Some of my favorite Facebook users are my aunts on my dad’s side. In the last two years, since they joined the site, I’ve gotten a window into their lives that I never had having grown up on the West Coast, far away from the family core. I’ve learned about what movies they’re seeing, their politics and religious celebrations, their weather, their pride in their kids (and my cousins), and the casual games they play. And without fail, they comment on each other’s posts.

While sometimes status updates and comments provide a window into the day-to-day, other times they showcase amazing communication that I might otherwise never see, such as memories of a loved relative on the anniversary of her death. I feel privileged to observe and sometimes participate in these conversations, and thankful that social web services have helped expose them to me.

On that note, Forrester Research analyst Josh Bernoff noted today that the firm had recently observed a “new behavior” in its two and a half years of tracking and classifying social technology usage, and made a new category to describe such users: “conversationalists.” Bernoff defines conversationalists as “people who update their social network status to converse” on at least a weekly basis. According to Forrester surveys, the category is 56 percent female, more so than any other group, with 70 percent aged 30 and older. All of which fits quite nicely with my anecdotal evidence.

At 33 percent of online consumers, conversationalists are a larger group than Forrester’s “creators” (now 24 percent of that population), but much smaller than “spectators” (now 70 percent). See the full chart below; it allows for people to be part of more than one category. The conversationalist kind of activity happens prototypically on Twitter, notes Bernoff, but actually more commonly on Facebook, since that site is so much larger.

Back in 2006, the VC Brad Feld and our former columnist Robert Young were part of a blogosphere discussion about the “80-19-1 Rule” and “the Fat Belly.” The idea was that between core elite contributors (thought to be a very small sliver — perhaps 1 percent — of a user-generated site like Digg’s content) and the mass of casual spectators (say, 80 percent, in line with the Pareto principle), there’s a middle ground of important engaged contributors.

It seems to me that these theories are coming to life. Social services are now figuring out how to facilitate open participation by a group that produces content for each other. These updates and conversations reach a wider group than they might have in the past, but still quite a small audience for the web. And sometimes that’s a beautiful thing.

Startups may have a high failure rate, but they also are a leading driver of job creation in the U.S., according to a report put out by The Kauffman Foundation this morning. As part of a deeper look at what small business means for the U.S. economy, the study found that 1- to 5-year-old companies create the highest average number of jobs, at roughly four jobs per year. From the report:

The dynamics of firm age, moreover, point us away from a discussion on the existing distribution of employment and toward a focus on the annual changes in jobs. Let’s ask not where people work, but where each additional increment in net job creation occurs. This approach immediately forces one to recognize that companies in a given size class are not necessarily homogenous: a company with fifteen employees that is twenty-five years old will behave differently than one that is only two years old (differences that will multiply if we classify firms according to economic sector).

First the report points out that, while companies with more than 500 people make up about half of the nation’s employment and payroll, a business’s size is not a good indicator of where new jobs come from. Dane Stangler and Robert E. Litan, who wrote the report, offer up this graph to show that without startups overall job creation in the U.S. would have been negative in most of the years since 1977.

There’s also discussion, but no data, about how M&A at large companies — through which they typically acquire smaller, younger firms — accounts for the job growth at larger companies. The report offers a ton of data about economic sectors, and acknowledges that relying on startups for job creation is both messy and hard to track. It’s all very well to say at a macro level that young companies create jobs even though they have a high likelihood of failure, but at the individual level, relying on an uncertain startup for employment can create enormous personal risk.

The report recommends that to foster job creation, young companies need help. The authors think credit should be made more accessible to businesses as well as banks, and note efforts happening in these area today. They also suggest a payroll tax holiday for new and young businesses, while noting that such a move could add to the deficit.

I would suggest rather, that the government consider some level of universal health care that would reduce costs for a young company, as well as offset the difficulties faced by employees who have to navigate the turbulent nature of working at a startup. Overall, it’s an interesting report, although I’m not sure big business should be written off so easily. They may not be engines of job growth, but in many cases they are engines for startup growth as they buy services, equipment or even ads from them.

About 15 years ago, as a young reporter covering the semiconductor industry for a newswire, I met a man called Raj Rajaratnam. At that time he was not only an influential semiconductor analyst at Needham & Co., but also president of the brokerage firm. The Sri Lanka-born analyst was one of the best and he wasn’t shy about letting people know it. Rajaratnam now runs a $7 billion hedge fund called the Galleon Technology Funds.

Earlier today, he was arrested for what is allegedly an insider trading scam involving quite a few people. The charges against him include four counts of conspiracy; he’s also being charged for eight counts of securities fraud. Talk about an ignominious fall for a man who is said to be worth a billion dollars and is ranked No. 559 on Forbes’ World’s Billionaires list.

The Wall Street Journal reports:

Others charged criminally in the case include Rajiv Goel, director in strategic investments at Intel Corp.’s investment arm; Anil Kumar, a director at global management-consulting firm McKinsey & Co.; Danielle Chiesi and Mark Kurland of New Castle Partners LLC, the one-time equity hedge fund group at Bear Stearns Asset Management Inc.; and Robert Moffat, a senior vice president at International Business Machines Corp. The allegations put Mr. Rajaratnam at the center of several insider trades in which he allegedly caused Galleon funds to act on inside information or passed along tips to others. In one instance, prosecutors allege that Mr. Rajaratnam, between January 2006 and July 2007, received nonpublic information about Polycom Inc., Hilton Hotels Corp. and Google Inc. and caused Galleon Technology Funds to make improper trades on that information. As a result, the Galleon fund earned more than $12.7 million, prosecutors said.

When I read this news this morning on Bloomberg, my whole life flashed in front of my eyes. Rajaratnam’s rise to the top was a familiar story to anyone who was in the technology business. A graduate of the University of Pennsylvania’s Wharton School of Business, he rose to fame because of his coverage of the semiconductor industry, which at the time was on a massive upswing.

Whether it was his relationships with chip companies or something else, he became a dominant analyst for Needham and eventually brought them so much business that he became president of the firm in 1991. Remember, this was the go-go 1990s, an era when everything was OK, and he rose with the boom.

He started his own hedge fund, the Galleon Group, in 1997 and left Needham in 2001. Over the next few years, he reported spectacular returns and was the envy of the industry. Many of the analysts (such as Goldman Sachs’ Microsoft analyst Rick Sherlund) I met over my long career went to work for him. The spectacular results brought in more money. From Galleon Group web site via MarketFolly:

…..”manages a series of funds that specialize in the technology and healthcare industries. Currently The Galleon Group manages five different long/short equity funds: Technology, Healthcare, New Media (Internet), Communications and Life Sciences. Galleon’s philosophy and approach differs from that of other hedge funds in the fundamental belief that it is possible to deliver superior returns to our investors without employing leverage. Combine strong fundamental investment analysis with superior trading capability Galleon places a strong emphasis on both fundamental investment analysis and trading. This enables us to identify companies with superior long-term growth prospects while maintaining the flexibility to profit from short-term market fluctuations.”

How do I say it politely? That is all poppycock. For all that analysis was apparently nothing but smoke and mirrors, and instead seems like a case of insider information-based trading. As Bloomberg reports:

Prosecutors said they’ve been investigating the case since at least November 2007, when a person they don’t name in the complaint began meeting with agents of the Federal Bureau of Investigation. The person, who has pleaded guilty and is cooperating with authorities, had used inside information to trade securities and tipped Rajaratnam since 2006, prosecutors say in one of two complaints filed in Manhattan federal court. The person, who had sought a job at Galleon in 2005, helped prosecutors by “making consensual recordings of four telephone conversations” with Rajaratnam, the complaint says.

Given how big this fund was, I’m sure the reverberations are going to be felt in Silicon Valley, where Rajaratnam had deep relationships. I’ve been on the phone trying to find out more from my sources and will update the report as I gather more information.

Meanwhile, it reminds me of the age-old maxim: When something is too good to be true…..

Earlier this week, San Francisco-based web publishing software company Six Apart released the newest version of its flagship product, Moveable Type, and pushed the blogging community into taking the first step toward a very social future.

It is not a new concept — since their early days blogs were all about sociability. Late last year, we backed Chris Messina’s wild idea that WordPress, the open-source blogging software that we use to power majority of our network blogs, could be become the underpinning for a social network. In January, Automattic, the company behind WordPress and the free hosted blogging service WordPress.com, bought BuddyPress to help bring sociability to blogs. (Disclosure: Automattic was started by Matt Mullenweg, a close friend of mine. We share True Ventures as an investor.)

Our friends at ReadWriteWeb theorize that in order for blogging to evolve, the blogging systems need to embrace the newly popular life-streaming services such as Twitter and FriendFeed, along with a growing panoply of personal web services (including the most fabulous, Dopplr). The team at Six Apart has combined the above-mentioned ideas to create Moveable Type Pro, a blog-publishing system with extremely social DNA. (Check out the Six Apart blog for details.)

Blogging Needs To Evolve

Six Apart is making the right move, for it is time for blogging to evolve. Many of us have forgotten that blogging is not just an act of publishing but also a communal activity. It is more than leaving comments; it is about creating connections. For instance, through comments I met folks like Robert Young, who in turn wrote for the blog, and then in the process became a friend. It is time to re-embrace and extend that philosophy.

Establishing those kinds of relationships becomes an even bigger challenge as newer tools emerge, enabling new kinds of sharing. Whether it is Friendfeed or Dopplr, videos or photos, we are constantly figuring out ways to share information about us on the web. In other words, our digital life is spreading out across the web.

Blog = Digital Life Aggregator

We have two choices in order to consolidate these — either opt for all-purpose services such as Facebook (as tens of millions have done) or use our blogs as the aggregation point or hub for all these various services. Facebook, for instance allows you to share photos, aggregate your digital droppings, share comments with friends and exchange messages, but it doesn’t give you a unique identity on the web. In contrast, blogs with social features could allow you to do exactly that.

Marc Canter has been talking about this digital aggregator forever and has been ahead of the curve, though now pieces have started to fall in place. Robert Scoble is a good example of how and where things might be headed. He uses multiple services, and they are all easily consumable on his blog, where he writes longer, more engaging posts. His short conversational posts of yesteryear have migrated to FriendFeed, his video has bifurcated into long-form or live, short-form videos. I know Scoble is an outlier of this trend, but he was also ahead of the curve six years ago as far as blogging is concerned.

The Demographic Shift

As a society, we are entering an increasingly narcissistic phase, enabled by web technologies — a theory that is articulated in Wired’s recent cover story. As the Wired writer quips, “Like it or not, we are all public figures now — famous, as the new cliché goes, for 15 people.”

The evolution of blogging platforms needs to match these societal and demographic changes. I think folks who are blogging now (no, not just tech bloggers) are different from some of us early bloggers — they use different tools and services and have different views of sharing. In many ways MySpace and Facebook have changed what is OK, and what is not OK online.

With that as a sub-text, it is good to see the blogging systems start to evolve. Kudos to Six Apart for making the first major move. Suddenly, blogging tools are more fun — and social.

Open Question: How will you build the next-generation blogging system? I am going to be discussing this question with various attendees of WordCamp 2008 that is being held in San Francisco this weekend. I am speaking at the camp and have a exciting announcement as well.

PS: Get ready for BlogActionDay.org by registering your blogs, watch the new video, and become part of the movement that is about blogs making a change in our world.

Dropping out of college to launch your own company? Yawn. The real startup action is in the halls of your local high school. Case in point: Daniel Brusilovsky, the 15-year-old founder and CEO (yes, the CEO) of TeensinTech.com.

Brusilovsky was easy to spot at our recent Structure 08 conference — he was the only one who needed his parents to pick him up from the event. But don’t let his age fool you; he’s got the executive lingo down pat. He’s raising his first round of funding, meeting with lawyers, and name-dropping the likes of Loic Le Meur and Robert Scoble (both of whom are on his board). Oh, and when he’s not CEO’ing, Brusilovsky is crashing industry events as an evangelist for mobile vidcasting service Qik.

So adept at startup-speak was Brusilovsky that my only surprise was that he didn’t mention who he’s in talks with to acquire his (not-quite existing) company or that he’s on the waiting list to buy a new Tesla (once he gets his driver’s license, that is).

Brusilovsky is similar to another teentrepreneur on the other side of the camera, 14-year-old Lucas Cruikshank, who’s high-pitched “Fred” videos not only dominate YouTube but have pulled in a five-figure sponsor.

Teens in Tech will be a community for kids who typically get kicked off other new media outlets for being too young to create and share their work. Brusilovsky was nice enough to chat for a few minutes at Structure about his company.

Get to know him now. After all, you could be working for him someday.

“Progress is made by lazy men looking for easier ways to do things” — Robert A. Heinlein

Until the late 18th century, craftsmen were a primary source of production. With specialized skills, a craftsman’s economic contribution was a function of personal quantity and quality, and a skilled artisan often found it undesirable, if not impossible, to duplicate previous work with accuracy. Plus, there is a limit to how much a skilled craftsman can do in one day. Scaling up the quantity of crafted goods to meet increased demand was a question of working more or adding more bodies — both of which potentially sacrificed quality and consistency.

Today, Internet applications and infrastructure are often the creations of skilled modern craftsmen. The raw materials are files, users, groups, packages, services, mount points and network interfaces — details most people never have to think or care about. These systems often stand as a testament to the skill and vision of a small group or even an individual. But what happens when you need to scale a hand-crafted application that many people — and potentially the life of a company — depend on? The drag of minor inefficiencies multiplies as internal and external pressures create the need for more: more features, more users, more servers and a small army of craftsmen to keep it all together.

These people are often bright and skilled, with their own notions and ideas, but this often leads to inconsistencies in the solutions applied across an organization. To combat inconsistency, most organizations resort to complicated bureaucratic change control policies that are often capriciously enforced, if not totally disregarded — particularly when critical systems are down and the people who must “sign off” have little understanding of the details. The end result is an organization that purposely curtails its own ability to innovate and adapt.

Computers are extremely effective at doing the same repetitive task with precision. There must be some way to take the knowledge of the expert craftsmen and transform it into some kind of a program that is able to do the same tasks, right? The answer is yes, and in fact, most system administrators have a tool belt full of scripts to automate some aspects of their systems. For both traditional craftsmen and system administrators, better tools can increase quantity and quality of the work performed.

Policy-driven automation facilitates both predictability and adaptability, reduces potential human errors and enables the organization to scale IT infrastructure without a proportional increase in head count. Commercial options are available, but they’re not entirely transparent, and for small or medium-sized organizations, they are prohibitively expensive. The open source options are varied, based on diverse philosophical and functional underpinnings, with different levels of adoption and community support.

Puppet, which was inspired by years of automation using CFEngine, is a relatively young open source configuration framework with a thriving community. Using parameterized primitives like files, packages and services, Puppet’s declarative language can model collections of resources and the relationships between them using inheritance and composition. Puppet enables consistent management of the server life cycle, building a system from a clean operating system, restarting services when their configurations change and decommissioning references to a retired system. Furthermore, Puppet uses “resource abstraction,” making the codified configurations portable across platforms and potentially generic enough to be shared within the community.

Executable, policy-driven automation doesn’t remove the need for knowledge and skill. Automation allows the knowledge to be invested in infrastructure design, and lets the computers carry out the results of the decisions. Instead of trying to replicate individual craftsmen and processes, systems like Puppet herald a bold new future of infrastructure where instead of micromanaging individual craftsmen we can build vast factories of instantly scalable, on-demand resources by describing how to solve the problem as a set of strategic rules for the infrastructure to understand and act on — rather than specifying individual units to be built by an army of craftsmen.

Andrew Shafer, partner at Reductive Labs, has developed high performance scientific computing applications, embedded Linux interfaces and an eCommerce SaaS platform. He currently works full time on Puppet, a free, open-source server automation framework available for Linux, Solaris, FreeBSD and OS X.

The big news in the blog world today is the $2.75 million in funding received by Publish2, a startup founded by former GigaOM contributors Robert Young and Scott Karp. I wrote about the company quite some time ago and still have not seen a working prototype, a worrisome sign in my book.

One of the reasons the company is getting so much attention is that the funding came from Velocity Interactive Group, the fund that was created out of the ashes of Com Ventures and the Ross Levinsohn-Jon Miller investment vehicle previously known as Velocity. Just because VIG invested in the company doesn’t mean that Publish2 is a slam dunk, however. I have to wonder if Miller-Levinsohn were just itching to do a deal, any deal.

I’m not saying Publish2 is a bad idea. Karp and Young are very smart guys, much smarter than simple scribes like yours truly. But is it a big enough idea to command $2.75 million in Series A funding? Reading various blogs today, you get the sense that this is a Digg-type service for journalists. However great the product might be, that’s a small market — and thanks to the current downturn, it’s only going to get smaller. So while the concept may be sound, I have to wonder about the business potential.

Almost a year ago, writing for GigaOM, Robert Young posted a piece that billed Google as a media company and eventually more a destination in the classic media sense. Some statistics released by comScore at the Search Engine Strategies conference in New York support Young’s assertions.

Of some 1.2 billion search queries on Google during a one-week period in January 2008, universal results were presented about 17 percent of the time, according to research released by James Lamberti, comScore’s SVP, search and media. “The search result page is beginning to operate as a destination,” observed Lamberti. “The consumers are a priority. Not the marketers.” Plus, Google sent nearly 400 million search referrals to their own multi-media properties, such as YouTube, over six months. That includes 148 million referrals to YouTube and 173 million to Google Images, the comScore data show.

John Battelle broke it down nicely when he wrote on his blog:

To pretend otherwise is to ignore the reality of YouTube, Google News, Google Maps, Google Local, the onebox interface, Knol, and everything else Google owns that represent the chance for them to make money the way every other media company in the world makes money – by competing for your attention and monetizing it with advertising.

What do you guys think about this search-to-destination transformation of Google?

Long time GigaOM contributing editor Robert Young and Scott Karp, formerly of Atlantic Media and well known media blogger have just soft launched their new company, Publish2. Karp is the CEO and co-founder, while Young is the Chairman and co-founder of the new company.

The New York-based start-up will create a platform for journalists, giving them tools including book marking abilities, news aggregators and a publishing platform, and allow them to build a social network around these offerings. The company is using Drupal CMS as the basis of its platform. Scott Karp outlines the vision of the company in this blog post.

On a more personal note, I wish Young and Karp my very best – for they are sharp media minds, who have been kicking around with this idea for a while. If you read Young and Karp’s writings over past few years, the premise of the new company shouldn’t come as a surprise.

In this new open web world, where the cost of rolling out services is remarkably low, and eyeballs are the currency, everyone is a frenemy. Friends of today are enemies of tomorrow. Enemies of today are tomorrow’s friends.

A perfect example is the relationship between YouTube and MySpace. The Rupert Murdoch-owed social megapolis was the reason why YouTube became popular and had a $1.6 billion payday.

Today, the word is that MySpace is launching its own video service, to compete with YouTube. Remember Photobucket and MySpace, who were friends, then enemies and then friends again – once Rupert signed a check for $250 million. Of course we all very well know the Google-eBay relationship, that seems like an episode out of Dallas.

MySpace and by extension, News Corp., are perfect practitioners of the art of frenemity. They take Google’s money with one hand, then launch a disaster-waiting-to-happen, the NewCo, to compete with Google. And now these new video plans!

It is good to see MySpace trying to stem the gradual decay in the traffic growth of their current video offerings, but I wonder if the name-change, MySpace Videos to MySpace TV is really going to stem the losses.

Nevertheless, getting back to the original premise of the story – frenemies. Some of our readers, especially the ones with gray in their beards, might remember an old fashioned word that did the rounds in late 1990s: coopetition. Its sort of like that, except has a higher degree of desperation.

A few months ago, Robert Young had asked the question: Will MySpace erect tollbooths? They sure are building their own freeways. MySpace (and others) are going to resort to competing with partners more often because sooner or later they will have to face the harsh reality: every business (unless stated otherwise) is a for profit business.

In his post over on Wired.com, Fred Vogelstein channels buzz words like cloud computing to make a case for a deeper and a more meaningful relationship between Apple and Google, one that addresses issues around the dot.Mac and its inability to offer an optimum experience.

My feelings on dot.Mac are pretty well documented, and if Google’s backend infrastructure can fix those issues, so be it.

Imagine all the traffic from the following: You buy a Mac and you automatically get a free Google account.

While that might be the case, my guess would be a more sophisticated offering. If the new YouTube channel on Apple TV is any indication, we should expect more macilicous versions of different Google offerings.

Google Docs, Google Spreadsheets, Reader and other such web-based offerings being offered as slick desktop apps (that sync with paid dot.Mac accounts ) – now that would ruin someone’s day up in Redmond. More importantly, these apps could be used on a daily basis. (Robert Young in an earlier piece had outlined how Apple and Google can work together.  ) What do you guys think?

The traditional media organizations may have structural inefficiencies – middle management bloat for instance – but they do one thing right – aggregate and package content for large audiences and mass consumption.

The ever thoughtful Nicholas Carr, in his latest column in The Guardian draws that parallel, and points out that just like in the old world, on the web big are getting bigger, using examples of Wikipedia, MySpace and Google.

In the end, though, the Internet seems to be following the same pattern that has always characterized popular media. A few huge outlets come to dominate readership and viewership and smaller, more specialized ones are consigned to the periphery.

But this is where the similarities end. Traditionalists try and keep the audiences locked into their content, while folks like Google and Wikipedia are spring boards for people to continue their journey. Nevertheless, Carr’s argument holds true today, though I believe that in the future, the big-getting-bigger model is going to mutate – just a tad!

The diversity of content (web or video) increases, the focus will shift on density – in other words on specialized focus areas that aggregate highly focused content. Sort of like the shift from broadcast channels to cable TV channels, settling at a happy medium between the big-n-bigger and the so-called long tail. (Robert Young called it the Fat Belly.)

For some of the young new media start-ups, it is a vital lesson, one I argued for in my column for Business 2.0 about the Hyper Aggregators – websites that aggregate content from aggregators like YouTube and Flickr – for easy and quick consumption of copious amount of information.

“Since the dawn of the Web, we’ve been plagued by too much information and too little time to consume it. It’s impossible to keep up with dozens of social networks, millions of videos, and thousands of blogs. Hyper-aggregation is simply a way to do in the new-media world what old media has done for centuries: neatly package information.”

Most of us learn more from our mistakes than from our successes. In fact, it is the process of making mistakes, and discovering the many things we do not already know, that leads us to our ultimate success. This is why experiencing and embracing failure is such an important part of being a founder. “As Robert Young wrote on GigaOM in January”:http://gigaom.com/?s=Opportunity+to+Fail, it is critical for founders to understand that failure, in this case, bankruptcy, is a great opportunity to learn.

A former mentor, and a very smart man, once told me that the greatest invention in this democracy and capitalist system we live in and know as the United States is, of all things, bankruptcy. Yep, bankruptcy… the opportunity to fail.

I mention this because I believe Jeremy Liew, venture capitalist at Lightspveed and subsequently, James Hong of Hotornot.com, posted some “must-read” thoughts and observations on this topic. In fact, I would encourage every entrepreneur to read what “Jeremy”:http://lsvp.wordpress.com/2007/01/24/failure-is-an-option/ and “James”:http://james.hotornot.com/2007/01/do-you-have-balls-to-try-part-i.html just blogged.

Simply put, we live in a country that encourages dreamers to take risks, and the laws protect those “entrepreneurs” from the potentially excessive consequences of failure. Bankruptcy laws enable risk-takers to protect themselves and start over. There is no other nation on this planet that by its very by-laws fosters such an economic environment. This spirit, the acceptance of failure, while counter-intuitive, is crucial to this country’s enormous success within the world economy.

Consequently, it’s not a coincidence that in the world of technology, having some failures under your belt is actually a badge of honor. It means you’ve been around the block — you’ve made mistakes, ones to learn from — experiences that will make you stronger the next time around. In fact, the incredible and rapid rate of technology innovation almost requires that any entrepreneur worth his or her salt fully embrace failures as a very normal and acceptable part of the journey.

And as Jeremy and James implicitly advise all those dis/interested observers, who are unwisely kicking those who recently failed when they’re down: be warned, if your goal is to succeed, chances are 99 percent that you’ll experience failure along the way. And when the inevitable happens, let’s hope your peers are not as naïve and self-unaware as you’ve been.

It seems weird, I know. The ability for a U.S. entrepreneur to go bankrupt is actually the most important element of this country’s economic success and wealth. It’s a great example of why I love counterintuitive thinking.

For more on how failure benefited some (now) big names in tech, see this April 2007 feature from our colleagues at “Business2.0″:http://money.cnn.com/magazines/business2/business2_archive/2007/03/01/8401031/index.htm

We just noticed that Facebook is rolling out a new feature: gifts, which one member can give to another (see screenshot below). Once you receive gifts, they seem to appear on your wall and in a “Gift Box” portion of your profile. It’s unclear if gifts will cost money, but virtual icons have been a big business for social networks like HOT or NOT and Dogster.

Today Facebook also announced a partnership with Comcast that includes the site’s first foray into user video uploads. Get the rundown on NewTeeVee. It’s extremely limited — videos will be submitted as part of contests, and compiled into a half-hour “Facebook Diaries” show — but video is a new and interesting advertising stream, something our contributor Robert Young suggests Facebook desperately needs.

Update #2 at 12.35pm, Friday: A Fox Interactive spokesperson just emailed us this statement: “The toll booth rumor is categorically untrue. We have no plans, current or future, to charge people for widgets. We are working on a filter for security reasons – so there may have been a bug due to that…if so, it’s fixed now and working – no more quicktime worm or flash probs from here on out.”

Updated at 4.22 pm, Thursday:A couple of days ago Robert Young hinted that MySpace might be looking to block-and-tackle-and squeeze some of the widget makers in an effort to bolster its bottom line. Well, looks like the day has arrived sooner that we thought. A senior executive from a very prominent widget maker just emailed us and pointed out that:

So as of this morning, new embed tags to MySpace do not work. Photobucket, Youtube, etc… Their site might be broken, but there have been rumors for weeks that they are thinking of blocking everyone. This might be it, or just a test.. “

Our instinct on this one is that it is a test, and FIM is testing how far they can push the widget makers. Saber rattling is the word, but we would appreciate your feedback in realtime. If FIM does decide to erect a toll booth, well the widget economy is going to have its first fiscal crisis. We will follow-up with FIM and find out.

Update: We emailed FIM but have not heard back from them as yet. Mashable reported that there were some problems with the Flash-based widgets, but they have resumed working. Brad Greenspan, one of the original founders of MySpace is speaking out this very public muscle flexing. He is involved in a legal tangle with FIM. Here is what Greenspan had to say:

Anyone that understands MySpace and the internet space in general realizes MySpace is a monopoly. A great article identifying this came out this week by John Barrett a director of research at Park Associates. The media needs to wake up, shake off the spell of News Corp and realize that if we don’t educate the public on the abusive practices of News Corp and MySpace, then everyone who uses sites and services online can be considerably harmed.

Clay Shirky is a brilliant analyst of the digital era, and if there’s anybody who could implode the media vortex currently surrounding Second Life, it would have to be someone of his caliber. He attempted that last week with “Second Life: A Story Too Good to Check”, a Valleywag post that was subsequently Boing Boinged. As someone who contracted with Linden Lab as their “embedded reporter” for near three years, and still has a substantial interest in the world they created— consider that both full disclosure, and plug — I actually found his post something of a relief. Attention around SL has been growing at such a heart-throttling pace (total registered accounts were under 100,000 only a year ago, and just blew past 2 million), you begin to hope for something, anything, which will slow growth to a more manageable clip.

But is Clay’s analysis correct? Yes and no. The very topic came up at a GigaOM staff meeting recently, and when a couple staffers suggested Second Life is over-hyped, I blurted out what is, I think, a far more accurate assessment: “It’s too hyped– and it’s not hyped enough.” There is, to be sure, far too much attention on raw numbers and corporate-funded promotions in-world, and to be equally sure, not enough coverage of the internal economy and the grassroots prototype content creation which make the place truly revolutionary. After the break, my attempt to separate hope and hype, as reflected through Shirky’s polemic.

What Clay Gets Right

Where Shirky scores undisputedly is against the breathless media reports that proclaim “two million users in Second Life!” This number repeats the total registered accounts listed somewhat confusingly as “Total Residents” on the SL homepage, which are not truly reflective of users who actually spend time in-world on a regular basis. “Resident” has always been Linden’s official name for any person with a valid SL account, but it’s easy for the uninitiated to also infer the word’s literal meaning, of “living in a place for some length of time.” Which two million account holders are, plainly, not.

As he notes, that number is not even the nearly 800,000 or so who’ve “Logged In Last 60 Days” (another SL homepage metric that confounds more than enlightens), since most of that includes those who’ve tried Second Life within that time—but never returned. He estimates the churn rate of One Try Then Bye Bye at 85%, and by Linden’s own measure, that turns out to be, to his enormous credit, pretty much on target. When last month my blog’s demographitrix Tateru Nino wrote a story discussing Second Life’s churn rate, Linden CEO Philip Rosedale suggested retention was 10%— a percentage so low, it shocked me. (“[A]bout 10% of newly created residents are still logging into Second Life weekly, 3 months later.”) When I checked with Linden Lab last week, Philip and Marketing Director Catherine Smith reported back a slightly higher percentage, this one gauged by returning users from over the last 30 days (but not those who created an account within that period)— “12-15% and has remained steady over the last year… we know churn will be high, but the difference is a network effect and constantly changing content that people do come back to see. ”

So this, as it turns out, is where to set the Second Life bar: of the 2,000,000+ registered accounts now, roughly 240,000-300,000 are regular users, residents in both the colloquial and literal sense. Clay is right to call for the media to stop reporting that very top number without caveat. Shirky is further correct to wonder if all the big companies recently promoting their brands in Second Life (NBC! American Apparel! Adidas and Toyota!, etc.) count as news, since it’s not clear if this is just a gimmick, or if they’re actually getting any measurable return from their promotion dollars.

The truth is, no one quite knows if that’s the case, and similar to the Web’s dot com boom, the metrics for judging a real organization’s success in Second Life are still controversial and contentious. While the mainstream media largely hasn’t asked this question yet, it’s been roiling through the metaverse blogosphere (as here and here from me, and here and here from SL-based marketers and virtual world development studios.) A reckoning is surely due soon (if not overdue already), and good on Shirky to call for it.

What Clay Misses

But Shirky’s wholly valid points go right off the rails, in my view, when he suggests that the hype around Second Life is merely due to the spectacular (but largely spectral) growth of created accounts. Worse still are his speculative explanations (i.e., virtual worlds are easy for reporters to understand, young reporters don’t know about LambdaMOO, etc.) for why the press has gone so wacky over SL.

As someone who began with feet in both worlds (I first caught a demo of Second Life in 2003 as a freelancer for Salon.com and Wired Magazine), I can offer some perspective.

User-Created News Content

Even throughout 2004-2005, when the world had less than 100,000 users, media attention for SL was already fairly voracious. I can’t speak for Linden Lab’s direct PR efforts, but I can name the numerous times when big media outlets e-mailed me on their own, without Linden Lab’s prompting at all, not because they were particularly interested in Second Life, or considered it the Net’s next big thing, but because they kept stumbling across fascinating stories about it on SL-centric blogs, including mine.

I’m not vain enough to think they came to me because they liked my writing; these stories were compelling on their own. (Rarely did they even know my own blog was funded by Linden Lab, when they came across it; and often, their interest was in the controversial stories I wrote which didn’t depict the world in a utopian light.) Big media reporters read about SL’s private detectives, who stung unfaithful virtual lovers, for example, and reported on them; they read about a formerly homeless musician who made a living singing live as a frog in Second Life, and did so too; Residents banding together to help Katrina’s victims, and several stories followed.

That pattern continues today, and while it is true Linden Lab’s publicists shepherd some media toward some SL stories, at least as much attention emerges from the grassroots of the blogosphere. (And even when the big media turns its spotlight on the world, as Time Magazine just did when they made Second Life part of their “Person of the Year” profile, unfettered hype is not always the result: I doubt Linden planned for Time to complain about how it “takes forever to download… [and] sucks up hours just to design your character”, and mostly focus on “Meaningless, multipartnered, degrading sex” and detachable penises.)

What’s more, we’ve reached the point where the world’s content creators now bypass Linden Lab entirely, to hold their own press conferences. Clay mentions recent news of Anshe Chung, the Second Life avatar putatively worth a million dollars, and he’s smart to be skeptical about that figure, as was I. (When asked about it, Philip Rosedale pointed out to me that Anshe’s assets are not as “illiquid” as Clay seems to think, since she can put up her virtual land holdings on the auction market immediately.)

In his skepticism, however, Shirky misses an even more crucial point: the press release that the media picked up was put out not by Linden Lab, but by the avatar herself, since she now owns a company which employs a staff of skilled 3D developers (not gold farmers) in China, all paid for by her virtual world commerce.

This should not be surprising: user-created content inevitably leads to user-generated news. And when there’s a monetary reward for creating that content, it’s also going to involve user-generated hype. 58 Second Life Residents make over $5,000 a month from their in-world activity, while nearly 3000 of them earn $50-2000 a month. The world’s top content creators, in other words, have even more incentive to promote Second Life than the employees of the actual company which owns it. (And that’s not even mentioning the five or six “metaverse developers” which create Second Life experiences for real world clients, nor the advertising, marketing, and PR firms which have set up shop in-world, another engine of SL enthusiasm.)

Why Experience Matters

Throughout Shirky’s essay, I kept thinking, “This is someone who’s never really explored Second Life to any significant extent, if at all,” and it wasn’t just because of the factual errors which emerge through that gap.

As it turns out, Clay Shirky has very limited personal experience with Second Life. (See his e-mail to me below*, and his argument for why that lack shouldn’t matter.) The larger problem isn’t the errors, however, but an experiential absence that leads him to reason, with a fairly sly leap in logic, from “Second Life is much smaller than usually reported”, to, “Therefore, it’s not the Net’s next big thing.” (Or as he charmingly puts it, not the “Immanent Shift in the Way We Live®”.)

But in between both statements, several stepping stones are missing.

First, to the basic factual goofs:

“If we think of a user as someone who has returned to a site after trying it once, I doubt that the number of simultaneous Second Life users breaks 10,000 regularly. If we raise the bar to people who come back for a second month, I wonder if the site breaks 10,000 simultaneous return visitors outside highly promoted events.”

This simply isn’t true. This month, as last, in-world concurrency has regularly been 15,000-18,000 during peak hours (barring downtimes, a quick glance at SL’s homepage between Noon-8pm PST will show that), and given the new account creation rate (about 12-14K total throughout the entire 24 hour period), far less than a thousand of them are new users at any given hour, on average. Concurrent users at peak have regularly been exceeding 10,000 since September; three months later, it’s fast approaching 20,000 at prime time. (See the screen capture above, taken at about 2:00pm last Sunday.)

What’s more, that number has very little to do with “highly promoted events”, as Clay suggests, because most events are architecturally limited to 120-140 people maximum. (Anyone who’s been to such events will tell you about the monumental lag it takes to reach even that figure.) For another, most SL activity isn’t based around one-time events, it’s based around communities and established popular sites.

That’s two instances where Clay’s lack of ground level experience with Second Life undermines his analysis. Another comes up with his mention of CopyBot, the Resident-created external program which seemed to enable instant theft of user-created content. Because its existence provoked such FUD among the Second Life community last month, Shirky offers it as evidence that user-created content in SL is a sandcastle easily demolished by the right hack. What he does not mention (likely because his in-world visitations are so brief) is that overall, the CopyBot panic receded almost the moment it began. After a bit of refereeing from Linden Lab, content creators largely shrugged and went back to business, and many of those I interviewed were actually more irked by the protest, than the CopyBot itself. (And longtime Residents know that collective fits of agida are regular, melodramatic– and quickly forgotten.)

Inexperience crops up again in Clay’s dismissal of 3D interactivity as a powerful medium superior in many instances to a 2D web. He runs with Rosedale’s admittedly inapt Amazon-in-Second Life example (“you could… browse the shelves, buy books”) to declare useful 3D applications as a lost cause in general. Once again, were Shirky to explore the world more, he’d regularly come across nascent or prototype experiences which already hint at how 3D interaction could indeed become an invaluable resource to numerous real world fields. He’d see applications in, for example, retail shopping (as here), online gaming and entertainment (as here and here), data visualization (as here), national security (as here), international relations (as here), non-profit fundraising (as here), architecture (as here), scientific simulation (as here), education (as here and here), and therapy (as here); just ten industries worth billions of dollars, which could potentially impact hundreds of millions of Internet users, quickly culled from my bookmark cache– and that’s not even mentioning the as-yet-unproven applications which have already gained traction, like in-world celebrity appearances (as here), political activism (as here and here), and marketing/brand promotion (as here.)

All that in mind, it’s hard to comprehend Clay’s analogy of Second Life to LambdaMOO. I have to ask: in what sense except the ancestral one does a text-only online world have any meaningful relation to an immersive 3D world with an internal building and scripting system, in which users can stream audio and video, import and export data from the Web, retain IP rights over the content they create, and easily exchange the internal currency for real cash in an economy with total transactions already in the several millions per month?

For Four Hype Busters, Four Facts

In his essay, Clay Shirky offers four hypotheses for why there’s so much attention to Second Life, so let me offer four actual news items, to suggest a counter-narrative:

• Pierre Omidyar and Jeff Bezos separately invested in it, while Mitch Kapor was a founding investor.

• When he was Microsoft’s technology evangelist, Robert Scoble declared “Second Life is an operating system” and that “Microsoft needs to pay deep attention to it”.

• IBM is investing $10 million to develop a technology lab within it. (Note that they are not investors in Linden Lab the company, but just like Anshe Chung or any other successful Resident, are buying land virtual land and finance in-world development they plan to do there.)

• For the last two years, total user hours and number of land owners, along with economic activity, have been growing at geometric rates.

Second Life is not a YouTube-level phenomenon, and I personally suspect it’ll be quite awhile before it reaches that stratosphere (say three years), let alone become the Net’s next generation (say ten years). From my vantage, however, I’d say Linden Lab’s hardest hurdles toward those milestones are not waning hype, as Clay evidently thinks, but the inherent limitations of their own architecture.

Can they really build a fully streamed world comprised of tens of thousands of servers? That’s way above my paygrade, but I’ll guess that challenge fits under the rubric of Fricking Hard. Can they fix a profoundly unfriendly user interface and thoroughly disorienting first hour user experience, which are aggressively, almost intentionally unwelcoming to the vast majority of interested users? Both shortcomings are at the heart of Second Life’s poor rentention rates, but neither have significantly changed in the three years since its commercial release. You have to wonder, whatever their stated intentions, if Linden’s tech-centric corporate culture simply puts their improvement at a low priority. (I have a dream, and in that dream, Linden Lab developers are locked inside 1100 Sansome with their own mothers, and not let out until they’ve improved the interface sufficiently enough so that their dear moms can easily use it.)

Still, the world keeps growing, and shows no sign of plateau. I mentioned SL demographic expert Tateru Nino, so I should close this out with a graph she crafted for me last night. Tateru’s chart is the growth rate of regular users, based on current account growth and 15% retention rates, and it shows how large Second Life will meaningfully be, same time next year:

Will Clay Shirky count 1,175,000 active Second Life Residents as hype, or something closer to his “Immanent Shift in the Way We Live®”?

That will, I suppose, have to wait until next December. Whatever the case, I do hope Clay gets his way, and reporters only cite that figure of active users– and not the seven million accounts it’ll take to reach that number.

*Clay Shirky’s first-hand experience with Second Life (e-mail to the author, re-posted with his kind permission):

I’ve tried Second Life three times, in different incarnations. I got a pre-launch walkthrough of Second Life from Mitch and Philip several years ago at PC Forum (in 2002, I think) which was more of a conceptual demo than anything. I used the service in 2004 for a bit, to see the state of play in comparison with There Inc.– there were not many users then, but the tech was obviously getting good.

Most recently, I logged in once over the summer and once a couple of months ago with a new avatar each time, but after a short orientation period, I realized that my use of SL wasn’t actually what I was interested in. In the same way that I am too married and too employed to have much use for Friendster et fils, my own reaction to SL is irrelevant.

And this, I think, is the key point of that piece — I am not criticizing the in-world experience, or wondering why anyone would spend their time in Second Life doing X. I’m too old a Usenet hand for that; after pouring two years of my life down the sink of alt.folklore.urban, I’m not one to pass judgment on the experiences other people find engaging. But the target of the piece isn’t the users, it’s the press, mainly, and Linden Lab as enablers. Authenticity of individual user experience is beyond external criticism, but social cues about engagement or utility are not. In a network with no gatekeeper, social judgment is our first-order filter, and perversion of that judgment is therefore a serious risk. My question is not “What is exciting the passionate users of Second Life?” or even “Where are those users taking the platform?” Those are both interesting questions, but irrelevant to my current concern. My question is a lot simpler: “How many passionate users are there, both in absolute numbers and as a percentage of the whole?” A related question is “Why is that number so hard to get to, and why is the press (wilfully? cluelessly?) reporting logins as a metric for those users?”

-clay