I've argued before that social networking should be a feature, not a destination, and that the one-size-fits-all model of Facebook and MySpace will eventually give way to a multitude of narrowly focused sites with social networking built in, such as the 220,000 niche networks hosted on the Ning platform.

It turns out that it's not just the experience that's better on the smaller, more focused sites: the economics work better there, too. Yesterday MySpace's parent company, News Corp, released quarterly financial results and although traffic was up on MySpace, they're having trouble making money. COO Peter Chernin said:   

We remain incredibly optimistic about social media. But there are specific challenges 1) Tons of inventory. Lack of scarcity creates a liquidity challenge. Working on bringing big brands aboard. 2) People who are visiting social networks there for different reasons, different uses. Figuring out how to target. 3) What's the value of a "friend"? Trying to figure out new metrics to communicate with marketers.

Indeed, last I checked, display ads on MySpace were going for a rock bottom $0.13 CPM (price per thousand views). Meanwhile, although Ning isn't disclosing its revenue across its entire network, I can give you a sense of it from my own robotics site hosted there, DIYDrones. The AdSense ads we run there (mostly accelerometer and other sensor parts, as per the example above) generate an average "effective CPM" (CPM after Google's cut, which can be as much as 50%) of $3.60. Before Google's cut, that's as high as $7.00.

So that's $0.13 on a general-purpose social network like MySpace and $7.00 on Long Tail social network like DIYDrones. Even with a more generous scenario--$0.50 on MySpace and $5.00 on a focused Ning site--the difference is still a factor of ten.

Sure, the traffic today is still mostly going to Facebook and MySpace. But as they struggle to target ads based on the faint signals of consumer behavior in a generic social network, the smart money is going to the niche sites, where laser-focused content and community makes targeting easy. The Long Tail of social networks isn't just more satisfying if your community is actually about something, it's richer, too.

[UPDATE: See this excellent post by a marketing strategist who reports on the disastrous results from his Facebook advertising experiments. Bottom line: it was only a $0.30 CPM and not worth even that. Tell me again why Facebook is valued at $15 billion?]

Two of my side projects--DIYDrones and GeekDad-- are going to be at Maker Faire this weekend in San Mateo. We're going to be in booth 166 in the Expo Hall (click on the map for detail), all day Sat and Sun. We'll be showing:

• The BlimpDuino
• The Mindstorms UAV
• The Basic Stamp UAV
• The Lego Mindstorms FIRST Tech Challenge competition kit (first time seen on the West Coast!) .

Also, our rocket friends will be there in our booth with a 22-foot Delta Rocket that has to been seen to be believed. If you think the amateur UAV guys are nuts, you should see the amateur rocketry guys. They also seem to have unlimited budgets (it helps that some of them are VCs).

I'll be giving a live demo of the Lego UAV at the Maker Main Stage on Sunday at 1:30. (No flying alas, but if the air currents are calm I might let a blimbbot loose to do its patterns))

Oh, BTW, I''ve got five free tickets left. If you want one, email me.

My friend Seth Godin, CEO of human-powered search engine Squidoo, has been reading the press on the search debate between huge range and high quality and wonders if the Long Tail has something to say about it. Along with Squidoo, human-powered search companies include Jason Calacanis' Mahalo, Barnes & Noble's Quamut, the New York Times' About.com, as well as HubPages and many others who are aiming to use a "less is more" approach to competing with Google.

In a sense, they're all proudly leaving the long tail to algorithmic search and seeking success by relentlessly editing down to a human-edited short head. They argue that the search engines reward them for such relentlessly paring down and filtering (they're all at least partly search engine arbitrage plays).  And better search results ought to attract better page creators as well...

Seth's question: does this make sense?

My answer:

I'll answer, as I always do, with slogans half-remembered from Econ 101 ;-)

"Every abundance creates a new scarcity"

For instance:

• An abundance of information can create a scarcity of context
• An abundance of choice can create a scarcity of advice
• An abundance of content can create a scarcity of time
• An abundance of people competing for your attention can create a scarcity of reputational ways to choose among them.

In the old model, distribution bottlenecks made most of those choices for us--we could only watch what was on and buy what was on the shelf. Now, in a Long Tail world, everything gets out there--choice is abundant. This creates an opportunity for new and better filters to navigate that choice (Chapter 7 of my book!), which I would argue describes the examples below. 

How do you compete with the Long Tail? One way is by making the short head more attractive. So when Borders goes from 100,000 books to 80,000 books but turns twice as many of them cover-out on the shelf, they're competing with the Long Tail by making it easier to browse and search and discover new books in a physical setting--doing what a physical store and do best. 

So in short, there's a market for both. As I've said many times, the Long Tail doesn't kill the blockbuster, it just kills the monopoly of the blockbuster. And the same is true in reverse: Google's Long Tail success creates demand for more curated search. One size doesn't fit all.

But if you edit the range of entries down too much, are you really a search company anymore? Or are you just a collection of semi-random pages of human-created content, hoping to be noticed (and rewarded with traffic) by real search companies? If it's the latter, you risk getting it wrong on which pages to focus on, and thus losing out to Google's whole-web agnosticm. If so, you're just like every other web media company, trying to anticipate demand and otherwise stand out in a crowded marketplace. Which is fine. Just don't call it "search".

Late last month, Random House's Crown imprint launched its first free book experiment, which quickly became more controversial than the publisher expected.

Crown released Scott Sigler's new book, Infected, online as a free (no DRM) pdf on March 27th, five days before it would be available in stores. The hitch was that this was limited-time deal: on March 31st, the day before the book went on sale in stores, they would take down the file.

This elicited the following rant from Boing Boing's Cory Doctorow:

Publishers are schizophrenic and often end up acting really dumb in the service of trying to do something smart. Crown is putting Scott's book online for free as a PDF, but they're taking it down after only four days -- presumably just in time to kill whatever momentum the downloads are generating. If you happen upon this blog-post next week when it shows up on Digg, you're out of luck -- no download to use to figure out if you want to buy the book.

Worse still: Crown is only making the download available before the book goes on sale! This is an act of massive goofiness. Here's what this means: the book's promotional download period ends before you can buy the book. If you download this book and love it, you can't walk down to the bookstore and pick up a copy. Sure, you can pre-order it on Amazon, but I know from watching my affiliate link payments here on Boing Boing that ten times as many of you buy books that are on sale when I blog them than buy books that have to be pre-ordered. The Internet exists in an eternal NOW, and expecting someone who downloads a book to hold onto the impulse to buy it for four days is so unrealistic, it makes me suspect that this strategy was conceived of by someone who doesn't actually use the Internet.

Either Crown believes that free downloads sell books or they don't. There's no coherent explanation for a ticking-bomb download like this one; it's like the hesitation marks on the wrists of a half-ass suicide.

So which is it? Does Crown believe that free downloads sell books, or don't they?

I talked to Shawn Nicholls, Crown's Online Marketing Manager, to find out.

The short answer is that Crown does indeed believe that free pdfs will sell more physical books. "We definitely subscribe to the believe that offering something online isn't going to take away from sales," says Nicholls. "The one thing I tried to do when we started this was to make a distinction between free music and free books. A MP3 can be a substitute for a CD, but we're not at the place where a pdf is a substitute for a hard book."

But Crown also believes in the concept of artificial scarcity: "Our goal was to create some buzz. Four days of availability gives a sense of urgency and makes it more of an event," he says. And although Crown did take the book down from its official site, Nicholls said that they wouldn't stop people from mirroring it elsewhere for as long as they want.

Here are the initial results of the experiment:

• The book was downloaded 45,000 times over that four days, compared to just 15,000 times for a previous experiment in free ebooks, The Beautiful Children, which was published by Random House in January. (That pdf was posted after the book was on sale.)
• Over the four days, Infected went to #1 on Amazon's Horror List, and #150 overall in book sales (from being in the two thousands before). It's too early to know what the bookstore sales are like, but on the online sales alone, the experiment looks like a success so far.
• The Infected microsite became Crown's top site.

Nicholls suspects that fewer people were inconvenienced by not being able to buy the books in stores over the free pdf window than Doctorow predicts. "The online audience we were hoping to reach is more prone to buying from web retailers, so for them pre-ordering on Amazon four days before publication isn't that frustrating. It shows up just a few days later than it would have if it were purchased after its on-sale date." 

"The way we looked at is that we straddled the line a bit. Giving away the full content of the book at all is a service to the consumer. Cutting it off short was simply us looking at all our long term goals--balancing the marketing buzz of a limited-time event against the virtues of longer availability. However, I can see the logic in Cory's point. It was an experiment, but if we see it as successful, we'd only want to go further, not go back. What we did this time was a calculated trade-off. Next time the conversation might be entirely different."

My take: the important thing is that Crown believes that free digital books can sell more hard copies. Exactly how to do it is a work in progress, but the philosophical hurdle has now been crossed. Now we can expect more and better experiments and less hand-wringing about FREE. Which is quite an advance, any way you look at it.

You know how the compound eyes of a fly are designed to spot motion and not stationary objects? Well, to a lesser degree ours are as well (which is why we don't see our nose). We're evolutionarily trained to focus on change, even at the cost of sometimes missing what's right in front of us.

The chart below (from Gawker) brings this to mind. It shows US newspaper advertising revenue from 1982 to last year, with the dark brown print revenues and the light brown online. It was headlined "Over the precipice", and the same news (of a 9.4% fall in print ad revenue and a 7.9% fall overall, including online) elsewhere got similarly apocalyptic coverage about the largest fall in fifty years.

But when you see this chart, what's the first thing that you notice? Surprisingly, the industry is just ten percent off its historic highs (much like the stock market) and is still twice as big as it was twenty years ago.

[continued below chart]

If you'd ask me to describe the state of the newspaper industry based on the scary coverage about it alone, I would have guessed that it had fallen by half and that we were back to 1970s levels. Instead, it's a $45 billion business, which is twice as big as Google and Yahoo combined.

The reason we get this wrong is that we give too much weight to the first derivative (growth) or even the second derivative (change in rate of growth) and not enough to the absolutes numbers. In the past, I've called that "endism" and its symptoms include equating negative growth (or even, more sinfully, slowing growth) with death.

Here's the example I gave in the earlier post [updated to reflect comments], using the hypothetical example of Consumer Reports:

• "Absolute people" think: "4 million subscribers is a lot. Consumer Reports must be doing something right."
• "First derivative people" think: "It was 4.5 million two years ago. Consumer Reports is dying."
• "Second derivative people" think:  "They lost more readers last year than the year before! Consumer Reports is dead."

The truth is that the newspaper business is still a huge industry and will be around in one form or another for the rest of my life. That is not to dismiss the declines, but only to note that there's still a lot of money there and what is required is strategic change, not giving up the ghost.

Growth industries are different from sunset industries, but in many cases the second category is larger (one example: the Yellow Pages is still a $16 billion business).  Managing companies on the way up takes a different set of skills than milking them for cash on the way down (and often different people, witness the buyout guys), but fortunes are just as often made the second way.

What people forget is that industries peak at the top. Which is to say, at the very time that the first and second derivative people are writing off a business, those who can stand back and see the value still left in it can make a mint. Laugh at newspapers if you will, but I'll bet some private equity firm out there is looking at the chart above and licking their chops.

From my friend Shai Agassi's blog ("The Long Tailpipe"):

"Electric cars and windmills are the most complementary products in the green world. Windmills generate a lot more energy at night, as wind picks up when the air cools down. Unfortunately, when you get a lot of wind most people are asleep and the electricity needs to be rerouted elsewhere. Cars are parked at night waiting to get electricity into the batteries - which is a perfect match to the electricity profile of wind generation.

Denmark has 20% of its generation capacity coming from wind. I learned that only 13% of the electrons though are wind electrons, the rest are sold to Norway and Germany - practically for free some times. Those 7% can drive every car in Denmark if you converted the fleet to Electric Vehicles. Clean, Cheap and Abundant - Electric Gasoline... "

Shai is starting a hugely ambitious project, called Better Place, to build an entire electric car infrastructure, starting in Israel. Oh, and the cars will be free--you'll pay for the electricity. (Picture taken in Denmark by Quin Garcia of the Better Place team).

Proper update coming tomorrow. In the meantime, a comic:

----

(Thanks to Peter Kohan for the find)

In The Long Tail, I told the story of Birdmonster, a San Francisco band that was living the DIY dream and self-releasing their first album, No Midnight. I wrote:

Label were calling with deals, but Birdmonster turned the offers down. As [lead singer Peter] Arcuni put it, “We’re not anti-label in principle, but the numbers (risk vs. reward) didn’t add up.”

A music label exists primarily to fulfill four functions: 1) talent scouting; 2) financing (the advances bands get to pay for their studio time is like seed capital invested by a venture capitalist); 3) distribution; 4) marketing.

From Birdmonster’s perspective, they didn’t need that. A growing local fan base, amplified online, had already spotted their talent. Improving digital recording technology had made studio time cheaper than ever—they could record the tracks in a few days in the studio and then mix and overdub them at home using personal computers. The cost to record the entire album was less than $15,000, which they covered with credit cards and savings. CD Baby and a similar company called Cinderblock provided the distribution, which gave them a reach as broad as iTunes, Rhapsody and the other top services. And MP3 blogs and MySpace were free marketing.

Why sign their life away now to a label, they reasoned, when they can record and distribute their music themselves and keep their creative independence? If the first self-released album does well, they’ll be in a much stronger negotiating position with the label for re-releasing the first album in stores, or for the second album.

Well, now Birdmonster has in fact signed with a label, FADER (an offshoot of the magazine of the same name). My colleague Steven Leckart interviewed Arcuni to understand what changed his mind about labels:

Q: Last time around, you had plenty of interest from indies and majors, but ultimately decided to self-release. Why did a label seem more desirable this time around? 
A: I think what it boiled down to was the question: "Do we want to be musicians or do we want to run a business?"  To do both equally well just seemed unrealistic. The first time around we had written all these songs in a bubble.  By the time people were starting to notice, it just made sense to do it ourselves.  With the state of the music industry at the time, not many labels were willing to give a relatively unknown band a decent deal.  Changes were occurring, but the industry was fighting them and bands were getting the short end of the stick.  Bands I knew were getting gobbled up and then tossed aside just as fast.  We just figured it was too early to sign away the ownership of our music when we still had plenty of room to grow on our own. 

After the release of No Midnight and the year and half of non-stop touring, all we really wanted to do was go home and write another record.  That was all the band wanted to give our energy to, but the business side had become draining(physically, mentally, and financially).  So it became apparent to the four of us that if we wanted to be continue down that artistic road, we'd need help in other areas. Then it became a question of what type of label and deal was right for us. 

Q: What made FADER such a great fit? How did things like tour support, radio, press, marketing, distribution factor into the decision?
A: FADER was actually one of the first labels that approached us when we began looking, and it became pretty clear right off the bat that these were the guys we wanted to do a record with.  They had a similar mindset to us:  First and foremost focus on making the music, and then we'll get creative and use the  tools out there to share it with the world.   Beyond that, it seemed that they had a great grasp of marketing (being owned by Cornerstone Promotions).  I remember going to SxSW a few years ago, and before that no one in the U.S. had heard of the Editors.  I doubt if many people left Austin without at least knowing the name.

That showed us that FADER could at least give us the opportunity to be seen and heard.  Things like radio and press are a crapshoot - you might get radio play, you might get a good review, but you can't be dependent on it.  At this point, we just want our music out there, and the opportunity to continue down this path.

Q: When you say FADER are "forward thinking" is there anything more specific you can point to?
A: They understand the industry, and are willing to change with it.  Labels are becoming just one arm in a larger beast: management firms, promotions companies, etc. now all have labels.  They are the ones that larger labels turn to for help, so why not have a roster of bands that benefit from those resources.  I assume also that as record sales go down, it allows them take more risks with signing new talent because the future of the entire company is not wrapped up in the commercial success of one or two bands.  With our deal, FADER came to us and asked us what we wanted out of it before making an offer.  They were the only label to do that.

Q: How many records have you signed on for?
A: It's a two record deal.

[This is a cross-post from my other blog at DIY Drones, where among other things we've been developing an under-$100 autonomous blimp for aerial robotics contests]  

Yesterday my UAV partner Jordi (a 21-year-old embedded programming whiz who just emigrated from Mexico) drove up with the BlimpBot to Monterey, where I was attending the TED conference.  I had a three-minute slot to show how the prototype works. This was a pretty high-stake demo, since not only would there be 2,000 of the most influential people in the technology, entertainment and design (TED) worlds watching, but they included Al Gore in the FRONT ROW, Google's Sergey Brin and Larry Page and movie stars such as John Cusack and Goldie Hawn.

The bot worked great in the hotel room, and then we took it the the auditorium during a break to test it on the main stage. Yikes. We were getting IR interference from everything, from LCD screens to the bright stage lights, and our reception range dropped to something around three feet. Even worse, the air currents were overcoming the blimp's ability to fight them. So we gave up on the idea of a fixed IR beacon on the ground, and I decided to hold it in my hand to keep it near the blimp. Even then, the motors couldn't fight the currents well enough.
So we rushed back to our staging area (my hotel room) and Jordi updated the firmware to give more power to the motors even at the cost of battery life (this demo only had to run three minutes) . We tested it again in the hotel room, it worked fine, and then it was time to go.

When we got to auditorium and waited in the wings to go on, it was clear that something bad had happened in the firmware update. The vertical motor wasn't coming on at all sometimes and it wasn't clear why. Then Jordi realized that in changing the power settings,he'd also changed the timing of the loops, and we weren't resetting the motor controllers at the right time, which meant that the chance of them being working when needed was random (and low). We'd just been lucky in the hotel room, but clearly weren't now. Still, I crossed my fingers and went on, carrying the blimp.

Disaster! It turns out that one big thing had changed since our test run in the auditorium: 600 people had arrived. All that body heat had raised the temperature of the room, kicking in the air conditioning, which came out of huge ducts right over the stage. Basically I was under a raging waterfall of cold air, and the poor blimp sank right to the floor, its little vertical thruster completely overcome.

• Lesson 1: Little blimps need still air
• Lesson 2: If you can't find still air, you need WAY more powerful thrusters (which means more battery power, which means more weight, which probably means a bigger blimp)
• Lesson 3: Don't update your firmware five minutes before you're going to fly an autonomous robot ten feet away from a former Vice President of the United States.
• Lesson 4: Hey, it's a tech demo on stage, and they *always* go wrong--don't let it throw you. So I didn't. I just stood there holding the blimp, as you can see in the picture above, and went on with my talk and slides as planned. Points made, time limit met, applause gained. I looked a bit awkward, I'm sure (although hopefully not always as unhappy as I look above), but at least I got the sympathy vote! Now on to San Diego for Etech on Tuesday, where we get to do it again for an hour in front of the smartest geeks in the world. So much for the sympathy vote ;-) Jordi's hard at work fixing the firmware problems, so fingers crossed...

[Photo credit: Red Maxwell]