2007 was the year that Facebook opened up its platform and launched Beacon. January saw a decline in Facebook’s traffic, at least in the UK. This will be the year that the theory behind those moves will be tested, will it be Facebook’s make or break year?
We got a couple of questions from Phil Edwards of Lonely CEO, here are the Q&As:
Question 1:
In Facebook, we’re starting to see Ad Networks and Application Sales Companies come together. Do you think a strong sales relationship can convince buyers to give a new medium a try? Or are more traditional metrics still a necessity for advertisers to be sure they’ll get a good ROI?
Answer 1:
If you want the truth, I’ll go against the grain and let you in on a little secret. Marketers only bring up ROI when they are looking for an excuse to disengage, pause a campaign or not spend money with you in the future.
That’s right: most branded advertisers (this admittedly does not apply with performance based advertisers) understand that a lot of marketing does not generate a positive ROI. In fact, the Web confirms what they have long suspected with print, radio, TV and outdoors.
Indeed, I was sitting at a Paid Content shindig when Tad Smith, CEO of Reed Business Information, said something rather revealing.
I’ll quote from my post covering the event:
For all of the talk about targeted [web] media being preferred comes the flip side, according to Smith:
“If a Chief Marketing Officer can spend $1M on TV, $1M on print and $1M online, but with online you can see that it has a negative ROI, what do you do? What happens when you realize just how much of a negative ROI some campaigns get online. What will that result in? I don’t know.”
I guess ignorance is bliss. He has a good point, but I’d say how much greater of a negative does print, TV or radio “yield”? Of course, you know the expression, if you’re gonna be in the negative, go big!
So my point here is, ROI is awfully reminiscent of that Chris Rock line: “It’s only sexual harrassment if the guy is ugly!” Obviously I don’t want to poke fun (sorry for the pun folks) at sexual harassment, but my point is ROI talk is overrated in the sense that all advertisers know that the short term ROI of all campaigns is negative and the long term of some campaigns might be positive.
Ultimately, companies have to advertise to promote their products. No one really likes advertising, that is why all of these “business ideas” about how much users love brands are more examples of ill-fated projects. Marketers - even the ones with the strongest brands - might get away with not advertising initially, but after a while, they’ll disappear from sight, and out of sight, out of mind. Any marketer who tells you otherwise is squeezing you for more. As a sales executive, you walk into a meeting understanding that dynamic.
So with that out of the way, let’s get to the question and the answer to it which is:
I think Facebook is fundamentally problematic as an advertising platform (as are all social networks). This does not mean that Facebook cannot develop a successful ad sales strategy, but any notion that at present time, Facebook will pose a threat to Google is nonsense. Furthermore, there is very little that justifies Facebook’s $15B valuation but that is moot. That was MSFT’s smart defensive move to block Google for a mere $240M, which is the free cash flow MSFT generates in a week.
Anyway, Facebook’s ad sales problems will be two-fold, mainly.
As a social network:
In laymen’s terms, Facebook is the database of connections (to paraphrase from my earlier post) while Google is the database of intentions (to paraphrase John Battelle). Intent can be monetized, connections can, but they pose a risk.
All social networks are susceptible to raising the ire of users if they try to monetize the connections between users and the data on individual users. But not tapping into that data means that the asset in question is not wringing out maximum value, which makes it less interesting, or in financial terms, trade at a discount.
This is the business challenge for social networks: they’ve raised millions based on the notion that they can untap that value, but that assumption is faulty or incorrect in practice because most users won’t stand for it if you blur the privacy line too much or start to tap into people’s connections to sell them something. Remember that the Web was successful because of its confidentiality and privacy, the second others know I have a condition, or need help with something, etc., it loses value fast and becomes a liability, not an asset.
That’s right folks, many of the social networks are unsellable, in both the income and capital gain sense of the word.
Facebook in particular:
Unlike Myspace, which has become an entertainment platform, Facebook wanted to be a neutral, independent applications platform. The problem is that the apps have hitherto been noisy and useless. I cannot think of too many advertisers would welcome associating themselves with irritating apps. Of course, as games are developed (and eventually useful apps) that will change. The more Facebook develops its platform, the more I suspect that it might become one giant arcade. We see the bullishness around web-based ad-supported gaming, but this remains a concept, mainly due to the fickleness of its users to embrace ads.
Question 2:
Traditionally, buyers have been able to use content as a proxy to or supplement for demographics (eg, if someone buys advertising on Sports related media, they can assume a bit about the demographic and user). Facebook, however, offers a unique opportunity for buyers to canvas large networks purely via demographics. Are these demographics enough to reach users? Or does content/branding of the advertising vehicle still matter?
Answer 2:
This is something I’ve touched on quite a bit.
Bear in mind as a content producer I am biased (when I am not blogging on HipMojo.com we’re producing video content on WatchMojo.com), but I became a content producer because I believe that content is king. Facebook’s problem is that it tries to pretend that media, publishing, and advertising has changed when in fact it has been the same for over a century. It tries to bypass content creation - which is foolish - and instead pass off UGC as premium content advertisers want, which is even more foolish. More here.
his is why Facebook remains a potential Friendster (more here), but we shall see… the company is flirting with “made-man” status. As a leader, Facebook will be fine, though I suspect the $15B valuation will be one of those Broadcast.com $5.7B moments of Web 2.0 lore.
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WatchMojo NewsletterYahoo! is adding an expensive new severance program in place to try to fend off MSFT.
As a YHOO shareholder, this actually backfires on CEO Jerry Yang and the Board.
- For one, it comes across as desperate, and desperate is not a virtue in negotiations or in life in general.
- Second, it shows that YHOO and Yang are indeed acting emotionally in their reaction to MSFT. This is a bigger problem because any solution that YHOO does eventually try to pitch to us investors will ring hollow. Does Yang and company consider these things?
- Third, MSFT offered YHOO a great deal, while the deal looks increasingly like a done deal, the risk of an externality happening that would derail this remains (war, recession, etc.) The longer YHOO plays cat and mouse, the higher the likelihood of shareholder lawsuits against Yang and the Board.
Yesterday, MSFT Chairman Bill Gates basically told YHOO to play along by coming to the table if it wanted to avoid a proxy fight (which would force YHOO’s board out of the boardroom) and get a higher bid (which would make the deal go down easier).
Ultimately, MSFT wants YHOO that bad. Why? It’s all about the numbers:
Last year, Microsoft reported a loss of $745 million from its online operations on sales of $2.47 billion.
Over the same period, Google’s earnings totalled $4.2 billion on sales of $16.5 billion. Yahoo reported earnings of $660 million on sales of $6.96 billion.
Yahoo! did $7B in sales and profits of $660M
According to Investor’s Business Daily via YHOO.
Cross-reference that now with my earlier posts about how such an acquisition would help create an online ad business that would parallel MSFT’s profitable Windows and Office businesses, you can’t but help but wonder about the long term value creation potential for MSFT shares if they were better positioned for online advertising, which is set to go from $45B per annum to $80B between now and 2010… and that’s probably conservative, a 2006 report from venerable and otherwise trustworthy PriceWaterhouse Coopers pegged Asian online ads to be $110B, which seemed so high that I put in emails and calls but to this day, nothing, nada, zilch…
Last week I saw a pretty random press release on YouTube surpassing Google as the world’s #2 ranked site as measured by Alexa. Odd, I thought. I did not even read it, but for whatever reason, it stuck with me. It was odd because some time ago YouTube surpassed MySpace, and I commented that this is why MySpace blocked Photobucket: they learned their lesson. MySpace was right in saying that YouTube had built some of their momentum on MySpace. But, we like and respect both companies so we don’t want to take sides. Disclosure: both are valuable distribution partners of WatchMojo.com’s video content.
Today I read that CNET is adding (via SAI) closed captioning to its videos:
CNET’s re-launched service includes a number of new features–chief among them a new closed-captioning option. Through partnerships with Automatic Sync Technologies and Adobe Systems, the captioning system is an attempt by CNET to reach an estimated 30 million deaf and hard-of-hearing U.S. consumers.
I am a big fan of adding text selectively to video.
I think adding closed captioning is a very valuable thing to do for users, we add text to our travel videos because often times they are see in a mute setting.
In fact, I am currently looking for a transcription service to spider our thousands of videos so that the accompanying text of our videos are available for users (If you got one, call me, or better yet, email me at ash@mojosupreme.com).
Are we thinking solely about end-users? Yes, but not solely. Anyone that says that they are is lying. CNET is candid about its intentions (and we praise them for it):
Not only that, but the captioning makes it far easier for CNET to monetize its video content, Gillespie said.
“It turns into SEO honey,” Gillespie said of the meta data, which greatly improves the search engine optimization process.
Randall Rothenberg, president and CEO of the Interactive Advertising Bureau, described CNET’s revamped service as “emblematic of the next phase of online video,” and expects other top publishers to follow CNET’s lead.
We’re all trying to add text for marketing and sales purposes. I’ll skip the sales one for a second and say that from a marketing standpoint, when you read that search engines are looking for ways to read images and recognize things, people and places in video, then it’s smart to adopt a SEO philosophy to video content.
But while I agree and give props to CNET, I think that it’s important for media companies and marketers to realize that trying to win yesterday’s wars is foolish, you need to look ahead and realize that there is a mirror, parallel universe being created in the broadband world.
It sounds odd to talk about parallel universes when everything is supposedly a click away. Indeed, search engines will be able to recognize video beyond just metadata, but thinking about Google alone is foolish.
It’s akin to how media companies usually think: they plan 6 months analyzing an opportunity, take 3 months to move on something and an additional 3 months to study the results and impacts thereof. By that time, things have moved. This is similar to the video revolution: by the time you plan on addressing Google, you forget that the needle has moved.
In fact, YouTube, MySpace TV, Veoh, Revver, et al. are creating their own ecosystem with their own dynamics.
Connecting the dots, while Google probably remains a larger property than YouTube - despite what the press release and Alexa might say - you need to recognize that what Google and YouTube track are different things.
CNET, WatchMojo.com et al. need to leverage existing universes such as Google and the major portals that drive traffic… but content owners are better off asking themselves what they are doing to plan and prepare for the next Google instead of worrying too much time about catching up to the Google we know.
Ideally, you do both, of course.
For a rundown of all of the aspirants to become the Google of tomorrow click here and here.
Most of the web projects out there are ad-supported, or intend to be ad-supported.
While a lot of companies are bootstrapped, most are financed by angel investors or venture capitalists.
Yet, many angel investors or VCs lack operational media experience in general and advertising sales experience in particular. I’ve always noticed that most VCs come from technology backgrounds. Increasingly, many have worked in media companies. But very few have ad sales experience. Sales people get respect, reluctantly. At my old job, as VP of Ad Sales, I was hated by my erstwhile colleagues. When I left, they showed their disdain by lying and manipulating the new parent company into trying to take me and WatchMojo.com out. I defended myself and won, and today I actually have a healthy working relationship with my former partners’ parent company. It’s wild. I feel vindicated.
Anyway, I don’t care to rehash those memories, it’s what I call the Dark Ages of my career, frankly. The point is: during those years, I learned a lot about ad sales, working on the front line and in the trenches. My client list and ad agency relationships were second to none. If it wasn’t for that, I’d hate myself for ever working with those people.
This isn’t me tooting my own horn, I am trying to make the point that if I was successful, it’s because I went in with no experience and made no assumptions. I asked questions, read a lot, and acted on my gut. Yes, I feel like I am a natural salesperson but I had never closed a box, let alone a deal, before taking the job.
Over the course of 5 years, I went from lone advertising account executive to a manager, I then integrated our sales team into the company that bought us… and over time I became - via this blog - someone that others turn to to get a sense of where the ad market is headed.
In this capacity, I’ve also become an adviser to many startups, and occasionally, an investor that wants to test a hypothesis or conduct due diligence on a company they are vetting.
I must say: I am baffled with how much many VCs are neither realistic nor knowledgeable with the bulk of their advertising assumptions. Not only are the assumptions off, but they seem to fail to realize the psychology and dynamics that go into play with how ad sales work. The competitive nature and subjective method to the madness is generally unaccounted for. Or, alternatively, the challenges and complexities of building sales streams are wildly underestimated.
The bigger problem is many VCs or angels think they know it all. They should at least realize that they are not well-versed in ad sales, ask questions, then - being smart and accomplished in their own right - come to their own conclusions. I think it’s because salespeople get respect reluctantly. Hence my initial reference to my old job and the dynamics with my partners.
I really do not mean to be judgmental or holier than thou, and I realize I did ad sales for years etc. in the trenches / on the front lines… but it’s a bit scary that so much money goes into ad-supported (intended) companies based on false assumptions.
At the risk of tooting my own horn, what I also am starting to see is the advantage I have over other entrepreneurs in being realistic about our ad sales expectations and what it takes to be successful. I guess that is why I am conservative and we’ve been able to build the company over the past years. We don’t take anything for granted, we don’t simplify the challenges and we surely don’t count the chicken before they hatch.
I guess as I write this and think out loud, I realize, maybe what many VCs should do is spend some time on the front lines, ie. not only talking to the founders of companies but also the guys expected to lead the sales charge. Then, maybe VCs should spend some time with advertisers and marketers to understand what they think.
And speaking of company founders, I think while technology and marketing are incredible talents to possess, it might be a better investment to do some sales before venturing on your own.
I’ve actually sent in a couple of emails to VCs for their thoughts and will either update accordingly or publish a follow up.
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