Incremental Blogger

@Michael Arrignton: The reason CNet didn’t explode into an even larger business is not because of its acquisition strategy. It was because of its economic model, quite visible in its advertising.

Roll the clock back to 1999. CNet click through rates were ridiculous. I can’t recall the exact numbers, but they were absurd. Part of the problem was bubble think. Part of the problem was old school thinking. CNet enjoyed the money for a while and tuned its business around a certain group of advertisers that could afford the rates–wise or not.

And then came not just the crash, but more importantly Google as an advertising company with a model that challanged online ad rates at first by a magnitude. It followed a new pricing model that other companies built on ads either had to figure out how to compete with or had to suffer the inevitable slow slide of diminishing “customers.”

It’s not exactly right to say Google capped the value of CNet, because in many respects CNet did it to themselves. However look at how advertising is so different on Google Search or TechCruch for that matter. It’s like too different pools of advertisers.

CNet still has the old school advertisers. The Microsoft’s. The HPs. The companies so large that they have to have ad buyers who for many pragmatic reasons can’t think small, nor from a process standpoint manage small accounts. They can’t scale down.

So it was much more comfortable for CBS to buy CNet let’s say than TechCrunch. In part because much of CNet’s ad content and business model for the ad rates are consistent with what CBS is already doing. It’s a good companion. TechCrunch would require a classic-style acquirer to expand its advertising, to augment its ad model. That’s not necessarily a bad thing, it’s just one that I can see companies not eager to do. It’s human nature.

Let me flip this into another direction: This ad issue is one reason why I argue that Microsoft, for instance, should really think hard about its advertising. It shouldn’t just try to clone Google think and let’s say match its ad rates within 10 or 20%. If it wants to take over the hill, it needs to blow Google’s ad rates by a factor of 10.

There’s good reason to do this. Google has tons of huge advertisers that are a pain to growing companies as well as to readers. It’s about relevancy. It’s about targetting. My best advice to Microsoft in this sense is to figure out how to build a sustainable business model around ad rates 1/10th the cost that scale down and reach to smaller customers. Do this in a way where the business model can scale up and you have a winner. I’ve blogged my suggestions on how I can see working, but there are many other obvious and non-obvious solutions.

To me CBS is making a reasonable choice by acquiring CNet–well, actually, as Simon Cowell from American Idol would say, it’s a predicatable, boring choice.

Engadget had me all excited. They are reporting that Dell’s forthcoming Tablet PC (Latitude XT Tablet PC) will sport multi-touch. Not dual touch. Not two finger touch. But real, five finger multi-touch.

My excitement dissipated though, once I watched the video of the demo which JKKMobile captured and posted on YouTube:

http://www.youtube.com/watch?v=00mKTEqnzbs

In the video, the Dell demoer definitely shows a couple very cool multi-touch demos, but he also clearly states that this is something going on in the lab.

My take on all of this is that Engadget has it wrong. Dell is experimenting with multi-touch, but that doesn’t mean that their Tablet is going to be released with it.

Oh well. My heart can now get back to beating normally.

The more I think about this, the more I can’t imagine Dell releasing a multi-touch feature anyway. There’s no support for multi-touch in the Tablet PC SDK. So they’d have to come up with some special API of their own. That’s something I don’t see happening. But I might be wrong.

If it does, it would no doubt be a nudge to the Microsoft Tablet PC group to get their multi-touch act together. Microsoft has demoed a two-point touch using a custom driver at a recent hardware event–but as far as supporting five fingers I haven’t heard of anything comparable that they are doing for Tablets.

Again, I don’t see this coming out of the lab any time soon. And I don’t think anything is going to happen unless Dell and Microsoft come together to standardize on how multi-touch should work. Because Tablet developers aren’t going to want to develop apps just for Dell Tablets. Maybe a few will, but it won’t catch on until apps can reach a broader audience.

Well, we’ll have to see. My prediction is no multi-touch this go around. Maybe in a year or two, but not now. Am I wrong? Could be.

According to the New York Times, a new startup called PuddingMeia will provide free phone calls in exchange for monitoring the phone calls and pushing advertising based on what is said.

I’m not too keen on the idea of a company monitoring my phone calls, but this company ought to have a conversation with Chris Pirillo. He’s runs a live UStream.tv video show with embedded chat and he’s been trying to server relevant Google ads on his hosting page. Current Chris sets a topic manually which is then used to control which ads are served up. I don’t think the minds if the ads are all that relevant all the time, but I’m sure the idea is to generate as much ad revenue as possible, so the best system would help with that. Seems like it would be a fit, if the technology worked.

Recently Google added a “Tip” section to some search results that point back to its products. Here’s an example of a search I did this morning for “blog books”, for instance.

The Tip section appears just below the topmost sponsored link and just above the search results. In this case, Google recommends checking out their blogging service Blogger.

To me this is no more than an ad, with a little different layout and a position favorable to Google. What’s particularly interesting in the search I did is that of the top 3 items listed in the search results, three are ads for Google products.

At the top is an ad for Google’s BookSearch. This is a standard Google ad. It appears as a text ad and is no different than any other ad someone might place. Below this, is the Google “tip.” Despite the term “Tip”, this is clearly another ad, this time to Google’s own Blogger. And finally, Google lists three books in its “Book Search” that it supposedly recommends for the search term “blog books.”

Seems to me like Google is going overboard recommending itself.

One key problem that arises here is the trust issue. With the sponsored link, it’s quite obvious that the listing is an ad. I know what trust I can put with this ad. Next up though is the Tip ad to Blogger. This is really an ad, but it doesn’t look like one. I don’t mind Google promoting its own products, but doing so gives my skepticism a boost. And here’s the problem as I see it. I can ignore all the Tips as mere ads. But now it makes me skeptical of Google’s next returned items, the Book Search results. Should I trust them too? Hmmm. That’s the trap that Google’s walking into here.

Don Dodge from Microsoft asks, “Will video pages monetize? Google made a big bet on YouTube, paying $1.65 Billion for the consumer video aggregator. Will they be able to effectively sell advertisements against these video views? Or will it be junk traffic that advertisers are not interested in?”

The simple answer: Yes. A caveat: If done right.

Here’s what I’d like to see: Low cost, targeted advertising, easy management. If someone posts a YouTube video on let’s say the latest Tablet PC or UMPC, I’d like to be able to compete for an ad somewhere in the stream or on the border of the video for InkGestures whether the video is played on the YouTube site or the video is hosted in someone’s blog.

Will a video-related ad have as much impact and return as a text-based, search ad? Most likely the video ads will be most useful for gaining exposure rather than producing a sale directly from the ad. If so, Google would do well to keep costs low. I hope they don’t see video as an upstream opportunity. Sure, there will be higher-end advertisers that come from the broadcast world, which will be comfortable spending good sums of money to advertise online, however, one of the smart moves with Google ads at the beginning was to open them up to and make them more practical for more advertisers.

I’d also like to see Google come up with an ad infrastructure that allows video content other than that on YouTube. For example, if I have my own video blog, I might want to insert ads on it, and not submit the video to YouTube. Why? Because maybe I want to be the sole source of the content. Or the video is too long for YouTube or I want it in a higher quality than what YouTube provides.

One thing is for sure, the little advertisers are going to need better tools for developing video ads–if this is the direction things go. Windows MovieMaker doesn’t have the right stuff at this point. iMovie on the Mac is a step above, but it’s not there either. Professional packages are an option, but I don’t see people going this route. Too expensive. Maybe Google will create an online tool to facilitate ad creation–lots of easy sharing of content, easy to use tools, huge stockpiles of 3rd party content at your fingertips. A good sound library (some free and some with revenue sharing back to the authors that Google manages) would be most useful, for instance.

Of course, text-only ads surrounding a video frame would be OK too. Maybe even preferable in some situations. Again, it all depends on how it’s implemented.

Google AdWords/AdSense were terrific when they launched. They challenged the ad pricing structure that had been established by the Web Bust Crew. It was about time. Online advertising grew. But now it looks like that although the growth is there, we’re at an inflection point. What’s my take on this? The companies providing the ad platforms (including Google, Yahoo, and Microsoft) are moving faster up market than they are enhancing the “low end.” From a business point all this makes sense. However, as AdWords/AdSense proved back in the good old Web 1.0 days, there’s huge growth in enabling the tail. And the tail is in desperate need of moving up out of the classified-ad model.

Here’s the problem: Look at many of the focused editorial sites on the Internet. Some of them are heavy influencers in their respective markets. Some of them drive huge traffic. Many of them have loyal followings. Almost all of them have the same problem: Contextual ads aren’t up to their editorial level. They want better, more appropriate ads. They want to control the ads when it makes sense. They want to be as professional as possible in their ad placements and management as any publication is. Most sites have their own ads systems, but there’s a huge gap between the major ad platforms from let’s say Google AdSense/AdWords to what these sites want.

And there’s an equally large opportunity on the ad buyers side–both large and small. The current systems are not efficient enough in terms of getting the desired ads on a focused site, paying for the ad, or managing it. Take something as simple as purchasing an ad. How is a large company going to buy a rich-media banner ad on TabletPCPost, for instance? Are they going pay with a credit card? Who’s card? What if they are using an ad agency? What if they want the ad on ten different sites, two weeks each? Going to each site individually and negotiating with them is way too inefficient. The inefficiency drives up costs needlessly, which then suppresses the growing tail of the market. Exactly what you don’t want.

Look what sites like TechCrunch and TechMeme are doing with ads–they’ve gone with alternative ad systems that give them quality, ads. Not generic ads for eBay, NextTag or sites to lists of lists with Google ads on them. The readers don’t want it. The content providers don’t want it.

All this chatter of the money to be made in the Web 2.0 world drove the market upstream. Too far. I hope someone, somewhere realizes that enabling the tail is where the big bucks are. Adding a magnitude of efficiency to the ad market for online sites will bring in more advertisers–yes at lower rates, but it’ll also enable a new generation of revenue growth.

Who do I think will fix this? For awhile I thought Google would. I don’t think so anymore. They have a lot invested in their current advertising infrastructure and pricing models. Yahoo has a similar problem. Microsoft is a slim possibility–if only it realizes that cloning what competitors are doing is not the complete answer for today. What will help, I hate to say it is an advertising bust that clears out the over spenders on the high end of the market.