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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.

  • Content Marquee

Time To Begin, Again

By - October 19, 2012

Family, colleagues, and friends knew this day was coming, I knew it was coming, but here it is: I’ve rented a new place to write, a small, remote house directly on the beach, about 12 miles as the crow flies from my home in Marin county. It’s not a direct 12 miles – that crow would have to fly up about 2500 feet so as to clear the peak of Mt. Tamalpais. And that mountainous impediment is intentional – it takes close to the same time to ride a mountain bike from my home to this office as it does to drive one of several winding routes between here and there. I’m hoping that will spur me to take my commute by bicycle. I won’t be here every day, but I certainly hope to spend a fair bit of time here over the coming months.

I’ve added this new address to my long list of offices for one reason: To complete the book I’ve been talking about for nearly half a decade. That book began as an idea I called “The Conversation Economy,” but grew in both scope and ambition to encompass a much larger idea: an archaeology of the future, as seen through the digital artifacts of the present. Along the way, it’s changed a lot – 18 months ago, its title was “What We Hath Wrought.” Now, I’m thinking it’ll be called “If/Then.” I may yet call it “If/Then…Else” – or, as I wander through this journey, it might end up as something entirely different.

At this moment, I’m not certain. And that’s a bit scary.

I’ve made many false starts at this book, and I’ve failed on more than one occasion to truly commit to it. There are many reasons why, but I think the main one is that I believe this project requires that I place it first, ahead of anything else. And until recently, that’s simply been impossible. As readers know, up until this year, I ran the Web 2 Summit, which I put on hiatus this year so I could focus on the book. I’m also founder and Executive Chair of an Internet media startup, now in its seventh year. Federated Media Publishing has undergone many changes since 2005, and doubtless will see many more as it navigates what is an exciting and tumultuous media market. And because I’m a founder, I’ve always placed FMP ahead of anything else – even as I handed over CEO duties to a far more competent executive than myself 18 months ago.

In the past few months, I’ve been getting ready to put the book first, and it’s not an easy thing to do.  Not just because of the rapid evolution in the media business  (for more on that, see my “Death of Display” post), but because committing to a book project is an act of faith – faith that isn’t necessarily going to be rewarded.

Staring at a blank screen, knowing you have things to say, but not being certain how to say them, that’s just hard. I’ve been practicing for nearly a year. It’s time to get in the game.

I’ll still be a very active Chair at FMP, and I’ve got a few more long-planned trips to take, but for the most part, my calendar is cleared, and I’m ready to start. I’ve already spent the past year doing scores of interviews, reporting trips, and research on the book. I’ve got literally thousands of pages of notes and clips and sketches to go through. I’ve got many, many drafts of outlines and just as many questions to answer about where this book might take me. And of course, I’ll be writing out loud, right here, as I wander in the woods. I hope you’ll come along for the trip.

Super Sad True Love Story: A Review

By -

In my continuing quest to reflect on books which I have found important to my own work, I give you a work of fiction, first published in mid-2011:  Super Sad True Love Story: A Novel, by Gary Shteyngart, an acclaimed writer born in Russia, now living in the US. This is my first read of Shteyngart, known also for his previous works Absurdistan and Russian Debutante’s Handbook, both of which established him as an important new literary voice (Ten Best Books – NYT, Book of the Year – Time, etc. etc….). Of course, I was barely aware of Shteyngart until a friend insisted I read “Super Sad” and I will forever be grateful for the recommendation.

Based in a future that feels to be about thirty years from now (the same timeframe as my pending book),  Shteyngart’s story stars one Lenny Abramov, a schlumpy 39-year-old son of Jewish Russian immigrants who lives in New York City. Abramov works at a powerful corporation that sells promises of immortality to “High Net Worth” individuals. But he’s not your typical corporate climber: The book begins in Italy, where Abramov has taken a literary vacation of sorts – he’s left an America he no longer loves to be closer to a world that he does – a dying world of art, literature, and slower living. But Abramov’s duty to his parents and his need for money drive him back to America, where most of the action occurs.

It turns out the future hasn’t been very kind to America. Just about every possible concern one might have about our nation’s decline has played out – the economy is in a death spiral, the Chinese pretty much control our institutions, large corporations control what the Chinese don’t, books and intelligent discourse have disappeared, shallowness and rough sex are glorified, and the Constitution has pretty much been suspended. Oh, and while the book doesn’t exactly put it this way, Facebook and Apple have won – everyone is addicted to their devices, and to the social reflections they project.

It doesn’t take long for a reader to realize Super Sad True Love Story: A Novel is also a work of science fiction, but somehow, that construct doesn’t get in the way. In fact, it’s rather fascinating to watch an accomplished literary novelist tackle “the future,” and do a pretty damn good job at it. I’m no science fiction expert, but Shteyngart projects our present day obsessions with devices, data, social networking, and the like into a dystopia that feels uncomfortably possible. Everyone is judged by their credit scores, their youthful appearance, and their ability to gather attention from denizens of an always on, always connected datasphere (those that are particularly good at getting attention are dubbed “very Media!”). Shteyngart is clearly working fields well sown by Dick, Gibson, Stephenson, Doctorow, and many others, but it works for me anyway.

The story is indeed a love story – an improbable and poignant one at that – between Lenny, a middle-aged man beset by insecurities, and a young Korean woman caught between familial duty and the pointless, consumer-driven world of shopping and social networking. The narrative is driven by America’s collapse into a security state, and I won’t give away any more of the plot than that. I’ll leave it here: By the end of this often hilarious novel, you will feel super sad, and you may also come to question the path we are on as it relates to data. I know that’s a pretty odd thing to say about a love story, but data, in fact, plays a central role in the novel’s meaning.  Here are a few of the passages I highlighted:

“Shards of data all around us, useless rankings, useless streams, useless communiqués from a world that was no longer to a world that would never be.”

“I’m learning to worship my new äppärät’s screen, the colorful pulsating mosaic of it, the fact that it knows every last stinking detail about the world, whereas my books only know the minds of their authors.”

“Streams of data were now fighting for time and space around us.”

“And all these emotions, all these yearnings, all these data, if that helps to clinch the enormity of what I’m talking about, would be gone.”

“I wanted to be in a place with less data, less youth, and where old people like myself were not despised simply for being old, where an older man, for example, could be considered beautiful.”

That last passage is from near the end of the book, when the fate of our protagonist has resolved – I won’t tell you how, in case you haven’t read the book. And if that is the case….I certainly recommend that you do.

—–

Other works I’ve reviewed:

The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-line Pioneers by Tom Standage (review)

Year Zero: A Novel by Rob Reid (review)

Lightning Man: The Accursed Life of Samuel F. B. Morse by Kenneth Silverman (review)

Code: And Other Laws of Cyberspace, Version 2.0 by Larry Lessig (review)

You Are Not a Gadget: A Manifesto (Vintage) by Jaron Lanier (review)

WikiLeaks and the Age of Transparency by Micah Sifry (review)

Republic, Lost: How Money Corrupts Congress–and a Plan to Stop It by Larry Lessig (review)

Where Good Ideas Come From: A Natural History of Innovation by Steven Johnson (review)

The Singularity Is Near: When Humans Transcend Biology by Ray Kurzweil (review)

The Corporation (film – review).

What Technology Wants by Kevin Kelly (review)

Alone Together: Why We Expect More from Technology and Less from Each Other by Sherry Turkle (review)

The Information: A History, a Theory, a Flood by James Gleick (review)

In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy (review)

The Future of the Internet–And How to Stop It by Jonathan Zittrain (review)

The Next 100 Years: A Forecast for the 21st Century by George Friedman (review)

Physics of the Future: How Science Will Shape Human Destiny and Our Daily Lives by the Year 2100 by Michio Kaku (review)

 

The Victorian Internet – The Technology That Started It All

By - September 01, 2012

I’m at least three books behind in my reviews, so I figured I’d bang out a fun one today: The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-line Pioneers by Tom Standage. This 1998 book is now a classic – written as the Web was exploding on the scene, it reminded us that this movie has run before, 150 years in the past, with the rise of the telegraph. He writes:

The rise and fall of the telegraph is a tale of scientific discovery, technological cunning, personal rivalry, and cutthroat competition. It is also a parable about how we react to new technologies: For some people, they tap a deep vein of optimism, while others find in them new ways to commit crime, initiate romance, or make a fast buck age- old human tendencies that are all too often blamed on the technologies themselves.

Standage chronicles the history of the telegraph’s many inventors (Morse was just the most famous “father” of the device), and the passions it stirred across the world. Nowhere, however, did the invention stir more excitement (or bad poetry) than in the United States, where it can be convincingly argued that the telegraph’s ability to conquer distance and time almost perfectly matched the young country’s need to marshall its vast geography and resources. Were it not for the telegraph, the United States may never have become a world power.

Expansion was fastest in the United States, where the only working line at the beginning of 1846 was Morse’s experimental line, which ran 40 miles between Washington and Baltimore. Two years later there were approximately 2,000 miles of wire, and by 1850 there were over 12,000 miles operated by twenty different companies. The telegraph industry even merited twelve pages to itself in the 1852 U.S. Census. “The telegraph system [in the United States] is carried to a greater extent than in any other part of the world,” wrote the superintendent of the Census, “and numerous lines are now in full operation for a net-work over the length and breadth of the land.” Eleven separate lines radiated out from New York, where it was not uncommon for some bankers to send and receive six or ten messages each day. Some companies were spending as much as $1,000 a year on telegraphy. By this stage there were over 23,000 miles of line in the United States, with another 10,000 under construction; in the six years between 1846 and 1852 the network had grown 600-fold.

Standage writes with the amused eye of a British citizen – he currently works for the Economist as digital editor. One can sense a bit of English envy as he tells the telegraph’s tale – just as with television, the telegraph had early roots in his native country, but found its full expression in the United States. Thomas Edison started his career as a “telegraph man,” Alexander Graham Bell was inspired by the invention, the Associated Press grew out of the telegraph’s impact on newspapers, “e-commerce” was invented across the device’s wires, and huge corporations were born from its industries – Cable & Wireless, for example, began as a company that sourced insulation for telegraph lines.

The Victorian Internet is a must read for anyone interested in the history of technology, and in the cycles of hype, boom, and bust that seem to only quicken with each new wave of innovation. Highly recommended.

Other works I’ve reviewed:

Year Zero: A Novel by Rob Reid (review)

Lightning Man: The Accursed Life of Samuel F. B. Morse by Kenneth Silverman (review)

Code: And Other Laws of Cyberspace, Version 2.0 by Larry Lessig (review)

You Are Not a Gadget: A Manifesto (Vintage) by Jaron Lanier (review)

WikiLeaks and the Age of Transparency by Micah Sifry (review)

Republic, Lost: How Money Corrupts Congress–and a Plan to Stop It by Larry Lessig (review)

Where Good Ideas Come From: A Natural History of Innovation by Steven Johnson (my review)

The Singularity Is Near: When Humans Transcend Biology by Ray Kurzweil (my review)

The Corporation (film – my review).

What Technology Wants by Kevin Kelly (my review)

Alone Together: Why We Expect More from Technology and Less from Each Other by Sherry Turkle (my review)

The Information: A History, a Theory, a Flood by James Gleick (my review)

In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy (my review)

The Future of the Internet–And How to Stop It by Jonathan Zittrain (my review)

The Next 100 Years: A Forecast for the 21st Century by George Friedman (my review)

Physics of the Future: How Science Will Shape Human Destiny and Our Daily Lives by the Year 2100 by Michio Kaku (my review)

 

 

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.

Signal:Chicago Is Back, And It’s All About The Data…

By - August 22, 2012

I’ve written up an overview of the lineup at FMP’s second annual Signal:Chicago conference over on the FMP site. Highly recommended, it’s a very good event.

Speakers include Andrew Mason, CEO of Groupon, Scott Howe, CEO of Acxiom, Laura Desmond, CEO of Starcom Mediavest Group, and Carolyn Everson,  VP of Global Advertising for Facebook.

If you’re anywhere near Chicago in September, or even if you’re not, this is one that’ll be worth attending. We’re exploring the role of data in marketing, as well as  my favorite topics of mobile, real time, local, and social, of course. Check it out.

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?

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*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….

The State of Digital Media: Passion, Goat Rodeos, and Unicorn Exits….

By - August 09, 2012

Earlier in the week I was interviewed by a sharp producer from an Internet-based media company. That company, a relatively well-known startup in industry circles, will be launching a new site soon, and is making a documentary about the process. Our conversation put a fine point on scores of similar meetings and calls I’ve head with major media company execs, content startup CEOs, and product and business leaders at well known online content destinations.

When I call a producer “sharp,” I mean that he asked interesting questions that crystalized some thoughts that have been bouncing around my head recently. The main focus of our discussion was the challenges of launching new media products in the current environment, and afterwards, it struck me I might write a few words on the subject, as it has been much on my mind, and given my history as both an entrepreneur and author in this space, I very much doubt it will ever stop being on my mind. So here are a couple highlights:

* We have a false economy of valuation driving many startups in the content business. Once a year or so, an Internet media site is sold for an extraordinary amount of money, relative to traditional metrics of valuation. Examples include The Huffington Post, which sold for a reported 10X annual revenues, and, just this past week, Bleacher Report, which sold for even more than that ($200million or so on revenues, from what I understand, that were less than $20mm a year).

Such lofty multiples (typical media businesses  - yes, even Internet media businesses – trade at 1.2 to 3X revenues) can make Internet media entrepreneurs starry-eyed. They may have unrealistic expectations of their company’s value, leading to poor decision making about both product and business issues. The truth is, truly passionate media creators don’t get into the media business to make huge gains from spectacular unicorn exits. When it happens, we certainly all cheer (and perhaps secretly hope it happens to us). But the fact is, we make media because we don’t know what else to do with ourselves. It’s how we’re wired, so to speak. (There is another type of media entrepreneur who is far more mercenary in nature, but I’m not speaking of those types now).

Let me explain why HuffPo and Bleacher Report were sold for so much money: They happened to be in the right media segment, at the right time, while growing at the right rate, just as a large media-driven entity was struggling with a strategic problem that threatened a core part of its business. And that particular site happened to solve for that particular problem at that particular time. These major “strategic buys” occur quite rarely (though smaller, less pivotal strategic buys happen all the time – just for far lower multiples).

Media companies don’t like to pay more than their spreadsheets normally dictate. But if word comes from Time Warner’s CEO or its board that “ESPN is kicking our ass in sports” and “do something about it, pronto,” well, that’s when lightening might just strike. As for the Huffington Post, let’s be clear: AOL was a huge media business that faced a massive problem with audience retention, thanks to its declining dial-up business. The HuffPo brought a large and growing audience, not to mention some serious social media and content-platform chops. Right place, right time, right product, right team.

Now, both these businesses were leaders in their fields, they redefined news and sports coverage. And that’s why the acquirer with the major strategic problem bought them – they were the best at what they did. They met a large media company that had lost its way, and magic ensued. I applaud them both.

But if you’re building a content business in the hopes the same lightening is going to strike you, well, I too salute you. But that’s not really a plan for building a lasting media brand. At some point, you’re going to have to come to grips with the reality that making media is what you do for a living.  Making media companies that you hope to sell is not a lot of fun for anyone who cares deeply about making media.

*The current distribution and production landscape for media companies is an utter goat rodeo. Speaking of no fun, man, let’s talk about what we in the media business call “distribution” – IE, how we get our product to you, the consumer of our work. To illustrate what a total mess digital distribution has become, allow me to create a simple chart, based on the medium in which you might choose to create your media product. Note that I whipped this up in the past half hour, so it won’t be complete. But I think it makes my point:

And my point is this: If you are starting a digital media business today, you face a fractured, shifting, messy, business-rule-landmine-laden horrorshow. Your fantasy is that you can make one perfect version of your media product, and deliver it across all those tablets, Kindles, smart phones, PCs, Macs, and so on. The truth is, harmonizing your product (and, even more importantly, your consumer’s experience and your monetization) across all those platforms is currently impossible. Compare that to starting a website in 2002, or launching a magazine in 1992 (that’s when we launched Wired). The business rules were established, and you could focus, in the main, on one thing: producing great content. (Speaking of Wired, it had a great exit, as historians may recall. But again, it was a exit driven by the strategic need of a bigger company: the media business went for a typical multiple, despite how “hot” the brand was. What got the unicorn valuation was Wired’s Hotwired business, specifically, its search share….)

We’re in a messy transition phase right now, where the focus can’t only be on content, it also has to be on the *how* of distribution, production, and business terms. And that’s retarding growth and innovation in media businesses.

But I have hope. There’s a massive business opportunity inside this mess, one that I’m investigating, and I know others are as well. More on that as it develops. Meanwhile, a maxim: Most media businesses fail, always have, and always will. And most folks who make media already know this, which means they are close to batshit crazy anyway. But over and over and over, we keep making content, regardless of how ridiculous the landscape might be. And that, I am sure, will never change.

Here We Go Again: The Gray Market in Twitter and Facebook

By - August 07, 2012

So, casually reading through this Fast Company story about sexy female Twitter bots, I come across this astounding, unsubstantiated claim:

My goal was to draw a straight line from a Twitter bot to the real, live person whose face the bot had stolen. In the daily bot wars–the one Twitter fights every day, causing constant fluctuations in follower counts even as brands’ followers remain up to 48% bot–these women are the most visible and yet least acknowledged victims…

There it was, tossed in casually, almost as if it was a simple cost of doing business – nearly half of the followers of major brands could well be “bots.”

The article focuses on finding a pretty woman whose image had been hijacked, sure, but what I found most interesting (but sadly unsurprising) was how it pointed to a site that promises to a thousand  followers to anyone who pays…wait for it…about $17. Yes, the site is real. And no, you shouldn’t be surprised, in the least, that such services exist.

It has always been so.

Back when I was reporting for The Search, I explored the gray market that had sprung up around Google (and still flourishes, despite Google’s disputed attempts to beat it back). Fact is, wherever there is money to be made, and ignorance or desperation exists in some measure, shysters will flourish. And a further fact is this: Marketers, faced with CMO-level directives to “increase my follower/friend counts,” will turn to the gray market. Just as they did back in the early 2000s, when the directive was “make me rank higher in search.”

Earlier this week I got an email from a fellow who has been using Facebook to market his products. He was utterly convinced that nearly all the clicks he’s received on his ad were fake – bots, he thought, that were programmed to make his campaigns look as if they were performing well. He was further convinced that Facebook was running a scam – running bot networks to drive performance metrics. I reminded him that Facebook was a public company run by people I believed were well intentioned, intelligent people who knew that such behavior, if discovered, would ruin both their reputation as well as that of the company.

Instead, I suggested, he might look to third parties he might be working with – or, hell, he might just be the victim of a drive-by shooting – poorly coded bots that just click on ad campaigns, regardless of whose they might be.

In short, I very much doubt Facebook (or Twitter) are actively driving fraudulent behavior on their networks. In fact, they have legions of folks devoted to foiling such efforts.Yet there is absolutely no doubt that an entire, vibrant ecosystem is very much engaged in gaming these services. And just like Google had at the dawn of search marketing, Twitter and Facebook have a very – er – complicated relationship with these fraudsters. On the one hand, the gray hats are undermining the true value of these social networks. But on the other, well, they seem to help important customers hit their Key Performance Indicators, driving very real money into company coffers, either directly or indirectly.

I distinctly recall a conversation with a top Google official in 2005, who – off the record – defended AdSense-splattered domain-squatters as “providing a service to folks who typed the wrong thing into the address bar.” Uh huh.

As long as marketers are obsessed with hollow metrics like follower counts, Likes, and unengaged “plays,” this ecosystem will thrive.

What truly matters, of course, is engagement that can be measured beyond the actions of bots. It is coming. But not before millions of dollars are siphoned off by the opportunists who have always lived on the Internet’s gray edge.

First, Software Eats the World, Then, The Mirror World Emerges

By - July 18, 2012

David Gelernter of Yale

(image Edge.org) A month or so ago I had the pleasure of sitting down with Valley legend Marc Andreessen, in the main for the purpose of an interview for my slowly-developing-but-still-moving-forward book. At that point, I had not begun re-reading David Gelernter’s 1991 classic Mirror Worlds: or the Day Software Puts the Universe in a Shoebox…How It Will Happen and What It Will Mean.

Man, I wish I had, because I could have asked Marc if it was his life-goal to turn David’s predictions into reality. Marc is well known for many things, but his recent mantra that “Software Is Eating the World” (Wall St. Journal paid link, more recent overview here) has become nearly everyone’s favorite Go-To Big Valley Trend. And for good reason – the idea seductively resonates on many different levels, and forms the backbone of not just Andreessen’s investment thesis, but of much of the current foment in our startup-driven industry.

A bit of background: Andreessen’s core argument is that nearly every industry in the world is being driven by or turned into software in one way or another. In some places, this process is deeply underway: The entertainment business is almost all software now, for example, and the attendant disruption has created extraordinary value for savvy investors in companies like Amazon, Netflix, and Apple. Further, Marc points out that the largest company in direct marketing these days is a software company: Google. His  thesis extends to transportation (think Uber but also FedEx, which runs on software), retail (besides Amazon, Walmart is a data machine),  healthcare (huge data opportunity, as yet unrealized), energy (same), and even defense. From his Journal article:

The modern combat soldier is embedded in a web of software that provides intelligence, communications, logistics and weapons guidance. Software-powered drones launch airstrikes without putting human pilots at risk. Intelligence agencies do large-scale data mining with software to uncover and track potential terrorist plots.

That quote reminds me of Wired’s first cover story, in 1993, about the future of war. But in 1991, two years before even that watershed moment (well, for me anyway), Yale scholar Gelernter published Mirror Worlds, and in it he predicted that we’d be putting the entire “universe in a shoebox” via software.  Early in the book, Gelernter posits the concept of the Mirror World, which might best be described as a more benign version of The Matrix, specific to any given task, place, or institution. He lays out how such worlds will come to be, and declares that the technology already exists for such worlds to be created. “The software revolution hasn’t begun yet; but it will soon,” he promises.

As we become infinite shadows of data, I sense Gelernter is right, and VCs like Andreessen and the entrepreneurs they are backing are leading the charge. I’ll be reviewing Mirror Worlds later in the summer – I’m spending time with Gelernter at this home in New Haven next month – but for now, I wanted to just note how far we’ve come, and invite all of you, if you are fans of his work, to help me ask Gelernter intelligent questions about how his original thesis has morphed in two decades.

It seems to me that if true “mirror worlds” are going to emerge, the first step will have to be “software eating the world” – IE, we’ll have to infect our entire physical realities with software, such that those realities emanate with real time and useful data. That seems to be happening apace. And the implications of how we go about architecting such systems are massive.

One of my favorite passages from Mirror Worlds, for what it’s worth:

The intellectual content, the social implications of these software gizmos make them far too important to be left in the hands of the computer sciencearchy…..Public policy will be forced to come to grips with the implications. So will every thinking person: A software revolution will change the way society’s business is conducted, and it will change the intellectual landscape.

Indeed!