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Digital won’t “evaporate” ad dollars February 27, 2012

Posted by David Card in Uncategorized.
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A new survey of advertisers and agencies generated some scary headlines last week. Talk centered around the idea that as ad dollars shift to digital media and marketing, the overall pie will shrink. Will digital marketing really decimate overall ad spending the way craigslist and Google crushed classifieds and the Yellow Pages?

Calm down. Let’s review the case. While newspapers have it tough, other big ad markets like broadcast and cable TV and direct mail are still pretty healthy, and technologies like targeting and social media advertising could still increase the value — and thus spending — of both digital and traditional media.

Why there is concern

Besides the examples above, there are some valid arguments for the “digital evaporation” case:

  • Pricing. The old “analog dollars become digital dimes” meme is true right now, and it is particularly damaging to newspapers. Infinite inventory online kills pricing. The report that the Society of Digital Agencies (SoDA) based the survey on claims that “a dollar or euro lost from TV and print budgets becomes 20 cents of digital,” though it is not clear how it came to that exact figure.
  • The end of Wanamaker’s 50 percent. The famous quote runs, “Half of the money I spend on advertising is wasted; the trouble is, I don’t know which half.” Even with never-ending arguments over digital measurement, there is no question that pay-per-click pricing is tremendously efficient for direct marketing, and auction-based pricing for search and display ads eliminates much of traditional media’s wasted spending.
  • Ad networks. Ad networks from Google, AOL, ValueClick and others make it easy for advertisers to reach a big audience cheaply (each can reach over 80 percent of the U.S. online population, according to comScore) compared with print and television. While they enable web media companies to sell otherwise unsold remnant inventory, they contribute to overall pricing pressure. Ad networks bring a pricing transparency that could do to ad spending what Expedia and Google did to the travel industry.

Reasons to be cheerful

But don’t panic just yet. First of all, there is only anecdotal evidence of budget shift. Overall ad spending has continued to grow throughout the rise of online. In the SoDA survey, more advertisers said that in 2012 traditional media spending would shrink (33 percent) than grow (22 percent), but the survey didn’t weight those responses for their actual dollar spending. And respondents also said they would increase (50 percent) rather than decrease digital spending (16 percent), again without weighting. Overall spending might go up; you can’t tell from that. And in fact reputable ad forecasters expect overall ad spending growth this year, with sluggishness attributed to the economy rather than digital shifts.

Call me an optimist, but I still believe in some as-yet-undelivered technology promise. Those digital ad efficiencies and networks covered above also accommodate better ad targeting. Couple that efficiency with auctions and target via behavioral and psychographic audience characteristics, and prices will actually go up. Advertisers and agencies I have worked with — including Cisco, Procter & Gamble and Intercontinental Hotels Group — will be happy to pay a little more for provable, better results in terms of brand lift, increased trial and better direct marketing conversion. A premium of 10–20 percent isn’t beyond the realm of possibility.

Yes, cable TV pricing is lower than broadcast, even though it is somewhat better targeted. But cable TV “targeting” today is contextual — based on content — and based on very simple demographics. That is nothing compared to what digital can deliver, and those digital technologies will gradually migrate to television. What is holding back spending is inertia, conservative agency buyers and a lack of experience in that kind of planning. But Google, digital buyers and direct marketers are gaining exposure at agencies and marketers. It is just a matter of time.

Social technologies also hold great promise. Underline “promise.” Facebook is the biggest social game in town, but it is surprisingly conservative in its advertising experimentation, relying mostly on cheap inventory for direct marketing. Beacon backfired, and now Facebook seems twice shy and overly concerned with user reaction. However, it might have to accelerate advertising with a looming IPO and rumors of first-quarter shortfalls.

Ultimately, integrating social elements with traditional media advertising will lead to increased spending. Advertisers will also pay more to amplify marketing messages via fans and influencers. Brand advertisers I have worked with like IBM and P&G are definitely intrigued with the two-way engagement social media can deliver, even as marketers use social technologies to save money on things like market research and customer service. Not all incremental social spending will go to media companies. They need to build out their own services, improve their analytics and develop agency partnerships to get their fair share. But not all the cost savings will come out of their hides, either.

Question of the week

Would you pay more for better advertising?
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Facebook store flops demand a shift in emphasis February 22, 2012

Posted by David Card in Uncategorized.
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Last week, a pretty negative Bloomberg story about Facebook storefronts got wide pickup. It described how GameStop, Gap, J.C. Penney and Nordstrom had closed their Facebook stores. Social commerce is doomed!

Well, not exactly. I have been bearish on how many commerce transactions stores on Facebook would generate since the concept of “f-commerce” was introduced, but that doesn’t mean retailers should give up. Instead, they should put their Facebook stores in the hands of their marketing and promotions staff and prioritize marketing objectives over sales.

I have described before how storefronts built on Facebook pages face at least two significant challenges. Most e-commerce arises from directed shopping that exploits the Internet’s searchability and price transparency rather than the impulse purchases a buyer might make on a social media site. And I have also suggested some ways to accelerate Facebook storefront success: in-stream promotion, social commerce integration and ties to brick-and-mortar loyalty programs. Plenty of smart companies are implementing the first two, but they are still thinking too hard about sales volumes. Just like daily deals, f-commerce efforts should initially concentrate on customer acquisition, engagement and loyalty.

Feeding the feed gains user attention

E-commerce sites like Ticketmaster, TripAdvisor and Fab.com were quick to take advantage of Facebook’s October Open Graph enhancements that enable “frictionless” auto-sharing of activities without a user creating a post or pushing a Like button. Social commerce believers like Yardsellr.com think it is best that promotions come from customers rather than marketers. And store builder 8thBridge reports that 90 percent of Facebook shopping activity comes from friends sharing with friends.

That approach makes sense, but it oversimplifies some issues. “Frictionless” sharing doesn’t show up in Facebook’s main news feed but rather off to the right, in the live ticker. That means those kind of shopping activities may be quick to appear, but they will also disappear just as speedily and likely won’t be called to a user’s attention by Facebook’s ranking algorithm. In contrast, Ticketmaster and Lucasfilm encourage their customers to pass the word — leading to new customers — and actively engage in logical social activities like group travel-planning or event-planning.

Another store builder, Payvment, is also using Open Graph, but not the way Spotify does, where every interaction with the app is broadcast. Payvment is conscious that shopping activities might require more privacy and user control than music listening. So Payvment is focusing on the new action verbs, like Want and Own and claims they are starting to catch on. But the new actions are mostly on apps or Facebook company pages and have not spread outside Facebook on the Web the way Like buttons have.

And friend-to-friend sharing faces other scale issues: Payvment concedes that most users don’t have enough friends to deliver the kind of volume that big retailers want. So it is promoting the idea of a “taste graph” that aggregates interests — as described by Likes, Wants and Owns — across strangers as well as friends. That would enable offer targeting and the personalization of Payvment’s mall of Facebook stores. It is an intriguing big data play, but companies like Groupon and LivingSocial, with far more resources and data than Payvment, have yet to pull off customized targeting that would improve sales conversion. These are longer-term payoffs.

It’s all about marketing

So before f-commerce stores can generate many sales, smart sellers are treating social commerce as a means of branding, customer acquisition and loyalty building. Heinz says a “get well” soup campaign in the UK generated the sale of one can of soup for every eight fans, and it had to buy plenty of Facebook advertising to deliver that much. Wisely, Heinz was more concerned with adding fans and generating PR than selling soup. Similarly, ad agencies and marketing firms like TBG Digital think that over time, those new action verbs will be a key part of Facebook advertising.

Meanwhile, retailers looking to get the most out of Facebook for the next 18 to 24 months should reassign some of the merchandisers and retailers working on their Facebook storefronts. They should move staff in marketing, promotions, advertising and customer acquisition onto the job. The measure of their success will come from metrics like new customers, visit frequency and brand lift. That is where advertisers and marketers have expertise. Then two years down the road, the retail experts can start thinking about total sales, conversion rates, cost of sales and other transactional measurement.

Question of the week

How else can retailers use Facebook?

Best of 2011: Movies February 20, 2012

Posted by David Card in Media.
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Just in time to mess with your Oscar pool, I present my personal favorites of the year. Nota bene: this list has little to do with my own Oscar picks. Those I’m keeping secret to avoid jinxing my results in the annual Card family pool.

In 2011, I averaged approximately one new movie – in a theater – a week. I can enjoy just about any well-executed flick: I like big-budget summer blockbusters, well-crafted genre pictures, indies made for grown-ups, heartstring-tuggers, etc. I can read subtitles, though I’m not sure if I could through 3D glasses. That said, 2011 was not a good year.

According to the indispensable Box Office Mojo, the US box office for 2011 was down 4 percent vs. 2010, even though there more, expensive-ticket 3D releases. (That’s what boosted 2009 receipts 10 percent. That, and the fact one of ’em was Avatar.) Maybe the 3D boomlet is done. I’m not religiously opposed to the concept – I can barely imagine one of my 2011 faves not in 3D. But it’s an unnecessary burden for most.

Of the top 10 grossing pictures in 2011:

  • Nine out of 10 were remakes or sequels. Dear god.
  • Only one (Cars 2) was a cartoon. Unless you count Transformers.
  • Only one (Thor) was a superhero franchise. Bob Iger is gnawing his fingernails.
  • Two (Harry Potter 7B and Twilight 4A) were bestseller franchises that are now done or ending. Hollywood’s salvation depends on The Hunger Games, since Girl with the Dragon Tattoo didn’t cut it.

My two favorite movies of the year, 3.5 stars on Flixster’s 5-star scale, were:

  • Moneyball. Lots of smart reviewers like this movie, but they vary widely on what it’s actually about. That’s a sign of high art in pop culture. Witty script and great cast. Pitt is terrific in two very different roles this year. And if you were wondering about my interpretation, like all Sorkin, it’s about men at work.
  • Hugo. There’s real magic here. The 3D isn’t remotely realistic, but looks like a pop-up book: a deep series of flats, and that’s just right. For what is really a children’s movie, it’s too long, and so old-fashioned – er, timeless – that I wonder if modern kids will take to it.

To get to a Top Ten list, I have to go to 3-star movies:

  • Meek’s Cutoff. “Chaotic” women and “destructive” men face off against the Other. If you can handle the slow pace and cryptic characters, this is a thoughtful look at alienation, leadership, and faith.
  • Bellflower. This very twisted take on the indie romance has the courage of its own nutty, nihilist convictions. Beautifully shot, occasionally funny, ultimately disturbing.
  • The Descendants. Very human but disappointingly sentimental. Superb cast.
  • The Tree of Life. Malick sets out to justify the ways of God to men, but he has more to say about nostalgic boy/brother/Dad dynamics.
  • 13 Assassins. Slow-burn buildup to maximum carnage. Stately and stylish, with a handful of stars and a great villain.
  • Source Code. No dumber than Inception, and ten times the heart. Twice the fun at one fifth the budget.
  • Kill List. The Brits still know how to make those low-budget horror flicks where the occult leaks into the real world in a most disturbing fashion.

I’m going to cheat, and add a 2.5-star movie to my Top Ten, because it was more memorable than the rest of the ones I gave 3 stars. It will hold up to re-watching better:

  • Higher Ground. Vera Farmiga is very, very good, as usual, and gets solid performances out of her cast. The movie rambles and is uncomfortable in its tonal shifts, and the script is too stacked against the evangelicals for us to believe Farmiga’s character is risking much with her crisis of faith. Except the music, which is surprisingly affective.

The Artist’s gimmick just didn’t work for me, and I was hugely disappointed by Fincher’s Dragon Tattoo, the only part of which that was better than the Swedish version being the credits sequence. They shouldn’t have broken up Potter 7: the slow, sad build-up of part one would have made the payoff of part two that much better. Captain America was the best superhero movie, and although that’s not saying much this year, I’m still looking forward to The Avengers. And Batman, of course.

Pinterest: signs of staying power February 13, 2012

Posted by David Card in Uncategorized.
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Everyone’s favorite “it” startup, Pinterest, got a slap on the wrist last week for sneakily snagging affiliate fees from users’ links. But there is no mistaking the social curation site’s growth and momentum. Will Pinterest be a fad that flashes and burns, as Turntable.fm shows signs of doing, or will it end up a midsize link sharer like Digg or Reddit? It is worth examining Pinterest’s growth, usage, influence and money-making potential for startup lessons and marketing opportunities.

According to comScore, Pinterest reached the 10 million monthly user mark faster than any other U.S. site. And that is while it remains an invitation-only affair. The average Pinterest user spends more time with the site (80 minutes per month, says comScore) than other social media like Twitter, LinkedIn and Google+ (each under 25 minutes), although it is no Facebook (7 hours).

Pinterest’s audience is a little concentrated — on a desirable young female demographic — but I wouldn’t call it a niche. It is well beyond the early adopter, Silicon Valley crowd that still dominates Quora. Of course, Pinterest faces the risk of faddishness, but it has at least a little guaranteed user lock-in. It takes a long time to kill a photo site, as Flickr’s survival in the face of Facebook demonstrates. But users may deem a group of collected images less valuable than personal photos.

Smart tech implementations

Social curation is a real phenomenon, but not everyone wants to curate. Pinterest enables easy off-site sharing with a simple browser plug-in, even before it has established a Facebook- or Twitter-like “pin this” distribution network. No doubt over time Pinterest will display Pareto principle–style 80/20 distribution of viewer to sharer. But Pinterest encourages passive usage with friend- and topic-following at a user’s first experience along with regular reinforcement.

Pinterest has been smart in how it uses Facebook. Its Facebook log-in and app uses Open Graph auto-sharing features to juice demand for invitations. Yet pinning images into “boards” helps encourage Pinterest usage on its own site rather than just within the Facebook news feed. There is some talk of Pinterest APIs, but the company hasn’t articulated what you could call a platform strategy yet. Still, Pinterest has demonstrated wise tech moves that will gain it a bigger audience, induce usage and exploit Facebook.

Rating Pinterest’s influence

Pinterest’s highly visual layout has already inspired imitators like Lady Gaga’s social networking site, also invitation only. But reports of Pinterest’s influence in driving traffic to other websites are based on a fairly dubious study from a referral tracker with medium-size reach. That said, anecdotal evidence from sites like Time Inc.’s Real Simple magazine suggests that Pinterest could play a big role. Media companies and retailers are rapidly building out their presence on Pinterest. The Wall Street Journal is using the site for its Fashion Week coverage, and Pinterest has caught the eye of the New York Times, possibly at the expense of a Facebook app from the Times.

What about revenues? Right now Pinterest doesn’t show advertising or charge companies to camp out on its site. And it also does not give them an efficient vehicle for finding or promoting that presence. Pinterest uses Skimlinks to insert itself in the path of affiliate deals. It attracted some criticism for not telling its users it was doing so, but most users won’t miss the potential pennies they might collect from retailers. In contrast, that might actually add up in the aggregate for Pinterest. It is unproven so far, but with scale those fees might prove a quicker social commerce payoff than Facebook stores or dedicated shopping communities like Kaboodle, without Pinterest’s having to do the hard work of a real retailer like the similarly visual Fab.

I will disagree with Forrester interactive marketing analyst Darika Ahrens, who says marketers should ignore Pinterest in 2012. On the contrary, they should get on board quickly, before Pinterest starts charging for company pages. The company may never do so — neither Facebook nor Google do — but I wouldn’t be surprised if it is considering it. It should charge media companies and build out paid pages for brands. Because although you might think its visual displays would be extremely brand-advertiser-friendly, those advertisers may shy away without guaranteed placement and safety from potential copyright violations. They would be more comfortable paying for their own space, especially if Pinterest would spend some of its $27 million in funding on audience analysis services.

Though Pinterest hasn’t talked much publicly, its actions reveal a smart startup with staying power. Its growth is working across a broad audience, and its tech choices enhance that growth. And Pinterest is starting to show some power in driving traffic to other sites. A little emphasis on marketing support could add dollars alongside its affiliate revenues.

Question of the week

Is Pinterest a fad?

Facebook needs ad initiatives with quicker payoffs February 6, 2012

Posted by David Card in Uncategorized.
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Facebook showed its hand in preparation for what Om called the mother of all initial public offerings. Its S-1 prospectus revealed that it has a $3.2 billion advertising business that grew 69 percent in 2011. That growth has naturally slowed from a furious 145 percent pace the previous year, but observers criticizing Facebook for its lack of business detail might well wonder how sustainable that growth will be. Facebook appears more focused on proving the long-term promise of social media marketing than on taking some immediate steps like adding traditional ad formats and selling mechanisms to boost this year’s ad sales.

Facebook’s documentation says its 2011 growth came mostly from volume, and that volume was driven by user growth. It is going to get harder for Facebook to gain users, as its penetration in Western markets is as high as 84 percent, and it shows no sign of figuring out how to enter China. That means it must either show more ads to users or raise their value and price. Facebook was able to raise ad prices 18 percent during the course of 2011, but it struggled to do so as the year progressed. According to the S-1, a December price increase only offset an intentional cutback on the number of ads it showed rather than growing the whole revenue pie. Facebook needs to spice up its ads to maintain its near-term growth.

Making Facebook ads work

Facebook remains mired in the market of low-cost display ads, as evidenced by its $4 revenue per user compared with Yahoo’s $7 and AOL’s $10. Facebook’s ads are a mix of performance-based units where the advertiser pays only when they are clicked on and ads for branding that are purchased by CPM impressions. Facebook could charge more for each type if it could raise their effectiveness versus the advertiser’s objectives, increasing clicks from qualified users (who will make a purchase or fill out a registration) or demonstrating brand lift or increased awareness.

According to Webtrends, Facebook’s click-through rates are only half that of the industry average of 0.1 percent. Facebook brags about its ability to target ads based on its mass of user data, including users’ interests gleaned from their profiles, Likes and content-sharing activity. But Forrester Research says marketers have not found Facebook campaigns to be particularly effective, and I have heard the same. I am a total believer that data-based targeting will improve ad effectiveness, but clearly Facebook has not yet proven its case to advertisers.

Facebook should be more opportunistic

Facebook’s approach to advertising is more like Google’s than Yahoo’s. That is, Facebook sells most of its advertising through a bid-based automated marketplace. Forrester’s Nate Elliott thinks Facebook could beef up this system, especially by adding analytics tools. But Facebook ads, no matter how well targeted, will probably never show the ROI of search-based advertising, where the user has explicitly indicated to the advertiser that he is actively researching or shopping.

Facebook is betting on the promise of social while ignoring more-traditional opportunities. Its latest project is to move Sponsored Stories — ad units related to a user’s friends’ activities that call them out by name — into the news feed. The idea is that marketing tied to friends is more engaging and likely to be acted on or passed along. Facebook points to a Nielsen study that says this increases user recall. Indeed, the concept is promising, attracting positive responses from smart interactive agencies like iCrossing.

But rather than painstakingly reinventing advertising along social lines, Facebook could see some immediate gains with a more traditional approach to a couple of areas.

  • Selling. While Facebook’s automated marketplace also allows buying a guaranteed number of impressions for a fixed price, it doesn’t guarantee location, timing or frequency. Brand advertisers like to buy that way and will spend money with portals instead of Facebook. Likewise Facebook might want to hire more experienced, schmoozing salespeople to service those advertisers and agencies. Its marketing expenses were up 46 percent to over $400 million, but that’s a fraction of Yahoo’s $1.1 billion.
  • Formats. Facebook doesn’t offer big ad units that support rich media or video. The company believes that would harm the user experience. But surely an interstitial once a day or between photos wouldn’t drive users away. Especially if it were targeted by interest or were entertaining, à la movie trailers. The portals can sell this kind of thing for $250,000 a spot.

These moves would certainly help Facebook triple the projected growth rate of 20 percent for U.S. online display ads. But it is unlikely the company will make them. Facebook seems intent on playing for the long run exclusively. That may pay off over time, but Facebook will miss out on near-term market share gains and revenue growth and on chances to build relationships with big advertisers.

Question of the week

Will Facebook maintain its growth in ad sales?