Category Archives: Strategy

Mountains

Deportalization and Internet Advertising II

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Glam hired a new guy today. Techcrunch, VentureBeat and PaidContent all posted about it.

All of the reporting on this hire focus on Glam’s coup in getting their man, and on their profitability heading into Q4. There is little in the way of analysis, which is probably quite reasonable on a news-filled Monday morning here on the West Coast..

As TechCrunch’s Jason Kincaid reports:

Glam Media has scored a major senior hire, landing Josh Jacobs, Yahoo’s Vice President & GM Advertising Technology Platforms who currently runs Yahoo’s entire display ad platform and previously ran the portal’s publisher network. Jacobs will be joining Glam as Senior Vice President of Brand Advertising Products & Marketing, where he’ll run all of Glam’s brand advertising products, as well as marketing and communications. This is a major win for Glam, which has shown strong growth through the economic downturn as it eats away marketshare from the likes of Yahoo, MSN, and AOL.

However, there is a more strategic conclusion to draw from Glam’s recent trajectory and from this hire in particular. Glam is unique in having successfully built a new model that is far more focused on the evolving landscape of publishing and reading habits than any of its competitors. Samir Arora – Glam’s CEO – grasped very early that the growth in the number of publishers on the Internet would lead to a changing landscape for advertisers. By grasping the trend early he has succeeded in building a most impressive business. A woman’s content site, with virtually no original content, where the majority of the traffic is not on glam.com, but is on the several hundred publisher sites that make up the Glam network. By realizing that the audience is already there, and that the business is to take advertising to it, rather than to seek to capture it for a destination portal, Arora has figured out how to grow a large business, even in hard times.

I wrote about deportalization quite some time ago, and spelled out its implications. As we move from the era of deportalization into the new era characterized by the real time stream, Glam are positioned to continue to grow. Display advertising is a major element in Glam’s strategy and rightly so. High value audiences are found clustered around all major topics. Ad networks typically fail to realize the value of those audiences, or adequately facilitate a brand from engaging with them. Glam is simply a small indication of the potential for passion-focused distributed advertising.

Mountains

De-portalization and Internet Revenues I

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I am re-posting this from the edgeio blog. Mainly because I think it has current relevance and will in future have historical value.

I’m not certain the edgeio blog will continue to exist, so this is the new home for the post. Since it was originally written we have seen the rise of Adbrite, Glam, Sugar Publishing, Digg and other businesses based on understanding the proliferation of publishing, reading habits, and advertising away from the big portals. I also note that Chris Anderson of Long Tail fame commented on the post, something I failed to notice originally. So, here is the original post

This post is a little more philosophical than most that you will see here. It provides a little bit of background as to why edgeio is in the business of bringing together, organizing and distributing listings to the edge of the network. In short it is because we believe that the Internet is moving away from big centralized portals, which have gathered the lions share of Internet traffic, towards a pattern where traffic is generally much flatter. The mountains, if you will, continue to exist. But the foothills advance and take up more of the overall pie. Fred Wilson had a post earlier this week about the de-portalization of the Internet which is essentially making the same point when seen from the point of view of Yahoo.

Update: 11am Pacific, Sunday 10 December

Several commentators are seeing the word “de-portalization” (first coined by Fred Wilson) and reading “end of portals”. To be clear, and apologies if I wasn’t already, de-portalization represents a change in the relative weight of portals in a traffic sense, and the emergence of what I call the “foothills” as a major source of traffic. This will affect money flows. Portals will remain both large and will continue to grow. But relatively less than the traffic in the foothills. The foothills will monetize under greater control of its publishers and the dollar value of its traffic is already large and will get much larger.

The following 3 graphics illustrate what we believe has happened already and is likely to continue.

The first picture is a rough depiction of Internet traffic before the flattening

2004 and all that

The second picture is a rough depiction of today – with the mountains still evident, but much less so

The rise of the foothills

The third picture is where these trends are leading. To a flatter world of more evenly disributed traffic.

The future pattern of web traffic

Some of the consequences of this trend are profound. Here are our top 10 things to watch as de-portalization continues..

1. The revenue growth that has characterized the Internet since 1994 will continue. But more and more of the revenue will be made in the foothills, not the mountains.
2. If the major destination sites want to participate in it they will need to find a way to be involved in the traffic that inhabits the foothills.
3. Widgets are a symptom of this need to embed yourself in the distributed traffic of the foothills.
4. Portals that try to widgetize the foothills will do less well than those who truly embrace distributed content, but better than those who ignore the trends.
5. Every pair of eyeballs in the foothills will have many competing advertisers looking to connect with them. Publishers will benefit from this.
6. Because of this competition the dollar value of the traffic that is in the foothills will be (already is) vastly more than a generic ad platform like Google Adsense or Yahoo’s Panama can realize. Techcrunch ($180,000 last month according to the SF Chronicle) is an example of how much more money a publisher who sells advertising and listings to target advertisers can make than when in the hands of an advertiser focused middleman like Google.
7. Publisher driven revenue models will increasingly replace middlemen. There will be no successful advertiser driven models in the foothills, only publisher centric models. Successful platform vendors will put the publisher at the center of the world in a sellers market for eyeballs. There will be more publishers able to make $180,000 a month.
8. Portals will need to evolve into platform companies in order to participate in a huge growth of Internet revenues. Service to publishers will be a huge part of this. Otherwise they will end up like Infospace, or maybe Infoseek. Relics of the past.
9. Search however will become more important as content becomes more distributed. Yet it will command less and less a proportion of the growing Internet traffic.
10. Smart companies will (a) help content find traffic by enabling its distribution. (b) help users find content that is widely dispersed by providing great search. (c) help the publishers in the rising foothills maximize the value of their publications.

Discussion

Kevin Burton
Techmeme
Mike Arrington
Syntagma
Keith Teare’s Weblog
Dan Farber at ZDNet
Mark Evans
Fred Wilson
Ivan Pope at Snipperoo
Tech Tailrank
Collaborative Thinking
David Black
Surfing the Chaos
Ben Griffiths
Dave Winer (great pics)
Kosso’s Braingarden
Dizzy Thinks
Mark Evans

Dare Obasanjo

Technology Blog Valuations – Getting to be Real!

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Update 2:Rafat has a comment to this post pointing out that by just looking at paidcontent.org I am doing the valuation of ContentNext a disservice. Of course he is quite right. ContentNext has other sites and also events. It is also true to say – although Rafat doesn’t – that valuation has many variables, including the quality of the people etc. Rafat is very good at what he does and he has a great team. So … fair point Rafat.

In my own defense, this post is not intended to be a scientific analysis of valuation. I did a “back of the envelope” comparison. I didn’t take into account any of the other sites that GigaOm has, or TechCrunch, or ReadWriteWeb. I also didn’t take into account TechCrunch events. All I was saying is, there are probably (by relative comparison of the web sites) some pretty valuable businesses out there right now. Hope you agree with that Rafat.

Update: Kara Swisher is speculating who’s next. Jeff Jarvis is hoping she’s wrong. Now there’s a Techmeme discussion.

The news that Rafat Ali’s ContentNext, owner of PaidContent.org, has been acquired by the UK’s Guardian Media Group got me to thinking. What does this mean for the valuations of other Tech blogs?

I did a quick back of the envelope calculation based on the numbers published and the Compete.com stats for June 2008.

By this math PaidContent.org got something like $139 per unique reader or $56 per visit as an acquisition price. Of course the Compete stats will not be wholly accurate (although Quantcast has Paidcontent.org at only 40,000 unique visitors, so Compete could be high)

Using Compete.com for 4 other significant technology Blog services we get some interesting numbers. TechCrunch should be valued at between $200 and $450m; GigaOm at between $46 and $55m; ReadWriteWeb at between $63 and $65m and Venturebeat between $50 and $53m. I’d say a merger between these 4 would bring them collectively up to about $350-500m even without the synergies and growth prospects of being one. I also looked at the search analytics data from Compete.com. 4,563 keywords for TechCrunch, 585 for GigaOm, 913 for ReadWriteWeb, 581 for Venturebeat and 363 for PaidContent.org Interesting indeed.

I am adding some graphics from Compete.com (all from this URL).






Disclosure: I am a shareholder in TechCrunch – along with Mike Arrington.

I’ve been “tagged”

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As the title says I have been tagged by Dave Winer.

The rules say I now have to tell you 5 things you didn’t know about me and then tag five others.

So, here goes:

1. I am currently in St James, Cape Town, S Africa. It is a small area between Muizenberg and Fish Hoek (see map).
Cape Town Area
2. I own a home here – on Jacobs ladder.

3. My wife is South African – Gené McPherson. Born in Jo’burg. Her parents and one of her sisters live in Cape Town today. Gené was a co-founder of Cyberia [free subscription needed] (the worlds first Internet Café – London 1994. She was also VP Marketing at RealNames. She is now a Mom – and a great one.

4. We have a new son – born 4 November. Luke Graham Teare. This is the first time his grandparents have seen him and he them. Then again, it is pretty much the first time he has seen anything :-) .

5. I am the oldest son of 5 brothers and a sister. Two of my brothers died (one an his first year and one at 37). So there are 3 brothers and a sister remaining. My Mom is still alive  and living in Scarborough, North Yorkshire. She is 72 and I am 52. My brother Brian is CTO at cscape.com, which I started in 1983.

I am tagging Ivan Pope; Gabe Rivera; Auren Hoffman; Michael Tanne and Richard MacManus

The Pareto Principle is nonsense.

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In response to the current discussion on Techmeme and TailRank hipmojo writes that the Pareto principle is in play on the internet and that no matter how much we want it to be otherwise 80% of online advertising will go to 20% of the web sites.

When the dust settles, the top 20% of websites will get 80% of ad revenues. It’s that simple. Portals might change in shape, form or nature, but whatever they represent loosely will still get the bulk of revenues and traffic.

With respect, that is nonsense. Since the advent of Google Adsense the shape of internet advertising spend has mirrored the flattening of traffic I speak of on the edgeio blog. Almost half of Google’s revenue comes from Adsense. And about 75% of the dollars earned through Adsense stay with the publishers whose sites the ads run on. Clearly the lions share of the money spent through Google is shared about 50-50 with the publishers in the “foothills”.

It may be worth listening to the Google Earnings calls on Earningscast to validate this.

That is why Google talks so much about “inventory”. That is, traffic from outside google.com. The size and cost of this inventory is a major variable and the need to grow it helps us to understand deals like the one with YouTube.

If you roll the clock back to the pre-Adsense days when DoubleClick ruled, and online advertising was only going to large sites, it is a huge change in monetization and traffic flows. Give Google credit for this.

One of the things my piece argues is that there is a new trend on top of this established one – publisher monetization of their own content through direct relationships to advertisers (job boards, sponsorships and Techmeme like ad units being examples).

Sure the portals are still big but the collective foothills are as big now, and will be a lot bigger in the future.

De-portalization and Internet revenues

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Last week Fred Wilson did a post on a phenomena he called de-portalization. I think he is right on the money.

I just posted a piece on the edgeio blog that picks up on that theme and discusses the consequences of the trend.

The top 10 consequences are:

1. The revenue growth that has characterized the Internet since 1994 will continue. But more and more of the revenue will be made in the foothills, not the mountains.
2. If the major destination sites want to participate in it they will need to find a way to be involved in the traffic that inhabits the foothills.
3. Widgets are a symptom of this need to embed yourself in the distributed traffic of the foothills.
4. Portals that try to widgetize the foothills will do less well than those who truly embrace distributed content, but better than those who ignore the trends.
5. Every pair of eyeballs in the foothills will have many competing advertisers looking to connect with them. Publishers will benefit from this.
6. Because of this competition the dollar value of the traffic that is in the foothills will be (already is) vastly more than a generic ad platform like Google Adsense or Yahoo’s Panama can realize. Techcrunch ($180,000 last month according to the SF Chronicle) is an example of how much more money a publisher who sells advertising and listings to target advertisers can make than when in the hands of an advertiser focused middleman like Google.
7. Publisher driven revenue models will increasingly replace middlemen. There will be no successful advertiser driven models in the foothills, only publisher centric models. Successful platform vendors will put the publisher at the center of the world in a sellers market for eyeballs. There will be more publishers able to make $180,000 a month.
8. Portals will need to evolve into platform companies in order to participate in a huge growth of Internet revenues. Service to publishers will be a huge part of this. Otherwise they will end up like Infospace, or maybe Infoseek. Relics of the past.
9. Search however will become more important as content becomes more distributed. Yet it will command less and less a proportion of the growing Internet traffic.
10. Smart companies will (a) help content find traffic by enabling its distribution. (b) help users find content that is widely dispersed by providing great search. (c) help the publishers in the rising foothills maximize the value of their publications.

Discussion

Kevin Burton
Techmeme
Mike Arrington
Syntagma
Dan Farber at ZDNet
Mark Evans
Fred Wilson
Ivan Pope at Snipperoo
Tech Tailrank
Collaborative Thinking
David Black
Surfing the Chaos
Ben Griffiths
Dave Winer (great pics)
Kosso’s Braingarden
Dizzy Thinks
Mark Evans