The $142 Million Hathaway Bet

A couple of contrasting occurrences in our online world give pause for thought. First, the new media darling Facebook tripped over its tail and slipped 24% in the first few days of trading. In other news, the great Warren Buffet shelled out $142 million for the 63 newspapers that comprise Media General.

Facebook is at the very bleeding edge of valuation at more than 20 times earnings (even with the recent slip), whereas Buffet paid just about 1.6 times earnings for the storied franchise that is Media General.

Given his famously strong track record at squeezing every inch of value out of his properties, there is no doubt Buffet will earn his money back and make a decent profit in a year or so… certainly faster than Facebook will.

The nightmare that publishers face is the delta in value between the ad revenue share they command and the time spent with that media. As long as the difference remains, publishers will continue to experience downward pressure.

Meanwhile, given the fire sale price that Buffet paid for Media General, Facebook could have bought the entire publishing industry with the value it has lost in the last few days.

Traditional media have much higher manufacturing and distribution costs and have substantially lost their strangle hold in all except the smallest of markets. Media General has been much better than many at reducing costs and making the switch from print dollars to online dimes and is now generating about a third of its revenue from online sources. They do have a strong presence in many of the smaller markets where print is still king, so those at least are promising indicators.

I hate to question the wisdom of the great Berkshire Hathaway (and it’s hard to know when to catch a falling knife) but Buffet’s acquisition is not a bet I would have placed. The paradigm is broken, the fixed overheads are high and Buffet is in danger of finding himself in the position of the legendary King Canute who was so convinced of his own powers that he attempted to tell the tide not to come in. We will see if he ends up with wet feet.

Cross Patch

The recent layoffs at Patch, AOL’s “hyper local” product, points to some of the fundamental problems associated with the space. The Patch philosophy was to make a business out of hyper local ads served against hyper local content. It’s been a bit of a mess from the beginning with criticism that the journalism is of questionable quality and the advertising ROI is mostly missing. More than 70% of their advertisers don’t renew their campaigns and of the $13 million revenue they did manage in 2011, a good chunk of that was allegedly national advertisers diverted to bolster the numbers.

You have to give AOL credit for taking a firm swing at hyper local and staying with it. They spent $160 million on it last year and several of their major investors are pushing to spin off the property with a partner to share the costs. Part of the problem was that they were trying to use a more traditional top down editorial approach (at one time with the mighty Arianna Huffington in charge) with highly paid editors wrangling citizen journalists, and that’s proving expensive.

One possible solution would be to revert to a truly volunteer army that would cut the overhead but potentially crater quality. The other problem:  it is difficult to generate local online revenue from notoriously fickle local advertisers who aren’t getting readily recognizable return on investment. It’s hard to go hyper local without truly going hyper local on both content and revenue.

My suggestion would be to go citizen journalist 100% with perhaps some minimal content review process and offer the advertisers proven ROI with a Pay Per Call delivery mechanism. Then we will see if there is really a future.

Why Y Axis?

It is not every day that a major search provider launches a completely new search presentation. In fact, I can’t think of the last time a provider did that off the top of my head. So I was intrigued to try the new search browser from Yahoo!, which is cleverly titled “Yahoo! Axis.” I first tried it on my desktop where it sits as a plug-in search box in the bottom left corner. That in itself is an interesting change and can be a bit frustrating if your browser window is below the screen.

The results presentation essentially loads a series of mini web pages rather than blue links, which is a bit of a clunky mess. Another frustration is that you have to scroll sideways multiple times to look at a dozen or so pages. It presents local results like post it notes, and again, you have to flick and scroll to the side to see more than a few results.

I then tried the iPhone version, which initially didn’t work at all. I kept getting messages to the effect that I wasn’t connected to the web even though I was. It eventually worked, and my guess is that the delay can be attributed to the time it took to download the mini versions of the sites.

Overall, the presentation is quite pretty, and it’s fun to flick through the pages, but it is not a different enough, useful enough or fast enough alternative to win me over right away.

Going, Going, Gone…Mobile

I came across an amazing mobile fact in a BIA Kelsey webinar today. It looks at the relative ad spend and usage for different kinds of media. For example, TV garners 40% of our time and 43% of ad revenue. Print does far better than it deserves with an amazing 29% or ad spend for just 6% of our attention. The largest imbalance comes from mobile. Although we spend 23% of our time on our smart phones, that industry only gets 1% of overall ad spend. It’s certainly been our experience that not only do mobile ads perform extremely well (remember most of our advertisers are inherently local), mobile allows for very accurate targeting. In addition to performing better than most other media, the cost per transaction is very competitive, which points to a relative dearth of ads targeted at the opportunity.

The rise and rise of mobile is turning our industry upside down. I have been in this industry for nearly 12 years (oh good grief that long!) and pretty much every year has been “the year of mobile” and every year mobile failed to deliver. What turned the tide was the iPhone, rapidly followed by Android. Phones went from being clunky, ugly messes to elegant tools that were good for doing more than just making calls and managing contacts.

Adoption rates and usage both shot up whilst advertising was still trying to come to terms with online advertising in general, let alone mobile. According to the BIA Kelsey survey, mobile now roughly equals online in terms of time spent. The online world has fought long and hard to squeeze the 16% of ad revenue it is attracting, but that 16% took over a decade to build. The great thing about mobile ads, especially mobile ads served against a search, is that pretty much the most obvious thing for an end user to do is click on the proffered phone number. If you searched for pizza and your phone returned an ad for a local pizza place, wouldn’t you click on the call? It’s a perfect fit with our Pay Per Call focus.

On a topical note, one of the many challenges Facebook faces is that many of it’s billions of users are using it from mobile devices some or most of the time. Right now their mobile strategy is significantly behind their web monetization strategy, and both are at best still in early stages of development. The $100-billion question is if Facebook users on the web are not very likely to click on ads, how much less likely are they to respond to interruptions in their mobile experience? It’s a question Mr. Z and his team will have to answer.

The Great Book Debate

Microsoft’s new social media platform,, is aimed squarely at the education sector, claims it is not to trying to be Facebook’s rival (yeah riiight), and contains the usual panoply of social media tools. But irrespective of Microsoft’s goals, is a day late and a dollar short.

The mere fact that Facebook famously started in a dorm room is pure coincidence, I’m sure. Since those early days of social media, most of the technology barriers that slowed early growth have now been resolved and pretty much anyone can put up a socially engaged platform. The challenge that everyone struggles with: how to get people to actually use their site.

In my humble opinion, there is a way that Microsoft could bring a real competitive edge – by leveraging the online textbook mess.  Along with OPEC, the textbook cartel is one of the most expensive costs we all have to bear. A survey a couple of years ago cited that each student spends about $900 on textbooks a year.

As a father of two boys going through the school system, that feels like a low number. The book manufacturers claim that their costs are reasonable given their overhead. I find that hard to believe when a calculus book costs $120 and calculus hasn’t changed much since the time of Newton. This is a multi-billion dollar market well poised for disruption.

We have black and white Kindle tablets for $79, and I was at a trade show last week where one of the vendors was pushing color Android tablets for $99. Clearly, the delivery mechanism is there.

The textbook industry could face the kind of digital apocalypse experienced by the music business. Back when CDs and DVDs cost $20 to $40, respectively, the file-sharing charge was led by kids who would rather stream their music than pay for it.

Despite various attempts by the music industry to sue end users, the market changed and bands now make a lion’s share of their revenue from live performances.  Meanwhile, the recorded content is almost free promotion and iTunes has become the largest music delivery platform. The exceptions to that paradigm appear to be standards and country music because older generations never quite figured out this whole online thing.

Where the model breaks down is where the pain is felt.  If students had to pay for their own schoolbooks (as opposed to having their poor besieged parents pay for them), the schoolbook industry would be in tatters. I just asked my youngest son the following, “If students had to pay for their textbooks in the same way they have to pay for their music, how long would the market last in it’s current form?” His answer: “Half a semester at most….then it would all be electronic.”

If Microsoft teamed up with (say) Amazon and the top 10 educational publishers and came up with a way to purchase and share educational content similar to iTunes they might have a reason for millions of kids to sign on. They could then extend the approach to broader content, serving as the foundation for a whole new world for Microsoft.

Microsoft has proven in the past that it can take on established market leaders and succeed (and fail …witness XBox and Zune). But if teamed up with educational content, it could be a killer combination.

‘It’s Nice to Know it’s There’

There is a song I vaguely recall from a past life. The hook goes, “We love living in London…it’s nice to know it’s there,” and they go on to list the many and marvelous artistic and historic attractions in London which, if they ever got around to them, they could probably visit and enjoy. But in the meantime, “it’s nice to know it’s there.”

A recent report from Implied Intelligence surveyed a huge number of local business sites and found that only 13.6% of them link to or from Facebook and 3.2% link to or from Twitter.

A much higher number of businesses (typically cited at about 50%, and in some cases as high as 70%) claim to have a business presence on Facebook. So why do so few of them do the most obvious and powerful thing, which is link their business site to and from Facebook?  It could be that they didn’t know they should do it or have forgotten the password to actually get into and edit their own website. But in all likelihood, it’s much more likely they created their Facebook page on a “nice to know it’s there” basis and have never gone back since.

The “it’s nice to know it’s there” problem is going to haunt Facebook as it attempts to grow into its fabulous valuation. To justify their value, they will have to build huge ad revenues, and the local market is set to grow massively (if the recent BIA Kelsey report is to be believed).

For Facebook to take advantage of that massive trend, they are going to have to generate a meaningful solution for the No. 1 local business problem: constantly acquiring new clients. Lots of local businesses setting up a Facebook page and thinking of it only occasionally (if at all) is not going to be enough.

In the meantime, I’d like to share a letter from Mr. Zuckerberg.

GM about Face … Book.

It must be interesting to be Mark Zuckerberg. Imagine getting up each morning knowing that your product (or at least the idea you borrowed from your friends) will probably be used at some point today by 15% of humanity. Not to mention, if you live until you were 90, you could spend a million dollars a day and still have change in your shroud. Then imagine opening your iPad over your cornflakes to read that just a few days before your massive IPO, General Motors has dropped your product because it doesn’t sell cars.

I can only imagine a Wile E. Coyote double take at that headline. It is a little shocking and awfully bad timing given the IPO hoopla.

Huge media companies tend to get hard to deal with and perhaps a tad arrogant, so I bet there were some ruffled feathers behind the GM announcement. But the fundamental question has been echoed by many advertisers: Does Facebook convert? When measured by conventional means, it is not easy to prove that Facebook can compete with conventional or other new media.

That has been our experience. We don’t have the kind of engagements with our clients that allow us to Facebook for them, but the limited advertising testing we have done has been underwhelming at best. The common wisdom is that where as search is a transactional medium, social media is all about engagement, and it is much harder to define where the fit happens and then be able to measure that fit. The problem is, Facebook is just too big to dismiss. Roughly half of all webpages served this year will be on Facebook. Yes, half.

However, Facebook only accounts for about 10% of display ad spend, so there is quite a bit of catching up to do. Facebook has been terrific at expanding the amount of interest and locality information they make available to advertisers.  I mean, you really can target left-handed podiatrists in Oshkosh with pretty decent accuracy and volume. But those same podiatrists don’t seem much inclined to click on the ads.

There has to be a way to make this work at scale, and folks like us are busy working on it.  In the meantime, pass the cornflakes, Mark, and can I have next Wednesday’s million, please?

Doing It for Themselves

I took a micro break from ThinkJudd for a mega graduation…that’s one son through college and one on the way. During my travels, I reveled in the ease and convenience of being able to use my iPhone to check in through security rather than print out a paper boarding pass.

Of the dozens of people ahead of me, at least half checked in to security and boarded the plane by scanning their phone. That prompted me to ponder the self-service adoption conundrum.

It is a widely held opinion in our industry that local businesses do not like self-service and won’t adopt it or will adopt it slowly. But if that were really true, eBay wouldn’t exist, Groupon wouldn’t be in the mess they are in right now and Amazon would still be a small online bookshop. I don’t ever recall seeing a promotion for checking in with a smart phone. In fact, I barely remember the transition to online check in, but I know it happened pretty quickly. It seems that if there is a compelling enough reason, folks will figure out how to get things (for which they really care about) done.

The multi-billion dollar question is what will be the tipping point for local online. Historically, local online advertising has been a complicated mess with the largest single player in the space being “other.” One of the most significant problems is perceived ROI. Local businesses are famously fickle in their media choices.  Absent any compelling argument, they tend to buy the last thing they were sold. If there were the local business equivalent of mobile check in that allowed local businesses to spend their scarce marketing dollars with new media and get tangible value for their money, then the mobile check-in paradigm suggests that adoption might follow.

As always, the gorilla in the room is our good friend Google. A couple of years ago, I was discussing just this very same issue with a guy who was running Google Local. I pointed out that although it’s a great idea, it might take a decade for self-service for local to really come to fruition. His reply was interesting: “That’s the kind of time line we are thinking of,too…and we are comfortable with that.”

The other key problem with local online is that if you don’t have a really good grasp of what’s going on it’s incredibly easy to blow through your budget and get almost nothing tangible in return. That’s just not going to fly with the typical SMB.

In our world, we use a Pay Per Call approach where customers only pay for leads. If we can’t generate the lead, we don’t get paid. That works extremely well and there seems to be a huge demand for it.  But let’s get one thing clear: it is not self-service. Our local clients come to us through advertising and marketing agencies that really understand the complexities and dangers that surround our space.

Those clients are stacking up fast, and it’s likely that at least some of them are going to catch on to the opportunity and figure out how to work with folks like us directly. Whilst there’s no immediate apparent equivalent to the smart phone check-in to stampede the vast SMB throng to one approach, it appears the herd is on the move with Pay Per Call.

Saving the Trees

I had to chuckle as I read a report today from the Local Search Association (formerly the Yellow Pages Association) that claimed the massive and continuing decline in yellow book usage is good for the earth’s ecosystem because it sacrifices fewer trees. It’s an exercise in glass-half-full thinking worthy of the Black Knight in Monty Python’s Holy Grail.

I’m a member of the LSA so I probably shouldn’t be too mean, but a couple of months ago I attended the Borell group meetings in New York where the great and the good of the media world assembled to eat bad hotel food and lament the decline of traditional media. Execs with different tales of woe from newspapers, yellow books, radio and TV discussed the continuing challenges of the migration to online. Some players like Dex One lead by the magnificent David Sharman have embraced the challenge and made online lemonade out of digital lemons. Most are trying really hard with varying degrees of success substituting digital dimes for paper dollars.

Interestingly, there seems to be a kind of stalemate between the online pure plays like and versus traditional media. Each has cornered about half of their respective markets and are working on ways to build a shaky peace that can benefit them all.  But the unspeakable was spoken at that conference. Given the current 18% year-over year-decline, yellow books have about five years before they cease to matter, and all those trees will be able to breathe a sigh of relief.