This week PricewaterhouseCoopers came out with a comprehensive report on the five-year outlook of the global media industry. The growth in the booming BRIC nations (Brazi, Russia, India and China) will outpace the growth in mature U.S. and Western European markets by more than 2x. PwC forecasts that media sector in the BRIC countries will grow at an average annual rate of 13.5% from 2008 through 2012, compared to just 4.8% in the U.S. and 5.5% in Western Europe.
In terms of the total size, the worldwide media industry will reach $2.2 trillion by 2012. The size of the industry in BRIC countries will grow to about $250 billion, while it’ll be $760B in the U.S., $630B in Western Europe, and $165B in Japan.
Digital media will be the fastest growing segment within the media industry. Worldwide consumer spending on online and mobile is expected to reach $234 billion by 2012, growing at a huge rate of 21.8% annually. In the U.S., digital media spending will grow at an impressive 16.1% annual rate, reaching $75 billion by 2012. India and China will provide the best opportunities for Internet and mobile growth because people in these countries would use phones as a primary source of entertainment. Media companies will benefit from the proliferation of smartphones (iPhone, BlackBerry, etc.), which are essentially mini-computers. Already, a big portion of current traffic on most major digital properties (Facebook, Google, Yahoo, etc.) comes from emerging markets. As business models developed in mature U.S. and Western European markets get implemented in emerging markets, and new local models emerge, dollars in emerging markets will follow the eyeballs.
I believe traditional media firms stand a good chance of winning the digital media led future world too, but there will be pain during the transition phase. And they will need to do three things right:
1. First, as discussed before, traditional media firms need to accept the reality that their total revenue will decline during the transition phase, because online and mobile advertising will not fully compensate for declines in traditional advertising (broadcast, print, etc). Numbers over the past couple of years already reflect this harsh reality.
2. Second, they will need to continue their investment in the future, and experiment with new technologies and business models during the transition phase. This is not easy for most traditional media firms, as being public enterprises, they are under constant pressure from Wall Street to perform quarter after quarter, and have to keep their costs in check to protect margins as their revenue flattens/declines.
3. And third, their attitude towards technology, arguably the most important component of the digital future of the media industry, will need to change drastically. Building more bridges between Hollywood and Silicon Valley on an equal footing, and greater appreciation by each party for the value the other brings to the table will be paramount. Both come from very different cultures, but despite their traditional differences, they need each other more than ever before. Some early partnerships that I’ve seen between Hollywood and Silicon Valley bode well for the future, but the pace of change is still slow in my opinion.
Now a word about the BRIC nations in general. The term was coined in 2003 by Jim O'Neill, the global economist at Goldman Sachs, when he laid out his future world view. He believed that BRIC countries possessed the potential to become the world's four most dominant economies by 2050, and together could be larger than the combined economy of the U.S. and Western Europe. Considered until recently as the developing countries of the Third World, Brazil, Russia, India and China have quickly become the most dominant emerging economies of the next world. These are four markets with unique characteristics. They are tied together by their inherent economic potential resulting from positive changes in their political systems which unleashed the untapped demand from their huge domestic consumer market, constituting 43% of the world's population.
An interesting yardstick would be to check out the growing wealth in these countries. Last year, India and China showed the highest global growth rate in their population of millionaires. The number of millionaires in India rose by 22.7% to 123,000 people, the fastest growth in the world. Meanwhile, China grew at 20.7% in 2007 to end with 415,000 millionaires - it displaced France as the home of the fifth largest millionaire population in the world. Already, five of the world’s top ten cities, which can be classified as the centers of wealth generation for consumers climbing the economic ladder, are located in the burgeoning BRIC countries.
Finally, let’s evaluate BRIC from a leading marketer’s perspective, given that growth in demand for new products & services and resulting expenditure on advertising is a key indicator for an economy's growth. Sir Martin Sorrell, the CEO of the WPP Group, one of the largest media agencies in the world, identified the potential of BRIC markets even before the term BRIC was coined. WPP agencies are now at the top of the agency food chain in the BRIC countries. They command the lion's share of media buying in populous giants India and China. Today, continental Europe, U.K. and U.S. generate 82% of WPP's total global revenue, and rest of the world contributes the remaining 18%. The company believes that by 2015, 40% of its global revenue will come from Asia alone .
June 20, 2008
BRIC countries to drive global growth of the media industry
This week PricewaterhouseCoopers came out with a comprehensive report on the five-year outlook of the global media industry. The growth in the booming BRIC nations (Brazi , Russia , India and China ) will outpace the growth in mature U.S. U.S. and 5.5% in Western Europe .
In terms of the total size, the worldwide media industry will reach $2.2 trillion by 2012. The size of the industry in BRIC countries will grow to about $250 billion, while it’ll be $760 billion in the U.S., $630 billion in Western Europe, and $165 billion in
Digital media will be the fastest growing segment within the media industry. Consumer spending on both online and by mobile phones worldwide is expected to grow to $234 billion by 2012, at an monumental rate of 21.8% annually. In
I believe traditional media firms stand a good chance of winning the digital media led future world too, but there will be pain during the transition phase, and they will need to do three things right:
Now a word about the BRIC nations in general. The term was coined in 2003 by Jim O'Neill, the global economist at Goldman Sachs, when he laid out his future world view. He believed that BRIC possessed the potential to become the world's four most dominant economies by 2050, which could be larger than the combined economy of the
A relevant and interesting yardstick would be to check out the growing wealth in these countries. Last year,
In terms of the total size, the worldwide media industry will reach $2.2 trillion by 2012. The size of the industry in BRIC countries will grow to about $250 billion, while it’ll be $760 billion in the U.S., $630 billion in Western Europe, and $165 billion in Japan
Digital media will be the fastest growing segment within the media industry. Consumer spending on both online and by mobile phones worldwide is expected to grow to $234 billion by 2012, at an monumental rate of 21.8% annually. In the U.S. India and China relatively more mature U.S. and Western Europe markets reach emerging markets, and new local models emerge, dollars in emerging markets will follow the eyeballs.
I believe traditional media firms stand a good chance of winning the digital media led future world too, but there will be pain during the transition phase, and they will need to do three things right:
First, as discussed before, traditional media firms need to accept the reality that their total revenue will decline during the transition phase, because online and mobile advertising would not fully compensate for declines in traditional advertising (broadcast, print, etc). Numbers over the past couple of years already reflect this trend.
Second, they will need to continually invest in the future and experiment with new technologies and business models during the transition phase. This is not easy for most traditional media firms which are public enterprises, and hence face Wall Street's pressure quarter after quarter to keep their costs in check to protect margins as their revenue flattens/declines.
And third, their attitude towards technology, arguably the most important component of the digital future of the media industry, will need to change drastically. Building more bridges between
Now a word about the BRIC nations in general. The term was coined in 2003 by Jim O'Neill, the global economist at Goldman Sachs, when he laid out his future world view. He believed that BRIC possessed the potential to become the world's four most dominant economies by 2050, which could be larger than the combined economy of the U.S. and Western Europe . Considered until recently as the developing countries of the Third World, Brazil , Russia , India and China
A relevant and interesting yardstick would be to check out the growing wealth in these countries. Last year, India and China India China grew at 20.7% in 2007 to end with 415,000 millionaires - it displaced France
Finally, let’s evaluate BRIC from a leading marketer’s perspective, given that growth in demand for new products & services and resulting advertising spend is a key indicator for an economy's growth. Sir Martin Sorrell, the CEO of the WPP Group, one of the largest media agencies in the world, identified the potential of BRIC markets even before the term BRIC was coined. WPP agencies are now at the top of the agency food chain in the BRIC countries. They command the lion's share of media buying in populous giants India and China U.K. and U.S. Asia alone - a strong vote of confidence for the region from a global leader.
May 23, 2008
Future trends for social platforms
I spoke at a panel on the future of social platforms during the TiEcon conference in Silicon Valley last week. Social networks constitute the biggest share of the audience in the exploding social media category, the fastest growing segment on the Internet in terms of traffic. However, the future of social networks as profitable ventures and their ability to garner advertising dollars commensurate with their traffic is still uncertain.
I covered monetization challenges of social networks in an earlier post. While those with heavy traffic struggle to figure out how to monetize their audience, others, in my opinion, will not even get the threshold traffic needed to justify keeping the lights on while the industry tries to crack its business model. eMarketer last week reduced its 2008 estimate of advertising spend on social networks in the U.S. from $1.6B to $1.4B. MySpace and Facebook will take in over $1.0B of that, leaving just $400M for everyone else.
I'd categorize social networks into two categories: large, general purpose communities and niche networks based on specific interests and purpose (e.g., pets, sports, mothers, car enthusiasts, etc.).
Social networks, like instant messaging (IM) platforms, are a scale business - you want to join the network on which most of your friends hang out. As in IM, where four companies (AOL, Yahoo, Microsoft and ICQ) cover majority of the global chat users, there is room for only a handful of general purpose social networks, which are essentially highly effective social communication platforms. I put Facebook, MySpace, Hi5, Bebo, etc, in this category. These networks will continue to explore their sustainable business model as discussed earlier. As these large communities mature, interoperability will however become critical for their continued traffic growth and engagement. IM platforms resisted interoperability for the longest time, but they're now opening up and allowing users from one network to chat with those from other networks without having to open a new account on those other networks.
In contrast, niche social networks should find it relatively easier to monetize their audience. These are essentially self-selected, contextual communities which can be targeted as a whole by relevant advertisers. But there is very little user patience for creating and maintaining multiple profiles on multiple networks. Open standards and data portability will therefore be key for niche communities if they have to attract a large enough user base that will provide scale for advertisers.
Users, ultimately, will want to control where they can and cannot take their data which they invest a lot of effort entering into and maintaining within social networks. Communities which do not provide users this choice will not survive. We have therefore seen a race amongst big players to prove that they are more open than their competitors. Over the last two weeks, MySpace (Data Availability), Facebook (Facebook Connect) and Google (Friend Connect) have announced their new products to enable data portability. The fight is to become the preferred "data destination" for users where they can store and maintain all of their data, and take some of it to additional sites where users may also want to spend time on.
When Facebook opened their platform for 3rd party developers last May, its goal was to create an incentive for developers to build engaging applications on its platform, thus making Facebook the single default destination for most, if not all, user activity. While it did unleash tremendous creativity and developer enthusiasm, 26 thousand applications and twelve months later, the myth of the Facebook economy has been broken. Unless you've an existing property with a vertical expertise and require additional inventory, or you're a student trying to build up your resume, you 're advised not to waste time on developing Facebook applications. Facebook Connect is also an admission on behalf of Facebook that users are not going to spend majority of their time on one single platform. The company is now promoting enterprise application development.
In the meantime, some social networks have started failing. Earlier this year Conde Nast shut down Flip, its social network for teen girls. It realized that all those teen girls were already hanging out at Facebook, so it converted Flip into a Facebook application. Monster.com recently reported trouble with its personal networking community site Tickle, for which it paid $94M in May 2004. This is just the beginning of the clearing out process that should remove the past couple of years of excess within this space.
I covered monetization challenges of social networks in an earlier post. While those with heavy traffic struggle to figure out how to monetize their audience, others, in my opinion, will not even get the threshold traffic needed to justify keeping the lights on while the industry tries to crack its business model. eMarketer last week reduced its 2008 estimate of advertising spend on social networks in the U.S. from $1.6B to $1.4B. MySpace and Facebook will take in over $1.0B of that, leaving just $400M for everyone else.
I'd categorize social networks into two categories: large, general purpose communities and niche networks based on specific interests and purpose (e.g., pets, sports, mothers, car enthusiasts, etc.).
Social networks, like instant messaging (IM) platforms, are a scale business - you want to join the network on which most of your friends hang out. As in IM, where four companies (AOL, Yahoo, Microsoft and ICQ) cover majority of the global chat users, there is room for only a handful of general purpose social networks, which are essentially highly effective social communication platforms. I put Facebook, MySpace, Hi5, Bebo, etc, in this category. These networks will continue to explore their sustainable business model as discussed earlier. As these large communities mature, interoperability will however become critical for their continued traffic growth and engagement. IM platforms resisted interoperability for the longest time, but they're now opening up and allowing users from one network to chat with those from other networks without having to open a new account on those other networks.
In contrast, niche social networks should find it relatively easier to monetize their audience. These are essentially self-selected, contextual communities which can be targeted as a whole by relevant advertisers. But there is very little user patience for creating and maintaining multiple profiles on multiple networks. Open standards and data portability will therefore be key for niche communities if they have to attract a large enough user base that will provide scale for advertisers.
Users, ultimately, will want to control where they can and cannot take their data which they invest a lot of effort entering into and maintaining within social networks. Communities which do not provide users this choice will not survive. We have therefore seen a race amongst big players to prove that they are more open than their competitors. Over the last two weeks, MySpace (Data Availability), Facebook (Facebook Connect) and Google (Friend Connect) have announced their new products to enable data portability. The fight is to become the preferred "data destination" for users where they can store and maintain all of their data, and take some of it to additional sites where users may also want to spend time on.
When Facebook opened their platform for 3rd party developers last May, its goal was to create an incentive for developers to build engaging applications on its platform, thus making Facebook the single default destination for most, if not all, user activity. While it did unleash tremendous creativity and developer enthusiasm, 26 thousand applications and twelve months later, the myth of the Facebook economy has been broken. Unless you've an existing property with a vertical expertise and require additional inventory, or you're a student trying to build up your resume, you 're advised not to waste time on developing Facebook applications. Facebook Connect is also an admission on behalf of Facebook that users are not going to spend majority of their time on one single platform. The company is now promoting enterprise application development.
In the meantime, some social networks have started failing. Earlier this year Conde Nast shut down Flip, its social network for teen girls. It realized that all those teen girls were already hanging out at Facebook, so it converted Flip into a Facebook application. Monster.com recently reported trouble with its personal networking community site Tickle, for which it paid $94M in May 2004. This is just the beginning of the clearing out process that should remove the past couple of years of excess within this space.
May 17, 2008
TiEcon 2008
I'm currently attending TiEcon 2008. TiEcon, the annual conference of the TiE's founding chapter in Silicon Valley, has become the world's largest conference for entrepreneurs. In its 16th edition this year, the conference was attended by over 4,000 attendees. TiE, as an organization, has also grown exponentially, boasting of 49 chapters in 11 countries.
I spoke at a panel this afternoon on the future of social platforms. More on that in a later post.
Between my meetings, I was able to attend a few keynote speeches. The two that I sat through till the end, and hence found interesting were:
Elon Musk, CEO of SpaceX, Chairman of Tesla Motors and SolarCity, co-founder of PayPal
Elon, 37, is an exciting serial entrepreneur. The diversity of his achievements in such a small period of time is truly amazing. Internet, space travel and clean energy were the three areas that Elon, as a teenager, felt needed special attention. Internet was his first focus. He co-founded PayPal, and sold it to eBay for $1.5B. Elon was the largest shareholder of PayPal at the time of its sale.
His second major venture involves making space rockets. The goal of SpaceX is to significantly reduce the cost of space travel through re-usable rockets. Its Falcon 9 rocket is currently under development. In a major endorsement of SpaceX, NASA awarded it a $278M contract in 2006 for its International Space station project. Finally, Tesla, Elon's third venture, recently launched its all-electric stylish roadster to rave reviews in Los Angeles. For his TiEcon interview entry, he drove in his Tesla to the stage. Elon feels hybrid vehicles are merely an industry red herring, and the true solution for eliminating dependence on fossil fuel and reducing global warming is going 100% electric.
That is three on three for Elon, an entrepreneur who's not afraid to think big, really big.
Chirs Anderson. Editor-In-Chief, Wired Magazine
Under Chris' tenure, Wired has retained its edge and editorial supremacy amongst all technology magazines in an environment where the print business otherwise has struggled against the onslaught of digital media. He coined the phrase The Long Tail in a Wired article, and later on wrote a seminal book on the same subject - why the future of business is selling less of more.
Chris is at it again. He's writing a book on the economics of free - expanding on his Wired article in the March '08 edition of the magazine. "Free" may mean either $0.00 or too cheap to bother measuring. The concept has existed since early 1900, when Gillette first introduced it - give away free razors (useless by itself), and make money during its lifetime through replaceable blades. Many other industries have since emulated it successfully - subsidized/free cell phones, and earn profit with air-time charged during the life of the plan; subsidized/free media (newspapers, magazines, broadcast television), and make money through advertising.
In today's age of technology, where computer processing power, bandwidth and storage have almost become free, the notion of free has taken a new meaning. Instead of cross subsidizing the free product by charging extra for the companion product, the cost of the product itself is falling sharply to almost zero. Economics 101 says that in a perfectly competitive market, the marginal cost of a product (incremental cost of producing one new unit) equals its market price. What happens when the marginal cost becomes zero? As is the case with the three main factors of production in the digital economy: processing power, bandwidth and storage.
This gives rise to new business models like "freemium" - basic service is free, but there is a charge for the premium service. In an environment of almost zero cost, the 99/1 principal applies to most Web businesses - 99% of total customers opting for the free basic service will be supported by 1% customers who pay for the premium version. With the scale of Web, distributing fixed costs amongst a lot of users makes the 99/1 model work.
Chris highlights two other concepts: the "waste economy" and the "gift economy."
The concept of "waste economy" explores the process to unleash innovation. Chris argues that engineers are brilliant in coming up with revolutionary scientific breakthroughs, but are usually horrible in judging their day-to-day applications by common users. The main goal of engineers should therefore be to drive down the cost of new technologies to a level where it can be "wasted" by entrepreneurs and consumers, who, uninhibited by any cost pressure, will find innovative products and services made possible by the underlying technology.
Lastly, "gift economy" is the engine behind Wikipedia, Craig's List, open source software, etc. Money is not the sole motivator in this economy. Altruism, making a difference, sharing are the human values which have always existed. The "free" global distribution through the Internet and Web 2.0 technologies have now allowed the contribution of a few to benefit thousands and millions of consumers - totally free of cost.
Just to make sure, these trends do not imply that digital businesses cannot make make profit in this age of "free." The product/service may be free to consumers, but some one else in the whole value chain will pay for it. E.g., Google's products (Search, Gmail, etc.) are free to users, but Google still makes a ton of money from advertisers.
I spoke at a panel this afternoon on the future of social platforms. More on that in a later post.
Between my meetings, I was able to attend a few keynote speeches. The two that I sat through till the end, and hence found interesting were:
Elon Musk, CEO of SpaceX, Chairman of Tesla Motors and SolarCity, co-founder of PayPal
Elon, 37, is an exciting serial entrepreneur. The diversity of his achievements in such a small period of time is truly amazing. Internet, space travel and clean energy were the three areas that Elon, as a teenager, felt needed special attention. Internet was his first focus. He co-founded PayPal, and sold it to eBay for $1.5B. Elon was the largest shareholder of PayPal at the time of its sale.
His second major venture involves making space rockets. The goal of SpaceX is to significantly reduce the cost of space travel through re-usable rockets. Its Falcon 9 rocket is currently under development. In a major endorsement of SpaceX, NASA awarded it a $278M contract in 2006 for its International Space station project. Finally, Tesla, Elon's third venture, recently launched its all-electric stylish roadster to rave reviews in Los Angeles. For his TiEcon interview entry, he drove in his Tesla to the stage. Elon feels hybrid vehicles are merely an industry red herring, and the true solution for eliminating dependence on fossil fuel and reducing global warming is going 100% electric.
That is three on three for Elon, an entrepreneur who's not afraid to think big, really big.
Chirs Anderson. Editor-In-Chief, Wired Magazine
Under Chris' tenure, Wired has retained its edge and editorial supremacy amongst all technology magazines in an environment where the print business otherwise has struggled against the onslaught of digital media. He coined the phrase The Long Tail in a Wired article, and later on wrote a seminal book on the same subject - why the future of business is selling less of more.
Chris is at it again. He's writing a book on the economics of free - expanding on his Wired article in the March '08 edition of the magazine. "Free" may mean either $0.00 or too cheap to bother measuring. The concept has existed since early 1900, when Gillette first introduced it - give away free razors (useless by itself), and make money during its lifetime through replaceable blades. Many other industries have since emulated it successfully - subsidized/free cell phones, and earn profit with air-time charged during the life of the plan; subsidized/free media (newspapers, magazines, broadcast television), and make money through advertising.
In today's age of technology, where computer processing power, bandwidth and storage have almost become free, the notion of free has taken a new meaning. Instead of cross subsidizing the free product by charging extra for the companion product, the cost of the product itself is falling sharply to almost zero. Economics 101 says that in a perfectly competitive market, the marginal cost of a product (incremental cost of producing one new unit) equals its market price. What happens when the marginal cost becomes zero? As is the case with the three main factors of production in the digital economy: processing power, bandwidth and storage.
This gives rise to new business models like "freemium" - basic service is free, but there is a charge for the premium service. In an environment of almost zero cost, the 99/1 principal applies to most Web businesses - 99% of total customers opting for the free basic service will be supported by 1% customers who pay for the premium version. With the scale of Web, distributing fixed costs amongst a lot of users makes the 99/1 model work.
Chris highlights two other concepts: the "waste economy" and the "gift economy."
The concept of "waste economy" explores the process to unleash innovation. Chris argues that engineers are brilliant in coming up with revolutionary scientific breakthroughs, but are usually horrible in judging their day-to-day applications by common users. The main goal of engineers should therefore be to drive down the cost of new technologies to a level where it can be "wasted" by entrepreneurs and consumers, who, uninhibited by any cost pressure, will find innovative products and services made possible by the underlying technology.
Lastly, "gift economy" is the engine behind Wikipedia, Craig's List, open source software, etc. Money is not the sole motivator in this economy. Altruism, making a difference, sharing are the human values which have always existed. The "free" global distribution through the Internet and Web 2.0 technologies have now allowed the contribution of a few to benefit thousands and millions of consumers - totally free of cost.
Just to make sure, these trends do not imply that digital businesses cannot make make profit in this age of "free." The product/service may be free to consumers, but some one else in the whole value chain will pay for it. E.g., Google's products (Search, Gmail, etc.) are free to users, but Google still makes a ton of money from advertisers.
April 23, 2008
Digital will force efficiency into the traditional media cost structure
While technology advancements generally create efficiencies in traditional business structures and processes, the digital media revolution will challenge traditional content creation, marketing and distribution in new ways. The impact in the short term however will be more subtle.
The flight of advertising dollars from traditional media channels (TV, print, radio) to digital platforms has been clearly established. But it won't be a dollar for dollar shift during the short term because new digital business models have not fully evolved and user behaviors are still changing. The long-run story is expected to be very different, when digital may not only become a significant portion of the total advertising market, but may also encourage increase in the total advertising pie itself.
During this ongoing transition period, digital revenue at most media firms, while growing impressively, will not fully compensate for the loss in their traditional media revenue. We've noticed that several big advertisers today have reduced their total media spend, while shifting a greater portion of that smaller budget to more accountable digital channels that can be effectively tracked and provide a better ROI. Changing/emerging user behaviors can be blamed for declining TV watching amongst younger demos; stagnating Hollywood box office revenue and DVD sales; extremely high engagement but limited realized monetization of social media, among other similar unfavorable trends contributing to shrinkage in the the total pie as the industry transitions.
This decline in revenue is already putting severe pressure on media firms' traditional cost structure as they struggle to maintain margins. This is a good thing. Transformation in an industry provides it an opportunity to re-evaluate its cost structure, among other things. Media industry today is at that juncture. Most people, for example, agree that Hollywood's bloated cost structure provides plenty of room for efficiencies. The folding of New Line Cinema (The Lord of the Rings fame) into Warner Bros is a sign of things to come. Other areas of savings for Hollywood include digital distribution, digital marketing thru blogs, social networks and other bottoms-up digital channels (marketing, at ~25% of a typical film's total cost, is one of its single biggest cost items), etc. Recent writer's strike forced television studios to take a fresh look at how they've done business for a long time. Some innovative cost cutting measures have already been announced by the television networks. Newspaper industry is also implementing new methods - The Capital Times recently announced its decision to stop printing newspapers after a run of over 90 years and move to an online-only edition.
An exciting, but still under-utilized area in my opinion is the leverage of digital platforms for original content/IP creation at a fraction of the current cost, and exploitation of that IP across the entire value chain (television, films, video games, merchandise). Examples: creation of new characters thru online virtual worlds and digital episodic comics; immersive story-telling with episodic video series within social networks where communities contribute to unfolding of the stories as much as the actual characters do; "open source" approach to content creation with reward incentives, etc. In addition to being highly cost-efficient, incubating content through digital platforms can be more effective than traditional approaches. Virgin Comics is trying to prove that storyboarding through comics (both print and digital) with pictures and graphics could do a far better job than a text script in creating characters and plots, communicating the story to the production crew, and facilitating story-telling in the final product (TV show/movie/game).
The flight of advertising dollars from traditional media channels (TV, print, radio) to digital platforms has been clearly established. But it won't be a dollar for dollar shift during the short term because new digital business models have not fully evolved and user behaviors are still changing. The long-run story is expected to be very different, when digital may not only become a significant portion of the total advertising market, but may also encourage increase in the total advertising pie itself.
During this ongoing transition period, digital revenue at most media firms, while growing impressively, will not fully compensate for the loss in their traditional media revenue. We've noticed that several big advertisers today have reduced their total media spend, while shifting a greater portion of that smaller budget to more accountable digital channels that can be effectively tracked and provide a better ROI. Changing/emerging user behaviors can be blamed for declining TV watching amongst younger demos; stagnating Hollywood box office revenue and DVD sales; extremely high engagement but limited realized monetization of social media, among other similar unfavorable trends contributing to shrinkage in the the total pie as the industry transitions.
This decline in revenue is already putting severe pressure on media firms' traditional cost structure as they struggle to maintain margins. This is a good thing. Transformation in an industry provides it an opportunity to re-evaluate its cost structure, among other things. Media industry today is at that juncture. Most people, for example, agree that Hollywood's bloated cost structure provides plenty of room for efficiencies. The folding of New Line Cinema (The Lord of the Rings fame) into Warner Bros is a sign of things to come. Other areas of savings for Hollywood include digital distribution, digital marketing thru blogs, social networks and other bottoms-up digital channels (marketing, at ~25% of a typical film's total cost, is one of its single biggest cost items), etc. Recent writer's strike forced television studios to take a fresh look at how they've done business for a long time. Some innovative cost cutting measures have already been announced by the television networks. Newspaper industry is also implementing new methods - The Capital Times recently announced its decision to stop printing newspapers after a run of over 90 years and move to an online-only edition.
An exciting, but still under-utilized area in my opinion is the leverage of digital platforms for original content/IP creation at a fraction of the current cost, and exploitation of that IP across the entire value chain (television, films, video games, merchandise). Examples: creation of new characters thru online virtual worlds and digital episodic comics; immersive story-telling with episodic video series within social networks where communities contribute to unfolding of the stories as much as the actual characters do; "open source" approach to content creation with reward incentives, etc. In addition to being highly cost-efficient, incubating content through digital platforms can be more effective than traditional approaches. Virgin Comics is trying to prove that storyboarding through comics (both print and digital) with pictures and graphics could do a far better job than a text script in creating characters and plots, communicating the story to the production crew, and facilitating story-telling in the final product (TV show/movie/game).
April 14, 2008
Primetime bonanza for the Indian television market
The Indian Premier League (IPL), the world's richest domestic cricket tournament, begins this Friday in India. Launched along the lines of soccer leagues in Europe and professional sports leagues in the U.S. (NFL, NBA, MLB), IPL is a franchise model wherein corporates and sponsors are allowed to buy and run teams. Players are bought through an open auction. This is a first for cricket - the sport has never before been played in this franchise format anywhere in the world. For the inaugural tournament starting on Friday, eight franchises in India were sold off by the governing body for Indian cricket, the Board 0f Control for Cricket in India (BCCI).
IPL is expected to change the face of the global cricket. "Seismic," is how Telegraph UK characterized the effect of IPL on cricket in England, the game's birth place. Before even a ball has been bowled, IPL has already raised more than $1.8bn for its first 10 years through TV rights , franchise auction ($724M) and sponsorship ($108M). This amount is more than what the International Cricket Council (ICC), the official global governing body of cricket, will generate from all of its tournaments over the same period. Pundits are still in a state of shock.
Franchise owners include Mukesh Ambani, head of Reliance Industries and India's richest man, who paid $112MM for the Mumbai franchise. 78 of the world’s leading players were sold in February to the highest IPL bidders for ~$42 million. Earning up to There are obvious concerns for the wider game of cricket - IPL's astronomical salaries and scheduling demands in a busy international cricket calendar (managed by ICC) threaten the fragile balance of international cricket, and ultimately the autonomy of the ICC. BCCI has often been blamed for arm-twisting ICC, given that India's one billion plus cricket-crazy fans drive over two-third of the global cricket revenue. Then, tAndrew Wildblood, a senior vice-president at the leading sports agency IMG who has been involved in establishing the IPL: "There has never been anything like this in the history of sports. No competition has come from a standing start to where we are today in such a short space of time, or with more financial success."
What's driving this phenomenon? Several factors are contributing to this perfect storm in India.
While ticket sales will contribute to the revenue, the single biggest factor determining IPL's success will be television. India, one of the fastest growing economies in the world, has a huge untapped domestic market for new products & services. Its advertising market therefore is exploding. Indian TV advertising grew by over 20% per year on average for the 10-year period 1995 to 2005. Double-digit growths are forecasted for years going forward. Compare that to flat to declining television advertising in the mature U.S. and western European markets. The New York Times covered India's television potential in its aptly titled piece, In India, the Golden Age of Television is Now.
Cricket, a religion for Indians across its diverse national fabric, aggregates audiences like no other TV programming in the country. Cricket therefore provides the best platform for advertisers to get their message across all demographics. A nationwide, prime-time, cricket bonanza on the Indian TV every evening is a feast for hungry advertisers that will go on for over six weeks. This is bad news for the Indian media companies, who'll find it very hard to compete with cricket for TV ratings.
"India is a rapidly growing economy with an emerging middle class, but if you want to go out here you go to a movie and that's about it. There's a huge demand for entertainment, and we are providing the perfect product model," says IMG's Wildblood.
The IPL tournament is structured in the new Tewnty20 format, the shortest version of cricket that lasts for only three hours compared to One-Day Internationals (8 hrs) and Test matches (five days). Twenty20 is designed to attract the widest section of cricket fans - people can go to the game on weekday evenings after work; women with family responsibilities can easily take a three-hour break. In India, the Twenty20 format has proved successful in drawing in the young, socially mobile demographic that is fueling the country's economic growth. On top of that, India's win in the inaugural Twenty20 World Cup last Fall (organized by ICC) has driven the version's popularity and public expectation sky-high. BCCI wants to cash on it as best and as fast as it can.
Let the show begin!
IPL is expected to change the face of the global cricket. "Seismic," is how Telegraph UK characterized the effect of IPL on cricket in England, the game's birth place. Before even a ball has been bowled, IPL has already raised more than $1.8bn for its first 10 years through TV rights , franchise auction ($724M) and sponsorship ($108M). This amount is more than what the International Cricket Council (ICC), the official global governing body of cricket, will generate from all of its tournaments over the same period. Pundits are still in a state of shock.
Franchise owners include Mukesh Ambani, head of Reliance Industries and India's richest man, who paid $112MM for the Mumbai franchise. 78 of the world’s leading players were sold in February to the highest IPL bidders for ~$42 million. Earning up to There are obvious concerns for the wider game of cricket - IPL's astronomical salaries and scheduling demands in a busy international cricket calendar (managed by ICC) threaten the fragile balance of international cricket, and ultimately the autonomy of the ICC. BCCI has often been blamed for arm-twisting ICC, given that India's one billion plus cricket-crazy fans drive over two-third of the global cricket revenue. Then, tAndrew Wildblood, a senior vice-president at the leading sports agency IMG who has been involved in establishing the IPL: "There has never been anything like this in the history of sports. No competition has come from a standing start to where we are today in such a short space of time, or with more financial success."
What's driving this phenomenon? Several factors are contributing to this perfect storm in India.
While ticket sales will contribute to the revenue, the single biggest factor determining IPL's success will be television. India, one of the fastest growing economies in the world, has a huge untapped domestic market for new products & services. Its advertising market therefore is exploding. Indian TV advertising grew by over 20% per year on average for the 10-year period 1995 to 2005. Double-digit growths are forecasted for years going forward. Compare that to flat to declining television advertising in the mature U.S. and western European markets. The New York Times covered India's television potential in its aptly titled piece, In India, the Golden Age of Television is Now.
Cricket, a religion for Indians across its diverse national fabric, aggregates audiences like no other TV programming in the country. Cricket therefore provides the best platform for advertisers to get their message across all demographics. A nationwide, prime-time, cricket bonanza on the Indian TV every evening is a feast for hungry advertisers that will go on for over six weeks. This is bad news for the Indian media companies, who'll find it very hard to compete with cricket for TV ratings.
"India is a rapidly growing economy with an emerging middle class, but if you want to go out here you go to a movie and that's about it. There's a huge demand for entertainment, and we are providing the perfect product model," says IMG's Wildblood.
The IPL tournament is structured in the new Tewnty20 format, the shortest version of cricket that lasts for only three hours compared to One-Day Internationals (8 hrs) and Test matches (five days). Twenty20 is designed to attract the widest section of cricket fans - people can go to the game on weekday evenings after work; women with family responsibilities can easily take a three-hour break. In India, the Twenty20 format has proved successful in drawing in the young, socially mobile demographic that is fueling the country's economic growth. On top of that, India's win in the inaugural Twenty20 World Cup last Fall (organized by ICC) has driven the version's popularity and public expectation sky-high. BCCI wants to cash on it as best and as fast as it can.
Let the show begin!
March 30, 2008
Was the Viacom split a mistake?
When Sumner Redstone, the founder and controlling shareholder of Viacom, announced the split of the Viacom empire at the start of 2006 into two narrowly focussed firms, he declared that the age of the diversified media conglomerate is over. Viacom was broken up into two separately traded pubic companies. One was CBS Corp, which mainly included the CBS broadcast television network, a group of affiliate stations, and a major radio broadcasting and outdoor advertising group. The other entity retained the Viacom name, and included a large array of cable networks including MTV, VH1, Nickelodeon, Comedy Central, BET as well as the Paramount movie studio.
The move to break up the company essentially undid Viacom's acquisition of CBS Corp. in 1999.
The justification was to unclock the shareholder value and give investors a chance to invest in two narrowly focussed stocks: the Viacom unit would attract investors seeking fast-growing cable businesses, while those seeking dividends and higher cash-generating businesses can buy shares in the new CBS Corp.
It's funny how investment bankers can use the argument of "synergy" vs "focus & unclocking shareholder value" respectively to convince management into mergers and breakups, over and over again, while collecting their fees either way.
Well, within two years of the split, both businesses have openly indicated their desire to move into each other's territories. With TV & radio showing little or no growth, CBS has created a new entity called CBS Films to make movies, while Paramount has indicated it may get into the television business.
While I definitely don't think we need another film studio, CBS Films is trying to play in a niche space. Instead of mega-budget productions like "Indiana Jones" (Paramount's staple), they're starting with a focus on the under-served, mid-size movies, with a plan to release four to six movies a year. CBS also hopes to get efficiency in marketing cost (a significant portion of the total cost of film making) through its other media assets (spare ad inventory on TV, outdoor & radio).
Only time will tell how CBS Films performs. But don't be surprised if in another two years, Redstone, who's still the Chairman of the board that oversees both CBS & Viacom, merges the two businesses. Bankers can always make a case for synergy, with one studio making both big budget and mid size films.
The move to break up the company essentially undid Viacom's acquisition of CBS Corp. in 1999.
The justification was to unclock the shareholder value and give investors a chance to invest in two narrowly focussed stocks: the Viacom unit would attract investors seeking fast-growing cable businesses, while those seeking dividends and higher cash-generating businesses can buy shares in the new CBS Corp.
It's funny how investment bankers can use the argument of "synergy" vs "focus & unclocking shareholder value" respectively to convince management into mergers and breakups, over and over again, while collecting their fees either way.
Well, within two years of the split, both businesses have openly indicated their desire to move into each other's territories. With TV & radio showing little or no growth, CBS has created a new entity called CBS Films to make movies, while Paramount has indicated it may get into the television business.
While I definitely don't think we need another film studio, CBS Films is trying to play in a niche space. Instead of mega-budget productions like "Indiana Jones" (Paramount's staple), they're starting with a focus on the under-served, mid-size movies, with a plan to release four to six movies a year. CBS also hopes to get efficiency in marketing cost (a significant portion of the total cost of film making) through its other media assets (spare ad inventory on TV, outdoor & radio).
Only time will tell how CBS Films performs. But don't be surprised if in another two years, Redstone, who's still the Chairman of the board that oversees both CBS & Viacom, merges the two businesses. Bankers can always make a case for synergy, with one studio making both big budget and mid size films.
March 7, 2008
Monetizing social media
This week I spoke at a panel in Silicon Valley organized by TiE's special interest group focusing on Consumer Internet. The subject was how to monetize social media properties on the Internet (social networks, blogs, start pages, etc).
Social media properties are the fastest growing sites on the Web. All of the top-ten websites in the U.S., measured by traffic growth rate, are social media properties. Walled-garden destinations are rapidly giving way to social media sites both in terms of traffic and time-spent by users. Additionally, social media is driving increase in users' total daily media consumption online by bringing new users to the Web and encouraging more time spent online by the current Web users.
Reason for the above trend is simple: users want to control their online media consumption. The explosion in online content is creating chaos and confusion. Personalization is the buzz word. Widgets and social networking applications are users' tools to personalize their online experience. More than 30% of global Internet users and almost 50% of those in North America are already using widgets. Programmable Web - a Web where the majority online media consumption is individually programmed by each user, has arrived. I believe this trend, though first started on the Internet, will continue to all the other platforms (wireless, TV, possibly print).
There is no doubt that the Internet is the future of advertising. It's the fastest growing channel for advertising dollar spend in the U.S. (compared to TV, mail, print, radio and outdoor). The monetization potential of social media properties, where most of the eyeballs are shifting on the Web, therefore becomes an extremely important subject to evaluate.
Unfortunately, nobody has yet figured out the winning formula for monetizing social media.
Let's look into social networking - the most popular category within social media. While Facebook and MySpace dominate this category in terms of traffic and engagement, both are still searching for the best approach to make money from their massive user bases.
Brand advertisers have all along been concerned about associating their brand identity with potentially damaging user generated content found on social networks. Even as users get smarter and brand advertisers become more comfortable with these unpredictable environments, other challenges still remain.
Banner and search advertising have shown to perform poorly within social networks. By some accounts, both Google and Microsoft are loosing money, given their minimum revenue guarantees, with their exclusive ad deals with MySpace and Facebook respectively. Facebook continues to try new ad models (ads in user's News Feeds, e-commerce), after its failure with Beacon. The problem is, users invest a lot of time & effort in their online identity in the communities they choose to participate in, and as a result, they consider these environment too personal to tolerate any advertising. Any successful commercialization of users' activity within a community will only happen with their explicit approval taken in a totally transparent manner (main lesson from Beacon's failure).
User's privacy concern is a monetization challenge that social networks definitely need to overcome. Such concerns are heightened in the online environment, given the ease with which private data can be shared and exploited on the Web. In the offline world, users have been willingly granting potentially much more damaging rights to their data (while filling credit card applications, signing up for coupons/promotions, etc.). Educating users and building trust with them is therefore going to be critical for social networks in order to devise a successful business model that will leverage users' data.
Despite these challenges, the business euphoria around popular social networks remains intact. No other online property has as much rich demographic and psychographic data about their users as that possessed by social networks (Facebook provides application developers feeds with over a dozen attributes about users using these applications). Users in online communities are not only willing to provide a lot of useful information about themselves in the identity they create, they are also willing to invest their valuable time on a regular basis in order to promote that identity. The theoretical promise of social networks leveraging users' rich profile for targeted advertising at ultra high CPMs has always existed. It is this promise that has driven a ridiculously rich $15Bn valuation for Facebook. That is a 100x multiple on Facebook's $150MM revenue in 2007. Even Google, with its proven business model & leadership in the lucrative online search advertising market, trades at a ~10x revenue multiple.
An alternate monetization approach for social networks may be to make money outside of their communities. Facebook already has the scale to potentially leverage the data on its 67MM active users in providing behavioral targeting to 3rd party publishers whose sites Facebook users visit. E.g., a Facebook user with a stated interest in "running" can be shown an ad for Nike's latest running shoes when he/she visits a site whose publisher is using Facebook's behavioral targeting service. I bet Nike will pay top CPM to reach this audience. Such targeted segmentations by products/categories are possible within Facebook due to the richness of its data. Behavioral targeting that leverages explicit, user-provided data will be more accurate compared to the current behavioral targeting approach in which user preferences are interpreted using their general Web surfing activity as a proxy. This assumes users always represent themselves honestly on their community profiles, but that is a topic for discussion on another day. Additionally, registration data (from Facebook) is far less volatile compared to the cookie-based approach currently used (almost a third of online users regularly clean their cookies).
Lastly, I'd like to comment on the future of companies which are building businesses on top of social networks. Widget firms like Slide and RockYou have build massive user bases by leveraging their ability to build viral applications for social media properties. These firms will find even more difficult to monetize their traffic. As discussed earlier, it's a very risky strategy to build a business that is 100% reliant on other firms which are still trying to figure out their business model. Facebook's Terms of Services provides it too much power to copy and/or create an advantageous situation for itself should Slide or RockYou come up with a killer monetization idea.
That has not stopped investors from valuing Slide at north of half a billion dollars. I believe that would translate into Slide's current revenue multiple that may be even higher than Facebook's 100x. Maybe these investors know some tricks about monetizing social media that most of us do not.
Social media properties are the fastest growing sites on the Web. All of the top-ten websites in the U.S., measured by traffic growth rate, are social media properties. Walled-garden destinations are rapidly giving way to social media sites both in terms of traffic and time-spent by users. Additionally, social media is driving increase in users' total daily media consumption online by bringing new users to the Web and encouraging more time spent online by the current Web users.
Reason for the above trend is simple: users want to control their online media consumption. The explosion in online content is creating chaos and confusion. Personalization is the buzz word. Widgets and social networking applications are users' tools to personalize their online experience. More than 30% of global Internet users and almost 50% of those in North America are already using widgets. Programmable Web - a Web where the majority online media consumption is individually programmed by each user, has arrived. I believe this trend, though first started on the Internet, will continue to all the other platforms (wireless, TV, possibly print).
There is no doubt that the Internet is the future of advertising. It's the fastest growing channel for advertising dollar spend in the U.S. (compared to TV, mail, print, radio and outdoor). The monetization potential of social media properties, where most of the eyeballs are shifting on the Web, therefore becomes an extremely important subject to evaluate.
Unfortunately, nobody has yet figured out the winning formula for monetizing social media.
Let's look into social networking - the most popular category within social media. While Facebook and MySpace dominate this category in terms of traffic and engagement, both are still searching for the best approach to make money from their massive user bases.
Brand advertisers have all along been concerned about associating their brand identity with potentially damaging user generated content found on social networks. Even as users get smarter and brand advertisers become more comfortable with these unpredictable environments, other challenges still remain.
Banner and search advertising have shown to perform poorly within social networks. By some accounts, both Google and Microsoft are loosing money, given their minimum revenue guarantees, with their exclusive ad deals with MySpace and Facebook respectively. Facebook continues to try new ad models (ads in user's News Feeds, e-commerce), after its failure with Beacon. The problem is, users invest a lot of time & effort in their online identity in the communities they choose to participate in, and as a result, they consider these environment too personal to tolerate any advertising. Any successful commercialization of users' activity within a community will only happen with their explicit approval taken in a totally transparent manner (main lesson from Beacon's failure).
User's privacy concern is a monetization challenge that social networks definitely need to overcome. Such concerns are heightened in the online environment, given the ease with which private data can be shared and exploited on the Web. In the offline world, users have been willingly granting potentially much more damaging rights to their data (while filling credit card applications, signing up for coupons/promotions, etc.). Educating users and building trust with them is therefore going to be critical for social networks in order to devise a successful business model that will leverage users' data.
Despite these challenges, the business euphoria around popular social networks remains intact. No other online property has as much rich demographic and psychographic data about their users as that possessed by social networks (Facebook provides application developers feeds with over a dozen attributes about users using these applications). Users in online communities are not only willing to provide a lot of useful information about themselves in the identity they create, they are also willing to invest their valuable time on a regular basis in order to promote that identity. The theoretical promise of social networks leveraging users' rich profile for targeted advertising at ultra high CPMs has always existed. It is this promise that has driven a ridiculously rich $15Bn valuation for Facebook. That is a 100x multiple on Facebook's $150MM revenue in 2007. Even Google, with its proven business model & leadership in the lucrative online search advertising market, trades at a ~10x revenue multiple.
An alternate monetization approach for social networks may be to make money outside of their communities. Facebook already has the scale to potentially leverage the data on its 67MM active users in providing behavioral targeting to 3rd party publishers whose sites Facebook users visit. E.g., a Facebook user with a stated interest in "running" can be shown an ad for Nike's latest running shoes when he/she visits a site whose publisher is using Facebook's behavioral targeting service. I bet Nike will pay top CPM to reach this audience. Such targeted segmentations by products/categories are possible within Facebook due to the richness of its data. Behavioral targeting that leverages explicit, user-provided data will be more accurate compared to the current behavioral targeting approach in which user preferences are interpreted using their general Web surfing activity as a proxy. This assumes users always represent themselves honestly on their community profiles, but that is a topic for discussion on another day. Additionally, registration data (from Facebook) is far less volatile compared to the cookie-based approach currently used (almost a third of online users regularly clean their cookies).
Lastly, I'd like to comment on the future of companies which are building businesses on top of social networks. Widget firms like Slide and RockYou have build massive user bases by leveraging their ability to build viral applications for social media properties. These firms will find even more difficult to monetize their traffic. As discussed earlier, it's a very risky strategy to build a business that is 100% reliant on other firms which are still trying to figure out their business model. Facebook's Terms of Services provides it too much power to copy and/or create an advantageous situation for itself should Slide or RockYou come up with a killer monetization idea.
That has not stopped investors from valuing Slide at north of half a billion dollars. I believe that would translate into Slide's current revenue multiple that may be even higher than Facebook's 100x. Maybe these investors know some tricks about monetizing social media that most of us do not.
February 9, 2008
NY Fashion Week - Project Runway Finale
Yesterday we attended the New York Fashion Week at Bryant Park in Manhattan. It was the finale of Project Runway, Bravo's seven-time, Emmy-nominated reality TV series. The competition show provides budding designers with an opportunity to launch their careers in fashion. The finale is taped during the NY Fashion Week and provides finalists an opportunity to show their lines in front of fashion industry's top movers and shakers.
My wife is in the fashion industry (works at Donna Karan), so I was under the gun to use my influence (NBCU owns Bravo) and get us the invitation to the Project Runway finale, which apparently was one of the hottest tickets during the entire week. Understandably so, given none of the regular showcases during Fashion Week blend the worlds of couture, entertainment and TV. The star power at Project Runway included the former Spice Girl Victoria Beckham (guest judge for the finale), Meryl Streep, Heidi Klum (show host, executive producer and judge), Nina Garcia ( Elle's fashion director and judge), Michael Kors (well known American designer and judge), Tim Gunn ( Chief Creative Officer at Liz Claiborne and mentor to the show's budding designers), among several other stars from the world of fashion and Hollywood. Apart from the chaos at the entrance, I found the overall experience quite fun.
"It's fun, it's sexy, it's exciting, and it sells clothes," executive producer Harvey Weinstein said before the show. It's a live version of People and Us Weekly.
Below are some pictures we took at the event.
My wife is in the fashion industry (works at Donna Karan), so I was under the gun to use my influence (NBCU owns Bravo) and get us the invitation to the Project Runway finale, which apparently was one of the hottest tickets during the entire week. Understandably so, given none of the regular showcases during Fashion Week blend the worlds of couture, entertainment and TV. The star power at Project Runway included the former Spice Girl Victoria Beckham (guest judge for the finale), Meryl Streep, Heidi Klum (show host, executive producer and judge), Nina Garcia ( Elle's fashion director and judge), Michael Kors (well known American designer and judge), Tim Gunn ( Chief Creative Officer at Liz Claiborne and mentor to the show's budding designers), among several other stars from the world of fashion and Hollywood. Apart from the chaos at the entrance, I found the overall experience quite fun.
"It's fun, it's sexy, it's exciting, and it sells clothes," executive producer Harvey Weinstein said before the show. It's a live version of People and Us Weekly.
Below are some pictures we took at the event.
February 2, 2008
Yahoo + Microsoft = Necessary but not sufficient to beat Google
People with maths background can relate to the "necessary but not sufficient condition" premise used for proving theorems and framing hypotheses. Microsoft's unsolicited $44.6Bn bid yesterday for Yahoo is a perfect case for this premise. The combination is necessary but not sufficient to unseat Google from its undisputed dominance in the online search advertising market. It definitely won't slow down Google's foray into other areas (beyond search) like cloud computing that threatens Microsoft's core desktop computing business where many have tried but failed to challenge Microsoft's monopoly .
The combination is "necessary" because Yahoo (#2, at 19% share of the search advertising market) and Microsoft (#3, 14%), together, stand the best chance to challenge Google's (#1, 56%) massive, and growing, lead in the U.S. online search advertising market. Search represents 99% of Google's total revenue of $16.6Bn in 2007. Yahoo's much hyped new search initiative (Panama) has thus far failed to halt its declining market share. It has practically lost the search battle to Google. Some have even suggested that Yahoo should outsource search across its network to Google, similar to what AOL has been doing. Microsoft, on the other hand, had not until recently realized the importance of Internet in information sharing and computing. It's a late comer in the search advertising business. This short-sightedness in an emerging space is common when your traditional business enjoys monopoly status and drives bulk of the total revenue.
Search has always been a scale business. Scale provides improved monetization as more advertisers in the network positively impact coverage, click-through rates, and pricing. Microsoft's lock on crucial access points through its Windows, Internet Explorer, Office, and Xbox platforms and Yahoo's massive global user base across its network of online properties will provide them several channels to advantageously put their search engine in front of their users. Such an advantage is required to tackle the Google juggernaut.
In other words, to have a viable alternative to Google in search advertising, a combination of Yahoo and Microsoft is "necessary."
Now, whether the Yahoo + Microsoft combination is "sufficient" to beat Google is a different question altogether. Firstly, we're talking about merging operations of two huge companies with significant overlaps in almost all global markets where they compete against each other. Consummating the merger and realizing the expected $1Bn is annual savings will be a big distraction in the short to mid-term - the duration during which Google can continually focus on improving its core search technology and widening its market lead.
I believe the biggest advantage Google has got over either Yahoo or Microsoft is its employees and its ability to continually attract and retain better talent. Google, at heart, is an engineering firm first. Product and technology folks at the company enjoy more power than folks on the business side. Yahoo has never been treated as a technology firm - it's an online media firm, competing in an emerging space where technology is the differentiator. It's still "cool" to work at Google (the coolness factor however is dwindling as Google looses its "startup charm" and grows in size - its employee base stood at 16,600 at the end of 2007, adding 6,000 during the year). Yahoo, on the other hand, is laying off employees and is suffering from a morale issue. Confidence at Microsoft 's Internet divisions has never been very encouraging, if we talk about the desire to be #1. Internet business for Microsoft's management, until recently, had been an afterthought. It is now trying to buy its way into the search advertising market through a series of recent acquisitions, leading up to the announcement of its bid for Yahoo, the biggest of them all.
Lastly, Google will still have almost double the market share in the search advertising market compared to the combined share of Yahoo and Microsoft. That's a big lead to overcome. Google has earned user's mind share, and it's unlikely many will suddenly switch their search behavior going forward unless the alternative is significantly better.
In short, a merger between Yahoo and Microsoft will not guarantee Google's displacement from the top, hence it won't be "sufficient."
Finally, a comment on the chances of the merger going through. I think initially we may see some game-playing by Yahoo to get the bid up, but ultimately Yahoo would accept the offer. It realizes that it needs serious help in overcoming the challenges it's facing, reflected by its languishing stock price and recent top management upheavals. I also doubt the U.S. Justice Department would block the deal, though the scrutiny may be closer in some of the global markets.
For the time being, let's sit back and enjoy the public drama that would be played in coming weeks as Yahoo responds to the Microsoft offer and other potential bidders emerge for one of the largest technology mergers ever.
The combination is "necessary" because Yahoo (#2, at 19% share of the search advertising market) and Microsoft (#3, 14%), together, stand the best chance to challenge Google's (#1, 56%) massive, and growing, lead in the U.S. online search advertising market. Search represents 99% of Google's total revenue of $16.6Bn in 2007. Yahoo's much hyped new search initiative (Panama) has thus far failed to halt its declining market share. It has practically lost the search battle to Google. Some have even suggested that Yahoo should outsource search across its network to Google, similar to what AOL has been doing. Microsoft, on the other hand, had not until recently realized the importance of Internet in information sharing and computing. It's a late comer in the search advertising business. This short-sightedness in an emerging space is common when your traditional business enjoys monopoly status and drives bulk of the total revenue.
Search has always been a scale business. Scale provides improved monetization as more advertisers in the network positively impact coverage, click-through rates, and pricing. Microsoft's lock on crucial access points through its Windows, Internet Explorer, Office, and Xbox platforms and Yahoo's massive global user base across its network of online properties will provide them several channels to advantageously put their search engine in front of their users. Such an advantage is required to tackle the Google juggernaut.
In other words, to have a viable alternative to Google in search advertising, a combination of Yahoo and Microsoft is "necessary."
Now, whether the Yahoo + Microsoft combination is "sufficient" to beat Google is a different question altogether. Firstly, we're talking about merging operations of two huge companies with significant overlaps in almost all global markets where they compete against each other. Consummating the merger and realizing the expected $1Bn is annual savings will be a big distraction in the short to mid-term - the duration during which Google can continually focus on improving its core search technology and widening its market lead.
I believe the biggest advantage Google has got over either Yahoo or Microsoft is its employees and its ability to continually attract and retain better talent. Google, at heart, is an engineering firm first. Product and technology folks at the company enjoy more power than folks on the business side. Yahoo has never been treated as a technology firm - it's an online media firm, competing in an emerging space where technology is the differentiator. It's still "cool" to work at Google (the coolness factor however is dwindling as Google looses its "startup charm" and grows in size - its employee base stood at 16,600 at the end of 2007, adding 6,000 during the year). Yahoo, on the other hand, is laying off employees and is suffering from a morale issue. Confidence at Microsoft 's Internet divisions has never been very encouraging, if we talk about the desire to be #1. Internet business for Microsoft's management, until recently, had been an afterthought. It is now trying to buy its way into the search advertising market through a series of recent acquisitions, leading up to the announcement of its bid for Yahoo, the biggest of them all.
Lastly, Google will still have almost double the market share in the search advertising market compared to the combined share of Yahoo and Microsoft. That's a big lead to overcome. Google has earned user's mind share, and it's unlikely many will suddenly switch their search behavior going forward unless the alternative is significantly better.
In short, a merger between Yahoo and Microsoft will not guarantee Google's displacement from the top, hence it won't be "sufficient."
Finally, a comment on the chances of the merger going through. I think initially we may see some game-playing by Yahoo to get the bid up, but ultimately Yahoo would accept the offer. It realizes that it needs serious help in overcoming the challenges it's facing, reflected by its languishing stock price and recent top management upheavals. I also doubt the U.S. Justice Department would block the deal, though the scrutiny may be closer in some of the global markets.
For the time being, let's sit back and enjoy the public drama that would be played in coming weeks as Yahoo responds to the Microsoft offer and other potential bidders emerge for one of the largest technology mergers ever.
January 11, 2008
CES 2008 - Big themes
When my flight from Las Vegas touched JFK airport late last night, in addition to being over-exhausted, I realized that this was my first CES ever when I did not hit the tables at all. Main reason being NBC Universal's big debut presence at the show (more on that later).
I thought CES 2008 was less about unveiling disruptive new technologies and path-breaking announcements, and more about moving closer to the long-promised vision of convergence and connected digital home. The big themes for me were:
NBCU also held its internal leadership council meeting during the CES, attended by over 100 top global executives. Given everyone's presence, we ended up having several internal meetings as well. One of the main reasons why this CES became so taxing for me.
Learning about the evolution of consumer electronics and how users are/will be consuming content is key for any content company in the digital age. I welcome the transformation of CES over the past few years beyond consumer electronics to also cover the content that is required to experience these new gadgets. Several CES keynote speakers over the past three years have been from media companies (Google, Yahoo, CBS, Disney, etc) - none of these companies make any consumer electronics that CES has historically celebrated.
Engadget provides a good tour of NBCU's booth. You can also learn more about it on NBCU's dedicated site and blog for CES 2008.
I thought CES 2008 was less about unveiling disruptive new technologies and path-breaking announcements, and more about moving closer to the long-promised vision of convergence and connected digital home. The big themes for me were:
- IP-connected CE: Internet connectivity was everywhere, especially on TVs. Sony was the first to launch an IP-connected TV last year at CES (new Bravia TV line), along with its content partnership with AOL Video. This year, all major TV manufacturers came out with connected TVs. Announced content partnerships involved access to Web videos within a walled garden and providing users daily-use information (e.g., weather, stock quotes, etc) that can be overlayed on top of the regular broadcast video.
- Following the ongoing demise of the walled-garden model on the Web, connected TVs will also open up in the long run. TV OEMs will however have to first ensure that they have a solution for the problems open Web brings (spyware, viruses, etc). Consumers are not going to tolerate any deviation from their current, no-hassle TV experience (switch on your remote, and enjoy the content). It was therefore good to see that Sharp announced AQUOS Advantage service with their IP connected AQUOS TVs. The service allows Sharp reps to connect to your TV remotely and perform diagnostics, help with trouble shooting, provide product information, FAQs, etc.
- Connected TVs threaten the traditional MSO distribution model by providing a bypass solution. This can be significant, given cable companies have had issues working together with CE manufacturers, and have made frustratingly slow progress on OCAP standards, the cable card solution and in providing greater interactivity on set-top boxes.
- Location-based services: GPS integration is getting ubiquitous (TVs, phones, cars, sneakers, dog-belts, etc.). This is going to fuel location-based services and new business models as mass adoption of GPS enabled CE takes root. Commoditization of map data is going to further accelerate this trend. We saw some activity leading up to the CES. Nokia's $8B acquisition of the map data provider Navteq late last year will enable Nokia to develop and launch end-to-end solutions in-house. Tele Atlas, the other big data provider for digital mapping services, is being pursued by TomTom in a potential $4.2B acquisition. These multi-billion dollar valuations are not justified by either company's current financials (Navteq is modestly profitable while Tele Atlas is losing money), but rather indicate bullishness about these long-promised LBS services finally seeing the light of the day.
- Ease-of-use, high-design driving consumer adoption: Cumbersome/complicated, out-of-the-box experience for new consumer technologies prevents adoption beyond the tech-savvy, early adopters. The CE industry has been infamous for failing to solve this problem. This CES, however, I saw major improvements in designs and ease-of-use with several products that were launched in previous years. This is a natural evolution in the product life cycle. It indicates staying power of these products, and will spur adoption to a point where installed base could soon cross the threshold limit necessary to launch new services for a sizable market on top of these products .
- Wireless connectivity & media transfer (Bluetooth & IR) is playing a key part in driving simplicity and ease-of-use. From home theater systems with wireless connection between all components including speakers to wireless media transfer between different boxes in the home, many products shipped this year will prominently leverage wireless connectivity.
- Innovation in storage: Talk about stretching the boundaries - innovation in storage has resulted in dropping prices, portability, shrinking sizes, and ever-increasing capacities. This has driven consumer expectations about how, where and when they consume their content, and enabled new business models and distribution avenues. The issue of video DRM, however, may hinder the progress, and is still searching for an elegant answer.
NBCU also held its internal leadership council meeting during the CES, attended by over 100 top global executives. Given everyone's presence, we ended up having several internal meetings as well. One of the main reasons why this CES became so taxing for me.
Learning about the evolution of consumer electronics and how users are/will be consuming content is key for any content company in the digital age. I welcome the transformation of CES over the past few years beyond consumer electronics to also cover the content that is required to experience these new gadgets. Several CES keynote speakers over the past three years have been from media companies (Google, Yahoo, CBS, Disney, etc) - none of these companies make any consumer electronics that CES has historically celebrated.
Engadget provides a good tour of NBCU's booth. You can also learn more about it on NBCU's dedicated site and blog for CES 2008.
December 24, 2007
Impact of the Writers' Strike
The strike between the Writers Guild of America (WGA) and Hollywood studios (Alliance of Motion Picture & Television Producers) is in its eight week now, with no end in sight. Issues are more complicated than just the new media compensation rights that has been mostly highlighted by the press. It also includes jurisdictional rights over Reality TV and animation content (refer AMPTP's web-site).
The big questions is: will the strike accelerate transfer of commercial and creative value to the Internet, and if so, how permanent will be the shift?
Only time will tell about the permanency of the shift, which I think is bound to happen. VCs and new media studios are looking to make opportunistic moves during the strike period. According to LA Times, several writers are looking to launch Web ventures to directly reach viewers online, bypassing Hollywood. The strategy ranges from launching their own studio that creates content exclusively for the Internet, to creating a Guild-sanctioned collaborative studio, to leveraging open social networks like Facebook for new programming distribution.
Although some content created for the Web has seen early success (LonelyGirl15, KateModern, quarterlife, Prom Queen), I'd like to see more energy devoted towards original content that truly leverages new media's three distinguishing characteristics: interactivity, and its social and non-linear aspects. This requires tighter scripts and viewer involvement during unfolding of the story. Other new dimensions will emerge over time through experimentation. Compelling storytelling used for traditional content will always matter, and therefore needs to complement the above new skills required for creating original new media content.
KateModern's integration into Bebo generated ~30M total views for its 127 episodes. Michael Eisner's Prom Queen on MySpace had 15M total views across its 80 episodes. These numbers should have guaranteed net profit for both the shows, though as discussed earlier, we're not going to see economic success of hit shows on the TV reproduced for any original new media content anytime soon.
In the long-run, real success would be seen by original content created specifically for each screen - content that leverages uniqueness of user experience and his/her interaction style on each screen. Putting TV content on the Web, and Web content on the mobile phones will not be sustainable. For watching a movie, theaters will continue to provide the best experience, and cell phones the worst. I don't have all the answers on how screen-specific content may ultimately evolve, but it's safe to guess that video on cell phones would take advantage of its voice feature, mobility and constant proximity, while successful Web videos, as discussed above, would leverage interactivity, social and non-linear nature of the Web, that is unavailable on TV.
In the meantime, it'd be great if Bebo's new initiative, Sofia's Diary, a new series on Bebo.com in association with Sony Pictures TV International, can surpass KateModern's success.
The big questions is: will the strike accelerate transfer of commercial and creative value to the Internet, and if so, how permanent will be the shift?
Only time will tell about the permanency of the shift, which I think is bound to happen. VCs and new media studios are looking to make opportunistic moves during the strike period. According to LA Times, several writers are looking to launch Web ventures to directly reach viewers online, bypassing Hollywood. The strategy ranges from launching their own studio that creates content exclusively for the Internet, to creating a Guild-sanctioned collaborative studio, to leveraging open social networks like Facebook for new programming distribution.
Although some content created for the Web has seen early success (LonelyGirl15, KateModern, quarterlife, Prom Queen), I'd like to see more energy devoted towards original content that truly leverages new media's three distinguishing characteristics: interactivity, and its social and non-linear aspects. This requires tighter scripts and viewer involvement during unfolding of the story. Other new dimensions will emerge over time through experimentation. Compelling storytelling used for traditional content will always matter, and therefore needs to complement the above new skills required for creating original new media content.
KateModern's integration into Bebo generated ~30M total views for its 127 episodes. Michael Eisner's Prom Queen on MySpace had 15M total views across its 80 episodes. These numbers should have guaranteed net profit for both the shows, though as discussed earlier, we're not going to see economic success of hit shows on the TV reproduced for any original new media content anytime soon.
In the long-run, real success would be seen by original content created specifically for each screen - content that leverages uniqueness of user experience and his/her interaction style on each screen. Putting TV content on the Web, and Web content on the mobile phones will not be sustainable. For watching a movie, theaters will continue to provide the best experience, and cell phones the worst. I don't have all the answers on how screen-specific content may ultimately evolve, but it's safe to guess that video on cell phones would take advantage of its voice feature, mobility and constant proximity, while successful Web videos, as discussed above, would leverage interactivity, social and non-linear nature of the Web, that is unavailable on TV.
In the meantime, it'd be great if Bebo's new initiative, Sofia's Diary, a new series on Bebo.com in association with Sony Pictures TV International, can surpass KateModern's success.
December 12, 2007
Internet video on the TV
The debate on how to bring the vast & rich collection of Internet videos to your living room TV continues. Over the years, several companies have tried, and failed, to sell consumers the third box for their living room (in addition to the cable/satellite set top box and the DVD/music player). The value proposition has simply not been compelling enough (on most fronts: user experience, complexity, cost, etc.).
We thought Apple, the most likely company to succeed, will crack this nut through Apple TV, which was marketed as the 21st century DVD player. In other words, a replacement for one of your current two living room boxes, not an additional third box. Until Steve Jobs called Apple TV a "hobby" - a rather open admittance of defeat.
Can the video game console be the Trojan horse to bring Internet videos to the living room? Microsoft and Sony are definitely betting on it with their IP enabled game consoles.
Can the STB evolve to include the Internet TV functionality?
The intelligence can also move to the TV itself (e.g., new Sony Bravia IP enabled TVs).
The Wall Street Journal this week ran a comprehensive story on this topic. Interviewing several industry analysts and executives, they presented five reasons on why the convergence has failed and proposed solutions for each reason:
1) Too many boxes. Proposed solution: Blend boxes
2) Too complicated (for users to set up the functionality). Proposed solution: Keep it simple
3) Sticker shock. Proposed solution: Set video free (free, ad-supported model)
4) Limited selection (of currently available walled-garden video libraries). Proposed solution: Open up the boxes
5) Slow downloads. Proposed solution: Faster, smarter (thru new technologies)
I'd suggest reading the full WSJ article (subscription required).
We thought Apple, the most likely company to succeed, will crack this nut through Apple TV, which was marketed as the 21st century DVD player. In other words, a replacement for one of your current two living room boxes, not an additional third box. Until Steve Jobs called Apple TV a "hobby" - a rather open admittance of defeat.
Can the video game console be the Trojan horse to bring Internet videos to the living room? Microsoft and Sony are definitely betting on it with their IP enabled game consoles.
Can the STB evolve to include the Internet TV functionality?
The intelligence can also move to the TV itself (e.g., new Sony Bravia IP enabled TVs).
The Wall Street Journal this week ran a comprehensive story on this topic. Interviewing several industry analysts and executives, they presented five reasons on why the convergence has failed and proposed solutions for each reason:
1) Too many boxes. Proposed solution: Blend boxes
2) Too complicated (for users to set up the functionality). Proposed solution: Keep it simple
3) Sticker shock. Proposed solution: Set video free (free, ad-supported model)
4) Limited selection (of currently available walled-garden video libraries). Proposed solution: Open up the boxes
5) Slow downloads. Proposed solution: Faster, smarter (thru new technologies)
I'd suggest reading the full WSJ article (subscription required).
November 2, 2007
Open social networks - Google's OpenSocial API
This happened faster than I expected - a common set of APIs to build social applications across multiple websites (social networks). The goal is to tear down the walls which keep hubs of users & their activities locked within each social network.
Facebook's astronomical growth with its closed, proprietary platform played a key role in expediting a wide cooperation, led by Google, amongst players on the other side of the line. These players, in addition to doing the right thing, also want to quickly stunt the user growth on the Facebook island - as users deepen their time/effort investment on Facebook, their switching "cost" out of its platform increases. Facebook traffic has almost doubled in the past five months since it opened its platform on May 24th (from 27M monthly uniques to 51M).
Google has created a partner ecosystem to release OpenSocial APIs which can be used by developers to create applications that will work on any of the host social networking sites in the ecosystem. There are already 27 partners in the ecosystem (MySpace, Bebo, Hi5, Ning, LinkedIn, Plaxo, Salesforce.com, etc.). Marc Andreessen, Founder of Ning, has a good explanation of benefits to participating partners on his blog. APIs are built on Google's Gadget technology.
Google has historically gone solo in creating new standards. What changed this time around?
With Facebook's expected launch of its own advertising network that promises to effectively leverage user data for targeted advertising (e.g., thru News Feeds), it'll be interesting to see a showdown with OpenSocial, as advertising dollars continue to shift online, and brand advertisers play a bigger role in this shift.
Meanwhile, OpenSocial participants will be busy stabilizing the new standard and fixing its bugs. The first OpenSocial application was hacked within 45 minutes after its launch.
Facebook's astronomical growth with its closed, proprietary platform played a key role in expediting a wide cooperation, led by Google, amongst players on the other side of the line. These players, in addition to doing the right thing, also want to quickly stunt the user growth on the Facebook island - as users deepen their time/effort investment on Facebook, their switching "cost" out of its platform increases. Facebook traffic has almost doubled in the past five months since it opened its platform on May 24th (from 27M monthly uniques to 51M).
Google has created a partner ecosystem to release OpenSocial APIs which can be used by developers to create applications that will work on any of the host social networking sites in the ecosystem. There are already 27 partners in the ecosystem (MySpace, Bebo, Hi5, Ning, LinkedIn, Plaxo, Salesforce.com, etc.). Marc Andreessen, Founder of Ning, has a good explanation of benefits to participating partners on his blog. APIs are built on Google's Gadget technology.
Google has historically gone solo in creating new standards. What changed this time around?
- Orkut, Google's social networking product, never really took off like MySpace or Facebook. It's therefore a defensive move by Google in order to not allow one of these sites to become the default destination for users' social activity on the Web. By lining up partners that have a strong desire to participate in open standards that give them access to more applications and by providing users an easier way to mange their information across social networks, Google has created a very compelling value proposition that benefits everyone - participating social networks, the end user, applications developers, and, above all, Google.
- The promised holy grail with social networking is to leverage rich user data for high-CPM, targeted advertising. Google has a proven leadership in this game. But it needs access to that data. Even though questions still remain about ownership of user data on applications built using OpenSocial APIs and distributed on several social networks, common standards is a step in the right direction. It's a matter of time before data ownership, profit sharing, and related questions get answered.
- OpenSocial will streamline the ability to feed Google ads into applications/widgets. Googles, thru its AdSense program, has the biggest network of advertisers on the planet. No other company is therefore better positioned to leverage the vast amount of advertising inventory that is being created by an explosion in the number of widgets/gadgets/applications on the Web. It also gives developers and marketers of applications, especially small- and mid-size firms, one channel to reach multiple audiences.
With Facebook's expected launch of its own advertising network that promises to effectively leverage user data for targeted advertising (e.g., thru News Feeds), it'll be interesting to see a showdown with OpenSocial, as advertising dollars continue to shift online, and brand advertisers play a bigger role in this shift.
Meanwhile, OpenSocial participants will be busy stabilizing the new standard and fixing its bugs. The first OpenSocial application was hacked within 45 minutes after its launch.
October 25, 2007
How can a Platform succeed in the long-run?
The rage in Silicon Valley today is all about platforms - platforms which are vying to become industry standards in their respective categories. Apple is pushing iPhone (cell phone applications) and iPod/iTunes (discovery, purchase and consumption of music and video). Google, Yahoo, Microsoft and AOL want their products (online advertising, maps, widgets/gadgets, etc) to become platforms in their respective categories. Facebook is hoping its social networking site to essentially become a communications platform on the Internet.
Here are three key criterion any company has to meet in order to make its product (platform) an industry standard:
General Motor's failed experiment with its OnStar system to make it a standard platform in the automobile industry for a wireless system that can provide new communication capabilities to vehicles is an example where customers and industry players agreed with the value (criterion #1) but GM's competitors could not trust it on the third criterion.
Facebook has checked the boxes on all the three above criterion. Its ability to succeed on (3) is however still questionable because it's too early to judge how Facebook will balance the very fine line and the difficult task of profiting from its own innovations on its platform while letting 3rd parties have unfettered and equal footing access to the Facebook platform in the long run - the economic incentives for the two to happen simultaneously can clash very easily. Then, Facebook is operating in a space where it is competing with the ultimate industry platform, the Internet itself. No points for guessing the winner in that fight.
Similarly, Apple has failed thus far in playing win-win with content firms whose content it needs to sustain early success of its iPod/iTunes platform in the long run (3rd criterion).
MIT's Michael Cusumano, along with Annabelle Gawer, wrote The Elements of Platform Leadership in 2002, a book that I'd recommend folks to pick up given its relevance in the industry's current love affair with Facebook & Apple. The book provides lessons from Intel, Microsoft and Cisco - pioneers in their respective industries, which succeeded in establishing their platforms as industry standards.
Here are three key criterion any company has to meet in order to make its product (platform) an industry standard:
- Solve a problem for users and players in your industry.
- Allow 3rd parties to easily build on top of your platform in order to continue innovation and expansion of the value the platform creates.
- Fairly share the created economic value with 3rd parties which are developing products on top of the platform and thus enhancing platform's value to its users - the most difficult of the three criterion to execute successfully.
General Motor's failed experiment with its OnStar system to make it a standard platform in the automobile industry for a wireless system that can provide new communication capabilities to vehicles is an example where customers and industry players agreed with the value (criterion #1) but GM's competitors could not trust it on the third criterion.
Facebook has checked the boxes on all the three above criterion. Its ability to succeed on (3) is however still questionable because it's too early to judge how Facebook will balance the very fine line and the difficult task of profiting from its own innovations on its platform while letting 3rd parties have unfettered and equal footing access to the Facebook platform in the long run - the economic incentives for the two to happen simultaneously can clash very easily. Then, Facebook is operating in a space where it is competing with the ultimate industry platform, the Internet itself. No points for guessing the winner in that fight.
Similarly, Apple has failed thus far in playing win-win with content firms whose content it needs to sustain early success of its iPod/iTunes platform in the long run (3rd criterion).
MIT's Michael Cusumano, along with Annabelle Gawer, wrote The Elements of Platform Leadership in 2002, a book that I'd recommend folks to pick up given its relevance in the industry's current love affair with Facebook & Apple. The book provides lessons from Intel, Microsoft and Cisco - pioneers in their respective industries, which succeeded in establishing their platforms as industry standards.
October 10, 2007
The Facebook Economy
Facebook is clearly the new darling of Silicon Valley. It's the "new Google" (based on traffic growth); it's the "new Microsoft" (based on its Platform); and its estimated valuation is a staggering $15B for a company less than three years old.
Some quick Facebook stats from its site:
Then, there is this whole debate about sustainability of the Facebook platform itself. We know that the Web is the ultimate platform. It's open. It's not owned by a corporation or a government, and it provides a common standard for innovation to everyone around the world. The history of closed, proprietary platforms tells us that such innovations, while may be ground breaking at the time, succeed only during the temporary period taken by alternative/replicating innovations to be developed on the open Web. Anil Dash from Six Apart provides a detailed account of this theory on his blog. He eloquently argues:
As an example, Anil cites two proprietary innovative platforms launched in mid-90s by the Internet trailblazers of the time to create rich online experiences, both of which were ultimately taken over by similar/better innovations on the Web: Blackbird by Microsoft and Rainman by AOL.
Having worked at AOL, I can elaborate on Rainman, its proprietary platform that was used to create the walled garden Web experience provided within AOL's desktop client (remember those free AOL CDs you'd get in the mail). I was at AOL at the time when we sunset Rainman, and in my opinion it should have been done much earlier. Several old-timers within the organization kept insisting that AOL's desktop client built on the Rainman platform can stay as a differentiator for the company. It worked wonderfully during the early Internet years in mid-90s when standards for organizing information on the Web were either non-existent or awfully pre-mature at the best. However, by early 2000, innovation on the Web had made Rainman unnecessary and inefficient. AOL dragged its feet with Rainman until 2005. It finally had to adopt HTML (open Web standard) and re-write all of its content. AOL's content built on Rainman did not show up on Web search results - a significant and increasingly important source of traffic for the publishers by that time - a proof that innovations on the open Web platform (search engine spiders, in this case) force out proprietary closed platforms in the long run.
Some quick Facebook stats from its site:
- >48MM active users (20ok new registrations every day)
- 6th most traffiked site in the U.S.
- 54B pageviews per month
- Over half of its active users visit the site daily; average daily time spent is 20 min
- Over 5,000 applications added to its Platform within 5 months since launch (100 new per day)
- VCs have started funds specifically for Facebook application development: Bay Partners, a Silicon Valley based VC firm, has created AppFactory, a fast-track program for entrepreneurs developing applications for the Facebook Platform.
- fbFund: Facebook announced its own $10M fund (open to expanding it further if required) that will provide $25k - $250k grants to developers for building Facebook applications. Developers can apply through, of course, a Facebook application built for the purpose (after the initial application process thru e-mail did not work out).
- Buddy Media, a NY-based startup plans to make money by building a business around Acebucks, a virtual currency for the Facebook platform.
- In order to monetize Facebook applications, at least three dedicated ad network experiments have started, valuing each application user at $0.30 (in contrast, the company valuation of $15B translates to $375 per active Facebook user).
- Global wealth creation: Developers around the globe now have an opportunity to earn a living thru the Facebook platform. The Wall Street Journal reports about one Agarwalla brothers team in Kolkata, India, that has built Scrabulous, an online game that resembles the traditional Scrabble. Since its Facebook debut in July, Scrabulous has grown to about 950,000 players, 36% of which are daily active users, or people who have logged in every day over the last 30 days. In contrast, only 7% users for Facebook's top 50 tools and games are daily active users. The game is generating $18k per month in advertising revenue for the Agarwalla brothers, a very good amount from Indian standards given country's low cost of living.
- Multi-million dollar valuation for popular Facebook applications: Lee Lorenzen, a VC in Monterey, CA, who describes himself as “the first Facebook-only VC,” started a $25 million Facebook investment fund this summer and introduced a Web tool, Adanomics.com, that lets you track application growth, activity, and valuation. The tool applies a stock-market-style analysis, using variables like the number of users, frequency of use and advertising revenue, and assigns a monetary value to Facebook applications. Some popular applications like Where I’ve Been (lets users show which countries and states they have visited), Texas Hold ’Em Poker and What’s Your Stripper Name (suggests what you and your friends would call yourselves on stage) have been valued at around $2 million each.
Then, there is this whole debate about sustainability of the Facebook platform itself. We know that the Web is the ultimate platform. It's open. It's not owned by a corporation or a government, and it provides a common standard for innovation to everyone around the world. The history of closed, proprietary platforms tells us that such innovations, while may be ground breaking at the time, succeed only during the temporary period taken by alternative/replicating innovations to be developed on the open Web. Anil Dash from Six Apart provides a detailed account of this theory on his blog. He eloquently argues:
Think of the web, of the Internet itself, as water. Proprietary platforms based on the web are ice cubes. They can, for a time, suspend themselves above the web at large. But over time, they only ever melt into the water. And maybe they make it better when they do.
As an example, Anil cites two proprietary innovative platforms launched in mid-90s by the Internet trailblazers of the time to create rich online experiences, both of which were ultimately taken over by similar/better innovations on the Web: Blackbird by Microsoft and Rainman by AOL.
Having worked at AOL, I can elaborate on Rainman, its proprietary platform that was used to create the walled garden Web experience provided within AOL's desktop client (remember those free AOL CDs you'd get in the mail). I was at AOL at the time when we sunset Rainman, and in my opinion it should have been done much earlier. Several old-timers within the organization kept insisting that AOL's desktop client built on the Rainman platform can stay as a differentiator for the company. It worked wonderfully during the early Internet years in mid-90s when standards for organizing information on the Web were either non-existent or awfully pre-mature at the best. However, by early 2000, innovation on the Web had made Rainman unnecessary and inefficient. AOL dragged its feet with Rainman until 2005. It finally had to adopt HTML (open Web standard) and re-write all of its content. AOL's content built on Rainman did not show up on Web search results - a significant and increasingly important source of traffic for the publishers by that time - a proof that innovations on the open Web platform (search engine spiders, in this case) force out proprietary closed platforms in the long run.
September 25, 2007
India wins Twenty20 Cricket World Cup
India won the inaugural Twenty20 cricket world cup by defeating arch-rival Pakistan by five runs in a nail-biting finals in Johannesburg on Monday.
Nobody gave India any chance of even making it into the semi-finals, especially because their top four star players had sat out of the tournament to give chance to new, upcoming players. India also had almost zero experience in this shorter version of the game, having played only one Twenty20 international match coming into the tournament. With a new fearless captain and several rookies amongst its ranks, the Indian team improved with every game and defeated England and host South Africa in the Super 8 knock-out stage, and world-champion Australia in the semi-final.
Twenty20 World Cup was a huge success with sell-out crowds and superb organization. Pyrotechnics and American-style cheer-leaders were seen for the first time in this so-called gentleman's game. Tournament's success would be a great boost for this new format of cricket that will pull-in more cricket fans - games are fast paced, last only three hours, and can therefore fit into schedules of more fans. India, which almost single-handedly drives the global cricket economy, given its over 1 billion cricket-fanatic base across the globe (me included), will now surely play a huge role in popularizing the new format.
Team India was awarded more money ($2Mm) from its cricket Board (richest in the world) than the champion prize money ($500K) given by ICC, the official global cricket governing body that organized the tournament.
Talking about economics of cricket, last year, the cricket Board in India increased its revenue by 10x by selling TV rights to the Indian cricket games to Nimbus Communications for a staggering $612M. Nimbus is also the recipient of the largest private equity investment in the Indian media & entertainment sector. Cisco, 3i, and Oman International Fund (OIF) invested $125M in Nimbus earlier this year, mainly due to Nimbus' lucrative cricket rights.
Nobody gave India any chance of even making it into the semi-finals, especially because their top four star players had sat out of the tournament to give chance to new, upcoming players. India also had almost zero experience in this shorter version of the game, having played only one Twenty20 international match coming into the tournament. With a new fearless captain and several rookies amongst its ranks, the Indian team improved with every game and defeated England and host South Africa in the Super 8 knock-out stage, and world-champion Australia in the semi-final.
Twenty20 World Cup was a huge success with sell-out crowds and superb organization. Pyrotechnics and American-style cheer-leaders were seen for the first time in this so-called gentleman's game. Tournament's success would be a great boost for this new format of cricket that will pull-in more cricket fans - games are fast paced, last only three hours, and can therefore fit into schedules of more fans. India, which almost single-handedly drives the global cricket economy, given its over 1 billion cricket-fanatic base across the globe (me included), will now surely play a huge role in popularizing the new format.
Team India was awarded more money ($2Mm) from its cricket Board (richest in the world) than the champion prize money ($500K) given by ICC, the official global cricket governing body that organized the tournament.
Talking about economics of cricket, last year, the cricket Board in India increased its revenue by 10x by selling TV rights to the Indian cricket games to Nimbus Communications for a staggering $612M. Nimbus is also the recipient of the largest private equity investment in the Indian media & entertainment sector. Cisco, 3i, and Oman International Fund (OIF) invested $125M in Nimbus earlier this year, mainly due to Nimbus' lucrative cricket rights.
August 28, 2007
Facebook is learning fast
In one of my earlier posts, I had proposed that Facebook should use actual user engagement as a success metric for its applications as opposed to the metric that only captures total number of users who've added the application (and may not be using it at all). Facebook decided to do exactly this. Dave Morin from Facebook notified of their policy change on Facebook's Developers blog on Monday:
It's heartening to see Facebook is learning fast and making quick changes to ensure its evolving Platform continues to provide great experience for both its users and developers.
This week you'll see us shift our application directory metrics to a focus on user engagement. This will help inform users as they make decisions on which applications to add as well as shift developer focus to engagement rather than total users. More specifics will be available as we roll out these changes this coming week.Recently, Facebook made two other changes to its Platform in order to prevent questionable tactics used by application developers to promote their applications. Developers will not be allowed to show a different profile to a user's friends than the one the user sees himself. Developers will also be blocked from sending misleading notifications to users in order to promote viral spread of their applications.
It's heartening to see Facebook is learning fast and making quick changes to ensure its evolving Platform continues to provide great experience for both its users and developers.
August 8, 2007
Is Web Video a Threat to TV? - WSJ Discussion
The Wall Street Journal recently organized an online discussion between Steven Starr, co-founder and chairman of Revver, and I. The subject was: "Is Web Video a Threat to TV?"
Below is the link and the text:
http://online.wsj.com/article/SB118530221391976425.html
Text:
------------------
The Internet has made it possible for anyone with a video camera to become a filmmaker or YouTube star. But can independent creators make a living off Web video? And will this army of amateurs pose a threat to traditional broadcasters and studios?
Several video-sharing sites, including Revver and Metacafe, are trying to translate Web fame into dollars by sharing advertising revenue with contributors. Even YouTube has adopted a similar program. Traditional broadcasters, meanwhile, are taking steps to capture online viewers (and ad dollars). NBC, for example, is adding social networking features to its flagship site and will debut "Coastal Dreams," a Web-only soap opera, in October.
The Wall Street Journal Online invited Sab Kanaujia, vice president for digital product strategy at NBC Universal, to discuss the future of TV on the Web with Steven Starr, co-founder and chairman of Revver. Their exchange, carried out over email, is below.
Sab Kanaujia begins: Can independent creators make a living with Web video? I don't think they can in the short term. Current business models online are not attractive enough to make a living or leave your other day job. The CPMs [cost per one thousand ad impressions] paid by online distributors for independent content are not very high compared with those for professionally produced, long-form content, so it requires a lot of views to translate into a decent amount of money. Low CPMs also indicate the appetite of advertisers at this point for content from independent creators. There are of course some exceptions (LonelyGirl15, etc.) where we have seen good, engaging content that has driven a lot of traffic.
Steven Starr responds: Well, it all depends how you define independent creators. Old school independent creators, used to Hollywood economics, should stay home. But successful independent online creators are seeing CPM and [cost-per-click] returns that can exceed $10,000 per month. The promise of an online creator economy is right around the corner, one that supports an entirely new form of creativity quite distinct and separate from traditional TV creation. This is happening in the short-term, with Web video creators not controlled by the linear programming demands of traditional TV. The Web video toolkit is far more interactive; response videos, social networking, mashup technology and the like are changing the parameters of content creation. Web video as a nascent art form, one that promises significant and sustainable revenue as it develops, is close at hand.
Mr. Kanaujia: I agree with the promise of online platform for both content creators (non-linear, timeliness, etc.) and for users (interactivity, more features, etc). But I think business models are still evolving. In the short-term, I think the Web will continue to provide a great vehicle for independent creators to get discovered (zero barriers to entry). And when they do get discovered, many may want to join traditional media -- or not.
Here are two real-life examples: Rocketboom -- Amanda Congdon established herself online. She leveraged her online popularity to get an offer from ABC, which she accepted. Now, she's using that opportunity to marry the digital and traditional worlds by anchoring in addition to doing video blogs on ABC.com. I was recently at Om Malik's Pier Screenings in San Francisco, where one of the creators of LonelyGirl15 spoke. They have thus far not joined a traditional media company amid several such offers that their agency was able to secure for them. They want to maintain total creative control and flexibility with their shows. Also, their storytelling style requires quick turnaround and interactivity -- which does not yet fit the traditional TV platform, with its many other considerations (advance scheduling, advertisers, etc.). Though they've not seen a financial windfall by going alone, they're still sticking to their original plan. These examples provide different paths taken by two successful online independent creators.
Mr. Starr: Using the Web as a discovery platform for old media trolling for talent is 1999 all over again; why take these new media creators and force them into old media formats? If the future of TV on the Web is continuous streaming, everywhere-accessible and ubiquitous, isn't a far more exciting outcome the emergence of an entirely new art form?
In today's Hollywood, over 90% of [Writers Guild of America] and [Directors Guild of America] members are not even close to making a living at their chosen craft. In the high-stakes game of traditional TV, the prospect for an Amanda Congdon or LonelyGirl15 achieving the financial windfall you refer to are incredibly remote, at best. Yet online, where Rocketboom and LonelyGirl15 can take incredible risks with format and genre, can grow their own audience at a fraction of network costs, can enjoy free syndication, hosting, audience-building and ad services at their disposal, an absolute cornucopia of opportunity awaits.
And yes, the business models are evolving, but it's happening quickly and well. At Revver, we're seeing a 4x and 7x jump in creator revenue just by adding pre-roll [ads] as an option to our Revver creators. It may be the wild west, but the opportunities are historic; there has never been a better time to be a creator, not in the history of media.
I've got a question for you, Sab: How does NBC Universal see its role as a supporter of this new art form?
Mr. Kanaujia: I'm not arguing that traditional media should either force new media creators into old media formats or restrict in any way the tremendous opportunities provided by digital platforms for content creation and distribution. I was just highlighting what is happening today as we evolve towards realizing the full potential of the new medium.
NBCU whole-heartedly supports the new art form. In fact, one of the primary goals of NBCU's Digital Media group is to explore how we can proactively embrace new digital platforms. We've created a Digital Studio that is extending NBCU's history of quality programming into the digital age by producing original programming and interactive experiences that engage consumers across a variety of topics and genres.
We're also exploring how we can creatively marry originally produced online content with our on-air shows. I think democratization of content creation and distribution provided by technology innovation on digital platforms and changing user behaviors would in the long run be a win-win for all stakeholders.
Mr. Starr: NBCU has been quite proactive in extending its brand online; the digital studio sounds promising. But I really don't envy what big media's facing. Consumers are their own programmers; control over the media experience has been ceded.
New media is social, all about connection and inclusion, and the challenge to monetize those connections is starting to be met. Andrew Keen's "The Cult of the Amateur" disputes the disruptive history-in-the-making prospect of all this, and blames new media for a "loss in quality." So maybe it started with cats swinging from chandeliers and frat boy video, but it's evolved in less than a year to budding auteurs like Goodnight Burbank6, Happy Slip7, Studio88 and LoadingReadyRun9, all building audiences, all operating at the forefront of new media. No doubt it's early days, but a year or so from now we may see world-class creativity emerge, and Mr. Keen's dismissal seems shortsighted at best.
The fact is, while new media creators keep bursting out of nowhere, old media has yet to figure out how to truly engage this unique audience. Repurposing TV and film content is not a long-term solution. Social media demands a different expertise. We're in a period akin to the transition from silent to talkies, and it's going to leave a lot of traditional creators and content suppliers behind.
Even more disruptive, social media rejects the cult of the velvet-roped celebrity, demanding far more fan-creator interaction than ever before. This drives the attention of a connection-expecting audience into the hands of the independent creator, not the entity that controls their channel, and empowers creators to control the advertiser relationship themselves. Again, a heady time to be making media, to be building an audience.
Mr. Kanaujia says: All these are examples of Web TV done right. In the long-run, I believe Web TV will co-exist with the traditional media. Forecasts claiming that the new media will swallow traditional TV are grossly overblown. Today, almost half of the total media consumption in the U.S. is on TV -- 47% of 68 hours/week/user (Source: Veronis-Suhler 2006). Rest is split between radio, recorded music, print, Internet, mobile, etc. Future trends also point to the dominance of TV (48% of users' media time in 2010).
For advertisers, the lean-back user experience allowing deep engagement with the long-form content on the TV is undoubtedly the best opportunity to develop brand awareness. Having said that, traditional media would still need to adapt to the growing reality of the new media. Over the past 80+ years, traditional media firms have successfully gone thru many transitions in the industry (from radio to broadcast TV to color TV), and have emerged stronger each time. No reason why they can't succeed the current transformation from traditional to what I call "integrated media," that combines digital platforms to traditional ones.
Talking about integrated media, I think ultimately Web TV will make its way into the living room as well (it has already started; e.g., YouTube/Apple TV, AOL's deal with Sony for their IP connected Bravia TVs). But for Web TV to succeed, it has to leverage the Internet not as a platform, but as a medium that is non-linear, social and interactive. Web content creators will not succeed if they develop their content by copying what has historically been done for the TV. They have to leverage the above three fundamental advantages provided by the Internet. Compelling, storytelling skills will always be critical -- no matter what the screen is (Web/mobile/TV). Advertisers will naturally follow if the execution is done right.
Mr. Starr concludes: I agree in almost every regard. Traditional TV absolutely will adjust and survive, just as there's still a market for books a century after movies were introduced, after TV, after the Web. But I think we're not far off from having most of the advertising dollars spent predominantly on the Web -- and around that corner we'll see most of the fortunes made from storytelling come from Web-based media. There will always be exceptions -- J.K. Rowling will make over a billion dollars from an old-fashioned book series -- but my point is that, in the storytelling and visual arts, the future is moving quickly towards Web-based media. It's just too efficient in gathering a motivated mob for the smart money to go elsewhere.
Serials produced in the creative diaspora already engage repeat audiences that, per episode, number in the millions. A new breed of storytellers are inventing new ways to narrate, new formats, new genres. At the same time, a new breed of audiences are finding new ways to interact, to participate, to engage with these storytellers. It's all happening outside of traditional media auspices, and that's what makes this new art form so unpredictable and so thrilling.
This disruption itself is what drove me to start Revver. I'm absolutely convinced online video is where the creative center of the next decade, and possibly the next quarter century, will reside.
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Below is the link and the text:
http://online.wsj.com/article/SB118530221391976425.html
Text:
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The Internet has made it possible for anyone with a video camera to become a filmmaker or YouTube star. But can independent creators make a living off Web video? And will this army of amateurs pose a threat to traditional broadcasters and studios?
Several video-sharing sites, including Revver and Metacafe, are trying to translate Web fame into dollars by sharing advertising revenue with contributors. Even YouTube has adopted a similar program. Traditional broadcasters, meanwhile, are taking steps to capture online viewers (and ad dollars). NBC, for example, is adding social networking features to its flagship site and will debut "Coastal Dreams," a Web-only soap opera, in October.
The Wall Street Journal Online invited Sab Kanaujia, vice president for digital product strategy at NBC Universal, to discuss the future of TV on the Web with Steven Starr, co-founder and chairman of Revver. Their exchange, carried out over email, is below.
* * *
Sab Kanaujia begins: Can independent creators make a living with Web video? I don't think they can in the short term. Current business models online are not attractive enough to make a living or leave your other day job. The CPMs [cost per one thousand ad impressions] paid by online distributors for independent content are not very high compared with those for professionally produced, long-form content, so it requires a lot of views to translate into a decent amount of money. Low CPMs also indicate the appetite of advertisers at this point for content from independent creators. There are of course some exceptions (LonelyGirl15, etc.) where we have seen good, engaging content that has driven a lot of traffic.
Steven Starr responds: Well, it all depends how you define independent creators. Old school independent creators, used to Hollywood economics, should stay home. But successful independent online creators are seeing CPM and [cost-per-click] returns that can exceed $10,000 per month. The promise of an online creator economy is right around the corner, one that supports an entirely new form of creativity quite distinct and separate from traditional TV creation. This is happening in the short-term, with Web video creators not controlled by the linear programming demands of traditional TV. The Web video toolkit is far more interactive; response videos, social networking, mashup technology and the like are changing the parameters of content creation. Web video as a nascent art form, one that promises significant and sustainable revenue as it develops, is close at hand.
Mr. Kanaujia: I agree with the promise of online platform for both content creators (non-linear, timeliness, etc.) and for users (interactivity, more features, etc). But I think business models are still evolving. In the short-term, I think the Web will continue to provide a great vehicle for independent creators to get discovered (zero barriers to entry). And when they do get discovered, many may want to join traditional media -- or not.
Here are two real-life examples: Rocketboom -- Amanda Congdon established herself online. She leveraged her online popularity to get an offer from ABC, which she accepted. Now, she's using that opportunity to marry the digital and traditional worlds by anchoring in addition to doing video blogs on ABC.com. I was recently at Om Malik's Pier Screenings in San Francisco, where one of the creators of LonelyGirl15 spoke. They have thus far not joined a traditional media company amid several such offers that their agency was able to secure for them. They want to maintain total creative control and flexibility with their shows. Also, their storytelling style requires quick turnaround and interactivity -- which does not yet fit the traditional TV platform, with its many other considerations (advance scheduling, advertisers, etc.). Though they've not seen a financial windfall by going alone, they're still sticking to their original plan. These examples provide different paths taken by two successful online independent creators.
Mr. Starr: Using the Web as a discovery platform for old media trolling for talent is 1999 all over again; why take these new media creators and force them into old media formats? If the future of TV on the Web is continuous streaming, everywhere-accessible and ubiquitous, isn't a far more exciting outcome the emergence of an entirely new art form?
In today's Hollywood, over 90% of [Writers Guild of America] and [Directors Guild of America] members are not even close to making a living at their chosen craft. In the high-stakes game of traditional TV, the prospect for an Amanda Congdon or LonelyGirl15 achieving the financial windfall you refer to are incredibly remote, at best. Yet online, where Rocketboom and LonelyGirl15 can take incredible risks with format and genre, can grow their own audience at a fraction of network costs, can enjoy free syndication, hosting, audience-building and ad services at their disposal, an absolute cornucopia of opportunity awaits.
And yes, the business models are evolving, but it's happening quickly and well. At Revver, we're seeing a 4x and 7x jump in creator revenue just by adding pre-roll [ads] as an option to our Revver creators. It may be the wild west, but the opportunities are historic; there has never been a better time to be a creator, not in the history of media.
I've got a question for you, Sab: How does NBC Universal see its role as a supporter of this new art form?
Mr. Kanaujia: I'm not arguing that traditional media should either force new media creators into old media formats or restrict in any way the tremendous opportunities provided by digital platforms for content creation and distribution. I was just highlighting what is happening today as we evolve towards realizing the full potential of the new medium.
NBCU whole-heartedly supports the new art form. In fact, one of the primary goals of NBCU's Digital Media group is to explore how we can proactively embrace new digital platforms. We've created a Digital Studio that is extending NBCU's history of quality programming into the digital age by producing original programming and interactive experiences that engage consumers across a variety of topics and genres.
We're also exploring how we can creatively marry originally produced online content with our on-air shows. I think democratization of content creation and distribution provided by technology innovation on digital platforms and changing user behaviors would in the long run be a win-win for all stakeholders.
Mr. Starr: NBCU has been quite proactive in extending its brand online; the digital studio sounds promising. But I really don't envy what big media's facing. Consumers are their own programmers; control over the media experience has been ceded.
New media is social, all about connection and inclusion, and the challenge to monetize those connections is starting to be met. Andrew Keen's "The Cult of the Amateur" disputes the disruptive history-in-the-making prospect of all this, and blames new media for a "loss in quality." So maybe it started with cats swinging from chandeliers and frat boy video, but it's evolved in less than a year to budding auteurs like Goodnight Burbank6, Happy Slip7, Studio88 and LoadingReadyRun9, all building audiences, all operating at the forefront of new media. No doubt it's early days, but a year or so from now we may see world-class creativity emerge, and Mr. Keen's dismissal seems shortsighted at best.
The fact is, while new media creators keep bursting out of nowhere, old media has yet to figure out how to truly engage this unique audience. Repurposing TV and film content is not a long-term solution. Social media demands a different expertise. We're in a period akin to the transition from silent to talkies, and it's going to leave a lot of traditional creators and content suppliers behind.
Even more disruptive, social media rejects the cult of the velvet-roped celebrity, demanding far more fan-creator interaction than ever before. This drives the attention of a connection-expecting audience into the hands of the independent creator, not the entity that controls their channel, and empowers creators to control the advertiser relationship themselves. Again, a heady time to be making media, to be building an audience.
Mr. Kanaujia says: All these are examples of Web TV done right. In the long-run, I believe Web TV will co-exist with the traditional media. Forecasts claiming that the new media will swallow traditional TV are grossly overblown. Today, almost half of the total media consumption in the U.S. is on TV -- 47% of 68 hours/week/user (Source: Veronis-Suhler 2006). Rest is split between radio, recorded music, print, Internet, mobile, etc. Future trends also point to the dominance of TV (48% of users' media time in 2010).
For advertisers, the lean-back user experience allowing deep engagement with the long-form content on the TV is undoubtedly the best opportunity to develop brand awareness. Having said that, traditional media would still need to adapt to the growing reality of the new media. Over the past 80+ years, traditional media firms have successfully gone thru many transitions in the industry (from radio to broadcast TV to color TV), and have emerged stronger each time. No reason why they can't succeed the current transformation from traditional to what I call "integrated media," that combines digital platforms to traditional ones.
Talking about integrated media, I think ultimately Web TV will make its way into the living room as well (it has already started; e.g., YouTube/Apple TV, AOL's deal with Sony for their IP connected Bravia TVs). But for Web TV to succeed, it has to leverage the Internet not as a platform, but as a medium that is non-linear, social and interactive. Web content creators will not succeed if they develop their content by copying what has historically been done for the TV. They have to leverage the above three fundamental advantages provided by the Internet. Compelling, storytelling skills will always be critical -- no matter what the screen is (Web/mobile/TV). Advertisers will naturally follow if the execution is done right.
Mr. Starr concludes: I agree in almost every regard. Traditional TV absolutely will adjust and survive, just as there's still a market for books a century after movies were introduced, after TV, after the Web. But I think we're not far off from having most of the advertising dollars spent predominantly on the Web -- and around that corner we'll see most of the fortunes made from storytelling come from Web-based media. There will always be exceptions -- J.K. Rowling will make over a billion dollars from an old-fashioned book series -- but my point is that, in the storytelling and visual arts, the future is moving quickly towards Web-based media. It's just too efficient in gathering a motivated mob for the smart money to go elsewhere.
Serials produced in the creative diaspora already engage repeat audiences that, per episode, number in the millions. A new breed of storytellers are inventing new ways to narrate, new formats, new genres. At the same time, a new breed of audiences are finding new ways to interact, to participate, to engage with these storytellers. It's all happening outside of traditional media auspices, and that's what makes this new art form so unpredictable and so thrilling.
This disruption itself is what drove me to start Revver. I'm absolutely convinced online video is where the creative center of the next decade, and possibly the next quarter century, will reside.
---------------
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