Bronte Media

This is too good: H&R Block announced in the height of the tax season that it has under-estimated its own taxes and that it will re-state results.

Jay Weintraub has a thoughtful analysis on incentive promotion based online marketing. If you have seen the “Free iPod for filling out a survey” that’s incentive promotion based online marketing. You get the iPod if you sign up for a credit card or a broadband account with one of the affiliate partners.

It’s another fascinating pocket of online advertising that has sprouted up in the last 1-2 years.

But like all lead generation businesses, differentiation is the key challenge.

Incentives seem more like a trading strategy than a segment of the industry. That is, one way to improve the conversion metric. But the input (media buying) still remains constant.

The incentives essentially place further pressure on the economics of the lead generation business as Jay points out. But there is still money sloshing around and the margins are presently fantastic.

Online advertising is becoming essentially a trading market where smarter people buy up cheap inventory, sprinkle it with things like incentives, strip out the acquisition risk and sell it to dumber (well, let’s just say risk-adverse) people who actually service the customer (in this case, credit card companies or broadband providers).

The even dumber, the publishers whose inventory is originally bought by the incentive based promotions firms, are leaving a lot of money on the table.

But by its very definition, arbitrage disappears over time.

John DeMayo has an excellent breakdown of how to value a domain name, leading up to his valuation of one of his own: FreeEssays.com

John says the domain: “Averages 337 visitors per day and $56 revenue per day over the last month or so.” If you extrapolate that out, the amount equals about $20k per annum. He wants $200k, which is 10x revenues but that assumes traffic will be flat (i.e. not decline or grow).

The metrics are very similar to traditional real estate valuation. The risk is a lot higher however, as the predicability of traffic and confidence levels in monetization are not there yet. But if you can get in on a 6-7x mulitple, that risk is certainly palatable.

Particularly interesting is the areas the domain describes, as essentially you are betting on the demand and pricing of that category (in John’s case online education).

While the domains may already be taken, the second wave of speculation may occur on categories of advertising that will grow the fastest. That is, deposit account advertising will grow faster than say mortgage advertising in the next five years. But if both deposit based and mortgage based advertising are valued on the same present-day metrics than obviously the deposit based domain name will end up a steal. I’m guessing it is this kind of thesis that is driving players like iREIT.

That’s what the CEO of Bankrate said on their most recent earnings call. Now naturally what did he do? Why buy a lead generation company, of course. A few months ago the firm acquired fastfind, which from the looks of it is a completely undifferentiated mortgage lead generator (aren’t they all?).

But seriously, Bankrate are a fascinating story , as I have said before. They are one of those companies that you should know about but don’t really see that often in the media. Their stock price has been on an absolute tear of late. But I digress.

True to my word, I’ll continue to post earnings call summaries for the next little while.

For the quarter all of the leading indicators, revenue (49%) and profit (30%) were up.

Interestingly, there traffic was essentially flat year over year (changing mortgage market) but their eCPM (effective CPM, essentially how many dollars they get from showing 1,000 ads irregardless of the pricing model used) was up 50%.

While that may suggest to some a sign of maturity, it illustrates the power of performance-based pricing once scale is reached. Bankrate doesn’t use dynamic pricing, but the rate increases it has applied have received no push back from advertisers, indicating just how undervalued online advertising really is.

Another reason is that the opportunity for lead generators like lowermybills and Nextag on sites with quality inventory is drying up. Not so long ago Bankrate used to allocate 60% of its inventory to brand-directed financial services firms and 40% to aggregators. This year it will be 85% to brand and 15% to aggregators (primarily its own fastfind, once it sells enough advertisers).

Looking at it from lowermybills’ and Nextag’s point of view, they are forced into ever dirtier inventory sources. Not that there is anything wrong with that: run of network/remnant inventory represents one of the most exciting media buying opportunities for online advertisers. The last frontier, if you will. Search prices have gone up and display advertising in verticals like finance and auto are back. But the majority of the web’s inventory is not in search nor premium display. It is when you check your Yahoo mail, or comment on your friend’s Myspace profile.

Yahoo forces advertisers who buy premium sections to buy remnant. Lowermybills has been buying up swaths of untargeted inventory, knowing that the user searched for mortgage related terms in the morning and is now checking their email. Less effective, sure. But on a relative cost basis for buying the inventory, the economics are so much more attractive.

But where was I? Oh, Bankrate. They are doing fanastically well and performance based pricing has given them a greater yield on the inventory they have but the central problem the company has is getting more of it. They also bought interest.com, which essentially is a smaller version of Bankrate itself. What is clear is the thirst for financial services inventory that can be plugged into the Bankrate sales platform.

Because you can’t get enough of The Donald, here’s a little follow up from Michael Lewis’ profile of the enigma.

Mark Singer of The New Yorker wrote with a dose of envy a self-referential, myopic and humorous piece on the impact the ego-enhanced property developer has when he publicly reacts to criticism. Namely, sales of criticism go up.

I say with envy, because it was Singer and his own critical book that were the focus of The Donald not so long ago. Days go by…

A friend recently told me about NextMuni, a site that tracks in real time the movements of several San Franisco buses and plots it on a Google Map. Here’s how it works.

I was in the bay area last week and tried it out and amazingly it was exactly on the money. Quite freaky actually.

It is one of the most compelling mapping applications I have seen. Yet I don’t see how you could make a meaningful amount of money. Perhaps advertising, but folks are there to look up when the bus is going to arrive in a few minutes not to click on ads. And not to mention that bus riders are probably not the most demographically desirable to advertisers.

I’d probably pay 50c-$1 to lookup the service via sms or Google maps mobile. But the target application are those waiting at home or work.

These two quotes from a USA Today story on MySpace loom like a dark haze:

“Among recent investigations was one in January in which a 14-year-old girl was found strangled in a garbage bin in Newark, N.J. Media reports have linked MySpace with her death. Essex County prosecutors would not comment, citing an ongoing investigation.”

and

“In Middletown, Conn., police suspect that in the past two months, seven girls under 16 have been sexually assaulted by men they met on MySpace.”

Around this bright spark from Playboy magazine, who decided to recruit models for an upcoming issue from MySpace, a predominantly teen-related or at the very least very-near-18 site:

“Thomas said that the response thus far has been good. “This ranks up there with the best searches we’ve done,” he said. “We’ll probably shoot more than we usually do. We’ve been overwhelmed with the number and quality of submissions that we’ve gotten.” He estimated that the site could have up to 30 different young women in the feature.”

Marc over at O’Reilly has an excellent post up about new web development techniques and the tying of developers more closely to customer service. The summary? Less QA, more direct involvement by developers in support (at least initially) and in general greater communication from those higher up in the organization to customer e-mail.

He doesn’t make a value judgement, in some ways it is a reality of getting things done with less resources and in others the secret to building great products. Even if you haven’t touched a line of code in your life you should read the post.

The fat lady has all but finished icing down her vocal chords on Microsoft’s second swing at the Internet. If anymore evidence is needed it came in the form of the (re)appointment of John Nicol, who used to run MSNBC.

Keen readers will know my disdain for the pathetic performance of MSN over the past 18-24 months, even in the face of their increased focus and a supposed Pearl Harbor e-mail sequel from Billy G.

What will change for the third and presumably final swing? From the WSJ article that broke the news (no link because it’s impossible to know how to back-link to archived WSJ articles once they are off the front page):

“Plans for MSN include a new travel section, coming in several weeks, and increased investment in Web content associated with subjects such as autos, lifestyle, sports, news and real estate.”

Inspiring stuff. To be fair, the proof will be in the pudding as the new sections roll out but something quite drastic will be needed.

Shameless self promotion but if you’d like to read more about the philosophy behind Homethinking, I did an email interview with Emily Chang of eHub just after we launched in December and it is now online.

Zillow schmillow.