“@kevinrose how do I get you to follow me back???” – anonymous self-proclaimed “social app guru”

This is Part 2 of a series that explores the science of Social Media Measurement. Let me preface this post by saying that this is a lighthearted post trying to come up with a simple measurement regarding a hugely successful social web service.

Previously, I explored the measurement of popularity, novelty, and attention on the very popular crowdsourcing news aggregation site Digg. My post was based on an arcane academic study involving the half-life of popularly “dugg” items. It turns out that stories frantically “dugg” by Digg members that make it to the coveted front page have a half-life of only 69 minutes. That’s a lot of work for a relatively short period of attention. Having that knowledge should prove useful to some marketers.

Why do we want to be able to measure social media? Why should we attempt to develop metrics? The ability to measure our efforts gives us valuable information to guide changes or course adjustments. It gives us baseline comparisons to measure against. It allows us to set measurable goals. It also helps us to make decisions when considering outside consulting help. In the social media space, there is a preponderance of self-styled “social media gurus” or “social app gurus” who try to trade off of non-existent influence. Like snake oil salesmen, they make grand claims about their reputation and expertise but their products or services are essentially worthless. Perhaps a few hard measurements could help marketers and advertisers identify the frauds from the really reputable experts.

This time around, I’d like to keep it a little lighter with a simple measurement I came up with to measure that amorphous quality called influence. This is a light-hearted attempt and nothing nearing the scientific exactitude I cited in my previous post. I consider influence as much more important than popularity, novelty, or attention. Indeed, influence implies popularity and attention. More specifically, I’m measuring influence on the hugely popular Web service known as Twitter. Twitter is a micro-blogging or mobile blogging service that essentially asks the question, “What are you doing right now?” When used correctly, it can be a helpful service for networking, sharing ideas, and staying abreast of buzz.

Twitter’s format is conducive to understanding and measuring influence because of its reciprocal structure of “follows” that makes for easy measurement. You can elect to “follow” other members of the Twitter service. Every time someone you are following “tweets” about something, you will get that update on your cell phone. People who elect to follow you are “followers.” Your followers get an update every time you twitter about what you’re doing or thinking.

Initially, most people “follow” their friends and family but eventually move to following other people on the Twitter network. Implicitly, people follow each other because they find each other interesting. I wouldn’t want to be following someone who is telling me and the whole world, “I’m going to the bathroom.”

There is a small group of highly influential members of Twitter that are so interesting and have such important thoughts to share that they quickly draw a whole army of “followers.” Their follower bases grow organically, naturally, and virally because they add a lot of value to the network and their followers. They don’t need to actively campaign for followers. Not surprisingly, their follower base is much larger than the number of people they follow.

There is also a larger group of sycophantic, self-branded “social media gurus” or “social app gurus” that have very little actual influence. We all know a few of these “leaches” and if they weren’t so spammy, they’d actually be mildly amusing. They are actively trying to get more followers. They spend a lot of time in self-promotion mode. They kiss your butt and play nice so that you might decide to follow them. They trade “follows” like high schoolers in a popularity contest. So instead of “I’ll vote you for best looking if you vote me for most popular,” they say “I’m following you so will you please follow me too?”

Not all “social media gurus” are frauds. However, you can spot the ones that are frauds when they try to build their follower base by asking truly influential Twitter members questions like this, “@kevinrose how do I get you to follow me back???” This is one case of a self-proclaimed “social app guru” asking Kevin Rose, the founder of Digg and a member of Twitter, to follow him. How inane is this? Please get a life.

So let’s get right into the Twitter Influence Ratio. It’s very simple really and very similar to the price to earnings or PE Ratio found in stock investing. In the financial PE Ratio – you get an idea of how much in earnings you getting for every dollar you pay for the stock. It’s a nice, convenient measure of how much value you’re getting or your bang for the buck.

Stock Price / Earnings = PE Ratio

EMC Corporation: 15.56 / 0.77 = 20.21

In the above example, EMC Corporation (EMC), a data storage company, saw its stock close at a price of $15.56 for the day. During the last twelve months, EMC earned $0.77 per share. Dividing $15.56 by 77 cents gets you a PE Ratio of about 20.21 – pretty simple right? Essentially, what the PE Ratio tells you is that for EMC Corporation stock, you are paying approximately $20.21 for every one dollar of earnings. Like I said, bang for your buck.

With the Twitter Influence Ratio, we’re going to try and get a read on someone’s true influence level. It stands to reason that if you are interesting, have neat thoughts, and add value to the network, people will naturally gravitate to you and “follow you.” Some of the most influential members of Twitter have many more followers than people they follow. So the Twitter Influence Ratio will attempt to express this relationship as;

Followers / Following = Twitter Influence Ratio

Example: 533 / 609 = 0.875

In the above example, one such self-branded “social app guru” has 533 followers and is following 609 others. This gives him a Twitter Influence Ratio of only 0.875 which means this person is not very influential. Intuitively, you ought to have more followers interested in what you have to say than the number of people you’re following. One might say that 533 followers is nothing to sneeze at. I agree, but the fact that this person has so many followers and is following so many more makes it highly probable that he is what is known as a “friend whore” or “follow whore.” Like the desperate high schooler, he’s just trading votes. Someone with a TI Ratio of less than 1 but is only following 30 others is probably not out there actively trading votes or follows. If I were looking for a consultant, I would run away from this guy and find someone more influential.

Let’s take a look at some folks who are truly influential. The aforementioned Kevin Rose, founder of Digg, is one of the most influential members of Twitter. As of this writing, he has a Twitter Influence Ratio of:

18,416 / 72 = 255.77

The Twitter Influence Ratio attempts to give you a sense of how influential someone is. In Kevin Rose’s case, for every one person he follows, he has just over 255 persons following him.

Justine Ezarik, or iJustine, a talented web designer is another influential member of Twitter:

12,652 / 1,047 = 12.084 Twitter Influence Ratio for iJustine

Of course, the TI Ratio doesn’t always work. If I claimed that it did always work, you could peg me as one of those phony, self-branded “social media gurus.” In the case of Robert Scoble, one of the most influential journalists and bloggers in the technology industry, he actually has a really low TI Ratio:

20,939 /21,243 = 0.985

Scoble’s a journalist so he has to follow as many people as possible to get the scoop. He is basically following as many people as he has followers. His Twitter Influence Ratio is almost a ratio of 1.

Well, there you go, the Twitter Influence Ratio is not a perfect measure of influence. But it does give you a sense of who is truly influential and who is just pretending. OK, this will probably be the last time you here me talk about the Twitter Influence Ratio. Tell that “social media guru” or “social app guru” you know to stop his Twitter spam before you “unfollow” him!

Update: I just found someone, Andreas Gohr, who wrote a script to tell you if someone on Twitter is likely to be a spammer. It’s based on the same principles as the Twitter Influence Ratio and is very well thought out. It helps classify users on Twitter in these categories: Newbie or Social Climber, Twitter Spammer, Twitter Caster, Notable, and Socially Healthy. Good stuff. My friend, the “social app guru” is definitely a Twitter Spammer.

Much attention has been given to the Web 2.0 generation of social networks and websites. Deservedly so, this next wave of Internet properties has quickly acquired humongous user bases, rich valuations, and cultural buzz worldwide. Venture capital investors are clamoring to fund the latest spin on crowdsourcing, content aggregation, social networking, micro-blogging, video sharing, and other different takes on social media. Fortune 2000 companies are all trying to figure out how to respond to this phenomenon; after all, they do need to be where customers congregate.

One of the big problems in this space is that advertisers and marketers are being duped by self-branded “social media gurus” and “social app gurus” who market their simplistic consulting and shoddy development services while demanding rich retainer fees. They promise “viral” adoption of inane and mundane “social networking apps” that lend little credibility to the corporate buyer. They promise “branding” efficiencies and opportunities by continually repeating their mantra of getting their clients “into the conversation.” But all good skeptical buyers should ask, “What does that conversation bring me?” More importantly, “How do I measure the effectiveness or ROI of anything that I am contemplating buying?”

At the root of the problem is the inability of the self-styled “gurus” to measure their effectiveness. Granted, social media and social networking are new fields and reliable metrics have not yet been developed. Nevertheless, progress is being made and this series will explore the emerging field of Social Media Measurement in order to bring some light and hope to what seems like a dark swamp of self-promoters looking to feed at the corporate trough.

Popularity, Novelty, and Attention

These three components are difficult to measure, but are critical to understanding how well a certain social media campaign is running. Any “guru” that advertises their expertise ought to be able to explain popularity and attention. Novelty is a little easier to define, we know what is new when we see it.

One of the great movements of Web 2.0 is the method of crowdsourcing. Crowdsourcing can be defined as “leveraging a community (this needs to be more thoughtfully defined) to gather intelligence or opinion.” It is what James Surowiecki explores in his book, The Wisdom of Crowds, and what Tapscott and Williams explore in their book, Wikinomics: How Mass Collaboration Changes Everything.

One of the great companies that has figured out a way to harness the power of crowdsourcing is Digg.com, a website that allows users to essentially vote or “digg” for interesting stories, articles, and blog posts. The items that receive the most votes rise to the top and garner even more attention. It is a useful website for finding out about what is important to others. Essentially, Digg is a good source of finding out about a particular story’s popularity, novelty, and attention.

Fang Wu and Bernardo Huberman, two researchers at Hewlett-Packard’s (HPQ) Palo Alto, California laboratory recently released a study exploring the mechanics of Digg. They essentially developed a mathematical model that describes how the popularity of a story decays over time. This decay algorithm is not unlike that which describes the half-life of radioactive material. Another victory for the Latticework Model of multidisciplinary scientific inquiry. At the core of their model is a function called a stretched exponential relaxation, which achieved the ability to measure the half-life of prominent Digg stories. Digg’s extremely popular front page, which has the power to generate vast amounts of Web traffic to stories that make the front page, features a half-life of 69 minutes! It takes a lot of work to get onto the front page of Digg but all that cumulative work results in a premium of just over 1 hour of premium attention.

Critique

I do have problems with this study and its conclusions. My issues aren’t with the conceptual idea of measuring popularity, novelty, and attention. I have caveats about their study design and assumptions. One of the well known secrets of Digg is that there are relatively select groups of Digg members who hold disproportionate influence in the community. Almost all the stories they “digg” or submit to the community habitually show up on the front page or home page. Everyone knows that there are ways to game the Digg engines. One could imagine loose “tribes” of Diggers that “help” each other digg stories in a reciprocal manner in order to get their stories to the top. This reciprocity has little to do with the novelty or newsworthiness of a story.

Another problem with the study design and assumptions is that a community is only as good or valid as its component parts. In other words, the demographic makeup of a community obviously is an overwhelming factor. Digg is a notoriously young and tech-savvy community. As such, it has its own built-in biases. Any study should take this into consideration. Most of the stories that make it to the front page are going to be technology-focused. And even within technology, the focus is primarily on Web 2.0 stories. One would find the community very hostile to Microsoft (MSFT) and other older, first generation technology companies. I think this is a secondary concern, but it should definitely be taken into consideration.

I would have liked to see Wu and Huberman explore the concept of influence. Those super-diggers who have an extraordinary ability to push their stories to the very top. In my next post, I will explore a very rudimentary measure of influence based on another very popular social media Web service.

Implications

What are the implications of this story? Perhaps a corporation contemplating a viral campaign on Digg to try and push awareness of their story could measure the costs of such an effort. Would the ability to identify the super-diggers who might be willing to trade influence for monetary compensation be a worthwhile endeavor? Note that the community would frown upon a paid campaign to push awareness. Are the risks of negative attention worth the benefits of getting a chosen story to the top? Can 69 measly minutes of premium attention be worth the costs?

Again, I issue a warning to corporate buyers. Be very skeptical of self-branded “social media gurus” and “social app gurus” – they likely are not able to quantify their expertise and will be unfortunate resource wasters. Believe me, the talent in this cottage industry is very weak but great at self-promotion. The emergence of the new Social Science will alleviate this problem by helping advertisers, marketers, and strategists identify and measure ROI and performance. New metrics are arising everyday.

Social networking has thus far been primarily about connecting with lost friends, playing simple games, and gawking at strangers. Aside from the amazing ability to reconnect with buddies from middle school, the rest of social networking mirrors normal human behavior in real life. Lots of people need an avenue for rest and relaxation. Dumb games like Pirates vs. Ninjas on Facebook replaces old time-wasters like watching TV. Who hasn’t been to the mall or the park watching people pass by? We’re all voyeurs to some degree but social networks like Myspace (NWS-A) make us Peeping Toms powered by technology.

It’s been great fun, but social networks have ambitions to be more than just a digital playground. They want to be super hubs of e-commerce where people go to buy stuff. Even on that front, current efforts have been less than inspiring. Facebook has had some success getting people to spend micro amounts of money sending small digital images as gifts for their friends. This is much like the candy grams I bought for all the pretty girls in middle school, juvenile and bound to lose its novelty. Of course, new generations of kids are always going to join social networks, so the “digital dollar” gifts will always be in demand. It is a valuable business, but one that could evolve into something greater if Facebook or competitors figure out more useful applications for micropayments or “digital dollars.”

I believe that it’s perfectly fine for social networks to remain as fun hangouts but if the Zuckerbergs and DeWolfes of the world want their networks to be much more, things will have to change. The future of social networking requires much more elegant thought leadership that will lead to much more robust applications made by much more skilled developers and managers.

A big change has already begun. Corporations are slowly dipping their toes into the waters. While they’ve been big advertisers on the networks, they are beginning to interact directly with the community. Some are leveraging existing networks. Others are building their own networks so they can customize that interaction.

Let’s take a quick survey of what some grown-ups are doing today in the social networking space. This is by no means an exhaustive study, think of it more as a sampling of some of the more interesting and unique approaches. It remains to be seen which of their differing approaches will succeed, but a careful watch of their efforts might give us clues as to what that elusive future of social networking might look like.

Struggling Starbucks (SBUX) has seen its stock price fall over 40% over the past year due to slowing growth, customer apathy, and fierce competition from the likes of McDonald’s (MCD) and Dunkin’ Donuts. It recently announced the launch of its own social networking website called My Starbucks Idea. In what looks like a valiant corporate effort in crowdsourcing or leveraging the wisdom of crowds, the website attempts to engage the audience to share ideas on how to make Starbucks better. Not sure if the company has ever used fancy pants MBAs and consultants who think in terms of profit margins, market share, and brand extension, but any attempt to get the average Joe to opine about his cup of Joe makes sense. These are presumably the people who feel the strongest about their daily java fix, an emotional connection that ought to lead to insightful ideas. Therein lies a natural problem; the most passionate fans of Starbucks who share ideas are not the bulk of customers who feel that Starbucks has lost its way but wouldn’t be motivated enough to tell anyone why. While I’m at it, here’s my suggestion: brand extension usually does not work – get rid of the tastefully compiled music compact discs.

Networking giant Cisco Systems (CSCO) has always excelled in growth through acquisition. By acquiring technologies developed by small startups or budding competitors, the company has been able to keep its technology edge and maintain market leadership. However, this strategy has always been a tad expensive; after all, the venture capitalists that backed the acquisitions need to be paid off for making good bets. Now Cisco has launched a competition called I-Prize that could help the company identify good ideas long before they become pricey startups. The I-Prize competition allows the company to reach out to its community or ecosystem and motivate submission of ideas for rewards. The best idea gets funded as a new business unit and the idea generators get a big signing bonus and employment. The social networking aspects of I-Prize include the ability for entrepreneurs to comment on each other’s ideas and network with each other to form collaborative teams. Recently, Cisco released a blog post describing the demographic details of the semi-finalists in the competition. It appears Cisco is having a successful experience with this program.

Overstock.com (OSTK) has seen its stock price follow the trajectory of a roller coaster over the past year. The online retailer suffers from negative margins and a supremely competitive online landscape. It recently launched a community portal on its website that allows users to blog about their interests, write product guides and reviews, discuss auction items in online forums, and read the latest articles written by CEO Patrick Byrne. Byrne has been pilloried by the vicious financial press for his unorthodox behavior, but I love his independent, contrarian, and defiant style. I think the attempt to engage its most loyal shoppers to contribute product guides and blog about favorite products makes sense, but I would implement the strategy differently. Instead of Overstock hosting the blogs and reviews on its own website, it should attempt to build a loose network of affiliate bloggers and guides similar to blog networks such as Know More Media, b5media, and Pajamas Media. The separate network approach would result in less control but better search engine rankings, increased traffic driven by external sources, and a more active affiliate program fueled by a rewarding incentive scheme.

Dell (DELL) operates a website called IdeaStorm that resembles My Starbucks Idea. The mammoth computer manufacturer wants its customers to post and discuss ideas. One large component of the interaction design on the website involves the ability to “promote” or “demote” ideas posted by others. In this way, the site imitates the crowdsourcing methodology pioneered by Digg, the news aggregator community. For corporate executives that have been tasked with the daunting responsibility of building web communities with the potential to feed the parent company with business intelligence and game-changing ideas, check out Salesforce.com’s (CRM) Ideas platform. Dell’s IdeaStorm is built on the Ideas platform and appears to be a good implementation. My Starbucks Idea is also powered by the same platform. The platform is definitely a more cost effective solution than building a platform from scratch, but care should be given to customization and integration with existing websites or properties.

Dell has also been experimenting with innovative forms of advertising on social networks. Instead of what I call “passive advertising” on the margins such as banner ads and margin text ads, Dell is putting its name directly on web applications that social network denizens interact with. In partnership with Federated Media, Dell conducted an art competition on the Graffiti application on Facebook centered around the question “what does green mean to you” which ultimately drove traffic to another one of Dell’s social networking sites, ReGeneration. The ReGeneration campaign is an early example of what I call “appvertising,” a more direct and intimate form of advertising made possible through social networks.

Our favorite whipping boys, the American auto industry, might well need to try anything and everything to stem its losses to the relentless Japanese auto companies. In other words, in times of desperation, throw everything at the problem including the kitchen sink. General Motors Corporation (GM) has decided that social networking might be one way to persuade American consumers to buy Cadillac Escalades, Buick Enclaves, and Chevrolet Corvettes instead of Honda (HMC) Accords and Toyota (TM) Corollas. GM Next, the company’s attempt at social networking, is a content rich site that includes blogs, podcasts, and a healthy serving of videos. Unfortunately, the site feels too promotional and not focused enough on carrying a genuine conversation with car enthusiasts.

We’re witnessing the early stages of corporate involvement in social networking, both on the mass consumer social networks and on specialized corporate social networks. The operators of popular social networks desire to be more than just massive collections of frivolous games and applications. They’d like to move beyond the amateur and simple coding exercises haphazardly thrown together by weekend programmers with illusions of getting rich off their tiny applications. I think that’s a dangerous change in direction and few social networks will succeed in growing up and surviving the coming shakeout. It would behoove some savvy social network executives to heed Geoffrey the Giraffe of Toys “R” Us fame and consider that “we don’t want to grow up.”

Since my current work is in new media and social networking, I am keenly interested in the turbulence facing the newspaper industry. Clients, ranging from Fortune 2000 companies to small innovative startups, come to my team at SocialOptimize to gain an understanding of the new media landscape and to develop an actionable strategy for building a meaningful presence in social networks. They ask about their traditional marketing budgets and I tell them that we will see the disappearance of many old model newspaper, radio, and television companies as they struggle and fail to adapt to the reality of new media on the Web. Consumers are spending less time watching television, listening to radio, and reading newspapers. Instead, they are spending more and more time on the Internet for their news and entertainment needs. Very few traditional media companies will emerge stronger from this “dislocation” but the opportunity exists for several to transform themselves into new media leaders.

As an investor, I train my eyes on public companies that report the news who are also making headlines themselves. During periods of disruption, large sums of value get destroyed but great opportunities arise at the same time. Thus my ears perked up when I learned that Harbinger Capital, playing the role of activist investor, initiated a proxy fight by nominating four candidates for the New York Times (NYT) board of directors. The New York Times, being one of the leaders and most important assets in traditional media, has been causing great anxiety and nervousness in shareholders. Newspaper subscriptions and newspaper advertising revenue, the old metrics of success, are steadily declining and this has caused a panic in investors. I argue that newspaper subscriptions can no longer be relevant in the evaluation of this company. While advertising revenue of course remains the lifeblood of media companies, revenue from the printed page should diminish in priority. The company needs a dramatic rethinking of what it means to be relevant and influential and how to reconfigure its revenue base. Harbinger seems to be on the same page as it calls for “bold action” in the form of selling off business units and increasing investments in online efforts.

If Harbinger succeeds in placing its nominees on the board, I think it will have its greatest impact by helping the company allocate capital in a more logical manner. The company should start by deemphasizing or changing its editorial makeup. Americans perceive mainstream media outlets like the New York Times as “out of touch” and severely biased in favor of liberal policies and politicians. Whether this bias is true or not matters little, one can only respond to the marketplace with logic and logic dictates that the customer is always right. This presents an opportunity to drastically cut the expensive editorial staff and balance it with editors of more conservative leanings. In no way am I advocating for a government mandated Fairness Doctrine. I’m pushing for a market-mandated, self-regulated, fairness regime that satisfies what consumers and readers are asking for. This will go a long way in maintaining relevance and influence while generating substantial cost savings at the same time.

As for overhauling its revenue base, I think that the New York Times has taken good steps towards improving its online efforts. Only Rupert Murdoch’s News Corporation (NWS-A) has arguably done a better job at shifting revenue streams online. It doesn’t get a lot of press for its investments in the Internet, but some of the companies it has invested in are very compelling. As with all new businesses, patience is required for a few of these to work out and become substantive revenue generators. Many of these have ambiguous business models to begin with and it will take some time to adjust to the market and settle on a viable strategy. I expect some of these will not gain traction and will fail, but that is the perilous, creative, and destructive nature of our evolving online business environment. Here are some of the company’s more notable recent investments in a portfolio style overview:

Earlier this year, NYT co-invested with a few venture capital funds in San Francisco-based Automattic. Automattic’s primary product is the blogging platform known as WordPress. WordPress software can be downloaded for free and hosted on private servers. WordPress.com is a hosted blogging solution that many major media outlets are turning to as a cost-effective solution for serving blogs and other content. Large media companies such as CNN, Fortune, and Fox are paying for the company’s WordPress.com services to host their blog content. WordPress is one of the leading content serving platforms on the Internet and continues to grow in popularity. I think Automattic will carefully find other ways to monetize the technology including serving advertising.

The Internet is a medium that is conducive to the convergence of different types of media such as text, video, and audio. The clean divisions between newspapers, radio stations, and broadcast television that existed before the rise of the Web no longer apply. In early 2007, the New York Times joined with other media companies such as Time Warner (TWX), GE Global Media & Communications (GE), Hearst Interactive Media, and IAC/InterActiveCorp (IACI) to fund Brightcove, a developer of IP video technology. Brightcove technology hosts and serves content published by professional media businesses. Brightcove has emerged as one of the more successful alternatives to YouTube for consumers of video content.

Just earlier last month, NYT partnered with Sam Zell’s Tribune Company, Gannett (GCI), and Hearst to form a joint venture called quadrantONE. Yet another in a long line of advertising networks, quadrantONE will sell localized online advertisements, primarily display or banner ads. Given that this network will include many regional and national newspaper organizations, it stands a reasonable chance of achieving success. The challenge will be to educate smaller, more localized marketers about this differentiating factor. Many small marketers are still only aware of Google’s (GOOG) advertising platforms. The real opportunity here belongs to the regional and local metro papers. Consumers will return to demanding more quality localized news and content. If the local news agencies can meet that demand, they can create the inventory necessary to make a localized ad network like quadrantONE a viable competitor online.

NYT has also invested in Federated Media, an ad network for blogs. There will always be a place in this world for professionally produced news content. I certainly don’t want an amateur giving me the scoop on a tightly guarded political scandal. Most amateurs don’t write well enough to convey the juiciness of the drama. And if an amateur suddenly stumbles upon a juicy scoop and is capable of writing cogently about it, that person immediately becomes a professional. Such has happened in the world of blogging. The new world certainly has space for an army of amateurs sharing their opinions regarding everything under the sun. This distributed rather than centralized model of content creation opens up opportunities for a talented few to break into the ranks of influential professionals. The good ones generate a relatively large following. Federated Media helps this top tier of bloggers monetize their audience and content. A recent rumor has management at Federated Media rejecting a $100 million buyout offer.

The rise of Craigslist, partially owned by eBay (EBAY) has devastated the classifieds advertising market for newspapers. Job listings revenue, usually the most lucrative segment in classifieds advertising, has fallen way down. The migration of job listings off news pages to online job boards such as Monster (MNST) only worsens the situation. The New York Times hopes its investment in Indeed, a search engine for jobs, will help it recapture some of those lost revenues. Indeed promises to give job hunters access to millions of job listings aggregated from online job boards, corporate websites, and newspapers.

I did not know there was a New York Times Research & Development Group. I hope the boys at Harbinger don’t look at this little skunk works team as a waste of scarce capital. Innovation and breakthrough business models take time and freedom to develop. I already look upon corporate-directed incubators with skepticism but when the parent company accepts that it is in crises mode, there might just be a chance for the mad scientists and geeks to make an impact. Shifd is a new mobile Web application that allows users to share content between their desktop computers and mobile devices. Shifd, pardon the pun, is a paradigm-shifting idea. It makes possible a future in which we don’t have discreet devices separate from each other. All our information lives on the Web and is available to us from any device and custom-configured to our needs. Your cell phone and your desktop computer will have roughly the same utility and functional profile.

Daylife calls itself a “news site and distribution platform.” It is a different take on the aggregation of related news items and competes against the likes of Digg and Reddit. Instead of relying solely on a community of users to vote news stories up popularity rankings, the company appears to utilize its own search technology and algorithms to organize related news articles. Daylife also offers Web widgets that help other publishers expand their news content. The New York Times invested in this startup in late 2006. If I had to short one of these startups, Daylife would be the one. I love their user interface design; these guys are definitely in tune with the modern aesthetic. However, the competitive landscape for news aggregation is simply too crowded and the company does not offer anything so different and compelling to suggest that it can take users from Digg, Reddit, or even Google News.

WideOrbit provides software systems that automate and manage the sales, traffic, and billing of advertising. It sells its products to radio stations, television broadcasters, cable networks, and data centers. This sounds like a wonderful product as I am sure that relatively few people are putting their minds to solving the billing management needs of content publishers. Most entrepreneurs are focused on the deservedly hyped Web 2.0 space. This may not seem core to the business of the New York Times, but any model that puts the company in the middle of revenue flows will create value. Non-core businesses such as Federated Media and WideOrbit may create value for the company as they are sold off at rich multiples and for handsome returns. But in this uncertain time, who really understands what is core and what is non-core?

Again, Harbinger Capital is spot on with its call for a dramatic rethinking of the New York Times’ business model. Much capital can be allocated away from traditional business activities to online efforts that can significantly change the structure of the company. New profit centers will arise and the company’s recent investments in Web startups give it a good chance to navigate the future. What the New York Times needs right now is a stable of patient investors.

Update 3/17/08 – The New York Times came to a compromise with activist hedge funds Harbinger Capital and Firebrand Partners by expanding board seats by two outside directors. Scott Galloway of Firebrand and James Kohlberg of Kohlberg & Company are the two outside nominees slated to join the board of directors.