David Beisel’s Perspective on Digital Change
David Beisel’s Perspective on Digital Change
Two weeks ago Business Week featured a cover story, “Blogs Will Change Your Business.” Just another mainstream media recognition that blogs are having a profound effect on not just traditional media, but also the business world as well.
And just as the mainstream acceptance – and excitement – begins to take hold, one of the leaders (Pete Blackshaw, CMO of Intelliseek) in the movement voices a bit of concern. His ClickZ article “Irrational Blogguberance?” suggests that we may be overhyping the potential that blogs have to offer.
Is this really the case? Are blogs not all that they are cracked up to be?
I would suggest that the adoption, and more importantly, the hype surrounding blogs is and will continue to follow the Gartner Group’s Hype Cycle. Succinctly stated, this Gartner theory maintains that the emergence of any new technology follows a well-defined path towards maturity – first a technology trigger, followed by inflated expectations, disillusionment, enlightenment, and finally reaching the plateau of productivity.
I believe we’re still on the upward slope towards a peak of inflated expectation. Though Rick Klau suggested two years ago that we were well beyond it at that point. Only time will tell, as history only becomes clear in retrospect. Regardless, expect to start seeing more grumblings of dissent claiming that the blog promise is overhyped.
For now, I think Pete’s critique is both fair and thoughtful. He articulately lays out a number of reasons why the picture isn’t perfectly rosy. I would especially highlight his comment,
“Think less about blogs and more about RSS. As marketers, we may be too consumed with the word “blog.” The bigger idea fueling what some refer to as “the second push revolution” is RSS, which is becoming a de facto publishing standard, whether emanating from blogs or regular Web sites. Content is published, users subscribe, and data are seamlessly delivered to personal blogs, RSS readers, My Yahoo!, and the like. RSS basically brings the time-shifting concept of DVRs to the Web. This consumer choice and control is what “new” marketing is all about.”
This point I cannot stress more. As I’ve blogged previously, RSS isn’t just for blogs. While blogging has brought RSS to the forefront, the myriad of other RSS uses will lead the Internet’s transformation towards the true Incremental Web. Along the way, we will have to rise through the peaks and valleys of hype associated with any new technology, but the fundamental value is real and is here to stay.
In Monday’s WSJ article “Web sites that exist only to sell advertising,” Lee Gomes complains how spam is clogging up search engine results pages and goes on to blame the major search engines themselves for the problem.
“It’s new and improved spam: pseudo-useful pages that are usually just shells for ads… In many cases, a page might at first glance seem like a guide to your topic. But after a minute or two, it becomes evident that the information is virtually useless but is surrounded by an ocean of ads. In other cases, you find “referral services” — dozens of them — that promise to put you in touch with reputable contractors… A kind of schizophrenia exists at search-engine companies. Half their engineering staff is busy trying to keep useless pages out of search results; the other half is busy coming up with tools that make it easier for people to create and profit from the useless pages in the first place.”
John Battelle laments,
“He’s right, of course. We all have seen the crap that lards up results, pretending to be “services” of one sort or another. Is it spam? Well, it’s clearly affiliate- and AdSense-driven sludge. At best, it’s gray.”
Gomes stumbled across this phenomenon when he was researching the topic of roof repair, but you can find it in a myriad of spots. Take a search on Google for “Boston dentist” for example. Findadentist.com is at the top of this list. This site merely refers users to listings of dentists in the area and surrounds that “content” with a number of ads, including those from Google’s Adsense.
Is this really spam? Or is there true content here? What happens if Findadentist.com was to add user-generated dentist ratings? Articles on finding the right dentist? It already does have a quick summary on dental insurance vs. dental plans. When does a site cross the line from pure spam advertising to providing valuable content? John Battelle’s assessment is correct: it does feel a sludgy, but it’s very very gray. I don’t know the answer.
There are a number of small start-ups out there – some of which are looking for VC funding – which exploit this structural phenomenon. I think it’s going to take a while for the investors, search engines, and users to sort out what’s valuable content and what is spam. The question we should all ask is: is this site actually creating something of value for the consumer? Or is it merely playing a traffic game? Eventually, we’ll get there (perhaps with tagging or other social-influenced system), but it’s going to take some time.
Joanna Glasner of Wired wrote a piece where she states that behavioral marketing is “a growing niche in the online advertising industry focused on targeting promotional messages to an individual’s online activities. Some might call such tracking across websites by a less flattering name: adware.”
She is absolutely wrong in defining all behavioral targeting as adware. There is a bright line separating these two concepts.
Let’s take Wikipedia’s definition of adware: “any software application in which advertisements are displayed while the program is running.” Fundamental to this concept is that a user has (often misknowingly) installed a software application and is being presented with ads that are not supporting any content. Again, with adware, users have an executable program running on their machines at all times (as the apps are dropped into the start-up routine). And they are randomly being subjected to pop-up ads which are not correlated to any valuable content or otherwise to the consumer. (I should mention that from here, there is a slippery slope into other types of ‘ware, like spyware and malware.)
In contrast, legitimate behavioral targeting involves ads or services served in conjunction to valuable content. It does not utilize any executable files on the user’s desktop, but instead uses innocuous cookies technology. The result is more relevant banner ads on the sites you are already surfing and more appropriate recommendations on e-commerce sites where you are already a customer. It is not random and intrusive pop-ups.
So while adware and legitimate behavioral targeting both serve advertisements based on users’ past behaviors, that’s where the similarities end. To mention companies like Choicestream and Amazon in the same breath as a rouge company like Claria is fundamentally wrong. It looks like the PR departments of companies like Claria and WhenU have done a good job of confusing the press about the difference. But underneath their new costumes, adware companies are still the same, and are in turn damaging the reputation of legitimate behavioral marketing services.
I’ve realized that many of my posts to date have assumed a basic premise: that online digital media and advertising is exploding in growth, creating a fundamental shift in generating enormous value that will be captured by entrepreneurial endeavors. To provide a little bit of context into the first part of that claim, I want to point to two articles published this week.
ClickZ reported that online ad revenues were up 33% last year to $9.6 billion dollars. Both the absolute size and relative growth of that figure are tremendous. But like most facts and figures, it is difficult to really wrap your head around it. (I will try to spend some time and see if I can provide some comparable $10B industries).
One way to grasp the enormity of what’s going on was identified by Advertising Age in an Economist article,
“This year the combined advertising revenues of Google and Yahoo! will rival the combined prime-time ad revenues of America’s three big television networks, ABC, CBS and NBC.”
Think about that. Really think about it.
Google and Yahoo larger than network prime-time.
(And it’s not getting any better for the networks, as this graph identified by Chris Anderson of Wired shows)
We truly are in an industry with enormous potential for the foreseeable future, as I believe that the drivers of these trends are going to continue.
The following are links to two great posts on the business of venture capital:
The first, from Bill Burnham, insightfully explores the issue of whether or not the industry is currently heavily over-funded. He concludes that
“…[while] venture capital may not be wildly over-funded at an aggregate level, anyone on the ground will tell you that there are clearly localized pockets that are highly over-funded.”
His unique approach to the aggregate level view states that “It’s all relative” and compares the amount of venture capital under management to the market capitalization of the NASDAQ. He states,
“One way to create such a context is to compare venture capital to the public markets on the assumption that venture capital is closely tied to the public markets because public markets are the primary source of VC liquidity.”
The only question I would raise is: because a start-up’s liquidity event most likely occurs in a three to five year time-horizon, would another meaningful figure be a comparison between the current venture capital under management and a metric based on the anticipated future value of the NASDAQ? In the fall of 2002, I think that there was more talk about over-funding then than there is now, partially because the anticipated future value of the index was probably lower then, not just because the current index was lower.
The second post from Paul Kedrosky begins to make a case that while raising a first-time fund is becoming increasingly rare, perhaps a first-time fund isn’t such a bad thing. He concludes,
“If traditional strategies are looking tired, then what better way to find people with access to different deal flow, different stages, different geographies — or different anything — than by going against the flow, say to people promoting first-time funds.”
I also personally wonder how many of the so-called current first-time funds raised in the past year are really experienced investors regrouped under a new fund.
A document that I would highly recommend reading is Mary Meeker’s “The Age of Engagement” presentation given at the AdTech conference in San Francisco earlier this week. (I unfortunately, wasn’t able to attend the conference myself, but would be very interested to hear from someone who did).
The presentation strikes the usual chords: the impact of the Internet is large and only just beginning, mobile is going to become increasingly important, etc.
However, I would like to highlight pages 36 and 37 of the report where she cites data that:
• Search engine clickthrough rates go up as the number of keyword phrases increase (form one to five words).
• Search engine conversion rates rise as searchers increase their keyword phrase length from one to four words, but then drop with five and six.
Again, I didn’t attend the show to see this presentation first-hand, but the implications here are strong. Consumers, advertisers, and search engines are now in a virtuous cycle. As search engines are able to deliver better results with larger keyword queries, consumers are able to more often finding their desired information item, and advertisers are more likely to respond with an appropriate multiple sponsored keyword ad listing. Consumers find these listings useful and click through, which in turn, drives advertisers to further fill out the multiple-word blocks. As consumers become increasingly confident that they can find all of the information they need on the portals, search engines look for ways to improve the relevancy of all types of searches. And the cycle continues.
What does this fact mean for startups? Two important things:
1. As Meeker points out on page 22 of her deck, “on-going improvements in online ad tools are key.” While Google, Yahoo, and Microsoft will surely build features and functionality to their existing offering, there is a huge opportunity for start-ups to create effective tools for search engine marketers. Advertisers’ transitioning from one keyword to five keyword listings and beyond involves some complexity, especially when you figure everything into the mix like optimizing landing pages. These big players always face the make vs. buy decision, and in this case, they will be shopping for online ad tools providers in the upcoming few years.
2. Key vertical search players will be acquired by the portals as well. As Google, Yahoo, and Microsoft look to satisfying a consumers’ every wish for information, adding an full offering of structured search for things like travel, job, and event information is only a natural extension. Here, though, startups need to move quickly to establish themselves, before the big guys do it on their own, or try a novel approach like A9 has done with its Open Search featureset. It is my opinion that most of these vertical search startups will not gather enough critical mass to survive on their own (though some of the successful vertical shopping players provide a critical counter-example).
Earlier this month, I posted how Yahoo has the wind against its back with the market trend towards rich-media advertising, and predicted that “Google [will] make some moves to play catch up in this race.” Yesterday Google confirmed that forecast, taking a significant step forward.
ClickZ reported that Google now “will let advertisers choose on which sites their contextually targeted ads appear, but they will have to pay for those ads on a CPM basis… Using the same AdWords interface, advertisers will be able to select sites on which they want their ads to appear. They can either enter in the URLs of specific sites, or they can perform a keyword search to find sites on which to place their ads. Google will return a list of sites similar to the URLs people select, or a list that matches with the particular keywords. Advertisers can then select sites from those lists.”
With this move, Google is officially transforming into an ad-network company. No longer is the company solely focused on search and search technology, merely wrapping CPC ads around results. As John Battalle summarizes,
“Not to put too fine a point on it, but this is Google as DoubleClick, Web 2.0 style (ie with an auction and with massive scale). Any pretense this has to do with search should be put to rest. This is an advertising play, pure and simple.”
What does this offering mean, then? A few thoughts and quotes:
• Tony Gentile says, “By allowing advertisers to target specific sites, Google has moved into the role of a rep firm. Contextual Advertising will now compete against a major publisher’s internal sales force, as advertisers will have the ability to buy Contextual placement via Google instead of directly from the publisher.” Very insightful ramification.
• Also, this move heats up the holy war between the behavioral and contextual networks. With Google now in the ad serving business, behavioral advertising network startups firms like Tacoda and Revenue Science will need to demonstrate their true effectiveness with their technology. It is for them both a threat and an opportunity.
• Finally and most importantly, it finally validates the fact that large traditional offline advertisers are truly looking to purchase branding ads on a CPM basis, not just performance-based buys on a CPC or CPA basis. Advertisers want to target messages to specific demographics, not just specific web-based contexts. We’ve known that for years now, but with this step Google is finally admitting it.
Michael Moritz, a general partner at VC firm Sequoia Capital and an early investor in Google, recently told the crowd at the VentureOne conference that start-ups shouldn’t bother with a detailed business plan. He’s quoted in the BusinessWeek DealFlow blog as saying, “The longer the business plan, the worse the prospects for the company.”
VC Jeff Nolan responded,
“Maybe, but startups should not come into that first meeting with a potential investor with nothing but a nice smile and a firm handshake. The point of a business plan is simply the intellectual exercise of crossing the t’s and dotting the i’s. No investor really believes that it’s a rigid plan, but investors do want to have confidence that you have figured out the moving parts and have a well formed idea of the direction you need to go in. I don’t get detailed business plans for any of the deals we look at, but we do expect to see evidence of detailed planning behind the great teams.”
I think that the perceived difference in opinion comes down to the style of the individual investor. Different VCs look for different attributes and characteristics in the companies that they invest. And how they evaluate potential companies is a reflection of that difference.
A business plan isn’t a prediction of the future, but a demonstration that an entrepreneur is thoughtfully preparing for the future.
All VCs know that whatever the current plan is now, it is definitely going to change. Yet all VCs want to know that the entrepreneur is seriously considering and planning for the future, given all of the information that’s currently available. How this thoughtfulness manifests itself varies. Some VCs will want this preparedness to come through in a series of conversations and meetings. Some will want to see it in an articulate business plan and/or thoughtful financial model.
I disagree with Businessweek’s Justin Hibbard’s conclusion, “So here’s a tip for entrepreneurs: unless you’re a fiction writer, put away the financial-modeling spreadsheets. While you’re at it, spare us the PowerPoint presentation.” Instead, do as Jeff suggests: don’t “come that first meeting with a potential investor with nothing but a nice smile and a firm handshake.” Bring a presentation and be prepared to walk through it. You might or you might not. Likewise, have a written document and a rough financial model ready as well. A VC might want to see it on the first, second, or fifth meeting. Or never. You should be ready either way.
I am surprised by the number of entrepreneurs that I meet with and talk to who don’t have a true online communications strategy, which I’ve blogged previously. Whether or not a company has a blog or some other form of incremental content, there is a conversation going on with or without them. Take the tracking of “social bookmarking” on g-metrics, for example. The number of instances of this phrase used online has rocketed in the last month. Are all of the companies in the space engaged in this discussion? Or, a query of “in-game advertising” on Blogpulse reveals that April has been a big month for blog discussions in this category as well. What is Massive or IGA Partners doing about it? So while companies like NewsGator and Topix.net do a very good job of keeping its name active in the blogosphere, many companies do not. I think that start-ups even in the most infantile stage should be thinking about the role that online communications should play in their strategy. Effective communications can attract customers, partners, employees, and yes, even venture capitalists.
However, there is a danger in playing the hype too much. Yahoo’s Buzz Game is “a fantasy prediction market for high-tech products, concepts, and trends,” which tries to predict “how popular various technologies will be in the future.” Its goal is to provide a real-time marketplace to measure the hype on a company or category. While I fully realize the intention of this game is purely for fun, it is perhaps perpetuating the notion that all that matters is the hype and buzz. Just because this market predicts Friendster to be the premier social network in the future, it isn’t necessarily so. A good business is not made on hype alone.
I think that the key with any online communications strategy is balance. There is a conversation going on, so join it. But hype is just that. A positive conversation will continue from your own lead – if you have a great product and solid business.
My original New New Media post argued a significant set of New New Media venues are emerging – ads in video games, mobile phones, and DVR/IPTV boxes. I followed up on Monday with some supporting evidence for in-game advertising and on a DVR/IPTV box. Here are two additional points to further the case:
Moble Ads. Earlier this week, Paul Reddick, an executive at Sprint commented about the possibility of ads on mobile phones, “It’s inescapable that that’s a great opportunity.” Believe me, if you hear it from the carriers, who yield a lot of power in the industry, it’s going to happen. Now it’s just a matter of how and when. Paul followed up saying that “it’s not clear yet what form advertising might take.” That issue leaves room for startups to make a footprint here.
In-Game Ads. The initial standouts offering an in-game advertising network, Massive and IGA Partners now have some competition. Game publisher WildTangent has partnered with 24/7 Real Media to offer online dynamic ad insertion services. In addition to validation of the space by “traditional” interactive agency 24/7 Real Media, this deal “makes it easy for a media buyer in New York to pop $60,000 or $100,000 into a game and treat it like standard Internet ad buying,” according to Dave Madden, an executive vice president at WildTangent. He’s absolutely right – the more similar that you can make this ad buy to standard online media purchases, the more quickly the adoption of this new new medium will occur.
Is there any argument that these new new media types will make an impact in the next five years? Now I am trying to explore the best opportunities for startups to create value around innovation in these spaces.