Gordon Gould’s Blog Thoughts on entrepreneurship, the Product graph, and life in SoCal

My just-turned 6 year old daughter, Kylan, likes art so we were looking at some very cool art books written for kids.  In particular, she liked Magritte and was particularly taken by his painting below, Time Transfixed.  She looked at it for a while and then said to me, “Daddy, he is asking a question in that painting that he will answer in another painting.”  Whoa- I am thinking I had better go read up on my art theory and get ready to fund a degree in art criticism.

In a back-to-the-future meme reminiscent of a social version of Sun’s “the network is the computer” strategy, Fred and Steve et al have been discussing Everything Everywhere. As I understand it, their basic point is that the future of the web is about service layers and distributing your service as widely as possible to as many audiences in various containers as possible.

IOW, for digital media businesses, the network is the audience (as well as your monetization platform and, if you are UGC, your content crowdsource)

The upshot of this idea is that to be successful, you have to figure out how to add value to the network overall. Occasionally, that might mean forcing people off the network to your particular homesite but usually it means finding ways to provide ubiquitous and useful services to users wherever they are.

Developments like OpenSocial are expediting this service-users-anywhere trend by knocking down walls between companies so that truly best of breed services can thrive across multiple containers/platforms. It is the social media equivalent of Tom Friedman’s flat world in many ways.

Personally, I think this is great news. We started ThisNext w/the assumption that social web users want best-of-breed services that can help build out their digital identities. Flickr, youtube, photobucket, slide, etc are all examples of ways that people are taking 3rd party services into their online homes on MySpace, Facebook, blogs, etc and making those services part of their personal digital identities. Another of our core assumptions was that social web users would want a best-of-breed service layer focused on helping them find the best products for them. Hence ThisNext whose mission is to empower tastemakers to connect w/their audience.

To that end, we built ThisNext w/an API* “layer” strategy in mind that enables us to distribute our functionality and monetization across multiple web modalities: search, our homesite, and our network which is composed of blog widgets and apps for facebook & OpenSocial. We are building some of those network apps ourselves and are exposing our api’s to select 3rd parties who want to leverage our social shopping infrastructure. In this way, we hope our API’s will help ThisNext add value to the overall network by helping 3rd parties who will spread their own TN-powered apps and thereby increase ThisNext’s ubiquity/reach.

Below is a slide from a recent TN Board presentation I did that makes this point in pretty colors.

* API documentation updates forthcoming

I have been throwing around the term Product Graph for a while now and figure it is time to start defining it publicly.

Or, more accurately, put a stake in the ground about what should constitute the Product Graph and why it is important. I figure the definition will evolve over time as my and other’s thinking evolves.

(Since the Product Graph is a big idea and since I am still working out what it means, a lot of writing on my part will be needed before I will understand it well enough to be really succinct about it. Consequently, I am going to introduce my Product Graph thinking in a series of posts which I will pretend make these bon mots sound oh so learned but really reflect the messy process of innovation. Please bear w/me

So what is the Product Graph? Most simply put it is the web of relationships between

• Influencers & Products
• Products & and other Products
• Influencers & Shoppers
• Products & Shoppers
• Shoppers & Shoppers (thus begetting more influencers)

(Snippet of ThisNext Product Graph data. Thanks to Jason Thurkettle for the image.)

OK- so you see it is complicated. But why should you care?

Essentially, the Product Graph captures which products and people have the most product alpha under what conditions.

In more real-world shopping terms, the Product Graph is a map of who you listen to and what merchandising you find useful/are susceptible to and when. For example, I bet you have friends who either you go to or they come to you for product recommendations in particular areas (ie wine, food, technology, etc). You also have undoubtedly walked into stores and bought things you did not even know existed before you bumped into them in the store (ie effective merchandising).

Those 2 offline behaviors (1, asking friends (read: influencers) for advice; and 2, being open to good merchandising) drive about 70% of offline purchases. But this data/wisdom is not really available in any organized way online so much of that offline shopping behavior never makes it online.

Think about that for a second: what if you could unlock 70% more online transactions by leveraging social merchandising? Think how cool if you could make marketing more efficient and simultaneously help shoppers connect w/great products that will improve their quality of life.

Big idea, eh? We think so.

So our goal here at ThisNext is to facilitate, capture, structure, and syndicate all this latent product knowledge by facilitating the growth of the Product Graph.

Next post: the relationship between influencers/mavens and productsproduct graph

Alpha is a term I am borrowing/adapting from finance to apply to social media and calling it Product Alpha.

In finance, humanistically speaking, alpha is the measure of value creation/destruction a management team brings to a stock or a fund, presumably due to their skill. Alpha is the reason why VC’s and hedgies “earn” such ridiculously high carries on their funds (insert wallet envy here).

Similarly, certain influencers- or in ThisNext parlance, Mavens- also exhibit alpha in their product choices in particular interest areas. Their product recommendations tend to lead/catalyze and influence trends, hence their product alpha. These influencers/Mavens are the people that advertisers are dying to meet and are the target of many WOM campaigns and much good/insightful thinking about how to scalably reach this crowd. (Of course, I think it makes more sense to invert the problem and focus on the product graph first and worry about the specific influencer targets secondarily).

Products themselves also have alpha as they can lead in a trend or portfolio of products. IOW, certain new products can make or revive a category, thus exhibiting alpha. (Yes, I know, this is not an exact match w/the financial term but it is more about borrowing the concept of having a measure of how potent a product is and applying that thinking to the Product Graph than about creating rigorous parallels.)

One of the most fun parts of growing a company is getting new offices.  ThisNext is moving soon (sometime in March). We are moving just down to the end of the 3rd Street Promenade and will be above the crepery so the new offices will probably smell good. Our building is a a funky old birck thing that looks sort of like a castle. My office is in the corner which juts out because it is part of a turret.

We are going to make the space open, full of light, chic and modern, all on a miniscule budget. As you can see, a lot of demo work had to be done to make the space ready. (Thx to Scott for the pix) We might take the team over there to do a little sledgehammering if anyone is feeling like they want to smash down a wall or two.

The new space is going to give us a lot more room and will still give us access to the shopper culture of the promenade and we will still be able to walk to a lot of different places for lunch (walking to a restaurant is a big luxury in LA).

Apparently, our offices used to be a bordello so hopefully there will be some left over good vibes in the place

So my kids came to my office and wanted to go to dinner. Being budding little netnauts, they made a web video telling me what they wanted instead of coming over to my desk and tugging on my sleeve.

Part of me thinks that is super-cool that they would think to go media-meta that way in order to get their message out. Technology really and truly will just be an extension of themselves for their whole lives. But part of me wonders what it means that kids would rather make a movie than talk directly. Maybe I am overthinking this….

Thanks to my super-assistant, Jamie Molever, for playing director/producer w/my kids

It seems the web 3.0 meme is starting to take root in MSM as the incomparable Jemima Kiss (what an awesome name!) over the that Guardian highlighted.

And no, it is not being called the Semantic Web (that is an idea that seems to suffer eternal frustration at the edge of net culture). Instead web 3.0 is shaping up to be about offering smart filters to deal w/the overwhelming amount of data out there so that users can focus on what is worthwhile. IOW, it is about recommendations which, of course, is not a new idea to me or our team at ThisNext. We have been saying for the past 18 months that w/approximately 60mm products on the North American market, consumers really, really, really need quality recommendations to help them spend their time and money on products that will actually improve their quality of life.

Now, I am not saying that product recommendations- or more broadly- the Product Graph- is all that web 3.0 will be about. 3.0 is much broader than that, but the Product Graph will be a huge part of it. The hardest part about these filter services is going to be figuring out, as Jemima points out, the human element, whether that is explicitly driven by editors (as in her example) or in more fundamental/univeral understanding of the social heuristics we all use to make decisions about what is and is not an effective filter.

Fascinating topic- more to come as I navel gaze some more and we deploy more and more product-as-filter iterations.  Props to Evaldas who is one of our brainy engineers and to Tyson for his foundational thinking on the Product Graph.

I just watched Zuckerberg on 60 Minutes. He does not really say anything new but he does totally validate the idea of social shopping by saying it is going to be core to how Facebook makes money. He also has (somewhat surprisingly given how awkward he is) a great talking point about how social shopping makes facebook less, not more, commercial. His point is that no one wants to look at ads if they can see quality from their friends in a non-spammy way.

Bottom line: I think, obviously, Zuck is correct that social shopping is the wave of the future. Natch, we have been saying the same thing over here @ ThisNext for a year now and are building out our community of Mavens who are emerging as a population of the Net’s most influential citizen/UGC tastemakers.

WOMMA reports that word-of-mouth (WOM) marketing spends will grow to ~$3.7 billion in 2011 which is great news for social media companies like ThisNext. To put that number in context, it is roughly 22% of what is being spent in online advertising today (which is, according to WSJ, about $16.9bn).If we see comparable trends in equity value creation for WOM-driven companies as we have in search and other online advertising, then we should see ~$40-50bn in equity value creation in this space. (OK, the financial types are going to immediately ask how the hell I came up w/that very back-of-the-envelope number. So here goes: add google’s current $222bn(!) market cap to an estimated $35bn in related digital advertising and search-driven acquisitions or IPO’s (ie aquantive, doubleclick, all the comparison shopping engines, etc) plus say 25% of Y!’s market cap (roughly $8.5bn) and you get about $265.5bn in advertising and search-related equity value. Discount that heavily since people like to think that pessimism sounds smart and “conservative), say 80-85% and you fall into the above ranges of what we could expect to see in WOM-related equity value creation. (I am sure the various professors who have tried to teach me accounting and finance would choke if they saw this analysis but it does seem like a good, if course, valuation/comparables analysis to me.))