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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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Google’s Chrome OS: Dead Before Arrival? December 13, 2010

Posted by David Card in Uncategorized.
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Last week Google showed off its progress on Chrome OS, introducing an apps store in support of it and offering up a pre-release hardware trial program (real machines won’t ship until the middle of next year). But it’s likely all for naught. Google CEO Eric Schmidt’s objective of making Chrome OS a “viable third choice” in operating systems looks doomed.

The Problem With Chrome

Right now, the hot trends in technology are social, real-time, mobile and cloud computing. Chrome OS is only optimized for one of them — its machines are true cloud clients. Schmidt even evoked the old Network Computer vision. Chrome OS computers will be highly dependent on the cloud for applications and minimally functional when disconnected. They’ll have cellular modems, but it’s not clear that existing networks can handle the network traffic demands of a cloud-centric client. Meanwhile, there’s nothing in Chrome OS or its user interface that accommodates social media or real-time information feeds.

Chrome OS also suffers from awkward positioning, both externally, to developers and potential customers, and internally within Google’s own product line-up. While it’s true that PCs serve both companies and consumers, the value of the Network Computer premise appeals only to enterprise IT managers. Its manageability and simplified functionality play best in applications like airline reservations, point of sale terminals and ATMs, or in limited-application mobile devices used in shipping and store inventory management. Yet at least for now, app stores are purely consumer offerings. The apps Google showed last week all came from media companies (New York Times, NPR, Sports Illustrated), Electronic Arts and Amazon.

Opportunities for a New OS-Based Platform

Meanwhile, Google itself says Android will be its primary tablet operating system. In fact, Google aims Android at most of the best opportunities to establish new or alternative operating systems. I’d argue that there are three product categories where Google could try to establish a new OS platform, either with Android or Chrome OS:

1) Mobile phones. Google has Android.

2) Tablets. Gesture-based tablets have all the momentum over netbooks, and are also Android targets.

3) Single-function Internet devices based on a customizable OS kernel. This category also includes The Internet of Things, with its connected gas pumps and refrigerators, that may be better served by something that looks more like a sensor than an OS. But other single-function devices include, in order of current volume:

  • TV set-top boxes. Google TV is based on Android, with a Chrome browser-based UI that shows its limitations.
  • Game consoles. The “compatible console” concept with hardware running a third-party OS has not worked so far (e.g., Sega Dreamcast with Windows CE, 3DO.)
  • E-books. Barnes & Noble’s Nook Color already runs Android.
  • Widget machines. Chumby has set the standard for “Internet viewers.” The Sony Dash is built off Chumby.
  • Dedicated social devices. Just like Chrome OS, Jolicloud uses HTML5 and a Chrome browser on top of Ubuntu Linux, but it uses Facebook Connect heavily. Handheld social devices like the TweetPeek and Sony Mylo seem to be going nowhere, while others include phones (Sidekick, Motoblur, Kin).

Those options don’t look promising for Chrome OS. They’re either tiny markets today,  already staked out by Android, or, in the case of game consoles, brutally competitive and unproven for third-party OSes. I suppose Google could fight it out with PC operating systems based on price. A Microsoft OS makes up 10 to 20 percent of cost of netbook, but Schmidt says Chrome OS devices should cost $300 to $400, about the same as netbooks. An Intel processor, solid-state storage, and an integrated cellular modem raise costs. I’m tempted to agree with Om, and suggest Google dump Chrome OS and put its muscle behind Android.

Question of the week

Should Google dump Chrome OS and put its muscle behind Android?

Real-Time Advertising: How to Get in Early October 18, 2010

Posted by David Card in Uncategorized.
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Even if you don’t believe real-time feeds will become the dominant content consumption paradigm, it’s clear they’re a growing force. Consumer-paid access to real-time feeds is largely constrained to paid mobile apps today, so advertising would appear to be the immediate payoff. With that in mind, let’s look at how social media companies can best cash in.

I haven’t come across a forecast for real-time advertising spending, but it’s a nascent market that’s fairly concentrated: Facebook and Twitter represent the largest audiences. Market researcher eMarketer projects Facebook will collect $1.3 billion in ad revenues globally in 2010; presumably, most of that will be spent on Facebook’s news feed. Twitter is only just beginning to embrace advertising. But clearly, we’re talking about a business that will be measured in billions rather than millions of dollars.

The current audience concentration — and the resulting ad dollars — could diffuse. Already, a lot of tweets get viewed on third-party Twitter clients, as well as on Facebook. Somewhat similarly, Facebook is syndicating its content through initiatives like Facebook Connect and Instant Personalization, as well as arrangements that allow companies like Skype to show Facebook users’ updates and presence within its own application. So it might not be just Facebook and Twitter who can cash in on those audiences.

Could Real-Time Ad Networks Jump-Start Spending?

Advertisers demand a certain scale of audience before they start spending big money. As with other media — social or otherwise — ad networks can alleviate audience fragmentation, giving advertisers access to eyeballs across a number of sites or apps. The big ad networks from AOL, Google, Microsoft or Yahoo aren’t doing anything in the real-time space. Meanwhile, a handful of startups have emerged. That includes 140 Proof and OneRiot, who sell inventory on Twitter clients and apps, as well as Tweetup, which also makes its own destination site. Ad.ly will construct celebrity-sponsored updates and insert them in Twitter and Facebook streams.

I spent some time with OneRiot this week; its experiences are good indicators of the state of the real-time ad marketplace:

  • Tapping test budgets. OneRiot’s business is divided evenly between publishers (New York Times, ESPN, Guardian) who are promoting its stories or marketing their apps in feeds and more traditional marketers like Zappos and Stella Artois. OneRiot is getting part of the test budget of bigger campaigns, so advertisers are only spending tens of thousands of dollars with it. The company can charge 12 to 25 cents for click-throughs, or $2 to $3 CPMs.
  • Relatively simple targeting. OneRiot usually sells an audience type rather than target by demographic or content context. Its analysis shows that Twitter client users are a highly engaged audience; when they click through to a story or site, they’re likely to hang around twice as long, generating 7 or 8 pageviews.
  • Ad format experiments. OneRiot serves up text ads that look like search engine marketing, but its architecture can handle banners and richer formats. It says some advertisers have experimented with dynamic content that is contextually related and inserted into the text creative.

Ad Network Realities

Right now, the ad networks in real-time are ahead of most of the feed sites in sophistication, and could help move the market forward. But in most media markets, it’s the company with the eyeballs that commands the vast majority of ad spending. Not long ago, observers who probably over-interpreted Google’s success thought online ad networks could reverse this. But that hasn’t turned out to be the case.

Publishers and other content companies like to hold onto the best ad inventory and sell it directly to their best advertisers and ad agency clients. That leaves low-priced remnant inventory for the networks. NBC dropped Google’s TV ad network recently; Microsoft is shutting down its in-game ad network because its biggest customer, Electronic Arts, pulled the business in-house.

As with other media, the real-time ad network ecosystem will have to deliver targeting and measurement to capture advertiser spending. Companies like Klout and Gravity may help marketers identify influencer audiences. Kantar Media, a unit of ad agency holding company WPP, tracks offers competitive intelligence on ad networks, but hasn’t aimed at the real-time space yet.

Related Research: Social Media in the Enterprise

Question of the week

Could ad networks accelerate real-time advertising?