virtualeconomics

Optimise what?

The web is shrinking, says Ben Elowitz. Strip out the growth of Facebook and the rest of the web, the "searchable web", shrank by 9% in the 12 months to March 2011.

This is game-changing for publishers, possibly the emergence of a whole new strategy cycle. If all you're doing is optimising pages of content for Google, well...

(1) you're part of a zero-sum game in which every publisher in your category uses the same publicly-available data to chase the same audience as they search on the same keywords;

(2) the stuff you write for Google isn't all that appealing to people so you'll get them through the door and watch them bounce out after they've seen one page; and

(3) that pie you're fighting for a share of is shrinking anyway (hee hee, mixed metaphors are funny).

Learning to be the guy who turned down the Beatles

In a recent post I talked about the media tech bubble ("of course it's a bubble"), hypothesising that the clearest sign of a bubble is that every single IPO is being priced as if it's the next Google...which of course they can't all be. So some brief thoughts on why this might be.

Nobody wants to be the guy who turned down the next Beatles (or the next J K Rowling, or perhaps more germanely the next Google) - every industry has its legendary poor dumb bastard, "that guy" who had the Next Big Thing sitting right across his desk and passed. I've worked on acquisition strategies before with people who seemed more concerned than was entirely healthy that they not be "that guy".

Of course it's a bubble

Marc Andreesen argues it's not a bubble because the big tech companies - Google, Apple - still have sensible P/E valuations and anyway it can't be a bubble if everyone calls it one. Let's look at some counterpoints.

Facebook, Zynga, Zipcar, LinkedIn, Demand Media, Twitter, iwantadoor.com (yes indeed) and yesterday's big story, Groupon.

What makes all these companies signs of a bubble? Everything is priced as if this market has no losers. Everything is priced to win, win big, face no competition, face no meaningful downside risk and not "do a MySpace". 

Maybe Demand Media's CEO doesn't use Google

Google's latest update, Panda, was targeted specifically at content farms.

This isn't ambiguous or in any way contentious. Panda, named after a Google employee but also known as the farmer update, was explictly "designed to reduce rankings for low-quality sites—sites which are low-value add for users, copy content from other websites or sites that are just not very useful", and while the Panda announcement itself was reluctant to use the term "content farm" an earlier blog post by Matt Cutts, Principal Engineer and co-signatory of the Panda announcement, stated that Google was targeting "“content farms,” which are sites with shallow or low-quality content". 

So when Demand Media's Richard Rosenblatt recently told Kara Swisher that "I don’t think anyone has defined what a content farm is and I am not sure what it means either"...that was a very strange claim.

New York Times experiments with perverse incentives

The New York Times paywall (don't call it a paywall? Right...) is a strategic error, and not even a very complicated one.

So there's some science behind it, and the number of articles you can see before you have to pay (20) has been calculated from actual traffic data rather than just pulled out of the air, which is a good start. And it's always good to see a news org putting in some serious R&D, which at $40 million just to develop NYT's paywall definitely counts. It's not as if there's nothing about the move to like - it's considerably more thoughtful and nuanced than TimesSelect or the other, many, failed experiments in charging for (non-porn, non-finance) content that have failed over the past decade and a half.

What's so bad about content farms anyway?

At Techdirt guest blogger Chas Edwards writes that the problem with content farms (and by content farms, let's be clear, we mean Demand Media) is about ownership. "Even if Demand Media keeps most of the money they’re making from their websites, they might dodge the Google bullet if they can improve content quality by giving their contributors a sense of ownership over what they create." 

I think it's about the motive. The desire to create (and share) good content is motivated by knowledge, enthusiasm, passion. The writers on the content farms might occasionally, by sheer statistical accident or serendipity, be asked to write about something that moves them, but generally the motive is pure profit. The farm identifies a content niche that it wants to fill because people are searching on that term right now. The writer gets paid a tiny amount of money for knocking out a few hundred words that are just good enough to fill that need (see here an account of one writer's summer on a content farm). And so, necessarilly, the average content is poor because the motive is poor.

Photo by Steven Ashman on Geograph.

How social search tore aside Google's curtain

There is a growing feeling that Google's search doesn't really work any more - that, not to put too fine a point on it, compared to ten or five or even two years ago Google sucks. Like Arrington, when I used Google for the first time back in 2000 it seemed like magic and I eulogised to others just as if I was sharing a magic trick with them. If two people who knew the Google secret discovered they were talking to one who didn't they shared a happy smile. It was really that good and that impressive and to this day I remember the first ever search my colleague Brendan encouraged me to carry out - "how many turkeys does Bernard Mathews have?" - and the first result - a page from his company's website telling me he had about 13 million of the things. Magic.

Today, what once was magic just looks like a list of content farms, links to Google's own commercial sub-sites and whoever has spent the most on SEO. (They used to be cool but now they're too commercial? Well, maybe sometimes the cliche is true.)

Three things have changed at Google since the days their search results seemed like magic. Two are very well known.

AOL's big bet that advertisers will get a bit (but not a lot) smarter

So AOL buys HuffPo for $315m, valuing (as Chris Tolles points out) their 26m ComScore users at $12 each. We're not (yet) in the Broadcast.com league but it's still an excitingly bubbly valuation at ten times 2010 revenues, five times even management's own 2011 revenue forecast and god knows what multiple of the presumably nominal profitability they claim the site achieved in the fifth year since it launched.

AOL is betting the farm on monetising professionally-created content via display advertising. That's a big bet, but of course for AOL it's not a new one - acquiring HuffPo is simply a continuation of the strategy that AOL has been pursuing since it parted company with Time Warner. Engadget, Politics Daily, Techcrunch and especially Patch are all long bets on paying writers and then serving display ads over the results, and if that's the strategy this is a smart push for more of the same.

Good news for journalism: no way is Demand Media really worth more than the New York Times

When Demand Media floated earlier this week it started out at $17 a share, rocketed on first day trading to a high of $24, and even after falling back to trade around $22 last night its market cap of $1.8bn still makes it worth more than the New York Times. It's that "worth more than the New York Times" bit that evidently set journalists' teeth on edge - if the US paper of record is worth less than a five-year-old content farm, what hope for journalism?

It's neither surprising nor informative that journalists almost universally hate Demand Media and want it to fail. People who make a living from writing and take pride in crafting sentences are hardly disinterested observers of a content farm that treats articles like commodities and has driven down the price of an article to $15.

The good news for journalism is that there is no rational basis for believing that Demand Media is worth more than the New York Times. Looking at the numbers behind the IPO, Demand Media's almost $2bn valuation doesn't make an iota of sense. 

Google now the UK's largest advertising channel by a factor of two (or possibly three)

Yesterday Google mentioned in passing that it made £2.2bn in the UK last year, making it far and away the UK's largest single advertising channel and giving it roughly 50% of the UK online ad market and approximately 12% of the whole UK ad market. 

Google's 4Q2010 results break out, as usual, UK-only revenues and they allow for some interesting comparisons.

Google announced UK revenues of $878m/£582m in the final quarter of 2010, making the company's UK revenues for the full year $3.3bn/£2.2bn. Compare that to the UK's powerhouses of TV advertising - Sky reported ad revenues of £319m and ITV ad revenues of £728m in 2010 (Sky of course makes about four billion in TV subs revenues on top of that).