MappingTheWeb //

Within hours of my previous post, it was official Google bought YouTube. The price tag - $1.65 billion in Google stock. This price was nearly equal to all of Google’s previous acquisitions combined.

Apparently, Yahoo was deep in talks with YouTube as well, right until the bitter end. However, YouTube elected to accept Google’s offer. Chad Hurley, CEO of YouTube, believes that Google has the resources and engineering team to help the video start-up realize its goal of providing the highest quality video experience on the net.

I think it’s a good fit, but I look forward to the upcoming discussions in the blogosphere.

Call it what you want to call it, Google is deep in talks to acquire the biggest Internet success story in previous years - YouTube.

Both TechCrunch and Mashable report that an acquisition announcement may come as earlier as today. The blogging community has been swirling with rumours over the past few days and it appears as though those rumours were accurate. This mega-deal would spark much discussion over the upcoming weeks and months. The Internet’s biggest powerhouse buys the net’s most successful/controversial new entrant in recent times? It would be very interesting to watch how Google would handle the copyright issues and whether or not they get sued right from the get-go. In addition, there are also the bandwidth concerns, but I think Google would have a much better, more cost-effective way of dealing with these.

I think this would be a great move for the YouTube founders. As for Google, if they can deal with the copyright issues in an appropriate manner, then I say go for it. Although I’m not a huge proponent of consolidation on the Internet, I believe that this deal is a good fit for both sides. Good luck to both Google and YouTube, and I look forward to seeing what comes of this deal - should it happen. 

I have a funny feeling that Chad Hurley reads my blog. After all, he would be taking my advice from a few weeks ago

Full coverage from the New York Times here.

Time for a grammar lesson. In the new web, techies are very familiar with the term ‘AJAX’. It is synonymous with web 2.0. However, non-techies may need a short lesson on the topic.

What AJAX isn’t:

• A Greek hero
• An automobile
• A small city in Ontario, Canada
• A household cleaner
• A Dutch football club

What AJAX is:

An abbreviated form of the term ‘Asynchronous JAvaScript and XML’. Wikipedia defines AJAX as:

“a web development technique for creating interactive web applications. The intent is to make web pages feel more responsive by exchanging small amounts of data with the server behind the scenes, so that the entire web page does not have to be reloaded each time the user makes a change. This is meant to increase the web page’s interactivity, speed, and usability.”

Simply put, you can drag, click, and perform actions on a page without having to refresh it.

Major PROs of AJAX

1. Bandwidth utilization
2. Interactivity

Major CONs of AJAX

1. Usability
2. Response-time concerns

 The most widely noted example of an AJAX-based web application is Google Maps. Using this application, you can bring up a particular map, then proceed to drag and zoom without having to refresh the page. Another example is Snipshot, an online photo editing tool. Without having to refresh the page, you can rotate, crop, and adjust colour settings of a particular photo.

One big drawback of AJAX is lack of functionality for advertisers. Because the page does not reload and the user may spend several minutes on that page, a website’s overall number of page views will decrease dramatically with the installation of AJAX. This problem will need to be addressed in the near future, otherwise potential suitors will shy away from its functionality. 

The term itself was coined back in February 2005 by Jesse James Garrett, information architect and founder of Adaptive Path. It appeared in his article AJAX: A New Approach to Web Applications.

If you can successfully add AJAX to your business plan, you will have better chance of roping in VC money. Couple that with tagging and RSS, and it’s a sure thing. God bless buzzwords.

In this post, we will take a look at how the network effect can lead to monopolies. To facilitate this discussion and provide clarity around the matter, we will look deeper at two specific companies - Microsoft and Walmart. In one instance, we examine a tech company, and in the other, we step outside of the Internet/tech world to see how basic principles and underlying fundamentals stay true across numerous disciplines.

Firstly, we will take a look at an itsy-bitsy software company that came about in the late 70s - the company everybody loves to hate - Microsoft. During the early 80s, the personal computer (PC) boom began. Computers became more affordable and accessible. Now we step back for a second. What do all computers need in order to run properly, or even boot for that matter? An operating system (OS). This is where Microsoft came about. After buying a fundamental chunk of code, Bill Gates and Paul Allen began a journey to conquer the PC operating system market, when few OS’s were available to choose from. Microsoft developed MS-DOS, then went on to essentially steal Apple’s concept of a graphical user interface (GUI). So where does the network effect come into play? Be patient…

As Microsoft’s OS caught on, became more and more popular, and more PCs began using the system, it became the industry standard. Coders and programmers alike began developing software for the Microsoft operating system (which later went on to become Windows). As more and more software products were being created for the Microsoft system, other OS’s were getting left in the dust. And the cycle continues. As more software product became available for the MS OS, it soon became apparent that if you were developing code, you might as well design for the system that has the widest distribution channel (i.e. maximizing your potential target audience). Programmers began to wonder, “Why would I develop for any other system, as the audience and money just aren’t there?” I’m obviously over-exaggerating a lot of these ideas, themes, and concepts, but my goal is simply to showcase the magnitude of Microsoft in comparison to the smaller guys. Obviously Apple was there all along, receiving much less exposure and market share, as well as several other smaller OS’s. Essentially, Microsoft hit a critical mass, which led the company into the snowball effect, further catapulting it ahead of potential competitors.

At a point where Microsoft has over 90% market share of the world’s OS market, why would anyone develop software for another platform (forget Macs for just a second here)? More importantly, why would anyone try to create a new operating system from scratch, then have the impossible task of getting programmers to develop software for that system. It doesn’t make sense. Microsoft was light years ahead - so far ahead that it almost seems impossible for anyone else to step in and put up a challenge. Good luck to a willing rival.

Now can you guess how Walmart is exploiting the network effect to its favour? Well, the situation in this case is much simpler to explain and understand:

Walmart:

1. Buys wholesale from suppliers.
2. Optimizes inventory turn-over.
3. Expands by adding more stores.
4. Buys larger and larger quantities from suppliers, demanding a deeper discount with every increase in demand.
5. Repeat cycle.

In other words, Walmart has such wide distribution and power over its suppliers that it can dictate all terms of the relationship, including pricing and payment terms. Walmart sucks every last penny out of its suppliers, as it knows they rely on the consumer giant for survival. It’s sad really. And as Walmart continues to grow through expansion and economies of scale, the problem will only get worse and worse. The network effect forces Walmart’s suppliers to operate under its rules. And I haven’t even mentioned Walmart’s world-class logistics and inventory management systems, which includes satellites and sophisticated inventory control software. Walmart forces people with a low (even medium or high) income to shop there, as they are basing their purchasing decisions solely on price. Good luck to all the little guys out there and the mom-and-pop retail stores.

If I had to pick one company to be around at the end of the world, it would be Walmart as I cannot see them slowing down or losing market share unless something very drastic happens. 

Click here for part 1 or part 2 of the Network Effect series.

With social networks like MySpace, Facebook, hi5, and Friendster dominating the market, how does one go about competing against these giants? Simple. You don’t.

The social network (SN) space is so crowded right now that adding another generic entry into the mix will accomplish nothing. So then, what do you do? Once again, it’s simple. Choose a niche.

Here’s a phrase I like to use that others believe to be true as well: “There are no niches on the Internet.” Although, this sounds contrary to my previous statement above, it’s all about perception. A niche topic such as “parenting” sounds like a very narrow topic, but on a worldwide scale, the target audience is immense. This is why I say to choose a niche, although there really aren’t any on the net.

Parenting? And a social network? That sounds ridiculous. Not necessarily. Just ask Minti. This small start-up out of Australia is generating huge amounts of traffic and interest from many parent-centric companies, such as diaper and baby food companies. In addition, the company has been approached by several large conglomerates and known consumer brands as a potential takeover target and doorway to a valuable market.

Another such niche success story is Sneakerplay. Branded as a social network “designed specifically for the global sneaker culture”, this shoe destination is already receiving attention with relatively low traffic. Because it is so lucrative to sneaker companies and the audience is a perfect advertising match, Sneakerplay was recently approached by Nike as a partner. Not only are they receiving top dollar for their ad placements, but they are proving out their model with credible industry players. In addition, the site becomes an instant potential takeover target for any large shoe company (i.e. Nike, Reebok, Adidas, and the list goes on).

Finally, we can add Facebook to this list. I won’t go into much detail about this play as it is already well known. Obviously, the company has taken a university/college niche approach to the social network game, which has proven to be extremely successful.

So what are the advantages of the niche approach? There are several. The most important being:

• Higher CPMs and ad dollars due to narrow target market
• Instant takeover target for large offline industry players
• Lower competition due to niche area

Having said all this, don’t rush out and start your own SN without doing the necessary market analysis and due diligence. A little bit of research goes a long way and may save you time in the long run.

So what’s your niche?