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MTV angles for MySpace generationBy Andrew Edgecliffe-Johnson in LondonFinancial Times
Updated: 9:10 p.m. ET July 23, 2006MTV Networks will on Monday make its biggest move into the “social networking” area, dominated by websites such as MySpace and Bebo, by unveiling plans for a television channel devoted to content created by its users.

MTV Flux will allow people to exchange messages and video clips by computer and mobile phone, much like existing social networking sites, but will allow users to choose which music videos are displayed on the channel, and display their own videos and messages alongside.

Riding the hockey stick: Scaling Web 2.0 software Posted by Dion Hinchcliffe @ 11:52 am
With all the talk last week about MySpace becoming the #1 most visited site on the Web, there’s also been a lot of talk about how Web 2.0 sites like MySpace handle their sharp growth rates. Because Web 2.0 sites explicitly leverage network effects, when they hit their inflection point there can be a simply unmanageable amount of new traffic. Think the Slashdot-effect squared. Discussion about this recently has ranged from Tim O’Reilly’s observations about operations becoming the new secret sauce to Jon Udell exploring the burgeoning market for hosting services that specialize in making scaling a problem that you simply outsource.

O’Reilly spoke with Microsoft’s Debra Chrapaty, VP of operations for Windows Live about this, noting that: Her belief is that there’s going to be a tipping point in Web 2.0 where the operational environment will be a key differentiator. I mentioned the idea that Web 2.0 has been summed up as “Fail Fast, Scale Fast,” and she completely agreed. When it hit its growth inflection point, MySpace was adding a million users every four days — not at all an easy feat. As these massive apps become the norm, unless you can play in a game where services can be highly stable, geodistributed, etc., you won’t be in the game. And that’s where she came to the idea that being a developer “on someone’s platform” may ultimately mean running your app in their data center.

As I wrote recently, it’s the viral feedback loops that Web 2.0 sites use to grow and grow and grow that makes them so successful. That’s not to say that the understanding how to do this repeatebly is fully understood yet. But it’s an going to be a subject of increasing interest as the disruptive potential of these methods become increasingly proven out and well-known:
Of course, in a few years the exact design patterns for triggering a new MySpace, Facebook, or similar social juggernaut will become common. Then most likely balance will be reachieved in the industry and there will be less disruption. But for now the secret balance of Web 2.0 techniques that powers growth through efficient access to network effects is still an art.

Now, most startups or enterprises attempting to do this in the consumer space or with their customers face the same trouble: The infrastructure challenges can be an enormous and expensive effort that can be an serious distraction and even become the weakest link. After all, any serious success can immediately redline the hosting infrastructure of all but the most competent organizations. This is what O’Reilly means by “Fail Fast, Scale Fast.”

To address this, I’m starting to see a significant number of serious new entires aimed specifically at the next generation hosting space. Companies like 3TERA are bringing Web-scale grid computing to the Web 2.0 market that is on-demand, plug-and-play, scale-ready, and supports the Web 2.0 development style. Says 3TERA about their Web 2.0 hosting services:
Web 2.0 operations embrace a dizzying pace of change.

Two-week release cycles are common and daily releases aren’t unheard of. This pace invalidates traditional release planning. Deployments must be immediate, and roll-backs must be automatic. Amidst the rapid product changes, Web 2.0 firms simultaneously face an unprecedented demand for scale. MySpace, for example, grew from a simple two-tier deployment three years ago to operating 3 data centers, 2,682 web servers, 90 Cache servers, 450 Dart Servers, 60 database servers, 150 media servers, and a 1,000 disk SAN. Growth on this scale, requires being able to add resources to the application without downtime and preferably without operator assistance. Achieving this, means the deployment mechanism must either be an integral part of the infrastructure or be built directly into the application.

Another player in this space is ActiveGrid; they are solving the deployment problems of Enterprise Web 2.0 applications in a slightly different way. ActiveGrid has developed a solution called ActiveGrid Server 2.0 for organizations that are willing to do the hardware hosting themselves: “There’s been a ton of hype around Web 2.0, ‘mash-ups,’ and AJAX for a couple of years now, but ActiveGrid has become the first vendor to actually release the type of development and deployment tools that make these cool new web apps accessible to developers at Global 2000 companies,” said Peter Yared, CEO at ActiveGrid. “We’re about to see Web 2.0 make a big jump from its consumer web site origins into primetime enterprise application development.”

Finally, there is the OpenFount project, which uses an application model based on Google’s Web Toolkit and Amazon’s S3 storage server. OpenFount makes it possible to externally host and manage Ajax applications. (See link from Jon Udell above for more details.)

In the end however, many of these products currently constrain developers to use their coding models, technologies, and application structure. While this standardization isn’t always bad, it does mean that there will be the inevitable push towards a standard application deployment model so that hosting Web 2.0 applications are portable between hosting services. Otherwise, when your hoster goes out of business, so do you.

The bottom line however, is that hosting and operations will become increasingly strategic as software moves online. Application architecture that thinks about about deployment as separate from the software stack will become outmoded thinking. Thus, the deployment model will increasingly become a central element of application design.

Interestingly, however, this doesn’t answer the question of how to scale up applications that are built from the fabric of the Global SOA that the Web has become. This is where I’ve discussed how service-level agreements and other means of negotiating clear expectations from external suppliers of services will be an essential part of capacity planning in the era of Web sites fueled by network effects. Ultimately, scalability, like success, is never really easy.

Full article with some nice diagrams - http://blogs.zdnet.com/Hinchcliffe/?p=54

Does anyone else wonder how long the current User Generated Content and Social Networking websites can continue to remain stable under the pressure of massively growing user bases and even more massively growing content?

When all user information and the users’ published content is uploaded to and resides on the providers’ servers there must be a point at which the speed of growth outstrips the speed with which they can rack up new server capacity, new storage space, and increased bandwidth.
Hardware, processing power, storage, and bandwidth are all becoming cheaper, so cost isn’t the real issue (although I do have certain views on conservation of our e-resources – more on that another time). Even so, the savvy investors are starting to question the spiraling overheads compared with the vague (or at least unproven business models) - YouTube is reportedly paying in the region of $1m a month for its bandwidth. No, the real issue, I’m afraid is something far more fundamental – just how fast can you rack up and deploy the additional capacity. I contest that there is a point where you can’t rack up the kit fast enough to keep up with the growing user-base and storage requirement.

Imagine a graph which shows you user numbers over time, overlaid with one displaying your resource demand over time - time is on the x-axis, and users and resources are on the y-axis. As time passes your user-base grows, and in classic web style that growth becomes exponential – so we have one curve on our graph, curving upward at an increasing gradient. Now consider that for every one user a certain volume of content is published and a certain volume of content is consumed. The line that describes the resource demand of all that content (and we’re talking resource-hungry audio, video, and images here) also climbs exponentially. YouTube is reported to be adding upwards of 70,000 video clips daily. So now we have a second curve above the first, also curving upwards at an increasing gradient. Now let’s add another line; the one that that describes our supply of resources (hardware, processing power, storage, rack space, etc). It also presumably moves upwards over time, but can it also maintain an exponential growth, sufficient to keep it above the resource demand? The answer is a clear “no”, at least not indefinitely. Even given unlimited financial resources, the limiting factor is the speed with which your humans can rack and commission new kit.

So, I think the current architecture of SN and UGC is flawed, perhaps tripped by its own success; and where does this leave us? Well, it’d be pointless me writing this if I didn’t propose at least one solution to the problem. Izimi (http://www.izimi.com/) is a new Social Networking and User Generated Content platform which is currently in Alpha and about to go Limited Beta Release (Beta 1 is set for August 4th 2006).

What’s hot about Izimi is not that it offers all the classic UGC and SN feature sets, or indeed that users earn cash for their participation, but how it does this. Izimi uses a true Peer to Peer architecture to distribute the load imposed by feature-rich UGC and SN across the P2P network, unlike the client/server approach taken by others. Why have to upload content to a central server, when it can reside on your own machine and be equally well found, consumed, and interacted with? So instead of becoming less efficient like the centralized offerings out there today, Izimi’s network becomes more efficient. So why’s that so important? Well, that depends upon who you are.

- For the user it means you’re participating in a network that won’t fail sometime later when you’re become really dependent upon it – oh yes, and you earn real hard cash from publishing your own and co-hosting others’ content which can’t be bad.

- For eSeekers (the Oxford based company behind Izimi) it means a much lower dependence upon massive computing power, so they get to devote more of their resources to keeping customers happy and developing cool new features.

- For investors it means potentially greater returns at their exit point, just as the entire world is questioning the stability of their existing centralized UGC and SN investments.

Izimi is definitely taking a stealthy approach, on its website Izimi is inviting users to its closed Beta Program which begins in August. You can get invited by emailing Izimi direct from the website. The Beta Program aims to establish the basic stability of Izimi’s IM (Instant Messaging), VoIP (Voice over IP), and File Transfer capabilities, while the SN and UGC features will follow before October in the Beta 2. One thing is for sure: Izimi’s investors will be watching keenly to confirm the wisdom of their initial investment – as I’m sure will others.

BT denies Bebo approach, Web 2.0 shark not yet jumpedTechCrunch reports that Bebo has spurned the advances of UK telecoms behemoth BT, which is rumoured to have offered more than £300m ($552m) for the social networking site.

However, a senior BT executive told E-consultancy that this is nonsense.
Our BT source said: “We can state categorically that BT has not had any discussions with, or made any approach to, Bebo. We’re not sure where this rumour came from.”
UPDATE: Bebo’s Xochi Birch also emailed me to say: “BT has not approached us and we currently have no contact with anyone at BT.” She also has no clue about where the rumour came from.

It also makes us wonder exactly where the rumour came from, and perhaps more importantly, why it started in the first place. Bebo recently attracted investment from Benchmark Capital, a savvy tech investor, which ploughed $15m into the fast-rising social networking site. Interestingly, Benchmark didn’t deny that Bebo had been approached by BT, when asked for clarification by Michael Arrington.

A Benchmark spokesman told him that “there has been a lot of interest from a lot of people around Bebo”. Those are certainly the right noises to make if you’re angling for an exit / encouraging offers.

Bebo’s growth, like rival MySpace, has been something of a phenomenon. It must have racked up some fairly sizeable infrastructure costs, with the 3 billion page impressions it serves up every month. Presumably Bebo hasn’t spent all of that $15m already?

Now is probably not the time to get into the nuts and bolts of Bebo’s business model (current or prospective), nor concerns over the longevity of its active users (youths tend to be fickle and fad-orientated). Let’s save all that for another post.
However, I think it is safe to say that had Bebo rejected a £300m offer, Web 2.0 would have jumped the shark.

http://www.e-consultancy.com/news-blog/361355/bt-denies-bebo-approach-web-2-0-shark-not-yet-jumped.html

tags: value valuation capital exit strategy

Paul Graham on the Web 2.0 bubble.
Paul Graham is a smart guy with loads of experience - not just in Web technology, which he knows from the programming side, but in business as well, which he knows from the venture capital side - and so it’s worth paying attention to what he has to say about Web 2.0. He was interviewed by British journalist Ian Delaney, who is writing a book on Web 2.0, and agreed on the condition that he could post the interview to his site, which he did. Here are some excerpts: “If you create a web-based startup that becomes massively popular, you can probably figure out a way to make money from it. Just about every massively popular site has. The idea of building something popular then figuring out how to make money from it was born in the Bubble. It sounds irresponsible, but it works. Requiring founders to have a carefully worked out plan for making money is not hard-headed business sense. It’s what hackers call “premature optimization.” The really important thing is to make something people want.”

So does Graham think that Web 2.0 is a bubble?
“No, I don’t think this is a bubble. The companies the VCs are investing in now are nowhere near as laughable as the ones they were funding in 1999. A lot of those seemed like deliberate parodies. Certainly there is a lot of hype. For example, there are a lot of sites using cheesy “Web 2.0? design elements to seem cool. All those fades and “Betas” and giant fonts are going to look very dated in a few years. But cheesy design doesn’t make a bubble. The measure of a bubble is investment, and that’s still under control.”

And what about the term Web 2.0 - is it all just hype with a cheesy name, or is it a real thing? “Web 2.0? is a weird phrase. It began as the name of a conference, but the people organizing the conference didn’t really know what they meant by it. Mostly they thought it sounded catchy. However, “Web 2.0? has since taken on a meaning. There are some interesting new trends on the Web, and it’s the nature of a phrase like that to adhere to them. It’s kind of like they printed the name on a sticky label, threw it on the floor, and it stuck on the heel of a guy passing by. The name is a little fake, but the guy is real.

tags: investor investment business case business plan revenue model

‘Social network’ websites are the next big thing on the internet and the venture capitalists are piling in. Paul Durman explains the attraction.

A 58-year-old former cleaning lady and factory worker known only as Liisa must rank as one of the world’s most surprising technology entrepreneurs.Publicity-shy Liisa, thought to live near Turku in southern Finland, spent her working life in a series of low-paid jobs after her father blocked her plans to go to art school. But when she retired, she turned her attention to her love of fashion, and bought her first computer to start making simple drawings. As she progressed to more sophisticated software, she realised what she was creating bore a strong resemblance to the paper dolls that she had made as a child — little figures that could be dressed with innumerable brightly coloured dresses, blouses, hats and shoes.

In the digital version, the clothes could be picked up from the rail with the click of a mouse. Liisa decided to put some of her drawings on the internet at Geocities, and young girls started to stumble across them and play with them. Before long, Liisa was being bombarded with requests for more models and designs. Simply by word of mouth, her Paper Doll Heaven website took off. Despite her unusual background — “in theory, it was a clear case of ‘don’t ever touch’,” said one investor — Liisa has been able to secure funding from some of the smartest technology investors in the business.

Earlier this year, Index Ventures, which scored a huge success from backing internettelephony sensation Skype, invested in the renamed Stardoll. The investment round was topped up to $4m (£2.1m) by angel investors, including Klaus Hommels, another early Skype investor. Two weeks ago Stardoll received another $6m, mostly from Sequoia Capital, the Californian venture-capital firm that had big hits with Yahoo and Google. Danny Rimer, general partner at Index, said Liisa “had no idea that she had created a phenomenon. There’s no space (on the internet) for girls to hang out and talk about music and fashion. Stardoll is a community for girls who want to play with dolls. It is the largest aggregation of girls aged 7-18. They’re coming three times a week, and they’re spending an hour a visit. That’s pretty unbelievable.

That’s the reason we invested.” To older eyes, there is much about Stardoll that is unbelievable. Its range of more than 300 digital dolls even includes Camilla Parker Bowles, as well as more obvious models such as Madonna, Angelina Jolie and Keira Knightley. New additions include Teri Hatcher, Billie Piper and Ronaldinho. Since its relaunch in April, Stardoll has attracted 1m new members. Mattias Miksche, chief executive, said: “We are growing so incredibly fast by word of mouth and viral marketing. Nobody had done anything online for girls between 10 and 17. We have an enormous opportunity to capture a large global audience. I think the sky’s the limit, to be honest.”

STARDOLL is only one example of the dozens of “social networking” firms sweeping across the internet. Led by MySpace, Facebook (in America) and Bebo (in the UK and Ireland), their astonishing rate of growth both fascinates and terrifies “old media” companies. Along with Google, they form the vanguard of the second wave of dotcom firms dubbed Web 2.0 — businesses delivering services over the internet and predominantly funded by advertising. Tens of millions of teenagers and students are spending hours creating their profile, or web page, on networking sites — listing their favourite bands, movies and heart-throbs, their hopes and ambitions. They can link to their friends’ pages, add music and video, share photographs, write a blog and send e-mails. Fostered by the broadband revolution, this is creating new ways of communicating and interacting that many young people clearly find compelling. It also bites big chunks out of the time they have to watch television or read newspapers.

MySpace is only three years old this month, and yet it already has more than 90m users, generating billions of page impressions every month. That represents a huge audience for online advertising. In May, according to Nielsen/Net Ratings, MySpace was the world’s fourth most-visited website, overtaking MSN and closing fast on Google, Ebay and Yahoo.

Michael Birch, the British founder of rival Bebo, predicts MySpace will become the most popular destination on the internet within a year. Some critics scoffed when News Corporation, the parent company of The Sunday Times, paid $580m for MySpace last year. “I thought it was the deal of the century,” said Birch. “Now people are clearly seeing what’s happening. (Some people have suggested that) MySpace is probably worth $6 billion.”

In Britain, the potential power of MySpace was quickly recognised by the music industry. The site is routinely given a lot of the credit for the success last year of the Arctic Monkeys — although the story has been rubbished by the band as well as by others in the know. Regardless, a profile on MySpace has become de rigueur for any up-and-coming artist. Lily Allen, whose song Smile was the highest entry in the single charts last week, is the latest to be given a leg-up by MySpace.

Bebo is more closely associated with schools and colleges than with music, but its growth has been similarly astonishing. Only a year old, Bebo already has 25m registered users, and is generating 3.1 billion page views a month — half as many as MySpace when it was acquired, Birch noted. Bebo has become the most popular networking site in Ireland and New Zealand, and claims to be running neck and neck with MySpace in the UK. In America, traffic is doubling month on month, though still a long way behind MySpace. Birch, who moved to California four years ago, is a veteran of other dotcom start-ups, including Ringo.com, an early networking site that he sold when its growth threatened to overwhelm his ability to fund it.

Lessons learnt, Birch, 35, and Xochi, his wife and co-founder, have ensured that Bebo will not face a similar cash crunch, by achieving early profitability. But, in addition, Bebo recently took $15m of investment from Benchmark Capital, the firm that made its name and fortune from investing in Ebay. The deal is thought to have valued Bebo at about $100m. Benchmark had previously backed Friendster, an early networking success in America that lost its way and was overtaken by MySpace and Facebook.

FRIENDSTER’s stumble, and the speed with which Bebo has emerged seemingly from nowhere, suggests there are few sure-fire bets in this area. If it takes only a year for Bebo to catch MySpace, at least in the UK, what’s to stop some new sensation displacing them both? There are certainly plenty of pretenders — too many, surely, for them all to succeed. It takes too much effort to establish a detailed profile on multiple sites — one advantage enjoyed by the established players. There’s Faceparty, a personal ads and dating site. There’s Xuqa.com, a college-focused site that seems to specialise in pictures of drunken and snogging students (girls kissing girls seem particularly popular).

Then there are the more specialist offerings. Last.fm, a London-based outfit that recently received funding from Index, has attracted 2m music fans who — thanks to a clever piece of software — are telling the firm what they are listening to. That enables Last.fm to recommend other music they might like, and introduce them to others with similar tastes. It also provides a showcase for new music. The 22-person firm has signed up 10,000 record companies, and has assembled a database of 45m songs from around the world — far in excess of the number on Apple’s iTunes.

Another approach is location-based websites. Plazes, Platial, 43places, Wayfaring and Flagr all look to be seeking to harness the power of their communities to give better information about places you might visit. For example, if you want the name of a good Chinese restaurant in San Francisco, you could look to one of these sites for a personal recommendation. In addition, the internet old-guard, in the form of Yahoo and Microsoft’s MSN, are working hard to add networking functionality to their portals. Ian Lobley, a senior partner at 3i, said: “There’s a huge amount of money going into this area. While we believe in social networks as an important social trend, we’re trying to be cautious about following the investment herd.” Lobley observed that many, if not all, the business models are unproven and in a state of flux. Although advertising revenues are growing rapidly, the numbers are so far modest — certainly compared with some of the valuations that are being touted. For example, MySpace is thought to be on course to produce revenues this year of $200m — a relatively modest sum for a market leader.

Again, Flickr, the photo-sharing site, was a Web 2.0 sensation but it sold out to Yahoo for only about $30m. Lobley said: “If they’ve only had one round of investment, then (venture capitalists) can make money from that. But it’s not a Skype, it’s not a CSR.” CSR, or Cambridge Silicon Radio, is the bluetooth wireless technology specialist that was a spectacular success for 3i. Skype was bought by Ebay for an initial $2.6 billion. Lobley said: “MySpace was a breakthrough deal, but there have not been that many businesses that have broken through to high-valuation expectations.” Rimer at Index said networking is not enough. “Friendster has been an education. If you own a demographic, that’s powerful. It’s not good enough just to provide a hangout. You’ve got to make it contextually interesting.” That’s one reason for his enthusiasm for Last.fm — “the largest community of music lovers in the world”.

Hommels, who used to work for Bertelsmann, the German media giant, has just joined the London office of Benchmark. He thinks old-media firms are facing a daunting challenge. “The industry of social networks is amazing,” he said. “It’s very difficult for traditional media to offer something comparable. “Very practically, my kids have a certain amount of time that they are allowed to spend on media — it used to be the television. Now they sacrifice television time to swap it for computer time.” Spend a little time on the networking sites, and it is easy to conclude that something profound is going on. The ease with which the under-25s are adapting to their new lives online is striking evidence of a digital-generation gap. In Silicon Valley and elsewhere in technology circles, there is the whiff of euphoria once more.