Archive for June, 2010

by Ben Elowitz

This article was published as a guest post on paidContent.org.

Earlier this month, John Donahoe, CEO of eBay (NSDQ: EBAY) and its subsidiary Paypal, was interviewed at the D8 conference. It was a flashback to see him speak:  I had worked under him 15 years ago when I was a freshly minted undergrad just hired into the San Francisco office he ran for Bain & Company. A strapping and charismatic up-and-comer, John was known for his bold visionary talks and his strident walk.

But at D8, I didn’t see that confidence. He spoke of eBay’s connections between buyers and sellers as though he hoped we’d believe it was a new trend; meanwhile far from his Santa Clara headquarters, Gilt Groupe and Groupon are reinventing e-commerce. On Paypal, he looked backwards to the innovation of getting financial services online, rather than forward to the app revolution. Overall he looked staid, the way eBay and Paypal now look to me – entangled by their legacy, unable to cut the cords to freely enjoy the new boom around them.

With that in mind, I’d like to offer Paypal the chance to get ahead in an area that still has room for wild success. Media desperately needs help to become financially viable – and consumers will need to foot part of the bill to make it so. It’s clear that others see the opportunity here: Facebook surely wants to spread its Facebook Credits currency to take over the world the way ‘Like’ has; and now word comes that Google (NSDQ: GOOG) is readying Newspass in its bid to capture consumer payments for media. But more than these other companies, Paypal, with its huge footprint of consumer accounts and years of web experience, is in the catbird seat to be media’s savior.

I wrote recently that there is an easy formula for consumer spend on media:

Desire + Relationship + Ease = Spend

With ad revenues going less far to foot the bill for published content, making media profitable will increasingly mean turning to consumers to pay for content and experiences. And consumers open their wallets in proportion to how badly they want it (desire); how well they know the other parties (relationship); and how little work it takes (ease). This is why there is such a strong future in bite-size media consumption: for all the talk about paywalls and subscriptions, it is far easier to get payments of a buck or two. Apple (NSDQ: AAPLdemonstrates the value of bite-size with hundreds of millions of dollars of revenues from apps alone, far exceeding any leading online publisher’s subscription programs.

But while Apple is the king of creating platforms for desirable experience, its eminence is limited to its domain of devices, just as Facebook is confined to the social network. And publishers need to up the desire, relationship and ease for their whole online audience. Enter Paypal.  Paypal works across the wide open web. With 219 million registered accounts and trust among users and merchants alike, Paypal has an outstanding position to work from. And so Paypal’s great opportunity is to enable quick consumer payments for media with fast, easy, lightweight universal payments.

What Will It Take: The Impulse Click

Media doesn’t rank highly in terms of the necessities on Mazlov’s pyramid. And so the essence of consumer-paid media is impulse, and the critical enabler of paid digital media is the “impulse click.” That click starts the brief moments/long window of consumer intent. For Paypal that means, it needs a button that completes the sale before the impulse fades – and needs to spread that button throughout media. If it delivers on that, Paypal can play as critical a role in the fast-growing digital media economy as it did in the person-to-person commerce revolution of Web 1.0.

To do so, it will take five key upgrades in ease and structure. Here’s what they are:

1)    Lighter authentication: For a $50 e-commerce transaction (from which the merchant earns just a few dollars of gross margin), a transfer to the Paypal website and fresh login and password entry may be called for, but that won’t do for a $0.99 purchase of media bits, where the lack of ease would be a deal-killer. Recognize the user automatically for most bite-size purchases, as Facebook does for sites using its new open graph technologies. For a transaction of less than a buck, and considering Paypal’s preeminent capability in fraud prevention, it should be able to manage risk to make this effective.

2)    One-step confirmation: Apple has set the bar for how easy it is to transact:  on my iPad, I tap the “buy” price and then supply my password. That’s all that’s needed or appropriate for this transaction.  And no one has done this on the web at large.  If Paypal does, it will lead the industry in ease – and help media publishers in the process. The current process usually requires three or more pages and requires not only login with password, but confirmation of accounts to fund the transaction with; backup funding options; and often classifying the transaction. The interface is slow and kludgy, vintage 1990s, while the web (and user’s expectations) have had massive upgrades since then.  It’s time for an experience overhaul, Paypal!

3)   Simple billing: Offer fewer options to make it simple. Instead of bank cards, credit cards and different guarantees, keep one default payment method on file and just bill to it without asking for anything less than $5. For impulse purchases, the consumer needs to complete the transaction before the impulse fades.

4)    Use the phone: For universal payments and quick setup, bank and credit cards are too cumbersome. But consumers young and old with good credit and poor alike have one thing in common:  mobile phones. Paypal should acquire Zong, which would contribute an instant way to bill cellphones with minimal hassle that smart sites like Facebook are already taking advantage of. With this simplified experience, Paypal then is ready to offer its payment system on every device possible.  As consumers are increasingly consuming content from their mobile phones, Paypal needs to be where the consumer is – available to apps on every platform possible.

5)    Offer attractive revenue share: Platforms like Apple’s require that publishers give up 30% of revenues or more; Paypal’s heritage in banking and payment processing comes at it from a much lower pricing level of 5% plus $0.05 per transaction. For its bite-size payment system, Paypal should get adoption from every major publisher by holding to this structure for its most profitable transactions, and taking no more than 15% of other transactions; while using its massive scale to negotiate fees with credit/debit and cellphone providers on the back end. By competing on price to win adoption by publishers, Paypal will be expand its footprint to get more cost leverage.

If Paypal does these five things, it can supply a payment system that is so good that it will enable digital-media companies to charge and collect frequently for premium experiences and content. For Paypal, this will enhance its offering and help it win a huge share of the emerging paid digital media category. But more importantly, this will hasten our progress toward a profitable future for the digital-media industry. And I think that sort of change-the-world accomplishment is exactly what is missing to get John Donahoe as charged up again as I remember him.

by Ben Elowitz

Despite their coveted value, the great brands of old media aren’t proving out to be much of an asset online.  And to the extent old media is relying on the value of their brands to ensure a digital future, they are headed in the wrong direction.

For this new analysis for Digital Quarters, we measured audience and visits (from comScore) for sites across the major media categories, comparing the metrics of sites operated under old media brands (e.g. ABC, Entertainment Weekly) in each category to those of new upstarts.  Over the past year old media brands lost share of online audience to new media in nearly all of the traditional magazine categories (TV, entertainment, business, fashion, tech, and teens), while the offline brands in the News category grew share during that same period.    Although total visits were up 5% for old media, new media visits grew far faster — 10% — from April 2009 to April 2010, leading to share loss for old media in six out of the eight categories that we tracked.

Old Media Share Online

Overall visit growth was positive in all media categories other than TV, but despite this, old media brands experienced an absolute visit decline in Entertainment News and Teens which are rapidly shifting towards new media sources.

Conventional wisdom has held that building a brand is a momentous challenge in developed spaces such as media; and that disproportionate returns accrue to the most established brands. But my new analysis shows that legacy brands are on the defensive, far more threatened by new entrants than the other way around.  The upshot appears to be that upstarts’ execution is earning new audiences (and building their new brands), drawing audience on average away from more established players.

The reason for this shift, and the dominance of new media in categories such as Tech News is simply that the old media magazine model is ill equipped to compete with more nimble online competitors.  For the most part, weekly and monthly publications are struggling to keep up with the new pace of information exchange and social interaction demanded on the web.  Understandably, the value to consumers of days, weeks, or months-old “news” on fashion trends, celebrity gossip, and technology is far lower in the presence of up-to-the-minute coverage from new sites.

comScore April YOY Visits Growth

However, the success of offline brands in the News category offers hope for other old media brands.  Companies such as The New York Times, BBC, and ABCNews have grown their online presence and are clearly investing in digital as core to their business.    They are actively experimenting with rich media, social marketing, and engaging their audience.    But while news outlets have always operated on a fast pace, magazines are at a particular disadvantage in that they are not structured to turn information around quickly.  For old media magazine brands to maintain or grow share, they’ll need to go further by transforming their organizations, incentives, and sources and embracing the new definitions of publishing quality to provide the experiences that consumers are now seeking online.  With online share falling — in some cases dramatically — now is the time for offline legacy publishers to take action and get their brands working harder before it’s too late.

Methodology

Source: comScore panel-only visit data for April 2009, July 2009, September 2009 (panel only was unavailable for October), January 2010, and April 2010, including only properties with more than 500,000 monthly unique users.   Properties were manually categorized into old media if they originated offline, and new media if they are entirely online or originated online (e.g. TMZ and MSNBC are considered new media).  comScore category names: Business News/Research (Bus News); Entertainment – News (Ent News); Beauty/Fashion/Style (Fashion); Lifestyles;  News/Information (News); and Technology – News (Tech News); Teens; Entertainment  TV (TV).

by Ben Elowitz

It’s been a week of dancing for Apple and The New York Times as they played hokey pokey with an app that offers a new, fun way for consumers to experience media:  First, Steve Jobs put the acclaimed Pulse News app into his Worldwide Developers Conference talk, then took it out of  the app store, and then put it back in again, but only after the developers took The New York Times out of it.

But as fun as it is to watch them dance, I can’t help but notice that The New York Times missed the opportunity right in front of Sr. VP Martin Nisenholtz’s eyes:  the Pulse team is exactly the kind of talent that the company should be acquiring, not shunting.  The Pulse founders made an app with a great consumer experience for media,  did it in just a few weeks,  managed to get the attention of the premier technology tastemaker in the world, Steve Jobs, and even made some money.

Message to Martin:  Instead of cutting them down and pushing them into someone else’s arms, make nice and go hire (or acquire) the Pulse team. Or, as my mother once said to my older brother when he was dating someone she actually liked, “There are better men out there than you:  You better marry her before someone else does!”

by Ben Elowitz

Last month, I wrote a post titled “Associated Content is Yahoo’s First Big Media Move. Here’s What Should Come Next,” in which I pushed Yahoo to acquire premium content properties to overcome the commodity signal they sent by acquiring AC.  I said at the time that Huffington Post’s curation model “crowdsources content but applies a strong point of view and features premier branded names, lifting it above the commodity fold.”  For Yahoo, Huffington Post is the perfect combination of premium and economical.

Now, over this last weekend, Erick Schonfeld wrote at TechCrunch that deal discussions between these two publishers are underway for a content partnership or outright acquisition. Though Arianna Huffington denies it, other sources indicate that HuffPo has been on Yahoo’s short list, and I wouldn’t be surprised if conversations have been ongoing.

While  Yahoo had previously announced intentions to compete in news by hiring brand-name reporters, that direction is fraught for the big portal:  the news category is difficult to lead with a heavy demand on consistently breaking  news — and it would take years for Yahoo to build the credibility in original reporting to become a true audience magnet.   And the prize for winning even if they do?  It could be losses, not profits, as has been born out by the experience of myriad old media outlets who are now making over their businesses.

What Huffington Post represents is a far better road for Yahoo to go from portal to destination in a realistic way.  HuffPo can draw audiences not by competing with the news outlets on reporting but with great access and point of view – both of which are within Yahoo’s brand and execution reach.  It would serve as an anchor property with true destination draw.

Indeed, Huffington Post may be unique among the news-oriented sites of the portals, curators, and aggregators in having earned true premium positioning.  They did so by emphasizing a strong and reliable point of view along with affiliation with notable brands (such as regulars Arianna Huffington herself, Bill Maher, Harry Shearer, and Rosie O’Donnell, along with guest posts from a robust range of influentials).  Along the way, the site has also earned an outstanding brand and destination audience of 22 million (comScore), consistently garnering visits from both search engine referrals (14% of traffic from Google according to compete.com) and social networks (16% from Facebook).

This destination draw is critical for Yahoo.  At Yahoo’s home page, 73% of monthly viewers are there to get their mail – and that usage is shrinking at (2%) per year (comscore April 2010 vs. April 2009) vs. a US internet universe which grew at 10%.  As Yahoo commits to a media-company destiny, its strategy must be to create high-end destination titles that will draw premium advertising – not just keep mail users on-network longer.

For those in charge of Yahoo’s media properties, David Ko and Jimmy Pitaro, they would get two other benefits to leverage:  HuffPo gives Yahoo a premium curation model prototype for it to replicate; and a DNA transplant to bring in the talent and experience to scale that model.

As far as the first, Huffington Post has shown itself to be the best of the curators, establishing a strong point of view that draws a huge audience with near-zero cost for original content.  And the model – the fame and traffic of Huffington Post beget contribution from interesting people, which drives more fame and traffic for Huffington Post’s brand – is replicable in other categories, as HuffPo has shown with its entertainment category rumored to already reach an audience of 10 million monthly, according to internal measurements.  This is the sort of model that Yahoo should be banking on, as commodity content alone will never make Yahoo a premier media company.

Perhaps more importantly, there is nothing to catalyze the adoption of a new direction like bringing on a talented and effective crew.  An acquisition of Huffington Post brings not just a branded destination, but a whole crew of operators with a scarce and effective set of skill, approach, and attitudes.  Those genetic elements are exactly what Yahoo needs to quickly set a new approach to existing properties with large audiences, such as entertainment, shine, and omg!, as well as to each new title launched.

All in all, an acquisition of Huffington Post would form the perfect foundation for Yahoo’s new ambitions as a premier media destination – and would be well worth the several hundred million dollars it would surely cost to set a bold and profitable strategy for Yahoo to be a premier media company.

by Ben Elowitz

What’s the point of developing a great brand if you don’t take advantage of it?  In the consumer products industry, the norm is to develop a great brand, then perform line extensions.  Crest lends its name to Crest White Strips so consumers will trust them more.  Disney’s trademarked princesses adorn adhesive bandages to spur kids to cover imaginary wounds; and Ralph Lauren finds his way into the paint aisle of Home Depot so I can be sure my new wall colors will be fashionable.

But these sorts of licensing and line extension deals have been more scarce in publishing.  And it’s great to see that change.

According to reports from Russell Adams at The Wall Street Journal, bucking its historical resistance, Glamour has decided to seek more revenue by leveraging its brand into new product lines by partnering with IAC’s Match.com for the Glamour Matchmaker dating site, with IAC’s HSN on a new jewelry line, and with Like.com for an “Ask The Stylist app.

This is great news, and it bucks the recent countertrend in publishing of focusing on reducing costs.  While others have been seduced by the allure of commodity content, Conde Nast is instead increasing its commitment to its premium brand.  That’s the right move.  For the leaders in digital media, their future success will be far better served by increasing the value of their premium brands and destinations — and by leveraging that value into new territory.  Smart partnerships not only create more revenues, but also create broader reach for their brands and the opportunity to move beyond serving as just titles of published properties into more meaningful sector or lifestyle brands.  And that means developing long-term deep relationships with consumers — which will be even more valuable in then feeding back into premium advertising rates based on increased reach and goodwill.  It’s a formula that companies like Disney have mastered, with original content, experiences, and licensed products virtuously cycling to create more and more value.

For publishers like Conde Nast, now is a great time to set their brands free to do more.  As a premium publisher, they invest in creating outstanding, differentiating content and experiences for their audiences.  And they are doing a benefit to their consumers by extending their credentials to other categories.

My bet:  Over the next 12 months, we’ll see other publishers following Conde Nast’s lead.


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