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As I’ve said in the past, I think that distribution is the most important success factor in the early stages of any new consumer technology. Distribution used to mean getting a carriage deal done with a big portal. These days it can take a number of forms, but it always requires getting in front of potential users who may not be aware of you, and alerting them to your value proposition.

As social networks take an increasing percentage of internet users time, it’s more important than ever to factor them into a distribution strategy. Within Myspace, this has been through widget virality (one of the seven forms of virality that we’ve posted about in the past). Bebo has taken a more controlled approach, allowing select partners into their system in what looks closer to a traditional portal distribution deal.

Now, through its new platform, Facebook too can be a distribution platform. Apps are spreading in Facebook through a combination of virality from profile pages, promotion to existing user bases and position in the application directory, with iLike being the clear early winner. Happily for Lightspeed, Rock You and Flixster (both are portfolio companies) have three of the top ten apps on Facebook between them. Josh Kopelman says that Facebook’s open approach to partners has effectively increased their virtual R&D budget by around $250m, the amount invested so far into widget companies.

Another of our portfolio companies, Stylehive, is also taking the approach of opening up its platform (albeit on a smaller scale to Facebook). They are partnering with retailers and publishers, including the Gap, Shopbop, Instyle Magazine, Gen Art and others, inviting them into the Stylehive platform. These partners will be able to access Stylehive’s community as well as add a social media dimension to their commerce or content.

I think we’ll see even more communities opening themselves up as platforms over the next 12-18 months. It will be especially interesting to watch MySpace’s competitive response.

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Online video is hot and everyone is scrambling to figure out how to best monetize it. Google just launched their “adsense for video” product, Advertising.com has Instream, and there are a host of startups attacking the problem as well. I think these online ad network plays are very interesting, as are all the infrastructure plays betting on the underlying rise of online video.

I wonder though if online video is the best way for websites to monetize their traffic.

Online video certainly commands a premium to banner advertising on a CPM basis. Videoegg powers the video at many of the top 20 social networks, and its rate card for run of network advertising starts at a $12 CPM, an order of magnitude higher than the CPM’s for banner ads on those social networks. The big portals (AOL, Yahoo, MSN) and the TV network’s online properties are “selling out” their video advertising at $20 CPMs and higher. While there is always remnant inventory available at steep discounts to these rates, there is no question that online video ads are selling at 5-10x banner CPMs.

Now, while on TV the ratio of advertising to programming is very high – about 8 minutes of advertising to 22 minutes of programming (ie 16 “30 second” spots per half hour), the web is nowhere near this ratio today. The norm is only one video ad per short clip, with clips typically in the 3-10 minute range.

The trouble is that for a website visitor, the scarce resource is not “impressions”, but TIME.

Lets say a typical video-watching visitor watches a clip for 5 minutes. They get exposed to one ad in that time.

Suppose that instead of watching a video, that user spent the same five minutes looking at regular web pages instead. Comscore says that the average time spent per page for the entire internet is about 0.7 minutes (April 2007 data). So in 5 minutes they would have seen 7 pages. Since the average webpage has multiple ad units (say 2), they might have been exposed to 14 ad impressions in those five minutes. So even if a video ad unit had a 5-10x pricing premium, the site might still have generated more revenue from regular web pages in the same amount of time because they would have served 14x more impressions.

This effect is more pronounced if users watch videos for longer (e.g. long form programming) or if they churn through web pages quicker (e.g. picture galleries). Now, of course, the visitor might not stay a full 5 minutes if they were not watching video, so this may not be an apples to apples comparison. But it bears thinking about. Sites focused solely on online video may be missing a revenue opportunity.

In the early days of TV, many shows were of the “talking head” variety – essentially televised radio shows. It took a little while for TV programmers to break out of their old habits (in radio) and to create programming that took advantage of the new medium.

I suspect that we’re in that stage with online video today. Many “online video sites” or “web video channels” are primarily focused on the video (perhaps with some ratings and commentary features associated). Over time I suspect that we’ll see a richer integration of video, text and picture content that is optimized and designed for the web. News sites are leading the way on this integration, regardless of whether they started from a print and pictures perspective(e.g. the Washington Post) or from a video perspective(e.g. CNN). Video may be the “sizzle” that brings visitors to a site, but the “steak” of pictures and text churns pageviews, and ad impressions, to keep the revenue ticker running.

Readers thoughts welcome.

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Simeon Simeonov points to some data from a Comscore survey talking about the effectiveness of advertising in UGC sites vs general media sites by advertising category for the coveted 18-34 year old demographic:

Effectiveness of advertising by category for UGC vs general media sites

It suggests that this demographic is more receptive to advertising on UGC sites in “high fun” categories such as music, movies, food, apparel and entertainment than it is to advertising on general media sites. For “high expenditure” items (travel, autos, etc) their responsiveness is about equivalent between UGC and general media sites, but for “high trust” items (healthcare, financial services) they prefer general media.

Its interesting to compare these categories to where advertising dollars are being spent. I’ve pulled this data from an old Deutsche Bank analyst report initiating coverage on Primedia; they sourced Ad Age 100 data from 2003 so its a little dated but probably directionally correct:

ad spending by category

Movies/Music/Entertainment features prominently in both charts. Hopefully this bodes well for our portfolio company Flixster!

More generally, note the categories where there is both a lot of advertising and a lot of consumer passion. Its these areas where explosive growth of user generated content and social media can combine with an online media model that works. When you overlay the criteria of reasonable receptiveness of the audience to advertising within social media channels, it suggests that other than in movies/music/entertainment, other categories with potential include apparel (we’re an investor in Stylehive), food/beverage, travel and auto. I would be interested to hear from social media companies with meaningful traction in any of these categories.

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Well it was a busy week last week, what with WPP agreeing to buy 24/7 and Microsoft agreeing to buy Aquantive. I was on vacation overseas, so didn’t get a chance to post my thoughts on it as it …

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For many US based startup online media companies, intenational users are largely an afterthought. As I am an Australian, this has always annoyed me. But it is becoming increasingly clear, much as it pains me, that US based startups are …

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Walter E. Hussman Jr., the Publisher of the Arkansas Democrat-Gazette (the major paper in Little Rock), wrote a fascinating opinion column in today’s Wall Street Journal (subscription required) entitled “How to Sink a Newspaper“. He take a contrarian …

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On Friday Om Malik put up an interesting post about how small companies can now fully benefit from the internet in a way that was once open to only companies at greater scale.

In his article Om namechecks Moocards (mini …

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On April 29th, 2007, the Boston Globe published an interesting article in praise of peer pressure. Coming shortly on the heels of the NY Times article about cumulative advantage, it gives a separate set of examples on how …

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On April 15th, 2007 an excellent article in the NY Times magazine asked “Is Justin Timberlake the product of cumulative advantage?“. It describes an experiment in which a group of unknown songs was exposed to different sets of …

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I’ve posted in the past on applying game mechanics to social media. Robb Web’s blog pointed me to a fantastic lecture by Luis von Ahn about how to design games to take advantage of human computation. In effect, he …

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