UI dominance

Online application development is really now a commodity exercise. Its amazing how fast and how easy and how inexpensively one can develop a robust, database-driven application. So how to online companies win? You can create clever features but there is so much pressure to be open and collaborative in order to get attention that clever features don't stay proprietary for very long.

User Interface, which at one time was relegated as the very last thing to throw together, is rapidly becoming a key variable (and maybe the key variable) to win. Look at Yahoo's comment today where they said they have tested over 141 front page designs to see which one can be the most sticky. Ease of use is a big part of today's value proposition and can't be ignored.

Spiralfrog shuts down

Ad-supported music is a nice idea but the math simply doesn't work. The labels have cornered themselves into having the monetary value of music be relegated to be a loss leader.

CTR data

Interesting report on click through rates in Europe against 10 billion impressions. The rate range was from 0.11% to 0.19%, settling in at 0.12% after the holidays. What was interesting to me is that in 2004, click through rates were at 0.33%. The article also speculated that although online video click through rates were markedly higher, that they would also face a decline once the "novelty" wears off.

Publishers would be wise to pay attention. The more they can integrate an advertising experience that yields high click through rates that don't bastardize the user experience, the more likely they will be left standing as the market continues to mature.

Dynamic ad insertion in live stream - its about time?

ESPN360 announces dynamic ad insertion in its live simulcasts starting with March Madness. I'm kind of surprised it has taken this long to work this out. Cable still not there...

Heavy social media contributors becoming a meaningful number

Interesting statistics released in a new report by Netpop Research. Among the data most interesting to me was that 7 million Americans are "heavy" social media contributors (6+ activities) who connect with 248 people on a 'one to many' basis in a typical week.

This figure reminded me of 80:19:1 rule that was written a lot about the past two years segmenting web audiences into passive audience (80%), content creators (1%), and the content curators (19%). What group would this 7 million 'heavy social media contributors' fit into?

As the value of social media becomes more apparent and meaningful to all segments of web users, my guess is that the 80:19:1 theory starts to look like an antiquated idea. Social media tools and applications will continue to be so easy to handle, that depending on context, any given person may play any one of those three roles.

I have seen many technology companies have deep strategic product conversations about how to divide up features to cater to each user type but I think those companies will be better served focusing on having the best content or most interesting conversations shine on a page at any given time. Have to go think about this some more.

Ad dollars skewing towards search and niche sites

According to a report by Razorfish:

"As the economy began to soften toward the end of the year, we witnessed a renewed focus on search because it delivers a stronger ROI than many other tactics," said Sarah Baehr, vice president and national media lead at Razorfish. "We also saw a continued shift in digital ad spending toward niche sites as clients realize the value of targeting precise audience groups."

Making sense out of putting up effective campaigns on niche sites is exactly what Reptide Media is doing (shameless plug as I am a Director of the company).

More monetization thoughts

Last week, I started to write about a recent report that stated that only 10% of a publisher's inventory is directly sold, the rest being left to the mercies of ad networks. While recent efforts to optimize placements within ad networks will likely continue to enjoy incremental eCPM rates for many publishers, its not going to be enough to change the fact that display ad revenue alone cannot make a content company into a real, profitable business.

Late last year, I wrote:

If you are an online web property with aspirations to grow into a large, profitable business, you have some serious challenges to overcome.

If you are a content-centric company, your revenue growth increases linearly with your audience growth but so does your cost structure. So the more money you make, the more money you lose. What major stand alone content-centric site or online magazine is actually a viable business today? (There may be some, please point them out)

For social networks, the problem is more difficult. Like content companies, your revenue growth is also linear to audience growth but your cost structure may be exponential. I hear that Facebook has significant cost issues see (http://www.techcrunch.com/2008/10/31/facebooks-growing-problem/). They have a plan to buy an additional 50,000 servers - is revenue growing at the same y-axis rate? Um, not even close.

What does this mean for online companies? There needs to be some variable on the revenue side that makes an exponential difference to get to profitability. A significant jump in average CPM for a site's entire inventory (not just small discrete campaigns) is the most obvious. Can you get from sub-$2 eCPM to $10 or $20? The market is not big enough yet for the numbers to add up for that to happen quickly (online ad spending is not going to jump 400% overnight). The horrible economy may actually help some in that the very best sites could see significant jumps as they focus more faithfully in wooing advertising dollars while keeping their cost growth more in check.

Another revenue side option is to find non-advertising monetization techniques...I have thoughts on that to share in another note.

One can also hope for technology innovation to find exponential savings on the infrastructure side of things but it seems that user consumption is staying ahead of any significant bandwidth or storage savings that technology has provided.

The stat that only 10% of a publisher's entire inventory yields premium eCPM's underscores this whole point. You can't rely on ad dollars alone to build a business. The 10% number faces downward pressure as the growth of publishers exceeds that of ad spend growth (I think). Although this revenue should represent one of the strongest revenue streams for the publisher, it can't be the only one. I think there is a big opportunity for products that help online publishers monetize their audiences in other ways.

Time Warner's plans for putting network content online

'That's pretty smart' was my reaction to my first read through the reports of Jeff Bewkes description of what Time Warner is planning with "TV Everywhere". The idea to charge for access through an already existing payment plant (Cable TV) and mature the notion of the rights associated with that payment to 'access anywhere' can be both attractive to consumers as well as create more ad inventory for the networks. I would bet that they will insist on authenticating through the email address associated with the cable account thus mitigating against rampant unauthorized access.

Of course, with some cable networks likely not to participate, some consumer frustration and confusion will exist but who would have thought that the big time operators would have thought up such online friendly terms even 2 years ago???

Worth of an opt-in email newsletter subscriber?

The worth of an opt-in email newsletter subscriber is simply more valuable than a regular user/visitor of your site. Arguably easier to program, higher click thru rates, higher CPM's, and overall a more consistent money maker. Hasn't been bad for entrepreneurs of Daily Candy, Thrillist, IdealBite, or Dogster either!

Are your Facebook friends really all your friends?

A research scientist at Facebook (has Facebook really grown to the point where they have an inside research scientist??) recently revealed some statistics on its users' behavior on the site. Despite some users having hundreds of friends on Facebook, people still at their core only really interact with a small circle of intimate friends and that social networking is really just broadcasting their lives to an 'outer tier of acquaintances'. Makes sense, right? Time and attention for any given person is finite while adding 'friends' on a social network is not.

This research is based on a person's Dunbar number. This is a number attributed to British anthropologist Robin Dunbar who theorized that human's have a limit to the number of meaningful relationships any one person could have (it seems that the average number is about 150).

So do you have a high or low Dunbar number?