We have met the enemy, and he is “pureplays”

Walt Kelly's famous quote from Pogo2010 is starting out to look like a fairly good year for some media companies, especially those with television station groups. In addition to a booming political year, there are signs pointing to a rebound in radio and TV advertising. According to a report in Media Daily News last week, we’re looking at three years of growth.

Media forecaster BIA/Kelsey says local advertising revenues for television and radio will reach $34.3 billion in 2014, up from $29.9 billion in 2009. That’s a 2.8% compound annual growth rate. Digital revenues for local TV and radio are expected to soar nearly 18% over the same period.

The same report shows that, by 2014, local TV digital ad revenue (mobile and Web) will reach $1.2 billion and represent 6.5 percent of the segment’s total $18.3 billion in revenue, up from 3.1 percent in 2009. Wow, sounds great, huh?

The problem with reports like these is always the assumptions behind the numbers. Here BIA/Kelsey has defined the market for local TV digital ad revenue as that which is produced and maintained by local TV stations. In this world, the competition for that $1.2 billion is the other TV stations in town. This is a myth, folks, because the real market is actually much bigger, and unless we wise up, our failure to act is going to hurt more than just local media. Local economies will suffer, as real local dollars quietly slide away to people who realize that — at least online — “local” is nothing more than a cash register for them. They don’t have to worry about employees, their families, and the many services that cater to them.

In the real Web world, for example, the pureplay Web companies are our enemy (competition), not the other media companies in town. Our barometer for success is measured against them, not the poor guy down the street with his own antenna, although those pureplays are very happy to have us think otherwise. Champagne corks pop when Google executives read a report like this the one from BIA/Kelsey, because it’s the distraction they need to not only pick our pockets but the local communities in which we live and work.

I’m increasingly coming to believe that this is a problem for the same local business communities that are using the tools of these pureplays to enable commerce. How?

Below is the latest graph from Borrell Associates depicting the market change between 2008 and 2009 in money that originated in the local marketplace and was spent on local online advertising. Note that the pureplays share of the market — a $13.2 BILLION dollar market — is now 51.7%.

Share of local money spent online

The market is growing. Borrell projects it’ll be very close to $15 billion in 2010.

What is the impact to your community’s advertising economy as a growing chunk of cash disappears? What impact does that have on the whole economy of your region? Local media companies employ real people and provide real dollars to the community, but that’s not the case with the pureplays. They are parasites, draining sustenance from markets in the name of enabling commerce. To whom will local merchants sell, if their money ultimately goes to Mountain View, California or hundreds of other places where these companies employ real people?

It’s not their fault; they’re just trying to do business. It is the fault of the local advertising economy — including all of the local media companies — who think they’re playing soccer when the game is really basketball.

Here’s the first line of a chilling article from Forbes:

National advertisers spend more than $120 billion on advertising in local markets and Yahoo wants it.

Of course they do. Local is THE target for the big boys now, because local is where online advertising is growing.

Can any local media company beat the pureplays like Yahoo and Google on its own? I don’t think so. And let’s be clear about one thing: companies like Reach Local and Yodle are Google in disguise, but Google just the same. They’ve found creative ways to use the tools of Google to make it easy for local merchants, and they’re very good at it. But every dollar that goes to them leaves the market. Let’s not forget that.

Here’s another Borrell chart that shows how the pureplays are making their money. The bar on the right hand side has Google written all over it.

pureplays use search listings

So perhaps we can’t beat Google on our own, but we can beat them by working together. That concept is becoming more rational with each passing day. I’m not suggesting it will be easy, but we all have a much bigger enemy that each other. Who will step forward and lead the way? If you want to know how I would do it, just drop me a line.

Originally published in AR&D’s Media 2.0 Intel newsletter.

Yahoo Consortium moves into second phase

The new phase of the Yahoo ConsortiumA major effort is underway by Yahoo and members of the newspaper consortium to promote the value of the behavioral targeting (BT) software that Yahoo is providing newspaper partners. Early results apparently show increased click-through rates and some happy advertisers, although we don’t know the actual numbers yet. The consortium of 800 newspapers includes many of the nation’s largest, and they have bet their online business future on the value of being able to serve local banner ads to Yahoo users in their markets. The revenue is shared with Yahoo. The BT software also allows them to target Yahoo users who visit their own properties, so the concept is potentially attractive to both the partners and Yahoo.

In a Sunday New York Times article, three papers owned by E. W. Scripps were featured, The Knoxville News Sentinel, The Ventura County Star and The Naples Daily News. Each reported big revenue numbers from sales “blitzes” with local advertisers, so they’ve been able to generate excitement in the communities they serve. There’s a lot at stake, too. Scripps has already closed one of its flagship papers, The Rocky Mountain News.

Ken Doctor, a newspaper industry analyst with Outsell, told The Times that papers are counting on this partnership working. “For the companies that are in it,” Doctor said, “this is the No. 1 growth initiative in 2009 and 2010.” The Newspaper Association of America meets next week in Las Vegas, and we expect to hear much more about the behavioral targeting aspects of the consortium there.

But some observers, including usability guru Jakob Nielsen, strongly believe that the long-term viability of any kind of banner strategy is a losing proposition. In an email about The Times article, Nielsen told me that the problem isn’t targeting; it’s banners.

Jakob NielsenTargeted is probably *slightly* better than non-targeted, but not by much. The main problem is that users ignore the banners. When you never see a banner, it doesn’t matter whether it’s targeted or not.

As a separate question, it’s not clear how quickly users’ intent and interest decay after they have conducted a search. In the moment of a search, we know that users are fairly likely to click on an ad that’s advertising the thing they searched for, as indicated by a keyword match between the query and the advertiser’s specification of the campaign. But how useful is the same keyword match for predicting users’ willingness to click 10 minutes later, let alone 10 days later? Particularly in a context where the user is no longer actively looking for that item, but rather browsing for something completely different. The answers to these questions are not known, and I am not aware of any independent research to look into them. (By independent, I mean: not sponsored by somebody who’s trying to sell these ads. Because if you have an agenda, you can make a research study show almost anything by setting up the parameters “right.”)

Ultimately, though, the decay rate is less important than the basic fact of banner blindness. Yes, if users’ intent decays slowly, then targeted ads will perform a bit better than if users’ intent decays fast. But in either case, the predominant factor will be that the users don’t even see the banners, meaning that they won’t click them whether or not they would hypothetically have been interested in the offer.

Gordon BorrellGordon Borrell’s company reported the decline in banner advertising efficacy last year, and he told me last week in Dallas that he will closely examine the new click-through data but doesn’t expect major changes in their position. Banner advertising on already cluttered media company sites does little to move the rock for advertisers, and that’s the problem. People may “see” local ads on, for example, Yahoo email pages — and they may generate leads and sales — but the evidence that local advertisers don’t need expensive media company ads cannot be ignored.

This is why we feel so strongly that local media companies desperately need to be moving resources to the creation of new value for themselves, value that is not associated with ad-supported content models (See: Flat is the new up below).

The Yahoo Consortium is a very, very important deal for everybody involved, and I’m not trying to throw cold water on the possibilities it offers. Targeted advertising IS an important part of our Local Ad Network concept, and the Yahoo software may play a role in that downstream. Banner ads may be more visible on non-media sites, but we don’t have any research on that, because local ad networks simply don’t exist yet. That will change, however, so stay tuned.

Nothing “local” about the Yahoo! Consortium

What’s good for Yahoo isn’t necessarily good for the newspaper consortium, and so I read with interest the press release from Yahoo touting the milestone of driving “100 million visits to consortium member web sites.” This milestone, while seemingly significant, is a net positive only in the sense that Yahoo can move pure eyeballs to the newspaper sites, but the point of local media is to garner LOCAL eyeballs.

IBS has had a distribution arrangement with Yahoo for years for local news created by its partners, and Yahoo has similarly been able to deliver visits from outside the markets these stations serve. The GM of one large market station — an IBS client — once told me that during a month when there was a major news event in his market, 70% of the traffic to his site came from outside the market. “I can’t sell that to local advertisers,” he said.

So while this consortium of newspapers and Yahoo pat each other on the back, I simply ask, “What’s the strategy here?” Inevitably, it’s an archaic pageview strategy that suits the network and Yahoo in terms of national and perhaps regional sales, but it’s a net liability for any of the members’ local media efforts. I’d be a fool to turn away national ad dollars, but my concern here is the extent to which this lulls the staff into thinking they’re actually doing anything. Moreover, the inventory crunch is significant, and one that demands more, more, more in terms of page views.

Since the beginning of this, I’ve been on the record as saying the consortium benefits Yahoo far more than it does the members. Now that the first year glow of HotJobs has worn off, I wonder if others will begin seeing it the same way.

What does Yahoo’s deal with the devil mean to the consortium?

Two of the top tech observers are drumming a death march for Yahoo in the wake of yesterday’s big announcement that the company had struck a search advertising deal with arch-enemy Google. Michael Arrington of TechCrunch and Om Malik of GigaOm both think the company has shot itself in the foot (or worse). Arrington:

The deal terms announced with Google appear to be fairly innocent — a non-exclusive arrangement that let’s Yahoo take Google’s ads if and when they choose to, and put them alongside their own ads, and/or other third party ads. But the truth is that this will cause even more advertisers to flee Yahoo’s platform. Which will drive auction-determined ad rates down. Which will drive Yahoo to take more Google ads. Which will…

It’s a vicious cycle and they will have no choice, as a public company, but to rely more and more on Google as time goes on.

Malik echoes Arrington’s feelings in his typically colorful way:

I think this is yet another critical blunder by a company that lost its way back three years ago when then CEO Terry Semel lost interest in the company, putting it on a path of mediocrity. Of course, as one of my gurus once said, in hindsight, everyone is an idiot (or a genius).

And while that might assuage the short term concerns Wall Streeters have, the company is shooting itself in the face with deal. It is a almost like knowing your spouse is going to divorce while standing in the aisle, waiting for the priest.

Arrington went on to argue that this deal hurts more than just Yahoo; it hurts everybody in Silicon Valley, because competition in the search space means better value for publishers. It’s hard to argue with that, but his blind spot — and frankly that of all Valleyites — is their failure to understand the potential for competing with Google at the local level. And to that, I’ll say, “We’ll see.”

For members of the Yahoo newspaper (and TV) consortium, this deal is likely creating some serious stomach churn. The long-term value prop for local media is Yahoo’s reach, which is a tricky beast that has a lot to do with brand and the fickle happiness of users. It’s hard to believe the company can keep up with the relentless pace of web development when it’s struggling with revenue problems downstream. As I have said all along, Yahoo needs the local media companies a whole lot more than the local companies need Yahoo, and this deal makes that even clearer.

So what the deal with Google means is uncertainty but probably not enough to disrupt the relationship at this point.

But the one certainty that the Web brings is change, and I’d be a fool to predict where this is all headed. I will repeat, however, that online revenue growth is guaranteed at the local level, and that the real competitor of all local media companies is Google, the company that Yahoo just snuggled up against.

Mark Cuban wants to take on Google (via Microhoo?)

Stay with me here.

Carl Icahn has done his hostile deed in an attempt to take over Yahoo at its annual meeting next month, offering up a slate of directors for shareholder consideration. Michael Arrington at TechCrunch has the details, including the letter from Icahn to Yahoo Chairman Roy Bostock. Icahn personifies the word “colorful” in his thoughts about the “botched” Microsoft-Yahoo merger.

I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

That last thought is significant, especially because Mark Cuban is one of the directors that Icahn wants on the Yahoo board. The always outspoken — and often controversial — Cuban is no friend of Google and is thinking out loud about how to beat them (with his Mahalo, Cuban has a considerable dog in the fight), prompting John Battelle to note that Cuban “is clearly drinking and blogging again.” That’s because Cuban’s Microhoo strategy is a doozie: “What would happen,” Cuban asks, “if MicroSoft or Yahoo or a MicroHoo went to the 5 top results for the top 25k searches and paid them to leave the Google Index?” He reasons that at $1,000 a site and 100,000 sites, “thats only $ 1 Billion Dollars.” (sic)

Battelle rolls his eyes and invites Cuban to try:

One big problem: No one would do it. Well, some would, but assuming that folks would be willing to be paid to screw over Google assumes folks 1. have no soul and/or 2. hate Google. I pray that for most folks, #1 is not true, and Google prays that for most folks, #2 is not true. So far, I think we’re both right.

But hey, Mark, you have the money! Why not find out?!

Carl Icahn is a smart and colorful fellow who’s making a hard run at this (and getting a ton of attention for it), but by putting Mark Cuban on his Yahoo wonder board at the precise moment Cuban is talking about paying people to leave Google’s index boggles the mind.