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.”
DATA EXPLOSION
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.”
TAKING CONTROL
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.”
DIG THE NEW BREED
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 thecmoclub.com. 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.”
Thursday, September 23, 2010
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.
Next page >>
NorthSocial
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
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.
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.
Next page >>
NorthSocial
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
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:
Us
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:
Them
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; Amazon.com 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 SixDegrees.com 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, Amazon.com, 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 (canderson@wired.com) 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 (michael@burnrate.com) is a new contributing editor for Wired. He is also a columnist for Vanity Fair and the founder of Newser, a news-aggregation site.
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:
Us
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:
Them
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; Amazon.com 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 SixDegrees.com 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, Amazon.com, 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 (canderson@wired.com) 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 (michael@burnrate.com) is a new contributing editor for Wired. He is also a columnist for Vanity Fair and the founder of Newser, a news-aggregation site.
Marketing Fanciful Items in the Lands of Make Believe
Marketing Fanciful Items in the Lands of Make Believe
By ELIZABETH OLSON
INTRIGUED by the willingness of millions of consumers to pay real money for things that do not exist, some large companies are testing whether they can raise awareness of their brands — and sell more actual goods — by creating and offering their own pretend merchandise.
Volvo Cars of North America, the clothing retailer H&M and MTV Networks are among the diverse brands entering the market for virtual goods — the make-believe items offered on social-networking games, smartphone apps or fantasy Internet sites.
“It’s all about constant connectivity. People live in real time, and established brands have to find ways to keep in touch,” said Marshal Cohen, chief retail analyst for the NPD Group, a market research company.
“Brands are beginning to dabble in reaching out, especially to the under-40 crowd — many still can make discretionary spends,” Mr. Cohen said, referring to the consumer.
So far, the virtual goods market largely consists of micro-purchases. Consumers typically pay $1 to $3 while playing games like FarmVille or Mafia Wars, both created by the social-gaming company Zynga, to get a jump on game rivals. Users also can give a gift, like flowers, or build a collection of items — just as collectors do in real life.
Those impulses will be worth nearly $2 billion in revenue or more this year, according to ThinkEquity, a financial research firm in San Francisco. Its analyst for new media and games, Atul Bagga, said his research found that the market could reach $2.6 billion next year.
Social game creators like Zynga, which said it made some $100 million last year, mostly from purchases of its virtual goods and game currency, are cashing in on a phenomenon that has flourished in Asia and is growing in South America and the Middle East.
Initially, virtual goods buyers in the United States were typically playing in online fantasy worlds like Second Life and IMVU, which generate nearly $1 billion annually from player purchases of furniture, homes, clothing and accessories for their online avatars.
In addition, teenagers are avid buyers of branded goods offered by music performers like the hip-hop artist Snoop Dogg, who has made about $250,000 since mid-2008 selling items like virtual Dobermans, according to a spokesman for his virtual goods business.
But Volvo, which is based in Sweden, and other corporations are not chasing revenue. Some companies are giving away virtual items, in exchange — they hope — for attracting and developing loyal customers.
In Volvo’s campaign, which began Sept. 1, the carmaker will try to revamp its reliable but staid image by offering virtual goods on MyTown, the popular iPhone app whose players buy real estate and collect rent on properties. This location-based game attracts more than two million players, according to its creator, the Silicon Valley company Booyah.
•
MTV has a different goal. The network wants to drum up viewership for its 2010 Video Music Awards, on Sept. 12, by giving away virtual replicas of celebrity accessories and fashion items, like the singer Beyonce’s diamond ring on Mall World, a style and fashion-oriented Facebook application for women. Some 400,000 people visit the site monthly.
The clothing retailer Hennes & Mauritz, better known as H&M, is planning a virtual goods campaign to follow its foray in March on MyTown. That campaign showcased its collection of denim and blue garments, called the Blues, and encouraged users to visit an H&M store to buy pieces they liked.
The company declined to talk about its new campaign, but during its first effort, some 700,000 MyTown players checked into game locations like hair salons and spas near H&M stores and earned points they could use to acquire branded items.
To succeed, “branded virtual goods have to be identifiable and have a real world relevance,” said Ravi Mehta, vice president for products at Viximo, a social gaming platform provider. “They are driven by the relevance to the purchaser. Paris Hilton has people who buy her virtual goods because they are fans and want to identify with her, her hair, her place in pop culture.”
Companies have to make sure that the site or game has a social activity that fits, said Chris Cunningham, chief executive of Appssavvy, a company in New York that connects brands and advertising agencies to social media applications on Facebook, MySpace, the iPhone and other outlets.
“A game that appeals to females isn’t the right place for ads aimed at men,” Mr. Cunningham said. “Or a site where people try on clothing, that’s not for a car company.”
Volvo chose MyTown, said Emily Garvey, brand manager at Media Contacts, the digital media agency for Volvo, because “it is a location-based game, where people check into a location such as a garage or auto dealership and opt to receive a virtual sedan, a Volvo steering wheel, tire or Volvo iron mark — its logo.”
The carmaker wants to garner attention, and buyers, for its new midsize sports sedan, which it calls the “All New 2011 Naughty Volvo S60 Sedan.” Volvo is trying to “attract auto enthusiasts — who are about 60 percent men — to get people excited and to change brand perception so people think of it as a sporty, fun and good-looking car,” Ms. Garvey said.
Volvo declined to disclose the amount of its spending on the 30-day campaign using virtual goods. Last year, the United States branch of the carmaker spent almost $47 million on advertising, according to Kantar Media, which tracks such spending. As of the first quarter in 2010, Volvo’s spending slowed to almost $5 million, compared with nearly $8 million in the same period last year, Kantar found.
•
Since virtual merchandise is in its infancy, there are few solid measures to pinpoint how much campaigns offering the pretend items build awareness, enthusiasm or loyalty to a company and generate real-life purchases.
Appssavvy tried to gauge such outcomes by studying the campaign of one of its clients, Powermat, a company that sells wireless chargers for mobile phones, e-book readers and GPS devices. The company, with offices in Michigan and Israel, conducted a 10-day campaign in May and June on MyTown to build familiarity with its product. Participants could receive points to use on MyTown, and also enter to win a wireless charger.
In a study of 2,900 MyTown players, some recruited before the Powermat campaign was started and others who received its game points, Appssavvy found 25 percent knew about Powermat before the campaign and afterward 70 percent said they were aware of it.
And the study found the consumers’ intent to buy a Powermat charger rose by about one-third, to about 60 percent, compared with the period before the campaign.
“MyTown provided a compelling experience, an online network and a fun and engaging experience,” said Beth Harrison Meyer, Powermat’s vice president for global marketing.
By ELIZABETH OLSON
INTRIGUED by the willingness of millions of consumers to pay real money for things that do not exist, some large companies are testing whether they can raise awareness of their brands — and sell more actual goods — by creating and offering their own pretend merchandise.
Volvo Cars of North America, the clothing retailer H&M and MTV Networks are among the diverse brands entering the market for virtual goods — the make-believe items offered on social-networking games, smartphone apps or fantasy Internet sites.
“It’s all about constant connectivity. People live in real time, and established brands have to find ways to keep in touch,” said Marshal Cohen, chief retail analyst for the NPD Group, a market research company.
“Brands are beginning to dabble in reaching out, especially to the under-40 crowd — many still can make discretionary spends,” Mr. Cohen said, referring to the consumer.
So far, the virtual goods market largely consists of micro-purchases. Consumers typically pay $1 to $3 while playing games like FarmVille or Mafia Wars, both created by the social-gaming company Zynga, to get a jump on game rivals. Users also can give a gift, like flowers, or build a collection of items — just as collectors do in real life.
Those impulses will be worth nearly $2 billion in revenue or more this year, according to ThinkEquity, a financial research firm in San Francisco. Its analyst for new media and games, Atul Bagga, said his research found that the market could reach $2.6 billion next year.
Social game creators like Zynga, which said it made some $100 million last year, mostly from purchases of its virtual goods and game currency, are cashing in on a phenomenon that has flourished in Asia and is growing in South America and the Middle East.
Initially, virtual goods buyers in the United States were typically playing in online fantasy worlds like Second Life and IMVU, which generate nearly $1 billion annually from player purchases of furniture, homes, clothing and accessories for their online avatars.
In addition, teenagers are avid buyers of branded goods offered by music performers like the hip-hop artist Snoop Dogg, who has made about $250,000 since mid-2008 selling items like virtual Dobermans, according to a spokesman for his virtual goods business.
But Volvo, which is based in Sweden, and other corporations are not chasing revenue. Some companies are giving away virtual items, in exchange — they hope — for attracting and developing loyal customers.
In Volvo’s campaign, which began Sept. 1, the carmaker will try to revamp its reliable but staid image by offering virtual goods on MyTown, the popular iPhone app whose players buy real estate and collect rent on properties. This location-based game attracts more than two million players, according to its creator, the Silicon Valley company Booyah.
•
MTV has a different goal. The network wants to drum up viewership for its 2010 Video Music Awards, on Sept. 12, by giving away virtual replicas of celebrity accessories and fashion items, like the singer Beyonce’s diamond ring on Mall World, a style and fashion-oriented Facebook application for women. Some 400,000 people visit the site monthly.
The clothing retailer Hennes & Mauritz, better known as H&M, is planning a virtual goods campaign to follow its foray in March on MyTown. That campaign showcased its collection of denim and blue garments, called the Blues, and encouraged users to visit an H&M store to buy pieces they liked.
The company declined to talk about its new campaign, but during its first effort, some 700,000 MyTown players checked into game locations like hair salons and spas near H&M stores and earned points they could use to acquire branded items.
To succeed, “branded virtual goods have to be identifiable and have a real world relevance,” said Ravi Mehta, vice president for products at Viximo, a social gaming platform provider. “They are driven by the relevance to the purchaser. Paris Hilton has people who buy her virtual goods because they are fans and want to identify with her, her hair, her place in pop culture.”
Companies have to make sure that the site or game has a social activity that fits, said Chris Cunningham, chief executive of Appssavvy, a company in New York that connects brands and advertising agencies to social media applications on Facebook, MySpace, the iPhone and other outlets.
“A game that appeals to females isn’t the right place for ads aimed at men,” Mr. Cunningham said. “Or a site where people try on clothing, that’s not for a car company.”
Volvo chose MyTown, said Emily Garvey, brand manager at Media Contacts, the digital media agency for Volvo, because “it is a location-based game, where people check into a location such as a garage or auto dealership and opt to receive a virtual sedan, a Volvo steering wheel, tire or Volvo iron mark — its logo.”
The carmaker wants to garner attention, and buyers, for its new midsize sports sedan, which it calls the “All New 2011 Naughty Volvo S60 Sedan.” Volvo is trying to “attract auto enthusiasts — who are about 60 percent men — to get people excited and to change brand perception so people think of it as a sporty, fun and good-looking car,” Ms. Garvey said.
Volvo declined to disclose the amount of its spending on the 30-day campaign using virtual goods. Last year, the United States branch of the carmaker spent almost $47 million on advertising, according to Kantar Media, which tracks such spending. As of the first quarter in 2010, Volvo’s spending slowed to almost $5 million, compared with nearly $8 million in the same period last year, Kantar found.
•
Since virtual merchandise is in its infancy, there are few solid measures to pinpoint how much campaigns offering the pretend items build awareness, enthusiasm or loyalty to a company and generate real-life purchases.
Appssavvy tried to gauge such outcomes by studying the campaign of one of its clients, Powermat, a company that sells wireless chargers for mobile phones, e-book readers and GPS devices. The company, with offices in Michigan and Israel, conducted a 10-day campaign in May and June on MyTown to build familiarity with its product. Participants could receive points to use on MyTown, and also enter to win a wireless charger.
In a study of 2,900 MyTown players, some recruited before the Powermat campaign was started and others who received its game points, Appssavvy found 25 percent knew about Powermat before the campaign and afterward 70 percent said they were aware of it.
And the study found the consumers’ intent to buy a Powermat charger rose by about one-third, to about 60 percent, compared with the period before the campaign.
“MyTown provided a compelling experience, an online network and a fun and engaging experience,” said Beth Harrison Meyer, Powermat’s vice president for global marketing.
6 Ways to Lose Customers, Credibility And Friends On Social Media
6 Ways to Lose Customers, Credibility And Friends On Social Media
My morning alarm goes off at 7am. To be honest, it’s less an alarm to wake me and more to alert me that I haven’t checked Twitter in six hours.
When I do take a hit, I find lots of people chatting about breakfast and what’s coming in their day. I also find people screaming, throwing things and promoting the same post from 12 hours ago.
Looking for relief, I do what anyone would do – I go check Facebook. When I get there, it’s more of the same. More anger, more rage and more updates that make me want to delete all my social accounts and hide under my desk. By the time I scroll through it and finally get out of bed, it’s not the dog barking, it’s me.
I live in social media, but some days even I get the urge to run far, far away. Don’t get me wrong. I’m obsessed with the opportunities these sites provide businesses and brands of all sizes and I love the conversations. But sometimes that other side really gets to me. You know, the side where people are angry all the time. It makes me wonder what people think they’re doing. I bet your customers wonder and feel that way sometimes, too.
I’m not naïve. I get that that rants were created for social media. That kind of behavior practically is social media. And that would be okay if you were a normal person. But, the fact that you’re reading this means you’re not normal. You’re a marketer. You’re not in social media to stay in touch with your Aunt Alma and her seven kids. You’re in social media to market yourself, your business and build your livelihood. You have to act smarter.
I challenge you to take a look at your last two-three weeks of social media activity. What do you see? What do your customers see? It’s time for a reality check.
Do any of these social media behaviors sound familiar? If so, smack yourself. Then stop doing them.
You beg for favors before you’ve had a conversation.
Almost as awesome asking someone to pick their brain, is to beg them for favors before you’ve earned one. If you don’t know someone well enough to ask for a cup of sugar or borrow their phone, then you don’t know them well enough to ask them to write about you/link to you/promote you/hug you. Just because you have a business and an agenda doesn’t mean that social norms have gone out the window. The fact that you have someone’s phone number doesn’t mean you have the right to call them during dinner and ask to borrow $20.
Whine that social media “isn’t fair”/ [Social Media Guru] gets more attention than you.
If this is you, you need to go find a shovel and hit yourself in the face with it (it can be lightly). Your brand has been given this HUGE microphone to talk to consumers, potential partners and, essentially, the whole world. Are you really going to use it to whine that Chris Brogan and Danny Sullivan have more followers than you? Are you really going to moan that you should been included on that 10 Best list and that life isn’t fair? That’s the impression of your brand you’re going to choose to give off? One that says you’re lesser than and all you know how to do is whine about it? I mean, that’s one way to brand yourself. Another would be to go earn the attention and recognition you’re after. No one was born with a silver spoon. You create who you are.
Ignore your audience.
Hi. It’s called social media, right? You’re here to create relationships and build awareness for your brand, right? Then why are you ignoring your audience? Why are you not responding to their messages, ignoring conversations about your brand, and missing opportunities to assert yourself? If you’re going to invest time in social media, then stop ignoring the people you’re supposed to be connecting with. I’d rather a company not be on social media then have a presence and not use it. When I send you tweets asking questions or inquiring about you, it makes me want to stab you when you ignore me. Also, stop talking about yourself while you ignore everyone else. You’re not the best thing ever. If you were, you’d have other people to sing your praises for you.
Complain. About everything. All day.
Look, I know I’m not exactly sunshine and rainbows every day myself. When my computer dies, I go straight to Twitter to complain about it. When my lunch sucks, there’s no one I want to tell more than absolutely everyone. But I do my best to balance out the ranty tweets with information that my network will find useful or will at least inspire a smile. Aim to make 80 percent of your social messages useful to your audience and material that is helping you to build your brand. There’s a place for the “I’m so angry” spice-of-life stuff but be aware of the image you’re creating for your company by always coming off as the angry townsperson. It’s not natural to be happy all the time, but it’s not natural to be angry all the time either. And if you show customers that you are, then don’t be surprised when they start following your competitors instead. Some people are getting plenty tired of #fail.
Be a jerk.
You know when you’re being a jerk. You know when you’re being purposely rude. You know when you’re being condescending and when you’re simply correcting mainstream media’s bad SEO information. You know when you’re being useful and when you’re being, well, a jerk. If you can identify it, so can anyone else who is following your account. While it may be fun to throw things at people still learning, remember that you were learning once too. And that someone probably helped point you in the right direction. There’s a difference between pointing someone in the right direction and simply pointing at them. Making someone feel dumb is a great way to lose them as a customer or a friend forever
Auto spam them.
I hope that there is a special corner of hell for people who use auto-DMs and messages to throw their stuff at me. If you are doing this, you’re a bad marketer. You may also be a bad person.
Businesses lose customers and relationships on social media when they forget why they’re there. Sure, your brand may be that you ARE a jerk to people and that you tell them off, but it’s more likely that it’s not. It’s more likely that people are following you for insight and conversation about your corner of the world. Keep those spice of life tweets in there. Keep the sunshine days and the rants – but use them carefully. Be aware of the overall picture you’re putting out there. You’re not normal. You’re a business.
My morning alarm goes off at 7am. To be honest, it’s less an alarm to wake me and more to alert me that I haven’t checked Twitter in six hours.
When I do take a hit, I find lots of people chatting about breakfast and what’s coming in their day. I also find people screaming, throwing things and promoting the same post from 12 hours ago.
Looking for relief, I do what anyone would do – I go check Facebook. When I get there, it’s more of the same. More anger, more rage and more updates that make me want to delete all my social accounts and hide under my desk. By the time I scroll through it and finally get out of bed, it’s not the dog barking, it’s me.
I live in social media, but some days even I get the urge to run far, far away. Don’t get me wrong. I’m obsessed with the opportunities these sites provide businesses and brands of all sizes and I love the conversations. But sometimes that other side really gets to me. You know, the side where people are angry all the time. It makes me wonder what people think they’re doing. I bet your customers wonder and feel that way sometimes, too.
I’m not naïve. I get that that rants were created for social media. That kind of behavior practically is social media. And that would be okay if you were a normal person. But, the fact that you’re reading this means you’re not normal. You’re a marketer. You’re not in social media to stay in touch with your Aunt Alma and her seven kids. You’re in social media to market yourself, your business and build your livelihood. You have to act smarter.
I challenge you to take a look at your last two-three weeks of social media activity. What do you see? What do your customers see? It’s time for a reality check.
Do any of these social media behaviors sound familiar? If so, smack yourself. Then stop doing them.
You beg for favors before you’ve had a conversation.
Almost as awesome asking someone to pick their brain, is to beg them for favors before you’ve earned one. If you don’t know someone well enough to ask for a cup of sugar or borrow their phone, then you don’t know them well enough to ask them to write about you/link to you/promote you/hug you. Just because you have a business and an agenda doesn’t mean that social norms have gone out the window. The fact that you have someone’s phone number doesn’t mean you have the right to call them during dinner and ask to borrow $20.
Whine that social media “isn’t fair”/ [Social Media Guru] gets more attention than you.
If this is you, you need to go find a shovel and hit yourself in the face with it (it can be lightly). Your brand has been given this HUGE microphone to talk to consumers, potential partners and, essentially, the whole world. Are you really going to use it to whine that Chris Brogan and Danny Sullivan have more followers than you? Are you really going to moan that you should been included on that 10 Best list and that life isn’t fair? That’s the impression of your brand you’re going to choose to give off? One that says you’re lesser than and all you know how to do is whine about it? I mean, that’s one way to brand yourself. Another would be to go earn the attention and recognition you’re after. No one was born with a silver spoon. You create who you are.
Ignore your audience.
Hi. It’s called social media, right? You’re here to create relationships and build awareness for your brand, right? Then why are you ignoring your audience? Why are you not responding to their messages, ignoring conversations about your brand, and missing opportunities to assert yourself? If you’re going to invest time in social media, then stop ignoring the people you’re supposed to be connecting with. I’d rather a company not be on social media then have a presence and not use it. When I send you tweets asking questions or inquiring about you, it makes me want to stab you when you ignore me. Also, stop talking about yourself while you ignore everyone else. You’re not the best thing ever. If you were, you’d have other people to sing your praises for you.
Complain. About everything. All day.
Look, I know I’m not exactly sunshine and rainbows every day myself. When my computer dies, I go straight to Twitter to complain about it. When my lunch sucks, there’s no one I want to tell more than absolutely everyone. But I do my best to balance out the ranty tweets with information that my network will find useful or will at least inspire a smile. Aim to make 80 percent of your social messages useful to your audience and material that is helping you to build your brand. There’s a place for the “I’m so angry” spice-of-life stuff but be aware of the image you’re creating for your company by always coming off as the angry townsperson. It’s not natural to be happy all the time, but it’s not natural to be angry all the time either. And if you show customers that you are, then don’t be surprised when they start following your competitors instead. Some people are getting plenty tired of #fail.
Be a jerk.
You know when you’re being a jerk. You know when you’re being purposely rude. You know when you’re being condescending and when you’re simply correcting mainstream media’s bad SEO information. You know when you’re being useful and when you’re being, well, a jerk. If you can identify it, so can anyone else who is following your account. While it may be fun to throw things at people still learning, remember that you were learning once too. And that someone probably helped point you in the right direction. There’s a difference between pointing someone in the right direction and simply pointing at them. Making someone feel dumb is a great way to lose them as a customer or a friend forever
Auto spam them.
I hope that there is a special corner of hell for people who use auto-DMs and messages to throw their stuff at me. If you are doing this, you’re a bad marketer. You may also be a bad person.
Businesses lose customers and relationships on social media when they forget why they’re there. Sure, your brand may be that you ARE a jerk to people and that you tell them off, but it’s more likely that it’s not. It’s more likely that people are following you for insight and conversation about your corner of the world. Keep those spice of life tweets in there. Keep the sunshine days and the rants – but use them carefully. Be aware of the overall picture you’re putting out there. You’re not normal. You’re a business.
Twitter’s Most Elusive Statistic
Twitter’s Most Elusive Statistic
I saw an interesting question this morning on the Twitter from Shiv Singh:
What’s the value of a tweet sent by a person with a million followers? What’s the Cost Per Tweet Impression?
I’m going to marinate on this for a few days, because it’s a thornier problem than one might initially surmise. Here’s where the problem gets deep. First of all, unlike, say, a banner ad, there is no guarantee that I will be “served” the impression of a tweet, if I miss it in my timeline. In contrast, if a website says it served a million impressions of an ad, then it was served to roughly two million eyeballs. Of course, many of those eyeballs may have blocked, ignored, or quickly scrolled away from that ad, but I can at least quantify what those of us who research the Out-Of-Home media space call “opportunity to see.”
With a tweet, it’s a little less straightforward, since one million followers don’t equate to one million impressions. If you follow over a thousand people on Twitter, your timeline is cluttered to the point that you’d likely have to actively seek out tweets from an individual Twitter user in order to guarantee that you had “seen” a given tweet from that user.
Now, there are people on Twitter that I do make a point of catching up with by going to their Twitter page periodically and reading tweets I might have missed. You probably do the same. Generally, these are people that I have a connection with – friends and colleagues with whom I have engaged in conversation with, either on Twitter or elsewhere. “Engaged” is the key word here. If I’ve been away from Twitter for a while, I might catch up with Tim Hayden, because I know he has worthwhile things to say and we’ve had some quality interactions on Twitter. Same with Matt Ridings, who I’ve yet to meet in real life, but is someone with whom I’ve shared some very thought-provoking exchanges.
So, if Tim, or Matt, or Jason Falls, or Amber Naslund or any other Twitter user I find engaging tweets something, I’m likely to see that tweet, even if I missed it in my timeline when it went “live.” Their tweets have value to me, and, it can fairly be said, influence me, because I see their tweets as conversations. Even if they are promoting a link to one of their posts, I have an expectation of engagement. If I ask them a question about that link, or engage them about one of their posts, I know I’m not wasting my time – they’ll probably answer me back.
Contrast that to someone on Twitter who, to return to Shiv’s original question, has one million followers. Let’s take Tony Robbins, who currently has 1.8 million followers. Tony is what can fairly be called a Twitter “broadcaster,” and I make no value judgement whatsoever about this. If he tweets something, I suppose I might reply, but my Twitter affections shall go unrequited – I have no expectation of a reply from Tony. This isn’t to disparage him; merely an acknowledgement that a million followers doesn’t scale. I don’t expect a reply, because I know that he has too many followers, too many possible conversations to engage in to have even seen my tweet, and I generally don’t like talking to myself (or to someone “managing” the Tony Robbins Twitter account not named Tony Robbins.)
At some point, then, a Power-Twitterer stops engaging people and becomes a broadcaster, because they have no other choice. If LeBron James actually does answer someone’s tweet, it’s the Twitter equivalent of answering one piece of fan mail – an “example” of engagement that doesn’t prove the rule. If someone with 1,000 followers tweets a question, I think those followers expect that this is an entree to a conversation. If someone with a million followers tweets a question, I daresay the vast majority of those followers realize the question is rhetorical. (I admit there is also the confounding variable of the retweet to deal with here, but engagement also comes into play in retweet behavior.)
Perhaps, therefore, the number of followers a given Twitter user has becomes a sort of barometer of engagement expectations. South of some magic number, a tweet is an invitation to connect. North of that number, a tweet is an inefficient broadcast advertisement. In this sense, that number is like a “Dunbar’s Number” for a new age of asymmetrical, asynchronous conversation. And that actual number, the “elusive statistic” referred to in the title of this post, is less important than what the number is perceived to be by the followers of a given Twitterer.
So, back to the original question: what’s the value of a tweet sent by a person with a million followers? On a per tweet basis, possibly more than a million traditional mass media impressions, given some level of self-selected targeting. Probably less, however, on a per follower basis, than a tweet sent by someone with 10,000 followers. How much less is, to quote the poet Rumsfeld, an unknowable unknown. The perceived “Dunbar’s Number” for Twitter, then, neatly demarcates the boundary between conversational marketing and broadcast advertising.
OK, so I admit that reach and engagement aren’t mutually exclusive. Clearly, more questions than answers here. If this perceived number does exist, however, what would you estimate it to be? Or, rather, what is it for you?
Or have I over-thought this to the point of utter hilarity?
I saw an interesting question this morning on the Twitter from Shiv Singh:
What’s the value of a tweet sent by a person with a million followers? What’s the Cost Per Tweet Impression?
I’m going to marinate on this for a few days, because it’s a thornier problem than one might initially surmise. Here’s where the problem gets deep. First of all, unlike, say, a banner ad, there is no guarantee that I will be “served” the impression of a tweet, if I miss it in my timeline. In contrast, if a website says it served a million impressions of an ad, then it was served to roughly two million eyeballs. Of course, many of those eyeballs may have blocked, ignored, or quickly scrolled away from that ad, but I can at least quantify what those of us who research the Out-Of-Home media space call “opportunity to see.”
With a tweet, it’s a little less straightforward, since one million followers don’t equate to one million impressions. If you follow over a thousand people on Twitter, your timeline is cluttered to the point that you’d likely have to actively seek out tweets from an individual Twitter user in order to guarantee that you had “seen” a given tweet from that user.
Now, there are people on Twitter that I do make a point of catching up with by going to their Twitter page periodically and reading tweets I might have missed. You probably do the same. Generally, these are people that I have a connection with – friends and colleagues with whom I have engaged in conversation with, either on Twitter or elsewhere. “Engaged” is the key word here. If I’ve been away from Twitter for a while, I might catch up with Tim Hayden, because I know he has worthwhile things to say and we’ve had some quality interactions on Twitter. Same with Matt Ridings, who I’ve yet to meet in real life, but is someone with whom I’ve shared some very thought-provoking exchanges.
So, if Tim, or Matt, or Jason Falls, or Amber Naslund or any other Twitter user I find engaging tweets something, I’m likely to see that tweet, even if I missed it in my timeline when it went “live.” Their tweets have value to me, and, it can fairly be said, influence me, because I see their tweets as conversations. Even if they are promoting a link to one of their posts, I have an expectation of engagement. If I ask them a question about that link, or engage them about one of their posts, I know I’m not wasting my time – they’ll probably answer me back.
Contrast that to someone on Twitter who, to return to Shiv’s original question, has one million followers. Let’s take Tony Robbins, who currently has 1.8 million followers. Tony is what can fairly be called a Twitter “broadcaster,” and I make no value judgement whatsoever about this. If he tweets something, I suppose I might reply, but my Twitter affections shall go unrequited – I have no expectation of a reply from Tony. This isn’t to disparage him; merely an acknowledgement that a million followers doesn’t scale. I don’t expect a reply, because I know that he has too many followers, too many possible conversations to engage in to have even seen my tweet, and I generally don’t like talking to myself (or to someone “managing” the Tony Robbins Twitter account not named Tony Robbins.)
At some point, then, a Power-Twitterer stops engaging people and becomes a broadcaster, because they have no other choice. If LeBron James actually does answer someone’s tweet, it’s the Twitter equivalent of answering one piece of fan mail – an “example” of engagement that doesn’t prove the rule. If someone with 1,000 followers tweets a question, I think those followers expect that this is an entree to a conversation. If someone with a million followers tweets a question, I daresay the vast majority of those followers realize the question is rhetorical. (I admit there is also the confounding variable of the retweet to deal with here, but engagement also comes into play in retweet behavior.)
Perhaps, therefore, the number of followers a given Twitter user has becomes a sort of barometer of engagement expectations. South of some magic number, a tweet is an invitation to connect. North of that number, a tweet is an inefficient broadcast advertisement. In this sense, that number is like a “Dunbar’s Number” for a new age of asymmetrical, asynchronous conversation. And that actual number, the “elusive statistic” referred to in the title of this post, is less important than what the number is perceived to be by the followers of a given Twitterer.
So, back to the original question: what’s the value of a tweet sent by a person with a million followers? On a per tweet basis, possibly more than a million traditional mass media impressions, given some level of self-selected targeting. Probably less, however, on a per follower basis, than a tweet sent by someone with 10,000 followers. How much less is, to quote the poet Rumsfeld, an unknowable unknown. The perceived “Dunbar’s Number” for Twitter, then, neatly demarcates the boundary between conversational marketing and broadcast advertising.
OK, so I admit that reach and engagement aren’t mutually exclusive. Clearly, more questions than answers here. If this perceived number does exist, however, what would you estimate it to be? Or, rather, what is it for you?
Or have I over-thought this to the point of utter hilarity?
New Pew Figures on Apps Hint at Why App Ads Might Fail
New Pew Figures on Apps Hint at Why App Ads Might Fail
Click to enlarge New figures from the Pew Internet Project provide some insight as to why app-based ads might not deliver the returns companies expect: a sizable number of users download apps but never get around to using them. Among cell phone owners, 29% have downloaded apps to their phone and 13% have paid to download apps. Yet according to Pew, of the 35% of U.S. adults have apps on their phones, only 24% use them. The apps users tend to be younger, more educated, and more affluent than other cell phone users. The users tend to skew male and slightly Hispanic when compared with other adult cell phone users.
How Engaging?
The statistics holding interesting implications for companies that are forging ahead with new mobile marketing strategies, namely Apple's iAd. Certainly there are compelling reasons to use the platform: click through rates and other engagement metrics are much higher compared to other online ad formats, some early adopters have reported.
But other companies that have used the iAd platform report being disappointed. David Smith, founder of Cross Forward Consulting can be counted in that camp - possibly for reasons that Pew's statistics capture. "I have tried just about every advertising platform around and have generally found none of them to be demonstrably effective," he wrote in a blog post describing his campaign. "I think that this stems from the fundamentals of why people buy apps. I believe most people buy apps based on receiving a recommendation, either directly from word-of-mouth or indirectly by their position in the Charts."
He ran the campaign from August 19 through August 25 for its Audiobooks Premium app. The results were disappointing: for $1,251.75, his campaign generated a total of 84 downloads, thus a Cost Per Acquisition (CPA) of ~$15. "For a $0.99 app, those economics just can’t work out."
Other stats from Pew on app users:
•Women in the sample were more likely than men to have used a social networking app in the past 30 days (53% v. 42%), and women who used the Facebook app were also more likely to use that app everyday (64% v. 55%).
•Women in the sample were more likely than men to have a used a game app in the past 30 days (63% v. 58%), while men were more likely to have used a productivity app (29% v. 21%) or a banking/finance app (31% v. 25%).
•Among the Nielsen sample of recent downloaders, whites (53%) and Hispanics (47%) were more likely than African-Americans (36%) to have used a map/navigation/search app in the month prior to the survey Hispanics, on the other hand, were the most likely to have used a music app recently (48% of Hispanics v. 42% of whites and 42% of African-Americans).
•In the Nielsen sample, 75% of 18-24 year-old Twitter app users reported using that app every day, compared with 52% of the 25-34 year-olds and 48% of the Twitter users age 35 and older.
•In contrast, among Nielsen's Facebook app users, 25-34 year-olds were more likely than both younger and older Facebook app users to report using their Facebook app daily.
•The African-Americans and Hispanics in the Nielsen sample were significantly more likely than whites to be daily users of their Youtube apps (33% of African-Americans v. 24% of Hispanics v. 12% of whites) and their Pandora music apps (33% of African-Americans v. 27% of Hispanics v. 14% of whites).
Click to enlarge New figures from the Pew Internet Project provide some insight as to why app-based ads might not deliver the returns companies expect: a sizable number of users download apps but never get around to using them. Among cell phone owners, 29% have downloaded apps to their phone and 13% have paid to download apps. Yet according to Pew, of the 35% of U.S. adults have apps on their phones, only 24% use them. The apps users tend to be younger, more educated, and more affluent than other cell phone users. The users tend to skew male and slightly Hispanic when compared with other adult cell phone users.
How Engaging?
The statistics holding interesting implications for companies that are forging ahead with new mobile marketing strategies, namely Apple's iAd. Certainly there are compelling reasons to use the platform: click through rates and other engagement metrics are much higher compared to other online ad formats, some early adopters have reported.
But other companies that have used the iAd platform report being disappointed. David Smith, founder of Cross Forward Consulting can be counted in that camp - possibly for reasons that Pew's statistics capture. "I have tried just about every advertising platform around and have generally found none of them to be demonstrably effective," he wrote in a blog post describing his campaign. "I think that this stems from the fundamentals of why people buy apps. I believe most people buy apps based on receiving a recommendation, either directly from word-of-mouth or indirectly by their position in the Charts."
He ran the campaign from August 19 through August 25 for its Audiobooks Premium app. The results were disappointing: for $1,251.75, his campaign generated a total of 84 downloads, thus a Cost Per Acquisition (CPA) of ~$15. "For a $0.99 app, those economics just can’t work out."
Other stats from Pew on app users:
•Women in the sample were more likely than men to have used a social networking app in the past 30 days (53% v. 42%), and women who used the Facebook app were also more likely to use that app everyday (64% v. 55%).
•Women in the sample were more likely than men to have a used a game app in the past 30 days (63% v. 58%), while men were more likely to have used a productivity app (29% v. 21%) or a banking/finance app (31% v. 25%).
•Among the Nielsen sample of recent downloaders, whites (53%) and Hispanics (47%) were more likely than African-Americans (36%) to have used a map/navigation/search app in the month prior to the survey Hispanics, on the other hand, were the most likely to have used a music app recently (48% of Hispanics v. 42% of whites and 42% of African-Americans).
•In the Nielsen sample, 75% of 18-24 year-old Twitter app users reported using that app every day, compared with 52% of the 25-34 year-olds and 48% of the Twitter users age 35 and older.
•In contrast, among Nielsen's Facebook app users, 25-34 year-olds were more likely than both younger and older Facebook app users to report using their Facebook app daily.
•The African-Americans and Hispanics in the Nielsen sample were significantly more likely than whites to be daily users of their Youtube apps (33% of African-Americans v. 24% of Hispanics v. 12% of whites) and their Pandora music apps (33% of African-Americans v. 27% of Hispanics v. 14% of whites).
Monday, September 20, 2010
Brand Discounts Win Facebook Fans
Brand Discounts Win Facebook Fans
A new study by ExactTarget and CoTweet finds that while consumers primarily turn to Facebook to connect with friends and for entertainment, discounts and 'social badging' are the primary reasons consumers 'like' brands on Facebook.
However, the prospect of receiving discounts is the number one driver for consumers to "like" a brand on Facebook, according to a new study from ExactTarget and CoTweet. 40% are motivated to like a brand on Facebook by discounts and promotions. 39% are motivated by showing support for the brand.
In addition, getting free samples or coupons, and updates on upcoming sales, tie into the discount/promotion motivation. Other popular drivers include staying informed about the activities of a company, getting updates on future products, and fun or entertainment.
Motivation to "Like" Company or Brand on Facebook
Facebook Motivations % of Respondents
Receive discounts and promotions 40%
Show support for the company 37
Get a "freebie" 36
Stay informed about company 34
Get updates about products 33
Get updates on upcoming sales 30
Fun and entertainment 29
Access to exclusive content 25
Recommended 22
Learn about company 21
Source: ExactTarget, August 2010
The survey of more than 1,500 consumers finds that 39% of Facebook users who become fans do so to publicly display their brand affiliation to friends,
nearly twice as often as consumers follow brands on Twitter and nearly four times more often than consumers subscribe to email communications for the same reason.
Results from the study demonstrate that for most consumers, Facebook is far more about personal, rather than professional, interaction. 63% of Facebook users are there to reconnect with old friends and friends who live far away, and 59% use Facebook to maintain personal contacts.
Reasons for Consumer Use of Facebook
Reason % of Respondents Who Agree
Reconnect with friends 63%
Maintain personal contacts 59
Stay on top of social life 37
Fill downtime 30
Play games 30
Log in to read friend's messages 23
Keep current on children/grandchildren 16
Maintain professional contacts 15
Source: ExactTarget, August 2010
Jeff Rohrs, principal, ExactTarget's research and education group, said "Consumers use Facebook to interact with friends, be entertained, and express themselves through their public affiliation with brands... "
Expanded findings of the research include:
• 64% of all U.S. consumers, and three quarters of Millennials, have created a profile on Facebook making it the "default" social community
• 30% of consumers use Facebook to occupy their down time citing it as a "guilty pleasure," and 31% say they monitor the amount of time spent on Facebook because of its addictive nature.
• 65% of Facebook users say they login only before or after work/school and 69% use the site on weekends or off-days, requiring marketers to engage with consumers on nights and weekends as well as during normal business hours.
• Women are more likely than men to use Facebook for maintaining personal relationships (63 versus 54%), connecting with old friends (68 versus 56%) and managing their social lives (41 versus 34%).
• Half of all fans "like" only one to four brands, and only 17% of consumers say they're more likely to buy after becoming a "fan" on Facebook.
Additionally, a Syncapse analysis of five factors per fan: product spending, brand loyalty, propensity to recommend, brand affinity and earned media value, finding that the average value a Facebook fan provides a brand is $136.38, but it can swing to $270.77 in the best case. On average, says Syncapse, a Facebook fan participates with a brand 10 times a year and will make one recommendation.
Tim Kopp, ExactTarget's chief marketing officer, concludes that "... Facebook provides a unique opportunity for marketers to creatively connect with motivated audiences online... "
A new study by ExactTarget and CoTweet finds that while consumers primarily turn to Facebook to connect with friends and for entertainment, discounts and 'social badging' are the primary reasons consumers 'like' brands on Facebook.
However, the prospect of receiving discounts is the number one driver for consumers to "like" a brand on Facebook, according to a new study from ExactTarget and CoTweet. 40% are motivated to like a brand on Facebook by discounts and promotions. 39% are motivated by showing support for the brand.
In addition, getting free samples or coupons, and updates on upcoming sales, tie into the discount/promotion motivation. Other popular drivers include staying informed about the activities of a company, getting updates on future products, and fun or entertainment.
Motivation to "Like" Company or Brand on Facebook
Facebook Motivations % of Respondents
Receive discounts and promotions 40%
Show support for the company 37
Get a "freebie" 36
Stay informed about company 34
Get updates about products 33
Get updates on upcoming sales 30
Fun and entertainment 29
Access to exclusive content 25
Recommended 22
Learn about company 21
Source: ExactTarget, August 2010
The survey of more than 1,500 consumers finds that 39% of Facebook users who become fans do so to publicly display their brand affiliation to friends,
nearly twice as often as consumers follow brands on Twitter and nearly four times more often than consumers subscribe to email communications for the same reason.
Results from the study demonstrate that for most consumers, Facebook is far more about personal, rather than professional, interaction. 63% of Facebook users are there to reconnect with old friends and friends who live far away, and 59% use Facebook to maintain personal contacts.
Reasons for Consumer Use of Facebook
Reason % of Respondents Who Agree
Reconnect with friends 63%
Maintain personal contacts 59
Stay on top of social life 37
Fill downtime 30
Play games 30
Log in to read friend's messages 23
Keep current on children/grandchildren 16
Maintain professional contacts 15
Source: ExactTarget, August 2010
Jeff Rohrs, principal, ExactTarget's research and education group, said "Consumers use Facebook to interact with friends, be entertained, and express themselves through their public affiliation with brands... "
Expanded findings of the research include:
• 64% of all U.S. consumers, and three quarters of Millennials, have created a profile on Facebook making it the "default" social community
• 30% of consumers use Facebook to occupy their down time citing it as a "guilty pleasure," and 31% say they monitor the amount of time spent on Facebook because of its addictive nature.
• 65% of Facebook users say they login only before or after work/school and 69% use the site on weekends or off-days, requiring marketers to engage with consumers on nights and weekends as well as during normal business hours.
• Women are more likely than men to use Facebook for maintaining personal relationships (63 versus 54%), connecting with old friends (68 versus 56%) and managing their social lives (41 versus 34%).
• Half of all fans "like" only one to four brands, and only 17% of consumers say they're more likely to buy after becoming a "fan" on Facebook.
Additionally, a Syncapse analysis of five factors per fan: product spending, brand loyalty, propensity to recommend, brand affinity and earned media value, finding that the average value a Facebook fan provides a brand is $136.38, but it can swing to $270.77 in the best case. On average, says Syncapse, a Facebook fan participates with a brand 10 times a year and will make one recommendation.
Tim Kopp, ExactTarget's chief marketing officer, concludes that "... Facebook provides a unique opportunity for marketers to creatively connect with motivated audiences online... "
Friday, September 17, 2010
CMOs Explore Digital Domain
CMOs Explore Digital Domain
Here's how some marketing mavens and the experts that guide them view the space and marketers' role in it
P&G's Marc Pritchard
Brand stewards are quick these days to praise the impact digital marketing efforts have had on their products. Jim Berra, for instance, svp and CMO at Carnival Cruise Lines, says tapping into online conversations daily has built brand loyalty and driven sales.
"We are seeing growth in terms of bookings across all channels of distribution from people who are exposed to digital," says Berra, adding that the arena is one place where marketers can't overinvest. "It's powerful, immediate and spending is on the rise."
According to eMarketer, U.S. online ad spending as a percentage of total U.S. ad spending was 13.9 percent in 2009. The number is projected to advance to 15.1 percent this year and 20.3 percent by 2014. While digital initiatives continue to assume a bigger portion of the marketing mix, company executives differ on what they need to do to compete in the space.
Some, like Bill Morgan, svp of corporate marketing at Sprint, say that CMOs who have not yet become digital marketing officers are doomed. Others are comfortable having a digital-savvy team around them.
Here's how some marketing mavens and the experts that guide them view the space and marketers' role in it.
•••
"What we're seeing are CMOs dividing into two camps. [There are] those who see the shift to digital as a terrific opportunity to embrace a reinvention of marketing -- the methods and processes and essence of what good marketing means. The other camp agrees things are changing, but are not yet clear on what the next generation of marketing needs to be." --Matt Symons, digital marketing director, Accenture Interactive
•••
"If you're a CMO and you're not deeply engaged and intimately knowledgeable when it comes to all things digital, then you're stuck in a prior decade and destined to fail." --Bill Morgan, svp, corporate marketing, Sprint
Last year, Morgan was so confident in the power of an idea that would be first executed on the Web -- a widget that compiled data in real time -- that the company based an entire campaign on the concept, touting the brand as the "Now Network" across media channels.
•••
Toyota's most recent Facebook campaign, dubbed "Auto-Biography," asked some 163,000 people who have "liked" the company to post videos and text aboutwhy they love their cars.
"Sometimes digital inspires the entire campaign. ... Our brand has been through a challenging time over the past few months. But through the Facebook campaign we've seen a groundswell of loyal owners championing our brand." --Kimberley Gardiner, national digital marketing and social media manager, Toyota Motor Sales, U.S.A.
•••
"Everyone in this environment feels like they are on the hot seat to produce results. You can't be in a public company and not feel that pressure. ... Marketing folks can't just be worried about brand health. You have to be thinking about how to convert people on a stage-by-stage basis." --Tom Klein, CEO, Digital Scientists
•••
"Innovation, especially as fast as the world changes, can't always come from within. You have to build and sustain a great internal team and the team has to know the power and skill in building the partnerships that keep us at the forefront of what's next." --Marc Pritchard, global marketing and brand building officer, Procter & Gamble
Wieden + Kennedy, Portland, Ore., created two much buzzed about digital efforts for P&G: Old Spice's viral video campaign on YouTube, where the campaign's star, Isaiah Mustafa, personally responded to Web questions and comments. And a multiplatform program for the 2010 Olympic Winter Games in Vancouver, "Proud Sponsor of Moms," which was created only 128 days before the games and was adapted to respond to Olympic events as they happened.
"Both [of the above represent] a major shift in how we have historically worked. We need to change our mind-set from marketing to consumers to serving consumers, and change from just selling attributes so people buy our products, to touching them with ideas that create emotional bonds with our brands," Pritchard says.
•••
"We're seeing the emergence of the chief digital officer reporting into a global CMO. [In the past six months] there's been a crescendo of requests for CMOs and direct reports with digital expertise." --Lynne Seid, a partner at Heidrick & Struggles
Here's how some marketing mavens and the experts that guide them view the space and marketers' role in it
P&G's Marc Pritchard
Brand stewards are quick these days to praise the impact digital marketing efforts have had on their products. Jim Berra, for instance, svp and CMO at Carnival Cruise Lines, says tapping into online conversations daily has built brand loyalty and driven sales.
"We are seeing growth in terms of bookings across all channels of distribution from people who are exposed to digital," says Berra, adding that the arena is one place where marketers can't overinvest. "It's powerful, immediate and spending is on the rise."
According to eMarketer, U.S. online ad spending as a percentage of total U.S. ad spending was 13.9 percent in 2009. The number is projected to advance to 15.1 percent this year and 20.3 percent by 2014. While digital initiatives continue to assume a bigger portion of the marketing mix, company executives differ on what they need to do to compete in the space.
Some, like Bill Morgan, svp of corporate marketing at Sprint, say that CMOs who have not yet become digital marketing officers are doomed. Others are comfortable having a digital-savvy team around them.
Here's how some marketing mavens and the experts that guide them view the space and marketers' role in it.
•••
"What we're seeing are CMOs dividing into two camps. [There are] those who see the shift to digital as a terrific opportunity to embrace a reinvention of marketing -- the methods and processes and essence of what good marketing means. The other camp agrees things are changing, but are not yet clear on what the next generation of marketing needs to be." --Matt Symons, digital marketing director, Accenture Interactive
•••
"If you're a CMO and you're not deeply engaged and intimately knowledgeable when it comes to all things digital, then you're stuck in a prior decade and destined to fail." --Bill Morgan, svp, corporate marketing, Sprint
Last year, Morgan was so confident in the power of an idea that would be first executed on the Web -- a widget that compiled data in real time -- that the company based an entire campaign on the concept, touting the brand as the "Now Network" across media channels.
•••
Toyota's most recent Facebook campaign, dubbed "Auto-Biography," asked some 163,000 people who have "liked" the company to post videos and text aboutwhy they love their cars.
"Sometimes digital inspires the entire campaign. ... Our brand has been through a challenging time over the past few months. But through the Facebook campaign we've seen a groundswell of loyal owners championing our brand." --Kimberley Gardiner, national digital marketing and social media manager, Toyota Motor Sales, U.S.A.
•••
"Everyone in this environment feels like they are on the hot seat to produce results. You can't be in a public company and not feel that pressure. ... Marketing folks can't just be worried about brand health. You have to be thinking about how to convert people on a stage-by-stage basis." --Tom Klein, CEO, Digital Scientists
•••
"Innovation, especially as fast as the world changes, can't always come from within. You have to build and sustain a great internal team and the team has to know the power and skill in building the partnerships that keep us at the forefront of what's next." --Marc Pritchard, global marketing and brand building officer, Procter & Gamble
Wieden + Kennedy, Portland, Ore., created two much buzzed about digital efforts for P&G: Old Spice's viral video campaign on YouTube, where the campaign's star, Isaiah Mustafa, personally responded to Web questions and comments. And a multiplatform program for the 2010 Olympic Winter Games in Vancouver, "Proud Sponsor of Moms," which was created only 128 days before the games and was adapted to respond to Olympic events as they happened.
"Both [of the above represent] a major shift in how we have historically worked. We need to change our mind-set from marketing to consumers to serving consumers, and change from just selling attributes so people buy our products, to touching them with ideas that create emotional bonds with our brands," Pritchard says.
•••
"We're seeing the emergence of the chief digital officer reporting into a global CMO. [In the past six months] there's been a crescendo of requests for CMOs and direct reports with digital expertise." --Lynne Seid, a partner at Heidrick & Struggles
12 Takeaways from Today’s Netflix EPIX Agreement
12 Takeaways from Today’s Netflix EPIX Agreement
The joint venture precursor to pay TV channel EPIX was formed by Paramount, Lionsgate and MGM on April 20, 2008 (click here). At the time, we viewed Netflix (click here) as the leading contender to make a success of the three studios’ decision to drop Showtime and start a new network, stating: “If Netflix wants to expand its brand beyond a DVD subscription service, this venture could be a once-in-a-lifetime opportunity, despite the incredibly high annual cost of entry.” 28 months later, Netflix has struck a deal to gain access to all of EPIX’s content for five years starting on September 1, 2010 (click here for the press release) and price was certainly high.
12 Key Takeaways from Today’s Netflix/EPIX Announcement:
1.Silence the EPIX Critics and Take the Money. Viacom and Lionsgate have been pummeled by investors and the press for the past two years about how bad a decision leaving Showtime was and how they would never gain enough distribution to earn an adequate return. On Viacom’s last conference call management indicated that revenues/EBITDA from EPIX for movies delivered were fully-offset by equity losses related to their EPIX ownership. Following today’s EPIX deal, we expect EPIX to be profitable - positively impacting profits at both Viacom and Lionsgate. It’s also worth considering that Paramount is not a core Viacom asset and it has underperformed in recent years, so improving the health of the studio, even if it is not the best decision for the larger movie industry would appear logical (similar to Paramount’s thought process vis-a-vis Redbox).2.Value of Digital Content is Rising, Netflix Paying More than Showtime Offered. Prior to the creation of EPIX, we believe the three studio partners in EPIX were generating $350 mm/year from Showtime for their movie content. Showtime was offering a 50% haircut for a new deal or about $175 mm/year. We believe Netflix is paying EPIX over $200 mm in year one (assuming Netflix averages around 18 mm subscribers during the first 12 months of the EPIX agreement, Netflix is paying a very healthy $1/sub/month). While annual payments step down in the future, the three studios own all of EPIX (vs. none of Showtime) and they have also signed deals with traditional distributors (Cox, Charter, Mediacom, Verizon and Dish). While its not yet clear that this value for digital content is fully incremental to traditional distribution (as EPIX has yet to sign Comcast, Time Warner, DirecTV, etc…), it certainly shows how digital distribution has real value.
3.Standard Definition Will Be Disappointing to Consumers. During the initial phase of the EPIX/Netflix deal, the streaming content will only be offered in standard definition, similar to the quality of the Starz content streamed on Netflix. This issue is minor if you are viewing Netflix on a screen the size on an iPad, let alone the coming iPhone/Android apps. However, when you have a PS3 with Netflix attached to a 50-inch HDTV, SD-quality leaves a lot to be desired. We expect Netflix to address the HD streaming issue with Starz next year, when their contract expires so they can create a complement to what we believe are improving streaming quality rights with EPIX over time.
4.Exclusivity Commentary is Misleading. Consumers who subscribe to EPIX via a multichannel operator already gain access to www.EPIXHD.com, a site that streams all EPIX content online today, with the same 90-day window advantage that the pay TV channel has vs. Netflix streaming. Netflix is simply the exclusive streaming partner for EPIX, meaning the content cannot show up on a to-be-launched Amazon or Redbox streaming movie service. If Comcast signed a deal with EPIX tomorrow they would have streaming rights to multiple devices, 90 days before the content hits Netflix for streaming.
5.90 Day Window is Irrelevant Until Multi-Platform Streaming Competition Exists. While the studio partners in EPIX are trying to highlight the importance of the 90 day delay of the Netflix streaming vs. the traditional pay TV window for EPIX, we believe consumers will simply not care/understand until robust alternatives exist. Movies on Pay TV (HBO, Showtime, Starz and EPIX) are already delayed 11-12 months after theatrical release, so an extra three months seems relatively insignificant, especially compared to the seven year delay that this content previously had on Netflix. In addition, while a Cox subscriber may already have EPIX streaming content with no window (as a paid subscriber), they are currently limited to viewing on a PC, with no way to access EPIX’s larger online library of content on their web-connected TV directly, via a PS3/Wii/Xbox or via mobile devices. Similarly, Comcast may offer HBOGo via Fancast to its HBO subscribers, however, the interface is not only quite weak, but you have no access beyond the PC to access the content. 90 days does not matter yet, but it might in the future. Note the lack of multiple platforms in the examples above are simply due to the fact that multichannel providers have not enabled this functionality yet (could change, but we continue to wait…).
6.EPIX is Far Better Value on Netflix than via Multichannel Operators. If a consumer pays for EPIX as a traditional pay TV service, they are paying upwards of $10/month (FIOS charges $9.99/month, DISH charges $10/month for their HD Platinum add-on with EPIX being the standout channel, etc.). Unless consumers care to have the content three months earlier, gaining access to EPIX via Netflix for as little as $9/month, when that monthly fee also includes streaming Starz content, deep catalog streaming movies from other studios as well as its traditional DVD-by-mail service is a great value. Interestingly, a key Netflix/EPIX deal point is that EPIX content will not be branded EPIX on Netflix (in stark contrast to the Starz Play branding for Starz titles). While at first glance, you might say “who cares,” we suspect this is done on purpose to make it more difficult for consumers to realize they do not need to subscribe to EPIX via traditional pay television.
7.Netflix Will Want to Pay Up for Starz in 2011. We believe Netflix is currently paying less than $30 million/year for streaming rights to Starz content, equates to about $0.15/sub/month, dramatically below the $4/sub/month-plus that multichannel operators pay Starz for the same content, in the same window of availability. The Netflix/Starz three-year agreement was signed on 10/1/08 (click here), and was placed under the Starz Play brand, which offers third parties such as Netflix (and Verizon FIOS) standard definition streaming rights. Starz acknowledges they dramatically underpriced the agreement. We expect Starz to extract dramatically higher fees from Netflix starting in Q4 2011, with HD content possible, especially if Netflix is willing to delay the streaming window (akin to the EPIX deal). Starz’s content deals with Sony and Disney (re-upped over past 18 months) enable them to continue to sell streaming rights to Netflix, however, an unspecified percentage of the increase in fees flows to the studios (currently Starz keeps 100%). While some investors may fear that an EPIX deal makes a Starz deal unnecessary for Netflix, we believe Paramount and Lionsgate content is simply not enough “fresh” content, nor of high enough quality (relative to Starz’s Sony/Disney content) to fuel Netflix’s rapidly growing subscriber base that craves streaming content. While it may seem strange that the Netflix/EPIX deal steps down over time, we actually think it enables Netflix to sign a deal with Starz in a year that steps up over the following five years, effectively leveling off their movie content costs on an annual basis.
8.Industry Battle Lines Drawn: The “FONAR”s and the “NFONAR”s. In our 6/16 blog post (click here), we indicated how the movie industry had become strongly divided on the topic of day-and-date with DVD for Redbox and Netflix versus a 28-day delayed window - what we will call the Friends of Netflix and Redbox (FONARs) and the Not Friends of Netflix and Redbox (NFONARs). Interestingly, with today’s Netflix/EPIX agreement, the same studios that favor Netflix and Redbox DVD releases day-and-date with a DVD’s release, also support Netflix streaming of content of their content within the traditional pay TV window (Disney, Sony, Paramount and Lionsgate), while the same three majors that favor a 28-day window (Warner Bros., Universal and FOX) all have output deals with HBO, whom we believe has no interest in sub-licensing its streaming content to Netflix.
9.Cable Needs to Move Faster, TV Everywhere Stuck in Neutral and its Interface is In-Reverse. On June 24, 2009, Comcast and Time Warner announced an agreement to facilitate TV Everywhere (click here), essentially making it possible to authenticate that you subscribe to multichannel television and then watch programming across multi-devices. Comcast has launched the broadest roll-out of TV Everywhere (with most other operators still in beta), however, content rights are still a work-in-progress and the user interface leaves a lot to be desired (if you do not know what we mean, just go to www.fancast.com, unclear if its called Xfinity or Fancast anymore). Comcast has so far refused to allow programmers to use their own authenticated interfaces such as HBO GO (which is beautiful and intuitive) and other cable operators have yet to sign agreements to enable HBO GO. Cable as an industry is simply moving too slowly and missing a big opportunity, while Netflix’s power and subscription base continues to grow. We really thought Comcast would cut a deal with EPIX, as it had already done deals with HBO, Showtime and Starz, enabling it to offer a one-of-a-kind movie streaming movie service to its multi-pay subscribers and importantly, keeping the content away from Netflix. While a deal is still possible, we sense EPIX simply grew tired of waiting and Netflix now has a five year deal with EPIX in place.
10.Increases Value of Netflix Subscription vs. Redbox, Blockbuster and Showtime. For movie fanatics (in contrast to original programming fans), the value of Netflix continues to grow, especially relative to Showtime (which has lost a meaningful portion of its movie content). While promotional deals abound, adding a premium TV channel to your cable subscription can cost upwards of $10-$15/month, in contrast to Netflix for as little as $9/month. We also believe Netflix’s EPIX deal enables it to differentiate itself from its physical rental-only peers, Redbox and Blockbuster. Not only is Netflix an attractive consumer value proposition for DVD rentals, but the inclusion of multi-platform Sony, Disney, Paramount, Lionsgate, MGM and Relativity Media movie content along with a wide offering of deep catalog of movies and recent (not new) TV show programming will make it that much easier to take share from its physical peers. We also fear that Redbox will feel the pressure from Netflix’s EPIX deal and will seek to pour money into streaming; which could be the wrong decision given the high cost of entry.
11.Netflix Accelerating Shift to Digital with Boldest Financial Move To-Date. Spending over $200 mm/year intially for EPIX digital content is a very significant move for Netflix compared to spending $30 million or less two years ago for Starz content. We believe the boldness of this move relates to the slide (embedded below), they posted in their business opportunity slideshow a couple months ago. Netflix is trying to drive subscriber growth, while shifting consumer behavior from DVD rentals to streaming, and utilize the DVD-by-mail cost savings from that shift to acquire more content to fuel streaming - a virtuous circle of profit growth if they can pull it off. However, this is not without risk; there is no going back for Netflix, this has to work for them given the size of the “bet;” they can no longer simply tweak streaming and marketing to drive/manage earnings growth (given the fixed costs they are taking on). It is worth nothing however, that enhanced streaming content across more and more devices may also enable Netflix to push ARPU, as it is already doing with Blu ray.
12.Pre-cursor to Original Content. While HBO and Showtime will likely say they remain in a whole different category because of their original programming, if Netflix is successful in driving sub growth and shifting consumers to streaming from DVDs-by-mail, we believe the next logical step in two-three years would be to enter original programming (just as Starz is doing today). Netflix will surely deny this type of move today, but the opportunity to leverage an expanding subscriber base attracted to entertainment content appears no different than where HBO or Showtime sat a decade ago looking at original programming.
The joint venture precursor to pay TV channel EPIX was formed by Paramount, Lionsgate and MGM on April 20, 2008 (click here). At the time, we viewed Netflix (click here) as the leading contender to make a success of the three studios’ decision to drop Showtime and start a new network, stating: “If Netflix wants to expand its brand beyond a DVD subscription service, this venture could be a once-in-a-lifetime opportunity, despite the incredibly high annual cost of entry.” 28 months later, Netflix has struck a deal to gain access to all of EPIX’s content for five years starting on September 1, 2010 (click here for the press release) and price was certainly high.
12 Key Takeaways from Today’s Netflix/EPIX Announcement:
1.Silence the EPIX Critics and Take the Money. Viacom and Lionsgate have been pummeled by investors and the press for the past two years about how bad a decision leaving Showtime was and how they would never gain enough distribution to earn an adequate return. On Viacom’s last conference call management indicated that revenues/EBITDA from EPIX for movies delivered were fully-offset by equity losses related to their EPIX ownership. Following today’s EPIX deal, we expect EPIX to be profitable - positively impacting profits at both Viacom and Lionsgate. It’s also worth considering that Paramount is not a core Viacom asset and it has underperformed in recent years, so improving the health of the studio, even if it is not the best decision for the larger movie industry would appear logical (similar to Paramount’s thought process vis-a-vis Redbox).2.Value of Digital Content is Rising, Netflix Paying More than Showtime Offered. Prior to the creation of EPIX, we believe the three studio partners in EPIX were generating $350 mm/year from Showtime for their movie content. Showtime was offering a 50% haircut for a new deal or about $175 mm/year. We believe Netflix is paying EPIX over $200 mm in year one (assuming Netflix averages around 18 mm subscribers during the first 12 months of the EPIX agreement, Netflix is paying a very healthy $1/sub/month). While annual payments step down in the future, the three studios own all of EPIX (vs. none of Showtime) and they have also signed deals with traditional distributors (Cox, Charter, Mediacom, Verizon and Dish). While its not yet clear that this value for digital content is fully incremental to traditional distribution (as EPIX has yet to sign Comcast, Time Warner, DirecTV, etc…), it certainly shows how digital distribution has real value.
3.Standard Definition Will Be Disappointing to Consumers. During the initial phase of the EPIX/Netflix deal, the streaming content will only be offered in standard definition, similar to the quality of the Starz content streamed on Netflix. This issue is minor if you are viewing Netflix on a screen the size on an iPad, let alone the coming iPhone/Android apps. However, when you have a PS3 with Netflix attached to a 50-inch HDTV, SD-quality leaves a lot to be desired. We expect Netflix to address the HD streaming issue with Starz next year, when their contract expires so they can create a complement to what we believe are improving streaming quality rights with EPIX over time.
4.Exclusivity Commentary is Misleading. Consumers who subscribe to EPIX via a multichannel operator already gain access to www.EPIXHD.com, a site that streams all EPIX content online today, with the same 90-day window advantage that the pay TV channel has vs. Netflix streaming. Netflix is simply the exclusive streaming partner for EPIX, meaning the content cannot show up on a to-be-launched Amazon or Redbox streaming movie service. If Comcast signed a deal with EPIX tomorrow they would have streaming rights to multiple devices, 90 days before the content hits Netflix for streaming.
5.90 Day Window is Irrelevant Until Multi-Platform Streaming Competition Exists. While the studio partners in EPIX are trying to highlight the importance of the 90 day delay of the Netflix streaming vs. the traditional pay TV window for EPIX, we believe consumers will simply not care/understand until robust alternatives exist. Movies on Pay TV (HBO, Showtime, Starz and EPIX) are already delayed 11-12 months after theatrical release, so an extra three months seems relatively insignificant, especially compared to the seven year delay that this content previously had on Netflix. In addition, while a Cox subscriber may already have EPIX streaming content with no window (as a paid subscriber), they are currently limited to viewing on a PC, with no way to access EPIX’s larger online library of content on their web-connected TV directly, via a PS3/Wii/Xbox or via mobile devices. Similarly, Comcast may offer HBOGo via Fancast to its HBO subscribers, however, the interface is not only quite weak, but you have no access beyond the PC to access the content. 90 days does not matter yet, but it might in the future. Note the lack of multiple platforms in the examples above are simply due to the fact that multichannel providers have not enabled this functionality yet (could change, but we continue to wait…).
6.EPIX is Far Better Value on Netflix than via Multichannel Operators. If a consumer pays for EPIX as a traditional pay TV service, they are paying upwards of $10/month (FIOS charges $9.99/month, DISH charges $10/month for their HD Platinum add-on with EPIX being the standout channel, etc.). Unless consumers care to have the content three months earlier, gaining access to EPIX via Netflix for as little as $9/month, when that monthly fee also includes streaming Starz content, deep catalog streaming movies from other studios as well as its traditional DVD-by-mail service is a great value. Interestingly, a key Netflix/EPIX deal point is that EPIX content will not be branded EPIX on Netflix (in stark contrast to the Starz Play branding for Starz titles). While at first glance, you might say “who cares,” we suspect this is done on purpose to make it more difficult for consumers to realize they do not need to subscribe to EPIX via traditional pay television.
7.Netflix Will Want to Pay Up for Starz in 2011. We believe Netflix is currently paying less than $30 million/year for streaming rights to Starz content, equates to about $0.15/sub/month, dramatically below the $4/sub/month-plus that multichannel operators pay Starz for the same content, in the same window of availability. The Netflix/Starz three-year agreement was signed on 10/1/08 (click here), and was placed under the Starz Play brand, which offers third parties such as Netflix (and Verizon FIOS) standard definition streaming rights. Starz acknowledges they dramatically underpriced the agreement. We expect Starz to extract dramatically higher fees from Netflix starting in Q4 2011, with HD content possible, especially if Netflix is willing to delay the streaming window (akin to the EPIX deal). Starz’s content deals with Sony and Disney (re-upped over past 18 months) enable them to continue to sell streaming rights to Netflix, however, an unspecified percentage of the increase in fees flows to the studios (currently Starz keeps 100%). While some investors may fear that an EPIX deal makes a Starz deal unnecessary for Netflix, we believe Paramount and Lionsgate content is simply not enough “fresh” content, nor of high enough quality (relative to Starz’s Sony/Disney content) to fuel Netflix’s rapidly growing subscriber base that craves streaming content. While it may seem strange that the Netflix/EPIX deal steps down over time, we actually think it enables Netflix to sign a deal with Starz in a year that steps up over the following five years, effectively leveling off their movie content costs on an annual basis.
8.Industry Battle Lines Drawn: The “FONAR”s and the “NFONAR”s. In our 6/16 blog post (click here), we indicated how the movie industry had become strongly divided on the topic of day-and-date with DVD for Redbox and Netflix versus a 28-day delayed window - what we will call the Friends of Netflix and Redbox (FONARs) and the Not Friends of Netflix and Redbox (NFONARs). Interestingly, with today’s Netflix/EPIX agreement, the same studios that favor Netflix and Redbox DVD releases day-and-date with a DVD’s release, also support Netflix streaming of content of their content within the traditional pay TV window (Disney, Sony, Paramount and Lionsgate), while the same three majors that favor a 28-day window (Warner Bros., Universal and FOX) all have output deals with HBO, whom we believe has no interest in sub-licensing its streaming content to Netflix.
9.Cable Needs to Move Faster, TV Everywhere Stuck in Neutral and its Interface is In-Reverse. On June 24, 2009, Comcast and Time Warner announced an agreement to facilitate TV Everywhere (click here), essentially making it possible to authenticate that you subscribe to multichannel television and then watch programming across multi-devices. Comcast has launched the broadest roll-out of TV Everywhere (with most other operators still in beta), however, content rights are still a work-in-progress and the user interface leaves a lot to be desired (if you do not know what we mean, just go to www.fancast.com, unclear if its called Xfinity or Fancast anymore). Comcast has so far refused to allow programmers to use their own authenticated interfaces such as HBO GO (which is beautiful and intuitive) and other cable operators have yet to sign agreements to enable HBO GO. Cable as an industry is simply moving too slowly and missing a big opportunity, while Netflix’s power and subscription base continues to grow. We really thought Comcast would cut a deal with EPIX, as it had already done deals with HBO, Showtime and Starz, enabling it to offer a one-of-a-kind movie streaming movie service to its multi-pay subscribers and importantly, keeping the content away from Netflix. While a deal is still possible, we sense EPIX simply grew tired of waiting and Netflix now has a five year deal with EPIX in place.
10.Increases Value of Netflix Subscription vs. Redbox, Blockbuster and Showtime. For movie fanatics (in contrast to original programming fans), the value of Netflix continues to grow, especially relative to Showtime (which has lost a meaningful portion of its movie content). While promotional deals abound, adding a premium TV channel to your cable subscription can cost upwards of $10-$15/month, in contrast to Netflix for as little as $9/month. We also believe Netflix’s EPIX deal enables it to differentiate itself from its physical rental-only peers, Redbox and Blockbuster. Not only is Netflix an attractive consumer value proposition for DVD rentals, but the inclusion of multi-platform Sony, Disney, Paramount, Lionsgate, MGM and Relativity Media movie content along with a wide offering of deep catalog of movies and recent (not new) TV show programming will make it that much easier to take share from its physical peers. We also fear that Redbox will feel the pressure from Netflix’s EPIX deal and will seek to pour money into streaming; which could be the wrong decision given the high cost of entry.
11.Netflix Accelerating Shift to Digital with Boldest Financial Move To-Date. Spending over $200 mm/year intially for EPIX digital content is a very significant move for Netflix compared to spending $30 million or less two years ago for Starz content. We believe the boldness of this move relates to the slide (embedded below), they posted in their business opportunity slideshow a couple months ago. Netflix is trying to drive subscriber growth, while shifting consumer behavior from DVD rentals to streaming, and utilize the DVD-by-mail cost savings from that shift to acquire more content to fuel streaming - a virtuous circle of profit growth if they can pull it off. However, this is not without risk; there is no going back for Netflix, this has to work for them given the size of the “bet;” they can no longer simply tweak streaming and marketing to drive/manage earnings growth (given the fixed costs they are taking on). It is worth nothing however, that enhanced streaming content across more and more devices may also enable Netflix to push ARPU, as it is already doing with Blu ray.
12.Pre-cursor to Original Content. While HBO and Showtime will likely say they remain in a whole different category because of their original programming, if Netflix is successful in driving sub growth and shifting consumers to streaming from DVDs-by-mail, we believe the next logical step in two-three years would be to enter original programming (just as Starz is doing today). Netflix will surely deny this type of move today, but the opportunity to leverage an expanding subscriber base attracted to entertainment content appears no different than where HBO or Showtime sat a decade ago looking at original programming.
The Future of Advertising
The Future of Advertising
In 1996 I was part of the team at United Media that launched the DilbertZone.com. Scott Adams' witty insights coupled with the early adopter Internet audience made the site a Top 50 web destination, according to Yahoo Internet Life. We were a five-person team that created a profitable online business with nothing more than a few servers and HTML. Yes, it was possible to make money online in 1996. By building a successful online destination, from comics widely available in newspapers, it was clear that the times they were a changing. Since then I've have been working in "New Media". Being on the inside looking out has offered a wonderful vantage point from which to watch the rising Internet tide release a flood of change within the media and advertising worlds.
Some of the most conspicuous, and to some wrenching, changes have been:
•The Democratization of Voice - YouTube videos, blog posts and tweets can reach the one million user mark as easily as CBS, CNN or any other traditional media giant. New Media's near zero cost for access is a far cry from the days when necessary print and broadcast capital determined whose voice would be heard.
•The "Always On" Availability of Current Information - Even before Google started "organizing the world's information", Yahoo headlines, ESPN.com scores and weather.com forecasts demonstrated that the web afforded much greater accessibility and timelier information than the daily paper, weekly magazine, local library or nightly newscast.
•Audience Fragmentation - Just 25 years ago, most individuals spent close to seven hours a day watching the three major TV networks. Today, hundreds of TV channels are competing with millions of websites for the majority of a fragmented audience. For advertisers, reaching ones target market is a lot tougher.
•The Real Ability to Target, Customize, Measure and Optimize Marketing - Old Media targeted large demographic segments, tailoring messages to geographic regions in the hope that half of their advertising would be effective. New Media, with a host of support technologies, allows us to deliver a customized message to an individual. More importantly, we can measure with statistical precision the value of that message. Such accuracy enables us to optimize virtually in real- time helping us get the right message to the right user at the right time for the right price.
•Increased Complexity - New technological capabilities and media opportunities make today's marketing world much more complex. Perfecting your strategy means synchronizing traditional, digital, social, mobile, affiliate and direct mail efforts while leveraging the right data, media exchanges, and Demand Side Platforms (DSPs) to target and optimize your marketing and ensuring the sales process can track sales activity back to the appropriate media, user and message. Simple, right?
The past fifteen years have resulted in a tidal wave of change in the media and advertising worlds. The rising New Media tide does not seem to be ebbing. In 2010, Foursquare has made local mobile, the iPad is quickly becoming the omni-viewer for all content and Google has positioned itself into TV. Since this evolutionary pace shows no sign of slowing down, I have polished off my crystal ball to conjure up a few predictions for what media and advertising insiders can expect over the next fifteen years.
•There will be 300 million "channels" and the viewer won't matter. When we speak of channels like TV, the Internet and Mobile, we equate the media with the medium. When all content is digitized, the medium will not matter. There will only be different types of digitized content. More significantly digital content, as is done on the iPad, will be pulled from servers to individual users on demand. Eventually, we will each act as our exclusive network programmer. On a given evening the kids could play a multiplayer game, do Wikipedia research and later watch a special on sharks. Dad could watch an Old Yankee Workshop episode, catch up on the latest headlines, read a chapter of his new e-book and wrap the night up with football highlights. Unfortunately for advertisers, this means that the already fragmented audience will fragment further.
•Advertising goes direct. With over 300 million channels, media buying will have to change. Rather than purchasing audience-specific content, advertisers will have to buy the audience directly. The good news is we have the technology, including DSP's, ad Exchanges, data co-ops and retargeting tools. However, we are short on the expertise to manage these systems effectively. Media buyers must develop the necessary technical acumen to efficiently utilize audience targeting technologies.
•Art gives way to science. Direct audience buying makes great creative a necessary but insufficient condition for success. Each impression will be bid for. Like Search Marketing, winners will have to out-bid the competition for the privilege of delivering a message to a specific audience member. As audience targeting methods are deployed and mastered, the associated tracking and optimization technologies will enable advertisers to tie sales to the specific message, media and user combination that drove the revenue. Managing and optimizing these marketing systems will require scientific expertise that current creative agencies often lack. Great creative will always have value as long as media buyers and planners place it in front of the right potential customer.
•Media buying becomes media trading. As the science of marketing emerges and audience targeting technologies mature, media buyers will act more like traders. They will understand the value of delivering an impression to each individual audience member and bid for media at prices that generate positive ROI. Media "traders" will buy as much media as they can, provided they have statistical confidence the price they are paying for a given viewer; product or message will yield a profit. Great agencies will have media trading desks that can optimize marketing programs and deliver positive reliable, repeatable returns to advertisers for their advertising investments.
•Marketing budgets will cease to exist. Marketers that accurately and continually deliver demonstrable positive returns on the advertising dollars they spend will get the green light to spend more. This makes sense. If I were to sell you 10 bills for 5 each you would have a consistent return that would repeat until I ran out of "ten spots." Similarly, a reliable formula for positive ROI will give CMOs the green light to spend as much as possible until the return on marketing investments declines below their agreed upon targets. When advertisers understand the value of each view and have the technologies to bid appropriately for each impression, the marketing budget as we know it will die.
The bottom line is the next fifteen years are likely to see as much change in the media and advertising worlds as we have seen in the preceding fifteen. This will increase complexity and competition. But riding the wave of Internet innovation will create change for the better. Those that can adapt and say with confidence their marketing efforts are earning a positive return will be able to invest in growth and win the competition for the most valuable business asset, the customer.
In 1996 I was part of the team at United Media that launched the DilbertZone.com. Scott Adams' witty insights coupled with the early adopter Internet audience made the site a Top 50 web destination, according to Yahoo Internet Life. We were a five-person team that created a profitable online business with nothing more than a few servers and HTML. Yes, it was possible to make money online in 1996. By building a successful online destination, from comics widely available in newspapers, it was clear that the times they were a changing. Since then I've have been working in "New Media". Being on the inside looking out has offered a wonderful vantage point from which to watch the rising Internet tide release a flood of change within the media and advertising worlds.
Some of the most conspicuous, and to some wrenching, changes have been:
•The Democratization of Voice - YouTube videos, blog posts and tweets can reach the one million user mark as easily as CBS, CNN or any other traditional media giant. New Media's near zero cost for access is a far cry from the days when necessary print and broadcast capital determined whose voice would be heard.
•The "Always On" Availability of Current Information - Even before Google started "organizing the world's information", Yahoo headlines, ESPN.com scores and weather.com forecasts demonstrated that the web afforded much greater accessibility and timelier information than the daily paper, weekly magazine, local library or nightly newscast.
•Audience Fragmentation - Just 25 years ago, most individuals spent close to seven hours a day watching the three major TV networks. Today, hundreds of TV channels are competing with millions of websites for the majority of a fragmented audience. For advertisers, reaching ones target market is a lot tougher.
•The Real Ability to Target, Customize, Measure and Optimize Marketing - Old Media targeted large demographic segments, tailoring messages to geographic regions in the hope that half of their advertising would be effective. New Media, with a host of support technologies, allows us to deliver a customized message to an individual. More importantly, we can measure with statistical precision the value of that message. Such accuracy enables us to optimize virtually in real- time helping us get the right message to the right user at the right time for the right price.
•Increased Complexity - New technological capabilities and media opportunities make today's marketing world much more complex. Perfecting your strategy means synchronizing traditional, digital, social, mobile, affiliate and direct mail efforts while leveraging the right data, media exchanges, and Demand Side Platforms (DSPs) to target and optimize your marketing and ensuring the sales process can track sales activity back to the appropriate media, user and message. Simple, right?
The past fifteen years have resulted in a tidal wave of change in the media and advertising worlds. The rising New Media tide does not seem to be ebbing. In 2010, Foursquare has made local mobile, the iPad is quickly becoming the omni-viewer for all content and Google has positioned itself into TV. Since this evolutionary pace shows no sign of slowing down, I have polished off my crystal ball to conjure up a few predictions for what media and advertising insiders can expect over the next fifteen years.
•There will be 300 million "channels" and the viewer won't matter. When we speak of channels like TV, the Internet and Mobile, we equate the media with the medium. When all content is digitized, the medium will not matter. There will only be different types of digitized content. More significantly digital content, as is done on the iPad, will be pulled from servers to individual users on demand. Eventually, we will each act as our exclusive network programmer. On a given evening the kids could play a multiplayer game, do Wikipedia research and later watch a special on sharks. Dad could watch an Old Yankee Workshop episode, catch up on the latest headlines, read a chapter of his new e-book and wrap the night up with football highlights. Unfortunately for advertisers, this means that the already fragmented audience will fragment further.
•Advertising goes direct. With over 300 million channels, media buying will have to change. Rather than purchasing audience-specific content, advertisers will have to buy the audience directly. The good news is we have the technology, including DSP's, ad Exchanges, data co-ops and retargeting tools. However, we are short on the expertise to manage these systems effectively. Media buyers must develop the necessary technical acumen to efficiently utilize audience targeting technologies.
•Art gives way to science. Direct audience buying makes great creative a necessary but insufficient condition for success. Each impression will be bid for. Like Search Marketing, winners will have to out-bid the competition for the privilege of delivering a message to a specific audience member. As audience targeting methods are deployed and mastered, the associated tracking and optimization technologies will enable advertisers to tie sales to the specific message, media and user combination that drove the revenue. Managing and optimizing these marketing systems will require scientific expertise that current creative agencies often lack. Great creative will always have value as long as media buyers and planners place it in front of the right potential customer.
•Media buying becomes media trading. As the science of marketing emerges and audience targeting technologies mature, media buyers will act more like traders. They will understand the value of delivering an impression to each individual audience member and bid for media at prices that generate positive ROI. Media "traders" will buy as much media as they can, provided they have statistical confidence the price they are paying for a given viewer; product or message will yield a profit. Great agencies will have media trading desks that can optimize marketing programs and deliver positive reliable, repeatable returns to advertisers for their advertising investments.
•Marketing budgets will cease to exist. Marketers that accurately and continually deliver demonstrable positive returns on the advertising dollars they spend will get the green light to spend more. This makes sense. If I were to sell you 10 bills for 5 each you would have a consistent return that would repeat until I ran out of "ten spots." Similarly, a reliable formula for positive ROI will give CMOs the green light to spend as much as possible until the return on marketing investments declines below their agreed upon targets. When advertisers understand the value of each view and have the technologies to bid appropriately for each impression, the marketing budget as we know it will die.
The bottom line is the next fifteen years are likely to see as much change in the media and advertising worlds as we have seen in the preceding fifteen. This will increase complexity and competition. But riding the wave of Internet innovation will create change for the better. Those that can adapt and say with confidence their marketing efforts are earning a positive return will be able to invest in growth and win the competition for the most valuable business asset, the customer.
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