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Archive for January 22nd, 2009

Failure to understand how users and money flow through the Internet costs media and etailers a lot of money every day.  There are huge misconceptions about where the “value” actually lives for user data, advertising performance and profit margins on all this high tech.

The following figures attempt to disambiguate some of the confusion.  The summarized conclusions come from a variety of data sources and real life experiences analyzing financial statements, traffic reports, advertiser analysis and experimentation.  Specifically one could get someone exact figures by combining comScore, Quantcast, Compete, Google Analytics, TNS, @Plan, SEC Filings, internal reports, revenue statements and DART forecasting as I have done several times.

This post is meant to be a demonstration of the core concepts, not a statistical treatise on the topic.

If you hate reading too much, skip to the end for a somewhat realistic example of how traffic flows.

Traffic on the Internet roughly splits 7 segments.  (as shown in the figures below).  These segments are defined by where the sit in the user experience by amount of consumptive behavior (clicks, reading, sharing, watching). How the user gets from segment to segment is not completely linear in actuality, but when you coagulate a users behavior you’ll roughly see a funnel in terms of time spent, pageviews and ad impressions.

Traffic Funnel

Traffic Funnel

The segments can be characterized also by their ad performance, ad targeting (how specific is the user in their activity), and their audience coverage (how much of the particular audience segment does a type of site/service reach)

Funnel Traffic Segments

Funnel Traffic Segments

Each segment has a different cost profile.  Here I look at labor costs to maintain and capital expenses to build and power.

Where's the Cost?

Where's the Cost?

As you can guess, each traffic segment has a different profit profile too.  This is largely the result of combining the advertising/revenue performance with the cost profile.  Certain Internet services simply do not have a strong profit opportunity because they borrow old models and/or cost more than the market is willing to pay. (Perhaps that will stabilize one day, but I think software tools and low cost hardware disrupt the demand curve A LOT because users can often supply their own demands once the cost gets too high, hence why TOOLS are the most profitable segment.)

Profit Margins by Segment

Profit Margins by Segment

Make no mistake about what I’m presenting here.  The profit online is all in retailing, portals/search and tools/utilities.  The stuff in the middle of the funnel is highly susceptible to competitive displacement and has very little intellectual property protection.  You can verify this conclusion by reviewing revenue statements and SEC filings for the big tech and internet companies.

The advent of citizen journalism and self publishing flattened the media market.  Owning a printing press was once “high tech” and a capital investment barrier.  Owning the right location on the main street was once a logistical barrier.  High speed computers and difficult programming languages was once a technical barrier.  Those 3 feature are gone.  Media is now, well, almost purely a creative barrier.  There’s a huge pool of creative talent constantly struggling against each other.  Creativity is worth a lot once it rises above everything else.  That happens so rarely to make it a bad investment.  Every minute more and more people enter the creative market (how many blog posts per hour? how many videos go up each day?… a lot.)

organizing, sifting, filtering, distributing, aggregating… that’s the sweet spot.  There is a technical hurdle, but the investment is worth it as there will never be less of a need to filter, sift, find, distribute.

This week we had a beautiful illustration of these concepts with the Presdential Inauguration.

Most of the US users watched the Inauguration, most on TV, a lot with online video streams and 2 million in person.  During and Immediately following the inauguration the Internet lit up with content creation and massive usage.  The portals and search engines featured as many new links and breaking stories to the news coverage.

The social networks shot pictures, tweets and status updates around, occassionally referencing links to the confirmation gaff, benediction speech text, and satelite pictures from DC.

Micro bloggers summarized everything as fast as they could, while the search engines and utilities sucked in that content.  The original content creators probably released a previously composed story and put that live.

Mainstream users shut down their video streams and took to the portals and search engine, seeking more info on what just happened or insight into a specific moment.  Most times they ended up at CNN or NYTimes.  Many times, but less frequently, they hit a blog that had some recent content.  Most users probably ran into a wikipedia reference link or youtube video.

Some users ended up on amazon to buy Obama’s books or some inauguration swag.  Finally as the day concluded and original content creators finally had enough time to craft something, users might find themselves falling asleep to a good OpEd on the history of the day or an interview with the Michelle Obama dress designers.

By 3 days later the amount of content available on the inauguration is 1000x greater than within the first 10 minutes.  Original content creators are hopelessly buried amongst the blog posts, tweets, continuosly AP feed CNN articles and YouTube embeds.  The bloggers are buried by other bloggers.  The news stories give way to other news stories.

The utilities that sort, sift, filter and monetize on it all just got a 1000x better experience and continue to catch the huge volume of user investigation and digging.  The own the head, the trunk and that dreaded long tail and collect user targeting data all along the way.

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Dr. Joseph E. Lowery’s Benediction Transcript @ President Obama’s Inauguration

Can there be any question of the power of words?

Can there be any mystery why the sophisticated symbolism of words binds people to…

  • Others
  • Ideals
  • Fear
  • Anger
  • Dogma
  • Superstition
  • Loss
  • Hope?

This learned set of symbols… these words… in whatever language they form… are powerful. Words have a value that connects people reading and hearing them as well as separates those not understanding those words.

Based on past histories and current contexts words rouse unforgettable warmth or irreconcilable anger which, in term, become learned by those experiencing them and watching others experience them. It is a reciprocal relationship; words represent traditions and traditions represent words (as we witnessed with the second swearing in of President Obama). When repeated over and over words morph oh so slowly while becoming ingrained in the fabric of civilization. Traditions, including those of religion, bigotry, superstition, inaugurations and funerals are indelible links between people all represented by words.

Sam Harris in “The End of Faith,” has many logical points concerning traditions, superstition and cultures as do so many others including this author. However, at one time or another we all miss another point that gets lost in emotional [ratio strain] self-righteousness; being right is a relative target and is not what everyone values. One thing for sure is that we all value some words organized in some order representing some experiences.

The changes Sam Harris and others search for will come only through a process of selection by consequences. The things that will replace bigotry and fear and traditions of hate must be learned just as the superstitions and belief systems they were based on were learned. If that is the case, and it most assuredly is, Sam and some of the others will not be here to celebrate a new form of enlightenment where understanding the elemental basis of how behavior works is a primary requirement of primary school graduation.

While we work for all those words describing the elements of understanding behavior in our culture we can appreciate Dr. Lowery’s words for what they represent: a plea to figure out what the heck is going on out there.

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Netbooks? Really?!  Are netbooks selling that well to make this big of an impact?  (Techcrunch finds online services at fault… probably both!)

Take a look at the traffic growth on Acer.com, one of the biggest netbook makers.

Acer.com Traffic Growth

Acer.com Traffic Growth

Asus.com had nice traffic too

I guess as another gauge of this product shift, check out the best sellers on Amazon in computers.  Dominated by netbooks.

Well that’s guessing wrong in the Microsoft product group…

SHEESH.

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And the 2009 Oscar Nominees are…. (see last years review last years nominees)

Best Picture:

  • Benjamin Button
  • Frost Nixon
  • MILK
  • The Reader
  • SlumDog Millionaire

Main points of note: Heath Ledger gets a nod, Slumdog Millionaire is still the darling, Meryl Streep is up yet again, Dark Knight didn’t get a nomination. get the rest of today’s nominees here.

blah blah blah

The Academy Awards are such a funny thing.  Like blogs, it’s content about content.  It’s not really “content unto itself”.  Content about content is bound to the quality and audience sway of that underlying content it makes commentary on.  In that way, the Academy Awards have a difficult situation in trying to seem legit in honoring truly remarkable films while attending to the facts that a diminished awards show audience doesn’t want to see a show all about indie films and no names.

As CNN notes:

Either way, the Oscars could probably use the ratings help a box office success can bring to its broadcast. In recent years, the Academy has nominated several independent or low-budget films for top awards, many of which didn’t crack the $100 million mark at the box office. Oscar ratings have tumbled; last year’s numbers for “the Super Bowl for women” — as the Oscar broadcast is known by advertisers — were the lowest on record and a far cry from 1998, when more than 55 million people watched all-time box office king “Titanic” take home the top prize.

Again, very similar to blogs and web traffic.  If I don’t blog about the oscars or post pictures and stories from the ceremony, my blog will get buried. Any website that doesn’t talk about the Oscars will get slightly less traffic today than those that do.  Perhaps that doesn’t seem like such a big deal, except when you consider what a dog fight it is in the publishing and media industry to get advertisers right now.  And getting those ad dollars is directly correlated to daily traffic numbers (ratings!).

Perhaps more blogs and media outlets should try to create original content and develop first party audience.  Unfortunately, it’s too expensive and has a very low probability for success.  The data demonstrates this.

There’s a fine line to ride here and more often than not it’s crossed on blogs, in newspapers, and the Oscars.  Some purists and critics will cry fowl, but in the end, money talks.

Useful coverage:

more coverage from Washington Post

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