Bronte Media

At this point can anyone take this kind of news seriously? MSN Search is becoming like… well Ask.com.

In fact, recently they have been promoting the hell out of games that juice search volume (but not the kind of keywords that count)….. just like Ask.com’s “Fun Spyware Web Products”.

And MSN is not even Live yet (no pun intended): “Mr. Nadella said the updates will be phased in by the end the month.”

This should really level the playing field… between Ask.com and MSN Search that is.

Listening to Mark Zuckerberg speak is about as revealing and insightful and boring as the economics teacher on Ferris Bueller’s day off. That is to say: he’s right up there with the Google triumvirate on quarterly conference calls.

But with that aside, I love the rumors he is negotiating to sell a 5% stake for between $300m-$500m (i.e. a $6bn - $10bn valuation).

Facebook and MySpace are the oxygen of ad networks that are scrambling for relevance and to which GYM are doing their best to buy up every last one of.

Ad Networks can happily balloon to billions of ad impressions per month, reach nearly all of the Internet’s audience and have tens of millions of revenue. But while everything looks rosy on the outside of the house, margins die and publishers like Faceboook/MySpace build their internal sales force and other startups with better algorithms figure out how to pay more for inventory they used to be able to buy.

Luckily for most of them, the music is still playing. AOL, Yahoo, Microsoft and Google will realize soon they overpaid for almost all the ad network assets sold this year (ad.com was a steal).

But I digress. The driver’s seat in all of this are Facebook and MySpace and their importance increases with time. They own the consumer relationship and that is all that counts.

As GYM pushes more and more into the ‘advertising operating system’ mantra (although at least Google bought Youtube), Rupert and Zuckerberg are allowed to compete for what counts while the large Internet companies act as shoe shiners bidding ever more vigorously for 90% revenue share deals to service them.

I had the same reaction as this when reading the New York Times hearting of MySpace’s internal targeting technology group: they’re focusing on the wrong thing.

From the article: “A 100-employee team inside the Fox Interactive Media offices in Beverly Hills, called the “monetization technology group,” has designed computer algorithms to scour MySpace pages. In the first phase of the program, which the company calls “interest-based targeting,” the algorithms assigned members to one of 10 categories that represents their primary interest, like sports, fashion, finance, video games, autos and health.

The algorithms make their judgments partly on certain keywords in the profile.”

And on the cusp of bleeding edge innovation, this is what the company has coming up next:

“For the last two months, Fox Interactive has also experimented with the second phase of its targeting program, called “hyper targeting,” in which it further divides the 10 enthusiast categories into hundreds of subcategories. For example, sports fans are divided into subgroups like basketball, college football and skiing, while film enthusiasts are further classified by their interest in genres like comedies, dramas and independent films, and even particular actors and actresses.”

More categories!

If Google’s contextual targeting can’t work with the largest marketplace of advertisers, MySpace’s internal efforts targeting on the same parameters won’t either. A profile page is too small a sample of digital exhaust to base any interest on, especially for perishable interests like travel or auto (i.e. you travel 3 times a year, buy a car once every three years etc.)

If they said they were targeting based upon search histories that would be different.

Also, an 80% improvement is not as high a benchmark as it may seem. The simple fact of being around for a year under News Corp and signing up more advertisers and advertisers having enough time to measure their campaigns to know that MySpace inventory is worth $0.02 CPM rather than $0.01 CPM would be larger factors than ‘categories’, I would wager.

It just surprises me they are trying to re-invent the contextual wheel on a property that clearly needs different thinking.

There is a great meme going around at the moment that distills down into: Is online advertising fucked in 2008?

The two people who have the most thoughtful arguments are Henry Blodget and Jerry Neumann err Jerry, since I don’t know his last name.

The online ad market endured a shakeout in the last economical downturn because the advertising was hugely leveraged toward ad deals between portals and fledgling online firms, whose existence was dependent on continued financing rather than operating profits.

So with newspaper advertising falling off a cliff and TV now showing weakness, online is also screwed, right?

Not so fast. If you look at the TV ad industry they rely hugely on Automotive and CPG companies. Those two categories have basically seen online as a ‘testing’ ground and are running ‘experiments’ even ten years on. In fact, the only time they mention online advertising is in the TV upfront season where they say Television is fucked and this year they’ll shift a huge amount of their budget online. And then they don’t.

Rinse and repeat at the next upfront.

The heart of newspaper profits - classifieds - is bleeding out at an accelerated rate. The story is hardly rosy online - Monster is dysfunctional at the moment, real estate is an industry into itself and Craigslist is a very credible competitor at the $0 price. The only shining brightspot really is Autotrader.

So what does Online rely on? Principally online retail and financial services. And maybe travel as well. Those three account for the majority of dollars.

Will people stop buying online? Probably not, but the growth is maturing. Financial services? Yes, less people are getting mortgages, companies are restructuring and so unless the lead price grows to compensate the decline in volume, then that pillar will be hit. And travel? The industry seems to be doing its best to piss of customers but demand is growing fast.

So I think that gravity does apply and the online advertising industry will flatten or decline because of the mortgage market. But there has to be compensation from two basic shifts: 1) dollars shifting to direct response (direct mail is still growing at a fast rate) and 2) dollars shifting to where the consumer is (i.e. the Internet).

Industries like Automotive and Real Estate which are yanking dollars from print and TV are not likely to have as big effect online: principally because they don’t spend that much online at the moment anyway.

But I do buy the Mortgage downturn means online ad downturn meme more and more each day. Just that I don’t know if we mix it all in together (consumer usage, direct response nature, category makeup) that ends with tears dropping into spilt milk.

The structure of private equity funds (which venture capital is basically a subset) mandates that investors pay a 2% management fee and a 20% share of the profits. The 2% is largely marketed as allowing the firm to ‘keep the lights on’ and for basic overhead.

A study from Wharton though, says that about 61% of revenue for private equity firms comes from fixed sources like the management fees and the remaining in variable compensation like the performance fees.

The percentage is likely to go up as fund sizes explode (although some venture capital is gravitating to smaller funds) and the 2% has a larger denominator. And it is somewhat controversial since the management fee is considered ‘at-risk’ and so taxed as capital gains (15%) rather than corporate income tax (35%).

If the industry does endure a shake-out now the credit market is finally realizing that the debt to buy Burger King is probably a little riskier than the debt the United States treasury issues, let’s hope the fee structures can similarly undergo a shake-up, although that is a little wishful thinking.

This from the Right Media Direct Exchange Newsletter:

“Direct Media Exchange hit a 13% gain in total impression volume for August, setting a new high at 6.4 billion impressions! Revenue paralleled closely with that of volume gains, increasing 12% for a $2.2 million payout to publishers. All numbers include both linked and third-party data.”

Which translates to an effective CPM of $0.33.

I signed up Homethinking for the direct media exchange a while back and ran some of our inventory through it. Basic adsense on the site does $8-10 CPM and the advertisers on other networks who do participate in the exchange managed about 10-20 cents in the brief time I ran the trial.

That said, it’s a great concept. Just nowhere near ready for prime time and for the moment Google, on a direct response basis, is always going to be the top bidder, which may turn out to be the huge deflater of recent exchange hype.

From an article on why Facebook decided to reside on the West Coast instead of Boston, comes this little nugget of a quote:

“As for passing on Facebook, “that may turn out to have been a mistake,” [Scott] Tobin [of Battery Ventures] admits.”

Looks like Jerry Yang has nixed the idea of outsourcing search ads to Google in favor of trying to go it alone and creating a ‘marketing operating system’. God, you can just imagine the powerpoint slides with that phrase.

Loyal readers of this blog will remember that I am all for Yahoo syndicated Google Ads. But that it doesn’t need to be an all or nothing scenario.

Devote 15-20% of the impressions to the Google deal. Meticulously measure and obsess over how Google shows ads against keywords. This does two things:

1) You light a fire under the ass of Panama and show in cold, harsh light of day how much more Google generates for the exact same query. Every weekly meeting, the same report. If that can’t give focus, nothing can.

2) Now that you have done that, you have a huge data set between what Google chooses to show and what you choose to show and you can isolate simple differences like Advertiser X paying more for keyword Y on Ad words vs Panama and get into the secret sauce factors more quickly.

Sad to see that they thought of the Google ad syndication as an OR rather than an AND.

And read the real reason for the credit crunch: poor people! I laughed out loud when reading this hilarious parody from Michael Lewis on the sub-prime meltdown:

“Don’t get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It’s not personal when a guy cuts your grass: that’s business. He does what you say, you pay him. But you don’t pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn’t allow to invest in my hedge fund.)

That’s the biggest lesson I’ve learned from the subprime crisis.”

And this cracker of a quote:

“Lending money to poor countries was a bad idea: Does it make any more sense to lend money to poor people? They don’t even have mineral rights!”

First the stock symbol change to Java and now a reverse 4 for 1 stock split.

What’s that about pigs and lipstick? Or turds and polishing?