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May 20 2010

14:00

The Newsonomics of content at the margins

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Yahoo’s purchase of Associated Content, for over $100 million, seemed to come out of the blue. Actually, though, it didn’t. Yahoo made a foray at buying Demand Media two years ago, but the parties couldn’t come to terms. At that point, Demand’s model seemed to make sense, but hadn’t matured to a point of conventional-wisdom validation.

We’re now at that point: The well-dissected, advertising-drives-content Demand model is at the center of Demand Media, AOL’s Seed, Examiner.com and Associated Content. The Newsonomics of content arbitrage that I wrote about for the Lab a month ago is a certified phenomenon; the conventional wisdom is that these algorithm-driven, user-gen-aggregated, SEO-augmented, metrics-monitored businesses are at the center of a new way to produce “content.” Not news, mind you, but newsy content, some of it wonderfully useful, some of it wince-worthy. News content is far too costly to produce, doesn’t produce enough of a long-tail and doesn’t link that easily to commerce — the buying of stuff that fuels advertising.

The newsy stuff, though, is an annuity. That’s an interesting term, used by Associated Content CEO Patrick Keane, when I interviewed him a couple of weeks ago. An annuity. That’s a business made from the long tail. Pay for something once — and not much; in the case of Associated Content, $5 to $30 per piece — and monetize it forever. That’s why the evergreen content encouraged by the Associateds and Demands runs to “How to Teach Your Dog Sign Language,” and “10 Surefire Tips on Selling Your House at a Competitive Price.

It’s content written for search engine optimization (good piece on SEO ascendancy Monday by the Times’ David Carr). It’s also, to put it simply and directly, ad bait. Ad bait of the kind that newspaper ad directors could only dream about over the decades, the kind they gained with advertorial sections (wedding guides, personal finance sections) as journalists — can you imagine! — wrote stories about what they thought was newsworthy. The hubris — and sometimes, good news judgment.

It’s those algorithms and deepening technology under content, under advertising and under the matching of the two, that drives this Yahoo/Associated Content deal. Over the last several years, Yahoo has built an advertising targeting platform on acquisitions (Right Media, BlueLithium) and its own development, leaving the paid search business to Google and Microsoft. That platform is all about matching up content, web users, and advertising messaging. Yahoo has fine-tuned it, though it’s always a work in progress. It’s brought in partners (including half of U.S. newspaper companies) to gain more inventory and identified its future along those user/content/advertising lines.

The next step: Gain lots more content to sell ads against. Yahoo can do that several ways: organic growth; more partnerships; bringing more content under its own brands, on its own site. The Associated Content buy meets that third goal. The $100 million purchase price buys the annuity, lots of ad-bait content to feed the ever-smarter ad engine.

Here’s the best part: margins. When I asked Patrick Keane, who will apparently be joining Yahoo as part of the deal, how much of Associated’s revenue derived from selling ads on its own site and how much from partner sites to which it licensed the cheap user-gen content it aggregated, he didn’t want to talk percentages. He did acknowledge that more than half, though, came from the Associated site. And Keane liked it that way. Why? “The margins are a lot better,” he told me.

That’s a simple statement, but one driving much of the new digital business. Revenue and profit growth are going to get tougher for such big companies as Yahoo and Google, and it’s a big challenge for the new independent AOL. One way to boost dollars is to boost margins. That means transacting more business on your own site — where you don’t have to share revenues with other sites, other content owners.

I’ve tracked Google’s progression along those lines. Go back to 2004. Then, Google reported that 49 percent of its revenues were coming from affiliate sites, as it offered its technologies to help affiliates make a few bucks. That was the high-water mark of affiliate earnings, by percentage. In 2009, the affiliate percentage was down to 30 percent; 66 percent of revenues come from Google’s own sites. Over time, it has smartly directed more and more traffic to stay at its owned websites — its time-on-site has increased consistently — and monetized that traffic, without having to share revenues. In part, that’s contributed to its amazing profit growth, a banner $6.5 billion in profit, up $2 billion year-over-year, in the terrible-for-everyone-else 2009.

Yahoo breaks down its revenue into “owned and operated” sites and “affiliate” sites, though its trend lines are less easy to see. Clearly, though, the push toward O&O revenue is a key one, and one that the Associated purchase reinforces.

What might that push mean for Yahoo’s affiliates, especially those in the Newspaper Consortium, which have gladly used Yahoo ad technology to better their ad rates in selected topical areas? It’s hard to see how it is good news. The Associated content aims at many of same topical categories that newspaper sites target; so the industry looks like it has gained new competition — competition owned by its partner.

Maybe more significantly, Associated is welcomed on the Yahoo site by Matt Ledma, Yahoo VP for local. “We feel that a contributor-driven model is absolutely part of the future of media,” Idema told Reuters. User-gen content can be topical — travel, health, pets, you name it — and it can be local. Local user-gen is the territory voraciously being chased by Examiner.com. Looks like Examiner may have a new competitor in the pro/am, user-gen local space: Yahoo.

These — Yahoo, Associated, Examiner, Demand — are the companies showing aggressiveness today, leaving one question for the moment: Where are the legacy news-producing companies, those who have long created the features-like content in this picture — and why haven’t they bought these startups or built similar models?

April 08 2010

14:13

The Newsonomics of online ad trending

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

Through all the twists and turns of economic boom and bust, Apple innovation after Apple innovation and news company bankruptcy drama, Internet-based advertising keeps growing its share of the ad market.

In a report just released by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers, there are signal numbers that tell us what the next several years of the ad economy will be like. The big, compelling numbers, though: In 2005, the Internet generated 8 percent of of the ad revenue in the U.S. In 2009, that share more than doubled to 17 percent, to $22.7 billion.

So, through thick and thin, digital marketing, with better targeting being introduced around the clock, keeps pulling dollars away from traditional media — TV, newspapers, radio, and magazines. TV ($26.2 billion) and newspapers ($24.6 billion) are still ahead of Internet, but cable (at $20.4 billion) and TV networks (at $15.5 billion) are below. Radio pulls in $14 billion, while consumer magazines take in $10 billion and trades $7.5 billion.

Targeted media continue to grow the fastest. That’s no surprise in ad world in which Yahoo’s real-time ad bidding Right Media exchange is now aiming to match an advertiser with a consumer in the 50 milliseconds or less before a page loads. (How fast is that? A twentieth of a second — fast enough to align reading and commercial interests — and by some accounts the time it takes for each of us to decide whether we’ll stay on a web page, or not).

So, paid search moved up to 47 percent of digital ad spend in 2009, from 45 percent in 2008.

Classifieds were the big loser, down to 10 percent from 14 percent year over year.

Banner ads held steady, up a point to 22 percent, with digital video now grabbing 4 percent of the market, up 39 percent in revenue in one year.

Overall, online revenues were down about $700 million — or 3.6 percent — for the recession-wracked year, and that’s attributable to digital classifieds by itself.

So the online ad industry managed to pull off quite a feat: it stayed almost above water in a year in which traditional media lost more than 20 percent of its revenue. Significantly, newspaper companies’ are reporting a steady-as-you-go year in 2010, meaning what’s been lost in recent years — newspaper ad revenues are down 44 percent since 2006 — is unlikely to be regained in any great numbers.

For the online ad industry, it’s a different story. For the fourth quarter of 2009, it gained 2.6 percent increase year-over-year and 14 percent over the third quarter of 2009, bringing in $6.3 billion.

Collectively, those are sobering numbers.

Even pre-iPad — with its direct questions about how it and its successors may hasten the print-to-digital transformation — the movement is in one direction. More targetable, more measurable and seemingly more efficient digital advertising beats the selling of space (in newspapers and magazines) and time (on TV and radio). Certainly, brand advertising has a place in the marketing future, but as I’ve noted, marketers have far less need for big brands than they used to.

News companies, unevenly, are acting on these trends. They’re increasingly offering a panoply of online marketing services in their areas, with McClatchy’s just-announced embrace of WebVisible search engine marketing programs just the latest public example. It’s a slow rebuilding of the business, digital brick by brick, but it’s one that recognizes which way the wind is blowing.

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