Thursday, October 25, 2007

Forget borders online!

A version of this piece was published in Marketing in 2007

For some years now, the Guardian’s website has attracted more readers in the US than the paper does in the UK.  Last week, Guardian Media Group announced the launch of Guardian America – a website designed to tap into what the company sees as a vast unmet need for liberal-framed news and views in the US.

The Guardian is the first newspaper outside of the financial press to go international through the web, and in doing so, it’s making use of one of the fundamental effects of the move to online business – the irrelevance of distance.

From the web’s early days, observers predicted that the medium’s distain for geography and borders would open up new markets for businesses.  Any business whose product is essentially information would benefit quickly, they argued, and even businesses with physical products to distribute could benefit from the reduction in economic friction that resulted from the ease of informing potential customers of their availability.

But the reality has been slow to catch up with the potential.

This is largely because the web poses significant organisational challenges for businesses in several dimensions. 

Between disciplines, the web raises the bar for co-operation between operations, marketing, finance and management.  Failure of operations to deliver on marketing claims can be given wide exposure by consumers, the shift of marketing spend to being a cost of sale can challenge long-established budgeting practices.  And for all, the speed of competitive change can strain processes as the business cycle accelerates.

Within the disciplines it exposes discrepancies and unaligned practice – differential pricing can become visible to consumers, contradictory offers become apparent – and always risking the full glare of public attention.

But it’s internationally that some of the toughest obstacles lie.  Historic power bases guard their autonomy jealously, and tension between local and central management is common. 

The web allows businesses to ride roughshod over these conventions – trading across borders, exploiting local opportunities and weaknesses and ignoring the established process.

Back in 1999, when web advertising was still in its infancy – just a £50m market in the UK – the demand for financial services advertising had rocketed, and as Christmas approached, rates had become uneconomic as more unsophisticated buyers piled in regardless.  In response, my agency moved its entire financial media buying into the US – targeting only surfers from the UK. 

US publishers seized this opportunity – this audience was regarded as wastage, as they couldn’t usually sell it – and we were able to deliver our volume objectives, at an 80% price discount against the UK market. 

This is something that would have been much harder in traditional media, but online buyers realised that in this medium they could view non-domestic media, manage and track their performance through adserving, and trade with them easily on the phone and email.

The prize for those prepared to throw away convention is potentially a rich one.

When Rupert Murdoch wanted to launch a TV service in the UK, he eschewed the high-tech, high-cost approach of the official licenced satellite TV company, BSB and simply rented capacity on an existing satellite, uplinking it from Luxembourg to avoid burdensome UK regulation.

Whilst his competitors stuck to outdated rules, he realised that technology had rendered the regulations irrelevant and used this knowledge to create the business we see today.

So the Guardian’s launch in the US is a logical move which exploits a new borderless media world – it’s an imaginative outbound venture to the biggest media market on the planet.  But whilst regulators in the EU debate the rules over media ownership here and across the continent, they might do well to remember that most of the traffic is going to come the other way.

Thursday, October 18, 2007

Virtual worlds for kids

A version of this piece was published in Marketing in 2007

3D environments like Second Life and World of Warcraft have made good headlines over the past year, with marketers wrestling with the implications for brands and the opportunities in potential new markets. 
But recent coverage has been more sceptical – despite the oft-quoted millions of registered users, relatively few are actually in-world at any one time - SL in particular has continued to show small numbers, with only 40,000 online as I write, at breakfast time on the US West Coast.
Advertisers and retailers, who initially had rushed in are having second thoughts – scaling back their operations and closing stores.  So are virtual worlds just a bubble, or are we going to see long-term growth? 
To answer that question, we need to look at tomorrow’s users.
Because whilst virtual worlds for adults are seemingly more niche environments, those targeting kids and teens are experiencing phenomenal growth, and fuelling multimillion dollar acquisitions.
Launched in 2005, Club Penguin was acquired by Disney for £350m in August this year.  Designed as a games and chat space for 6-14 year-olds, the site has over 12m activated users.
Plenty of functionality for non-subscribers ensures there are always plenty of kids online, and provides a place for future subscribers to become addicted to the site.  And the business model works – there are 700,000 paid subscribers who get to decorate their igloos, dress their penguins and adopt more puffles – the digital pets in the site.  At $58 a year, this site’s already generating around $40m in subscriptions – hence Disney’s interest.
But this isn’t a trend restricted just to the US.  One of the biggest kids sites is Stardolls – a site founded by Scandanavian mother who had a lifelong interest in paper dolls.  From its homestyle roots, Stardoll has grown to have over six million users every month, and is backed by Index Ventures, the VC that backed Skype, Joost and Betfair.
There’s no subscription here, but members buy (and parents encouraged to give) stardollars, the currency that can be spent on clothes for your Stardoll, or decorating your suite.

Thursday, October 11, 2007

Has Google lost its way?

A version of this piece was published in Marketing in 2007

When Google launched in 1998, it was a breath of fresh air.  In a world increasingly cluttered with pop-ups, here was a site that couldn’t have been simpler. 

Other sites had done simple search interfaces before – Altavista had pioneered search in this way – but the competition had lost sight of consumers’ needs and a battle to create portals was under way.  The bulk of investment in online publishing was going to create vast multi-dimensional sites, the objective being to capture as much of the online consumer’s media time as possible. 

Google ignored this received wisdom, focusing on stripped-down design combined with an uncompromising drive for relevance – to give consumers what they wanted; relevant results, fast.

For the first few years, Google carried only natural listings.  In 2000, when they started carrying paid-for listings, the market anticipated push-back from users.  But the company cleverly built relevance into the paid-for listings, making the ranking dependent on both the price bid for that keyword and the clickthrough rate it attracted – preventing bidders degrading the quality of the results by pushing irrelevant results up the rankings.

The result has been a surge in growth in both audience supply and advertiser demand that’s unmatched in media history. 

But have Google lost the focus for which they were famed?  Googlewatchers across the world are starting to question whether the company has started to compromise its zeal for relevance, as investors press for returns on the gargantuan share price.

There are two pillars to Google’s results – the ‘natural’ listings on the left hand side, and the ‘paid-for’ at the top and on the right – and both have been subject to recent speculation in the relevance debate.

The contribution of relevance in determining the ranking of paid-for results has recently been reduced for the top listing – in other words, it’s easier to bid your way to the top without having to be what the consumer was looking for.

Google expect this to yield greater revenue from the search results, and they may be right.  But many observers see it as the thin end of the wedge – the notion that Google would compromise relevance for short-term cash would have been unthinkable even a year ago.

But it’s in the heart of Google’s customer proposition, the natural listings, that the greatest debate is taking place. 

The Search Engine Optimisation (SEO) business is a rather strange and subterranean one.  Practitioners are engaged in a quiet battle of wits with Google – striving to understand the inner workings of the algorithm that determines the rankings, in order to lift their clients’ sites to greater prominence.  Meanwhile Google constantly tweaks their methodology to defeat these attempts, setting rules on what they deem legitimate practice.

But recently, Google have stopped enforcing these rules so rigorously – and there’s even been the suggestion that they’re turning a blind eye when offenders are also big spenders on paid-for listings.

A site’s ranking is based partly on its ‘link foundation’ – the number and quality of sites linking to it.  Link Networks have thrived, paying often irrelevant sites to link to their clients to boost this, and there are plenty of examples of major UK car insurers appearing on US-based NASCAR sites that prove it – none of their customers are likely to be there.  These advertisers run the risk of being downgraded by Google, but their SEOs clearly believe it’s worth the danger.

Similarly one UK national newspaper carries a paid-for link on every page of its site to one insurer, putting at risk its own position in Google but presumably believing it’ll remain untouched.

So whilst Google has been making a lot of noise recently about SEO, there’s a feeling that they lack the resources and perhaps the will to take action.  Wise advertisers are circumspect about breaching guidelines and ensure their SEOs stay in line – but when some are openly talking about their strategies to circumvent Google’s rules, the search engine gambles its credibility if it doesn’t take action.

Thursday, October 4, 2007

IAB gets another notch on its bedpost

A version of this piece was published in Marketing in 2007

Every six months, new figures are released by the Internet Advertising Bureau, setting out the growth experienced in online adspend.  In what’s becoming a bit of a tradition, the IAB likes to point out which medium they’ve passed – last time it was national press, this time the notch on their bedpost is direct mail.

And as the powerpoint rolls by, there’s no doubt that TV is being lined up for notchdom somewhere around 2009.

At almost 15% of UK adspend, the UK gives the highest share to online of any market in the world, and growth has – incredibly – accelerated this time.

As each quarter builds on a larger quarter, the percentage rate of growth naturally slows.  2006 saw a 41.2% increase – the first half of 2007 has seen a 41.3% hike compared with the same period the year before.

Behind this was classified advertising which experienced a remarkable 72% surge, moving to take £1 in every £5 spent online, and search which grew 44% and now takes a 57% share of total online advertising. 

But whilst the strongest growth came from the more direct end of the business, there are signs that the internet is starting to be recognised as a powerful brand advertising medium. 

Traditionally, Finance and Travel – both intangible products that were ideally suited to online selling – have dominated web advertising.  But the Automotive category, which just three years ago languished as one of the smallest categories online, has just overtaken Finance and now accounts for 12.5% of total online spend.

This is important, because whilst few cars are actually sold directly online, it’s long been known that the internet plays an important influencing role in the purchasing process for cars.

Ten years ago I set up the website for a well-known car manufacturer, and like many marques, they wrestled with the channel conflict that the web potentially represented.  Dealers held the customer relationships and all the data relating to ownership, and they guarded it jealously.

To them, the web felt like a real threat.  Would manufacturers use it to go direct, centralising CRM and disintermediating the dealer? 

In the event, dealers were delighted – online sent them fewer Saturday tyre-kickers, and if anything their challenge was to be as well-informed about the product as the web-prepared consumer.

So websites quickly became an important component of automotive marketing, but advertising took much longer to establish itself.  That’s all changed now, and online brand advertising has become a core part of the car marketer’s toolkit.

This is encouraging for the online ad business, who for five years now have been trying to persuade FMCG advertisers of the ability of online to deliver brand messages.  If cars can make use of brand advertising online they argue, why not soap powder?

There’s no doubt the audience is there, and there’s no doubt the medium can be used to reach them.

But FMCG marketers remain unconvinced.  Whilst direct marketers have more accountability than ever, brand marketers are less supported.  Case studies abound into the brand impact that advertising online can bring, but what is lacking is an effective planning toolkit to implement these learnings.

The most fundamental of these tools is an accepted planning currency.  The industry has been moving forward on this, but progress is pitifully slow.

Many in online think that FMCG market are applying double standards, calling for greater accountability in online whilst continuing to invest in TV.  Online practitioners are unwilling as they see it to drag their levels of accountability down to those of traditional media.

But TV sets the standard by which other media are judged, and the online ad business really needs to get to grips with this.  The success of the automotive section should be the spur the industry needs to address this – if they want to add TV to their bedpost, a planning currency has got to be their first step.