SocNet Ads Less Effective than Other Web Types

US online consumers who use social networking services (SNS) such as MySpace and FaceBook are less receptive to SNS ads overall, click less on SNS ads (57%) than they do on other forms of web advertising (79%), and make fewer purchases as a result, according to a study from IDC.

The research reveals that social network users use SNS often and for long periods of time during each visit. More than three quarters of SNS users visit at least once a week, and no less than 57% visit at least once a day. During each session, 61% of SNS users spend at least 30 minutes on the respective site or stay logged in permanently, and 38% spend at least one full hour per session (or stayed logged in).

However, this intense engagement with SNS does not translate well into advertising engagement because viewing ads is not one of consumers’ primary motivations for visiting SNS, the study found.

Advertising as it exists on social networks is an odd creature; network-owners try to capitalize on the vast amounts of traffic coming across their pages by slapping on a few contextual ad units or banner ad units from a major provider. The advertisements are really somewhat out of place, and let me explain why. There are two groups of people who buy things online:

• Seekers - Seekers make up the bulk of all online shoppers; they have a specific problem or need that they want to resolve, so they seek out a solution through a service like Google or Amazon. These people are the primary targets of SEM and contextual advertising campaigns. SEM units like AdWords snag seekers right there on the search results page itself, and contextual units like AdSense offer solutions after a seeker has landed onto a non-search engine website (this is often called “the second click.”)
• Opportunists - Opportunists are casual browsers who aren’t actively looking to purchase anything, but some advertisement catches their eye and they start thinking about the product or service advertised and eventually make a purchase. In the online world they typically make a purchase on-the-spot if the opportunity is large enough, or they at least keep the opportunity in mind for when they might need it in the future. This is how traditional banner advertising works, where there is no engine that serves up ads intelligently. Instead they rely on having a large reach (audience) and hope to capture a small number  of opportunists.

Based on the above descriptions it’s obvious to determine what audience social networks are targeting: opportunists. Hardly anybody goes onto a social network in search of a solution; they go there to engage with other members of their network. Going after opportunists alone is a disastrous strategy - the collapse of the first .com bubble was largely a result of advertisers being able to actually measure their online advertising spend accurately, something that was much more infeasible in the offline world, and determine that the leading monetization model at the time, Banner Ad Model, was not generating enough real sales to merit investing in it any further.

Many major publishers who were dependent on Banner Ad revenue were unable to make it once advertisers began pulling out, and thus we saw the .com implosion of 2001. There were obviously other factors that helped contribute to the .com collapse, but the failure of a major monetization model was certainly a large part of it.

Repeating History

Here in 2008 it looks like social networks haven’t really learned their lesson - we’re back to what is essentially Banner Ad 2.0, where advertisers are, once again, dolling out large sums of cash to reach an enormous audience with few people who are actually listening. And like with the first .com bubble, these social networks run with large overhead costs fueled mostly by investor dollars with scant revenue to show for it. Some companies, namely FaceBook, have made strides to try to inject their advertisements into the social activity of its members, but that hasn’t made much of an impact, as this report indicates.

This has me wondering - is advertising a doomed monetization strategy for social networks? Are they simply repeating history?

Please leave a comment with your thoughts.

The answer: companies who leverage the member-to-member aspect of social networks outperform companies who try to use social networking technology in a website-to-member fashion.

A more succinct way of putting this is “content dumping onto social networks doesn’t work; enabling your customers to interact with each other through a branded web service does.”

This is what I said in my original post about monetizing Facebook applications: apps that make it are ones that add new dimensions to the interpersonal experience of Facebook.

Jeremiah’s post points out some companies who get web 2.0 and some who don’t, and I thought his examples were actually pretty good case studies in themselves. I actually liked his post so much that I might throw down some cash to buy his company’s report on the subject.

If any of you have some examples of good or terrible marketing on social networks then please leave them in the comments; I’d really like to take a look at some more of the bad ones, although we could all learn a lot more from one or two good ones.

If you want to use your own company as an example, you have my blessing: please promote yourself.

A few weeks ago one of my college friends installed an application which spammed my feed every day for three days until he uninstalled it - he didn’t even know that it was contacting me.

Recently though, something more disturbing has been getting spammed at me via my Facebook account, and I’m not talking about the massive Facebook Inbox spam from events and groups that I’m not even a part of - no, I’m talking about full-fledged “male enhancement” spam. Take a look at this:

ok guys heres the update on the man enlarger pills that mike and his bro have been taking, you know the ones i told you about that actually worked for both of them and they have been the hottest thing since sliced bread with all the girls around town? well they have been getting them from [SPAMMER URL] and if you read the site carefully like i did, they actually have a 100 percent money back guarentee, that if it does not work fully on any man, you get every penny you paid back, including the shipping. with an offer like that and the proof i seen for my own eyes with mike, his bro and a certain someone else, i am convinced enough to order 6 months worth for you know who. this is not a joke, go see them at [SPAMMER URL]

I deleted the post from my wall, naturally, but I saved the message in its entirety. This was posted on my wall by a friend and he’s someone that I know wouldn’t send out this kind of crap. I assumed that the posting on my wall was the result of some sort of unethical Facebook application, even though that I was pretty sure that Facebook’s REST API doesn’t allow any applications to interact with users’ walls.

However, a couple of days later I received another Facebook spam message, advertising something totally different - I left that post sitting on my wall but my friend went and deleted it later. As it turns out, his account was hacked and someone used it to spam their wares using poorly written English.

I guess this is a sign that you’ve made it big on the Internet - when spammers are lined up in front of the gates waiting for an opportunity to capitalize on any weakness, even a handful of users, and try to leverage them to get some traffic for their wares.

Honestly though, how different are unsolicited wall spam messages from the unsolicited Facebook News Feed advertisements that Facebook sells? Is “official” spam somehow better than unofficial spam?

A few weeks ago I received a friend request on StumbleUpon from a dude named Andy MacDonald who runs an SEO/Meta-Blog called Swift Media UK.

The day after I accepted his friend request I received a Stumble from Andy, asking me to read over one of his new blog articles about “engaging your readers” or something. My first response to stranger who starts sending me stumbles to their own site is usually to remove them from my friends list.

In this instance I decided that it might be fun to see if he’d give a piece of my content a Stumble, mostly to see how he responds to his own medicine.

Sure enough, I got a Stumble back. Within a few days, I got another Stumble request. I haven’t Stumbled any of Andy’s pages since, and I’ve actually got a bit of a back-up going on my StumbleBar (pictured below:)

All of those are from Andy; those requests have all come over the past week and a half.

So here’s my question; isn’t what Andy’s doing, adding people as friends and flinging off Stumble requests, fundamentally wrong? Isn’t the entire point of StumbleUpon to share interesting content with your friends, not to promote your own content using strangers?*

And what if Andy and I sent each other Stumble requests on a regular basis for the sake of helping each other acquire more traffic? Wouldn’t this be an instance of reciprocal stumbling, which is against the StumbleUpon Terms of Service?

My Burning Question

The reason I even bother writing this post, is because it looks like whatever Andy’s doing: it works.

He’s got a great amount of traffic, comments, and hell, he’s even doing some guest blogging for Blogging Tips.

So here’s my burning question: should everyone get into the act? Should I start telling my corporate clients to friend people with interests that fall into my client’s business domains and start firing off Stumble requests? Will that help bring in traffic? Engaged readers?

What do you think? Is everything that Andy’s doing fine? Does it work?

Update:

Here are a few responses from readers.

From Tom’s Tech Blog: Dishonest Traffic Boosting

From System Zero: Should You Stumble Yourself?

*Disclosure: I’ve sent Stumble requests to some of my friends before when I thought that they would be legitimately interested in what I had to say, but I don’t do it often.I haven’t even used the service much in 2008.

*Disclosure: I’ve outright tried this practice before, with people who I thought might be interested in the content, and felt guilty doing it, hence why I’m surprised when other bloggers don’t feel some shame when doing it.

del.icio.us Tags: StumbleUpon,Social Media,Self Promotion

A couple of months ago when Google purchased Jaiku for $30m I confided the following to one of my schoolmates who interned for a high-profile I-Bank in New York:

To be honest, this acquisition seems outright stupid to me; Google could develop its own service for less than that, plus the service doesn’t seem particularly capable of being monetized to begin with.

To which he replied:

It’s Google, man. You’ve got to think that those people know what the hell they’re doing; they wouldn’t be growing so damn fast if they weren’t.

I think my friend is wrong; I think Google has become too comfortable, too complacent with its growth rate and its cash flow, and the Microsoft/Yahoo acquisition talks have brought out the worst in Google.

I’m going to go over 3 moves by Google that make me wonder if Eric Schmidt needs to be put on Ritalin, and I’m going to go over them in from the most recent moves to the oldest.

Google Reports Low Q407 Figures as a Result of Social Networks, Contemplates Purchasing Weakling Social Network for $1.5b in Wake of Microsoft/Yahoo Acquisition

TechCrunch just ran an article a few hours ago about Google or MySpace possibly purchasing social networking weakling Bebo for between $1b and $1.5b; nothing is confirmed yet but the possibility of Google acquiring another social network for over a billion dollars was enough to convince me to sit down and write this article.

First, let me rule out the possibility of MySpace (News Corp) buying out Bebo for $1b. Rupert Murdoch simply doesn’t have any capital left in the coffers to finance another major acquisition; he did, after all, just shell out a mountain of cash for the Wall Street Journal a few months ago. Do rumor mongers forget stuff like this?

Second, if Google really is considering this, expect their stock to drop by a few dollars per share tomorrow; most Google shareholders are feeling shaky enough in the wake of the Microsoft/Yahoo acquisition, and the proposed acquisition of a sketchy startup, a social network no less, will only convince people to keep selling those shares.

I don’t mean to bash the good people at Bebo, but Bebo is not a good product, and it’s not going to help Google jump-start its social networks. Orkut is pretty useless unless you speak Portuguese.

In addition, how in the hell can anyone at Google think this is a good idea, given that social networks are the cause of their slide in Q407 profits? Here’s the comment I left on TechCrunch:

I assume this is a joke.

If not, what a great way for Google to ruin it’s public image even more.

1. Hey, social networks are to blame for our drag in Q407 earnings
2. Hey, Microsoft is buying out our biggest competitor in online advertising and paid search
3. HEY, I’VE GOT A GREAT IDEA: BUY A WEAKLING SOCIAL NETWORK AT A PREMIUM!!!!!

FAIL.

If this is Google acting on impulse, is it just trying to do anything to get the attention away from their Q4 slide and the likely increase in competition for paid search / contextual advertising revenue? If this rumor turns out to be true, and I doubt it will be, then I guarantee you I won’t be the only one writing about Google acting impulsively.

Microsoft Moves to Buy Out Yahoo; Google Responds by Tarnishing its Public Image and Investor Confidence

Let’s say you’re Eric Schmidt.

You’re in the driver’s seat of a company that owns 75% of all online paid search/contextual advertising revenue.

Your stock price is falling as a result of a number of factors: a weak Q407 report, fears of slowing growth, and perhaps shareholders just feel that the stock can’t go any higher than $700/share.

Your market share is still increasing.

And then suddenly, the #3 player in your domain, generally considered to have a somewhat dubious track record, makes an announcement to acquire the #2 player, a falling star, at a premium high enough to empty the deep pockets of the #3 player.

What do you do?

1. Hold a press conference welcoming the challenge, demonstrating your confidence in your product and your momentum?
2. Nothing.
3. Have a nameless lawyer/VP write a desperate blog entry condoning the acquisition as "anti-competitive" and accusing the #3 player of "inappropriate and illegal" conduct?

As you can guess, Eric Schmidt picked option #3. Oops.

Google’s reaction has caused even some of the biggest Google cheerleaders to go "huh? This David-and-Goliath diatribe doesn’t work when you own almost all of the marketshare in your business."

It’s almost as though Google doesn’t have a strategy for competing with Microsoft; Google wants to keep being Google without having to respond to changes in the competitive environment. For a company that self-righteously touts its "don’t be evil" moniker so often, this seems pretty damn "evil" to me.

While Microsoft may be doing a magnificent job trying to block Google’s DoubleClick acquisition in Europe, at least they have a legitimate concern, given that DoubleClick is one of the largest players in online advertising second to Google. Google’s reaction to the Yahoo! takeover comes off as petty, immature, and worst of all, anti-competitive.

There are a lot of people out there, vocal ones at that, who are cheering Microsoft on over Google; I could have not have imagined that happening two years ago.

In order for this kind of dramatic shift in public sentiment to occur a lot people must now perceive Google as a giant that threatens competition, and Google’s pedantic reaction to Microsoft’s acquisition attempt has confirmed that perception for a large audience.

This is the price Google pays for reacting impulsively, without appropriate prior self-inspection, and without regard for the reality of their own business domain.

Facebook Catches Google By Surprise with F8; Google Scrambles with Yet-to-Be Completed OpenSocial API

Although Facebook’s future looks a bit uncertain with that -$150 million dollar cash flow projected for 2008 (ouch,) you have to give Zuckerberg credit for absolutely blind-siding Google with his brilliant F8 platform.

F8 was announced in the late Spring of 2007 and took off with a totally unprecedented rate of adoption among developers; I myself, who had never used any sort of Web 2.0 API before, was intrigued enough to give Facebook Application Development a go.

At a Facebook Developer’s Garage in San Diego, Rodney Rumford of FaceReviews told me that somewhere between $900m and $1b dollars were actively being invested into Facebook Application Development, and that was in mid-August. I don’t know if those figures are true or not but that’s the point; the point is the that the amount of attention, dollars, and developer hours spent on developing Facebook applications have propelled Facebook into the stratosphere of social networking buzz, and dollars.

Google, who is aggressively pursuing online real-estate to help them monetize the "second click" in addition to the first, scrambled to respond; after all, Google, an innovative company in their own right, is trying to move into the social networking space. They needed to get some traction and they needed it immediately.

Their solution was to form an alliance with all other networks not included in the F8 platform and launch the OpenSocial platform, pitting the might of Google against the buzz of Facebook.

However, Google OpenSocial has been an epic failure for the following reasons:

• OpenSocial was announced in November, (actually, late October) nearly 6 months after the launch of F8. Many developers who were interested in building applications for social networks had already committed to F8 by then, myself among them.
• OpenSocial hasn’t even got off of the ground yet. I’ve been hearing "launch imminent, look out F8" for three months with nothing substantive to show for it, other than some lame social graph application built by Plaxo.
• The entire OpenSocial concept made Google look like a bully, for one thing, and it also made it clear that Facebook is the thought leader in 3rd party integration.

Google, for all of its resources, didn’t anticipate or plan ahead for the popularity of Web 2.0 APIs until it was too late, and it impulsively set out to try and crush Google with a half-baked API/Alliance that is so far behind in production that I actually question whether or not OpenSocial is still relevant.

While I’m Drinking the Google Hatorade, I’d Also Like to Thank Google Desktop for Corrupting WSOCK32.DLL and Wasting 5 Hours of My Paid Consulting Time

I was up until 4:00am last night getting all of my week’s remaining schoolwork out of the way so I would have a nice 5 hour block of consulting time to distribute among my clients today; that was until Google Desktop corrupted the DLL necessary for me to connect to the Internet!

Google Desktop came pre-packaged on my Dell XPS M1330, and the widget bar was cool to begin with, until it randomly stopped working about 8 weeks into the laptop’s life. Last night it randomly started working again, that is until I unplugged my network cable so I could move my computer away from my desk.

All of the sudden, BAM! The Google Desktop process kicked an error, then WSOCK32.DLL kicked an error, and then every other thread depending upon the network (including remote error reporting, funnily enough) kicked an error asking me "what in the hell happened to WSOCK32.DLL!?!?"

Those five hours I set aside today were spent using Vista’s restore features (System Restore doesn’t do much for corrupted files and broken configurations) to fix my laptop and restore its network connectivity. In addition when I uninstalled Google Desktop and the Skype Plug-in that I had for it, my Skype installation got corrupted. Looks like Google needs to hire someone who can write an installer worth a damn.

To Google: I expect a full press release on the Google Blog explaining why this issue I experienced with your product is Microsoft’s fault, and I expect it soon.

It’s not often that I get to mention WoW in the subjects that I blog about on AjaxNinja, but this article practically wrote itself the moment I saw the AddOn Studio for World of Warcraft on CodePlex.

What is an addon for World of Warcraft?

If you haven’t heard of Blizzard’s smash-hit MMORPG World of Warcraft, then you’ve probably been living in a cave for the past several years. There are World of Warcraft commercials featuring William Shatner and Mr. T all over television and not to mention an entire Southpark episode ("Make Love, Not Warcraft") dedicated to the game. WoW is one of the most popular video games on Earth, and by far the most popular MMO on the market.

The World of Warcraft API is a set of functions, provided by Blizzard, that allow you to interact and modify the World of Warcraft game through the use of addons and macros. (WoWWiki)

Users develop macros and addons to automate monotonous tasks, customize the heads-up-displays, or to add additional functionality that isn’t included in the default game. I use TitanPanel to help provide me with in-game coordinates and Auctioneer to help me data-mine all of the auction houses in order to determine what the most appropriate rates for selling items to other players.

What is AddOn Studio for World of Warcraft?

AddOn Studio for World of Warcraft is an extension for Visual Studio 2008 (requires .NET 3.5) and it was developed by the Visual Studio Extensibility (VSX) Team. It offers a number of standard Visual Studio features for WoW AddOn development, such as:

• Visual Design Surface
• Lua Code Editor
• FrameXML IntelliSense
• Auto-Generate Table of Contents
• Auto-Generate Lua Events

As a long-time Visual Studio user I can tell you that IntelliSense and the Visual Design Surface are invaluable production tools; the drag and drop features of the VDS expedite GUI design significantly and IntelliSense saves developers on a  look of "look-up time," time you’d normally use to look up function names and parameter lists in a reference guide if you didn’t have IntelliSense.

In short, AddOn Studio for World of Warcraft brings all of the power of Visual Studio to WOW developers.

Why is this Good for Visual Studio and World of Warcraft?

AddOn Studio for World of Warcraft is good for WoW players obvious reasons; anyone who’s interested in making his or her own addon for World of Warcraft now has an intuitive, free tool for developing addons. Free? That’s right, AddOn Studio for World of Warcraft works for any of the Visual Studio Express 2008 editions, which are free editions of Microsoft’s Visual Studio IDEs. To clarify, this Visual Studio Extension will not work with Visual Studio 2005.

In short, WOW players who didn’t want to develop WOW addons due to the complexity of them now have a tool that makes the process much simpler, so ultimately there may be more addons, which means a better playing experience for a lot of WOW Players.

Now, the benefits for Microsoft and MSDN are much more interesting; by giving WOW addon developers access to a powerful, free tool, Microsoft can potentially attract a number of passionate developers (which any addon developer is) to Microsoft’s tool set, and eventually the .NET framework. In a sense, Microsoft can essentially establish some "Microsoft Brand Loyalty" among WOW players as a result of this contribution to the WOW community.

Maybe I’ll develop an addon, but I had probably ought to level my rogue to 70 first!

The biggest story in online business for 2007 was (arguably) Facebook’s rise to power and the onslaught of relentless hype & buzz after the announcement of the F8 platform. I have blogged many of my thoughts about proper approaches to monetizing Facebook applications I haven’t yet discussed Facebook’s "grand strategy" to produce some profit in 2008.

Some aspects of Facebook’s current monetization strategy are relatively harmless (gifts, sponsored polls), but Facebook’s newest initiatives (Beacon) have forced writers and bloggers alike to question the integrity of Zuckerberg and his executives.

Facebook’s Current Revenue Sources

A quick look at some of Facebook’s current sources of revenue:

• Facebook Gifts ($1 per transaction; millions of gifts have been sold)
• Facebook banner ads served by Microsoft (sports abysmally low click-through rates; I’d imagine that the Targeted Ads aren’t much better);
• Premiere Sponsored Ads and Sponsored Groups (ads & groups purchased for large fees that are supplanted onto the tops of many users’ news feeds);
• Facebook targeted advertising (ads created by Facebook users with specific demographic targets; used for marketing Facebook Pages); and
• Facebook Beacon (reports Facebook users’ transactions on external partner sites in their mini-feeds).

I may be forgetting some sources, so please complain at me in the comments along with a link if I’m wrong.

How Facebook Utilizes their Users in the Course of Earning Revenue

Source: Facebook Blog

I think we can all agree that Facebook Gifts are absolutely harmless, simply because it’s a transaction conducted between two Facebook friends who already have some sort of established relationship; the user buying the gift gets to select the gift to his or her liking and the user receiving the gift can choose to hide it from their profile.

Facebook Gifts are really a "transaction fee" charged to the gift giver, and the cost to earn the $1 revenue for Facebook is negligible.

Facebook’s banner ads have been around for some time now; the only time they seem to get any attention is when Microsoft dumps millions of investment dollars in exchange for guaranteed advertising contracts with Facebook. These ads are served via a standard contextual advertising engine, which lexically parses the content of the pages its being served on in order to determine the most appropriate advertisements for those pages. The banner ads served are usually broadly targeted at Facebook’s audience, given that all Microsoft has to go off of are the frequency of terms that appear on Facebook pages.

While these banner advertisements may be annoying, they do not compromise the privacy of Facebook’s users as Microsoft’s contextual advertising engine is not actually "aware" of any users; it’s only aware of the frequency of keywords.

Facebook Sponsored Ads, Sponsored Groups, Sponsored Polls, and Targeted Ads are different animals. Sponsors have the option of being able to pick out specific demographics within Facebook in order to make their sponsored groups, ads, and polls more effective. While these ads may not be a red-flag privacy violation given that they don’t explicitly sell your data to advertisers, they do present some other privacy concerns.

For instance, let’s take a look at my original Facebook account, which I guarantee you is older that most of yours. I signed up for Facebook originally in the fall of 2004, when I was entering Vanderbilt University as a freshman. Facebook was first starting to get popular among college students. That’s right, I’m a member of the original "Facebook Freshman Class."

When I signed up for that Facebook account back in 2004, did I give Facebook my consent to:

• Data mine my information in order to serve appropriate advertisements;
• Data mine my entire class’ information in bulk and resell it to marketers for the purpose of determining generation-wide trends;
• Collect external information about me from across the Internet, such as college newspaper articles and AIM away messages (which it no longer collects); or
• solicit me with polls based upon my demographic data?

The answer to all of those questions is a resounding "no."

Facebook Beacon is an even grosser violation of user privacy, as many bloggers have pointed out. Not only did Facebook mislead its advertising partners about the opt-in/opt-out nature of the Beacon service, but it never even bothered to acquire the consent of its users.

The Problem with Monetizing Social Networks After the Fact…

While the targeted ads can be considered a privacy violation, as I have made the case for, Beacon, as it was originally launched, constituted a gross violation of user privacy because it reported your activity from other services that users weren’t necessarily aware of. Facebook did give users the ability to opt-out on individual items, but presented no global opt-out option, initially.*

The basic problem with Beacon is that it took control out of the hands of its users, or at least made it difficult for users to control the distribution of personal information about them.

The advertising industry is moving from canvassing a passive audience, i.e. TV and print media advertising, to personalized active advertising where potential consumers are presented with ads targeted to their tastes. While many of those ads are still served passively on websites, many ads are served actively by explicitly contacting consumers with offers.

It can be argued that personalized ads are more "effective" to both consumers and advertisers in that it reduces dollars spent on broad canvassing and helps consumers discover goods and services that are tailored to their tastes, it can also be argued that the data-gathering techniques employed to help target those ads appropriately presents a serious privacy concern.

The fundamental issue of the privacy is to be able to control the flow of one’s personal information; when services gather or sell your personal data without a proper disclosure or without acquiring a user’s explicit consent, these "unauthorized disclosures" present significant privacy concerns.

What if Facebook is able to sell your personal information to corporate recruiters, who peruse over your drunk party photos, your wall posts, messages exchanged between you and your friends, and so on? Facebook makes it clear in its terms of service that both you and Facebook co-own your personal data once you put it on Facebook’s service, specifically:

All content on the Site and available through the Service, including designs, text, graphics, pictures, video, information, applications, software, music, sound and other files, and their selection and arrangement (the "Site Content"), are the proprietary property of the Company, its users or its licensors with all rights reserved. No Site Content may be modified, copied, distributed, framed, reproduced, republished, downloaded, displayed, posted, transmitted, or sold in any form or by any means, in whole or in part, without the Company’s prior written permission, except that the foregoing does not apply to your own User Content (as defined below) that you legally post on the Site.

But does this give Facebook the authority to sell your data as it pleases, whether it is through a targeted advertising gateway, Beacon, or any other number of potential uses? Facebook says that The basic problem with ANY social network that tries to monetize itself after selling it’s "free, no-strings-attached" service to users is that it eventually has to sell out its own user base to make a buck, and this is often done, as Facebook has demonstrated, without any regard to the potential cost inflicted upon its users.

Facebook and other social networks that are established without any monetization strategy up-front are going to find themselves in a jam when they have to turn to taking advantage of their users’ trust when it turns to earning a buck. One of the features that drew me and all of my classmates to Facebook was the notion of increased privacy, being able to shut out the sort of weirdos who lurk MySpace and other open networks, but when Facebook started readily offering my data for a premium to advertisers, I resented it simply because I was not asked for permission when I originally agreed to the TOS.

*For the record, Facebook added a global opt-out for Beacon eventually.

1. Google Sees Failure for the First Time

According to Yahoo! Finance, GOOG is sitting comfortably at around $690.50 as I am writing this post. I have written before about how Google is making moves to become the world’s most powerful advertising network and how it’s building/acquiring more content-oriented services in order to create more AdSense real estate and I have no doubt that the expansion of AdSense will be Google’s breadwinner for the next calendar year. However, I am also sure of the following things:

• Google will incur consumer backlash and damage its public image, either by placing its own products at the top of Google search results and damaging the businesses that depend on Google search results or by violating the privacy of its customers for profit;
• Google’s acquisitions strategy will be publicly called into question if Google continues to make more dubious acquisitions (Jaiku, anyone?);
• Google Android will either piss veteran mobile developers off or open up mobile devices to a whole new generation of developers who have never done mobile development before;
• OpenSocial will fall flat on its ass if development doesn’t show some progress soon; it’s been two months since the announcement and Google has yet to produce any substantial developments; and
• Google Knol will not work.

I don’t know what source Google’s "fail" will come from, given how many pies Google has its fingers in, but it’s going to happen in 2008.

2. Yahoo! Starts Selling off Assets

Yahoo! is a company in full tailspin. Fortunately for Yahoo!, it still has more traffic than Google and Yahoo! mail still leads over Gmail; that’s where the good news ends. Yahoo’s strategy has been both confusing and unsuccessful; most of their deviations from their core services have been disasters.

Yahoo! had seven different web properties enter the TechCrunch Deadpool in 2007, three of which occurred in the month of May alone. Some of Yahoo’s new services, like BravoNation, should have never seen the light of day. Mike Arrington said the following about Yahoo’s "Brickhouse," the unit that produced BravoNation:

The point of Brickhouse (I think) is to come up with half baked ideas, throw them against the wall, and see what sticks. That means they shouldn’t launch bland, safe products. Instead, they go a little crazy, and probably expect a high failure rate.

One TechCrunch reader said:

[Brickhouse] basically creates start-ups within Yahoo!. If something is successful - whatever that means - they give it more resources and “acquire” it, just that they don’t have to spend billions on the projects like they would have to with Facebook et al.

Let me translate this: it means that Yahoo! has no strategy; they don’t know what the hell they’re doing; they’re spending money like crazy; and they’re praying that God strikes lightning upon one of their startups and creates the next YouTube. This is not the strategy of a brilliant company; this is the strategy of a company that is awash in cash (for the moment) but has no idea how to stay ahead of its competition.

My prediction? Yahoo starts selling off its assets and focusing on its core services. Yahoo should focus on expanding its advertising network (YPN) to compete with AdSense and it should focus on competing with Google search.

3. Microsoft Moves to Buyout Yahoo!; Starts Seriously Competing with Google in Online Search

I’ve already established that Yahoo! is on the decline, but the second half of my bold prediction for Yahoo! is that it ultimately ends up in the hands of Microsoft. The breakdown of search engine popularity of roughly Google 55%, Yahoo 20%, Live Search 14%.

Live Search can’t realistically compete with Google given that its service isn’t fundamentally better or more compelling than Google’s (in fact a recent study shows that Google is still the best at satisfying user queries), thus Microsoft needs to get its users from somewhere; why not buy out the falling star of online search, Yahoo? Or perhaps Microsoft will use its terrific desktop search platform to help expand Live Search online?

There is no reason for Microsoft not to buy out Yahoo, and I predict that Microsoft will begin positioning itself to acquire Yahoo in 2008.

4. Social Media Penetrates Mainstream Consciousness

In 2008 services like StumbleUpon and del.iciou.us will begin to penetrate the mainstream consciousness and will become commonplace names. "But aren’t they already commonplace?" you ask. The answers is "yes, those services are household names among techies like us," but those services have not captured the imaginations of average Americans in the same way Facebook has.

One of the points that I try to drive home in almost every post I write is that there is a huge technological literacy gap between the average person and the average person in Silicon Valley; one of the reasons why Silicon Valley is a black hole for so many millions of venture capital dollars is because people in SV drink their own Kool-Aid all too often.

Regardless, my prediction is that StumbleUpon and del.icio.us in particular will make waves in 2008 and will become household names for a lot of average users.

5. Ruby on Rails Starts to Die a Slow, Agonizing Death

I got great pleasure out of reading Zed Shaw’s "Rails is a Ghetto" rant this morning, and I took it as a sign that the RoR fad may finally be over. Zed’s post made me thankful that Microsoft handles all of the testing and development for ASP.NET; specifically:

I believe, if I could point at one thing it’s the following statement on 2007-01-20 to me by David H. creator of Rails:

(15:11:12) DHH: before fastthread we had ~400 restarts/day
(15:11:22) DHH: now we have perhaps 10
(15:11:29) Zed S.: oh nice
(15:11:33) Zed S.: and that's still fastcgi right?

Notice how it took me a few seconds to reply. This one single statement basically means that we all got duped. The main Rails application that DHH created required restarting ~400 times/day. That’s a production application that can’t stay up for more than 4 minutes on average.

[...]

If anyone had known Rails was that unstable they would have laughed in his face. Think about it further, this means that the creator of Rails in his flagship products could not keep them running for longer than 4 minutes on average.

Could you imagine how much crap Microsoft would catch if one Scott Guthrie’s ASP.NET applications had to restart 400 times a day?

I’ve always been annoyed by the RoR community, kind of like how I was annoyed by the ColdFusion community when I was first learning classic ASP. When I read about a hot, new technology that isn’t even thread-safe, I groan, roll my eyes, and say "oh God not this, again." There’s more mouth than substance behind it, and the promise of RoR is quickly falling apart. The RoR honeymoon is over, and I predict the start of a slow, agonizing death for RoR in 2008.

6. Social Networking Clearinghouse

2007 was the "Year of Facebook" and as a result, every jack-ass with an MBA thought it would be a good idea to start his or her own social network. 2008 will be the year that pissed off angel investors scream "show me the money" and those same MBA types go running over the cliffs like a pack of lemmings hunting for the next bandwagon / investment sinkhole.

The Social Networking bubble is going to burst and only the major players will be left standing; weaklings, like Bebo, aren’t going to make it. The "we do what Facebook does minus being evil" clones aren’t going to make it, either.

2008 won’t be a year of "failure" for social networks; rather it will be a year of failure for social networks with poor business propositions. Simply having a "social network" won’t be enough to guarantee interested users or investors; in 2008, new startups seeking to utilize a social network in their web applications will have to demonstrate innovation and reasoning behind creating an entirely new social network rather than leverage existing ones via APIs.

7. Increase in "Cloud-Computing" Buzz

One of Eric Schmidt’s hopes and dreams for Google is to use Cloud Computing to create the next wave of productivity applications, i.e. Google Docs, GMail, Google Calendars, etc… The basic principle behind Cloud Computing is to move basic computation away from personal computers to amorphous "clouds" of computational power, namely large server farms that are professionally managed by organizations like Google and Amazon.

The biggest splash in the Cloud Computing pond this year was Amazon’s SimpleDB Web Service, which had a lot of bloggers asking "is this the end of MySQL/MSSQL/Oracle?" As organizations begin to spawn more Software-as-a-Service (SaaS) products, the hype for Cloud Computing will only continue, especially when services such as Amazon’s SimpleDB and EC2 become more popular in Silicon Valley. I predict that in 2008 we will see a lot more hype around "Cloud Computing," but whether or not we see anything revolutionary come out of Cloud Computing is anybody’s guess.

Note: Amazon announced their new DevPay service today, which enables developers to monetize their web service usage. Given that this news was announced in 2008, I’d say it’s a good indicator that prediction number 7 is going to become true

8. The Internet Establishes itself as the Conversation Leader of the 2008 U.S. Presidential Election

While I’m sure there are people who believe that the Internet has done this already (Ron Paul supporters), I predict that the Internet will be the number one source of buzz surrounding the 2008 U.S. Presidential Election.

Dan Rather, Brian Williams, and Katie Couric will be maneuvering their shows around "what’s being said on the Internet" rather than the Internet maneuvering itself around "what was said on television." My reasoning for this?

Memogate. It was the first time that the blogosphere stepped into Presidential politics and precipitated actionable consequences, which in this case was the dismissal of Dan Rather from the CBS network.

If you want to do more reading up on Memogate then I suggest you read the first heading of my article from August, Blogging for Business: Blogs are not just a fad.

I predict that in 2008, Internet-based sources will be the conversation leaders in a Presidential Election.

Lingering Questions for 2008

I’m going to toss these questions up to my readers, because frankly I don’t have any particular inclinations toward their answers. Here are my lingering questions for the upcoming year?

• What’s going to happen to Digg? Is it going to fall apart? Is it going to be fine? Will it get sold?
• Will Facebook "show us the money" in 2008? Is Zuckerberg going to stay in the driver’s seat or will Facebook find its own Eric Schmidt?
• ASP.NET & .NET 3.5 - Are developers going to start thanking Microsoft or are we going to grumble and start rewriting our applications?
• OpenSocial vs. F8 - If OpenSocial ever gets off the ground, will there be any serious platform competition? Speaking of which, will we see some useful productivity/contact management applications in 2008?

We’ll take a look in one year and see how right I am if I am right at all