Posts Tagged ‘youtube’

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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Yeah, it’s all the rage in agency/vc/online publisher land but Online Video and Online Video ads is not going to get very many people rich really quickly, not like search ads and domain squatting.

Yes, youtube and other video outlets are growing like weeds still but their revenue is not even close to their costs.  Their infrastructure providers aren’t even making a profit.  Users are consuming content but not ads and advertisers aren’t buying.


There are some very specific reasons why:

  • The cost of serving videos is anywhere from $1-5 cost per thousand.  That’s 10-50x higher than text and text ads (the major of online business)
  • The consumption of video is very low relative to other content like emails, ims, stories, blogs, comments, news and photos
  • Viral activity is limited – You can’t email full videos to each other and certainly not wrapped in ads like emails and stand alone webpages
  • The cost in time, money and creativity to make watchable video and video ads is 10-100x greater than text copy and text ad copy
  • The targeting mechanisms suck to the point that they are worse than no targeting at all
  • over 95% of video isn’t monetizable easily (pump and dump like text ads).  Most consumption is in bad home movies, porn, music videos and highlights from TV.
  • The video experience is catastrophically altered by video ad pre rolls and other intrusive ads.  We all can easily ignore banners that surround text, we can’t ignore pre rolls that keep us from the content.  We could all get over that as consumers if the content were good quality/engaging and exclusive a site, but its not and won’t ever be
  • Media Entropy – there’s no possible way for us to aggregate video and a/v experiences like we did when only the boobtube pumped out content on 3 channels.  Consumers are everywhere and no where – at least 10 major aggregator video sites, 10,000 legit video publishers, embeds on every blog, cell phones, slingboxes, set tops, video game console on demand, TV, and LCD screen everywhere we go
  • Video Ad Rates have NO CORRELATION to transactional nor brand value, not even audience size gets you much.  The rates are all over place and are overly high, only because the costs are high.  Rates will drop faster than costs making online video damn near impossible to do at high margins. (I know this FIRST HAND and would love show data… but that data will become apparent as the market matures)
  • Hollywood types have been asked to the party.  Yup, the first Internet explosion was built by a totally new crop of thinkers.  it was devoid of most of the hollywood gimmick and a lot of traditional agencies and publishers didn’t participate.  Now the stakes are so high that everyone is involved and the level of raw creativity has gone down a lot – Or the raw creativity is being washed out by all the white noise from everyone who ever had a thought, good or bad.  Barrier to entry is so low with all these great toolsets, cheap hosting and complete anarchy in copyright law.

Personally, I love this.  the complete destruction of all rules.  the annihilation of former schedules.  It’s not going to get less complicated.

Certainly tons more to say on this and tons more to talk about when i say search ads are still where the money’s at……..


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  • 37,000 participants on Facebook during the live debates last night.
  • live polling
  • live blogging
  • email direct to campaign advisors
  • immediate reactions
  • raw videos from the event
  • videos from the location

The debates were lively and alive.  Interactive and immersive.  Ok, ok, so some of the political banter during the debate itself was the same ol’ schtick but this time we get to tell these campaign managers what we need NOW.

Pretty amazing that we, the people, received 4 hours of coverage with all the candidates and had accessible and usable interactive tools to discuss.

The YouTube – CNN debate format was exceptionally cool too.  Imagine if Facebook and YouTube joined up to bring the audience, media tools, and interactive experiences all together.  Man, what a tool for democratic discussion!

Perhaps there’s a downside to this… the American Public.  The online / social network crowd is NOT representative of the American public.  Facebook and YouTube are not the tools of most people in the country.  It’s going to get easier and cheaper for campaigns and media outlets to use the online tools to reach people and they may leave out the non-tech-savvy crowd for sometime.

There has to be some way to bring the interactivity to the masses.

Can YouTube and Facebook use their considerable creativity and investments to “get local” and “get offline” to reach people?  These tools are bigger than online advertising vehicles.  They are platforms for national discussion, for democracy and for transparency.  As such, they need to grow into their bigger roles (heck, the consumers and media companies demand it!).

If you haven’t looked at the YouTube archives, MySpace Impact site, Facebook US Politics application nor many of the GREAT online politics sites… you need to do it.  Really, you do.  If you value your vote, your rights in this country, and the strength of the democracy.

Here are some book marks for you:

New Hampshire Primary Channel on YouTube 

Citizine Tube – YouTube Politics Vlog 

YouChoose 08 

Facebook US Politics Application

Impact on MySpace 

Politics Sites linked from Google… 

For fun, but actually a great Futures Market tool… Fantasy Congress 


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