Monthly Archives: July 2011

Google: Being Boring!

So who exactly is filling Google’s ever growing vaults?

It seems that perhaps as much as half the magic that is Google can be distilled down to boring old insurance, loans, and mortgages.  These categories of keywords, if the analysis of Wordstream below is accurate, account for approximately 46% of Google’s ad revenue over the last four quarters, or a whopping $14.8 billion for these three categories alone.

As a caveat, I am not exactly sure what the percentages in the graphic below stand for (i.e., is it % of search volume), so it’s possible that this number overstates or perhaps understates the revenue from these three categories.  For one thing, it’s not clear how display advertising is accounted for.  In any event, whatever the number is, it appears both significant as a percentage of total revenue and absolute dollars.

As Willy Sutton said “Go where the money is.”  According to these numbers, Twitter, Facebook, and every other startup looking for an advertising-based business model for their own oceans of gold should be sending every free hand that they can find to knock on the doors of advertisers in the insurance, loans, and mortgages spaces.

All His Presidents: Obama and Clinton

Larry Summers speaks on the difference between working for Barack Obama and Bill Clinton:

Okay. So you’re working for Bill Clinton. Well, let’s do it differently. Let’s do it the other way. You’re working for Barack Obama. If you have a meeting scheduled at ten o’clock, there’s a 25 percent chance that the meeting will begin before ten o’clock, and there’s a — you know what’s coming, and there’s a 70 percent chance that the meeting will have begun by 10:15.

If you wrote Barack Obama a memo before the meeting, it is a virtual certainty that he will have read it. If you seek to explain the memo you wrote to him during the meeting, he will cut you off, and he will be irritated. If he, as the leader of the meeting, will ask one or two questions to kick the tires, but will basically focus on how whatever subject you’re talking about fits with the broad vision and approaches of his presidency.

He will basically take the attitude if you’re his financial advisor, that if you can’t — it’s up to you to figure out whether preferred stock or subordinated debt is the appropriate financial instrument for your bailout, and that if he doesn’t trust you to figure it out, he’ll get a new financial adviser, but that is not the question on which he is going to spend time.

So it’s a very focused executive, big picture guidance, disciplined approach. At the appointed time, his secretary will come in and will bring a card that says it’s time for his next meeting, and you will be out of that office within five minutes. It is a certainty. That’s working for Barack Obama, and it is a wonderful experience.

Working for Bill Clinton is also a wonderful experience. It is a different experience.

The probability that your meeting will begin before ten o’clock is zero.

The probability that there is compensation for the fact that your meeting will begin late, it is virtually certain to end late. Bill Clinton has a 30 percent chance of having read your memo before the memo. Bill Clinton will, however, with near certainty, have some set of quite detailed and thoughtful perspectives to offer on your topic.

He will say things like “I was in the White House library reading the Journal of Finance, and there’s some really interesting thinking about the role of dividends in the system.” “I went to a conference at the Brookings Institution 11 years ago, and do you know that there’s a really interesting experiment with providing credit access in Tennessee?”

“Did you read the latest issue of — the Asian edition of The Economist? It had a perspective on Thailand that you might want to think about.” There was a stunning, I mean you know, while he wasn’t reading your memo, it wasn’t that he wasn’t doing anything about it.

So it was a very different kind of experience that was also extraordinary in its way. I think the nation has been fortunate to have two such thoughtful, purposeful, highly intelligent and focused people, who have served as President, and it’s certainly been my good fortune to work for both of them, with their rather different styles.

Clothes Make the Boys

Larry Summers on accuracy of Winkelvii meeting as dramatized in The Social Network:

“One of the things you learn as a college president is that if an undergraduate is wearing a tie & jacket on a Thurs afternoon at 3 o’clock, there are two possibilities, one is they are looking for a job and have an interview, the other is that they are an asshole.  This was the latter case. Rarely have I encountered such swagger, and I tried to respond in kind.”

Crushing It: Facebook Display Advertising

Impressive news for Facebook and display advertising overall.  Not only does Facebook have almost a third of the market for display ad impressions, data shows a major run-up in pricing for Facebook advertising on a year over year basis.  In the past year, the “cost per click” for a Facebook ad rose 74% in the US, UK, France, and Germany, while display advertising more generally rose 45%.  One factor in this run-up is that traditional advertisers are diverting more advertising spend from traditional to digital media.  This part of the Facebook equation (High market share of Ads + Strong Pricing for Each Individual Ad), putting aside other questions, is *winning* for upcoming Facebook Valuation.

Remember when display ads were worthless?  Facebook, like Google before it, is proving to be an Internet business model alchemist, turning Internet advertising from scrap to gold.

Reid Hoffman: People Pivots

Early on, I wrote that:

It is no longer the case that one can gain a single technical skill and assume it will be enough to sustain someone through his or her career.  Those that can spot opportunity, define a vision, articulate it to motivate themselves and others to follow it, and then execute on that vision will be best poised to succeed in an increasingly exciting, but turbulent world.

From a very high level, that is an overarching theme on this blog.

In  the latest Tom Friedman column, there are some wonderful thoughts from Reid Hoffman that pair perfectly with this, about experimenting and adapting, spotting opportunity, teaching yourself to take advantage of new opportunities, and being resilient through the process.  I excerpt:

Hoffman argues that professionals need an entirely new mind-set and skill set to compete. “The old paradigm of climb up a stable career ladder is dead and gone,” he said to me. “No career is a sure thing anymore. The uncertain, rapidly changing conditions in which entrepreneurs start companies is what it’s now like for all of us fashioning a career. Therefore you should approach career strategy the same way an entrepreneur approaches starting a business.”

To begin with, Hoffman says, that means ditching a grand life plan. Entrepreneurs don’t write a 100-page business plan and execute it one time; they’re always experimenting and adapting based on what they learn.

It also means using your network to pull in information and intelligence about where the growth opportunities are — and then investing in yourself to build skills that will allow you to take advantage of those opportunities. Hoffman adds: “You can’t just say, ‘I have a college degree, I have a right to a job, now someone else should figure out how to hire and train me.’ ” You have to know which industries are working and what is happening inside them and then “find a way to add value in a way no one else can. For entrepreneurs it’s differentiate or die — that now goes for all of us.”

Finally, you have to strengthen the muscles of resilience. “You may have seen the news that [the] online radio service Pandora went public the other week,” Hoffman said. “What’s lesser known is that in the early days [the founder] pitched his idea more than 300 times to V.C.’s with no luck.”

Netflix: Rolling up the Red Envelope (the “Logic” behind the Price Increase)

The 60% Netflix price increase announced yesterday was handled surprisingly ineptly for a company beloved by its customers.  While the extent of final damage to the brand is unknown, subscribers are upset and the Netflix halo has been dimmed considerably.

Many have been asking why the price increase?  The reason for the price increase was not because Reed Hastings wants customers to switch to streaming so that the DVD-By-Mail plan can be phased out, as this AllThingsD post argues.  That must clearly be wrong. Because of the limited available content, streaming is just not a compelling enough product yet for Netflix to hang its hat on.  There are a number of emerging competitors in that business including Amazon, Apple, and Google, and, in addition, Netflix does not control its destiny because it needs to negotiate with content providers for streaming.  By contrast, the mail part of the business and Netflix’s superior logistics in executing that business are what distinguishes Netflix, in particular as the video rental stores have been boarded up.  My guess is that Netflix will be quite happy for the mail business to continue given the strong defensible position it has there regardless of the infrastructure and postage costs, while it further develops the streaming business into an experience that resembles the original mail offering instead of resembling it’s less interesting and less capable step brother.

So then why?  By clearly separating the two products and establishing a $7.99 price to the streaming component (regardless of whether you take no DVDs by mail or 1, 2, or 3), the offering looks more and more like a premium movie channel a la Starz, Encore, or Showtime. This is another step in that direction for streaming as Netflix has been long signalling to the world.  (See here and here, for example.) Netflix gains precise subscriber counts useful for negotiating deals with the studios, many of which may be on a per subscriber basis. The $9.99 plan muddled the ability to do this, as some of that plan’s subscribers valued streaming, while others valued the mail option. This disadvantaged Netflix in negotiating deals if studios demanded payment for all subscribers on plans with access to streaming.  By more clearly delineating its subscribers between streaming and no streaming, Netflix has more firepower in the wallet on a per subscriber basis to negotiate better content deals.  And the more it looks like a premium channel on top of the core cable offering, the less threatening it is to studios and the more willing they are to negotiate in good faith. Given many of the premium movie channels on the rung beneath HBO are around the $7.99/price, Netflix should be able to put together something that resembles one of them, an improvement on the current streaming package.

The logic is sound if Netflix had stepped out like this from the very beginning.  The problem is that it did not.  A 60% price increase is unheard of for any product, and like in any other industry, customers are going to run for the pitchforks in response.  Netflix has to perform some damage control quickly or otherwise risk looking like just one of the customer-unfriendly players on whose back Netflix has built an amazing business disrupting.

Mark Suster on the Rich Waters of the Twitter Ecosystem

In his post today explaining his investment in DataSift, Mark Suster explores in insightful detail the value of Twitter for content-creation and of tools like DataSift for helping users extract from that content what is useful to them. His analogy in the below excerpt is to transforming an overwhelming fire-hose blast into a manageable tap stream.

Our goal is to make the enormous volume of real-time information more manageable for the 99% of companies that lack the infrastructure to process these volumes in real time. Think of DataSift as turning the fire-hose into a cost-effective and manageable tap of running water.

To draft in the airstream of his post, I wanted to refer back to two recent posts on this blog addressing both subjects: here is a post on the value of Twitter in enabling users to create content and here is a post on the opportunity that lies in providing the filters required to make manageable the flood of content from Twitter and other content-creation sources.

John Battelle: The Internet Is Not Only For the Mark Zuckerbergs of the World

John Battelle has a wonderful post titled “The World is an Internet Startup Now,” observing that Internet innovation encompasses the world now, evidenced by how many opportunities are open to and being chased by those with expertise in many “non-Internet fields.”  It is a nice statement of the thesis that there are huge opportunities to solve “real problems” through disrupting existing markets with real revenues, waiting to be captured by the innovative business model.  To do so, leveraging “domain knowledge” gray hair to identify pressure points may be critical.  Another statement of this is conveyed by Mark Suster’s exhortation to “Go Solve Real Problems” (see here and here). Here is the excerpt that hit me hard in Battelle’s post, but read the whole post.

I guess my point is this: The Internet no longer belongs to the young tech genius with a great idea and the means to execute it online. Innovation on the Internet now belongs to the world, and that is perhaps the most exciting thing about this space. It’s attracting not just the “next Mark Zuckerberg,” but also thousands of super smart innovators from every field imaginable, each of whom brings extraordinary insights and drive to play. And that’s another reason I love this industry, because, in the end, it’s not a singular business. It now encapsulates the human narrative, writ very large.
. Scratching, Mixing, and Spinning Out a Business Model has lifted off with ferocity, addicting those with early access while motivating others to find a way through the velvet ropes into the virtual club rooms.

What characteristics of proved to be the booster fuel, enabling this type of launch buzz and engagement?

  • Many of us secretly or not so secretly, have a desire to be DJs, so this concept for sharing music is compelling: a context where the DJ and other users are anticipating what song will be pulled out of the milk crate and whether the selection will drive forward the ongoing mix.
  • There is a gaming element (winning points gains you better avatars).
  • There are social elements (get your friends and work colleagues in, along with meeting new people based on musical taste).
  • Related to both the social and gaming aspects is the quest for social approval for the user’s mix skillz and general musical taste.
  • The combination results in intense engagement providing an opportunity for music discovery, giving at least a glimmer of hope for a business model to be built on this. (If the labels cooperate, historically not a given, so this is a big if.)

Any lessons here for other concepts?  Something sports-related could share these characteristics with the right implementation. Perhaps something around fantasy sports and real-time play calling during live sporting events.

The question with all rocket launches is whether the rocket reaches orbit or does it come crashing back to earth?  If we are still talking about a year from now, and we very well may be based on early returns, we will have some more lessons to draw about keeping something from being a passing fad and creating something more durable.