Tuesday, March 24, 2009

Are agencies ready for digital consumers? - iMedia Connection

All About Facebook

MARCH 24, 2009

Don’t place ads—build brands.

More and more every day, the social networking giant Facebook is becoming a large part of the overall Internet experience. Company estimates state that over 175 million people have joined since its founding in 2005, and the users themselves contribute millions of pieces of content daily.

The February 2009 Facebook numbers are striking.

Each day during the month, Facebook users averaged over 3 billion minutes on the site. They updated their status 15 million times and became “fans” of a particular company, brand, product or person 3.5 million times daily.

In addition, Compete found that that US residents spent more time on Facebook than any other Website, beating out previous leader Yahoo!. However, Nielsen Online still ranks the site third behind AOL and Yahoo!.

But Facebook’s rapid user growth has not translated into advertising revenues.

The habits of social network users are one obstacle. In 2008, IDC found that 43% of social network users never clicked on ads, a dramatic difference from the 80% of other Internet users who did so at least once a year. Further, 23% of nonusers who clicked on an ad then made a purchase; only 11% of social network users who clicked on ads did the same.

If not through advertising, how can marketers leverage Facebook for their campaigns?

When marketing professionals were surveyed by TNS Media Intelligence on what objectives had the most social media potential, most said brand-building initiatives such as gaining consumer insights, building brand awareness and increasing customer loyalty.

None said increasing intent to purchase.

“If you’re going to build a community, don’t center it around your product, but rather on something deeply relevant to a particular consumer group,” said eMarketer CEO Geoff Ramsey. He also suggested keeping fans of your brand pages happy by giving them a lot of content and letting them share the love with others.

All About Facebook

MARCH 24, 2009

Don’t place ads—build brands.

More and more every day, the social networking giant Facebook is becoming a large part of the overall Internet experience. Company estimates state that over 175 million people have joined since its founding in 2005, and the users themselves contribute millions of pieces of content daily.

The February 2009 Facebook numbers are striking.

Each day during the month, Facebook users averaged over 3 billion minutes on the site. They updated their status 15 million times and became “fans” of a particular company, brand, product or person 3.5 million times daily.

In addition, Compete found that that US residents spent more time on Facebook than any other Website, beating out previous leader Yahoo!. However, Nielsen Online still ranks the site third behind AOL and Yahoo!.

But Facebook’s rapid user growth has not translated into advertising revenues.

The habits of social network users are one obstacle. In 2008, IDC found that 43% of social network users never clicked on ads, a dramatic difference from the 80% of other Internet users who did so at least once a year. Further, 23% of nonusers who clicked on an ad then made a purchase; only 11% of social network users who clicked on ads did the same.

If not through advertising, how can marketers leverage Facebook for their campaigns?

When marketing professionals were surveyed by TNS Media Intelligence on what objectives had the most social media potential, most said brand-building initiatives such as gaining consumer insights, building brand awareness and increasing customer loyalty.

None said increasing intent to purchase.

“If you’re going to build a community, don’t center it around your product, but rather on something deeply relevant to a particular consumer group,” said eMarketer CEO Geoff Ramsey. He also suggested keeping fans of your brand pages happy by giving them a lot of content and letting them share the love with others.

Sunday, March 22, 2009

Why Advertising Is Failing On The Internet

by Eric Clemons on March 22, 2009

Editor’s note: The following is a guest post by Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania. In it, he argues that the Internet shatters all forms of advertising. “The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed,” he writes. The views he expresses are his own, and we present them here to foster debate. (Obviously, we hope there is a place for advertising on the Internet since it pays our bills).

    1. There Must Be Something Other Than Advertising:

The expected drop in internet advertising revenues this year was neither unpredictable nor unpredicted, nor was it caused solely by the general recession and the decline in retail sales. Internet advertising will rapidly lose its value and its impact, for reasons that can easily be understood. Traditional advertising simply cannot be carried over to the internet, replacing full-page ads on the back of The New York Times or 30-second spots on the Super Bowl broadcast with pop-ups, banners, click-throughs on side bars. This might be a subject where considerable disagreement is possible, if indeed, pushed ads were still working in traditional media. Mostly they have failed. One newspaper after another is going out of business across the United States, and the ad revenues of traditional print media, even of highly respected magazines, is declining. The ultimate failure of broadcast media advertising is likewise becoming clear.

Pushing a message at a potential customer when it has not been requested and when the consumer is in the midst of something else on the net, will fail as a major revenue source for most internet sites. This is particularly true when the consumer knows that the sponsor of the ad has paid to have this information, which was verified by no one, thrust at him. The net will find monetization models and these will be different from the advertising models used by mass media, just as the models used by mass media were different from the monetization models of theater and sporting events before them. Indeed, there has to be some way to create websites that do other than provide free access to content, some of it proprietary, some of it licensed, and some of it stolen, and funded by advertising.

The idea that content has a price and net applications should find ways to earn a profit without providing free access to other people’s content gets explosive reactions; when virtual reality pioneer and tech guru Jaron Lanier suggested in a New York Times Op Ed that authors deserved to be paid for their content he actually received death threats. But other models are possible and several suggestions for alternative forms of monetization are offered below.

    2. Advertising will fail:

The internet is the most liberating of all mass media developed to date. It is participatory, like swapping stories around a campfire or attending a renaissance fair. It is not meant solely to push content, in one direction, to a captive audience, the way movies or traditional network television did. It provides the greatest array of entertainment and information, on any subject, with any degree of formality, on demand. And it is the best and the most trusted source of commercial product information on cost, selection, availability, and suitability, using community content, professional reviews and peer reviews.

My basic premise is that the internet is not replacing advertising but shattering it, and all the king’s horses, all the king’s men, and all the creative talent of Madison Avenue cannot put it together again. To analyze this statement we need a working definition of advertising, and I proposed the following, which is as general as I could make it:

Advertising is using sponsored commercial messages to build a brand and paying to locate these messages where they will be observed by potential customers performing other activities; these messages describe a product or service, its price or fundamental attributes, where it can be found, its explicit advantages, or the implicit benefits from its use.

It is frequently argued that the advertising industry will provide sufficient innovation to replace the loss of traditional ads on traditional mass media. Again, my basic premise rejects this, suggesting that simple commercial messages, pushed through whatever medium, in order to reach a potential customer who is in the middle of doing something else, will fail. It’s not that we no longer need information to initiate or to complete a transaction; rather, we will no longer need advertising to obtain that information. We will see the information we want, when we want it, from sources that we trust more than paid advertising. We will find out what we need to know, when we want to make a commercial transaction of any kind. The conventional wisdom is that this is exactly what paid search helps us to do, but all too often they are nothing more than a form of misdirection, as I explain further below. Instead, we will use information that we trust, obtained at the time that we want to see it.

Better targeting of ads using individual interests and individual behaviors will ensure that we do not bore or annoy as many people with each ad, but cannot address the trust issue. As for paid search, it is closer to other mechanisms that allow a website to sell access to potential customers. It works effectively as a revenue source for Google, of course. But it surely is not replicable for the average content website.

    3. Advertising will fail for three reasons:

There are three problems with advertising in any form, whether broadcast or online:

  • Consumers do not trust advertising. Dan Ariely has demonstrated that messages attributed to a commercial source have much lower credibility and much lower impact on the perception of product quality than the same message attributed to a rating service. Forrester Research has completed studies that show that advertising and company sponsored blogs are the least-trusted source of information on products and services, while recommendations from friends and online reviews from customers are the highest.
  • Consumers do not want to view advertising. Think of watching network TV news and remember that the commercials on all the major networks are as closely synchronized as possible. Why? If network executives believed we all wanted to see the ads they would be staggered, so that users could channel surf to view the ads; ads are synchronized so that users cannot channel surf to avoid the ads.
  • And mostly consumers do not need advertising. My own research suggests that consumers behave as if they get much of their information about product offerings from the internet, through independent professional rating sites like dpreview.com or community content rating services like Ratebeer.com or TripAdvisor

Yes, both network executives and their ad agencies have noted that we are not watching traditional ads, and they attribute this to the fact that we have moved beyond newspapers, televised network news, and broadcast movies, to video games, iPods, and the internet. Porting ads to a new medium will not solve the three problems noted above. The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed.

    4. Alternative models for monetization are available:

Again, my research suggests that there are three general categories for creating value that can be monetized, including selling real things, selling virtual things, and selling access. Some websites exist solely to sell real things. Many of the best-known perform aggregation of demand, so that there will be enough customers to justify stocking and selling items for which there is only limited demand. Amazon is merely the best-known example. Sites like Amazon and Zappos are especially good for long tail items … where else do you go for a copy of the Green Sea of Heaven, Elizabeth T. Gray’s magnificent translation of the Ghazals of Hafiz, or for a pair of size 20 basketball shoes? Selling real things online has been studied since the advent of interest in eCommerce and will not be discussed further here. Other websites sell virtual things. These activities fall into three categories:

  • Selling content and information, from digital music to news and information. Some of these sites are funded by subscriptions, like Gartner Research; some are by direct micropayments for purchases, like iTunes; and some currently attempt to fund themselves through advertising, like Business Week or The New York Times, while still searching for a more effective business model.
  • Selling experience and participation in a virtual community, including Second Life and World of Warcraft, Facebook and MySpace, Flickr and YouTube, or LinkedIn. Not all of these have found a way to charge for participation.
  • Selling accessories for virtual communities, like completed homes and stores, furnishings, clothing, and pets in Second Life or characters and accessories that would be difficult to earn in World of Warcraft, although this behavior is generally despised by serious World of Warcraft players.

Finally, some websites create and sell access to customers. Again, this can be divided into multiple categories.

  • Misdirection, or sending customers to web locations other than the ones for which they are searching. This is Google’s business model. Monetization of misdirection frequently takes the form of charging companies for keywords and threatening to divert their customers to a competitor if they fail to pay adequately for keywords that the customer is likely to use in searches for the companies’ products; that is, misdirection works best when it is threatened rather than actually imposed, and when companies actually do pay the fees demanded for their keywords. Misdirection most frequently takes the form of diverting customers to companies that they do not wish to find, simply because the customer’s preferred company underbid. Misdirection also includes misinformation, such as telling a customer that a hotel is sold out when, indeed it is still available, if the hotel has chosen not to pay a promotional fee, and then allowing the guest to choose an alternative property. Misdirection is, regrettably, still a popular business model on the net, although for reasons I explored in an earlier TechCrunch post on Google it seems ultimately to be unsustainable. More significantly from the perspective of this post, it is not scalable; it is not possible for every website to earn its revenue from sponsored search and ultimately at least some of them will need to find an alternative revenue model.
  • Evaluation, assessment, and validation. The opposite of sending a customer someplace other than where he wants is providing the customer enough information for him to make an informed choice on his own. Recommendations on TripAdvisor.com allow potential guests to evaluate and validate recommendations provided by Hotels.com; not surprisingly, Hotels.com originally owned TripAdvisor, and benefited greatly from it. Since Hotels.com did not attempt to influence or censor TripAdvisor content the website was (and is) trusted and helped put recommendations from Hotels.com at a level of trust comparable to those from an experienced travel agent. There are at present only a few other examples of website symbiosis like this, where community content on one site adds considerable value for another; consider also the relationship between the Beeryard’s list of new beers and Ratebeer.com, where clicking on the name of a newly arrived beer at the Beeryard will allow you to examine reviews on Ratebeer.com.
  • Social search. Social search is a way of tailoring search based on the user’s network of friends. Rather than searching for any hotel in Chicago, or for any hotel that paid for the keywords “hotel” and “Chicago” I would like to be able to ask for the hotel where my friends stay when they are in Chicago. This invades no one’s privacy, avoids the annoyance of pushing ads at me when I am not searching for something to buy, and provides more relevant results than paid search usually can deliver. There are many problems with this, including the fact that my friends may not be on Facebook or other networks yet and those that are may not post their hotel or automobile or restaurant preferences. Most seriously, while it is clear how Microsoft might benefit from this, using its Facebook connection to undercut Google sponsored search, it is not clear how Microsoft or any other firm could monetize this directly.
  • Contextual mobile ads. At present contextual mobile ads delivered by SMS appear to offer much promise. Imagine a hypothetical all-knowing information-based firm that (i) knows your location because you have registered to have the information from your in-phone GPS shared with your friends and (ii) knows that you like Thai restaurants because it monitors the content of your email and your online restaurant searches and (iii) knows that you are hungry because you just said so in a text message or Twitter post you sent from your phone. What a great time for them to text you an advertisement for a nearby Thai restaurant, sent directly to your phone. But why would you trust this? I remember when Hotels.com used to refer me to the same hotel, albeit at different prices, when I asked for a two-star or three-star hotel close to my office; I was never sure which was more amusing, the 80% price increase for the same hotel when I was willing to splurge on a three-star for my visitor, or the fact that there were comparable hotels 20 blocks closer to my office. I suspect that my hypothetical all-knowing firm will similarly be providing sponsored content; perhaps I will take a couple of additional seconds in order to find the restaurant I really want. This probably does not work as a form of advertising.

Of course no one knows yet, but if I had to guess, based on my meatspace experience, I would offer the following guesses for successfully monetizing the net in the future:

  • Selling Virtual Things: People will pay for superior, timely, original content and for superior online experiences. Presently I willingly pay for the Financial Times, The Economist, and Foreign Affairs, I value the content, and, indeed, I feel I need it; I will continue to pay for them online. Perhaps I would not be willing to pay for archive material, which I expect that I would be able to find elsewhere, but I will cheerfully pay for the newest content online. Similarly, I willingly pay the cover change for my favorite jazz clubs in New York, and expect that I would cheerfully pay to participate in Second Life or World of Warcraft if, indeed, I had any interest in those virtual experiences. I guess, ultimately, if we compete for status through our purchases of accessories, clothes and homes in meatspace we will probably continue to purchase virtual accessories in Second Life, though I can’t say I fully understand this yet.
  • Selling Access. Misdirection will fail totally and completely. I use a Mac, but I have abandoned Safari for Firefox. I have an iPhone and an iPod but I have never used the little white earbuds, preferring instead to purchase a pair of Shure E500 phones that I think sound vastly superior. Similarly, I would be equally happy to purchase a search service that worked for me, rather than accept a free one that works both against me and against the firms I patronize. In contrast, while people will continue to value community content and social search, these will be difficult to monetize. Finally, contextual mobile ads will, likewise be difficult to monetize. With information easily available, I will make my own restaurant choices, irrespective of those pushed at me via SMS, especially when I know that those pushed at me have been pushed for a fee, rather than based on an impartial assessment of my preferences. Yes, I can imagine SMS ads initially succeeding if they provide discounts, but ultimately this leads to little more than a bidding war for traffic and benefits no one other than the firm that provides the text messaging services. I can think of a few commercial SMS services that will benefit everyone, such as letting the most loyal guests of a restaurant know when it is still possible to get a reservation if they act immediately, eliminating the inefficiency of empty tables, but the restaurant will do this itself, using its email or cell phone contact lists. I don’t see this as advertising, or as being monetized by any intermediary. Of course, in an age before texting and email restaurants would have welcomed the all-knowing intermediary as the only mechanism available for communicating quickly with its most loyal customers. Now, restaurants have lists of their most loyal customers and can send out real time messages of interest. If the Blue Note were to text me on some night that I am in New York that it is still possible to get a table for two for Clark Terry, or Tria were to text me on a day when I was in Philadelphia that, surprisingly, there was no wait for an outdoor table right now, I’m sure I would respond to both. Of course there is no intermediary for this interaction, and this is more like direct communication than paid advertising.

The internet is about freedom, and I suspect that a truly free population will not be held captive and forced to watch ads. We always knew that freedom comes at a price; perhaps the price of internet freedom and the failure of ads will be paying a fair price for the content and the experience and the recommendations that we value.

An Icon That Says They’re Watching You

I have an open question for the people who complain about the potential of advertising networks to track your behavior on the Internet: What is a better way?

Some might say that all behavioral targeting should simply be banned. But if you don’t think that showing Chevy ads to people looking for cars is equivalent to poisoning the peanut butter, we need a middle ground that explains to people what’s going on and lets them decide what is acceptable.

This is much harder than it sounds: Any one Web page you visit can have a dozen advertisements and invisible bits of code that each send information about you to different companies, each with different ways of using that data. The privacy policy of the site you are looking at — not that anyone reads privacy policies — can’t even try to explain this to you, because the site owner doesn’t even know what all of its advertisers are doing.

Joseph Turow Example of an icon–the T? below the ad–to indicate the advertiser collects or uses data about the browser

I’m coming to the conclusion that each advertisement on a page has to speak for itself. That’s implicit in the approach Google is taking for its new behavioral targeting system. It puts the phrase “Ads by Google” on all its advertisements. Click that link and you’ll get some limited information about Google’s targeting system and an ability to adjust some of the interests that Google is tracking.

But Google’s approach is presented in a way that glosses over what they are doing and discourages people from reading the disclosure and exercising control, says Joseph Turow, a marketing professor at the Annenberg School for Communication of the University of Pennsylvania.

Mr. Turow has developed a plan that is simpler and more comprehensive: Put an icon on each ad that signifies that the ad collects or uses information about users. If you click the icon, you will go to what he calls a “privacy dashboard” that will let you understand exactly what information was used to choose that ad for you. And you’ll have the opportunity to edit the information or opt out of having any targeting done at all.

“I don’t think ‘Ads by Google’ is enough,’” he said. “The problem with the whole rhetoric Google is using is that it is designed to stop you from wanting to learn more and do something.”

In his mockup, Mr. Turow’s icon has a T for targeting and a question mark. I would propose a bull’s-eye or maybe some sort of creepy eyeball.

What I like about the idea of an icon is that users can learn which ads collect data without having to do anything other than surf the way they normally would. When they do get curious, you can click on the icon and learn more.

I asked Nicole Wong, the deputy general counsel of Google who looks after privacy issues, about Mr. Turow’s concept. She defended the phrase “Ads by Google” on the grounds of simplicity. Anything more risks confusing users.

“I wonder, would the user really understand what a behaviorally targeted ad is compared to a contextual ad?” she said, saying the company is open to changing the phrasing of the text of its notice.

The information that Google shows to people who click on the link on these ads is also similar to, but more limited than, what Mr. Turow proposes.

Mr. Turow’s dashboard is meant to explain exactly why you are seeing a particular ad. You will see what part of it was customized — the product, the price, the image and so on. You will also see the data used — your surfing habits, outside data vendors, inferences from your I.P. address, etc. You can click to learn more specifics about exactly where the data came from and to delete or modify the information used about you.

Tuesday, March 17, 2009

What Are CMOs Thinking?

MARCH 17, 2009

“How the heck can we…”

There are a lot of tough jobs in the current downturn, but high on the list must be chief marketing officer (CMO). A CMO’s job is to keep products moving—even in an economy where practically nothing is moving.

To find out how top marketing officers around the country are dealing with adverse economic conditions, Duke University’s Fuqua School of Business and the American Marketing Association (AMA) conducted the “CMO Survey” in February, a poll of nearly 600 US marketing executives.

What they found out could help you in your business.

To begin with, of course, none of them were very happy.

The survey found that 59% of marketers were less optimistic about the economy than they had been one quarter before. Amazingly, though, that is better than when the survey was conducted in August 2008. Then, 77% of respondents were less optimistic.

“While marketers in general remain unexcited about the economic situation, it is encouraging to at least see that pessimism is not increasing among the marketing community,” said Christine Moorman of Fuqua. “This could either indicate that marketers think the worst times are behind us, or they have simply adjusted to operating in an adverse environment.”

When the CMOs were asked about the first customer priority for the next 12 months, price dominated.

The marketers expect marketing spending to remain almost flat this year, growing by only 0.5% over the next 12 months. But where they are spending their limited marketing dollars is changing.

They anticipate a more than 7% decrease in traditional advertising and increases of about 10% in both Internet marketing and new product introductions.

CMOs are turning to new and often unproven strategies that focus on the Internet, partnerships, new markets, and new products and services to keep their companies moving forward.

Business-to-consumer marketers are making even more significant shifts to the Internet, for both product and service advertising.

“The shift is part of a broader movement to the Web and social media as key ways to reach customers,” said Ms. Moorman. “However, it also reflects marketers’ hopes for improving return on marketing investment with a cheaper and more effective set of tools.”

When the CMOs were asked to identify firms across all business sectors that excelled at marketing, Apple, Procter & Gamble and Coca-Cola topped the list. Some things don’t change.

Related research, released late last year, from the Verse Group and JupiterResearch (now folded into Forrester Research), found that 87% of US CMOs believed branding initiatives needed to be more flexible.

Not only that, 63% of them believed traditional brand positioning and advertising were losing their effectiveness. In fact, many felt traditional advertising was “broken.”

Looking ahead to this year’s marketing priorities, the CMOs ranked greater marketing accountability as most important, followed by finding a better way to manage brands across multiple platforms.

Friday, March 13, 2009

Trends and Best Practices in E-Mail Marketing

MARCH 13, 2009

Bill Nussey
President and CEO

eMarketer: What is e-mail marketing’s greatest strength?

Bill Nussey: What makes e-mail marketing unique is the ability to both broadcast and target individual personalized content at the same time. It’s also relatively inexpensive compared with other media.

eMarketer: What is its greatest weakness?

Mr. Nussey: E-mail’s greatest weakness is that some marketers use it too aggressively, and they undermine the value of e-mail for all other marketers and consumers.

Obviously, what I’m talking about is spam, selling me drugs or high school or college diplomas, or other such nonsense, and that makes an otherwise pretty good medium less valuable for everybody.

eMarketer: Do you think that consumers’ use of e-mail has changed in ways that e-mail marketers need to be cognizant of?

Mr. Nussey: Absolutely. Specifically—and there’s been studies on this—consumers are only willing to have a finite number of online e-mail offers at a given time.

“Consumers are only willing to have a finite number of online e-mail offers at a given time.”

For example, my neighbor might only be willing to have 10 or 12 e-mail newsletters, promotions or other subscriptions at any given time, and he might delete, unsubscribe or spam-button the ones that are no longer interesting to him.

A lot of marketers think of their e-mail programs in isolation, or if they do think about competition, they think about other companies like them. But truly what they’re competing for is the very limited attention that consumers and business recipients have for all e-mail, for the channel. So marketers need to be sure that they are one of those dozen or so active subscriptions that their target audience is actually paying attention to.

eMarketer: Are there other changes in the way that people communicate or use e-mail?

Mr. Nussey: Many, many. One that marketers new to e-mail marketing don’t pick up on is that when most consumers are no longer interested in a subscription, rather than unsubscribing, they hit the spam button. So there’s yet another major incentive for marketers to remain relevant, to remain engaged with their recipient base—rather than just press the blast button every week.

eMarketer: Even if I opt in, and then later on get bored with a particular retailer’s e-mail message, instead of unsubscribing, I press the spam button. If that happens enough, that could hurt the retailer’s ability to send e-mails to other customers who want to receive them, is that correct?

Mr. Nussey: Yes, and it’s very common. In fact that’s what most people do now.

eMarketer: Is there a way that an e-mail service provider can figure out how not to punish a retailer because of a certain group of people who are pressing the spam button when they should really be unsubscribing?

Mr. Nussey: Look at the activity of individual recipients on your list over the last six or 12 months, and people that are fundamentally inactive—who haven’t clicked, haven’t opened, haven’t purchased—take ’em off your list. What you really need to be concerned about is total respondents and total conversion rates, not how big your list is.

But if that’s not available to you because your boss wants the list to remain large, put up a profile page and ask people the kind of things they want to receive. Ask them the frequency they want to receive their promotions. Typically when people get frustrated and hit the unsubscribe button it’s usually because the marketer is sending too often or allowing messages to be sent from other brands that people didn’t subscribe to.

Keep the list extremely private and deal with the purposes people opted in for. That alone will pretty much keep you in the green zone for good e-mail marketing.

“Keep...in the green zone for good e-mail marketing.”

eMarketer: Are most Web retailers sending e-mails that people have opted in to receive?

Mr. Nussey: My company does a study every year, and we look at the patterns and trends in e-mail marketing for retailers. Based on our research, the vast majority—well above 90% of all online retailers of all sizes—have an e-mail capture on their Website.

Thursday, March 12, 2009

How Important Is Search to Users?

JANUARY 27, 2009

Lisa E. Phillips, Senior Analyst

The percentage of Internet users who are searching online varies by study, but its popularity is undeniable. According to the TNS “Digital World, Digital Life” report, 81% of Internet users worldwide used search engines in 2008—which raises the question, what are the other 19% doing?

In the US, 89% of all Internet users searched in April–May 2008. However, the Pew Internet & American Life Project found usage actually varied by access technology and location. Fewer dial-up users conducted searches than did people with a broadband connection at home, at 80% versus 94%. Internet users at home and at work used search in the same proportions—95% of each group.

Interestingly, the USC Annenberg School Center for the Digital Future found that 21% of respondents used a search engine as their homepage in 2007—more than double the response in 2005. Internet portals such as Yahoo!, AOL and MSN declined in popularity as homepages between the two years.

Another indication that search is a necessary function for many Internet users is their willingness to pay for the privilege of using a Website. In October 2008, Rubicon Consulting polled 3,036 Internet users over the age of 12 about which sites they would pay to use if the fee were a nominal $2 per month. More than one-half (52%) said they would pay to use Google, with Yahoo! a distant second at 22% of respondents. Access to social media sites—YouTube, Wikipedia and Facebook—was considered more imperative than to retail, auction and classified sites such as Amazon, eBay and craigslist.

A Billion Internet Users, and Counting

FEBRUARY 17, 2009

Growing and growing and growing and...

The moment when the Internet passed 1 million users is veiled in history.

The truth is, whenever it happened, no one was counting—or even had the means to do so. But according to the “Internet Growth Survey” from MIT, there were 1 million hosts (defined as either a computer or IP address) in 1995.

At the time, it was estimated that the Internet was doubling in size every year, so there would be over 1 billion users in 2005.

That timeline proved overly optimistic. But according to the comScore World Metrix audience measurement service, the Internet surpassed 1 billion visitors in December 2008.

“Surpassing 1 billion global users is a significant landmark in the history of the Internet,” said Magid Abraham, comScore CEO, in a statement. “It is a monument to the increasingly unified global community in which we live and reminds us that the world truly is becoming more flat.”

comScore got to a billion users without counting access from Internet cafes, mobile phones or PDAs.

By contrast, eMarketer employs a slightly broader audience definition—access by anyone of any age from any location—to estimate that there were 1.172 billion Internet users worldwide in 2008.

Either way you count, one thing few prognosticators foresaw in 1995 was that the US would have only the second-largest online population when the Internet hit the billion-user mark. China ranks No. 1.

The Web still has plenty of room to grow.

“China has taken the lead in the number of Internet users worldwide, and today only about 20% of its residents are online,” said Lisa E. Phillips, eMarketer senior analyst. “While China will continue to lead the world in Internet users, look for India to eventually overtake the US, Japan and Germany.”

While Internet usage is close to saturation in the US, Japan and Germany, India’s Internet population lags behind its status as the second-most-populous nation on earth. “But eventually India’s Internet population will grow large enough to overtake those smaller countries that are now in the top spots,” Ms. Phillips continued.

“The second billion will be online before we know it,” said Mr. Abraham, “and the third billion will arrive even faster than that.”

Shifting Media Dollars from TV to Digital

FEBRUARY 20, 2009

Beverly Thorne, Senior Vice President, Marketing, Century 21 Real Estate LLC

In a category caught in the middle of the economic crisis, Century 21 earlier this year announced it would pull all national TV advertising and redirect its focus to the Web.

Beverly Thorne leads strategic development and program execution for consumer, broker and agent marketing programs for the real estate company and its 8,500 franchisees. She manages all direct marketing, national advertising, interactive marketing and technology, agent and broker marketing, and targeted market and partner promotions. Ms. Thorne spoke with eMarketer about her strategy.

eMarketer: You made the decision to shift most of the company’s media budget from offline/traditional media—national TV, print, radio—into digital media and marketing efforts. What was the rationale behind this decision?

Beverly Thorne: We are clearly using some offline media, but we made that move because as we looked at the new year, we focused on making our investments in those media that have the greatest relevancy to our target audience and the greatest return on our investment.

Our own empirical results showed us that our online investments were performing substantively better at generating leads. We have a clear obligation to our franchisees to stimulate clear and tangible leads, not just positive preference.

eMarketer: How did you figure that online media gave the company the best results in terms of the lead generation?

Ms. Thorne: Well, we used both internal metrics and tools and external third-party measures. We made media investments in 2008, and each week and each month we measured what came from them in terms of leads generated. The most important metric we have is an internal proprietary tool which tells us what kind of leads are being generated.

We did classic display advertising, some online partnerships that are typical for a real estate company—that is, partnerships with Websites for displaying our property listings—like Yahoo!. We make our property listings available to them, and to varying degrees we enhanced those or modified those, represented them differently and at different investment levels.

As we looked at each of those campaigns or programs, we measured the number of leads that we got from them and the ultimate cost per lead. Of course we made some investments where we didn’t get a lead back.

eMarketer: Can you share the ultimate cost per lead?

Ms. Thorne: I cannot, but I will tell you this: From December 2007 to December 2008, we improved the efficiency of our lead generation by reducing our cost per lead over 60%. At the same time, we multiplied our number of leads by over 235%.

Searching for New Customers in the Recession?

FEBRUARY 25, 2009

Hiding in plain sight

It makes sense when you think about it. As tough times force many customers to buy less—and to be pickier about what they do buy—search is becoming ever more important to marketers.

“The recession is driving marketers to concentrate on gaining new business, even more than on customer retention objectives,” says David Hallerman, eMarketer senior analyst and author of the new report, Search Marketing Trends: Back to Basics. “Search is the ultimate online acquisition tool, and therefore is positioned to do relatively well in this economy.”

The four basic search options are paid search, contextual advertising, paid inclusion—all three are types of advertising—and search engine optimization (SEO).

All four options will experience increased spending through 2013. By then eMarketer estimates total US search marketing outlays will surpass $23 billion.

“While paid search traditionally has gotten most of the attention and money,” says Mr. Hallerman, “as they seek to acquire new customers, marketers are increasingly turning to SEO.”

There are key differences between paid search and SEO.

“Paid search’s effects are immediate, but marketers need to spend consistently for sponsored-link ads to appear in search queries,” says Mr. Hallerman. “SEO takes time, and marketers need to constantly maintain their Websites to sustain high organic results.”

As marketers better understand the purpose of Website optimization in their overall campaigns, compared with the other three types of search marketing, SEO spending will grow at a higher yearly rate.

“Customers are going to search engines because they are looking for better deals,” says Mr. Hallerman. “And marketers are going to search engines because that’s where the customers are.”

The Latest Ad Click Count

MARCH 11, 2009

Do your click-throughs measure up?

It may not be what you want to hear, but over the course of the year click-through rates vary.

According to a study of more than 10 billion banner inquiries across Europe from ADTECH (not to be confused with ad:tech), the average click-through rate fluctuates between 0.11% and 0.19%. Apparently, users click on display ads more frequently toward the end of the year, during the major online shopping period. The rate then restabilizes in January at 0.12%.

Since 2004, the average click-through rate has fallen, however, from around 0.3%.

In 2006, ABI Research reported that the average click-through rate for an online banner ad was 0.2%, indicating that the decline has been steady.

An average, though, is only an average.

Across Europe click-through rates vary significantly. Users in France are at the high end with an average click rate of 0.18%, and UK users are at 0.13%. At 0.10%, the German click rate is in the middle of the European range. Scandinavian Web users are more “click cautious,” with average rates of 0.04% for Sweden, 0.05% for Finland and 0.06% for Norway.

ADTECH found that the size of the ad also affects the click rate. Not surprisingly, bigger is better.

A glance up at the chart reveals that the majority of clicks in the display field go to pop-ups, layers and the half-size format (234x60), with an average of 0.5% each. Video ads performed even better at an average 1.7% click rate.

Obviously, video ads greatly increase click-through rates, but compared with banner ads they are more expensive to both place and produce, and as their novelty wears off their rates may decline, too.

Online Coupons Clipping Along

MARCH 12, 2009

Don’t clip—click!

With the recession in full swing, US retail shoppers are looking for ways to save, and are finding deals through online coupons.

Not surprisingly, retailers are finding online coupons effective for bringing customers to their stores.

According to coupon processor Inmar, 13% of online coupons were redeemed in 2008, versus only a 1% redemption rate for print coupons.

Online coupons are growing at a furious pace, too, posting a 140% growth rate over 2007’s previous high. Unfortunately, online coupons represent only 1% of the 2.6 billion coupons offered annually in the US.

comScore data showed that most consumers still get their coupons from paper sources, such as Sunday papers, receipts or in a store. Less than 30% of consumers claimed to go online to find coupons.

What are some best practices for merchants looking to ride the momentum of online couponing?

“First, transparency,” said Coupons.com CEO Steve Boal. “Tell the consumer what they’re getting. Don’t hide the coupon behind a scheme.”

“From a coupon point of view, the most important best practice on the Internet is to treat everybody the same,” added Mr. Boal. “Give all consumers the same value and coupon, except where geography makes a difference. Don’t give different coupons to different people based on things like behavior or demographic data.”

Mr. Boal did recommend changing the message for different audiences, however. In couponing, as almost everywhere else in marketing, targeting matters.

Monday, March 9, 2009

Metrics Key for Winning in the Downturn

FEBRUARY 27, 2009

“Slash it!”

With the economy struggling and budgets being reduced, US marketers are focusing on quantifiable tactics to get their messages across.

iMedia found that the majority of marketers were dedicating their firms to measurable, ROI-driven strategies. While some were keeping plans the same, even fewer were abandoning new marketing initiatives.

“With the current economic recession, digital marketing professionals are holding out hope that some of the budget dollars originally slated for traditional marketing will move into the cheaper, more measurable digital medium,” wrote iMedia analysts.

What is preventing marketing executives from moving more funding into the online space?

Respondents to the survey said that dependence on traditional measures, corporate culture, departmental inertia or fear and a lack of metrics were the largest roadblocks to further allocation.

Direct mail Trends

Lickety split.

Consumers may call it junk mail, but for over half a century marketers considered direct mail to be the “old reliable.”

Now, for the first time since direct mail began to be tracked in 1945, figures show that both direct mail spending and volume declined sharply in 2008.

According to “A Channel in Transformation: Vertical Market Trends in Direct Mail 2009,” from the Winterberry Group, US direct mail spending fell nearly 3% last year.

Spending dropped from $58.4 billion in 2007 to $56.7 billion in 2008.

Worse, Winterberry projects that direct mail spending will fall another 8% to 9% this year.

Mintel Comperemedia found that the volume of direct mail among the leading vertical industries fell an average of 12.1% in 2008.

“Direct mail volumes declined dramatically—even more precipitously than the falloff in spending, in fact—as mailers sought to integrate more precise targeting methodologies, production efficiencies and other value focused initiatives in an attempt to cut costs and preserve the economic return of their mail programs,” Winterberry analysts wrote in the report. “Direct mail has seen its influence as a high-volume, mass-oriented response driver all but vanish.”

The crisis in the financial services industry—a sector that mails on a mammoth scale—helped fuel the decline. Other reasons for the drop were rising costs in postage, labor and production.

Consumers’ ever-growing involvement in digital media was a factor, too.

In a Winterberry survey of service providers, 87% said they were seeing higher demand for digital products such as e-mail and search.

Nevertheless, direct mail still accounts for over $50 billion in US spending and, this dip aside, remains a viable industry. However, in the place of many old tried-and-true tactics, a wide variety of new mail applications are now beginning to emerge.

In the face of challenging conditions, mailers are shifting to lower-volume, more targeted and higher-value campaigns, and saturation mailings—call them “batch-blast,” “spray-and-pray” and “junk” mail—may soon be relics of the past.

Thursday, March 5, 2009

US Search Market Share Stabilizing

MARCH 5, 2009

Has Google really stopped growing?

According to Compete, Google lost a small percentage of the overall share of online searches in the US. The loss was absorbed by Yahoo!, Ask.com and AOL, all of which grew slightly.

For the past six months, Google’s search share has remained at 70%.

comScore data shows a similar trend. While the firm sees a different overall share of the search market, the top sites’ shares have remained mostly unchanged over the past six months.

Barring a merger, the US search market is not expected to change for the foreseeable future.

What does that mean for the search market, and marketers?

“That Google’s share of total US search queries seems to be stabilizing in the 60% to 70% range—depending on the source—seems like a bigger roadblock to growth than it is,” said David Hallerman, senior analyst at eMarketer.

“First off, query count alone only partially contributes to search engine revenues. More important is the engine’s ability to place relevant sponsored-link ads in search results—and Google is still the champ at that game.

“Secondly, the growth of total search queries is astounding. By some estimates, US Internet users will enter 21 billion more queries in 2010 than this year. So there are still increasing opportunities to monetize search results.”

Mr. Hallerman continued, “From the marketer’s point of view, however, stabilized search share growth is likely a good thing. The more that Google has healthy competition from Yahoo!, MSN and Ask.com—to name just three—the more that marketers have options in creating viable search campaigns.”

eMarketer Revises E-Commerce Forecast

MARCH 5, 2009

Jeffrey Grau, Senior Analyst

Online retail e-commerce will sink before it soars again.

eMarketer is now forecasting that US retail e-commerce sales (excluding travel) will contract by 0.4% in 2009, falling to $133 billion.

But—and here is the good news—as the economy improves, online sales will return to the double-digit growth rates seen prior to 2008.

Growth will come from online buyers who shift a greater share of their discretionary spending from stores to the Web. Pent-up consumer demand, especially among affluent online shoppers, will provide an additional sales boost.

By 2012, e-commerce sales growth will begin to decline—resuming another trend seen prior to 2008. This will be due to the inevitable maturation of the e-commerce sales channel, as growth in new online buyers approaches saturation.

All told, from 2008 to 2013 retail e-commerce sales will increase at a 9% compound annual growth rate (CAGR).

eMarketer benchmarks against the US Department of Commerce (DOC) when forecasting e-commerce sales. The DOC estimated online sales rose 4.6% in 2008, reaching $133.6 billion.

But most of this increase came in the first half of the year. After year-over-year growth rates of 13.3% in Q1 and 8.7% in Q2, sales grew only 4.6% in Q3 before plummeting nearly 5% in the important Q4 holiday season.

Wednesday, March 4, 2009

Podcasting Goes Mainstream

MARCH 4, 2009

The pods have arrived.

Podcasting was born of the collision between social media and the iPod. Or, as Wired described it in a March 2005 article, “the bastard offspring of the blog and the Apple MP3 player.”

Back then podcasting was the domain of a few tech aficionados who saw it as a cheap and easy outlet to broadcast their views. All they needed was a microphone, some off-the-shelf software, and an installed base of iPod owners and Web surfers.

But things have changed.

“Today, the vast majority of the top-rated podcasts come from recognizable media entities that are using podcasts to expand their existing radio, TV, cable or satellite audiences,” says Paul Verna, eMarketer senior analyst and author of the new report, Podcasting: Into the Mainstream.

The podcast audience has grown, too, and eMarketer projects that growth will continue at least through 2013, when there will be 37.6 million people downloading podcasts on a monthly basis, more than double the 2008 figure of 17.4 million.

As a percentage of Internet users, podcast downloaders will grow from 9% in 2008 to 17% in 2013.

US online buyers who purchase mostly online showed an even greater propensity to listen to podcasts. Some 50% of mostly online buyers in a PriceGrabber.com survey said they listened to podcasts—a far greater number than comparable percentages of Internet users or consumers as a whole.

As for who is doing the downloading, a Pew Internet & American Life Project demographic profile of US adult Internet users who downloaded podcasts showed that they skewed male and young. The group ages 18 to 29 had the highest representation of podcast downloaders. Rates of podcast downloading steadily decreased for older age groups.

“The popularity of podcasts has created an environment in which increasing numbers of media companies are repurposing content from their radio or TV broadcasts as podcasts, and audiences have responded favorably,” says Mr. Verna. “This shift has resulted in the evolution of podcasting from a long-tail medium to a Web 2.0 extension of popular, traditional media.”

Tuesday, March 3, 2009

Schmidt: Economy 'Pretty Dire', Google 'Not Immune' (GOOG)

Google (GOOG) CEO Eric Schmidt's gloomy comments on the economy aren't helping Google stock, which is down 3.2% after-hours. During a fireside chat with Mary Meeker at Morgan Stanley's tech conference, Schmidt said:
  • The ecomomic situation is "pretty dire."
  • Combination of everything "does not appear to have a current bottom."
  • "Obviously will affect online advertising market."
  • "Will eventually be reflected in CPCs and CPMs."
  • "We are not immune."
  • Google "better positioned," but ultimately, "the sort of real pain that is being felt by corporations worldwide will translate to our world."

Is this particularly surprising? No. But it's a sign that the worst is perhaps still to come, especially for Google.

Schmidt also said some interesting things about Twitter, calling it a "poor man's email system." And Google's "inactive" M&A game. And a few other topics, like display ads, which we'll break out into a separate post.

Live notes:

4:05 Music winding down.

4:06 Psych! More music. This might be one of those lunch presentations that starts a little later than its scheduled time. Will keep updating every few minutes until it starts.

4:07 Just heard a voice through the music. Perhaps starting soon?

4:09 At any rate, Google engineering VP Vic Gundotra was just on a panel about the mobile Internet. Pretty standard non-news type of panel, but lots of praise for Webkit. My live notes are here.

4:09 Starting! Going through standard disclaimer stuff.

4:10 Moved the schedule back 10 minutes. Eric has been in the building for 15!

4:11 Meeker: A lot of chatter that the search market has settled and done. What's your view? Obviously a lot of innovation ahead of us. Bug where we put a malware statement out for users, and in that time, Yahoo searches gained very quickly. Looks like people will move from one search engine to another for variety of reasons. Of course Microsoft is working hard to build a competitive search engine, and has recently leaked some details. Some new entrants trying to mix search with other things.

4:12 People said that about search 10 years ago, with a different company.

4:12 You worked with Sun w/ networked computer. Netbooks? This is all part of cloud computing. Whatever term you want to use. Let's use cloud computing. One of those changes that's going to happen whether people in ecosystem allow it or not. Rather than buying a piece of software for a client, javascript and ajax code comes to your browser. But it's a fact that we live on very high performance wireless broadband networks. To me, the more interesting question is: What can you do that you couldn't do before with cloud computing? IT systems are so slow at the rate at which they evolve. So stuck in systems, architecture, etc that they built. Opportunity to build whole new set of apps that cycle faster with IT.

4:14 Netbooks are the next generation of the small device that OLPC was trying to talk about. Particularly interesting is price point. Eventually it will make sense for operators to subsidize. Can make services and advertising revenue; today's aren't completely done; Linux could be big.

4:14 Search, financials, etc questions coming over. On search side, economy question. Query growth remained strong for a while, our data indicates still there. CPC has been declinng, was negative in last quarter Any trends you can update on how you play through a more difficult economic environment?

4:15 Economic situation pretty dire. Combination of what we've seen does not appear to have a bottom. People are using the Internet more. Obviously will affect online ad market because our systems are so tightly tuned. It will eventually be reflected in CPC, CPM. We are not immune to this. We may be better positioned from ad perspective, but ultimately the real pain felt by companies worldwide will sometime translate to our world.

4:17 Any data points positive? Every data point we have is obvious. Queries shifted from morgages to mortgage help to foreclosure help. Things you see on TV are really true. Areas most hit on online world are same in offine world: Travel, automobiles, financials, etc. Consumers are smart because they use the internet to look for discount trips, etc. From our perspective, aside from our perspective, running the businesses much more tightly, haven't fundamentally changed our strategic view. Trying to make profits from businesses we weren't trying to before.

4:18 Taken a position that the person should be the search. Your viewpoint, history, etc. (With your permission.)

4:19 We like to generate cash. A good metric in any situation is if you can grow profits in absolute basis, you're going to get through this. Patrick (CFO) is particularly good at doing business reviews. Going through systematically. During hypergrowth period, didn't have budgeting and esitmation systems in place we do now. Google managenent spends lots of time doing business reviews now. A lot of that coming. When we get past fear, advertisers understand notion of guaranteed sale.

4:20 What were learnings from P&G swap? Have been able to translate? CPG trying to figure out how to use the Internet. Many don't understand how to market inside online communities. Put people in their buildings, we put them in ours. We changed the way we market to consumer goods companies by talking to them not so much on traditional text queries, but how you can use targeted online ads within blogging communities, Facebook, those sorts of groups.

4:22 Consumers spend a lot of time online before they make purchase. Tend to join affinity groups. Diapers being obvious example.

4:22 Going to do employee swap with other companies. I don't want to talk about specifics, that's their data. But we like that model. Direct contact helps effect change.

4:24 Online continues to gain share. Worth trying to figure out when this will occur. Everyone sort of assuming that 2009 is tough year. What can we do now? Sales force goes in and says you need revenue now, here's how. Many people stuck with contracts with offline channels. Increasing willingness to try new systems in enterprise. We have a set of enterprise offerings and have been pleased with willingness for customers to now accelerate trials.

4:25 What does 2010 look like? Depends on what growth rate of recovery is going to look like.

4:25 Let's talk about music videos. You haven't monetized it yet. Selling music via Amazon and iTunes with some of most-used videos. How do you see both artists using that venue over next 1-2 years as they're dealing with their own contracts, and how do you see monetization of YouTube playing out?

4:26 YouTube is slowly getting monetization right. Taking us much longer than we had hoped. Always been concerned that aggreg monetization of online is not going to replace offline. Potential conundrum for video and movie industries. Music industry has this problem: In 1980s, self view was that they helped create MTV by giving them licenses to music videos "too cheaply." How do you compensate music industry for things that are promotional? Apple successfully has worked that out with iTunes. Very positive example. We need an analogous example of how music videos will work on the Internet. YouTube good with music videos, sports, humor. Working on longer form content and HD. If we can make even a small amount of profit, because of scale, can add up quickly.

4:28 Financial results for media companies is not good. Trajectory that local and broadcast TV is on is similar. Is it possible that group of players who have been standoff to YouTube may change their view given that economic situation is different? We understand their problem, critically dependent on them for professionally produced narrative. My view is you asked question in the wrong order. Right view is: What does future look like? And how do you adapt? Fact of the matter is that mobile devices is going to be majority of how people get information. Mobile power will keep increasing.

4:30 Highly personal, location, etc. Don't know how it'll be monetized. But products are getting built. Challenge and opportunities is to make money. But you won't get there by suing your users or by preventing that technology from happening. It's going to happen.

4:31 Mobile clearly will pass computer. Depends on growth rate of data capable mobile devices. Monetization of ads should be higher because better targeting. When you have powerful browser like iPhone, BlackBerry, Android -- people spend many more searches when they finally have a capable browser. So: What's new in technology sense? And development of new, open-source browser really creates new. How long does it take? A few years, but not a few decades.

4:33 Some of Android devices will look like phones; some not like phones. I think people in the room understand how platform businesses work; it's all about momentum.

4:34 Carriers are looking for new sources of data revenue. Some of carriers subsidizing other devices (like netbooks). Another new thing that will serve as accelerant.

4:35 With Japan, now partnerships with 2 of 3 mobile providers. Monetization is excellent. When you get it right, with right ad product and right search product on device, know that as a proof point. Now intending to replicate those sorts of deals. Obvious prize will be China. That's sort of the next really, really big one.

4:36 M&A pretty inactive right now.

4:37 Stimulus program? I have a very long and strong answer. In the interest of time: We benefit when our customers have jobs, that they buy stuff. Any solution that gets the middle class to feel more confident benefits Google, our advertising revenue, our customers and shareholders. Can debate the specifics. No one's ever done it before at this scale. With respect to how Google benefits beyond that; has $20 billion of payment subsidies and credits to build out more broadband. Also $20 billion in science funding, which will help lag with some new applications.

4:38 Always a danger when you have a Website that you temporarily overmonetize. Works for a quarter or two, then customers say heck, that's an ad page, and they move somewhere else. Google at "coverage level" of about a year ago. Within a range of what we've historically done. Social networking has a lot of pageviews, but don't monetize as well as text search. Where is next source of revenue? Next source is current business functioning better. Next and adjacent is a set of display businesses and an exchange being built from DoubleClick business. Display not uniform; Balkanized. By hand or poor quality spreadsheets in many cases; think we can work Google magic on that.

4:41 Thoughts on Twitter; evolves as real-time search engine, and haven't really responded there. How do you foresee that as a potential threat to Google? In favor of all these potential communication features. Just set up Google account on Twitter. Got character count wrong! 140, not 160! Poor man's email systems. They have aspects of an email system but don't have full offering. Do they fundamentally evolve as sort of a note phenomenon, or storage, identity, etc. Or do email systems evolve? In Google's case, we have a very successful IM product. Twitter's success is wonderful, shows you there are many ways to communicate, especially if you can do so publicly.

4:43 US likely to have quicker descent, quicker recovery. Also believe India and China effected, but to a lesser degree. What does it do for long-term capital structure of these economices? Talking about Japan's recession. Americans love their credit cards -- basically have to solve the credit problem, get jobs stable, housing crisis. When those things are done, reasonable bet that Americans will go back to what we do best, which is to spend money.

4:46 Confident that we're going to see some good things come out of it. American story is innovation. Etc.

4:48 What are 3 things that need to get done to get display to become part of business? First problem if you have a display property, multiple vendors building ad exchange. Heuristics are terrible. Standardization of ad formats. Need more. Especially around interactive and video ads. Future is an ad that brings you in, tells narrative. Best ads add real value. Video, story, narrative, etc. Third is construction of business relationship with large advertisers, which we're still working on.

4:50 If two competitors merge, how do you see potential impact if MSFT and YHOO come together? I don't know if that scenario will occur. We did best attempt to do deal with YHOO. Carol is a fine and able CEO. What do I really think will happen? The problem has to do with Microsoft's ability to use its Windows monopoly to restrict consumer choice. Anything MSFT will do are of concern. That's what we worry about. As long as technologies are competing on fair basis, that's great.

Niche Web Sites Buck Media Struggles


While many media businesses are stalling, a small group of online publishers appears to be bucking the trend.

Several start-up Web sites such as SB Nation, Seeking Alpha Ltd. and HealthCentral Network Inc., which create and aggregate content about topics like sports, business and health, are recording sharp gains in visitors and -- in many cases -- revenue. They are outpacing other sites on similar topics through business models that allow them to create niche content with little financial investment. Many also are landing distribution partnerships with big media brands eager for cheap content during the recession.

[Niche Web Sites Buck Media Struggles] Yahoo

Yahoo Music's homepage on Sunday featured this story from Musictoob, a start-up that serves up juicy tidbits from the music scene.

The number of visitors to sports Web site SB Nation, for instance, rose 15% from December to a total of 3.4 million in January, according to the company, even as unique visitors to the category of sports sites tracked by comScore Inc. fell 2%. (ComScore says SB Nation -- which is owned by SportsBlogs Inc. -- doesn't reach its public reporting thresholds.) SB Nation launched a partnership with Yahoo Inc.'s Yahoo Sports last week and has signed another deal with Gannett Co.'s USA Today.

The site is trying to offer content that larger sports destinations don't often generate on their own, such as team-specific blogs like "Gang Green Nation," dedicated to the New York Jets. SB Nation recruits the authors and pays them based in part on the popularity of their posts. It is a business model that SB Nation believes can keep its site afloat with less advertising than is required by traditional media companies, Chief Executive Jim Bankoff says.

"This model only works if you have a cost structure to enable it to work," he says. Mr. Bankoff says revenue is rising 25% a month, off a small base. He declined to disclose underlying numbers.

The small publishers face some serious challenges, including intense competition for eyeballs and advertisers. Moreover, the Web is flooded with niche-content sites, relatively few of which are likely to become profitable businesses.

But this new model of targeted content that can be assembled cheaply could become popular as advertising growth slows and consumers spend more time across multiple sites. "Consumer engagement is shifting toward niche-content experiences," says Andrew Braccia, a partner at venture-capital firm Accel Partners who sits on the board of SB Nation. "Three to five years from now, people will no longer be drawing a distinction between traditional forms of publishing and what we know as blogs today."

Some advertisers are buying in. The New England Sports Network, a regional cable network that doesn't advertise on large online sports portals, began buying ads on SB Nation's Boston Celtics blog in January to reach New England sports fans. "We're looking for the best targeted experience that we can get," says Michael Hall, director of new media for the company. He declined to say how much the company is spending on the ads.

Big media companies are paying closer attention, too. In February, Yahoo Music struck a deal with Musictoob, a start-up gossip Web site that launched at the start of the year and serves up juicy tidbits from the music scene.

The site, which boasts the slogan "The majesty of rock. The tragedy of roll," only started paying its two editors on Friday. The deal, which gives Yahoo content in exchange for traffic, came together in a matter of weeks, according to both parties.

Michael Spiegelman, head of Yahoo Music, says Musictoob's content filled a void in Yahoo Music's coverage. "We didn't have anyone really covering music gossip," he says. On Friday, Yahoo Music featured on its homepage a Musictoob post about pop star Lily Allen dressing in a duck costume.

Media companies are also more willing to experiment with different types of online brands. Hearst Corp. announced a partnership last week with Helium, an online writing site that fosters freelance journalism. The partnership will let Helium writers contribute in an as-yet-to-be-determined role to Hearst newspapers. Lincoln Millstein, senior vice president for digital media for Hearst Newspapers, says the company is looking to bolster its local-content offerings.

"Helium plays in a niche that I don't really see that's out there," Mr. Millstein says. "It's intriguing enough where we can experiment with it."

Hearst is syndicating its targeted offerings, too. The Daily Green, Hearst's two-year-old online environmental brand, is now on Yahoo Green. Erin Carlson, director of Yahoo Green, says Yahoo looks to the Hearst site to cover specific green areas where Yahoo is absent, such as an environmental post regarding autos. In the first week into the partnership, Hearst saw nearly 40,000 referrals to TheDailyGreen.com from Yahoo, according to Hearst internal figures.

Some companies are trying to take the cheap niche model to the extreme. Whiskey Media, founded by the entrepreneur who co-founded CNET Networks, Shelby Bonnie, has built several sites, including videogame fan site Giant Bomb, on a single technology platform built by four developers. Giant Bomb hired two interns to fill out a database of videogame titles; much of the rest of the content, including game guides and images, has been submitted by users. Visits to the property have quadrupled since July to more than 80,000 a day, according to internal company metrics.