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Content Tagged with User:dolander + digital

Every day it seems we are reading about the power of social networking to transform the Internet and how we communicate online and also consume and discover new content.  While that is true and clearly changing the consumption habits of online users, today seems like a flashback to the old school Internet days where traditional content was king.  First IAC announced the acquisition of Lexico Corp which owns dictionary.com, thesaurus.com, and reference.com and then CBS announced the acquisition of CNET.  With $400+ million of revenue in 2007, it seems like a good buy for CBS at a little over 4x trailing revenue.  So looking at the fact that people are recognizing that social networks are not as easy to monetize as previously thought and the understanding that old school content can still be monetized, I wonder what other old school content companies may be in play in the future (can anyone say the Knot.com or the thestreet.com - full disclosure, i bought shares of these companies for my own account during the last couple of months).  Given the weakening ad spending environment and the fact that many of these small public Internet companies reported lower guidance for the rest of 2008, it is clear that now is a good time for strategics to buy and expand their uniques and ad inventory.  As I have always said, when it comes to the web, scale matters!  Also see Silicon Alley Insider for some comments from the CBS conference call regarding scale and the value of premium content:

CNET's been very disappointing for past few years. What are your strategy for improving CNET revenue growth, margins?

CFO: We think that they have the asssets to do that, they've revamped a number of the sites. Combining with us is good because there's very little overlap with our advertisers (auto, pharma, etc), but CNET audience demo very attractive to our advertisers. And then they reach advertisers (electronics, etc) that we don't. Other efficiencies: One public co instead of two. Combining some ad platforms, etc.

Given MSFT/YHOO, other consolidation, does this make you big enough on the Web?

Les: We just tripled our digital platform. Are there possibilities to do tuck-ins? But right now, we have taken a major leap forward. We are very happy with the cards we're holding now.

CFO: We're now a top 10 Internet company. Could we be a top 5 over time? Sure. But would be through growth, not acquisition.

Les: Remember! Premium content!

First of all, Google announced some amazing numbers growing its revenue over 50% and its earnings around 17%.  That being said, investors in Google have high expectations and the stock fell in after hours trading.  One note that many in the blogosphere seemed to pick up on is the higher cost of traffic acquisition from partners and the fact that social networking is not delivering results as expected( read Between the Lines for more)

CFO George Reyes said social networking advertising is not monetizing as expected. When questioned further Sergey Brin, president of technology, said: “We don’t talk about individual partners or anything like that.” Brin noted some things were tried that didn’t pan out. While Brin won’t talk about partners it’s fairly obvious that MySpace is an issue. Google is obligated to pay at least $900 million in minimum revenue guarantees to MySpace through 2010. Later, the question was revisited again. He noted that Google also has Orkut and other social networking partners. “We have an incredible amount of this inventory,” said Brin. “I don’t think we have the killer best way to monetize social networks yet. We have had a lot of experiments (and some disappointments).”

I wouldn't ring any alarm bells yet for social networking sites in general, but it is clear that there is much work to be done to get these sites to monetize.  We all know that social networking sites mean that people are there to interact with each other, not to click and view ads.  I remember one of our portfolio companies in the early days of the web had automated bots for instant messaging where we could insert ads into the stream of conversation.  It sure sounded like an interesting idea but people just did not care.  They were on the system to IM  not to view ads.   The sames goes with social networking sites.  I do agree with Sergey that there is tons of inventory and much more learning to be done to monetize more effectively.  With that much inventory every penny increase in effectiveness per page means big dollars.  Better and different ways of targeting will surely be one of the keys to understanding if there is a there there in making big dollars from social networking.  That means we should all closely follow MySpace's hypertargeting ad system to see how it performs for the company over the next year as another data point for advertising effectiveness on social networks.

NBC just announced that it is going to offer free TV show downloads online allowing viewers to take more control of their content.  I agree with Fred ,however, that while this is a smart move that this is only half a step since they are limiting the view to 7 days before it self destructs.  More importantly, this makes me think about the free vs. paid discussion and how media companies are increasingly understanding the possibilities and scale that free can provide over paid.  Finally, this move by NBC, I believe, will help open the floodgates for all kinds of video advertising technologies.  In the first iteration of the NBC download service, users will not be able to skip commercials.  My thought here is great, NBC needs to get paid, but they will also have to be innovative and creative and test many different forms of video ads to maximize viewership and revenue.  As we all know, the web is great for targeting and with this move I see a world where one-to-one customized video messages will be delivered directly to the viewer based on location, time of day, content, etc.  Of course, I have to give a shameless plug here for one of the fund's portfolio companies, Visible World, as this is what it does for video advertisements on broadcast, cable, and web.  Based on our experience to date, better targeting, more relevancy, and customization equals more satisfied viewers and more revenue.  Of course, this is just one example of video advertising that should flourish with free downloads.  I would also love to hear your thoughts about other potential forms of advertising that you believe will be delivered around this content

Wow-what a past couple of days!  First I would like to say congratulations to David Moore, CEO of 24/7 RealMedia, on the company's pending sale to WPP Group for $649mm.  I first met David in 1996 when he made his move from offline to online advertising as my prior fund invested in the initial round of 24/7.  We have stayed in touch throughout the years and what has impressed me most about David is his perseverance, sticking with the company through a few near-death experiences, struggling to find cash to make payroll, dealing with a penny stock, and ultimately fighting and building his way back to this exit.  What kept David plowing through was the belief that the crash was a temporary blip and that dollars would eventually move online in a big way.  Looking back, one could easily say that is a no brainer, but if you lived through the bubble you have to remember how the Internet was a dirty word.  Anyway, Aquantive is another company that survived the meltdown and is now about to sell itself to Microsoft for $6b.  I am not going to dive into the metrics here, but let me say that I still believe we are just in the second inning of this shift from offline to online advertising and that we should start looking for the next battleground.  What is interesting is that 24/7, AQuantive, and Doubleclick make most of their money from the boring stuff like SEM and display ads.  If you talk to most of these guys they will have a small bet on mobile and broadband video but will clearly admit that when it comes to managing a public company and having to hit quarterly revenue targets, you have to listen to your customer, the advertiser.  This means that the video and mobile stuff will be big but it is still way too early in those markets.

With AQuantive, Microsoft will get advertiser relationships and a platform from which to build a real online business.  I still think that Microsoft needs a Yahoo or even an AOL to compete with Google but despite that here are some things I would do.  I would go small and focus on building its publisher base where Google gets over 1/3 of its revenue.  I would buy small/medium sized companies that offer free and premium web analytics, feed management and RSS Ads, and potentially even a blogging platform from which to offer MSN AdCenter at the point of creation.  Getting publishers on board will help Microsoft get more data on clicks, increase its revenue base, and also allow the company to build relationships and good karma with the next generation of Internet entrepreneurs.  It already seems that Google is ahead of the curve as it is rumored that it is trying to buy Feedburner, a leading feed management and RSS ad platform (I currently use FeedBurner to manage my RSS feeds and deliver RSS Ads).  Besides the mobile and broadband space I mentioned above, one other opportunity that is huge and here for the taking today is the television and cable advertising market.  Companies like Spotrunner and VisibleWorld (a portfolio company) are approaching the market in different ways but clearly offer advertisers tremendous potential to bring Internet like tools and business models to an analog market.

There is an interesting interview in the WSJ today with Dave Rosenblatt, CEO of Doubleclick.  While talking about industry trends, Dave clearly lays out the fact that it is still early days in terms of broadband video advertising.

In general, video advertising as a trend is pretty firmly in motion. In spite of that, though, it is still very small. There are somewhere between half a million and a million search advertisers in the market, there are probably only a couple to five thousand graphical advertisers and probably less than a hundred video advertisers. There is no reason for that imbalance to exist. So one of our goals is to increase efficiencies with which people buy and sell video advertising and democratize access to the process in the same way that Google has democratized access to the search market...It is going to be easier to buy video advertising, and therefore many more people are going to do it.

I agree with the fact that buying and selling video advertising needs to get easier, but how do you monetize all of that user generated content?  On the making it easier part, I am sure Microsoft has been thinking long and hard about this market as it recently launched Silverlight, a cross-browser and cross-platform plug-in for rich media apps.  In addition it is offering 4gb of free hosting and streaming for its development community.  Think about how easy it will be for Microsoft's developers to plug in Microsoft Ad center and some broadband video ads into their streaming content especially via an integrated offering tied into the development platform.  I am sure this fact is not lost on Microsoft as it looks to take on Adobe and also vie for leadership in the broadband video advertising market.  Sure Google has locked up search thus far but all of that potential broadband advertising revenue is still up for grabs. 

BTW, these stats on the number of advertisers is not all that surprising as it usually is the big advertisers with the huge budgets that will jump in first and explore new opportunities.  These numbers are also not all that surprising to me since my fund is an investor in Visible World.  As mentioned in previous posts, Visible World is bringing the power of Internet targeting to television:

While I have always been bullish about broadband video advertising, I have never believed that the $60b television advertising industry would disappear overnight.  In fact, before the Internet dominates all advertising why couldn't one bring the tools of the web to the television world making TV advertising more effective, targetable, and measurable - in effect changing it from a mass media to a more targeted dynamic one.

What this means is that our advertisers who use Visible World can deliver dynamically changing television commercials based on any number of variables including the content, zip code, demographic, weather, etc.  Sure, lots of technology partners have continually stressed the broadband and mobile opportunities which are clearly building, but as Willie Sutton did, we are going where the money is today - helping that $60b spent on television advertising become more effective.  Sure broadband is in our sights and we can deliver that same video commercial or asset over any pipe whether it be broadcast, cable, satellite or broadband but the reality is that broadband can't pay the bills right now.  In addition, I am of the viewpoint that the broadband video ad itself will have to be much different and shorter than your typical spot today.

So I agree 100% with Dave from Doubleclick (see Valleywag for more commentary).  For other evidence of the early nature of broadband advertising, I suggest doing some analysis and looking at where the bulk of revenue from other ad networks are generated.  Yes, you guessed it - banner display ads and search engine marketing.  Sure broadband has really high CPMs and trust me if these ad networks could build a huge business off of that today they already would have made some acquisitions but there just isn't enough demand from their advertising customers.  As you guessed it, what that means is the market is still early and there are plenty of opportunities for innovative companies to help move some of that $60b spent on television ads online.

Thank you EMI for releasing music singles without any DRM protection on it.  While I continue my love/hate relationship with the IPod, I do believe that my music needs to be portable and free. I recently bought the new Treo 680 for my wife and was in the process of loading music on her device when I remembered that my selection was limited.  I also have the same issue with the new Blackberry Pearl I just bought for myself.  Why is this the case?  It is because the hardware and technology vendors want to lock consumers into their ecosystems.  It is because the music companies are afraid of piracy.  In this case, it is because any music I bought from ITunes over the last few years requires me to have a device (iPod, iTunes, or  music phone) that can play ITunes or AAC encoded tracks.  Sure I could go convert the files to a wav format and then reconvert them to MP3 but who has the time or desire to do so.  The same goes for any device using Microsoft technology - your new device has to support WMA DRM.  In the end, I buy my music but it can't go anywhere with me which is quite frustrating.  As we all know, this will become a bigger problem in the future as more and more devices support music like the Treo and new Blackberry Pearl.  As a consumer, I don't necessarily want to be locked into one vendor forever and want to be able to easily port my songs between different devices.  There are forward thinking individuals in the industry like Michael Robertson (full disclosure, Michael is also the founder of portfolio company Sipphone) who wants to store your music in the cloud and allow you to access it from any device - wireless, Tivo, any PC, but at the end of the day the problem is that I still need to have iTunes if I want to play the music I bought from them.  This has to end!  So EMI is releasing a Norah Jones single through Yahoo Music with no DRM.  This is a baby step but a big one.  Maybe the fear of Apple's dominance in the music industry is outweighing the industry's concern for piracy? Either way, this is a welcome step for consumers.  I still may go back to the stone age and buy CDs and rip them myself as I want my music to be free, free of all DRM so I can use it how I want and on what device I want.

As I wrote early last year, my perspective is that one must go early, go late, or go home to make money in the venture market.  Given that we at Dawntreader have always been early, that is where we will continue to focus.  What is interesting is that on the heels of the new seed funding plan that Charles River Ventures recently announced, CBS just brought in an Allen & Co deal maker to head up its Interactive division with an eye on going early as well.  As Quincy Smith, new CBS head, said in a Reuters interview, "I’m looking for the next YouTube, only a year earlier, when they were 1/32nd of their size, without building out stuff that we would find duplicative like sales force. The core engineering team is always important."  Of course, what he is also saying is that he also does not want to pay exorbitant prices for companies that he could have found earlier. 

While CBS has certainly put some dollars and focus behind this "going early" effort, it is not lost on a number of media companies that I have met with in New York recently.  All of them are looking to invest and buy startups before they get too big.  As you all know, commoditization means it is extremely cheap to get a web business started and build an audience.  Since the inflection points for startups occur much sooner and on much less capital, missing that first round means you have to pay up to get involved.  Paying up means it significantly increases the bar for success and the risk of your investment or acquisition failing.  According to the PaidContent post today, "On the making deals side, it sounds like he’s in sync with Moonves, who has said the company won’t be making major digital acquisitions."  All of this is to say that Rupert Murdoch made a ballsy bet when he bought MySpace and paid the price that he did - no one else moved as quickly or as emphatically. 

In theory it sounds great - spread around a number of smaller bets instead of making a bet-the-farm acquisition like a Facebook. And  I am sure that CBS will see a ton of great entrepreneurs, but the question is whether or not CBS, a traditional media company, can identify the right companies and add significant value to drive them to success.  Early stage investing is not easy and neither is acquiring a couple of entrepreneurs working out of someone's apartment.  Success for CBS will come down to execution as it will really be competing with technology companies like Google and Yahoo (take a look at a discussion we had at Kinnernet in April about this topic) who have a better pedigree and track record of buying pre-venture-backed companies and making them successful.  If you throw in the inevitable friction that will be created between the new and old media side of CBS, it will be interesting to see how this strategy evolves.  Regardless, more capital and more exit opportunities is great for entrepreneurs.