Facebook Foam

11 Jun

CappuccinoThere is usually so many things I want to write about that I end up overdigesting my ideas and write very little… and when I do write it tends to be long and expansive and hard to process in one gulp.

I had drinks last week with Josh Kopelman and Rob Hayes of First Round Capital. I have the unique distinction of having Josh as an investor in companies I founded (Majestic Research, Root Markets), of being an investor in Josh’s fund as an LP, and of investing directly alongside of Josh (del.icio.us and Aggregate Knowledge). Suffice it to say that Josh knows my many sides and so I appreciated his perspective on my blogging: “Seth, all you ever seem to write are long, esoteric posts about… Attention. You have such great, funny perspective to share.” He wanted to know not what I thought of metadata ownership, but rather my off-the-cuff reflections as a recent New York transplant in Silicon Valley.

I told Josh and Rob how enthusiastic I was about the Facebook ecosystem that seemed to be bubbling up like thick layer of foam over a double shot of Google. It is as if in a matter of months, both the high end of LinkedIn and the high-end of MySpace had been absorbed into the Facebook social graph. LinkedIn is suddenly no longer the social network of choice for us chic geeks. Yes, we learned how to tell our professional stories these past few years in the LinkedIn profile fields, but- as in summer of our 8th grade- we are now ready to lose the awkward friends we had accumulated , and start from scratch in a new environment.

Meanwhile, the kids who treated their MySpace profile, and concomitant friend requests, with the same reckless abandon that we have done with our LinkedIn profiles, have now de-camped for Facebook. While I don’t have fresh data on hand to support this hunch, the well-sourced rumor I heard last week ab out MySpace scrambling feverishly to open their API’s reinforces what is becoming obvious: MySpace’s Kremlin-esque behavior towards 3rd party widget developers -”we buy them or we crush them!”- is on a crash course with the debauched dirty-dancing going on amidst the MySpace spring-breakers. As these kids move from junior high to high school, from high school to college, and from college to the work force, they are increasingly choosing the meritocratic social logic of Zuckerberg over MySpace’s “hot or not?” popularity contest

There can be little doubt now that Facebook is a platform for social media, as opposed to simply a web site community. Time will tell whether it can continue to scale through opening up its audience to 3rd party developers like Microsoft did in the 80′s. This weekend I watched the Gates/Jobs conversation from D on my iPod. The elephant in the room that nobody really discussed was the fact that competition stopped at a certain part in their relationship, Microsoft became a monopoly, and Gates became the richest person in the world.

This was not an accident, but was in fact a direct result of the platform strategy that Microsoft so successfully pursued. Back in March, 2005 in a blog post, I recounted a meeting that taught me more about platforms than anything since:

In 1999 I sat down with Brad Silverberg of Ignition VC who Microsoft recruited out of Borland in the early 90′s to become the lead developer and project manager of Windows 95. Never has there been a more valuable platform. He described 3 things that platforms needed to have:

  • wide distribution
  • application developers making money
  • good tools

Let’s test those three axioms against the preeminent platform play of our time, Google:

  • Wide distribution? YES
  • Application developers making money? YES (if you count all the adsense publishers)
  • Good tools? YES (all the adwords and adsense self-service goodness)

Now let’s test these axioms against Facebook:

  • Wide distribution? YES
  • Application developers making money? NO (at least not yet, I will comment on 3rd party Facebook developers such as Slide, Rockyou, and AttentionSoft)
  • Good tools? YES

So, the question for establishing Facebook’s value as a platform is no longer whether Facebook itself can make money but whether its developers can do so. And in a world where retail software sales are no longer a legitimate business model for developers, the default assumption is that these developers will make money through advertising. Which begs the question as to whether there is a pragmatic alternative to Google adsense (no) and therefore suggests that Facebook will need to create this for its developers.

Later in that post from March 2005 I related platform strategy to API structure:

Nobody controls the web as a platform the way that Microsoft controlled the desktop. But certain parties do control enormous pools of user data and direct their behavior…API’s are fountains of data, mostly consumer meta data, that are the byproduct of some other functionality… The value of a web service API is tied to its ability to convert granular feeds of individual data into useful social media contexts.

I wrote this before I had ever used Facebook but the implication is clear now. Google does not offer this Social Media API. Facebook does. Here is an example of its API syntax:

facebook.friends.areFriends

Returns whether or not each pair of specified users is friends with each other. The first array specifies one half of each pair, the second array the other half; therefore, they must be of equal size.

What could be more useful as a social media context for a software application than being able to ask whether two users are friends with eachother?

… like a teenager with raging widget hormones

29 May

It has been hard to write of late. There is so much going on right now in terms of new social media experiences. My wife said it was so “cute” that I was just getting into Facebook now, after it had been open for 18 months already. I snapped back that it was really just opening up now. My spontaneous application promiscuity on its platform is embarrassing. I feel like a teenager with raging widget hormones.

It is a lot of work to express yourself uniquely online. You need to manage all of your various profiles across so many networks. Each network and engine represents a different source of traffic to your personal stream- Google, LinkedIn, WordPress, MySpace, Facebook, etc. Furthermore, they each provide different degrees of control over how your electronic likeness is distributed to others. In Media Futures speak, these are your various API’s (some which you control fully like your blog, others not at all like your PageRank) that together form your unique Algorithm identity in the online world.

This all makes sense, from the 30,000 feet perspective that I typically have written from in the intellectual capital that is New York City. But now that I meet with folks at Grove in the Marina instead of La Fortuna on West 71st street, I am both more engaged in the “real” world of Internet startups but also that much more conflicted by it.

While there are certain voices out here that call for radical transparency so as to keep any unsavory data mongers at bay, those same voices forever remain two cycles ahead of what gets funded and remain marginalized to watch as others commercialize their ideas from two cycles hence. The Internet is a data platform and therefore Internet businesses need to generate cash flow off of people’s data. This is the reality of the multi-billion dollar cookie cocoon that we are all clicking away within.

Still, regardless of how hopeful or hopeless the open Attention ecosystem proves to be, there are early traces of “mass market” Internet services paying Attention to Attention. For example, YouTube now enables me to “broadcast” what I am watching as a form of entertainment for others:

YouTube Active Sharing

And LinkedIn now enables me to see who else has visited my profile

Who has viewed my profile on LinkedIn

Granted these are small steps, but they are small steps by large players. Not to mention some truly open Attention thinking practiced by Google in both their Reader and Web History products that I will discuss in a coming post.

100 Billion Cookies and Nobody is Paying Attention

21 May

Despite all the hyperbole about the Internet advertising market M&A activities, I am surprised at the lack of critical perspective about the consolidation of cookies being placed and managed on users’ computers without their knowledge.

The recent spamacornucopia means more than $10 BILLION DOLLARS OF YOUR DATA IS BEING EXCHANGED AMONG BUYERS AND SELLERS THAT YOU DON’T CONTROL, starting with DoubleClick (and H&F their private equity owner) and Google, and then Right Media (Redpoint) and Yahoo!, and then 24/7 and WPP, and now aQuantive and Microsoft.

Cookie Wars- billions of dollars out of users control

I have heard that a profile is worth a dollar.

One could assume that a clickstream is worth $10.

We know, after all, that a mortgage lead can be worth more than $100.

How much is a cookie worth? As in, how much does it cost a company now on average to place a cookie on a user’s desktop? Of course the folks at Tacoda, Blue Lithium and Revenue Science would know this with more granularity, but my sense is that a cookie is currently worth about $.10. Please comment below if you have additional perspective.

And so, the $10 billion dollars worth of online advertising deals would equate to about 100 billion cookies served.

Do we as users have any sense of this reality, or any control over its consequences?

Transparent Bundles from Wall Street to Web 2.0

14 May

I am slowly starting to settle into a routine here in California.  The past few months have been filled with new beginnings- a new school for the kids, a new job and commute for Tina, new grocery stores and restaurants and little league fields.  The Taxi cab-hailing hustle of Manhattan has given way to hustling my bike to the top of Mt Tam.

Ideas don’t change at the same pace as activities, however, and I find myself thinking through the same issues about transparency that stimulated this blog in the first place.  Back then I was focused on soft dollars and the opacity of financial markets not media markets:

…soft dollars and bundled commissions are the vig that generates much of the wealth among the brokerage industry in New York, which in turn lubricates expense accounts at lunch time and grand Park Avenue co-ops and East Hampton beachfronts. Is it not ironic that New York has a mayor whose namesake company benefits more from monthly soft dollar payments than perhaps any other financial institution. In a way, Bloomberg has taken the notion of value-added brokerage services to the peak of civic duty. Our city itself reflects the residual value of opacity in financial markets. And so the question comes back to what happens to the brokerage industry when transparency become of more value to investors than opacity?

Three years later, soft dollar pratices are as opaque as ever.  The SEC has catered to the rich interests of hedge fund and stock brokerage lobbyists and enabled both sides to continue their practice of doing business with eachother in a very gray market.  Even the most sophisticated individuals outside of the financial services industry have little sense of what is really going on, in terms of the ways in which large institutional investors and large banks and brokers profit from closed data practices.

This is not that different from the dynamics of the online advertising environment- there are large institutional advertisers doing business with large media companies and advertising networks.  Despite the pre-text of openness and transparency, the online media market works hard to obscure the discovery of price by the very individuals producing it; namely the people who are using the medium, searching for things, clicking on ads, and conducting commercial transactions.  The web user, like the individual  investor, has resigned himself to letting larger interests capture, aggregate, and monetize his data behavior.  He has been led to believe that this is simply part of the bargain of having such "low" transaction costs for trading stocks or searching for information.

If I had to draw a continuous line through all of my disparate activities over the past ten years, this would be it:  identifying and interpreting the direct economic value of an individual data actor.  We may never in our lifetime see a day when a person develops an acute, vested interest in the value of his data; the spread between the value of a handful of clicks and that of a mass of aggregate behavior is significant.

Although it may be hard to keep track of the progression of Media Futures, we are stuck between the end of Alchemy and the beginning of Arbitrage.  This is where the creativity stops and the money kicks in; not that surprising against the backdrop of so much M&A activity (DoubleClick, RightMedia, StumbleUpon, etc.)

In May 2005, I made this transition in the first Media Futures series.  It was etymological in nature and only hinted at the real activities that I was engaged with as an entrepreneur, as I handed over the reins of Majestic Research to a new CEO in order to focus on creating Root Markets.  Flash forward two years and I am at a similar juncture; this time moving from Root in NY to AttentionSoft in SF.

The transition from Alchemy to Arbitrage that I want to describe this time will be more personal, now that the philosophical ground work has been established.  I want to trace the evolution of a central idea- transparency- through the founding of a new investment research process in 2002 all the way through the creation of a new consumer data platform in 2007.

As always, thanks for staying tuned.

Reflections on Starting Majestic Research

26 Apr

(DRAFT AS OF THURS APRIL 26, 2007)
Transparent Bundles

I started this blog three years ago, in the spring of 2004. I was working on a new research model for hedge funds that told stories using data, culled from the Internet. We did not believe that the god-analyst structure of the pre-bubble tech brokers (Salomon/Grubman, MorganStanley/Meeker, MerrillLynch/Blodget…) led to compelling arguments and rigorous convictions any longer. It seemed like the $3-5 billion stock trading commision market wanted to support a new kind of research that was based on massive amounts of observed data rather than a single person’s prediction.

Majestic Exec Sum

Or at least this was what I learned by going door to door to meet with hedge fund analysts. I was selling an algorithm for turning a certain kind of input (ie online behavior) into an equally certain output (ie real-time analyses of the consumer equity sector). The likely customers, Tony and I assumed, were Portfolio Managers at small funds that had concentrated positions in companies like Best Buy and WalMart, not to mention Expedia and Amazon. Most of these investors were working in mid town offices between 3rd and 5th Avenues, above 42nd and below 59th street. The more I started selling to this new generation of Wall Street, the more I realized how little time I spent on Wall Street per se.

Wall Street 2

In the Fall of 2002, while Spitzer was attacking the sell-side and Regulation Fair Disclosure was taking hold, I began telling the story that to understand the behavior of the American consumer, you needed to understand what she was doing on her computer:

Majestic Research Slide

It only took a few minutes and I had the analyst nodding in approval. They bought into the methodology, but wanted to know what the deliverable would be. Our initial input was raw comScore data that we had licensed exclusively for sale to the buy-side. This substantiated the “proprietary data” story and enabled us to offer a regular report called “Consumer Macro” that drew from this rich panel of live user data to produce real-time insights into the mind of the retail economy:

 

 

Consumer Macro Flier

We were successful in getting investors to try out our new service and we started to learn how to take data that had been mined from the Internet and refine it for inputs into their Excel spreadsheet models. We also expanded beyond simply licensing 3rd party proprietary data to begin capturing data directly from the Web through bots, spiders and what have you. In disintermediating the traditional research providers, we were intermediating ourselves between the online individual as data producer and the buy-side fund who was buying statistically significant, aggregated insights.

In the Spring of 2004, we were fortunate to get featured on the front page of the Wall Street Journal as representative of a new kind of Wall Street research:

Increasingly, Stock Research Serves the Pros, Not ‘Little Guy’

May 2004, by Ann Davis Staff Reporter of The Wall Street Journal

In early September, CarMax Inc. told investors it had met used-car sales targets for a just-ended quarter. But a small number of investment pros would soon learn there might be a catch.A stock-analysis boutique, Majestic Research LLC, had dissected car-registration data that it regularly gets an inside look at. It discovered that CarMax’s sales for the second quarter apparently hadn’t grown evenly across all dealerships, but had spiked at a single California outlet.The research firm sent out a flash alert. Some big investment funds quickly sold or changed their bets on the shares. Several weeks later, CarMax lowered …

Wall Street 2.0?

24 Apr

 

Glocer in front of Media Futures

Tom Glocer,  CEO of Reuters, stands in front of  Media Futures at the Open Data Conference in NY

And so, what does exhibitionism have to do with Wall Street?

How does the voyueristic behavior of 20-somethings relate to the commission decisions of hedge fund masters of the universe?

Traditionally, very little.

Or at least we weren’t aware of these connections.  Now, however, the advent of personal surveillance technologies has begun to popularize processes that up until now have been unavailable to individuals.

This resonates with a comment that Reuters CEO Tom Glocer made at the Open Data Conference.  It was the night before the conference, over dinner, that Glocer gave his perspective on the evolution of "open data" in the context of financial services. 

He told a story about the transformation of individual data points into market data.  Surprisingly, he didn’t start with a traditional financial services firm, like Reuters, but rather with an individual Schwab customer.

This retail trader, by virtue of her decision as to what to buy or sell and at what price, is the most granular actor in the price discovery machine.  As Glocer told the story, the online retail investor was the proverbial butterfly flapping its wings in Hawaii causing hurricanes in China.  Her only action was to trade a stock in her 401K account online; but unbeknownst to her, Schwab took this trading data, along with that of all of the other individual retail investors, and established a higher level trend.  This process reverberated up through larger institutional brokers like Goldman Sachs and ultimately exchanges like the NYSE.   At each step up in aggregation and abstraction, significant economic value was extracted.  Although this individual’s behavior is too volatile in and of itself to offer much in the way of trend analysis, this does not mean that her behavior is worthless.

This is the foundation of Wall Street 2.0:  the individual data producer is beginning to wake up to the economic value she is creating.

This economic value had in the past been appropriated by those aggregating up the data from above.   Our electronic behavior, whether it be querying a search engine, clicking on an ad, checking out a stock, or trading a share, is generating value for other people that are in a position to aggregate and sell this information to institutions, who in turn transform it into some other form that ends up getting sold back to individuals.   Alchemy… to… Arbitrage.  This is nothing new.  What is new, however, is the extent to which our behavioral trails are no longer hidden, but are instead now available to us via various modes of personal Attention services, also known as myware.   This is the window that Open Data flows through:

Open data is to media what open source is to technology. Open data is an approach to content creation that explicitly recognizes the value of implicit user data. The internet is the first medium to give a voice to the attention that people pay to it. Successful open data companies listen for and amplify the rich data that their audiences produce.

Web Alchemy, Josh Harris & Justin.TV

16 Apr

Seth Encaustic Alchemy

Web Alchemy

Exactly two years ago, in April 2005, I wrote the first chapter on Alchemy in the Media Futures series.  Over the course of history, Alchemy always promised more than it could deliver.  But it was this promise that captured the imagination of people and drew their Attention to the very impossibility of turning “base metal into gold.”

Painting of Leo Brunin the Alchemist

As it relates to the contemporary Web landscape, Alchemy represents the promise of automatic personalized media creation.  It is the nuclear fission of intersecting Web 2.0 services.  "Maybe, just maybe, if I go to Web 2.0 Expo I will find that one service that that connects me most fully?"  This is the process of extreme triangulation that we- maybe without even knowing- are trying to achieve every moment that we use the Internet to express ourselves.

The process is not new.  But its reception is.

When Josh Harris broadcast his life in real-time on weliveinpublic.org in 2000, it was received as strange exhibitionism in SoHo.  He and his girlfriend Tanya Corin went online in a Warhol art-house kind of way.  It wasn’t clear what exactly Josh was trying to prove, but like many I was fascinated by the embedded cameras he installed in the Turkish-style bath.

On Day 93, long after Tanya walked out and Josh had left it to brokers to sell the 4000 sf+ loft on lower Broadway, a recently arrived journalist who needed a place to crash ended up minding after the apt while it was being shown to potential buyers.  All the surveillance gear was very much in place and there was a working live control room where all the cameras flowed into, as well as the external chatter from those across the community grabbing these streams.  This writer describes what it was like to be there during these last days:

I am doing laundry all the next day, sitting alone, and I learn how to take advantage of the chatters. After all, I am a visitor in the house of a man I do not know. But they, they’ve lived here for a while… I ask them if Harris allows people to smoke in the loft. I ask if they know where an iron is. In one particularly surreal moment, I realize I have lost my keys. I enter the chat room and ask if anybody happens to see where I might have left them. One guy tells me to check my pockets. And there they were.
From The Cyber House Rules By Will Leitch, Jan  1, 1999

Eight years ago when he wrote this, we had a different attitude towards pervasive surveillance than we have today.   Now, as American Idol, YouTube, Twitter and countless other social media phenomena would attest, the quickest road to celebrity is via one’s willingness to become-  physically or behaviorally- naked.

Justin TV

And so, how then to describe the performance of Justin.TV?  His omnipresent camera cylinder to the left of his perspective is like the pen-above-the-ear of a great investigative journalist- Dustin Hoffman as Carl Bernstein in All the Presidents Men.

Hoffman as Bernstein

Despite his camera, Justin doesn’t care about coming off as a disinterested reporter.  There is no longer even a pretense that the subject drives the interview.  Maybe it’s wrong to think of it as an interview at all.  The  recording instruments are so integrated and obvious that everybody Justin comes into contact with gets their own live studio audience.  This shifts the lens of narcissism from Justin to his audience, making him seem almost, well, selfless.

Michael Goldhaber recently defined a "star" as:

(When an attent typically has many audients, thus taking in more net attention than paying out, that person is of course a STAR.  )

On the Internet, this is based in large part on one’s ability to express oneself openly, across multiple networks.  For example, in addition to the live video feed and community chat, Justin makes it easy for us to connect to him via shared social networks:

Justin.TV Media Modes

Justin wants people to pay close Attention to his stream and comment on his blog. This is exactly how stars enrapture their fans:  engaging them in production of the very stardom they wish to worship.  There is a significant difference between celebrity in the first Internet cycle and now.  It is not the tools that matter, since many of them have not changed dramatically, but a growing responsibility that more and more of us feel to express our unique, authentic selves online.

Justin.TV, like Tia Tequila of MySpace, Reid Hoffman of LinkedIn, Mark Zukerberg of Facebook and Fred Wilson of Typepad, inspire us to be all that we can be online- to open up our API and let the data flow.   

This is the Summer of Love, 40 years later transposed onto the Web.

 

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