Ning’s Bubble Bursts: No More Free Networks, Cuts 40% Of Staff | Hacker News Reader

Ning’s Bubble Bursts: No More Free Networks, Cuts 40% Of Staff

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101 pointsjasonlbaptiste79 comments

As one of the 69 people who were laid off from Ning today (after a mere six weeks with the company in my case), allow me to say the obvious:

Need a Python/C/C++ engineer with an algorithmic bent and a strong knowledge of scalable data storage and analysis? Email me at jeremy@finchers.us.

From my friend, HN'er, and recent ex-Ning'er rjurney (works at LinkedIn) :

http://twitter.com/rjurney/status/12236580762

One of the real challenges for me is that I was a remote employee, and I'm not based out of an area with a reasonable tech sector. Telecommute positions (especially with companies of Ning's caliber) are hard to come by, and I'm not significantly free to relocate for another 14 months. Finding an arrangement that satisfies both my personal (family) and professional needs is going to be a real challenge.

I'm not based out of an area with a reasonable tech sector

I know how you feel -- there were so few decent jobs in tech in the town I wanted to live in, I had to bloody make one to give it to myself.

Entrepreneurship just isn't in my blood, unfortunately. Nor is the risk particularly desirable given its potential effects on my kid's college fund :)

A recruiter from Ning contacted me on either Tuesday or Wednesday. Although obviously my situation doesn't compare to yours, it sure is nice of the company to keep trying to hire when the upper echelons knew damn well they were going to lay a ton of people off.

No one knew anything until this morning. If the change of CEO a month ago is any indication, my own manager probably didn't find out until late last night.

The entire recruiting team was laid off today, for what it's worth.

I'm another one of the 69 people laid off today -- I lasted a little longer, 4 months.

My condolences to you jemfinch, btw, and anyone else from Ning lurking on Hacker News. Not the best day for any of us.

For those who might be recruiting, I am also looking for new opportunities, especially in the Seattle area. I see myself as very much a generalist, both in the sense of technologies and languages -- and being able to pick up new ones quickly--, and in the sense of being able to act as other parts of an engineering staff (sysadmin, qa, etc.) when called upon. If you want more details, feel free to contact me -- details in profile.

In a way, the stack exchange product and ning are very similar. Both tried to create an out-of-the-box product to fill a need. The reason both did not succeed is probably the same as well - too many half-baked communities with nobody behind them.

If hindsight is 20/20, what could Stack Exchange and Ning do different to make it work?

Or on another note, what sites out there have tweaked the model and are doing well?

They could take a hint from Hacker News. Creating a successful community is all about pre-seeding it. Of course, the problem is this can't be scaled. Making enough friends to found a domain specific website with a good group of them isn't easy work. Communities aren't easy.

SO did successfully create a community. I think they ran into the problem that SO itself was successful because of the 'personal brand' of Jeff Atwood and Joel and this didn't extend easily to other communities.

Or maybe it is because the coders who hang out on SO are a weird bunch :)

Well, if their statements are anything to go by, we can see what they are going to do differently to try and make it work.

They are moving away from the 'provide the platform, get out of the way, let 1000 flowers bloom.' Stack Exchange is going to be launching sites themselves with a more regimented process that (they hope) has a high success rate.

*After seeing Slinkset (I liked that one), these two, Wikimedia etc. have such a hard time getting successful sites going, I have a new appreciation for forums. Forums work. There are a lot of non ghost town, forums started by non social software gurus.

I really wonder what the 500M and 750M valuations are based on, or are those just the numbers needed to justify additional investment.?

Also, it would make sense that this is slimming up with the hope of being acquired. Reduce head-count, pour effort into premium services to bump revenue, then sell.

I'd suggest the valuations are based on perceived value by the investors. That's how we get insane valuations of $15 billion for Facebook when they were hemorrhaging money (not the case now of course).

Either way, I suspect its part voodoo and part negotiations when you're talking about speculative valuations like this

I want to point out something. The majority of these 'swing-for-the-fence' ideas are expected to fail. It's what is supposed to happen. Doesn't mean anything is broken with the system.

Tell that to the people who ponied up the cash.

You mean the mega angel-investors-slash-repeat-founder or the venture capital funds?

Presumably, they all know. They probably insisted on it.

from @dhh:

Ning raised spent $120MM of other people's money over 6 years to come to the conclusion that free doesn't pay.

If Ning networks had exploded as they had hoped there wouldn't be any emphasis on paid today. The plan was to have a billion people participating in 10 million different networks. That didn't pan out. If it had worked DHH would have simply said that they're one of the lottery winners.

Yes, he would have, but he'd also be right, since there are so few that succeed with that model.

Would he be wrong, though?

I'm stupid, but still not seeing how billion people would have translated into any $ for them...

Facebook has 300 mil, and they're profitable..

profitable? last I've heard they are cash flow neutral, and that's considering how many billions invested?

And they're one of the most visited sites on the planet. They can't hide behind the "We choose growth over revenue" anymore since they're already so huge.

If they can't capitalize big-time on the users they have now they have a serious problem.

of course they can hide behind that. Optimizing for growth over revenue isn't that unusual. Facebook is still very young.

reference? I've heard conflicting reports.

edit: did some looking: http://www.businessweek.com/the_thread/techbeat/archives/200...

" On Tuesday, those concerns were momentarily quieted as Facebook announced that it’s now free cash flow positive.

This doesn’t mean the social network is a profitable operation yet. Rather, the cash it generates from advertising and other forms of revenue now exceed the cost of servers and other capital expenditures required to keep Facebook running. One-time costs, like the reported $50 million acquisition of Friendfeed last month, and operational expenses like personnel, are not included in this equation. Outside investments in the company, like the $200 million it raised from Digital Sky Technologies in May, are not accounted for either. "

So, it sounds like if they fired everyone and stopped buying stuff, they'd be profitable, if money kept rolling in as it does now.

I obviously don't know for sure, but I would guess that servers and bandwidth are cheaper than labour, for a company like facebook.

Anecdote:

I'm involved in online ad campaigns for a number of medium sized advertisers. I would love for Facebook's advertising program and 'stuff for businesses' to get a bit better. I think I could get several $100 - $1000 budgets. It would be a fraction of what they spend on adwords, initially at least, but still significant.

In what finance world does "free cash flow" NOT include operational expenses like [salaries of] personnel?

Go to ning.com (logged out if you are a member) There is literally no attempt to sell you on anything unless you create a network. No feature listings, no pricing, nothing. There homepage is half dedicated to showcasing networks you might be interested in. To get a light overview of the features you have to go three clicks deep into the site.

They should be more focused on selling their product not the various networks. The networks should drive the traffic to themselves based on their own merit and efforts.

Compare that with a competitor, SocialGo, which is pretty clear in explaining what you can get from their service at various price points. Whereas Ning doesn't appear to be trying to sell me anything, let alone compare my options.

Looks like they spent none of their $120MM on that UI. That is rediculous, these VC's must be wildly out of touch.

With $120M in funding, this blows my mind. I'm reminded of Ho Nam's Fat Startup Watch. Today's announcement suggests that despite massive growth and traffic, Ning did not find sustainable product-market fit.

http://www.blog.altosventures.com/vc/2010/03/fat-startup-wat...

It's probably partly because of that funding :)

Oh -- I completely agree. What blows my mind is the magnitude of the loss, both monetary and human.

The interesting part is that, if 75% of their traffic are from paid networks, all that much heralded viral growth must have really just been bizdev deals to get existing brands and communities onto Ning. If that's the case it's pretty shocking they didn't do this sooner.

Free can work, if you can keep you overhead low. They clearly failed at that.

Absolutely. I find the notion that there's only one true business model that's ever successful to be extremely arrogant.

Organizations are like organisms, there are many different workable strategies. Take a look at nature, there's no one-best-way to be a successful animal.

This is just the beginning of a reality check for social media.

Once it becomes clear that Twitter has no viable revenue model, that Facebook's model will be undermined by the same effects that caused the videogame industry to crash in the early '80s, and that "Web 2.0" has largely turned into a fad, we'll probably face another Dotcom crash.

Meanwhile, genuinely emergent social media like IRC, Wikipedia, etc. keep chugging along.

For those of us that weren't around in the early 80s, what caused the video industry to crash back then, and what are the parallels to social networks?

I think it's pretty widely acknowledged that the gaming crash of the '80s was due to a glut of horrible software, since there was no approval process, crap flooded the market, and since people had no way to judge what was crap, they bought random games and hated them, and therefore stopped buying. I'm not sure this is relevant to Facebook.

Nintendo came along with an approval process (Nintendo Seal of Quality) and made games popular again. Sort of makes Apple look sensible for all their iPhone shenanigans.

I think it's relevant to Facebook, given that they're heavily focused on third-party apps, especially games like Mafia Wars, Farmville, etc.

In the '80s, companies like Atari collapsed because third parties were publishing large amounts of crap for their platforms, and this ultimately undermined the platform itself. The increasingly common crap apps and scams on Facebook seem to parallel this.

In fact it may be worse for Facebook, because the Nintendo solution would be much more difficult to apply. With video games, the revenue stream for both the platform developer and the third-party developer comes from end users. But with social media, the revenue stream comes entirely from the third-party affiliates - who would pay to use Facebook? If the people pushing the crapware are also the ones paying your bills, it's a lot harder to dictate quality standards.

I think the endgame here is sites like Facebook having to decide between attempting to directly monetize the use of their service, or opening the floodgates to spam. Either option will drive users away.

except, you know, Twitter isn't panicking about revenue. They're doing really nicely last I heard (Profitable from search deals, and abouts to launch various other monetization programmes?)

I've heard conflicting reports on this too. Do you have a link saying Twitter is profitable?

Profitability at this point seems unrealistic. I understand they have around 150 employees. Assuming a conservative $100k per employee, that's $15M annually just for salary and benefits. Add server costs, etc, and its must be well north of that.

Your employee costs are off - Fully loaded, average employee costs for a company like Twitter that hires in the radford 80th percentile in Silicon Valley are approx $190,000/year - that includes Salary (avg $150K), Benefits (22.5%), and operational (computers, internet, email, phone, real estate, etc...) ($8K/year)

Maybe it falls into the same category as the video game industry to you, but it doesn't sound like you're aware of Twitters recent monetization strategy: http://blog.twitter.com/2010/04/hello-world.html

I'm aware that they're trying to monetize with ads. Everyone is trying to monetize their social media service with ads.

The problem with that approach is that social media is not really a value-added product in its own right - it may facilitate conversation between participants, but it's the conversation, not the platform, that users derive value from.

The question that commercial social media faces is how to monetize emergent conversations between third parties. The typical answers are either pay-for-play or third-party ads. The former drives users away; the latter interrupts their conversations, also driving users away.

Really only Google has succeeded at an ad-based model, and they've done it not by attempting to develop their own walled-garden social media platform, but by recognizing that the platform is the internet itself, and developing their services as a layer that augments the entire network, regardless of what users are specifically looking for. I don't think Twitter is comparable - it may plausibly be a fad, but the internet itself certainly isn't.

Regrettably, this probably means the end of Ning. It's the classic dot com business model. Once you engage in "community breaking" activities, like kicking off your users or trying to force them into paying subscriptions, the amount of animosity and bad publicity generated by users who have invested a lot of time and energy into the service usually ends up killing the company.

However, I'm not sure that this has wider repercussions for other social networking services. I assume that Facebook is making enough out of advertising to be sustainable (although I could be wrong).

worked great for meetup.com [going from freemium to paid only]

PayPal did this. HotOrNot went from freemium to free to freemium again.

It's not unheard of, especially if (as the TC article quotes), the majority of the VALUE is being created by paying users.

Sounds like the perfect opportunity for Automattic to introduce a BuddyPress.com using the Wordpress.com model.

Google is looking for people with business and tech skills, come check it out!

April 29 - San Francisco open house http://www.google.com/intl/en/jobs/landing/psomixer/

This sucks. Get Satisfaction tried something similar recently (eliminating even basic admin tasks from free plans), but realized their error and elected to grandfather in current members. Ning should do the same thing with their free networks, perhaps with a total traffic limit. (If even that's not economically viable, then I don't know what the hell they were ever thinking.)

I sure am glad I never made an investment in building traffic to a Ning social network. I'd be pretty hot under the collar just about now.

A few months ago I got contacted by some overly friendly recruiters working on behalf of Ning. I'm ignored them because I'm crazy happy at my current job and can't even really think about relocating.

Curiosity being what it is, I took a closer look and was surprised to find it such a large/heavily funded/fast growing organization that I had never even heard of.

I find my "thanks but no thanks" instinct vindicated today.

Ning Free had way too much Ning branding.

You get what you pay for.

True, although the parent post could be read as follows:

Ning Free had too much branding to attract the kind of sites that would later upgrade to pay plans. It could be that the Ning branding interfered with the Freemium model.

I'm not speaking for the parent post, of course, just pointing out that there may be something interesting to consider...

Jeeze, never saw this coming.

Picking losers is a lot easier than picking winners.

Thing that always bothered me about Ning was there no way to browse networks. At least I never saw such a thing, just featured networks and search.

The longer investors pours money, the more money founders and top personal earns. That is the business model. =) The art is about chatting investors as long as possible and to leave on time - http://en.wikipedia.org/wiki/Marginal_value_theorem

Free is not a business model. Within 12-18 months expect Facebook and Twitter to go the same route. Their burn rate is starting to catch up to them and Twitter's search deals will shrink.

Do you have any idea how much money Facebook is raking in with advertising? The targeting available on Facebook is unparalleled in human history, and they are making a mint on it.

oh yes, they do! much better than google! however there's absolutely nothing advertised on them that I'm interested in.

I literally can count on both hands number of times I clicked on google or facebook ads.

So obviously nobody else clicks on Facebook ads either, right?

In my experience, a good click-through rate is about 0.1%, which makes sense since they're essentially banner ads 2.0, there's no intent captured at all. That said, they were cheap enough that I was able to acquire new users for my Facebook app at around $2 each in my small-scale tests.

obviously a lot of people do for now, since it's kind of novel and obtrusive way of advertising.

the point is - online ad market is getting saturated.

Either cite some hard facts and data, or stop making sweeping statements.

Yes, I do have an idea. And it is largely do to their user growth. This growth is not sustainable and will start to taper in 6-12 months. Facebook clearly is making money from ads (I'm not discounting this). It's been estimated at somewhere in the $400-600MM range. Of that Microsoft and their own ads make up the bulk of that. That is starting to dwindle and they are going to be headed in the direction of virtual goods a la Tencent. My point is that social media sites like Ning, Facebook, and Twitter are figuring out that free is not a business. Ning is just the first to admit it.

Lets not come up with a crazy assed WRONG meme like "free is not a business".

Free IS a business, and has been proven time after time over the last few centuries if not longer.

Companies don't fail because they chose to offer something free, they fail for other reasons.

From the very little I've read about Ning, it's clear they took way too much funding for a start.

"..has been proven time after time over the last few centuries"

Could you come up with some examples of this? Not trolling here, but I can't come up with any pre-internet free models off the top of my head.

Broadcast radio and television.

Of course! Stupid me...

Advertising has been around for quite a while.

Huh? You seem to be implying that a growing user base gets them unreasonably high advertising rates. Are you suggesting that advertisers are willing to overpay for facebook ads because of their strong growth trends? That may have been the case when Microsoft did their deal, but that was a while ago. These days, advertisers either have past experience to draw on, or they can dip their toe first without making a big commitment. Either way, I expect most of the ad revenue on Facebook is from people paying what they consider to be a fair price.

As for virtual goods, this has been part of their revenue mix for quite a while too. From the whispers I heard a couple years ago, it wasn't the majority of revenue, but it was a healthy chunk.

Facebook's estimated average revenue per user has hovered at the same level for a few years and is something like 1/3rd what MySpace's ARPU was. Both suggest to me that Facebook has still been favoring growth over revenue, and that as growth starts to taper off, they'll have plenty of opportunity to offer a "free" service and make a profit at the same time.

Are you sure about this? I imagine they are keenly aware of their burn-rate vs. growth-rate. At some point they may have to make a course correction to bring in real revenue. FB's primary goal was probably to out-pace myspace and they've obviously done that. I'd say they are in an excellent position to make good money.

Facebook no longer has a burn rate.

Now they just have to figure out how to give the investors a 100x return (or whatever the return rate should be).

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