Bypassing Media: Is PR the New Advertising?

It’s hardly news that the internet is leading to big changes for the advertising business, a transformation that has important consequences for online media companies that monetize with ad revenue. But in a Web 2.0 world where social media complicates the landscape and yesterday’s hierarchical models of content presentation give way to the audience’s collective wisdom, will brands start shifting resources from advertising to PR? If so, what does that mean for online media businesses?

Advertising and PR exist side by side, as complementary strategies for shaping opinion and motivating behavior. Traditionally, advertising has been a more direct investment in an anticipated outcome, where the advertiser has lots of control of the message and presentation—and pays for the privilege. PR, on the other hand, is about more subtle influence that attempts to work its way through the audience’s network of influencers and authority figures. It’s the network idea that makes PR an interesting option in the social media environment.

In classic PR, the “PR man” (or woman), either at an agency or a company, has a powerful file of media contacts to leverage when it’s time to get the word out. That model is endangered as change roils the media industry: there’s rapid turnover in newsrooms, and in any case, audiences now rely less on the voice of big media to tell them how to think. In a world where social networking and Web 2.0 put the “me” in media, people are more likely to depend on their favorite blogs, discussion groups, RSS feeds, wikis, online Q&A, and direct online networks such as Facebook, LinkedIn, YouTube, Flickr, or Twitter. For an old-school PR traditionalist that could be a challenge; for a PR 2.0 professional, it’s a big opportunity.

That’s because PR’s classic strength of developing opinion-influencing messaging, and its intuitive grasp of how to navigate the web of persuasion, map well to Web 2.0’s proliferating content channels and network-based communication structure. The savvy PR professional can insert himself or his brand directly into the network without having to rely on a third-party introduction from a journalist—not via subterfuge, but by establishing the client brand as a valuable information resource. Then, through strategies such as tagging, RSS, voting, and old-fashioned hyperlinking, the content is disseminated virally.

The viral uptake model is also coveted by online advertisers, who look to social media to drive deeper engagement with products and brands. To be sure social media has many benefits for advertisers, especially in uncovering preferences, needs, and affinities that can provide better targeting, higher conversions, and an advertising experience that feels less intrusive. But the fundamental quid pro quo of the advertising value proposition can only go so far in social media. There’s a point where efforts cross the line into PR. That might mean companies will shift some budgets from advertising to PR as social media gains traction, cutting media sites out of the revenue stream.

The online medium constantly challenges us to rethink assumptions about boundaries between business categories. Advertising and PR will continue to exist as the conjoined twins of the persuasion industry. But in this new world we’re creating online, don’t be surprised if the bright line that used to divide them begins to blur around the edges.

Life After Facebook: Alternative Futures for Social Networking

I had an interesting discussion today about the future of social networking. It got me thinking that this functionality is being applied in two opposite directions. One you might call the Facebook-style umbrella approach. The other is more a la carte.

Sites such as Facebook are aggregating every social connection and sharing feature they can think of under one roof. Everything you’d want to do with your friends, relatives, business contacts, and other acquaintances—or even people who aren’t yet acquaintances but whom you’d probably like to know—is facilitated or enabled under a single social networking brand. It’s very efficient: create one profile, upload photos and videos to one place, enter one friend list, etc. More important from the business perspective, the brand gains tremendous insight into each network member, information that can then be used to target advertising or in other monetization schemes.

In the Facebook scenario there are only a few winners and many losers—similar to how EBay is on top with online auctions, Google wins web search, and Amazon corners the market for online book sales.

At the same time, though, there’s an alternative trend with many winners. These are the sites that are picking and choosing social networking features to enhance businesses across the spectrum of online services: media, e-commerce, financial services, games, informational sites, and all the rest. They aren’t Facebook rivals; they just want to harvest some of the engagement, loyalty, content creation, cost savings, insight into user preferences, and other benefits that various social strategies have to offer.

Sites that use these features well will enhance their businesses. Also, there are significant opportunities for third parties to provide software-as-a-service functionality to customers who lack the technical proficiency to develop applications themselves. While the universe of possible interactions online expands, the user experience paradigms converge. Business opportunities multiply. Sometimes the sum of the parts exceeds the whole.

Trendwatch: What Can Web 2.0 Do for [Your Business Here]

In the past few weeks I’ve heard from several companies that are interested in using Web 2.0 techniques and technologies to enrich their online businesses. The interesting twist is that they aren’t media companies; they’re leading brands in fields such as e-commerce, financial services, and hardware. The Web 2.0 phenomenon has become such a vital element of the online user experience that audiences are demanding it on all the sites they frequent. It’s changed the way people see their own role in terms of interacting with businesses and information.

Web 2.0 started as a media tool that enriched content, generated more pageviews to monetize through advertising, offered a low-cost alternative to content creation, and opened additional channels for distributing content. Using strategies such as AJAX, it provided a richer and more information-dense environment with less visual clutter. It gave the audience a seat at the table rather than a glass pane to press their noses against. The response was highly favorable: sites that adopted a Web 2.0 approach noticed they had more visitors who returned more often, spent more time on the site, and created lots of content. Web 2.0, it turned out, leads to the prized results of deeper brand engagement and loyalty.

If you need a refresher course in Web 2.0, Tim O’Reilly defined it in detail in a well known article he wrote in 2005 (now available in your choice of eight languages). As a quick primer, he contrasts the 1.0 and 2.0 web experiences like this:

Web 1.0		Web 2.0
DoubleClick	-->	Google AdSense
Ofoto	-->	Flickr
Akamai	-->	BitTorrent
mp3.com	-->	Napster
Britannica Online	-->	Wikipedia
personal websites	-->	blogging
evite	-->	upcoming.org and EVDB
domain name speculation	-->	search engine optimization
page views	-->	cost per click
screen scraping	-->	web services
publishing	-->	participation
content management systems	-->	wikis
directories (taxonomy)	-->	tagging ("folksonomy")
stickiness	-->	syndication

The time that’s passed since the Web 2.0 concept was defined is like eons in “internet time,” yet surprisingly many major sites still haven’t gotten the message, and some Web 1.0 sites are still attracting investment and launching, seemingly oblivious to progress in the last five years. Against that backdrop it’s exciting to see online businesses beyond the media industry starting big initiatives to tap into Web 2.0’s power to engage customers, expose them to more products, solve problems, and spend more time on the site. Tools such as community, platforms for user-generated content (discussion groups, blogs, wikis), ratings, RSS feeds, AJAX, multimedia, tagging, and facilitating peer-to-peer interaction vs. a linear business-to-customer approach, are quickly becoming the norm for a spectrum of online activities, not only defining the user experience in the media niche.

In the next waves to break, Web 2.0 is expanding to mobile (the “phonetop”) and ideas about Web 3.0 are starting to coalesce. These days, whatever your online business, envisioning the future in 1.0 terms is like trying to get a clearer picture by adjusting the rabbit ears on a black-and-white TV.

Kauffman Foundation Study: Characteristics of Startups

Last month the Kauffman Foundation released results of its annual survey of businesses that launched in 2004, which explores the unique character of startups from perspectives such as financing, staffing, intellectual property, and owner demographics. The foundation calls the Kauffman Firm Survey, which is tracking the fortunes of about 5,000 companies, "the largest longitudinal study of new businesses ever conducted." The results so far cover the cohort's operations in 2004 and 2005.

Unfortunately the research buckets businesses into antiquated categories that make it impossible to drill down to specifics for online or web services companies (for example, the categories in "high tech" are based on 1991 definitions limited to "chemicals and allied products, industrial machinery and equipment, electrical and electronic equipment, and instruments and related products"). Nevertheless, with startups being such a critical component of Silicon Valley culture and a major driver of innovation in the online and social media space, the survey's findings are interesting. Some highlights:

• More than 91 percent of the businesses survived their first year
  
• Consistent with Silicon Valley mythology, almost half the new businesses reported operating from home or a garage
  
• About 2 percent received patents during their first year of operation, 9 percent received copyrights, and 13 percent received trademarks
  
• Almost 60 percent reported no employees and about a third had 1-5 employees; less than 4 percent had 11 or more employees
  
• Less than 30 percent offered health insurance and only 6 percent offered stock options
  
• 37 percent reported no revenue and 17 percent had annual revenue above $100,000; less than 5 percent had profit in excess of $100,000
  
• 56 percent of the companies used debt financing in their first year of operation; 23 percent borrowed $25,000 or more. Of those with debt financing, 48 percent used personal debt, often credit cards. About 25 percent took on business debt.
  
• 80 percent used equity financing and 9 percent had equity greater than $100,000
  
• 69 percent of owners were men; 81 percent were white, 9 percent black, and 4 percent Asian. 19 percent were under 35, 63 percent were 35-55, and 18 percent were over 55.
  
• About 23 percent had some education beyond a four-year college degree; 53 percent did not receive a bachelor's degree
  
• For 58 percent of owners, this was their first startup. 6 percent were serial entrepreneurs who had launched four or more companies.

Check out the full report for more details.

Social Networking the Next Generation: Kids' Sites

I've been checking out social networking sites for kids. Although the idea seems like a natural it's a more challenging market than for adults because of extra concerns about safety, privacy, and marketing. From the business perspective these add cost and complexity that can slow the growth rate and concern investors.

I haven't covered the full spectrum of options yet, but so far it seems like this is one area of the web where the US is in second place. From what I've seen the Japanese site Sanriotown--populated with the wildly popular Sanrio characters such as Hello Kitty--is the leader, with the most full-featured, fun, and not overly commercial features that include the requisite games as well as blogging, polls, discussion groups, videos, and more.

US sites are more specialized. Imbee is an independent site with a strong content creation platform, including blogs, audio, video, photos, and trading cards. Disney's Club Penguin (purchased from the founders last year for $350 million) focuses on games and chat and touts the fact that it's ad-free...but there's a prominent shopping link. Disney also maintains the Virtual Magic Kingdom (VMK) site, which offers gaming and a tie-in to the theme parks. Webkinz has an unabashed tie-in to the stuffed animals sold by its parent, Ganz. They offer games and chat. Nickelodeon's Nicktropolis is connected to the parent TV network, offering lots of Nickelodeon video plus games. Mattel's Barbiegirls also has games and chat, plus a "design fashions" feature. Most of the sites with gaming also offer the opportunity to create and decorate a personal space, or "room."

Interestingly, the kids' social networking sites are adopting more gaming-derived virtual world technologies than their adult counterparts. This seems to validate the vision that some day (perhaps when these kids grow up!) many web interactions that now occur in static media such as text will migrate to a 3-D virtual reality format along the lines of the Second Life platform.

Just as with social networking for adults, the kids version is attractive for its powerful engagement and loyalty attributes, as well as highly scalable model of user-generated content.

Because of the somewhat higher barrier to entry there's currently less competition among kids social networks than in the comparable adult space. As clear winners emerge on the adult side, expect competition to pick up significantly in the kids arena. Looking at the products currently on the market, there's lots of room for innovation and better quality before this niche is mature.

Hello Kitty Online: virtual (sur)reality integrated into online social networking: