2010-12-20 Is Google favoring itself with organic search results?

Intelligence Report - 12/20/2010
By Mark Glaser & Corbin Hiar




Is Google favoring itself with organic search results?

Many websites have thrived on the strength of their Google search ranking. Now the same can be said of the antitrust lawyers favored by the beleaguered tech giant. Although Google was recently cleared of antitrust violations in a ten month investigation by the French government, it is still receiving legal scrutiny from the European Commission and U.S. government. Plus, many smaller sites that compete with some of Google's services have begun complaining about how Google prioritized its own products in its search results. Talking about Google Places, Yelp CEO Jeremy Stoppelman told the Wall Street Journal’s Amir Efrati that the tech giant is using its dominant search engine "to take an inferior product and put it in front of the user." Google contends that its results are formulated “for users, not websites.” Its products are often listed “in the form of 'quick answers' at the top of the page, because our users want a quick answer," the company told Efrati. A bigger concern than bad press is how the legal problems may hamper Google’s growth. A source close to Groupon board members told Business Insider’s Nicholas Carlson “that antitrust concerns ultimately forced Groupon to turn down Google's $6 billion offer.” Like AdMob, which was promised $700 million if Google’s $750 million offer was blocked by regulators, the social shopping start-up was reportedly demanding a similarly generous kill fee.

In a broader sense, EU regulators are looking into Google's dominant search and ad business. Lawyers and bankers say Google has reason to be worried. Guy Lougher, a partner on the EU competition team of law firm Pinsent Masons, told Reuters that the inquiry is "starting to look horribly like a rerun of the Microsoft cases," which dragged on for a decade and cost the software firm 1.4 billion euros in fines alone. “It is possible that Google could face a large fine, or be forced to be more transparent with its ranking and quality score algorithms,” said Mark Mahaney of Citi in a research note published by the Business Insider. Back in the states, Google is facing an uphill battle to convince regulators to sign off on its proposed $700 million acquisition of ITA Software, the leading provider of software used in online searches for airline flights. Google plans to set up its own travel-search tool to compete with the likes of Kayak.com. And all of this is in addition to the privacy investigations Google is facing due to what it claims was the inadvertent collection of private data from WiFi networks during its Street View mapping project. The Washington Post’s Steven Pearlman notes that the company “boasts a market value of $190.2 billion, a profit margin of 30 percent, and cash and marketable securities on its balance sheet worth $33 billion.” Now if only Google can find more start-ups willing to accept its cash -- and the legal headaches that come with it.


Microsoft, Android set sights on popular iPad

It has been less than a year since the iPad established the tablet computer as a content platform that publishers and tech companies ignore at their own peril. While newspapers and magazines have been quick to roll out iPad versions of their content, many gadget makers are still scrambling to catch up with Apple’s market-leading device. Bill Gates debuted the first tablet PC nearly a decade ago, but it failed to catch on. Now the New York Times’ Nick Bilton is reporting that Microsoft is jumping back into the tablet market by encouraging manufacturers to build devices running its Windows 7 operating system. “The company believes there is a huge market for business people who want to enjoy a slate for reading newspapers and magazines and then work on Microsoft Word, Excel or PowerPoint while doing work,” a person familiar with Microsoft’s tablet plans told Bilton. Both bankers and bloggers doubt it can capitalize on the market. Google’s Android OS is likely to prove a more fearsome competitor for Apple’s market share. Both the iPad and an unnamed Motorola tablet will be available in Verizon stores. And, if the so-called Honeycomb update to Android proves as popular on tablets as it has on mobile phones, there could soon be a whole host of other Google-powered devices for sale opposite the iPad.

Meanwhile, sales of the iPad show little sign of tapering off. eMarketer estimates that Apple will have sold 8.5 million iPads in the U.S. by the end of this year for control of 88% of the domestic tablet market. Next year, eMarketer predicts that the number of iPads sold will increase 127% to almost 20 million. And by the end of next year, these devices will account for more than 2% of all North American web traffic, according to researchers at ad network Chitika. At the moment, the iPad already accounts for nearly 1% of the traffic on its network, a figure Chitika believes to be broadly representative of the industry at large. eMarketer says that Microsoft, Google, RIM and others will reduce Apple’s dominance of the U.S. market to only 74% by the end of 2012 and even more abroad where the iPad features many unbranded “white box” tablets. While all of this is certainly good news for Apple and its competition, it is not yet clear how beneficial it will be for the print publishers. A recent study from the Missouri School of Journalism found a statistically significant increase in newspaper print subscription cancellations among readers who had just purchased an iPad.

Gawker, WikiLeaks-related hacks a wakeup call

Just as diplomatic communication will be profoundly altered by Cablegate, the WikiLeaks disclosure of hundreds of thousands of State Department cables, so too will online media be changed by the hacking of Gawker Media. The release of some 200,000 email and password combinations belonging to members of Gawker’s vibrant commenting community, details of the site's forthcoming redesign, and even the code underpinning the site’s proprietary content management system represent what the New York Observer’s Nick Summers calls “the biggest security breach of a media site ever.” How did it happen? Gawker was targeted by a hacking collective known as Gnosis, which was initially thought to be from the WikiLeaks defenders Anonymous. A Gnosis member told Mediaite’s Colby Hall that the group decided to attack Gawker “because of their outright arrogance.” While the two groups have been confused and conflated by some, there are important distinctions between them. Anonymous, a group of some 9,000 anonymous members, operates entirely out of the public 4chan chatroom and disabled the websites of Visa and Mastercard using a voluntary botnet system that sent distributed denials-of-service messages to overwhelm the sites’ servers. Gnosis is a much more tightknit and dangerous group. No one -- including the FBI, which is now looking into the case -- is entirely certain how they pulled off the breach, how long they were inside Gawker’s system, or what information they still may have. And most unnerving of all, one member told The Daily Beast’s Brian Ries that “everyone is fair game on the Internet, in my opinion.”

What do these rogue web groups mean for Gawker and other online publishers who may eventually become their targets? First and foremost, sites must upgrade their security. Writing for Forbes, data security expert Daniel Kennedy notes that “it seems clear they do not have a good information security person on staff or that they can call.” There were a number of clues left by Gnosis -- randomly changed passwords, a hacked Twitter account, etc. -- that Gawker ignored. Kennedy says that a better security team “would have been able to view the entire landscape and put all of these problems together as being fruit of the same tree.” Gawker Media founder Nick Denton seems to have gotten that message. Business Insider’s Glynnis MacNicol points to one of hundreds of comments Denton left across the Gawker ecosystem in the days after the breach where he promised to hire "horrendously expensive security consultants." It is likely money well spent. “As more and more media moves online -- and trends toward a more social news experience -- trust is of the essence,” writes Forbes’ Chris Barth. “Gawker Media has a tightly integrated commenter community on nearly all of its sites, and will likely suffer a significant blow to the brand as users think twice before plugging into commenting systems.” Plus, some Gawker commentors on Twitter have had their accounts broken into and are now automatically spamming their followers with acai berry weight loss ads. The potential for the same thing to happen to users who signed up using government emails may explain the FBI’s sudden interest.

Twitter's new funding values it at $3.7 billion

By nearly any metric, the last year has been a good one for Twitter. It added 100 million users, launched the redesigned “New Twitter” in September, then promoted COO Dick Costolo to chief executive. Now it has concluded a massive round of venture capital funding. The last time Twitter hit up the VC markets was in September 2009 when it raised $100 million on a valuation of $1 billion and had half as many employees and no revenue streams to speak of. Today, it boasts 350 employees, a $3.7 billion valuation and a trickle of revenues from beta tests (Promoted Trends, Tweets, and Products). In addition to a $200 million investment, Twitter also gained access to the experience of storied Silicon Valley venture firm Kleiner Perkins Caufield & Byers, which contributed the bulk of the cash to the latest funding round to get about 4% to 5% ownership of the startup. The microblogging service also added veterans from Netscape, DoubleClick and Flipboard to its board. These investors and advisers were likely impressed by the growing use of Twitter by online Americans. A recent survey from Pew Internet found that 8% use Twitter. That comes to a total of some 18 million, according to calculations by The Atlantic’s Alexis Madrigal. As Business Insider’s Nick Saint points out, that’s a far cry from the 65 million U.S. users claimed by Twitter (a number likely inflated by multiple and abandoned accounts).

The only metric where Twitter is still lacking is in the revenue column. While it has money coming in, it is still unclear exactly how it will recoup its investor’s money. And Twitter isn’t offering any specifics on its plans. In a company blog post announcing the funding, CEO Costolo simply wrote that “additional resources and expertise will be extremely helpful as Twitter continues to grow as a company and business.” Sources tell AllThingsD’s Kara Swisher that it “is moving fast to upgrade its management and business model.” GigaOM’s Om Malik says that’s a good idea. Twitter “needs to spend on scaling its business and at the same time solve the quandary of a business model,” Malik writes. “It hasn’t quite figured out where its sales (and profits) are going to come from.” One idea noted by Mashable’s Stan Schroeder is to create an online marketplace for buying and selling Twitter products. “Twitter’s new advertising center still isn’t a turn-key solution for buying ads,” but it could be down the road, Scroeder says. New content partnerships that will allow Twitter to display media from blip.tv, Rdio, an


Newspapers, mags, Facebook winners in online ad surge

It might sound odd, but the recession might be a boon for online publishers. eMarketer analyst David Hallerman points out that the still weak recovery is benefiting online publishers: “Marketers’ economic concerns are leading them to spend more for online advertising,” he said. For the third time this year, eMarketer has been forced to upwardly revise its annual U.S. online ad revenue estimate. A year ago, it predicted 5.5% growth in 2010, by May it was saying 11% and now the research firm is settling on a 13.9% annual increase. That will bring online ad revenues up to $25.8 billion this year. The revenue growth is expected to continue at a double-digit rate for the next three years reaching $40.5 billion by the end of 2014.

Plus, the Newspaper Association of America released its third quarter results, which show that online ad revenues continue to grow by double digits. Newspapers in the trade group on average drew more than 11% of their Q3 revenues from online ads. The percentage is even higher at healthier companies like McClatchy, where websites are expected to bring in $190 million in revenue in 2010 -- that’s a whopping18.2% of the advertising total. The Atlantic Media Company also made waves recently when it announced that, on the strength of strong digital revenues, it would make an annual profit this year -- the first in over a decade. The $6.1 million they made from online ads represents nearly 40% of the company’s overall ad take. And no conversation about the growth in online ads would be complete without mentioning Facebook’s stunning revenue growth. It is now projected to earn more that $2 billion from advertising and virtual currencies. That’s over double the $800 million it brought in last year.


Burst Media: Mixed response to targeted ad messages

With more and more ways to track Internet users across the web, marketers have increasingly sought to tailor their messages to individuals by following their digital trail. And most consumers seem to be all right with the added attention. According to a new study by Burst Media, 78.2% of consumers have taken notice of these targeting efforts. While 34.2% of the 1,600 adults surveyed last month did not appreciate being individually targeted, 27.7% enjoyed the so-called “dynamic ads” and a plurality of 38.1% said they had no opinion at all. Even among the third of adults who opposed targeting, their objections are more procedural than philosophical. The top two complaints respondents cited were that the ads were "annoying and distracting" (54.9%) or that the ads featured products they had no interest in (38.2%). By comparison, 33.4% said ad targeting infringes on their privacy and another 27.5% didn't like how the ads followed them around the web. These findings suggest that, if used carefully and effectively these new targeted ads could become a widespread, accepted part of the online experience.

Online marketers need to not only win over the public, but avoid regulation if targeted ads are to become commonplace. Congress is currently considering a Do Not Track registry that could cripple the nascent ad product if it were to come into being. But as paidContent’s David Kaplan points out, these discussions have been occurring in the halls of Washington for years now. And the markets don’t seem to take them very seriously. Web ad targeter Media6Degrees just raised $17 million in venture capital backing. AllThingsD’s Peter Kafka notes that a Do Not Track registry could cripple the ad company’s business model, “but we’re a very long way from that kind of change. And the startup’s investors seem to be betting that it’s never going to come.”

Of Note

Forrester: Time Spent on Internet Is Equal to TV (Adweek)
Time spent online grew 121% in past years; not all of it is leisure

M&A Related To Ad Industry Should Rise In 2011 (Online Media Daily | MediaPost)
Convergence of media and technology industries is expected to drive growth in 2011

Why the Nexus S has NFC - Go0gle Places windows stickers are NFC enabled (TheNextWeb)
Near field communication communication stickers will allow mobile users to easily rate places in Hotpot

Yahoo to Shutter Products, Consolidate Others (NetworkEffect | AllThingsD)
Delicious, AltaVista, and Yahoo Buzz set to be phased out to save costs

J-Schools Shift from Learning Labs to Major Media Players (PBS MediaShift)
Perhaps the most striking change for journalism schools is the degree to which they have shifted from being learning to being producers of journalism in communities

Blogging Seems To Have Peaked, Says Pew Report (ReadWriteWeb)
Only half as many teens today blog as did in 2006; social networking is largely to blame


openquoteSocial media will help us to move past the stereotypes we associate with gender. It allows us to escape our demographics.... When you look online at the way people aggregate and organize, it's not around age. It's around interests.closequote

Johanna Blakley, the deputy director at the Norman Lear Center

Social Media and the End of Age, Race and Gender (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.