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For Microsoft, The Worm Turns Through Apple

By - December 11, 2012

(image) Wow. That’s about the sum of my initial reaction to this story from ATD: Exclusive: Microsoft Pressing Apple to Take a Smaller Cut on Sales Inside Office for iOS.

The wow isn’t that Microsoft is trying to reduce the 30% cut Apple takes on every dollar that flows through the iOS ecosystem. That’s to be expected, though I very much doubt it will happen.

The wow, to me, is how massively the world of software has changed, in particular as it relates to Apple and Microsoft.

I started covering this space in 1987, when Apple was a heroic underdog and Microsoft ruled the world. Apple built bespoke computers that struggled for marketshare in the face of the Windows hegemony. Microsoft, on the other hand, eschewed hardware but built lots and lots of software. Its core profits came from the PC software and OS businesses, but it also had a small division that made Macintosh applications. Because Microsoft’s Windows OS was a major competitor to Apple, we reporters would constantly speculate that Microsoft was was close to pulling its support for the Apple platform, just to  hasten the demise of Apple’s competing offering.

In fact, at one critical juncture in Apple’s history, Steve Jobs practically begged Bill Gates to keep making software for the Mac, then cut an investment deal with him which kept Apple in business.

But regardless of whether you bought a Mac or a PC, once you had your computer, you then bought applications for it – separately, and without any platform tax. The PC and the Mac were what Jonathan Zittrain calls generative ecosystems – anyone could build a business on top of IBM or Apple’s computers, and Microsoft certainly did.

If you had told me back in 1987 that within one generation, Microsoft would be forced to give Apple a 30% cut of its software revenue just to be available on the iOS platform, well, I would have told you to step away from the bong. What a ridiculous notion!  But that’s the way the worm has turned – Microsoft is now at the mercy of Apple, and is playing a high-stakes game of chicken. On the one hand, it needs to distribute its apps on iOS devices (iOS is particularly important to Microsoft’s cloud ambitions, and that is at the heart of this dispute). On the other, Microsoft’s DNA – remember Ballmer has been there since 1980 – is violently opposed to Apple’s pay-to-play business model.

It’s actually possible that Microsoft could abandon its commitment to building for Apple – but for entirely different reasons than any of us might have imagined some 25 years ago. Fascinating stuff.

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Facebook Is Now Making Its Own Weather

By - November 09, 2012

(image) The past month or so has seen the rise and fall of an interesting Internet tempest – the kind of story that gets widely picked up, then quickly amplified into storms of anger, then eventually dies down as the folks who care enough to dig into the facts figure out that the truth is somewhere outside the lines of the original headline-grabbing story.

The topic this time around centers on Facebook’s native ad unit called “Sponsored Stories,” and allegations that the company is gaming its “Edgerank” algorithm such that folks once accustomed to free promotion of their work on Facebook must now pay for that distribution.

Edgerank determines the posts you see in your Facebook newsfeed, and many sites noticed that sometime early this Fall, their traffic from Facebook shrank dramatically. Others claimed traffic had been declining since the Spring, but it wasn’t until this Fall that the story gained significant traction.

I’ve been watching all this play out – first via an angry post on the New York Observer site in which the author posits that Facebook is “broken on purpose” so as to harvest Sponsored Story revenue. An even angrier post on the same theme came five weeks later on a site called Dangerous Minds. From it:

Spring of 2012 was when bloggers, non-profits, indie bands, George Takei, community theaters, photographers, caterers, artists, mega-churches, high schools, tee-shirt vendors, campus coffee shops, art galleries, museums, charities, food trucks, and a near infinite variety of organizations; individuals from all walks of life; and businesses, both large and small, began to detect—for it was almost imperceptible at first—that the volume was getting turned down on their Facebook reach. Each post was now being seen only by a fraction of their total “fans” who would previously have seen them.

The author goes on to argue that Facebook was breaking the implicit contract between himself – an independent blogger – and Facebook, the corporation.

…as a publisher of a medium readership blog, I used to get a great deal from using Facebook—but I understood it to be a two-way reciprocal arrangement because I was driving traffic back to Facebook as well, and reinforcing their brand awareness with prominent widgets on our blog.

Now, if you’ve read my Thneeds post, you know I’m sympathetic to this point of view. I believe large social platforms like Facebook and Twitter “harvest” content from the Indpendent Web, and leverage the traffic and engagement that this content creates on their platforms to their own benefit via scaled advertising offerings. Most of us are fine with the deal – we promote our work on social sites, social sites drive traffic back to us. We like that traffic, either just because we like more folks reading our work, or, in the case of commercial sites like this one, because we serve ads against it.

Now, as I’ve noted many times over the past six months, this bargain is breaking down, because it’s getting harder and harder to monetize traffic using standard display advertising units. That’s not Facebook’s problem, per se, it’s ours. (See here for my suggestions as to how to solve it).

Nevertheless, for many sites, the spectre of losing significant traffic from Facebook means a serious blow to revenues. And from the point of view of the Dangerous Minds blogger, Facebook first cut his traffic off, then began asking him to pay to get it back (in the form of promoting his posts via Sponsored Stories).

This makes for a very good narrative: corporate greed laid bare. It got picked up by a lot of sites, including Ars Technica and even the aforementioned George Takei, who is upset that he’s lost the ability to push his posts to all 2.9 million of his Facebook fans.

Turns out, the truth is a lot more complicated. I’ve done some reporting on this issue, but not nearly as much as TechCrunch did. In a follow up to the Dangerous Minds story, TechCrunch claimed to have debunked the entire story. Titled Killing Rumors With Facts: No, Facebook Didn’t Decrease Page Feed Reach To Sell More Promoted Posts, the story argues that Facebook didn’t change its algorithms to drive up revenue, but rather to cull “spammy posts” from folks’ newsfeeds.

Facebook has always shown just a percentage of all possible posts in a given person’s newsfeed. Anyone paying attention already knew that. The company uses its Edgerank algorithm to determine what it thinks might be interesting to an individual, and sometime in the past few months, I can confirm through sources which wish to remain anonymous that Facebook made a pretty significant change to Edgerank that penalized posts that it felt were not high quality.

Of course, that begs the question: How does Facebook determine what “quality” is? The answer, in the main, is by measuring engagement – is the post shared, liked, clicked on, etc? If so, then it is seen as quality. If not, it’s demoted in value.

Is this sounding familiar to anyone yet? In short, Facebook just executed a Panda.

I held back from writing anything till this predictable cycle played out, because I had a theory, one that I believe is now confirmed: Facebook is now making its own weather, just like Google, and in the past couple months, we’ve witnessed the first widespread instance of a Facebook weather event.

For those of you who don’t know quite what I’m talking about, a bit of history. Ten or so years ago, the ecosystem around search began to notice shifts in how Google drove traffic around the web. Google would make a change to its algorithms, and all of a sudden some sites would see their traffic plummet (other sites sometimes saw the opposite occur). It seemed to those injured that the only way to get their Google traffic back was to buy Google AdWords – corporate greed laid bare. This story played out over and over, to the point where the weather events started to get names, just like hurricanes do. (The first was called Boston).

Early last year Google made a major change to its algorithms that penalized what it believed was lower quality content. Dubbed “Panda,” the changes targeted “content farms” that cranked out SEO friendly pages as AdWords bait. This had dramatic effects on many sites that specialized in “gaming” Google. It also hit sites that weren’t necessarily playing that game – updates like Panda often create collateral damage. Over time, and as it always does, Google fine-tuned Panda until the ecosystem stabilized.

I believe that Facebook is now learning how to manage its own weather. I don’t know the Dangerous Minds website well enough to know if it deserved the drop in traffic that occurred when Facebook had its Panda moment. But one thing does strike me as interesting to note: A significant drop in traffic means a particular site is losing audience that has proactively decided to click on a link inside their newsfeed. That click means the person leaves Facebook and goes to the the Dangerous Minds site. To me, that’s a pretty serious sign of engagement.

However, one might argue that such a signal is not as important to Facebook as internal ones such as “liking” or “sharing” across the Facebook network. To that end, I am sure we’ve not heard the last round of serious grumbling that Facebook is gaming its own Edgerank algorithm to benefit Facebook’s internal goals – to the detriment of the “rest of the web.” Be they publishers or folks like George Takei, who after all wants to push his Facebook fans to any  number of external links where they might buy his books or sign up to meet him at the next Comic Con, the rest of the web depends on “social traffic” from Facebook. The question is, should they optimize for that traffic, or will their efforts be nullified in the next Edgerank update?

Facebook is learning how to tread the delicate line between its own best interests, and those of its users – and the Internet That Is Not Facebook. Google does this every day – but it has a long history as a distributor of traffic off its main site. Facebook, not so much. Over time, the company will have to decide what kind of a relationship it wants to have with the “rest of the web.” It will probably have to start engaging more openly with its own ecosystem, providing guidance on best practices and how to avoid being penalized. This is a practice that took Google years to hone, and many still think the company has a lot of work to do.

Regardless, Facebook is now making its own weather. Now comes the fun part: Trying to predict it.

On Native and Programmatic

By - November 06, 2012

Earlier this week I was asked an interesting question by Digiday. “What’s More Important: Native Ads or Programmatic Buying?” I thought the question was a bit conflated – it’s not either or. It very much depends on how you define the terms.

My response is below. Check the story for the opinions of many others in the industry as well.

If I had to wager a guess, I’d have to say that programmatic will be a larger force, but only if you take “native” to mean the native units at domain-specific platforms like Facebook, Twitter, Tumblr and the like. But it’s very important to define your terms here because in five years time, I think you will be able to buy all of these “native” units across a unified “programmatic” platform — and that platform has not yet been built. We are, as an industry, heading in that direction, and it’s a very exciting one. When programmatic merges with native and is fueled by data and a transparent, objective framework, everyone wins.

For more on this, check my earlier posts What Should the Ads Be Like? and The Evolution of Display: Change Is Here, For Good.

What Should the Ads Be Like?

By - November 05, 2012

The home page of HotWired at launch in Fall of 1994. The banners were on the interior pages.

(Part two of a series. Part one is here. The post that sparked the series is here).

When I’m asked about my views of where digital marketing is headed, I often tell an anecdote about the past. I may have told it here before (5300 posts and ten years into this blog, I sometimes forget what I’ve written), but it’s worth another spin.

The year was 1994, the place, Wired headquarters in San Francisco. As I recall it (and I’m perfectly willing to admit I may not be getting this exactly right), a small group of us were in an editorial meeting – a weekly affair that included our founder, CEO, and Editor in Chief; our Executive Editor; and our Art Director. The subject of our new “HotWired” project came up – Wired was devoting significant resources to the launch of an ambitious Internet publication – one of the first of its kind.

We were hiring literally dozens of editors and writers, convinced that this new medium would prove revolutionary. We wanted to be at the forefront of it – and looking back, I think it’s fair to say HotWired certainly was.

In any case, the question came up: How are we going to pay all these people?! At the magazine, of course, we sold subscriptions and we took advertising. That model was well understood, and it worked. HotWired had a lot of expenses, and it needed a revenue model.

This was a puzzle. At that point it seemed inconceivable to charge for access to the site (and counter productive, because we wanted as much traffic as possible.) Online, information wanted to be free – at least, that was what we believed. Without the distribution and printing costs of print, we figured subscriptions were unnecessary. So that left advertising. But as we sat in that meeting, the question remained – what should the ads be like?

This is when I spoke up with, given hindsight, what may have been a pretty bad idea. Since the late 1980s I had been a subscriber to many online services, including Compuserve, AOL, The Well, and even Prodigy, which was perhaps the worst of them all. I paid for those services because they connected me to content and communities I cared about (and allowed me to send email). But now that you could simply pay one fee for “Internet service,” the subscription was decoupled from the value proposition of content and community. Besides our belief about information wanting to be free, we couldn’t ask folks to pay twice – once for Internet service, and again for HotWired.

The Prodigy service, I recalled, also featured advertising – in the form of a very irritating, blinking, ugly banner framed at the bottom of the service’s window. You couldn’t turn it off, you couldn’t “scroll” it away (online services didn’t work that way), and it was one of the main reasons I didn’t like the service. But for whatever reason, it was the only model of advertising I had seen online that I could recall clearly. Perhaps, I suggested in the meeting,  we might put something like Prodigy’s banner on our new service, but figure out a less irritating approach?

That’s when our founder’s eyes lit up. He understood the power of a web page – it had a scroll bar! “We could put it at the top of the page,” he proclaimed, “and people could scroll it out of view!” (Please take this quotation with a grain of salt. This is what I remember him saying.) The team at HotWired took our founder’s idea, iterated it, and in October of that same year, the banner was born.

I can’t speak for others at Wired and HotWired, but personally, I want to say, with a bit of a twinkle in my eye: I’m sorry.  I’m sorry because over the proceeding two decades, we’ve managed to take the banner, place it in second-class real estate on most sites (at the top, on the side, away from the content), and train an entire generation of audience members to ignore the voice of marketers. And that was not a healthy move for the ecosystem of digital publishing.

Now, let me explain the twinkle. The fact is, the banner – and its descendants the box, the tower, the wide tower, the Rising Star, the expandable, Project Devil, the Conversationalist and on and on – these units have been very good to the web. They’ve gotten us to where we are – to billions and billions of revenue, and countless hundreds of thousands of web publishing sites driven by that revenue. It’s been a scalable, consistent, efficient platform for marketers. Federated Media Publishing, where I remain Chair, has served up banners by the hundreds of billions over the years – it now serves nearly 30 billion a month across its network.

So I’m proud of the banner. It’s been a workhorse. But as I wrote in my last post, we’re at an inflection point in the display ecosystem. Banners continue to evolve, and I don’t think they’ll ever go away for good. But if you run a high quality site that has to pay its creators, and you want to make a business of it that includes marketing as a core piece of your revenue, I believe it’s once again time to ask that question: What should the ads be like?

My answer is this: They should be like the content they support.

Now, before you scream bloody murder about the wall between editorial and advertisement, let me remind you that successful ad models have always mirrored the vocabulary, grammar, and visual nature of the medium they inhabit. Open any issue of Vogue for proof of that. And tell me whether or not the Old Spice Man thirty-second spots employ the same visual and narrative vocabulary as the shows where they appear. Truth is, television and print are storytelling mediums, and they provide marketers a scaleable place to tell a story. Yes, they also interrupt the flow of the editorial. But that’s the price we pay to insure we can access the content. Period, end of sentence. If you do not believe advertising has a right to at least a portion of your audience’s attention, you should not be selling advertising.

Until recently – and upon reflection, quite incredibly – most web publishing was based on the idea that advertising did not have the right to that attention. Relegated to the top and right rail, ads on the web moped from the sidelines, hoping that they might prove relevant enough to possibly elicit a click. Quite understandably, this pushed the entire display ecosystem to be driven by the metrics of “below the line” or “direct response” marketing. Of course we’ve innovated along the way – with page and site takeovers, expandables, and clever one-offs here or there. But while those may work at scale on a very large site like Yahoo, marketers hate inefficiency. They don’t want to make unique creative for every single site that they might wish to support. They’ll do it for large platforms that have proven return – Google, Twitter, Facebook. But for smaller content sites? We can do better.

The independent web is a fractured place. There’s no single template for what a website should look like. That’s what makes it so wonderful – and so difficult to monetize efficiently. So I’d like to offer up some recommendations for sites who want to have a profitable relationship with marketers. Some of these might strike you as going too far. And I’m certainly not suggesting we have to adopt them all. But if we want to create a lasting digital publishing industry that supports the efforts and product of talented content creators, we best adopt at least a few of them.

*First, we have to retrain our audiences to understand that high quality content costs money, and advertisers are our partners in providing that money. If you want our content free of charge, you have to give our advertisers a portion of your attention as well. That’s the deal. We’ve not done a good job of making that explicit across the quality independent web, but we must. For some more thinking on this concept, see my post on Do Not Track from June.

*Next, we need to think about designing our sites so they can accept standardized, high quality ad units that actually work for all involved. The traditional blog (like this one) is not well suited for such units, but it’s not too hard to rethink it so as to accept them. At the very least, this means adopting some standard “ad friendly” templates on our sites.  For more, see info on the NCS below.

*Third, we have to work with our marketing partners to create advertising content that measures up to the quality of the content our audiences have come to enjoy. While there’s a lot of amazing creative out there on the web, I think it’s fair to say that most creative agencies – the folks who make ads – don’t consider digital to be nearly as important as television or even print. That must change. Ads on the web need to be creatively compelling, and they need to be “native” to the environment in which they live. Publishers can help with this – see the section on content marketing below.

*Fourth, we need to give advertisers ad products that have scale, and enough of a canvas to tell that story which is native to the environment. Boxes and rectangles relegated to the sidelines check the scale box, but not the creative canvas box. Here are a few new units that I believe, with scale, give advertisers that canvas:

*The interstitial/overlay. Many high quality sites have already adopted this unit. It shows you an ad when you first land on the page, before you get to the free content. It’s often video (marketers are nuts for video these days.) It interrupts the flow of the audience member’s intent – usually he or she is coming in from a social or search link intent on reading a specific story, right now  - but it certainly checks the box for getting our attention. I think the interstitial can and should be adopted widely – and evolve to the point where it appears as a reward for engaging with content, rather than a prerequisite.

*  The Native Conversational Suite. (Scroll down to see it) This group of products – from Federated Media Publishing, so I’m clearly biased – lives in the editorial well of the site itself. Just as the ad unit at Twitter is a tweet, or at Facebook is a post, with the NCS, the unit is a piece of content that lives natively on the site. It’s clearly marked as sponsored, but it’s given the same respect and space as any other piece of content. To me, that’s a lot like a page of a magazine – it may be a story, or it may be an ad. The trick is getting the ratio, the creative, and the scale right. FM is leaning into driving the NCS across our entire network – which has a reach past 200 million in the US alone.

* The full page ad. I’ve always like the magazine model of full-page and two-page ad spread. You can quickly flip past them as you browse, but if an ad really speaks to you, you pause and absorb it. With the rise of tablet design models, I believe the time is near for the equivalent of a full page digitally-enhanced ad, similar in nature to what you see on Flipboard. It needn’t be relegated to just one app.

* The Mobile Moment. I’m calling this a “moment” because on smaller mobile devices, it’s even more true that traditional boxes and rectangles don’t work very well. Independent publishers must design our sites for mobile, and for advertising units that can appear at the right moment for both the audience and the marketer. An easy example of this is an interstitial video that appears as a player is “leveling up” during a game. For a publisher, that moment might come at the end of a story, or before a second one is chosen.

Content marketing. This could be an entire post, and probably will be, but for now I’ll summarize. Again, FM has been a leader here, and it’s a part of our business that is growing nicely. To me, content marketing is a broad category that includes a range of activities, but the short of it is this: Content marketing is a publisher helping a marketer act natively in the environment a publisher knows best – in short, helping a brand do all the things I’ve been on about above. It’s a publisher helping a marketer create content that works – that engages an audience in various ways.

If you’re going to be a serious publisher on the web, you need to devote part of your energies to working directly with marketers to help them express themselves both on your site as well as across the web in general. This is an area where FM and many others are investing significant resources. Content marketing can be as lightweight as helping a marketer create sponsored posts, or as significant as becoming a partner on a brand-driven media platform like openforum.com or makeup.com.

There are certainly other examples, but I’ll stop there. Imagine if all major publishers across the independent web banded together and implemented a few of these ideas. Then marketers would have broad, engaging canvases, great content to associate with, and that most important of check boxes: Scale.

But there’s even more publishers can do. Foremost among them is getting smart on how to leverage social platforms, and how to lever our own data through programmatic platforms. First, on social: Not having a strategy for social is akin to not have a search-engine optimization plan five years ago. Social drives more than traffic, it drives customer engagement, and just as brands can’t afford to ignore it, neither can publishers. But we have to be smart – don’t put your taproot in the soils of social, but rather leverage it to take care of your audience.

Next, on programmatic. Traditional banner inventory is already undergoing significant change, and publishers need to understand that change, and get smart about how best to navigate it. Programmatic buying is growing at double digit rates, and by some estimates, will account for more than half of all display advertising budgets within two years. That’s stunning given programmatic buying platforms barely existed just three years ago. I believe publishers need to consider who they’ll partner with on programmatic platforms, and how their data and inventory will be used. It’s going to become a crucial publishing skill to either manage your own inventory wisely, or trust a third party who shares your same interests – a partner who is on your side. Again, this is why FMP combined with Lijit Networks, and is investing so much in driving that business forward.

Within five or so years, I believe, most inventory, even the units I mentioned above, will in some way be purchased via a programmatic platform. That might leave us wondering what the people will do. Currently our industry employees tens of thousands of people who market, sell, manage, flight, optimize, and report on display advertising. There’s going to be disruption in this marketplace, to be certain, but the crucial thing to remember is this: we want to employ people to do what people do best, and machines to do what machines do best. People are very good at creating content (machines, not so much), and very good at working in a consultative fashion with marketers. They are very good at coding and tending machines. And most importantly, we are exceptional at insight.  The best publishing teams of the future are going to be partners to brands, publishers, and agencies, creating integrated, native experiences that leverage the machine’s scale and real time algorithms. The future, to me, is bright. Getting there, however, means we embrace change. Let’s get to work.

The Evolution of Display: Change Is Here, For Good

By - October 31, 2012

The first banner ad to run on the web – AT&T’s “You Will” campaign. It asked “Have you ever clicked your mouse right here?” The answer turned out to be “You Will…for a while. Then, not so much.”

 

Earlier this year I wrote a long post about the “death of display,” since then, I’ve consistently been asked about it, and in particular, to expand on my thoughts around display advertising economics, and the prospects for what might broadly be termed “independent creators of content,” or what I call “the independent web.”

Now, I love this topic, as many of you know. So in this post I’ll reprise the core points from On Thneeds and the “Death of Display”, and then riff a bit about where I see things now, and where they might be heading. Spoiler: It’s not all bad. Double spoiler: This post will be written in two parts. This is just the first.

Here’s that previous post, boiled down to bulleted form:

* The model of “boxes and rectangles” – the display banner – is failing to fully support traditional “content” sites beyond a handful of exceptions. For 15 years, independent websites have “direct sold” these units on their sites, or hired someone (like Federated Media Publishing) to do it for them. But marketers increasingly are turning away from direct-sold display units. Why? Read on….

* A new generation of “native” ad units are on the rise, which live primarily on large social sites that curate and aggregate content. Examples include Twitter, Facebook, Tumblr and of course the grandaddy of them all, Google’s AdWords. Big sites like HuffPo and fast social comers like BuzzFeed are also employing native units. Pinterest is expected to roll out something similar soon.

* With the notable exception of Google’s AdSense (which is essentially a programmatic machine, see below), none of the other large “native” platforms  help independent content creators make money, other than a “quid pro quo” deal that if those content creators engage with the platform, they’ll earn traffic back to their sites.

* These publishers hope that by accepting this quid pro quo, they will drive traffic to their site that they can then monetize with display advertising. However, as I stated before, this model is breaking down. Why?

* Because even as all those “Boxes and Rectangles” morph into far larger units, they are increasingly bought and sold in real time by machines (“programmatic buying” or “Demand Side Platforms,” also known as “DSPs” – the largest include Google’s AdX, AppNexus, and Turn).

* So far, the rise of programmatic buying  has not made it possible for most independent publishers to make enough money to create content full time. Hundreds of thousands are making money using these platforms, but if you want to run an independent content brand that employs people full time, boxes and rectangles are usually not going to be enough. Some are opting out of playing in the programmatic market, but it’s quite hard to direct-sell small sites that are not at scale. Marketers and their agencies are finding they can far more efficiently find the audiences they want using machines, at a fraction of the cost of working directly with traditional web publishers.

* If we don’t figure out better models for how to get the “content creator” paid, we risk losing the oxygen that feeds the web ecosystem. After all, what would Google, Twitter, Facebook, or Pinterest be without harvesting the hundreds of thousands of pieces of great content created every day on the web? Ditto for the DSPs, which depend on inventory created by these same independent content creators.

* At the moment, the lion’s share of digital marketing dollars and equity value is flowing to either those large content-harvesting platforms, or to programmatic platforms.

* At the end of the post, I suggest a new model that attaches value to an individual piece of content, such that the piece of content is monetized as it travels around the web, getting reposted, tweeted, shared on Facebook, pinned on Pinterest, and so forth. Such a model is incredibly difficult to create, but not impossible. I promised a follow up post.

Well, this is it (at least, it’s part one).

That took a lot to summarize, but readers know I’m passionate about getting independent content creators paid. In the past five or so months since that post was written, the direct-sold display marketplace has continued to deteriorate. Yahoo, a bellweather for display advertising, has had two more quarters of flat-to-declining display revenues that have missed Wall Street targets. In its latest earnings report, the New York Times Company noted that display revenues actually declined year over year.  We’re seeing it at Federated Media Publishing, as it has both direct-sold and programmatic businesses, and I’m hearing it from folks I speak with privately – models that depend on direct-sold “quality display” are under increasing pressure.

Meanwhile, business is great for the two platforms I outlined above. Programmatic buying platforms are seeing double and triple digit increases in revenue year over year (again, we see this at Federated, because we acquired such a business more than a year ago). As more data and insights are applied to programmatic, and better inventory secured, I  see a very bright future for this part of the market. Business is way ahead of plan at Twitter, executives there have said, and Facebook’s recent earnings highlighted the growing success of that company’s “native” advertising products - promoted posts and sponsored stories.

Unfortunately, neither of these two high-performing sectors of the marketplace help most full time independent web publishers make enough money – at least not yet.

Given all this, what is a publishing business to do? Well, as much as I’d like to say my idea of “monetized content traveling around the web” is imminent, I think that’s going to take a few years.  And while programmatic is getting better each quarter, it’s also going to take time and improvements over years before that ecosystem is fully expressed. If independent web publishers are to thrive in the near term, we’ve got to change our approach to the market. Change is scary, change is hard, but change is needed – and change is good.

How do we do it? In short, we’ve got to be far smarter about how we “feed” those platforms – making sure the value we get is equal to or more than the value we’re giving. We’ve got to be smart about how we interact with both social and programmatic platforms, and align ourselves with companies that put publishers first. And lastly, we’ve got to rethink how we bring high-touch marketing onto our sites – we need to more rapidly adopt new advertising products, new architectures for our sites, and a deeper understanding of how to partner. We can no longer relegate marketing to second-class real estate. If high quality sites on the independent web are going to thrive, we will have to embrace change. That’ll be the subject of my next post.

OpenCoSF – A New Kind of Event

By - October 01, 2012

I’m very excited to announce that registration is now open for OpenCoSF, a new kind of event that I’m helping to bring into the world.

Registration is free and open to anyone who’s interested in innovation in the Bay area. You can sign up here. Already about 1,000 people have expressed interest in coming, and I think we’ve got room for another 500 or so, if my math is correct.

So what is OpenCo? Well, it’s one the “seeds” that’s been germinating since I wrote the It’s Hard to Lay Fallow post back in the early summer. A few months before that, I took a mountain bike ride with one of my pals in the business, Magna Global managing partner Brian Monahan. Brian is on the board of sfBIG, a large Bay area marketing and Internet organization. At a recent meeting, the board was tossing around ideas for how to shine a brighter light on the unique culture of  innovation here in San Francisco and beyond. The idea of an event came up, and knowing my experience with the Web 2 Summit (now on hiatus)  and Federated’s Signal series, Brian asked my advice.

As we climbed up a particularly steep part of the Marin Headlands, Brian posited a new approach to conferences: an “open studio” of sorts, where conference attendees ventured out into the world to see entrepreneurs and leaders in their native environment. I found the idea compelling, if logistically terrifying. It’s one thing to ask a thousand or more folks to gather in one place. It’s quite another to ask them to spread out across an entire city.

The ever-expanding lineup of companies participating in OpenCoSF.

But there was something about Brian’s excitement, and the core of his idea, that really stuck with me. If you’ve read my  The Power of Being There post, I think you know where I’m going with this. For more than 15 years, I’ve been running conferences where hundreds of folks gather in a dark, windowless ballroom to hear from leaders of innovative companies. There’s a lot to be said for this model, but the idea of people actually visiting those companies, in their native environment, just felt right.

I began to develop the idea, producing an overview model and description. I figured we’d execute the first “Open Innovation Studios” (our early name) in the Spring, which gave us enough time to secure the partnerships necessary to get a new event launched. I figured it’d run for three days, with a headquarters in the center of the city, and a plenary conference to kick it off on day one.

Then I ran into the Mayor  of San Francisco at  a cocktail party at Ron Conway’s house. Ever the connector, Ron told the Mayor about our idea, and the Mayor told me he was planning to announce October as Innovation Month in San Francisco. Could we perhaps do our event then?

And off we went. In less than three months, an extraordinary coalition of the willing has come together to produce the first ever OpenCoSF. Our first iteration is a pilot of sorts – we’re limiting the participating companies to 75 or 80, and we’re running the open studios for just one day, Friday, October 12. We’ll be kicking things off with a short plenary and cocktail party the evening of the 11th (Twitter CEO Dick Costolo, Github CEO Tom Preston-Werner, and Conway will be speaking, along with the Mayor).

Even though it’s a pilot, the response so far has been overwhelming. Companies hosting OpenCo sessions include leaders like Twitter, Salesforce, Zynga, Yammer, Adobe, Jawbone, and Google, as well as well known startups such as airbnb, Hipmunk, HotelTonight, Nextdoor, Cloudera, and scores more. And it’s not just tech or Internet – we’ve got chocolate startup TCHO, grilled cheese innovator The Melt, hospitality leader Kimpton, and UCSF, which is a leader in biomedicine. Silicon Valley Bank and The Interpublic Group – in particular its Universal McCann, IPG Mediabrands, and 215McCann agenies – have lent their time and treasure to the effort. AnthemWW has lent a big hand, as has sf:citi and of course sfBIG. Federated Media Publishing is providing a venue for day one, as well as a number of key staff resources. And more companies and sponsors are in the works in the coming days.

OpenCoSF is a prime example of the collaborative spirit that makes San Francisco great. It’s indicative of a desire to share our stories, celebrate our culture, and strengthen our community. If you sign up, you’ll notice that the site acts a lot like a music festival – you’ll see a “lineup” and in a few days we’ll be launching a “company picker” – where you’ll be able to schedule your company visits by timeslot and “stage” – our name for neighborhoods like the Mission, SOMA, or the Financial District. The lineup app is thanks to our partnership with DoStuff Media – the folks powering sites for  music festivals like Outside Lands and Lollapalooza. And OpenCoSF is certainly a festival, a celebration of the innovative ecosystem that makes a city like San Francisco special. I hope you’ll join us!

 

The Facebook Ad Network Is Here

By - September 19, 2012

It’s been a pretty good year for my annual predictions, I must say. A few months ago I did my “how’ve I done so far this year” post, and found myself batting about .500. Yesterday Facebook pushed up my average with the announcement that it’s begun testing a mobile ad network. And this isn’t just an on-domain network (where you can buy ads across Facebook’s domain), but rather, it’s a true cross-domain network – just like AdMob on mobile, or Adsense on the web.

From Ad Age:

The company is working with an undisclosed number of ad exchanges to deliver the ads on iOS and Android devices for its advertisers, who can still target using Facebook’s array of options such as age, location, education and interests.

Expect Facebook to either build or buy one of these exchanges – just as Google did with the web (AdX via DoubleClick). Most observers are claiming that this step augurs a day when Facebook will launch a full-blown ad network across all platforms – video, web, and mobile. I have to agree – I wrote as much in those predictions in January. What I didn’t see was Facebook starting its ad network by launching an exchange (called FBX) and then moving into mobile before it did web.

But upon reflection, it all makes sense. FBX allows Facebook to gather data about web-based buyers’ purchasing habits. FBX is essentially a massive retargeting engine that connects web cookies to Facebook’s internal databases. That will come in quite handy when it launches an Adsense competitor. And launching its first true off-domain ad network in mobile first signals to Wall Street that the company has its priorities straight – its been dinged repeatedly for being too focused on the web. The key to this new mobile network is that Facebook is selling its data, not its inventory. If the company gets good at that, watch out.

These moves elevate Facebook into new arenas of competition with Apple, Google, Microsoft, and Amazon, all of whom employ  simliar product suites. And yes, I did include Amazon in that sentence – the company is far more engaged in the advertising business than you might have thought. More on that in another post.

 

 

 

Tweets Belong To The User….And Words Are Complicated

By - September 06, 2012

(image GigaOm) Like many of you, I’ve been fascinated by the ongoing drama around Twitter over the past few months (and I’ve commented on part of it here, if you missed it). But to me, one of the most interesting aspects of Twitter’s evolution has gone mostly unnoticed: its ongoing legal battle with a Manhattan court over the legal status of tweets posted by an Occupy Wall St. protestor.

In this case, the State of New York is arguing that a tweet, once uttered, becomes essentially a public statement, stripped of any protections. The judge in the case concurs: In this Wired coverage, for example, he is quoted as writing “If you post a tweet, just like if you scream it out the window, there is no reasonable expectation of privacy.”

Twitter disagrees, based on its own Terms of Service, which state “what’s yours is yours – you own your Content.”

As the NYT puts it:

Twitter informed the (Occupy protestor) that the judge had ruled his words no longer belonged to him: (he) had turned them over to Twitter, in other words, to be spread across the world.

(Twitter’s) legal team appealed on Monday of last week. Tweets belong to the user, the company argued.

I find this line of argument compelling. Twitter is arguing that its users do not “turn over” their words to Twitter, instead, they license their utterances to the service, but retain rights of ownership, those rights remain with the person who tweets. It’s a classic digital argument – sure, my words are out there on Twitter, but those are a licensed  copy of my words. The words – the ineffable words –  are still *mine.*  I still have rights to them! One of those rights may well be privacy (interesting given Twitter’s public nature, but arguable), but I can imagine this builds a case for other ownership rights as well, such as the right to repurpose those words in other contexts.

If that is indeed the case, I can imagine a time in the not too distant future when people may want to extract some or all their tweets, and perhaps license them to others as well. Or, they may want to use a meta-service (there’s that idea again) which allows them to mix and mash their tweets in various ways, and into any number of different containers. Imagine for a minute that one of those meta services gets Very Big, and challenges Twitter on its own turf. Should that occur, well, the arguments made in this Manhattan case may well come into very sharp focus. And it’s just those kind of services that are nervous about where Twitter is going.

Just noodling it out. I may be missing some key legal concept here, but this strikes me as a potentially important precedent. I plan to speak with folks at Twitter about all this soon, and hopefully, I’ll have some clarity. Stay tuned.

Twitter Drops Other Shoe, Which You All Saw Coming, Right?

By - August 30, 2012

Way back in the spring of 2010, when Twitter was constantly under siege for “not having a business model,” I co-hosted “Chirp,” Twitter’s first (and I think only) developer conference. This was just two and half years ago, but it seems like a decade. But it was at that conference, in an interview with me, that then-COO (now CEO) Dick Costolo first laid out the vision for “the Interest Graph.” I wrote about this concept extensively (herehere, here), because I felt that understanding the interests of its users would be the core driver of Twitter’s long-term monetization strategy.

Fast forward to now. Twitter today announced its “promoted” suite of ad units may now be targeted by user interest, which to me is a long-expected move that should clarify to anyone confused by the company’s recent announcements (cue link to recent tempest). Twitter’s statements around its decision to sever ties with Instagram and Tumblr couldn’t be more clear:

We understand that there’s great value associated with Twitter’s follow graph data, and we can confirm that it is no longer available to (insert company here)…

In short, if you are a potential competitor, and have the resources, motivation, and potential to harvest the connections between Twitter users at scale, well, expect to get cut off. You’re a threat to Twitter’s revenue stream.

None of this should come as a surprise, if you’ve been paying attention. Back in 2010, the second autocomplete answer for the statement “I don’t get…” in Google was “I don’t get Twitter”:

Interestingly, today, the same search today shows Twitter has only managed to drop down to third, even though the company now sports 140 million active users:

And while one could argue that in 2010, it was consumers who didn’t “get” Twitter, perhaps the folks scratching their heads via Google now are developers, who of late have been concerned that building on top of Twitter’s APIs might be dangerous for their long-term livelihood.

Twitter’s announcement today clarifies things quite a bit. Twitter has already declared its distaste for any business that manages how people consume tweets. Today, the other shoe dropped: Don’t build your business leveraging Twitter if you plan to run interest-based advertising at scale. Of course, the entire traditional media business is driven by interest-based advertising, which means Twitter’s business development group has a lot of work ahead. Interesting times ahead, to be sure.

Musings On “Streams” and the Future of Magazines

By - August 17, 2012

I’ve run into a number of folks these past few days who read my piece last week: The State of Digital Media: Passion, Goat Rodeos, and Unicorn Exits…. Some of you have asked me to explain a bit more on the economic issues regarding media startups. I didn’t really go too deep into them, but as I was answering one fellow in email, I realized I didn’t really explain how complicated they really are, particularly if you want to make new forms of publications. I’ll get into that in the second part of this post, but first, I wanted to address a few articles that have touched on a portion of the issue, in particular The Pretty New Web and the Future of “Native” Advertising (by Choire Sicha) and What happens to advertising in a world of streams? (by Matthew Ingram).

Bridging the Stream

Both these posts tackle the emerging world of “stream”-driven content, painting them as opposite to the format we’ve pretty much used for the past 20 years – “page”-based content (like this page, for example). An established, at-scale business model exists for page-driven content, and it’s called display advertising. And anyone who’s been reading this site knows that display advertising is under pressure from two sides: first, the rise of massive platforms that harvest web pages and monetize them in ways that don’t pay the creators (Facebook, Twitter, Pinterest) and secondly, the dramatic growth of programmatic buying platforms that do pay creators, but the payment amounts are too low to support great content (second generation ad networks called DSPs, backed by agencies and their marketing clients).

Sicha and Ingram note that “stream”-based models – the latest to get attention is Medium, from Twitter co-founders Biz Stone and Ev Williams – eschew display advertising. Platforms like Twitter and Facebook are focused on stream-based advertising (Facebook got to its initial billions in display, but is pivoting to Sponsored Stories, Twitter has always been about its Promoted Products). Everyone expects similar in-stream products from Pinterest and Tumblr. Stream-based advertising products are “native” in nature - which is to say, advertising that acts much like the content it supports.

But as I’ve advised in the past, those platforms simply don’t work as home bases for people who want to make a living from creating great publications. Nor, to my mind, are they particularly good media experiences – the way a great site or a great print publication can be. For now, the good old-fashioned page-driven web is where folks like The Awl and GigaOm execute their product and collect their money. Display is their model, and that model is under pressure. What to do? This is a question that matters, a lot, because there are literally millions of sites that currently run on the display model, like it or not.

Well, I don’t think it’s as hard as it might seem. While folks are pretty freaked out about the decline of display, I’m a bit more patient. We’re in the middle of a shift, and it’s not as radical as some might think. We need “native advertising” for the independent web – and it turns out, we’ve already got it in the form of new, integrated content units that fit into the flow of the page-driven web (see image of FMP’s “native conversationalist suite,” above), and, of course, content and conversational marketing, which we’ve been doing since 2006. The issue we now have to tackle is scale (the ability to buy native ads across the web efficiently and in large numbers) and data (the ability to buy these ads with excellent targeting, performance metrics, and application of first- and third-party data). That’s going to take time, but it’s already underway. The technology and efficiencies of programmatic buying will, over time, marry with “native” ads, driving higher value for great content.  (More on this in another post).

And by the way, “traditional” display isn’t going to go away. It’s just going to get far more efficient and valuable as the data gets better and better, programmatic begins to climb up the value curve, and the units evolve to better complement new approaches to content presentation across all instances of the web (including apps and big platforms).

So far, I’ve been talking only about publishing on the “traditional web,” for lack of a better phrase. Nearly all web publications are driven by the display model, which is in turn driven by page views. But we all know the web is shifting, thanks to mobile devices and the walled gardens they erect. The new landscape of the web is far more complicated, and new products must emerge. To wit….

It’s A Tough Time To Launch A Magazine, Which Is Why It’s A Great Time…

Quick: Name me a digital-only publication that’s blown you away, the way the paper-based Wired did in 1992 (well, at least for some of you), or maybe Boing Boing did when you first found it online. I don’t mean a cool new website (there’s been a ton of those), but a magazine in sense of a branded package of curated, unique content, one that really speaks to you, one that is an event each time it comes out.*

As much as I love scores of wonderful sites across the web, most of them are driven by the daily grind of the display/pageview hamster wheel. They create 20, 30, 40 “content snacks” a day, and I miss far more than I consume.  My media habits when it comes to these sites are rather like a hummingbird. I can’t think of a single “publication” in the digital space that resonates the way magazines used to for me – where I stop time for a while, and really soak in the essence of the publication’s experience. (For purely selfish reasons, if you can think of one, please note it in the comments!)

I think there’s a reason there’s a paucity of digital magazines, and it has a lot to do with the current, fractured state of digital publishing. In short, if you want to create such a product, the curent ecosystem makes it nearly impossible to do so. I think this is changing, but so far, not fast enough.

Just for kicks, let’s say you want to start the equivalent of a “new publication” in the Internet space. Let’s further state that you want it to be relatively cutting edge, IE, you want it to be available everywhere your customer might be, and take advantage of the digital environment where it lives. That means  editions in the Apple iTunes store, Amazon’s Kindle/Android newsstand, and Google’s Play (Android) store, for all those Android smartphones and tablets storming the market. And of course, you want to exist on the web (with spiffy HTML5, natch). Oh, and it’d be nice if you could also have a great version of it exist on Facebook, no?

Naturally, you want to be able to give the consumer of your publication a consistent, platform-agnostic experience across all those environments. If your reader starts engaging with your publication on, say, an iPad, but moves to her work PC later in the day, your publication should be aware of what she’s been doing, the environment she’s now in, and then serves up the right content, ads, and such based on that data. Kind of the way NetFlix works (hey, they solved it for movies!), or Amazon’s Kindle readers (books!) across various platforms.**

Ready to get to work making this happen?!

OK. Well, let’s use the “old” model of magazine publishing as a starting point to model your costs.

In that model, you spent about 35% of your operating costs in “audience development” – paying for circulation and newsstand costs, as well as the costs of selling your product to advertisers (assuming you are going to both charge a sub fee, and include ads, which most “traditional” publications do).

Another 20-40% (depending on how much you care about your product) are spent on actually creating your content. You know, paying editors, designers, writers, videographers, etc.

Add in 25% of your cost to make and ship the physical product, and the remainder is “G&A” – paying for management staff.

As you can see, the variable cost here is in “creating your content,” and if you’re a passionate creator of media, you want to spend every dollar you can creating a great product, naturally.

The problem is, if you’re making digital media these days, the costs of packaging that content have skyrocketed. Imagine making a magazine that has to be natively integrated into half a dozen or more different newsstand formats. Instead of one consistent, beautiful page layout, you have to make six of them – one for each device and distributor, each native to the environment. You don’t have to pay six times over for the content, but you do have to pay a lot more for your design, production, tech, and distribution resources.  You want your content to shine everywhere it might be consumed, right?! Blam, your fixed costs of making the product just went uneconomic!

The same problem applies to marketers – they have to make not one ad, but up to six, if they want their ad to travel everywhere the publisher’s content goes, and work in ways that take advantage of each platform. Trust me, they don’t want to deal with that. No to mention, not many advertisers want to buy ads inside “digital magazines” these days. It’s an unproven medium, so far. (However, as I argued in my 2006-7 series on Conversational Media, the best magazine ads are in fact truly native.)

Which begs the other side of the ledger: Revenues. As I said before, traditional publications have two sources of revenues, in the main: subscriptions (paid circulation) and advertising.

As we all know, the industry has historically punted on getting anyone to pay for content on the Internet, but that’s changing – people pay for Netflix, the Wall St. Journal, Spotify, various apps, etc. I think folks will pay for quality content if it’s truly valuable, so let’s pretend for the purposes of this example that your new publication plans to be in the “valuable” category.

If you want to sell your publication on the Big Guys’ platforms, you have to play by their rules, which means you turn over 30% of your circulation revenues. That’s a hefty chunk of revenue to lose before you even begin to pay for other costs! You can keep all the revenues from folks who buy your publication on the web,  but if they want to enjoy it on their iPad or Kindle via a native application, well, you have to deal with Apple and Amazon. Google’s Play store takes a smaller cut, but it takes a cut nonetheless.

Just for arguments’ sake, let’s say that you cancel out that 30% tax with what you used to call “audience development costs” for traditional publications. You’re pretty much even, right? Nope. You now have cross-platform inconsistencies to work out, and those are going to cost you money to manage. What if your customer has more than one device, or wants to engage with your app on Facebook? Sorry, you’re kind of screwed. There’s no easy way to rationalize your customer experience across all those platforms and devices in a way that makes business sense. So many gatekeepers, so many business rules, so many tech platforms….

You’ll have to account for the costs of managing a data platform that keeps track of all your customers (including your advertisers) and insures they have a consistent experience across platforms. And you’ll have to build that yourself, sorry. The only folks who’ve figured that out are Very Big (Amazon, NetFlix etc), and they’re not sharing how they do it. It’s doable, but it’s gonna be expensive if you want to roll it yourself. I’ve heard that some new publishing startups are trying to do just that, and I wish them godspeed.

To cope with this particular mess, some publishers, like The Daily, have decided to go with just one platform (Apple), and cross their fingers and hope it works out. Others, like the Times, have pushed themselves across several, and expended heroic resources trying to tie it all together (without totally succeeding, in the main). But remember, we’re talking about a new publishing startup here, not the New York Times or Newscorp. If those guys are struggling to make it work, well, what’s the chances a startup media company is going to succeed?

Then there’s the revenues associated with selling advertising. As I pointed out earlier, the traditional web display model is under transitionary pressure, and anyway, you want your content to work everywhere, not just the web. If you want your advertisers to be everywhere your content is, you’ll have to figure out a way to get their ads natively into all those half dozen or so platforms (oh, and you’ll need to report performance metrics too, sorry). So far, that’s also an unsolved problem (and one your advertisers won’t pay you to solve). That’s going to limit your ability to sell ads, and increase your costs of serving them.

OK, I’m going to stop, because if you’re an aspiring publisher, I may have given you a fit of the blues.

But cheer up. Because I really do believe these issues will be solved. So far, we’ve written off magazines as dying, because we can’t figure out how to replicate their core value proposition in the digital world. But I’ve got a strong sense this is changing. Crazy publishing entrepreneurs, and even the big players in media, will sooner rather than later drive solutions that resolve our current dilemma. We’ll develop ads that travel with content, content management systems that allow us to automatically and natively drive our creations into the big platforms, and sensible business rules with the Big Guys that allow independent, groundbreaking publications to flourish again.

It’s going to take time, patience, innovation, and pressure, but we’ll get there. In fact, getting there is going to be a great journey, one we’re already well into. So tell me – what’s your favorite digital “publication” and why? Do you read “traditional magazines” on your tablet or online? And what companies do you think are innovating in this area?

—-

*Some have argued that the era of a branded publication created by a dedicated team of content creators is over. I utterly disagree, but that’s another post. 

**The fact that these two “old media” formats have mostly solved their digital distribution issues, whilst magazines have not, is vexing. A movie is a movie, a book is a book – you can read it or watch it online in nearly the same way that you can offline.  Movies, TV shows, and books can easily flow, with very little new formatting, into any digital space. But a magazine clearly is a different beast. We don’t want to just flip through a PDF of our favorite magazine (or do we? Do you?). Something seems off, doesn’t it? We want more…clearly, the magazine holds some magic that so far, we’ve not unlocked. What a wonderful problem to think about….