Silicon Valley is littered with business plans based on ad revenue. In the era of free software, companies expected to make their money from advertisements. Yet pay-per-click advertising margins are notoriously thin, and often insufficient to support a business model.
Knowing which segments are most likely to do what you want—and how to reach them—is critical for any online business. Much of this information flows across Internet connections, social networks, search engines, and websites, and the keepers of these sites see analytics as the new AdWords: in the world of free, analytics is the cash register, and many companies seek to monetize their services by selling insights into online visitor behavior.
Let’s look at some of the industries hoping to cash in on analytics and web intelligence.
Mobile phone carriers had a great business. They provided services such as voicemail, text messaging, videoconferencing, newsfeeds, and more, for a fee. With the advent of the consumer Web on smartphones, however, they’ve lost the ability to unbundle individual services and charge for each of them. Apple finally capitulated and allowed Skype on the iPhone, which will have a material impact on long-distance revenues. Carriers have lost control of their original business models.
Instead of just becoming “dumb wires” for data applications, one way carriers can reclaim their revenues is to watch what mobile users do. Already, some firms (like Neuralitic) make analytical tools that capture mobile user traffic, aggregate it based on the applications and services those users access, and help the carriers analyze their businesses. The data could easily be sold to third-party clients who want to better understand mobile usage patterns.
Search engines are the most obvious candidates for analytics revenues, since paid search is their primary source of revenue, and giving customers tools to understand the effectiveness of their campaigns is a part of the sales cycle. Search engines can do more than just analyze keywords, however: they have data on trends, geographic spread, and more. We’ve covered many of the free tools that search engines—particularly Google—make available, and most of them are subsidized by advertising revenues. Search engines do have premium offerings for some of their tools, however.
The many URL shortening sites—dominated by bit.ly and Tinyurl—are well poised to make money from analytics. They sit between a web user’s intentions (clicking the link) and the outcome (delivering that user to a site) and can build a great deal of information on the spread of social messages, as well as which content works best for which demographics, social networks, times of day, or geographies.
These URL shorteners also threaten social news aggregators. Sites like Digg, reddit, and Slashdot rely on surfers to submit stories they find interesting, and despite the efforts of these companies to make the submission process easy—through toolbars, embedded buttons, and so on—it still requires effort to submit a story.
bit.ly, awe.sm, and Tinyurl require no effort beyond the shortened URL, however, to learn what people find interesting. They can see which content is spreading most quickly, and segment it by user demographics, simply because they’re acting as middlemen between the links and the content.
While today many of these sites offer analytics for free, bit.ly is already forming business relationships with marketers who want to track the spread of their messages. As organizations seek to do multivariate testing of community messages, they’ll turn to these URL shortening companies for metrics and reporting data.
There’s a war brewing between open, opt-in tracking through sharing and participation across many community sites, and the all-inclusive walled gardens of social network giants.
When you receive a message from a friend on Facebook, you’re notified by email. To respond to that message, however, you need to click on the link provided in the message and respond using Facebook’s tools. The same is true, to a large degree, for other walled garden social networks. LinkedIn is somewhat more open—email messages can be taken out of the platform and into traditional email—but social networks in general have been reluctant to integrate with systems outside their walls. It’s only in the face of competitive pressure from sites like Twitter that social networks have been willing to put even carefully guarded openings in their garden walls.
Walled garden social networks want to be a one-stop social platform whose users don’t need to venture elsewhere. Even “open” features like Facebook Connect are aimed at pulling content from elsewhere on the Web inside those walls, where members can further discuss them.
It’s far easier to track—and monetize—community activity when that activity all happens in one place. A picture, leading to a Wall post, leading to a message, resulting in an invite, can all be tracked back to a user and segmented by demographics. As soon as the user’s online experience transcends a single site, tracking him becomes far more difficult.
The tension between walled gardens and open communities isn’t just technical—it’s cultural. Early adopters and the web-savvy favor an archipelago of online communities loosely connected through APIs and hyperlinks. More mainstream consumers, however, want a unified set of tools built around their social graphs, a group hug with the friends they know. The social makeup of communities makes this distinction clear: a real-world meeting of Twitter friends feels like speed dating; a Facebook meet-up is more like a class reunion.
Whether a site is a lone island in an archipelago of social sites or a one-stop continent, it’s still got to make money. To do so, the site’s operators will deploy monitoring tools that help advertisers understand the relationship between social network activity and business outcomes. This will happen either by keeping them in the walled garden—the Facebook model—or by finding ways to connect community members’ many online interactions.
This will in turn cause (justified) concern over the tracking of personal data online. Our network of families, friends, and acquaintances will become increasingly valuable to marketers who seek to optimize online activity, but we’ll be increasingly concerned about sharing that network with others.
This picture of social networks might seem bleak: rather than them becoming a tool for collective human consciousness, they’ll slide inexorably toward their role as yet another marketing tool. But this has happened throughout much of the Web already, from websites to blogs to email, without entirely tragic consequences.
Online communities will continue to thrive and connect, but when organizations want to monitor their roles within their communities and tie this information back to business outcomes, they’ll start tracking them.
One area in which analytics has been glaringly absent is within hosted applications. SaaS offers an unprecedented opportunity for employers to measure the productivity of their employees, yet many SaaS offerings lack even rudimentary visibility into who is using the application and how they’re doing so.
Sales is a numbers game, and sales force automation products, such as Salesforce.com, already give managers the ability to see which employees are meeting their goals. Call center tracking applications have similar analytics. With more and more enterprise applications available in SaaS formats, it’s likely that we’ll see “productivity analytics” become a more commonplace feature of SaaS sites.
Today, however, it’s hard to implement this type of tracking yourself. Most modern SaaS platforms won’t let customers embed tracking tools within their pages, so you’re at the mercy of the SaaS platform to find out how much your employees are using the service, where they’re getting stuck, or where they’re pressing Delete the most.
As businesses start to expect the transparency and accountability of analytics, we expect them to demand this kind of visibility from all of their software tools.