Some time ago, Alley Insider pointed to Sandeep Aggarwal (an analyst at Oppenheimer)’s report on the impact of the mortgage crisis.
I’ve frequently raved about Alley Insider’s reporting, it’s a welcome addition to the landscape where most bloggers regurgitate corporate press releases and fail to question the institutional imperative…
But a few weeks ago, one of their posts made me question the logic and wisdom thereof.
In a nutshell, Alley Insider made a really big stink about Aggarwal’s revised numbers for growth. Sit down, are you ready? Aggarwal’s report suggested that online advertising will fall from 26% to 25%. Yep, a rounding error.
Analystitis
I was going to pen a post about how analysts of the 20th century will become a dying breed, mainly because they’re on the outside and “insider bloggers” will always have more accurate, albeit biased, points of view. Then again, analysts too were conflicted, we saw that front and center with the dot com revolution cum bubble in the late 1990s and early 2000s.
Ultimately, the bloggers (who unlike journalists probably have a day job and unlike analysts are literally on the front lines) who most accurately provide an insight into industries will command the largest audiences etc., at which point they will become part of the system and make room for younger, more hungry, less conflicted bloggers.
But, I did not write that post. Why pick on respected and influential folks like Aggarwal, Blodget or Mark Meeker; the latter despite the fact that she forgot to divide by 1,000 when trying to compute CPMs (which stand for cost per thousand - that darn M must have thrown her off).
I respect Blodget for sticking his neck out and doing a lot of projections, calculations and analysis. That kind of stuff stands out in the otherwise increasingly repetitive and staid blogosphere. But one example of Analystitis was Blodget’s calculations when Revver announced that it had shelled out $1M to partners (disclaimer: we’re a content provider to Revver, along with YouTube, Veoh, Joost etc., and no, we’re nowhere near a rounding error on that $1M). Anyway, Blodget’s Revver calculations forgot a major fact which made everything he said somewhat moot.
In all fairness, I was also shocked that Revver did not stress the following, because $1M is paltry in one perspective but impressive in another.
What’s this missing iota of information? It’s nothing earth-shattering, but it’s a key one when trying to make sense of revenue. Revver had up to recently worked on a CPC (or cost per click) model which is anything but effective with video.
Video vs. Text Consumption
From a consumer behavior, it’s a simple enough fact that users who are reading text content have a tendency to be leaning forward, hand on mouse, scrolling down a screen and trigger happy to click on something - be it a link to another article or an ad. As such, Google’s business model of indexing text content and serving text ads works wonders.
But with video, it’s an altogether different beast: you find what you want, press play, lean back. Chances are, your hands are off the mouse and keyboard… as such, the propensity to click on anything is low. Furthermore, Revver made its life really hard (and maybe that’s why under its initial model we questioned its survival) y running CPC ads as post-rolls, where most people don’t even get to!
Point is, the fact that Revver paid out $1M to partners largely running CPC ads at the end of videos is a testament to how much advertisers want to advertise online and just how viable video advertising will become for anything but user generated content (let’s not even get started on that).
So, if I was going to keep my trap shut and am now raining down this tirade, what gives?
Can I say “I told you so?”
Well, not only were Oppenheimer and Alley Insider wrong, but in fact, it turns, one (yes, admittedly biased) ad agency says that au contraire, online advertising will increase this year:
ZenithOptimedia, part of the Publicis Groupe media agency, has revised its spending forecast for internet advertising upwards yet again: it now predicts a 29.9 percent gain over 2006, up from 28.6 percent three months ago, and 85 percent growth between 2006 and 2009 (up from 82 percent previously). Online video and local search are the new, fast-growing segments, but Zenith notes that display, classified and the rest of search are still expanding. Looking ahead to 2009, Zenith expects online ad spending will make up 9.5 percent of all ad expenditures, slightly up from the 9.4 percent the company forecast three months ago.
Gee, ain’t that something we argued recently?
Total Marketing vs. Online Advertising
In a nutshell: I have long argued that we’re not in 2000, and that any reduction in marketing will help, not hurt, online advertising. That’s right, if I am Anheuser Busch, that means I’ll spend a little bit less on TV, billboards etc., and shift a bit more of that budget to online.The difference between 2001-03 and now is, when the marketing dollars flow back, they won’t go back to TV, print and newspapers.
Targeted Media vs. Non-Targeted Media
Mark my words, we are seeing the accelerated decline of offline and online advertising will be the main beneficiary. It’s not so much that marketers dislike offline, that’s not the issue. Half of the global trend comes from following the user, but the other half comes from the fact that online offers marketers targeted media, whereas print, TV, radio and billboards are non-targeted media. As such, targeted media will increase quite more rapidly than offline in an environment where there is pressure on total, global marketing expenditures.
But the reason why the entire sub-prime mortgage matter shows that analysts’ future will resemble that of offline, non-targeted media is the following:
Anyone who has bought or sold advertising knows that the mortgage-related advertisers are the least likely to be buying display/banner advertising on a CPM basis. They’re not in branding, these are performance-driven marketers. Most of these buy performance based search advertisement, or CPA-based display/banner advertising. Do a search for “mortgage” on Google and tell me if you saw a dearth of text ads around the organic results? You don’t, there are more than enough advertisers picking up the slack, which is why Google will probably not be affected by it, either (note: if they see a softening elsewhere or an overall slowdown in their torrid growth, they might use this as an excuse, but I doubt it will and that they would).
All right, I feel better now. Back to work.
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WatchMojo NewsletterWhen eBay paid $2.6B for Skype - with earnouts potentially making the deal go as high $4.1B - people wondered: WTF?
Truth is, that as the leading person-to-person commerce site (that would be eBay), to acquire and integrate the leading VOIP communications platform (that would be Skype), it made a lot of sense.
Did Skype co-founders Janus Frist and Niklas Zennstrom do a great job of selling their vision to maximize shareholder value? Hell yeah, and good for them. In fact, I’d say they did an even better job of selling their vision for Joost (disclaimer: WatchMojo.com is a content provider to Joost), for which they raised $45M in financing from well-tailored institutional investors Sequoia and strategic investors CBS et al.
After all, Skype was the dominant player in Voip and #8 on CNET’s Top 10 Downloads since 1996, whereas Joost was one big fat pie in the sky, facing macro-level constraints (that would be broadband not being there yet in the US) and micro-level challenges (that would be YouTube being the Skype of the video space).
But back to Skype, while Henry Blodget’s addition to the blog landscape is a great thing, I think that to criticize eBay for pulling the trigger on its Big Hairy Audacious Goal is unfair. The deal, while rich, made sense. The idea that a seller and buyer would have a higher propensity to make a transaction if upon the click of a link they could fire up a chat or instant message was in theory very accurate. In practice, this boils down to the fact that wildly viral applications and explosive startups have - sit down M&A bankers - no business in an established, maturing business… and we’re talking eBay folks, not GE or Walt Disney.
Is it a coincidence then, that today Joost launched officially while eBay announces Zennstrom is leaving Skype?
Hmm… to some extent, yes. Sure, as one of the leading brains and visionaries of Web communications, Zennstrom is probably focusing more and more on Joost, even though he and partner in crime Frist have lured former Cisco executive Mike Volpi to run day to day operations. And, that’s a good thing, because while KaZaa and Skype are great growth stories, Joost will have to deliver on its promise for Zennstrom (and Frist) to add visionaries of content, commerce to that tagline.
In the broader picture, today a lot of folks are egging on MSFT, Yahoo! or Google to pay astronomical sums for an equally unproven asset - Facebook - that would make Skype’s price tag look paltry. If eBay is wrong to have pulled this trigger, then Facebook is not worth more than a $1.5B (10x revenues). Yet, an asset’s price is what the market will pay for it, and naturally, if Facebook went on auction (on eBay perhaps), I’d estimate that it would fetch quite a bit more than that.
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