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Yahoo’s growth options dwindling July 25, 2011

Posted by David Card in Uncategorized.
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Yahoo reported another disappointing quarter, with ex-TAC revenues (i.e., revenues minus the money it shares with ad network partners) down 5 percent, to just over $1 billion. Its core display advertising business was up 5 percent, but it appears to be losing share to companies like Google and Facebook. Yahoo is still one of the biggest online properties in the U.S., with fairly sturdy content and communications assets, but its options for restoring growth are getting fewer.

The reason? Yahoo has missed the most important new digital consumer trends. It might still have a shot at adding social media; after all, after many failures, Google’s Google+ project to add social elements to its services appears to be gaining traction, at least among early adopters. But Yahoo failed to translate a solid position in casual gaming into social gaming, and it is only dabbling in social commerce, even though it coined the phrase. And its acquisition of “content farm” Associated Content doesn’t seem to be increasing profitable traffic. Meanwhile, outsourcing its search business to Microsoft hasn’t paid off yet. So what is the company to do?

Yahoo blamed its display-ad sluggishness on a sales re-org that delayed some big deals. Let’s give Yahoo the benefit of the doubt and assume it still has good relationships with big-brand advertisers like GMC, Visa and Target (all of which are serving up rich media ads or sponsorships on Yahoo as I write this). If Yahoo cashed out its assets in China, it could use that money for other acquisitions and investments to bolster online advertising and gain a little social media momentum.

Yahoo already has a decent number of online video viewers – it’s a distant No. 3 after YouTube – but it is relatively weak in how much time those users spend with its content (35 minutes per viewer compared with Hulu’s 185, according to comScore). Buying Hulu might be too expensive: Apple and Google are rumored to be interested, and Hulu may not get long-term exclusive contracts for TV shows. But Yahoo’s brand-advertising expertise is still better than Hulu’s, or Netflix’s or Amazon’s. Its IntoNow TV check-in acquisition is already focused on synching twin-screen activities with on-air ads, and Yahoo Connected TV is showing signs of life. Yahoo could make a compelling social TV pitch to advertisers like Coke and Verizon, for example, connecting an on-air ad to an on-screen or PC-based check-in or other activity.

Yahoo could try to be the social-media advertising marketplace for everybody but Facebook. Even a social network as big as Twitter needs help creating and selling ads. If Yahoo didn’t choose to acquire a real-time ad network like OneRiot or 140 Proof that places ads near social streams, it could still bulk up its social targeting and analytics via Lotame, 33Across or Media6Degrees. With some acquisitions and integration, Yahoo could ease the effort a publisher or ad buyer has to make to cobble together customized solutions.

Yahoo is reportedly working on a hybrid content/ad syndication network. Instead of just renting out ad space, a second-tier online publisher could get related personalized content and advertising from Yahoo in a single package. Yahoo has plenty of high-quality content, and it could make Associated Content create advertorial-like opportunities. Newspaper publisher Gannett attributed a solid online quarter partly to its ad network partnership with Yahoo, proving that Yahoo has some success dealing with quasi-competitors.

With some effort, Yahoo could reenergize its business around video, a social advertising network and/or syndication over the next 9 to 18 months. Its costs are under control and its ad business is growing, albeit slowly. If investors or its board don’t have the patience, I suppose it could try to sell itself to Microsoft or AOL, assuming they’re still interested. Either would be a pure consolidation play among general-purpose content portals, combining audiences, tech infrastructure and sales forces. That kind of cost-savings merger is always brutal, and brutally difficult to execute.

Question of the week

How can Yahoo start growing again?
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Don’t relax, Google. Integrate July 18, 2011

Posted by David Card in Uncategorized.
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Google is on a tear. It just had a great quarter (revenues up 32 percent to a record $9 billion), 550,000 Android devices are activating daily, and with Google+ it finally has a social product generating positive buzz and attracting users (10 million in limited release). CEO Larry Page is pleased with the progress of Google’s reorganization around product-oriented business units. But Page can’t just sit back and let those business units go their merry ways. Google faces key challenges to the growth of its core search and advertising businesses that it could address with better product integration.

For all the talk of search-quality problems and threats from social search, Google still dominates the market with a 65 percent share. But there are worrying signs. U.S search query volume is pretty flat. And while Google’s paid clicks were up 18 percent in the second quarter, that’s slower than revenue growth and actually down from Q1. Google’s average price per click growth was also a little sluggish, at 12 percent.

Sales VP Susan Wojcicki said on the quarterly earnings call this week that the primary growth drivers of paid search are query volume and Google’s ability to deliver better-quality results. But Google conceded that one of its key quality initiatives had actually hurt revenues a bit by featuring sites that weren’t advertisers — its Panda algorithm tweaks, which aimed to diminish the influence of content farms. Over time, improving relevance will pay off in user loyalty and more clicks. Meanwhile more improvements to results formats would get paid click rates up.

Getting deeper into display

Google needs more higher-priced display ads so that it can make better integrated use of the valuable data it gleans from search to create accurate display targeting. Google doesn’t break out display-ad revenues in its financial reporting, and you’ll get different estimates of its size. But the company has two components to its display business: an ad network selling mostly low-cost ads on third-party sites and the advertising it sells on its own properties like YouTube and Gmail.

The real money is in owning the pages that show ads, as Google’s ad networks keep only about 30 percent of the sale. On the call, Google ducked a question on whether it needed more “owned and operated” ad inventory: The answer is that it does. YouTube is getting more aggressive in advertising experiments like its skippable ads (which already compose a third of inventory, according to Wojcicki) and in pushing pricey sponsorships. But Google hasn’t said anything about advertising on Google+, which might be its next big source of page views. It is promising Google+ company pages, but it likely won’t charge for them, because archrival Facebook doesn’t. It needs to integrate Google+ inventory into its ad networks, so it can make money selling ads that drive traffic to company pages, just like Facebook does.

Connecting some more dots

Google has an impressive collection of local assets with Maps, search and Offers. But they’re only lightly integrated so far. And adding a one-page sign-up form is no substitute for having a local sales force that could package search, display, offers and analytics for marketing-challenged small businesses in a way that no other company could match.

While Google brags about Chrome’s 160 million users, it has only 12 percent market share. I’ve been dismissive of browsers as technology platforms, but Chrome could do web-wide what Google is doing with its promotional black toolbar on its own sites. That could be a powerful incentive for +1 and Google+ usage.

Don’t get me wrong. Google’s business is in solid shape. But a little more integration would help ensure growth and defend against would-be usurpers. Page pointed at Google’s visual redesign as a cross-group initiative: He just needs a few more of these.

Question of the week

How can Google maintain its growth?

Google v. Facebook: Defining groups for social networks July 11, 2011

Posted by David Card in Uncategorized.
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At last week’s product announcement, CEO Mark Zuckerberg contrasted Facebook’s approach to creating “groups” with that of Google, saying, “The definition of groups is . . . everyone inside the group knows who else is in the group.” Pretty clearly, he was responding to the Circles feature in Google+ that’s been attracting rave reviews from early adopters. Groups are critical for unified communications, content sharing and filtering, application interaction and distribution and identity management. In time, they may become important for advertising and marketing.

Facebook and Google handle group management quite differently. Understanding their strategies will help competitors and partners gauge one another’s chances for success and identify opportunities for complementary products and services.

Differing approaches

Facebook refined Groups last October; its previous Lists approach suffered from a low 5 percent adoption. Facebook wanted Groups to facilitate focused sharing and communications, while Lists would remain as a news-feed filter for power users. Facebook made Groups a two-way membership dependent on invitations. Besides assuring common membership, that tactic was geared to jump-start adoption by harnessing behavior similar to photo tagging, where a minority of participants does all the work.

Google’s Circles is easier to use and better integrated than Facebook’s options, and it functions as both filters and focused sharing/messaging. Since Google is starting from scratch, it has the advantage of practically forcing users into setting up Circles upon sign-in. But Circles is not reciprocal: While a user can follow contacts à la Twitter without requiring a two-way relationship, there’s no easy mechanism for creating single groups with common membership.

Outlook for success, opportunities

In a survey of 451 GigaOM users, many respondents explicitly called out Circles as having a competitive advantage over Facebook, praising its real-world affinity and its granular control over content and privacy. Early adopters see high rates of sharing. Meanwhile, since October, over 50 percent of Facebook users have become members of Groups, according to the company, lending some validity to the “power-inviter” concept. But there’s no telling how representative those Groups are of real-life connections.

In the end, organizing the masses on social networks into relevant groups will probably take big-data analysis that produces auto-suggestions that users can apply. That kind of approach may be coming soon. Similar types of sorting for relevance are well under way, with Google an early innovator.

Google makes its living analyzing relevance and has proven its capabilities with search results. It’s starting to demonstrate expertise in social relevance via its Gmail priority inbox, though its social search efforts may be stymied by the expiration of its Twitter data licensing. And Facebook applies its own EdgeRank algorithm to sort users’ news feeds by relevance. Users’ results may vary. I’d bet on Google getting group relevance right, but then again, Facebook has a lot of social graph data and plenty of money to hire scientists.

I’m surprised Google+ doesn’t pre-populate Circles already, although perhaps Google fears that that would creep people out. It could test reactions by offering the feature to existing priority inbox users. Likewise, Facebook automatically suggests adding members to Lists, but, oddly, not to Groups.

What kind of opportunities does that leave for third parties? Consider the following:

As noted, Google has advantages in defining groups, due to its existing expertise and the fact that it doesn’t have to retrofit a solution. But there’s already a hack to “Circle-ize” Facebook Groups. If either approach gains momentum, the other will no doubt copy it. Let the games begin.

Question of the week

Who will win in social network groups?

Facebook and Google: lessons to learn from Myspace July 5, 2011

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Last week, News Corp. unloaded Myspace for a pittance. Understanding why Myspace failed to maintain its early dominance in social networking is critical to determining whether Facebook is similarly vulnerable, and whether Google+ is on the right track.

BusinessWeek’s cover story on the fall of Myspace blames the usual reasons: Rupert Murdoch lost interest, Myspace got a rep for sleaziness, it went through a crippling technology transition and users lost interest and migrated en masse to Facebook. Other critics fall back on the tired idea that Myspace’s do-it-yourself design led to garish personal pages that scared away mainstream users.

The real story? Myspace was done in by technology and business model failures that Facebook is explicitly countering. Google’s social strategy is less clear. Although Myspace embraced third-party developers’ apps and widgets, it never built out a robust technology platform of APIs and services they could use, let alone syndicate across other sites. And Myspace signed an initially lucrative advertising deal with Google that distracted it from cultivating relationships with “classier” advertisers instead of cheesy direct marketers, and from building out innovative social marketing programs.

Not every online media business has to be a platform, but an ambitious social network does, and it can’t ease up on the innovation pace. Myspace was never a very connected network: it focused on self-expression at the expense of communication and everyone “was in your extended network.” More like Geocities than Friendster, Myspace only recently adopted a feed-based UI.

In contrast, Facebook launched APIs early, syndicated them offsite with Connect, Likes and Comments, copied and/or acquired its feed – and pushed it, despite initial user resistance – and is a leading contender as a unified communications hub. Google’s first social technologies were flawed as platforms: Orkut was a standalone effort, Wave was too complex, and Buzz had no central viewing place or reason to participate. Now, Google appears to want its innovative, communications-oriented Google+ to gain traction among digerati users before it shows any APIs, but its distributed +1 Like-button wannabe has a better pitch for publishers (use it and improve SEO) than for users.

On the business side, Facebook has surpassed Myspace’s early lead in ad targeting, though it’s still highly dependent on low-priced cost-per-click advertising. But Facebook is building relationships with brand advertisers and agencies through an advisory council and social marketing test bed. Moreover, Facebook collects ad revenues and virtual currency fees from its apps ecosystem members, something Myspace never mastered.

Meanwhile, some of Google’s social impetus is defensive, geared to protect its paid search business by ensuring access to social “signals” for ranking search results. While it’s currently unconnected to Google+, YouTube counts as social media and is signing big deals with premiere advertisers and experimenting aggressively with video ad formats. Unlike Facebook’s social platform, Google’s search, maps and mobile platforms offer its ecosystem a ready-made revenue stream from Google’s ad networks, a boon for developer relationships and lock-in. Presumably, Google will offer that for its social platform. I’d give Facebook an A for its social tech platform and a B- for its social media business model. Google gets an incomplete on both fronts.

As for Myspace, it’s been acquired by Specific Media, a top-ten online ad network that already reaches 79 percent of the U.S., according to comScore. Myspace’s user information will be useful for Specific’s ad targeting, although Specific says it’s more interested in becoming a media company like Yahoo than in Myspace’s data. Myspace had some interesting ideas on curating entertainment content via professional and semi-pro editors – if Specific is smart, that effort won’t succumb to layoffs.

Myspace doesn’t seem poised to regain much past glory. Under Specific, it could survive as a low-cost, medium-sized entertainment portal. It still gets about 30 to 35 million monthly users in the U.S. and has fairly strong relationships with the music industry and Hollywood. If it works hard on sponsorships and can secure access to some entertainment exclusives, it may be able to overcome the baggage of its tarnished brand.

Question of the week

Why did Myspace fail, and what does that imply for Facebook and Google+?

Happy 235th July 4, 2011

Posted by David Card in Media.
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This year’s patriotic plug. Nook readers can download it for free, but otherwise you’ll have to find it in your library as it’s out of print. I’m feeling sort of sympathetic with the Loyalists in these days of false Tea Parties, even though most Virginians went independent.

Happy Fourth. Throw another burger on the grill for me. As always, I’ll bring Mom’s potato salad (never tastes the same twice, but always good).