Atomized vs. Aggregated - Social Networking Value Search Continues

Membership has its Privileges

Given my career in ecommerce and marketing, I probably have among the highest click-through rates of online ads. A click from the Drudge Report sent me to American Express' Travel social network that provides interaction between Members and their privileges. American Express has long cultivated a brand identity of exclusivity vs. Visa's brand identity of universality.

At its core, MembersKnow is a 3 parts premium restaurant listing, 1 part recommendation engine. A search of "Where are Other CardMembers Dining?" yields:



Digging into the "Conversations" reveals something a bit more like Yelp, except far less well-organized:



It makes me wonder whether AMEX had a conversation like this one in The Office:



The added value to American Express' members of the social network is not immediately apparent given i) the limited user-generated content and ii) the apparent lack of a direct role of AMEX in creating value for users of the social network. What does it say about the possibility for niche social networking?

Social Portability & Niche/Vertical Social Networks

Google this week confirmed the Google FriendFeed that is its initial foray into leveraging the Open Social Consortium to add social networking features to any website. Google's Innovation Machine has created an unreal number of tools that people can grab to enhance their sites including most significantly, in my opinion, Google Analytics.

Google is leveraging user id's and activities on social networking sites Facebook, Google Talk, hi5, Orkut, or Plaxo IDs in a manner similar to FriendFeed's use of Flickr, MySpace, Twittr and Yelp. These tools bring the richness of user interaction from open and aggregated social networks to any website that wants to add a touch of social interaction to their site. Effectively leveraging these data stores will ultimately improve targeting of advertising and possibly website features. It also could push to the side services like AMEX's social network. Why would I want to spend time creating content for a single site when I could make it more portable and bring it along with me? If a review/networking site wants to remain viable, will they need to integrate to the Open Social API? Would TripAdvisor benefit from leveraging the information I provided to Yelp? Probably. Will there be a trade-off? It remains to be seen.

Further, what of sites like Ning and Wetpaint? These sites create platforms for the most discrete social networks to exist, but the aggregation allows them to extract advertising revenues from the combined traffic, as well as creating more extensive targeting abilities to specific groups. Would they not benefit further if they could know what I was doing on my facebook Causes application right before I came to my Underwater Basket Weaving group on their sites?

The question of how to extract monetary value from social networking sites remains, but in the meantime, every social network will need to decide what impact the meta-identity tools will have on their existing networks.

Where's the Beef?

Might as well use this Leap Day to get one more blog post in before the month of February ends...

Two weeks ago, a blog post by Redfin CEO Glen Kellman entitled "How Green was my Valley" prompted a quick reply by TechCrunch founder Michael Arrington. At issue was their argument as to whether or not Silicon Valley or Seattle was better for life, love, and most importantly entrepreneurial success.

Now I grew up outside of Atlanta, and have been in Chicago for ten years, but 7.5 years of policy debate and the diaspora of my friends has provided me plenty of access to folks from both Northern California and Seattle. In addition, I've been exposed to the platitudes, "The West Coast is the Best Coast" and "NorCal is hella cooler than SoCal." I was on my way out west after finishing my MBA when I got waylaid by my dream job at Mpayy.

I have no dog in the race, and would certainly argue that either is a more nurturing locale than Chicago for starting a company than is Chicago. As PWC Moneytree demonstrates, the $2.399 billion that Silicon Valley pulled in the fourth quarter in VC funding far outstrips the $439 million in the Northwest and the $244 million in the midwest.



If you drill down, you will see that the $405 million in Software in the Valley, which leads industries there, is much higher than the $57 million in software in the northwest, which is still almost twice the $29 million in the Midwest. So, the funds are certainly there, especially as so many alumni of successful high-tech startups move into Angel/VC roles.

What Does it All Ad(d) Up to?

Here again, I am not in a position to comment on the fashion and social mores related to commenting on websites at parties in either Silicon Valley or Seattle. My question from this detached position is related to the insights and filters that are applied to business models (or lack thereof) and valuations that are derived.

Yelp raised $15 million yesterday at what is rumored to be a $200 million valuation, and the company has "Revenues are rumored to be sub $10 million/year," again from the Blog of Record. At the high end, that is a 20x multiple on revenues in a crowded marketplace. TechCrunch mentions Insider Pages, Yellowbot, City Search, Google & Yahoo Local, to which I would add grayboxx, Kijiji, and Zagat off the top of my head. Not to mention TripAdvisor, Frommer's and Viewpoints for specific properties.



Yelp has three lines of revenues:

1. Sponsored Search Results Placement
2. Advertising
3. Branded Goods

I don't know how quickly Yelp-gear is taking off, but a 20X revenue multiple raises some eyebrows.

Kara Swisher recently put out numbers from a facebook all hands meeting that point to -$50 million in Free Cash Flow (FCF) based on $150 million in revenue and $200 million in Capital Expenditure. Even if that were +$50 million, it would be a 300X FCF multiple compared with Google's 34X FCF after the recent drop in its share price. Swisher also questioned the $50 million valuation placed on PayPal co-founder Max Levchin's Slide.


My questions respectfully are as follows:

• What is the scenario that drives these valuations, and how frequently is that "Winner Take All"?
• What is the exit for these companies, and how frequently is that assumed to be a strategic buyer in the form of Google, Yahoo or Microsoft?
• Online advertising rose 25% last year, and is expected to continue to rise. However, there is clear evidence that click-through rates are falling to an industry average of about 0.25%. Search engine marketing text links are higher, but are they concentrated enough among the highly atomized online publishing community to run a business based on this revenue stream?
• What effect does the "Bandwagon Effect" play in many of these investments in crowded sectors? Money is also flowing into the Open Social/Data Portability sector with a number of players, most recently Gmail-creator Paul Bucheit's FriendFeed. Similarly, as I discussed here, survey participants expected Clean Tech as the sector most likely to receive investments and be over-valued in 2008.

Turning the Mirror Inward

Electronic and Mobile Payments startups is certainly not an empty marketplace, and it's a frequent discussion about how to distinguish ourselves from the pack. We will swear up and down we have the most economical and efficient payment solution for Internet Retailers and Online Sellers alike. We give folks free and efficient means to send money to friends through Mpayy, our widget that launches 3/2 and our mobile site. The speed with which I can diagnose a payment processing system has accelerated significantly since I came aboard Mpayy. The quest to distinguish ourselves from the money launderers, store & forward companies, those who charge the consumer, and those without a qualified merchant model continues. For a complete discussion of capabilities of payment processors, click here, and pricing here.