Social network monetization
Futuristic Play: 5 things that make your social network monetize like crap. Another post that proves that Futuristic Play is one of the few must reads for people interested in the business of online media.
DKNY (and soon also Sephora) on Stardoll
On the growing social acceptence for online meetings
Helena Ehnbom, Nordic Marketing Director for Match.com, on the growing social acceptance of meeting people online. It is about availability, mass and curiosity.
On a, somewhat, related note I must say that writing about Swedish blog posts in English feels funny.
It is about the user
Bronte Media: "The driver's seat in all of this are Facebook and MySpace and their importance increases with time. They own the consumer relationship and that is all that counts." I agree with Niki on his take on the relationship between the ad networks and the large publishers. Read the whole piece.
Big is beautiful
Following up on yesterday's post on Aftonbladet and premium services. In an international perspective it is important to remember Aftonbladet's relative size in Sweden compared with the relative size of newspapers' in the English speaking world. In Sweden Aftonbladet had 3.5 million visitors week 32, or about 70 % of MSN's 4.95 million. In August NYTimes.com had about 7.5 million unique visitors from the US (according to Comscore), which is about 6 percent of Yahoo's 131 million and Google's 122 million. For an English language newspaper the potential growth from, primarily, search is a bigger opportunity than it is for Aftonbladet.
As a large media site Aftonbladet gets some advantages from investing in user paid services like Plus:
- Less dependent on advertisers (which is a good thing)
- A platform to be a fast follower or develop new paid only offerings internally (think dating, dieting etc), as parts of the knowledge and infrastructure is in place
- Higher revenue per (paying) user for certain services than advertising will provide
The three areas of advantage lead both to significant short-/mid-term revenue opportunities and longer term strategic flexibility.
25+ million SEK is nothing to sneeze at
Advertisers are bad masters for online media, probably especially to newspapers, so one shouldn't rule out premium (a.k.a. paid for by users) material and features even if the international trend is to go all advertising supported. There are lot of ways to implement premium features, and with the devil in the details a freemium model makes a lot of sense to many web sites.
Martin Jönsson writes, in essence, that 2 million SEK per month doesn't make it worthwhile for Aftonbladet to run its premium service Plus. To put it in perspective annual sales of 25 million SEK from Plus is about 10 % of Aftonbladet Nya Medier's annual revenue (first half of 2007 run rate excluding Blocket/Bytbil).
While paid for features negatively affect word-of-mouth and search traffic, in Aftonbladet's case one must remember that the trade off for Plus is different from NY Times Select's. Aftonbladet Plus is lowbrow (celebrity pictures, dieting etc) while NY Times Select might be the definition of highbrow. If blogs don't discuss the latest bikini pictures of Jessica Alba, that might not be as big an issue to Aftonbladet as blogs not discussing Paul Krugman's latest column is to The New York Times. Especially if Aftonbladet get the people who actually look at the pictures to pay far more than advertisers would do. And Aftonbladet can capture less search traffic for its Swedish site than New York Times can for its English site, so the alternative cost of locking certain material is smaller to Aftonbladet.
As the latest push for Plus is only 5 months old, Aftonbladet likely has some efficiency gains still to make in the sales process, which could push its current conversion rate of free to paying of 3 % towards 5 %. That would make Plus a 40 million SEK business. Worthwhile? Probably.
Internet conferences in Sweden
Internet-related conferences in Sweden this fall.
Sep 26: Webbdagarna Göteborg
Oct 23-24: Webbdagarna Stockholm
Oct 29-30: Emetrics Marketing Optimization Summit (Stockholm)
Oct 31 - Nov 1: Search Marketing Expo (Stockholm)
Nov 14-15: SIME07 (Stockholm)
Nov 27: Disruptive Media: Sociala Medier för Kommunikatörer (Stockholm)
Nov 28-29: Internet Marketing Conference (Stockholm)
Garbage in - garbage out. "To coin a phrase, online advertising is clearly the worst form of marketing, except all the others that have been tried from time to time."
It is worth noting that the part of online marketing that has grown the fastest - acquisition marketing (search, CPA, pay per click, affiliate marketing) - is the one that has found buyers that have metrics, track and care about the direct result of their advertising rather than branding metrics.
While New York Times' freeing of TimesSelect, and the awaited freeing of WSJ.com, is being written about, I found HotOrNot's return to paid to be as interesting. It is a practical example of the argument I've made that a revenue model where users' pay can be used to drive positive behavior. Making stuff free is not a good thing when it messes up users' incentives to good behavior.
If you buy into Umair's point that with level playing fields quality wins being advertising supported should be a good strategy for quality newspapers like New York Times and Wall Street Journal, as they should capture a larger share of word-of-mouth and search traffic than their competitors by doing so. By going free they, in essence, give their readers' incentive to share an article with a friend or link to it from a blog.
Understanding what behavior you want to drive is key when deciding if you should be getting money from advertisers or users.
Stardoll on the cover of InternetWorld
Money, money, money and mobile
A cold and rainy Sunday afternoon in Stockholm is a perfect time to expand on and link to some of the things that caught my eye in the second half of the week.
Ed Sims points at something central for Internet companies in his post The constant battle between revenue and usability. The problem is, of course, that there is no how-to guide to help with the specific design decisions an individual company has to make. But getting those decisions right are likely the biggest drivers of revenue and profitability for media and community sites.
Five of the more profitable local Swedish newspaper owners have set up a common development company (business and tech) called Mindpark. Even though such partnerships generally have had a tough time making it big, maybe with CareerBuilder as the exception, I will keep an eye on Mindpark as Joakim Jardenberg will be running the show.
The latest research from Strategy Analytics points out that online gaming is a bigger category than both online music and online movies at a value of US$4 billion.
As the Internet is getting more prevalent in our mobile phones, spending the next few years as product owner for mobile Internet at 3 Scandinavia could be interesting. Last day to apply is September 23rd. I have no idea if 3 is the right company to be at, but I think the mobile Internet area is the right one to spend time in.
Open Source Analytics
Last evening I went to Web Analytics Tuesday in Stockholm to listen to Eric T. Peterson, author of Web Analytics Demystified and other books, and meet some people in the analytics parts of the Internet world. Following Eric's presentation (the "resources, analysis, testing, processes" approach to web analytics makes sense) was a panel debate with participants from some of the major suppliers of analytics tools (IndexTools, Omniture, WebTrends and consultancy Satama).
The first one has little to do with analytics, but is an observation that there is not one Internet scene in Stockholm. Rather there are several. Startup/entrepreneurs, business people, tech/developers, web analysts etcetera. At the edges there seem to be overlap between the sub-scenes, but not to a great extent.
Going back to analytics. The vendors still feel very e-commerce oriented to me. Most of them have business models where a customer's cost scale in relation to pageviews. That is ok for an e-commerce site with relatively few pageviews and a high value per pageview, but unattractive for a media or community site. If someone wonder why Google Analytics is popular with such sites, it is not only because it is free (to be precise: not free but bundled with AdWords) but because costs don't grow in-line with pageviews.
As the vendors seem to be keen to sell their solutions as services, I see an opportunity to create an open source web analytics product that is hosted by customers. For large sites it makes the solution scale better (definitely on the business side and likely also on the operations side). The business model for such a project would be like the one used MySQL, make money on relatively cheap commercial licenses and support.
The first step for such a product would be nail unique visitors, visits and pageviews tracking at scale (50+ million pageviews/month). Then add additional functionality. The product should be hosted on the customers' servers, as customers operating at large scale usually have the operations capacity to handle it and probably a traffic pattern a local vendor is not setup to handle.
The year 1999 for di.se
The redesign of DI.se, the web site of leading Swedish business daily, made the site better looking. Graphically I find it to be a good, contemporary design, but when it comes to the use of frames and the lack of visible URL:s the site seems to be frozen in time. A good friend captured the those design decisions perfectly by saying "I wouldn't be surprised if they got the phone call: "This is the year 1999. I want my HTML back."
Play, not storytelling
I find the most interesting part of online entertainment to be more about play than storytelling, i.e more about World of Warcraft, Club Penguin, King.com, Hattrick, Habbo Hotel, Kart Rider, Battlefield and Stardoll (of course ;-)) than video and tv. This weekend the following game-oriented articles caught my eye.
The blog billsdue writes that the Chinese MMOG market will have a turnover of $1.2 billion in 2007, with the largest company rumored to make a net profit of over $100 million.
Sulake, makers of Habbo Hotel, spoke at the Austin Game Developers Conference leading to an interesting blog post on Gamastura as well as a weekend feature on GigaOM. Last (2006) year's revenue for Sulake was about $50 million according to the company, not $77 million which a New York Times article claimed.
BioWare's Gordon Walton highlighted 12 lessons from World of Warcraft in his AGDC speech. Some of the lessons: low system requirements (which also was true for Counter-Strike, seems like a platform won't get dominant if the price of admission is to high), quality counts, solo play important, don't tune for the hardcore, an accessible game is directed.
Trust and fairness key to better ad targeting
Umair's post on ad networks being a proof of the long tail of content being quite long and Yahoo's acquisition of Blue Lithium got me thinking about ad targeting.
Behavioral/contextual/content/demographic targeting are filtering mechanisms for advertising. Filters, of course, are a key way of creating and capturing value in a long tail world. (Google AdWords is an example of the value of a good advertising filter.)
In order to be useful, banner advertising filters need data on users' behavior. A lot of users, quite rightly, don't see the benefit of giving the ad network that data but only the privacy implications. A major reason for this is the fact that the online publishers and advertising networks have done very little to earn their users' trust in this area.
The deal offered to users with regards to advertising targeting seems to be:
1) without good targeting you'll see a lot of often irrelevant adverts and the publisher will make a healthy profit
2) with good targeting you'll see some relevant adverts and quite a lot of irrelevant adverts and the publisher will make a larger profit
Not really a win-win.
But Internet users are not universally against personalization and filters. Witness Amazon which offers the deal: the more we learn about your taste and behavior, the better our recommendations will be. Yahoo, Tacoda and other companies developing behavioral targeting should be inspired and offer their users a better overall deal with regards to advertising supported content and services.
Yahoo acquires Blue Lithium
Yahoo has acquired the advertising network Blue Lithium for $300 million. According to alarm:clock Blue Lithium had revenues of 100+ million in 2006.
The acquisition increases Yahoo's role as a seller of advertising on non-Yahoo web sites. While traditional ad sales representation is not a terrible attractive business compared to being an integrated publisher with internal ad sales team, it makes sense as Yahoo seems to taking steps in creating a more effective market for non-premium advertising inventory. When creating a market you want lots of buyers and sellers and as most of the activity online does not take place on Yahoo's web sites, it makes sense to get deeper into the business of selling ads for other companies as that brings more sellers to the market.
The second part of the problem is to bring buyers of advertising to the market. Google managed to do that in search marketing by making each search an economic unit that can be valued and bought. The big opportunity in non-premium banner advertising for Yahoo (and others) is figuring out a way to describe each individual banner impression in a way that enables advertisers to bid on each impression like they do on search words. Personally I think that behavioral targeting will play a significant role in how an ad impression is described, and thus the Blue Lithium acquisition gets interesting.
For Internet users the upside is that if the problem of the generic ad impression is solved, we will likely see far more relevant adverts when surfing the web. And that is a good thing.
Understanding The Financial Side of Startup Companies' Growth
Anyone who wants to understand the financial reality of how startup companies grow should contemplate the following paragraphs written by Fred Wilson:
"But the ugly adoloscent phase is a cash consuming experience. Expenses always precede revenues. Scaling a web business requires servers, storage, and bandwidth. You need developers to maintain code, deal with scaling issues, and you still need to innovate. Revenues have to be suported, that means salespeople, business development people, and customer support people.
Revenues take a while to ramp and even longer to collect.
Your profit and loss statement says you have 200k a month in revenues and 500k a month in expenses. So you figure you are burning 300k in cash. Wrong. You are probably burning 400k to 500k. Because you had to pay three months rent in advance, buy an expensive netapps box, and you haven't collected a dime of last month's revenue yet."
I remember being at TradeDoubler, which got 10 million US dollars (back when the dollar was at 11 SEK/USD) in funding in 2000, in 2000-2002 when the company consumed a lot of cash every month. And each additional market launch increased short-term cash consumption. In hindsight the money was well spent, as TradeDoubler turned profitable, continued to grow and today has a market cap of 4-5 billion Swedish kronor. However, had the company not managed to secure funds from investors and turn cash flow positive, TradeDoubler would have been considered another dot.bomb. Hindsight is indeed powerful when evaluating both company performance and investment decisions.
Thanks to everyone who showed up at Tranan or sent congratulations yesterday. After having blogged five year in Swedish I'm going to try to blog in English for a month. Expect the same type of blog posts but worse grammar. :-)
Tid och plats för femårsfirande
Exakt tid och plats hade jag tänkt meddela med lite bättre framförhållning, men bloggens femårsdag firas på Tranan vid Odenplan tisdagen 4 september från klockan 19. Hoppas att många av er har möjlighet att komma.