The Bubble Bath December 28, 2006
Posted by Bill in Google, MSN Search, online marketing, Search Marketing, traditional advertising, Yahoo Search Marketing.add a comment
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.
Will E-Media Make It? November 20, 2006
Posted by Bill in Broadcast, Google, MSN Search, Online Auction Tips, online marketing, Search Marketing, traditional advertising, Yahoo Search Marketing.add a comment
Last week, advertisers got their first glimpse of the e-Media Exchange, the auction-based TV (and other traditional media) ad-buying exchange initiated by blue-chip advertisers like Wal-Mart, and powered by e-Bay. The Exchange is said to be ready to roll in Q2 ‘07; the advertisers involved got their first sneak preview last week. And as I’ve said many times before, the Exchange is a revolution whose time has clearly come.
But at the same time, it still isn’t clear whether the e-Media Exchange will actually thrive. That’a an open question; there are forces acting both against and in favor of the Exchange’s long-term survival.
Let’s start with the forces against. To begin with, the networks don’t like the Exchange very much; and if the networks themselves don’t go along, the Exchange won’t work (it’s the networks’ inventory that the Exchange is selling). The networks’ reaction isn’t surprising, as the Exchange was created out of advertiser suspicion of network double-dealing when it comes to ad pricing: auctions, the Exchange members feel, are a more accountable and transparent way to buy media. Meanwhile, something else the networks have a strong reason to dislike is the fact that an auction would wrest pricing controls out of the hands of the networks, placing it in the hands of advertisers.
Then there’s institutional culture. The Exchange is an attempt to replace the traditional networks’ culture of lavish upfronts and martini lunches during ad buys. But while martini lunches might not foster transparent pricing, they’re an important aspect of networks’ tradition and corporate culture–and old traditions die hard. That’s especially true amongst large corporations, and the traditional networks happen to be large corporations (or pieces of large corporations).
Of course, martini lunches really do serve a valuable purpose. Television advertisers are spending enormous sums of money; and there’s a strong argument that large purchases are best done face-to-face. Even in the search world, the engines have reps who handle ad spend for larger clients, despite the fact that the actual ad purchases are made via online auction. And if there’s a need for a human interaction in the online auction of search, there’s no reason the same wouldn’t be true of online TV ad buys.
Finally, those behind the Exchange may have made a tactical mistake in declaring that they’ll start the Exchange as a place to buy remnant inventory. That makes sense politically, as the networks would never have agreed to let the Exchange start out by managing anything bigger that remnant. But the move also ignores a basic principle of how auctions work, and that’s a problem. To paraphrase what I’ve said many times, auctions are competitions over specific items–and to create a viable arena for those competitions, you have to offer something that people are interested in fighting over. But remnant inventory is definitionally the inventory that nobody wants; that’s not the kind of stuff that creates bidding wars, and so it’s not the stuff that makes for viable auction marketplaces.
OK, now why should the e-Media Exchange work? Because the auction networks have a record of creating clear and fair pricing. That kind of environment for buying TV spots would be an attractive change for advertisers who crave greater transparency in their ad buys. And if the advertisers are willing to fight hard enough for it, there’s definitely a chance that the networks will go along with the advertisers’ wish.
Meanwhile, the Exchange has made a smart move in deciding to start the program on cable TV. Cable TV is subscriber-based, which means that cable networks have demographic, geographic, and/or psychographic information that the standard networks don’t. That kind of data creates opportunities for the networks to slice and dice ad inventory in ways that clearly showcase each slot’s value. That, in turn, allows networks to charge more for the given slot, which is good for them; and it will also be able to drive more bidding wars over any given slot, which is good for the longevity of the Exchange, which is good for the advertisers. And initial success in a cable TV run will make the Exchange an easier sell to the larger networks, too.
One final note here: There’s no reason to assume that the Exchange is a guaranteed home run, just because it provides auctioned ad buys. Google and Yahoo have clearly shown that auction-based advertising can be a highly viable ad model; but there are plenty of auction media outlets that you haven’t heard of, simply because they died along the way. And whether the Exchange will become TV’s Google, or the next cutting-edge idea that lost because it was too ahead of its time, remains to be seen.
How Microhoo Could Beat Google November 7, 2006
Posted by Bill in Google, MSN Search, Online Advertising, Search Marketing, Yahoo Search Marketing.add a comment
LAST WEEK, MERRILL LYNCH ANALYST Justin Post revived a suggestion that he had first brought up in June: Microsoft, Post argued, ought to buy Yahoo. Post pointed to reasons why Yahoo might be worth more than its current so-so earnings suggest; he also observed that a Yahoo purchase would let Microsoft gain serious search revenue, even before MSN AdCenter gets up to speed in growing its advertiser base. Obviously, the proposed Microhoo would be a threat to Google. Part of the reason is the major share of search that the new entity would gobble up. According to comScore numbers released in May, MSN and Yahoo hold a combined 41% of all search traffic, which is just shy of Google’s 43%. But the threat from Microhoo would only partially come from search. The real threat to Google would be in Microhoo’s ability to adapt to a continuously-converging media world–a world that MSN and Yahoo are ready for, but that Google still might not be as ready for as it needs to be. All of this goes back to each business’s core focus. For Google, everything is search; Yahoo and MSN, by contrast, work in many channels at once and look to integrate them. And because MSN and Yahoo are already thinking about integration now, they’ll be far better prepared when integration really get underway.
You can see that philosophical divergence in the way each entity picks up search traffic. Google’s name is synonymous with search, and it’s the search engine itself that drives the bulk of Google’s search traffic base. Yahoo also gets plenty of direct-to-search visitors; but an awful lot of Yahoo search traffic arrives off of search bars on Yahoo’s enormous publisher network. The same is true for MSN and its publisher network-and MSN searchers even arrive via help buttons on Microsoft software. Google is popular for search in its own right; Yahoo and MSN Search owe much of their popularity to the way each business draws users from its enormous, diverse universe of user interfaces.
The different philosophies also come out in how each business applies search thinking to non-search channels. To take one example, consider search-influenced solutions for content/publisher sites. Google’s big accomplishment here is AdSense, which syndicates actual search ads onto content pages. Yahoo’s Publisher Network isn’t so different from AdSense; but Yahoo has also bought into the Right Media Exchange–which will let the Yahoo publisher network sell display ads by auction, just as Yahoo already does for search ads. Meanwhile, MSN’s publisher network is beginning to offer targeting on a level that’s clearly inspired by the thinking behind AdCenter, MSN’s super-targeted search platform.
These are very different approaches to how search might help publishers and content sites. Google’s AdSense effectively recreates the world in the image of search. MSN and Yahoo, by contrast, truly integrate very different models, combining elements of text-based search advertising with image-based publisher advertising to make something new.
Which approach–Google’s search-centric approach or MSN/Yahoo’s integrative one–is better? A snapshot of today’s online market would give a resounding win to Google, which pulls in roughly 25% of all online ad revenue, the vast majority of which comes from search. Google’s win is strengthened by Yahoo’s poor Q3 performance, especially given the fact that analysts agree that it’s Yahoo publisher network, not its search network, that’s giving Yahoo trouble.
But a present-day snapshot is misleading. That’s because the information world of today is siloed in a way that tomorrow’s world won’t be. Full-length TV content that lives online, and iTunes for your cell phone, are just the beginning of the new convergence–and as channels continue to converge, the ability to work in many universes at once will be increasingly critical. Which is why the multichannel model, and not the search-only model, might just be the long-term winner.
There’s even some indication that the tide’s already turning. That indication comes from online video, which is effectively the merger of the Internet and TV. Just two days after the YouTube acquisition, an Oct. 11 Businessweek article ranked Google Video as the fifth-most popular video destination on the Web–with MSN Video as No. 4, and Yahoo Video at No. 1. Online video is the merger of different media models, and it’s the integrators, not the dominators in search, who took the lead.
Of course, Google may have solved its video problems by purchasing YouTube. But if Google’s video problems come from too narrow a focus on search, then one needs to wonder how many billion-dollar fixes Google can buy just to stay on top as the landscape shifts. Which is why if Google can’t develop a more convergence-minded view of the world, it could face real trouble from a new Microhoo that’s convergence-minded enough, and large enough, to win in Web 3.0.
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