"The best minds of my generation are thinking about how to make people click ads.That sucks." - Jeff Hammerbacher, former manager of Facebook Data Team, founder of Cloudera
A couple of weeks ago here in Backspin I wrote a column titled "Facebook and Twitter and their long, slow slide into irrelevance". In that piece I discussed the problem that the leading social networks have: How to make money.
So, consider Facebook, how big is its market? Here's a sample of Facebook's statistics from the Hitwise Blog published in May this year just prior to Facebook's IPO ...
" One in every five page views in the U.S. occurred on Facebook.com
" The average visit time on Facebook.com is 20 minutes
" Facebook.com received 9% of all U.S. Internet visits in April 2012
" Users generate 340,000,000 Tweets per day
" There are 140,000,000+ active users
" 29 million unique mobile visitors visited Twitter in August
Those figures are simply amazing. You'd think with millions of users logging in to the services every day and hanging out for astounding amounts of time it wouldn't be too hard to make bank but as I pointed out in the previous column, Facebook is struggling to be profitable and the company's closing share price, today at $20.32 down just under 38% from its IPO price of $38 reflects this.
Back in July The New York Times summarized Facebook's financial performance thusly:
"The company said its revenue for the quarter climbed to $1.18 billion, from $895 million; most of it came from advertising. The company reported a net loss of $157 million, or 8 cents a share, compared with net income of $240 million, or 11 cents a share for the same quarter last year. Much of that was because of stock compensation, and on an adjusted basis, the company posted a profit of 12 cents a share, or $295 million, meeting analysts' expectations."
Facebook's response to the market's demand that they "up" their game has been to focus on mobile as the driver for advertising growth which makes sense. As Marc Poirier, co-founder and CMO of Acquisio, a leading media platform for some of the world's largest marketing and advertising agencies, points out, on mobile "the clickthrough rates are ten times better than the desktop" but he feels that what we're seeing is "Yahoo all over again."
Marc's problem with Facebook's advertising strategy is that he contends they have failed to listen to what advertisers want and ignored the Internet Advertising Board's standards for ad specifications making it hard for advertisers to use the opportunity that Facebook should provide.
When it comes to the question of whether Facebook can find the unicorn -- the killer revenue generator I discussed in the previous column -- Marc is far more optimistic than I am: He rates the probability of unicorn finding at 40% compared to my 1% (Marc, did we make a bet on this? I'll put 50 bones on no unicorn in the next 12 months ... we on?)
As for Twitter, which is still privately held, its profitability is as yet unknown. But it's obvious that the pressure to improve revenue is huge because the company has recently been doing something that could only be explained by them as rethinking where the money might come from: They've made it so that third-party apps that interact with Twitter have either no access or reduced functionality.
Given that it was the third party application market that was responsible for much of Twitter's growth and success this looks a lot like biting the hand that feeds you but Twitter apparently doesn't care.
Twitter's CEO, Dick Costello, commented on the Charlie Rose Show:
"The future of Twitter is that we'll have a true platform...not just an API that allows developers to create an alternate Twitter experience, but an API that allows third parties to build on top of Twitter in a way that creates accretive value for the user, much how Amazon allowed third-party merchants to build into Amazon."
"True platform"? "Accretive value for the user"? What nonsense. Weasel words to cover up what is a social media land grab ... Twitter is simply trying to make the way the service is accessed and the user-generate content their own exclusive territory.
So, if you agree that Costello's idea of what might be a "true platform" is wrong, what might a "true platform" look like? In the computer world the word "platform" implies a foundation or stage on which other functions or products operate. As for true, well, that's in the eye of the marketer, but it would seem to be associated with the idea of generality and, might I suggest, "openness."
I'd argue that a true platform is, to use an old, hoary saw, "a level playing field," a generalized underpinning that services a wide range of things that depend on the platform to operate. For example, Linux and OS X are "true" platforms while Windows and iOS, due to vendor constraints, are only sort of true.
So, what in social networking might be a "true" platform? Well, it's not Facebook or Twitter ...
Ladies and gentlemen, I offer for your consideration App.net, a service offered by Mixed Media Labs.
App.net is a real-time message routing infrastructure. It has a totally minimalistic and essentially unfeatured native user interface, it isn't free, it doesn't constrain you to 140 character messages ... it is, in essence, neutral -- a level-playing field for messaging.
The idea behind App.net is that applications that want to route messages in general and social message in particular between users need an efficient, reliable, real-time transport service that provides what are, in effect, smart pipes on top of the Internet's dumb pipes. And that, in a nutshell, is all that App.net does.
The genesis of App.net stretches all the long, long way back to July this year when Dalton Caldwell, Mixed Media Labs CEO and former CEO of imeem (which, in 2009, was acquired by MySpace and promptly shut down), wrote a great blog post titled "What Twitter could have been" in which he explains:
When Twitter started to get traction, a year or two into its existence, I decided that Twitter was the Best Thing Ever. I realized that Twitter, because of its API, actually was a real-time protocol to connect various services in a novel way. I had debates with my other tech-nerd friends about whether Twitter could be one of the fundamental building blocks of the Internet via their powerful API. When reporters or investors asked me what I thought the most exciting company in the valley was, I would invariably answer "Twitter".
But that enthusiasm didn't last. Dalton points out that within Twitter the group that argued for the company's business model to be advertising-based won out over the group that saw Twitter's business as a real time API-based messaging system.
While I can understand why the latter camp wanted to build an ad-based business, the futurist in me thinks this was a tragic mistake. If you are building an advertising/media business, it would then follow that you need to own all of the screen real-estate that users see. The next logical step would be to kill all third-party clients, and lock down the data in the global [feed of all tweets] in order to control the "content".
Which is exactly what's happened and it's what, both Dalton and I believe, will kill both Twitter and Facebook and other ad-based social media.
The response to this post was huge and Dalton leveraged that to make a proposal which was:
I believe so deeply in the importance of having a financially sustainable realtime feed API and service that I am going to refocus App.net to become exactly that. I have the experience, vision, infrastructure and team to do it. Additionally, we already have much of this built: a polished native iOS app, a robust technical infrastructure currently capable of handing ~200MM API calls per day with no code changes, and a developer-facing API provisioning, documentation and analytics system. This isn't vaporware.
What the company was proposing was, as Gizmag put it, to be "to social media what Amazon Web Services is to the rest of the Web--a platform for you to build your application on".
To manifest this grand vision, we are officially launching a Kickstarter-esque campaign. We will only accept money for this financially sustainable, ad-free service if we hit what I believe is critical mass. I am defining minimum critical mass as $500,000, which is roughly equivalent to ~10,000 backers.
Buying in was and still is cheap: $50 for a year as a member (that's only $0.13 per day and no advertising to put up with) or $100 for a year as a developer ... and, lo and behold, people bought in!
By Aug. 11 some 7,513 backers had ponied up $508,200. Why? I think it's got a lot to do with App.net's "core values" which they explain on its home page:
" We are selling our product, NOT our users.
" You own your content.
" App.net employees spend 100% of their time improving our services for you, not advertisers.
" We respect and value our developer community.
" Our most valuable asset is your trust.
There's one more of their "core values" that I think really makes App.net different:
We are operating a sustainable, predictable business. App.net will always have a clear business model. We know that depending on services that could go away or desperately squeeze users for more and more money is a toxic cycle.
All I can say is "Amen!" ... and apparently many others have as well because the attention App.net is now getting is huge.
Moreover, the list of third-party developers who have already built "stuff" on top of App.net is impressive and includes Web applications, Web services, libraries, command line tools, browser extensions, and applications running natively on iOS, Android, Windows, OS X, and Linux.
When the value the current major players offers to users fades away, as it will, eclipsed as it will be by an ever-growing constellation of increasingly intrusive advertising, it will be the rich ecosystem that's grown up around the level playing field of App.net that will offer the kind of social connectivity in a context that people really want and need.
Gibbs is enthused in Ventura, Calif. Express your excitement to email@example.com and follow him on Twitter and App.net (@quistuipater), on Facebook (quistuipater).
Particular thanks to both Marc Poirier and Dalton Caldwell for their time and comments.
Read more about lans and routers in Network World's LANs & Routers section.
This story, "What comes next as Facebook and Twitter slowly die?" was originally published by Network World.