Ryan @ Social Networking

Leave it to ol’ Rupert. News Corp. will apparently start charging for their online content soon in an effort to fix the “malfunctioning” model that media companies have thus far used on the web. Read the story here.

To justify the move, he sites the success that the Wall Street Journal has had in charging for their articles. However, I think he is overlooking a key fact. The audience for Wall Street Journal articles is highly different than the audience for general news and culture articles. I always balk when a news site asks me to pay to view an article, and I think it’s typical of the bulk of internet users. If I stumble upon a news story, whether from searching on Google, Wikipedia, or whatever, I’m really not in the mindset of, “I want this story. I’m willing to pay $$ for it.” I’m really in the mode of, “Let me find out whatever I can about this subject from wherever I can get it. For free.”

In a certain context, I might be willing to shell out a few cents for a story. If I am particularly interested in a specific subject, and I’m turned onto a particular article by a reference (friend, professor, blog, etc.), then I might be willing to pay a small charge, iTunes-style.

And maybe the story would be different if newspapers had always charged for content. But to go from a decade and a half of free information flow to tight subscription-based fees just gives me a bad gut feeling. I mean, when evaluating what to charge for a product, it is a basic accounting principle that you should not consider your own costs, but rather what the market is willing to pay. And it might be that the internet culture is just no longer willing to pay for news stories, in which case it is News Corp. that needs the structural change, not their pricing scheme.

I’m betting Murdoch will find some way to make it work, so we’ll see.

Jeremiah Owyang recently released his study of 24 of the leading social networking companies. His conclusion, in short, is that there are 5 eras of the social web, some already at maturity, some not even skimming the surface. Below is a link to the original article, a summary, and a 7 minute video interview with Owyang.

Owyang Article

CRM Summary

He has some really interesting points. He first defines the era of “social relationships” (i.e. Facebook and Myspace) that is already at maturity. The next level is “social functionality”, of which an example is the Facebook application platform — social networks will begin to provide real functionality on top of the social network. The era of “social colonization” implies that the barriers of the social networks begin to break down, and social networking just becomes part of the entire web experience. “Social context” means that your personal identity becomes your gateway to the web — sites and marketers begin to identify you personally, and you receive a customized web experience in return. Finally, the “social commerce” era is the most foreign-sounding to me. Owyang says that “online groups supplant brands” and that, essentially, online groups begin to drive product innovation and product development efforts.

It’s a cool article. You should check it out for yourself.

I found an intersting article that anlyzed Twitter usage stats, eMarketer. The article points to a slightly unsettling figure — Twitter’s one month abandonment rate is 60%. With that kind of turnover, it is unsure whether Twitter can actually last. Even though the service is growing at a staggering rate, this high level of abondonment means that those early adopters are tiring of the service quickly.

The article points to another pecuiliar fact — Twitter’s largest user group is 45-54 year olds, rather than the traditional 18-24 year olds that internet social networking services typically target. This might be because companies have begun using the service as a communication and marketing tool, but it also has other implications for Twitter’s appeal.

Will Twitter last? “Only time will tell…”

From Time Warner Cable’s website:

“Consumption Based Billing allows customers to choose among usage-based tiers of Internet service.  It’s a common method for Internet service in Canada, the United Kingdom and elsewhere, and it’s also being tested by other broadband providers in the US.”

As of April 16th, TWC announced that it will alter plans to implement consumption based billing (CBB), and has shelved the trials while the “customer education process continues.” Even so, TWC “still believes that Consumption Based Billing is the right way to fairly charge our customers.”

Almost everyone I talk to is at least slightly irked (if not outraged) at the notion that internet usage will become a pay-per-usage service. But why? Almost every similar service has used this model since the dawn of time. Take cell phone providers for example. Since the inception of cell phones, carriers have charged their customers based on minutes of talk time, and no one really complained. Take the example of text messaging specifically. Carriers charge for text messaging by the message, and have in fact steadily increasedthe price they charge per method (from $0.10 to $0.20). More recently, carriers have offered an “unlimited” messaging plan targeted at heavy texters for $20 per month ($15 from T-Mobile). And there was no public outrage. Even though text messaging costs the carriers $0.00 per message (technically, text messages travel as meta-data along existing infrastructure, and relay no extra cost whether no messages or sent or 2.5 trillion messages are sent), the public was fine with paying $20 per month for use of the service. In fact, according to TechCrunch, AT&T charges its customers $1,310.72 per megabyte of text message date. Let that sink in.

Why, then, is there such an outrage over the CBB plans of TWC and other major broadband providers? Most of the sentiment stems from the fact that cable companies like TWC often have a monopoly on broadband access in certain areas. This means that customers really don’t have a choice whether to use TWC or a competitor. Therefore, in essence, TWC’s charging for extra broadband unfairly leverages a monopoly position to capture market share for their other services. Consider a sample scenario: a broadband-happy consumer chooses to user services such as YouTube, Netflix (online streaming), and Hulu to consume TV and cinema entertainment. Of course he pays his fixed monthly fee to TWC for broadband internet access. Enter CBB. Now he has to pay between $6 and $15 for every gigabyte he downloads over his tier. Decision time: should he continue using services like Netflix and Hulu, or should he instead use similar (competing) services offered by TWC that will notcount against his bandwidth limit? Thus, TWC has used its monopoly position to foster unfair trade practices, and that’s the FCC’s beef.

Lately, and after the guest speakers from Moximity on Thursday, I can’t help but address this gut feeling I’ve got. All they hype around Web 2.0 and social networking simply cannot sustain itself. With 2.0 companies like Moximity popping up every few days, it has to end sometime, right?

Turns out, it’s a common concern.

Web 2.0 Bubble Crash in 2008 (9/30/08)

$1 Billion for Facebook? LOL! (9/28/06 - a little dated)

Bubble 2.0: Are we about to witness another technology crash? (05/29/08)

Social Networking; Bubble or Banakable? (06/11/08)

Silicon Valley Start-Ups Awash in Dollars, Again (10/17/07)

Is the Online Ad Industry Partying Like It’s 1999? (10/07/07)

Tech Bubble #2: To Burst, Or Not To Burst? (10/17/07)

The Casino Economy (10/17/07)

..and so on and so forth. It seems like the hype about “Bubble 2.0″ is rivaling Web 2.0 hype itself. And yet more companies startup, and more VC money is doled out.

For me, the ultimate example of this particular situation would have to be Twitter. Starking similarities can be found between Twitter and the overvalued Web 1.0 companies that drove the crash. First, membership. With over 5.5 million users, Twitter certainly has a user base, which is obviously the driving force behind the recent $250 million valuation. However, many of these users (about 80%) don’t use the service via twitter.com, and opt to instead use widgets or mobile phones. So, not only is Twitter’s valuation hinging solely on its massive user base, but that user base’s eyeballs do not even land on Twitter’s own website. The logic used here is beyond my understanding. Honestly, Twitter seems to fit in the category of non-profit service better than in the same one as Facebook or MySpace.

And Twitter, by any means, is not the only one. Facebook itself, having been valued at $15 billion (really?!) has yet to prove it can even make a reasonable profit. Yet funds are still gushing from VCs. Companies like Moximity (which, in reality, is simply a meta-service that relies on users’ use of other services–Facebook–to itself be valuable) seem to have planted their flags in the mud, where no valuation is solid. Even though their business plan may be solid, the framework on which it is built is not, and we may be due for a mudslide.

Real value, as opposed to monetary value, means value derived from humanitarian or societal benefits. We talk a lot in the business school, and in this class, about monetary and corporate value. Social networks are just breaching the market in terms of monetary value. And with more legitimacy (derived from incresed adoption as well as more measurement tools), the adoption rate will surely begin to increase. But I want to use this blog post to make comments about the real value of social networks and Web 2.0 technology. Clay Shirky touches on this topic several times throughout his book, Here Comes Everybody.

“One might choose to bemoan the triviality of the culture of the developed world for using flash mobs for amusement and distraction rather than for political engagement. This judgment is accurate enough, but only because it is a restatement of the original observation, that people with more at stake are making more of these tools. Why? Social tools create what economists would call a positive supply-side shock to the amount of freedom in the world. The old dictum that freedom of the press exists only for those who own a press points to the significance of the change. To speak online is to publish, and to publish online is to connect with others. With the arrival of globally accessible publishing, freedom of speech is now freedom of the press, and freedom of the press is freedom of assembly. Naturally, the changes occasioned by new sources of freedom are most significant in less free environments. Whenever you improve a group’s ability to communicate internally, you change the things it is capable of. What the group does with that power is a separate question.”

I am currently in a sociology class on globalization. In this class, we read a lot of material on global organizations, IGOs and NGOs, such as the UN and IMF. In some of the material we’re reading, the authors outline the world in terms of two competing entities — the “neoliberal globalizers” and the “democratic globalizers.” To summarize this concept, neoliberals constitute national governments, transnational corporations, big media, etc — i.e. The Man; Democratic globalizers, on the other hand, are a rag-tag bunch of humanitarian-focused NGOs and activist groups focused mainly on human rights and equality issues. The authors of these texts make an interesting point — that international organizations (IGOs and NGOs) serve as the only real place where conversation and debate about international issues can truly take place. The only problem, as the authors point out, is that these organizations are often dominated by the neoliberal globalizers. Democratic globalizers are forced to meet outside the lines, and as a result get less attention globally.

There’s only one problem with this model as it stands — most of these texts were written prior to 2002. Enter Web 2.0, and fast-forward seven years. There has since been a boon to the communication and organizational capabilities of individuals around the world, including the democratic globalizers. I’m no sociologist, but I think the previous world order is going in for some alterations. In reality, it will probably not be substantial at first, but ten years down the road, I’m betting that these tools, fueled by increasingly widespread internet access, will have proved a crucial tool in changing the world.

And this is where the real value lies. Sure, marketers in the developed world will squable over whether to sink $500,000 into Zwinktopia or Facebook, but that’s all trivial in the big picture. I think that when we’re talking about value in social networking (and Web 2.0 tools in general), we must consider the global context in which this revolution is happening.

I recently read an article from Time magazine, How to Save Your Newspaper. It is written by a self-declared “print junkie,” Walter Isaacson, in defense of traditional print media. Citing the rise of free internet-based publications as well as the free offerings of otherwise pay publications, he calls the current model “economically self-defeating.”

During the rise of the internet, traditional media outlets felt compelled to offer their publications for free in order to compete. In the heyday of web advertising, this economic model worked. Publications like the New York Times could let readers access articles for free while reaping huge advertising revenues. However, as advertising profitablity steadily decreased, newspapers found themselves in trouble. The rise of both personal and professional blogs introduced increased competition, and as a result, even further decreases in advertising revenue.

Today, though, newspapers have more readers than ever. The problem is that those readers produce practically no revenue in exchange for providing these readers with professional reporting. On the internet, the assumption is that information is meant to be free. It’s a value that is at the heart of much of the internet from blogs to interactive forums to wikis. However, it’s a value that is set to kill off professional publications.

The debate is whether this is a good or bad thing. In the book, “Here Comes Everybody,” Shirky outlines a comparison between the internet vs. professional publications battle and the movable type vs. scribes battle. However, I believe there is a fundamental difference between these two information revolutions. In the case of scribes, the value they produced was pure reproduction. It was a basic copy and paste job (to simplify). But in the case of professional reporting publications, value is found in investigating and reporting information.

While it is true that free professional blogs provide similar services, it is not quite the same. Professional publications employ professional reporters. The publications, in turn, empower reporters by paying to fly them around the world or by providing a staff of investigators to enrich a story. But all these things could, in theory, be replicated by a free ad-supported blog (but that point could be argued).

Professional publications have one more value-add that free blogs, wikis, and forums lack — trust. I’ve never read a story in the New York Times and wondered, “are these facts true?” The simple fact that these are established publications written by professional reporters equates to a level of trustworthiness not equaled by other blogs.

Isaacson believes that the public should pay iTunes-style for professional news articles. He suggests a $0.05 or $0.10 charge for reading a single article, or a slightly larger fee for buying a fully daily edition. He posits these charges as necessary to salvage the art of professional reporting.

In theory, this payment scheme could work. I’m not sure what the backlash will be — charging for what used to be free may cause a small uproar (and surely a tidal wave in the blogosphere). One thing is for certain - professional publications must change something, or they will be no more.

In class this week we heard Jeff Dachis speak. His new company (to be named?) aims to consult businesses on implementing and fully leveraging social networking technologies.

I think it is absolutely true that social networking will be the next revolution in business. That being said, I would like to play devil’s advocate. I think there are a few particularly challenging issues that Mr. Dachis’ company will have to address when pushing social networking on businesses.

First, just as with the internet revolution a decade ago, the business value is still murky. Sure, buzz words are fun for the whole family, but in order for widespread adoption to take place, real value has to be found. On Thursday, Mr. Dachis sort of skirted around the questions about concrete value in social networking. I understand it’s difficult to quantify the value a company receives from employees communicating, but some sort of metrics have to be found before social networking as a product will move from the early adopters to the business bandwagon.

Second, I’m not sure I can locate immense business benefits myself. It was mentioned in “Here Comes Everybody” that even though blogs and forums abound on the internet, the ratio of contributers (bloggers, forum posters, etc.) to users (passive readers) is still incredibly small. To me, this means that even if social networking is introduced in company of 10,000 employees, only a small percentage will actually participate.

Mr. Dachis mentioned that companies might have to change incentives to encourage employee participation. In my opinion, this approach–that companies will have to force employees to use social networking technologies in order to justify the cost–destroys a core principle of social networking: the desire to participate. Humans are social beings, but that’s not to say that we’ll gobble up any possible social interaction that is thrust at us.

Third, US culture is built on individualism. As a result, many companies lack the social cohesion necessary to house a thriving social network. I think that in eastern cultures such as Japan, social networks for business make much more sense.

Fourth, there is a risk of oversaturation. For every social network an individual joins, his contribution to all his other social networks decreases (participation per network = time/social networks).

All these objections aside, I still have a gut feeling (maybe just hope) that social networking will sweep US businesses in the coming years. Here’s to hoping Mr. Dachis can pull it off.

As a component of a technology-centric business education, I think social networks are critical—just as general knowledge of the web was critical a decade ago. Since, the Internet has become so pervasive, that an introductory course on its inner workings is almost redundant. I think it is clear that in a few years time, social networking technology will be in a similar position.

Already, students and young professionals have become so familiar with this Web 2.0 revolution, that in a few years a company that doesn’t leverage social networking capabilities will be as hard to find as a company without a website today.

This class, then, should provide a great foundation for leveraging social networks in my business career. There are a number of things that I hope to learn from this course. For one, a better understanding of the technology that supports social networking, and where that technology might be headed in the future. Also, the current and developing capabilities of social networking sites/software. But probably most importantly, I hope to learn how businesses can leverage social networking to produce a tangible competitive advantage.