Domain names are part of brand architecture

A version of this piece was published in Marketing in 2007

The internet may be big these days, and it might be respectable.  It might once again be the darling of the stock markets and the ambition of the graduate, but there are still areas where spurs and a Stetson wouldn’t be out of place.

But unlike your run of the mill cowboy, the people that roam these spaces make millions of dollars.  They’re highly organised, professional and skilled, and they’re probably costing you money.

Domain names are the street addresses of the internet.  Amazon.com, google.com, and Yahoo.com were brand names that didn’t exist before they launched onto the web, but McDonalds, Harrods and the BBC were all brand names that weren’t swift enough to register their .com domains before cybersquatters secured them. 

The McDonalds.com domain was temporarily lost to a journalist back in 1994.  After repeatedly contacting them to encourage them to register, Joshua Quittner finally registered it himself, later being stripped of it by NSI, who looked after registrations then.  MTV.com was registered by one of their own VJs, Adam Curry, after the channel showed no interest in setting up a website – he set up his own unofficial site and then left, to the later consternation of the broadcaster.

Although legislation has now largely caught up with this practice, and arbitration procedures exist to resolve the problems it causes, it’s nevertheless inconvenient and costly to resolve.

So how important are domains, and how threatened are they?

For many companies, the domain name is an integral part of their brand architecture – often the primary point of contact for customers.  And a company that’s not sufficiently organised to retain control of its domains can lose them easily to domainers, who circle constantly in the waters beneath.

Domainers often register names on a speculative basis, often taking misspellings – one of the most-typed web addresses is www.goggle.com, occupied by a site claiming to give away laptops.  Other tricks include watching the ‘drop list’ – the registrar publishes a daily  file of all the addresses registered, and Domainers use software to compare the lists day to day, picking out those that have expired – ‘dropped’.

Unwary companies who let their domains lapse – “what are the chances it’ll be noticed?” find themselves having to buy back, sue or go to arbitration.  Most buy back, as the alternatives can be too time consuming when business is being lost minute by minute.

Whilst you can’t simply set up a domain in the name of a well known brand and get away with it, there are all sorts of greyer areas where companies can come unstuck.  A multinational company trading with the same name as a local company can find it’s simply beaten to the name, whilst generic terms can be registered by anyone, as B&Q have with diy.com, and British Gas with gas.co.uk.

It’s not just external forces that battle for control of the website.  Internal conflicts between divisions of companies often cause confusion too.  The web address ‘Britishgas.co.uk’ was until recently controlled by BG Group plc, the overall holding company, which placed a company organigram there, although the overwhelming bulk of traffic there was of domestic consumers.  And until its acquisition by P&G, Gillette.com housed an investor relations website with little consumer information.

But a new trick has arisen that’s getting around the trademark lawyers.  The African state of Cameroon, (whose country domain is .cm) is benefiting from the millions of internet users who daily mis-type .com.  In a deal with a major domainer, they divert all traffic to unregistered addresses (in a county with 18m population and fewer than 200,000 online that’s most of them) to a site called agoga.com – agoga then run ads relevant to your search, potentially presenting competitors to the user.

Domain names are valuable brand commodities – to be guarded and seized when the opportunity strikes.  If Kevin Ham, the man behind agoga, is now worth $300m as a recent magazine article claimed, he’s mostly made it from those who let their guard down, or simply weren’t alert enough to the true worth of these assets – and that includes some big names. 

Microsoft buys aQuantive

A version of this piece was published in Marketing in 2007

Microsoft buys aQuantive

Who own AvenueA/Razorfish

Who have Microsoft/MSN as a client

Whose Performance Plus system is driven by Arbiter

Which belongs to aQuantive

And they all live happily in Seattle

Adserving is the technical bedrock for both publishers and agencies.  For publishers it acts like a carousel projector, placing banner ads into web pages and managing their rotation and display so that the publisher’s revenue is maximised.  For agencies, it allows the performance of hundreds of different ads on many different sites all to be tracked in one place, and for copy to be targeted based on behavioural or other audience information. 

For both sides, adserving is about two things.  Data, and control.  The ability to make advertising accountable, and to act on that information quickly and efficiently.  So fundamental to the business are these technologies, that the online media business simply couldn’t exist without them.

So as the last few weeks have seen a flurry of significant deals in the adserving space, agencies and publishers alike have been staying close to the game.

Like the small tremors felt before a big quake, early signs started last year when Doubleclick bought German-based Falk, an adserving company with strength at home and in Benelux. 

But the ramp up started just a few weeks ago, with Doubleclick going on to acquire the UK’s Tangozebra for £15m, and really warmed up when in turn Doubleclick was snapped up by Google for $3.1bn following a bitter battle with Yahoo and Microsoft.

Microsoft had for years unsuccessfully tried to develop an adserver, and as operator of one of the world’s biggest media websites was loath to put its data in the hands of a bitter rival in the search space.

Having lost out, irony fans were pleased to see the software giant calling for competition investigations into the deal.  But the ink was hardly dry on the letter of intent when Yahoo sucked up the remaining stake in Rightmedia.  Two weeks later, AOL bought Adtech in Germany, and on the same day WPP announced their acquisition of 24/7 Realmedia, an adserving and media sales network.

It wasn’t WPP’s first foray into media sales, but the absorption of an adserver underlined just how concerned Sir Martin Sorrell must have become about the power that the Doubleclick deal might give his frienemy.  Whether it’s to the benefit of WPP’s clients to have an in-house solution is for another article, but it started to look like Microsoft were always the bridesmaid, never the bride – and they were feeling the pressure.

Which brought them to the acquisition of aQuantive, owners of the Atlas adserving business.  If observers had thought the Google/Doubleclick deal expensive at just over ten times the previous year’s revenue according to some estimates, this was even saltier at nearly fourteen times 2006 revenues - $6bn.  Given that Microsoft has been rumoured to have made an offer for Doubleclick at just under seven times revenue, they had to dig deep to play catchup.

And it’s deeper still than it looks.  aQuantive generated more than half of their revenues (58% last quarter) from their ownership of AvenueA/Razorfish – a digital agency business, and got just one-quarter (27%) of their revenues from Atlas, their adserving business.

It’s a bit like buying the house because you like the garage.  Microsoft have ended up with a whole raft of other businesses that they’ll probably dispose of, just to make sure they got the adserver they wanted.

So the music’s stopped and everyone’s sat down.  Is this it?

The truth is, nobody knows how big the online economy is going to be, but by the scale of some of these investments relative to their current income, some people are really betting big.  Adserving is just one service business in the internet economy – there are going to be many more rounds of musical chairs before this year’s out.

The UK is ahead of the US?

A version of this piece was published in Marketing in 2007

Since the earliest days of online marketing, it’s been the widely received wisdom that the US is ahead of the UK.  The gap varies – it used to be two years, and now it’s often quoted as six months.  Whatever the lead, most observers in this country agree it’s the US that has the head.

But talk to American online marketers, and they’re keen to know why the UK is ahead.

The first time I heard this, I thought I’d misheard.  But news had reached the US that the share of media budgets accounted for by online had reached 10.9% - almost double that in the US, and they wanted to know why.

The US advertising market is huge.  At £143 billion a year, it dwarfs the UK’s £18bn.  Americans spend 57% more per head of population on advertising, and seven of the top twenty advertising cities (in billings terms) in the world are in the US.

But online, the picture is reversed.  The UK spends 20% more per head of population than the US does.  And whilst in traditional media, New York is the biggest advertising market in the world (and twice the size of London), the London online advertising market is as big as New York’s.

This reversal of fortune has been caused by three key factors that have held the US back, whilst the UK benefited from local conditions that accelerated its boom.

A third of the US ad market is accounted for by local/regional advertisers, and yet only 8% of online advertising comes from this sector.  Regional advertisers’ importance to the US market is not represented online, where these businesses are failing to make an impact.

Second, the UK market’s rapid growth has been largely driven by direct response, whilst in the US, a greater share of advertising is brand-based.  Whilst 57% of UK online adspend is in search, this figure is just 44% in the US.  US advertisers are much more sophisticated in their understanding of the medium as a brand advertising environment, but the immediacy of the returns experienced by direct marketers has prompted much faster growth.

Finally, the ‘upfronts’ – the US TV networks’ practice of committing advertisers for a year in advance in order to secure the best slots – has meant the market there is considerably less flexible and iterative than in the UK, where budgets tend to have more flexibility on a quarterly level.  Advertisers here have been able to respond much more quickly to the extraordinary growth in the online market, upweighting spend whilst their American colleagues have been tied in to long-term TV deals.

The UK meanwhile, has been making hay whilst the sun shone.  TV suffered as the brand leader laboured under a CRR formula conceived in a pre-broadband era.  Radio struggled as secondary medium status was ceded to online.  As audiences fell, waning confidence amongst advertisers in these media led to revenue falling faster, with online the prime beneficiary.

But despite its success, the UK market is still smaller, less sophisticated and narrower based than the US.

The US market’s scale has given it a natural advantage in the deployment of behavioural targeting tools that let publishers segment their non-prime inventory and sell it at a premium.  These technologies track viewers, so that someone viewing say, more than three pages of sports content in a session can be shown sports-targeted advertising later when they’re looking at the news.  This creates more effective advertising, but also increases revenues as publishers can expand the supply of more highly-demanded audiences.

Video advertising, just starting in the UK, has been established for over a year now in the US.  The heavier share of brand advertisers, particularly in FMCG, has led to faster demand for these less response-focused ad formats.

So the received wisdom that the US is ahead isn’t flawed – it just isn’t that simple.  In any other market, these gaps would be seen as failures – it’s telling that the online media community universally regards them as opportunities.

The future of retail

A version of this piece was published in Marketing in 2007

Google and Doubleclick, Yahoo and Right Media, eBay and StubHub, and now Microsoft and Yahoo, As mergers and acquisition fever hits the online world again, observers are asking whether the dotcom boom has returned.  So is it same old same old, or is it different this time?

If the late nineties and early noughties will be remembered for anything it will be for the dotcom boom and bust.  There was unbridled creative enthusiasm that saw the launch of thousands of companies based around the internet.  But with it came the cynical exploitation of the hopeful credulousness and greed of venture capitals and their investor camp followers.

Some launched companies they hoped would change the world.  Others launched companies designed to part investors from their money.

And for the investment community, there was the phenomenon of speculative momentum – the recognition that future earnings don’t (and never would) justify a stock price, but that this doesn’t matter as long as the market’s rising, and as long as you can sell before the bust.  The trick was not to avoid stocks that had no ‘real’ value as conventional wisdom might tell you, but simply to aim to leave somebody else holding the baby when reality catches up.

Riding this wave of cash came a pack of enthusiastic businesses characterised by their often hazy idea of how they’d make money.  Kozmo, the courier service that would bring you a Mars bar for no delivery charge, discovered too late that this wasn’t a route to riches and introduced a $10 minimum order.  Surprisingly as it might appear, they even had competition - Urban Fetch suffered a similar fate, ceasing trading as the market crashed.

Pets.com had the distinction of being one of the shortest lived companies on Nasdaq – going from IPO in 1998 to bust within 9 months.  Boo.com in the UK raised millions to back their vision of an online fashion store, but collapsed under technology that failed to live up to the promises, and general mismanagement that included putting a call centre in Soho.

Books have been written and films have been made about this remarkable period, most focusing on the slightly more bonkers businesses that burned cash brightly for that short time.  But out of this, some very serious and successful businesses have emerged. 

And behind this success lies one important fact.  Despite the ups and downs of the global advertising and stock markets, there hasn’t been a day when the number of people connected to the internet fell.  Marketers and stockbrokers might have abandoned it, but every day, inexorably, the audience has grown.

What we have now is a mass-market medium, with an immature economy of businesses around it.  So consolidation is inevitable as companies seek to remove costs, and acquisition is expected as players jostle for position.

And not for position in a market that’s ceased growing.  The stakes are already huge, but massive expansion is still expected in the digital economy.  The online advertising market is already £2bn in the UK, £8bn in the US.  But whilst the UK expects over 30% growth this year, the share taken by online advertising in the US is still half that in the UK, so American publishers expect even stronger growth for the next few years.  On the retail side, the IMRG claims that online sales already represent a 10% share of UK retail – whilst only half of the top 100 retailers have transactional websites.

Valuations might have started to look like those in the dotcom boom, but there are two crucial differences.  First, there are real earnings to be multiplied.  Second, the true scale of the prize for the winners of this global jigsaw competition is starting to be more widely appreciated.

As the players compete to assemble the pieces of their puzzles, they’re driven by the knowledge that there won’t be enough pieces for everyone to make a picture.  What they believe is at stake is the future of retail and media, and that’s a pretty big prize.

Advertisers stop worrying about ITV - there's Google...

A version of this piece was published in Marketing in 2007

Far back in the mists of time, two giants of the media world wanted to merge.  The advertiser and agency industries were up in arms – this would result in higher rates they argued, and they feared the abuse of a dominant position would be inevitable.  After all, ITV had few fans in the media buying community, and was widely regarded as arrogant and complacent (never a good combination).

A high price was sought to permit the marriage of Carlton and Granada, and Contract Rights Renewal was born – a formula that ensured advertisers wouldn’t be penalised if they reduced investment in ITV as audiences fell.

Four years on, and many in the industry are now arguing for the formula to be abandoned, or substantially recast.  ITV no longer has such a dominant position in UK media, and the system is threatening its very survival.

So when Sky stepped in to buy 17.9% of ITV last year, it looked like a tactical move to head off Virgin’s media ambitions, and a logical investment for a content and distribution business to make.

Richard Branson claimed that the deal ‘distorted competition’ – but most saw this as the foot-stamping of the spurned suitor, and not the big deal it might have been five years ago.

But now there’s news that Ofcom and the OFT have thrown their weight behind a move to refer Sky’s shareholding in ITV to the Competition Commission.

ITV’s 2006 numbers make interesting reading.  Under the heading “Strengthening ITV1 and growing digital channels”, the press release owns up to a 12% reduction in ITV1’s revenue and a 5.4% slip in adult audience.  Whilst ITV clearly hope that no-one will read beyond the headline, the harsh reality is clear – ITV is no longer the 500lb gorilla it once was.

Hardly the behemoth of competition legend.

Perhaps more interesting is what all this reveals about the state of thinking amongst UK media executives and regulators. 

There’s a continued obsession with the old world that obscures the real impact of the new.  A group of people who have grown up with TV as the highest-profile medium are now responsible for legislation, regulation and management of that medium, and whilst they can’t have missed the decline in profits (Channel 4’s profits fell 70% in 2006, ITV’s fell 18%), all this competition commission talk starts to look like so many birds arguing over a carcass.

ITV made £375m profit in 2006.  In the first quarter of 2007, Google made 16% of their revenues from the UK.  Assuming they made 16% of their profits here too, that’s £108m.  Even if Google failed to grow at all in the subsequent three quarters (pretty unlikely), they’ll make more profit than ITV and C4 combined this year.

Look at the audience picture, and the gap is even starker.  Together, the ITV channels’ share of commercial impressions was 39.1%.  Google on the other hand has a 79% share of UK searches (Hitwise), and most observers agree it’s got a bigger share of revenue.

So is all this fuss being made about the wrong guy?

I’m not suggesting that Google should be the subject of competition commission investigation.  But ITV is a minnow in comparison, and its likely future significance to UK media is lessening by the day.

Last week saw both the launch of Joost (a potentially industry-changing internet TV player) and the approval by the BBC Trust of the iPlayer.  Apple TV has launched, the BBC are working with YouTube, MSN, Yahoo, AOL and Google are all pushing into this space.  The competitive landscape of our TV future is going to be fought out over the internet, and the players will mostly be global.

Increasingly then, ITV is not just a weaker player in TV, it’s a weaker player in media overall.  But as long as UK media is regulated by looking in the rear-view mirror, the composition of ITV’s share register is still going to look like something we should worry about.