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The Bubble Bath December 28, 2006

Posted by Bill in Google, MSN Search, online marketing, Search Marketing, traditional advertising, Yahoo Search Marketing.
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For SEMs and online advertisers, 2006 was a bubble bath. The tone was set at the end of 2005, when Google paid $1 billion for a 5% stake in AOL. That put AOL’s total value at $20 billion, or $1,000 per subscriber. Later this year, Google paid $1.65 billion in its well-publicized acquisition of YouTube, a company with sixty-five employees, no profit model, and a bevy of illegally copied material (complete with litigious owners waiting in the wings). But perhaps the biggest of them all, the granddaddy of all bubbles, is Google’s stock price itself, which at press time was hovering at a 57.85 P/E ratio. Indeed, analysts are also finally starting to catch on to Google’s hugely overvalued stock. Into this mess splashed an acquisition that finally made business sense: the Publicis Groupe’s plan to buy Digitas.

True, Publicis did offer Digitas shareholders a 25% premium over the closing price when the deal was announced, but this reflects actual upside, rather than perceived upside. As search marketers we’ve seen firsthand for years how advertisers have shifted their spend from offline into search and other online media. As the general public has spent more time consuming media online, advertisers have realized that the accountability of an online campaign greatly surpasses that of a traditional campaign. Overall advertising is growing at 4-5% per year, while digital advertising is growing at 30%. That statistic alone justifies the 25% premium that Publicis paid for Digitas.

The next step for advertisers is applying the highly touted accountability of online media to their offline campaigns. This requires the keen analytics and robust technology typically found in digital agencies, and notably absent from traditional agencies. These capabilities include measuring spikes in search behavior and traffic in response to TV, print, and outdoor ads. An agency that specializes in all media, both online and off, will be able to execute on initiatives like boosting bids on keywords mentioned in TV commercials, and building microsites as landing pages where consumers can easily read more info and purchase the product they saw on TV. This integration poses another huge advantage for Publicis’ clients, as they will not have to coordinate between two separate agencies. These factors further justify the 25% premium.

It’s always risky to speculate on the future, but there are certain outcomes that almost certainly will occur in some form or other. “Convergence” has been a hot buzzword in the industry, the idea being that users will take control of their TVs in the same way that they’ve taken control of online content. This, in theory will enable advertisers to target video ads behaviorally, demographically, and by keyword. But this theory presumes that TV will still be the only device used to consume video. In reality, perhaps “divergence” is a better word, because media will be consumed not just on TV, but on computers, mobile phones, mobile e-mail devices, MP3 players, and in cars.

Keeping track of and optimizing each ad’s performance, across a diverse user base with a diverse media-consumption device base, all while deploying targeting options and other optimization techniques, will require an even more advanced technology and even sharper analytics. A digital advertising firm is far better positioned to deliver these assets to clients than an offline media firm. This is perhaps the most insightful element of Publicis’s move, and even further justifies that extra 25%.

Much has been made of Digitas’ client relationships having real value, but in reality, the Publicis Groupe and the other offline advertising giants don’t need to buy client relationships. They’ve had clients’ trust for years. What they need are the technology and analytics to deliver a full suite of advertising options to all of their clients, with greater accountability and the ability to scale as technology advances. That’s the real value that Digitas brings to the table.

Holding companies should not be focused on buying aQuantive or paying a premium for client relationships. Rather, they need to focus on acquiring smaller, privately held companies that have built leading-edge technology platforms, embraced a culture where the statistician is just as important as the creative director, and with whom they can bring their pre-existing customers to the digital upsell.

What a refreshing note to the end of 2006. Just when we all thought the bubbles were rising over the rim of the tub, here’s a move that will allow all parties to soak in real, not imagined, value.

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Publicis acquired Digitas… Trends and the like… December 22, 2006

Posted by Bill in Search Marketing, traditional advertising.
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THE FACTS:

·        The digital advertising world, including search marketing, has brought a more detailed financial view of making media accountable to marketing departments.  Companies are embracing this.

·        Overall advertising is growing 4-5% in the US next year, digital advertising is growing over 30% annually (some have it as high as 50%)… Digital marketing is stealing share.

·        Clients are increasingly looking to integrate digital & offline advertising campaigns, and measure the interaction effects

·        Publicis recognized the ongoing shift of dollars towards digital marketing, and like all leaders… shot their arrow ahead of the target.

THE MARKET RESPONSE/ AFTER-THOUGHTS:

·        The Publicis acquisition will NOT fuel an onslaught of copycat acquisitions

·        Other online advertising companies don’t measure up in terms of Digitas’ long-term relationships with large clients and synergies with a major traditional advertising group

·        Everyone has been focused on aQuantive when they comment on the above, which seemingly makes sense since they are now the sole publicly-traded digital advertising agency.

MY OPINIONS:

·        There is a reason why aQuantive is trading at a 43.9 P/E, where as the traditional ad agencies hover between 16 and 29 multiples.  That reason is two-fold: their technology foundation and their focus on digital advertising.

·        The focus on “Digitas’ long-term relationships with large clients and synergies with a major traditional advertising group” as an acquisition synergy for other acquisitions in the space is off.   A sound and scalable technology foundation is imperative to managing digital marketing and search marketing campaigns profitably.   The handful of major agency holding companies own the worldwide advertising spend and all the customer relationships.  They don’t need to buy customer relationships… they have them and the trust of them.  They need the digital assets to capitalize on the shift in spend.

·        My opinion:  the holding companies should not be focused on acquiring aQuantive or paying a premium for customer relationships, they need to be focused on acquiring smaller, privately-held companies that have build leading-edge technology platforms, have embraced a culture where the statistician is just as important as the creative director, and whom the large holding companies can bring their pre-existing customers to the digital upsell. 

We’re Not a Technology Company Anymore, Toto December 14, 2006

Posted by Bill in Google, Search Marketing.
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            This morning’s Wall Street Journal had an article called “Google Tests New Ad Offerings–But Will Advertisers Follow?” by Kevin Delaney.  It serves as a chronicle of Google’s past, present, and planned future forays into offline, traditional media.  Will they work?  And will advertisers go along with them?  Not unless Google becomes a totally different company…

            What Google does well, better than anyone in fact, is PPC search advertising.  It is possible for a technology company to excel in PPC.  In fact, that may be the only way to do it.  PPC advertising is a numbers game; it’s more science than art.  It’s possible for advertisers to use an automated API to buy their keywords, write their simple ad copy, and track their results on a more granular level than any advertising media in history.  Granted, the tracking is not one hundred percent accurate, as searchers may click on ads multiple times from different computers before converting, or they may convert at a bricks and mortar store, but the tracking is accurate enough to allow advertisers to optimize their campaigns with minimal help from Google.  When it comes to PPC, Google is therefore able to focus almost entirely on their technology, while the keywords more or less sell themselves.  Google’s got the eyeballs, and it can guarantee advertisers that, if they’re smart, they will make money by buying keywords.

 

            In contrast, offline media does not sell itself.  It is sold via a personal relationship, with a big smile and lots of martinis, and often comes complete with plans that include useless remnant inventory.  If advertisers want a spot on American Idol, they often have to buy a billboard in the middle of nowhere that will get them a poor ROI.  Traditional ad networks can’t guarantee results the same way Google can in PPC, they can only offer rough estimates of reach, threaten demurrers with loss of market share to their competition, and, again, smile real big.  Unlike PPC advertising, it is not possible for a technology company to do well in this space.  You need to be a media company with a great sales team and lots of killer content.  It’s far more art than science; an automated API simply won’t be able to cut the mustard.


           
One thing Google mentions in Delaney’s article is that they can “track” response to traditional ads simply by examining the resulting search traffic.  That can theoretically enable advertisers to gauge the effectiveness of their ads, and thus optimize accordingly.  However, although it is a well known fact that traditional ads drive search behavior, there are far too many gaps between a traditional ad and search traffic for this measurement to be sufficiently accurate to sell itself.  Consumers may see the ad and go search on another search engine, or they may see another ad that the advertiser didn’t buy through Google and that ad may drive their search behavior.  Or perhaps they saw the ad and forgot about it for months until the advertisers’ products or services could benefit them, and only then do they turn to a search engine.  All the problems that exist in PPC but are too insignificant to tip the scales in the art/science balance are magnified in traditional media—magnified to the point where, even with tracking search behavior, art still trumps science.


           
So can Google become a media company?  Certain signs indicate that they are moving in that direction.  They now have a
New York office, a lot of lawyers, and are bulking up their sales team.  They certainly have killer content, and, especially with the purchase of YouTube, a burdensome load of remnant inventory.  Of course, right now, Google is so profitable that they don’t have to force advertisers to buy space on un-monetizable user-generated videos.  However, when PPC advertising’s growth slows (as it inevitably will) and Google’s revenue starts to fluctuate along with the rest of the economy, they may be forced to sell some of their junk in order to stay afloat and meet Wall Street’s demanding expectations.  So yes, Google can become a media company, but don’t expect it to revolutionize traditional media in the same way that it revolutionized online media.  If Google is successful, it won’t be the Google we know and love.  The new media baron will be the same as the old media baron.

The Genius of Yahoo’s Reorg December 11, 2006

Posted by Bill in online marketing, Search Marketing, Yahoo Search Marketing.
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Last week’s announcement of a Yahoo reorganization wasn’t necessarily a surprise. Yahoo’s been hurting for a while now; and some kind of streamlining has appeared inevitable–especially after Senior Vice President of Communications Brad Garlinghouse came out with his “Peanut Butter Manifesto,” in which he complained that Yahoo is spreading itself thin, like peanut butter on toast. What’s surprising and delightful is just how smart Yahoo’s reorg actually is.

The basic idea of the new structure is that Yahoo, which even by insider accounts has become a sprawling, red-tape laden megastructure, will now become a sleeker, three-pronged business focused on Yahoo’s “three clients”: audience, advertisers, and publishers. The reorg is so smart because, far more than just shifting business units around, it tackles Yahoo’s most serious underlying problems of corporate culture.

Consider Yahoo’s troubles. On the surface, its chief source of pain seems to be that it’s gotten too big for its own good. One manifestation of that problem is product redundancy–which Garlinghouse discusses at length, pointing to overlaps like YME / Musicmatch, Flickr / Photos, YMG video / Yahoo Search video. A subtler version of the size problem is the oft-heard complaint that Yahoo does absolutely everything, but doesn’t really stand out anywhere. Businesweek’s Rob Hof sums up the problem nicely, complaining that Yahoo’s got “many services I want, even [those] I can’t really live without, but they rarely take them all the way to locking me in for good.” A third manifestation of Yahoo’s size is its burdensome bureaucracy.
But the fact that Yahoo’s grown too big is really just the symptom, not the cause. The cause of the problem goes to another problem that Garlinghouse points out: a lack of real vision. The reorg provides that vision for the company, and places it at the crux of the organizational structure. And Yahoo has correctly chosen the vision of a customer-focused business as its new guiding light.
Centering a business around customers might sound obvious; but at Yahoo, it’s a radical shift. Consider what CEO Terry Semel has told The New York Times about the restructuring: “Semel said,” the Times reports, “that when he joined the company five years ago, he focused on increasing the breadth of Yahoo products. Now, he said, the company is beginning a transformation to make itself ‘more customer-centric, not more product-centric.’”
Why has Yahoo been focusing on its own products over customers? Because Yahoo has become a business that’s focused on itself. Having more products means having a bigger, more powerful Yahoo, both in terms of offerings and in terms of market share. And a more powerful Yahoo is central to Yahoo’s core mission of becoming “the most essential global Internet service for consumers and businesses.” To understand how self-focused that mission is, compare it with Google’s vastly different one: “to organize the world’s information and make it universally accessible and useful.”
There’s nothing inherently wrong with a corporate goal of becoming “the most essential” player on the block. And that goal is what’s led Yahoo to ultimately become the most popular presence on the Web. But an excessive focus on personal power can also devolve into expanding the business for expansion’s sake–leading to spreading yourself too thin, product redundancy, and a large, unwieldy infrastructure. On a micro-level, a me-first/client second focus can also translate into infighting, turf wars, and a lack of loyalty towards the company–which are also manifestations of personal interest first, the client second (in this case, the client being the company itself). And as Garlinghouse describes in his memo, all of these problems describe Yahoo before the reorg.

Which is why the new reorg is a lot smarter than just a tightening of Yahoo’s current infrastructure. That could have been achieved by simply sharpening the focus on Yahoo’s already defined product categories like search, publisher, social media, and mobile. Instead, Yahoo’s shifted the entire business structure to become client-focused. Which is a real revolution, one that will gets to the core of Yahoo’s problem. A focus on customers fosters an emphasis on the usefulness of each product, and runs against the wasteful practice of creating an extra business unit just for the sake of having one; it calls for a focus on building quality products over amassing quantity; and it leads to an environment in which the entire business is focused on really getting things done–rather than on defending your turf or your piece of the bureaucracy.

Which is precisely what Yahoo needs now. And it’s why the current reorg is exactly what Yahoo needs to get back on track.