The Golden Age of Internet Marketing?

"Let the products sell themselves... fuck advertising, commercial psychology ... psychological methods to sell should be destroyed." - The Minutemen, Shit From An Old Notebook

We have enough data now to realize that display advertising on the Internet doesn't work. Some suggest click through rates are as low .09%, a shockingly low number. It seems like click through rates are trending towards zero. Users don't notice the ads, they don't click on them. Ultimately, will we eventually see Google giving impressions away for free?

No amount of targeting, behavioral or otherwise, will solve this problem.
There are a number of reasons why, but the main one is that display ads online are the wrong metaphor. They come from a construct where web services were viewed as "pages" - magazine pages. They were invented by applying an old model (magazines) onto a new medium (web services) and assuming that the user is a "reader" and will accept being interrupted. Over time, the web has proven both these paradigms to be untrue in a truly profound way.

In short, web display ads are not web native; therefore they do not and will not work.

However, it also feels like we are about to enter a new, maybe a golden, age of Internet advertising and monetization. Even the word “advertising” in this new golden age is not accurate. Josh Stylman said to me that “advertising as we've known it is dead. Marketing on the other hand, may be entering a golden age with the ability to spread ideas in a way that pundits only dreamed about 10 years ago.”

Web services now exist at a scale that dwarfs the old “web page” model, and the value that many of these services deliver derives from users as contributors, not simply viewers. They then lend themselves to native business, or advertising models (again, the word advertising hardly applies here because this is not like advertising as any of us currently imagine it).

These new emerging revenues streams will be native monetization models that are consistent with the fabric of the product, that run with the grain of how users interact with and use the service. Google ads are the perfect, and prototypical, example, because they deliver a unit in a manner consistent with the way the user is using the product to search for information. These units generally work because they align the interest of the three interested parties in a search: users, marketers and publishers. Users get what they are looking for; marketers' get performance on their spend because they buy against the search action itself; and finally publishers generate traffic from the content.

Other examples - new marketing products - now emerging that are beginning to solve the user behavior/marketing experience include StumbleUpon Paid Discovery, Twitter Promoted Tweets, Buzzfeed Social Content, Facebook Sponsored Stories, Percolate Brand Curators, foursquare for business. Those are just six examples where the “ad” unit is consistent with, and integrated into, the very fabric of those social services themselves. Six examples developed only in the past few years.

I imagine Tumblr, Instagram, Soundcloud and other services will introduce similar initiatives, again that are consistent with the way their services natively work. These platforms, as James Gross of Percolate likes to say, are brokering interest across vast information networks, so in order for a brand to succeed they must broker interest in a native way that makes people enjoy them.

These are all new, and as a result will cause some confusion amongst the “buyers” of the products (as Fred says, The Fragmentation of Online Marketing), in the same way that Google ads originally did. They will take a while to be adopted, maybe even years. But I believe they will work and scale. Because when they do, hardly anyone will even notice them. “You want to not look like an ad at the first glance, but to look like an ad on the second glance.”

The products will sell themselves.

American Censorship Day

Today is American Censorship Day, so named because there is legislation working its way through Congress that would materially harm innovation and impede speech.

You can read about why so many of us feel so strongly that this legislation is particularly harmful in these places - I picked out just some of what I have read this morning that articulates how harmful this would be:

USV - Help Protect Internet Innovation

Bijan Sabet

Embedly

Albert Wenger

It's worth being informed here, these potential laws would affect how we all interact with web services. It's why the censorship logo will remain on this page for now.

5 Minutes of Happiness Each Day

My friend Mike White told me the other day that he uses the photo sharing service Instagram because it makes him happy. That stuck in my head.

So I remembered that the mission statement for the Cheezburger Network is "5 minutes of happiness each day" and I was thinking about that statement and how powerful it is.

It says nothing about the product or service, but says everything about the way they want you to feel after using the service. If you didn't know what the Cheezburgers were all about, you can imagine any number of things they might deliver to give you those 5 minutes of happiness.

I use Wordnik all the time. Not because I am looking for word definitions (though it delivers that), but instead simply to look at words. Their mission: "Wordnik is all the words, and everything about them." Again, nothing really about the specific product functionality. I have a list over there called "Good mouth feel words" - words that sound nice when saying them.

Turntable.fm is also a daily stop for me, particularly the Folk/Americana/Blues/Soul-It's All Connected room. That service's theme: "we believe music is better with friends." Music. Better. Friends.

Defining services around a grand theme or even emotion allows them more flexibility to deliver interestingness (noun: "the power of attracting or holding one's attention because it is unusual or exciting etc.) and over time iterate on that delivery - how it might evolve. Flexibility should be a hallmark of an evolving business.

But defining a service thematically should also provide more opportunities for new, native business models to emerge from their usage. You can't slap magazine style advertisements on these services and expect them to work - for the user or the advertiser. I bet however that business models centered around "themes" - whatever they may be - will work.

Self Expression through Social Media

Chris Poole, founder of Canvas, "a place to share and play with images" gave an amazing talk the other day, Self-Expression through Social Media, you can see it below:



Chris speaks about how identity intersects with the forms and methods of self-expression. He says that, for services that enhance self-expression, it's not the audience that matters, it's a users' context within that audience:

"Its not who you share with, it's who you share as . . . Identity is prismatic . . . We are all multifaceted people, we are more like diamonds, you can look at people from any angle and see something different and yet they are still the same."

Pseudonymity provides opportunities for rich expressiveness. Further, pseudonymity not only accurately reflects "prismatic identity" but it can also enhance creativity by allowing for creation and sharing from different sides of the diamond. One only needs to look at Canvas, or Tumblr, or Reddit for many examples of this.

"Its not who you share with, it's who you share as" is an amazingly insightful description because it recognizes that the power of social applications comes from the people, and even moreso its comes from what they call themselves when sharing.

Everybody wants to be special here (In praise of pseudonymity)

In real life I am who I am. As Boon and Watt once wrote: "Real names be proof."

But does a name, a real name, an identity, capture the full richness of personal self-expression? I'm not sure it does - indeed I believe that one of the promises of the Internet is that online social networks can allow for different personas - ones for different times or different subjects or different modes of expression. And this is an amazing thing, for one identity does not fit all. It's also amazing because it allows for the full spectrum of human expression.

Identity, like most things, is not monolithic. It's rich, varied and textured. And our online modes of expression should allow for that texture, particularly in what we name ourselves while expressing.

I use tumblr to express myself through music - songs, photos, quotes, randomalia. I go by the pseudonym newspeedwayboogie - not using my real name - because, well because I don't want to be Andy Weissman over there. I want to be someone else, the part of me that is obsessive compulsive and ridiculous about another subject matter.

So over there I chose to use that pseudonym, and not be anonymous, but instead to have a persona that reflects that subject and my expression of it - and nothing more. Sure, that expression may have resulted from late night dorm room shenanigans, but so what? And as a service tumblr makes it easy - and in fact I think encourages - the use of pseudonyms as personas. I've met some fantastic friends who use pseudonyms - Miles Smiles, Vast and Grand,Further From Age. Most of the time I have no idea of the real identity of these people, and I don't really care, because I can tell you so much about them and who they are as people. Their identity is secondary - their expressive persona is primary.

Certain services in fact thrive in creativity in proportion to their embrace of pseudonymity. Examples include tumblr, but also many more - Live Journal, Twitter, Canvas.

Chris Poole - Moot - says that anonymity enables users to express uninhibited creativity in a completely unvarnished, unfiltered way. "Anonymity is authenticity" is how he puts it. I think he is really talking about pseudonymity here - as Jyri Engstrom recently wrote: "A service that aims to become the default arena for online social exchange globally should allow pseudonymity (which is really what we're talking about when we talk about anonymity) and, in some cases, even encourage it."

Or, as Jyri also puts it: "Were you ever the nail that sticks out, at some point in your life?" To which I would add, that nail reemerges in life, often and always. People need places to express how they stick out while being able to assume other personas, for whatever reason they think is appropriate.

Paul Westerberg (in perhaps his greatest song) wrote that "Everybody wants to be special here" - which has always struck me as the most astute observation about human nature. The best online services are the ones that allow us to be special there, and name ourselves whatever we want in the process of expressing how special we are.

How I Get Excited About New Ideas

My friend Anthony recently wrote about a six step process he uses to determine whether a new idea he finds out about, or a new company someone is starting, or a new product being released, is interesting to him.

He emailed and asked me how new ideas catch my attention. For me, it's not a methodical list, but there are certain aspects of ideas, or companies, that always seem to grab me:

1. Can I relate to the problem being solved: does it solve some rather large problem that I, or someone close to me, has experienced and that I (or we) have explicitly acknowledged how the solution would make our lives (and the lives of many others) easier or better. In other words, does it matter to me? Similarly, if it doesn't matter to me specifically, does it look like it may matter to alot of other people. Did the inventor of this new idea create it to solve a problem of their own.

2. Can I relate to the pleasure being induced: does it make me happy, smile, laugh or cry? Do I feel an urgent need to call my wife asap and tell her about it? Is this something I'll mention at the dinner table that night ("guess what I saw today"). Did the inventor of this new idea create it to produce a pleasure they wanted to experience themselves.

3. Does it do something in a new and unusual way? Does it make me think (or say, upon initial glance) "Oh shit that is really cool." Does it let me experience something in a completely novel way.

4. Does it look pretty? If it is a web service do I remark to myself how amazing the things that can be done in the browser these days are? Am I sure that there is no way that I - who can barely draw stick figures - could ever conceive of something that looked and worked like that.

5. If I am thinking about something as a business, does it seem like it could be a company and business that captures and exchanges value in a new way; is there some business model whereby it can generate revenues and profits in novel and unusual ways - in ways that are consistent with the grain or fabric of the use cases it engenders, and not simply as bolt-ons.

6. Is it something that I could not imagine being done five years ago? Does it feel like something that can remain unusual or unique five years hence.

7. Did I encounter this idea, service, business, in a completely random, unexpected and serendipitous way.

8. If its about music I will sine qua non be interested ;-)

How do new ideas catch your attention?

The Fitness Function of a Venture Capitalist

"The fitness function of a venture capitalist — meaning the metrics of performance, the report card — is pretty pure. You show up with money, and one way or another more money has to come back than goes in." Bing Gordon

Oftentimes it's best to reduce things to the base elements, in order to really understand things. I am fascinated by the transformation that has occurred over the last five years in the funding of early stage technology companies, and the resulting transparency around this process. Angel investors, seed investors, micro-VCs, angel lists, secondary markets, no-cap convertible notes, liquidation preferences, etc - these terms and concepts, once arcane, are now discussed and debated openly and with vigor. And this transparency leads to efficiency.

But it can also lead to a form of confusion. For the job of a professional investor is simple - to gain a return on money. To deliver outsized returns relative to the risk - some level of returns greater than can be achieved by, say, investing in public liquid markets.

A venture investor can achieve this with numerous tactics: stage focus, sector focus, geographical focus. Expertise in financial matters, marketing, relationships. Friendly, fair terms. Incubation. Doubling down. All these matter, but they are merely tactics.

The strategy, in turn, always remains the same - "more money has to come back than goes in." I like to say it as "own large pieces of very big companies." Either way, the spread between the money that has gone out and that which has come back is the measure of success, and it is the only measure of success for a venture investor.

What's Old is New

The folks at the Tribeca Film festival were kind (or silly) enough to ask me to write something for their Future of Film blog.

Which I did - entitled "The Faster We Go, The Rounder We Get."

I'd been thinking alot about how users are getting content, how they are experiencing it. It seems that in an on-demand video world (which if we are not there yet, we will be soon), the problem that is being solved is "what can people watch." But the real challenge, however, is not what can people watch, but what should they watch. I think that social media will solve this, to me much more interesting, problem. My thesis that I wrote about over there is that:

Social media changes everything – at least it should. So how can it change the way catalog content is distributed and experienced?

And the solution may just be that social media can make events out of the back library of content that comprises our experiences, our passions and our lives.

Between Thought and Expression Lies A Lifetime

Lou Reed wrote this line (my favorite lyric ever) in the context of relationships (I think). But it's much more applicable than that.

Ideas for new businesses are amazing, wonderful, creative things. What makes ideas so interesting is that they are unbounded by limits - they operate solely in the realm and palette of a person's mind. As far and wide as one can imagine, one can develop an idea for a new business that solves a huge problem, that scales infinitely, that is wildly profitable. The possibilities are limitless.

And therein lies the problem with new application ideas and expressions - they have no limits. They are too broad, too creative. Ideas are too good.

It's what comes next that is so much more interesting - the point (the "lifetime") between taking that idea for a new application or service and actually expressing it in a real form. Building it. Prototyping it. That's when your ideas are subject to limits (technical, execution, market, financial) and those limits actually test your theses and tenets. Prototyping shows you where your assumptions were wrong, maybe, and how your idea may be even better than you thought. Most importantly, it subjects your idea to numerous unanticipated constraints.

I was with a friend the other day who is planning to build an awesome new service that I would use and pay for - it solves a real problem, it scales, the market is right for it. I desperately want him to prototype that service - I want him to see where his thinking is off, how some user/testers will actually use it, how web technology can't scale to this problem. I want him to know where he is right and wrong in his thinking.

This step - the expression step - is just that, a step. It's interim, it's likely to never see the light of day. But it is the most important, and the hardest one.

Because it takes something limitless and subjects it to real life constraints, the point between idea and execution can last a lifetime. But without moving onto the expression, there is nothing.

Get Up, Shower

Tim Devane - who we luckily hired last year - wrote an essay about how he, a kid right out of college with little work experience, landed a job. Tim is a wonderful writer, but his top line tips are so insightful. I am summarizing below, but please read the whole thing:

1) Get Up, Shower

2) E-mail Constantly

3) Move Where You Want To Work

4) Don’t Stop Believing

5) Can’t Knock The Hustle

Maximizing Serendipity

The title of this online space is "Maximizing the serendipity around you" which comes from Nassim Nicholas Taleb's The Black Swan, and is as much of a universal business rule I've ever heard and followed.

To me it means that you have to increase the chances of something random happening to you, you have to increase your chances of being lucky. It fits in with another theory I have, which is that it takes alot of skill to be lucky. It takes alot of effort to get yourself into the right place so that when luck, or randomness, or serendipity strikes, you capitalize on it.

I suppose that means there is no such thing as luck, and we should all start instead adding "Good serendipity" to our salutations.

Adherence to this principle means you have to not only embrace randomness, but you have to increase your chances of randomness happening to you. But this is hard to do because it implies a lack of structure and form, and formlessness can be lethal. In another context Peter Coyote once wrote: “When you live without the limits of law or convention, you must supply your own. If you don’t, or can’t, formlessness becomes terminal.”

So how do you maximize serendipity?

I believe there are two main qualities that define a successful entrepreneur or investor. The first is pattern recognition. The ability to use experience or insight from past patterns to have a viewpoint on future markets. "I know how this movie ends."

The second quality is conviction. The gut, visceral belief that what you are doing is right regardless of what anyone else thinks (and indeed opposition often increases levels of conviction). "I don't care what anyone else thinks."

These two qualities are in tension and inconsistent with each other. But that's what makes the combination so powerful. Indeed that very tension can be the boundary line between success or failure, and it's a tightrope.

But if you get that balance right, you are in the best position to maximize serendipity. Which means you are in the best position to be successful.

Escapin' through the lily fields I came across an empty space

There has been much debate in the last week over platforms, holes, products and ecosystems.

All of it made me think back to my youth, the days of AOL, around 1995-1997. Back then, one of AOL's innovations was a publishing platform (Rainman - Remote Automated Information Manager) which allowed thousands of content producers - of all sizes and skills - to publish into AOL. As a result, back then the breadth of content on AOL was remarkable and filled every possible niche. It was a wonderful, rich, vibrant community of content. I joined AOL back then because Geoff Gould published his Grateful Dead forum on AOL (keyword: Grateful Dead, I recall) - one of the first online communities. Indeed you can still see today he uses the same modified AOL logo he used back then:


As a platform, this worked precisely because AOL provided the two key components every platform must deliver to create value: distribution, and monetization. AOL offered distribution through its thousands and then millions of users. It delivered monetization through its pricing scheme: users paid AOL for Internet access by the hour ($6.95 or $9.95, I can't recall) and content providers got paid a percentage of the hourly rate related to the time users spent on their AOL pages. It worked, it worked well, and literally thousands of flowers bloomed (think about the analogies to the Facebook platform, or iTunes store, or Windows OS - offering distribution and monetization always works). The platform succeeded . . . .

Until it didn't.

The Internet business changed, completely, in 1996 when the AT&T WorldNet Service began offering"all-you-eat" (unlimited access) pricing for Internet access. AOL (as an ISP) soon followed suit, as it had to do.

This destroyed AOL's original platform, as it could no longer share variable usage revenues with its content partners. We spent much of 1997 renegotiating thousands of these deals. The revenue stream for these guys ended. I can only imagine the outrage and headlines and hating if this happened today. But AOL too had to change its business.

A funny thing happened, however. Smart content providers realized they could - indeed had to - move to the nascent web. Over there - using HTML - much more rich content experiences and applications and commerce services could be launched. And over time more users would migrate to an open web entry point. The good ones created good businesses, even some iconic ones (early on we negotiated hard with the NY Times - an early AOL partner - as they considered moving their content off AOL - and onto the web!). Others failed. AOL had to flip its business model outside of access fees into advertising, commerce other services. Web browsers became the primary presentation layers, not the ISPs.

Innovation didn't die - instead it flourished into new, related and unrelated, spaces.

History tells us that markets get flushed, always and often. It doesn't matter what we call them - holes, ecosystems or whatever - but things change, business landscapes alter their foundations, and companies themselves are often the catalyst for those changes. But each time good execution survives, and more opportunities are created than those that are filled. It always happens this way.

Comin', comin' around, comin' around, in a circle, indeed.

Users Experiences

I was thinking this morning that one way to create a service of real value is to ensure that the way a user experiences that service is commensurate with the value you are trying to deliver to the user. Feels like a simple idea but harder in practice.

For example, Foursquare. Stated mission: find your friends. With the mobile app, iphone version at least, for a user to get that benefit - finding their friends - requires only two taps of the thumb. Nothing more. Which makes sense - simple user experience here not only works perfectly but is in fact consistent with the initial effort required for a user to have a successful interaction with the service. Of course, there is much more richness to the application - but the initial, baseline experience is in line with the benefit of the services' goal.

Which doesn't mean that simplicity in itself is the answer to the design of users experience. Contrast Hunch. Stated goal: customized recommendations that get smarter the more you use it. To get those recommendations requires some effort by the user - there are a number of user touch points - questions, search, likes/dislikes. As I see it, Hunch does not shy away from presenting to the user a bunch of inputs and experiences. Indeed, the services' value proposition (better recommendations) is of such high, personal value that it implicitly and explicitly requires a deep experience for the user to get that value. Again, an experience consistent with the stated mission.

Finally - Dailybooth. Really only two things to do over there - take a picture, or comment on a picture. But that's precisely the value proposition: document and share your life with others. The experience and functionality are consistent with the value a user gets.

So while I am able to check in to Foursquare while at breakfast and see who else is there, all in 5 seconds with only my thumb, I am going to spend 10 minutes back at my desk figuring out what pair of headphones to buy. And later on spend a few minutes catching up with Jon's life, in pictures and words.

To me, the key innovations of these three services, to use just a few examples, are simply in how they present user experiences (and the design that comes along with that) that are completely consistent with the value their users receive from experiencing the services that way.

Venture Innovation, or why the First Round Capital Entrepreneur's Exchange fund is good

There is an amazing wealth of innovation around early stage venture financing, most of which developed in just the past few years.

There are new models of creating companies out of innovation: Seed Camp, Y Combinator, Tech Stars are just three, all with different foci and core strengths.

Then there are new sources of financing - groups or people that literally didn't exist as early stage financiers just a few years ago: O'Reilly AlphaTech Ventures, True Ventures, Jeff Clavier, First Round, Ron Conway & Co., Roger Ehrenberg, Chris Sacca, Dave McClure, TAG/Saul and Robin Klein etc. I call these "quasi institutions" because while in some cases they are or have traditional ventures partnerships, they act very entrepreneurially - they move fast, they move often, they are heavily collaborative, they focus on the seed, they are very active, they have alot of fun. In many cases they are run by operational entrepreneurs themselves. Their existence alone is innovative.

Then there are new economic models - Founders Collective being the most prominent now, ("None of us have ever been bankers. We like products and building stuff. We show up on time and don't email during meetings").

On top of this framework First Round announced last week that they have set up an "exchange fund" for founders of companies they have invested in. Josh Kopelman writes that the fund will:

"allow First Round Capital entrepreneurs to contribute a small piece of the stock they own in their company -- and share in the upside of all the other companies."

I don't know any details of this "exchange fund" and absent those it's hard to know how it will work, but in any event I think this has the potential to be truly disruptive and innovative for at least five reasons:

(1) Removes some entrepreneurial stress. Again, Kopelman: "When I was an entrepreneur, I remember the feeling of having all my eggs in one basket -- and it is our hope that this fund will remove some of that stress." The idea being that removing some of this stress can lead to the companies these entrepreneurs run executing better and more efficiently.

(2) Promotes more effective sharing and collaboration amongst the First Round companies. I think FR is better than most at providing opportunities for their companies to collaborate, yet this now creates a framework for these activities. Of course you are going to work harder and help your neighborly First Round company - there are shared economic benefits. Every entrepreneur in the portfolio now acts as a part time EIR.

(3) Strengthens the First Round brand and reputation. Yes, they are a solid team. With a great set of companies. And track record. Now when they invest in your company you have an opportunity to share in the greater network. Competitive differentiation.

(4) Incentivizes (sic) the First Round team to continue to be great investors. For now not only their reputations and money are on the line, but they themselves need to work harder to ensure their portfolio is filled with great companies. If not, the value of the exchange fund is diluted. This it the most interesting to me - part of their business is now tied directly to their entrepreneurs' collective success. Josh writes that the fund is for the benefit of their companies - it is, of course - but FR just put into place a structure that I think will make the FR team work harder, and better. Brand equity is hard to build, and even easier to lose. They've now got a pool of founders' equity that they can enhance, or devalue. Talk about putting yourself on the line.

(5) Venture funds by structure are money managers. They get paid to manage a pool of money and then get a piece of the upside on the returns of that money. Very simple, well known. As a result, there is no inherent value in a fund qua fund - it's a collection of assets the value of which is driven by the partner's track records and reputation. But with the exchange fund, First Round as an institution above and beyond the asset management has value. The decision a founder makes to take money from First Round may be driven in part by this exchange fund, and how well it may do.

There are undoubtedly issues with this exchange fund. But, it's a great example of a virtuous circle - each component of the program strengthens and enhances each other. Founders may want to take money from First Round because of the program; the companies in the portfolio have incentives to collaborate more efficiently; the First Round team has to work harder to ensure the collection of companies is quality; the whole brand is enhanced.

In short, innovative.

You Can't Make Word of Mouth Viral

"Virality is something that has to be engineered from the beginning…and it’s harder to create virality than it is to create a good product. That's why we often see good products with poor virality, and poor products with good virality. The reason that over $150 Billion is spent on US advertising each year is because virality is so hard. If virality was easy, there would be no advertising industry."

Josh Kopelman

This is self-evident, of course. But raises another issue, a common misconception, that bugs me.

Positive "word of mouth" - the passing of information person to person - is an important (maybe the most important) component to growing a service. However its not the same thing as service being viral. Virality at its purest and most scalable form means a service that through it's very usage advertises and spreads itself.

Word of mouth is casual, yet the active sharing of brand - positive or negative experience with a good or service. Virality is causal, yet the passive compound effect of interconnections being maxed out.

They are totally different things.

The Pay Pal service is viral. So is Venmo. As is bitly. A user's usage of those products - without anything more - markets the products themselves. This has nothing to do with word of mouth, which is not viral, and is also not directly trackable from the usage itself.

Viral is interesting because of the compounding network effects that result from the usage. With the right use case usage can explode, literally, and it can be measured.

In the past few years a newer, and potentially more interesting, type of virality is emerging - virality via API. Because the idea of virality is about interconnecting nodes, where a product or service is built using the API of another - the API providers service spreads, automatically. TweetDeck utilizes the Twitter API; TweetDeck's growth and usage thus increases Twitter's usage, without any explicit action by the user. The nodes interconnect. API sprawl enables virality (as Greg Battle once told me)

But this ain't word of mouth. Word of mouth doesn't scale. Virality does.