Following the Money

It’s becoming increasingly hard to keep abreast of the rapidly changing world of online and search. In the same day that Microsoft sold a good chunk of recently purchased AOL patents to Facebook, Google announced that it spent $5 million on lobbying in the first quarter of this year, and apparently it’s almost impossible to get funded as an online start up in China nowadays. The common thread weaving through these (and many other) stories: law and regulation.

Facebook is accumulating a war chest of patents to use in its ongoing battle with Yahoo and most likely soon-to-be waged battle with Google. On a side note, it was terribly nice of the Microsofties to sell them to the Facebookers when I’m sure, if they had been asked, the Googlies would have been happy to check their pockets behind the sofa to find the half billion Facebook shelled out. Somebody is eventually going to buy Yahoo whether it’s Microsoft, Facebook or someone else. The status and cost of the ongoing legal mess is going to be a contributing factor.

Google is under fire in the U.S. and overseas for its monopolistic business practices and privacy, and spent $5 million to defend itself in Q1 2012. By comparison, Google’s largest rivals, including Microsoft, Apple, Yahoo and Facebook spent $3.6 million in the first quarter on legal fees.  Conservatively speaking, Google spent 10,000 hours of serious lobbying or about $7,000 for every member of the house and senate…

China used to be the darling of the online universe. If it was cool, it was happening in China. The law of gravity did not apply where the smart money was made. The VC playbook: build the business in China and exit through an IPO in the U.S. However, the fiscal mayhem that has become endemic in China of late has meant that the opportunity to cash out through IPO or acquisition has pretty much vaporized.

With the financial exits mostly barred, the smart money has dropped off by 85% in comparison to the same period last year. There is still money to be had, but it’s much more cautious and with a backdrop of financial scandal, lawsuits and an imposing legislative tightening of the screws. Things ain’t what they used to be.

The Vader Syndrome

There are some very interesting threads developing in our little online world. In a market that worships and rewards dominance, having too much power and acting accordingly is becoming increasingly newsworthy. If you can remember back that far, giants like IBM, Xerox and Kodak were regarded as unimpeachable and unstoppable…and in most cases became bloated evil empires frequently accused of anti-competitive practices and arrogance. Some argue that the transition from the smartest guys in the room to evil empire marks the decline. Each of them missed several major market changes and their death stars fell accordingly.

More recently, Microsoft became dominant, then bloated, then evil. Apple, who has historically been the cool underdog, has risen to fabulous new heights and is now facing accusations of price fixing for eBooks. It’s particularly ironic that the Feds are using Jobs own words (in his recent biography) against him. Yahoo lost market focus and essentially imploded. MySpace went from cool hangout to ad-slathered dropout. Even Google, the once fluffy bright-eyed and bushy-tailed darling of technology has fallen foul of the feds and multiple foreign governments concerned with breeches in privacy and monopolistic behavior.

If there are two underlining threads tying these disparate companies together, they seem to be contact and arrogance. As success grows, they become larger, more bureaucratic and less in touch with the markets that shaped them.

Similarly, as their market position strengthens they tend to believe the market will follow them as opposed to vice versa…witness Sony mini disc, Microsoft Vista and Google Buzz. So, what can Facebook and Twitter do to avoid the Death Star?

Welcome to the Jungle

Advertising has always been tricky when it comes to regulating the grey areas at the edge of media and freedom of speech. Search is rapidly following down the same rocky path and tripping over mine fields.

In the happy early days of search, it seemed that the search was in some way different to the real world — a Wild West where the rules don’t apply. The search guys, such as Craigslist, happily carried ads for everything from escorts to prescription drugs available without prescription from outside the U.S. But things have changed as time and lawsuits have rolled by.

For example, search for “Viagra” on Google and you will find only the manufacture’s site and a prescription-only supplier.  Similarly, the query “escort service” yielded ads for online “dating sites,” but not ads for escort companies.

The other shoes continues to drop: At the end of last year, Google set aside half a billion dollars to avoid prosecution for allowing ads for prescription drugs available from outside the U.S. without prescription.

More recently Google has come under fire from the Senate for possibly facilitating sex tourism and human trafficking under the guise of ads for dating sites. Google understandably doth protest, but some such things will inevitably sneak through.  While the ads are mostly gone for these kinds of services, the actual search results are still packed full of sites that offer all these services.

The recent failure of the SOPA legislation, which attempted to make search engines the guardians of intellectual property, has shed an even stronger light on the whole topic of illegal content and how it’s exposed through search.

There are countries in the Middle East that hand filter results to limit its own people’s access to any kind of politically sensitive or adult content. Similarly, China has waged a proxy war with the search engines to the point where Google withdrew entirely from the market last year.

In a recent interview with the Daily Mail in the U.K., one of the founders of Google, Sergey Brin, lamented the increasing intervention by governments into what was formerly a geeks-only world of search. He also took a swipe at the more proprietary approaches employed by Facebook and Apple, hypothesizing that had Google behaved liked Facebook there wouldn’t have been a Google as we know it today.

It’s fascinating to watch the two worlds of regulation and self-interest collide. In today’s world it’s much harder to restrict information than it ever has been. Yet, if a government tries hard enough, recent examples show that it can be done. Alongside the political interests of governments lie the business interests of the online giants, that much centralized power tends to corrupt. It will be interesting to see if there comes a time when the interests of those formerly opposing forces overlap and reinforce to the detriment of us all.

The Ad-Gad-Fly Generation

I’m physically allergic to advertising and almost never watch TV in real time because I can’t zap ads in real time.  If I want to watch something, I’ll likely either watch it on a pay-premium channel or download it through iTunes.

It’s not just that I hate the distraction (I do), but the standard of U.S. advertising is so much worse than the fare I was raised on in the U.K. So it was with some optimism that I read the recent survey on ad consumption of younger “digital native” consumers carried out by Time Inc. and Innerscope Research. It seems the young are indeed restless, switching media venues up to 27 times per non-working hour. They tracked media consumption across devices, and across the board the folks surveyed were moving around primarily to avoid pesky commercials.

In part, it’s probably because the lazy interrupting approach employed by advertisers tends to cause buffering, but it’s mostly because the younger and media demanding audience just won’t sit idle for garbage. They value their time more highly and have the tools to avoid and ignore ads. One response from Madison Avenue is to make ads harder and harder to close or ignore. That won’t work because all the browser has to do is flip to another window and wait for the interruption to finish. One increasingly popular product placement approach shows promise but can be jarring (see my earlier post on zombie product placement). The hardest, but perhaps only viable long-term strategy, is to make an effort to actually produce attractive, entertaining commercials that don’t bore, patronize or hit the audience over the head with dumb messaging.

The audience is evolving faster than the 30-to-50 somethings who run Ad Land can cope. And it’s voting with its remote, mouse or fingertip and simply avoiding or ignoring the message. The writing is on the tablet.  If the yellow pages industry only has five years left (and that seems to be the smart consensus), the wider ad world better get with the program and start entertaining rather than annoying, or else they will be right behind them.

Searching for the Amazon

It’s a rare week when the good folk at Amazon done come up with something to remark upon. This week, although they are set to benefit from the partial settlement of the recent anti-trust suit filed by the government, “search” has starred in Amazon’s remarkable week.

Amazon has used search in large volumes for a good while. You are using search every time you interact with their products. A few years ago, they deployed and have continued to develop their powerful A9 search platform, and now you, too, can use A9 in the cloud for a fraction of the cost of traditional search.

I love search. It’s cool and I know a lot of people who make their bills each month with search. So I had a slight intake of breath for my friends and former colleagues when I read today that Amazon is making powerful and flexible cloud-based search available on a pay-as-you-go basis. This isn’t the Mickey Mouse search offered by the Google Appliance guys, rather this is a full-bore-in-your-face-read-em-and-weep, enterprise-level search that has traditionally been provided by the big guys and used by the elites. This kind of technology has been available to the hyper-geek crowd through open source products like Lucene or Nutch for several years, but the level of tech-pertise needed to create a functioning product from those search starter kits was far above the interest level of most users. It would be like a clothing store manufacturing their own cash registers.

Given that enterprise search is (was?) too hard to make or manage yourself, companies turned to the big players who either offer search as a separate discipline or as a component of a larger system (Microsoft, Sun, Autonomy, Oracle, SAP etc…). What Amazon has done by making powerful and readily tunable enterprise level search available in the cloud on a pay-as-you-go-basis is to potentially reduce the available client pool for the large search providers.  From what I can gather, pretty much any reasonably competent web developer can now build and manage the kind of search deployment that would have cost a Porsche to buy and an Audi to run each year for the price of a mid-sized motorbike paid on a monthly installment plan.

It’s likely to make high-quality, flexible search much more widely available, which dove tails nicely with the democratization of technology that has continued to gather steam in recent years.

Pay Per Call Going Through the Roof

A survey just released by Telemetrics confirms with very clear data something we have been experiencing over the past year or so: local Pay Per Call is on fire. When Pay Per Call first hit a few years back it was primarily national advertisers doing national lead generation campaigns, essentially they used PPCall as an effective way to manage ROI. More recently local Small to Medium sized Business (SMBs) advertisers have recognized the simplicity and value of a PPCall approach and have been jumping on the band wagon in increasingly large numbers. Telemetrics tracked 348% more paid calls this year than in the equivalent period last year. The bulk of that growth they attribute to local businesses getting in on the act. Add to that the rapid growth in target-able local inventory driven by the continued growth of smart phones and you have an explosive combination.

Another factor tracked in the survey was talk time – the time spent on the call. Interestingly, mobile devices scored best with 3.5 minutes a call, yellow pages came in second with 2.7 minutes a call, and traditional online search driven calls were slightly behind at 2.2 minutes a call. I don’t have an intuitive answer as for why mobile search scores longer than regular search, but even at 2.2 minutes that’s plenty of time to set up an appointment or book a quote.

The good news for what we do is that this wave shows no signs of slowing down. In theory, there are something over 20 million SMBs in the United States. PPCall is a model that makes sense across the board, with industry watchers expecting 50 percent growth in the next year. Indeed, it is going to be an interesting year.

The Patent Wars Heat Up

The news today that AOL is selling a bunch of its patents to Microsoft for $1.1 billion is the latest action in the rapidly escalating patent war between the online giants. Last year, Google purchased Motorola Mobility for the patents it held. This is a high stakes game played by the giants with the war chests to compete. The spectacle of Yahoo suing Facebook and vice versa is just the latest skirmish. Apple famously patents everything and is getting more aggressive about defending them. Having said that, if you have enough cash it’s apparently OK to work on a “sue me” basis.

The poster child for this is good old Google. Back in the day (the early 2000s) I was an amazed bystander watching Overture’s (then GoTo’s) invention of Pay Per Click advertising be acquired by Yahoo only to be wholesale copied by Google with its AdWords product. Yahoo and Google went on to settle for huge amounts of money, but in the long game Google came out on top, as their “borrowing” of the PPC idea became the financial foundation of their search dominance. Had they respected the patent the outcome could have been very different. They repeated the offense with the Android operating system. Of course, Apple will attempt to defend their position, but by the time it grinds it’s way through the courts it won’t matter; Android has already established a lead over IOS and it’s likely to continue strengthening that position. Clearly, the market advantage gained by infringement is greater than any likely punishment.

I guess if you have the budget to do so it’s cheaper to seek forgiveness than ask for permission.

Tough Day in Purple Chair Land

I have a soft spot for Yahoo. I have worked with the search guys over there on and off for many years. Some of my old Fast Search and Transfer alumni used to run the search over there, so it was with a little sadness (but not surprise) that I read of further job cuts in Yahoo Land. Back when they were top dog and super cool, the Dr. Seuss-style, huge purple chairs in the lobby of their Sunnyvale campus always amused me. The chairs are still there, but many of the people are gone. The latest round cuts an additional 2,000 employees and who knows if the bloodletting is done.

I was recently at a media conference and one of the panels featured various Yahoo and Yahoo related people. One of the guys was billed as the guy “in charge” at Yahoo local. I was somewhat surprised, as I didn’t think there was anybody still employed by Yahoo local. As you may know, we at Search Initiatives are all about local and local search. For several years, I have watched the Yahoo local property slowly decline. Yahoo even invited us to pitch what we would do if selected to revamp their local offerings. It was a fun thought experiment, but we didn’t get the gig. As far as I know, nobody did. I guess their vote was to build, not buy, and the rest is history.

Although Yahoo is a wounded giant, it is still a giant. It commands about 30% of the search ad market (partnered with Bing) and the local game is still very much in play. When Yahoo asked us what we would change we suggested moving to a high value Pay Per Call model for local businesses rather than the Pay Per Click approach they focus on — in effect exactly the model we and other industry leaders have followed. That I know of, there are at least a couple of million local businesses out there who are willing to pay for calls. There is nothing stopping Yahoo from stepping up and taking leadership (with us) of that space. I’ll be waiting by the phone.

Funding Content Theft through Search?

The recent demise of a couple of attempts to pass more stringent copyright protection acts may well have sent the content pirates back to their treasure troves toasting a congress unable to move legislation forward. However, the whole area of content theft remains a hot topic that overlaps search in a couple of clear ways.

Among proposed legislation is a law to stop search engines from displaying stolen content. Not a bad idea on its face as most content (stolen or otherwise) is found through search. In fact, it was a horrible idea as it put an unreasonable, indeed, untenable burden on the search engines. With appropriate lobbying from the industry it died rapidly.

However, the issue remains. Institutionalized content theft is alive and well. It has completely remodeled the music business to the point where almost the only way that bands can make money is by performing live. In many cases, bands regard their music as essentially free promos for their live dates. TV and cinema are also being impacted, however, the impact is less obvious, though no less insidious.

Part of the problem (and I have a couple of suggested solutions btw) is that the content creation industry is inherently unsympathetic. Some of us are old enough to remember vinyl, which we bought and then bought again on tape, then on CD and maybe DVD and maybe iTunes. There are songs in my collection that I have probably paid for five times. Ditto for movies and TV. Anyone who pays $100 a month for cable with a few premium channels and $100 a viewing to take the kids to the movies might be forgiven for thinking that the gouging fat cats of media have it coming. Add to that the fact that there is almost nothing as unappealing as watching a very well paid person doing a job any of us would give their eye teeth to do moaning about copyright infringement. No wonder the industry struggles for popular support. The technology makes it simple, and putting the genie back in the bottle seems a hopeless task.

One way to make content theft much less attractive is to reduce the incentive. Most first run DVDs sell for about $20, and a month later they are $5. Did they become much cheaper to make? No, the pressure of piracy lowered the market price to the point where a lot of people would rather just pay $5 and have the convenience of easy delivery and a good night’s sleep.

The same goes for content through iTunes and Amazon. When the content creators got with the program and started releasing content at a price point that the average person felt was reasonable (about $1 per track or TV show) the floodgates opened and billions flowed. Most people don’t want to steal, but the same people are tired of being ripped off over the years and thus may be able to justify the content theft internally by the “they-had-it-coming” argument. If the content creators keep releasing content at a value point that makes sense to their audience (as opposed to their ambition) it is likely they will continue to flourish.

Making the search engines responsible for policing a broken paradigm makes no sense, but there is a way, and an important way, that the search engines could help. The irony of content piracy is that material that may cost hundreds of millions of dollars to produce can be copied and distributed for pennies. However, generating even those pennies can be problematic for the pirates. It’s understandably tough to get users to pony up a credit card for what they know to be an inherently shady undertaking (if they stole from them why wouldn’t they steal from you?), but the millions of page impressions surrounding the process of content theft are largely monetized by ads from the major search engines.

I’m a search guy. I know how hard it is to get an ad feed from one of the big guys and how tough those guys are on what you can and can’t do with their ads. They lay down strict guidelines about adult content, violence, hate speech, etc … and anyone who violates those rules gets their feed yanked and there goes the revenue.

Similarly, if you are syndicating an ad feed you had better be sure that your downstream follows the same rules or you will get penalized. I was in the desktop download marketing industry a few years back. That industry made millions for a huge number of businesses. When the heat of public opinion got too hot the search giants pulled their support and the industry shut down literally over night. I have no solid data, but I have to believe in the broad scheme of things the revenue the big search guys make from allowing their ads to be shown in the download industry is pretty minimal. The addition of one paragraph to the T&Cs of two search engines’ ad products would hole the pirate’s galleons below the water. It probably wouldn’t stop everyone, but if the source of immediate revenue is removed from the smaller guys and the hobby thieves I have to believe the impact would be dramatic. The content world would be better off lobbying Mountain View instead of congress, a properly crafted social media campaign would work wonders, and we could use Google+ to make it happen.

Hunger Gaming

The spectacular success of “The Hunger Games” movie – $250 million in the first two weeks – prompted me to wonder if we are actually getting the point of the movie. I have to admit, I read all three books and took a young relative to the movie this last weekend, which is my cover story. I would have gone on my own if need be.

If you aren’t familiar with the plot, “Hunger Games” features a “Survivor” type reality game show where teens from each of the oppressed regions of a post-apocalyptic America do battle to the death, which is watched and enjoyed by a decadent capital city crowd. Think “Running Man” meets Roman games.  In any event, the movie is a faithful adaptation of the book; not surprising given that the author was executive producer and co-wrote the script.

What I found most interesting was the no-holds-barred portrayal of the decadent audience reveling in the pain and death of the competitors. The sophisticated watching crowd are media drenched and uncritical, and they enjoy the over produced breathless garbage foisted upon them in the movie. It was a weirdly meta experience to sit in a pretty full theater with a crowd of younger people who are in turn media obsessed, passive consumers of exactly the same kind of garbage portrayed in the movie. And they don’t seem to get that the joke is on them or us.

The movie holds a mirror up to it’s own audience, if further evidence is needed that we are increasingly un-ironic society. Don’t get me wrong. Too much irony can be exhausting. I was raised in the U.K. where every other sentence is ironic or sarcastic. I used to find the open, frank American attitude of the mid-90s refreshing. Now I worry that we are losing our ability to recognize ourselves in the mirror.

“The Hunger Games’” mentality is becoming the norm, and the handful of commentators who stand on the sidelines and cry foul are largely ignored. This morning I saw “news” articles on one of the major networks about the departure of one of the “real housewives of Beverly Hills.” Another story highlighted “the most demanding dancing ever” on last night’s “Dancing with the Stars.”

We have become the crowd.