Bronte Media

Here is a great quote by Netflix CFO Barry McCarthy via Silicon Alley Insider:

“It is true that online sources of acquisition are less expensive than they used to be because there’s less demand, primarily amongst financial service advertisers…” McCarthy said. “…You’re going to see a record low [subscriber acquisition cost] this quarter that I think is really going to shock some people.”

For those at home, ‘less expensive’ means less online ad revenue.

Here’s a theory I have been mulling for a little while: Instead of online advertising being ‘insulated’ from an overall recession could it instead be a leading indicator?

Here’s an easy guy to pick on - a VC:

“Our experience is that on the search side, any performance-based media is less likely to be affected because marketers are paying on a price per lead. Our feeling is that as ad budgets get cut–and if the economy gets soft they will get cut–performance will less likely be cut than general impression or branding ads,” said Geoff Yang, a venture capitalist and partner at Redpoint Ventures”

I believe the contrary. That precisely because it is so measurable, performance-based media will be the first affected.

Why? Buying cycles are so short, and advertisers actually measure their return on investment.

In newspapers, TV, magazines etc. buyers commit to buying ads quarters in advance. That is why media companies see declines in their businesses on average two to three quarters after the actual recession starts. With online advertising, and particularly search, that is not the case.

Print classifieds spending, for instance, has always been much more levered to GDP growth and decline than other types of ad spending.

A big flaw of any analysis is that since online advertising is ‘better’ than other mediums, folks will simply reduce their spending elsewhere and keep online unhindered. But online advertising has always won ad spending by justifying itself solely on its own merits and performance.

You have to keep in mind the definition of a recession. People spend a lot less. Companies in aggregate don’t grow. Jobs are lost.
We may or may not be in a recession (I am not qualified to evaluate) but, to use the mortgage example once again, people won’t take out or refinance the mortgages with as much frequency and the number of companies offering to refinance and originate the mortgage will be fewer and the value of that customer (since on the whole there are a lot more vanilla mortgages rather than exotic ones that generate huge fees) is less.

That completely changes the economics of ad buying for the mortgage industry at each step of the funnel (conversion rate and profit per conversion. Where it mightn’t play out is number of mortgage searches because people are shit scared theirs might blow up and so will be doing research).

There has already been a huge decline in mortgage lead prices in the past year. Which should be evidence that the Internet ad industry is a leading indicator. We haven’t seen Dow Jones or Reuters have similar downgrades but they will no doubt happen toward the end of this year.

So count this as another rant line: That online advertising is a leading indicator of a recession rather than an industry insulated from the economy.

Classy:

“Directors Martin Kemp and David Ryan also sold down their holdings, According to shareholder notices lodged with the ASX. Mr. Kemp, who is chief executive of ABC Learning’s Australia and New Zealand division, sold two million shares Friday at A$3.75 — before the company released its results late Monday, which triggered Tuesday’s share-price plunge.”

[Shares are now $2.14]

The plain stupidity of it all is fascinating. Australian companies only have to report every half-year not every quarter like American companies. And it’s now two full months after those results.

As the CEO, you would have to be nearly certain that the half would be fucked by November, so why not sell then?

In my former life as a Jupiter Analyst I was particularly proud of one slide. It was basically an S-curve that showed spending on search by marketers with two inflection points: marketers installing analytics and measuring results and secondly, the use of bid management software which exponentially increased the amount of keywords a marketer was able to bid upon.

I used to trot out the slide in nearly all the presentations I used to do On The Insular Search Conference Circuit. Co-workers groaned when they saw it. One instance I used it was at the 2004 SES show in Chicago.

I was just listening to the Standford Entrepreneurs podcast and one of the recent shows was Bret Crosby (founder of Urchin which was acquired by Google). I knew he liked the slide because I believe they licensed it from Jupiter at the time. What I didn’t know was that he believed in exactly the same thing and it was the premise of the acquisition by Google and was later proved correct.

I know I am essentially patting myself on the back. I don’t care.

Podcast is embedded and reference is just before 28 minute mark.

Techcrunch has a profile of a cool new startup called BillShrink. BillShrink initially will tell you if you are on the right cellphone plan by crawling and analyzing your account information.

Cellphones are perhaps a weird vertical to start with because of the long contract times and the inability to monetize a change of plans within the same carrier (not sure if carriers would credit an affiliate with an existing customer) but it’s a great service for consumers nonetheless.

There are whole research companies built on top of that same idea. So perhaps the aggregate data can be used to make money.

What I find most exciting is that it is the end of the ‘it depends’ or ‘get quotes from a trusted salesperson’.

I am still in love with the concept of OLPC but increasingly disenchanted with the dopes running the project.

I ordered one for me and one for a kid in Africa on December 12, 2007. Here’s the email update I asked for yesterday.

“Dear Mr. Scevak:

Unfortunately, I am unable to give an exact shipping date. I suggest that
you contact us again during the last week of February and I may have an
exact date by then.

Thank you.

Sincerely,

Victor”

Re-blogging a comment I left on Techcrunch regarding a post they had on LaunchBox, a seed stage investment firm in DC.

“The model is based on the much emulated Y Combinator, which has now funded dozens of startups. London based SeedCamp and Colorado based TechStars have nearly identical business models.”

I really don’t get this. Investment firms, especially early stage investment firms where partners get involved with the investments are inherently not scalable. Does Sequoia compete with Kleiner? Sure, but because they are in businesses that don’t scale (i.e. investments per partner are pretty fixed), there are huge opportunities for both and they can co-exist.

This is even more the case with seed-stage incubators like Y Combinator.

Who cares if their business models are identical? Who cares if they compete? There will never be one winner like the dynamics of the startups’ industry that they invest in.

Warning: Rant ahead.

One of my pet peeves when it comes to discussing online advertising is pinheads who look at time spent online and then compare that to other media and conclude that online advertising is poised to close that gap between dollars and time spent.

The relationship between time spent and dollars is completely and utterly disconnected. The reason why? It’s comparing apples to oranges. So much of online time is spent communicating and active states of mind; very bad environments to advertise in. Brand dollars are spent against passive environments like radio and television where people are listening and watching.

I spend probably 5 hours a week taking a dump. That doesn’t mean that advertising in toilets should approach 25% of television ad spending.

In the late nineteenth century, several businesses tried to make the fledgling telephone an ad supported medium. It didn’t work. The environment is not a good one.

Now to online advertising. Nearly two-thirds, as defined by the IAB, is search related (search + classifieds + lead gen). But search represents 5% of total online time.

That right there should raise a huge red flag to any person whose IQ is greater than room temperature. That total time spent online is in no way correlated to total online advertising dollars.

What’s the gap? You guessed it, forms of communications. Now things like MySpace and Facebook are blurring the lines between communication and entertainment but there is a huge question mark as to whether folks can turn those environments into an advertising medium that is even vaguely on the same scale as TV and radio.

But in every iteration before (IM, email, free web pages like GeoCities), firms have failed to create something meaningful. That is one part costs, where now these businesses can run on so little dollars that even the meager CPMs they get will create fantastic profitable small businesses (small in the sense of say a CBS or NBC revenue perspective).

p.s. As a tangent, here are a few great posts on why VCs and entrepreneurs make so many bad assumptions around online advertising. The original from HipMojo’s Ashkan Karbasfrooshan and a follow up from Dealbook.

The two biggest assumptions that kill businesses in online advertising is number one by far, that the gap between time spent online and share of overall advertising dollars will converge towards each other in a causal relationship. And the second, that big brands will move their brand-directed dollars online in a meaningful way.

Via O’Reilly Radar:

“On January 31, mere hours before Microsoft made its unsolicted $44 billion-plus offer for Yahoo, Forrester Research, my alma matter, posted a research note with the following headline and deck:

Microsoft Will Make Small Acquisitions
Its Size, Visibility To Antitrust Bodies, And Strategy Rule Out Big Deals“

Congrats to Bob & Co for the New York Times article. Even if Arrington did pan the quotes.

And check out YouNoodle either way. The way I think of it is like a LinkedIn for young startups.

Photo no doubt hanging on Bob’s wall now: