Octavianworld: Cesar Brea's Weblog, continued.

Mary Meeker's @KPCB #InternetTrends Report: Critiquing The "Share of Time, Share of Money" Analysis

Mary Meeker's annual Internet Trends report is out.  It's a very helpful survey and synthesis of what's going on, as ever, all 164 pages of it. But for the past few years it's contained a bit of analysis that's bugged me.

Page 15 of the report (embedded below) is titled "Remain Optimistic About Mobile Ad Spend Growth... Print Remains Way Over-Indexed."  The main chart on the page compares the percentage of time people spend in different media with the percentage of advertising budgets that are spent in those media.  The assumption is that percentage of time and percentage of budget should roughly be equal for each medium.  Thus Meeker concludes that if -- as is the case for mobile -- the percentage of user time spent is greater than budget going there, then more ad dollars (as a percent of total) will flow to that medium, and vice versa (hence her point about print).

I can think of  demand-side, supply-side, and market maturity reasons that this equivalency thesis would break down, which also suggest directions for improving the analysis.  

On the demand side, different media may have different mixes of people, with different demographic characteristics.  For financial services advertisers, print users skew older -- and thus have more money, on average, making the potential value to advertisers of each minute of time spent by the average user there more valuable.  Different media may also have different advertising engagement power.  For example, in mobile, in either highly task-focused use cases or in distracted, skimming/ snacking ones, ads may be either invisible or intrusive, diminishing their relative impact (either in terms of direct interaction or view-through stimulation). By contrast, deeper lean-back-style engagement with TV, with more room for an ad to maneuver, might if the ad is good make a bigger impression. I wonder if there's also a reach premium at work.  Advertisers like to find the most efficient medium, but they also need to reach a large enough number of folks to execute campaigns effectively.  TV and print are more reach-oriented media, in general.

On the supply side, different media have different power distributions of the content they can offer, and different barriers to entry that can affect pricing.  On TV and in print, prime ad spots are more limited, so simple supply and demand dynamics drive up prices for the best spots beyond what the equivalency idea might suggest.  

In favor of Meeker's thesis, though representing another short term brake on it, is yet another factor she doesn't speak to directly. This is the relative maturity of the markets and buying processes for different media, and the experience of the participants in those markets.  A more mature, well-trafficked market, with well-understood dynamics, and lots of liquidity (think the ability for agencies and media brokers to resell time in TV's spot markets, for example), will, at the margin, attract and retain dollars, in particular while the true value of different media remain elusive. (This of course is one reason why attribution analysis is so hot, as evidenced by Google's and AOL Platform's recent acquisitions in this space.)  I say in favor, because as mobile ad markets mature over time, this disadvantage will erode.

So for advertisers, agency and media execs, entrepreneurs, and investors looking to play the arbitrage game at the edges of Meeker's observation, the question is, what adjustment factors for demand, supply, and market maturity would you apply this year and next?  It's not an idle question: tons of advertisers' media plans and publishers' business plans ride on these assumptions about how much money is going to come to or go away from them, and Meeker's report is an influential input into these plans in many cases.

A tactical limitation of Meeker's analysis is that while she suggests the overall potential shift in relative allocation of ad dollars (her slide suggests a "~$30B+" digital advertising growth opportunity in the USA alone - up from $20B last year*), she doesn't suggest a timescale and trendline for the pace with which we'll get there. One way to come at this is to look at the last 3-4 annual presentations she's made, and see how the relationships she's observed have changed over time.  Interestingly, in her 2013 report using 2012 data, on page 5, 12% of time is spent on mobile devices, and 3% of ad dollars are going there, for a 4x difference in percentages. In the 2014 report using 2013 data, 20% of time is spent on mobile, and 5% of media dollars are going there -- again, a 4x relationship.  

So, if the equivalency zeitgeist is at work, for the moment it may be stuck in a phone booth. But in the end I'm reminded of the futurist Roy Amara's saying: "We tend to overestimate the effect of a technology in the short term and underestimate its effect in the long term."  Plus let's not forget new technologies (Glass, Occulus Rift, both portable and  large/immersive) that will further jumble relevant media categories in years to come.

(*Emarketer seems to think we'll hit the $30B mobile advertising run rate sometime during 2016-2017.)

 

KPCB Internet trends 2014 from Kleiner Perkins Caufield & Byers

Book Review: Converge by @rwlord and @rvelez #convergebook

I just finished reading Converge, the new book on integrating technology, creativity, and media by Razorfish CEO Bob Lord and his colleague Ray Velez, the firm’s CTO.  (Full disclosure: I’ve known Bob as a colleague, former boss, and friend for more than twenty years and I’m a proud Razorfish alum from a decade ago.)

Reflecting on the book I’m reminded of the novelist William Gibson’s famous comment in a 2003 Economist interview that “The future’s already here, it’s just not evenly distributed.”  In this case, the near-perfect perch that two already-smart guys have on the Digital Revolution and its impact on global brands has provided them a view of a new reality most of the rest of us perceive only dimly.

So what is this emerging reality?  Somewhere along the line in my business education I heard the phrase, “A brand is a promise.”  Bob and Ray now say, “The brand is a service.”  In virtually all businesses that touch end consumers, and extending well into relevant supply chains, information technology has now made it possible to turn what used to be communication media into elements of the actual fulfillment of whatever product or service the firm provides.  

One example they point to is Tesco’s virtual store format, in which images of stocked store shelves are projected on the wall of, say, a train station, and commuters can snap the QR codes on the yogurt or quarts of milk displayed and have their order delivered to their homes by the time they arrive there: Tesco’s turned the billboard into your cupboard.  Another example they cite is Audi City, the Kinnect-powered configurator experience through which you can explore and order the Audi of your dreams.  As the authors say, “marketing is commerce, and commerce is marketing.”

But Bob and Ray don’t just describe, they also prescribe.  I’ll leave you to read the specific suggestions, which aren’t necessarily new.  What is fresh here is the compelling case they make for them; for example, their point-by-point case for leveraging the public cloud is very persuasive, even for the most security-conscious CIO.  Also useful is their summary of the Agile method, and of how they’ve applied it for their clients.

Looking more deeply, the book isn’t just another surf on the zeitgeist, but is theoretically well-grounded.  At one point early on, they say, “The villain in this book is the silo.”  On reading this (nicely turned phrase), I was reminded of the “experience curve” business strategy concept I learned at Bain & Company many years ago.  The experience curve, based on the idea that the more you make and sell of something, the better you (should) get at it, describes a fairly predictable mathematical relationship between experience and cost, and therefore between relative market share and profit margins.  One of the ways you can maximize experience is through functional specialization, which of course has the side effect of encouraging the development of organizational silos.  A hidden assumption in this strategy is that customer needs and associated attention spans stay pinned down and stable long enough to achieve experience-driven profitable ways to serve them.  But in today’s super-fragmented, hyper-connected, kaleidoscopic marketplace, this assumption breaks down, and the way to compete shifts from capturing experience through specialization, to generating experience “at-bats” through speedy iteration, innovation, and execution.  And this latter competitive mode relies more on the kind of cross-disciplinary integration that Bob and Ray describe so richly.

The book is a quick, engaging read, full of good stories drawn from their extensive experiences with blue-chip brands and interesting upstarts, and with some useful bits of historical analysis that frame their arguments well (in particular, I Iiked their exposition of the television upfront).  But maybe the best thing I can say about it is that it encouraged me to push harder and faster to stay in front of the future that’s already here.  Or, as a friend says, “We gotta get with the ‘90’s, they’re almost over!”

(See this review and buy the book on Amazon.com)

Qik+Twitter+Summize+(Spinvision): We Have Met Big Brother, And He Is Us

Imagine if you could sit above the world, at whatever altitude you wish,  and see anything through anyone and everyone's eyes, in real time, filtering these streams to let through only those things you're actually interested in. 

Today, we have real-time video streaming (now -- though not always practically -- in 3G) via folks with Nokia N95's and Qik.  Qik lets people know you are streaming via Twitter, and you can filter these "tweets" with Summize (which I wrote about yesterday)  You can also get your Qik streams onto YouTube automatically.  Spinvision, a brother to Twittervision and Flickrvision, lets you see videos as they are uploaded to YouTube -- superimposed on a map of the Earth.

Now let's roll ahead 12-18 months.  N95's won't be the only devices with high quality camera/ video capture and GPS capabilities -- so, many more people will have this capability.  3G will be more widely available and adopted.  Twitter and Summize will be features of much larger players' services, so they too will move from the fringe to the mainstream as more people inevitable discover the utility of microblogging for different purposes, and the utility of filtering all that microblogging (and microvlogging).   Presumably, you'll be able to stream simultaneously on Qik and YouTube.   Google's just announced the availability of Google Earth running in a browser (though strangely, they didn't keep in sync with the release of Firefox 3.0), so we'll be able to  make our mashups even more dynamic and accessible.  Throw in a little facial recognition to boot, while you're at it.

What does all this add up to? A crowd-sourced, global/hyper-local, digital video, roll-your-own-channel, keep-your-friends-close-and-your-enemies-closer news network. 

What does that make you?

Postscript:

Imagine if rather than turning over a videotape to the authorities, she had streamed this.  Or if Zimbabwe, Darfur, Afghanistan, Iraq, or New Orleans for that matter, were live and unedited, 24/7, from a thousand sources each.   How will that change us?

My Mobile Internet World Interview for Bnet.tv

Monitor Group: Ceasar A. Brea by golemur

Online Video: That Sound You Hear Is The Dam Bursting

By various measures there are some $500 billion spent globally on advertising.  About 40% of this goes to TV, which is why Oxygen is worth a billion dollars to folks like NBC.

Yesterday I saw a press release in which Sony announced more content partnerships, with folks like CondeNet and Sports Illustrated, for the "Internet Video Link" service it packages with its BRAVIA high-def television sets.  Sony gets unique content it can sell ads against.  The online publishers presumably get a rev share on video assets they've already produced, and extra traffic going back to their sites.  If I understand how the service works, this completely bypasses the cable TV infrastructure by using whatever broadband you have available.   Memo to cable company, re: $100/month digital cable subscription:  "Ask not for whom the bell tolls..."

(Ok, you say, but why buy an HDTV if all you can watch is low-res Flash clips?  Not so fast.  See this interesting announcement from Brightcove and BitTorrent yesterday?  How long will it take Sony to add BitTorrent nodes into the   Internet Video Link modules on its sets?)

So, how do we know if Sony's video content bet is ultimately better than NBC's?

NBC paid $12 per Oxygen channel subscriber.  According to news reports, there are about 300k Oxygen viewers in prime time.  Let's assume of course that different people watch different shows each week, and that prime time is as popular as all other times combined.  So I figure that 300k prime time viewers translates into 1.2 million unique viewers per month (cross-check: Oxygen.com has 1.2m uniques).  OK, so $900 million (Oxygen's acquisition price), divided by 1.2m = $750 per unique viewer.  (NBC also has to continue producing programming and pay carriage fees to cable networks to continue to reach those viewers.) Against this up front and ongoing cost, Oxygen gets about $7/unique (per month of course, ~$100M in sales/ 1.2m uniques/12 months). Figure a 15% margin, and NBC's netting $1/unique out of that top line (Oxygen Media LLC didn't disclose income AFAIK).

I don't know the terms of Sony's rev share, or how they are placing those ads with advertisers.  Let's assume the overall split is 1/3 to each party (Sony, content partner, video ad network).   Let's assume a $30 gross CPM for the premium content.  So  Sony's getting $10 CPM.  If  I assume each unique is good for 25 impressions per week, this translates into $1/unique, but that's essentially cost-free (no programming, no carriage fees, no amortization of acquisition costs) if you ignore the cost of the Internet Video Link network infrastructure.  So, Sony's getting the same $/unique.

Now for the sound of the dam bursting:  if I'm an advertiser and I can pay an ad network $3/unique (split three ways between publisher, ad network, and Sony) to reach my audience of women watching TV via, say CondeNet content, vs. paying NBC $7/unique, and get better targeting and measurability (remember, this is *Internet* video), which do I prefer?

Seems to me Sony's got the better growth/ scalability story, though reach is more limited in the short term.

I'm not criticizing the Oxygen deal;  there are sure to be cross-promotional opportunities with iVillage that add to Oxygen's value to NBC (if a small fraction of iVillage's 15M uniques go to Oxygen, that's a huge leg up).  And of course, there are near-term limitations of Sony's Internet Video Link value proposition to advertisers: low reach (the number of people with Internet-ready HDTV sets), and low availability of content from its partners.   Plus, there are a number of apples-and-oranges problems with my analysis (like, are these ways of reaching viewers really the same?  Do they ultimately reach the same viewers?  Are viewers in the same frame of mind?). 

The broader point, though, is about the significant arbitrage that is appearing for advertisers between reaching TV viewers the old-fashioned way and the new-fangled way, and about the dramatic shifts in fortunes that will occur over the next couple of years as dollars flow accordingly.  It's a good time to be long high-quality video content, and to be aggressive about getting online with it.

Media as Software: A Conversation With Doug Turner

Kiki Mills at MITX introduced me recently to Doug Turner, whose past includes eight years as a member of the 3D graphics research team at Apple's Advanced Technology Group.  Doug and I met for breakfast and talked shop about digital media.  One of Doug's ideas, which I found particularly interesting, is (his words) the concept of "media as software".  Right now rich media streams are largely analog audio and video once they are "published".  (If you've composed or edited a digital video "project" and then converted it into its final form, you know what I mean.)  Doug describes this  as publishing digital media as platforms on which other people can add/edit their own stuff. 
 

Update: Gotuit Media and Video Search

Recently I wrote (http://www.octavianworld.org/octavianworld/2007/02/gotuit_video_se.html) about cool stuff going on at video search service Gotuit Media, where my friend and former colleague Patrick Donovan is a senior executive. 

Patrick got in touch the other day to pass on some great news:  Gotuit is now supporting the NFL "Film Room" at Sports Illustrated's si.com (http://sportsillustrated.cnn.com/football/nfl/specials/draft/2007/video/) and at the National Hockey League's video site (http://onthefly.nhl.com/index.html). 

For the NHL, Gotuit transforms what used to be a 60 minute linear viewing experience to one that can be sliced and sequenced in a variety of ways, without having to cut, splice, or otherwise edit the underlying video asset. 

Here's a review of Gotuit at latimes.com that does a good job of explaining the potential of this service: http://opinion.latimes.com/bitplayer/2007/04/gotuit_and_web_.html

Good Luck Patrick!

The Sound And The Fury: 2006 US Ad Spending, By The Numbers

Just came across this summary of 2006 US ad spending from TNS Media.  It's striking that despite all the talk about online advertising's growth, Spot TV still outgrew it on an absolute basis, and TV as a whole is still outgrowing overall ad spending as a whole by 25% (5% vs. 4%, led by Spot and by the growth of Spanish language advertising). 

Advertising on the web is great, but having seen services like Spot Runner and Visible World, and related vertical efforts, TV may not be dead for a while.  Of course, as content from each begins to flow to each, and with mobile to spice things up further, perhaps the category definitions are becoming less useful anyway. 

This is a rear-view perspective.  While 2006 may have been the year of online video on the conference circuit, the ad models for this medium haven't yet been really worked out (though there are some interesting ideas out there), and both advertisers and media players are still "organizing for digital"  buying and selling.  So I'd expect the shifts everybody's been hyping to accelerate somewhat this year.

Of course, this is one summary, among many that might report the numbers differently, and it would be interesting to compare them to each other, and with what the leading prognosticators have been saying...

Go Daddy

This post was originally published on my first blog, hosted by Harvard Law School's Berkman Center.

I've been travelling between Boston and Washington a lot lately, and have been dipping into the bin of free magazines by the airline gate to keep stimulated until "electronic devices are permitted" in flight.  Recently I picked up the Valentine's Day edition of Ad Age and came upon some interesting data.