Friday, August 31, 2007

Ads on YouTube will struggle to pay the bills

A version of this piece was published in Marketing in 2007

When Google bought YouTube in October last year for $1.6 billion, its revenues were virtually non-existent, and nobody there seemed to know where or how it was ever going to make a profit.

Was this a return to the old dotcom days when companies were measured by their burn rate – the pace at which they burnt through their investors’ capital – or had the ubermenschen at Google spotted something us mere mortals hadn’t?

Whilst Google’s paid-for search listings have been next to much of YouTube’s content for some time now, attention is mostly focused on the video – and if it performs for advertising like any other social networking site, revenues aren’t likely to be spectacular.  Almost a year after the acquisition then, with a small amount of uncharacteristically Google fanfare, we’ve just seen the launch of in-video advertising on YouTube.

We’ve all seen pre- and post-rolls before, and we know how irritating they can be.  Google have wisely avoided this video format, but not just for this reason.  Pre-rolls aren’t interactive.  You can’t click on them, and they can’t be served out of an adserver.

So whilst pre-rolls appeal to traditional media folk (they feel like ad breaks and work like linear media), they’re just not going to set the world alight.

Google have instead gone for an overlay – an ad that appears over the bottom 20% of the video screen and runs for ten seconds, starting 15 seconds after the video.  The ad is partly transparent, and the video over which it plays is paused automatically if the user interacts with it.

This isn’t a new approach.  Videoegg, a competitor of YouTube have been doing this for just over a year now and claim to have patents for the technique.  But then Google didn’t invent either search or the Vickery auction that has so successfully powered its growth – they’ve just done these things better than anyone had before.

YouTube built its name on content created by its users, and understandably this move has created much controversy on the messageboards around the site.  Interestingly though, whilst predictably there have been the usual anti-commercial outbursts from the swivel-eyed end of the community, the majority of posters have taken a more supportive view, either accepting the need for YouTube to make money to keep their service free, or suggesting different ways the site might consider implementing in-video advertising.

One of these is sharing revenue from advertising with the content owners who upload videos.  Competitor video-uploading sites Revver, VuMe and Flixya all offer to share ad revenue, and YouTube founder Chad Hurley announced a similar deal to the BBC in February which was slated for launch “in a couple of months”.  The company have gone a bit quiet about that one since then, and it hasn’t formed a part of the current plan.

So if their audience is prepared to accept the format, is this going to be a hit with advertisers?

Google’s record in selling non-search products to advertisers has been poor to date.  The refusal to accept third-party adserving (the bedrock of the accountability that has driven online advertising’s success), combined with the lack of a sales culture deriving from a lead product that sells itself, have led to lacklustre performance when it comes to display advertising.

And as I wrote about last week, advertising in social media is cheap.  Response rates tend to be low, and advertisers offset this by reflecting it in the rates they pay.  So unless the performance of this new format is radically different from other types of advertising, it’s unlikely to yield the sort of revenues that would move the needle at Google.

So the format’s good, the audience seem prepared to tolerate it, YouTube is competitively a strong product.  But it’s going to take a bit more than this to get their $1.6bn back.

Thursday, August 23, 2007

All Human Life is There

A version of this piece was published in Marketing in 2007

“All Human Life is There” – the words that once ran over the masthead of the News of the World describe social networking sites like MySpace, Facebook and Bebo even better.

Lots of attention has been given over the past few weeks (in what seems to have been a bit of a slow period for news) to the pitfalls of advertising in these sites.  Most has focused on whether such activity is safe for advertisers (who might end up next to distasteful content) – but a much bigger question is whether it’s worth it in the first place.

When an advertiser was spotted recently appearing next to a British National Party group on Facebook, a small journalistic feeding frenzy ensued with commentators competing for the holier-than-thou spot.

But most of the sites were already addressing the issue.  MySpace had in place a PG rating for profiles on their site which advertisers could select to avoid appearing next to inappropriate content.  Bebo don’t run advertising on users’ profile pages, so it’s unlikely to be an issue, and Facebook quickly rushed out a fix, allowing advertisers to exclude advertising from running on groups (rather than individual people’s pages) which was the source of the problem on their site.

So it all looks like job done.  Social networks can keep on raking in the money, and advertisers can sleep soundly at night knowing they’re not appearing next to material the Daily Mail would get upset about.

Except it doesn’t work like this.

A huge chunk of the advertising running on these sites is bought through ad networks – sales houses that aggreggate together billions of impressions from thousands of sites and sell them on cheap to agencies.

Much of this inventory is ‘blind’ – the agency doesn’t know where the ads are going to appear – and it’s commonly used as a way of bringing down the average cost of a media schedule so it doesn’t look too daunting.

But it’s much harder to apply controls over content when buying media this way, and the low price reflects the fact that environment isn’t really a primary consideration.

Because whether you buy advertising on social networks directly or indirectly, the chances are, it’s cheap.

And it’s cheap for two reasons.

First, there’s absolutely boatloads of it.  Social networking is one of the most popular online activities in the UK, and it generates huge quantities of audience.  Second, it generally doesn’t work very well.
People who go to these sites are highly engaged with the content, and not in a consumer mindset.  Forrester’s new report “Marketing on Social Networking Sites” is spot on when it says advertisers should “ditch the marketing tactics – this is about building trusted relationships.”

Advertisers have already spotted this, and offset poor response rates with low cost per thousands for the media.  Whilst few have moved on and created the imaginative and engaging marketing programmes that Forrester call for, they’re filling their boots with cheap banner ads.

The argument about appearing next to distasteful content is an old one, and rests partly on whether audiences consider there to be an implied endorsement by the advertiser of that content.  Marketers have fallen into three camps – the ‘get me out of here’, the ‘consumers are smart enough to make the distinction’ and the ‘don’t care just make it cheap’.  There’s no right answer – each of these positions reflects the needs of different brands and the views of their stewards.

What we have to remember here though is that we’re in a different sort of media environment.  Here, all the content is made by real people, not journalists or publishers.  So it’s their media not ours, and it should be us that treads carefully when we place our wares there.  But more than this, it reflects real life – warts and all.  Social networking isn’t to be criticized for this, it’s to be celebrated for it.
All human life really is there, and it’s up to marketers to figure out how comfortable they are with that.

Thursday, August 16, 2007

Net neutrality - who controls what you see?

A version of this piece was published in Marketing in 2007

For over a year now, the argument over net neutrality has raged in the US.  Now it looks like the BBC’s iPlayer is set to ignite the same debate over here.  BT, Carphone Warehouse and Tiscali have reportedly held informal discussions about the impact of TV being carried over the internet, and the fact that the ISPs bear the cost of providing sufficient capacity.  So what is net neutrality, and why is the BBC upsetting the apple cart?

Internet Protocol (IP) governs how files are transferred around the internet.  Whether it’s an email, a picture of your auntie or an illegal copy of Pirates of the Caribbean, it’s all the same to IP, which shunts the bits and bytes that make up the file around the internet until you receive them.  IP doesn’t discriminate between these files, and treats them with equal priority.

This was fine when IP was created, and files were mostly pretty small.  But a video file can be thousands of times larger than an email, and it’s much more time-critical.

If an email is delayed by half a second, you won’t notice.  But if you’re watching video live as comes down the line (what web people call streaming), you’ll lose patience rapidly if it judders and halts all the time as the file struggles to get through to you quickly enough. 

So ISPs in the US started to push to be able to discriminate between the types of content they carry.  Prioritising video, they argue, will allow them to provide a better quality of service to all users, by delivering urgent packets faster.

ISPs provide us with our connection to the internet, buying bandwidth and dividing it up amongst their users.  Bandwidth is the biggest cost on their business, and the rise in online video is giving them a massive headache – according to Cisco, American Video sites alone are responsible for as much traffic in one month as the entire web in 2000.

But net neutrality advocates argue this is the thin end of the wedge.  Allow discrimination, they say, and you open the door for differential charging, and for the selective blocking of services that might compete with the ISP’s other business.

This has happened in the US, where one local ISP and telco blocked internet phone calls before being hauled up by the FCC.

But ISPs have gone further.  Bandwidth-hungry content like video should be made to pay for carriage, they say.  TV companies pay for carriage on cable, so why not on the internet? 

There’s no doubt the ISPs are faced with a problem.  Consumer prices for broadband have been falling consistently over the past few years, as demand for bandwidth has soared.  ISPs have to balance their investment in infrastructure against the revenue they can generate, and IPTV is throwing all their sums.

But there’s a fundamental difference between the cable TV and ISP business.  The customer proposition of cable is packages of TV channels – whilst that of ISPs is more simple; access. 

Although the early days of the internet market started with ISPs selling exclusive content to consumers, those so-called ‘walled garden’ packages (AOL, MSN etc) declined in popularity and have all but been abandoned as content and access businesses have diverged.

So consumers want to pay their ISP for access, and to be able to make their own choices about what content they see.  Just as consumers rejected the walled garden for web content, they’re likely to reject it for TV too – if you want to watch ‘the Sopranos’, you don’t want to experience a slow and jerky picture just because HBO haven’t got a carriage agreement with your ISP.

The problem is that ISP companies aren’t just worried about bandwidth.  Both BT and Tiscali have also got TV businesses - they’re in competition with all those other content owners on the internet, and they’d like to retain their position as gatekeeper, controlling access for consumers. 

So the fight around net neutrality isn’t just about ensuring that TV can be delivered effectively over the internet.  It’s about who controls what you see.

Thursday, August 9, 2007

Crowdsourcing football

A version of this piece was published in Marketing in 2007

In pubs and bars around the world since time immemorial, men have gathered together to share what men share.  What cars they drive, what cars they’d like.  How the mother-in-law’s come to stay again.  How the Kings of Leon are basically Lynyrd Skynyrd (only younger).

But more than any of this, more passionately argued, more fiercely debated, is football.  The tactics and strategies around player selection, transfer, and condition.  The boardroom battles, the management politics, and how much the replica kit costs. 

Every issue that could be covered is done to death, like a global game of back-seat driving, and everyone’s an expert.

But although progress has been made in recent years, few football clubs are run like businesses and even fewer are profitable.  Many are the playthings of the super-rich, the natural accessory for the man who has everything, and their boards often comprise the great, the good and the otherwise worthy.

From Simon Jordan’s Crystal Palace to our own Chris Ingram’s Woking, they are labours of love rather than profit (although not always by choice).

But now the Trialogue is coming to football. is a website which plans to own and operate a football club.  48,000 people so far have registered their interest, and once they reach the 50,000 target the plan is to buy a club.  Each member will contribute £35 a year, in return for which they’ll get one share in the club through an industrial provident society.

After deducting £7.50 to run the website, the remaining £27.50 is made available to buy the club, fund transfers and infrastructure investment.

Members then get to discuss online their views on the club’s performance and most importantly, to vote on team selection, player transfers and club business.

I’ve written a lot recently about how some smart brands are creating valuable business by handing over control to consumers.  Trialogue brands like Nike+, Lego Mindstorms and Threadless have created a fundamentally new consumer dynamic, moving from being the creators and distributors of products to being the facilitators of consumer to consumer relationships.

Like open-source software and the copyleft movement, these brands are eschewing direct control in return for the wisdom of crowds and the power of social networking.

It is access to other consumers that makes Nike+ compelling – the value of the brand lies in the interactions it facilitates between the 37,239 people who uploaded a run in the past 24 hours.  Lego’s value lies in the combined power of people to create new uses and configurations for their product, and Threadless in the participation of individual people in the creation of their products.

James Surowiecki’s 2004 book ‘the Wisdom of Crowds’ discussed the peculiar ability of large groups of people to make judgements which when aggregated turned out to be more accurate and reliable than those of individual members of that group or even than experts.

His opening anecdote described how the crowd at a county fair had correctly estimated the butchered weight of an ox when their guesses were averaged – more accurately than the local cattle professionals, and the book goes on to draw numerous other parallels from the worlds of economics and psychology. will draw together the collective wisdom of the crowd, and deploys it to run a football team.  It creates the first trialogue sports team, taking fantasy football to a new level.  More importantly, though, it will give 50,000 people the chance to be (at least in a small way) Roman Abramovich – next time they’re talking tactics, it’ll be as a club owner.

Whether 50,000 people will make better decisions than either the professionals in football or the super-rich will be interesting.  What is certain is that they’re going to have a lot more fun trying.

Thursday, August 2, 2007

You are who you know, online

A version of this piece was published in Marketing in 2007

In the 1800’s, the Hooligan family established a reputation for themselves in Ireland that caused their name to fall in to the language.  In later years, perhaps understandably, the family changed their name, adopting Houlihan to distance themselves from their forebears’ reputation.  

The Hooligans knew the value of a name.  They knew it could create personality for a person you’ve yet to meet.  Think, Rockefeller, Iscariot, Hitler, Hilton – they all create associations you just can’t help.  And just as this works for names, we’re seeing a similar phenomenon online today, a sociological parallel replicated by search engine algorithms and the optimisation of websites.  

Each site has a name (its domain), and to a search engine this represents its family & background.  Older established sites tend to have more visibility in natural search results, resembling a family with deep historic roots.   Families like this tend to have built generations of wealth, be it property, land, financial assets or treasures from centuries ago.  And this is how search engines value sites.  

If a site has been running with a steady flow of good insightful content for many years, it will have built up a good presence in search engines.  Stronger sites end up linking to this content as a result, just like families tend to associate with others in their social class, and with similar interests and background. 

In search engine results, we’re presented with listings for hundreds of sites that we might never have visited.  It’s a chance for the sites to present themselves and see if we want to associate with them.  

Many sites will have optimised title tags and descriptions in their listings, going beyond a simple brand listing and providing some further background information to help users choose.  Users make instant judgements, using subtle cues in the search listing copy to determine whether this is a site they want to spend time with, just as they make snap decisions about people based on first impressions.  This is a game of nuance and delicacy, where getting the right level of optimisation is crucial, and a title that screams keywords all over it may not appear the sanest of characters to deal with.

In life, some families migrate, split, or start anew, and it is usually these that have a tougher time making ends meet.  Similarly, a new site or domain struggles initially to rank well in natural search, usually taking time to build a strong foothold.  

As networking families and business people have known for years, building acquaintances and relationships can drive opportunity your way.  And the power of that network is determined by more than just the sheer number of people in it, but by the quality of those people, the relevance of their shared interests and the closeness of their relationship to you.  In exactly the same way, search engines evaluate the quality and relevance of these relationships, putting more value on those that are closer to your interests and using these factors to influence your position in the rankings. 

So don’t hang out with the wrong crowd.  Don’t live in bad areas; associate yourself with transients, and with people whose interests don’t coincide with yours.  Don’t move house too frequently, establish yourself in your neighbourhood and put down roots.  Contribute to your community, and have valuable and interesting things to say.

Just as there are tips for social climbing, there are techniques for optimising your website for search engines.  And whilst people nowadays might draw the lines at taking elocution lessons to boost their social standing, their equivalent online are critical to business success, making a Rockefeller out of any Hooligan