Growth

Rich and Co.

Internet+Social Media Now All About Driving You to Click Ads – Too Bad.

with 2 comments

Main Take-Away — “It’s clear that the new industry that is building around Internet advertising and these other services doesn’t create that many jobs.  The loss of manufacturing and design knowhow is truly worrisome.”   “The legitimate concern here is that we are not diversifying, so that we have roots to fall back on when we enter a different part of the cycle.”

  •  “The best minds of my generation are thinking about how to make people click ads.  That sucks.”
  • A profusion of startups is piling into every possible niche involving social networking and ads
  • “The most coveted employee in Silicon Valley today is not a software engineer. It is a mathematician.  The mathematicians are trying to tickle your fancy long enough to see one more ad.”
  • “Any generation of smart people will be drawn to where the money is, and right now it’s the ad generation.” (Some smart people are looking for interesting problems and not just the most money however.  ed)
  • “Silicon Valley has become more like Hollywood. An entertainment-oriented, hit-driven business that doesn’t fundamentally increase American competitiveness.”
  • There is a classic Silicon Valley blend of preternatural (extra-ordinary and somewhat naïve) self-assurance and save-the-worldism, especially on tech’s hottest properties.

 This Tech Bubble Is Different — By Ashlee Vance
Online ads have been around since the dawn of the Web, but only in recent years have they become the rapturous life dream of Silicon Valley.   Companies have engaged in a frenetic, costly war to hire the best executives and engineers they can find.   Investors have joined in, throwing money at the Web stars and sending valuations into the stratosphere. Inevitably, copycats have arrived, and investors are pushing and shoving to get in early on that action, too. 

Once again, 11 years after the dot-com-era peak of the Nasdaq, Silicon Valley is reaching the saturation point with business plans that hinge on crossed fingers as much as anything else.  It’s being driven by social media and consumer-oriented applications.”

The dot-com boom was built on infatuation with anything Web-related. Then the correction began in early 2000, eventually vaporizing about $6 trillion in shareholder value.  But that cycle, too, left behind an Internet infrastructure that has come to benefit businesses and consumers.

This time, the hype centers on more precise ways to sell.

  • At Zynga, they’re mastering the art of coaxing game players to take surveys and snatch up credit-card deals.
  • Elsewhere, engineers burn the midnight oil making sure that a shoe ad follows a consumer from Web site to Web site until the person finally cracks and buys some new kicks.

“Any generation of smart people will be drawn to where the money is, and right now it’s the ad generation.”

So if this tech bubble is about getting shoppers to buy, what’s left if and when it pops?

  • Venture capitalists have become consumed with finding overnight sensations.
  • They’ve pulled away from funding risky projects that create more of those general-purpose technologies—inventions that lay the foundation for more invention.

“Facebook is not the kind of technology that will stop us from having dropped cell phone calls, and neither is Groupon or any of these advertising things.  We need them. O.K., great. But they are building on top of old technology, and at some point you exhaust the fuel of the underpinnings.”

“Silicon Valley has become more like Hollywood. An entertainment-oriented, hit-driven business that doesn’t fundamentally increase American competitiveness.” 

Hammerbacher quit Facebook in 2008, took some time off, and then co-founded Cloudera, a data-analysis software startup. He’s 28 now and speaks with the classic Silicon Valley blend of preternatural self-assurance and save-the-worldism, especially when he gets going on tech’s hottest properties. “If instead of pointing their incredible infrastructure at making people click on ads,” he likes to ask, “they pointed it at great unsolved problems in science, how would the world be different today?” And yet, other than the fact that he bailed from a sweet, pre-IPO gig at the hottest ad-driven tech company of them all, Hammerbacher typifies the new breed of Silicon Valley advertising whiz kid.  He’s not really a programmer or an engineer; he’s mostly just really, really good at math.

At social networking companies, quants:

  • May sit among the computer scientists and engineers, but theirs is the central mission: to poke around in data, hunt for trends, and figure out formulas that will put the right ad in front of the right person.
  • Gauge the personality types of customers, measure their desire for certain products, and discern what will motivate people to act on ads.

“The most coveted employee in Silicon Valley today is not a software engineer. It is a mathematician.  The mathematicians are trying to tickle your fancy long enough to see one more ad.”

Sometimes the objective is simply to turn people on.  Zynga, the maker of popular Facebook games such as CityVille and FarmVille, collects 60 billion data points per day—how long people play games, when they play them, what they’re buying, and so forth. The Wants (Zynga’s term is “data ninjas”) troll this information to figure out which people like to visit their friends’ farms and cities, the most popular items people buy, and how often people send notes to their friends.

Discovery: People enjoy the games more if they receive gifts from their friends, such as the virtual wood and nails needed to build a digital barn. As for the poor folks without many friends who aren’t having as much fun, the Wants came up with a solution. “We made it easier for those players to find the parts elsewhere in the game, so they relied less on receiving the items as gifts,” says Ken Rudin, Zynga’s vice-president for analytics.

These consumer-targeting operations look a lot like what quants do on Wall Street. They might watch what someone searches for on Google, what they write about in Gmail, and the websites they visit.

(This is the web and world of advertising now.) “You get all this data and then build very rapid decision-making models based on their history and commercial intent.  You have to make all of those calculations before the Web page loads.” 

The Era of Ads also gives the Wants something they yearn for: a ticket out of Nerdsville.  “It lets people that are left- brain leaning expand their career opportunities,” says Doug Mack, CEO of One Kings Lane, a daily deal site that specializes in designer goods. “People that might have been in engineering can go into marketing, business development, and even sales. They can get on the leadership track.”

(At last, they can be “liked.” Ed)

And while the quants plumb the depths of the consumer mind and advance their own careers, investors are getting something too, at least on paper: almost unimaginable valuations. Just since the fourth quarter, Zynga has risen 81 percent in value, to a cool $8 billion, according to Nyppex.

… a profusion of startups is piling into every possible niche involving social networking and ads—the fate of those companies is anybody’s guess. 

“It’s clear that the new industry that is building around Internet advertising and these other services doesn’t create that many jobs.  The loss of manufacturing and design knowhow is truly worrisome.” 

“The legitimate concern here is that we are not diversifying, so that we have roots to fall back on when we enter a different part of the cycle.”

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Written by Rich and Co.

June 5, 2011 at 8:52 pm

2 Responses

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  1. Too bad all these brains can’t be put to better use to fix real problems in the world…like how to put people back to work…rather than sell more stuff.

    Casey Dawes

    June 6, 2011 at 3:56 pm

  2. Surely selling more stuff is exactly what is neede to create jobs.

    Anonymous

    June 8, 2011 at 12:58 pm


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