Thursday, January 13, 2011

Magid Study Reveals Impact of Alternative Video Viewing Platforms on Traditional Television and Home Video Markets

Magid Study Reveals Impact of Alternative Video Viewing Platforms on Traditional Television and Home Video Markets
An annual study of consumer video consumption habits and platforms conducted by Frank N. Magid Associates reveals that despite the increased use of alternative video viewing platforms (like video-on-demand, set-top boxes, instant streaming, and mobile apps), the vast majority of consumers intend to continue to maintain their traditional subscriptions with cable, satellite, and telco TV providers.

For several years, cable, satellite, and telco TV providers have been working under the assumption that as the use of alternative video viewing platforms grows, consumers will increasingly "cut the cord" and cancel their subscriptions. On the contrary, Magid's new study, "2010: The New Age of Video Entertainment," uncovers several consumer behaviors that should persuade the industry to take a second look at earlier defection forecasts, including:

•Consumers using the greatest number of alternative platforms also tend to spend the most money on traditional subscription services. This finding appears to undermine the view that the use of alternative video viewing platforms will compel consumers to become "cord cutters," en masse, by cancelling their television subscriptions. In fact, the study shows that alternative video viewing platforms should be considered additive to traditional subscription television.
•Only 10 percent of consumers express an interest in trying TV show and movie viewing from the Internet to a computer or tablet screen. In contrast, interest surges in viewing this content on a TV screen via a computer connected to the Internet, and it climbs even higher for devices designed specifically to stream content to the TV (such as AppleTV and Roku).
"The average American's capacity to consume video content is impressive," said Maryann Baldwin, Vice President of Magid Media Futures™. "As new video viewing platforms such as instant streaming and mobile apps proliferate, consumers are simply adding them to their portfolio of video viewing options. Our research indicates that this is definitely not a zero-sum game -- at least at this point, it appears that traditional subscription services and alternative viewing platforms can coexist with services like 'TV Everywhere' locking in revenues for traditional providers."

In addition, the study indicates that when the availability of Internet content has caused consumers to cancel their traditional service subscriptions, these circumstances remain the exception. Only a very small minority of consumers are even considering cancelling their subscriptions:

•Only 1% of consumers report that they have cancelled their subscription service in favor of accessing content available on the Internet, and only 2.5% of consumers use Internet content exclusively.
•In terms of future cancellations, only 3% of consumers report that they are even considering cancelling their traditional subscriptions without replacing it with a competing subscription, suggesting a relatively stable subscriber base for traditional providers.
•Purchase and rental of DVDs continue to be most at risk from the growth in use of alternative video viewing platforms.
Magid's study also sheds light on the rate and magnitude of adoption for 3D television sets. Among them:

•Eight percent of consumers are very likely to purchase a 3D television set in the next 12 months. To provide context, in the early days of HD adoption, Magid found that 8-10% of consumers said they were very likely to purchase a HD television, while annual adoption reflected only 4-5% growth. Should this pattern repeat, Magid predicts that roughly 5% of households will have a 3D television by the fall of 2011.
•Most important, however, is that there has been no change since late 2009 in the proportion of consumers who feel it is important that there is more 3D content. This suggests that the growth in purchases of 3D television sets will not be driven by consumers' interest in accessing 3D content; instead, the bundling of HD television sets with 3D capabilities presents a more likely short-term growth scenario for 3D adoption.
Taken collectively, Magid's "2010: The New Age of Video Entertainment" findings reveal that viewing habits and expectations have calcified somewhat since the demand-driving introduction of HD television sets a decade ago. As a result of this integration of HD television into American life, new areas like 3D, connected TVs, and video streaming should now play a more prominent role in programmer and consumer electronics strategies, with these alternatives considered "additive" to the consumer media experience as opposed to displacing traditional subscription-based video services.

Thursday, December 16, 2010

How Facebook Reaches $20 Billion in Revenue

How Facebook Reaches $20 Billion in Revenue
A Payments System and Social Ad Network Will Take It to a $100 Billion Valuation

Facebook, at over 500 million users, has transformed the web, and indeed the planet, by connecting us all in ways we weren't before. At their current growth rates, they will finish this year at around 600 million users and will be larger than Google by the end of next year (if they aren't already, see here). (As Facebook's head of growth once told me, the nice thing about growth being truly viral is that it becomes very easy to predict your future growth. Facebook actually employs several epidemiologists to measure and predict growth.) Once Facebook has a true web-wide view (i.e., is connected with nearly all 1.1 billion people on the web), their scale becomes completely un-ignorable by all major advertisers. They are already at this point today in many markets, but this will become true next year in essentially all online geographic markets.

Today, we understand that Facebook generates about $2 to $3 per user per year in revenues. Google, however, generates about $25 per user per year (more than $25 billion in revenue from about 1 billion users). The gap is considerable, but Facebook is just getting started with their monetization efforts. Their main forms of revenue today are engagement ads and self-service ads. The non-self-service ads are sold by a large and competent sales staff around the world that caters to brands and agencies. They are selling these ads largely on a CPM basis. That is, they are not positioned as performance-oriented ads, but sold more like TV. Reach and frequency are the main measurements and selling points. Self-service ads are sold more to the mid-tail of advertisers and are sold more like Google AdWords on a CPC basis. These ads allow for extremely rudimentary targeting. The targeting criteria is based on the info you, the user, have put in about yourself. I am a male in my early 40s in New York City and I like tennis. So, I see ads targeted at these keywords.

There are pros and cons to these forms of advertising. First, Facebook's reach is undeniable and advertisers love the idea of appearing on everyone's Facebook page for an entire day. The CPM ads are targeted more at brand advertisers that are less interested in demand fulfillment and more in awareness generation and demand creation. As Sheryl Sandberg has pointed out many times, this "brand advertising" market is many times larger than search/display "performance" marketing. They have their eyes set on TV.

I think the main reason they are focused on this is because, quite frankly, ads on Facebook don't perform very well. We know that the effective CPM of these ads on Facebook is well under $1. Advertisers understand that social media has proven, thus far, to be a place where people don't seem to want to be interrupted to click an ad. In addition, the performance of rudimentary ad targeting doesn't nearly beat the efficacy of search targeting or good display behavioral targeting for that matter. That makes it less attractive to advertisers who measure performance by clicks, and also to a company who expects to be paid per click. Hence, sell CPMs! Facebook has lots of growth in these two ad strategies. But that is not what will get them to $20 billion in revenue quickly.

What will? Two things: payments and off-site social targeting.

Facebook payments, with Facebook getting 30% of all virtual good sales, will generate several billion dollars a year once it is ramped. This can become a $4 billion revenue line for Facebook within three years. But the other often under-discussed opportunity is an off-site socially targeted ad network.

We know from our investment in Media6Degrees that the most effective form of ad targeting after search is social targeting. These are ads that are targeted essentially at the friends of a brand's existing customers. Your customer's friends show extremely similar brand affinities as you. Of course, these prospects don't have to be the actual friends of your customers...they just have to have similar social signatures to your customers. And Media6Degrees is the leading company pioneering this form of targeting. Other companies exist trying to do the very same thing. Frankly, the results are staggeringly good.

The issue for Facebook is that applying this advanced form of targeting on their site would be uninteresting, owing to the lack of performance of advertising on social media. This is where Facebook Connect comes in.

Already, more than 2 million sites have implemented Facebook Connect. I believe what Facebook will do is to offer to every one of those sites essentially an AdSense replacement. Pull out your AdSense ads and replace them with socially-targeted Facebook ads. When a friend of a brand's existing customer appears on a publisher's site, they can see ads for that brand. I believe these results will perform considerably better than AdSense's contextual/semantic targeting and hence provide publishers with larger payouts than Google provides them. Facebook already has the large social data set to understand the connections necessary for this targeting. Of course, this will further encourage more sites to implement Facebook Connect and Like buttons, since Facebook can make these requirements to be in the social targeting ad network.

By the way, this form of targeting is proving to work equally well for video. Video is likely to be the most important form of ad creative deployed for brand advertisers. But to whom do you show the commercials? The friends of your existing customers.

At scale, with, say, 5 million sites in this network, Facebook could operate the largest off-site ad network (display and video) that outperforms all others. At this scale, I can see this generating $15 billion a year in revenue.

What's stopping them today from doing this? Well, first, they don't have to. They have plenty of headroom left in growing the existing businesses. In addition, the data science necessary to pull this off at scale is profoundly challenging. It's not as easy as it sounds, particularly if performance matters -- there is a cost to showing an ad to someone who may be connected to a customer, but not close enough. It takes years to perfect this form of targeting. Finally, the current privacy scrum needs to further settle out. I think we could see Facebook launch products like this in the second half of next year. This will get them to $20 billion in revenue and worth at least $100 billion in market cap. Stay tuned.

Thursday, December 9, 2010

Report: Driven By Video, Display Ad Spending To Close Gap On Search Within Two Years

Report: Driven By Video, Display Ad Spending To Close Gap On Search Within Two Years

The unrivaled rise of paid search could end as soon as 2014, according to revised forecasts from eMarketer. By then, according to the research firm, growth in spending on online display ads will outstrip that for paid search, although search will continue to take a greater share of dollars.

This year, both search and display are on track to outpace overall U.S. online ad spending, estimated by eMarketer at 13.9%.

Between 2011 and 2014, however, eMarketer projects that online display spending will grow faster than overall online spending, while search spending will lag slightly behind.

The increase in display advertising will be driven partly by the dramatic rise predicted in online video advertising, set to grow by at least 34% every year through 2014. Banner ads will experience more moderate gains of between 7% and 16.2% annually, while rich media spending will stagnate.

"The growth of display doesn't necessarily mean that advertisers are spending less on search," said David Hallerman, eMarketer principal analyst. "Much of the display ad spending gains are new dollars coming online -- which is part of a bigger trend towards more spending on branding, rather than spending focused on direct response alone."

In 2010, eMarketer estimates U.S. advertisers will spend $12.37 billion on paid search, compared with $8.88 billion on online display ads. Search will still get the most dollars in 2014, at $18.84 billion, but display will have closed the gap somewhat and will reach $15.92 billion in spending that year.

Display ads like static banners have a bad reputation for low click-through rates, according to eMarketer, but still serve an important branding purpose.

"Banner ads today mainly have subliminal effects on the audience," said Hallerman. "That makes banners difficult to measure directly. However, the uptick in search results due to banners from the same advertiser is a long-standing pattern seen by sophisticated digital marketers."

eMarketer predicts branding-oriented online advertising will increase its share of the U.S. total from 36.3% this year to 41.4% by 2014, with direct response making up a commensurately smaller part of the pie.

Display's high growth rates, and especially the dramatic growth expected in online video advertising, will be the main factor behind this trend.

Continued economic uncertainty will inspire advertisers to rely more heavily on digital channels, according to revised spending forecasts released earlier this week by eMarketer. Next year, U.S. online ad spending will increase 10.5% -- followed by double-digit growth every year through 2014, when spending will reach $40.5 billion, eMarketer predicts.

In particular, online video advertising will remain the fastest-growing format throughout the period -- while search will continue to get the most dollars, according to Marketer, which forms its forecast by performing a meta-analysis of research estimates and methodologies from various tracking firms.

Mobile and TV

Yahoo plans to release research Thursday supporting why traditional media buyers might want to pull time on broadcast TV to allocate budgets to mobile advertising. Supporting consumer behavior, the data accompanies the rollout of three rich media formats: Yahoo Mobile Screen Takeover, Yahoo Mobile Customized Expandable Ads, and iPad Tap to Video Ads.

Traditional advertisers who remove one or two TV ads from their mix will not notice any difference on the performance of that campaign if they allocate those funds toward mobile to find new audiences, according to Paul Cushman, senior director of mobile sales strategy at Yahoo. "A creative director who says he can't do anything with mobile is last year's story," he says. "HTML5 will become the major driver for scale and engagement within mobile. The ability for it to provide an app-like experience is significant and should not be underestimated."

Cushman, a mobile evangelist, says brands continue to waste ad dollars. The numbers revealing this trend sit behind Yahoo's firewall in mail and Front-Page data, Yahoo's "crown jewel," of which third-party companies can't gain access. The critical data suggests that consumers reach for their mobile devices while watching TV during a commercial break.

Yahoo supports between 49 million and 50 million unique mobile Internet users monthly. Commercial breaks during live TV events drive mobile Internet use, according to Cushman. Yahoo's analysis of consumer activity across the company's network found a correlation between TV commercial breaks and spikes in mobile Internet use. During commercials that ran with the 2010 Academy Awards, traffic and engagement on the Yahoo Mobile site increased on average 12%. Browser activity rose 125% on Yahoo News. Users consumed 39% more content on Yahoo Front Page, search rose 13%, and users checked and sent email 6% more.

Similarly, for the 2010 World Cup, traffic and engagement on the Yahoo Mobile site rose on average of 10% during commercials. Browsing activity rose 57% on Yahoo News, 24% more users consumed content on Yahoo Front Page, and search activity rose 12% on Yahoo Search.

Yahoo has offered the expandable ad format for more than a year, but customized the offering and began designing the other two formats during the past year to create a package for advertisers. Consumers are becoming more comfortable with mobile ads. Research from Yahoo Mobile and Nielsen suggests that the immediacy and portability of the mobile phone drives conversions. When consumers use their mobile phone to do research, about half the time they plan to make a purchase.

Yahoo isn't the only ad tech company capitalizing on mobile. Google also touted Wednesday high returns on investments for mobile ads on Google's network. Dai Pham, who supports Google mobile ads product marketing, writes in a blog post that Roy's restaurant managed to achieve click-though rates 539% higher on mobile than on desktop by investing in mobile-specific campaigns and hyperlocal advertising.

Wednesday, December 1, 2010

More Advertisers Tap Virtual Goods for Casual Gamers

More Advertisers Tap Virtual Goods for Casual Gamers
WildTangent Releases New Platform for Tapping Into Social Games
Posted by Irina Slutsky on 11.17.10 @ 12:29 PM

If you spend money on your virtual cabbages in Farmville, you're in the minority. While players can spend real dollars to enhance the experience, very few actually do.

But a new generation of advertisers is willing to help pick up the tab for tractors, weapons, experience points and other virtual goodies. Game marketer WildTangent is entering the fray with its own way for advertisers to reach 350 million casual gamers by paying for their virtual goods.

"In the social game space, less than three percent of users are spending real money, so there's a 97% opportunity here for advertisers to sponsor social game access," said Dave Madden, CEO of WildTangent.

The company, around for 11 years in Redmond, WA, designed an advertising platform for social games with a set of APIs that game developers can use to allow advertisers to tap into the games. As of this week's launch, six Facebook games, including The Price is Right, Happy Pets, Happy Aquarium and It Girl are using the platform.

It's a strategy similar to SVNetwork's network on Zynga, which also allows users to earn game credits in exchange for engaging with ad experiences, and a way to bring the mechanics of game play into the ads themselves.

WildTangent has made deals with brands -- just finalized this week is Microsoft's Kinect -- for sponsorship inside the games. The basic exchange goes like this: A player watches a 30-second sponsored video and then gets a coveted virtual item or extra playing time. Kinect is a sponsor of The Price Is Right game, a brand in and of itself, both in Facebook and in real life.

According to research, WildTangent and the advertisers it's working with -- Trident, Microsoft, Cheerios, Honda and others -- are on the right path. Though the virtual goods market is expected to grow to as much as $2.1 billion in 2011, there is plenty of room for advertising. Yet ad spending in social games is still nascent, a $192 million market in 2011, according to eMarketer.

WildTangent is participating with large game creators like Playdom, Crowdstar and Ludia, producer of The Price is Right Facebook game.

The Price Is Right has been mixing game play and commerce on TV for 38 years; now they're taking that experience into Facebook. "The Price Is Right game on Facebook is the ultimate social game to provide an even deeper opportunity for brands to participate with our millions of players and reward them at the same time," said Alex Thabet, founder and CEO of Ludia. "We look forward to bringing the fans of our Facebook games these extra bonuses from relevant brand advertisers."

Facebook, Google and Yahoo! are Top Sites While Watching Big TV Events

Facebook, Google and Yahoo! are Top Sites While Watching Big TV Events
March 16, 2010

Americans are getting into the habit of going online while watching television, with 10% or more of viewers visiting social networks, searching the web and browsing content during major TV events.

Recently, when 29% of the U.S. population tuned into the Academy Awards on March 7, more than 13% of those viewers spent time on the web at the same time. For the 2009 Oscars, 25.6% of the population tuned in and 8.7% surfed the web simultaneously. A large percentage of those watching TV and surfing the web visited Facebook, Google or Yahoo!, a trend also seen in this year’s Super Bowl Super Bowl.

Simultaneous Viewing Summary By Event
2009 Super Bowl 2009 Academy Awards 2010 Super Bowl 2010 Academy Awards
% of Population Watching Event 49.10% 25.60% 47.40% 29.10%
TV Viewers Also Going Online 12.80% 8.70% 14.50% 13.30%
Source: The Nielsen Company
2010 Academy Awards
Top 10 Domains by Simultaneous Usage
RANK Domain % of Simultaneous
Visitors Simultaneous Mins Per Visitor
1 39.5% 15.7
2 35.1% 3.0
3 31.0% 5.8
4^ 10.7% 1.9
5^ 10.0% 3.0
6^ 6.6% 3.0
7^ 6.3% 9.8
8^ 5.9% 5.1
9^ 5.5% 3.9
10^ 5.2% 3.5
Source: The Nielsen Company

^Small base sizes; for directional purposes only

Top Domains by Simultaneous Visitors and Time Spent

Super Bowl XLIV

RANK Domain % of Simultaneous

Simultaneous Mins

Per Visitor

1 36% 3.8
2 34% 18.6
3 30% 6.5
4^ 21% 2.4
5^ 11% 2.4
6^ 7.8% 3.6
7^ 7.3% 16.7
8^ 6.1% 3.6
9^ 5.3% 3.7
10^ 5.3% 14.5
Source: The Nielsen Company

^Small base sizes; for directional purposes only

Social Gaming Pushes Deeper into the Mainstream with Zynga, AmEx Deal

Social Gaming Pushes Deeper into the Mainstream with Zynga, AmEx Deal

Click to enlarge Zynga, the maker of such games as FarmVille, CityVille and Mafia Wars, has scored a coup for its corner of the social world via a new partnership with American Express. Social gamers can now use rewards from American Express credit cards to buy virtual goods.

The deal is significant not only because it is the first social game to link up with a major credit card but because it will go far in convincing mainstream consumers that virtual goods do indeed have value in the real world, Venture Beat notes.

This move follows the recent roll out of Facebook Credits in-store gift cards. Now on sale in $10, $25, and $50 increments at Best Buy and $5, $10, and $25 at Wal-Mart, Facebook Credits effectively pushed its own online currency into bricks-and-mortar stores in time for the holidays.

Tangible Examples

Eventually bricks-and-mortar retailers will follow suit with their own virtual goods promotions, predicts Scott Silverman,’s co-founder and VP of marketing. (via eConsultancy). At that point true mainstream acceptance will be reached.

Silverman gives a hypothetical promotion on a retail webpage - buy two pairs of jeans and save $20. Now contrast that with a virtual goods incentive of buy two pairs of jeans and get 20 free Facebook credits. Which is more appealing to the consumer - obviously the additional bargain of 20 Facebook credits. In truth, this offer costs the retailer next to nothing, Silverman said. "Each Facebook credit is worth 10 cents, so the cost to the retailer is $2, or 20% off of an order that might be $50-$60. But 20 feels like a pretty significant number to consumers…We believe that'll have a high perceive value to consumers, and it will help drive them to make that purchase."

Friday, November 19, 2010

Both Sides of the Table

Both Sides of the Table

Entrepreneur turned VC

The Future of Television & The Digital Living Room
by Mark Suster on October 19, 2010

Dana Settle & I are hosting a dinner tonight (10/20/10) with some of the biggest companies in entertainment to talk about the future of television, film & digital media. Michael Ovitz, the co-founder of CAA will be the keynote speaker.

Nobody can predict 100% what the future of television will be so I won’t pretend that I know the answers. But I do know that it will form a huge basis of the future of the Internet, how we consume media, how we communicate with friends, how we play games and how we shop. Video will be inextricably linked to the future of the Internet and consumption between PCs, mobile devices and TVs will merge. Note that I didn’t say there will be total “convergence” – but I believe the services will inter-operate.

The digital living room battle will take place over the next 5-10 years, not just the next 1-2. But with the introduction of Apple TV, Google TV, the Boxee Box & other initiatives it’s clear that this battle will heat up in 2011. The following is not meant to be a deep dive but rather a framework for understanding the issues. This is where the digital media puck is going.

While we won’t get through all of this, here are some of the issues in the industry that I plan to bring up and ones I hope we’ll discuss tomorrow:

1. “Over the Top” video distribution – Apple TV is brand new and is priced at $99. Given how Apple’s products are normally delivered to near perfection it is likely to be a huge holiday hit this year. While their past efforts at Apple TV have been mediocre it seems clear that this time they’re really trying to get it right. That said, Apple will remain a closed system designed to drive media consumption through a closed iTunes system and a take a toll for media distribution.

The device itself will have no storage. So without my weighing into the pro’s / con’s of this I can say that I believe it will capture a large segment of the market but leave room for “open platforms” to play a big role.

Just as in the mobile battle when Apple goes closed it creates an opportunity for somebody that is substantively open. Enter Google. If you’re an OEM who wants to move more hardware but you don’t have the muscle to create an entire media ecosystem then you’re best off finding a partner who can build a software OS, app platform and search capabilities.

So it is unsurprising to see companies like Sony, Logitech & Intel partner with Google. Google balances the universe and helps all of the hardware, software and media companies ensure it isn’t a “one horse race.”

That said, it would be an understatement to say that traditional media is skeptical about Google’s benevolence and many fear a world in which video content margins are crushed in the way that print & music have been with the primary beneficiary having been Google. So while they enjoy a race with two major brands competing they also have three other strategies they’ll pursue.

■they’ll try to “move up the stack” and provide some of these services themselves. Thus you see television manufacturers rushing to create content ecosystems, app platforms, TV OS’s and Internet offerings
■they’ll continue to partner with the MSO’s: tradition cable & satellite providers as well as the new FiOS offerings from Telcos. The MSO’s are today’s distribution platforms and they still have a lot of muscle in the ensuing years
■they’ll continue to look for independent technology partners. They will find the Hobbesian power relationship more palatable than strengthening what they consider their “frenemies” (Apple & Google) and as a result will work with independent players like Boxee.
I have always thought there was room for an independent success story like Boxee or someone similar. I’ve always believed that such a player would only succeed if they could capture an enthusiastic user base that feels compelled to use their platform to discover and consume content. Clearly Boxee captured the imagination of this early-mover user base 2 years ago. The launch of their new Boxee Box in November and the user acceptance of that will be telling for their future development.

2. Attempts at “moving up the stack” – In 1997 I led a project to help senior management at British Telecom define its Internet strategy. I did some market sizing analysis and wrote a strategy paper called, “It’s about the meat & potatoes, not the sex & sizzle.” I argued that if BT was focused there would be a large business in access services (dial up, ISDN and the equivalent of T1′s), hosting services and other infrastructure related products that would be very profitable and they had a great chance to corner the market on a high-market growth business.

My paper warned of the dangers of trying to “move up the stack” and become a content company. At the time all telco’s were envious of Yahoo! and Excite in particular as well as all of the Internet companies with grandiose stock market valuations. The attitude was “I’ll be damned if those young kids are going to get rich off of our infrastructure.” Needless to say BT didn’t follow the advice of my paper and it went bananas for content deals signing a string of money-losing content partnerships. I guess shareholders would have probably punished them for being boring and prudent.

Fast forward nearly a decade and it was unsurprising to me to see the death grip that global mobile operators placed over the handsets. They threatened any hardware manufacturer with not putting anything but operator approved software on the phones. In this way they locked down the device (they controlled the phone distribution market through owning retail stores and subsidizing handset costs). The mobile operators were run largely by the same people who ran the wireline telcos a decade early and still felt screwed by the tech industry. The created a hegemony that delayed innovation until January 2007 when the iPhone was introduced.

The iPhone broke the hegemony with hardware & software that had no telco software on it – thus the Faustian AT&T / Apple iPhone deal. They both gained. They both lost. But ultimately we all won because consumers finally had enough of locked down, crappy software from telcos. Imagine how much mobile telco money still exists in meat & potatoes. Imagine if one of them had created a Skype competitor.

So entering 2011 why does this matter? I see a repeat from television manufacturers and MSO’s. They know that the world is changing and they’re shit scared of what that means for hardware and pipeline providers. The hardware manufacturers are on razor-thin margins and see that having apps on TVs will be a way to build direct relationships with consumers and built higher margin businesses. It’s hard to blame them. But none of this will stick. Not because they are bad companies – but because software is not a core competency.

They will never succeed in these businesses. And I think the smartest hardware providers & MSOs are the ones that will sign unique and daring partnerships with startup technology firms. But the whole market will develop more slowly as we watch this bum fight take place. Get your seats ringside – it will take place over the next 2-3 years.

3. The “second screen” – One of the most exciting developments in television & media to me will be “second screen” technologies built initially on iPads and extended to the plethora of devices we’ll see over the next 3-5 years. And this will be real innovation & revolutionary in the way that the iPad is, rather

than just being incremental. It will involve 3d (see Nintendo’s moves, for example). You’ll likely see applications that draw you into interactive experiences, connect you to your social networks, help you browse your TV better and create a richer media experience overall.

I think we’re in the 1st inning of second screen technologies & applications and this movement will create whole new experiences that the 50+ crowd will lament as “ruining the TV experience.” The 15-30 crowd will feel like this is what TV was meant to be – social. In my opinion this will replicate what most of us 40+ year olds already experienced when we were in our 20′s. We’ll have the post show water cooler effect that was popular in the Seinfeld era. We’ll have simultaneous viewing parties like we did for Friends or Melrose Place. But most of it will be virtual.

4. Content bundling – When there was one pipe capable of broadband delivery leading into our house the person who controlled this could control what we saw and it was delivered in a linear timeframe. As a result it became popular to bundle content together and get us to pay for “packages” when all we really wanted was The Sopranos or ESPN. We all saw what happened when technology let us buy singles on iTunes rather than whole albums pushed by record labels. No prizes for guessing what the future holds for video. The idea of forced bundles will seem archaic. Smart companies will figure this out early. The “Innovator’s Dilemma” will hold others back. The bundle is the walking dead. Only question is how long it survives.

5. Torso TV - Television was designed for a mass audience in a single country. One of the things that has fascinated me over the past couple of years is the rise of global content and its ability to develop a “niche” global audience that is relevant. Think of about the rise of Japanese Anime, Spanish Novelas, Korean Drama or the rise of Bollywood entertainment from India. It’s not a mass, mainstream audience but I would argue that it’s “global torso” content that will be meaningful at scale. Websites like ViiKii, which have been launched to create realtime translations of shows by fan-subbers, have huge followings already. And I’m sure that this is what popularized the SlingBox in the first place. British, India & Pakistani ex-pats on a global scale want to watch cricket.

I believe that NetFlix has won the battle for the “head end” of content from films. They have such a strong base of subscribers and their strategy of “Netflix everywhere” is brilliant. We watch it on the iPad. We pause. We turn on our TV and get it streamed through the Wii. And it’s available also on the Apple TV. It’s on Boxee. It’s effen awesome. Game over. IMO. But the torso? It’s up for grabs. And I think players like Boxee understand this is a juicy and valuable market. As does ViiKii and countless others racing to serve fragmented audiences the good stuff.

6. YouTube meets the television – It was funny to me to hear people say for years that “YouTube had no business model.” It made me laugh because it is so obvious when you capture an entire market of passionate consumers in any market – especially in video – that in the long-run it becomes a huge business. So many people are stuck in the mindset that YouTube is UGC (as defined as people uploading silly videos or watching Coke & Mentos explode) and that brands don’t want to advertise on UGC.

And meanwhile I’ve seen several LA startups focus on creating low-cost video production & distribution houses. They are quietly accumulating audiences in the same way that Zynga did on Facebook. And if you think that these guys can’t monetize then I’ll refer you to everybody’s arguments about games – that free-to-play would never work in the US. And meanwhile Zynga is one of the fastest growing companies in US history.

What Zynga understood is that you need to go where the consumers are, capture those audiences, build a direct relationship and then diversify channel partners. This is happening in spades now on YouTube as a new generation of viewers is being served up by a new generation of TV production houses that are currently under the radar screen of many people. This will change in the next 2 years.

And as they explode and become bigger companies YouTube becomes even more of a Juggernaut. And don’t forget that as the Internet meets TV, YouTube will continue to be a brand to be reckoned with served up by Google TVs.

7. Content discovery – new metaphors – Anybody who tries to search for a program to watch on TV on an EPG (electronic programming guide) knows just how bad they are for finding “the good stuff.” And for a long time the Internet has been that way, too. The best online video search tool (in terms of usability) that I’ve seen is Clicker. By a long shot. Do a little test yourself. Trying searching for something on Hulu. Then try the same search on Clicker. Try it first for content that is on Hulu and then for content that is not. And Hulu’s search is actually reasonable.

Much of web video search is bad at finding “the good stuff” including YouTube itself. Try searching “Dora the Explorer” in YouTube and then try it on Clicker. And then try it on Hulu. I feel confident that any user trying this will not go back from Clicker (no, I’m not an investor).

But as the Internet & TV merge it will be a major fight for how you find the good stuff. Google isn’t that good at video search today. Will this change in a world of Google TV’s? Boxee prides itself on social TV & content discovery. Will their next version blow us away and be the way we search our TVs? Will the MSO / EPG world improve (answer: not likely)? What about discovering content on our TVs via Twitter or Facebook? Or some unforeseen technology? Will we discover stuff through second-screen apps?

Technology such as that being created by Matt Mireles over at SpeakerText is trying to make video transcriptions and make video more searchable and discoverable. Imagine that world. I’m sure others are focused on solving this great problem.

The amazing thing about content discovery is that it can alter what is actually viewed and thus becomes a powerful broker in the new TV era where pipes don’t have a stranglehold on eyeballs.

I have no idea who will win. I only know who won’t.

8. Gaming & TV – One of the great unknowns for me is what role the console manufacturers have on our future media consumptions experiences. There are about 60 million 7th generatation game consoles in the US between the Nintendo Wii, Xbox and PlayStations against about 110 million homes.

And while free-to-play games are becoming hugely popular and as my own kids spend as much time playing Angry Birds (you can’t tell me you don’t want one of these – I already pre-ordered 2 for Hanukkah!) on the iPad now as they do Super Mario Bros. on the Wii – it’s clear that the games manufacturers will find a way to be hugely relevant in the digital living room fight.

As will the media companies. Disney acquired Playdom and Club Penguin. EA bought PlayFish. Google has had long-standing rumors around Zynga. It’s clear that games will feature in the Internet meets TV meets Video world. They’re all battling for mindshare & share of wallet. Watch for continued game creep into TV.

Don’t believe me? Check out what the younger generation does on Machinima these days. People record their game experiences and make them into videos to share. Games meets videos meets TV. To make it easier for you to understand – check out this video (NSFW – language – but good graphics & example of future. You can get through first 1.20 safely).

9. Social media meets digital content – I think the social media story is more obvious in many ways. It’s clear that when people watch movies now they Tweet about it when they get out and this has an impact on box office sales. Social media buzz can boost or bury content. The current generation of players are trying to skate with the puck at their feet by simply offering “check-ins for TV” the next generation will connect us in ways we don’t even imagine now. I’ve seen some really innovative companies trying to solve this social TV problem but their stuff is so new I feel I can’t talk about it out of fairness to them. But I’m hugely interested to watch how this space evolves.

10. The changing nature of content & the role of the narrative – A lot of Hollywood people say that the traditional “narrative” of filmed entertainment will hold in the Internet meets TV world. They say that long-form storytelling will be where the ad money will flow and people will still want to consume professionally written, edited and produced content.

While I agree that there is a bright future for the talent that is uniquely in Los Angeles I think the future of TV & Film will be as different as the transition from radio to TV was. As is widely known “many of the earliest TV programs were modified versions of well-established radio shows.” Why wouldn’t we think that 50 years from now our initial Internet meets TV shows won’t seem just as quaint. Consider:

■The 22-minute format with 8 minutes of 30-second commercials was designed for linear programming. Why is the number 22 magic? In a non-linear world do we need a standard length?
■The world is filled with amazing writers, directors, actors and producers. Many of them don’t have the money or access to be in Hollywood or the ones that are here lack the ability to reach an audience. Companies like Filmaka have been trying to solve this problem.
■What happens when content production & distribution is easy to professionally produce and distribute at mass low-cost scale? Will we still have predictable story lines? Or can we develop more fragmented content to meet the needs of fragmented audiences and interest groups?
■What happens in a world where content producers have a direct relationship with the audience and can involve the audience directly in story creation? Or maybe even as wacky as involving the audience in the story itself?
■Isn’t Arcade Fire’s Wilderness Downtown already an example of the future where you can involve customized assets to an audience? We each see a similar story but with different backgrounds, characters or maybe even music? In a world where the house that I grew up in can play a role in the story (as with Wilderness Downtown) – anything is possible. Isn’t it obvious that content customization to the audience is the future?
I’m such a big believer in the power of writing, editing and producing. When I’m given the choice I always watch independent film with complex characters and non-cliche story lines. I see a future in which Hollywood still is the center of global video content creation in the same way that Silicon Valley remains the center of technology development. But democratization of production & distribution will clearly change the world as we know it today.

And I’m excited to participate in that revolution.

Thursday, October 28, 2010

Dating Sites, Cell Phone Calls: Alternative Sources for Marketing Data

Dating Sites, Cell Phone Calls: Alternative Sources for Marketing Data

Marketers - the ones willing to experiment at least - are finding a treasure trove of data in some unorthodox sources. The most current example of this trend is a blog by the dating website OkCupid, called OKTrends, which has been dissecting its user information to reveal some interesting patterns – such as people who own iPhones have more sex than people with BlackBerrys. And that atheists have the highest writing proficiency of any religious or nonreligious group or Oregonians tend to be more gay-curious than other Americans. (via Newsweek).

"We've collected one of the largest, most thorough databases of human interaction ever, and I have to make sure that what I'm writing about maximizes that resource,” Christian Rudder, founder, tells Newsweek. “We try to explore stereotypes, especially ones you’ve never heard of." The list goes on: Rudder claims he can pull up the books 30-year-old bisexual Latina women from Michigan are reading or the political leanings of six-foot Indian-American males who play piano.

Cell Phone Records

Another untapped - but very rich - source of data can be found in most consumers' cell phone record'. Who calls who, for how long and via what device is all valuable data for marketers. Telenor, a carrier in Scandinavia, has been using this data to map out social connections between people - measured partly by how often they called each other. (via Technology Review). Now Telenor wants to take the insights it gleaned to use in marketing campaigns, Technology Review says, helping, for instance, a company that wants to send promotional text messages to people whose friends already use a product.

How Valuable?

Before marketers jump on such data though, it is worthwhile to ask how reliable it truly is. The OKTrends blog "is a fascinating source of data about people on OkCupid, but I am skeptical of many of the broader claims based on these data," says Andrew T. Fiore, a media expert at Michigan State University. (via Newsweek). "Claims like 'Oregonians tend to be more gay-curious than other Americans' are suspect … It is very unlikely that Oregonians who use OkCupid are a representative sample of all Oregonians."

What Disney Got in the Playdom Acquisition

What Disney Got in the Playdom AcquisitionOctober 25th, 2010
By Chris Morrison 8 Comments » Share

In a new industry like social gaming, a single acquisition can have a disproportionate effect on the ecosystem. The buyout of a prominent company changes perceptions across the market, whether the price is high or low.

Disney’s July acquisition of Playdom has certainly had that effect, setting off a new round of speculation on some familiar themes: Is social gaming a real business, or a bubble? Has the industry produced viable companies? Is Playdom worth what Disney paid?

There’s no doubt that in Playdom’s case, the acquisition price raised some eyebrows. Disney paid $563.2 million, with the possibility of an additional $200 million earnout, for a company with (at the time) 40.1 million monthly and 4.8 million daily active users. Calculating by the full $763 million, that equates to $159 per DAU.

There are nuances to that number — like Playdom’s MySpace traffic, and other issues that we’ll discuss below — but by nearly any measurement, Disney paid handsomely for Playdom’s users.

When a large, established company buys a startup for a sizable amount, it’s usually said that they’re not just acquiring a company, they’re acquiring a “growth story”. This was not immediately evident in Playdom’s case.

When EA bought Playfish for $400 million last November, Playfish had just doubled from six million daily active users on Facebook in June of 2009, to 13 million at the time of acquisition.

By contrast, neither Playfish nor Playdom, not to mention Zynga, CrowdStar or RockYou, has shown much growth in 2010. Only companies that began 2010 small or not yet on Facebook have grown appreciably.

An AppData view of Playdom’s traffic in the six months before its acquisition shows a decline from a high of over seven million DAU in mid-April to around five million in late July, when it was acquired. Like its peers at the top of the social gaming world, with the increasing challenges of distribution on the Facebook Platform in 2010, Playdom had been growing revenues by improving its per paying user monetization metrics, we hear, which can’t be gauged as easily by outsiders.

Thus, many noted that Disney appeared to pay almost twice what Electronic Arts did, for a company with a smaller audience and without the same obvious traffic growth story.

What were Disney’s motivations in buying Playdom? Following the acquisition, relatively little fresh reporting went into the story. So we set out to dig a little deeper into Disney’s motivations, and the reality at Playdom at the time it was bought. What emerged were often very different perspectives from people who had relationships to Playdom prior to the acquisition.

On one side are the negative voices, drawing Playdom as a cynical con-man and Disney as the willing dupe. The alternate view is that Playdom was, like everyone else in the space, simply figuring out its strategy as it went, and that Disney made a well-considered choice for its own future.

Below, we deal with both of these two takes on the acquisition. One note: While we spoke to a number of sources for this story, including both industry onlookers and ex-Playdom employees, most of our sources asked to remain anonymous, citing potential repercussions in the tight-knit social gaming community.

Critical Views
Immediately following the acquisition, we heard some strongly-worded skepticism from a number of sources outside Playdom about the company. “Playdom’s only strategy was to grow and flip to a greater fool,” one prominent industry figure told us. Others offered more or less the same opinion.

The social game industry is, in many ways, a quite cynical place — an attitude perhaps carried over from 2009, when many companies grew from “fast follow” products that closely copied others and spammy viral techniques. Some executives that we spoke to seemed to feel that Playdom had crossed some kind of line in its strategy during that time, even by the loose standards of the social gaming world.

What did Playdom do that was so objectionable? In the view of the detractors, Playdom’s own acquisition strategy — it bought at least eight other companies over the same number of months — was intended to simply bulk up its traffic, without creating a viable long-term structure. In other words, Playdom was creating a bubble, and betting that it could sell itself before it popped.

One former employee said that this roll-up strategy was real. “We all talked about it internally, we all knew that was the reason that these companies were being bought, with some exceptions. We didn’t get Raph Koster [of Metaplace] for that reason. But all we were doing was driving up the value,” the employee told us.

Acclaim, which Playdom bought in May, was an example brought up by more than one source to illustrate how Playdom bought some companies for name cachet and reputation. Acclaim became famous in the 1990s for its association with titles and franchises like Batman Forever, Mortal Kombat, and WWF Wrestlemania, but by the time of Playdom’s acquisition it had been restarted under new management as a MMORPG maker. Playdom touted Acclaim’s 15 million registered users after the buy, but had quietly shut down all of its games by August.

While some of Playdom’s acquired companies appeared to quietly disappear into the organization, other far-flung studios played a disproportionate role in keeping Playdom viable through new game releases.

This year’s decline in Playdom’s traffic would have been far more severe without highly successful releases like Social City, which at one point accounted for a quarter of Playdom’s MAU. PushButton Labs, an experienced third-party developer not owned by Playdom, helped with that game.

Playdom’s other successful recent titles were also developed outside of its Mountain View headquarters. Verdonia, which grew quickly but harbored serious flaws that led to a later fall, was created by a previously-acquired company, Green Patch, also in Mountain View headquarters. Market Street, Playdom’s most successful game outside its city-building titles, was developed by the San Francisco office.

City of Wonder, however, was developed in Mountain View.

The fact that Playdom produced hits is laudable. But its biggest success rested on one studio outside of Mountain View. The headquarters in Mountain View employed over 300 people including executives and support staff, and was mostly focused on centralized functions and maintaining existing games developed last year – though it also produced new games like Treetopia and Fish Friends, which were built hastily and were criticized for relying heavily on copying concepts from other titles.

Employees had varying views of why Mountain View seemed to have a harder time producing good content. “There were a bunch of kids running the place who had never been in the game industry, never managed anything before, and suddenly they’re game producers and executive producers. Of course it was dysfunctional,” said one source.

Another early employee seemed to pin the blame on John Pleasants, the experienced CEO hired away from Electronic Arts in June of 2009, saying that the company felt like it was on course to rival Zynga until Pleasants came on. Afterwards, Zynga pulled ahead, while Pleasants was not as aggressive as he could have been.

Mountain View did more than just produce games — more on that below. But with Eugene doing so well, one might speculate that Disney could have simply picked out and bought an equivalent small, innovative studio for a fraction of the price it paid for Playdom, and built a strong social gaming business around that core.

Skeptics believe that Disney may have bought into a too-rosy story of Playdom, or that the acquisition team could have been pressured into buying an internally troubled, but externally much-admired industry leader by Disney executives who wanted to show shareholders that they were leading in a hot new industry.

The lack of other available companies of Playdom’s size may support these views. Zynga is too large, while CrowdStar has, according to conflicting reports, either rebuffed or been rejected by several suitors, or has other issues. For the moment, there aren’t any other companies with enough size to fit the bill.

And Disney clearly preferred a hot new market to its old standbys. Four days after buying Playdom, Disney sold off its Miramax movie production studio for $660 million, enough to cover the Playdom acquisition.

Disney’s Broader Focus

The view that Disney was duped is too simple to be credible — Disney executives had extended contact with Playdom in 2010, and had contacts in the industry who could inform them of any problems at Playdom.

Similarly, while a desire to look like it was paying attention to a hot trend could have contributed to the acquisition, it’s unlikely that a savvy CEO like Bob Iger, who also oversaw the acquisitions of Pixar and Marvel Entertainment, would buy a total dud.

A kinder – and possibly more accurate – view of the acquisition is that Disney was buying more than just Playdom’s traffic and a jumble of studios.

Two important, but little-discussed, strengths of Playdom suggest a basis for that view.

The first of those strengths is Playdom’s centralized infrastructure, which the company has “perfected” while testing both its successful and failed games.

Playdom has reportedly poured a significant portion of its revenue over the past year, possibly running into tens of millions of dollars, into the teams and tools behind its analytics and monetization platforms. As part of this, it has seen its revenues grow significantly in the past year, we’ve heard, especially in proportion to its traffic.

While Disney no doubt appreciated revenue growth, the more important part is how that revenue grew.

Understanding user metrics and behavior (and knowing which metrics are the right ones to understand) is a key part of the social game business that many companies, both small and large, have failed to fully appreciate. While Disney may not have acquired the most innovative game production studios overall, it did acquire systems and understanding that could give it a competitive edge for years to come.

A senior Disney executive that we spoke with confirmed that Playdom’s analytics ability played a significant role in the acquisition, saying that Disney is using Playdom’s expertise in analytics outside of social gaming. “These are skills that are applicable across our gaming platforms and are already proving incredibly valuable to us,” the executive said.

A second, related strength is Playdom’s understanding of other game publishing platforms and users around the world. Playdom has been the first US-based social game company to enter into relationships with publishers like Russia’s i-Jet and Brazil’s Mentez, and its has published games on Hi5, MySpace, the iPhone, Android and other platforms. It has had third-party studios like Moblyng work on its mobile titles.

Creating a worldwide network was always part of Playdom’s plan, according to Tim Chang, the principal at Norwest Venture Partners who led an investment in the company last year. “That was something they were always intending, building out third party tools and doing cross-promotion. They’re very partner-friendly, an easy shop to talk partnerships with, and that also made it a good DNA fit for Disney, because Disney’s goal is to put their catalog of branded IP into social gaming,” Chang told us.

Disney’s goals, as seen from the outside, do seem to value Playdom’s infrastructure and organizational knowledge over its track record as a collection of studios. Since the acquisition, Disney has been moving the company toward producing branded content from Disney’s many other subsidiaries, as Bob Iger hinted in Disney’s post-acquisition earnings call.

Sources say that both Disney and Playdom are even more aggressive about this strategy than has been publicly admitted. Following the acquisition, some of Playdom’s in-progress titles were reportedly canceled, in favor of focusing on Disney-branded games. Playdom’s only release since the acquisition is ESPNU College Town, which supports Disney’s ESPN sports subsidiary, although we’re told it was in production before the buyout.

Although Playdom may release unbranded games in the future, it also makes the most sense for Disney, a very international company, to focus on spreading its existing, successful IP around the world.

Playdom Today and Tomorrow
Supporters of Disney might also point out that the company has done well with other acquisitions — especially Pixar, the innovative studio whose sale gave Steve Jobs a board seat and chunk of Disney stock.

Pixar may be a unique case: the company has proven time and again that its own unique vision and technology are unparalleled. Too much rode on the $7.4 billion Pixar deal for Disney to risk letting its executives meddle; Pixar was thus able to assert its independence early on and has reportedly kept it since.

Playdom, by contrast, has a creative heritage that differs little from other top social gaming companies. Internal restructuring may fix Mountain View. But the real question is whether Disney itself can do a good job at gaming.

History suggests that will be a challenge. In two decades of producing titles based on major franchises and characters like Mickey Mouse, Disney has had hit or miss success, and in recent years has lost money at its Interactive Media Group.

However, there’s some sign that Disney may want to reboot its gaming division. In October, Disney put Playdom CEO John Pleasants ahead of Steve Wadsworth as co-president of Disney Interactive, with responsibility over all gaming.

Disney has reason to refocus its digital business for the sake of social gaming. It has a large portfolio of content that users love, that appears to be a great fit with the free-to-play virtual goods model that drives most social gaming revenue. In addition to movie tickets, real-world merchandise, television distribution rights, and every other way of monetizing its content, it now can create themed games that include virtual goods — essentially creating an entirely new revenue stream around pre-existing content.

Pleasants, who was once chief operating officer at Electronic Arts, is an experienced core gaming executive. As we noted above, not everyone is confident in his talents, but he mostly gets positive reviews in the social game industry.

And Playdom may be able to grow without the rest of the world seeing exactly what’s happening. With per-user revenues already rising, Disney may be able to further accelerate revenue growth with its own entertainment expertise. Playdom’s 40 million MAU can also help push traffic to other Disney properties outside of gaming.

As for Playdom’s lower-level employees, we’re told that many are now considering their options elsewhere, in part driven by the desire to work for agile startups over a major corporation. “I don’t think they’re any longer vested in Playdom as an organization,” a recruiter who has worked with many current Playdom employees told us, while smaller companies also said they’re interviewing numerous people from Playdom. It will be up to Disney to prove that it can rival Silicon Valley’s pull for existing and future workers.

Playdom grew, and then sold, at a time when companies could be successful despite internal challenges and an unfocused acquisition strategy. Despite those facts, it’s also worth pointing out that the company survived its early encounters with Zynga and stayed viable through much of 2010. At one point, Playdom even reportedly had ambitions toward a big IPO.

The market has tightened considerably this year, however. Playdom, like other companies, likely had neither a perfect plan or an internal conspiracy to dupe a larger acquirer. Instead, the company figured out its strategy as it moved, and ended up falling short of a perfect performance. While Disney’s price was considered high by some, later Playdom investors likely didn’t profit much by the sale.

And yet, following its short and tumultuous history, Playdom could now become an important part of how Disney distributes and monetizes content, and possibly help the rest of the company improve its understanding of how to do business on the web.

Lifetime Bows New Series with 2D Barcode Campaign

Lifetime Bows New Series with 2D Barcode Campaign
Published on October 26, 2010Share .Lifetime Television is embarking on a mobile marketing campaign to promote the launch of a new unscripted series, The Fairy Jobmother, using 2D barcode advertising. The campaign is the first time so-called Jagtags will be used in a television commercial.

Viewers can take a picture of the Jagtag with their mobile phones, and then receive videos from career specialist Hayley Taylor with how-to tips for using social networking during the job search. Users can also opt-in for future tune-in reminders.

The Jagtags are also being incorporated in print materials including US Weekly, People, and Metro NY, and on websites like The Lifetime Jagtags will also appear in New York City subways and bus shelters, and mall dioramas in New York, Los Angeles, Chicago, Philadelphia and Atlanta.

The multichannel campaign enables Lifetime to introduce the new show through exclusive video content, and “provides a platform to reinforce the premiere through tune-in reminders,” says Alex Ignon, vp of media and consumer promotions at Lifetime Television.

Jagtag does not require an application download and works instantly on all camera phones and carriers in the U.S., to reach more than 90 percent of mobile users. The Lifetime campaign will run through November 2010.

The Fairy Jobmother follows Hayley Taylor as she helps the “severely job-challenged” get back on the payroll. A sneak peek at the first episode will air on Oct. 28 following the season 8 finale of Project Runway.

Thursday, October 14, 2010

5 rules for integrating ads into social games

5 rules for integrating ads into social games
By Pauline Malcolm-John

5 rules for integrating ads into social games

With 56.8 million consumers, or 20 percent of the U.S. population, playing social games (NPD Group), marketers need to have a social game strategy. Unfortunately, most marketers don't know how to successfully integrate their brand message into this incredibly dynamic and personal space. While engaging consumers through social games and turning them into passionate brand advocates is possible, there are certain rules to live by.

Get connected. Want to gain more insight into the future of digital marketing? Attend ad:tech New York, Nov. 3-4. Learn more.
In this article, we'll take a look at those rules: Adhering to them will allow marketers to leapfrog the norms of standard media and deliver far more effective, and measureable, social campaigns.

Rule #1: Make it relevant
Connect your ad to the audience in meaningful ways by offering content delivered within the context of the social game. Relevant integration within social gaming drives more traffic to the marketer's website and builds more loyalty than standard banner campaigns.

For example, when Bing advertised in FarmVille, it made the call-to-action relevant to the game's players in two ways: First, it placed sponsored ads in the game directing users to become fans of Bing's Facebook page, mentioning that, "Whether you want to buy a horse or a tree, Bing can help you decide!"; secondly, Bing awarded FarmVille virtual currency to players who became fans of Bing on Facebook. The result? Microsoft gained 400,000 Facebook fans in one day.

Bing was then able to use its Facebook status updates to drive search on Bing. "Any FarmVille fans out there? Try using Bing to get the most out of your crops and animals." By linking that post to Bing search results for "farmville animals," players were encouraged to use Bing instead of Google. And because most Bing Facebook fans that day came in through FarmVille, the update was heavily commented and "liked," increasing viral reach.

Rule #2: Add value
Provide social, competitive and/or game currency benefits. Adding value within social gaming provides far more brand exposure -- as well as deeper and more meaningful loyalty -- than trying to force traditional means into a social environment.

Social games require players to work to achieve benefits. Players "win" by outfitting their avatar or space with items that express their personalities. Before players can acquire their desired virtual goods or achievements, they either have to play the game at length to earn currency, or use real cash to purchase items.

In this context, advertisers get to be the hero, offering virtual goods for free or providing a competitive edge within the social game. The brand or property that provides items that are creative, popular, or attractive enough to spur user interest also "wins" by engaging consumers to opt-in as brand ambassadors.

For example, when organic brand Cascadian Farm teamed up with Zynga to become the first-ever branded crop on FarmVille, they provided a range of bonus benefits to players. In addition to providing the opportunity to quickly enhance their farms, players received coupon offers, as well as organic farming and green living tips. During the week-long partnership, branded Cascadian Farm organic blueberry crops was the most profitable FarmVille crop offered in the game, to beginner and expert FarmVille players.

Rule #3: Give choices, but never interrupt
The user did not show up to see your ad. Make ads a part of the experiences that they have already chosen to participate in, and let them choose to engage. By providing compelling choices, marketers can achieve rates of engagement that are never possible with standard media.

For instance, a recent anti-smoking campaign by Truth (American Legacy Foundation) let WeeWorld users choose to engage by completing a quest or taking a quiz. By doing so, the users earned goods, currency and trophies (the elements they most desire within social game.). In addition, these activities provided entertainment without getting in the way of what users had logged into the site to do in the first place -- express themselves and chat with friends. By following the rules, Truth generated 236 million viral impressions in two months, engaged users to complete 26,000 quests and download 607,000 virtual goods.

Rule #4: Create a dialog
Layer new elements into the experience over time to generate continued campaign momentum and build the conversation with consumers. Engaging in a two- to three-month experience that creates a deep conversation is far more effective than a single event that ends the conversation before it really starts.

Social games don't have a defined start and end -- they are ongoing, looping conversations and activities. To be effective, advertisers need an active presence in that flow. For instance, Skintimate first launched with five auras representing Skintimate scents, then added background changes on the WeeMee home page so users noticed the campaign all over again. By the time the custom virtual film studio with avatar bots delivering automatic messages like "I'm strawberry tangerine!" launched in phase three, the users knew what it meant and new conversations could start. In addition, the Truth campaign prolonged their dialog through a two-part quest and a custom Shards of Glass factory in World -- an effective dialog-starter about the dangers of smoking.

Rule #5: Perpetuate goodwill
Give. Then give some more. Then enjoy the thanks.

There is a lot of giving in social games. Instead of advertising being foisted on consumers, they experience "ads" as welcome gifts and experiences. As the brand gives, they are thanked again and again not only with increased engagement, but also through actual thanks.

For example, Partnership for a Drug Free America grounded its recent campaign on WeeWorld in the form of a real teen spokesperson, JT. As a recovering teen drug addict, JT used Q&A, commentary, quests and video to deliver his story without preaching to the audience. He also posed a scenario each week where a teen would have to make a choice about drugs or alcohol. Users e-mailed him their responses. PDFA tripled brand awareness in just three months, but even more interesting is the fact that JT received loads of direct input from users and got impassioned thank you notes for helping them.

WeeWorld receives personal thank you notes from users for many of the brands that we bring them. These are not consumers being bombarded with ads, these are thankful and engaged members of a community looking for new surprises and opportunities each week.

Follow the rules, reap the rewards
Knowing the rules and putting them into action are two different things. It is much easier to slap a traditional banner ad on a social gaming site and cross your fingers that it drives interest. However, if you take the time to work with a knowledgeable partner and implement a multi-phase, relevant campaign integrated into the true experience and personality of the game itself, you can not only engage consumers but also create powerful and passionate brand ambassadors. How you play the social game is up to you.

Thursday, September 23, 2010

Superbrands Feature: The Evolving CMO

Superbrands Feature: The Evolving CMO

By Todd Wasserman

Late last year, after the market crashed, Victoria Treyger took a close look at Google search results and surmised that consumers had shifted away from extended air travel-driven vacations and were instead contemplating road trips and weekend getaways. Travelocity shifted its focus as well. By the time May rolled around, the company had launched a TV spot showing a couple racing away in over-the-top, action movie style to a hotel for the weekend, a departure from previous ads that had shown the brand’s garden gnome icon in glamorous national and international locales. The company’s Web site had also been engineered to take advantage of geotargeting so if a consumer logged in from, say, New York, they’d see promotions for vacation packages in nearby Boston or Long Island.

Treyger, the CMO of Travelocity, is somewhat atypical because hers is a Web-based company, but her use of Web-based analytics is hardly unusual. In fact, analysts who observe the chief marketing officer position say it’s unrecognizable from a few years ago. While crunching numbers was always part of the job, new sources of data—from emerging media like interactive TV, mobile and social media—along with a need to show ROI have CMOs awash in data and newer, often younger marketers have adapted. Sometimes derided as “spreadsheet jockeys” they are a break in tradition from the “creative savants” of old who dreamed up big ideas and multimillion-dollar TV campaigns. Are the new breed of marketers better informed but more timid than their predecessors? Or have CMOs finally built up their credibility and achieved parity with others in the C-suite?

Whatever the case, the prevailing sentiment is that the job is getting more wonky. “In the near term CMOs that are sitting CMOs and that will come to be seated in the next year or so will be charged at harnessing digital, managing it and measuring it,” says Lynne Seid, a partner for the global marketing practices at Heidrick & Struggles, the recruiting firm. As Tom Kline, chief scientist for the marketing firm Digital Scientists says: “It used to be MadMen, but now it’s Revenge of the Nerds.”


Seid and Kline, who interviewed 111 top CMOs in December about digital marketing, say the realization that data like searches, trackbacks and tweets add up to valuable marketing data is just hitting a lot of companies right now, which sounds a bit suspect at first. After all, Google has been around for more than a decade and Yahoo!’s existed even longer. Search advertising is a huge business in its own right. What changed in the last year or so? Social media has gotten much bigger, the recession has put even more focus on ROI analytics and both these factors have prompted marketers to scrutinize Web-based data even closer.

For instance, for much of this decade, search has been viewed mostly as an effective advertising medium, but Kline said there’s a lot more to it than that. As an illustration, he cited a company like Kraft, that is not likely to get a lot of business from consumers searching “cheese.” On the other hand, search data related to a brand name, like the overall number of searches, is what Kline calls an “interim metric” that can tell a marketer—quickly—whether a promotion is working. So, a marketer like Burger King can get a crude measure the efficacy of its Star Trek tie-in by looking at searches “The search metric can be a leading indicator,” he says. “It’s so hard to find a leading indicator in that business.” Similarly, Kline says marketers are just realizing that their Web site isn’t just an online billboard, it’s also a market research tool that yields granular data on consumers. Example: If marketers know that Facebook generates 15 to 20 percent of Google searches, they might notice that their company Web site produces a smaller number and wonder why. “There’s an opportunity for a lot of CMOs to try to benchmark what is actually happening, like how many people are actually clicking onto my site from Twitter, just at a basic level and then go is that low, is that high? And then look at conversions. That’s not really happening,” Kline said. Marketers are aware of the opportunity. Three years ago, Walmart created a social network aimed at teens primarily as a means to market to them. But when Sears introduced its social networks this year—MySears and MyKmart—the goal was to get more data on consumers, said Rob Harles, vp-community for the company. “Ultimately, we’re going try to use this to first and foremost learn about our customers and then secondly from those lessons figure out ways to integrate that into the overall shopping experience,” Harles said.

In Treyger’s case, the amount of data can seem overwhelming to an outsider. In addition to Google—which provides information about competitors and industry trends, she culls consumer data from Hitwise, Compete and Comscore among others and then looks at how consumers behave on Travelocity’s site—namely shopping and booking patterns. For now, social media is primarily a marketing tool rather than a way to wring more data out of consumers, though Treyger said when the company relaunched its Web site in May, it used Twitter to get a read on how consumers were taking to the new site. (They liked it.) In addition, for the last three years Treyger has made use of mixed-media modeling, a sort of dashboard that uses statistics and econometrics to determine which media mix delivers the best ROI. For Treyger, a veteran marketer from Amazon, being immersed in such data is second nature. “Relying upon all of these different data sources is a regular part of the job. It’s kind of like having coffee in the morning,” she said. “I wouldn’t think about making any key business decisions without relying on data, but it’s not most of my job, it’s part of my job.”


According to Seid, Treyger is an aberration. Most of the marketers interviewed in her recent survey relied upon digital agencies—often as many as six or seven—to collect and interpret such data. “They’re not being managed in the way creative agencies are managed or the way integrated or above-the-line agencies are being managed,” Seid said of the digital agencies. “There’s nobody inside that has the expertise that’s on par or superior to the digital agencies. So the digital agencies are more or less setting the agenda.”

Bob Lord, CEO of digital shop Razorfish, agreed. “We haven’t gotten to the point where we have completely digitally savvy, 360-degree CMOs,” he said. “The CMOs are still coming out of a more traditional mindset. Any kind of structure means there is a digital person reporting into the CMO so you do end up with a team on the agency side that is far more experienced than the digital ad manager or whatever that title is. They definitely look to the agencies to be the innovators and to be the pioneers to set the course a lot more than they do with a traditional agency.”

Results from Seid’s survey show why that’s happening—44 percent of marketers felt that collecting and analyzing data regarding ROI and Web site activity should be done by the IT department while only 30 percent thought marketing should do it.

But should marketers be doing it? Al Ries, principal of Ries & Ries, Roswell, Ga., does’t think so. “Marketing to me is much more of an intuitive, holistic job, not a data job,” he said. “It seems to me the marketing people, too many of them, are running around doing all this measurement. The sales department doesn’t do a lot of measurement, the finance department doesn’t do a lot of measurement, the chief executive doesn’t say ‘They paid me X million dollars last year and I’ve measured it and here’s how I’ve determined I’m worth the money.’ It’s only the marketing people who say we’ve got to be measured and it’s the one department that’s the most difficult to measure and in most instances, impossible to measure.”

While some dig in their heels, though Seid sees the emergence of a digital CMO, which would be a liaison between the company, its digital agencies and the company’s IT department. The digital CMO will have no problem with measuring data. “The true CMO that’s truly digitally savvy in the future is going to blur the lines between what they do and what IT has to offer,” she said.

This is already happening. The top marketing schools these days offer programs that are heavily immersed in technology. Wharton students, for instance, make use of the Wharton Interactive Media Center, which exposes them to the latest in Web marketing and computer-simulated marketing. Duke’s marketing MBA program stresses computer models as well. “It’s not that the CMO should be developing these models,” said Christine Moorman, senior professor of business administration at Duke, “but they should have a deep understanding of them.”


Such marketers being churned out by the top schools no doubt have an understanding of metrics that their predecessors lacked. But has something been lost in the process? Critics say the new breed of marketers are indistinguishable from accountants—a far cry from the right-brained marketers of years ago. “The CMO has evolved from Chief Miracle Officer to Chief Minutia Officer,” said Drew Neisser, CEO of Renegade Marketing and founder of Neisser said in the old days, CMOs would swing for the fences and try to come up with a big idea like the Aflac Duck or the Geico Gekko. “Then along came Google complete with truly measurable results and tectonic plates of marketing started to shift. Suddenly CMOs were emboldened to say ‘I only want to do what produces measurable results.’ This new kind of CMO is less interested in the monumental and more in the incremental, seeking a steady diet of singles and doubles over the infrequent but more showy grand slam.”

Liz Miller, vp of programs and operations for the CMO Council sees it differently. “I think for a very long, not just the role of the CMO but of marketing in general has been redacted advertising,” she said. “We’ve just been relegated to the corners as the guys who handle the window dressing and the ‘pretty’ part of the business.” But Miller says as marketing has gotten more complex, marketers have gotten more respect in organizations.

The odd thing is, however, that even the most data-immersed CMO still has to at some point take a leap of faith. After all, no amount of modeling can really predict how consumers will take to a new ad campaign or product. “Numbers are terrific,” said Ries. “The problem is trying to project that into the future, analyzing the past to project the future is a big, big problem. Oddly enough, that’s the way people tend to use the data—look at the past and assume the future’s going to be just like the past.” For her part, Treyger says that marketing is a mixture of art and science. “The ‘art’ to marketing these days I believe is in being able to assess what all this infinite amount of available data actually tells you,” she said. “You start with the science (the data) but in the end you look at ll the inputs and use your gut or ‘art” to see the big picture and make decisions that will allow you to meet an unmet consumer need.”

4 must-have Facebook platforms

4 must-have Facebook platforms

I spend an obscene amount of time on Facebook, both for personal and vocational purposes. I am a fan/connection of a bazillion brands, and maybe half-a-bazillion social media agencies and social platform technology companies. Given my line of work, investigative research is part of my daily routine. As you might know from reading my past articles, I have a voracious appetite to discover the latest technologies and strategies to harness Facebook as a marketing channel.

Since 2007, brands have been trying to unlock the formula for marketing success at Facebook. From a brand marketing perspective, Facebook is not an easy platform to work in. It's closed, the customer service is non-existent for companies that don't advertise heavily, and broad functional changes are made regularly with little-to-no notice. It's staggering to think of how successful Facebook has become given how difficult it is for us brand marketers to not only figure it out, but also to leverage on a consistent basis.

With all that brand marketers have on their plates, the last thing they want to focus on is trying to manage their Facebook brands on their own. Plus, with Facebook adding new game-changing features like "Places" and "Questions," it's a big challenge simply keeping up with the innovation. As a result, companies large and small are turning to third-party platform solutions for help.

Whether you are a small brand with zero social head count or a large brand with a social army, utilizing one or more Facebook marketing platforms is a wise move. The solutions they provide can help you maximize awareness, interaction, and reach at Facebook. These solutions can range from the template driven, self-service model to the fully functional and customizable model. In reviewing dozens of these platforms, four stand out for their depth and breadth.

Buddy Media
The Buddy Media Platform is a Facebook management system for some of the world's largest brands and agencies. The platform offers the only solution that allows marketers to launch, maintain, and measure their Facebook presence in any country and in any language. Additionally, the platform has a powerful analytics engine to track metrics far beyond what Facebook Insights can deliver.

Central to the Buddy Media technology is a rich and robust tab management system with incredibly flexible administrative tools. With the Buddy Media Platform, you can create a multi-feature, highly interactive, custom Facebook tab in minutes. The platform features 30-plus social applications (sapplets) such as polls, gifts, email opt-ins, Q&As, Twitter and YouTube feeds, and more. These sapplets can be interchanged by simply dropping and dragging them into the tab.

In addition to their tab management features, Buddy Media has recently added robust new filtering, labeling, and search features to its platform, which allows brand marketers to manage the flow of incoming messages to their Facebook wall. Page administrators can now identify and label incoming wall posts to gain a better understanding of sentiment, tone, and frequency as well as identify customer support inquiries or complaints. This is especially helpful for larger brands that might have hundreds, even thousands, of comments to sift through each day.

Buddy Media is geared more toward established brands and the agencies that serve them than it is toward the small business. Its fee structure is set up as an ongoing license that allows a company access to the tab management, comments filter, and metrics engine. Each license includes a dedicated account management team to help with ongoing strategy, technical support, and custom solutions.

Wildfire Interactive
Wildfire Interactive delivers technology that allows brands to create and manage a wide range of campaigns, including sweepstakes, user-generated video, image and essay contests, e-coupon campaigns, product giveaways, and incentive-based surveys. The Wildfire app includes powerful viral features, such as newsfeeds, friend invites, notifications, share buttons, and comment boards. Campaign data can be accessed at any time via Wildfire's online admin interface.

Unlike Buddy Media's ongoing page management solution, the Wildfire app is geared more toward one-off promotional campaigns. The central element of its promotions engine is a sweepstakes management tool. According to Forrester Research, nearly 50 percent of online users like to enter sweepstakes at least once a month, and businesses that offer contests have twice as many social network fans as those that don't. Where Facebook is concerned, sweepstakes can be a very effective way to gain new fans, as they offer the kind of incentives many consumers want before making a commitment to "like" a brand.

Anyone who has tried to run a sweepstakes on Facebook knows that it can be a complex process, as Facebook's approval regulations are confusing and inconsistent. Wildfire takes a lot of the guess work out of the equation, providing tools that are smart, simple, and Facebook-compliant. Once your Wildfire promotion is set up, it can be accessed via a tab on your Facebook page. You can link directly to the promotion tab via your website, email, and other marketing communications.

Nearly all of Wildfire's solutions are self-service. Its campaign wizard enables companies to set up campaigns quickly and easily. Its fee structure is based on a modest flat fee, plus a small daily licensing fee during the term of your promotion. Wildfire doesn't offer strategy or account management services for its self-serve customers, though it does offer white-label apps and custom solutions for larger brands, which does include some strategic services.

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NorthSocial provides a suite of simple-to-use tools that enable anyone to create and manage multiple custom tabs on a single Facebook page. Each NorthSocial subscription gets the entire bundle of apps to install on its page as it pleases. Now, even small businesses can create share-worthy Facebook pages in minutes without writing a single line of code.

The impressive thing about NorthSocial is the breadth of apps it offers. With 15 applications in its app suite (soon to be 19), NorthSocial truly does "have an app for that," including apps for fan growth, promotion, marketing, content publishing, e-commerce, and more. Special note -- check out its "Viral Wave Generator" app. It's pretty cool. Another appealing thing about NorthSocial is how easy the apps are to set up. The page administrator selects the app it wants to use, uploads static images, inserts text and links, and then clicks enter. That's it! The tabs can be set up, changed, or removed in seconds. This allows a company's Facebook page to remain fresh, making for a more dynamic experience for fans.

However, Since NorthSocial's apps are all template driven and format-fixed, it lacks customizable features and functions. This may be limiting to larger brands that want to their Facebook pages to function like large consumer brands (such as Coca-Cola or Starbucks). But many companies, especially small businesses, don't require highly customized solutions. This makes NorthSocial a very handy toolbox for companies that manage their own Facebook pages, or for agencies that manage smaller brands.

NorthSocial's fee structure is pretty straightforward -- a very modest monthly licensing fee, which gives the user unlimited access to the entire suite of 100 percent self-service apps. NorthSocial uses the words "powerfully simple" in its USP, not only for the brand, but for the Facebook user. I couldn't agree more.

Bamboo allows any company to have its own point-driven branded loyalty app right out of the box. The Bamboo platform offers an entertaining and compelling way to deliver awareness to new audiences by leveraging the friends of core fans. Fans who use Bamboo become "brand ambassadors" and gain access to incentives and exclusive content. They also compete head-to-head with other ambassadors by distributing the latest news, videos, polls, quizzes, and special offers via wall posts, invites, and gifts to their friends.

Bamboo works similarly to a social game. Facebook fans of a brand receive wall post communications from the Bamboo app and are incented to share messages, information, and content with their friends. Each time they do, they receive points that can be redeemed for discounts or exclusive content. They also earn bragging rights by way of a running tote board and badge status for users.

All of this activity is tracked in robust metrics engine. Here's the good part -- Bamboo can track what happens to a shared piece of content as it makes its way through the social graph. If that piece of content leads to a sale, Bamboo not only knows this -- and reports it -- it also knows who the original distributor of the content was and can incent them individually. This takes the "there is no real ROI for social" argument and turns it on its proverbial butt.

Bamboo does not require the knowledge of any programming (HTML, CSS, JavaScript, FBML). Fees can vary depending on the type of program a company wants to run. Bamboo has a sales forecast algorithm to break down costs per share, per lead, and per sale to get a sense, in advance, of how the platform will perform. Unlike Wildfire or NorthSocial, which are self-serve solutions, Bamboo provides strategy, setup, and ongoing support for its customers. This makes it more a fit for companies that have budget allocated to social..

You don't have to be a large brand to implement sophisticated marketing programs at Facebook. With the right set of tools, you can build your Facebook marketing channel efficiently and cost effectively. As always, even the best tools won't compensate for the lack of a strategy. But if you have a solid social plan in place that includes Facebook marketing, each one of these platforms can help with the heavy lifting and get you to your goals with a solid set of wins along the way.

The Web Is Dead. Long Live the Internet

The Web Is Dead. Long Live the Internet
By Chris Anderson and Michael Wolff August 17, 2010 | 9:00 am | Wired September 2010
Sources: Cisco estimates based on CAIDA publications, Andrew Odlyzko

The Web Is Dead? A Debate
How the Web Wins
How Do Native Apps and Web Apps Compare?Two decades after its birth, the World Wide Web is in decline, as simpler, sleeker services — think apps — are less about the searching and more about the getting. Chris Anderson explains how this new paradigm reflects the inevitable course of capitalism. And Michael Wolff explains why the new breed of media titan is forsaking the Web for more promising (and profitable) pastures.

Who’s to Blame:
As much as we love the open, unfettered Web, we’re abandoning it for simpler, sleeker services that just work.
by Chris Anderson
You wake up and check your email on your bedside iPad — that’s one app. During breakfast you browse Facebook, Twitter, and The New York Times — three more apps. On the way to the office, you listen to a podcast on your smartphone. Another app. At work, you scroll through RSS feeds in a reader and have Skype and IM conversations. More apps. At the end of the day, you come home, make dinner while listening to Pandora, play some games on Xbox Live, and watch a movie on Netflix’s streaming service.

You’ve spent the day on the Internet — but not on the Web. And you are not alone.

This is not a trivial distinction. Over the past few years, one of the most important shifts in the digital world has been the move from the wide-open Web to semiclosed platforms that use the Internet for transport but not the browser for display. It’s driven primarily by the rise of the iPhone model of mobile computing, and it’s a world Google can’t crawl, one where HTML doesn’t rule. And it’s the world that consumers are increasingly choosing, not because they’re rejecting the idea of the Web but because these dedicated platforms often just work better or fit better into their lives (the screen comes to them, they don’t have to go to the screen). The fact that it’s easier for companies to make money on these platforms only cements the trend. Producers and consumers agree: The Web is not the culmination of the digital revolution.

A decade ago, the ascent of the Web browser as the center of the computing world appeared inevitable. It seemed just a matter of time before the Web replaced PC application software and reduced operating systems to a “poorly debugged set of device drivers,” as Netscape cofounder Marc Andreessen famously said. First Java, then Flash, then Ajax, then HTML5 — increasingly interactive online code — promised to put all apps in the cloud and replace the desktop with the webtop. Open, free, and out of control.

But there has always been an alternative path, one that saw the Web as a worthy tool but not the whole toolkit. In 1997, Wired published a now-infamous “Push!” cover story, which suggested that it was time to “kiss your browser goodbye.” The argument then was that “push” technologies such as PointCast and Microsoft’s Active Desktop would create a “radical future of media beyond the Web.”

“Sure, we’ll always have Web pages. We still have postcards and telegrams, don’t we? But the center of interactive media — increasingly, the center of gravity of all media — is moving to a post-HTML environment,” we promised nearly a decade and half ago. The examples of the time were a bit silly — a “3-D furry-muckers VR space” and “headlines sent to a pager” — but the point was altogether prescient: a glimpse of the machine-to-machine future that would be less about browsing and more about getting.
Who’s to Blame:
Chaos isn’t a business model. A new breed of media moguls is bringing order — and profits — to the digital world.
by Michael Wolff
An amusing development in the past year or so — if you regard post-Soviet finance as amusing — is that Russian investor Yuri Milner has, bit by bit, amassed one of the most valuable stakes on the Internet: He’s got 10 percent of Facebook. He’s done this by undercutting traditional American VCs — the Kleiners and the Sequoias who would, in days past, insist on a special status in return for their early investment. Milner not only offers better terms than VC firms, he sees the world differently. The traditional VC has a portfolio of Web sites, expecting a few of them to be successes — a good metaphor for the Web itself, broad not deep, dependent on the connections between sites rather than any one, autonomous property. In an entirely different strategic model, the Russian is concentrating his bet on a unique power bloc. Not only is Facebook more than just another Web site, Milner says, but with 500 million users it’s “the largest Web site there has ever been, so large that it is not a Web site at all.”

According to Compete, a Web analytics company, the top 10 Web sites accounted for 31 percent of US pageviews in 2001, 40 percent in 2006, and about 75 percent in 2010. “Big sucks the traffic out of small,” Milner says. “In theory you can have a few very successful individuals controlling hundreds of millions of people. You can become big fast, and that favors the domination of strong people.”

Milner sounds more like a traditional media mogul than a Web entrepreneur. But that’s exactly the point. If we’re moving away from the open Web, it’s at least in part because of the rising dominance of businesspeople more inclined to think in the all-or-nothing terms of traditional media than in the come-one-come-all collectivist utopianism of the Web. This is not just natural maturation but in many ways the result of a competing idea — one that rejects the Web’s ethic, technology, and business models. The control the Web took from the vertically integrated, top-down media world can, with a little rethinking of the nature and the use of the Internet, be taken back.

This development — a familiar historical march, both feudal and corporate, in which the less powerful are sapped of their reason for being by the better resourced, organized, and efficient — is perhaps the rudest shock possible to the leveled, porous, low-barrier-to-entry ethos of the Internet Age. After all, this is a battle that seemed fought and won — not just toppling newspapers and music labels but also AOL and Prodigy and anyone who built a business on the idea that a curated experience would beat out the flexibility and freedom of the Web.

Illustration: Dirk Fowler

As it happened, PointCast, a glorified screensaver that could inadvertently bring your corporate network to its knees, quickly imploded, taking push with it. But just as Web 2.0 is simply Web 1.0 that works, the idea has come around again. Those push concepts have now reappeared as APIs, apps, and the smartphone. And this time we have Apple and the iPhone/iPad juggernaut leading the way, with tens of millions of consumers already voting with their wallets for an app-led experience. This post-Web future now looks a lot more convincing. Indeed, it’s already here.

The Web is, after all, just one of many applications that exist on the Internet, which uses the IP and TCP protocols to move packets around. This architecture — not the specific applications built on top of it — is the revolution. Today the content you see in your browser — largely HTML data delivered via the http protocol on port 80 — accounts for less than a quarter of the traffic on the Internet … and it’s shrinking. The applications that account for more of the Internet’s traffic include peer-to-peer file transfers, email, company VPNs, the machine-to-machine communications of APIs, Skype calls, World of Warcraft and other online games, Xbox Live, iTunes, voice-over-IP phones, iChat, and Netflix movie streaming. Many of the newer Net applications are closed, often proprietary, networks.

And the shift is only accelerating. Within five years, Morgan Stanley projects, the number of users accessing the Net from mobile devices will surpass the number who access it from PCs. Because the screens are smaller, such mobile traffic tends to be driven by specialty software, mostly apps, designed for a single purpose. For the sake of the optimized experience on mobile devices, users forgo the general-purpose browser. They use the Net, but not the Web. Fast beats flexible.

This was all inevitable. It is the cycle of capitalism. The story of industrial revolutions, after all, is a story of battles over control. A technology is invented, it spreads, a thousand flowers bloom, and then someone finds a way to own it, locking out others. It happens every time.

Take railroads. Uniform and open gauge standards helped the industry boom and created an explosion of competitors — in 1920, there were 186 major railroads in the US. But eventually the strongest of them rolled up the others, and today there are just seven — a regulated oligopoly. Or telephones. The invention of the switchboard was another open standard that allowed networks to interconnect. After telephone patents held by AT&T’s parent company expired in 1894, more than 6,000 independent phone companies sprouted up. But by 1939, AT&T controlled nearly all of the US’s long-distance lines and some four-fifths of its telephones. Or electricity. In the early 1900s, after the standardization to alternating current distribution, hundreds of small electric utilities were consolidated into huge holding companies. By the late 1920s, the 16 largest of those commanded more than 75 percent of the electricity generated in the US.

Indeed, there has hardly ever been a fortune created without a monopoly of some sort, or at least an oligopoly. This is the natural path of industrialization: invention, propagation, adoption, control.

Now it’s the Web’s turn to face the pressure for profits and the walled gardens that bring them. Openness is a wonderful thing in the nonmonetary economy of peer production. But eventually our tolerance for the delirious chaos of infinite competition finds its limits. Much as we love freedom and choice, we also love things that just work, reliably and seamlessly. And if we have to pay for what we love, well, that increasingly seems OK. Have you looked at your cell phone or cable bill lately?

As Jonathan L. Zittrain puts it in The Future of the Internet — And How to Stop It, “It is a mistake to think of the Web browser as the apex of the PC’s evolution.” Today the Internet hosts countless closed gardens; in a sense, the Web is an exception, not the rule.
The truth is that the Web has always had two faces. On the one hand, the Internet has meant the breakdown of incumbent businesses and traditional power structures. On the other, it’s been a constant power struggle, with many companies banking their strategy on controlling all or large chunks of the TCP/IP-fueled universe. Netscape tried to own the homepage; tried to dominate retail; Yahoo, the navigation of the Web.

Google was the endpoint of this process: It may represent open systems and leveled architecture, but with superb irony and strategic brilliance it came to almost completely control that openness. It’s difficult to imagine another industry so thoroughly subservient to one player. In the Google model, there is one distributor of movies, which also owns all the theaters. Google, by managing both traffic and sales (advertising), created a condition in which it was impossible for anyone else doing business in the traditional Web to be bigger than or even competitive with Google. It was the imperial master over the world’s most distributed systems. A kind of Rome.

In an analysis that sees the Web, in the description of Interactive Advertising Bureau president Randall Rothenberg, as driven by “a bunch of megalomaniacs who want to own the entirety of the world,” it is perhaps inevitable that some of those megalomaniacs began to see replicating Google’s achievement as their fundamental business challenge. And because Google so dominated the Web, that meant building an alternative to the Web.

Enter Facebook. The site began as a free but closed system. It required not just registration but an acceptable email address (from a university, or later, from any school). Google was forbidden to search through its servers. By the time it opened to the general public in 2006, its clublike, ritualistic, highly regulated foundation was already in place. Its very attraction was that it was a closed system. Indeed, Facebook’s organization of information and relationships became, in a remarkably short period of time, a redoubt from the Web — a simpler, more habit-forming place. The company invited developers to create games and applications specifically for use on Facebook, turning the site into a full-fledged platform. And then, at some critical-mass point, not just in terms of registration numbers but of sheer time spent, of habituation and loyalty, Facebook became a parallel world to the Web, an experience that was vastly different and arguably more fulfilling and compelling and that consumed the time previously spent idly drifting from site to site. Even more to the point, Facebook founder Mark Zuckerberg possessed a clear vision of empire: one in which the developers who built applications on top of the platform that his company owned and controlled would always be subservient to the platform itself. It was, all of a sudden, not just a radical displacement but also an extraordinary concentration of power. The Web of countless entrepreneurs was being overshadowed by the single entrepreneur-mogul-visionary model, a ruthless paragon of everything the Web was not: rigid standards, high design, centralized control.

Striving megalomaniacs like Zuckerberg weren’t the only ones eager to topple Google’s model of the open Web. Content companies, which depend on advertising to fund the creation and promulgation of their wares, appeared to be losing faith in their ability to do so online. The Web was built by engineers, not editors. So nobody paid much attention to the fact that HTML-constructed Web sites — the most advanced form of online media and design — turned out to be a pretty piss-poor advertising medium.

For quite a while this was masked by the growth of the audience share, followed by an ever-growing ad-dollar share, until, about two years ago, things started to slow down. The audience continued to grow at a ferocious rate — about 35 percent of all our media time is now spent on the Web — but ad dollars weren’t keeping pace. Online ads had risen to some 14 percent of consumer advertising spending but had begun to level off. (In contrast, TV — which also accounts for 35 percent of our media time, gets nearly 40 percent of ad dollars.)

Monopolies are actually even more likely in highly networked markets like the online world. The dark side of network effects is that rich nodes get richer. Metcalfe’s law, which states that the value of a network increases in proportion to the square of connections, creates winner-take-all markets, where the gap between the number one and number two players is typically large and growing.

So what took so long? Why wasn’t the Web colonized by monopolists a decade ago? Because it was in its adolescence then, still innovating quickly with a fresh and growing population of users always looking for something new. Network-driven domination was short-lived. Friendster got huge while social networking was in its infancy, and fickle consumers were still keen to experiment with the next new thing. They found another shiny service and moved on, just as they had abandoned before it. In the expanding universe of the early Web, AOL’s walled garden couldn’t compete with what was outside the walls, and so the walls fell.

But the Web is now 18 years old. It has reached adulthood. An entire generation has grown up in front of a browser. The exploration of a new world has turned into business as usual. We get the Web. It’s part of our life. And we just want to use the services that make our life better. Our appetite for discovery slows as our familiarity with the status quo grows.

Blame human nature. As much as we intellectually appreciate openness, at the end of the day we favor the easiest path. We’ll pay for convenience and reliability, which is why iTunes can sell songs for 99 cents despite the fact that they are out there, somewhere, in some form, for free. When you are young, you have more time than money, and LimeWire is worth the hassle. As you get older, you have more money than time. The iTunes toll is a small price to pay for the simplicity of just getting what you want. The more Facebook becomes part of your life, the more locked in you become. Artificial scarcity is the natural goal of the profit-seeking.
What’s more, there was the additionally sobering and confounding fact that an online consumer continued to be worth significantly less than an offline one. For a while, this was seen as inevitable right-sizing: Because everything online could be tracked, advertisers no longer had to pay to reach readers who never saw their ads. You paid for what you got.

Unfortunately, what you got wasn’t much. Consumers weren’t motivated by display ads, as evidenced by the share of the online audience that bothered to click on them. (According to a 2009 comScore study, only 16 percent of users ever click on an ad, and 8 percent of users accounted for 85 percent of all clicks.) The Web might generate some clicks here and there, but you had to aggregate millions and millions of them to make any money (which is what Google, and basically nobody else, was able to do). And the Web almost perversely discouraged the kind of systematized, coordinated, focused attention upon which brands are built — the prime, or at least most lucrative, function of media.

What’s more, this medium rendered powerless the marketers and agencies that might have been able to turn this chaotic mess into an effective selling tool — the same marketers and professional salespeople who created the formats (the variety shows, the 30- second spots, the soap operas) that worked so well in television and radio. Advertising powerhouse WPP, for instance, with its colossal network of marketing firms — the same firms that had shaped traditional media by matching content with ads that moved the nation — may still represent a large share of Google’s revenue, but it pales next to the greater population of individual sellers that use Google’s AdWords and AdSense programs.

There is an analogy to the current Web in the first era of the Internet. In the 1990s, as it became clear that digital networks were the future, there were two warring camps. One was the traditional telcos, on whose wires these feral bits of the young Internet were being sent. The telcos argued that the messy protocols of TCP/IP — all this unpredictable routing and those lost packets requiring resending — were a cry for help. What consumers wanted were “intelligent” networks that could (for a price) find the right path and provision the right bandwidth so that transmissions would flow uninterrupted. Only the owners of the networks could put the intelligence in place at the right spots, and thus the Internet would become a value-added service provided by the AT&Ts of the world, much like ISDN before it. The rallying cry was “quality of service” (QoS). Only telcos could offer it, and as soon as consumers demanded it, the telcos would win.

The opposing camp argued for “dumb” networks. Rather than cede control to the telcos to manage the path that bits took, argued its proponents, just treat the networks as dumb pipes and let TCP/IP figure out the routing. So what if you have to resend a few times, or the latency is all over the place. Just keep building more capacity — “overprovision bandwidth” — and it will be Good Enough.

On the underlying Internet itself, Good Enough has won. We stare at the spinning buffering disks on our YouTube videos rather than accept the Faustian bargain of some Comcast/Google QoS bandwidth deal that we would invariably end up paying more for. Aside from some corporate networks, dumb pipes are what the world wants from telcos. The innovation advantages of an open marketplace outweigh the limited performance advantages of a closed system.

But the Web is a different matter. The marketplace has spoken: When it comes to the applications that run on top of the Net, people are starting to choose quality of service. We want TweetDeck to organize our Twitter feeds because it’s more convenient than the Twitter Web page. The Google Maps mobile app on our phone works better in the car than the Google Maps Web site on our laptop. And we’d rather lean back to read books with our Kindle or iPad app than lean forward to peer at our desktop browser.

At the application layer, the open Internet has always been a fiction. It was only because we confused the Web with the Net that we didn’t see it. The rise of machine-to-machine communications — iPhone apps talking to Twitter APIs — is all about control. Every API comes with terms of service, and Twitter,, Google, or any other company can control the use as they will. We are choosing a new form of QoS: custom applications that just work, thanks to cached content and local code. Every time you pick an iPhone app instead of a Web site, you are voting with your finger: A better experience is worth paying for, either in cash or in implicit acceptance of a non-Web standard.
One result of the relative lack of influence of professional salespeople and hucksters — the democratization of marketing, if you will — is that advertising on the Web has not developed in the subtle and crafty and controlling ways it did in other mediums. The ineffectual banner ad, created (indeed by the founders of this magazine) in 1994 — and never much liked by anyone in the marketing world — still remains the foundation of display advertising on the Web.

And then there’s the audience.

At some never-quite-admitted level, the Web audience, however measurable, is nevertheless a fraud. Nearly 60 percent of people find Web sites from search engines, much of which may be driven by SEO, or “search engine optimization” — a new-economy acronym that refers to gaming Google’s algorithm to land top results for hot search terms. In other words, many of these people have been essentially corralled into clicking a random link and may have no idea why they are visiting a particular site — or, indeed, what site they are visiting. They are the exact opposite of a loyal audience, the kind that you might expect, over time, to inculcate with your message.

Web audiences have grown ever larger even as the quality of those audiences has shriveled, leading advertisers to pay less and less to reach them. That, in turn, has meant the rise of junk-shop content providers — like Demand Media — which have determined that the only way to make money online is to spend even less on content than advertisers are willing to pay to advertise against it. This further cheapens online content, makes visitors even less valuable, and continues to diminish the credibility of the medium.

Even in the face of this downward spiral, the despairing have hoped. But then came the recession, and the panic button got pushed. Finally, after years of experimentation, content companies came to a disturbing conclusion: The Web did not work. It would never bring in the bucks. And so they began looking for a new model, one that leveraged the power of the Internet without the value-destroying side effects of the Web. And they found Steve Jobs, who — rumor had it — was working on a new tablet device.

Now, on the technology side, what the Web has lacked in its determination to turn itself into a full-fledged media format is anybody who knew anything about media. Likewise, on the media side, there wasn’t anybody who knew anything about technology. This has been a fundamental and aching disconnect: There was no sublime integration of content and systems, of experience and functionality — no clever, subtle, Machiavellian overarching design able to create that codependent relationship between audience, producer, and marketer.

In the media world, this has taken the form of a shift from ad-supported free content to freemium — free samples as marketing for paid services — with an emphasis on the “premium” part. On the Web, average CPMs (the price of ads per thousand impressions) in key content categories such as news are falling, not rising, because user-generated pages are flooding Facebook and other sites. The assumption had been that once the market matured, big companies would be able to reverse the hollowing-out trend of analog dollars turning into digital pennies. Sadly that hasn’t been the case for most on the Web, and by the looks of it there’s no light at the end of that tunnel. Thus the shift to the app model on rich media platforms like the iPad, where limited free content drives subscription revenue (check out Wired’s cool new iPad app!).

The Web won’t take the sequestering of its commercial space easily. The defenders of the unfettered Web have their hopes set on HTML5 — the latest version of Web-building code that offers applike flexibility — as an open way to satisfy the desire for quality of service. If a standard Web browser can act like an app, offering the sort of clean interface and seamless interactivity that iPad users want, perhaps users will resist the trend to the paid, closed, and proprietary. But the business forces lining up behind closed platforms are big and getting bigger. This is seen by many as a battle for the soul of the digital frontier.

Zittrain argues that the demise of the all-encompassing, wide-open Web is a dangerous thing, a loss of open standards and services that are “generative” — that allow people to find new uses for them. “The prospect of tethered appliances and software as service,” he warns, “permits major regulatory intrusions to be implemented as minor technical adjustments to code or requests to service providers.”

But what is actually emerging is not quite the bleak future of the Internet that Zittrain envisioned. It is only the future of the commercial content side of the digital economy. Ecommerce continues to thrive on the Web, and no company is going to shut its Web site as an information resource. More important, the great virtue of today’s Web is that so much of it is noncommercial. The wide-open Web of peer production, the so-called generative Web where everyone is free to create what they want, continues to thrive, driven by the nonmonetary incentives of expression, attention, reputation, and the like. But the notion of the Web as the ultimate marketplace for digital delivery is now in doubt.

The Internet is the real revolution, as important as electricity; what we do with it is still evolving. As it moved from your desktop to your pocket, the nature of the Net changed. The delirious chaos of the open Web was an adolescent phase subsidized by industrial giants groping their way in a new world. Now they’re doing what industrialists do best — finding choke points. And by the looks of it, we’re loving it.

Editor in chief Chris Anderson ( wrote about the new industrial revolution in issue 18.02.
Jobs perfectly fills that void. Other technologists have steered clear of actual media businesses, seeing themselves as renters of systems and third-party facilitators, often deeply wary of any involvement with content. (See, for instance, Google CEO Eric Schmidt’s insistence that his company is not in the content business.) Jobs, on the other hand, built two of the most successful media businesses of the past generation: iTunes, a content distributor, and Pixar, a movie studio. Then, in 2006, with the sale of Pixar to Disney, Jobs becomes the biggest individual shareholder in one of the world’s biggest traditional media conglomerates — indeed much of Jobs’ personal wealth lies in his traditional media holdings.

In fact, Jobs had, through iTunes, aligned himself with traditional media in a way that Google has always resisted. In Google’s open and distributed model, almost anybody can advertise on nearly any site and Google gets a cut — its interests are with the mob. Apple, on the other hand, gets a cut any time anybody buys a movie or song — its interests are aligned with the traditional content providers. (This is, of course, a complicated alignment, because in each deal, Apple has quickly come to dominate the relationship.)

So it’s not shocking that Jobs’ iPad-enabled vision of media’s future looks more like media’s past. In this scenario, Jobs is a mogul straight out of the studio system. While Google may have controlled traffic and sales, Apple controls the content itself. Indeed, it retains absolute approval rights over all third-party applications. Apple controls the look and feel and experience. And, what’s more, it controls both the content-delivery system (iTunes) and the devices (iPods, iPhones, and iPads) through which that content is consumed.

Since the dawn of the commercial Web, technology has eclipsed content. The new business model is to try to let the content — the product, as it were — eclipse the technology. Jobs and Zuckerberg are trying to do this like old-media moguls, fine-tuning all aspects of their product, providing a more designed, directed, and polished experience. The rising breed of exciting Internet services — like Spotify, the hotly anticipated streaming music service; and Netflix, which lets users stream movies directly to their computer screens, Blu-ray players, or Xbox 360s — also pull us back from the Web. We are returning to a world that already exists — one in which we chase the transformative effects of music and film instead of our brief (relatively speaking) flirtation with the transformative effects of the Web.

After a long trip, we may be coming home.

Michael Wolff ( is a new contributing editor for Wired. He is also a columnist for Vanity Fair and the founder of Newser, a news-aggregation site.