Tuesday, October 25, 2011

Has Content Become Advertising for Advertising?

This post was also published on CNET.

Since the advent of the Web, online publishers have had to create unique content to attract premium ad rates. Over the past few years, however, a flood of subpar content has seemingly taken over the Web, driven by high-growth sites such as Demand Media and the AOL-owned Huffington Post. These types of sites have enjoyed surging traffic by creating relatively simplistic content, repurposing and "aggregating" premium content, and gaming Google's search algorithm. But this strategy faces a growing backlash and as a result may have hit its natural ceiling, and that could create opportunities for new online-media models.

What makes subpar content subpar? Like pornography, you know it when you see it. Take, for instance, "news" articles that simply paraphrase and quote articles written by journalists, or simple "how to" guides that don't explain much and have no accompanying diagrams, videos or other edifying media.

The primary financial driver supporting subpar content is what's known as "personalized retargeting," where ads follow a users around the web. When you visit Zappos.com, for instance, the site places a cookie on your computer that tells an ad network you were just there. Zappos then pays a premium rate to "retarget"--to show you an ad inviting you to come back to Zappos.com long after you've moved onto another site.

If a publisher can get enough eyeballs looking at content, by hook or by crook and regardless of the quality of its offerings, it can sell retargeted ads against that undifferentiated audience. In this model, content has essentially become advertising for advertising--i.e., for retargeted ads. The price for a retargeted ad isn't even connected to the content of the site a user is visiting--all that matters is that the advertiser is reaching its targeted visitor again.
Understandably, performance marketers--those who get paid affiliate relationships, for instance--have jumped on retargeting. Top brand marketers, however, are much more sensitive to the context around their ad, which is why they are more likely to shun so-called content farms and embrace original content.

What's more, re-targeted ads are increasingly freaking people out. While many of us in the industry understand what's going on, others find it creepy to be tracked across the Web. A woman running a nonprofit showed me her Huffington Post home page and asked how HuffPo knew that she had shopped at the two e-commerce sites with ad units on the page.

When women running nonprofits are alarmed by ad targeting, politicians can't be far behind. "Do not track" legislation that will prevent third party cookies from following users around is starting to draw support in Congress. Germany's draconian cookie laws already prevent basic analytics--let alone retargeting--and similar European Union cookie laws are now becoming adopted.

It's important that U.S. privacy legislation not overreach, so that we can find a compromise between user privacy and how websites need to function. For instance, tracking a user across a family of sites--say from Google's homepage to YouTube--is not retargeting. There's value to users when a company can optimize how its family of sites works together.

Even without regulatory intervention, subpar content is starting to hit its maximum headroom. Consumers can only go to so many pages of drivel before they orient back to the good stuff.
In fact, there is a resurgence in premium content. The Huffington Post is hiring writers from the New York Times and the BBC and increasingly producing unique content. Demand Media, one of the leading purveyors of simplified content, recently announced that it was scaling back its content creation army of contract writers. YouTube is shifting from user submitted videos to premium produced videos.

In addition, Google has recently made a series of moves that make it increasingly difficult for subpar content to get Google traffic. The Google Panda 2.0 and 2.5 search algorithm updates have been optimized to return premium, non-repetitive content that users will value after they search, pushing subpar content further down in search results. Google News has introduced incentives for content sites to highlight unique content. Google also announced that it is no longer going to include the search terms that are used when it sends a user from a Google search page to a site, bringing a halt to the practice of tailoring content to match active searches employed by sites like HuffPo.

Just when retargeting is about to hit the precipice, premium advertising is on the verge of a revolution. Offline spend continues to pour into online. Ad targeting systems are starting to look at add social media behavior and a user's present and historical interaction with a site. Engagement ad units powered by companies like Flite and Aol's Project Devil are even integrating premium content into ad units.

The resurgence of advertising on premium content sites, in addition to the new and interesting ways for premium advertising to engage an audience is some of the reasons I recently joined CBS Interactive as CTO, so read what you like into my obvious bias. All in all, interesting and fun times are ahead in the world of premium content.

Monday, October 03, 2011

Face it: Steve Ballmer is Doing a Great Job

This post was also published in VentureBeat.

In the wake of the CEO ousters at HP, Yahoo and Nokia and the CEO implosions at Cisco, SAP, RIM and Dell, it’s surprising people are still picking on Steve Ballmer. Hedge funders are calling for his head. Employees are complaining.

I am by no means a big Microsoft fan — during my five-year tenure at Sun Microsystems, Microsoft was a vicious, scorched-earth competitor. But I have to give credit where credit is due: Ballmer has done a remarkable job, especially in contrast to the leaders of most technology companies. Ballmer’s problem is that everyone expects Microsoft to be as good as Apple at entering into new markets.

The reality is that Microsoft has never been a technology innovator. People are nostalgic about the days of Bill Gates, when Microsoft supposedly innovated. However, under Gates, Microsoft copied other products relentlessly, even from its very beginning. MS Basic copied Tiny Basic. MS DOS copied CPM-86. Windows copied the early Mac OS. Word copied WordPerfect. Excel copied Lotus 1-2-3. Access copied FoxPro. Windows Server copied Novell Netware. Exchange copied Lotus Notes. Internet Explorer copied Netscape Navigator. C# and .net copied Java. All Microsoft has ever done is enter markets late and invest and iterate until it wins. On top of that, Gates used monopoly position to force adoption of ensuing products, a luxury that Ballmer has not had.

During Ballmer’s 10-year tenure, Microsoft has tripled revenue and doubled net income. Legacy products such as Office, Exchange and SharePoint have been transitioned to the cloud. Windows 7 is a huge hit with over 400 million licenses sold, and early looks at the upcoming Windows 8 are resulting in rave reviews. Windows Phone 7 is a very late entrant into the modern smartphone category, but it is already being declared the number three player, with its innovative user interface and upcoming distribution via Nokia. Some analysts even predict that it will outpace Android within a few years.

Even more importantly, Ballmer has shepherded Microsoft as a big player in two new and growing markets: console gaming and search. The Xbox now has 20% market share in the console market, with 45% year-over-year growth, and has led the way to motion-based gaming with its hit Kinect product.

According to Comscore, Microsoft’s Bing search now has 31% of the US search market due to its distribution deals with Yahoo and others. While some lament the amount of money Microsoft is losing on Internet services, the ad dollars will soon start to follow the eyeballs, as I personally experienced during my tenure at Webtrends where we provided search.

The scale of the losses has to be put into context with the scale of Microsoft. Yes, losing $2 billion a year on online services sounds really bad. Losing $2 billion per year to gain 30% of a $30 billion and growing market actually makes a lot of sense, especially when you are delivering $70 billion in revenue and $24 billion in profits. Microsoft lost billions on Xbox and is now in a leadership position in that market, and it will follow that same strategy with Bing search and Windows Phone.

The reality is that Apple and Microsoft are the only large technology companies that have been able to create new products. Cisco continually bought companies to grow their revenues until the party ended. Oracle and IBM have had the same strategy as Cisco and will both soon run out of legacy application and middleware vendors to acquire. Nothing new has come out of HP, SAP or Dell in a decade.

Although they both create new products from scratch, Apple and Microsoft have very different DNA. Apple creates new markets, and Microsoft eventually dominates them. Steve Ballmer is not going to be Steve Jobs, who is widely lauded as perhaps the greatest CEO of our time. Even Apple can’t get another Steve Jobs and now has a COO running the company.

Who do detractors think Microsoft should replace Steve Ballmer with? HP has gone through three CEOs in a year and ended up with Meg Whitman, a non-techie whose core eBay website to this day looks like it was designed in the mid-90s. The only viable candidates are IBM’s Steve Mills and VMware’s Paul Maritz, who likely would not change a thing strategically at Microsoft.

Microsoft shareholders should be grateful they have a CEO who has steadily grown both earnings and revenue, transitioned legacy products into the cloud, moved aggressively into new markets such as console gaming and Internet services, revived the mobile product, and is now transitioning the Windows product line towards a new generation of tablets and processors. Yes, Microsoft’s stock has been flat through the 2000s and the decade’s massive technology market transitions to cloud and smartphones. That’s a much better outcome than tanking like HP, Sun, Nokia, RIM and others, and Microsoft’s products are now very well positioned for the coming decade. Booyah, Ballmer!