Wetpaint CEO Ben Elowitz on the Future of Digital Media
Early reports are in confirming the results of Google’s index changes. Yahoo’s Luke Beatty says two-thirds of Associated Content pages have lost traffic, while I’ve heard that total volume declines from Google search have reached 70% on some properties.
For sites like eHow and About.com, which get somewhere between 65%-70% of their traffic from search, the concentrated risk exposure that comes from Google engineers changing the algorithm makes for an unstable and uncontrollable business model.
Never in the history of media has there been such a precarious model for distribution, and the bad decision by SEO-focused sites to try and build a relationship with an algorithm looks worse and worse. The SEO-focused sites kowtow to the algorithm’s desires, as best as they can interpret them. They game their moves internally, based on what they think the algorithm wants, not what the customer wants. And they rely on the white hats, as well as all of the blackest hats they can stomach, just to please the algorithm.
But, unfortunately, the algorithm is capricious and unreliable.
What these companies should do is form relationships with consumers.
That means providing consumers what they want – and where they want it, which increasingly means in their Facebook or Twitter feed, and on their mobile phone.
In the end, this is the only way to create great experiences that are branded in the consumer’s mind today.
My advice, then, is simple.
SEO slaves, rise up – and revolt! Throw out the false God of the search algorithm and, in its place, focus on building valuable content and experiences. Win the audience, not the search.
Tim Armstrong, AOL’s CEO, has rebooted AOL with a talk-track of branded destinations, A-level journalism and sizzling original content; and early Monday morning, a full week before Valentine’s Day, his romantic media vision was considerably enhanced, when Arianna Huffington announced that she was selling Huffington Post to AOL for $300 million in cash and $15 million in stock.
For the record, that’s quite a premium price – 10 x Huffington Post’s $31 million in revenues.
Despite the cost, however, Armstrong is a very lucky man, and he received a wonderful gift from Huffington, whose hugely successful and much-talked-about Web site is a perfect match that helps “complete” AOL.
Indeed, the relationship between Armstrong and Huffington comes not a minute too soon for AOL, which is finally bringing on real creative assets and talent – including Arianna Huffington, herself, as chief editorial taste-maker.
To be honest, the media industry has been wondering whether Armstrong could actually pull off a deal like this. (True Confession: I’ve been among the doubters.)
And there’s good reason for the skepticism.
The problem, in large part, has been strategic. Since he assumed the CEO’s post, Armstrong has talked with clarity about his vision for an AOL made up of destination media brands, the way Time Inc. and Conde Nast have built their portfolios. But to date, his build-out of this city on a hill has fallen short. Instead of buildings gilded with leading journalism that attracts fame and eyeballs, his properties have largely been constructed by plumbers and mechanics laying a foundation for search engine rankings.
That’s why AOL’s recently leaked master plan, “The AOL Way,” is heavily oriented toward users’ search queries. The playbook emphasizes volume of content, page-views per post, and production cost per-piece. And, while “The AOL Way” is punctuated by periodic reminders like “quality content at scale,” the reader of the plan is left with the distinct impression that quality is a guardrail, not a compass direction for the journey to ROI nirvana.
Indeed, without a voice or a purpose other than page-views, “The AOL Way” comes off as soulless. Instead of emphasizing audience interests, an editorial point of view, or premium differentiation, it’s a volume strategy: the plan calls for the number of stories to jump from 33,000 to 55,000 a month; with median performance to go from 1,512 page-views per article to 7,000 within the quarter; all while gross margins rocket from 35 percent to 50 percent.
This Google-ingratiating strategy, at least from my perspective, is wrong-headed and short-sighted. It doesn’t do anything to help build a unique and long-lasting brand that is meaningful for audiences. And, as a result, it does very little to encourage people to eagerly and voluntarily type “AOL.com” into their browser’s destination bar. With this playbook, consumers don’t go to AOL; they merely end up there.
There’s a solid lesson here for all of us.
AOL – like everybody else in the media business – is clearly jealous of Facebook’s gravity-defying results. But it takes time for a proper media brand to achieve such stratospheric numbers. The great brands – The New York Times, ESPN, CNN, Wall Street Journal – have shown us that you build audience loyalty one positive interaction, one ambitious story, and one rich consumer experience at a time. To be sure, Huffington Post has shown us that, building its audience to a reported 25 million uniques over a well-paced five years.
So, it doesn’t happen overnight, and it certainly doesn’t happen if you’re just playing for quick search engine results.
Looking forward, it will be interesting to see whether Huffington – a savvy and independent thought leader who has always leaned forward – chooses to embrace “The AOL Way.”
My sense is that she will continue to follow her well-honed consumer-focused instincts instead. She brings a strong point of view, a decidedly human nose for news, and a variety of social strategies for distribution – not to mention her considerable star power. And that’s a good thing for AOL.
It’s important to recognize Armstrong’s considerable achievements. He saw that AOL’s subscription model was a non-starter; he chose areas of core content concentration for AOL; and, unlike Yahoo!, for example, he pared AOL’s portfolio quite dramatically.
But the pre-Valentine’s Day courtship and consummation with Huffington will mean very little in the consumer marketplace if Armstrong doesn’t get rid of his seemingly unshakable Google obsession – and very soon.
Here’s hoping that Arianna can help nurture Tim’s AOL, and turn it into a true media destination.
Experiences are the Key to Unlocking Wallets
Publishers today almost universally feel the squeeze in their digital models; and it’s clear that in almost every case advertising revenues alone can’t sustain, let alone grow, a healthy and profitable Publishing 2.0 business model.
So, if advertisers don’t suffice, the industry’s next best bet is to get the consumer to pay. But how do you get people to pay for content? It’s a conundrum as old as the Web itself – only now with added pressure as consumers migrate ever increasingly online and away from high-margin offline publications.
I believe the key to wallet-opening is getting publishers to move from content to experiences. Consumers are savvy: they’re reluctant to pay hard dollars for soft content – especially when they know that content costs almost nothing to be digitally reproduced and transmitted. And that leads to publishers’ greatest opportunity. While content has negligible cost, an experience can have an invaluable impact.
Experiences Are More Than Just Content. An experience is not just a video clip or an article. The essential element of an experience is that it relates to its users as participants, not just consumers. Experiences put the audience in command of an offering that goes beyond the Web page, connecting to deeper human drives of identity, pursuit of meaningful goals, exploration, entertainment, and connection to others.
These deeper forms of impact on audiences are what differentiate the potential of digital media from the old print and broadcast forms. Unlike offline media with its “write once, distribute everywhere” model, Web publishers can relate to users interactively, offering a personalized relationship to individuals. That’s what enables digital publishers to have a higher order of impact on their audience – even if it’s in the form of an intangible.
And it’s no coincidence that this more significant impact of experiences is also the entry to opening users’ wallets.
So, what are the best ways to upgrade from distributing content to creating experiences? Or, put another way, what will compel consumers to pay?
Here are the top 10 key wallet-openers:
1. Access – Offering access to a large, valuable collection can command far more remuneration than charging for usage. Forrester analyst James McQuivey points out that cable TV has proven this over the course of decades, where including not only the channels one watches – but the option to watch many, many more – is a source of value. Services like Netflix are valuable not only for the handful of movies customers watch each month, but for the tens of thousands that they get to choose from. Choice itself carries high perceived value – and it motivates people to pay a premium just for the optionality, even if they never avail themselves of the options it creates.
2. Prestige – Prestige is a universal and powerful human motivator, right at the top of Maslow’s pyramid as a marker of self-actualization. Believe it or not, prestige is something that publishers can offer – and earn revenues for in return. Ty Ahmad-Taylor recently wrote, “The idea of prestige as a monetization model is new, and it means that a lot of companies … are going to become successful without ever needing traditional funding or advertising.” With social games, which subsist on a prestige economy, he continued, “revenue-per-visitor can be 300 to 500 times larger than the revenue generated by Web sites that rely upon advertising.” Explosive businesses like Zynga prove that prestige can command a hefty price tag.
3. Relationships – For many publications, the most profitable arm is their live experiences – i.e. their conference / events business. The Wall Street Journal’s “D” series of conferences put on by Kara Swisher and Walt Mossberg, for example, features a star-studded stage and audience. The fee to attend is as much toward building relationships as it is building knowledge. More virtually, on LinkedIn one can pay an extra fee just for the privilege of being able to send email to people one doesn’t know. People will pay for the chance to connect with others of potential import.
4. Convenience – Consumers happily pay for things that save them time or effort, and that’s the source behind the success of products ranging from the remote control to the Roomba. Among publishers, Pandora has demonstrated that people will pay a fee to be able to listen to music they like for hours on end, without ever having to go to the trouble of selecting a song. LinkedIn earns premium revenues from its paying customers by offering them the same information as its non-paying users, but with more sort and search tools. People pay for ease of use.
5. Affiliation – For premium publishers, your brand is something that’s valuable not only to you, but also to your audience. To look smart, people start a conversation with a name drop: “Did you read that article in The Economist about…?” Businesses put The Wall Street Journal in the lobby to show that they are in the loop; in the same way, listeners plaster NPR bumper stickers on their cars. And this doesn’t even include the ultimate coolmaker: People line up for hours and pay top dollar to snatch up and show off the latest Apple products. Cavorting with cool confers cool by association. So build a great brand and people will pay for a badge to show they are in the club.
6. Packaging – One way to turn content into an experience is to put it all together in just the right way. The Weather Channel has attained coveted Top App status in the iPhone app store even though practically all the content in its app is available for free with just a quick search on the Web. What drives the premium is the packaging: the iPhone app puts it all together and makes it a more compelling experience for users – compelling enough that they’ll pay $0.99 to $3.99 just for the packaging.
7. Prominence – Everyone wants an edge over the competition. On eBay, merchants pay more for a bold listing, so that they will stand out. On blogs, people donate valuable and, in terms of time, costly content in the form of guest posts and comments – all to get their name in the digital lights. Showcasing your users with a picture, a profile, a power ranking, or a hat-tip makes them feel special. And special, to some people, is especially worth paying for.
8. Commerce – A great and instructive example of the bridge from media to commerce is Sugar, Inc. Its founders, Brian and Lisa Sugar, have gone beyond the media model from PopSugar, GeekSugar, CasaSugar and YumSugar sites to ShopStyle.com for Web commerce, FreshGuide for offers to women, and Retail Therapy, a fashion game on Facebook. They definitely understand how to get female consumers to open their pocketbooks wide and often.
9. Fun – Tap Tap Revenge has seen tens of millions of downloads, making it one of the best-selling gaming franchises of all time. With the ability to plug in songs to suit your style and your pleasure, users happily pay bite-sized premiums to make the game more fun.
10. Exclusivity – In many cases, it’s not just paying for what you get; it’s paying for what others CAN’T get. The appeal of the American Express Black Card, for instance, was predicated on it being distributed by-invitation-only, not available for the asking at any price. Here in the Northwest, the Puget Sound Business Journal holds events, like this visit from Ford CEO Alan Mulally, that one must be a subscriber to attend. The more restrictive the exclusivity, the more people will pony up to get in.
Putting Them Together. Each of the wallet-openers I’ve listed above can generate powerful revenues. But the best – and most successful – brands embody and employ a handful of these positive financial drivers.
The Wall Street Journal, for example, leverages its “must-read” status to offer its readers prestige, affiliation and convenience – a potent revenue-enhancing mix that motivates the audience to pay enviable premium subscription fees. At the other extreme, the NFL has built a brand based on fun, packaging, commerce and affiliation. Legions of fans across the country and around the world, for instance, are willing to pay to subscribe to premium sports channels, attend events, and purchase and wear their favorite team’s jersey to identify and celebrate their affiliation.
Getting consumers to open up their wallets in a tough or uncertain economy is especially difficult for publishers and marketers, and the current economy is certainly tough and uncertain. But generating upgraded and premium revenues is absolutely possible if the focus is on providing rich and meaningful experiences that go far beyond just content.
With yesterday’s announcement of the acquisition of Associated Content, Yahoo CEO Carol Bartz has sent a loud message: Yahoo is investing in becoming a new kind of digital media company for the new age of digital media. Cheers to Yahoo for recognizing that their “1.0” model needs an upgrade to be more effective in a 2.0 world. The only problem is that this move gets Yahoo just one step toward where it needs to go. It could be a powerful first step to add content and audience to their network, but will only be strategically valuable for Yahoo if it is layered with additional new investments to build true destination media sites with premium positioning.
Let’s explore what Yahoo gets from AC first, and then cover what Yahoo must do from here if it is serious about winning in media.
1. Yahoo gets commodity content at commodity cost. With Associated Content’s marketplace, first and foremost Yahoo can source commodity content – i.e. the kind of content that doesn’t need a particularly differentiated author, original reporting, or other hard-to-find talent – cost effectively.
2. Yahoo can improve time (and value) on network. In this age of deteriorating portal power, users come to portals primarily for one reason: mail. (According to data from comScore, 73% of Yahoo’s viewers of its most valuable real estate – the home page – are Yahoo Mail users.) Once they arrive, however, there is far more money to be made by vectoring them to networked media properties like Yahoo Finance, Sports, and Entertainment than by serving additional pages of poorly-monetizing email. So, by beefing up the available content in the network, Yahoo receives the benefit of extending visits at low cost.
3. Yahoo increases its audience by drawing traffic from Google. Yahoo’s made the strategic decision to move its focus out of the search game and onto media. And so rather than just feeding them from mail and search, Yahoo needs its content properties to draw audience on their own. The AC content marketplace can produce thousands of pages per day of content – each one baiting more search engine traffic, and all produced at modest cost. A recent EConsultancy interview with CEO Patrick Keane revealed that the bulk-buy strategy works: “80-90% of our audience is driven through natural search,” and according to comScore data, nearly 50% of the traffic that AC’s content sees each month is incremental to Yahoo’s core audience that comes for mail most days.
All three of these improvements have financial benefits to Yahoo – both in increasing revenues with greater reach and traffic; and in bringing down average cost of content. But they miss out on the strategic positioning that Yahoo absolutely must own if it wants to ensure a leader as a top digital media company:
Yahoo needs to be a premium destination; and the AC acquisition message undermines that positioning. Read the rest of this entry »
Recently I’ve written about why I think the Hulu Plus subscription model will be successful. Yesterday, Peter Kafka (@pkafka) wrote in AllThingsD that Hulu’s price point is both too high for consumers and too low to satisfy media companies. I respectfully disagree.
My prediction is that Hulu Plus will be driving more than $100 million in incremental revenue for the company in 2011. If Hulu grows modestly from its current 19.5 million monthly uniques in the U.S. according to comScore*, and they’re able to convert a small fraction of that audience at $9.95, the numbers are compelling even accounting for the likely double-digit monthly churn. I expect that the service will reach or exceed a million subscribers by the end of 2011. Meanwhile, 30% margin or $30+ million would be welcome for a company that only recently announced profitability, particularly if they’re able to avoid traffic cannibalization on their existing free, ad-sponsored streams.
Granted, most media companies are making more on their own sites, but this is largely upside to their existing online revenue. Meanwhile, a paid model preserves the “premium” value of the majority of their catalog.
Beyond the financial benefit, offering a paid subscription also provides several strategic benefits to Hulu:
Is $9.95 monthly too much for consumers to pay? When your content is exclusive, and more importantly, the experience is this compelling, I think a small but meaningful segment of customers will open up their wallets. Of course, that is assuming that Hulu’s subscription offer and experience demonstrate the same outstanding execution as their free service (and marketing) to date. Many services have failed at charging for video online, but Hulu is in a unique position to finally succeed.
* Footnote: Interestingly this is substantially less than the 43 million uniques announced by Hulu CEO Jason Kilar back in December, perhaps due to the comScore hybrid measurement debacle; I’m using the lower numbers to be conservative
Viacom this week told Hulu that it is pulling its content out of the video site because they couldn’t reach economic terms that value The Daily Show and Steven Colbert to Viacom’s satisfaction. Brian Stelter reported the story for the New York Times this week, quoting me with reference to the ‘game of chicken’ that Viacom has been playing with Hulu. This game plays to chairman Sumner Redstone’s strengths, as he’s already presided over the protracted “off-again, off-again” conversations by which Viacom’s sister-company CBS has held out from Hulu.
But these negotiations over how to divide the pie miss the opportunity altogether. Against all odds, Hulu has surprisingly created a successful consumer destination. With a great consumer experience, Hulu has become *the* destination for “official” TV video. While media executives fret the impending decline of television, the future has already begun to gel at the site with an audience of 30 million, advertiser demand, and premium monetization.
The shame is that Hulu CEO Jason Kilar and his team have their efforts drained by brinkmanship negotiations with the industry. What a waste of time! Instead, what would benefit all parties — Hulu, its equity partners, and the industry at large — is for Hulu to spend time on improving the consumer experience, enticing audiences, and monetizing. Further, Hulu may be in the best position of any media venture to command premium and subscription pricing from consumers — so additional content and scale could help make digital video more profitable. Unlike the drain of the power games that Viacom is playing, these constructive investments would have the prospect of lifting the fortunes of the media industry for everyone’s benefit.
While Hulu offers hope for the industry, Viacom crushes it.
Charles Pelton, the former GM of Conferences and Events at the Washington Post, wrote a piece for PaidContent this week raising opportunities for journalists to create new revenue streams beyond traditional advertising. His message is important, and gives hope to journalists by reframing our opportunity to redefine the publishing industry.
Journalists are understandably fearful of the shakiness of the industry right now: 15,000 employees in the newspaper sector lost their jobs last year, and Silicon Alley Insider just published this dramatic chart of the day showing the steep cliff we are on.
But while Pelton mourns the loss of jobs, he also offers solutions, and they align with where the industry needs to head:
The point is to take the journalist’s knowledge, and package and present analysis in new, interesting and useful ways for paying audiences. In this case, there’s a subset of readers (IT vendors, for instance) who would pay a premium for insight about technology use by government…. Could a film critic or arts editor moderate a readers’ discussion—live or virtual, about a new movie—something actually sponsored by AMC Theaters? You bet!Indeed, product development should be part of a journalist’s job. Journalists should be working side by side with their business-side colleagues to create and monetize products—and should be evaluated, in part, on their ability to do just that.
These are great examples. Underneath them, they illustrate three things that need to happen for the media world to rise again to a new, profitable model:
These are not new themes. Top journalists like Kara Swisher and Walt Mossberg have been incredibly successful extending their skills and brands from journalism to a broader role in industry, running the Wall Street Journal’s D: All Things Digital conference since 2003. Another role model, Thomas Friedman of the New York Times has leveraged his journalism role into multiple books that have had a huge commercial impact. These journalists demonstrate that it can be done – while preserving top-tier journalistic integrity.
It’s not a brand new idea, but what we need now is to see it become a widespread idea. It’s time for those who write to go beyond the creation of words to the creation of results.
Last week, Yahoo announced that it will be working with Ben Silverman and his new firm Electus to develop original video content. Notably, this video content will be designed from the get go to appeal to advertisers.
For Yahoo, this is a smart move that demonstrates they are willing to double down on the short-form video programming category. And with good reason:
Yahoo is smart to leave the reservation for a new effort like this: after all, the key to the success of any new program will be establishing them as destinations with consumers.
If these are just another node in the Yahoo network, promoted from the home page, they will fail to provide any strategic value. To succeed, Yahoo will need to temporarily ignore the pulls of the various existing Yahoo content properties in order to create a new one with its own audience.
And if freedom is the requirement, what better way to embrace it than to turn to an outside agency, which won’t have any of the overt or subtle pressures that an internal group will. Plus, it lets Yahoo be more bold and risk-share with a partner, again a plus to advance Yahoo’s strategy.
The big watchout to Yahoo: they had better do as well appealing to consumers as to advertisers. To be a financial viable initiative, they’ll not only need the big dollars of brand sponsorships, but to build and sustain an audience. Otherwise, it will end up looking great in the design and business reviews, but never really getting traction, like Google Video which failed with its premium content while YouTube flourished; and MySpace’s initial efforts to create premium sponsorable content channels in 2007.
Gawker Media has for years frustrated the stalwarts of journalism by paying its writers (gasp!) for the results theycreate. Now, founder Nick Denton is going one step further to move his staff toward economic success.
With a new compensation program rolled out this week, as described in a memo from Nick published by The Awl, Gawker is updating its compensation to pay for audience growth, not just pageviews.
Why is he doing it? Because another unique visitor is worth so much more than another pageview from someone you’ve seen before. While this is true for all publishers, it’s especially true in Gawker’s case:
About a year ago, Gawker ditched ad networks in favor of displaying “Gawker Artists” in unsold inventory. Chris Batty, head of sales at Gawker, explained that the program was “for the purpose of better engaging their readers, helping artists and maybe even themselves in the process — by draining the network swamp and getting hard to work on creating online marketing experiences valuable enough to cover the cost of original content creation.”
So Gawker’s price umbrella is standing tall; but without remnant, they are running short on fill. Samples over various days in the last few weeks indicate that four out of five page views on Gawker properties are unmonetized, either with Gawker artist banners or no ads at all — a much lower fill rate than most publishers target. (In research, we were hard pressed to hit a frequency over 2, no matter how much we clicked around the Gawker family of sites.)
The problem, of course, is the frequency cap. And Nick has the right workaround: he is focusing on growing his audience, not just his intensity of usage.
That will pay off. Already, by focusing on premium advertisers like Blackberry and Cisco, Batty and his team are still able to make several times more money than a model where every impression is given to a network. And the more he grows his audience – and gives his writers the right incentives to do so – the more premium advertisers he can attract. So Gawker now has aligned incentives, motivating writers to draw in unique visitors creates an inventory pool that lends itself perfectly to high-dollar, frequency capped deals with top advertisers.
And as a second factor, it indicates real smarts about building the Gawker business to be stronger. While it’s easy to game extra pageviews with flashy content features that draw clicks and layout changes that split content onto multiple pages, these often make the user experience worse rather than better. By focusing on high value ad buys and featuring artists in unsold spaces, Gawker encourages behaviors that build great customer experience – which not only attract new audience members, but create an impression that draws them back time after time.
Contrast Gawker’s focus and reporting with old media: where those who write the content scarcely hear a word about how it performed.
I have one friend who contributes to the New York Times from time to time. I asked her what kind of performance data they provide to help her tune her writing. Her answer: “None at all.” Shame!
In an industry whose executives are always complaining about the failing economics, what’s so bad about increasing the economic incentives?
Time Warner has set one of the best examples of a media company willing to break with old habits in order to find a path to a better place: Not only have they initiated an industry joint venture, but they did it the right way.
Now, they’re showing some early fruits of those decisions to bust loose, in this demo video of the prototype they developed with Wonderfactory, the agency hired for product concepting and development of the tablet.
Let’s look at some of the things that Time Warner has done right. These can be something of a cheat sheet for other companies who are willing to take big risks.
And, most importantly:
Whether or not the device is successful itself, this will give Time Warner an organizational advantage: they are demonstrating not accepting the false constraints of maintaining old paradigms or riding the curve down. That DNA impact is enormous, as it creates the license for others at that company to take risks.
Ultimately, the publishing industry is facing the problem that their “content” is relatively undifferentiated. Time Warner has shown that they’re willing to take the risks to create a new experience that is worth noticing for consumers.
And Time Warner is further separating itself from the other media companies who are too frozen to do what it takes to try creating breakthrough consumer experiences. Those companies will ultimately suffer, since the best path to a thriving audience — and new revenue streams — is by winning consumers over.