While the web provides an advertising environment with the potential for unparalleled visibility into marketing spend and ROI, tools to help agencies and advertisers make the most of the opportunity have lagged behind. Many companies are working on pieces of a solution, but few have the scale to implement products that cut across the highly fragmented online landscape and gain critical mass.
Last month Sapient, the online marketing and consulting firm, released results of a survey that suggests the rapid growth of Web 2.0 content and presentation options is only making the problem worse. “Marketers lack the tools necessary to optimize their marketing efforts across the full spectrum of digital channels,” Sapient concluded. Survey respondents were particularly interested in social media, but found those results hardest to track.
The respondents were comfortable with their ability to measure responses to email and search marketing efforts and wanted comparable accountability for spending in other channels. They also wanted reporting that provides “apples to apples” results across all channels to facilitate ROI-based spending allocations, and rapidly updated data that allows near-real-time spending adjustments to capitalize on emerging opportunities.
The takeaway for anyone managing a media site: it’s increasingly important to build measurability into new content products. Until a grand, cross-channel solution comes down from the likes of Google or Yahoo, your ability to provide metrics will directly correlate to your ability to monetize. Advertisers are demanding better measurability and for now, they’re leaving it to you to solve the problem.
Friday, February 29, 2008
Monday, February 18, 2008
Next-Gen Advertising: Technology vs. Business
You may have seen the recent comments by Wenda Millard dissing both Yahoo's and Google's huge, ongoing efforts to reinvent advertising for Web 2.0 and beyond. Wenda used to head Yahoo's ad sales efforts and is now president of media at Martha Stewart Living Omnimedia. She chided both Yahoo and Google for a one-dimensional view of the future of advertising that's too focused on technology, at the expense of advertisers' business needs.
Advertising, she observed, is "not a business only of science. With the Google/DoubleClick combination, and the potential Microsoft/Yahoo combination, it’s like the scientific community is taking over the advertising business--and the ad business is not about algorithms.”
Google and Yahoo are key to the future of online advertising because they command such huge chunks of the online audience. Although many others are interested in evolving the advertising model, most lack the scale to get much traction in an industry where the changes they advocate will require a large redeployment of resources (MySpace could be an interesting exception).
In the last several weeks I've talked to some of the folks at both Google and Yahoo who are working on "Advertising 2.0" projects, so I can verify first-hand that both companies are taking the technology-first approach to their initiatives. The role of business people who understand the advertiser-agency dependency and bigger-picture brand advertising needs varies, but seems a bit higher profile in the Yahoo effort. Both companies, but especially Google, identify as technology businesses and want to present technology solutions.
In advertising this is an especially tricky aspiration. If the problem were straightforward to solve, online advertising advances would have kept pace with those of content and UI...yet they haven't. Online, technology is the sine qua non of innovation, but all the amazing technical possibilities need to be channeled into productive problem-solving and business models to bear fruit.
Part of the complexity comes from the necessary role of ad agencies. Looking at the industry from the 50,000 foot level, agencies seem ripe for disintermediation by more efficient technical solutions. But in reality, they have a vital role in the ecosystem. For media properties they simplify penetration; for advertisers, they open the door to technologies and products that many individual clients are too unsophisticated to utilize on their own. Agencies allow advertisers to outsource many technical complexities, and therefore are more valuable--not less--in the world of Advertising 2.0.
Also, a lot of activities occur under the "advertising" umbrella. Some, such as the straightforward lead generation represented by programs such as AdWords and Yahoo Search Marketing, are spectacularly suited to technology innovations. Others are trickier. Certainly technology can help with the accountability and measurability advertisers demand, but what about engagement? Are these new programs truly seeking to uncover and solve merchants' deepest needs from the media community, or are they aiming to optimize products that are actually flawed vestiges of a prior-day mindset--such as banner ads. The people I met with at Google and Yahoo seemed reluctant to innovate deeply enough. That's one reason I'm wondering whether MySpace and Facebook may end up eclipsing today's moonshot-level efforts to build the ultimate buggywhip.
Advertising, she observed, is "not a business only of science. With the Google/DoubleClick combination, and the potential Microsoft/Yahoo combination, it’s like the scientific community is taking over the advertising business--and the ad business is not about algorithms.”
Google and Yahoo are key to the future of online advertising because they command such huge chunks of the online audience. Although many others are interested in evolving the advertising model, most lack the scale to get much traction in an industry where the changes they advocate will require a large redeployment of resources (MySpace could be an interesting exception).
In the last several weeks I've talked to some of the folks at both Google and Yahoo who are working on "Advertising 2.0" projects, so I can verify first-hand that both companies are taking the technology-first approach to their initiatives. The role of business people who understand the advertiser-agency dependency and bigger-picture brand advertising needs varies, but seems a bit higher profile in the Yahoo effort. Both companies, but especially Google, identify as technology businesses and want to present technology solutions.
In advertising this is an especially tricky aspiration. If the problem were straightforward to solve, online advertising advances would have kept pace with those of content and UI...yet they haven't. Online, technology is the sine qua non of innovation, but all the amazing technical possibilities need to be channeled into productive problem-solving and business models to bear fruit.
Part of the complexity comes from the necessary role of ad agencies. Looking at the industry from the 50,000 foot level, agencies seem ripe for disintermediation by more efficient technical solutions. But in reality, they have a vital role in the ecosystem. For media properties they simplify penetration; for advertisers, they open the door to technologies and products that many individual clients are too unsophisticated to utilize on their own. Agencies allow advertisers to outsource many technical complexities, and therefore are more valuable--not less--in the world of Advertising 2.0.
Also, a lot of activities occur under the "advertising" umbrella. Some, such as the straightforward lead generation represented by programs such as AdWords and Yahoo Search Marketing, are spectacularly suited to technology innovations. Others are trickier. Certainly technology can help with the accountability and measurability advertisers demand, but what about engagement? Are these new programs truly seeking to uncover and solve merchants' deepest needs from the media community, or are they aiming to optimize products that are actually flawed vestiges of a prior-day mindset--such as banner ads. The people I met with at Google and Yahoo seemed reluctant to innovate deeply enough. That's one reason I'm wondering whether MySpace and Facebook may end up eclipsing today's moonshot-level efforts to build the ultimate buggywhip.
Tuesday, February 12, 2008
Yahoo: Time for Act 3
With all the drama around Yahoo this month I’m glad I’m only watching from the sidelines. However things turn out, it’s certain that the company that emerges will be quite different from the one that has disappointed investors, employees, and, too often, users in recent years. Of course, the multibillion dollar question is whether the rapid changes will solve Yahoo’s problems or exacerbate them.
As to a Microsoft acquisition, if scarce resources were the problem—as they often are when early-stage companies are acquired—a buyout could be a solution. Microsoft’s market cap is close to double Google’s. But even in its current reduced circumstances, Yahoo has never lacked money or people to throw at perceived problems. Instead, the shortfall has been in identifying the best opportunities and efficiently deploying available resources to capitalize on them.
Perhaps Microsoft could help there, too. Despite some well publicized flubs no one doubts it’s fundamentally a well managed company with deep technical expertise. Unfortunately, though, history has shown Microsoft’s strength is in software, not media. There’s a huge question mark around the proposition that two companies with faulty radar and shaky track records could, if combined, somehow challenge the market powerhouse.
Yet it’s equally hard to picture the Yahoo that exists today turning itself around as an independent entity. The final tally isn’t in, but so far the names of layoff victims popping up on the web include few of the operating executives who have consistently failed—seemingly without consequences--to set coherent strategic agendas, execute against goals, and raise profits. Maybe bigger changes are coming, but Yahoo needs to understand that dramatic corporate transformation starts at the top, not the bottom. Getting rid of 1,000 mid-level functionaries might raise profits a bit but it won’t revitalize strategy, repair morale, kickstart innovation, or operationalize abstract theories.
If resurrection sounds impossible it’s worth recalling that Yahoo did it once before, in the wake of the dotcom meltdown. In September 2001 the stock bottomed out just above $4 per share (split adjusted), and a year later it dipped almost that low again. Then the price grew almost 10x over the next three-plus years; however, it’s been in fairly consistent decline (until the Microsoft offer) since January 2006.
I joined Yahoo early in the turnaround, in February 2002, and left in October 2005, just before the peak. Watching the company recover and grow—and then seeing the seeds of future failure begin to take root—was a vivid demonstration of management lessons I’ll apply for the rest of my career. Back in 2001 it was far from certain whether Yahoo would survive at all or become another dotcom casualty, the next Webvan or Pets.com. A raft of the company’s most senior executives departed and Terry Semel arrived in the spring of 2001 to launch Yahoo’s second act.
These days Terry’s name is typically associated with Yahoo’s recent decline, but back then he brought a bracingly fresh perspective: to focus Yahoo as a media business whose primary monetization strategy was advertising. Previously advertising was in the mix but the company was also drifting toward low-margin web services. Terry immediately went to work staffing up with media pros who recast Yahoo in a strikingly different and more business-centric mold than the original feel-good dotcom culture. Inevitably there were clashes between company veterans and the newcomers. Most of the time a good business case prevailed over tradition; after all, at that time we all felt that the very future of the company was at stake.
As Yahoo prospered the pendulum began to swing. We made acquisitions and didn’t do a good job of melding their benefits with our winning Yahoo culture. As revenue ballooned, managers became blasé about profits. For instance, a VP I reported to once told me the $10 million one of my projects added to the bottom line only amounted to a “rounding error.” I joined a lean company (2,000 employees in February 2002) where we product managers prided ourselves on efficiently producing the output of two or three people in traditional businesses. By the time I left the attitude had reversed and we were hiring two or three heads to cover work that should have been done by one.
Yesterday’s dotcom darling became today’s dog. Having a nontechnical leader at a technology company led to too much delegating and too many bad management calls. With his more traditional business background, Terry underestimated the pace of change and intensity of competition when you operate on “internet time,” an environment that magnifies the consequences of good and bad decisions alike. In the blink of an eye a competitor can not only surpass you but gain a shocking lead.
Yahoo got lucky a few times in the past but may have run out of rabbit's feet. The company that turned itself around six years ago was smaller and simpler, as were its competitors. The job market in those days was full of untapped talent after the dotcom downturn. In classical drama a comedy ends in a wedding, while a tragedy ends in death. It’s not clear how Yahoo’s third act will conclude, or whether there’s even much difference.
As to a Microsoft acquisition, if scarce resources were the problem—as they often are when early-stage companies are acquired—a buyout could be a solution. Microsoft’s market cap is close to double Google’s. But even in its current reduced circumstances, Yahoo has never lacked money or people to throw at perceived problems. Instead, the shortfall has been in identifying the best opportunities and efficiently deploying available resources to capitalize on them.
Perhaps Microsoft could help there, too. Despite some well publicized flubs no one doubts it’s fundamentally a well managed company with deep technical expertise. Unfortunately, though, history has shown Microsoft’s strength is in software, not media. There’s a huge question mark around the proposition that two companies with faulty radar and shaky track records could, if combined, somehow challenge the market powerhouse.
Yet it’s equally hard to picture the Yahoo that exists today turning itself around as an independent entity. The final tally isn’t in, but so far the names of layoff victims popping up on the web include few of the operating executives who have consistently failed—seemingly without consequences--to set coherent strategic agendas, execute against goals, and raise profits. Maybe bigger changes are coming, but Yahoo needs to understand that dramatic corporate transformation starts at the top, not the bottom. Getting rid of 1,000 mid-level functionaries might raise profits a bit but it won’t revitalize strategy, repair morale, kickstart innovation, or operationalize abstract theories.
If resurrection sounds impossible it’s worth recalling that Yahoo did it once before, in the wake of the dotcom meltdown. In September 2001 the stock bottomed out just above $4 per share (split adjusted), and a year later it dipped almost that low again. Then the price grew almost 10x over the next three-plus years; however, it’s been in fairly consistent decline (until the Microsoft offer) since January 2006.
I joined Yahoo early in the turnaround, in February 2002, and left in October 2005, just before the peak. Watching the company recover and grow—and then seeing the seeds of future failure begin to take root—was a vivid demonstration of management lessons I’ll apply for the rest of my career. Back in 2001 it was far from certain whether Yahoo would survive at all or become another dotcom casualty, the next Webvan or Pets.com. A raft of the company’s most senior executives departed and Terry Semel arrived in the spring of 2001 to launch Yahoo’s second act.
These days Terry’s name is typically associated with Yahoo’s recent decline, but back then he brought a bracingly fresh perspective: to focus Yahoo as a media business whose primary monetization strategy was advertising. Previously advertising was in the mix but the company was also drifting toward low-margin web services. Terry immediately went to work staffing up with media pros who recast Yahoo in a strikingly different and more business-centric mold than the original feel-good dotcom culture. Inevitably there were clashes between company veterans and the newcomers. Most of the time a good business case prevailed over tradition; after all, at that time we all felt that the very future of the company was at stake.
As Yahoo prospered the pendulum began to swing. We made acquisitions and didn’t do a good job of melding their benefits with our winning Yahoo culture. As revenue ballooned, managers became blasé about profits. For instance, a VP I reported to once told me the $10 million one of my projects added to the bottom line only amounted to a “rounding error.” I joined a lean company (2,000 employees in February 2002) where we product managers prided ourselves on efficiently producing the output of two or three people in traditional businesses. By the time I left the attitude had reversed and we were hiring two or three heads to cover work that should have been done by one.
Yesterday’s dotcom darling became today’s dog. Having a nontechnical leader at a technology company led to too much delegating and too many bad management calls. With his more traditional business background, Terry underestimated the pace of change and intensity of competition when you operate on “internet time,” an environment that magnifies the consequences of good and bad decisions alike. In the blink of an eye a competitor can not only surpass you but gain a shocking lead.
Yahoo got lucky a few times in the past but may have run out of rabbit's feet. The company that turned itself around six years ago was smaller and simpler, as were its competitors. The job market in those days was full of untapped talent after the dotcom downturn. In classical drama a comedy ends in a wedding, while a tragedy ends in death. It’s not clear how Yahoo’s third act will conclude, or whether there’s even much difference.
Thursday, January 31, 2008
More Paid Online Content Bites the Dust
You may have seen the news last week: another bastion of paid online content, Atlantic Monthly, has changed its business model and is offering all of its content online for free. Earlier this week Rupert Murdoch discussed placing more free content on his WSJ.com site, although he's still not ready to follow up on earlier suggestions that he'll reverse the staid Journal's tradition and remove the gates from the entire site.
After initial futile resistance, major newspapers including the New York Times and Los Angeles Times gave up on the paid model some time ago. Is there still anyone who seriously believes paid content is the right approach to an online media site?
Of course there are corner cases where it makes sense--if the content is highly valuable but the audience is small. But these types of businesses aren't optimized for the web, whose high fixed and low variable costs favor a scaling strategy. You also hear analogies with HBO. But bear in mind, paid cable emerged as a segmentation strategy after the broadcast medium was mature. By contrast, the internet as a media platform is in its infancy, with years of strong global growth still ahead.
I think some of the confusion results from the belief that the online medium is "just another" way to distribute content. True, but it's an alternative with a completely different cost and revenue structure. Failing to recognize and adapt to this, you will most certainly leave some money on the table. The fact that paid content worked so well in some other medium, such as print, doesn't predict that the old business model will perform just as favorably in a new environment.
I've laid out my reasons before for being such a strong advocate of most online content being free. Bottom line, to reap the maximum benefit, adapt your business strategy to the specific business environment where it's executed. One size doesn't fit all.
After initial futile resistance, major newspapers including the New York Times and Los Angeles Times gave up on the paid model some time ago. Is there still anyone who seriously believes paid content is the right approach to an online media site?
Of course there are corner cases where it makes sense--if the content is highly valuable but the audience is small. But these types of businesses aren't optimized for the web, whose high fixed and low variable costs favor a scaling strategy. You also hear analogies with HBO. But bear in mind, paid cable emerged as a segmentation strategy after the broadcast medium was mature. By contrast, the internet as a media platform is in its infancy, with years of strong global growth still ahead.
I think some of the confusion results from the belief that the online medium is "just another" way to distribute content. True, but it's an alternative with a completely different cost and revenue structure. Failing to recognize and adapt to this, you will most certainly leave some money on the table. The fact that paid content worked so well in some other medium, such as print, doesn't predict that the old business model will perform just as favorably in a new environment.
I've laid out my reasons before for being such a strong advocate of most online content being free. Bottom line, to reap the maximum benefit, adapt your business strategy to the specific business environment where it's executed. One size doesn't fit all.
Wednesday, January 23, 2008
Don't Forget the People
I was having lunch the other day with my friend and fellow UCLA business school alum, Manuel. I'm working with him on his latest venture, iPling. He summarized a key learning from his career as a serial entrepreneur: don't forget the people. Without the right people with the right skills focused on the right problems, you can't succeed. That's even more true in a startup environment, where teams are small and lack the redundancy of a larger company. Part of the volatile nature of an early-stage startup is that any failure can become a critical failure. Good team chemistry is vital.
In a startup you're often working with the smartest and most driven people, all of whom are used to setting their own agenda and proceeding according to their own best judgment. It can be tough getting everyone pointed in the same direction and motivating them to put the customary ego on the back burner for the sake of the team, even when the future of the entire organization--and the welfare of each of its individual members--is at stake. It's almost like a real-world game of Prisoner's Dilemma.
But the people equation is important in large organizations as well. In that context I'm reminded of my days at Yahoo. When I arrived in early 2002, the company was relatively small (about 2,000 employees--today, I hear, it's around 14,000) and focused in terms of rigorously screening potential hires for similar professional and educational backgrounds, work ethic, business values, and so forth. But within a couple of years Yahoo acquired some companies that weren't such a tight fit, and little effort was made to align the old and new cultures. Viewing the situation from the inside it seemed to me and some others that starting at about this time, increasing amounts of energy were diverted into attempts at negotiating culture imbalances--for example, different visions for product development, management, and marketing procedures and different sales strategies--at the expense of executing on revenue projects. Leadership didn't identify, understand, nurture, and enforce success vectors and best practices. In the end this "people problem" was one of the reasons Yahoo lost its market-leading position.
In a startup you're often working with the smartest and most driven people, all of whom are used to setting their own agenda and proceeding according to their own best judgment. It can be tough getting everyone pointed in the same direction and motivating them to put the customary ego on the back burner for the sake of the team, even when the future of the entire organization--and the welfare of each of its individual members--is at stake. It's almost like a real-world game of Prisoner's Dilemma.
But the people equation is important in large organizations as well. In that context I'm reminded of my days at Yahoo. When I arrived in early 2002, the company was relatively small (about 2,000 employees--today, I hear, it's around 14,000) and focused in terms of rigorously screening potential hires for similar professional and educational backgrounds, work ethic, business values, and so forth. But within a couple of years Yahoo acquired some companies that weren't such a tight fit, and little effort was made to align the old and new cultures. Viewing the situation from the inside it seemed to me and some others that starting at about this time, increasing amounts of energy were diverted into attempts at negotiating culture imbalances--for example, different visions for product development, management, and marketing procedures and different sales strategies--at the expense of executing on revenue projects. Leadership didn't identify, understand, nurture, and enforce success vectors and best practices. In the end this "people problem" was one of the reasons Yahoo lost its market-leading position.
I haven't worked at Google, but I hear from people who do (fellow Yahoo alums, as it turns out) that the situation there is different. As large as Google has grown, the company still maintains tight control of the applicant screening process to be sure anyone allowed through the gate complements the existing corporate values that have proven so successful. The higher the position level the more rigorous the examination, I'm told. And it's hard to argue with Google's success. They understand that having not just the "best" people, but the right ones for their organization, goals, and strategy, is a critical element in business performance.
Manuel hasn't built the "next Google"--at least not yet--but his vision is on target. There are lots of things to deal with in a startup: money, product, positioning, marketing, business strategy, and more. But as Manuel points out, don't forget the people. They're the ones who make it all happen.
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