Online Ad Networks

This article caught my eye which mentions that Google has started a venture that  allows it to serve smaller website’s ads for free.  What is this service? Well it is called Google Ad Manager and it is FREE.  Well how would Google benefit from this?  When the millions of sites run out of ads to place on their pages, Google would place their ads benefiting their AdSense business reaching a much larger audience.  This would also allow Google to keep data from the sites such as ad performance and pricing for ads.  However, Google would not share this data with advertisers, publishers and therefore this platform is not very OPEN.  Sharing this information with advertisers would help them take advantage of a more transparent marketplace, and help publishers run their sites more efficiently. 

Well I came across an open ad network service known as OPENX while reading an article on Buzzmachine.  I went through the online tutorial of the service which was quite fascinating, easy to understand, implement, and FREE.  The service would allow web site owners to track their ad revenues, visitors to site, etc allowing them to have a better grasp of their sites revenue and performance, and best of all at no charge.  Another impressive feature is its openness.  It would allow  advertisers to place ads on almost all sites that they are interested in.

Once we have an open ad network, we’ll also be able to expose data about sites and ad performance. We would establish the true value of our new medium, especially when we can track new metrics: behaviour, interest, influence, authority, the timing and spread of ideas, and so on.

Google or OpenX – who would be the ultimate winner? Time will tell!

While reading reportonbusiness, I came across an articlewhere smaller ad networks are being formed.  Not yet of the same size as OpenX or Google Ad Manager but still an important development.  Forbes have announced that it would start selling ads for about 400 financial blogs.  Large sites such as Google has to deal with every industry in regard to ads whereas these smaller networks can have a more focused approach.  There are many other such smaller network examples in the article linked above.

US Economic downturn – Cause?

We are all hearing about the US economic downturn, and therefore, I decided to find out as much as I can about it.  The US economy tends to affect the whole world and therefore, would be beneficial to understand the reasons behind the downturn.

First of all,  I am refraining from the word recession, since many Economists are not yet calling it a recession. A recession is termed as two or more consecutive quarters of negative economic growth, and according to this definition it would be false to call it a recession as of yet since the US have not experienced what the recession definition requires.  As demonstrated in the following chart:

 

Now that we are clear, what contributed to the US economic crisis?  The subprime mortgage crisis.  Lenders were issuing mortgage loans to borrowers that had less than adequate credit rating.  The ability to take out mortgage loans coupled with rising house prices enticed the borrowers to commit to mortgage contracts in hopes of benefiting from the rising trend of house prices, and the ability to refinance at better rates if required.  However, housing prices began to decline in 2006-2007 which made it difficult for the borrowers to refinance their mortgages causing them to default on their obligations.  During 2007, an estimated 1.3 million US property was involved in default (foreclosures), up 76% from 2006. 

Continuing with the crisis, many financial institutions / lenders, had passed the rights to the mortgage payments and risk to other investors through securitization.  This led to the formation of Mortgage Backed Securities (MBS).  However the value of the MBS is derived from the underlying mortgage.  As housing prices started declining so did the values of the various MBS.  The uncertainty of these complex securities have made investors shy away from purhcasing them which have also impacted their values significantly.  One such financial institution impacted by owning a huge amount of MBS / complex securities is Bear Stearns.  According to this site, investments banks are highly leveraged and therefore, any thin decline in their assets value (such as MBS) would cause them significant liquidity issues.  “A typical banking crisis like this costs about 10% of GDP in the long run”, mentioned here.

These activities caused financial institutions to reduce lending activities or lend at a higher interest rate.  Our GDP consists of consumer spending and business investments as their components.  Both of the above activities (reduced lending, higher interest rates) discourage consumer spending and investments.  Due to the higher rates, both activities are postponed which further hurts the economy.  That is why we saw the US federal reserve (central bank) reducing their short term interest rates ( a monetary policy tool) to stimulate economic growth.

Let Us be FREE

Reading the Wired News article ,Free! Why $0.00 is the Future of Business, gave us a detailed look of how businesses are either moving towards free or already selling (maybe selling is not the right word) their products for free and still managing to be profitable.  Therefore, I would try not to repeat the material but give you new examples and additional information.

Let us begin by identifying the core reason that is making the move towards free possible.  It is the growth in technological innovation for sure.  Lets move away from digital products (such as Web services, music) to physical commodities for a minute. I read a great article, “Technology wants to be free“, from which I have taken the following idea:

According to a 2002 paper published by IMF, “The Long-run behavior of commodity prices”, by Paul Cashin and John McDermott, “there has been a downward trend in real commodity prices of about 1 percent per year over the last 140 years.”  Lets take a look at the price of copper for instance:

Just a quick summary of the above graph.  The pink line is the real price of copper (Nominal price minus Inflation rate), and the dark blue line is the nominal price which also includes inflation.  By examining the chart in a hurry, we would be quick to conclude that the prices of commodities like copper would decline to a level and not move below that.  However, let us think inflation for a second.  Every year the general price level of goods/services increase in the economy.  Therefore it should cost more to buy each unit of good or service every year (the Dark blue line), however, by subtracting the effects of a falling purchasing power of money – the price indeed has been in the decline (the real price depicted by the pink line).  Moral of the story?  We are more comfortable analyzing increasing prices in nominal terms – to understand the impact of technological innovation on the journey towards free – we should start thinking in real terms.

How being FREE could help you?  Oprah Winfrey announced on her show that Suze Orman’s book, “Women & Money“, could be downloaded through her website for free for about 33 hours.  Let us look at how providing her book for FREE helped Ms. Orman.  Below is a chart depicting the sales rank of the amount of sales through Amazon’s website of her book 3 weeks before and one week after going FREE.

Her ranking took a tremendous leap from being almost 160th to being the top seller.

Moving towards research publications.  USENIX, one of the leading computer science conferences, has announced to make all its publications available to the public for FREE.  Advances in technology has allowed the costs of storing and hosting such publications almost approach zero thereby helping the move towards free also in scientific publications. A spokesperson for USENIX stated, “In making this move USENIX is setting the standard for open access to information, an essential part of its mission.”

Another move towards FREE. According to this article, NYTIMES on September 19, 2007 stopped charging for parts of its website which used to be available only to paid subscribers.  NYTIMES used to charge $7.95 per month for access to the work of its columnists and news archives.  Why did NYTIMES decide to go free after two years of this subscription service? Even though this paid service was generating 10 million dollars a year in revenue for NYTIMES, Vivian Schiller, senior Vice President and general manager of NYTIMES.com stated, “But our projections for growth on that paid subscriber base were low, compared to the growth of online advertising.”  In simple terms NYTIMES wanted to capitalize on the traffic that would be generated to its website by going FREE – meaning more advertising dollars.

I could keep going and going about how companies are embracing this change towards FREE to their advantage but let’s end it here.  Here’s a link to a video interview of Chris Anderson by Charlie Rose.  I tried to embed it here but for some reason couldn’t.  In the interview, Chris Anderson is asked questions about materials in the wired article we read this week.

IPHONE – A phone for All

 

Apple is pushing to meet or exceed its current target of selling 10 million Iphones this year.  However, Apple COO believes that in order to reach that target, they would have to implement some new features as well as tweak the Iphones.

Analysts claim that it is wishful thinking on Apple’s part to realize their goal of 10million units this year.  However Apple has plans to realize this target.  Apple understands its lack of penetration into the enterprise user segment and has realized in order to achieve its sales target for the year – the only possible way is to attract enterprise users.   This has caused Apple to focus on their enterprise potential customers and would address two primary areas of concern in the enterprise arena:

• Email – Email is harder to type on an Iphone and is not compatible with Microsoft Exchange. Blackberry is the favorite of enterprise users due to the above mentioned issue.
• 3G – There are 3G phones out in the market however Apple’s Iphone still isn’t 3G.

In order to penetrate this segment of the market, Apple would have to resolve these issues as promptly as possible.  They have already started working on the 3G model and would be out around June.  As far as the enterprise email and Apps is concerned, Steve Jobs promised that the software update to be released in June would have all the necessary additions needed by enterprise users.  This list included:

• Push email and Calendar items from the Company’s servers to the iphone
• synchronize contact lists
• Enforce securities policies – Wipe out data on an iphone remotely in case it is stolen.
• Support for Microsoft Exchange – “To meet the demand, Apple licensed Microsoft’s ActiveSync protocol for connecting the iPhone’s e-mail client directly to an Exchange server. As a result, e-mail, calendaring and contact items can be pushed directly to the smartphone”, Steve Jobs stated.
• Move user profiles into Iphone painlessly from Blackberry – Apples competitor in the enterprise sector.

Apple is currently testing its Iphone enterprise features with Nike and Disney to attract feedback from the users before its official release in June this year.

All these additions would make one less reason of not buying the iphone which is apparently loved by all, but due to lack of enterprise features, the Iphone didn’t penetrate that segment very well.

Apple also released a Software Development Kit’s beta edition for enterprise customers to be able to write custom applications suiting their needs for their Iphones.   All of this is to gain competitive advantage over RiM’s Blackberry which is the favorite among enterprise users currently.

Another glimpse of how fiercely Apple is targeting the enterprise segment – As quoted on Silicon Alley Insiders article titled Apple/Kleiner Iphone Apps Fund.

Valley-based VC firm Kleiner Perkins Caufield & Byers has earmarked 100 million to fund companies developing apps for Apple’s iPhone and iPod touch. Companies large and small are eligible, and the fund will focus on apps including “location based services, social networking, mCommerce, communication, and entertainment.” Sounds like… everything!

More reading on this IFund at KPCB article.

Apple would keep 30% of the revenue generated through the Iphone apps while the developers would keep the rest.

This move from Apple to allow developers to develop new Apps for the Iphone would be welcomed heavily.  However Apple would have to approve every application for the Iphone – which is sort of a setback.

By researching quite a bit on this topic, it is quite evident how Steve Jobs and his team believe that in order to reach their target sales, the enterprise users would prove to be the deciding factor.  With opening their platforms for developers, I believe Apple might just about reach that target!

Video of Microsoft CEO laughing at the Iphone:

Note in the beginning how Microsoft’s CEO Steve Ballmer laughed at how the iphone did not appeal to business customers! Well Steve  – now what do you say?

Informed consumers

I was reading an article about how consumers having less information about a product they like before purchase could generate more utility for him/her.  This is contradictory to what we think which is the more information consumers have, the more informed their decisions will be, which would lead to a greater amount of satisfaction in the future.

Our thinking:

(1) Businesses should provide us with all the information necessary regarding their product

(2) A utility maximizing consumer would weight all factors in before purchase

(3) Purchase after all information is weighed in and choose the best product

Recent research concludes that after a consumer has a liking towards a particular product:

(1) Limited information about the particular product would lead to wishful thinking

(2) This wishful thinking is based on our perceptions about the product

(3) Generates imagery in our minds about the product being the best in its class

(4) Huge consumer surplus (Value you place on the product minus its price)

After the purchase….  Lets have an example.  Assume you just bought a Canon A570 camera and there was limited reviews about the product.  So your perceptions based on your affection towards the product is high which leads you to beleive it is the best available camera in the market for the price.  Your utility generated from the product is high.  1 week later, people start posting reviews about the product from their personal use of the camera.  Bad reviews about the product would draw down your views about the camera whereas good reviews would give u reassurance of your correct decision making you happy!  If there were no reviews – you would have been quite enjoying and valuing the product, the same way you did before purchase.

 Imran Khan

Newspaper circulation in decline!

I was reading a post by Jeff Jarvis (BuzzMachine), when this article about the business model for news caught my eye.  This article undertsands that the the newspaper readership is in decline and identifies the need to solve the problem.  What has caused newspaper circulation to decline is a question I asked myself which pushed me towards another blog which had an article named “Making money from journalism …” which stated the following reasons for this decline:

(1)  The rise in the alternate channels such as tv, radio, web, etc have cut into the market share of newspaper advertising and readership

(2) The rise in computers both at home and office or virually anywhere has minimized the need to have a physical newspaper.  In addition the decline in public transport has also contributed to this decline.

So What to do about it?  Jeff Jarvis states very correctly that to do something, we need not look for breakthrough innovations such as the IPOD, etc but to first ask what the problem is, and then try to solve that problem. 

The Problems:

• With the reduction in circulation means less revenue.  The easiest way to boost profitability would be to cut costs, in other words improve efficiency.  Cut all the costs that would contribute to higher costs and keep cutting until possible.
• Lack of sharing between newspaper companies.  Newspaper companies should start sharing news stories between each other in order to reach to a greater audience and cutting the costs of being present with staff around the world.
• Innovation led by us.  Newpspaer companies should realize that the world has a lot of great minds which could help them solve their problems by only paying them a small amount.  Remember IDEAGORAS 🙂  Well newspaper companies should post their views or problems and help the world respond.

Well with having said that I myself dont read news much and always wondered about the future of the newspapers.  But am starting to read some papers but online, not the paper format yet.  Physical newspapers will suffer from decline but I beleive will never go extinct since we still have the section of audience that like to flip through pages physically.

Imran

Consumer or Prosumer?

While reading the A VC blog, an article “who owns a web service” caught my eye.  The article spoke about how us consumers are turning into content generators in this new web called “Web 2.0”.  Be it wikipedia, google, or craiglist; all of these sites use the date provided by the web users to their advantage.  This shows that in todays world, we are the producers of information and us users demand respect by these corporations because it us who give them the tools for their sustained long term earnings or growth.  We should not be considered free leechers of information any more as in the past but profit generators for these large entities.  Web users should be treated as owners – not in the sense of shareholders – but the value disributed between the user and the web site should be fair. 

The traditional business model identifies consumers as one of their stakeholders however it is us now who create information and therefore are not less than being considered owners.  In the traditional business model, consumers are considered stakeholders since the company’s products or decisions affect us in general.  In the traditional model, the marketing department through research identify the consumer’s needs which is replicated into the final product.  However, in this new era the consumers produce content and therefore should not be considered lower than the Corporate owners of the various web entities that simply distribute the services.  Thus value distributed between the web company and the user should be fair.  Google is an example of such a company that has maintained this equality till now. 

We provide the web sites by which the search results are based and they distribute the service.  In return they get profits while us users get additional free services such as Google maps, Gmail, etc.  In addition, involving the consumer in developments would enhance their value even further.  For this new era of collaboration to be successul, I beleive such equality and transparency between the two parties (web user and web company) should be maintained.

Imran

Yahoo and Google

While reading Techcrunch, came across an interesting article about yahoo.  According to this article, Yahoo is set to buy a video broadcasting website called Maven Networks.  This made me come to a spontaneous rash conclusion that Yahoo was copying Google’s move as google had earlier bought youtube. 

However research helps and I found that Google has done the same in the past.  Google has followed yahoo’s footsteps by venturing into projects such as free web mail, maps, publishing, social networking tools etc., which were being offered by Yahoo first.  According to a former yahoo employee, yahoo knows everything google is working on and vice versa.  Both Yahoo and Google are targeting the same web audience and fighting for advertising dollars in  a tight market and is a snapshot of what near perfect competition would look like. 

How innovations differ between the 2 companies? Google has a policy of havings its employees work on personal projects of their choice once a week to foster the evolution of new technologies whereas Yahoo has the “Idea Factory” where employees post comments or suggestions about existing technologies and are looked by engineers or professionals in charge of that technology.  Which method of accelerating innovation is better, thats for you to decide!

Feel like comparing Yahoo and Google’s search results on the same screen – heres a link!

 Imran

Free Media

While reading Chapter 3 in the Wikinomics text “The Peer Pioneers”, one thought constantly stayed in the back of my head.  “How do internet sites make money when they dont charge you for the free services they provide?”  Well then I came across an article in the Long Tail called the Media Business Model which explained the various ways these free websites make money.  For example lets take Google, it does not charge you to search however look at the right side of the page – a bunch of ads. If you click those ads – that’s ad revenue for Google right there.  Google displays ads based on your search to get a sense of your interests and lure you into those ad sites. 

Another method is to purchase something from the website whose ad is displayed and only the purchase would be monitored proving beneficial to the site on which the ad was displayed known as “cost per transaction”.  This one makes more sense to me since what benefit to the company to click on an ad and not buy anything.  Other ways is by selling our data to third parties such as our preferences etc. 

One method which is also used by traditional businesses is to get the customers through the door for a bargain – “some gas stations sell milk at cost in charlotettown – whats the point! – make you spend on other things”, the internet uses it to provide other supplementary services for a cost.  SO you come in through a site, surf it for free, but then realize you need the advanced features and decided to spend.  For example Stockhouse – a stock trading website – you can view information but if you want streaming real time data – you would have to register and pay around $13/month.  In addition they advertise to gain revenue.  I just wanted to dig into the dynamics of free services and understand how they survive.  Some might be critics of these free web services having so many ads, however, I totally support it because if they dont have ads on their websites then get ready to pay  for those services we currently enjoy for FREE.

 Imran

Customers – An Asset to any firm

I was reading Seth’s Blog and the article “Customers that Care” caught my eye.  To be frank it was the last line that summed the whole article for me, “If no one cares, you’ve got trouble. Goal one is getting people to care. Goal two: listening to them.”  I have worked at a few retail stores and I understand totally what he meant by that.  Majority of the time it is our regular customers who recommend or complain about things.  Maybe because they consider us to be their store or they simply “care” for us.  Restating Seth, we would have to get the customers to care.  This could be achieved by a culture that fosters customer service which as any culture has to culminate from the top of the organization.  A culture is learned the most from senior management of a firm.  The moment you walk into the organization you could easily sense their culture and their emphasis on customer service.  Walking into futureshop might be different than walking into Canadian tire for example.  A strong culture wouldnt be a burden on employees to adhere to but would be considered a routine and the employees would simply be courteous since it would be “the right thing to do.”  Another aticle on this subject if you wish to read is http://sbinfocanada.about.com/cs/marketing/a/shinycustserv.htm.  Culture is just one component of improving customer service I think.  However, these are my points of view with some research however we shall move to the second point of Seth’s article.  Listen Listen Listen to your customers.  Again all this was described in the last line of his article – sometimes a few words could mean a lot more.  Ever explained your problem or asked the salesperson at some store a question – later you find they just nodded proving he/she was dreaming and did not care to listen.  Anyways which organization according to you does not have customer service as one of its cultural values?

Imran Khan