People have been conducting peer to peer transactions online since the very early days of the Internet and sites like eBay & Craigslist have really made connecting with individuals much easier. My definition for “We-Commerce” is the point at which consumers coming online, do so with the intention of setting up their own web presence in order to become a commercial entity. This succeeds the current paradigm of just User Generated Content – it’s the next step forward.

User Generated eCommerce (We-Commerce) is really about consumers interacting and trading with each other using their own personal websites. Social networks are now creating the foundation for trust, and for a trusted community around prosumer ecommerce on the Internet. It’s easy to argue that people will much rather trade with people in their social network, than outside it. As Google & Facebook dabble in the realms of Google’s Friend Connect & Facebook Connect – it’s going to make it easy for website owners to create social networks around their businesses. Individuals will wield the power that trusted websites currently enjoy.

I’ve often argued the intrinsic value of Social Networks does not lay in the in the walled gardens that they have, but instead in the value of the data that they collect – no one has really figured out how to monetize that data, with respect to privacy. The default is to run advertising and turn a profit – the true monetization will come in time.

There is much to be said about the walled gardens of social networks – and in my opinion, they have their place. Much of the personal information that is collected by a social network is private and should remain as such – but surely the number of friends and connections that an individual has should be indicative of their integration and trust within society. Maybe I’m reaching here – but given that I have over 1,000 friends on Facebook – I’m pretty sure that if I was offering something for sale on this blog and that information was available, that it would infer some level of trust with me, especially for small transactions.

If we’re solving the problem of trust with SME’s & personal users – how do we get them online? We need to make it dead simple. Most SME’s won’t spend the money to build a website – and they will most likely to it themselves – this is what Microsoft Office Live, Google Sites (& SynthaSite ) are banking on.

Ok, so let’s assume that we’ve made it easy to get a web presence and now social network users and other less initiated Internet users have their own websites – what does that mean?

For many people, buying and selling through sites such as eBay is a way of life and the liquidity in the eBay marketplace really justifies being there – and I won’t argue that point. There are some issues around having to be a power seller before you really become trusted in that network. As a new eBay user, although I have thousands of friends on Facebook & LinkedIn – I am not a trusted entity on eBay – so I would much prefer to have my own site, which is validated by the strength of my network – so that people looking to transact with me can look at my LinkedIn recommendations, for instance. Trust on the Internet has to got to reach the point where it’s transferable from one site to another. There are many companies working in this space on this problem at the moment.

My point really is that commerce on the web is and needs to evolve. The argument that consumers are Prosumers is now truer than ever. CafePress does a fantastic job of allowing consumers to become producers, and effectively retailers.

However, the web is growing so rapidly that as search evolves, so will content. As users search for you on the web – how do you want to be seen? Do you want an old article from high school being discovered at first position in the search engine results – or is it your own presence on the web?

Can you imagine a world where everyone has their own website which they use for content, collaboration & commerce? I can too…

Update (3 June 08): Michael Arrington wrote a nice piece today on where Social Media is heading. He refers back to his previous piece where he describes the “The Centralized me“. As much as I understand, and consumer services such as FriendFeed, I truly believe that the centralized me is about “One man, One Website!”. My blog is my central place for sharing my photos ( I have used FlickR), thoughts, Digg links etc – and for many people, owning their own personal website would fulfill all the requirements they would have for a centralized me. By using API’s and site builders that can easily call 3rd party data (yes, yes – Data Portability plays a part in this) – we are able to create websites which are essentially mashups. Personal websites are more likely going to fulfill the mass user’s requiredment for the “Centralized Me”. It will also fulfill Fred Wilson’s comment that “every single human being posting their thoughts and experiences in any number of ways to the Internet.”

Further Update Wed 25th June 2008: Another good post from TechCrunch on how commerce will move from firms to individuals.

Mike starts off with a story about how Dell was “giving” away free laptops with their broken e-Commerce platform. This was a good example of how the news spread through the blogosphere and Internet, virally. Importantly, Mike notes, Dell was paralyzed by the huge upsurge in orders – (2500 in 9 hours!), and they didn’t know how to deal with the Public Relations nightmare that was brewing, due to corporate paralysis (the US office had to approve any statements, etc).

The new Web Trend Map was put up – to show how everything is interlinked.

Mike also put a quote up from The Cluetrain Manifesto:

“A powerful global conversation has begun. Through the Internet, people are discovering and inventing new ways to share relevant knowledge with blinding speed. As a direct result, markets are getting smarter, faster than most companies.”

Now – it’s video time, produced by a professor of anthropology:

This video strikes a chord with what we are tring to achieve with Synthasite, in making the web an easier place to publish – regardless of all the complicated underlying frameworks & constructs.

The DNA of Web 2.0

Social Networking
Decentralisation
Diversity
Tagging (folksonomies)
RSS/XML

Mike spent a bit of time discussing Del.icio.us and what makes it work.

Mike is winding down, whilst discussing blog, blogging and aggregators such as Technorati, Amatomu & Afrigator.

I don’t think we’re in a bubble, mainly because the Web 2.0 companies out there are mainly private and unlisted. The big guys are making money and spending it acquiring smaller companies, who’s cost of acquisition are almost insignificant in relation to their market caps. Regardless, it does become ridiculous when Incubators that incubate Incubators are born – it’s almost as sad as those people who are “Business Coaches” only because they can’t run their own businesses!

Anyways, here’s Nick’s email.

Hello. Hope you’re doing well. It’s me again and unfortunately, I am here today to rain on your parades, your fantasies, your business models, or your portfolios once again. It’s happening again and so I will put up or shut up as several of you said I must back in March of 2000.

First a little history……..In the lead up to March 2000, I saw a proliferation of signs that the end was nigh for web 1.0. Though painfully obvious at the time, hallucinations of the mass variety can exert quite a strong hold on one’s faculties – my RealNames IPO net-worth mental masturbation calculator stands as a testament to that fact. As the Launch-Party summer of 1999 became the Fall of RealNames withdrawn S-1 registration, I knew it was over and began to search for the perfect contra-indicator that would become that final stake in the ground upon which one could sell short the entire Nasdaq with impunity. To those of you copied on this email who were actively discussing tech stocks with me back then, you will remember those days well. To those of you who were not, welcome to Incubators that incubate Incubators, Part II.

One month before the march of 2000 Nasdaq crash I made an offhand, grabass comment to the effect that we’d know the top when a venture capital firm would fund an Incubator that would incubate other incubators, which in turn would incubate web start ups. I was really just talking trash as the idea was clearly too stupid for even the worst venture firm.

Fortunately, about two weeks before the crash, Bill Romans (who is once again a recipient of my usual blather via this email) sent me an email with a link to a CNET story describing just such an incubator that incubated other incubators, which in turn would incubate web start ups.

So that’s the history. So why do I bring this up today? Well, for those of you who haven’t noticed, web 2.0 has gotten pretty nuts again. Silly people, doing silly “socially-conscious” social networks. All sorts of crap. And to be honest, its really quite embarrassing. Lately i’ve found myself laughing at start-ups more than I ever have before. The names of these things…. I mean every time I read Arrington’s site I see names that sound as if they were made up by my 2 year old son’s play group. Its funny and sad at the same time.

So I’m reading the SF Chronicle this morning (which by the way, is seriously the world’s worst newspaper) only because I can’t read the web while I’m taking my morning doompha. And there it is – its happening all over again:

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/05/30/MNGHPQ3PST1.DTL&type=tech

I’ve got to take my daughter to school now so I’m going to let you all read this article first before I explain why James Currier and his Ooga Labs *is 2007′s version of the flashing “Danger Will Robinson, Danger!” signal that we got in March of 2000 with incubators that incubate incubators, which in turn would incubate web start ups.

Talk to you soon,

Nick

p.s. and if you think I’m wrong, please tell me why.

* I have not looked up the names of the VCs who funded Ooga Labs, so apologies to any and all who may have funded this turd.

Along with the boom of the Web 2.0 economy, guess what’s now come back into action : First Tuesday! Investors, still kicking themselves for not investing in companies such as Skype & YouTube are now waking up to the smell of fresh cash and First Tuesday provides that platform, as it did back in the last boom! I have the pleasure of being the keynote at next month’s event in Johannesburg.

Not only is First Tuesday back, but there is a new gathering, known as Open Coffee Club – basically similar to FT, and it was started by Saul Klein in London. There will be a Cape Town meeting tomorrow so check it out. Eric Edelstein (incuBeta co-founder) also has some coverage on his blog.

I wrote a post a while back on Web 1.0 vs Web 2.0 and what I didn’t add was the similarity been FuckedCompany & TechCrunch’s Deadpool (which also came as an April Fool’s hoax this year).

People often ask me whether or not I think we’re heading for a bust or not. Let me try to answer this as succinctly as possible by stating facts:

1. Online media has grown into a $20bn+ a year business
2. Advertising chases audience
3. Companies building user bases now have sustainable monetization streams
4. In any boom, there are often a large number of startups, some successful, other not. The winners usually outweigh the losers in the long term.
5. If there is a bust, it will be because of large irrational sums of money being thrown at startups. Peter Rip covers the point of “Fail Fast, Fail Often” very nicely in his blog post.

So – are we in a Boom/Bust cycle? Yes & No! Yes – we are in a boom & yes it will bust. Will the bust be as bad as before – no, as there is still a healthy amount of skepticism in the marketplace, which is good!

The million dollar question: How long will it last? I think that for the next 5-7 years, we will see a long sustained boom, (barring WW3), but after that, the pace will slow rapidly. What am I basing this on? Thumbsuck to an extent, but also, from a global perspective, countries like South Africa and Australia are just getting into this cycle (Web 2.0) right now – arguably a bit late, but there is still plenty of domestic opportunities around and I see that most countries that haven’t caught on will take 5-7 years for this cycle to peak and then drop off. Thumbsuck – yes, possible – definitely!

What will it all mean? As with any drop off (aka Bust) people who have no passion for the industry and were just in it to make a buck are going to go back to whatever profession they were in before joining the bandwagon, the industry contracts and a whole new era begins…

I’m not going to rehash the background and deal info, referenced at SearchEngineLand, but instead, I’ll try to explain what I see the market impact as being.

I’ve long argued the point that we should be able to price keyword by partner on all the major search engines, as they all have quite different conversion rates and “Not every click is created equally”, to paraphrase. The AOL deal has forced Google to make this move, and I think it will probably hurt their margin numbers and not just their revenues. Overall, it’s probably close to a zero sum gain as the money will flow to AOL, but their cut will just reduce. I haven’t done the math, but they might be just slightly worse off on revenues, but definitely down on margin.

Also, this impact will hurt many of Google’s partner sites that relied on high conversions from AOL to “slip” clicks through the door at higher than market value (respective earning or value per click), because of the fact that marketers cannot price each partner differently.

This is quite a complicated post, so please bear with me – I’ll try to explain this as simply as possible.

Currently, when buying Adwords ads, you pay a single price for a click & keyword that goes to Google’s distribution network.

For example (and I’m using hypothetical, BUT REALISTIC numbers here), let’s say that a keyword received 100 clicks and the breakdown by partner is as follows:

25 Clicks from AOL – 5 Conversions
50 Clicks from Google – 4 Conversions
25 Clicks from Google Partners – 1 Conversion

Total Clicks = 100 x CPC of 25c = $25 in costs
Total Conversions = 10 divided by $25 in costs, leaves us with a $2.50 CPA (Cost Per Acquisition)
Assume an average position of 3 and as you can see from above, AOL has the better conversion rate.

Let’s assume that your breakeven point is $2.50 CPA. Now, because Google runs a single blind marketplace, there is no price discrimination, which means that there is cross subsidization of keyword value (you pay an average price for everything, yet some clicks are worth more and others are worth less).

For the record, our logs indicate that AOL has the best conversion rate across all Google partners, and this simple means that if there is a separate marketplace for AOL, that prices across the Google Adwords network (especially direct) should fall, IN THEORY (see conclusions).

Now, let’s assume that we removed the AOL numbers:

50 Clicks from Google – 4 Conversions
25 Clicks from Google Partners – 1 Conversion
25c CPC x 75 Clicks / 5 conversions = $3.75 CPA

By AOL moving out of the marketplace, this would effectively mean that the remaining traffic would become too expensive, because AOL would not be cross subsidizing it (and obviously, they know this already, and that’s why they want their own marketplace). This would mean that prices would drop in order to offset the drop in traffic quality.

What would this mean for AOL?

$2.50 CPA x 5 Conversions = $12.50 / 25 Clicks = 50c CPC – almost DOUBLE what Google was raking in for them by cross subsidizing, is what the merchant would be willing to pay direct on AOL, because of the higher conversion rate.

Now, here are the possible conclusions vis a vis Google CPC’s:

1. Google CPC’s will drop as marketers move their spend directly onto AOL and adjust ROI’s according on Google. This will impact Google’s financials, as they will have to pay out a lot more money to AOL.

2. Google CPC’s will increase as dumb money floods the market because marketers are either too lazy or overworked to load AOL campaigns (highly unlikely in the long term) and instead they make it more profitable for Google to show Adwords direct ads for AOL, than AOL marketplace ads. I doubt this would occur though, but it’s a possibility.

3. Google CPC remain unchanged as AOL take-up rates are too low to impact the overall conversion number in the short to medium term.

So, logically speaking, by removing the “bane of mankind” *according to me* (Cross Subsidization) from the Adwords system, we as marketers will be able to align ourselves far more closely with the value per click.

Where do I get this insight from? Well, as an affiliate marketer, we have to watch the earnings per click very closely. EPC is a key metric and we are also able to distinguish (using our proprietary technology) the different conversion rates and therefore effective EPC’s per network partner for all the search engines. This data allows us to derive very accurate statistical models and also understand how the market is interpreted (well, as best as possible) by other players.

Every cent we spend is our own, so we have to ensure that we’re as closely aligned to value per click or EPC as possible, and therefore we’re very excited about the AOL prospects, but realise equally that it’s a lot of work.

I think this is a great move by Google and I applaud them. They’ve thrown the gauntlet down to the other search engines, and let’s see how they respond!

Search Engine Watch believes that Commission Junction’s days are numbered – I don’t think so! Andy Beal also has a similar view. We’ve been running CPA campaigns through Google for nearly 4 years now, and I think Google vastly under-estimates the risks and relationships at play with CPA marketing. The biggest concern though, is that Google’s internal arbitrage of CPC to CPA (which is what they’re doing, effectively), pushes prices CPC prices up in the short term, while they make mistakes that we’ve forgotten how to make, in our Clicks2Customers business.

Also, from the Inside Adwords blog, it’s not clear how they will deal with chargebacks – I’m guessing that the merchants have to factor this in? Can you imagine what’s next? Click-Order-Return (COR) fraud (i.e. Website owner clicks a merchant, places an order – merchant pays Google, Website owner returns goods – Google doesn’t refund merchant and Google pays Adsense site share of CPA). What if I’m a Google stockholder and I make a $1m purchase in order to boost the earnings, and then return or cancel the order – in theory, Google still gets paid and their stock goes up, but the merchant is out of business – just summising here, but I still don’t think CPA is viable for Google.

As I said in my previous post on this topic – Google has a smart bunch of guys, and I’m sure they will figure it out!

Also, my brother recorded the following clip on his cellphone on the night of the awards – he’s understandably quite excited:

We’re launching Synthasite Version 2.0 on 1 June 2007 and in terms of the rebuild it will have taken us a total of 6 months from concept to deployment, using a core team of 3 full time engineers, 1 QA/Server infrastructure resource & some very agile methodologies (utilizing Basebamp & Rally) to launch Version 2.0. By comparison, Version 1.0 took the inputs of over a dozen people and about 2 years of development to complete. Couple that, in addition to the fact that we were building an AJAX application way before it was even called AJAX, means that there was a large amount of R&D that went into evolving the product, none of which was wasted, and ultimately led us down the new path that we are walking.

We aim to relocate the Synthasite team (6 people in total) to Silicon Valley in the next few months and run Synthasite from there, spinning it off as a separate entity to incuBeta – which as a Group is growing quickly in many areas, hence the reason to apply a more dedicated and focused team to grow Synthasite. I will be leading the company from there and I have effectively taken over as CEO of Synthasite.

Update: Here is the video embedded for your convenience.

Why are we doing the move? Paul Graham’s article on “Why Startups Condense in America” somehow struck a chord with me. Synthasite is South African homegrown technology, but in order for us to grow the business and stay ahead, it seems like the most obvious move is to base ourselves at the center of the the tech world. That’s not to say that you can’t grow a tech business elsewhere, but for most techies & geeks, at some point in your life, you want to be in a startup in Silicon Valley! Also, I had a meeting with Reid Hoffman, CEO of LinkedIn back in January and he basically said to me that (admittedly biased), it’s no coincidence that global companies such as eBay, Yahoo, Google & YouTube are all within a few miles from each other – good point!
Why have we done the rebuild? In short, when we started building Synthasite – Internet Explorer had a 90% market share and Firefox was a 1980′s movie starring Clint Eastwood. That was then and this is now – the new version of Synthasite will be cross browser compatible and have a host of other great features. Bear in mind that we’re only going with an Alpha launch in June, with Beta expected sometime around Q3, not everything will be in the first build.

Another good reason for the relaunch was that the market has evolved considerably since the original planning and build phase, and it was good to take a step back and create a vision for Version 2.0 before jumping straight in. Much of what has been done up to now has been trial and error – with great feedback from our Version 1.0 Beta testers. We now know where we are going, and in the spirit of all things “Web 2.0″ we’ve gone back into Stealth mode until June 1st.

So, a bit of advice to other Internet startup entrepreneurs that I have either learnt the easy way, or the hard way (not going to say which!):

1. Read Jason Fried’s Getting Real
2. Bootstrap Version 1.0 and get it out there ASAP – user feedback is imperative
3. Talk to other entrepreneurs who have been there, done that
4. Don’t bother the VC’s until you’re really ready with a focused offering – you only really get one shot to do a solid pitch.
5. Just do it! Stop planning and start prioritizing. It’s amazing what we can achieve when we focus and take action.

Here are some of the VC blogs that I read regularly – I don’t necessarily know these guys, but trust me, judging from their content, they know what they are talking about – and it’s worth taking a page out of their book, err… blog.

• FirstRound Capital’s Josh Kopelman – RedEye VC – Most notably, his most recent post.
• Crosslink Capital’s Peter Rip – EarlyStageVC
• Hummer Winblad’s Will Price – Particularly this slideshow/powerpoint that he produced.
• August Capital’s David Hornik – VentureBlog
• Guy Kawasaki’s – How to Change The World
• Union Square Ventures’ Fed Wilson – A VC – I particularly liked this post on widgets.
• YCombinator’s Paul Graham

The one concern I have is that Adobe still doesn’t understand the market of Web Applications (in my opinion).  I don’t believe that advertising supported web apps, especially productivity apps, are the way to go.  I understand that Google does it with Gmail, but that’s slightly different in that Gmail can contextualize the ads to the content of the emails.  I doubt that there is much contextualization that could occur within an online version of Photoshop.

One of my favourite blogs posts on the topic of Web 2.0 Business Models is by Ken Yarmosh, from Technosight.  I’m going to summarise it, so basically, network effect business models are best suited to advertising as a means of reaching profitability/sustainability, whereas technology plays like Photoshop & Synthasite are best support by premium use and partnership models.   It’s a great post, and I often refer back to it – so I advise that those in the Web 2.0 sphere particularly give it a read.

There is a screencast demo of Synthasite that we produced from the sessions, but also, here is the list of reasons that we came up with as to why Web Apps are superior to (most) desktop apps – and herein lies the future of the web! The clip is available on YouTube here and in higher res format here.
And here are the 20 reasons why Web Apps are superior to Desktop Apps!

Never installed

Browser based software never requires installation processes or hard drive space. It lives in a virtual cloud in the Internet and this means that whenever you launch it, it always has the latest version. Ajax has made it possible to deliver Desktop-like look & feel, and functionality, with no loss of performance!

Updates are seamless

Instead of having to patch each and every individual user, the patches/upgrades are applied to the server and each user received the updated version the next time they log in.

No legacy

This is a big issue for traditional software vendors. Users who purchase previous versions of a software almost always will result in legacy versions lying around which need support (which is costly). The problems relating to legacy software are almost limitless, and often is not efficient for both the vendor or the customer.

No admin rights required

Finally, a world where the network administrator in the company does not have to approve the installation of your software!

Available anywhere, anytime

Ok, so the anytime comment is a stretch, but that’s only until Adobe’s Apollo gets here (here’s hoping!). The same way that people access their email from any browser, web apps are exactly the same.

Platform independent

This opens a wider market for software vendors – no longer do they have to build technology around a specific platform and limit their market (or incur additional costs to build for another platform). The browser is the platfom and therefore I believe you will see increased uptake in OS’s like Mac OS and Linus, due to the increased availability of Web Applications.

Less environmental conflicts

There are certainly going to be a lot less bugs in Web based software, due to the fact that it is not depending on any of the hardware or environment settings in the OS that may usually cause a problem.

Enables social possibilities

Many Web Apps are creating chat facilities and the ability to share your work in real time. This removes the previous “stand-alone” functionality that use to exist with most installed desktop applications. The world is becoming more and more social – people want to collaborate and work online together – Web Apps allows this, painlessly.

Lower cost of sale

No boxes, printed manual, expensive shipping costs, CD’s, distribution channels, middlemen, etc. Desktop apps are going to be more economical to produce and will result in a lower cost of sale!

Usable from inexpensive PCs

$100 Laptops, here we come! What do you need a dual core processor for, if you’re running a thin client application? This opens up a world of cost savings for both companies and consumers, especially in the field of productivity apps (obviously, not gaming!).

Piracy-proof

Here is a big one. Imagine a world without software piracy. That world is here, and Web Applications are the solution to that problem. Next problem, please!

No bad debts

Sofware companies are often owed money from distributors, that invariably go bust from time to time. With Web Apps, the cash is collected upfront and as long as the customer pays, the account is in good stead.

Low-cost support and maintenance

Given that the browser is now the platform, operational support costs and maintenance for Web Application providers will drop substantially. No need to have expensive operating system gurus on hand to help with installation problems. Also, using products like the Amazon EC2 cloud, will allow scalability, without a proportionate increase in costs.

User’s data is kept safe in hosting environment

Although this is probably not going to be true for all Web App companies, but using providers like Rackspace or Amazon’s EC2 cloud will go a long way in reassuring your customers that their data is safer than on their desktop!

No Viruses

No installation, means no viruses. Start shorting all those Anti-Virus stocks! Enough said!

Low cost global distribution

No more channel reliance. Most software companies make it or break it, depending on their channel. Forget that – focus on the biggest channel of all – the 1 billion users online!

Lower software price entry point for customers

Given the benefits above, you will see more products such as Basecamp and Synthasite that will offer far greater value than their desktop equivalents.

Access to the entire assets of the Web (APIs, widgets, messaging, collaboration)

By being wired into the web, Web Apps are able to integrate seamless into API’s etc and are a lot more customizable, than traditional software applications.

Mobile is here

Compiled desktop applications are going to have a hard time being adapted for mobile devices. Web apps are ready made (in most cases).

Widest potential audience

For all the points above, this basically unlocks markets for software vendors that previously were inaccessible due to technical reasons.