2010-11-22 Facebook vs. Google in messaging, data-sharing war

Intelligence Report - 11/22/2010
By Mark Glaser & Corbin Hiar




Facebook vs. Google in messaging, data-sharing war

Facebook was recently valued at an eye-popping $41 billion, making it the third most valuable web company. But it is obviously not content to be in third place, setting its sights on No.1, Google. The search giant recently accused Facebook of "data protectionism" because Facebook won't allow users to export their contacts to other services. Google's reaction to that? It won't let users import their Gmail contacts directly into Facebook. You still can download your Gmail contacts into a spreadsheet and then upload that into Facebook but it takes more effort. Google says it will only allow exports into services that reciprocate, something Facebook has notoriously avoided. Once your contacts go into Facebook, the social network doesn't want them going out. Facebook responded by taking aim at Gmail itself with its new Messages feature. This update to Facebook’s existing email system, which is being rolled out to all users in the coming weeks, helps people prioritize messages from friends and family. Users will receive an @facebook.com account, accessible from any device and will be able to receive messages from any email, text, or chat platform. Facebook CEO Mark Zuckerberg hopes Messages will encourage users to spend even more time on the site.

Will the feature help Facebook unseat Google as the web’s most valuable and influential company? Messages has no “off the record” feature and nothing to compete with Google Voice, the service which allows Gmail users to call directly from their email. Google also bolstered its mapping product with a new local search recommendation engine Hotpot, a feature Facebook’s location-based Places feature is currently lacking. But as the Internet becomes a more social place, Google’s lack of access to the content of the world’s largest social network is a serious handicap in search. Its most serious search rival, Microsoft’s Bing, does not have the same restriction. Microsoft, which has a stake in Facebook, recently signed a search deal with the social network. In another strategic blow, Facebook’s Messages teams up with Microsoft to seamlessly display Office documents without leaving the site. Meanwhile, Google is pursuing the much smaller Lotus Notes email system to bolster its Gmail and Docs offerings. Messages may not be the “Gmail killer” some hyped it as, but it will likely reduce the amount of time users spend in Google’s system of sites. As email experts told ReadWriteWeb’s Mike Melanson, Messages is a “feature that will be sticky among the younger, Facebook generation and will decidedly change the way we communicate.”


Can Newsweek-Daily Beast merger bring profits?

It has been said that marriage is the triumph of hope over experience. Never has that been more true in the publishing world than in the partnership of Sidney Harman’s ailing print mag Newsweek with Barry Diller’s popular, precocious website The Daily Beast. Their courtship was a long and difficult one. Harman, who rescued the 77-year-old newsweekly from possible extinction three months ago when he bought it for a dollar, had been looking for a new editor ever since. When he first approached Tina Brown -- the Beast’s star editor, who had previously reinvigorated the brands of Vanity Fair, the New Yorker, and Tattler -- Harman thought he might have the woman he needed to turn around the fortunes of Newsweek. Harman’s magazine was over $40 million in the hole when he bought it and is on track to lose half as much again by the end of the year. Sweetening the proposal for Brown’s boss Diller, who is CEO of Daily Beast parent company IAC, was Newsweek’s 1.5 million print subscribers. Diller hoped the additional revenue potential of a print product could push his two-year-old website out of the red (the Beast is expected to lose $10 million in 2010) and into profitability, much as the ad dollars for Politico’s free DC newspaper support its upstart web operations.

So will the partnership work? As The New York Times' David Carr observes, “nuptials that grow out of broken engagements seem particularly fragile, and there is a kind of shotgun aspect to all of this.” Carr goes on to point out that the deal makes little financial sense and “marries two properties that have almost nothing in common other than the fact that they both lose lots of money.” The Wall Street Journal’s Shira Ovide points to the bad track record of media mergers, especially when there’s no clear leadership. That confusion was already on display when Stephen Colvin, the CEO of the merged Newsweek Daily Beast Company, gave Newsweek.com a premature obituary in an interview The New York Times. Concerned employees mounted an online campaign to save their award-winning site (and the jobs it provides). Brown, who is now editor of both sites and the magazine, took to Twitter to correct Colvin, which was confirmed by a spokesperson’s email to the Times: "The [Newsweek] URL will redirect to thedailybeast.com, which will carry content from Newsweek married with Daily Beast content." Some commentators do share the newlyweds’ optimism. Slate’s Jack Shafer thinks the reinvigorated Newsweek can separate itself from the newsweekly competition “by becoming more combative, more outrageous, more judgmental, and more wicked than the others."

Obama administration pushes for online privacy

Various U.S. government agencies and Congress have been examining the issue of online privacy for years, but have largely allowed the private sector to police itself. That could change soon, with two dueling reports about to come out from the FTC and the Commerce Department. The New York Times reports that “the two agencies have even tangled over which will release its report first, a decision that could set the tone for the clash to follow.” Anonymous sources told The Wall Street Journal’s Julia Angwin that “the White House has created a special task force that is expected to help transform the Commerce Department recommendations into policy.” In addition to weighing advice from two agencies and the president, lawmakers must also take into account the efforts of EU regulators to strengthen online privacy. No discussion of the political process is complete without examining the viewpoints of industry and privacy advocacy groups. By and large, consumer organizations are cheered by the new focus on privacy, but have concerns about the agencies' support for self-regulation programs. As the Journal’s Angwin notes, “privacy advocates will be reluctant to back legislation that lacks enforcement and is perceived as toothless.”

Online advertising groups are fiercely opposed to even an opt-out registry for consumers who do not want to be tracked online, modeled on the “do-not-call list” for telemarketers. “You simply can’t just turn off tracking,” the IAB's Mike Zaneis told the Times. “We believe we are living up to consumer-privacy expectations and are very advanced in privacy protections and innovation," he told the Journal. At the same time, other industry groups have been testing new icons, which alert consumers that they are being tracked and actually give them the opportunity to opt-out of tracking. The opt-out features, however, do not apply across the web but rather only a site-by-site basis. Talking about its study of privacy icon technology for the Digital Advertising Alliance, Better Advertising president Scott Meyer told The New York Times’ Tanzina Vega that the increased “level of transparency and control accrues really positive benefits to the brands that take this extra step.” If there’s one area where industry and advocates could agree, it may be in opposing another measure the Obama administration is quietly taking to undermine privacy while publicly supporting privacy regulations. The New York Times’ Charlie Savage reports that FBI director Robert Mueller recently travelled to Silicon Valley to drum up support for his push to extend the Communications Assistance for Law Enforcement Act of 1994 to include compliance requirements for Internet wiretaps.

Tablet Roundup: Digital newsstand coming; Kindle ups royalties

First came Amazon’s Kindle e-reader. It was viewed as a curiosity before becoming an established content platform. Then the iPad arrived and Apple singlehandedly thrust tablets into the mainstream of consumer electronics. Now everyone is trying to take a piece of Apple’s pie. Amazon’s strategy has been to lower the price of the Kindle to differentiate it from the more powerful, versatile, and expensive tablet computers. Now, just in time for the holiday shopping season, it is wooing publishers to sell more content via its Kindle Store by increasing their share of royalties to 70%. That’s more than double the 30% share it used to offer and applies to newspapers and magazines. Like Amazon, the publishing industry joint venture Next Issue Media has announced it is opening a digital newsstand to compete with Apple’s iStore. Conveniently for publishers looking to weaken Jobs’ vice-grip on the booming tablet market, at first it will only sell content for devices using Google’s Android operating system. Plus, News Corp. has resumed development of its on-again-off-again tablet PC news aggregator Project Alesia. The company is also launching a low-price, tablet-only publication The Daily, which has managed to land some top-notch talent such as the New Yorker's Sahsa Frere-Jones.

PBS MediaShift’s Dorian Benkoil casts doubts on how profitable most iPad apps can be in the short term, but that hasn’t stopped publications from hedging their bets and giving tablets a try. The Economist, the Oprah Magazine “O,” and the Washington Post are the latest marquee publications to launch iPad apps. There will also be scores of new devices on which to consume these new apps. The 7-inch, Android-powered Samsung Galaxy Tab hit markets to generally positive reviews. The Wall Street Journal’s Walter Mossberg called it the “iPad’s first real rival.” Businesses are clamoring for the official release of Research in Motion’s iPad rival, the 7-inch PlayBook. Bloomberg’s Hugo Miller said that “besides adding a revenue source, the PlayBook is a chance for RIM to regain some momentum from Apple, whose iPhone has stolen market share from the BlackBerry and is beginning to win some corporate customers.” CNET’s Brooke Crothers reports that Dell’s netbook/tablet hybrid, the 10-inch, Windows 7 powered Inspiron Duo will be released soon. Together these devices, and many more that are soon to come, will help the tablet market reach 100 million units in 2013, according to Digitimes Research.


IAB: Online ad sales break records; Meeker predicts more

Another quarter, another record-breaking online ad spend. Interactive Advertising Bureau and its research partner, the auditing firm PricewaterhouseCooper, announced that the $6.4 billion in online ad revenues in Q3 was the highest quarterly result since the IAB began monitoring in 1996. That figure is 17% higher than the amount made in the same quarter of 2009 for the best year-over-year growth since Q1 2008, when it topped 18%. The double digit growth in online ads during the first two quarters of 2010 combined to set a half year revenue record. The continued growth after an already impressive quarter “appear to demonstrate that the recovery isn’t running out of steam, despite continued worries about the wider U.S.,” paidContent’s David Kaplan observes. “The recession merely interrupted the momentum of ad dollars from traditional to online. As long as the economy doesn’t worsen, those trends will almost certainly continue,” Kaplan concluded. PwC partner David Silverman predicts that online ad dollars will reach at least $24 billion by the end of the year, which would break the IAB’s yearly record as well.

ClickZ’s Jack Marshall notes that, although IAB did not provide any detail on how the Q3 revenue was generated, “in its half-year report it credited channels such as video and social media with helping to drive growth, as well as increased spend from industry verticals such as travel and packaged goods.” This helps explain the media cost data compiled by syndicated researcher SQAD for MediaDailyNews. The research firm found that since 2009 per unit ad prices “actually deteriorated for national media options, especially online publishers,” MediaPost’s Joe Mandese writes. Facebook is now the leading destination for online display ads, capturing 23.1% of the market. Yet social media sites only managed to eek out around a CPM rate of $0.55, effectively both growing and diluting the market for online ads. On the bright side, the once-and-again “Queen of the Net” Mary Meeker of Morgan Stanley predicts the market still has a long way to grow. In her annual Web 2.0 Summit presentation, Meeker said online sites would see a $50 billion online boom in web advertising as media buyers spending catches up with consumers’ growing consumption of digital content.

One-third of top grossing iPhone apps use freemium model

Like most ideas Wired editor Chris Anderson has, his book "Free" was a bit ahead of its time. While it may have suffered more than its fair share of bad reviews, it is now being proven at least partially correct. Free iPhone apps, which make their money through in-app purchases of virtual goods or other premium features, are hugely represented in Apple’s ranking of top-grossing apps. Analytics firm Distimo found that less than 2% of all apps are free with in-app purchases, yet nearly a third of the App Store’s highest grossing products employ this so-called “freemium” model. Distimo co-founder Remco van den Elzen told GigaOM’s Ryan Kim that he believes in-app purchases now represent 30 percent of all iPhone App Store revenue. The rapid success of the business model, which was only approved by Steve Jobs in October 2009, has been astounding.

According to analytics firm App Annie, at the beginning of 2010, there were just two freemium iPhone apps among the top 50 grossing apps. By the end of October, that number had grown five fold, and now there are some 20 freemium apps among the top 50 grossing apps. (The exact number varies based on the apps available in a given geo-location.) As GigaOM’s Kim explains, “the model works because it gives people an easy way to try an app and then allows developers to up-sell them on added features or in-game currencies, which help users buy things or move the game along.” TheNextWeb’s Tris Hussey agrees noting that “sometimes paying even a little money for an unknown app is something people don’t want to do.” Zynga, the social gaming company that is home to FarmVille, has built much of its $5.5 billion valuation with the freemium model. FarmVille’s director of mobile Jen Herman told the Open Mobile Summit that “90% of revenue comes from in-app purchases.” Although this freemium model has yet to catch on with iPad apps, critics would be unwise to discount Anderson and his theory of free again.

Of Note

Google Offered To Buy Twitter For $2.5 Billion to $4 Billion -- Sources (Silicon Alley | Business Insider)
Microblogging platform is now seeking an additional round of capital with a $3 billion valuation

You Can Now Log in to MySpace with Facebook (Mashable)
In a symbolic victory, its one-time rival has installed Facebook’s third party log-in feature

New York Times restructures its Web newsroom (The Cutline | Yahoo News)
Print and digital teams more closely integrated with web producers reporting directly to their respective news desks

Beyond Facebook: Facebook, Napster Forefathers & A Whole Lot of Investors Launch New Network, Path
Star studded cast of tech vets launch a more personal social network, wh

5 Emerging Trends That Give Hope for Public Media 2.0 (PBS MediaShift)
The people pushing for de-funding public media are missing the bigger story: the transition of this sector to a more innovative and varied set of Public Media 2.0 organizations


openquoteThank goodness that is out of the way; now we can focus on important developments.closequote

Forrester's Mark Mulligan on the Beatles coming to iTunes

Why the Beatles on iTunes Really Isn't a Big Deal (Forrester blog)


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.