5 Social Media Millionaire Milestones - youtube, digg, craigslist, myspace

Craig Newman of Craigslist. Chad Hurley and Steve Chen of YouTube. Kevin Rose of Digg. What do they all have in common? Yes, they all made millions from their Social Media Web 2.0 companies and they all made it look so easy. YouTube, for instance, sold for $1.6 billion in Google stock in less than a year after it launched. And it's rumoured that Kevin Rose negotiated $60 million in 18 months with Digg. Can you imagine what you could do with that kind of money? No doubt you could. There is, however, a definite method to the Web 2.0 social media success pattern. We've collected the milestones on the route to millionaire success, and shared some stories. If you think we've missed some, then please let us know.

1. It starts with a one good Idea... or just dumb luck

Whether it's a new and novel idea, building on someone else's great idea or just a plain old good intention that takes on a life of its own, the bottom line is that they all started with a good idea.

In 2005 YouTube founders Chad Hurley, Steve Chen, and Jawed Karim created a novel solution to sharing video on the web. Using Adobe Flash technology and some social networking tools, YouTube enables users to easily upload videos for others to watch, tag and comment. In 2006 YouTube was named "Invention of the Year" by Time magazine. As mentioned above, Google bought YouTube for $1.6 billion (we think Google paid too much).

Craigslist and FaceBook are two success stories you'll find in the ‘good intentions' category. Craigslist got its start when Craig Newman, the founder, was e-mailing friends about technology events in the Bay Area. The e-mail list grew via word of mouth and got so cumbersome that Newman created a website. People started to refer to it as "Craig's List" and people were visiting the site in droves. Pretty soon the site started to include classifieds. Popularity continued to grow - virally - and he incorporated in 1999. Today, Craigslist operates in about 450 cities around the globe. Its sole revenue is from fees for placing job ads, generating about $15 million in annual sales.

Mark Zuckerman's original intention of FaceBook, the social networking site for college and university students, was to create an online directory for students at Harvard University that would provide more information than what was found in the school directory - information like class schedules, relationship status, friend network, and photos. For Zuckerman, it was really more of a hobby. However, word about FaceBook rapidly spread to other college campuses. Today, FaceBook has more than 7 million users and it is speculated that it has a valuation of $1 billion. But Zuckerman refuses to sell because he "is in it to build something cool."

Flickr is a prime example of building on someone else's great idea and make it better. They took online photo sharing and made it into a social networking community. In March 2005 Yahoo! acquired Flickr for an undisclosed amount.

2. Get a Buzz

Step away from that keg of beer! We're talking about marketing buzz. Most successful Web 2.0 start-ups didn't have a PR firm, much less a marketing budget. They had to be very creative to drive people to their sites with very few resources. That's why most Web 2.0 start-ups turn to viral marketing, also known as "word-of-mouth." And with all the new media - e-mail, social networking, etc. - that lends itself to viral marketing, new technology has made it much easier to spread the word.

FaceBook is a perfect example of viral marketing. Zuckerberg announced FaceBook by blasting e-mails to a list of Harvard students at each dorm. From there, word spread quickly about the site and had students coming to the site in droves to sign up. Zuckerberg saw the success of this marketing strategy and replicated it when announcing the service to other universities. As popularity for the site grew so did the interest from the offline media giants, such as The New Yorker, Forbes, Time and, ultimately, the cover of Business Week.

Digg, the most successful of community-based sites where members post news stories that are ranked by viewers, took an even more creative approach to viral marketing. Using its own technology, Digg launched a "blog this" feature. This allowed bloggers to easily link to stories on Digg from their blogs, which resulted in driving more traffic to Digg and increasing its awareness and popularity.

YouTube's marketing efforts are another prime example of word-of-mouth, and timing. YouTube made it easy to embed video into other website. MySpace users, hungry for the next new thing to add to their ‘space,' jumped onto this ability, and it propelled YouTube into the masses. Another way it gained popularity was by showing hard-to-find Saturday Night Live clips. It started showing Lazy Sunday, and users would e-mail the clip to their friends, creating a massive viral effect. But, it's nothing like a threat of a good lawsuit to thrust you in the limelight. NBC took action by asking YouTube to remove copyright material, such as Saturday Night Live clips, which gave YouTube prominent placement in news outlets around the world.

MySpace used more traditional marketing strategies - well, traditional for this day and age. The MySpace team came from Intermix, an Internet marketing company, and therefore had a strong background in direct marketing. MySpace gained users through e-mail campaign contests, sponsorships of clubs events, concerts and parties, and advertising media buys. Then viral marketing took over as the buzz spread about the site. Today, rumoured to have over 100 million users and growing, you read about MySpace almost everyday in just about every media outlet known to man. Ironically, MySpace has become one of the largest venues for viral marketing. Companies, celebrities, bands and artists use MySpace to promote themselves or their cause.

3. Make them beg for more

It's one thing to get them to your site; it's another thing to get them coming back. Creating loyalty is just as important if not more important than pushing them to the site in the first place. If they like what they see, they'll return and the viral effect will continue. Here are some ways that successful Web 2.0 companies have built a loyal following.

Craigslist has built it user base by giving users a perception of trust. The simplistic site and absence of ads connotes that Craigslist is not in it for the money - even the ".org" suggests non-profit. The site is very easy to use and does not require user registration to browse or post to the site. Craigslist is also very user centered. By urging its users to flag and report fraudulent or inappropriate postings or scams, it provides a sense of user ownership. Adding to the feel of ownership, Craigslist does not make any big changes to the site without announcing them and getting user feedback first.

Digg keeps users coming back by making it easy for users to find news that interests them - news that they may not otherwise find by reading old media newspapers. Users post news stories they find interesting, they are voted and commented on and ranked by like-minded users. This makes it fun for submitters who watch their submissions work their way up the hierarchy and the ability to assess whether others like it - or not.

So Digg gives users a voice, a BIG collective voice. Users power to vote on stories turned into outright revolt in May 2007. It's hard to know for sure whether diggers were unhappy with big business or digg's exercising its control when many articles and comments with the encryption key for the AACS digital rights management protection of HD DVD and Blu-ray Disc shot their way up to the home page. Digg received a ‘cease and desist' letter from AACS consortium, and so removed all related content from the site. Diggers revolted by submitting hundreds of articles with the encryption key and temporarily bringing the Digg servers down. Later, Kevin Rose posted on the site, "...after seeing hundreds of stories and reading thousands of comments, you've made it clear. You'd rather see Digg go down fighting than bow down to a bigger company. We hear you." Kevin wisely used diggers feedback to keep his users coming back - essential to social media success.

4. Congratulations! Your first lawsuit

It goes without saying, once you're successful there's surely a lawsuit in your future. So goes it for Web 2.0 start-ups that have made it big. Web 2.0 technologies and content open a whole new world to lawsuits - they happen unexpectedly for unexpected reasons. That's why it's important to have solid legal representation, because you just never know. In addition to the Digg revolt due to the ‘cease and desist' letter from the AACS consortium mentioned above, here are examples of other legal wranglings in the Web 2.0 world.

It seems like since day one YouTube is constantly defending a lawsuit or complaint, mostly for copyright infringement. The first of many was a complaint filed by the Japanese Society for Rights of Authors, Composers and Publishers (JASRAC). Next came a lawsuit filed by Robert Tur, a TV journalist who alleged copyright infringement for hosting news clips without permission. Then another complaint came from actor/comedian Artie Lang after finding his DVD, It's the Whiskey Talking, on site. And the biggest one yet is from Viacom which claims YouTube has more than 16,000 of its videos on its site without permission. Viacom is suing YouTube and Google for more than $1 billion. In April 2007, Eric Schmidt, Google's CEO, announced that YouTube has plans to implement a content filtering system to remove infringing content from the service, called "Claim Your Content," that will automatically identify copyrighted material so that it can be removed.

MySpace is a great example of an unexpected lawsuit for an unexpected reason. In 2006, a 14-year-old girl was allegedly assaulted by a man she met on MySpace and is suing MySpace for $30 million dollars in damages. The girl and her mother have charged that the website should have done more to protect minors from online predators. To complicate matters more, the alleged attacker, who faces up to 20 years in prison, considered his own lawsuit against MySpace if Texas courts accepted the premise that MySpace is liable because the two met there.

Craigslist has also had it share of legal woes. In July 2005, a classified ad for an apartment on Craigslist read: "African Americans and Arabians tend to clash with me so that won't work out." The Chicago fair-housing authority filed a lawsuit against Craigslist for hosting the ad on its sight. Once again, as in the MySpace case, under the Communications Decency Act (CDA) of 1996, Craiglist legally bears no responsibility for the ad. Buckmaster calls the ads like this "reprehensible". However, he also points out that if Craiglist were to review every ad posting like a newspapers previews its classified ads, "... the Internet will no longer be the dynamic public forum that it has become." And that, because the Internet is a dynamic medium, where users themselves are empowered to remove an ad as soon as it hits the site, the ads can easily be removed. A newspaper is permanent and does not have this option.

5. Exit: Cashing your chips in

This is where the proof is in the pudding. When examining the exits of most Web 2.0 companies, most of the buyers are not only buying the technology, but also the user community that was amassed through the technology. Here are some examples of what buyers are looking for in potential Web 2.0 acquisitions.

Google's acquisition of YouTube is a prime example of where the acquirer saw value in the user base. Google is all about ad revenue. By adding YouTube's user base to its assets, Google creates a very massive population of users and, therefore, an enormous influence on its market.

Another example of a user base with high value is Digg. It's difficult to put a number on Digg's value, but given the market hype around Web 2.0, it's most likely in the low nine-figure range. What makes Digg valuable is its attraction to bloggers, which elevates Digg in the search engine rankings. Whenever you have a content-based website, search rankings are everything in order to drive traffic to the site and in order to garner even more content. This is not an easy feat, nor is trying to reproduce this process.

FaceBook's obscene valuations also stem from its user base. FaceBook's unique user base of college students in micro communities - college campuses is huge for advertisers. The ability to reach your target market - both demographically and geographically - in one fell swoop, gives advertisers a big bang for their buck.

Intermix, the parent company of MySpace, was acquired by Fox Interactive Media (FIM - Rupert Murdoch) for $580M in July 2005. Once again, Fox's interest for MySpace is for its users. According Ross Levinsohn, Fox Interactive Media president, in a Hollywood Reporter article, "What's next for FIM is leveraging MySpace's online community and communication into a peer recommendations framework for leads on everything and anything....Such peer recommendations provide a gentle seaway into targeted, fine-tuned behavioral marketing for national and local advertisers wanting to reach MySpace's 15- to 34-year-old core user."

Yahoo acquired Flickr in March 2005 more for its content, technology and employees than its user base. Yahoo intention was to add the photos posted on Flickr into its image search. Technology-wise, Yahoo saw value in Flickr's substantial tagging capability and ways to use it with other Yahoo products. In addition, Yahoo bought Flickr for the minds behind the technology and to help Yahoo develop other technologies to add to its product mix.

Although Craigslist has been courted many times by admiring acquirers, Newman and Craigslist's CEO Jim Buckmaster are satisfied with the approximately $10-20 million yearly revenue it generates. Doing the math based on today market, Craigslist's valuation is mostly around the $1 billion mark or higher. eBay, being a minority shareholder and given the synergy between the two companies' business models, would most likely be the one to acquire Craigslist - if the Craigslist management team ever makes that an option.

Conclusions

For every skeptic who claims the Web 2.0 bubble is soon to burst, there are many more optimists who laugh this off saying we're just seeing the new beginning. Given the ingenuity, swift technology development, and spirit of the Internet, opportunities will just continue to generate and spawn new ideas - ideas we have not yet begun to fathom.

So have you got your idea yet? In the world of social media, the early starters have a decisive advantage, e.g. Myspace and Digg. If you've got your idea, then what's your plan for generating buzz by having the viral marketing effect go to work for you? Start by brainstorming all the things and the groups who would love your idea. Is your idea sustainable? Is it sticky enough to keep your community coming back for more? Think about ways of having your community add value to each other. If you're already thinking about Lawsuits and Exit Plans, you're likely already well on your way.

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