2011-03-14 Bi-weekly insights into the online publishing business

Intelligence Report - 03/14/2011
By Mark Glaser & Corbin Hiar




Daily deals craze spreads to NY Times, Google, YP.com

There’s money to be made in daily deals, so media and technology firms of all stripes are rushing to grab a piece of the booming market. Groupon, which popularized the widely replicated business model, recently saw its worldwide fourth quarter revenue surge to $760 million — more than 20 times the amount it brought in during Q4 of 2009. According to market research firm BIA/Kelsey, this kind of growth in the U.S. will continue at least for the next four years, when it predicts that American spending on deals could reach as high as $6.1 billion. This has led to a flourishing secondary market for unwanted coupons, notes the Boston Globe’s Beth Teitell. Struggling legacy publishers are also trying to get a foothold in the deals market. The New York Times is following the lead of many of its smaller competitors by rolling out TimesSelect — an upscale, Gilt Group-type of daily deal. ClickZ’s Christopher Heine notes that the Times’ system was built by Group Commerce, a new daily deals white-label platform that is also being used by the Meredith Corp. Instead of launching a Groupon clone, Axel Springer, the publisher of Bild and other German titles, spent an estimated $40 million to buy nearly a 75% share of Germany’s popular kaufDa daily deal service. Most commentators cheered the moves, but GigaOm’s Mathew Ingram asks, “Why did it take so long for newspapers to copy Groupon?”

While the Times and other papers are entering the market, competing services are making deals mobile. Microsoft has teamed up with local deals aggregator The Dealmap to show nearby offers in its Bing search results. Google, which last year tried unsuccessfully to buy Groupon for $6 billion, had already announced plans for its own mobile search-enabled deal system, Google Offers. Wireless service provider AT&T is also getting into the mobile deal space via its website YP.com, which was previously YellowPages.com. Dow Jones’ Roger Cheng notes that, while YP.com may lack buzz, the site has 30 million visitors per month and its mobile app is loaded on 40 million cell phones. “It also employs 5,000 salesmen — the largest local sales force in the country — allowing it to potentially garner more attractive discounts,” Cheng writes. AT&T is also beginning an opt-in location-based marketing service called ShopAlerts in select major cities. Location-based services are also getting into the deals business. Check-in service Gowalla is planning to announce the details of its so-called Rewards platform at the SXSW conference in Austin. Location-based game platform SCVNGR is offering a spin-off deals game app LevelUp. And — not to be outdone — Groupon’s biggest competitor, LivingSocial is offering Instant Deals, a short-term, mobile-only deals service that has a mapping feature similar to that offered by Bing-Dealmap.


iPad 2 helps Apple lead Android in tablet wars

As with smartphones, the battle in tablets seems to be shaping up as a two party contest with Apple in the lead and Google coming on fast. Apple took commanding control of the tablet market last year, with the launch of the first generation iPad. In the months that followed, manufacturers rushed to market tablets powered by the open-source Android operating system that Google created for smartphones. Imperfect iPad alternatives like the Samsung Galaxy Tab ate away at Apple’s market dominance. How much they’ve succeeded is in question, say analysts at the blog AAPL Orchard. “Strategy Analytics showed iPad’s market share at 75% in 4Q10 and falling fast,” the blog notes. Now, with Honeycomb — Google’s tablet-specific Android OS — ready to go, Motorola released the Zoom, which the Wall Street Journal’s Walter Mossberg called, “the first truly comparable competitor to Apple’s hit iPad.” The new iPad 2 is not as revolutionary as its predecessor but it does offer improved features and performance — thinner, lighter, faster, and with rear- and front-facing cameras — all at the same price. The new device is a big setback for Google and tablet-makers running Honeycomb. The Wall Street Journal’s Don Clark notes that, according to component cost estimates by research firm UBM TechInsights, the Xoom will only cut into the profit margins of iPad 2 and cannot compete with it on price alone. Investors responded accordingly, causing Motorola’s share price to drop 6 percent in the week following the iPad 2 announcement. Compounding the problem for Google are questions about the stability of Honeycomb.

So what does all this mean for publishers? The simple answer is: prioritize the building of apps for the iPad. A growing number of consumers and advertisers will likely be lining up to pay for access to well built apps that creatively showcase the top content. Plus, research from Affinity suggests that publishers may actually be able to charge advertisers higher rates than for other digital offerings. “The average percent of readers reporting that they visited an advertiser's website as a direct result of an iPad ad was almost twice as high as ads in print,” said the Affinity report, noted by Ad Age’s Nat Ives. Other studies have found similar results. But this could be due to the novelty of iPad editions, Ives cautions. More novelty may be on the way, according to Ives’ colleague Kunur Patel. The iPad 2’s camera could enable augmented reality advertising and the iPad 2's increased computing power will enable more powerful web app ads and increased use of video. Hearst president David Carey predicted that tablet sales could account for up to 30 percent of magazines’ circulation in the next five years or so, reports paidContent’s David Kaplan. In that time, Carey hopes a legitimate Apple competitor — in both tablets and app sales — will emerge. “For the iPad 2, don’t get your hopes up too high,” one Apple staffer told Cult of Mac’s Leander Kahney, “the third-generation iPad is the one to make a song and a dance about.” That model is reportedly “on track for release later this year,” Kahney writes.

Facebook infiltrates web with messaging, comments, video

It's nice for Facebook to be the dominant player in social networking, but it has designs on much more: being the dominant player on the web. First, the social networking giant bought group messaging start-up Beluga, a company that GigaOm's Om Malik suggested Google should buy to counter the growing influence of Facebook in communication. The purchase of Beluga provides Zuckerberg with both talent and technology, says TechCrunch’s MG Siegler. Beluga’s founders — three ex-Googlers — will now join the expanding ranks of Google defectors Zuckerberg has hired away. And the app’s unique, BlackBerry Messenger-like chat options will bolster the technology supporting Facebook Messages, which Zuckerberg wants to make an all-purpose cross between email, text, and chat. Plus, Facebook announced a revamped Comments plug-in, letting publishers swap in Facebook comments for Disqus or their own home-grown commenting systems. The advantage? Users can share comments in their news feeds, bringing in even more traffic for publishers. Finally, Facebook announced a trial agreement with Warner Bros. for streaming movie rentals at $3 each. “Imagine that Warner Bros. and Facebook make it so you can not only watch [movies] in Facebook, but clip, share, and comment on specific scenes or moments,” says Forrester's James McQuivey on the company blog. “That would immediately give it viral power."

The upgraded Comments plugin is having an immediate impact on sites testing out the new system — among them, GigaOm and TechCrunch. The need for commenters to log in with either a Facebook or Yahoo profile has greatly reduced the anonymity of online commenting and, likely as a result, the number of comments on most sites testing out the Facebook plug-in. In a blog post about the change, Siegler complained that TechCrunch’s comments had for too long been “a cesspool.” Facebook Comments has weeded out many of the trolls, but the site’s management is still uncertain if it will stick with Facebook’s system, which has dramatically reduced comments and drawn the ire of many of commentors for its closed, restrictive nature. “The off-network spread of Facebook’s identity graph is parasitic for the web,” writes blogger Steve Cheney, who notes that commentors might not feel comfortable sharing the same third-party comment with their grandparents, ex-girlfriends, and hundreds of other Facebook friends. “Unfortunately, it doesn’t surprise me why this is happening,” Cheney explains. “The carrot here for content sites is clear: Even with a lower volume of comments the potential viral effects and [click-through rates] are something parent sites like AOL are surely extrapolating.” The implications are potentially greater for the video-streaming deal. If Facebook offered users the choice of subscription, premium, and ad-supported viewing options, “it would be the first online video solution that could compete directly with cable,” predicts Forrester's McQuivey. But Gizmodo’s Sam Biddle worried that Facebook is losing it sense of purpose and, by trying to bring every web action inside its walled gardens, forgetting the lessons of AOL. “Over a decade after the web portal stopped making sense, Facebook is trying to assemble itself, like some ill-conceived Voltron, into the next,” he warns.


Online Ad Roundup: Happy days are back; video 'cost-per-view' metric

After a few quarters of cautious improvement, the advertising industry is finally ready to celebrate its revival. Nancy Hill, CEO of the American Association of Advertising Agencies, opened the group’s annual conference with what she called “hard-core, positive, yes-our-industry-has-survived-and-is-robust news.” And it's not only ad agencies that are benefiting from the recovery. Publishers and tech companies have found innovative new ways to profit from online advertising. CBS Interactive, Forbes, and other publishers have cut out the middlemen at third-party ad networks by setting up their own exchanges to sell remnant ad space. “The publishers that are setting the ground rules right now are making higher CPMs,” Forrester analyst Michael Greene told the New York Times’ Tanzina Vega. Greene estimates that publishers who have their own exchanges can increase the CPM from around $1 to up to $5. In advance of its upcoming initial public offering Skype, too, is wading into online advertising. The decision to accept banner ads could bring in $200 million a year, according to a conservative estimate from Fortune’s Jessi Hempel. And Ad Age’s Robert Hof highlights Google’s efforts to cash in on the hyper-local ad market with sales reps and new ad formats like Tags, “which for $25 a month lets merchants buy a yellow pushpin on Google.com and on Google Maps highlighting their location.”

But with this flurry of innovation come new questions and concerns. Some industry watchers are asking if, with the shift to more video, impressions alone are still the best way to measure ad effectiveness. Writing in Ad Age, the CEO of TubeMogul and a YouTube senior product designer explain their support for a new metric, "cost per view." “A ‘view’ would be counted for video ads watched through pre-roll ad selectors, completed pre-rolls that offered the viewer an option to ‘skip,’ or in-banner video ads that users click to watch. An ‘impression’ would be logged for all other video ads," the executives explained. While the IAB is considering this metric, it has already given its endorsement to six larger ad formats “in an effort to lure more lucrative brand advertising to the web,” writes Ad Age’s Edmund Lee. IAB also officially retired 11 of the 18 standard units it endorses to make placing ads online simpler and easier for marketers. The IAB is also coordinating its efforts with other industry bodies to unify online and TV metrics like the proposed "cost per view" and to draw up new metrics for mobile web ads.


Forrester: Mobile app market to hit $38 billion by 2015

The amount of money to be made in mobile continues to surprise even those who work in or research the field. Take for example Square, a mobile payments startup founded just over two years ago in February 2009. At the beginning of March, the company’s co-founder Jack Dorsey announced via Twitter that, “as of today @Square is processing more that $1,000,000 a day.” It’s a good time to be involved in mobile payments. E-commerce as a whole is booming, according to a recent study by Forrester research. As Mashable’s Lauren Indvik reports, the rise in tablets, daily deals, and digital media downloads helped online shopping grow 12.6 percent in 2010 to $176.2 billion. By 2015, the Forrester expects the market to be worth $278.9 billion. The app market will account for $38 billion of that, says another Forrester study cited by the New York Times’ Nick Bilton.

This is a remarkable increase for the fledgling app market, as Forrester analyst John McCarthy explains in a blog post accompanying his report. “The shift to the mobile App Internet disrupts basically everything you thought you knew about building, delivering, and managing applications,” says McCarthy. “It will also dramatically impact how traditional software is sold and delivered. Every part of the IT delivery system will be affected by these tiny tools we call apps.” Drilling further into the e-commerce figures, McCarthy’s Forrester colleague Sarah Rotman Epps notes that “tablet devices alone will generate $8.1 billion in global app sales in 2015.” With $38 billion flowing into the app market by 2015 expect a lot more app stores, says GigaOm’s Ryan Kim. “That’s a staggering sum, considering Apple’s App Store has generated a little less than $3 billion since it opened in July of 2008, with developers taking $2 billion so far,” Kim writes. “But it shows there’s a lot of optimism in app stores.”

eMarketer: Facebook leapfrogs Yahoo in display; Google dominates search

For the first time, Facebook is expected to top Yahoo in the online display advertising market. Growth is expected for both Internet giants, but more — much more — at Facebook, says eMarketer. The social network’s 80.9 percent growth in display ad revenues, to $2.19 billion in 2011, will give Facebook a 21.6 percent share of the market. Yahoo is still expected to have its revenues increase 16 percent this year, but that’s only enough to move its share of the market up 0.3 percent from 2010 to 16.4 percent. Adding insult to injury, the research firm also predicts that the display ad revenues of Google will also surpass Yahoo next year. “What that leapfrogging trend confirms is the strong demand among brand marketers for online display ad placements,” said David Hallerman, principal analyst at eMarketer on the company blog.

Likewise, search leader Google will continue its upward growth trajectory. Google will put even more distance between it and Microsoft, the second place contender in the search market. Revenues from Microsoft’s Bing search engine grew 47.4 percent to $1.26 billion in 2010, according to eMarketer. The researchers predict that Microsoft’s search revenue growth will slow to only a 16.4 percent increase in 2011, which will bring in $1.47 billion in revenue. Google’s search ad revenues will grow at a similar clip, 15.7 percent, which will be worth $10.2 billion and push its control of the market from 71.4 percent in 2010 to a full three quarters at the end of the year. Yahoo and AOL are increasingly being relegated to also-ran status in the search race. eMarketer predicts that “Yahoo and AOL will experience a steady but slowing decline in market share” between now and 2012.

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Of Note

House Panel Votes to Overturn FCC’s Net Neutrality Rules (The Wrap)
The Republican-dominated Commerce Subcommittee on Communications and Technology voted 15 to 8 block the new regulations

@ Media Summit: AOL’s Armstrong: Layoffs Today, Hiring Tomorrow (paidContent)
Some 900 jobs have been cut, but there are plans to expand hiring at the Huffington Post

LinkedIn Is About To Make Headlines (TechCrunch)
Business social networking site to curate news based on stories shared in a user's network

Karl Rove: Political Campaigns Go Viral (Wall Street Journal)
GOP strategist predicts that the 2012 elections will be largely fought and won online

No More Digital Discount: Conde Nast Raises Prices For Two iPad Magazines (MediaMemo | AllThingsD)
App prices rise to match newsstand cover prices for GQ and Vanity Fair.

Apple Takes Big Bite Out of Digital Subscriptions for Small Mags (PBS MediaShift)
Smaller magazines are holding off on digital editions and mobile apps because of the big 30% cut taken by Apple


openquoteI no longer think it’s worth arguing whether journalism is getting ‘worse’.... I now think it’s worth facing the inevitability of the shift to infotainment and seeing how we can make the best of it.closequote

James Fallows, The Atlantic

Learning to Love the (Shallow, Divisive, Unreliable) New Media (The Atlantic)


The OPA Intelligence Report is a bi-weekly email summarizing and commenting on important news and research for the online publishing industry. As always, feedback is welcome at feedback@online-publishers.org.