The Praized Blog

Remember my Twitter is the new “Facebook” post from last March where I posited Twitter was going to be the next darling in terms of social tools? It seems my gut feeling was right on that front as shown by Compete’s report on Twitter’s traffic and online attention growth in the last 3 months.

Highlights:

• “In terms of U.S. visitors, Compete has seen Twitter traffic nearly double from February to April, currently attracting nearly 1.2 million people per month.
• In terms of time spent on site as a share of all time spent online, Twitter has grown dramatically - more than quadrupling over the period.
• Twitter is a weekday event – (…) On any typical weekday, Twitter is receiving more than twice the attention as a weekend day.
• Nearly one quarter of all twitter visitors to the site are heavy users (6+ visits/month)
• Splitting age demographics based on usage intensity shows that heavy users tend to skew older than visitors who only hit the site once a month. This could indicate that while the younger segments are more exploratory, the 25-44 year old segments have found more value in Twitter and started to ramp up usage.”

What it means: based on Rogers’ innovation adoption curve, I think we’ve seen the arrival of early adopters on Twitter. The first wave, innovators, had joined the service at SXSW 2007. The weekday usage and the older demographics make me think there’s a lot of work-based usage and that most people in the Weberati have discovered Twitter’s value.

Very interesting first half-day yesterday at the Kelsey Group’s Drilling Down on Local ‘08. The theme of the conference is “Marketplaces”. It regroups products such as classifieds, auctions and vertical sites. Here are highlights from the first two sessions:

As an introduction, the Kelsey Group’s team provided us with some background information on “Marketplaces”. Neal Polachek first described the local end game as “better search, discovery, and engagement”. He even quoted the Cluetrain Manifesto’s “Markets are conversation”. He also talked about their latest global ad revenue forecast for 2007-2012, stating that the biggest category winner would be Internet and the biggest loser would be newspapers. As I wrote last week, the Kelsey group believes that Verticals will capture a large chunk of online advertising by 2012. Matt Booth then talked about three specific verticals (travel, automotive, home services) that have had a tremendous impact on offline/online business and media spending. For example, Matt showed two juxtaposed graphs showing the decline of newspapers’ automotive revenues vs. Autotrader.com’s revenue increase. Peter Krasilovsky finished the intro by stating that it’s now time to “uncouple” print and online media bundles. As print revenues decline, you need to have online-only ad products to compensate. Peter added that you also want to “verticalize” your offer to expand your revenues.

The second session “Remaking the Los Angeles Times (Online)” starred Rob Barrett, Senior VP of Interactive Media, GM, LATimes.com. He started by mentioning that most of what he’s currently working on is not very visible online now. He spent the first couple of years at the LA Times refocusing the online business. His main focus has been to build the display ad business (as opposed to classifieds). It’s going to generate $25M in revenues this year. Barrett says it’s now “time to finally break the newspaper paradigm online”. The LA Times’ online strategy needs to be local as opposed to national as it will allow them to differentiate their offer versus other “national” newspapers like the New York Times. They’ve realized that local users are key to online revenues as they generate more monthly page views and twice the display revenue per page views. Their product approach is “we want to own Los Angeles”, i.e. be integral to life of Angelinos, be the source of news and information about Los Angeles to the world and be an information retailer by creating, aggregating and curating LA content.

The Latimes.com web site is slowly transforming itself into a hyperlocal social network. All content pieces are going to be tagged and indexed by category and geography. By targeting on demographics and on geo, the LA Times is hoping to raise their average CPMs and improve ad effectiveness. They are creating the best targeting machine for the LA DNA. Barrett then showed us pilots of various new vertical sections that are very promising:

• The Travel section: http://travel.latimes.com
• A hyperlocal arts & entertainment guide: http://theguide.latimes.com
• Hollywood backlot to show pictures of movies shooting: launching next week
• User-generated photo and video content: photos & videos, http://yourscene.latimes.com
• The Homicide map: http://www.latimes.com/news/local/crime/homicidemap/

From the press release:

Cox Enterprises, Inc. today announced that its subsidiary Cox TMI, Inc. will acquire Adify Corporation. Adify will operate as a stand-alone company and will continue to be led by Russ Fradin, CEO and co-founder of Adify. (…) Adify is the premier technology and media company focused on vertical online advertising. The company’s comprehensive technology and services allow major media companies, venture-backed businesses and entrepreneurs to build and operate targeted ad networks that support their advertisers’ goals. Vertical advertising networks offer marketers the reach, targeting and quality that brand advertisers increasingly seek in the online advertising space. More than 100 premium ad networks currently operate on Adify’s technology platform.

What it means: A bit late blogging about this news, but wanted to come back to it as it validates two of my key predictions for 2007 and 2008. I said in December 2006 that 2007 would be see more site “verticalization”. I also wrote in December 2007 that 2008 would be the “year of ad networks”. Adify sits at the confluence of these two major trends. They’ve seen amazing traction in the marketplace. Why would Cox buy them? I see two reasons: i) it’s a great business to be in, major growth to be expected in the next few years, and ii) it provides Cox with access to many ad networks to push their own ad networks (newspapers, television, autotrader, etc.) as an optional backfill, thereby extending their reach tremendously. Very smart strategy!

The Kelsey Group just issued a new forecast on online classifieds and verticals advertising:

While online advertising has been propelled primarily by search, banners, e-mail and lead generation, The Kelsey Group expects verticals to emerge as a key driver of online advertising by 2012. Based on trend analysis, the firm forecasts the U.S. interactive classified and vertical share of online advertising will grow from 18 percent in 2007 to 24 percent by 2012. Revenues for interactive classifieds and verticals will grow from US$3.9 billion to US$14.7 billion during the same forecast period, representing a 30.5 percent compound annual growth rate (CAGR).

During the forecast period, U.S. online classifieds will grow from US$3.9 billion to US$9.1 billion (18.6 percent CAGR) and online verticals (such as home services, home and garden, health care, legal and auto repair) will grow from US$100 million to US$5.6 billion (461.4 percent CAGR).

What it means: I’m a strong believer in the verticalization of the Web. So, directionally, I agree with those numbers. The first indication for me that this would be a big business was this article about Meganiches in Wired’s November 2006 issue. I forecast that the next big trend will be the “localization” (i.e. the addition of local content/business listings) of all those vertical sites.

A few weeks ago, with the release of the latest revenue numbers from the Newspaper Association of America, we were treated with very Chicken Little-esque headlines including “Decline Of US Newspapers Accelerating“, “NAA Reveals Biggest Ad Revenue Plunge in More Than 50 Years “ and ”NAA to newspapers: advertise this“. 

Highlights of these articles included:

• “Total print advertising revenue in 2007 plunged 9.4% to $42 billion compared to 2006″
• “Signs that online growth rate is beginning to slow as well. Internet ad revenue in 2007 grew 18.8% to $3.2 billion compared to 2006.”
• “But an even more important reason why paper ads are declining is that their cost-to-value ratio is way out of whack with what advertisers can get elsewhere, particularly the Internet.”

One reader in Techcrunch (a former journalist) had an especially enlightening comment:

Across the board, three dynamics are pretty consistently hammering nails into the dailies’ collective coffin faster than might be occur otherwise:

* Despite talk about fundamental disruption in the business, there’s still an attitude that this is a storm to be ridden out rather than a complete sea change. Even when the folks at the top (owners, publishers) get it, there are many, many layers of upper and middle managers who don’t — and who are afraid of losing head count because that somehow diminishes their authority.

* Sales has been given increasing control of the organization. Mind you, sales are crucial — but it’s hard to find a group of folks less strategic than salespeople on commission.

* Too many lifers. When you get into key operational areas (marketing, product development, news management) you find a lot of people who’ve been in the daily news business their whole careers, which isn’t necessarily bad, but nor is it a hotbed of innovation. What’s more shocking is the number of people you run across who’ve been at the same paper for 15, 20 or 25 years.

Chris Anderson, Wired’s Editor-in-Chief, had a different take on things, one that I definitely agree with:

The truth is that the newspaper business is still a huge industry and will be around in one form or another for the rest of my life. That is not to dismiss the declines, but only to note that there’s still a lot of money there and what is required is strategic change, not giving up the ghost.

Growth industries are different from sunset industries, but in many cases the second category is larger (one example: the Yellow Pages is still a $16 billion business).  Managing companies on the way up takes a different set of skills than milking them for cash on the way down (and often different people, witness the buyout guys), but fortunes are just as often made the second way.

What people forget is that industries peak at the top. Which is to say, at the very time that the first and second derivative people are writing off a business, those who can stand back and see the value still left in it can make a mint. Laugh at newspapers if you will, but I’ll bet some private equity firm out there is looking at the chart above and licking their chops.

With all this doom and gloom, I was pleasantly surprised when the Canadian Newspaper Association released their numbers last week.  Highlights from the Financial post and The Windsor Star:

• “Revenue at Canadian newspapers fell about one per cent last year”
• “The healthier financial picture in Canada reflects newspapers that are doing a better job maintaining their readership numbers”
• “a 30 per cent rise in online advertising revenue offsetting a two per cent drop on the print side.”
• “The ongoing challenge for newspaper companies (…) is to figure out how to use print content in digital form across various platforms such as home computers or mobile devices.”
• “The narrative about newspapers in the U.S. has been consistently negative in recent years, and that negativity has unduly influenced perceptions of the health of the newspaper industry in Canada”

What it means: as I don’t know the intricacies of both regions in the newspaper industry, it’s very difficult for me to comment on the why of those major differences.  But it’s something we also see in the directory industry, where Canada (or by proxy Yellow Pages Group) usually experiences better financial results than its US peers.  From a newspaper usage perspective, I do have one recent ”focus group of one” anecdote though.  Ever since I got my HTC Touch with a cheap unlimited data plan from Bell Mobility, I find myself reaching for the phone much more often than the printed newspaper when I have a few minutes during the day.  Radio-Canada (the French CBC) has become my default source for mobile news as they refresh their feed very often, have tons of original content and have a mobile-specific version.  If I (a self-proclaimed newspaper junkie) am reaching for the phone instead of the paper, it’s a sure sign that mobile will be next opportunity/challenge facing the newspaper industry and I think it will be the same in the directory business.

Why local is in the zeitgeist, proof # 286:

LocalChoice Milk, sold by UK supermarket giant Tesco, is a new line of milk that is produced by local farms and sold at local Tesco stores. Responding to customer requests to make it easier for them to buy food which is genuinely local to their area, Tesco has started paying a premium to smaller local farmers which is above the rate they are paying to farmers who supply their standard milk. This means that farmers supplying new ‘LocalChoice’ milk will receive up to GBP 0.22 per liter, which is one of the highest prices paid to any producer in Britain. The company assures their customers that LocalChoice will not only reduce food miles but will also provide confidence to shoppers that if they buy a local product, they are helping their local economy and local suppliers, in particular small, independent family farmers. The milk packaging is branded as LocalChoice, instead of as Tesco, and uses simple handwriting on the labels to underscore the regional value message. (source: TrendWatching.com)

More info on Tesco’s regional sourcing strategy: http://www.tesco.com/regionalsourcing/

What it means: We’re seeing more and more examples of businesses/products built around the local angle. I think this trend is here to stay and will grow in the future. I believe that local search will play an important role in our future, as people realize there are hidden environmental and community costs associated with buying products manufactured/produced far from the point of purchase. It seems like this is an interesting communication angle for any local search media company, i.e. helping people make better local purchase decisions, supporting local communities, and improving the environment. Who wants to own this positioning?

As the stock market keeps punishing directory publishers’ stock worldwide, we’re starting to see more articles about “how no one uses the print Yellow Pages” anymore (see Boston.com, CNBC, or WickedLocal.com). People in the industry know it’s not true, the Yellow Pages Association (and individual publishers as well) have data to back it up but I fear we’re letting public opinion run loose with that preconceived notion.

The whole industry needs to work on this. I’m afraid we’re getting close to a perfect storm where the stock value drop is associated with usage drop permanently. As I suggested in the Kelsey Group blog yesterday, “One way to re-join the conversation would be for directory publishers to start blogging. They all have very smart CEOs and VPs, who usually have a lot to say, but we only communicate behind closed doors or in industry conferences. It’s time for the industry to get back its share of voice and I think it would help to address the media bashing that’s currently happening.”

The good news is that people are reacting. Dave Swanson, CEO of R.H. Donnelley Corp. appeared on CNBC’s Fast Money to counter the argument that “Yellow Pages are dead”. He did a great job. We need more of that.

(click here to listen to his interview)

Just received the press release announcing the new interactive ad revenue forecast by The Kelsey Group. Highlights:

Global (2007-2012):

• Ad revenues (currently at $600B) to grow at a compound annual growth rate (CAGR) of 2.7 percent and reach US$707 billion in 2012.
• Interactive ad revenues will increase from US$45 billion in 2007 to US$147 billion in 2012 (a 23.4 percent CAGR).
• Directional advertising, which comprises local search, print Yellow Pages and Internet Yellow Pages (IYP), will go from US$33.3 billion in 2007 to US$41.4 billion in 2012 (4.5 percent CAGR)
• Local search revenues will grow from US$2.1 billion to US$6.6 billion (25.5 percent CAGR).
• Print Yellow Pages revenues will decline from US$27.5 billion to US$25.6 billion (-1.4 percent CAGR).
• IYP revenues will grow from US$3.7 billion to US$9.2 billion (20.1 percent CAGR).

US (2007-2012)

• Interactive advertising revenues: from US$22.5 billion to US$62.4 billion (22.6 percent CAGR)
• Directional advertising revenues: from US$16.4 billion to US$18.8 billion (2.8 percent CAGR)

Canada (2007-2012)

• Interactive revenues: from US$1.3 billion to US$3.3 billion (21.3 percent CAGR).
• Directional revenues: from US$1.4 billion to US$1.9 billion (5.8 percent CAGR).
• “Canada is one of the markets in which The Kelsey Group expects growth in the print Yellow Pages segment, forecasting a 1.8 percent CAGR for print directories in Canada during the forecast period.”

According to Charles Laughlin from the Kelsey Group, they expect “printed directory revenues to decline in most global markets over the forecast period, though print will remain the most important source of leads for small businesses. For directory publishers to succeed, they will need to invest time, energy and resources in both channels to minimize the decline in print and maximize the opportunity online.”

Reporting on the same press release, MediaPost added that “ the forecast does not include mobile ad platforms.”

Update: Techcrunch chimes in.

To finish this week’s series on business models atomization, I’d like to address the situation where media has been completely atomized. I think that happens when individuals start becoming media themselves, broadcasting “news” through their blogs, Twitter tweets or their Facebook status updates. That concept, explored last summer in my famous “I am Media” blog post really resonated through the blogosphere. What I missed at the time was the corollary:

If I am Media, I am also Advertising.

I remember being very annoyed by the first Facebook Beacon implementations. I gave them a good scolding and wasn’t happy with the way I was depicted, becoming a “Blockbuster spokesperson”. My friend Perry challenged us to think further about these experiments. In my blog post comments, he said: “In order for them to win, urgently, they need to push the envelope on new ad product models. I think the model of stepping “meaningfully” over the line and then back gets them more forward motion.” He was right but I’m not sure the Facebook folks have learned anything yet…

Facebook Beacon is an amazing idea but it’s really badly executed. In a world where individuals can become media, Beacon could be the “AdSense for People” but it needs to be completely reversed.

Facebook should:

1. Give user control over which ad appears in their newsfeed (i.e. which brand/service you’re endorsing) and when it appears.
2. Share revenues with the user using a performance-based model.

There are obviously a couple of massive challenges with this model. The first one is Facebook does not yet have the inventory of word-of-mouth ads to make it really interesting for users. The second one is “spwom”, individuals “selling out” to brands they don’t believe in, which would be the equivalent of spam for word-of-mouth recommendations. But I believe there might come a time when recommenders get rewarded for talking about their favorite products or places…

The Kelsey Group (TKG) just released their 2008 Local Media trends. They believe 2008 will be a pivotal year for the global Yellow Pages industry. Here are the highlights:

• Print local media: TKG wonders if the directory business will continue to be as recession-proof as it used to be, as more ROI-driven online local ad products are launched. For large US urban areas, they also talk about the creation of print opt-out plans, important market rescoping and the launching of new directory formats. They also expect higher cannibalization of traditional media sales, mostly from search engine click packages.

• Online local media: 2008 is the year where user-generated content becomes a critical aspect of consumers’ decision-making process. Merchants will be widely invited to join that conversation as well. In addition, auto and real estate verticals will continue to develop in the local search context, new devices will lead to new sources of searches and local search inventory will increase drastically.

• Sales: 2008 will continue to see the uphill struggle to build independent local sales channels.

• ROI/Performance-based products: this year, we will see the beginning of the untethering of print and online usage and more use of robust ad reporting. TKG thinks that 2008 is the year where the promise of pay-per-call gets realized as multi-channel management becomes a critical success factor.

• Verticalization: from a seller perspective, high ad spend categories will attract lots of sales competition from many different sources: SEO/SEM firms, newspapers, vertical sites, start-ups, etc. In national sales, we will see more ad localization.

• New products: Video, Mobile and Outdoor, with a mention that “video is where the immediate action is”.

You can find the Praized blog’s 2008 predictions here.

What it means: As a regular attendee of Kelsey Conferences, I am usually well aware of most of the local media trends but there are a couple of surprises in there for me. First, the creation of opt-out programs for print directories in some US markets. I did not realize the pressure was high on US publishers to create these mechanisms. The second one is Outdoor as a new product. I wasn’t aware that local media companies were looking actively to sell “outdoor” products. In my mind, it’s the kind of interesting opportunity that’s always discussed but is never “low-hanging fruit” enough to execute. Will be interesting to follow. I also like the call to disconnect print and online usage. TKG was the first organization to warn directory companies not to couple print and online value for too long (back in 2001-2002). What they’re saying is: there used to be a time where bundling print and online usage was useful to sell but online is now strong enough to sell on its own.