Tag Archives: lead-gen

The Social Networks that Are (and Would Be) King

man_who_would_be_king_w_masonic_280pxYesterday, I argued that the reason that Groupon is worth 100x the value of MySpace is inherently due to the Total Net Value of the connections between their members. To create a social network with value, you need focus on using it to create valuable connections between members—from two different points of view:

  1. Your members must easily see more value from maintaining connection on your network than the time and effort required
  2. Your company must be able to realize higher revenue from these connections than it costs to operationally support them

If you achieve the first point, your network will organically grow quickly through word-of-mouth. If you achieve the second, you will realize value from this growth. When you combine both together you tap Metcalf’s Law to generate valuations that grow geometrically, becoming a Social Networking King.

Applying this to today’s four Social Networking Kings

Looking at today’s leading social networks through the lens of Net Connection Value explains why they are so large and valuable:

Twitter

Many have questioned the value of Twitter: some love it; others simple do not “get” it. Regardless of how you feel about it, Twitter is the King of Low Cost Networking. It currently has an estimated value of almost $7 billon.

From the member’s perspective, connecting with others (and maintaining these connections) requires the minimum amount of effort possible (i.e., one click). As such, the value I obtain from perusing a Twitter stream, even if it is minimal, comes at no cost to me. This has fuelled explosive growth.

From Twitter’s perspective, the cost to maintain each member’s simple profile and the sharing of 140-character messages is also about as low as one can get (just compare it to the cost of hosting and sharing videos on YouTube). The trick is focusing on extracting revenue from this low cost—something Twitter is doing more of these days.

Facebook

Everyone focuses on Facebook’s sheer size. However, Facebook is the King of Personal Connections. It is the most valuable social network in the world, valued at up to $70 billion on the secondary market.

When you ask people why they are on Facebook, they talk about how much it does for them: it makes it easy to keep in touch with friends, share pictures, etc. Thanks to the Social Graph, it is just easy to use Facebook to share things of interest you find on the Internet with your friends. To most, the value of Facebook greatly exceeds the effort required (and associated privacy risks). This is why it is so big.

This size is critical to Facebook’s success. The cost of maintaining so many images, posts, etc. is not cheap. However, Facebook is now so large that it is sitting on one of the most valuable—and exploitable—demographic data sets in the world. This provides enormous selling power for advertising and eCommerce. As Facebook continues to grow, its profits will grow geometrically (a simple expression of Metcalf’s Law). However, if it shrinks one day…

LinkedIN

LinkedIN is the King of Professional Connections. Three years ago it became my primary Rolodex. It has filed for an upcoming $170-million IPO, which would give it a $2 billion valuation.

People join LinkedIN because it gives them immediate value at virtually no risk. With minimal effort they get low-level advertising of their professional background (and can maintain low cost connections with colleagues they meet). Increasing their activity brings higher rewards, from outreach by headhunters to demonstration of “thought leadership” on professional groups.

LinkedIN’s has taken great proactive steps to extract as much value for cost from its members and their connections. Its data is highly structured, enabling very targeted searches. This is good for advertisers, recruiters, sales professionals and anyone seeking a job. This has given LinkedIN pricing power to charge for higher-fidelity searches, targeted advertising and job postings.

Groupon

Groupon is the King of Social Commerce. More specifically, it uses social networking to make real-life shopping networks easier and more efficient for all. It has been valued as high as $15 billion.

Consumers join Groupon to save money. They recruit their friends to save more money (and have fun shopping together to save). Businesses join Groupon to sell more of their existing inventory (if they have excess inventory, they have a clear reason to join; if not, they have no need). The value of Groupon to members is as clear as it gets: it’s all about money.

The cost mechanics of Groupon’s technology infrastructure more closely matches that of a commerce platform than a social network (i.e., the revenue it obtains from each transactions is far, far greater than its cost). It simply needs to get large enough (something it has already done) for this revenue to pay for its underlying capital investments. This is a very clear financial model for investors.

What is interesting about Groupon is its human network: it relies on thousands of employees to find sellers and close deals. On the negative side, this is labor-driven cost; on the positive it is a huge barrier to competitors (and a proven financial model). Again, Groupon’s size wins out (due to Metcalf’s law). Of course, the way to beat this is to add social networking to an existing sales network with existing connections…that is another post.

And the Social Networks Who Would Be King

gorgeSimilarly the Net Connection Value concept explains why other social networks have failed to create similar value:

MySpace. MySpace is Facebook “gone wrong.” It targeted the wrong demographic, leading most to question the value of joining it. This led to smaller size and lower ability to extract value from connections between its members. It is now selling for 15 cents on the dollar.

YouTube. YouTube is an interesting idea. However current technology infrastructure costs are enormous. So far, it is still struggling to achieve profitability. However, I would bet that Google is the company who can eventually make costs low enough to extract search value from its content.

Flickr. I use Flickr so I can share pictures beyond my circle of Facebook friends. However, to most people Flickr is a specialist provider of a service Facebook already provides—without the need to sign up for an administer yet another login. Many are asking if Yahoo! will eventually disband Flickr.

Delicious. I was an early Delicious user. However, I have not added a bookmark in over a year. It too, is a specialist service that Facebook already provides—with one-click—through the Social Graph. Yes, Delicious provides better organization. However, to the average user the effort is not worth the benefit. The future of Delicious is also in play.

White Label Social Networks. Since 2005, many companies have strived to create their “own Facebooks, YouTubes and Twitters” for their employees, partners or customers. Their small size and focus makes them victims of Metcalf’s Law—when it was free, the average Ning network had less than 10 people. To combat this, they need to focus their perceived value as high as possible—and to relentless focus on business returns that outweigh their costs. Some have done this; others have not.

Good Architecture: Extensibility (a.k.a. How I used polymorphism to convert a lead-gen project into a service responsible for $1Bn of value)

“Write Once, Re-use Everywhere” takes more than publication of APIs

We have all heard the mantra, “write once, re-use everywhere,” to describe the concept of creating technology that can not only “work” on every operating system (the mantra of Java) but also used ubiquitously to create value in many places. When I ask people how they aim to achieve this, I usually hear the following recipe:

  1. Build resources (modules or applications) that can be invoked remotely
  2. Front them with APIs to invoke these externally—without a need to understand what happens internally
  3. Publish these APIs
  4. Open access to these APIs and resources to external users (or setup simple operations that enable external users to quickly and easily obtain access)

I then usually hear an explanation of the exact technology this will use (e.g., RESTful services, published WSDL) followed by a deeper dive into implementation details…

However, this only gets you what is describes: services that can be accessed by many parties. It does not guarantee that you get services that are useful to others, i.e., services people will want to use to create value. To achieve this, you have to incorporate the principle of Extensibility into every aspect of design, development and operation.

Why should I care about extensibility?

Innovation always takes directions that we cannot imagine. Just look at the following quotes:

“This telephone has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.” – Western Union internal memo (1876)

There is no reason why anyone would want a computer in their home.” – Ken Olsen, Founder, Digital Equipment Corp. (1977)

When unexpected turns in innovation occur, where to you want to be: ready to exploit it or racing to rebuild your technology:

“Luck is what happens when preparation meets opportunity.” – Seneca the Younger, Roman Philosopher (First Century CE)

Embedding extensibility into your technology (from Day 1) ensures preparation for opportunity.

Depicting extensibility in the constitution for good architecture

Extensibility was the third article in the Constitution for Good Architecture I wrote ten years ago. It built upon the concepts of Modularity & Encapsulation and Isolation of Logic, adding principles that enable these modules to be easily re-used and extended to places the developer could not even imagine when writing the module or application.

Article. III. Extensibility

Section. 1.

Solution providers shall polymorph module functionality to enable re-use and expansion by multiple client modules and applications, current and future, without significant internal code changes. Significant code changes are those, which change the underlying data sets and core functions used by all entities or modules.

Section. 2.

Solution providers shall polymorph module interfaces to enable re-use and integration across multiple access channels (e.g., browser, call center client, mobile device) without significant internal code changes

Section. 3.

To prevent inadvertent or unauthorized use, all modules shall use partition available functions and interfaces based on credentials provided by the invoking user. User credentials define who, what and where the user is (e.g., user identity, role, type, location.)

You will (again) notice that I avoided use of specific object oriented technologies (as these would be self-limiting). When I wrote this, C# did not exist yet (and C++ was still more pervasively used in many places vs. J2EE.) Today—ten years later—this is reversed (and sites like LinkedIn are built entirely on Ruby on Rails).

Evaluation of extensibility of currently hot technologies

Let’s take a look at the extensibility of some very hot technologies:

  • Apple iTunes: Originally this let you manage music downloads to your PC or Mac, later it expanded to let you manage music on your iPod device. Later it expanded again to let you manage music, videos, contact lists and calendaring on your iPhone, then later it expanded to let you publish and purchase tens of thousands of applications. Overall: Great Extensibility
  • Twitter: Originally a web site to let you publish where the good parties where. Then they launched APIs that let hundreds of developers embed this functionality into their sites and applications. However, it is still doing much of the same thing, essentially a Party Line of streaming messages.” To make it truly extensible, they will need to enable let people use this information more intelligent (e.g., better searches, publication based on patterns of content. Overall: Fair Extensibility
  • Facebook: Originally a web site to share information on Ivy League students. However, not only did they expand to new segments (the “Over 35” segment is their fastest growing one) but they also enable developers to build applications and inject them into the Facebook network. The potential for this to create business (and public) value are enormous (but have not yet fully emerged). The next step is close—enabling these applications to drive leads and commerce or conduct public comment and moderation. Overall: Good Extensibility

My largest success with extensibility

It began with targeted co-registration and up-sell from the call center

About twelve years ago, AOL began to run a cross-registration program out of their call centers. This allowed them to generate extra revenue by up-selling partner products. Ten years ago they had an opportunity to significantly increase this revenue by selling a high-value, pre-qualified product. However, this required the ability to limit up-sell of this product only to people on the pre-qualified list.

A common approach would be to bounce each caller’s name of a daily list of qualified members. However, this would not have let AOL earn nearly as much money as it was adding new members every second. As a result, AOL needed something that could qualify people in real-time. I was asked to come up with a solution

AOL was the kind of place that let us create new technologies and approaches when faced with never-before-seen challenges. As a result, they let me build a new method to enable cross-registration—one that relied on the use of real-time date brokering, profiling and decision-making

The birth of the cross-sell service (a.k.a. “XSELL”)

I was lucky enough to work with a lot of really good, creative people at AOL. As a result they helped me come up with generic service that did the following:

  1. Query what a customer was eligible for
  2. Look up what information was available about a customer
  3. Apply rules to determine – based on this eligibility and demographic information – what was the optimal offer to place in front of the customer

It did all of this in real-time. (I can share how we scaled this to 10,000+ real-time transactions per second – even when many of the third party systems we brokered data from could not scale to these levels.)

Twenty-six-fold expansion in less than six months through extensibility

XSELL by itself was a great service. It was fast (95% of transactions took less than 100 milliseconds) and reliable (less than three errors per million transactions). It enabled business owners to make changes to their rules of eligibility, promotion and optimization using a simple Administrative Tool. This enabled it to provide AOL a usd $83 million (76%) increase in profit in the first year alone.

However the real gem was something I never imaged when I designed this in 1999—the expansion of this to every line of business. This was possible due to XSELL’s inherent extensibility:

  1. It did not care what sources of information it queried for eligibility. This enabled us to ad over a dozen sources of third party information–not just from AOL partners but Time Warner partners as well. (We used proprietary caching technology to hide slow calls to third parties from the member’s experience and to enable us to scale these to AOL levels)
  2. It did not care what types of information it used to make decisions. As such, we could simply add many sources of data to our rules for optimization. This enabled us to incorporate everything from real-time activity logs to third party statistical scores
  3. It did not care “what” it was determining eligibility and optimization for. Essentially, this made it an optimization engine for any widget or promotion you could imagine.
  4. It could support invocation from many channels (online, call center, partner XML-SOAP transaction)
  5. It could support invocation by users for many different lines of business. This enabled each business user to maintain his or her own sets of eligibility, optimization and promotion rules—using familiar terms (e.g., product vs. promotion) in their own language (English vs. Japanese)

As a result, demand for XSELL scaled first from 500,000 to 13,000,000 daily transactions within six months; then to over 200,000,000 daily transactions within the next 18 months. Within three years, use of the XSELL Service had expanded to support all of the business areas:

  • Qualification registration for all AOL and partner products
  • Optimization of third-party partner product promotion and co-registration in across online, back office, call center, and point-of-presence systems—within AOL, Time Warner and third party partners
  • Optimization of online content to display to users
  • Optimization of paneling of members into multi-channel loyalty and promotional campaigns—within AOL, Time Warner and third party partners
  • Optimization of routing of callers in call centers
  • Determination of credit and price plan eligibility for customer care
  • Selection of retention offers for canceling members

Resulting in USD $1+ Billion of enterprise value

These combined use of XSELL provided AOL over a $1 Bn of value (in increased revenue through cross-sell and decreased cost through smarter credit and retention management) over a five-year period. This would not be possible without its core adherence to Modularity & Encapsulation, Isolation of Logic and Full Extensibility.

I need to out some key people who helped make this a reality. Really cutting edge software engineers on my team: Ramesh Balasubramanian and Anubhava Srivastava; great managers who scaled our ability to support multiple partners and lines of business: Stan Berry and Clare Little and a fellow Chief Architect who introduced me to the powers of AOL’s Bucky Ball ODD technology: Yan Cheng.

Extending this beyond “Yesterday’s Internet”

I can see using this type of service in many places outside of AOL, Time Warner and its partners. Here’s how I would use it for some of today’s hot technologies:

  • iTunes: Smarter recommendation of things to buy
  • Twitter: Switching out the Party Line with streams or Tweets based on topics you care about. Recommendations of people to Follow – including key opinion leaders to companies to follow and connect with to advance their brand (a potential source of revenue)
  • Facebook: A targeted global feed of new applications, groups, pages, etc. based on your demographics and topics of interest – and third party partners bids on access to members (think “revenue model.”) Smarter content, application, and Friend recommendations.