The Week in Geek – May 18, 2009

Is YouTube Doomed?
It’s tough to imagine any peer-produced video site displacing YouTube. Users attract content, content attracts users (classic two-sided network effects). But even with falling bandwidth and storage costs, at 13 hours of video uploaded every minute the cost to store and serve this content is cripplingly large. Credit Suisse estimates that in 2009, YouTube will bring in roughly $240 million in ad revenue, pitted against $711 million in operating expenses. That’s a shortfall of more than $470 million. To break even, YouTube would need to achieve a CPM of $9.48 averaged across the roughly 75 billion videos it’ll serve up this year. Silicon Alley Insider claims this is virtually impossible. Hulu commands $30 CPM and shares some 70% of this take with copyright holders. Other proprietary content sites get about $10 CPM. Most user-generated content sports CPM rates south of a buck. So what does the future hold for YouTube? Will Google find an ad-model that works? Will the site’s commercial-driven, professional content offerings support the loss-leader of amateur video? Or will less popular videos eventually get purged unless supported by premium fees? Many are wondering if subscription service is inevitable for much of what the cloud currently provides for free.

In Developing Countries: Web Grows Without Profits
As if the Times read our Facebook Case, the paper confirms a key challenge that our students have been pondering this year: while sites seek a big int’l population, most populations drain resources instead of pushing firms toward profitability. In Facebook we see that while growth is on a tear, 70% of the site’s users are outside the US, many hail from locales where ad-rates are dramatically lower. With 850 million photos and 8 million videos uploaded each month, Facebook faces a very real free-rider problem. Users love the service, but the site can’t make money from them. This is a particularly painful problem for ad-supported Web 2.0 sites. All told there are over 1.6 billion people with Internet access, but fewer than half have incomes high enough to interest advertisers. Throughout Asia, the Middle East, and Latin America, bandwidth costs trend high, all while lower available bandwidth requires more in-region hosting sites. Some sites are contemplating quality of service that’s metered on a per-country, or even per-user basis. MySpace is experimenting with ‘lite’ web pages that are byte-wise slim. YouTube, Facebook, and other sites may store and serve lower-quality photos and video to unprofitable regions.

Tinker Away, Facebook Says
Coverage of the free-rider problem continues. Facebook has thrown open much of its data stream, allowing third-parties to create a cornucopia of apps that allow viewing feeds and posting status updates, all without logging back into the firm’s website. Problem? No ads to support the hosting service! Same thing is happening on Twitter (although that site currently has no ads to speak of). I’m part of the problem. I’ll post updates to these services via an app like TweetDeck or Seesmic Desktop (founder Loïc Le Meur depicted at left), going days without directly visiting either site’s web pages. Users like me consume a free service, while failing to provide sites with a way to monetize my usage. These free (for now) add-ons come with all sorts of nifty features, such as allowing you to sub-categorize content to see feeds, say, only for those in your area, or for users with more than 1,000 followers. These are cool efforts, and wonderful examples of mashup software development. But they may also prove to be parasitic profit sucks that cripple the providers they leech from. The brilliance of feed-driven ads such as the Starbucks campaigns may help social media sites monetize these data streams. And firms may introduce new tools that draw users back into the mother services. But pushing ad-funded, open Web 2.0 firms out of the red and into the black presents a mammoth challenge.

Demo Day at Facebook – First OpenStream Products
Microsoft demonstrates super-slick web-based & desktop products for flying through Facebook photos. Neat video at the end of the article linked above. The apps demoed were built in just 72 hrs., even though FB provided no advanced info on specs. But with Facebook housing data and providing bandwidth, without monetizing the data stream, is this business model suicide?

Google Launches Google Squared
The search sovereign has demonstrated a new search service that organizes and presents data into easy-to-digest table format, even when individual data items were never entered this way. Conduct a Google Squared search for ‘small dogs’, and you’ll be presented with a table showing breeds, heights, and weights. You can drill down to find out the source for a value, correct a data element, and save the results. There’s been a lot of action in search lately, with an effort by Wolfram Alpha also gaining much press. It’s not the ‘Google Killer’ many headlines claim, but the site does a nifty job presenting info from databases curated or licensed by Wolfram Research (the Mathematica software people). Here’s a very cool CNet video of Alpha in action, while TechCrunch offers Google Squared video. Another new tweak that’s available now on Google is the new ‘options’ link. After doing a Google search, clicking ‘options’ offers you a range of methods for sorting and for uncovering results you want: “videos,” “forums,” “reviews,” results sorted by time frame (past 24 hours, past week, past year), or the most recently created pages or images. Search for “Red Sox” or other team. New results new include the club’s current record.

TechCrunch meets the Google Goats
In an ongoing quest to be more eco-friendly, Google’s main Mountain View campus is now being ‘mowed’ by goats. They’re outsourced, so they don’t get options. But if you’re curious, TechCrunch as video.

Pay Per Click Combats Costly Fraud
PPC advertising accounted for nearly 60% of online ad spending in 2008. But some studies claim click fraud is on the rise. Nefarious fraudsters will set up websites, join an ad network to run pay-per-click advertisements, then generate bogus clicks to enhance the site’s ad-take, forcing advertiser to pay for worthless clicks. For this reason some advertisers will often look for the best push monetization network in order to combat the fraud. This NY Times piece cites a source claiming some 17% of all clicks are bogus. An interesting read, but the example used is suspect. The unnamed ad network mentioned in the Times piece failed to screen out clicks from Bulgaria, Indonesia and the Czech Republic that were charged against ads run by the US-only firm NewCars.com. This is the easiest form of click fraud to screen out, and I’d be very surprised if a major ad network weren’t catching this. Google and other sites thrive because advertisers are able to measure return on investment, and I’ve seen first-hand how these firms aggressively work to weed out anything that undermines the integrity of their business model. Agencies like the PPC Agency Los Angeles, eMaximize have software that can stop false clicking from reoccurring and blacklist the competitors that may do this to your website.

Best Young Entrepreneurs 2009
Boston College is becoming a hothouse of entrepreneurship. In fact, this year BCVC and TechTrek have prompted several of our students (many sophomores) to spend the summer with our growing alumni base in the epicenter of tech startups, Silicon Valley. For the startup crowd, BusinessWeek provides a bit of inspiration for the long hours to come.

Lessons from Domino’s & Amazon
Social Media has changed the brand landscape forever. Online conversations and uncontrollable employee antics create crisis and amplify mistakes, and firms can quickly lose control of their image and message. Two days after employees at Domino’s filmed a grotesque food-prep montage, the YouTube video had been viewed more than a million times. Within days Google searches on “Domino’s” returned the video in the #3 slot on the first results page. In another recent flash crowd, Amazon became the focus of Twitter hash-tag traffic (#amazonfail, #glitchmyass) during a ham-fisted reclassification of books that removed titles from search & rankings indices. Caught off-guard over a holiday weekend, the firm that has otherwise posted bust-out success despite the downturn, struggled to get out a clear and complete response. As firms leverage social media (here’s a list of 35 examples from Mashable, and our lectures contain many more), firms also need policies, presence, engagement, and a well-trained engagement and response team. At BC, Profs. Kane, Fichman, and & are finishing up projects describing how firms can craft & execute a strategy for dealing with external social media.

The Twitter Revolution
Just three years old and with 30 employees, Twitter has embedded itself in the pop-culture Zeitgeist. There are now 20 million users and growing. President Barack Obama tweeted the words, “We just made history,” on the night of his election. A Twitter user first captured US Airways Flight 1549’s Hudson River landing. Victims of the Mumbai terrorist attack used the service to summon help. A Manhattan bakery tweets when warm cookies come out of the oven. A Manhattan Pete’s Coffee manager will tweet when a table is open. But equally interesting in this WSJ article are the profiles of Biz Stone & Evan Williams. As stewards of Blogger, their earlier effort was eventually acquired by Google. Neither exec is likely to have made the Google’s conventional hiring practices (ranking obsessed Google would likely pass over the U. Nebraska dropout & a U. Mass grad). Entrepreneurs be resourceful: In both of William’s businesses – the initial idea wasn’t the one that garnered success. Pyra labs had blogging as a feature, not the main product. And Twitter came out of the group that had formed podcasting flop Odeo.

Lawyers Enter Twitter Tempest
First there was domain-name squatting (and apparently Apple design genius Jonathan Ive can’t claim his own name). Now we’ve got Twitter account squatting. Danyelle Freeman, the restaurant critic for The New York Daily News, is asking lawyers for help in stopping the user of a Twitter account that’s registered with her name as well as “Restaurant Girl”, the name of her Daily News blog. Calling “The_Real_Shaq“.

Oracle Sun Deal – A Closer Look
Larry Ellison’s firm coughs up $7.4 billion for Sun. Oracle gets a firm with prime software assets (Java runs on 800 million PCs and 2.1 billion cell, and more Oracle runs on Sun’s Solaris than any other OS). But they also get a firm with 4% (and falling) share of the server market. And Oracle will ingest a database firm’s worst nightmare – Sun’s free mySQL, a product using the same SQL standard as Oracle’s profitable database. MySQL is legit – it powers many of the web’s most popular sites, including Google and Facebook. Sun did book $208 million in MySQL revenue (mostly support deals) in fiscal 2008, but that’s contrasted against Oracle’s $4.8 billion database take – quite a difference!

How Much Can Free iPhone Apps Make? Quite a Bit!
TechCrunch ran another case-study to consider in constrast to the comparably more pessimistic PinchMedia report covered earlier in the year. It now seems that applications in the top 100 in the Free Apps list make $400-$5000 a day. That’s a wide range, but suggests that even the low-end earner is netting around $12,000 a month. Not bad for the ‘guy in a garage’ model enabled by Apple. And TechCrunch notes that competition on the free-side of the App Store is less fierce.

My Manhattan Project
This New York magazine piece by former Wall Street coder Michael Osinski’s reads like a finance programmer’s Liar’s Poker. The most telling quote: “The software proved to be more sophisticated than the people who used it, and that has caused the whole world a lot of problems“. A good read and primer how big money and arms-length associations can fog ethics, lead to poor systems decisions, and create collapse. Tragic and telling. Surprising how many seem to forget the ‘people and procedures’ components of an IS.

IBM’s Computer to Take On ‘Jeopardy’
(Video) Sure it thought a ‘sheet’ was a fruit, but IBM’s Jeopardy-playing software correctly answered about 85% of posed questions (or since this is Jeopardy, offered correct questions when provided the answers). Why is Big Blue spending time on a Jeopardy-playing robot? It’s another frontier in AI with critical business implications. We may eventually see this kind of natural language query & response in mainstream business and consumer applications. Just don’t put any 300 thread count percale in my smoothie!

In China, Knockoff Cell Phones are a Hit
While folks on last year’s BC MBA trip to Beijing found lots of gray-market iPhones, the Chinese market has now sprouted bogus gear. Check out the slideshow. Various form factors, each sporting knock-off software and an Apple logo.

Finjin Uncovers 1.9 Million Node Botnet
The massive botnet has been in use since February, is hosted in the Ukraine, and is controlled by a gang of six people who are instructing the Windows XP-based machines to copy files, record keystrokes, send spam, and take screenshots. These computers have been hijacked without the owners knowing due to lax security in the routers and networks they operate on. This is why many experts are advising that you update your Belkin router login info, or indeed the info of any router you may be using, and then begin running full software checks on any machine you may suspect has been hijacked. The crooks operating this massive zombie network can rake in as much as $190,000 in one day renting out the zombies to others.

BC Heights, thanks so much for the Momentum Award – I consider it a tremendous honor!

Congratulations to the Class of 2009! And alums – don’t forget The Neenan Challenge!