Wahooly is launching on Tuesday. More on them below. Then the Facebook IPO will apparently be happening on Wednesday, which could potentially start off another big round of startup frothiness.

The overall level of excitement in tech is as boisterous as I’ve seen it in a number of years. Whether it has “legs” remains to be seen, but there appears to be a definite shortage of qualified people to go around. Over the past few months, the number of resumes sent my way has slowly dropped, and instead I’ve been receiving calls from head hunters and startups (although typically they haven’t bothered actually checking what I actually DO). It will be interesting to see whether things actually pick up economically (or even just in the tech world) over the course of the year.

Wahooly is an interesting riff on startup incubators, crowd-funding and viral marketing. The amount of attention that they’ve achieved in the past couple of months is larger than anything I’ve personally encountered. The basic idea is that startups give them a small amount of equity, which they then “share” among their users, in exchange for which the users promote the startup. The amount of “equity” given to each user depends on how effective the users are in helping to market the company in question, according to some internal formula. To avoid market regulations, it looks like they’re giving some kind of virtual equity to the users, rather than actual shares, and the users will only profit directly if there is some kind of liquidity event. Remains to be seen whether it will work (and whether they can keep it on the right side of legality), but there’s already a large number of users who have registered, and approximately 50 to 60 startups to begin with. My approach is to view it as a combination of an interesting source to find out about new startups (i.e. pure entertainment value), a possible deal flow source, and maybe, just maybe a couple of bucks on the side, somewhere down the road. In the meantime, I’ve been chatting with other users on two groups (here and here) that have been started on Facebook, and its been fun.

I’ll be posting regular updates with regards to Wahooly (and particularly the startups that are launching via their system) over the next few months. Also, two startups I’ve been working with are gradually getting closer to Beta launch, and I will have more to say about them as that time approaches.

Image: Carlos Porto / FreeDigitalPhotos.net

I’ve had a number of conversations with people online in the past few weeks regarding the topic of why some people are so good at holding others attention online.

You already know the sort of people I’m talking about – they have tens or hundreds of thousands of follows on major social media sites, and people hang on their every word.

What we were discussing was the ability of people to grab our interest, not general influence (although in many cases these are one and the same people).

As I told somebody on Twitter, I think I have pieces of the answer. Not the whole answer, unfortunately. That would be worth its weight in various precious minerals.

Let’s exclude some of the obvious reasons first of all:

• Real world celebrities (it really helps to have a media company spend mega-bucks on behalf of your personal brand)
• Billionaires
• People with a major real world platform (i.e. CEOs of major corporations)

All of the above have a huge amount of leverage in terms of attracting attention. They could be the most boring people in the world, and still have a huge following.

A few other categories come to mind as well:

• Anybody who is giving away money. Venture capitalists fall into this category, even though they’re not really “giving” away money. From a psychological perspective though, its like they’re handing out lottery tickets though. People are generally going to be highly intrigued by anybody with even the slightest likelihood of handing them a bucket of cash.
• People who post a lot. You probably know examples of who I’m referring to – the people who post on Twitter every 30 seconds, and haven’t stopped in years. Pure random chance is likely to result in at least one post eventually connecting with virtually any other user of said site. On the flip side, they tend to have a lot of follower churn as well. And they also likely go through a lot of turnover in staff. Just saying. Relentlessly posting random material on somebody else’s behalf is a soul-sucking job.
• Experts. This includes world-renowned experts in particular niches (think famous scientist), awesome photographers, or people who have the secret to why some people are more interesting than others (and other marketing tricks). Some people who spend their time talking about SEO and blogging seem to inspire huge followings in particular.
• Talent. An awe inspiring talent can really hold everybody’s attention.
• Genuinely funny individuals. Let’s face it, when you spot something that really cracks you up, you’re much more likely to share it with your friends. I don’t know if anybody really understands why some people are more funny than others, so this is just an additional riddle that needs answering.
• People who have had something newsworthy happen to them. This can lead to 15 minutes of fame (sometimes more if the person in question is quick off the mark), but it is too random to really be of much use. Unless the newsworthy event in question was actually planned…

Or maybe its just all about how you say what you’re saying (and your visual presentation), as social marketing expert Derek Halperin writes (his website is an interesting read).

Or perhaps its all about what you do.

In other words, being interesting is some combination of who you are (platform), what you do, and how you (or others) present what you do. If somebody has a formula for that, I’d really like to know!

The underlying notion is that people have a limited amount of free time, and if they’re spending it using social media websites then that activity displaces other – potentially creative – activity. There’s already been a lot written on whether social media displaces actual friendships (answer is: maybe).

What I’ve been finding is that when I spend time on these sites, the quantity of blog posts that I write goes down in proportion to the quantity of posts (or article cross-posts) there. On the other hand, exposure to other people’s ideas has resulted in some cross-pollination.

Which leads to a second point. The social influence tracking site Klout classifies people according to whether they primarily are producers of content, or rebroadcasters (i.e. curators) of other people’s content. To some extent everybody does both. Is it possible that the act of curation could be displacing actual creative output though?

What’s your take? I don’t have a strong opinion on this topic, and I really would like to hear what people have to say.

Flickr Creative Commons - Tracey Hunter

Until recently, Facebook was for friends, LinkedIn was for business networking, and Twitter was for yelling as loudly as possible, while covering your own ears.

Lately the lines have become blurred, particularly since Google Plus was launched.

Facebook now has highly business oriented functionality, some of it third party (various networking and job apps, pages, plus the ability to follow somebody without “friending” them).

Many third party websites have integrated tightly with one or more social platforms.

And there’s significant convergence between platforms (they’re all gradually introducing features that replicate what the other sites are doing).

The result is that the way in which I personally use these sites has changed, and sometimes has resulted in my doing things that just might be considered rude in other contexts.

Some specific examples:

• TechCrunch, a site that I often comment on, uses Facebook’s commenting system. I haven’t decided what to do about people asking to connect on Facebook, as a result of conversations there. I’ve primarily been responding by punting them over to my LinkedIn or G+ profiles, in a nice way of course. I get the sense that some of those people may be offended though, and I’m not sure what exactly to do about that. Facebook’s subscription system is really only a partial solution to this problem. I don’t want to open up my profile to a large volume of strangers though.

• I’ve been trying to be polite by following people back when they connect on Twitter. Unless a profile hasn’t been filled out, or is obviously NSFW or spammy, I usually follow back. Then again, I don’t have a huge volume of activity on Twitter, so its easy to maintain. Its typically pretty difficult to have a real conversation or form real relationships on Twitter though, and I don’t get the impression that people are upset if somebody doesn’t respond back. Plus many people follow in bulk, hoping that some of those people will respond, and then “unfollow” in bulk after.

• The number of interactions on G+ is getting large (at least compared to my profiles on Facebook and Twitter). I’m not at all sure if I’m being rude by only “circling” some of the people who circle my profile. I think I’m going to have to post something there to the effect that I’ll happily follow anybody who at least has a profile filled in (and doesn’t come across as bizarre or desperately trying to sell something), but that I may take a while to get around to it, and that they should feel free to contact me if they want me to respond faster. Again, I’m not at all sure if this would be considered rude. I’ve asked a few people about this, and received a variety of different answers. Grey area, I guess.

• On LinkedIn, I receive a significant number of undirected sales pitches – i.e. people who obviously didn’t even look at my profile, trying to sell me items that I don’t want, in an unsubtle manner. I’ve never understood why they do this, since its doubtful that it works. As far as I’m concerned, LinkedIn IS supposed to be used to aggressively network with other people (I don’t get people who create profiles there, and then don’t use them, or set their privacy settings restrictively), but its difficult to respond to so many off-base pitches. I’ve been responding only to the ones that appear to have been custom-written, and have simply been ignoring the others. Again, unclear whether this is socially unacceptable or not.

The problem really revolves around the inevitable cultural differences between these sites (well that, and the limited amount of time that most people have to respond).

I’m interested to hear from other people about how they use different social sites, and whether anybody has useful personal policies for responding / following / friending and the like.

Indicates the extent to which they recognize the potential threat (as well as opportunity) that their API represented.

What’s interesting is that Google has also been acquiring a stake in Zynga.

This confirms that I was on the right track regarding both Facebook’s and Google’s competitive strategies, although it looks like both companies were way ahead of me!

I’ve recently read a few other articles outlining a number of strategic threats for Google, including here and here. I believe, however, that the following five categories of threats are the most important ones facing the company in the immediate future.

Editors note: if anyone from Mountainview is reading this, I have a substantial idea for Google (talking points: new data sources, new revenue streams, leverages existing infrastructure, and possible re-entry point for China). Feel free to contact me.

1. Direct competition for advertising revenue

The bulk of Google’s revenue still comes from text advertising, despite some efforts to diversify beyond that. Direct threats include Facebook’s ad program, although it isn’t clear to what extent Facebook has taken revenue away from Google. Other (probably lesser) threats include similar text ad programs such as Yahoo and Microsoft Bing. So far Google hasn’t directly responded to this form of competition, although Google+ is clearly an effort to undermine Facebook.

A secondary and indirect threat to AdWords comes in the form of coupon sites, which provide an alternate way for companies to reach their markets. All of the text ad players have products in the pipeline (or in some cases in Beta) to try to directly target the coupon market. It isn’t clear yet (and probably won’t be for a few years) whether coupons are merely a fad, or are here to stay.

To date, it appears that banner (Yahoo owns this space) and video (Google’s YouTube is the primary player here) are not competitive threats to AdWords.

So far, nobody has come up with a credible threat to AdWords. However, the lack of revenue diversity means that Google needs to protect its text ad revenue at all costs. I believe that Google will also continue to try finding new sources of revenue (I’m not smart enough to predict whether they’ll succeed!).

2. Direct competition via app stores

Google’s move into mobile operating systems was originally intended to ensure that Google’s search market share wasn’t undermined in the mobile space. In addition, it provided an entree into the app store space, which has been immensely profitable for Apple. This has brought Google into direct competition with others players in this area, including Apple, Amazon and Microsoft.

These competitors have, in turn, tried to undermine the Android operating system – Microsoft through its patent-driven lawsuits against cellphone manufacturers that use Android, and Apple et al through the encirclement campaign detailed below. So far Microsoft’s campaign has netted it money from some manufacturers for each Android device sold, but it hasn’t (yet) effected Google directly – or increased market share. This is one topic to watch closely in the next year.

Google’s app store isn’t yet a major source of revenue for the company, but it looks like this is one of the areas where they believe that they can see substantial growth. This means that Google needs to obtain new patents (expect further M&A effort here, as well as part of that huge R&D budget), fight existing patents from its competitors (lots of legal action; maybe donations to the EFF?), and modify Android code to avoid further infringement.

3. Encirclement with patents

This is probably the largest immediate threat to Google. A coalition of their competitors recently teamed up to purchase Nortel’s patent portfolio. Google has relatively few patents, most of them developed in-house (as opposed to acquired through M&A activity). The result has been that it has been hard for them to compete in certain specific areas, due to the threat of infringement. Apple and Microsoft in particular appear to be deliberately trying to encircle Google, to make it hard for them to move into new, adjacent markets. This currently primarily effects Google’s mobile efforts, as opposed to core revenue.

4. Closed markets and regulatory issues

In the long term, Google needs to find a new way to get back into the Chinese market. Absence from this market not only means the loss of a huge number of potential users, but also a non-level playing field where new competitors could arise and other industry players could gain an unbeatable lead.

Regulatory issues in Europe and other places could also hamstring Google’s efforts; the implication here is that Google will likely undertake certain voluntary self-regulation with regards to privacy, in addition to increasing its (so far small) lobbying efforts.

5. Innovation

Google’s internal mandate is to be the premier collator of the world’s information. This has taken them in some unpredictable directions (i.e. digitizing libraries, mapping the world). One of the more obvious motives for Google+ is to try to regain lost ground with social graph data; this is the information about who people are, and who they know. The current players in social graphs are closed to Google, in the sense that it isn’t possible for them to see, for example, who your Facebook friends are. The threat of other companies out-innovating them in the realm of new kinds of data is a major driver in terms of Google’s direction. One developing thread is an effort to catalog European parliamentary proceedings (the current pretext is to use this for statistical analysis for Google’s translation engine).

Conclusions

In truth there isn’t much new here, since Google tends to operate in a strategic fashion already.

Look for Google to continue its traditional judo-like approach to competitors. Google+ is probably intended more as a clog in the works for Facebook, than as a direct competitive threat. Continuing to provide Android free of charge is a means of undermining Apple, while (in theory) taking away app store revenue. Chrome appears to be aimed at Microsoft (along with Google Apps).

Google has also used “open-ness” to combat some of its more closed competitors. Their support for OAuth, Open Social and other projects is clearly intended to differentiate themselves as the “open” and less threatening option to a series of “closed” competitors. Expect more free (and possibly open source) applications that partially compete with Apple, Microsoft, Facebook and others.

Google also needs new sources of data. Digitizing libraries is just a start for them. They may want to take a look at the ongoing project to catalog the ancient libraries at Timbuktu. China is also an obvious source of data that they’re going to need to reenter at some point.

Continued M&A isn’t much of a prediction. I suspect that some of Google Venture’s recent activity might indicate the overall direction.

Lastly, their 20% project time policy means that there’s always going to be new applications coming out of the left field of the GooglePlex. Much of it won’t directly compete with anybody, and so far few of these applications can be directly attributed to additional revenue, but they attract attention and drive traffic. I would expect them to continue this policy, regardless of anything that their competitors do. The vast majority of these new products will be so much sturm und drang, but its quite possible that further game changers will emerge.

My reaction so far is mixed.

Its certainly interesting to be able to follow some very influential people, but not going to be feasible to actually strike up a meaningful conversation with them, as far as I can tell. Too many people talking, but few listening.

I’ll probably check in from time to time to see how things are progressing. Google has promised a large number of new features, and they look like they’re integrating it very cleanly into other tools, particularly Gmail.

I always wonder about sites that are focused on Twitter-like feeds though. To my mind, that functionality basically forms the same purpose as RSS feeds. Its just crying out to be aggregated, and then where does that leave the feed sites, or the individual content creators?

Don’t get me wrong: it looks to be a useful tool. I’ve already implemented the +1 tool on this blog. Unless there’s going to be more to it though, there isn’t going to be a pressing need for me to login frequently.

Its a MUD (multi-user dungeon) game that runs in Twitter. It still runs very slowly, and is missing some functionality, but it appears to be working.

There’s a quick and dirty website here with instructions on how to play.

The way it works is that you post messages to the “bot” (or using its name as a hashtag). The bot listens for mentions, picks up your username, processes the game commands, and sends back a response. I still need to implement inventory and armor.

Twitter’s “you already tweeted this” functionality is getting in the way a bit. I find that it is necessary to put a random number at the end of commands in order to make it work properly.

The game is built using Zend Framework, and particularly Zend’s OAuth module, which makes it fairly simple to integrate into Twitter.

Total development time was about 3 days (with lots of breaks to work in customer’s projects). If nice people sponsor me, I’ll put in more effort to add functionality, make it run faster, and add levels. A polished game of this nature is probably a few week’s worth of work, particularly if it integrates picture posting (i.e. images of the room you are in).

Oh and please excuse the silly humor. I tried to make everything as ridiculous as possible, in order to demonstrate that this is just a feasibility test for building Twitter games.

Flickr Creative Commons - markhillary

Its pretty obvious that Facebook considers Google to be its primary competitor, and greatest strategic threat.

Essentially the conflict boils down to the control of information.

You can search for a great many things on Google, but you can’t find people’s social graphs from Facebook (although their basic profile information often does show up).

Facebook has accused Google of attempting to “scrape” this information and index it.

Google has also made significant investments in building its own “social” functionality.

Conversely, Facebook has been attempting to take advertising revenue away from Google, and has built infrastructure to target users with relevant ads.

Facebook’s greatest strength is also a fairly significant weakness. They’ve built a set of APIs that are, in my opinion, a wonder of the software world. These APIs have allowed a robust economy of application developers to arise, including some large players.

The issue, as I’ve previously mentioned here, is that platform vendors always have some tension with their ecosystem, particularly if some of the players are large enough to have clout.

Aside from this tension, having a relatively open API also provides a backdoor for competitors.

Google’s acquision of Slide, one of the larger builders of Facebook apps, is a prime example of this. Many users come to Facebook solely for the purpose of using third-party apps, and having a major competitor like Google as a primary app developer may cause Facebook grief.

Aside from the fact that these apps are too popular to cut off without losing huge amounts of traffic, they also allow Google to collect information about users inside of Facebook’s curtain wall.

If Google seriously wanted to hurt Facebook, they could easily apply the following strategy. There are three possible outcomes, and Google wins in each of them.

Step #1: Make a highball offer for the largest independent app company. In this case, its probably Zynga, who are looking to do an IPO anyhow.

Step #2: Ensure that the offer leaks. It probably would anyhow, if it is sufficiently ludicrously large enough. This should be sufficient to put the company in play.

The three possible outcomes are as follows:

1. Google succeeds in buying said company. Yes, they overpaid, but now they have Facebook on the ropes. When they iterate the process, you can bet that Facebook will react differently. See below.

2. Facebook counters with a larger offer, and wins. This means that Facebook, which has far less money in its coffers, has overpaid tremendously, and is now even more susceptible to iterating the plan (or any other financially onerous attack).

3. The company repels the attacks, or is bought by a third party. In this case Facebook will still be vulnerable to further iterations, and will be nervously watching Google’s next moves. Furthermore, some other idiot will have overpaid, and that will probably push them out of play for the next couple of rounds.

Once this round is done, Google could then iterate with the next largest app developer. And so on and so forth until Facebook capitulates or goes bankrupt.

I think there’s a few things we can conclude from this.

1. Facebook needs to IPO sooner rather than later. They need much larger capital reserves if they’re going to have a protracted battle with Google.

2. Facebook ultimately will be under strong pressure to merge with another larger company. Maybe not today, but in the next few years. Unless they’re able to find new revenue sources that don’t bring them into direct competition with the 800 lb gorilla in the room, they’re going to find themselves continually fighting this battle.

3. They’re also going to be under intense pressure to get a handle on their app ecosystem. I don’t know how that will play out, but I expect they will be experimenting continually with how much they try to control the app builders. Facebook Credits is only a small part of this equation. Expect to see some developers publically kicked out for contravening the TOS (and then possibly quietly allowed back in later on). Also expect to see them get serious about privacy issues. Not because they care about the end-user’s privacy, per se, but because they can’t allow the developers to become even more powerful.

In part 1, we looked at some of the issues that may effect Facebook’s future growth and profitability, as well as some of the strategic decisions they could make to counter them.

c) Adjacent Markets

There are two fairly obvious adjacent markets to Facebook (in addition to any number of less noticeable ones) – social commerce, and enterprise.

i. Social commerce: this includes things like coupon sites (hence Facebook’s recent launch of a partial competitor to Groupon), although it isn’t necessarily limited to that. Facebook’s marketplace is another good example of this sector.

It looks as if there is going to be a significant amount of froth in social commerce in the next few years, given Groupon’s success.

Expect a large number of startups that add tweaks to the general business model, followed by rapidly following competition.

Facebook’s huge user base could give them some serious leverage here, but it isn’t at all clear who the winners in this game will be.

One strategic play might be to create APIs that allow new startups in this space to build on Facebook’s platform – i.e. take the wind out of the sails of some potential threats ahead of time.

ii. Enterprise: The enterprise social market is currently dominated by LinkedIn. There’s a lot more to this sector than just “business profiles and networking” though, and it is worth looking at it in more depth. Aside from company Pages (and obviously mass market B2C advertising campaigns), Facebook doesn’t do much in this space.

One interesting development was the recent funding of BranchOut (a Facebook app that essentially is just a job matching service) by VCs to the tune of $31 million. There’s currently only a small number of Facebook apps for the business sector, and few of them are really aimed at “enterprise”. I’ve looked at building apps in this area myself over the past two years (couldn’t get sufficient funding to make it worthwhile), and I think that this is going to be a serious area of growth – IF some of the obvious issues can be resolved (i.e. why would I want my staff working from Facebook? Too many distractions!). It is, in my opinion, sufficient proof of concept that Facebook should take a look at the enterprise area itself.

Some areas where Facebook could move into enterprise include:

• Beef up its partnership with Microsoft, and build out further integration with Microsoft’s Exchange/Sharepoint/BI stack.
• “Facebook Pro” – various additions to profiles (for a price), in addition to enhanced and more granular privacy settings, some new features etc.
• Private corporate social graphs – i.e. a completely separate private version of Facebook that is only accessible to a particular company’s staff (I believe there’s a few competing companies in this area, none of which have Facebook’s massive feature buildout)
• Specialized app section for enterprise apps – this would require greater attention to privacy issues, as well as some cooperation regarding billing cycles; I have a number of ideas in this area, but I’m not ready to share them on a public forum.
• M&A with existing companies in this sector

iii. Open Source: Facebook has an admirable record of support for the Open Source community, and has released a number of internally developed applications under open licenses. The standard model for making money in Open Source is to create “pro” versions of the software, for which companies can pay for enhanced functionality and support. It might be worthwhile for Facebook to spin off wholly owned subsidiaries to capitalize on this.

iv. “Intrepreneurialism”: I’m fairly certain that Facebook already has some significant incentives internally for staff to come up with new products. Again, it might make sense to spin off some new products as separate companies (i.e. to avoid too many internal distractions) and capitalize on those new revenue streams.

v. M&A: Another obvious point, which is more likely to happen after an IPO.

In summary, there are several factors that are likely to force Facebook to adopt some of the above strategies in the next few years – a slowdown in growth to match overall population growth, the rise of competitors, as well as difficulty moving ad revenue out of some existing verticals (B2C mass market, and the game industry).

In order to overcome these issues, Facebook will have to find new revenue sources and find ways to fight off both existing and upcoming competitors.