebook will evaluate participation relative to the benefits to its 50 million users and 100,000 platform developers.

In fact, Facebook has been very much aware of OpenSocial within the last week and talking with Google’s OpenSocial team. Facebook team members attend last night’s Campfire 1, where OpenSocial was formally rolled out, but weren’t ready to talk to the press, somewhat like deer caught in the headlights.
In contrast, MySpace, which was going down a similar path to Facebook with its own APIs and markup language, found out about OpenSocial about 36 hours before it was launched, saw the light and created some compelling demos with Flixster. MySpace’s uphill battle to compete with Facebook for the most valued users just got much easier.

All of this is a clear sign the Facebook is carefully weighing its options, and unsure as to how to deal with the shifting landscape. This dilemma comes just after Facebook was celebrated for its $15 billion valuation and Microsoft alliance, a validation for 23-year-old CEO Mark Zuckerberg’s and Facebook’s crown as the new prince of Silicon Valley.

Facebook could continue to plow ahead with its own APIs and markup language, maintaining its walled garden approach.

Analytics firm Compete points out that Facebook attracts a different set of entrenched, core users than MySpace and other competitors. “It will be difficult for this group to leave, and questionable as to whether they would even want to,” said Compete’s Max Freiert.

Facebook members have strong loyalty to the service–50 pages per day per person on average, according to the company. That is a position of strength. Facebook has built a service that people are flocking to by the millions per month, growing users at more than 3 percent per week.

But a downside is that its competitors and developers will paint Facebook as a pariah hiding behind a walled garden.

This could impact how members of the community think about their social networking home base. The scenario would not be much different from a political campaign–one unintended, ill-timed scream and Facebook’s members could lose faith and move their support to another service, which have been newly empowered by the OpenSocial APIs.

It’s a tough choice for the young company. Funding is not an issue, but pride and doing the right thing for users are. Zuckerberg has said that not providing users with more control over their data on Facebook is a flaw in the service. That would indicate that more openness is good for users, and developers.

Bottom line, if the OpenSocial APIs give Facebook and its application developers what is needed to build great applications, then it seems like a no-brainer to grit their teeth, revamp the platform as needed and embrace the more open APIs.

This choice doesn’t mean that Facebook will end up with lowest common denominator or just me-too applications. The likely scenario is that social networks (the containers for applications) will develop extensions that leverage unique aspects of their platforms and provide some differentiation.

If Facebook has a significant competitive edge because of its pioneering development platform, then adopting OpenSocial makes less sense. And on a practical front, giving Google de facto control of the core APIs for user profiles, friends and activity streams will be a cause for discomfort. On the other hand, so far Google is taking input from partners (who are also competitors) as the API specs have evolved.

Anil Dash of Six Apart, a member of the OpenSocial fan club, sums up the bigger picture of what is going on:

It’s not true to say that Facebook is the new AOL, and it’s oversimplification to say that Facebook’s API is the new Blackbird, or the new Rainman. But Facebook is part of the web. Think of the web, of the Internet itself, as water. Proprietary platforms based on the web are ice cubes. They can, for a time, suspend themselves above the web at large. But over time, they only ever melt into the water. And maybe they make it better when they do.

For reference, Google and others have been chipping away at the proprietary Microsoft iceberg, but it is melting very slowly into the water and continues to mint money for itself and its ecosystem of developers.

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Take That, Facebook!

November 2, 2007

By Wendy Tanaka

Google got back at Facebook on Thursday, announcing that MySpace has joined the growing ranks of social networks that have committed to use its new platform for developers of applications for the sites.

The addition of the News Corp. social network heaps pressure on Facebook–which recently chose Microsoft over Google to be an equity holder in the company–to sign on to the new set of standards, dubbed OpenSocial. With MySpace, developers gain instant access to the world’s largest social network with 115 million users. Facebook, which rolled out its own developer platform last spring, has 51 million users, less than half of MySpace’s members.

At a press conference to announce the partnership, Google and MySpace executives declined to comment on whether Facebook will join OpenSocial. Vic Gundotra, vice president of engineering at Google, assured reporters gathered at the Internet giant’s Mountain View, Calif., headquarters that the company has reached out to every major social network. “We want to see it adopted by everyone,” he said. “We’re not announcing further partnerships now. We anticipate more momentum now.”

MySpace Chief Executive Chris DeWolfe is confident the new platform will “become the de facto standard” for application developers.

Google had been expected to officially announce the OpenSocial platform Thursday, but reports about it surfaced Wednesday.

OpenSocial will allow developers to build tiny applications that can be used across many social networks, boosting traffic and advertising on their sites. Google and MySpace said the main benefit of the platform to developers is that it standardizes how applications are created.

“Not rebuilding and rebuilding on different standards … will be great for developers and end users,” said DeWolfe, who took part in the press conference at Google’s Mountain View, Calif., headquarters. “One of the big trends on the Internet is that users want to consume content when they want it and how they want it.”

Google Chief Executive Eric Schmidt said Google and MySpace have been working together on the platform for more than a year. It had been rumored, however, that MySpace would launch its own developer platform.

Executives declined to comment on how all the companies that have said they will use the standards, which include Friendster, Hi5, LinkedIn and more than a dozen other social networks, will make money from the platform.

At the conference, Joe Kraus of Google’s JotSpot wiki product said applications embedded on MySpace Web pages, for example, will foster “more interaction on MySpace, which means more time spent on the site and more ad revenues.”

Questions about privacy were also raised. Joe Greenstein, chief executive of applications developer Flixster, another partner, said Google doesn’t have access to partners’ user data. “Google is spearheading the initiative, but Google doesn’t touch the data, doesn’t own it.”

Developers were expected to gather at the Googleplex on Thursday night to test their applications on Google’s Orkut social network.

Some of these developers might also be building applications for Facebook. But if Google’s platform is easy to use, these developers might be tempted to pour their hearts and energies into one platform more than another.

Mark Zuckerberg, are you paying attention?

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