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An inside look at how content payment models and systems are evolving in an era of rapidly changing markets and publishing requirements.
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ContentBloggerTM - Content eCommerce |
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| Saturday, May 01, 2004 |
The Duality of Google
Google's filing of its S-1 for its upcoming IPO is being treated as both a major investing opportunity and as a major shift in the philosophy of running a public company. The press has amply covered the nonstandard statements in the founders' letter that prefaces the S-1 filing. To select a couple of issues covered in the letter: founders Larry Page and Sergey Brin say they will not manage the company with a primary focus on quarterly earnings nor will they provide earnings guidance, which in today's financial markets can result in 'earnings surprises' that generally depress stock prices. Rather, they plan to manage for the long term success of the company. An important element of their new approach to financial management is the plan to issue two classes of stock: standard Class A shares with 1 vote per share; and Class B shares available to the founders and others on a restricted basis that will have 10 votes per share. Note that this 2-tier structure has been used in the past by family-run newspaper companies that wish to maintain editorial and financial control over their publishing empires.
Second, they say they will continue their hiring practice of seeking the best and the brightest on an academic standard, and will strive to maintain a working environment that nurtures intellectual pursuits and productive working conditions. These are laudable goals and I hope that they are able to make some impression on Corporate America, which too often seems to prefer to hire worker-bees assigned a specific task, and treats workers like dispensable drones. Hardly an environment that encourages creative thinking from so-called knowledge-workers.
In addition to the duality of using Wall Street to raise capital while rejecting some of the rules of the game, Google faces the duality of being a technology-oriented company that focuses on building the best system for organizing and accessing information, whereas they are almost totally dependent on advertising to support their company: 95% of their revenue comes from advertising. Advertising is a much different business than search technology development and it requires competitive sales, support, reporting, and relationship-building functions. In the S-1, Google reports that they are contracting out their "worldwide billing, collection and credit evaluation functions. The third-party provider will also track, on an automated basis, our growing number of AdSense revenue share agreements." Certainly, it's not unusual for companies to outsource administrative systems, but in this case it is striking because it demonstrates that Google isn't developing expertise in the function on which it is so dependent for revenue. However, this duality isn't necessarily a problem provided that their mission of providing relevant results to users is aligned with the objectives of a large number of advertisers (i.e., placing their ads in front of interested customers). For the near term, there is little doubt that the popularity of search and Google's dominant position in the search market will result in continued success for the AdWords program. However, with the AdSense program, I envision much more competition from established and new ad-serving networks that can provide access to well-defined segments of related content and user-populations. Google may have a big advantage with advertisers who want a broad-brush approach to generating leads. But, it will be more difficult for Google to compete in niche areas where specialized knowledge of content sources and a personal touch matter.
Now that the registration statement has been filed, we can all look forward to the news craze that occurs when the auction for the shares is announced. In the meantime, I want to find out what company has been contracted with for the billing infrastructure. Might be a good investment.
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posted by Janice McCallum at
2:01 PM |
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| Thursday, March 18, 2004 |
Advertising Isn't Always Intrusive; It Can Be Useful and Entertaining
So, why is the new version Norton Personal Firewall set up with a default that blocks all ads, not just pop-ups, but also prevents Google's AdWords PPC search listing ads and other banner-type text ads from being clicked-through? Google's AdSense ads, Yahoo!/Overture's paid listings, and featured sites on MSN are similarly affected. As reported in ISEDB.com and MarketingWonk, Norton is erring on the side of blocking anything that might be a display ad, including some site logos or header images, and it is up to users of its software to reset the default condition to allow ads to be viewed and clicked.
Perhaps some extremists want to block out all advertising on principle, even if the end-result is a steep decline in the amount of quality content available, once ad subsidies disappear. But, considering that the Web offers an environment where advertising can be more relevant and informational than in other media, blocking all ads is an extreme measure that "throws out the baby with the bath-water".
Still, just because advertising can be superior on the Web, doesn't mean that all intrusive ads will be replaced by ads that are relevant, personalized, and entertaining. We have a long way to go before technology can approach guaranteeing perfect matching of ads with interested viewers on the Web. But, Norton's actions illlustrate that the online advertising industry, and search engine marketing in particular, needs to be mindful of its reputation. The recent flap over Yahoo!'s content acquisition program (CAP) is a perfect example. Although CAP has the potential to significantly increase the sources of quality content that Yahoo! users can find listed in their search results, it's reception was plagued by "market overreaction" from both Web site owners and users concerned about unbiased results listings. [See John Battelle's Searchblog for a good overview.]
As I said in my contextual ad research paper: "the line between advertising and valuable content is becoming more and more blurry, and contextual advertising will help accelerate this trend. Rich media, personalized messages, interactivity, and creative delivery of relevant content are some of the key tactics enabled by new technology that are being used to transform static advertising promotions into meaningful or, in some cases, entertaining content." Furthermore: "There is no reason that the applications for matching content should be limited to placing ads on Web pages. The same technology could be used to improve popular "more like this article" links that are most commonly used to help guide users to additional articles on a specific Web site, so that the related information could be presented in a sidebar on the Web page, and the user wouldn't have to click through to preview the related articles. Plus, the range of related information could be expanded to include information from affiliate partners, or even from partners identified by a third-party "content-server" firm."
So, if contextual advertising is so helpful, then why is Norton blocking all ads? Maybe because the quality of advertising, just like editorial content, ranges across a broad spectrum, and they are focused on the "offensive" end of the spectrum. As a solution, maybe the words used to describe "contextual content matching" need to be changed to exclude the words "ad" or "advertising", since ads are so closely associated with intrusive promotions for unwanted products or services, like pop-up ads. Better yet, in the longer term, search engines and Web sites that accept advertising, as well as the companies that are buying and producing advertising, need to be careful to establish a reputation of providing value to their customers first and foremost, then the monetization model will move to the background of users' minds, provided that intrusive, annoying, and distracting ads are kept to a minimum--and preferably kept off any site that I visit!
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posted by Janice McCallum at
1:19 PM |
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| Wednesday, March 10, 2004 |
Setting Subscription Prices: Agency Problems Occur When Distributor/Aggregators Set Price
Today's headlines about CBS' withdrawing their content from EchoStar/DISH satellite network and Viacom's interest in purchasing a cable system illustrate the problem that keeps cropping up when the distributors of digital content, rather than the content creators, set prices for large bundles of content which are packaged with the distribution cost. Cable TV and satellite TV distributors are a prime example. The company that provides the technology for distributing TV programs is negotiating prices and royalty payments with the content providers (program creators) and setting the price of basic bundles that consumers may purchase. With fixed-price subscriptions, producers of quality content get crowded out by lower-quality (and lower-cost) programming as the number of channels in the bundle increases. Outside of media industries, distributors rarely set price, they just act as a sales agent or delivery service (think trucking companies).
The same issue occurs when aggregators of digital content on the Web (or other online systems) bundle in their costs of technology (search, interface, data integration) with a fixed-price bundle of premium content. The problem is magnified when, to meet competitive pressures, the distributor/technology developer continues to add content of marginal value to the bundle in an attempt to claim "more channels" or "more variety". As a result, each content provider receives a smaller percentage of a fixed-size (or marginally-increased) pie. Essentially, the distributor is not acting in the best interest of each content provider, which economists term the "agency problem".
As Anne Mulcahy, Chairman and CEO of Xerox, said in her address to the AIIM/On Demand conference this week, "The 'I' in I.T. is getting bigger, and the 'T' is getting smaller." Although her focus was on Xerox document management services, the concept applies equally to the for-fee digital content market. The Internet has made the technology for distributing content cost-effective and ubiquitous. Consumers still value the functionality that technology adds to digital content. However, the focus has shifted toward the content and how the content can be put to work to increase productivity in business analysis and other knowledge-based functions, and away from simply laying the pipes that will deliver the content. In this environment, is there still a viable business for content aggregators? Yes, but they need to focus on value that's directly related to enhancing content by adding context, creating a new community of users, or integrating the content with the users' business applications. Providing a search engine and user interface won't be sufficient to convince content creators to entrust the pricing of their goods to a technology provider/distributor.
So, should Sumner Redstone of Viacom buy a cable outlet? It's not clear that owning the distribution channel is necessary. However, it does look to this analyst as though there is change brewing in the relative power positions of content creators and distributors--especially with respect to pricing of content.
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posted by Janice McCallum at
11:57 AM |
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| Tuesday, February 10, 2004 |
Diller's IAC Revenue Grows Through Interactive Marketplaces
Quarter 4 2003 results for Internet pioneers Yahoo!, Amazon, and Cnet were all robust enough to renew enthusiasm for Web-focused companies. In fact, Barry Diller said that we're "on the way to a new bubble" in the Q4 earnings conference call for InterActiveCorp (IAC), the conglomerate of Web-related operating companies of which he is CEO. Perhaps this time around, the bubble will represent real opportunities for companies that understand how to "harness the power of interactivity" to quote Diller from the conference call. A quick review of the businesses that comprise InterActiveCorp., such as Match.com, Expedia.com and Citysearch, reveal that Diller is concentrating on properties that bring together a buyer and a seller, in essence marketplaces.
As noted in an earlier Shore Weblog, traditional print directories (and some that have CD-ROM or other electronic formats) are finding new life as virtual marketplaces on the Web. In recent weeks, "local search" has been heating up as the latest Web phenomenon. The term has generally been used to refer to searches for local products or services, as one would do with a local Yellow Page directory. Verizon's Superpages and Switchboard.com, two major players in the interactive yellow pages (IYP) segment have announced or released (respectively) new versions of their sites in an effort to maintain superiority in local search over search giants Google and Yahoo!. Superpages also announced a deal with FindWhat.com to feature Pay Per Click (PPC) ads on its site. Add IAC's CitySearch in the mix of sites that will be vying for advertising dollars from local merchants, primarily the entertainment-related businesses in large cities. Note also that IAC bought EPI last year, the company that publishes the Entertainment books. Given Diller's history of creative merchandising (he also owns Home Shopping Network), I advise keeping an eye on developments at IAC companies to glean ideas on how to create a marketplace that drives traffic to the merchants and provides a convenient and cost-effective purchasing experience for the consumers, i.e., a perfect platform for targeted advertising.
Still, "local" search is just one type of specialized search, and the fact that local directories can be limited by geography isn't their only advantage over the general search engines. Yellow pages and other directories are fielded databases that can help users home in on the product or service they're seeking via multiple search criteria. The same structural features of a fielded database allow for very effective placement of contextual ads or related content. One search technology company, iPhrase, has focused on facilitating searching of database content, and has been working with ecommerce merchants to add contextual content to guide consumers to related products, catalogs, reference material or services. See, for example, the Sephora or Neiman Marcus web sites, both powered by iPhrase.
For specialized searches, whether it be for a specific size and model of an item of apparel, or for a local auto repair shop that services a particular model of car, specialized store catalogs or local directories, search engines like iPhrase that work with an understanding of the structure of the database have the edge over generalized search engines. The issue to be worked out is how the specialized database-structured directories interact with the mega-search engines like Google. With billions of dollars worth of advertising at stake, the solution may not be as easy as it seems.
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posted by Janice McCallum at
7:04 PM |
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| Monday, January 26, 2004 |
Paradox of Choice--It's a Pricing Jumble Out There
A recent book by psychology professor Barry Schwartz, titled The Paradox of Choice: Why More is Less, has received a good bit of media attention. I saw Professor Schwartz interviewed on The Newshour with Jim Lehrer on PBS in December and immediately connected Schwartz' observations and research to what I see occurring in the field of pricing for professional content. There are so many options open to publishers at the present time, that most seem to be falling into the "choice overload" trap that can make you question the decisions you make before you even make them, it can set you up for unrealistically high expectations, and it can make you blame yourself for any and all failures. In the long run, this can lead to decision-making paralysis, anxiety, and perpetual stress. [From the book description on Amazon.com.]
In fact, the glut of choices goes beyond just pricing options; nearly every product marketing decision would be paralyzed by indecision if every option were debated. What content for what audience at what price point in what format with what archival and redistribution rights through which channel are just a sample of product choices that spring to mind. Add to that new developments in online advertising, coupled with a resurgence in ad spending, which have created even more monetization options for digital content and the permutations and combinations start multiplying exponentially. Content management systems, XML, e-commerce systems for content that allow for a wide-range of pricing options are all important improvements in the production efficiency of digital content. Nonetheless, along with the productivity benefits, these technical developments create more opportunities for slicing and dicing content for a growing number of platforms, channels, and applications, which leads to the "more is less" paradox.
So, to avoid paralysis in this article, let's focus on just the pricing options for archival content. Currently, there is an odd mix of pricing available for the same content, depending on where you look for it. An article downloaded from commercial online services like Dialog or Lexis-Nexis costs upwards of $3.00. The same article may be available on the Web for free. Or, the article may be available only to subscribers on the Web. Perhaps the article can be accessed for a fee to non-subscribers. Then, there's ad-supported free access, registered user-only access, hybrid models where an article is free for a short period, then walled off in a for-fee archive when it ages. The list goes on....
What is most perplexing about the current jumble of prices is that very little emphasis seems to be placed on the value of the content, rather pricing policy seems to be dictated by following the status-quo that often developed due to past technological constraints. In the early days when print was the only medium used by original publishers for distributing their magazines and journals, a fee was associated with providing a reprint of an article, because there were costs involved in copying and distributing the physical copy. When electronic access became available via commercial aggregators in the late '70s, essentially all articles (abstracts only in the earliest days) were archival, since they were by-products of the print publication, and had to be rekeyed and formatted. Aggregators naturally charged for their services. But, flash forward to January, 2004, with original publishers posting their articles on their own Web sites, the same logic for charging for articles from past editions doesn't hold, yet it seems to be the norm. Ironically, some publishers are offering free access to archival content via services such as LookSmart's Articles service, even when they charge a fee on their own site.
So, how can an individual publisher, whose content can be found on its own Web site, as well as through a variety of channels, make sense of which pricing tactics produce the best results? The quick answer is: it can't--not with the current melange of options available. However, as the rationale for working with aggregators shifts to finding a partner that can provide the tools to merchandise the content effectively in an online medium (see John Blossom's analysis on Content Aggregation Models), publishers should make it a priority to reevaluate their current channel partners to determine if their channel partners are adding value to the content or creating pricing conflict.
In keeping with the theme of this piece--choices, new aggregators such as KeepMedia and the newly renamed HighBeam service, formerly known as Alacritude, offer additional options to publishers who want to monetize their archives. Then, there's Prism Media Network's Concert service, which uses archival content in a contextual ad service.
There's no doubt that options abound for publishers. In future entries of this Content eCommerce Weblog, we'll continue to track developments that provide monetization options to publishers and focus on providing a compass to lead publishers though the eCommerce jumble. I'd like to hear from you to learn what choices are causing you the most pain in this time of "too many options". Write to me by clicking on the link below.
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posted by Janice McCallum at
7:27 PM |
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| Friday, January 16, 2004 |
Newspapers Recovering, But Some May Miss Out on Major Growth in Online Classified Advertising
The Wall Street Journal Online [sub.req.] reports that analysts expect most newspapers will post profit increases when quarterly earnings reports are made in the coming weeks. Given the general upturn in advertising expenditures in the second half of 2003, it would be a surprise if newspapers' profits did not increase in Q4 2003. The article points out that lower interest rates and tax rates also contribute to the expected improved bottom line for newspapers.
Earlier this week, Borrell Associates Inc. released a study that finds that job recruitment advertising is moving away from print to online services. Newpaper print job classifieds still account for about 2/3 of the total US market, but as the share of recruiters' expenditures devoted to online continues to increase, who will get those dollars? Monster.com and HotJobs.com (owned by Yahoo!) are the leaders in online recruiting. Newspaper companies are wisely creating partnerships with online recruitment sites, such as the WSJ's CareerJournal and NY Times Company with Careercast.com, and Gannett, Tribune Company, and Knight-Ridder with Careerbuilder.com. But, are they doing enough to retain an important source of revenue that has high profitability?
Local newspapers, especially the Sunday editions, have a longtime reputation for being the place to look for regional jobs. But, that reputation can change as job seekers and job listing companies discover the advantages of online recruitment sites, most notably the ability to search by a variety of parameters, and the ease of posting a listing. Advertisers want to know that they are reaching the right demographic. With online career sites, the expectations are even higher, since the reach goes beyond the local market. Newspapers need to find a way to continue to leverage their position of strength within their local (or vertical) community in order to attract employment advertisers. Cross-promotion between print classifieds and online ads that provide more information and functionality (such as applying online) is one obvious route. Additional promotion on the online version of the newspaper is another route. To maximize the benefit of exposure on the online newspaper site, it is important for the newspaper sites to maximize the number of visitors to the site. Which brings me to the real point I wanted to make:
Newspapers need classified ads in order to have a viable business. In order to have a successful online classified business, newspaper sites need to attract a wide audience of visitors (especially regional visitors), who continue to think of the newspaper, whether print or online, as the place to go for job listings. In order to attract a wide audience, newspaper sites should offer local news and features without a subscription or per-article fee.
Note this doesn't mean that local newspapers shouldn't offer special features or services (e.g., fantasy sports games or detailed statistics on local sports franchises) for a fee. But, local newspapers fit squarely into the "broadcast model" that was introduced by Shore in the Contextual Ads paper. As described in the paper, publishers in the broadcast model segment should focus on building a large, loyal franchise in their region (or vertical) that they can monetize through advertising and sponsorships. With online advertising growing faster than print advertising (which is declining in some B2B segments), the opportunities are there for online newspapers to grow their businesses. But as Rich Gordon says on the subject of paid newspaper sites on Poynter Online E-Media Tidbits, "Go to a subscription model if your primary goal is to protect your existing [print] business. ... Over the long term, though, it guarantees a shrinking franchise."
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posted by Janice McCallum at
7:07 PM |
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| Thursday, January 08, 2004 |
Micropayments Gaining Acceptance As Digital Content Currency
Any eBay buyer or seller knows how popular Paypal has become for settling small online transactions. The popularity of Apple's iTunes service, which charges $0.99 per downloaded song, has helped accelerate interest in the market for low-cost digital content. Peppercoin, a newcomer on the scene, is benefiting from good timing and effective PR [sub. req.] in introducing its micropayments transaction system in late 2003.
With new micropayment options from PayPal, which charge a lower fee per transaction, along with the new offering from Peppercoin, as well as systems from Yaga, BitPass, and others, content providers can now consider micropayments as a viable option for low-priced content segments.
Peppercoin's CEO, Robert Kiburz, says in a Boston Globe article: "The lesson from the last several years is people generally don't want to deal with prepaid plans. It's dead money." I disagree, although the form, ease-of-use, and content options certainly affect the success of pre-paid plans. Has he heard of pre-paid phone cards? In fact, I think sponsored pre-paid plans may be the magic bullet to drive usage of micropayment systems. Pepsi is about to sponsor 100 million Apple iTunes downloads in a massive promotional campaign that will be kicked-off (pun intended) with a SuperBowl ad on February 1. What a great way to steer music downloaders to the Apple iTunes site. And, what a great twist on standard publishing business model for advertisers. Now it's: "buy the product, get the associated content (of your choice)" rather than "buy the content, get subsidized by advertisers whose products you may or may not be interested in". The advertiser (Pepsi) adds a benefit to buying its softdrink (the chance of getting a free song).
As more and more content is made available in small segments, and more software is provided as Web services, we can look ahead to more creative packaging and sponsorship of digital content and services. It's not too far-fetched to imagine that what we purchase at the grocery store or the office supply store may determine the size of the balance in our micropayment account.
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posted by Janice McCallum at
5:17 PM |
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