Minority Rapport

Facebook is stickier than email

In 1999, three portals – Yahoo, Lycos and Excite – dominated. Today, one stands. What saved Yahoo? Yahoo Mail. How? Mail is sticky like your phone number: you rarely change it. Abandoning your email is like you skipping town and not telling your friends. Of all yahoo.com visitors, 50%+ use mail.yahoo.com. You check email everyday. Yahoo pulls you to its other services.

How is Facebook stickier than email? Facebook is email, plus more (a lot more). You use Facebook to send friends messages. Facebook Inbox will become your spam-free email – only Facebook can do it because all your friends are on it. You trust it with your personal information, photos and friends. You use your real name and connect with friends doing the same thing (unlike MySpace). Abandoning Facebook is like you flattening your house, burning your photos, changing your name, skipping town and not telling your friends. Yes, Facebook is that useful. (Facebook users, anyone disagree?) That's why 50%+ users return daily. Facebook's network effects make it impossible to duplicate their network. Facebook is the phone number you will never change. Facebook is built to last more than anyone. Now, which do you think is stickier?

Which is more dynamic, Facebook or Google?

It's Facebook. Why? With a community of 20 million+ real friends (and growing fast), anything is possible (yes, anything). Google does a great job in search. It facilitates you getting to where you want to go. But what can you do with real friends you cannot do with a search engine? Yahoo Answers is a start – Facebook can do it better on a larger scale. Want "social search"? Facebook can do it, no one else can. Facebook will be able to do everything a search engine can do plus a lot more. Best of all, everybody wins: you get what you want, when you want. Facebook will be the next great facilitator, and more dynamic.

Facebook is better than MySpace

Surprisingly, PC World left Facebook people off their list of top 50 most influential people on the web. Last summer, Business 2.0 left Facebook off their list of influencers. This reminds me that, amazingly, Facebook still flies under the radar of industry observers. (Remember, of course, that Facebook is a top 10 website in traffic!) Over time, the company will get the recognition it deserves. Of course, its 20 million members are well aware of the utility of Facebook, but the mass media is not. If you were not in college when Facebook was around, but you want to understand its influence, go live in a dorm on any college campus. Sit in the library and popular hang outs. Facebook is everywhere. Facebook is an essential communication tool, social facilitator and utility for college students. If you can’t do that, go invite all your friends to join – the more you have, the more it will become a daily source of information for you.

Facebook’s utility puts it in a class of its own – MySpace is not in that class. Facebook’s privacy options enable users to share only what they want to share. Facebook is the biggest photo site on the internet and has achieved that because friends share photos with friends they otherwise would not share with anyone else. Facebook users are comfortable with sharing in the Facebook environment. In contrast, MySpace has to deal with friend, comment and messaging spam – as a result, MySpacers are restricting their profiles to just their friends. Even with that privacy, MySpace does not and will not have the same structural advantages as Facebook. Facebook does it by community and enables finer tuning. At best, MySpace users are a mish-mash of no privacy and some privacy, but no consistency. From the perspective of sustainability, Facebook is built to last because it enables real life interactions. MySpace is built to die because it enables irrelevant, non-friend communications that empirically kill online communities. MySpace has an edge on Yahoo Finance – notoriously a source of spam – in terms of longevity of quality content, but that’s nothing to hang your hat on.

It is too late for MySpace to change. Any adjustments they make now will only patch underlying competitive disadvantages to Facebook. Facebook, in the long run, is the only network that matters. Beyond that, Facebook can build useful tools MySpace simply cannot – that is a topic for future posts.

Online video grows explosively, but faces two key challenges

These days, it seems every VC is investing in online video services. The focus is on user-generated content and how to capture the power of users providing their own entertainment. The main problems are two-fold: much of the content submitted is owned by someone else and a dominant business model has yet to be established. Let's explore.

Recently, Knowledge@Wharton posted a story titled "The Rise of the 'Videonet'" about the push for online video, and discussed the buzz at the Supernova conference, which was co-hosted by Wharton West. There is certainly a lot of excitement, and I don't think many people dispute the fact online video is here to stay. To paraphrase Warren Buffett, the main challenge in returning value to investors is not in predicting macro trends, but identifying specific companies that have sustainable competitive advantages. Investing in yet another video website may not be the path to delivering long-term value.

Consider the competitive position of video websites. Many rely on their users to submit content, so they can't upset them too much by using noisy ads. Given the space is flush with cash, many video websites have refrained from including ads in videos. Of course, online video leader YouTube burns millions of dollars a month playing billions of videos that don't include video ads, but what do they care when Sequoia is footing the bill?

Of course, at some point they need to figure out a business model. Even with 43% market share of visits, MySpace is right behind with 24%, and MySpace benefits from a base of 80 million plus users. So what happens if YouTube includes ads and MySpace doesn't? Do you see a migration of users from YouTube to MySpace? Probably. So YouTube isn't ready to risk it quite yet.

It's in the best interests of copyright holders for YouTube and MySpace video to become really popular. Why? For starters, the most widely discussed reason is because viral videos actually drum up more interest in their shows that are on real TV, increasing ratings and driving higher DVD sales. But consider the nightmare scenario for copyright owners. If they sued YouTube out of existence, where would people choose to get their copyrighted content? Conditions would be ripe for ever more copyrighted material to flow through P2P. Copyright holders can negotiate with leading platforms for online video, but not with millions of people on an ungoverned P2P network. Thus, copyright holders want (or at least they should want) people to learn to use platforms like YouTube (or governed P2P networks like veoh, for that matter).

Given the push by VCs to invest in online video services, it's interesting we are not seeing more models like TurnHere. TurnHere is making 25,000 videos this year about specific locations (such as Los Angeles, New York and San Francisco), which are mostly of interest to travelers. Given this focus on function, these videos have clear paths to monetization, and that is already happening. Plus there's no ambiguity about copyright ownership. TurnHere outsources video production to pro filmmakers for $500 per video, and in exchange TurnHere fully owns that content.

TurnHere's growing library of videos coupled with its ever strengthening relationship with filmmakers are two points of differentiation more distinct than what you could say about many online video services (mostly YouTube clones). Of course, in theory no two works are really the same in content. The advantage for TurnHere is they are getting videos creating before a dominant business model is established. A dominant model would probably attract more VC investment and drive up the cost of making the videos. After all, there are only so many pro filmmakers out there, and TurnHere's filmmaker network already includes 2,000 of them.

In summary, the online video space holds a lot of promise, and I think people are right in saying we will see a lot more videos throughout all areas of the internet, not just on user-generated content websites like YouTube. That said, the real question is about business model. For now, a proven ad model for online video websites has not been established, and even when that does happen, copyright holders could still step in and demand significant compensation. Not owning the content certainly leaves a significant amount of leverage in the hands of copyright owners. But of course given sustained critical mass for one video service, it could actually hold enough leverage to keep copyright holders in check. That said, it will be interesting to see if more investment is directed towards models like TurnHere.

You can read more about my thoughts on TurnHere and listen to a podcast I had with TurnHere's founder & CEO Brad Inman by clicking here.

Market share chart and lists courtesy of HitWise. You can read more about the data here.

Note: I also posted this entry on the Wharton Tech Club blog.

 

Launch to watch: SecondSpace.com

Last week, I spoke with Anil Pereira, the founder & CEO  of SecondSpace, which is a service that “connects consumers with the services that help them get the most from their free time." The purpose of the service can be contrasted with many new web services that focus on creating more things for users to do while online. He expects the service will roll-out in November. An "anchor tenant" has already been signed that will immediately add significant value to users on the website. He described the tenant as a major company located on the west coast. I don't know what SecondSpace does exactly, but I know Anil and his team are top-notch. Anil's work experience includes making a big impact at American Express, Verisign and Classmates.com. I am very much looking forward to launch. You can sign up on secondspace.com to get notified when they go live.

Brad Inman & TurnHere.com's online video model could be a real winner

This week, I had a discussion with TurnHere.com's founder and CEO Brad Inman, who was CEO of HomeGain.com until recently when it was sold. You can listen to the podcast by clicking here (MP3, 13.9MB, 15 minutes) or clicking below. TurnHere.com is a website that pays professional filmmakers to make shorts about specific geographic areas and posts them on TurnHere.com categorized by location or distributes through its partners. The company pays about $500 per video and anticipates creating 25,000 videos in the first year. Clearly, this is quite an undertaking.

Inman is a visionary. While VCs are pumping in millions of dollars for many "me-too" video sharing websites to compete with leader YouTube, Inman is pursuing a completely different direction. And there are some clear advantages. For example, Inman maintains strict quality controls to ensure the videos are actually worth watching. This contrasts with the throw-it-against-the-wall-and-see-what-sticks model adopted by YouTube.

Even still, Inman is thankful that YouTube is contributing significantly to the development of online video, and in turn building film making talent by catalyzing a new generation of young filmmakers. TurnHere benefits by adding those filmmakers to its network to create films for TurnHere.

Their network is currently 2,000 filmmakers strong. TurnHere treats the filmmakers well by providing them with regular work, room to exercise their creativity and competitive pay. Really this is a win-win situation: the filmmakers get to do what they love, and Inman is building a business. Plus, TurnHere is building relationships with filmmakers before anyone else, which could serve as a competitive advantage over new entrants.

The full fruits of amassing a library of thousands of videos will not be apparent overnight, but they will ripen over time. For now, TurnHere is doing revenue-sharing deals with a range of websites. TurnHere videos are uniquely well-suited to travel websites because the videos focus on specific locales.

Of all commerce categories online, travel is one of the most profitable, which bodes well for developing revenue models for TurnHere. Think about it from the perspective of someone looking to go on vacation somewhere in the world. What's more compelling, reading reviews on CitySearch about a destination, or watching a high-quality film about it? The answer is clear.

The bottom line here is that the TurnHere model is worth watching because they are building a 100% TurnHere-owned library of interesting and useful content tied to travel, a valuable online category. VCs have to ask themselves this question: rather than spend $20 million in another video sharing website to cover huge bandwidth costs and fight an uphill battle against YouTube, why not just invest that in 40,000 high quality videos in a proven money-making category (such as travel) that has both immediate and significant potential revenue models? TurnHere has not taken on investors yet, but may do so to scale the business.


TurnHere podcast questions:

1. What is TurnHere.com and what is the reason you started it? (0:21)
2. How do you identify the filmmakers you want, how do you compensate them, and what is your process for assigning films to make? (1:24)
3. Do ideas for filming come from the top down? You talked about distribution deals you do. Do film ideas filter through those partners depending on the interests of the partners? (3:05)
4. What sort of websites are you looking to get distribution with in addition to the TurnHere.com website?(4:32)
5. How big is your filmmaker network? (5:48)
6. It seems like there's a lot of interest from other websites to license your content. What is your revenue model there? (6:35)
7. As you look at this business built on the network of filmmakers, how do you think about the freshness of these videos over time? (7:25)
8. At 25,000 videos being filmed this year, that seems like quite an investment. (Note: it's about $500 per video). Do you have or have you been seeking investors? (7:53)
9. Thinking about TurnHere's business model, it sounds like you are really treating your filmmakers well, so they will in turn treat you well. In terms of other entrants into this space, you are building a relationship that can last. Is that a fair characterization of your approach? (8:14)
10. As the technology to make films has become cheaper, I can imagine there could be a lot of film submissions. How do you do quality control? (9:10)
11. Can you talk about the differences between you and video sharing websites like YouTube? Obviously websites like YouTube don't have the quality standards you have, but they do have a lot of features that drive viral spread. (10:07)
12. What are the demographics of the people who watch your videos? My guess is it is a sophisticated crowd and mostly travel-oriented. (11:50)
13. Where do you see TurnHere a year from now or as the business develops? (14:03)

Guruza aims to differentiate amongst ranks of expert Q&A services

Guruza is an expert question and answer service focusing on technical questions. I recently spoke with their co-founders Rich Collins and Adam Thorsen. You can listen to the podcast by clicking here (MP3, 4.9MB, 17 minutes). Guruza joins a host of other services that are attempting to do a similar thing. The main difference is that Guruza provides presence information about its experts so you can engage in instant messaging conversations rather than significant delays associated with many answer websites. Guruza was featured on TechCrunch recently.

The service is definitely in its early stages with about 250 questions posted. It is nevertheless interesting to look at services that are trying to establish themselves as being different in a market with so many competitors. The bottom line is that it is very challenging to differentiate in a way that will provide lasting competitive edges.

Guruza podcast questions:

1. What is Guruza and where do you want to take it? (0:15)
2. You talk about catering to experts. Can you tell us how you serve experts better than anyone else? (1:28)
3. How do you get enough quality questions onto the site with enough people willing to pay money, especially given Google's and Yahoo's answer services? (2:34)
4. So you offer experts the opportunity to make money. Can you speak to the competitive position of Guruza given services like eLance on one end where some people post questions in addition to big projects? (4:18)
5. How many questions do you have posted? (5:36)
6. Historically speaking, there have been a lot of expert question sites that have popped up and disappeared. What were the key mistakes they made? (8:01)
7. A key competitive advantage you have mentioned is your service offering presence. In terms of experts being available, are many experts on your site available at any given time? (9:48)
8. What has been your thinking about human behavior with respect to experts answering questions on the site that do not take long to answer where they may not be an opportunity for a relationship to develop? (10:48)
9. What are some examples of typical questions you expect to find on Guruza? (12:28)
10. Where do you guys see Guruza a year from now? (15:04)

RSS reader Feeds2.com uses personalization to solve problem of "information overload"

This past week I spoke with Dr. Nicholas Ampazis, founder & CEO of Feeds 2 and parent company GTP Solutions of Athens, Greece. You can listen to the podcast by clicking here (MP3, 12.7MB, 14 minutes) or clicking below.

Feeds 2 is a free RSS aggregator that utilizes advanced personalization technologies to introduce you to news you will find most interesting. The website is easy to use and truly addresses the problem of "information overload." That is, there are now so many blogs talking about similar issues that it is important to identify the articles most relevant to you.

One feature enables you to visualize the connections between links in articles, as well as easily navigate to the stories in question. This helps understand connections between stories as they developed and make sense of commentary that is spread across multiple blog posts on multiple blogs.

Feeds 2 is currently seeking venture funding. Its founder told me they are looking for about $1 million and he will be in the United States sometime in the next month. A spart of its business model, Feeds 2 wants to develop an enterprise solution to deliver personalized feeds to executives.

To find out more about Feeds 2, check out their demos.

There is clearly room for improvements in blog readers to enable people to get to the content they need faster and better. In terms of sustainable competitive advantage, it is too early to tell which personalization engine will stake a firm claim.

Feeds 2 podcast questions:

1. What is Feeds 2? (0:20)
2. What makes you unique to other personalization engines, such as Findory? (1:28)
3. What do you consider to be the best part of Feeds 2? (2:20)
4. How does the personalization engine work? (3:39)
5. What is the extent of your intellectual property? What do you holds patents for? (4:47)
6. Who do you consider to be your closest competitors? (5:25)
7. What do you think of Microsoft's introduction of RSS to IE 7.0? How does that fit into the picture? (5:56)
8. There has been lot of criticism about "web 2.0" services not being designed for mainstream usage. How did you think about that in crafting Feeds 2? (6:50)
9. How are you or do you plan to promote Feeds 2? (7:52)
10. How do you see Feeds 2 working as an enterprise solution? (8:44)
11. Do you have venture financing? (9:32)
12. How much funding are you seeking to meet your business needs? (10:11)
13. What is the business model for Feeds 2? (10:56)
14. With enterprises, what kind of pricing model would you use? (11:40)
15. It seems Feeds 2 is addressing information overload. Do you have some more thoughts on how you think about solving information overload, and perhaps you can speak to feedback from your users with respect to the effectiveness of personalization? (12:03)

BillMonk creates "social money" category, enables bill tracking for friends

This week I spoke with BillMonk cofounders Gaurav Oberoi and Chuck Groom. You can download the podcast by clicking here (MP3, 16.6MB, 18 minutes) clicking below. BillMonk is a free, "social money" web service to keep track of bills amongst friends. The friends focus is an important differentiator from other services.

BillMonk plans to add bill paying functionality onto the website, which will add a revenue source for the company. BillMonk has viral functionality naturally built-in by not requiring your debtors be registered users in order to be added as owing you money. All you need is their email address.

BillMonk's approach is pretty natural in that it is built to help friends sort out debts amongst friends in a simple way. Reminders of debts can be sent to friends automatically, in turn causing the bill to be paid without straining relationships by playing debt collector and friend at the same time.

As Chuck points out on the podcast, BillMonk could be particularly useful for college students who are frugal and particularly need to keep track of expenses. Gaurav pointed out that BillMonk is also good for large bills like vacations where there are several people who attend and there needs to be an easier way to share expenses in a transparent way.

By the end of the month, they expect 10,000 users and are growing at 7% per month. It will be interesting to see how BillMonk approaches building a "moat" around the business. PayPal could, for example, offer a service like BillMonk and can already offer credit card processing. However, PayPal has competitive pressures of its own from Google Checkout, so BillMonk may have an opportunity to operate without direct competition from PayPal.

BillMonk podcast questions:

1. What is BillMonk? (0:15)
2. How did BillMonk get started, and how are you getting so much press? (1:09)
3. Who do you consider to be your competitors? Have you looked at raising money to compete? (4:25)
4. What do you think about swapping/barter websites? (5:47)
5. In terms of user behavior, how natural is it for people to write down small debts and post it on the BillMonk website? (7:40)
6. Clearly, both of you are very commited to BillMonk. When did you reach the point of great commitment? What is the business model? (12:00)
7. How many users do you have? And how fast are you growing? (14:40)
8. I read on your blog that when you went on a roadtrip down to Google, you talked then about your "20-year plan." Can you elaborate on that?

Digg's circular community building model attracts automobile website

I spoke with AutoSpies.com founder Donald Buffamanti and their VP of Technology Chip Grueter about their site's launch of digg-like functionality, which garnered attention from Pete Cashmore and alarm::clock. You can download the podcast by clicking here (MP3, 13.5MB, 15 minutes) or click below to listen.

This move is interesting because it comes at about the same time Digg launched their 3.0 version expanding into new categories. Digg has already shown it has grabbed significant share of the "user content generating" crowd in the technology category, and now they want to grab more.

In terms of a business model, the Digg-like functionality offers AutoSpies an opportunity to tap into a "virtuous cycle of goodness" that Digg's model has proven to create. For Digg, cycle starts with stories submitted by users being clicked on by visitors, visitors go to those websites, those websites link to Digg stories, Digg story links build up link-love, link-love gives digg higher search engine rankings, high rankings drive more traffic, and that starts the process all over again.

Of course, there are a few other factors that play a role, but in short, Digg is built to benefit from Google's PageRank algorithm and benefit from more search-driven traffic. This was acknowledged by Digg founder Kevin Rose recently on TechCrunch when he said that a story about Paris Hilton's car crash was one of the top results on Google the day after the car accident, which led to a huge amount of traffic to Digg.

In terms of revenue model, Digg has not exactly figured out what they are going to do. For AutoSpies.com, they already use "ContentLink " in their stories and have other revenue streams. The point here is that AutoSpies is pursuing a hybrid model that drives users to content AutoSpies puts online. AutoSpies could post content sponsored by companies, which would be valuable for exposure.

AutoSpies' structure, if successful, could offer it more flexibility in pursuing a variety of business models because, unlike Digg, there is already an expectation that original content authored and editorialized by AutoSpies will be posted in addition to the Digg-like functionality.

That said, it is possible the Digg focus on strictly user-driven news could be a key component of its success, but that remains to be seen. For now, AutoSpies is very happy about the attention and growth they have seen. Since the Digg-like functionality was launched, their traffic has increased three-fold.