Keyword searches are the hot commodity in Internet advertising. Advertisers bid to be placed next to the words they consider linked to their product. Contextual advertising has come up to supplement and rival keyword placement. As defined by Webopedia, “if the user is viewing a site about sports, and the site uses contextual advertising, the user might see ads for sports-related companies, such as memorabilia dealers or ticket sellers.” The next, but not entirely new, frontier is behavioral targeting. I think it’s still being tested by large publishers and not yet broadly dispersed to small publishers as are keyword and context. But presumably they are coming and so today I’ll give a précis of what the behavior buzz is all about. First, the definitions. Behavioral advertising vendors target ads based on the publisher’s knowledge about the page viewer’s demographics — age, gender, etcetera presumably gleaned from registration data — and habits while on the site — what type of content they view on the site. It strikes me as a ménage a trios of demographics, data mining and advertising placement. I was alerted to the behavioral phenomenon by relatively recent articles in MarketingVox and ClickZ that referenced a behavioral targeting program by Tacoda Systems. A cursory search turned up a CNet article that said, “Tacoda is not the only company jockeying for attention in the market. Companies including Revenue Science, 24/7 Media, Advertising.com and aQuantive are all selling similar behaviorally targeted advertising.”
I make no competitive assessment of these players, or any others that may exist unbeknownst to me. I’m just trying to get my mind around the phenomenon. A related article by CNet reporter Stefanie Olsen, also inspired by the Tacoda buzz, reminds us that behavioral targeting was initially tried during the dot.com era, and aroused complaints of invasion of privacy as well as doubts about its effectiveness. Olsen quotes Richard Smith, an Internet privacy and security consultant: “During the Internet bubble, hundreds of millions of dollars were wasted on the holy grail of profiling as a method to make more money off of Internet advertising. No one could make it work then, and I don’t think it will be any different this time around.” The CNet piece is about a year old. Only time will tell whether Smith’s doubts on privacy, efficacy, or both, will be borne out this time around. A recent article in WebProNews makes clear that it’s still early days for this niche: “Behavioral marketing, despite its five year lifespan, had really just gotten off the ground in terms of product evolution Meanwhile, contextual advertisers like Kanoodle continue to expand their reach and programs, while those on the buy side of the advertising equation wonder whether — or under what circumstances — buying context is cost effective. A March 10 article in ClickZ said: “We’ve seen a shift in perception and performance. We were bullish on the idea originally, but disappointed with the results out of the gates,” said Ron Belanger, VP of search marketing at Carat Interactive. “We expected traditional search conversion rates, but what we got was much lower.” The article goes on to say that Belanger plans to continue using contextual ads to create awareness, support product launches or branding campaigns, but “suggests avoiding the technique for newer campaigns or keywords that are ultra-competitive.”

Tom Abate
MiniMediaGuy
Cause if you ain’t Mass Media, you’re MiniMedia

Today I will excerpt some business chestnuts from a report sponsored by the Media Center. My focus will be on the limits of advertising driven business models. This is just a slice taken from a report about the nature of the media transformation underway. I encourage you to download a pdf or view the html version.

Several comments in the chapter entitled economics and investment smacked me upside the head: “If a business plan is based on an advertising model, the recent hype over Internet advertising growth must be tempered by the realization that only a few large Web sites generate a majority of the advertising and that the growth is limited to only a few formats, such as keyword searched … The top 50 websites generate 96 percent of all Internet advertising spending, leaving little room for the remaining hundreds of online companies.”

That realization follows this fact: “New media, such as the Internet, command less than five percent of total advertising.”

So while Internet advertising is growing far faster than competing media, it is a big leap off a small base. And past history suggests that the growth may be concentrated in a few outlets — the Googles, the Yahoos, the Kanoodles, the Feedburners and other RSS aggregators. How, when and whether meaningful cash will make its way to the Mini Media folks furnishing new content, as I lamented yesterday, is as yet unknown.

A couple of other thoughts caught my eye. Consumers continue to spend an increasing amount of disposable income on media. There is a chart (find it by searching “disposable income” in the html version) that shows we now spend above two percent of disposable income on media, up from just above one percent 30 years ago. But this spending includes home video, satellite, cable TV subscriptions, video games and other hardware or delivery systems. Again the money seems to support the distribution pipe. Content is the slurry that runs through the pipe, and as the report notes, there is “consumer hesitancy to pay for new media content.”

Not to end on a down note, the report cites “specialty media and marketing services” as one of the promising new media business opportunities. No examples are offered to clarify what falls into the category, but I infer it means things like dating services, where the content and the connection between people — whether it’s a date or a sale — is the business. According to the report: “Anecdotal evidence suggests that those companies first to the market survive, second to market struggle, while all others fail.” The positive spin is that new media entrepreneurs who follow their passions and develop some new niche may live long and prosper.

Tom Abate
MiniMediaGuy
Cause if you ain’t Mass Media, you’re Mini Media

I’ve given a lot of thought to what types of new media ventures may be supportable by traditional venture capital and have come to conclude that advertising plays are the best bet. Editorially-driven startups, on the other hand, may have to rely on angel investors — or haul themselves up by their bootstraps.

Venture investors want deals that grow large and fast, so that an investment of $5 million would, in about five years, spawn a company with sales on the order of $30 million, good gross margins, a defensible market position, and the prospect of going public or being acquired.

The example of Advertising.com shows how businesses that follow the money can achieve these high-growth prospects. Advertising.com was incorporated in Maryland in 1998 by former Proctor & Gamble executive Scott Ferber who teamed up with his brother, a technologist, to create a system to place and track Internet ads. From what I can glean from the prospectus the company filed in April 2004, it was an arbitrage play. It bought ad space at wholesale rates, placed ads on well-trafficked sites, and made money on the spread between what it cost to nail down the placement and what it was paid by the advertiser. Revenues grew rapidly to $132 million in five years. After backing out the $90 million it paid to buy the ad space, that still left a $42 million gross profit (before expenses) and a $12 million net profit in year five. AOL acquired Advertising.com in June of 2004 for about $425 million.

Contrast that with the editorially driven online magazine Salon, which has achieved much critical acclaim over the last 10 years, but whose most recent financial statement reveals that it has an accumulated deficit of $90.7 million. And while it enjoyed revenues of $2.15 million in the quarter ended Dec. 31, 2004, and managed a tiny pro forma profit, it “may not be able to sustain or increase profitability on a quarterly or annual basis in the future.”

Not all ad-centric businesses will repeat the success of Advertising.com. And future editorially-inspired startups will learn many lessons from Salon. But for investors to make money, the smart play would be to follow the money, which is in advertising aggregation. It is much harder to discern the profit path in supporting content creators. Ad aggregators can make money by sprinkling dimes over tens of thousands of disparate content creators — and keeping a fraction of a penny. But most of those content creators will get only beer money.

Though I consider myself businesslike, my core interest is in helping evolve systems that would allow creative types to be more than info-sharecroppers on these advertising plantations. The path is obscured but I will continue looking.

By the way, this general theme will be discussed at a Cybersalon Sunday night entitled “Information Wants to Be Free, But Programmers Want to Get Paid.” It will be held at the Hillside Club in Berkeley. It may provide ideas, or at least a forum in which to commiserate.

Tom Abate
MiniMediaGuy
Cause if you ain’t Mass Media, you’re Mini Media

Two of the world’s biggest news gathering organizations have recently announced plans to deliver news in new and varied formats — and in one case to go directly to consumers. This suggests the mass media “get it” and are trying to evolve, an effort that bears not only on their survival but on the prospects for Mini Media publishers.

Paid Content pointed me to a speech last week by Associated Press President Thomas Curley and another talk this week by Reuters CEO Tom Glocer.

Curley spoke to the Virginia Press Association. According to a report in the Hampton Roads Daily Press, the AP chief said “instead of offering news in its traditional list format … (AP) would start searchable Web-based databases that would tell subscribers (i.e. newspapers, radio and TV stations) whether stories are available, along with video, audio, graphics and photos.”

“If we don’t make it available, someone else will,” Curley said. “We’re concentrating on what it is you need and what you want to serve your readers.” The story says (unspecified) prices to member news outlets won’t change for a year.

By way of contrast the Financial Times reports that Reuters plans “to supply news and information to retail consumers on mobile phones, iPods and other new technology platforms.”

The FT provided this tease of Glocer’s speech: “If the 19th century was the age of the newspaper and the 20th century the age of radio and television, this century will be defined as the age of media personalization. The news you want, when you want it. The concept is simple – forget the old media that decided what was news and when and how you would consume it. Personalization is all about supplying news to the individual.”

It sounds like Reuters which, as the FT says, has “traditionally sold its news services … to other news and media organizations” plans to disintermediate its former media subscribers. This may not be terribly painful because Reuters says “more than 90% of our revenue derives from our financial services business.”

The Associated Press, on the other hand, is a cooperative owned by its members — the leading U.S. media. From Curley’s remarks and the internal politics of the AP, it would not appear that it will try to end run its customers — who are also its owners.

Incumbent media are trying to move as far and as fast as their circumstances allow. Aspiring new media publishers will obviously have to make bigger and more daring leaps.

Tom Abate
MiniMediaGuy
Cause if you ain’t Mass Media, you’re Mini Media

The Center for Media Research pointed me to an international newspaper website that says 2005 (not 2009) is the 400th anniversary of the newspaper — and that complaints about content piracy are just as old. The same item also contains a hint to new media publishers looking for ways to adopt up-to-the-minutes tool & techniques — follow the money.

These insights come from the World Association of Newspapers, which sponsors an editor’s forum where “senior newsroom editors (can) share ideas, experiences and new initiatives on how to defend editorial excellence in the face of shrinking budgets and the onslaught of new media, new technologies and changing readership lifestyles.”

The group also supports a blog with a section on revenues and business models in which I learned that Le Monde has been losing readers and money and is looking for a 50 million Euro bailout and newsroom layoffs to right itself.

The international editors’ website credits The Gutenberg Museum in Mainz, Germany, with pushing the debut of printed news back to 1605, the year that a formerly hand-copied newsletter named Relation converted to the then-new technology of block printing:

“Martin Welke, founder of the German Newspaper Museum, who is also the ‘father’ of the discovery, together with Professor Jean Pierre Kintz, a Strasbourg historian, told WAN that the publisher of Relation was a certain Johann Carolus, who earned his living at the turn of the 17th century by producing hand-written newsletters, sold to rich subscribers at very high prices, reproducing news sent to him by a network of paid correspondents.”

The item, which contradicts earlier assumptions putting 1609 as the birth date of newspapering, goes on to say that “In October that year (1605), Carolus wrote a petition to the Strasbourg city council asking for “protection against reprints by other printers”.

So the more things change the more they stay the same. (Or, in deference to any French readers, La plus ca change, la plus c’est la meme chose.)

Other than the satisfaction of knowing this, I note that long-deceased media pioneer Johann Carolus began by adapting the technology of his day to the most valuable information first. I’m not yet sure how to act on this lesson but it’s worth bearing in mind.

Tom Abate
MiniMediaGuy
Cause if you ain’t Mass Media, you’re Mini Media.

Earlier this week I discussed the business opportunities involving time-shifting audio devices. I followed with a look at Web sites that collect, license and disseminate independent content. Today I’ll argue that Web-based collaboration and marketing sites will work best when online systems encourage and facilitate face-to-face contact. This is a gut instinct based on personal experience in media and online forums. I wish I had better evidence, but let me sketch out my thoughts. In the 1970s I ran a closed circuit radio and television station aboard a U.S. Navy ship. It was Mister Roberts meets Good Morning Vietnam. I was the only journalist aboard. My one-man television operation was sterile. I would punch in the camera focused on an empty desk, tiptoe over, take my seat and begin reading the news. The radio station was livelier. It was easy to run and I scheduled a succession of guest DJs who offered multi-cultural fare before the word came into vogue. Having made “mass media” inside this steel fishbowl, I got a strong sense of how people consume media — as social events, in the Super Bowl party model. (As I think of it, this was an all-male sample but are women different in this regard?) Between then and now I’ve worked in staff and freelance settings, generally in print media. For several years during the mid-1990s I moderated an online forum in an earlier incarnation of SFGate. Regular forum visitors wanted to meet for periodic dinners. We did. Okay, so that was then and the forums never really caught on. But nowadays I notice that outfits like job-network MediaBistro get positive buzz from creative folks by sponsoring gab-fests. IndyMedia, a politically-inspired activist group, works through physical locations that supplement its electronic forums. As Aristotle said long ago, “human beings are by nature political animals, who naturally want to live together.” I think social animals is the better term. Creating and consuming media are social acts. We can do both alone. But it’s more fun and less isolating when make it a group activity. Consider this thought from the Grotto, an office park, if you will, for writers in San Francisco: “The hypothesis is that working writers will be more productive (and have more courage to pursue the kind of writing they really want to do) if they work in a community of writers.” New media are still fluid. The great strength of the movement is the empowerment of individual creators, who can publish globally through electronic networks. But the strength of new media, and the sanity of its pioneers, will be enhanced if their networks find ways — profitable ways, like training classes — to bring people together in the face-to-face forums that we have always enjoyed.

Tom Abate
MiniMediaGuy
Cause if you ain’t Mass Media, you’re Mini Media.

Yesterday I wondered aloud whether new Tivo-like audio recorders, capable of downloading content via satellite broadcasts, could evolve into personal or niche radio networks. Today I’ll look at one of the downstream developments that would have to occur first — gathering content into manageable pools in order to present big distributors — whether wired or wireless — a place into which to dip their pipes.

Let me briefly point to several developments.

I recently stumbled across Audio Network Plc., a British startup that seems to act as a clearinghouse where musical artists can register and display works for subsequent licensing to film, television and multimedia buyers. To give a sense for the scale of the enterprise, in January the firm announced that it had sold a 7 percent stake for a venture investment of 250,000 pounds sterling.

Another interesting model in the audio realm is PRX.org, which might be described as a collection point for producers and buyers of radio documentaries of the style exemplified by National Public Radio. PRX has four classes of membership: free peers, paid individuals and groups ($50 & $150 annually) and stations which are asked to buy into this content repository on a sliding scale based on listenership. Stay in touch with developments at PRX through its blog.

Just the other day I discovered the Real Public Radio Network, or RPRN, which describes itself as “a community of content creators and consumers using a Java driven, Internet based content management, licensing, distribution (system), (featuring) member rated content, discussion, collaboration, accounting and value distribution … wrapped in an easy to use web based interface (and) formed as a non profit, non partisan, free speech driven corporation.”

That mouthful is extracted from the synopsis posted by RPRN architect Scott Converse, an Apple Computer veteran (turned academician // ERROR corrected 24 April 05 // confused this Scott Converse with another person //) who has some interesting theories about disruptive technologies — in addition to creating such a disruptive event through RPRN. Scott posted his mission statement on the Omidyar Network, the incubator site instigated by eBay founder Pierre Omidyar — who is worth many stories but not by me, at least not today.

My point is that developments such as these and others previously noted, such as Lulu.com and Ourmedia.org are important steps on the road to creating focused markets (even non-profits need markets!) for what I call Mini Media content. Tomorrow I want to suggest that one of the future steps along grassroots media’s current evolutionary path may be the rediscovery of brick & mortar.

(PS: Earlier this week I met Ourmedia co-founder Marc Canter at a dinner organized by Web TV thinker Jeff Ubois. Marc said Ourmedia’s launch is late but looming)

Tom Abate
MiniMediaGuy
Cause if you ain’t Mass Media, you’re Mini Media