Last Friday I had the pleasure of speaking on a panel at Tiecon East (thanks to Raj Bala) with Fred Wilson, Don Dodge, Nabeel Hyatt, and David Cancel. The topic was “Web 2.0, viable business model or bust?” and we spent a lot of time discussing developing business models, current state of funding market, and whether or not we are in a bubble. As with any panel I always think of more things I wish I would have had a chance to say in the panel, but didn’t have time for. Thus I will be writing a few blog posts on it. I wanted to take a chance to write a few blog posts recapping the panel and expanding on some thoughts.

While I’m surprised we are still discussing the question of, whether or not we are in a bubble, it seemed there were many entrepreneurs still thinking about this topic. Let me first start out by saying that I am a firm believer that we are not in a bubble similar to web 1.0 days. Will there be losers? Absolutely. Probably more losers then winners. That’s the nature of business and market economics. But there are a few points that I think are really important to understand.

Bubble conditions = capital input > market opportunity

Don Dodge put it best by saying that you have bubble conditions when the capital input outweighs the market opportunity for that company. In other words, a company that could be a $30 million dollar business takes $20 million from VC’s that are looking for 10x return. While we may be seeing this a little bit, we certainly aren’t seeing this to the extent we did in the late 90’s.

But an issues currently is that many web 2.0 companies could very well be a solid $25 - $50 million dollar companies, but the current economics around venture capital are have been slow to adapt and do not mesh well with this state of the market. I commend Fred Wilson for being one of the more progressive VC’s to recognize this and act on it.

Many web 2.0 entrepreneurs are seeking the wrong type of capital input

A lot of entrepreneurs get frustrated because they seek a traditional VC round when they shouldn’t be! My guess is that over half of the companies that are pitched to VC’s just don’t fit the traditional VC model. But many could still be solid smaller companies that can be built with starting on a $250K - $1 million dollars of funding. My best advice to entrepreneurs is to take a hard honest look in the mirror and ask yourself if your business can really be a $100+ million company, and if the answer is no don’t waste your time on a traditional VC round. Seek out angels and investors such as Fred Wilson.

Innovation in technology has outpaced the innovation in monetization for those technologies

I have to give some partial credit to my good friend and fellow entrepreneur Chris Keller for this insight. But one of the reasons that we are seeing a lack of revenue from Web 2.0 companies is that innovation around technology and good consumer internet ideas has outpaced the innovation of monetization and business models. In fact, this is quiet normal and is a natural cycle.

Now that the funding and acquisition markets are tightening a bit, a lot of web 2.0 entrepreneurs will be forced to refocus their efforts from how to just get eyeballs, but how to make money to sustain their companies. These efforts will produce new viable business models and the innovation in monetization will catch up to the innovation in technology. After that, the cycle will repeat itself.

Hopefully you were able to grab an RSVP spot to the POPSignal party on May 15th.  Over 400 people have RSVP’d in less than 48 hours.  We will be opening up limited spots over the next couple weeks, so if you still want to come keep checking out the website for announcements.  Also click on over to our Media partner Center Networks to grab a pass code for one of 30 limited spots.

Last Fall I helped organize a party for the tech and startup community called Tech Cocktail.  It was an overwhelming success with over 300 people in attendance.  Well, I’m at it again, and I’m happy to invite you the POPSignal Party on Thursday May 15th, 6:30 - 9:30pm at Tequila Rain near Fenway.  The event is free, to RSVP and event details, please go to http://popsignal.eventbrite.com.

POPSignal is aimed at bringing together the local tech community in a fun and informal environment.  There is no format, presentations, or speeches. However, there is a free open bar, free food, music, fun activities from sponsors (TripAdvisor, Atlas Ventures, T3 Advisors), and great conversation.  Space is limited (last time we filled up in under 24 hours), so please RSVP asap.

We will be doing a lot more than parties with PopSignal.  More details to come soon. Thanks to the boys over at Though and Theory for the awesome logo. If you need design work done, I HIGHLY recommend.

Thanks To Our Sponsors (interested in sponsoring?  Email me [Brian] at [popsignal.com]

	TripAdvisor branded sites make up the largest travel community in the world, with more than 25 million monthly visitors, six million registered members and 15 million reviews and opinions. Featuring real advice from real travelers.
	T3 Advisors is a nationally recognized, full-service real estate brokerage and consulting firm that specializes in advising corporations that are focused on the innovation economy. We find creative and cost-effective solutions for our clients.
	Atlas Venture is a leading international early-stage venture capital firm, investing in communications, information technology and life sciences companies. We are currently investing from our seventh fund and manage over $2 billion in capital.

Everyone knows that the Facebook application gold rush is long over.   Facebook continues to impose restrictions, users have application fatigue, and as a result conversion on distribution methods has fallen through the floor.  In fact, if you look at most of the early successes such as Free Gifts, Flixster Movies, and Zombies, their daily active users is on a downward trend.

To fight this trend, many of the applications will have to make the transformation from features to destinations themselves.  This means that social interaction and relationships are being established within the application itself and not just building on the social relationships a user had previously built in Facebook.  If you look at the couple verticals of apps that are actually doing well, dating and games, you can see that  by default they have these types of features built in.  They take what Facebook’s primary puprose, faciliting social relationships, and they do it in a way that you couldn’t previously on Facebook.  Games typically do auto matching with other players,  and dating apps introduce you for a very specific and common purpose.

Applications that started out as features need to make the transition to building in features that transform them into a destinations themselves.  The novelty of these non-essential features has a half life on users and if they aren’t providing a long term reason to return (facilitating social relationships in new ways) then it is only a matter of time before they die.

I can’t even say virtual worlds are the future of social communities, but rather the present.  Virtual worlds have proliferated among internet users younger then 18 here in the US and especially internationally.  Sites such as Gaia Online, Cyworld, Habbo Hotel, Barbie World, Webkinz, and Club Penguin blow social networks out of the water in terms of user base and engagement among this young demographi.  Barbie World alone hit 3 million members within 60 days of launching, and a short 9 months later are at over 10 million.  MTV and Nick.com have both committed $100 million to virtual worlds in 2008.  If you follow VirtualWorldsNews.com it seems like a new virtual world is launching every day.

But besides impressive numbers, what makes virtual worlds the future of online social communities?

Richer Social Interactions

Social communities are built on the quality of the social interactions being exchanged.  Virtual worlds offer a larger variety of higher quality social interactions.  It goes far beyond the standard messaging or IM’s.  Avatars can make facial expressions, or change their body language.  You can buy someone a new piece of clothing, or item for their virtual room as a gift.  Avatars can dance with each other, hold hands, and even play games.

A study at Stanford has shown that our brain responds in the exact same way, at the exact same levels, when an avatar smiles at you as when someone smiles at you in the offline world.  And there have been numerous studies in the past that says body language and facial expressions communicate much more then the actual words that are said.

Bottom line is that virtual worlds are offering forms of interactions and expressions that enrich the social experience.

Better Self Expression and Personalization

Take one look at high school teen’s MySpace page and you will quickly see that a large part of social communities about self expression and personalization.  “Blinging” out your social network profile was the first evolution of this.   But virtual worlds offer the opportunity for much better personalization through their avatar, virtual room, expressions, etc.  Dressing up your avatar to express your personal style is much more compelling then dropping a glitter text badge or a slide show widget on your Myspace profile.  Check Gaia’s sign up process.  Within 10 seconds they have you playing with your avatar’s hair style, shoes, accessories.  It literally sucks you in and before you know it you are trying to find the perfect match between your virtual hat, and those cool pair of trendy jeans.

Real World Interactions Are Better Resembled

With the above two points in mind, virtual worlds are starting to take on qualities that closely resemble to how we interact offline.  They also give us the opportunity to interact and portray ourselves in a way which we would like to, but are unable to in the real world.   This makes the online social experience more engaging, and ultimately of higher quality.

It’s All About Fun

A long time ago I wrote about 3 qualities of a successful social network in which I explained why Fun is one of the most important elements to a social community.  Bottom line the experience that virtual worlds are offering are more fun for their users.

Will Social Networks Cease To Exist?

All of this begs the question, “are social networks going to cease to exist?”  The quick answer is no.  But we will see an intersection of social networks and virtual worlds.  Properties such as Gaia and Cyworld already resemble this intersection and have been extremely successful with it.

It has been quite some time since I have written here.  There has been so much that I have wanted to do with this blog that I never seemed to have the proper time to dedicate to it.  But as you probably can see I decided to cut it down to the basics.  I did a simple redesign that I hope to build off of, transferred to a new server, and am now prepared to start writing about a lot of the exciting things I have been involved with the past 6 months.   The market of online social communities has exploded beyond social networks to virtual worlds, casual games, social games, and MMOG’s.  Social communities are expanding extremely quickly finding new audiences, social dynamics, features, and monetization methods.  The craziness has only begun.

Viximo - Back in September I stumbled across a new emerging market, and therefore a huge new opportunity.  I founded Viximo and quickly obtained funding from two of the top investors in Boston, and the U.S. (North Bridge and Sigma Partners).  In the past 6 months it has gone from an idea on two pieces of paper, to a team of 10 A + rockstars.  We are cranking away on an idea that has massive potential among online social communities.  While it has only been 6 months, I’m amazed at how much I have learned about the future of online communities and entrepreneurship.  I will be sure to release more details over the next month.

PopSignal - Something that Jay Meattle and I have been working on ever so slowly in the rare free time that we have.  We hope to have an announcement within the next few weeks.  Stay tuned.

Betahouse - Almost one year to date I was one of the original members of Betahouse, a co-working space for internet entrepreneurs located in Cambridge.  While brief, this was one of the best working experiences I have had in my professional career.  There is nothing better then a room full of eager internet geeks cranking away on a lot of innovative ideas.  Unfortunately Viximo grew out of its 150 sq ft room very quickly and had to move out.  Nevertheless, Betahouse still lives on its full glory and I hope more companies like Viximo are born out of there.

ZoomInfo -  I left ZoomInfo last September when I started Viximo.  There are some great people over there, and the company has grown immensely since I have left.  I wish them the best.

Bottom line, I’ve really dropped the ball on this blog the last few months. But I have a good excuse…I hope. The truth is that there have been some major, yet exciting, changes going on in my life.

I recently left ZoomInfo, where I had been working the past year. I had a great time working with the awesome team at Zoom, but it was time to move on. I’m excited to announce that I am now the founder of a new startup here in Boston. Unfortunately we are in stealth mode right now, so I don’t have much to write about it. But we are building out a team quickly so if you are looking to join a new startup at the ground level, email me at brian [at] socialdegree.com. We are looking for young, hungry, motivated, and creative people of all shapes and sizes.

While I plan on writing occasionally here at SocialDegree I have a feeling that it won’t be nearly as often as I (and hopefully you) would like. But keep me around on your feed reader, because you never know when I might go on a blogging spurt.

Let the flood gates open. TECH Cocktail RSVP registration is now available. If you missed the story on what TECH Cocktail is, or why I am helping organize it go here. Here are the details:

When: September 6th, 2007
Where: Tequila Rain by Fenway (Boston)
What: Open bar, music, 300+ people, and a whole lot of fun
Price: FREE

RSVP here: http://techcocktailboston1.eventbrite.com/

You MUST be on the RSVP list in order to attend. Space is limited so register early!

Technorati Tags: Social Networking, Social Networks, TECH Cocktail, Brian Balfour

A few months ago I was on an endeavor to create a new group for the tech community here in Boston. I realized that there was a huge amount of young tech entrepreneurs in the Boston area, but that the only networking events in the area felt like a conference (don’t get me wrong, I am a fan of WebInno). There was nothing that was just about having fun, which in my opinion is the environment where you make the strongest connections.

Ironically at the same time I met Eric Olson of Feedburner who had started a tech event in Chicago called TECH Cocktail. I told him what I wanted to do, but wasn’t sure what to do to make it fun. After he told me about TECH Cocktail, it turns out that all you need is a bar environment, and free booze! Sounds good to me.

Fast forward a couple months and we are now announcing the first ever TECH Cocktail Boston on September 6th at 6:30pm at Tequila Rain by Fenway. There will of course be free booze, and some fun stuff by our sponsors (see below). You MUST be on the RSVP list to attend, which we will be opening up very soon.

Myself, Jay Meattle, Shawn Ward, and Peter Glyman have been pulling this all together. So save the date, and get ready for some TECH cocktail fun.

Sponsors of the event:

ZoomInfo, North Bridge Venture Partners, Compete.com, Geezeo

Jeremy Liew over at Lightspeed Ventures had an interesting post today titled, “Top Social Networks For Engagement” where he proceeds to list out of the top social networks in rank of engagement. I was glad to see some lesser known communities like VampireFreaks, which I have covered before, on the list. Jeremy defines engagement by average pages per visitor per month, and average visits per user per month. I think Jeremy did a good job on the post, and he definitely includes a lot of valuable information. But the question that becomes most apparent to me is, is this the best way to measure “engagement” for an online community or social network?

Some readers of Jeremy’s post have already pointed out two issues in the comments; one, the numbers don’t take into account poor design (i.e. myspace is much more inefficient then facebook, so therefore has more pageviews), and two, the numbers don’t take into account AJAX and other rich media formats. While these are two great points, there is a bigger mis-understanding: Page views are only a small part of measuring true engagement in a social network or community.

A user is engaged not when they are only viewing content, but are interacting with it. A user is far less valuable if they are not participating and contributing to the community. “Well Brian, aren’t users valuable from a revenue standpoint if they are creating page views?” Sort of. Do you think advertisers care about, or even value page views from people that flip through 100 photos in two minutes in someones Facebook photo album? No, and this is becoming more apparent, and will eventually run its due course.

A user is much more valuable to a community, to the publisher, and to the advertiser if they are interacting and contributing. 1,000 highly engaged page views is far more valuable than 10,000 non engaged page views to all the stakeholders involved. The best public measurement to date, time spent per page, still falls extremely short of measuring true engagement. In my opinion, the best way to measure engagement is to measure the contribution levels of comments posted, photos posted, blogs posted, (or whatever interaction points are in the community) compared to the number of active users.

Thanks to Chris for pointing me to the blog post.

Chart and Graphic via Lightspeed Ventures