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MySpace Cracks Open the Door on the Future of Social Networking

"The walls around the garden are coming down," according to Chris DeWolfe, the CEO and co-founder of MySpace, still the world's No. 1 social network according to many measures. He was referring to MySpace's announcement of its Data Availability initiative, which will let members opt in to share MySpace profile data with other Web sites, including Yahoo, eBay, Photobucket and Twitter.

Data portability in social networks has become a hot-button topic, and a great deal of power hangs in the balance as the social networking giants contemplate how best to liberate their users' data without either:
a) creating a privacy or security backlash, or
b) giving away the store (that is, both their traffic and their proprietary access to profile data of great potential value for targeted advertising)

In this announcement, MySpace has signaled a cautious phased and modular approach to the issue. It has stepped - but not leapt - ahead of the crowd by carefully limiting the capabilities of the offering, while keeping open plenty of options for its next step.

At the foundation of this offering is the OAuth standard, which governs how an API supplying data can authenticate itself to a third party - for instance, how a site like Twitter can allow a user to disclose data from an unrelated service provider such as MySpace and authenticate that the data it receives really is from MySpace. There are two important things to observe about this. First, OAuth covers only the authentication of the API data, not the user, who is authenticated through an external dialogue directly with myspace.com. Third-party authentication of users is the province of OpenID, a related standard that MySpace has indicated it may support in the future but has not yet committed to. Second, as a direct result, the data sharing model is unidirectional - that is, MySpace can export but not import profile data, restricting the service to MySpace members who wish to apply their profile data elsewhere, not users of other social networks who wish to import data to MySpace. This is why the offering is not a leap into the unknown.

Also not included is a business model, such as third-party sites using disclosed MySpace profile data to target advertising on their sites for a revenue share back to MySpace. At first glance, this seems like a triple play: third parties get higher CPMs from MySpace's HyperTargeting system, MySpace gets more revenue, and users and privacy advocates get truly transparent opt-in control. The fact that MySpace has restrained the scope of this announcement to omit this feature, which would surely please some anxious shareholders, is another indication of the measured pace of innovation in this tricky area.

All of this leads to the question of why, given all the risks along with MySpace's persistent membership loyalty even in the face of challengers as formidable as Facebook, MySpace would do this. Its answer rings true: MySpace's audience is demanding it, and better to give them what they want by carefully opening the door while trying to maintain order than to wait for them to crash the gates.

Overreaching or Protecting Vital Copyright/IP?

Well, the so-called "PRO-IP" amendment to copyright law has cleared the House. The proposed bill seeks to increase the penalties for pirating content (with a special focus on counterfeiting) to include asset seizures such as computers and even real estate. Yet, what caught our eye are the provisions for the creation in the Executive Office of the President of an Intellectual Property Enforcement Officer (similar to the U.S.'s Trade Representative.)

Not surprisingly, it is backed by the major media companies, which on the face of it doesn't necessarily mean it's evil, but it does mean one shouldn't blindly accept it. The question I have is: Where is all the extra enforcement going to come from? Aren't most law enforcement agencies pretty busy already? Who will set the policy objectives for the Intellectual Property Enforcement Officer? Already, the Justice Department is raising objections to the bill, fearing the IPEO (nice acronym) may infringe on its turf.

Reality and Perception at Yahoo and Microsoft

As the world searches for deeper meaning in the final chapter of the Microsoft-Yahoo acquisition story (…or is it?), one emerging storyline defines this as the moment when Microsoft saw its last, best chance to catch the new computing champion, Google, slip through its fingers. The New York Times, for example, claims "Google…has leapt far ahead in markets like web advertising." Well, besides web advertising…or, more precisely, web search advertising, what markets would those be? Of course there's much enthusiasm about the future of cloud computing services, but today these are speculative notions with no significant revenue attached. No, this deal was about digital advertising, and its ability to supply the economic fuel necessary to innovate computing’s nebulous future. The point is, as important as advertising revenue may be, Google's dominant paid search model is surely no hammerlock on innovation, and even Google itself continues to adjust and optimize that model in anticipation of shifts in the market. In this sense, Microsoft may be better off focusing on innovations of its own in the areas of search and online ad management, rather than wrestling with daunting service integration issues which many feared with aYahoo merger.

Then there's the storyline about Yahoo's comeback hopes, frequently pinned to a potential search alliance with Google. This, too, seems overblown. Such an alliance, assuming it could evade antitrust concerns, can only take Yahoo so far. Yahoo, like Microsoft, will also need to innovate boldly to capture the next wave of digital ad spending, which is multichannel (including mobile and next generation TV platforms) and driven by persistent demands for more accountability from more sophisticated advertisers who have not yet fully embraced any of the three leaders. With online video and social media still struggling to find the right formula for monetization, and big advertisers leaving the TV upfronts with their wallets still full of cash, the field is much more open than these storylines would have us believe. The point here is Yahoo, which has been stepping up its efforts lately in spite of the noise, needs now to accelerate these efforts if it's to keep its shareholders at bay for the next couple of quarters. A Google search deal, while good for headlines, is unlikely to be a stroke that changes the game.

So don't fret that the race is over. We're still in the early heats, and there are bound to be more thrills and spills ahead as focus shifts back to integrating smaller, more tactical acquisitions and innovating new game-changing services.

A Would-Be Media Titan Stumbles: Starbucks Retrenches Entertainment Business Unit

The news that Starbucks is taking a step back and reassessing (here and here, the second link is to a WSJ story; subscription required) its efforts to link its coffee-selling "experience" with entertainment properties can be viewed as a cautionary tale about the limits of brand expansion in a world where digital media choices are limitless. But that is not to say that we think Starbucks should abandon its efforts at linking entertainment with its in-store "experience." In fact, we would argue the company needs to redouble its efforts but bring some serious focus to its role as a media intermediary.

Back in 2004, Starbucks, the global coffee brand, was making aggressive steps to leverage its customer base and its built-in Wi-Fi access. The company owned the music label, Hear Music (acquired in 1999), and started selling CDs (including the top-selling Ray Charles CD, "Genius Loves Company"). At the center of this foray into entertainment, reportedly a pet project of Starbucks Chairman Howard Schultz, was Ken Lombard, who joined the company after playing an instrumental role in helping build Magic Johnson's business empire. Lombard joined Starbucks in May 2004, and very quickly Starbucks' entertainment efforts began to take shape. With Lombard pushing things, Starbucks tested an in-store music CD-burning capability, forged a partnership with the William Morris Agency to find books and movie projects to promote, and created its own channel in iTunes to sell Hear Music artists. The company's underlying coffee business appeared to be the kind of cash machine that would support the aggressive development of a new type of media company. In fact, we cast Starbucks as an up-and-coming "media titan," because we saw the marrying of a huge network of stores with Wi-Fi access (3,100 stores in the U.S. had Wi-Fi as of October 2004) as an important audience aggregator of online consumers.

Well, while Charles' album went on to garner multiple Grammys and sell nearly 800,000 copies, the movies Starbucks promoted didn't exactly light up ticket sales in theaters, and the music-related efforts seemed to suffer from a benign neglect that consigned CDs to just another retail display among dozens of coffee cups, commuter mugs and coffee makers. In conversations we had with Lombard in 2004 and 2005, it was clear he understood the potential business benefits of linking the store experience with music and other forms of content. However, he also underscored that the primary mission for the company was to keep people in the stores and buying. As long as the entertainment unit's media efforts were obvious and logical extensions of the Starbucks brand, and they kept people coming into the stores, he said the company would consider an array of possible media-related opportunities. Apparently, the success, or lack thereof, can be found in Lombard's resignation.

Where do we think Starbucks' entertainment division took its eyes off the ball, or more accurately, swung at the wrong pitch? First, it has failed to extend and link the content business with the company's focus on making the stores a "third place" (besides home and work) to spend time. In many stores, the cafe section is often outfitted with stuffed chairs and tables with hard-backed chairs. Most stores provide free electricity for customers, and many stores also provide wireless Internet access (provided in American stores by AT&T, in Canadian stores by Bell Mobility, and by T-Mobile in the U.K.).

While the store design achieves the physical requirements of being a third place, Starbucks couldn't add the media link. In particular, we believed (and still do) that local newspapers and news organizations could partner with Starbucks' network of stores, providing a hyperlocal news segment delivered to Starbucks customers logging on at any of the stores, for example. Given the state of U.S. newspapers, this would still seem to be a viable tactic.

So, in May 2008, we have Starbucks reviewing its options in the entertainment space, while Chairman Schultz tries to maintain Starbucks' "experience." Despite having an impressive infrastructure of stores and Wi-Fi access, as well as a strong if somewhat buffeted brand, Starbucks remains more of an aspiring media titan than a true "player" in the industry.

Yahoo Appears Determined to Produce TV

In the wake of Yahoo's celebrated December 2006 dismissal of Lloyd Braun, then head of the company's media group, marking what most thought was the end of an effort to create original TV programming, it appears the Web search and portal giant has not lost the desire to be the next Fred Silverman. Two new "shows," "Prime Time in No Time" and "Good Morning Yahoo!" (GMY; which replaced "The 9") are fixtures on Yahoo these days, both created in the style of E's "The Soup," which mashes up short TV clips with comments from an on-screen host. As a side note, actor Greg Kinnear started off as the first host of "The Soup," but rest assured neither Yahoo host has the chops to go beyond Web-based TV.

Parsing Yahoo's TV/video strategy based on these programs leads us to believe: 1) Yahoo believes there is a business in being a content creator despite the plethora of high-quality small production companies bursting into the TV space (Next New Networks and Federated Media, to name two); and 2) advertisers are buying into this foray, with Verizon sponsoring "Prime Time" and Dunkin' Donuts paying the bills for "GMY." But that's where the clarity around Yahoo's TV strategy ends.

Yahoo TV, the company's "starting point" for all things TV, includes "Prime Time" in its featured listings, but does not showcase "GMY." Based on the "URL," I think Yahoo considers that show "news," but even so, why not promote it everywhere possible? Even in 2.0 parlance, it is TV. All three major networks promote their morning shows on their Web sites despite the fact they all fall under the jurisdiction of their news departments. And speaking of "GMY," it seems that Yahoo Go, the company's major mobile "starting point," would be an ideal home for the show, providing it competitive differentiation from "regular TV" morning fare, but checking Go thoroughly, it was nowhere to be found.

Being in the TV business is not for dabblers. There is a middle ground between being so deliberate (as some networks have been) that you appear late to the game and behind the curve and having a strategy that consists of just tossing out a show or two for the sake of being part of a trend.

Does Google Have a Video Strategy?

Google manifests its video efforts in two ways: 1) YouTube, the world's most popular video community, which allows folks the options to upload and view videos as well as use a host of Web 2.0 sharing and community features; and 2) Google Video, a vertical search page that crawls the Web and indexes video from both YouTube and the Web at large. Google Video recently changed its fit and finish to resemble more of an online TV viewing experience, while adding a few bells and whistles such as the ability to sort searches by most blogged or most shared. The changes are fairly subtle and leave Google followers wondering what the company's long-term vision for video will look like. Will it remain a dabbler or follow the big-picture path it took in advertising by acquiring DoubleClick?

Leaving aside the inherent issues surrounding Google's limited approach to video search (such as the lack of speech-to-text search capabilities), the current dual strategy in video is a neither-here-nor-there weakness, but it also could represent Google laying low with a large bombshell in the works. As Google continues to build out businesses that are "repeatable and scalable" (so says Eric Schmidt in the 1Q08 earnings call), the company's emerging cloud business could become a major high-bandwidth video network that offers content providers of all sorts the ability to upload, efficiently broadcast, track and monetize video content. In essence, the cloud would contain a series of video delivery applications and services, some built by Google, some built by third parties. On the surface, this next-gen video strategy might appear to replicate Google's current YouTube brand, which in many ways has been field-testing the viability of this cloud video network concept for the past few years. At some point, however, it would make sense for Google to create two cloud/network offerings: one dedicated to consumer creators (YouTube) and the other for professional creators, each with its own set of applications and liquidity options, not to mention copyright-screening and accounting needs.

One ingredient to accelerate this strategy would be in Google's acquisition of an online video publishing platform provider (see "A Market Overview of Online Video Publishing Platform Providers") to enhance its cloud-based roster of such services as ingestion, transcoding and player customization. Alternatively, Google could stay neutral and just remain the "arms dealer" that provides content owners and application developers the network sandbox in which TV moves to a new level.

Newspapers Claim Constitutional Right to Track Users, Target Ads

Here's a radical new twist (via The New York Times) in the privacy-vs.-online-ad-targeting controversy: The Newspaper Association of America (NAA) has filed testimony with the Federal Trade Commission (FTC) opposing the commission's recently proposed Online Behavioral Advertising Privacy Principles, claiming that its right to use behavioral-targeting platforms such as AOL's Tacoda and Revenue Science is protected by the First Amendment, as a form of "editorial judgment." Behavioral targeting (BT) relies on users' accumulated browsing history to select which ads they'll see, and it represents a significant source of increased revenue for online advertising, especially for non-category-specific news pages.

We know things are desperate in the newspaper industry, but this is a dangerous balancing act. The NAA could have simply crafted an argument from economic necessity, which is a major theme of the filing. But by claiming that privacy regulations are a form of unconstitutional censorship, the NAA appears to have adopted an antipopulist position on a tinderbox issue. A key stress point here is its attempt to draw a boundary between BT and deceptive advertising, claiming that "no connection between behavioral targeting and falsity or misleadingness (sic) has been demonstrated."

This assertion is directly at odds with the position of most privacy advocate groups, for whom the lack of transparency inherent in most BT practices is on its face misleading, because most data collection contexts (that is, Web sites that collect visitor data for behavioral networks by hosting their third-party cookies) do not clearly disclose their tracking practices. The FTC has tried to strike a balance, promoting common-sense, self-regulatory principles of "clear, consumer-friendly, and prominent" disclosures and giving consumers "the ability to choose whether or not to have their information collected for such purpose." These principles are difficult to oppose, especially on constitutional grounds.

It would behoove the NAA and its members to take a more nuanced position on this issue. More disclosure and consumer control will improve, not undermine, the efficacy and acceptability of BT. Moreover, online newspapers - especially local ones - have a profound and historic opportunity to forge closer and more profitable relationships with their readers by taking the lead on opt-in profiling and trust issues in general. Arguing that the First Amendment protects the right to obstruct transparency for the sake of higher ad rates is as counterproductive as it is counterintuitive.

Take Down the Help Wanted Sign

The annual census from the American Society of Newspaper Editors (ASNE) revealed some disappointing, yet expected, news about the current climate at American newspapers: The number of full-time professional staff members fell by 2,400 in 2007, a drop of 4.4% to a current total of 52,600. This does not even take into account the spate of layoffs in 2008 from two incumbent stalwarts, The New York Times and The Washington Post.

The fallout from the news has obvious implications about the state of the newspaper industry, but it leads to a number of issues worth pondering. Here are two:

- Just to survive, newspapers will need to amp up their attention to the mantra of doing more with less. As such, will the net result be a greater reliance on citizen media in the form of bloggers or participatory media services such as NowPublic? Reliance on such sources raises IT issues, not to mention workflow, content credibility and brand issues, but those concerns will need to be addressed expediently just to keep the lights on.

- Hiring at the online departments of newspapers was flat in 2007, according to the ASNE census. The myth that news operations can make up for decreased print revenue with a greater online presence is currently being shattered at publishing companies, as most have seen a plateau in Web traffic in recent months.

This state of affairs suggests that more than a shift in strategy is in order. Mike McGuire and I will address some of the ways newspapers can address their future in a series of upcoming reports. Stay tuned.

IAC/InterActiveCorp Has a New Angle on Search

A few weeks ago, I was treated to a sneak-peak preview of RushmoreDrive, IAC's new search engine for the black community. I was hosted by the site's creator, Johnny Taylor, whose enthusiasm for the project was rare even by startup standards. In the meeting, we coined the term "identity search" to describe what could be an important new idea for getting around Google's near monopoly on the consumer search category, which Barry Diller's Ask.com has been trying to do for some time without great success. The theory runs something like this: Everyone knows search results can be much more relevant if the search engine knows something about the user. Google makes use of such easily determined information as the approximate location of the searcher, but it has wisely avoided moving away from the anonymity of its query box, although Gmail and iGoogle (not to mention search history) could surely reveal more about a user if the user were inclined to opt in to personalized search. Google and its competitors have no doubt tested these concepts and discovered that the negatives of personalization outweigh the positives of increased relevance.

Identity search offers a compromise. Rather than opting in to personal profiling, users can go to a site that expresses something important about themselves — such as their membership in a broad ethnic community — to get more-meaningful results. Within that context, they can be even more specific and search for news or jobs. Although the concept is fairly simple, it recognizes the possibility that the growing online activities of ethnic groups may be reaching a critical mass, which justifies the hope that these sites might attract significant marketer attention, if they can be persuaded to switch search engines. Although there are many black online communities and Web sites, RushmoreDrive is not positioned to compete with them, and claims it will actually benefit these destinations by giving them more direct exposure to the black community, a claim that BlackPlanet.com appears to have bought into.

For skeptics, there is plenty of room for doubt. Although Google may not use personal targeting on its search results, many ad networks offer various forms of demographic — including ethnic — targeting, and Google's acquisition of DoubleClick may pave the way for it to do more personal ad targeting in the future. The runway probably isn't very long for identity search to take off before the gap between ethnic destinations and incumbent search engines closes. But I believe there's a chance that RushmoreDrive might lead to more diversity in the search landscape.

"All Our Representatives are Busy with the Merger. Please Stay on the Line."

In the likely event the Microsoft-Yahoo merger proceeds to the next phase, the prospect of a drawn-out period of distraction and uncertainty looms for the customers, partners and employees of both organizations, as well as third-party developers. Both companies proceed with a business-as-usual parade of exciting new media products and acquisitions, including Yahoo's acquisition of Maven Networks, its social networking alliance with Google and MySpace, the rollout of its new integrated advertising platform (AMP), its acquisition of IndexTools analytics software, Microsoft's acquisition of Rapt, and significant enhancements to WMS and Silverlight, all of which raise specific integration questions. It becomes increasingly challenging for technology leaders - not to mention analysts - to overlook the two elephants in the room:

1.How will Microsoft and Yahoo continue to be responsive to their customers, and (in Yahoo's case) retain and attract key talent during an extended period of uncertainty?

2. Can anyone in this business afford to make major commitments to platforms and innovations whose future and timing of operational harmony are so cloudy?

This condition would appear to be a gift to Google, whose integration efforts with DoubleClick got under way earlier this year, but still have a long way to go. It might also help AOL's Platform A, were its own future not so cloudy as well. However, it most helps more-focused vendors that are not, as yet, aligned with these larger players and can take on the significant challenge of simplifying things on behalf of their customers. It won't be rare for competitors to use the Microsoft-Yahoo integration issues as a marketing hook to raise FUD in the marketplace.

Most online publishers and advertisers can't afford to wait for the dust to settle on large mergers before they implement cost-saving automation and optimization in the ad operations, or tap the growing market for online video, or form their own alliance pools of online ad inventory, or get some experience with mobile. Although the scale of traffic commanded by the largest sites will continue to be an irresistible magnet for high-volume ad dollars, that doesn't mean that publishers, agencies, ad networks and advertisers must adopt their platforms, especially when good third-party alternatives are out there.

What advertisers and publishers most need to do is to continue to insist on support from Google and Microsoft for open media standards, so that ad inventory and content feeds remain neutrally accessible and don't become walled off in balkanized platforms being "Frankensteined" together in an escalating war zone. As good as those integration demos may look, don't ignore the smoke and drums in the background.