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Best of 2011: Music December 21, 2011

Posted by David Card in Media.
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Just barely in time for stocking stuffers, yet another “best of…” list. But you know you love it.

Not a great year, but we’ll see what ages.

I bought about 45 albums, very few singles, all downloads pretty much exclusively from Amazon. This year my mix was about 55/45 new versus back catalog. I still listen mostly from an iPod or my iPhone.

However, I do have the on-demand streaming services from Rhapsody, Spotify, and MOG. (I’m comped as an analyst but I’d happily spend $10 a month on one of them. Which one is for a later post.) And free Pandora. I love all of them for radio-style new music discovery and casual listening, and for try-before-you-buy analysis. I get a kick out of seeing what my friends listen to via Facebook and GetGlue. This social music thing, it might catch on. If only the artists could make money off it.

But I’m technically a digital music aficionado, as defined by digital behavior and high spending on music, and I often discover unfamiliar bands by – gasp! – reading reviews. Turntable.fm is fun, but way too much work. It’s like trash-talking for music. I am not a very successful DJ, and neither are most people.

My favorite new albums of the year were, roughly in order:

Best New Albums of 2011

  • The Decemberists “The King Is Dead” – add alt-country to their repertoire
  • Black Keys “El Camino” – who knew there were still rock bands?
  • The Vaccines – my latest lo-fi, incredibly catchy, pop indulgence
  • PJ Harvey “Let England Shake” – yeah, someone still does stirring protest songs
  • T Bone Burnett Presents “The Speaking Clock Revue” – rootsy collection from Elvis Costello, Gregg Allman et al.
  • Dum Dum Girls “Only in Dreams” – pop-punk grrls with some depth
  • Jay-Z and Kanye West “Watch the Throne” – sure, it’s indulgent, but it’s fun when two big stars connect
  • Wild Flag “Wild Flag” – I miss Sleater-Kinney, but this is a half-decent substitute
  • Wilco “The Whole Love” – experimenting again, with spirit
  • Florence + the Machine “Ceremonials” – I know it’s hipper to like St. Vincent, but the prog-rock Sinead, well, rocks

You might also like to look at Tune-Yards (I have a thing for female jazz singers that fool around in other genres), Paul Simon (his latest is like a poor man’s – make that an old poor man’s – Graceland), Fucked Up (gotta love a punk concept album), SPIN’s “Nevermind” tribute (half the covers are pretty awesome),  DJ Shadow (channeling Killing Joke of all things), and R.E.M.’s finale (but the Decemberists already did the best R.E.M. album of the year). I didn’t hate the Lou Reed/Metallica team-up, but it was an example of two big artists not connecting.

I was disappointed by The Girls (went from interesting to pretentious in a year 2 years), Airborne Toxic Event (no sophomore slump but nothing new), the Kills (a killer single), and Gang of Four (one of my all-time favorite bands, but what was I expecting?).

Virtual currencies: from coins to barter December 19, 2011

Posted by David Card in Uncategorized.
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Social gaming star Zynga’s IPO last week casts the spotlight on its virtual goods business, which accounts for 95 percent of 2010’s $597 million in recognized revenue. The company’s broad appeal made me wonder, How do virtual currencies work today and where, outside of gaming, might they be effective? Right now, practical alternative payments systems like Facebook’s and PayPal’s are still based on cash, though consumers might like bartering and loyalty programs rolled into the mix.

Virtual goods and currencies are a potent combination. U.S. sales of virtual goods were $1.6 billion in 2010, and they were projected to grow to $2.2 billion in 2011, according to a report from Inside Network. Zynga is the biggest player, and its transactions run exclusively through Facebook’s Credits, which takes a 30 percent cut. Until it builds out its own gaming site, Zynga remains dependent on Facebook and on its so-called “whales,” the relatively few — reportedly 1 percent — of Zynga players that account for 25 percent of spending (perhaps 10 to 20 percent buy anything at all). These kinds of ratios and pay rates are pretty consistent across both virtual goods and paid content categories like digital music, video and news, from what I have heard and according to a PayPal survey in GigaOM Pro research.

Based on that survey, two features look critical for virtual currency systems: They should offer loyalty programs like frequent-buyer benefits, and the systems should work across different goods suppliers. The latter is one of the main reasons Facebook rigidly enforces Credits exclusivity for apps: The same accrued Credits can rent streamed videos or buy power-ups and game paraphernalia. The PayPal survey showed that a relatively high 36 percent of social gamers said they would be more likely to purchase virtual goods if they could earn loyalty credits for frequent purchases. And 22 percent said they would if they could use the same payment product for all games. Those rates were similar or higher for hard-core gamers as well. The frequent-buyer program angle was even more popular for other paid media like video (45 percent) and music (52 percent). Amazon and Apple should pay attention.

Companies offering new virtual currencies often promote two other features: micropayments under $1, which aren’t cost-effective with credit card fees, and the ability to base currency value on something other than money, including “bartering” user time and attention as well as other goods. No one has ever proven the value of micropayments. Failures include Beenz, Flooz, Millicent and others, though Flattr is still trying. That’s mainly because there aren’t that many things Americans buy that are worth less than a dollar. Music stores try to scrape a margin from 99-cent singles with prepaid PayPal accounts or by bulking up orders, and prices are moving to $1.29.

But there are some hints of promise in basing virtual currencies off something other than money. I’m not talking about Bitcoin, no matter that VC Fred Wilson thinks Bitcoin is potentially hugely disruptive. In its tortured history Bitcoin has suffered massive fluctuations in value from hoarding and has had its brand tarnished by its reported use by drug dealers.

In contrast, currencies based on barter look more interesting:

  • TrialPay is experimenting on Facebook and elsewhere with a variety of bartering options. Users can earn gaming goods for making purchases or watching ads, and they can trade in credits for coupons redeemable for real-world products like soda and cosmetics. Facebook is a promoter, and TrialPay claims to have 100 million users and 2,000 advertisers.
  • Jun Group recently raised $2.5 million to boost its ad serving system, which trades currency credits for viewing video ads. It claims a high 70 percent completion rate for viewing. Jun Group has worked with big brands like HBO and Frito-Lay.
  • Quora, the Q&A site, rewards behavior like answering questions and getting positive votes with credits that users can use to promote their own questions, so they have a better chance of being answered. The system reinforces expertise and participation, so it isn’t likely to migrate outside Quora. But other participative activities like reviews, recommendations and polling could apply similar techniques. Companies with consumer review systems like Amazon, Yelp and Angie’s List could use currencies to reward quality reviews, as determined by voting.

Yes, there is some evidence that users undervalue goods they have earned for actions. Users uninstall a lot of those apps, and Apple has banned trading goods for downloading an app, because developers were using the practice to game the App Store’s popularity ranking. But overall, barter-based currencies appear to be gaining momentum. If Zynga wanted to launch its new site with a bang, it would deploy a new virtual currency scheme that worked across third-party games and maybe even other products, support a frequent-buyer program and let users exchange their time and attention for credits.

Question of the week

What other kinds of products could use virtual currencies?

How publishers must adapt to multiple content discovery options December 12, 2011

Posted by David Card in Uncategorized.
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Last week, companies including Google, Facebook and NetShelter introduced new products and services that, while unrelated, all promise to be new vehicles for web content discovery. And with so many new offerings coming to market, content companies must evaluate whether and how to best use services like news reader apps (Google Currents and mobile Flipboard), social sharing mechanisms, etc., to achieve objectives like audience acquisition, content engagement and revenue.

None of these new initiatives actually pays syndication fees for content, and making money off them depends on publishers doing their own advertising within the frameworks of the apps or sites, or securing revenue sharing. In many cases, even where they enable the consumption of full articles or videos, it’s best to think of these new products and services primarily as discovery tools and concentrate on driving audiences back to the actual sites. It’s there that content owners have more control over monetization.

News readers worth testing

Right now news readers are low-risk/low-reward options for content owners due to their relatively low adoption. For example, this summer Flipboard was growing fast but still had only 2.5 million users. At that point it wasn’t generating any revenue, but has since rolled out an advertising program with key publisher partners like Conde Nast and Dow Jones. Figures on how those revenues are split are hard to come by, but the ads are magazine-classy and likely command a higher-than-average CPM compared with traditional websites. That’s promising, but won’t be exciting until Flipboard quadruples its audience.

Flipboard’s new mobile app, meanwhile, is getting rave reviews. But while that may bode well for content discovery, mobile display advertising — as opposed to search — is barely off the ground and Flipboard hasn’t solidified its mobile ad offerings yet. Similarly, Google’s brand new Currents news reader doesn’t offer advertising — mobile or otherwise. The company is promising to work on a payments scheme for premium content in the future, so publishers should use Currents for discovery rather than revenue.

Facebook promotion starts to pay off

Facebook is becoming an important traffic driver for content sites, whether from its own site or indirectly through its distributed Connect services. Last week it introduced a Subscribe button for Connect that’s a lot like Twitter’s “Follow” concept: Publishers can establish Subscribe buttons on their own sites that enable Facebook users to receive updates from content authors without having to establish a confirmed, two-way “friend” relationship. Subscribing is relatively new to Facebook’s own site, but it seems to be catching on and should prove popular off-site as well.

Updates appearing in Facebook news feeds, meanwhile, drive user engagement with content, as shown by Yahoo’s smart deployment of a Facebook app that takes advantage of the new “frictionless sharing” that auto-posts user activity updates. While media companies like The Washington Post and News Corp. are posting full articles in their Facebook apps, Yahoo posts snippets that drive users to its own site. Last week, Yahoo reported 10 million participants and a sixfold increase in Facebook referrals, along with new, younger audience usage.

Other companies are putting full content on Facebook. News Corp.’s The Daily and the Wall Street Journal house site promotions and ads in their Facebook apps, including units that are much bigger and feature more rich-media interaction (likely generating much higher CPMs) than the ad units Facebook itself offers. The Washington Post’s Facebook app does not have any advertising right now and often shows a user more third-party content through its personalized Trove aggregation feature than content from the Post. While this may be useful for building brand awareness, it feels like the Post is missing an opportunity to engage with its own articles and drive users to its own site, where they can take advantage of Trove personalization.

Advertising as discovery

Last week, NetShelter Technology Media introduced a new advertising format that simultaneously syndicates content (Samsung is the official sponsor). The ad network operates across a collection of otherwise-unrelated technology blogs, analyzes articles across the network and pulls them into the expandable ad when they’re relevant. It’s like a sponsored “related content” module that will help smaller sites participate in bigger ad buys as traffic circulates across the network. NetShelter wants to charge premium rates for this unit: It’s hoping to hit a $35 CPM target, though that sounds high to me.

These new discovery vehicles reinforce the need for content companies to think of themselves as networks or even platforms, as my colleague Mathew Ingram says, rather than simply site developers. They must distribute their own content through APIs and syndication, at the same time aggregating, curating and monetizing on and off their home sites. But the ones that can adapt these new programming and distribution techniques will be leaders in an increasingly digital-first era.

Question of the week

Should publishers distribute their full content or offer only highlights?

Why we should separate the real platforms from the pretenders December 5, 2011

Posted by David Card in Uncategorized.
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Everybody wants to be a platform. Spotify, the hot digital music service, is the latest company to sketch out a platform strategy. But building a real platform takes more than throwing out a few APIs and saying, “have at it.” To achieve business objectives like revenue growth, customer acquisition and network effects, would-be platform suppliers have to deliver audience, distribution and revenue potential.

Tech market observers use the term “platform” in a variety of ways. What I’m talking about here is a technology platform with application programming interfaces (APIs) that developers and sites use to build or enhance their own applications and services. On the consumer web, even a company with an industry-leading audience is vulnerable to competitors that supply better platforms. Myspace’s failure and Yahoo’s malaise are attributable to Facebook’s and Google’s platform prowess. Though both companies have or had big audiences, neither built out APIs that would enable distribution, data access or unique technology integration.

A successful platform delivers the following business benefits to its supplier:

  • Low-cost features. Spotify will instantly add a handful of compelling music features (discovery, touring info, lyrics) with minimal development costs.
  • Customer acquisition and retention. Facebook’s games and news apps increase usage duration and frequency, and its syndicated Connect and Like services both attract new users and bring them back regularly to the site.
  • High-margin revenue. Developers like Zynga that use a platform to attain a large audience and big sales don’t complain too much when Facebook takes a 30 percent cut.
  • Network effects. All of the above, along with viral sharing features like Follows, Likes and updates, encourages continuous connections between users and developers. That reinforces the core business and can lead to lock-in and platform dependency for developers and users both. Facebook claims to have 9 million businesses using it for promotion.

To attract developers, a platform must deliver something they want. That can be access to a big or specialized audience, core technologies and services developers can’t build themselves, and/or data, as well as distribution and potential revenues. Here is how some of the platform players in consumer and social media stack up. (A similar analysis framework applies to mobile, e-commerce and enterprise platforms.)

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As illustrated, Spotify is delivering a medium-sized audience in a targetable music-fan context, and it has enabled app discovery and sharing. But it falls short on most measures.

Google’s major platform innovation was to deliver an easily accessible revenue stream to its search partners via revenue-sharing from its ad networks. Oddly, it hasn’t done this — yet — for Google+, as it wants to build audience first. Syndicated Google+ services promise indirect revenue benefits through search engine optimization. None of the players are particularly good at developer support, but Google has the strongest analytics tools offering.

Neither Twitter nor LinkedIn focus their platforms on getting apps for their site. Twitter’s platform is all about spreading its content and data to other sites, either through liberally open APIs (though the terms may shift) or licensing via Gnip and Datasift. It’s up to developers to make money. LinkedIn’s content and data syndication is aimed at increasing usage. Its pitch to sites would be stronger if it could build out a professional marketplace beyond hiring or if it exposed more customer information gleaned from its desirable professional audience.

Clearly, Facebook is the current master of the online consumer platform. Its balance of a semipermeable walled garden and widely distributed off-site technologies creates a potent potential for network effects. It doesn’t share ad revenues, but its Credits system enable cross-developer commerce. Companies building consumer platforms would be wise to emulate its tactics and offer competitive differentiation via support, revenue-sharing and specialized audiences.

Question of the week

Which companies are building killer platforms for other market segments?