March 2009 Archives

We had a project in the always colorful Tenderloin, and here's a behind the scenes video. For those of you not familiar with San Francisco, the Tenderloin (or the TL) is one of the sketchiest parts of town :-)

Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania, recently published a short essay on TechCrunch about why advertising is failing on the internet. The piece is largely qualitative, and ignores some of the quantitative side of the equation, though none the less I do think he has some valid points regarding the long term evolution of advertising as it moves online.

However, despite my support for his premise in some areas, I disagree with him on others. I'll admit I'm a little biased, especially when it comes to his remarks on search advertising (I was a full time search marketing manager for three years), but overall I feel that his assertation that online advertising revenue is dropping largely because of its ineffectiveness is at least partially flawed because he seems to ignore some of the basic economics of the online ad industry.

Content (supply) is expanding much more quickly than the demand of online advertisers.

This is more applicable to ads that are sold on a CPM basis, but it can also affect CPC ads as well if there is a lack in relevancy (more on that below). It's a basic economic principle: when there is more supply than demand to fill it, prices drop.

Because of the lack of quality targeting or evaluation of influence, many advertisers still skew toward 'reach' and want only big sites, even if they're just pageview traps with low user engagement and an unfocused user base.

Also, many webmasters have gotten very good at creating what I call 'pageview traps'. For example, needlessly splitting articles into three pages, or creating a Top 10 list on ten separate pages. This drives up the pageviews and artificially skews other user metrics that can be used to sell advertisers on strong user engagement (avg. pages viewed per visit, bounce rate, time on site, etc) making sites appear to be good choices for an advertiser.

In reality, those users are not likely not paying any attention to the ads - they just want the next piece of the content they're viewing. While this ups pageview counts, which might help the content provider milk more CPM out of its advertisers, it often decimates ad engagement, so ads sold on a CPC (cost per click) model are likely to see clickthrough rates plummet.

As more and more sites do this, the end result is massively expanded inventory, dropping overall CPM/CPC rates.

Go a little further down the chain to smaller niche sites with a focused userbase and relevant content, and the problem then becomes filling the 'reach' side of the equation. On these sites, the topics and readers are usually pretty highly focused, but the only way they can scale to appeal to advertisers is to aggregate together via ad networks. The problem is, once dozens of sites are clumped together, then the network of sites as a whole are just as likely to suffer from the same problems noted above.

So while I do agree that the current drop in ad revenues is partially due to the ineffectiveness of ads, I also think that overall, the online ad economy needs some tweaking. Currently the incentives for content sites are to maximize pageviews and clicks on ads, often by whatever means necessary, and this is greatly devaluing the quality to both advertisers and consumers.

When a model is developed that can target more effectively, with pricing based on performance, then the incentives will shift away from intrusive ads, pageview traps, and misdirected clicks, and instead be about creating messages that actually fit and are worthwhile to both advertisers and consumers (for example, ads in lifestyle magazines are often just as worthwhile to many readers as the actual content).

I'm not sure how we'll achieve this, but I do agree with Mr. Clemons that it won't be through banners.

//read more at TechCrunch
//photo via Darren Donahue

Personally I don't really mind the new Facebook layout. In fact I kinda like it, even if it cuts the breadth of news we see from our friends with its Twitter-like design. I know I'm in the minority when I say that, but I didn't realize just how small a minority it is.

Six percent. Ouch.

Techcrunch reports that a polling application on the site reports that 94% of users are against the new redesign.

Unfortunately Facebook has a history of making sweeping changes with little warning. Whether they be design changes or terms of service changes, they tend to shoot first and ask questions later.

I noticed a few things that might have lead to this sudden change:

1. Twitter turns down a big offer from Facebook.
2. Twitter is a media darling, and growing at an astonishing rate.
3. Facebook knows social network users can be fickle. Not too long ago, it was the scrappy upstart who would eventually surpass MySpace.
4. Rush to push a new site design that imitates many of Twitter's features.

Is this a sign that they're chasing ghosts, and that Twitter may not be a real threat if 94% of users dislike a Twitter-like design with fewer features?

Or, perhaps it's a sign that there is no one ring to rule them all - they can't be everything to everyone. Giving up what makes Facebook great to try and be like something else is a bad idea, even if that something else is pretty cool in its own right.

There are evangelists. There are haters. There are analysts and pundits alike arguing why it's the next big thing. There are detractors laughing it off.

There is lots of noise...and I mean *lots* of noise. Teenage girls sharing trivial bits about school. Some dude sharing a photo of what he had for lunch. Some self-aggrandizing, buzzword heavy marketing person trying to share his profound insights on why he's just that smart and ahead of the curve.

There are grand proclamations - the future! It's the future! Get with it! Hurry!

Sound familiar?

For those of us around during previous hype-cycles, it's pretty much exactly what was argued against blogs, and now those same arguments are being applied to Twitter.

Blogging eventually found its niche. The noise of Xanga and LiveJournal was soon ignored, and the media soon stopped basing its stories upon nonsense stats such as, "Seven new blogs are created every second - 3,000% growth year over year!!!"

Soon the power of democratic publishing made easy enough for 'normal' people to use took hold. Crappy blogs fell away into the backwater of the web, but those that took the time to actually put something useful out there were rewarded with readers, pageviews, ad revenues, and a slew of PR people suddenly treating them like old friends.

What will Twitter's niche be? I can say this to be sure - it won't be the inane chatter that makes up much of the Twitterverse.

But, with the API being applied in new and ingenious ways every day, perhaps it will find its place.

Or not.

Such is the way of Silicon Valley.