Remember the good old days? Back when you had to log on to one email system at work and then at night dial up your favorite BBS’s one by one, replying to all of your emails while you were logged in? (I’m showing my age - if you don’t actually remember that - just use your imagination)

But then along came the internet and the idea of a universal email client — one application from which you could handle all your email across multiple servers. And you didn’t even have to be online to read and reply to email — you could do it at your convenience.

Remember Usenet? The same thing happened there. You used to have read in real-time while logged in, but before long came aggregators that allowed you to subscribe to the content you wanted and read it at your leisure. Eventually Google pretty much took it over and turned it into Google Groups.

AOL became the largest ISP at one time not just because they spent millions on marketing, but because they offered a simple, unified interface to the internet, accessible to the typical user.

As the web grew, it became apparent that it was far too complex to simply navigate via hyperlinks from one site to another. There needed to be a centralized directory of web sites. A couple of smart people realized that they could monetize that and Yahoo! was born.

While no one might ever have imagined it was possible, the web became so complex that it outran the capacity of a topical directory, and along came search engines to fill the gap. Was Google really THAT much better a search engine than all the others? Or did the "I feel lucky" button that promised one-click satisfaction have something to do with their success?

Some of the web’s biggest brands have been built around a fairly simple aggregation concept:

• Amazon provides access to the pretty much the entire library of published books (and more, now, of course).
• eBay aggregates individual buyers and sellers.
• craigslist aggregates all types of classifieds, not just buy/sell.

And now the web is social. OK, it’s always been social, but now it’s mostly social. According to Comscore, "The number of worldwide visitors to social networking sites has grown 34 percent in the past year to 530 million, representing approximately 2 out of every 3 Internet users." In some countries, such as the UK, social networking sites account for more than 75% of all web traffic.

So where’s the super-aggregator for the social web?

Facebook wants to be it. So does MySpace. Google too. A host of startups are aggregating social networking profiles, online video and more - even multiple Twitter and Jaiku accounts.

Users are starving for this, even if many of them don’t realize it yet. As more and more social networks pop up, particularly those with niche focus, the space becomes increasingly fragmented. A new social network focused on one particular topic no longer competes with just other social networks on the same topic, but with all social networks vying for the user’s attention. And as anyone who’s ever studied GTD or any other productivity methodology knows, fragmented attention is counter-productive.

The inevitable trend is that unless social networking sites make it easier to aggregate their data, they’re going to lose their most active users to social network burnout (it’s already started). A widely-adopted, highly effective aggregation tool could stave off that trend and put the social web back on course to being an indispensable productivity tool, rather than a waste of time and a security risk.

It’s clear from the internet’s evolutionary past that whoever can figure out how to make a simple, unified interface to the social web is well-positioned to make a ton of money. But they’re going to face some significant challenges, and the technology is just one of them. I’ll address those in Part 2.

Image: Aldo Gonzales via Flickr

One of my associates in Link To Your World, Carter Smith, did a great post today on The CEO’s New Social Network Strategy. Carter very effectively skewers both the distorted perspective many corporate leaders have about social networking and even moreover, the people with absolutely no field real field experience who then try to consult with them about it.

Enjoy!

United Online (Nasdaq: UNTD) is scrapping its IPO plans for Classmates Media, which includes social networking pioneer Classmates.com and the popular MyPoints consumer loyalty site. What particularly called my attention to this was the analysis of it over at Fool.com by Rick Aristotle Munarriz, which echoes some of the things I had to say about Classmates in our upcoming book, The Emergence of The Relationship Economy. Here’s what Rick had to say:

It didn’t hurt that Classmates.com is considered a social-networking pioneer, at a time when News Corp. (NYSE: NWS) is laughing its way to the bank on its MySpace purchase, and Microsoft (Nasdaq: MSFT) is bankrolling a suspicious investment that values Facebook at a whopping $15 billion.

Investors weren’t born yesterday. They didn’t need an Ivy League college degree to know that pioneer badges can be worthless. So what if Classmates predates MySpace, Facebook, Bebo, or Google’s (Nasdaq: GOOG) Orkut? If rings around the bark are all that mattered, Friendster and Tribe.net would be Wall Street rock stars.
…
Classmates blew it long before the IPO got shelved this morning. The site was in the right place at the right time, but it was positioned the wrong way. Instead of embracing the open-ended ways of the real stars of social networking, Classmates spent too much time as a walled community with little to offer those who weren’t willing to pay for access. The site had amassed user registrations 50 million deep over the years, but just a sliver of those were paying customers and active participants.

Here’s what I wrote in The Emergence of The Relationship Economy regarding Classmates and freemium business models:

Many users have criticized Classmates’ highly restrictive free functionality, which allows members to establish profiles, search for other members, and read public message boards; posting messages or contacting other members requires a premium membership. Other sites with similar models, such as Ecademy, have garnered similar criticism. While there is nothing inherently wrong with this business model, it does generate more customer ill will than those with less restrictive free membership functionality.

We recommend that unless compelling ROI can be demonstrated in other ways, companies offer a free level of basic membership that has sufficient functionality to keep people engaged on an ongoing basis. This not only creates customer goodwill but also generally offers increased value to premium members by having a larger pool of engaged users available for search and interaction.

Here’s the ironic part… Classmates knew this was a problem — they just didn’t know what to do about it. Take a look at this excerpt from their S-1 filing:

Although we have recently experienced an increase in the number of paying subscribers, this trend may not continue. Most of our paying subscribers elect to purchase our services as a result of a limited number of features. For example, we believe that our recently introduced Classmates digital guestbook feature is responsible for a significant portion of the increase in our new pay accounts since the end of 2006. If our social networking pay features are not as compelling and we do not stay current with evolving consumer trends, our free members may not subscribe for our pay features. Any decrease in our conversion rate of free members into paying subscribers could adversely affect our business and financial results.

This is a perfect example of why understanding the marketplace and what users will and won’t accept is so critical. Not getting this right has cost Classmates millions.

I’m happy to be participating at a Software and Information Industry Association lunch /webcast on October 31 in midtown New York, on “The Promises and Risks of Social Networking in the Information Industry”.

The event is on “how your enterprise can profit from social networking: in promotion and marketing, in the development of new products and content creation, and even by making communities one of the services your business offers as an ancillary to content products.”

The other panelists are:

Leslie Forde, VP of Strategic Alliances, Communispace;

Kim Kobza, President and CEO, Neighborhood America;

Scott Parry, General Manager, Reuters Advicepoint

Karen Christensen, CEO, Berkshire Publishing Group will moderate.

Some of the questions that will be addressed include:

• How can we make our communities persistent and sustainable?

• What increases the value of a community to its participants?

• What social media are appropriate for my business?

• Does it really make sense to use existing free social networking communities like Facebook and Second Life?

• Can we develop our own unique social networking systems with open source technologies?

The event costs $50 for non-SIIA members. Alternatively, the event will be available via webcast. Register here.

I have attached below some notes from the Financial Markets World conference on Web 2.0 / Enterprise 2.0 in the Capital Markets Industry .  

My own talk was on “How to Source Deals with Web 2.0 Technologies“. It was focused on how private equity funds, venture capital funds, and hedge funds can more efficiently find companies in which they can invest. Slides are here. 

Lauren Buckalew from our Shanghai office took notes, below:

——————————

A pilot study on awareness and use of Web 2.0 by Canright Communications and Evalueserve found that of the executives surveyed, 44% were “extremely” interested in Web 2.0 for business, but only 17% felt “extremely” or “very” knowledgeable about the technology.

The survey results—which were distributed at the Financial Markets World Web 2.0 / Enterprise 2.0 in the Capital Markets Industry event today—mirrored the speakers’ sentiments: the business community in general imagines grand possibilities for Web 2.0 technologies in the workplace, but the barriers to adoption, such as lack of understanding at the executive level or compliance issues, are still great.

I came to the event excited to be educated. I knew a little about Web 2.0, but I was overwhelmed by the possibilities I saw in the news and just wanted authoritative instruction on how to filter through all of the noise.

The most informative sessions to get the overview were Matt Nelson of TowerGroup’s opening remarks, and the last talk I attended, Dion Hinchcliffe’s ‘Applying Enterprise 2.0 and Web 2.0 in Financial Services: Early Notes from the Field’. In fact, Dion’s absorbing speech would have been better placed early in the day, as it provided a good background, real-life examples of Enterprise 2.0 successes, and a straightforward summary of its shortcomings.

Other speeches and roundtables drilled down on specific topics, like Instant Messaging, Collaboration, Web 3.0, and David Teten’s talk on using Web 2.0 to source deals (I did not hear the last talk by Tom Steinthal of BSG Alliance). Since I was learning about these areas for the first time I was only able to understand on a superficial level, but was most impressed by Penny Herscher of FirstRain and her simple yet sharp insights.

Stephen Leung, a Senior Manager at BEA Systems, who was a panelist on both the ‘Web 2.0/Enterprise 2.0 in the Financial Services Industry’ and ‘Rich Internet Applications and the Client Portal: Using Web 2.0 to Improve the Client Experience’ panels, spoke on the infrastructure and applications side of Web 2.0, and probably received the most questions from the audience.

Although the roundtable topics had various titles, and nearly all of the discussions went overtime out of lively discussion, I didn’t come out of the event in control of Web 2.0 like I thought I would; I just learned how much more there was to it, especially more creative uses of Web 2.0 apps for businesses than I could have imagined.

In following the “Top 10” theme used by Xignite Chariman/CEO/Founder Stephane Dubois to kick-off the first roundtable, here’s my Top 10 Learnings from the event:

10) Web 2.0 technologies should fit into existing workflow and should be invisible to users.

9) The finance world’s secrecy and competitiveness inherently conflicts with Web 2.0’s nature of viral, self-correcting information sharing.

8) Longtail, mashups, fine-grained entitlement, folksonomies, meta data, geo-tagging and MetaWiki are good things… once you understand them.

7) Individuals can use Web 2.0 tools to leverage existing social networks to generate sales or make deals. One can do this outside of any business structures, based on one’s own diversity of contacts, character, competence, the relevance and strength of one’s contacts, and access to information.

6) Executive decision makers’ lack of information on and understanding of Web 2.0—“What’s the ROI?/I don’t have time for this!/Kids these days and their crazy technology…”—prevent companies from realizing adoption. Any new technology would face similar barriers.

5) Web 2.0 is not a technology or a step in development, but a social concept.

4) Legal/compliance teams haven’t yet figured out how to effectively regulate Web 2.0 tools without reducing them to meaninglessness. But giving employees unbridled Web 2.0 tools is also not recommended.

3) Internal company wikis—which act as a unified log for all project developments and conversations—are a successful example of Enterprise 2.0 in the real world. Key to success is to motivate employees to use it and control the structure themselves.

2) Each element of SLATES (Search, Links, Authoring, Tagging, Extension, and Signals) is required for a Web 2.0 tool to be effective.

1) There is no clear solution for how the capital markets industry should integrate Web 2.0 into business. The interest is there, but Web 2.0 is still effectively consumer-driven, not enterprise driven.

More discussion on Enterprise 2.0 is in order, but before then, more actual application of Enterprise 2.0 in the workplace would be more informative.

I’m looking forward to speaking at the monthly New York Software Industry Association meeting on September 10 in New York. The topic is ‘Secrets of Silicon Alley’s Serial Entrepreneurs’. Carter Burden, Laurel Touby and I will be sharing our thoughts. (Personally, I think the key secret is fail fast and often.)

What happens when the “old new world” of internet marketing (and by that, I don’t mean the general sense of marketing on the internet, but more specifically the world of affiliate marketing and information products) collides with the “new world” of Web 2.0?

Well, the result isn’t always pretty. It seems that all the internet marketing gurus are trying to get their head around (and their fingers in) Web 2.0, and sometimes, the fast-talking, hype-laden, list-building mentality just doesn’t jibe with the authenticity and relationship-driven approach of Web 2.0.

Case in point… I recently saw an ad for The Authority Black Book (note: this link does not constitute an endorsement - I’m providing it so you can see for yourself), promising “The Best Web 2.0 Resources for Generating Traffic and Winning Customers”.

See, here’s the thing. Web 2.0 isn’t just about technology. Web 2.0 is about technology enable authentic relationships — people connecting with other people over some common interest. So when the whole sales process for something like this completely violates that promise, it kind of makes you wonder just how much the people behind it really “get” Web 2.0.

You can read the first in what I plan to be a 3-part series reviewing this e-book and related programs on my new blog, Revenue River:

Pet Peeve: Web 2.0 Gurus Who Really Don’t Get Web 2.0

Be sure to leave a comment… when one of the people behind this thing finally discovers that blog post, I’d love to have a show of force there.

I enjoyed tonight’s talk by Peter Thiel at NYC Junto, on “How New Technologies Thwart Government and Promote Freedom”. Junto is a libertarian-focused discussion group organized by Victor Niederhoffer. I’ve been following Peter’s writing for a while, since we overlap directly in our interests in investing and in online networks. Peter is President of Clarium Capital Management, an investor in both LinkedIn and Facebook, and was co-founder and former CEO of Paypal.

Peter started with two questions:

1) Let’s assume libertarian view is correct. Why aren’t more people libertarian?

2) What do we do about it? How do we make the world more libertarian?

Answers to question 1

- maybe libertarianism is not in peoples’ interest

- lack of education

- [Cf. Bryan Caplan’s book, The Myth of The Rational Voter]

Answers to question 2

When Peter was an undergrad, he might say:

- Education

- Go door to door

- Convince people to vote for candidates

But as he got older, he saw this is very hard to do.

(highlight of the evening: Victor Niederhoffer’s toddler son wanders around Peter’s legs at this point)

An IQ test for libertarians: ask them how optimistic they are. The more pessimistic they are, the smarter they are.

One solution: move control of money from the government to individuals. But you cant do this via plebiscite. If there was a form of money that government couldn’t measure or track, you’d have a powerful alternative. This insight was genesis of Paypal in late 1990s.

In mid 90s, several companies were creating alternative currencies: Cybercash, Digicash, etc. All of the initial attempts were going out of business. Money has a network-like aspect. How do you create a new currency when no one else is using it?

All these efforts had run aground against this rock. So Paypal started by leveraging against existing systems: credit cards, checks. Send money to anyone with an email address. Started with 24 employees at Paypal. Preloaded accounts with $10. Started to spread. We grew at 5-7% compounded daily.

Einstein, “Compound interest is so miraculous it could only be created by G-d”.

Initial theory was very idealistic. In reality we ran up against many obstacles, the first of which were customers. Massive amounts of emails/customer service inquiries.

Spring/summer 2000: discovered bad people are out there. Whole wave of fraud, including Russian mobsters, tried to exploit Paypal. Someone threatened Peter’s mother unless PayPal unfroze his account. Then that person ended up shot dead.

Found dystopian website in Former Soviet Union: “Carders World”. A carder is someone who steals financial information on people. This was a marketplace for personal financial information. They had a manifesto saying that they were going to take down the capitalist system. Paypal information was there.

2001 period: next obstacle was government. Initial Paypal strategy was to ignore government regulations—’we are not a bank’; ‘ none of these laws apply to us’. If we rolled this out quickly enough, the government couldn’t stop us. “If you have a world where everyone is a criminal, you have to change the law.”

Visa/Mastercard tried to come up with rules to prohibit Paypal from using their service. Government was even slower. Radical technological change must be fast.

In 2001/02, when company went public, things really hit the wall. The person investigating their S-1 thought that his job was to stop companies from going public. “He was demoted in government, which is a really extraordinary thing to happen.”

Businessweek article said that state of Louisiana hadn’t quite signed off on this. SEC investigator told Paypal management that state of Louisiana was going to shut this down. So in middle of roadshow, Peter had to track down government regulators in Louisana and convince them that Louisana did not want to get reputation as a particularly backward place. “So within 2 days, we managed to get that stopped. At the time we had 100,000 Louisana users.”

“We are now in 100 countries. 3^rd largest payment brand after Visa/Mastercard in the world. “

How successful were we? Paypal currency is still denominated in national currencies. If you only have one form of currency, you’re beholden to the issuer of that currency. Our initial vision inspired in part by Argentinean economic turmoil. If you can force competition between governments, you’ll have stabler currencies.

Early 1980s: high inflation rates all over the world. Since then, it’s gone down almost everywhere. Forms and symbols can persist well after the substance is gone, e.g., Queen’s face is still on UK currency. Technology has been a very powerful force for decentralizing things.

1960s Time magazine cover: picture of 1 big computer that could run the world. Cf. Hal 2001. Computers as a force for centralization is a classic image. In the 90s, power shifted to individuals.

Famous early example: Soros distributing fax machines throughout Eastern bloc.

If everyone becomes a currency dealer thru Paypal, it changes the world.

So much has changed. For example in 1971: it was illegal to own gold and other currencies in the US. 1971 Treasury Secretary said, “It’s our money—we can print as much as we want and it’s the rest of the world’s problem”. You can’t imagine Hank Paulson saying something similar today.

Power is shifting ineluctably away. Will technology continue to be a force for decentralization?

Why did 1960s vision of centralized computer not happen?

Peoples’ ability to process information is flat, but the amount of information has gone up dramatically. So the only solution is decentralization. This is also why Moscow can’t set the price of potatoes in Vladivostock.

You may be able to approximate information processing to a problem solveable in polynomial time—and then you have AI, and the 1960s vision of a centralized computer processing everything.

By 2050, we could have thousands of different countries. We have 10-20 years to push as hard and far as we can in direction of more liberty.

Q: How do you prevent Paypal from being used as electronic hawalla—form of terrorist financing?

A: We have protections in place—abide by Patriot Act.

2002: first year number of printed checks in US went down.

Q: question about Second Life and inflation

Q: question about goldmoney.com

A: The problem with gold is that when you really need it, it’s not there. In 1933 the government confiscated all the gold bullion in the US.

Q; How do you promote libertarianism?

A: When I was young I tried to reduce the demand side (demand for regulation), but then I saw it was much too hard. So now I focus on the supply side. If I expand the supply side (e.g., more options for currencies), I reduce the amount of government in the system.

I want to promote change without being obliged to go through an election or plebiscite.

Governments are losing power to inflate because of technology. The risks are now tilted to deflation, not inflation. A deflationary environment is hard to invest in, because you can’t just lever up and pay things off in cheaper dollars. Private equity and real estate are bad ideas in a deflationary environment. Donald Trump’s argument is that you should be short dollars by going long real estate, is disastrous.

Q: How does Facebook promote libertarianism?

A: Facebook will be the dominant next media company . Since the old media companies are non-libertarian, this in itself is good.

Hedge funds are a way to bet against stupidity of governments.

Q: Could you comment on US visa policies and their impact on competitiveness.

He commented that once a tipping point happens, it’s impossible to go back. Once the camel’s back is broken, it can’t be healed. Right now the marginal tax rate in NY is ~50%. In London it’s 0%. So it’s compelling for a hedge fund to set up shop in London, not NY.

There’s a definite shifting of centers of quality overseas. It’s happening faster in finance than in technology, but it is happening. (Audience member mentioned that Microsoft is setting up research centers in Canada and elsewhere specifically because they cant bring the researchers they hire into the US.)

Kathleen Reidy has posted a useful survey of M&A in the blog and wiki software markets.