In an efficient ad marketplace, the top keyword usually goes to whoever can spend the most money on it, normalized for conversion. Who can afford to spend the most money? Unfortunately, it’s not always the company with the best product, service, or price; under pure laissez faire advertising, it can be the company that tricks, lies, and steals more pennies out of each customer than any competitor. This often forces ethical competitors to make a very tough choice: roll over and stagnate (or die), or play a similar game. Playing to win means staying microscopically behind the red line or breaking the rules and not getting caught.

Let’s keep that as the backdrop as I tell a sordid story about lead generation on the Internet.

Last night we wrote about the lead generation scams within social gaming networks. This is a guest post by Dennis Yu, the CEO of BlitzLocal, a privately held 50 person advertising agency in Denver, Colorado, specializing in local search engine marketing for franchises and professional service firms via Google and Facebook. BlitzLocal is no longer in the business of spam, but they do specialize in Facebook advertising and are now using the platform they’ve developed to run campaigns for big brands and small businesses. Dennis writes a blog at dennis-yu.com

Did you know how Mark Zuckerberg supported Facebook in the early days, before he got venture funding? Casino ads. And how about those advertisers who were making over $100,000 a day selling Acai Berry and other weight loss products – they are friends of mine, pioneers of new advertising channels. You see those ads saying “Inbox (5). Nick, someone in San Francisco has a crush on you!” (with your name, profile picture, and city in the ad). I generated millions of dollars from these offers on Facebook – I am not proud of it, but it was very lucrative.

I will walk you through how these online scams work on Facebook and other social networks – the mechanics of how the money is made, some of the people involved, and who is actually clicking on ads. If you’re reading this article, there is a good chance that you are not the type of person actually clicking on these spam ads, but are you curious as to who actually is?

In June 2007, Facebook opened up their application developer platform so that anyone could build games on top of the social network. By having access to user data, game developers could instantly make engaging, viral games. Rate who is hottest among your friends, share quizzes, race cars, grow vegetables, and so forth – all with a click of a button. Users in one click gave the game permission to access their profile data and they didn’t think twice about it.

This guest post is by Adam L. Penenberg, author of Viral Loop.

Four months before my latest book hit store shelves, my publisher wanted to change the title. Viral Loop might be catchy, and reflect what the book is about—and isn’t that what a title is supposed to do?—but Hyperion worried that some readers would be put off by the word “viral.” Would they shrink away for fear it was about “swine flu”?

The book looks at entrepreneurs who built multimillion- and in some case billion-dollar businesses from scratch by incorporating virality into their products and businesses. Many iconic companies of our time, including Facebook, Twitter, YouTube, eBay, PayPal, Flickr and rising stars like Twitter are prime examples of a “viral loop”—to use the product, you have a strong incentive to spread it. At some point, as the number of users doubles, then triples, the company achieves what’s known as a “viral loop,” when the product spreads even if the company does nothing to promote it. The trick is that they all created something people really want, so much so that their customers happily spread the word about their product for them. The result: Never before has there been the potential to create wealth this fast, on this scale, and starting with so little.

This guest post was written by Roman Stanek, the founder and CEO of Good Data, a cloud-based business intelligence startup headquartered in San Francisco. Roman has been a tech entrepreneur for almost 20 years. He was founder and CEO of NetBeans (acquired by Sun Microsystems) and Systinet (acquired by Mercury Interactive and later Hewlett Packard). Read Roman’s blog here.

When I met Michael Arrington back in April, I told him he was crazy to dismiss the possibility of a first-class technology startup coming out of Europe. I was born and raised in the Czech Republic, I’ve spent the last 15 years working towards building a global hi-tech company. So naturally I took it a bit personally. But I’ve been thinking about this quite a bit since then.

The following post is by guest author Edo Segal (@edosegal), an entrepreneur who has launched and sold several companies, including Relegence to AOL. Today, he runs his Incubator/Investment vehicle Futurity Ventures, which recently launched a new search engine for wisdom.

Media scarcity is dead. In the future my son will have a flash drive that he will pay $29 for that will have the capacity to hold all movies and music ever released by a major label, studio or tv/cable network. It will take 30 seconds to clone the data over the network to a friend who will pay $14.99 for a device with double capacity a year later. How does the media industry survive such a coming disruption?

For many of us that have been in this game for a while, the word “convergence” harbors some shameful vibes. It conjures up many false hopes, dashed dreams and misfires. Nevertheless, I would contend that convergence is upon us and it has arrived from an unexpected delivery man: Steve Jobs. Apple has created a media consumption experience that has reduced friction to such a point that soon the consumer will not know if he is buying music, a movie or a game. The notion of App is changing. The lines between these different forms of media are quickly blurring and soon will be completely artificial. Already these distinctions are merely fossilized conventions that stem from consumers’ discovery habits. As those evolve, like learning that it is easier to go to Amazon and search to find a product than going to aisle 9 at the store. The coming confusion of the consumption experience where a user won’t care or know if what they are buying is a movie, a game or a music track presents vast opportunity.

This is a guest post by Nabeel Hyatt, Founder and CEO of Conduit Labs, which is the creator of Loudcrowd and other social games that help you experience music with your friends. His personal blog can be found at nabeelhyatt.com and he can be followed on Twitter @nabeel.

Yesterday, Facebook announced they are going to drastically alter the way applications can message users once again, likely throwing a wrench into every app developers’ growth rate. Hints of the coming turmoil appeared last week when Facebook changed the way feeds work. This caused enough worry that apparently Mark Pincus, Founder/CEO of Zynga, canceled his appearance at Harvard Business School so he could sit with his team and figure out what the impact would be to the viral rates of their massive hits such as Farmville and Cafe World. That’s not surprising, since getting posts in the feed is critical to continued growth, but the myopic focus on the “viral rate” by some in the industry has created an over-dependence on perhaps the wrong number.

The following is an excerpt from Adam L. Penenberg’s new book, Viral Loop: From Facebook To Twitter, How Today’s Smartest Businesses Grow Themselves.

Simply by designing your product the right way, you can build an insanely fast-growing business from scratch. No advertising or marketing budget, no need for a sales force, and venture capitalists will flock to throw money at you.

Many of the most successful Web 2.0 companies, including MySpace, YouTube, eBay, Flickr and rising stars like Twitter are prime examples of a “viral loop”—to use it, you have to spread it. The result: Never before has there been the potential to create wealth this fast, on this scale, and starting with so little.

In Viral Loop, Penenberg tells the fascinating story of the entrepreneurs who first harnessed the unprecedented potential of viral loops to create the successful online businesses—some worth billions of dollars—that we have all grown to rely on. The trick is that they created something people really want, so much so that their customers happily spread the word about their product for them.
One such business was Hotmail. After their 20th venture capitalist meeting, Sabeer Bhatia and Jack Smith, former hardware engineers at Apple who first came up with the idea for webmail, finally raised seed money from famed VC firm, Draper Fisher Jurvetson.

The number one question you all asked after reading my last blog post about starting a business from scratch was “how do I find my co-founders?”

Great question – let’s start with a bit of self reflection:

Close your eyes and visualize your group of closest friends.

Now, think specifically about how tall (or short) they all are.

Great, now ask yourself “are all of them roughly the same height?” I’ll bet most of them are – you included.

And therein lies the problem in finding co-founders for that startup you’re dying to launch. It’s most comfortable to hang out with people like ourselves, but those are exactly the folks you probably don’t want to co-found a startup with. Seems a bit unintuitive, right? I’ll explain.

Editor’s note: Below is an open letter to our President from guest author Edo Segal, a concerned web geek who cares about the future of our democracy. It is followed by a proposal and a new website for anyone who thinks they know what #obamashould do (cynics please skip post).

Mr President,

On the night of your acceptance speech, just before you walked on stage, “you” sent out an email saying “i will be in touch soon”—but you disappeared and all we were left with was the strange feeling you get when your older brother ditches you for his cooler friends. Does it take you winning a Nobel prize to get another direct letter from you?

Where’s the attention? The yes-we-can attitude, making us feel we can be good again? It seems that since you made it to the Oval Office you have been too busy at work, and our relationship has really suffered.

Hating venture capitalists is profoundly satisfying. After all, they are slack-jawed, monied, oily, know-nothings who carom off innovation, fire capable founders, squash angel investors, and exist mostly to make commercial bankers look smart and interesting.

Or at least that’s the story we like to tell. By “we,” of course, I mean all of us who lovingly poke venture capitalists in the eye with sticks now and then. They are such easy targets, what with making up numbers about how many jobs they create, missing great investments, delivering awful ten-year returns to investors, having higher failure rates among companies they fund than among the ones they don’t, and generally being so self-important and irony-unaware.

But that doesn’t mean VCs are quacks. Or that what they do isn’t hard. Or that it’s unimportant. Because it is important, and the good ones are smart, and what they do is very, very hard.

This is a guest post by Robert J. Moore, the CEO and co-founder of RJMetrics, a on-demand database analytics and business intelligence startup that helps online businesses measure, manage, and monetize better. He was previously a venture capital analyst and currently serves as an advisor to several New York startups. Robert blogs at The Metric System and can be followed on Twitter at @RJMetrics.

A few weeks ago, my former employer led a $100 million investment into Twitter and I must admit that I was quite jealous of my former colleagues. Chances are they got the opportunity to do some very cool analytics on Twitter's data.

Rather than wonder about what I missed, I decided to figure out what I could from the outside looking in. Using some statistical trickery, the Twitter API, and my RJMetrics dashboard, I uncovered a ton of astonishing new information about Twitter. Here are some highlights:

This guest post was written by San Francisco Mayor Gavin Newsom, who was elected to the position in 2003 and reelected in 2007. Newsom is also running for governor of California in the upcoming 2010 election. In this guest post, Mayor Newsom announces a contest to create apps using city data from DataSF.org,.

Last week, we announced a City App Store to highlight and centralize software applications developed from government data available on DataSF.org. The response from the community has been overwhelming.

We have received a number of new civic apps that are now featured in the DataSF App Showcase. We’ve added Mom Maps, a new iPhone app that helps you find kid friendly locations in San Francisco, Dadnab a text messaging service that gives you transit directions, and then there’s EveryBlock, which has just added a new feature. The site breaks down what types of services people are requesting from the city by neighborhood, zip code and day.

This type of innovation is exactly what we were hoping for when we launched DataSF.org less than six weeks ago.

We were not sure what people would create with the data, but we knew that many of our talented developers wanted to help improve San Francisco. Now, our community is coming together to help fill our app store with even more civic apps.

The Center for Investigative Reporting’s California Watch reporting team, Spot.Us, Craigslist founder Craig Newmark, MAPLight.org, the Gov 2.0 Summit, Sun Light Foundation and others are announcing today that they are joining forces to sponsor the first DataSF App Contest on Nov. 7.

The following guest post is written by Larry Chiang, a co-founder of Duck9 who also regularly blogs for BusinessWeek. Today he is reporting from the Finovate startup conference.

At the FinovateStartup conference in New York City today, it is clear that financial startups are pushing forward regardless of funding woes or a lackluster economy

Companies here at Finovate center around financial innovations. They track personal finance and are aggressively plodding forward because consumer adoption of the internet is rising. These companies did not just present ideas, they brought along established industry stalwarts to their demos. What’s more, many of these start-ups are already white labeling their product and integrating into established company sites (T-Mobile ads, Yahoo, Bank of America). The user interfaces are better than average, which is perhaps influenced by Finovate’s previous winner Mint.

Best in Show went to Kasasa, an Austin, Texas-based financial website that uses real-world rewards and charity donations to get people to open free deposit accounts.

This is a guest post written by a London-based VC. For the purposes of them being able to speak plainly without jeopardizing their fund or their career, I’ve allowed them to post anonymously. Why are we doing this? Well, while the startup eco-system is long in the tooth and highly developed in the US, the European scene is still a spotty, shy teenager, sometimes making a few mistakes. And as a result startups need educating. Make no mistake, LondonVC is a genuine VC and TechCrunch Europe met them face to face. Over the next few weeks they are going to offer a unique insight into the VC and startup world in Europe. I hope it’s enlightening for European startups. Read and learn.

One reason I started this column is because I see a lot of “injustices” in the VC-start-up universe, and while I’m obviously aware that we don’t work in the charity sector and that business is business — and we’re here to maximise investment returns! — I do think we should let market forces determine what’s reasonable or not for business practices and deal terms. However, this works only if entrepreneurs actually have access to experience and insight into what really has been “standard” or acceptable in the past.

Editor’s note: This guest post is written by Shelby Bonnie, the CEO of Whiskey Media. He co-founded CNET in 1993 and was the Chairman and CEO from 2000 to 2006. He served as Chairman of the IAB from 2001 to 2003.

OK, Advertising Week just ended… does anyone else feel like the online advertising industry is the orchestra, playing on while the Titanic is sinking?

We have a problem, folks. And I, for one, think we should start to fix it by killing off the CPM, once and for all.

I have been in the Internet media space for 16 years and will start by stating the obvious: The CPM has done more to stunt innovation and drag down quality products than any single thing on the Internet. Maybe it works in other mediums, but it sure as hell doesn’t work on the Internet. Having been both a small and big publisher (now small again), it’s been my experience that the collective focus on CPMs and counting eyeballs by marketers, agencies, and publishers has led to a whole mess of unintended consequences that have produced a series of “solutions” that work for none of those parties. And perhaps more importantly, it’s been terrible for users.

All campaigns start with the best of intentions: “let’s do something creative, engaging, and unique!” But unless someone really senior from the agency or client side intervenes, the road for a campaign always leads to the media buyer and the dreaded spreadsheet, where the two most important columns are impressions and cost. Ironically, there’s usually some good stuff in campaigns, but they are thrown in for free as “value adds.” At some point, publishers decide that if all clients care about is impressions, then OK, we’ll give them impressions. The output is an industry that overproduces shallow, superficial, commoditized impressions. Why do we have so many bad sites that republish the same junky content–content that’s often made by machines or $1-per-post contractors? Why do sites intentionally try to get us to turn lots of pages with tons of top 10 lists, photo galleries, or single-paragraph summaries of someone else’s story?

This is a guest post by Paul Fisher a Venture Capital investor with Advent Ventures in Europe Portfolio companies include Zong.com, Qype, Adeptra and DailyMotion. Paul blogs at The Coffee Shops of Mayfair and Twitters at @paulfish.

I have watched with interest as the Apple backlash intensifies* (see below). It seems the App Store has broken the camel’s back. There is massive resonance here for both entrepreneurs and VCs.

This quote from Chris Messina is my favorite. He thinks that the Apple App Store is a “flash in the pan” because it is a proprietary platform and, hey, wait a minute, proprietary platforms are counter to consumers’ interests. That’s why Microsoft accrued haters. And why folks are starting to feel the same about Apple?

This is a guest post by Kovas Boguta, the founder and CTO of new startup Infoharmoni. Kovas has analyzed twitter buzz around various startups and products that launched at TechCrunch50 last week. It gives a fascinating glimpse at how news blossoms, peaks and then fades.

People are social animals, and love to both move in packs. But they also like to purposefully individuate. One game-changing aspect of the real-time movement is being able to see this as never before. With real-time, and with algorithmic visualization, our “telescope” is strong enough to see the laws of social physics at work: existing social groups incubate new topics of interest, and existing interests incubate new social groups; both move in response to each other.

Twitter bills itself as the pulse of the planet, but it’s more like the pulse of creative networks. Take a look at these surprisingly visceral data movies, freshly computed from the TechCrunch50 Twitter stream, and showing an evolving network of companies competing for attention and publicity during the course of Tuesday:

Many of you may remember Ma.gnolia—the nifty social bookmarking tool that unfortunately imploded at the beginning of this year. Founded by Larry Halff almost 4 years ago, the site had a different aesthetic and attitude toward sharing information. It was one of the more community-minded tools I remember from that era, offering features like the ability to “thank” the sharer of a useful link, for example. It also possessed clean design and careful site organization. In my opinion, its take on sharing data really differentiated it.

Like many great things, Ma.gnolia didn’t start out to be big, but rather started out to be good—and it was. And, as is often the case with things that are good, Ma.gnolia become big by virtue of that goodness. Ironically, even though the membership of the service reached hundreds of thousands of account holders and tens of thousands of regular users, the infrastructure supporting the site was still incredibly small. It was run almost solely by Larry and the hardware and bandwidth he could support by himself. Unfortunately, there were some technical limitations to the honorable yet fragile DIY set-up running behind the scenes that ultimately led to the site’s premature demise. I was really bummed to watch the VOD-cast explaining the catastrophic nature of the data loss back in February and have thought about the site often, since that time.

I was able to catch up with Larry a while back and talk with him, not about what went wrong with Ma.gnolia 1.0 but rather what is in store for Ma.gnolia 2.0, if anything, and also pick his brain about the future of social bookmarking. If you were a fan of Ma.gnolia in the past, you will be happy to know that it is scheduled to relaunch September 22, by invite only.

This guest post was written by Meebo CEO Seth Sternberg. It is the first in a series of posts he’s writing about the decisions a young entrepreneur needs to make when she/he is first starting a business. The timing is perfect, there is more than a little overlap with Vivek Wadhwa’s guest post on venture capital earlier today. We’ll update this post with links to his further installments.

I was one of those kids who just couldn’t stop trying to start a company. I think I just really feared working for the Man. Problem was, I seemed to suck at the whole startup thing. Multiple attempts followed by multiple failures. At some point I just said, “screw it, I’ll get a high paying job.” Problem was, I couldn’t stop thinking of the next great thing that got me ridiculously excited. Turns out, it wasn’t so much that I was the problem. Rather, I didn’t have anyone around me familiar enough with startups to tell me that I was doing it all wrong.

Alibaba is best known for its international B2B e-commerce and sourcing market place Alibaba.com, but also operates Taobao – the “eBay of China” and largest C2C Internet retail web site, Alimama – an online advertising exchange and affiliate network – as well as Alipay, China’s most popular third-party online payment system modelled after Paypal but offering additional features such as escrow services.

Alibaba’s chairman Jack Ma, a former English teacher, founded Alibaba in 1999 out of his Hangzhou apartment. Ten years later the company has grown to China’s second largest Internet company. At the company’s tenth anniversary celebration, the man shared his lofty goals for the Alibaba Group in the next few years.

Aaron Patzer is the CEO and founder of Mint.com, a personal finance site that launched two years ago at TechCrunch40. Last night the news broke that Mint is being acquired for $170 million by Intuit.

Today, exactly two years after launching at TechCrunch40, I’m excited to announce that Mint.com has signed a definitive agreement to be acquired by Intuit for about $170m. Intuit, a $10b company (NASDAQ: INTU) is perhaps best known as the maker of Quicken, QuickBooks, and TurboTax.

This is a great opportunity to bring Mint’s technology and easy-to-use personal financial management system to potentially tens of millions of consumers, an eventually small businesses and banking customers as well.

What’s perhaps even more amazing about this opportunity is that we made it to this point just three years after the company started: one year to build, and two years in operation. I doubt this could have happened anywhere but Silicon Valley.

Editor’s note: The following report comes from Don Dodge, who blogs at Don Dodge on The Next Big Thing and is a business development executive for Microsoft. TechStars is a startup accelerator program that selects about ten companies and provides funding of $18,000 per team, as well as free office space, operational support, and mentoring from top investors, entrepreneurs and business leaders. TechStars operates annually in Boulder, Colorado and Boston, Massachusetts.

TechStars has now been operating for three years. Three of the original ten companies from 2007 have already been acquired (SocialThing by AOL, Intense Debate by Automattic, and Brightkite by Limbo). In February, we covered the news that TechStars had expanded to Boston. Today, TechStars debuted nine new startups from the inaugural Boston class. The teams presented on Thursday to about 200 VCs and Angel investors for the first time. These companies are about three months old and have two or three founder employees. Don was in attendance today and these are his notes on the startups that presented at Microsoft’s New England Research and Development Center (MS-NERD)

Editor’s note: With all of the debate lately between RSSCloud versus PubSubHubbub, we wanted to hear from a developer who could actually tell us which one might be better and why. The following guest post is written by Josh Fraser, the co-founder of EventVue, who is an active contributor to PubSubHubbub in his free time. He has contributed several client libraries for PubSubHubbub including a WordPress plugin. Guess which side of the debate he falls on.

In the past few months, a lot of attention has been given to the rise of the real-time web. The problem is that the web wasn’t designed with real-time in mind. There is a huge need for the tech community to get behind new protocols that will power this fundamental shift in how web applications work. Today I want to take a look at two of the leading protocols that enable real-time notifications on the web. While there are older protocols that enable real-time notifications like XEP-0060, PubSubHubbub (PuSH) and rssCloud are two new protocols which show a lot of promise of gaining adoption.

Both PuSH and rssCloud address a fundamental flaw in the way web applications work today. Currently, getting updates on the web requires constant polling. Subscribers are forced to act like nagging children asking, “Are we there yet?” Subscribers must constantly ping the publisher to ask if there are new updates even if the answer is “no” 99% of the time. This is terribly inefficient, wastes resources, and makes it incredibly hard to find new content in as soon as it appears. Both protocols flip the current model on its head so that updates are event driven rather than request driven. By that I mean that both protocols eliminate the need for polling by essentially telling subscribers, “Don’t ask us if there’s anything new. We’ll tell you.”

But if you find yourself confused about how they are different, you’re not alone.

Editor’s note: The following guest post is by Tim O’Reilly, the founder and CEO of computer book publisher O’Reilly Media and a conference organizer. O’Reilly coined the term Web 2.0 five years ago. Now he is arguing it is time for Gov 2.0, and has helped organize a summit next week to talk about what that might mean.

Today, many people equate Web 2.0 with social media; three or four years ago, they equated it with AJAX applications and APIs. Many are now starting to think it’s all about cloud computing. In fact, it’s all of these and more. The way I have always defined Web 2.0, it’s been about what it means for the internet, rather than the personal computer, to be the dominant computing platform. What are the rules of business and competitive advantage when the network is the platform?

So too with Government 2.0. A lot of people equate the term with government use of social media, either to solicit public participation or to get out its message in new ways. Some people think it means making government more transparent. Some people think it means adding AJAX to government websites, or replacing those websites with government APIs, or building new cloud platforms for shared government services. And yes, it means all those things.

But as with Web 2.0, the real secret of success in Government 2.0 is thinking about government as a platform. If there’s one thing we learn from the technology industry, it’s that every big winner has been a platform company: someone whose success has enabled others, who’ve built on their work and multiplied its impact.

Over the last few months everyone has weighed in on the question of “Why Don’t Teens Tweet” — except, it would appear, teens. We recently ran a survey of 10,000+ US teens aged 13 – 17 to see if we could add anything new to the question. As it turns out, the question itself is flawed.

To date, reasons given for the alleged aversion of teens to Twitter have ranged from the condescending “Because they have nothing to say,” to the responsible “Because it doesn’t feel safe,” to the Letterman-like “Because they can’t afford it” — at least without a mobile data plan.

Of course, all of these reasons are predicated on the widely accepted notion that “Teens Don’t Tweet” — that there is a phenomenon that needs to be explained. As recently as last week even, the New York Times cited the fact that only 11% of Twitter is teen as evidence of Twitter’s unpopularity to that group.