Archive for the ‘Advertising’ Category

Evan Williams (founder of Twitter) has a fabulous post on how to evaluate new product ideas


I’ve been thinking about a number of new product ideas lately. In doing so, I’ve been trying to come up with a way more structured way of evaluating them. Here’s a first attempt at defining that. It’s not as clear as I’d like it to be. But perhaps you’ll find it useful.


Question: How difficult will it be to launch a worthwhile version 1.0?Blogger was highly tractable. Twitter was tractable, but sightly less-so because of the SMS component. Google web search had quite low tractability when they launched it. Vista?: About as low as you can get.

Tractability is partially about technical difficulty and much about timing and competition—i.e., How advanced are the other solutions? Building a new blogging tool today is less-tractable, because the bar is higher. Building the very first web search engine was probably pretty easy. Conversely, building the very first airplane was difficult, even though there wasn’t any competition.

In general, if you’re tiny and have few resources, tractability is key, because it means you can build momentum quickly—and momentum is everything for a startup. However, tractability often goes hand and hand with being early in a market, which has its own drawbacks (e.g., obviousness, as we’ll discuss below).

If you’re big and/or have a lot of resources—or not very good at spotting new opportunities, but great at executing—a less-tractable idea may be for you. It may take longer to launch something worthwhile, but once you crack the nut, you have something clearly valuable.


Question: Is it clear why people should use it?Everything is obvious once its successful. Big wins come when you can spot something before its obvious to everyone else. There are several vectors to this: 1) Is it obvious why people should use it? 2) Is it obvious how to use? 3) Is it an obviously good business?

Number two is more affected by the design of the product than the idea itself. You don’t actually want number three to be true. You want it to be a good business, but not an obviously good business, because than you get more competition. Web search was not an obviously good business before Google demonstrated it. This allowed them to leap-frog the competition that was in it for years, but not taking it very seriously. But, like Google, the business may not be clear until later.

The key question for evaluating an idea is number one: Is it obvious why people should use it? In most cases, obviousness in this regard is inversely proportional to tractability. The cost of Blogger and Twitter’s high tractability was the fact that they were defining a new type of behavior. The number one response to Twitter, still, is Why would anyone do that? Once people try it, they tend to like it. But communicating its benefits is difficult. We’re heartened by the fact that Why would anyone do that? was the default response by the mainstream to blogging for years, as well, and eventually tens of millions of people came around.

On the flip side, if you can build an ad network that makes people more money, a better search engine, or a productivity app that actually does tasks for people—all, less-tractable solutions—it will be highly obvious to people why to use your product.

Sometimes you can come up with ideas that are highly tractable and obvious. For example: Top Friends or HotOrNot. These products were not hard to launch and yet, were immediately appealing (to their target market). What was not obvious, in either case, is that they could also be great businesses. HotOrNot has proven this to be true. And I suspect Slide will, as well.


Question: How much value can you ultimately deliver?The most successful products give benefits quickly (both in the life of a product and a user’s relationship with it), but also lend themselves to continual development of and discovery of additional layers of benefit later on.

Facebook is incredibly deep because it leverages your connections, which touch practically every aspect of your life. Scrabulous, on the other hand—a Facebook app for playing Scrabble—is not very deep. How big is the Scrabble-playing part of your life, and how much can it deliver beyond that?

But most things are deeper than they seem at first glance. Practically any application, once people start using it, can be used as a lever to more activity and benefit delivery. Being smart about what you’re leveraging is key.

When Feedburner first launched, their only feature was the ability to take an RSS feed and spit out multiple versions, depending on the capabilities of the feed reader requesting it. It seemed useful, but hardly something to start a company around, especially because that particular problem would probably go away over time. Or so I thought. What I didn’t get and they did (because Dick and gang is smarter than me) is that they were setting themselves up at a great leverage point—between publishers and their readers—where they could offer an ever-deeper value stack. Soon it was feed stylesheets with one-button subscription, feed stats, feed flare, blog stats, email subscriptions, and, of course, advertising, where they made their money.

While we’re talking about Feedburner, its worth mentioning that their product was also very obvious for their core user-base. There were clear benefits and very little drawbacks. They also had no competition, even though there were tons of companies in the RSS/feed space, because most of the others were battling it out on the reader side.

Other times, you stumble into deepness. When they put up HotOrNot on a whim, Jim and James didn’t know they’d be able to leverage it into a highly profitable dating site. Okay, so HotOrNot’s still not the “deepest” of sites, but it’s deeper than you think.


Question: How many people may ultimately use it?Wideness, like deepness, is a fairly classic market analysis measure. They are usually inversely proportional—do you try to offer the mass-market good or the niche one?

Feedburner is not particularly wide. Their market was those who published RSS feeds (and cared about them). This was in the hundreds of thousands, not a hundred million. Turns out, it didn’t need to be used by a hundred million to be worth a hundred million, so going for wideness is not entirely necessary. But it’s something to look at.

Like deepness, wideness can take you by surprise. The web is getting so damn big, what seem like niche ideas can be very decent businesses. When Ted Rheingold launched Dogster, as a joke, he didn’t know there were enough people out there who would be interested in making their dogs web pages to actually build a business. When we launched Blogger, I thought maybe a few thousand people would use it.

Sometimes, you can find a spot that is both deep and wide. This is where multi-billion-dollar businesses are built: Google, Windows, Ebay. It’s easy to think these kinds of opportunities aren’t laying around anymore—at least not for the little guy. But most people would have said the same before Facebook entered the picture.


Question: How will people learn about your product?I was going to call this criteria “viralness.” However, there’s a lot of focus on viralness these days, and—while sometimes amazingly effective—it’s not the only way to grow a user-base. And it doesn’t make sense in all cases.

Interesting to note: Google web search is not the least bit viral. Nor is Firefox. Nor it Kayak.

It’s possible to get the word out without being “viral.” One way is organic search traffic. Another is pay-per-click ads (if you can monetize). Another is plain old-fashioned word-of-mouth/blog/press. (Twitter has probably grown more through press and blogs references than any inherent viralness.) There’s also distribution deals and partnerships.

Either way, it’s something to think about up front, as different ideas lend themselves to different discoverability strategies. And some things are more difficult than others to spread. Dating sites, for instance, have not historically been viral, because people weren’t going to invite their friends to—or even talk much about—their personal ads. The sites made up for this by buying lots of ads, which worked because they monetized signups via subscription.


Question: How hard will it be to extract the money?Far be it for me to say that obvious monetizability is a requirement. I’m generally a believer that if you create value, you can figure out the business. However, all things being equal, an idea with clear buck-making potential is better than one without.

Whether or not something is monetizable is not always clear up-front. It wasn’t clear how Google was going to make money early on. Ebay thought it would sell auction software.

In most cases, if you position yourself close to the spending of money, you can extract some. Or if you offer something that clearly saves or makes people money.

Blogger, I believe, makes money for Google, but it’s not the most monetizable of products. Twitter, I believe, will be more-so, but that’s yet to be seen.

Personally Compelling

Question: Do you really want it to exist in the world?Last on the list, but probably the first question I ask myself is: How important to me is it that this product exists in the world? If I were evaluating a startup, I’d ask this of the founders. As I wrote in “Ten Rules“:

Great products almost always come from someone scratching their own itch. Create something you want to exist in the world. Be a user of your own product. Hire people who are users of your product. Make it better based on your own desires.

In theory, you can get around this with lots of user research. (It’s pretty clear neither Slide nor Rockyou‘s founders are creating widgets based on their own needs and desires.) But you’re more likely to get it wrong that way. When I’ve gone sideways, it’s when I wasn’t listening to my gut on this issue. Specifically, Blogger and Twitter were personally compelling, while Odeo wasn’t.

However, “personally compelling” doesn’t have to mean only that you want it as a user yourself. Curing cancer or helping the world be more green may be highly personally compelling for other reasons, which I think is just as good. My favorite products are those I really want as a user, but that I also think have some “greater good.”

Charting it Out

To bring it home, here’s a table with my estimates on where different products land by these criteria. Obviously, these are subjective measures, and for some of them, it’s hard to judge in retrospect. (I didn’t inlclude Personally Compelling on the list, because I can’t really speak to the founder’s motivations in most cases.)
Product Tractability Obviousness Deepness Wideness Discoverability Monetizability
Blogger Very High Low High High High Low
Google (web search) Very Low Very High Very High Very High Low Very High
Facebook High1 High Very High High Very High High2
Twitter High Low High High High Med
Feedburner Med High High Med Med Med3
HotOrNot Very High Very High Med Med Med High4
Scrabulous High Very High Low Low Very High Low
Ebay Med High Very High Very High High

Authors Blog


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Post Author: David Rusenko is a founder at Weebly, a company that makes a web creation tool.

I, [David Rusenko], first started working on Weebly in February 2006. I worked for about a year on it with Dan and, later, Chris’ help, and we launched a (very) early version of Weebly in mid-November 2006. We were TechCrunch’ed a few days later, and accepted into Y Combinator the same day. (On the morning of our YC interview, we woke up to discover we were on TechCrunch).

Weebly has been growing ever since then, gone through two complete visual redesigns, added numerous features, and doesn’t even resemble the product we launched with at all.

Here’s two of our graphs from May 8th 2007 — five months after we moved out to San Francisco and had been working on the product full-time:

The first is a graph of our new signups per day, and the second is a graph of our total user count per day. I’ve annotated the top graph with what events caused the major spikes.

There’s actually two very interesting things to note about the top graph: First, we had already closed our angel round at this point — looking back, our investors placed a huge amount of confidence in us.

Second, the new users per day looks like it might actually be declining a little bit.

At this point, I’d been working on Weebly for about a year and a half, and we’d been launched for over six months. Judging by the graphs, you might think things weren’t looking spectacular. This is the type of situation when people give up.

I’ve seen it quite a bit among startups — they spend more time developing the product than they do running it after they launch it. Several have followed the same pattern: build, build, build, launch, quit.

But you’ve got to keep with it to gain momentum. It doesn’t usually just build overnight, it takes time. Keep building your product, and eventually you gain momentum and a critical mass of people who know about you and tell others about you.

Now, here are the graphs from a couple weeks ago:

These graphs look a hell of a lot better. There’s 2 things I’d like to point out:

First, the “build it and they will come” mentality is a fallacy. You need to build something great and have distribution in order to succeed. And distribution is hard to get.

There are many ways to get distribution. One of those is through press. If you have a great product, the more people that find out about you, the more people will know about you. And they’ll tell their friends, who’ll tell their friends, etc.

Another subtle press benefit: you’re getting links from a bunch of very highly-regarded sites, and this helps out your rankings in search engines quite a bit, which builds more traffic.

There are plenty of other good ways to get traffic too, such as engineering for viral growth, but press can have huge benefits for the right product.

Second, in order to get people to use your product, you have to stay alive. This sounds obvious, but a ton of people spend 6 months building a product, launch it, and give up within 3 weeks.

Plain and simple, it’s going to take time for people to start using your product — there are exceptions, but it’s generally not the norm. So you need to expect that, and be willing to give it time. If you give up within a month or two, your product definitely won’t be successful.

Once you launch, people start to know about you. If you launch early, you can start earlier on the process of acquiring users. Don’t launch with a crappy product — launch as soon as what you have is better than what is out there. But don’t wait for a perfect product — launch as early as you can, get user feedback, and keep improving the product.

Original Source

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Article Author: Matt Moore.

I [matt moore] postulate that every single successful technology company has had a winning distribution model.

Success of a product, and any business for that matter, can be measured by two simple rates:

  1. usage, how much a customer/user comes back and use your product again and again, and
  2. user growth (a.k.a customer acquisition), how many new users are finding and using your product

Obviously, both are important areas that products must have a successful strategy for – but user growth is at the heart of measuring success of distribution.

In fact, distribution is one of the most amazing aspects of the internet – it’s revolutionized distribution. It’s now able to be faster, broader, and more targeted all at the same time. Directories, and email started this revolution. It moved to search engines, advertising, and simple syndication. And it will continue to revolutionize, as we are seeing through social means (e.g. Digg & Facebook).

Famous Examples

Not sure if you believe me yet? Let’s take a look at some great examples from the past… and even the present!

gates-centerfold.jpgMicrosoft > IBM
Microsoft was paid $50,000 by IBM to put its operating system on every IBM PC that was sold. Killer distribution for a startup!

google50.jpgGoogle > Yahoo!
Yahoo chose Google for providing its search results, before it decideded to try to compete with them in search. Not before Google milked this distribution, obviously, and people went directly to google.com.

ipodphones.jpgApple iPod > Viral
Although I believe Apple started with a viral product (particularly because they were bad at partnering), the iPod is an even better example. A keynote and ads started the iPod revolution, but the genius was that they built viral distribution into a physical device: the white headphones – make any product a (fashion) statement, and it can be viral.

ppal.jpgPayPal > EBay
It was way easier then check & money orders, and the acquisition proved it. Product and network affect were important players as well, but initial distribution went a long way.

chad_n_steve_of_youtube_tn.jpgYouTube > Viral – blogs & email
Clearly the big winner of the acquired companies recently. It made sharing via blog embedding and emailing so easy, people couldn’t help but show their friends how to waste time too.

scribd.gifScribd > Digg
A much more recent example, at least from what I’ve heard, a great portion of Scribd’s traffic comes from the fact that its documents frequently get dugg. Obviously, there are similarities to YouTube as well, so viral distribution is also at play.

logo_beta.gifiLike > Facebook
The power of the newest form of distribution on the web, social sites like Digg & Facebook. Facebook apps, can get more than a million installs in 3 months. And it’s all due to the power of the social graph. Something to keep an eye on.

So How do I Distribute My Startup Product?

This begs the question of how to follow in the footsteps of these companies and design a successful model for distributing your product. Big companies have it easy – they typically rely on money to solve their distribution problems. They can easily afford large marketing budgets and big partnership/distribution deals.

But the internet is the great equalizer, and it will only continue to become more that way. The most popular, but incredibly difficult to pull off explosively well, is viral marketing. It’s still hard because it has to be inherent to the product – people have to intrinsically want to share the use of your product. Only then do the features that enable viral distribution matter, as Andrew Chen explains in Viral Marketing is Not a Marketing Strategy (talk about link-bait!). His tip: don’t think about what viral features you can add, but rather how your product fits into an intrinsic, viral loop. Another way to think about it is why will your user contact their friends about your product, strictly for their own selfish reasons? This could include being perceived as being intelligent, fashionable, fun, or humorous.

Even for viral applications, it can help to use a viral distribution product (and/or platform) that already has traction, like Digg or Facebook. Almost any truly viral applications can exploit the use of these networks, and quite easily at that.

Of course, not all products can be inherently viral. But, of course, you do NOT want to be selling to one customer or user at a time. Aside from the normal online distribution methods, like SEO & link-building, you *have* to find a distributor. Online distributors are typically easiest to find, whether it be the expensive Google AdWords, or some other online advertising. What might be more interesting, depending on your market is affiliate networks – where you pay someone every time they generate a sale for you, on (and even offline). I’ve always thought that college students would make great affiliate marketers, if implemented correctly (I mean, painting, for god’s sake? there has to be something more interesting – not that I want to upset paul)!

Other strategies including partnerships with real businesses require true salesmanship. There are lots of companies out there looking for a partner to do exactly what you’re doing (more than likely), so you just have to go to relevant industry events (a LOT of them) and meet the people in the companies you want to make relationships with. Amazing things can happen just by talking to a lot of people. Of course, this takes time, and you have to love it. At least, someone on your team has to. And be sure to practice spinning your product and company.

But I believe something better will be built out there for distribution of products, using social-like distribution strategies, but for products that aren’t inherently viral. I mean, searching for something you need after you know you need it is so 2002. The next stage in distribution is when great products are put in front of people who need it so they stumble upon it — before they even heard of it, and before they knew they needed it.

Authors Blog.  Due Credit to Matt Mooree

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In the last 2.5 years, Google has conducted the largest corporate experiment with prediction markets we are aware of. Here, we illustrate how markets can be used to study how an organization processes information. We document a number of biases in Google’s markets, most notably an optimistic bias.

Newly hired employees are on the optimistic side of these markets, and optimistic biases are significantly more pronounced on days when Google stock is appreciating. We find strong correlations in trading for those who sit within a few feet of one another; social networks and work relationships also play a secondary explanatory role. The results are interesting in light of recent research on the role of optimism in entrepreneurial firms, as well as recent work on the importance of geographical and social proximity in explaining information flows in firms and markets.

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Article Author: Greg Linden founder of Findory

We will see a dot-com crash in 2008. It will be more prolonged and deeper than the crash of 2000 .The crash will be driven by a recession and prolonged slow growth in the US. Global investment capital will flee to quality, ending the speculative dumping of cash on Web 2.0 startups.

Venture capital firms will seek to limit their losses by forcing many of their portfolio companies to liquidate or seek a buyout. Buyout prospects will be poor, however, as the cash rich companies find themselves in a buyers market and let those seeking a savior come face-to-face with the spectre of bankruptcy before finally buying up the assets on the cheap.

Startups that managed to get cash before the bubble collapses will have a cash horde, but will find little opportunity to rest on it. Most startups will find their revenue models were unrealistic and will rapidly have to seek change. Many will jump over to advertising, but the advertising market will have constricted. Bigger businesses will seek to drive out the new entrants, and online advertising will become a cutthroat business with little profits to be found. Others startups may shift toward licensing and development deals for bigger companies, but will find their investors impatient now that the promised $500M startup has become a $10M company.

The big players will not be immune from this contagion. Google, in particular, will find its one-trick pony lame, with the advertising market suddenly stagnant or contracting and substantial new competition. The desperate competition with dwindling opportunity will drive profits in online advertising to near zero.

Google and Yahoo will find their available cash dropping and will do substantial layoffs.


Unfortunately, this scenario has privacy implications as well. Much like we saw after the 2000 crash, it is likely that those with little to lose will attempt scary new forms of advertising. The Web will become polluted with spyware, intrusiveness, and horrible annoyances. None of this will work, of course, and there will be lawsuits and new privacy legislation, but we will have to endure it while it lasts.

It is a dire scenario, but one that looks much like what we saw after 2000. That was a much smaller crash without the fuel from broader problems in the US economy, but we still had investment capital shut off for a few years, most startups shut down, and the remaining startups shift business models. We also saw a dramatic rise in pop-up advertising and spyware.

The crash of 2008 will be similar to 2000 but deeper. We all will have to weather the storm. Source.

You can Download [as pdf] the Full Fledged Report on Net by J P Morgan.

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Author: Douglyss Giuliana


Owner-managers of start-ups and small businesses have a long hill to climb. In order for the business to generate sufficient revenues let alone be successful managers must get the word out to the buying public. The entrepreneur must creatively marshal limited resources to promote, sell, and distribute the product. This is clearly a challenge for the small business for a number of reasons.

First, start-ups and small businesses have limited capital to spend on marketing campaigns. The capital they do have must be split between product development, personnel, operations, sales, and marketing. In addition, the battle for consumers attention from the growing number of companies and brands has driven up marketing costs. Managers must find ways to make the most of the marketing funds available, often relying on inexpensive and even free marketing vehicles.

Second, traditional marketing techniques have become less effective. Television, newspaper, and magazine advertising have simply become noise. Consumers are bombarded with so much advertising that they often tune it out, change the channel, or fast forward past it. In addition, consumers have become more and more skeptical of and insensitive to traditional broadcast advertising.

Third, these traditional techniques may not reach the target market. More people are heading to blogs for their news, satellite for radio, MP3s for music, and the Internet for entertainment. These media are, for the most part, beyond the reach of traditional marketing.

This post digs in to a number of alternative marketing techniques appropriate for entrepreneurs and owner-managers engaged in business-to-consumer venutres.

The Challenge of Entrepreneurial Marketing Start-ups and entrepreneurial ventures suffer from very limited resources, including personnel, time, and money. Yet, every business large and small must learn to cope with less, especially during times of downsizing, cost cutting, and reorganization. Even Fortune 500 enterprises wish for larger budgets and bigger departments.

Marketing also plays a key role in attracting other critical assets employees and capital. The start-up or small business must be visible, attractive, and look like a winner; these are things that customers, employees, and investors all look for.

The start-up or small business must be visible, attractive, and look like a winner; these are things that customers, employees, and investors all look for.


The Owner-Manager Difference:Decisions are made almost exclusively by the owner-manager in a small business or entrepreneurial venture; there is little if any delegation of tasks involving strategy, finance, control, and marketing. Therefore, any marketing activities will rely heavily on the owner-manager’s experience, expertise, and knowledge.


Marketing Strategy for the Entrepreneur
The small business owner-manager must often focus so much on daily operations that strategy is something left for much larger companies. In fact, entrepreneurs often start with an innovative product but little understanding of the target market. They are content to use their intuition, throw the product into the market, and see who buys. As customers start rolling in, the entrepreneur simply tries to find more of the same. This is quite the opposite of traditional marketing techniques where the target market is identified, a message is crafted, and a strategy to reach the target is developed. The traditional top-down approach of segmentation, targeting, and positioning is replaced by a bottom-up approach that starts with identifying an opportunity, attracting initial customer, and expanding by finding similar customers.


Marketing Mix
In choosing methods of communication, it is important to use as many methods as can be executed successfully. Multiple methods will reach a broader audience, and different consumers will be affected by different techniques. The investment in marketing is a bet on future returns. Much like an investment portfolio, you should spread the investment around to different vehicles. The trade-off is that spreading too thin might dilute each piece to be ineffective. Also like an investment portfolio, understand the potential cost and return of each option and craft a mix that maximizes that return.


The Offer
While most entrepreneurial ventures are based on an innovative and therefore differentiated product, it is important to understand why this is the case and the subsequent responsibility of marketing. Simply because of their limited reach and capacity, small firms perform best with a narrow focus. While the narrow scope allows the small business to cater to a specific market, it is also likely that the small market is not enough to attract the attention of larger competition, allowing the small firm to fly under the radar.


Market Research
It is rather common for an entrepreneur to start the business with only a limited understanding of the product, the market, the plan, and the competition. They go with their gut; they use intuition. They sense a need rather than rely on analyst reports or detailed competitive analysis. In fact, many entrepreneurs start with only a product or service idea, and then try to find a market for it. They focus on developing a great product and only later shop it around, then focus on the market that had the strongest response. Indeed it is innovation and creativity that propels the small business to success, but this contrasts the customer orientation that lies at the heart of marketing.


Word of Mouth and Buzz
Word of mouth is the direct person-to-person communication in which one person describes the attributes or experience of a product or service to another person. It occurs when we tell a friend about a great movie or when we brag to a colleague about a new car or a fabulous vacation. However, word of mouth is just as likely, maybe even more likely, to occur when we tell someone about a terrible meal we had at a restaurant or a new computer that constantly crashes. Good or bad, the word spreads. Word of mouth spreads from those who know about your product, typically existing customers, to those who are unfamiliar or maybe familiar but not yet convinced or sold. Many start-ups rely on word of mouth to attract that initial critical mass of customers, and many small businesses count on the recommendations for all of their new business. In either case, the high effectiveness and low cost of this marketing method makes it a staple for any resource-constrained venture. According to a 2001 McKinsey report, 54% of sales in the United States are affected by word of mouth.


Viral Marketing
Viral marketing is a special case of buzz in which the product itself is the way that word spreads. This term was coined by Steve Jurvetson who was one of the venture financiers of Hotmail. At the bottom of every email sent through Hotmail was the line Get your private, free email from Hotmail at http://www.hotmail.com By using the product, customers were passively spreading the word. This small start-up, with no spending on large media advertising, grew and grew until it was acquired by Microsoft.




Customer Evangelism
A customer evangelist tells your story and tells it to everyone. He purchases your product, believes in your business, recommends it to friends and colleagues, supports you even when you make a mistake, and provides feedback even before you ask. He wants you to succeed. This action and belief is based on an emotional connection the customer has with your product, service, or company. Customers become evangelists when they are so pleased with their experience with the product or service that they want to tell others and even want to help the business succeed. People love to talk about their experience with products and especially like to be the one that pointed out a great product that everyone subsequently adopts.

Building Brand
While strong brands are typically associated with larger, established companies that have had years to build a reputation and become widely known, a strong brand can also be successfully built by the small business. The purpose of developing a strong brand is in its ability to communicate the value proposition easily and effectively.

There are two types of partnerships that small businesses can take advantage of. First, by partnering with another small business, the two can join forces and their limited resources to promote, package, or distribute their products together. Beyond simply sharing the bills, the two businesses can split up the work and offer expertise that the other business might lack. Second, a small business can partner with a larger, established company. While this is typically much more difficult to accomplish, if a relationship can be forged, the small business can benefit greatly.

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Facebook CEO Mark Zuckerberg last week unveiled the social network’s new ad program to 250 marketers at a much-hyped Manhattan event with this bold proclamation: “The next hundred years will be different for advertising, and it starts today.”  Total hype — or at least hyperbole.

Mark Zuckerberg
Photo: Steve Maller

Facebook CEO Mark Zuckerberg has unveiled a new ad program that relies on user recommendations.

Like any new advertising venue, Facebook’s ad system merits a look. But don’t be fooled by the grandiose rhetoric around its revolutionary powers. In fact, out of everything Facebook unveiled last week, the part that’s most interesting may not be the advertising at all. Instead, it’s the way the site is amplifying the myriad unpaid user recommendations and brand affiliations that already go on inside the social network.

“The more you enable person-to-person communication, the more opportunities there are for individuals to influence each other,” said Rob Norman, CEO of Group M Interaction. “This phenomenon already existed. [Mr. Zuckerberg] just poured gas on the fire.”

Peer review
That “new way to advertise online,” as the unveiling of the ad system was billed, is a user-recommendation system and hyper-targeted advertising play that, when combined, creates something Facebook is calling SocialAds. Under the system, actions users take when they’re not on Facebook, such as renting movies on Blockbuster.com or selling products on eBay, can be broadcast to their Facebook friends. Brands also can create Facebook pages users can interact with, and those interactions are relayed to their networks.

Smart marketers are already starting to recognize the frequency with which people report their affinities for brands on social nets, blogs and personal web pages — and they understand that consumer reviews and trusted recommendations are increasingly important marketing factors. (This has not been lost on the application developers who have been innovating on top of the social network; already there are Facebook applications devoted to displaying people’s favorite brands, purchases and tastes.) And whether or not Facebook is the advertising game changer many thought it would be, its recent moves only amplify that trend.

Facebook has managed to “put the power of recommendation and referrals into a systematic environment,” said Chamath Palihapitiya, VP-product marketing and operations at Facebook. That’s a pretty interesting proposition for marketers but not one they have to purchase. (And that’s perhaps worrisome for Facebook, which needs to prove it can make money through ads to justify its recent $15 billion valuation.)

Meanwhile Facebook’s plans for hyper-targeting paid ads based on user interest and activities were received as, well, kind of obvious. MySpace is sorting its users into interest and activity categories marketers can buy. Both sites introduced self-serve ad systems last week that could greatly expand advertising to smaller, more local businesses. Unlike MySpace, Facebook plans to marry its targeted ads with user-initiated brand references.

Article from Advertising Age, Read More…

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