Thursday, July 31, 2008

It'll take more than good search to beat Google

A version of this piece was published in Marketing in 2008

The story of David and Goliath has attracted people over the generations, for its tale of hope for the small guy, for triumph in adversity, overcoming the odds. Hannibal, the Cartheginian commander, is remembered not just for that terrible film with Oliver Reed, but amongst military tacticians for his victory at Cannae where he destroyed a Roman army which massively outnumbered him.

This celebration of the underdog reflects our need for heroes, but also our desire to control and check the powerful.

So the launch last week of Cuil (pronounced ‘cool’) a new search engine from some ex-Google staff is interesting not just because of what it is, but what it says about the incumbent.

What it is, is impressive. Cuil claims to index three times as many sites as Google, using an algorithm that looks not at popularity (the number and quality of links pointing to a site) but at context – examining the context in which the searcher’s keywords sit in a page in order to understand better the relevance to a search.

If you look at search in purely rational terms, the user is only looking in reality for one result, not thousands. But Google’s claim to index billions of pages, and then its practice of presenting thousands of them to the searcher, give the illusion of breadth and choice – regardless of whether they find the thing they’re looking for. This is a powerful proposition, and it’s one the Cuil clearly have in mind when they promote themselves as listing three times as many pages as Google.

There’s another noteworthy feature of Cuil – their attitude to privacy. Coming hot on the heels with Google’s experience with a US court demanding they hand over all the viewing data for every user on YouTube, privacy is a weak spot in Google’s armour. Google hang on to the search data of every user for eighteen months – a fact that unsettles privacy campaigners, particularly after AOL’s disastrous public release of thousands of searchers’ data two years ago.

Cuil keeps no data from its users’ searches, and it makes a point of this. They keep no log files, IP addresses or personally identifiable information – as they put it, “Your search history is your business, not ours”.

The search results themselves seem promising – an interesting and different layout to Google’s, with three columns of text and pictures. A sliding box to the right allows the searcher to drill into different categories – so a search for Orange brings up the mobile phone company as first listing, but categories allow you to focus your search into Orange County, California, Orange Sodas or Citrus fruit.

This is smart and useful, because the engine is making a reasonable fist of differentiating between fruit and phones – for which it needs to understand context. It doesn’t always get this right – Sky TV comes first in the listings for a search for ‘sky’, but there’s a Virgin Media logo next to the listing.

So Cuil’s interface is a useful improvement on Google’s. But good search and a useful interface isn’t enough.

A quick look at Google’s Q2 results (which despite disappointment in the markets were still 39% up on the previous year) shows that 31% of their revenues come from partner sites – other websites which carry the Google search box.

Distribution is the key to Google’s massive success – most sites take Google’s AdSense program, and Google pay big money to them; $1.47billion out of the $1.66bn they earned that quarter.

So Google’s success in gaining distribution is down to two key things. The monetisation they drive from each search is better than their competitors, and their ability to model and predict this is better – so they can cut better deals for distribution partners, with stronger guarantees.

This is the barrier to entry for Cuil. It isn’t just the quality of their product – it’s their ability to drive distribution that will determine ultimate success. So Cuil is an interesting launch, but the chances of it launching that single stone that strikes the giant between the eyes are pretty slim.

Thursday, July 24, 2008

Politics online is more than WebCameron

A version of this piece was published in Marketing in 2008

As conditions in the economy tighten, oil prices rise and pressure mounts on the Government, thoughts are turning to the next election. By law it has to take place by June 2010, and whilst convention usually puts an election earlier, the current climate could persuade Gordon Brown to take it up to the wire.

But the marketing of politicians and parties is changing, and recent events as the 2008 Democratic Party nomination battle in the US unfolded have shown how both voters and politicians are using digital media more to drive the political agenda.

The Pew Internet and American Life project funds academic research into how Americans use digital media, and a newly-released study has shown a massive growth in voter usage.

According to the report, 46% of Americans have used the internet, email or text messaging to get news about the campaign, share their views and mobilize others.

The internet has impacted on three important areas which have shifted the ground on which the election machine rolls, and in all of them, Barack Obama has been the first mover.

From the start, Obama was at a disadvantage. His campaign had less media access, particularly early on, and it was going to be a challenge to get his story out to people – especially without the editing and editorializing that can so affect a candidate’s message.

Obama’s solution was to go direct. More than any other candidate, he appealed directly to the voter, through blogs and podcasts – reaching out without the interference of the media, and making a point of it – “it is because the internet is a neutral platform that I can put out this podcast without having to go through any corporate media middleman” he wrote.

If Howard Dean had pioneered the political blog in 2004, Obama took campaigning 2.0, using facebook, flickr and YouTube. And Americans responded. 35% watched online political videos in 2008 – almost three times the number in 2004.

But it wasn’t just what Obama used, it was how he used it. Sign up to Hilary Clinton’s Twitter, and you’d start to receive her tweets. Sign up to Obama’s, and within minutes he signed up to yours. Now nobody thinks he’s reading these thousands of (being twitter, mostly mundane) thoughts, but it’s good netiquette – and to users of twitter that just meant he got it.

Just as Clinton’s was a conventional ‘top down’ campaign, Obama’s was a grassroots movement. There are over 500 Obama groups on Facebook, one of the biggest being ‘One Million Strong for Barack’, started the day he announced his candidacy. Within an hour, it had 100 members, a week 10,000 and within a month 278,000 members.

This grassroots dimension was reflected in the two candidates’ approach to fundraising too. Whilst Clinton pitched Hollywood and New York for the deep-pocketed donors that were the traditional sustenance of politicians, Obama’s campaign worked the other end of the scale.

Without Obama hosting a single fundraiser, his campaign raised $55m in February alone – 80% of it online. But the real difference was the size of the donations – over 90% being less than $200. Far from soliciting big donations from a few individuals, Obama’s campaign recognized the ability the web gave them to aggregate millions of small donors, together outrunning anything Clinton could achieve with her big-hitter donors.

In the past, politicians here have made lipservice to the web. Webcameron, untended facebook profiles, uninvolving websites. It may be that politicians still believe the internet is a young people’s medium – and since fewer young people vote (60% of 16-24s against 86% of over 65s last time) it’s not so important.

But the age demographic of the internet has flattened, and the web itself has become a force for voters to involve themselves – in the same way they’ve made themselves heard as consumers.

Obama’s ability to capitalize on the new medium was a decisive factor in his victory. In the next year or so, it could provide just such a surprise here.

Thursday, July 17, 2008

Strategy and the short term

A version of this piece was published in Marketing in 2008

Last week’s Bellwether report, the IPA’s quarterly survey of marketing budgets, makes pretty depressing reading, with “the rate of decline gathering to a pace not seen since budgets were hit in the immediate aftermath of the 9/11 terrorist attacks”.

As you will have grown used to by now, internet advertising was the only sector to show growth, with search still showing stronger increases than display.

The Bellwether report is so-called because advertising expenditure has been demonstrated to be a leading indicator of economic performance. Because marketing budgets are easy to alter in the short term, unlike other longer term investments (plant, machinery, property) they are vulnerable to being plundered to make up shortfalls in profitability in the wider business.

In some senses this is a logical tactic to adopt – if corporate performance is affected, the share price could slip, and all sorts of unpleasant consequences ensue.

In Jean-Claude Larreche’s book ‘The Momentum Effect’ he divides strategies into two types – momentum and compensatory. Momentum strategies require the organisation to be pulling in one direction. These are powerful and effective, but require a singular determination to align an organisation around the achievement of a single goal.

Compensatory strategy describes a scenario where actions are taken to make up for shortfalls elsewhere in the organisation, rather than to achieve the goals of the business. Sometimes this is legitimate, he argues, because we have to live in the real world. So a manager with a target to make may ‘pull forward’ business from the following year to meet it. He’s going to have to make it up later, but if he doesn’t do this, he may not be in the game later anyway.

The problem occurs when compensatory strategy becomes the dominant type of strategy within an organisation – a company devotes so much energy to maintaining equilibrium that it fails to move forward.

And this is what we see when marketing budgets are cut in tough economic times. It’s of course true that if you see marketing as a cost, you shouldn’t be doing it at all. It should be an investment – and if it pays back, then you should be doing it regardless of the economic climate, both to maintain sales and the health of the brand.

But this is a lot to ask when the share price is already under pressure, so it’s an obvious short-term compensatory strategy to shave marketing budgets even though the negative effects of this might be known, and we’re seeing the impact of this right now on the Bellwether report.

But as we’ve seen, internet advertising – and particularly search – is still making gains.

Internet advertising is often more cost-effective and accountable. This makes it inherently less risky than other forms of media – and in uncertain times it’s not surprising that people are attracted to anything they perceive as more reliable.

And search is (on the face of it) less risky still. Its cost-per-click basis means people regard this as a transfer of business risk away from the advertiser and to the media owner. This risk-transfer has driven the stratospheric growth curve of search, but it is a simplistic model.

Because whilst it’s a hugely valuable marketing tool, search doesn’t create demand. It fulfils it.

So advertisers are right to continue to invest in search during a downturn – after all, it’s more important than ever to be catching every customer. But search depends on other activity to stimulate demand over and above latent levels, and it is this that will be lost as investment slips in other areas.

So if businesses are drawn to spend more on search because of its lower perceived risk, they may find themselves spending still more on this activity to compensate for slower demand.

What might have been a short-term compensation strategy to maintain corporate performance, could become an eroder of efficiency and an inflater of costs – at exactly the time when better performance couldn’t be more important.

Thursday, July 10, 2008

Reach for the tinfoil beanie - the snoopers are out there!

A version of this piece was published in Marketing in 2008

There are, I am assured, people who walk around wearing tinfoil on their heads because they’re convinced that aliens/the CIA/the government are beaming thoughts into their heads.

They are of course, barking mad.

As, we usually assume, are all the privacy activists who go on about CCTV, oyster cards and cookies.

Two years ago I wrote about AOL, who had in a rather spectacular goof, released data they held on the search behaviour of thousands of users. They claimed it was anonymous – but it took just one day for an enterprising newspaper to track down one searcher’s identity by deducing this from her searches.

The release caused a storm, as it turned out few people were aware just how much data was routinely collected about them.

Most search engines, for instance, keep a history of every search you make, with Google only deleting records over 18 months old. Websites keep logfiles, perhaps never deleting them, of which web pages you’ve visited, what you filled in on forms, what images you view.

And it’s this that’s now got Google into trouble.

Media giant Viacom, who have been in a long term dispute with YouTube over alleged copyright infringement, got a New York judge to order that Google (YouTube’s owner) hand over internet addresses, email accounts and a history of every video ever watched on the site.

The judge, Louis Stanton, dismissed privacy concerns as ‘speculative’.

But the consequence of this is that users of YouTube, which serves over 2.5 billion videos a month to 70m users in the US alone, are now exposed. Their personal media consumption is now something for Viacom to pore over, regardless of whether they had consumed content Viacom owned the copyright for.

And as some observers have pointed out, this would never have happened if Google hadn’t collected the data in the first place.

Meanwhile back in the UK, another, connected, story has resurfaced. I wrote back in February about the BPI’s efforts to get ISPs to spy on their customers on the BPI’s behalf, punish them for infringing the law, and provide evidence to record companies.

The BPI got quite upset about this, calling my observations “quite wrong”, and claiming I’d recycled the information from the Times. They wanted to set the record straight, as they expected this story to run and run.

I had in fact got the information from the BPI’s own website.

But I quite wrongly expected this story to go away. It seemed to me that nobody would be so daft as to think they could build a business by suing their customers.

It seems though, in this I was wrong.

Last week, Virgin Media started sending out letters to customers that the BPI had identified to them, telling them that filesharing copyright files is illegal. Virgin’s view is that they’d resist cutting off consumers, preferring an education campaign.

But at the same time, the BPI sent out letters to the same users, threatening “We don’t want you to face legal action, or risk losing your internet service”.

Though I don’t download music, I do expect my ISP to guard my privacy. Moreover, I don’t think it’s any of their business what I do with my internet connection.

Just as I don’t expect the post office to read my mail or BT to listen to my phone calls, I don’t expect an ISP to snoop on my internet connection without a court order compelling them to.

Carphone Warehouse told the BPI to sling their hook – Charles Dunstone described how the fax machine in his office, unused and forgotten for over a year, ground into life to receive a fax from the BPI requesting their cooperation. Good for him.

At polar opposite ends of the modernity scale, Google and the British Phonographic Institute. One cavalier with our privacy, the other trying to get others to invade it on their behalf. I’m reaching for the tinfoil…

Thursday, July 3, 2008

Regulators are out of their depth when it comes to the internet

A version of this piece was published in Marketing in 2008

  The media village. It’s a phrase we often use (conscious of its irony) to describe the close-knit and often incestuous community that’s built up around the media and entertainment business in the UK.

It’s a slightly self-deprecating description – perhaps a function of British reserve, a reluctance to trumpet success. But successful it is – responsible for £1bn in exports in 2006, and remarkably (given all the complaints over the level of US-sourced programming) – the UK is a net exporter or television content, with the Office of National Statistics showing a £100m surplus over imports.

This is something to be proud of – after all, US media companies, with their huge domestic markets, have an innate advantage when it comes to funding production. That British companies are more than holding their own is a real achievement – and a reminder of how increasingly international the media markets are.

The web-based media market has no such statistics published about its contribution to the balance of payments – but it’s a pretty safe bet that we’re a net importer, with MSN, Yahoo, Google and AOL mopping up a substantial part of the market in the UK.

The web media market is a truly international one, dominated by a few mostly US companies who have benefited from their huge domestic market size, access to receptive capital markets and little domestic regulation.

But whilst the UK TV industry has evolved to become a sophisticated international business competing on a global stage, it’s notable that regulators and legislators still seem to hark back to the village days.

Andy Burnham, Secretary of State for the Department for Culture, Media and Sport used his speech to the Convergence Think Tank last month to announce that the UK would be rejecting the EU’s directive allowing product placement on TV.

His concern was that product placement ‘contaminates’ programmes, and that "British programming has an integrity that is revered around the world and I don't think we should put that hard-won reputation up for sale."

What’s not clear is whether he thinks this is a commercial argument or a consumerist one.

Consumers need protection, the theory goes, against the exploitation of their attention. There should be a clear line between commercial messages and content, because implied endorsement that placement brings is untransparent and unethical.

Now, in between living the life digital and the life real, I watch TV from time to time – and it’s pretty clear to me that product placement is rife, both in UK and US-sourced programming.

We’re a bit more subtle in the UK (it typically goes under the guise of ‘set dressing’) but in the US they really go for it. Action series ‘24’ has Ford, Cisco and Apple, whilst American Idol has its judges sitting behind large Coca Cola tumblers and the contestants waiting in the Coke lounge.

Cheesy it might be, but nobody died. As viewers, we’re exposed every day to these placements when we watch American imports (although Idol pixellates the glasses), and nobody really minds.

The reality then is that we’re only actually ‘protected’ from product placement if we watch British TV – the rest of the time we’re fair game; and that renders these rules rather pointless.

On the commercial side, it’s surely the responsibility of the executives of these media companies to decide how they manage their reputation – not the culture minister.

So this pronouncement by the culture minister has little effect beyond hamstringing our domestic industry, taking away a source of revenue from them that helps them to compete in the global media market.

The idea that government would stand in the way of business in this way in the US would be unconscionable – Kangaroo would be celebrated; here, it’s referred to the competition authorities.

If we want to have a strong domestic base for our media companies (both in TV and online), regulation is going to have to catch up with the new world order, and see that the real threat both to businesses and consumers is what happens outside the village.