Why social networking sites are so popular is summarized in two words “targeting” and “verticals”. Social networks offer online networking that rivals real world networking such as trade shows, business meetings, bar scenes etc. This is because like-minded people have aligned interests and attract each other. For example if I love classical music and love web programming then I am a highly sought after target and become a defined vertical for advertisers. Social advertising will continue to be a necessary evil and bloodline for web companies that have a user base but unproven revenue models in subscriptions or transactional income. This is a guaranteed revenue stream from social networks or developers of social networks (Google’s open social). Advertisers will continue to find out as much as legally possible to get the right messages in front of you. Whether it is based contextually, behaviorally, geographically or socially.

As a user of a social networks, a tremendous amount of information is voluntarily disclosed. Although many sites like Facebook and StartupAddict have privacy settings available to users, it is inconsequential to the social network database that acquires this information. The database still acquires the information and serves up information to advertisers. Think of it as advertisers paying for the social services you enjoy. At the end of the day social network users benefit in the real world along with the social network itself making a compelling answer to why social networking sites are so popular. It’s an online extension of our offline social status.

Facesoft or Microbook (sorry couldn’t help myself) is about to get a heavy dose of social networking competition from Google according to a great article from TechCrunch.

Facebook’s move to open up the “social network” for application developers was a brilliant move. However, the one niggling and critical complaint from Facebook developers is not having the ability to export or pull data outside of the Facebook platform and into third party applications. Facebook does not want developers to have the ability to pull data outside of Facebook and into third party applications via the APIs.

Another security blanket Facebook has in place currently (as noted in the Zuckerberg – Battelle interview) The Terms of Service put forth by Facebook has a very anti-competitive feel as well. Essentially allowing Facebook to shut down application developers that may cut the head of the beast and compete directly with Facebook.

It has been said in many blog postings Facebook is 98% there. No doubt, but the last 2%, just like the last mile was for broadband is the chink in the FB armor. Google’s plan is a back door approach by taking all the apps and services already in place through iGoogle, Orkut, Gmail, Google Talk and socializing the services. To fuel the fire even more Google is going 100% open with a new set of APIs that will let other social networks like startupaddict.com (if I can ever get version 2.0 launched) interact with google applications. Imagine if the UK site Bebo having the ability to push and pull Bebo/Google data within the Bebo network. My brain actually starts to spin when I think about the privacy and advertising implications of this, but one thing at a time.
TechCrunch has another more specific API article that will shed even more light.

Awesome stuff!…

It’s not “what you know” but “who you know”. The old cliche’ is being modified a bit by Facebook’s social graph concept. The social graph is more about “what people around you know”. I’ve been trying to wrap my arms around the term Mark Zukerberg put forth. What I am able to glean thus far is two components to social networks. The first and most common is the Linked-In concept of being connected directly to people you know and who they might know. This mirrors the six degrees of Kevin Bacon concept. The second social graph concept is a bit more analytical by culling through the 40 million user base and identifying sub-networks and social connections from the registered masses. These connections are based on geography, industry, skill-sets, common interests, goals etc. Much the same way Google can index and make a sitemap of any given website, Facebook is capable of doing a social index and sitemap among its’ 40 million users that are being crawled to define the social graph. A combination of user’s social and private information is made into categories topics and buckets based on any number of analytical social parameters. this allows one to socially interact with like-kind, like-minded and like-proximity people at break-neck speed, essentially doubling and tripling one’s possible network connections. Sounds awesome right? Now comes the fun part…

Targeted Advertising…rather than using contextual based advertising that Google so deftly conquered, Facebook has the ability to serve up highly relevant ads based on categorized or tagged social connections. Imagine a geography of Boston in an industry of musicians that have a tendency for goth and grunge interest. Bingo an advertiser would pay a premium well beyond the normal CPM to have access to a targeted group of users like that. Look at John Battelle’s Federated Media (FM) and how the premium price paid verse other blogs is worth the price of admission for the targeted audience it serves. This is obviously only one of many possibilities when an entity such as Facebook has command of 40 million interacting users. Just think, a 30 second spot on network television during the superbowl runs 1-2 million bucks for a very general untargeted spot aimed at roughly the same number of users (and growing) registered on Facebook. The concept resonates with the early 90s song “things that make you go hmmm”.

I may eat my words of “overvalued at $15 billion” based on the previous thoughts, but the proof will be in the pudding and Facebook needs a better hook to get out of the $200 million a year realm of revenue. But with Microsoft and NY hedgefunds diving in, anything is possible. It will be fun to watch.

Microsoft buys Facebook stake for $240 Million which is an incredibly expensive 1.6% interest in the hottest web property on the market. The $240 million price tag is clearly based on a $15 billion dollar valuation that I touched on in a post earlier this month (absurd amount mind you).

Most Facebook deal trackers figured the news would announce yesterday. Especially after watching John Battelle’s interview with Mark Zuckerberg at the Web 2.0 Summit where he shocked Battelle with the opening Q&A. Although Mr. Battelle’s humor is priceless. Check it out below

Facebook now has all the ingredients for the next poster child story of a true web startup gone from seed to orbit.
(1) It started in a college dorm room (either there or a garage).
(2) Experienced critical mass in 6 months to a year.
(3) A 20-something created it.
(4) Refusal of first 10 figured offer from conglomerate.
(5) Next stop IPO.

I scored the story at Yahoo Finance

Social Networking is a blank advertising canvas in 2008 and has the Titans of the Internet (Google, Yahoo and Microsoft) scrambling for control…or dare I say at least a game plan. John Battelle offers some insight as always regarding the relationship between existing online spending (at an all time high) and future advertising preference of social networking to better target for ads and user’s clickstreams (think blueLithium). Google was undoubtedly timely with adwords / adsense during the deluge of online spending. However the landscape is changing (as it always does) and as I stated in an earlier post Microsoft does not want to miss the social networking category…or the Facebook ferry. The wounds from trailing in search to Google are still fresh in the Vista Vikings mind. Controlling 40 million eyeballs on Facebook is any publishers dream which in reality is any advertisers dream….not only does Facebook have enormous advertising attention but the social category itself is starting to swell.

According to article in emarketer by Ari Levy and Dina Bass

“U.S. ad spending on social-networking Web sites will double to $900 million this year, with Facebook and MySpace grabbing three quarters of the total, according to EMarketer Inc., a research firm in New York.”

So with all of this wonderful information what is an entrepreneur to do? I have been told it is difficult to be a trendsetter and I would agree with that. But why not be a trend spotter (as Joe Kraus would say)…lets recap:

1. The big ad money is going social
2. The biggest companies want in on social
3. Facebook and Myspace next moves are consuming all the media’s attention (must be important)
4. It is the new advertising play with millions of social web startups and publishers created.

Yep, the trend is social network evolution monetized by advertising and will continue to grow more than ever…. Let’s hope version 2.0 of StartupAddict.com is done by the middle of November so I can head toward breakeven on the crest of this social wave.