Shortly afterwards, Digg announced that it had raised $28.7 million in a new round of venture funding. And in the last few days, Digg jettisoned more members of its community with another fresh round of bannings, again including many high profile users. A separate Digg blog post patiently re-iterated Digg’s justifications for these actions.

A palpable level of online controversy has ensued as banned users have cried foul, while other users have applauded Digg’s actions. For anyone who is actively involved in online community-building, whether through a blog, a website, or a social network, examining the events of the past few weeks quickly reveals several important lessons about how Digg has handled the establishment and growth of its community. But perhaps more importantly, the way that Digg has gutted user morale and shown itself willing to cast off those that have been so crucial to its success also reveals the limits of its core crowdsourcing model.

Building a Flawed System

Before we can get into all of that, let’s take a moment and revisit the past. Recall that Digg launched in December of 2004. At the time, Digg was regarded as a direct competitor to Slashdot due to its focus on tech stories. In a 2006 interview with ZDNet, Digg founder Rose proclaimed the site’s raison d’etre, saying:

[Digg] was just a side project of mine and something that we wanted to try out by giving power and control back to the masses. Typically with technology news sites a handful of editors choose which stories are relevant and which they believe the audience would like to read about. This was the first time that anyone experimented with allowing the general mass audience to decide what they believed to be the most important topic of the day.

At a time when the idea of Web 2.0 was just beginning to take hold and millennials were chafing under the constraints of receiving their news through the mainstream media, Digg offered the promise of news that was determined for the people, by the people. The fundamental assumption behind the site was similar to that of any crowdsourcing model: The wisdom of the masses will provide news stories that are more relevant, interesting, or informative than anything chosen by a select few.

Unfortunately, things haven’t quite worked out that way.

In order to understand why, it’s important to know the difference between Digg’s website (i.e. the nuts and bolts of how it functions) vs. Digg’s business (i.e. as a potentially money-making Silicon Valley startup). Both of these elements play important but distinct roles that led to the unmaking of Digg’s purported mission.

The Website

For those who are unfamiliar, Digg’s basic website functionality was as follows: Users found links they wanted to share from across the Internet and submitted them to Digg, where they were automatically entered into an “Upcoming Section.” Users could vote or “digg” up stories if they enjoyed them and if they received enough diggs, based on Digg’s proprietary algorithm, the story would be promoted to the front page. In theory, the Upcoming Section could be a thriving area of the site, where stories were discussed and voted upon, but as the site grew larger and the rate of submissions accelerated, it quickly became useless to check this section, due to the sheer volume of information (As of October 2008, roughly 10,000 to 15,000 stories are submitted to Digg per day. That is about one story every 7-10 seconds).

But Digg also had other features as well. Specifically, it allowed you to 1) Have your own profile page, and 2) Follow people by making them your “Friend.” Initially, profile pages displayed user stats, such as the number of stories submitted and the percentage of those stories promoted to front page (later, they would also display personal information such as photos and links to other social networking sites). Making someone a “Friend” allowed users to follow that person’s actions, including stories submitted and dugg.

Users quickly realized that one way to get diggs for their submitted stories was to make someone your Friend and consistently digg that person’s stories. Reciprocal diggs would usually follow. Using this process to find interesting stories, and to find online friends who would digg your own stories, was considerably easier than wading through the morass of thousands of stories submitted daily in the Upcoming Section.

As a result of all of these elements, the system favored stories submitted by users who had a combination of the following attributes:

• The time and the inclination to find interesting stories

• The time to digg their friend’s stories

• The will to both digg and submit stories consistently over a long period of time

Users who had these attributes naturally saw a large percentage of their stories get promoted to the front page. This was what led to the concept of “top users” or “power users,” a notion that was, in some ways, antithetical to the idea of democracy (and that’s completely leaving out the fact that the site needs editors to supplement the efforts of its users).

Why should a really fascinating or interesting story have a higher chance of getting promoted to the front page if it was submitted by a top user than a newcomer? Indeed, today still, a story submitted by a top user will instantly garner a significant number of diggs from followers, often regardless of the story’s quality. While Digg’s algorithm was theoretically supposed to correct for this, page after page of front page stories submitted by the same few individuals demonstrated that Digg was not doing its stated job very well. At one point, Digg’s top 100 users were responsible for over 50% of Digg’s front page stories.

This was Digg’s fundamental problem, although it didn’t have to be: It was an attribute shared by many other Web 2.0 companies. Only a small fraction of the total number of users contributed substantially to the site. According to recent Quantcast statistics, 1% of the Digg’s users are contributing 32% of the site’s visits. But this is no different than a company like Wikipedia, which clocks in billions of pageviews every month, yet whose articles and infrastructure are mostly maintained by a few thousand enthusiasts. While Wikipedia and similar sites have found ways to recognize and reward their active participants, Digg, as we’ll see, has constantly tried to shake the image that it is controlled by a select few.

The Business

From the business end, Digg has acted in ways to consistently grow its page views and expand its audience in the three and half years since its founding. About a year ago, Digg changed its interface to make friends’ stories significantly less accessible and to require more clickthroughs, a move that was widely decried by power users and which inadvertently led to the script situation that it is currently caught up in.

In a stunning analysis by ReadWriteWeb, the site also began dramatically expanding the variety of its front-page topics, focusing less and less on technology as the years went on (in other words, while the proportion of tech stories to all stories submitted remained roughly the same, the proportion of tech stories promoted to the front page went down dramatically). The implications of this were more troubling: Digg was actively manipulating the distribution of front page stories. Combined, these moves showed that Digg was becoming ever-more conscious of its need to appease investors as time went on. Despite a lucrative ad deal with Microsoft in 2007, social networks like Digg remained (and still remain) notoriously difficult to create a business model around.

Digg has also struggled to contain the influence of its top users throughout its existence. Far from acknowledging their contributions, Digg has constantly denied their key role its growth. On an episode of Diggnation, Rose even claimed that he didn’t know who the top users were, saying, “I don’t pay attention to who might be considered a top Digger, or who’s not.” In early 2007, Digg stopped hosting a public list recognizing users that were getting the most front page stories. According to Digg, this move was to prevent them from being harassed, although the list has since moved elsewhere with few complaints of any such trouble.

More recently, Digg has shown its independence by banning dozens of high-activity users, allegedly due to script use. Some of the scripts employed actually allowed users to digg their friend’s stories more easily, giving Digg pre-2008 levels of functionality. Digg’s recent actions are objectionable and suspect for a number of reasons. First of all, several of the banned users have complained there was no warning given and that the decision was irreversible. But most importantly, while many relative new users were swept up in the mix, top users such as “CosmicDebris” and several others were also eliminated.

These users have helped Digg to deliver dozens of millions of page views and clicks to sites across the Internet. It is not an exaggeration to say that they have helped to make Digg the popular site that it is today. For Digg to cast off these users like so much dead weight, rather than work with them constructively, is an indictment of Digg’s recklessness with its devoted community. It has also brought to light the tension between Digg and those users that have climbed their way to the top by learning Digg’s system. As a result, several other top users have expressed fear that their accounts, which they have poured hundreds of hours of time into, will be next on the chopping block.

Recent events have given hints about Digg’s upcoming trajectory. This past summer, Digg rolled out its Recommendation Engine, allowing users a new way to find interesting stories and taking some focus and dependency off of its top users. In July, Google allegedly and mysteriously walked away from a deal to buy Digg, amidst longstanding rumors that the cofounders have been intent on a sale. And earlier this month, Digg recently reported a new round of venture funding and declared it would be expanding worldwide. Put all of these together and you get the picture of an organization that is trying to establish it is not dependent on the efforts of a few dedicated and unpaid volunteers (i.e. its top users) to keep its website interesting and thriving.

But what has it sacrificed in its attempt to prove this?

Lessons Learned

The way that Digg has handled its growth reveals important lessons, both for competing social news sites and for social media companies looking to build thriving communities:

True Democratization of News is Difficult – Rose and his crew are undoubtedly a talented group of programmers, but even their Digg algorithm has had compensating for the flaws inherent in Digg’s system. In the years following its creation, Digg became less a democracy and more a republic, with a select few users responsible for the majority of front page stories. The Web is still struggling to come up with a news model that can efficiently crowdsource its editorial process, although sites that automate the process (e.g. Techmeme) or sites that rely on editors (e.g. Fark, Slashdot) are at least more transparent with their advantages and failings.

Recognition is a Key Motivator – Social networks typically have a tangible way for users to track their notoriety. MySpace has “Friends,” Youtube has “Number of Times Viewed,” and Twitter has “Followers.” Digg has “Stories Made Popular.” Top users often pointed to this number with pride, a reminder of the thrill of seeing one’s submission spread to thousands of eager readers. Digg, however, has done nothing to acknowledge their contributions and with its recent bannings, it has indicated it doesn’t believe it needs them at all.

While Digg’s growth may not be adversely affected by the accounts gone missing, it seems that when Time named “You” the Person of the Year in 2006, they were actually on to something more meta than originally thought: People like being recognized for contributions and the potential for Internet fame that may follow. Social networks that have gone on to insanely high valuations or become profit-making ventures have recognized this fundamental fact of Web 2.0. Digg has not.

Communities Require Nurturing – The way that Digg has treated it users has not been with the committed touch of a benign leader, but of a dictator that assumes its actions (or lack thereof) will be consistently met with the assent of its followers. Its town halls have been little more than PR exercises, and user-requested features like the Recommendation Engine have taken years to roll out, while others (e.g. forums) have yet to be implemented at all.

A comparison between Digg and Mixx quickly shows that while the former’s traffic still trounces the latter’s, Mixx’s founders and employees have been open about how they are fostering the growth of their website. Anecdotal comparisons between, say, “The Drill Down” podcast (which covers tech news as well as social news sites like Digg) and Mixx’s unofficial podcast, “Social Blend,” starkly contrast how each company has dealt with its fanbase. While Digg and its policies are frequently an object of criticism on “The Drill Down,” “Social Blend’s” contributors typically have nothing but kind things to say about their digital overlords.

Conclusions

Kevin Rose recently claimed that his primary goal in the most recent round of bannings was to enforce the TOS and make the site easier to use. According to Rose, the bannings are only a response to people trying to subvert the system:

What happens is that some people try and get around [Digg’s algorithm], and they try different ways of doing this. One of these methods is called script digging…and they go and they will digg their friend’s stories, in order to help propagate those stories on the recommendation engine, or to help promote them to the front page. They use automated methods…sometimes it’s very apparent…We have ways of telling how they do it. And so what’s going on is that these people are abusing the system, they are using extra resources and when they throw that many diggs at the system at once it sets our database slaves a little bit off kilter and they will have to readjust everything. We’re talking about, not damaging, but definitely causing a spike in usage and slowing down the site for other users, especially when multiple people are using it, or hundreds of people, whatever it may be. And so what we do is we always give people a second chance. We’ll stop them from doing this, we’ll put limitations on it. Oftentimes, and I hate to say it, but these people are trying to game the system…

There are users that are on the site that will come out on their blog and swear that we have blocked them and that Digg is turning on their users…I can assure you, there’s no reason for us to do that. The thing we want more than anything else is a healthy, accurate community. We don’t want people to game the system, we want it to be fair to everyone. So, we’ve started banning people. If people are abusing us multiple times, I don’t care if they’re the number 1 digger or the number 5 millionth digger. We’ll ban them, because it’s B.S. It doesn’t matter how popular you are. I don’t care which user it is, if they are gaming the system, they are going to get banned. And we’ll be able to tell, we’ll be able to detect that.

If Digg’s management responds to this article they will undoubtedly re-iterate this and say that they are simply trying to protect the community (e.g. by enforcing the TOS equally). For the moment, let’s put aside whether or not it’s plausible that a few hundred people using the alleged scripts can significantly affect Digg’s formidable servers. What I have tried to establish is that Digg is giving you an incomplete story. To prove to its investors that its democratization model is functional, Digg has decided that it has a vested interest in getting rid of its top users. In its misguided efforts, it has destroyed the community that it sought to create.

While antagonizing and banning its most active contributors may be expedient, Digg will only ensure a new group of followers will similarly rise up over time, forcing the exact same measures down the line. This will continue until Digg solves the fundamental issue with its site: That those that are most committed will always have the most control. Digg may continue to grow in traffic and size, but with every controversial move like the recent banning measures, it will irritate a continually growing contingent of its most ardent supporters. Unless Digg can find a way to embrace its fans rather than eliminate them, it will find its brand promise as the leader of news democratization fading fast.

[Disclosure: I am Digg user whose account has not been banned…yet.]

David Chen is a writer/blogger/podcaster based in Boston, MA. You can e-mail him at davechensemail (at) gmail (dot) com, or follow him on Twitter.

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It’s been months since the company first introduced graphical and text-based advertisements within the bottom third of video screens. And several weeks ago it was said to be in talks with marketers to present grandiose front page banners for viewers to see. (The dimensions would be sort of like what you see at the top right of the page, only extended out to the left.) Now it appears that the website is posting video advertisements at the end of clips published by select official content partners.

Post-roll is the common phrasing for such placements. And this isn’t the first we’ve heard of the idea in the world of YouTube. The site and its parent company have been mulling the idea of streamlined video advertisements for some time. Ever since the service and its parent company made known the need to monetize traffic more effectively, really. And to some degree it already has made such spots available. Much now depends on the level of interaction a viewer has with adverts displayed at the bottom of videos, as well as the subject matter of those promotions. If a display ad markets a particular movie, for instance, you can view a trailer right then and there.

Yet, as Liz Gannes of NewTeeVee attests, the concept of a true post-roll advertisement is quite fresh on YouTube, having only begun to be shown within the past few weeks. And at the moment, they are still in a relatively experimental phase compared to the increasingly common banner spots. Gannes explains that only a segment of the 4 percent of content uploaded to the site by YouTube partners is being treated to automated ad playback. (Before, they would have to be manually requested by the viewer.)

Clearly there is an element of caution being exercised by YouTube in its pursuit of more lucrative video advertising on the site. It might induce a barn burning if it were to introduce from the get-go a noticeable supply of pre-roll spots. So a post-roll trial run is in play.

Still, the move seems to fall out of line with public opinion, which by and large wrote off both polar opposites as unpleasant. Even Google CEO Eric Schmidt spoke enthusiastically earlier this year about the in-video marketing it began to pilot last year as opposed to the conventional, TV-like alternatives of pre- and post-roll. But executives are clearly wasting little time in trying what they can to squeeze a more fruitful existence from the mostly user-controlled video venue.

To belabor one option or another surely won’t prove to be productive. And in the world of visual entertainment, linear distribution of content and sponsorships is something familiar to consumers. It may be unpleasant for many, but that is in part a result of ineffective advertising that doesn’t speak to the viewer. Such is the notion that analysts at Google subscribe to, anyhow.

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OK. But what if you're not ready for Series A money yet, and were hoping for some angel investors, writing checks from their own personal accounts, to help you get off the ground while you figured things out?

Different story, says Ron Conway, who is perhaps the most famous angel investor in tech these days. Ron is best known for making very early and very lucrative bets on Google and PayPal, but he's also known as one of the most adventurous angels of Bubble 2.0, and has invested in 130 companies since 2005. We asked him for his advice to would-be-startups last night, and he wasn't nearly as encouraging:

'I would tell (entrepreneurs) to keep their day job until they got one year of funding, and if they couldn't get that, then they're not meant to start that company right now . My advice to (start ups that don't have a year's worth of money in the bank) would be to raise money by reducing your own spending. If you can't raise more money, you have to cut costs. And that's what I'm harping on to my companies.'

To be sure, Ron is just one angel, and we've talked to other investors who are a little more optimistic about early stage companies; we'll be offering up their thoughts over the next few days as well. But let's be clear about this: When Ron Conway says it's time for startups to buckle down -- or not startup at all -- then you know things have changed dramatically.

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First, some kudos to Tom and company. The way MySpace Music has grown into the de facto social music network, where most any band or solo musician absolutely must keep a page, is definitely a great thing. No denying that. Some artists really reap some tangible benefits from exposure on the site. But that’s where my appreciation ends. The experience the service provides the listener with is an entirely different ball of wax. It’s terrible. It wasn’t good before, and it remains that way even after last week’s relaunch. Which is truly unfortunate.

Now, I don’t think MySpace Music needs to be iTunes. Some might argue that it needs a really slick wrapper to take off. No, I don’t think that’s the problem. The issue I have with MySpace Music is much more basic: browsing the place is just dreadful. So much so that anything it does in the way of on-demand and full-length song play is pretty much negated by technical hurdles. Navigation just isn’t easy. You can’t explore. At least not well.

I know, I know. The existence of MySpace Music hinges on those two words that make up its label. MySpace and music. MySpace is arguably the reigning social network of the music world. It’s not the other way around. It’s not music plus a friendliness factor. (Though I’m confident many users do browse the site from that angle.) Furthermore, having the chance to share songs and playlists with friends is quite wonderful, especially given the opportunity to assemble personal libraries stuffed with full-length songs to listen to whenever one’s heart so desires. Now users get to have that familiar MySpace world with lots more content to share. Awesome, right? Absolutely.

But my point here is that the content you want to share depends to some degree on knowing about the material to begin with.

Yes, there are various ways to learn about new artists in a myriad of places around the Web. MySpace doesn’t have to be the primary destination for fans of particular artists. It can be an adjunct. Which I bet it is for millions of people. A place to visit once they know what it is they’re looking for. But that doesn’t mean MySpace should accept that as its own status quo and simply strike deals with major labels to put forth their respective catalogues of music, to be published to artists’ MySpace pages, come what may. The network should instead work to intelligently aggregate that wealth of content into a streamlined interface so that the net benefit is the speedy promotion of more artists and not something so scattered as what it manages today. Because as logic would have it, such promotion would grant the site more traffic. It’s clearly the case that consumers enjoy shopping as much as sharing what they discover. Those two things go hand in hand, really. It’s just not fun to have one without the other.

I don’t expect the relaunched MySpace Music to fail because of these shortcomings. It’ll have plenty of users in the weeks and months ahead. Prior to last week it was already quite popular. But if it has the potential to be much better and more user friendly, and its designers don’t follow through with that expectation, well, the companies involved lose out - MySpace as much as the major record labels.

The labels have their hits, but it’s always been certain that they make considerable investments in the long tail to their financial detriment; they produce albums that don’t hit the mainstream and don’t sell very well. MySpace can change that. It has for years given musicians stuck among the unknown some much-needed exposure they would be hard pressed to get elsewhere. Yes, it’s true that musicians can now utilize Web services to such great effect that the record companies may well be irrelevant to achieving success. But my position is one which regards vast portions of record labels’ catalogues as valuable and potentially still very lucrative, and so it is in their interest as much as MySpace’s to “make the most of what’s around.”

The fact of the matter is that the concept of a new MySpace Music has been one that users have been waiting months, perhaps even years for. And this is what they get? Something that looks so devoid of character and collectivist power that the user cannot experience new sounds with any real measurable alacrity? Yes, the website showcases several album premieres, a handful of featured playlists and videos. But anything beneath the cover almost completely cuts away from it all. What’s more, the way in which featured playlists are shown is quite strange. A widget presents itself in the center of a page in a fashion that just feels deflating. It’s almost as if you’re sampling, rather that really engaging with what the site has to offer. Meanwhile, the number of playlists alone is…well…small.

Honestly, if I were to sum up the flavor of the MySpace Music environment, I would say it’s empty. Which is kind of annoying, given how extensive the network really is. It should appear to be overflowing with content, and it doesn’t.

Even if you choose to browse as a buyer might traditionally do - say, within the area of ‘Top Artists’ - interaction with lists and menus is woeful. Really. Sure, you can browse by genre, but you’re made to view a sort of amateurish layout of artists names and descriptions, with everything segmented into divisions called ‘Unsigned,’ ‘Indie,’ and ‘Major.’ Those specifications aren’t what trouble me. It is that even with those specifications, the pages of links still feel distracting and unintuitive. In part because there’s no sense of chronology. New and old, it’s all the same.

I can appreciate what MySpace Music is solely for its dimensions. It’s got a lot of stuff. And even if that stuff is hard to find if/when don’t know what you’re looking for, it’s probably there, so once you come across a name somewhere else on the Web that piques your interest, you can scour MySpace to see if it has the desired material. But that’s what MySpace Music is, isn’t it? Tolerable. It could be pretty stellar. But it’s not.

It isn’t what I was hoping to see when it arrived. And I’m willing to guess that a whole lot of you think the same way. Am I wrong?

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Now it is the Senate’s duty to thumb through the resolution, which Pandora founder Tim Westergren will once more be asking for support from loyalists when a vote occurs Monday.

It was a bit peculiar to watch the House of Representatives website on Saturday. It provides visitors access to a page labeled “Current House Floor Proceedings,” where a sort of day-to-day live-blog is managed. Throughout the day Saturday, nary a peep was made about H.R. 7084. Until the evening clock struck eight. It was at 8:06 p.m. (EST), to be precise, when an update was first posted signifying a standard deliberative measure: “the House proceeded with forty minutes of debate,” along with the bill’s number. Then at 8:29 p.m. came the summary of the House decision: “Motion to reconsider laid on the table Agreed to without objection. On motion to suspend the rules and pass the bill, as amended Agreed to by voice vote.”

Of course, Pandora was not the sole promoter of H.R. 7084. CNET’s Greg Sandoval made it a point to emphasize NPR’s central role in the matter, noting broadcaster’s familiarity with lobbying the political class of D.C. Yet it was also made similarly clear by commentary published to a number of websites that congressional staffers had indeed fielded messages to the point that public sentiment over WSA was made markedly evidence.

As for the critical detail that facilitated the vote, Sandoval said that the passage of the bill hinged on a deadline set for any negotiations over a new rate. WSA co-sponsor Howard Berman is said to have agreed to extend the original date of December 15, 2008 to February 15, 2009 to convince NAB representatives to drop their objections.

All told, Pandora and other independent Internet broadcasters have, as a result of the weekend’s events, metaphorically traveled part of the way toward further negotiations over royalties. Rates which, in short, are what can either ensure the continued existence of such services or drive many to go belly up just as their collective popularity is increase, from which they might option more lucrative arrangements with sponsors and advertisers.

Time in the Senate is next on the agenda. Given the basis of the agreement made in the House, it is more likely than not that 7084 will pass its second hurdle come Monday.

(Image credit: Wikipedia)

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Basically, the pipe owners (like AT&T) and service providers are getting together to help fight file sharing with the content makers (like NBC U). But if you remember back when it was music file sharing that was under the spotlight, rather than video, the ISPs weren't jumping to the rescue of the music biz. So why are they doing it now?

Because they value the video content more than they did the music. They want to be able to sell video either through advertising or direct sales, either via the Web (Microsoft), or via TV (AT&T's new Uverse offering). They wouldn't mind selling music, too, but it's not a lucrative or core business, which means the music labels never had any real leverage -- Universal Music Group had nothing to take away if the ISPs didn't play ball. But if Disney takes ESPN or Pixar movies away from an ISP or cable system, that's a very big deal. Expect a lot more Hollywood/distributor displays of unity in the future.

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Last week, when Podcaster received official notice from Apple that the AppStore would not be carrying its application because the company had determined it duplicates the functionality of the Podcast section of iTunes, the developer decided to use Apple’s ad hoc distribution method to get the program into the hands of users who were willing to make a $10 ‘donation’ for the privilege of becoming beta-testers.

Tuesday, Apple revoked Almerica’s access to creating ad hoc licenses for the podcast downloading tool, prompting howls of protest from developers and consumers, many of whom have been skeptical of Apple’s intentions and critical of its business practices involving the AppStore from the very beginning.

Follow me after the jump to learn more about what’s behind the dispute and why Apple could be standing on shaky legal ground.

It’s no stretch to imagine Apple being miffed at Podcaster’s practice of charging money for an ad hoc copy of its application. Ad hoc distribution was originally intended as a method for getting software into the hands of testers and reviewers in advance of its appearing for public distribution in the AppStore. Podcaster’s move to utilize it as an alternative method for revenue-generating distribution would understandably rankle the bean counters in Cupertino, especially since Apple was being cut out of the 30% slice of revenue it would have been owed if the app sold through the AppStore.

But by denying Podcaster access to distribution through the AppStore, as well as controlling the developer’s ability to distribute legitimately outside that channel, Apple appears to be staking ground on the precipice of monopoly control over applications that can be legally run on the iPhone. Phone News writer Christopher Price says, “This puts Apple in a dangerous legal position. Before [Tuesday], Apple had rights to assert that the App Store was only one sales channel, which they had every right to control. Now Apple is asserting rights to control any and all sales channels of software to iPhone owners.”

A Washington, DC-based commercial litigator who asked not to be identified, told Cult of Mac, “Apple seems to be banking on their economic leverage here. It will be the rare developer with deep enough pockets to challenge them in an anti-trust action, which could take years and many hundreds of thousands of dollars to prosecute successfully.”

Another impediment to the anti-competitive legal claims of shunned developers lies in the fact that iPhones can be ‘jailbroken,’ enabling them to accept any application properly designed to run on them, a realm of development and distribution over which Apple has little control beyond its ability to disable the functionality of jailbroken phones using the latest versions of updated firmware.

There’s clearly a robust game of cat and mouse at play between Apple and the third party development community, in what seems to be a wide-open arena of largely untested legal ground. For its part, Apple continues to add bricks to its walled garden, reportedly now issuing notices to rejected developers that include non-disclosure language purporting to put them under threat of legal action for disclosing or discussing publicly the reasons their applications were denied entry to the AppStore.

Noted academic authority Jonathan Zdiarski has officially lodged an open protest with Stanford University complaining that Apple’s control over iPhone application development and distribution “effectively neuters competition and unfairly restricts the free and open exchange of information by developers.” Some have gone so far as to intimate the possibility that Apple’s practices imply an intent to steal ideas from developers.

As the iPhone continues to gain popularity in the lucrative smartphone market and the possibility of striking it rich as an iPhone developer becomes more solidified in the public’s imagination, it is difficult to believe Apple’s control over the route to fame and fortune, and its behavior as the traffic cop on that route, will not come under more and more scrutiny.

Will Android turn out to be a money factory? We're skeptical. Google is late to the smartphone game, and there's already some capable competition in the market. How Android mints cash has also yet to be satisfactorily explained (it appears to be part of the $50+ billion mobile advertising market that Eric Schmidt and others keep talking about without providing any details. Some of that market will just replace PC-based searches, moreover, which won't provide any incremental revenue.)

In any event, one Android bull, Sandeep Aggarwal of Collins Stewart, celebrates the GPhone launch by laying out his case. For perspective, the $5 billion of revenue he talks about is about 20% of Google's current revenue run-rate:

First Android powered mobile device to be launched on Sep 24th

Our view is that the launch of Android will likely trigger the mobile Internet adoption globally, in turn creating an entire Android ecosystem (30+ technology & mobile co's) with Google arguably being the largest beneficiary. We think that Android will fully blossom in about 3 years and will likely see a very fast adoption of mobile Internet usage, thus triggering massive mobile initiated search/display ad opportunities for Google. A mobile phone installed base of 3bn vs. 1bn for PCs, 24/7 access to mobile devices by users, known demographic information for mobile users, and location knowledge, make mobile Internet the most lucrative new opportunity for Google since it launched its core search offerings nearly a decade back. We think that by 2011, Android can be a $5bn incremental ad revenue opportunity for Google on a global basis. We reiterate our Buy and $615PT for GOOG.

About Android

Android is a collaborative efforts of 30+ technology and mobile companies to develop a complete & open source mobile platform...

About the first Android powered mobile phone

The first Android mobile phone is expected to be launched on Sep 24th -carrier is T-mobile, manufacturer is HTC of Taiwan, CPU by Qualcomm, software stack by GOOG. 3rd parties can provide/add Android mobile apps.

$5bn in incremental ad opportunities for Google

We think that by 11, GOOG will generate $5bn in incremental rev based on our assumptions - 4bn mobile devices installed base and $1.25 in Internet ad revenue per mobile device in installed base (5 paid searches @ $0.25 per paid search/year). For context Google, made $1 in Internet ad revenue per PC in installed base in 02 and this number reached $19 in 07. Unlike desktops, all mobile phones can not access the Internet and thus we think that the trajectory of Google's Internet ad revenue curve on the mobile Internet will look less steep than PC based Internet ad revenue.

Implications for the Internet industry

We think that at a time when Microsoft or Yahoo! could not challenge Google's global domination in search, Google is already jump starting to capture the next big opportunity i.e. mobile Internet monetization, thus creating more challenges for its competitors in the years to come.

We'd like to believe Sandeep on that last point, but we've been waiting 13 years now for real mobile Internet monetization, and we're still not seeing where it's going to come from. The search revenue Sandeep refers to would be at least partially cannibalized from PC search, so Google wouldn't get a pure benefit from it. What we really have yet to see--which could blow the mobile ad market wide open--is a promising application for geo-targeted advertising.

See Also:

BuzzLogic, a start-up that tracks "influence" across the confusing blog landscape, has pushed its ad network out of beta to a full release.

The "Conversation Ad Network" debuted in beta mode in June and uses BuzzLogic's influence-tracking technology as a way to draw in both advertisers and bloggers. Advertisers are promised access to the most influential bloggers in their niches, and bloggers with that influence are offered more lucrative deals.

Prior to launching the ad network, BuzzLogic purchased ActiveWeave, manufacturer of browser plug-in BlogRovr, to shape it into a tool for clients. Then, during its beta period, the BuzzLogic network enticed bloggers to join by offering them guaranteed $2 CPM (clicks per thousand) ad rates.

"We've seen a strong correlation between campaign effectiveness and the quality blogs our technology is able to surface since launching our targeting platform last year--now we're expanding our targeting approach to our own network of sites," BuzzLogic CEO Rob Crumpler said in a release. "In this fragmented media environment, it has become clear that a popular site isn't necessarily influential when it comes to niche subject areas. Many lesser-known blogs have the capability to deliver great advertising results, they're just not getting paid for it."

There are seemingly zillions of ad networks out there, but BuzzLogic's technology for niche influence targeting gives it a leg up. The company said that over 500 sites have already joined the network in its beta phase.

This is by no means “news,” just an interesting topic of conversation sent in as a tip. Some of you may know a few Guitar Hero addicts or maybe you are one yourself, but do you think it’s a little excessive if a high school student drops-out so that he can concentrate more on the game?

Back in mid-Summer, NewsObserver.com reported on a young-man named Blake Peebles who at age 16, was given permission from his parents to drop out of school so that he could focus on Guitar Hero. Granted, he does have a private tutor which his parents pay for, but the fact of the matter is that he has the tutor because school was taking away from his Guitar Hero time.

Peebles is into some competitive gaming at a local level, but the problem is that competitive gaming isn’t very lucrative at this point. While some of the very best gamers can earn about 80,000 a year, they say that on average, gamers are more likely to make about $20,000 to $30,000, if that. Peelbes has done well when it comes to tournaments in his area, winning about $1,000 in cash, but it’s going to be a different story if he starts participating in some of the larger competitions around the country and even around the World, where there are many others participating that are just as talented.

According to one competitive gamer who won the national championship for Halo 2, being successful as a competitive gamer is tough. He says, “when you want to go somewhere with this gaming stuff, you’ve got to be in the top 1 percent.” So what do you think? Was it worth it for Peebles to quit high school so that he could focus on Guitar Hero in hopes of becoming the next big competitive player?

Thanks for the anonymous tip!

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High School Student Drops-Out to Play Guitar Hero

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