I Don’t Agree with the Hog Pile on Facebook

There’s a growing trend in the media to attack facebook.  It started when their redesign got pretty bad reviews, continued when their CFO left, and now is gaining steam as mainstream outlets are questioning it’s core business proposition. There are three different things here and the media is pointing to them as an indication of Facebook’s failure.  I disagree.  Here’s why:

Product enhancements. One thing i’ve admired about Facebook is their ability to keep pushing their product forward.  They introduced a great photo experience before any of their competitors (and have grown to be #1 on the web).  Even as they were experience phenomenal growth (they hit 8 million student readers), they completely redid their home page when they introduced the News Feed.  While initially hated by their users (FB blog) and the media (Time article), it set the standard for how social networks should display user activity and is now seen as a stroke of genius.  And growth climbed even higher.  At 70 million users they then completely redid the profile page to be a feed-based page as this is the best way for users to continuously portray themselves (see Tumblr for an example).  This was hated at first too.  Now, they redone the Facebook Home page to better showcase conversations and user activity.  Is it like Twitter? Yes.  Is it hated by their users? Yes. But it is also an improvement.  More than any other company i know of, Facebook is constantly pushing to get better in all areas and doing it fearlessly.  Even if they misstep, I applaud them for it.  From my experience at AOL i’ve seen that when yoy have a large user base it’s very easy to become tentative and second-guess every move.  Not changing becomes the easiest path.  It also means you start dying.   This latest change is more an indication that they’re not dying but moving forward.

Valuation.  Facebook got an absurd $15 billion valuation from Microsoft when it sold them some equity.  That deal was more than just equity sales but it also solidified Microsoft’s relationship with them as their exclusive third-party ad provider (story).  That valuation has become a problem as every new raise that happens in the industry (Twitter,  FriendFeed) is evaluated against it.  Facebook is now raising at a more reasonable level at a $5 billion valuation.  I don’t think this is an indication of failure of FB but rather a reflection (a) that these raises are straight equity and not part of an ad sales agreement, and (b) the market is the worst it’s ever been.  I think it’s ridiculous to think that the environment is the same as it was in October 2007.

Business Model. The media talks about Facebook’s failure to make an ad business out of their inventory.   Time’s article this past week was called, “Facebook Takes a Dive: Why Social Networks Are Bad Businesses.” This is completely ridiculous.  First of all, MySpace is making money.  Let me repeat.  MySpace is making money.  They were bought by Fox for $580 million and they then immediately did a deal with Google to sell ads on their search page from 2006 to 2010 for $900 million dollars (details here).  That’s a quick profit of $320 million.  Everything else on top of that year-in and year-out seems to be gravy.  The article in Time continues to say:

What is true is that social network sites have had trouble making money. MySpace was supposed to be a big part of the revenue growth at News Corp. Wall St. thought Murdoch was a genius to buy it. Last year, News Corp had to admit that MySpace would not hit its revenue targets. That is usually not the hallmark of a property that is going to take over the Internet.  Analysts believe that MySpace rival Facebook had revenue of $265 million last year. That is astonishingly low for a company that had 57 million unique visitors in the U.S. last month. And, Facebook also has a very large international user base.

So let me get this straight, even though MySpace is profitable at $500-800 million dollars a year in revenues and even though it’s generated hundreds of millions of dollars for News Corp it’s a bad business becuase they missed their revenue target last year?  That is completely ridiculous.  Facebook is a differnt issue.  They have repeatedly said that they are deprioritizing ad revenue and instead focusing on growth and user engagement.  Since they started saying this (starting in late 2007), they have grown from 50 to 200 million users.  I’d say that’s pretty good execution.  Facebook makes about $275 million a year.  Could they make another 100-200 million if they started selling more ads on search pages and profile pages?  Absolutely.

All of these reasons above are why sensationalist articles discussing the demise of the social network drive me nuts.   Nobody knows what the future holds, but one thing that we can pretty much be sure of is that sites that have great user engagement and activity – and facebook has over 20 million users update their status at least once a day – will get the ad dollars.  Nick O’Neil has a good post on AllFacebook today on why he’s willing to pay a $34 CPM on facebook.  It’s not the silver bullet but it shows that there is a profitable end in sight for the company and it’s not necessarily the horrible business the media would like it to be.

AOL mail crushes Gmail

Not in terms of functionality or ease of use but check this out:

Yahoo dominates e-mail with 88.4 million users in the United States in August, according to comScore. That is far more than Microsoft’s Windows Live Hotmail at 45.2 million and AOL at 44.8 million, not to mention Gmail at 26.0 million.

When you look at how much time people spend reading their e-mail, Yahoo mail users spend the most time (286 minutes a month), Gmail users the least (82 minutes), with AOL and Microsoft in the middle (229 and 204 minutes, respectively).

Wow. As a Gmail-lover, i would have never thought that was the case. You read the whole article here.

Where’s Yahoo’s RSS Reader?

Isn’t Yahoo! supposed to compete with Google and other consumer properties? I mean, even AOL has an RSS reader (here). People are using RSS readers more and more and Google’s making it social. I now get feeds shared to me every day and they’re usually the most interesting ones. For instance the image below was from a post that was shared to me by Julian and i also think it does a good job representing Yahoo’s efforts in the Reader space. MyYahoo is so 90’s, get with the program Y!

What I Would do to Fix AOL

I saw the annoucement last week (and news stories) of the new AOL CEO, Randy Falco, and got to wondering, if I’m in charge of running AOL which is now in the business of monetizing traffic to AOL.com and other pages, how would i do it? A few thoughts came to mind….

First, i would buy the best, more user-friendly and one of hte most popular social networks around – Facebook. With facebook, you not only get a great social network, but you also get one of the best photo-sharing applications on the internet. Then i would merge it with AIM, change all AIM-pages to be facebook pages, and place the mini-feed on every users home AOL.com page. That would drive traffic. Granted, it would take a long time to get everything on the same platform (calendar, aim, mail, etc.) but facebook’s interface and features are much, much better than AOL’s. Everyone’s speculating about Yahoo buying facebook, why not AOL? AOL has just as much cash and just enough desire to monetize their traffic. It’s almost as if everyone assumes AOL is dying and isn’t going to invest in their future.

Buy Meebo
AIM is one of the most precious assets AOL has and it is being threatened by Meebo. I would buy it immediately and make all meebo-me widgets become AIM widgets and place them all over the web and inside the recently purchased AOL-facebook pages.

Streaming Music Locker
Subscription streaming. AOL should abandon the WMA format and go for only streaming. In an iPod world, the only way to play is to make your server compatible with iTunes and that means abandoning DRM and/or simply abandoning any local download. A service like last.fm + mp3tunes would go a long way.

Video
Go all-flash as DRM instead of Windows Media so mac users can play. Have it all hosted so you can access anywhere and watch anywhere.

Mail
Build, Buy or do whatever it takes to do a SERIOUS upgrade to your mail application. Mail is the largest driver of ad inventory and if you’re service is completely ad-based, this should be your #1 priority. It’s been over 2 years since Gmail launched, you would think someone at AOL would have noticed how to please mail users. Where is unlimited storage, where are ajax-features to reduce latency, where? AOL mail is by far the worst webmail application on the internet. It needs to be fixed.

Voice
AOL bought 3 voice companies between 2000 and 2003: eVoice, Quack, and another one from Canada (i’m forgetting the name). AOL made serious investment in voicemail, voice recognition and other voice services. From what i can tell, all that has been completely abandoned. I would restart this effort and do more click-to-talk services, similar to Google’s. However, all of AOL’s services are tied into mail and AIM making them more attractive. For instance, it would be easy to do click-to-talk and then save to mp3 which would be put into your music streaming locker.

These are just a few of the things i’d do. What do you all think? I think Randy’s in for a tough job and i’m not bullish on AOL’s chances. I think the most successful internet companies are run by those who understand the technology and can see the trends coming. Google embraces technology and let’s it unlock new opportunities and i don’t see somewhat who’s entire background is in TV and TV ad-sales pushing AOL into new models and opportunities. That’s just my initial reaction. Then again, Terry Semel’s done a good job at Yahoo, so who knows.

Beta – Is Nothing Finished?

As you cruise the Web2.0 aisle, you’ll see almost every site has a “beta” tag attached to it. For those of you who don’t know, “beta” is a label you put on a product before it’s ready for primetime, before you launch. Officially (and according to wikipedia),

the beta period is likely to be unstable but useful for internal demonstrations, but not yet ready for release.

Often this stage begins when the developers announce a feature freeze on the product, indicating that no more feature requirements will be accepted for this version of the product.

What gets me is that many public and totally usable sites still carry the Beta stamp. Look at AOL’s Video Product which has been in the news a bunch lately or or Yahoo’s Map service which has been working for over 9 months now (and i really like btw). Or also Google Video also has it although it serves tens of thousands of videos a day. These are not private releases to fix bugs, they are insecurity labels put on to products because the developers aren’t sure if they’ll break.

This completely annoys me. I want people to develop a site until it’s worthy for people to use and then put it out. If it is available for anyone to use – it’s ready. Call it version 1.0. People know what 1.0 means, it means the first iteration. As you fix it and add features, you can go to 1.2, 1.5, 2.0, whatever. But keeping a product in perpetual beta mode is just wrong – have the balls to actually take the training wheels off and see if you can ride.

Not Everyone Sucks

There are some sites that are clever and smart. For example:

1. Writely. They have the best system i’ve seen. At the top right side of their page they have a “beta meter” where users can vote whether their service is stable enough to come out of beta. That’s a great idea. It’s the users who you’re trying to please and if they deem the service solid, then it probably is. This is a company that Google bought earlier this year to build their Google Suite that i’ve speculated about for many a moon.

2. Flickr. Instead of being another copycat beta or even alpha – they actually went one more level to the third letter in the alphabet to Gamma. I like it and it goes with their playful nature of the entire site. I totally respect how they do their own thing. Kudos.

Subscription Music Breakdown

In the past few months, i've had quite a few questions about what "subscription" music is. This is my attempt to explain it.

Napster, Rhapsody, MusicNow, MTV, and Yahoo! all offer services where you can get unlimited music for about $10 a month. The one caveat is that the tracks you download with these services are all "rented" – meaning that as soon as you stop paying for them, you can no longer play them. The way this works is that each file requires a license to play. When you download a track you get both the file and the license. For a track to play in a player the license must be valid. Whichever service you use, they automatically renew all licenses every 30 days. If you're no longer a subscriber, the license doesn't get renewed and the files don't play. Another company, EMusic, is a little different – you get 40 downloads of mp3's for $10 bucks a month. While you don't get as many files, you get them in mp3 format and can keep them forever – you truly own them.

Why it hasn't worked? This model hasn't worked for two BIG reasons:

• Can't find enough music to satisfy $10 a month. What do you want for your birthday? Tell me now. It's hard isn't it. Everybody knows they want something for their birthday, but when they have to think about it NOW, it's tough. It is the same with subscription music. Everybody knows they like a bunch of music and want to download it, but when you're at the front page of Napster, it is hard to remember what you want. Trust me, i've done countless focus groups – this is a big problem. If you can find what you want to download, you don't download and the value of an unlimited download service lessens.
• iPods and iTunes. iPods are not only pretty to look at, with the iTunes player, they are insanely easy to use. As a device, they are so much easier to use than other subscription compatible devices. Using them, users don't have to ever worry about licenses and they don't have to worry about other media players or connections or anything. An ipod works with – and ONLY with – iTunes which means that it is designed to be simple. Microsoft is a platform company. They make platforms that any vendor can use to sell devices or services. Which is great, but it means that both the devices and the WindowsMedia format itself is going to be much, much more complex – and unfortunately for them, it shows. Until that extra functionality MS allows is really useful, it's only a hindrance.

Will subscription ever be a good way to get new tunes? I believe it will. It is very easy to create music now, and the amount of music being created is only going to keep growing. There is a need for people to find and explore the expanding universe of music. Once there are better searching techniques, I believe the utility of subscription music will rise.

Ian Rodgers, who works at Yahoo Music provided (in this podcast) a great way to think about the advantages of subscription music. It went something like this….

users care about 2 things regarding music: playing music and owning music. If you want to own music, you're best bet is to purchase the CD. You get the music in a lossless format which can be burned into any format at any bitrate indefinitely and also receive associated images, liner notes, etc. If you want to play music, your best option is a subscription platform which allows you to play as much as possible for pretty cheap.

I like that thought, but that doesn't account for iPods, nor the convenience of purchasing only a track vs. an entire album.

That's the theory – what do you think?

A funny sidenote that i like. WMA files (non iTunes) are protected by a technology called in the industry Janus, and by marketers "Plays for Sure." Check out a past blog post of mine which describes why this is a clever reference to a muppet.

Gmail Chat Is Awesome

I think this flew under the radar for a few days for me before i fully appreciated how great a move this is for Google. I figure it will take about 6 months or 1 year before there’s an article in Time/Newsweek/Fortune about how great Google is for things like this (and maps, search, etc). First off, after search, Gmail is the only real application that i really like from Google.* It’s a great application – they really thought through how people use email and introduced some very nice features that i hadn’t seen on webmail services before, such as 1) threaded email messages – which appear that way in your inbox, 2) labels instead of folder – others still haven’t caught on to the subtle difference, 3) unlimited storage, 4) Unlimited session time – no need to sign in every 20 minutes.

The last point, which i always took for granted, is the key to their new Google Chat. I didn’t know the power until they started building for a me a buddy list on my left-hand side. Then i started receiving IM’s from them (Google IM’s, that is). Whoa!
I’ve been using AIM for a decade now and although other IM clients are far superior, i didn’t think i’d see anyone overtaking it because of the network effect. What i didn’t realize is that Google is doing the smart thing by leveraging the fact that there’s a huge user base logged into Google all the time. Why not convert GMail into an IM client? AIM is adding on email.

Think how many companies could have done this before? Outlook knows everyone’s email. It could have built a buddylist in the side and allowed you to IM (using MSN Messenger technology) anyone in your address book who is also using Outlook or using MSN. That would have been huge.

My prediction is that Google Chat/Talk will become the #2 IM Network in 2 years. AIM will hang on b/c it has all the youngsters already.

* Note: I have a bias against Maps because of my past relationship with Keyhole (which Google bought to make Google Maps).

AOL’s State of the Union

Time Warner just announced their quarterly numbers. Although TW profits went up, AOL subscribers continue to drop down to 19 million. Just a few years ago they were over 35 million and now they’ve shed around 16 MILLION members. Why is this? Could it be that all the areas they were once dominant in they are now not even second tier? In this new world of social media and collective intelligence AOL is nowhere to be found. As a former employee (2000-2004) at both AOLTW Corporate and AOL Broadband i’ve seen some things. Here’s my take:

• Social Networking & Blogging. Currently being dominated by MySpace, thefacebook, and others such as Friendster, yahoo 360, etc.. AOL plans to launch something with AIM soon (AIMspace), but i’d say they are about 3 years too late. Why would anyone switch from MySpace to AIM? Tied in closely with this is blogging. So many people, novices and professionals are looking for a place to put their thoughts, rants, and memories. So, while Google is buying Blogger and Yahoo is partnering with Moveable Type, AOL is sticking with their AOL Journals which is very limited in custimization, doesn’t have RSS, and can’t be hosted. I think they either need to get serious or get kill it.
• Music Services. There are several viable music services out there. For the moment, let’s ignore the fact that everyone and their mother is using iTunes. What else is there? There are music subscription services such as Rhapsody, Yahoo Music, Napster, MusicNet, and eMusic (description of each below). AOL has rested on MusicNet for the past 4 years and last year bought up MusicNow for around $10 million. They had roughly 250k-300k MusicNet subs and i doubt they have anything close to that with MusicNow. At least with MusicNow they are building in community features (i think with MusicStrands), but does it tie into the AIM social network – doubtful. Does it tie in to AIM? Probably not. Is it featured on AOL anywhere? No, not really. When you’re this far behind, the best thing you can do is call in the community. This is what Yahoo’s done with the YME. They know they’re behind in terms of features and functionality, so they made a robust plug-in architecture so the rest of the world can help them catch up. This is why i think Yahoo will be the biggest player after Apple.
  • Rhapsody has been around the longest, is the most web-based and gotten in bed with MS. They have some interesting radio features but for the most part is somewhat klunky. It will be interesting to see what happens with this once MS gets their paws all over it. Supposedly, all MSN music will be powered by Rhapsody.
  • Yahoo Music (with Yahoo Music Unlimited) is slick. As i mentioned above, iIt has some great API’s and ties in well with Y! Messenger. The subscription service is cheap ($60 a year). Unfortunately it has very little subs, but that could change if the WMA issue gets better.
  • Napster is getting better and better, but still has relatively few social aspects. It has a good library and great branding but not much else.
  • eMusic is differentiated with an mp3 library. It’s not all-you-can-eat but it is ipod-compatible which makes a HUGE difference in this world 45 million iPods. They don’t have any mainstream artists but have almost all the indie artists.
  • MusicNet has the largest subscription library but it is simply a fulfillment engine. It powers services such as Virgin, Cdigix, and even Yahoo!. But there is no community here.
• Advertising. This is when i realized that AOL will always be the JV squad in the internet game. Yahoo was serious about music and went out and bought MusicMatch for $500 million in 2003 and Launch Music (good article) for $12 million in 2001. AOL waited 4 more years then invested $10 million for a MusicNow library. Then advertising emerged as a viable and powerful revenue stream, Yahoo! spent 1.6 billion on Overture and AOL spent a few hundred million on Advertising.com – forever relegating them to minor league ball. Not that they’re doing incredibly poorly, but will they approach anything like Google’s Adsense? The old AOL would have bought whoever it needed to stay on top.
• Mail. AOL’s golden nugget is the screenname. Users won’t switch because they don’t want to lose their email address and they pay $24 bucks a month for it. Meanwhile Gmail comes out with (basically) unlimited storage – for FREE. Then Yahoo and Hotmail counter with equal storage. Gmail and Yahoo continue to make their services better and better with slick javascript (gmail is the AJAX gold standard) and the new Yahoo Mail Beta is supposedly amazing. What is AOL doing? They make mail the most click-intensive application ever. You need 3 seperate windows to just send a message. And to make it even worse, your mail still expires after 28 days. Wtf? When will they wake up and realize that on a scale of 1-10, AOL is batting about a 3. Let’s break mail down even more:
  • Authentication. AOL requires you to sign on each time you come to it’s site. Sounds reasonable. However if you go to check your mail multiple times a day, it gets annoying. Neither Yahoo nor Gmail makes you do that. Even if you check “remember me” – it doesn’t.
  • Session Time. Gmail lets you stay signed in all day (and actually b/c of this launched a slick app – check out my future post). AOL signs you out after 15-20 minutes. Why are they making it such a pain to read your mail? Should services try to delight the customer?
  • Inbox. Time to bring in some AJAX. The interface is slow and ugly.
  • Integration with other services. No AIM, no real precense, no easy to access address, nothing.
• Video. This is one space where AOL is doing ok. If you look at the types of video becoming available on the web from amateur (caught-on-tape) on one end to amateur narrative films (iFilm) in the middle to professional content on the other end. AOL is focussing directly on the far end of professional content only. They have deals with many major players to stream the video (NFL, CNN, E!, NBA, WB, etc.) however they make it hard to find the video or to use it anywhere outside of AOL. Their new hi-Q initiative using Kontiki is very interesting because it downloads and dramatically improves up the quality of the video, but the there isn’t much content available in Hi-Q yet – it’s currently only trailers and music videos. My question is where’s the focus on short video clips? There’s an explosion of content coming from short clips such as SNL’s Lazy Sunday that is being distributed through YouTube, Veoh, and now MySpace. This is where the eyeballs are. This is what users are passing around and looking for on the internet. However, AOL is focused on bring TV to the small internet screen. IP might be a delivery mechanism for that someday, but eventually it’ll be viewed on a big screen. I’m much more optimistic about Tivo/Netflix or MS Media Center applications. They have made some big investments in video search. But i don’t know any users to use video search. Basically there are only a few players that host a lot of video (YouTube, Google, and iTunes) and users go to them and search. If something isn’t there, they’ll check one of the others.
• Instant Messaging. AOL just released Triton, a much needed upgrade over the AIM application that hadn’t been changed for over 4 years. It is still cluttered with Ads, doesn’t integrate blogs or music. Also, check this out: there’s an AOL address book, but now there’s also an AIM address book (powered by Plaxo). And, to make their AOL Mail even more insignificant, there’s now AIM mail which is the exact same thing, but for free. How could you not expect users to be confused when you can’t even integrate AIM with AOL? I’ve started using Yahoo Messenger lately and found it to be just as full featured but with less bugs and easier to use. Google Talk is simplier and easier to use too. Obviously all the users are on AIM so that’s going to be the dominant player for years to come, but it’s horrible how they’ve failed to extend the AIM platform – no API’s, no major improvements, and increasing more cluttered with shameful attempts to suck cash out of it (games, voice, ads, etc.)

This is a long synopsis of a large multi-faceted company but it pains me to see how each step of the way they continue to build creative and useful applications to benefit their members.

Thoughts?