Commentaries

Google’s real-time challenge

In its latest venture round last week, Twitter was valued at $1 billion. The Wall Street Journal calculated that $2.7 billion would be a fair value. Robert Scoble, an influential tech blogger — and habitual enthusiast – reckoned somewhere between $5 billion and $10 billion was justified. That’s for a company with no revenues and no known business model.

Has the world gone crazy again? Is Twitter just the latest manifestation of a new bubble of froth and hype?  Perhaps. But the excitement does point to an arena where investors’ exuberance is justified: the growth of the real-time web.

The real-time web has the potential to build significant businesses in a few areas. Take search.

Google is wondrous, and most of us are understandably reliant on the search results we get from it. But Google lets its users down badly when they try to find out what’s happening now. The epiphany for many came last January when US Air pilot Chesley “Sully” Sullenberger successfully landed his plane in the Hudson River, with no serious injuries. News of the event flowed rapidly through tweets from eyewitnesses. Cable news quickly caught up, but if you wanted to be a web voyeur, Twitter was the place to look. It happened again with the protests following the Iranian election. Twitter became the primary outlet for (unverified) news from the streets.

Think about less visible events. I’m interested in the city I live in, so I have a persistent search for any mention of “berkeley” on Twitter. The flow contains a lot of junk, but I also find out many things that would have eluded me before. That siren I heard? Someone has tweeted about a fire a half mile away. Police cars gathered downtown? There was a heart attack at the BART station. Companies, too, want and need this information in real time to track their reputation, to spot marketing opportunities and to be more responsive to customers.

News, however, doesn’t always make for a great business. Twitter has been cagey about how it will build revenues, but the possibilities range from premium accounts for businesses, to selling its data, either for trend-mining or for search, and — the grand prize — search-based ads. Niche revenue ideas, like sponsored celebrity tweets, are springing up as companies try to feed off Twitter’s success.

Twitter is capturing much of the interest in the real-time web, but others have spotted the potential.

Cashing in on the data you create

– Eric Auchard is a Reuters columnist. The opinions expressed are his own. – 

By Eric Auchard

SAN FRANCISCO, Sept 17 (Reuters) – You created it. They make money off it.    That’s the business strategy of popular Web sites, led by Facebook, which is just beginning to tap the value of its 300 million members, triple its base a year ago.    The paradox of so-called “user-generated content” is that big companies such as Facebook and Twitter look to grow rich on information users share with one another.    But some users are beginning to grow savvy to — and protective of — the value of the data they share about themselves. This has prompted Web players to make democratic noises about users owning their own information.    The companies face a dilemma: they must find ways to sell advertising to support the cost of hosting their customers’ creative content without scaring off the users who make it all possible.    Last week, Twitter, the Web-based short-messaging phenomenon, revised its terms of service to reassure members that they retain the rights to any messages they post on the site. The key change Twitter made is that now it has laid the groundwork to sell relevant advertising based on users’  messages, known as “tweets.”     Such moves are putting the legal conditions in place to offer targeted advertising based on user behaviors and intentions as they can be deduced from the content they create or watch. Individual activities can be used by advertisers to identify potential audiences, which in aggregate, are served up specific marketing advertising.    But it’s hard to see how existing forms of online advertising can be crammed alongside the rapid fire bursts of 140-character messages that Twitter users produce. Advertising experts say the company’s best hope lies in making corporate marketers pay to deliver marketing messages over Twitter. Some recent rule changes seem designed to enable such ads.      Facebook got into hot water with its members earlier this year for adding two sentences to its terms of service that asserted ownership of messages, photos and other user content.

It has also struggled to figure out how to target messages to its fast-growing audience beyond serving up simple banner ads based on a user’s location and other basic demographic factors.    “Facebook really doesn’t have advertising figured out at all,” Forrester Research advertising analyst Emily Riley says. “Their philosophy is to serve up fewer ads and not bombard users with flashy display advertising. Unfortunately they have to invent a new form of advertising to do that.”    Google this week gave the issue of user data ownership a twist by making it easier for users to import data in and out of Google products. The Internet search leader is promising to help users extract data out of or into 23 popular Google services.    It says it is about two-thirds of the way through analyzing its product portfolio to accomplish this result (More details can be found at DataLiberation.org).    The data ownership issue for Google is not about new advertising ambitions so much as about reassuring regulators and easing user privacy concerns. The company says making it easier for less technically inclined users to switch to sites offering similar services shows its openness to competition.    Nevertheless, it appears Google’s move to liberate data is also a bid to win customers from rival sites by making it easier to transfer everything from bookmarks to emails to videos back to Google. Of course, for this to happen, rival sites must give customers more control over data they post to those sites.    Another problem is that the value of advertising sold alongside all this grassroots creative activity remains minuscule. Despite high-profile experiments by many advertisers, most remain nervous running marketing messages alongside content they cannot control in some fashion.    EMarketer, a research firm, estimates U.S. online advertising sold along all types of user generated content will reach between $615 million and $870 million by 2013. That’s a tiny fraction of the total U.S. online advertising budget of $24.5 billion predicted by eMarketer this year, which it expects to grow to $33.7 billion by 2012.      So while Facebook boasted this week that it is turning a profit on its business as a whole, the company’s revenues will have to grow very rapidly to justify the heady valuation put on it by investors of between $6.5 billion and $10 billion.      Twitter, which TechCrunch reports is closing a round of fundraising that values it around $1 billion, faces a similar challenge. Data-sharing trends may promise to stoke the amount of Internet user activity, but the question of how to make advertising pay the bills remains unanswered.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund –

Read some of Eric’s previous columns here.    (Images: Twitter TOS screenshot; a user’s Facebook photos page; DataLiberation.org)

from The Great Debate:

Can sleeping giant Skype reinvent itself?

-- Eric Auchard is a Reuters columnist. The opinions expressed are his own --

Do once-hot Internet start-ups who miss a date with destiny ever truly get a second chance? History says no, even for once-great names like Netscape, AOL and MySpace.

Skype hopes to be the exception. On Tuesday, a group led by top Internet financiers in Silicon Valley and Europe agreed to pay eBay $1.9 billion in cash for a 65 percent stake in the one-time web calling sensation.

The deal values Skype at a face-saving $2.75 billion, well above the $1.7 billion at which it has been valued on the ecommerce giant's books. Ebay also stands to keep a 35 per cent stake in the company.

But that overlooks the humiliating $1.4 billion eBay has written off on the original deal. Four years ago, eBay promised to pay up to $4.3 billion for Skype, but it later scaled back the total payout. All told, it makes Skype one of the biggest value destroyers of any Internet merger since the last days of the dot.com era.

EBay's justification for the Skype deal in 2005 was how its chat and calling services could serve as an online customer service platform connecting consumers directly into eBay merchants. That never happened.

Instead, product innovation slowed and business setbacks, such as a corporate ban on Skype's network-hogging software inside companies, were allowed to fester, rather than becoming new business opportunities.

Twitter backlash foretold

Technology market research firm Gartner Inc has published the 2009 “Hype Cycle for Emerging Technologies,” its effort to chart out what’s hot or not at the cutting edge of hi-tech jargon. It’s just one of an annual phalanx of reports that handicap some 1,650 technologies or trends in 79 different categories for how likely the terms are to make it into mainstream corporate parlance.

Jackie Fenn, the report’s lead analyst and author of the 2008 book “Mastering the Hype Cycle,” delivers the main verdict:

Technologies at the Peak of Inflated Expectations during 2009 include cloud computing, e-books (such as from Amazon and Sony) and internet TV (for example, Hulu), while social software and microblogging sites (such as Twitter) have tipped over the peak and will soon experience disillusionment among corporate users.

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What’s most interesting in the report, now in its 14th year, is what the corporate research firm says is a long way off from the mainstream.

It will take up to five years for many of today’s trendy technologies to become mainstream, including Web 2.0, cloud computing, Internet TV, virtual worlds, and a true corporate mouthful, service-oriented architecture (SOA).

Funny how long hype cycles take to pay out. Three years ago, in its 2006 Hype Cycle Report, Gartner predicted Web 2.0 would go mainstream within just two years.