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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?

Handicapping Facebook’s Next Billion-Dollar Business(es) May 2, 2011

Posted by David Card in Uncategorized.
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Amidst reports that it was having trouble unloading $1 billion worth of shares at a very rich valuation, Facebook last week tweaked an existing advertising service and started testing its first home-grown social commerce product: Facebook Deals. Will that be Facebook’s next billion-dollar business? Possibly. But it already faces stiff competition from Groupon and LivingSocial, not to mention a new Google entrant. More importantly, other growth- and revenue-generating opportunities exist that could be worth exploration on the part of Facebook, too.

Let’s examine each of these potential new revenue streams.

Big New Businesses for Facebook

Facebook dominates social media and the advertising spending that surrounds it. The company makes its money from low-priced display advertising (estimated at nearly $2 billion in 2010) and the 30 percent commission it takes from social gaming companies using Facebook Credits for virtual goods (forecast to be $250 million in 2011). Its three best new business opportunities are:

  • Rich-media brand advertising: To get at ad budgets that need more than the low-priced display ads driving social networks, Facebook needs to offer brand advertisers big, rich-media ad units like those of the New York Times and AOL. If it’s worried about user resistance, Facebook could show the ad only once a day, leave it over on the nearly empty right-hand sidebar or even reserve it for Friday movie openings and holiday promotions. Other than Yahoo, Microsoft and AOL, no other site has inventory with the audience reach for this kind of advertising, which commands $30-plus cost-per-thousand pricing and is usually sold out. This one should be a slam dunk.
  • Deals and social commerce: Facebook’s toe is barely in the social commerce water — it’s testing Deals in only five cities, sourcing some of the offers from partners and not charging merchants anything yet. Facebook is differentiating its deals by not demanding they be deeply discounted, and focusing on more social, shared-experience offers like restaurant deals or concert tickets. Local deals require an expensive local sales force that Facebook doesn’t have. While the company can deal directly with national retailers and merchants that target locally — a good opportunity otherwise — most of them don’t make the kind of “shared experience” products mentioned above.
  • Connect-based ad network: Unlike most ad networks, which make do with remnant ad inventory scraped from the bottom of online publishers’ barrels, Facebook has access to ready-made, desirable space through Connect services such as its Like button, sign-on and comments. Even without getting into behavioral targeting, Facebook could show ads targeted by context just like Google’s AdSense network. For example, it could serve up a hotel ad in an online newspaper’s travel section. If publishers balk, and weren’t cowed by their need for the traffic that Likes generate, Facebook could always share a piece of the revenue.

Potential Partnerships

I’ve talked about Facebook’s need for brand advertising and its potential to create an ad network before, and this piece by Jason Calacanis and his Launch team also likes those two opportunities and tries to put a dollar figure on their near-term revenue. He also suggests Facebook do in-stream advertising, which I suspect Facebook would deem too intrusive and competitive with Like messages and other promotions. Other potential revenue streams? Facebook has never charged for company pages (it sells them ads), I’m skeptical that it could do search effectively, and it has been very selective about data licensing.

But it needs partners to tap into the three new businesses identified above. Companies like:

  • Microsoft, already working with Facebook on search, who could build the ad network. These days, however, Microsoft seems focused almost exclusively on search after outsourcing some ad network functions.
  • Gilt Groupe, whose Gilt City deals unit is part of Facebook’s trials. Unlike other deal companies, Gilt also is a retailer, which could open other social-commerce doors.
  • Other online ad technology companies that could help Facebook’s advertising platform. Those that do data mining (e.g., Experian, Audience Science, BlueKai) and social targeting (e.g., Lotame, 33Across, Media6Degrees, Rapleaf) may need to do direct deals with Facebook to accommodate potential privacy legislation.

Question of the week

What will be Facebook’s next billion-dollar business?

Privacy Legislation’s Potential Impact on Online Media April 18, 2011

Posted by David Card in Uncategorized.
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Last week, the bipartisan Kerry-McCain bill proposed legislation on a Commercial Privacy Bill of Rights that would put the Federal Trade Commission in charge of policing the online collection, sharing and use of personal information. Because the legislation is watered down relative to prior proposals, the Kerry-McCain bill will face the least industry resistance and is more likely to be passed this year. Passage would shift some power in online media, and force changes in the way online ad networks and other targeters work with content sites.

The proposed bill is relatively business-friendly, so much so that it’s drawing criticism from privacy rights activists. The bill:

  • Focuses explicitly on the use of personal information for behavioral ad targeting — and particularly on data sharing between companies — rather than information collection in general.
  • Mandates opt-out policies for personal information use, but only requires tighter opt-in permission for sharing “sensitive” personally identifiable information related to religion, health and finances.
  • Enables what some are calling a Facebook loophole that imposes lighter restrictions on web-wide information collection and use by companies where the user has an account. This would favor Facebook Connect over ad networks.
  • Is strict about data-sharing for behavioral targeting via third parties (data collectors and ad networks), but much looser on ad targeting done by a publisher that collects the data on its own site.
  • Does not address “Do Not Track,” the concept of a universal opt-out mechanism that users broadcast to sites popularized by the FTC last December. In February, Congresswoman Jackie Speier, D-Calif., proposed that the FTC create and manage a Do Not Track framework.

Although advertising industry groups are predictably resistant to any kind of regulation, their initial reactions to Kerry-McCain seem more muted than concerns they had prior to the bill’s introduction. Big tech companies like Facebook, Microsoft, eBay, Hewlett-Packard and Intel expressed support for the bill. The trade groups are probably relieved about the absence of Do Not Track, which they fear encourages users to block all cookies and customization indiscriminately, and requires potentially costly support from ad servers, ad networks and sites. Apple is the latest browser maker to experiment with Do Not Track support, after Mozilla and Microsoft; Google favors an alternative approach that maintains user opt-outs.

Privacy Legislation Impact Scenarios

The promise of online advertising has been the potential combination of television-like reach with precision targeting. Passage of the Kerry-McCain bill or something similar will have the following effects on the online media landscape:

  • Online content sites: Don’t call me a conspiracy theorist, but some traditional publishers like the Wall Street Journal might be perfectly happy without web-wide behavioral targeting. They could tout the value of their online/offline audience and promote contextual targeting and sponsorships. As noted, publishers would able to follow and target a user within their own site, which would benefit portals like Yahoo and AOL, which have huge audiences and broad variety of content.
  • Online advertising ecosystem: The bill’s restrictive approach to behavioral targeting favors search advertising over display ad formats. It also weakens industry efforts to deliver attribution, i.e., understanding and valuing the longer-term effects of seeing brand advertising. The data sharing guidelines could force data miners (Experian, Audience Science, BlueKai) and ad networks (DoubleClick, ValueClick, 24/7 Real Media) to secure more formal contractual relationships with content sites that have registered users. And the legislation seems to leave room for third parties to take user info and create anonymized groups of targetable customer “types” based on demographics and behavior.
  • Social targeting: Today, most third-party social targeters (Lotame, 33Across, Media6Degrees, Rapleaf) base their analysis on tracking user behavior with their own cookies, rather than getting access to API data from Facebook or Twitter. Legislation may make them pay for access, and even then, Facebook to-date has been stingy about data sharing. Likely it’s saving that targeting opportunity for itself.

Question of the week

How could potential privacy legislation affect online advertising?