The Praized Blog

Techcrunch reports on a rumor this morning that would have Google either buy Skype from eBay or Google partner with Skype.  According to the site,

“Skype, acquired in late 2005 for $3.1 billion, has been a financial albatross around Ebay’s neck. eBay removed Skype co-founder and CEO Niklas Zennstrom in October 2007, reportedly due to frustration at the financial performance of Skype. Ebay also negotiated down the huge earnout due to Skype stockholders and took a $936 million one-time loss around the transaction.  It’s clear that eBay wants to either unload Skype, or significantly drive performance.  Google, by contrast, is just beginning to think about how to dominate the voice space. They have a VOIP service through GTalk, a free 411 service and GrandCentral, a telephone management service they acquired last year for $50 million.”

What it means: I think this potential acquisition/partnership makes complete sense. IMHO, call tracking and pay-per-call represents a large portion of future local search revenues and Google clearly sees that local search is where they will get tremendous growth in the next 5-10 years.  By buying the Skype infrastructure (and user base) and combining it with the GrandCentral technology and expertise, they instantly get core assets to execute that strategy globally.

A couple of news articles caught my eye last week. Mediapost reported on a TV exec seminar hosted by Havas’ Media Contacts unit. Talking about the online video revolution, Mediapost says “major TV providers are moving aggressively online–and not only to their own online destinations, but in an array of “distributed” online content options to deliver their programming directly to consumers regardless of where they are on the Web.”

In addition, TorrentFreak discussed data from Mininova (one of the largest torrent listing sites) showing that “ 50% of all people using BitTorrent at any given point in time do so to download TV-series, quite an impressive number. In total, over a billion TV-shows are downloaded every year, and this number continues to rise.”

Flickr photo by Marshall Astor

What it means: recently, all savvy media industry strategists have been talking about content atomization and clearly, in the TV industry, TV channels are being atomized by new Web technology. Whereby, in a traditional cableco world, channels used to be the basic content building blocks (think about how your cable TV subscription is structured), TV shows have become the new atomic element.

But there’s a problem.

The content is being atomized but the main TV business model (30-second ads) was built to be part of a larger element, the TV channel. Ads used to fill, i) the “empty spaces” between shows and ii) planned 3-minute interruptions during the show. In the first scenario, those empty spaces don’t really exist anymore as shows become the basic element and BitTorrent is disrupting the second scenario by offering easily accessible ad-less versions of your favorite programs.

Guess what. Someone forgot to atomize the TV business model while they were busy atomizing the content.

So, how do you atomize TV’s business model? Is it all about product placement, sponsorships, pre-roll ads? Do you move to a user-paid subscription model for individual shows? And BTW, is the future cableco the equivalent of a RSS reader for online videos?

And what does it mean for other media, newspapers for example?

In the case of newspapers, from a content point of view, news articles are the new atoms. This is the way news information travels online. But, in that situation, newspapers’ business model has been blown to bits (no pun intended). Let me explain. Like TV channels, newspapers are inserting ads in the empty spaces around news articles. These spaces don’t really exists anymore, so how do you monetize? News article sponsorships? A-la-carte article user-paid
subscriptions? This one is not easy as journalism ethics (rightfully so!) have kept news article and ads completely separated. How do you bring ads closer to the article without breaking readers’ trust?

What about radio?

For the traditional FM radio industry, individual songs are clearly the basic atom of content. But those are so easy to find online through legal (music streaming services, iTunes) or illegal means (BitTorrent again). As for their business model, radio stations insert ads around songs. Again, these slots don’t exist in an atomized world. Maybe radio stations should invest in original content or better DJs (Wired calls them robo-DJs in “Why things suck”)? Can radio stations move online as trusted brands and become real music aggregators/recommendation engines? It might be too late. So, is FM radio as we know it screwed? Maybe more than people think. That one again is not easy to solve.

And finally, directory publishers?

As for directory publishers, their business model is currently in the ranking of directory listings. But those individual listings might be the new content atoms. And if they are, it means that the ranking structure does not exist anymore. Is it now the merchants’ phone number and a pay-per-call model? Is it pay-per-click to individual merchants? Given that directory content is all about advertising, atomizing content does not impair a directory publisher from atomizing their business model but it just needs to be properly executed. I believe pay-per-call and pay-per-click to individual merchants might definitely be the way to go.

Conclusion

If you’re atomizing your content, don’t forget to atomize your business model! This blog post raises important questions about future traditional media business models. I don’t have all the answers at this point but I meant this post as a wake-up call to stimulate deeper strategic thinking in all traditional media firms.

In business blogs everywhere, it’s that time of the year again, when we start looking back at the year that was and we start to forecast what 2008 will look like. In this post, I look back at 2007 and discuss the most significant local and social media news of the year.

1) Facebook

Clearly, Facebook was the number one news of 2007. By allowing anyone to open up an account in the Fall of 2006 (at about the same time they introduced their newsfeed function), Facebook paved the way for the arrival of tech enthusiasts and early adopters/influencers. Silicon Valley got very excited in the Spring and the launch of the F8 platform in May, allowing third-party developers to build applications, brought more excitement. I believe early adopters’ interest in Facebook has peaked (and has even started to decline) but the job is done. More than 55M active users of all ages access the site every month. The social network had a couple of setbacks around the end of the year with the beacon fracas and the launch of OpenSocial by Google but I believe it does not tarnish their luster. Facebook retaliated by opening up their infrastructure. The biggest benefit to the Web in general: Facebook is introducing people to the social web (micro-blogging, blogging, pictures uploading, “friending”), people who will eventually graduate to more complex social applications.

2) The opening up of the social web

Symbolized by the publication of the OpenSocial standard, the web is becoming more social and more open. Additionnally, the announcement by Six Apart that Movable Type, their leading blogging software, is going open source and the launch of the DiSo initiative to create open source implementations of distributed social networking are also important projects. Social will be part of the fabric of the web.

3) The launch of the iPhone and the unveiling of Android

Apple created quite a stir in June by launching the iPhone, a beautiful device that changes the way we see mobile web access. It’s not a perfect machine by any mean (still very closed) but it’s a game changer. The Android mobile platform by Google is also potentially very disruptive and paves the way to an interesting 2008 in that field. Local mobile search, the famous holy grail of local search, is on the verge of becoming reality.

4) The acquisition of Ingenio by AT&T/YellowPages.com

This purchase is a critical move for YellowPages.com and it clearly signals to the rest of the directory industry that call-tracking/pay-per-call will be the unifying standard in local product bundling, allowing a single sales force to sell multiple media formats. In the same vein, Marchex acquired Voicestar earlier this year.

5) The Radiohead “pay what you want” experiment

Even though it wasn’t as radical as industry watchers wanted it to be (Radiohead is still going to release a CD version of InRainbows), this trial by one of the most preeminent alt-rock group generated a lot of discussions in the blogosphere. Consumers were allowed to pay whatever they wanted to pay for the download including not paying at all. ComScore released some disheartening information about the percentage of people who paid for the album but that was quickly shot down by Radiohead’s management. In any case, the music industry needs more bleeding edge experiments like this one to find their future business model(s).

6) Reality check in the local search industry

The last two Kelsey conferences offered a sobering and realistic look at the realities of local search. Local is tough, hasn’t been cracked yet but offers tremendous opportunities. Stakeholders are realizing that partnerships will be needed to succeed. Two senior executives from the print directory industry talked openly about the opportunities and challenges of being a traditional media publisher and it was the first time that we heard that kind of discourse publicly. Google, Yahoo and Microsoft are all courting traditional local media companies that possess large sales forces to help them increase local revenues. I think we’re getting close to the “acceptance” stage of the Internet grief cycle and we should see a lot of action next year on the local search front.

I’d love to get your feedback on 2007 events. Anything important I forgot?

Last week, I was in Los Angeles for the latest Kelsey Conference (ILM 07). We heard presentations from many interesting speakers, most notably Jake Winebaum from RHD, Jay Herratti from Citysearch, Chamath Palihapitiya from Facebook, Stuart McKelvey from TMP, John Hanke from Google and the always interesting Jason Calacanis from Mahalo.

Once again, I had the opportunity to meet and discuss with many of my local search and directory industry peers, making this conference a must-attend if you’re in the local search industry. It took me the a few days to come up with takeaways from the conference, not because there weren’t any, but because they were embedded deeply in the zeitgeist of the whole conference and needed to be extracted. After a “disappointing” 2006 (as reported in this post from SES Chicago), I think we’re at a new inflexion point for the local search industry. It was almost as if every stakeholder in the room had realized that things were not as they had seemed to be and that they were being more realistic and pragmatic about online local search.

Without further ado, here are my takeaways from Kelsey ILM 07:

1. People are finally realizing that it is very difficult to “do” local. Both advertiser and user markets are very fragmented and local initiatives do not always scale. If you’re not “native” to the local search market, the learning curve is huge.
2. Clearly, the online local market has not been cracked yet. There is no clear winner yet and we’re still many years away from glory days.
3. Local is going to be huge online but the various stakeholders need to work together. Players have to identify where are their core strengths and weaknesses and partner to fill the gaps (either through aggregation of technologies, content or sales). M&A should be on everyone’s mind as well. Expect a very active 2008 on that front.
4. We heard the second reality check coming from a directory publisher in a couple of months. Time is running out and it’s now time to execute.
5. Verticalization is starting to happen. People are realizing that there are user & advertiser differences between yellow pages headings. We might finally see some real segmentation in the industry (headings-based pricing, vertical sites, specific ad products and content, etc.) .
6. Call-tracking/pay-per-call is now a strategic pillar of local. To solve the media fragmentation issue, this offers a unified business model to aggregate various products together and simplify the sales process.
7. Mobile is still the holy grail of local search, coming soon, but not in 2008. Maybe 2009.

The Kelsey Group just released some data around future directory assistance advertising revenues.

“Annual U.S. revenues for advertiser-sponsored directory assistance, also referred to as free DA, will grow from $14 million in 2007 to $462 million in 2012, according to The Kelsey Group. (…) “We anticipate ad-sponsored directory assistance will morph into an audio ad business and a wireless play,” said Matt Booth, senior vice president and program director, Interactive Local Media, The Kelsey Group. “The combination of audio ads and wireless pay-per-call and text ads will drive superior per-call economics over time.”

What it means: Directory assistance (DA) has always been part of the directional media landscape but for the longest time, you could only do “known-name” searches. The introduction of enhanced content (including categories) within DA creates yet another media channel for consumers to find business information. For local media players who have embraced content digitization and/or pay-per-call, DA becomes a great distribution channel to promote their advertisers. For others, it might feel like more fragmentation is happening in the directional marketplace. I highly recommend embracing this channel as a way to reach more users on the move.

Yesterday, I attended a webinar called “Delivering Quality Leads to Platform Neutral Advertisers”. Organized by eStara, I was exposed to some interesting pay-per-call data in a presentation by Robyn Rose, Vice President of Marketing for Superpages.com. Five case studies involving different individual advertisers (florist, satellite TV provider, locksmith, personal injury lawyer, laser eye surgery) were presented.

Highlights:

• Average monthly spend went from $300 (locksmith) to $2500 (satellite TV)
• Average cost per call was spread between $3.70 (laser surgery) to $35.00 (locksmith)
• The estimated conversion rate went from 30% (lawyer) to 82% (florist)
• Average sales were between $64 (florist) and $1992 (laser surgery)
• Sales ROI was between 2 (locksmith) to 309 (laser surgery)

In addition, we were told that the actual cost per call at Superpages.com is completely determined by market demand. Advertisers set budgets and determine how much they want to bid in their vertical (heading) and in their geography. Superpages doesn’t believe in package of calls at a fixed price and they prefer to let the market decide. They’ve also found that the product is really successful for service-based businesses (plumbers, landscapers, realtors, medical professions, florists, etc.) but some product-based companies embrace it as well if they have a call center. Businesses attracted to the product are either local or national in scope.

What it means: Superpages has to be commended for sharing some ROI information around pay-per-call as there’s not a lot of data out there. People that have been around me for a couple of years know that I’m a big, big proponent of pay-per-call as a future way to monetize online and print directory searches. Looking at the some of the numbers above, call-based advertising could be very attractive from a business case point of view.

As an interesting segue to my VoiceStar/Marchex blog post from last week, MediaPost offers an interview with Bill Day, their new Chief Media Officer in which he talks about the importance of local for Marchex. “Kaufman Brothers analyst Sameet Sinha questioned the company’s heavy investment in local search at this moment, after the announcement it would buy pay-per-call ad provider VoiceStar. It happened to be the first official day at work for new Chief Media Officer Bill Day, most recently at WhenU, but also a co-founder of About.com and one of the online pioneers of the ’80s at Prodigy. He was nothing but optimistic about the opportunity for local.”

Highlights:

Q: Why is the time right now for local? When we did it at About.com, it was too early. The interest area was the place to invest. Things have changed. First of all, many more people use the Internet. If you want to have a pro-sumer model, you need one that scales to be very comprehensive. Marchex is a leader. It already has thousands and thousands and thousands of sites. You also need a model that can get really really deep within those localities. I did a lot of diligence coming in and with the Yellow Pages advertisers now coming on, it suggests it really is a good time to invest in local. You have to invest to reap the rewards.

Q: What is the first thing you’ll do in your new job? The first thing is to focus on the continued rollout of our open list technology populating businesses down to the ZIP code level (editor’s note: e.g. 90210.com). I’m also talking to media companies in the local space. There’s a lot of business development I need to do to get the ball rolling.

Q: Who is doing local right? There are certainly sites that get parts of it right. I can’t point to one network that gets it right consistently. I don’t know anything countrywide. The sites that tend to do that are using very stale and automated generic content that is not good enough to get repeat visitation. I’ve looked at some of the WashingtonPost.com sites, what Sidewalk’s done for Digital Cities. We’re in a pretty open space for starting to do things that haven’t been done so far on the net–to truly create a broad, deep network of sites.

What it means: Marchex believes online revenue action in the future will happen on the local and hyperlocal front. They’ve acquired web real estate (local URLs) and local content. They have solid search engine optimization (SEO) expertise and they now want to introduce user-generated content. Using all of these tools, they’re building a large-scale local ad network. The only thing I would question is the quality of traffic coming from SEO, as not all clicks are born equal. Measuring ROI will become key when evaluating the quality of local search traffic but, as I believe a good chunk of the revenues in local will happen around pay-per-call in the next 5-10 years, the acquisition of VoiceStar makes complete sense strategically. That’s a great way to measure and prove local search ROI.

TechCrunch has the news. Highlights:

Marchex total anticipated investment to acquire VoiceStar will be $28 million, consisting of approximately $20 million in transaction consideration and $8 million in company investment. Specifically, transaction consideration consists of approximately $12.9 million in cash consideration and Marchex will issue approximately $7.1 million in restricted stock that is subject to vesting over two-and-one-half years from closing to certain employees of VoiceStar; and company investment consists of $8 million relating to products, infrastructure, human resources and other items through 2008. The acquisition is expected to close by October 1, 2007.

What it means: brilliant acquisition. I am a strong believer in pay-per-call especially in a local context. Big question mark: will Marchex leverage the VoiceStar technology for their network of local web sites (thereby competing directly with directory publishers, who are the biggest customers of VoiceStar) or will they continue to sell VoiceStar as a platform? In any case, congrats to my two friends Ari and Todd who started VoiceStar a few years ago !!!

Update: Peter at Local Onliner has more info about Marchex’s strategy: “We can now also add proprietary pay-per-phone-call advertising units to our network of local Web sites, which allows us to increase the direct monetization of our own properties,” notes Marchex’s Peter Christothoulou, per press release. The release also notes that VoiceStar “increases Marchex’s ability to directly monetize its… network of Web Sites, lessening its dependence on third-parties and increasing….. revenue (via) call-based advertising units.”

I found a nice nugget of information in this Business Week article about pay-per-call:

“Google is currently at work on its own pay-per-call service, which already works as a part of Google Maps but hasn’t yet been offered to U.S. small businesses. In that system, users click on an icon for a restaurant, enter their numbers, and an outside provider connects the user and the establishment. The company has already launched a formal pay-per-call product in India, says Rohit Dahawan, a product manager for Google that oversees the click-to-call and pay-per-call products. And they’re working on more such products, to be launched in the next several months in the U.S. They’ve also started tracking calls as part of their updated small-business AdWords service.”

Digging a bit deeper, I found (via Search Engine Roundtable) this September 2006 DigitalPoint forum thread that talks about it:

“These ads are charged at about 45 INR (Indian Rupees) (about $1.00). When somebody clicks on the ad, you get a text box where you can input your number, the moment you submit google connects a call between you and the advertiser and let both of them speak for as much time as they want. So advertiser only spends about 45 INR, irrespective of the calling time. One can call you from any part of the world and these charges will remain same. Also if the call get disconnected in first 10 seconds, the advertiser pays nothing. This service is currently in beta and currently google seem to have offered access to pay per call to some big players in the indian .com industry.”

What it means: I was not aware of this Google pay-per-call trial. They are clearly using the click-to-call functionality they deployed earlier in 2006 to enable the pay-per-call model. I really believe in this call-based ad model (it was part of my 2007 predictions) but I’m not sure this is the right way to execute. Click-to-call is not as seamless as replacing a merchant’s usual number with a trackable phone number. But you know what? If Google is trialling pay-per-call, you’d better be thinking about it as well if your media is all about calls. BTW, I also love the idea of expiring phone numbers for the classifieds business (like Craigsnumber).