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Publishing and Advertising 2.0 – Part 2

Jim — Fri, 16 Feb 2007 08:35:19 +0000

The Internet will continue to drive major structural change into the advertising and other digitizable media for the next 25-35 years. (The Carlota Perez book previously mentioned explains paradigmatic technology diffusion; Ray Kurzweil, referenced below, builds on the same concept to posit that technology/human change has accelerated since time began and will continue to do so, resulting within 30 years in implanted brain chips that leverage our thinking capabilities the way our foot on the gas petal leverages our muscular capabilities). Anyway, back to the present. Broadband connectivity (medium band, really – until we get more competition in telecoms, the 100MB/sec links available throughout Seoul, Korea and other foreign cities will be a figment of our imagination here) just recently hit critical mass in the US. Broadband mobile phones (again, medium band vs other nations) will reach critical mass in the next three years. That $200/household for Internet ad spend represents only that revenue that has been derived from the move of print ads to the web; audio/video related advertising is at its inception (and is why Google paid $1 billion for the largest market/mind share position in that market. Audio search is well developed and will begin to be monetized via ads soon. Video search has further to go, but I have no doubt that Moore’s Law will bring the processing power required to do it to an economically viable level. The number of doublings in processing power/unit ($) of resources consumed just recently passed thirty. Given the exponential nature of this growth, however, the absolute gain from each doubling has now reached the point of delivering stupendous economic impacts (same applies to storage, where you can now easily buy Terabyte storage servers for less than $1000). For more on the law of accelerating returns associated with technology advances, see Ray Kurzweil.

Some talk about buying/selling advertising in terms of the current industry participants like Fox News. Although Rupert does get it regarding broadband Internet, very few organizations with the size and longevity of any of the existing broadcasting/media companies are ever able to make transformative changes to their business models. See Clayton Christensen, The Innovators Dilemna, for hard proof. The companies that break standard price points will have a different view of the economics/business model, just as Bill Gross (Idealabs) did when he invented the pay-per-click Internet advertising business model that Google has leveraged into a $150 billion market cap. Remember, Google did not even begin to sell search advertising until the 2001-2002 timeframe.

A final point about change in content/advertising markets – the Internet evidences and enables statistical distributions commonly known as the Pareto principle (80/20 rule). Chris Andersen of Wired wrote the signature piece on this phenomenon which he dubbed The Long Tail (link to his website, which links to article, book, Wikipedia, etc.) Andersen’s point is that for digitazable products/services, the changes wrought by the growth in interconnected and ever mor powerful communication/computational processing devices will enable the exploitation of demand that was previously unexploitable due to the lack of sufficient market scope to spread the fixed costs of production and distribution over. The fixed costs are now already incurred, in terms of the infrastructure of the Internet, and the marginal costs of distribution are virtually nonexistent. An Amazon employee described the Long Tail as follows: "We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday."

Publishing & Advertising 2.0 – Part 1

Jim — Thu, 15 Feb 2007 08:24:31 +0000

Publishing and advertising are undergoing structural transition last seen when Gutenberg’s press was invented. The Internet, and more specifically, the broadband Internet (which has reached critical mass during the last six years), eliminates the cost of distribution as an economic factor in media publishing and advertising. The fact that some businesses, including most of the historical advertising and publishing concerns, have not adjusted their business models has absolutely nothing to do with Bush or politics. For extended treatments of this subject, see Carlota Perez: Technological Revolutions and Financial Capital and Clayton Christensen: The Innovators Dilemna. For more concise observations in point of the facts of structural change in advertising business, I refer you to these:

Excerpt from Andy Kessler’s series of blog posts on Media 2.0 (Kessler is a money manager, investment banker & vc/hedge fund operator who also writes books (latest titled Running Money) and articles published by Forbes, Wired, LA Times, Am Spectator, Weekly Standard & WSJ)

So what is a Media Mogul to do? They control pipes in a world of zero margin costs. It costs virtually zero to sell one more digital song, or run one more digital ad or post one more digital classified. As chips and bandwidth get cheap, digital distribution crumbles the quaint old days.

* Craigslist took the classified ad business away from newspapers by doing it better for zero marginal cost. They charge for job listings in San Francisco and NY because, well because they have some bills that need to be paid. So classifieds were are huge profit center and are now,… , are worth almost nothing.

* Music is must cheaper to distribute in digital form than truck deliveries to record stores. Copyright issues be damned, listeners preferred digital music to be carried around in devices the size of a deck of playing cards or a pack of Wrigleys Chewing gum. Morpheus, Kazaa, BearShare, LimeWire gave customers what they wanted. iTunes barely makes up for the record labels missing the beat. Music may not want to be free, but it sure wants to be distributed for free.

* Voice calls via Skype, PC to PC, are free. They single-handedly yanked down the price umbrella of overseas calls to 7 cents a minute. The telcos had to respond to free.

* Newspaper and TV journalists had a long run as the trust voice of news. Now distributed bloggers can take turns scooping professionals. It’s not only that distributed news gathering is cheaper, its the zero marginal cost of distribution. Post it to a blog, get picked up by other blogs and search engines. Bask in glory. Rinse. Repeat.

In each of these examples, because of marginal costs approaching zero, it is increasingly a better business to provide technology to millions, even billions of folks rather than try to protect the control of a pipe to a few. The right answer is to GO WIDE. It’s time to get horizontal. Newspapers should have licensed Craigslist’s (or eBay’s) technology years ago. Telcos should have embraced or emulated Skype. Drop CDs and distribute all your music (and everyone else’s) online at a price that doesn’t protect retail, but destroys it (which is happening anyway!).

The time and the tools are ripe for this GO WIDE approach. Especially on the Web, which is nothing but layers and layers of functionality.

Bill Gates

This process will be hastened, he believes, as more and more television content moves online. “Internet TV and the move to the digital approach is quite revolutionary,” he says. “TV has historically has been a broadcast medium with everybody picking from a very finite number of channels. If you want content that is a local sports thing or a hobby that you are interested in, that’s not available to you. The use of the internet to deliver those video signals and the idea of seeing what you are interested in, and having the ads targeted to you, is becoming the standard way that video is delivered. Over the course of this next decade that will be very common.”

Internet advertising, aimed at niche audiences and more creatively ambitious, will provide a way round the increasing problem for advertisers of television viewers fast-forwarding through commercial breaks in shows that they have recorded. “It will be possible to target the ads and it will be important to have ads that the consumer doesn’t skip over, incorporated in the right way.”

Om Malik’s posts – Google… the OS for Advertising and The Web Money Machine – Beyond Adwords (author of Broadbandits: Inside the $750 Billion Telecom Heist, writer for Red Herring, Business 2.0, Forbes, WSJ and now founder/executive editor for GigaOm.com)

excerpts:

Google’s core competency is to use technology in a manner that devalues and deflates4 traditional industries by extracting inefficiencies in existing processes. And the long-term strategic implications of this “Google effect” is much more disruptive than simple market realignment… rather, it’s an issue of rendering old core (human) competencies obsolete and replacing them with new ones reliant on automated, scalable technologies (much like what Wal-Mart did to retailing and what Craigslist is in the process of doing to classifieds). For instance, the only way for traditional media companies to leverage the core competencies they have today in order to compete with Google’s Ad/OS, in the long run, is to start breeding ad salespeople who will have the expertise and capability to sell across all media platforms. Sure, that’s feasible… when pigs can fly.

The media industry is in the middle of a massive change, thanks to the ubiquitous presence of broadband everywhere. Fast pipes are enabling niche networks, venture capitalists are investing in new media properties. The online video market resembles an old fashioned bubble, and companies are sprouting up like mushrooms after a fresh monsoon. All of this is predicated on one business model: advertising. Google bet $1.65 billion in chips on YouTube, betting that it can profit from this shift to online video. Their confidence is understandable: Google now accounts for 25% of all online advertising dollars.

Don't Forget the Third Annual Eat an Animal for PETA Day!

Jim — Sun, 13 Mar 2005 20:54:00 +0000

See this link for history of the celebration and details on others’ plans to celebrate.