My Take on the Groupon Frenzy

Just over a year ago I blogged about the breathtaking amount of deal activity in the local media sector and mentioned a new company called Groupon that had just raised $30 million. (A significant amount of money by most fund raising standards, although somewhat inconsequential compared to their latest raise and Facebook's eye popping $500 million Goldman Sachs investment at a $50 billion valuation.)
 
What was driving all the interest then and even more now, is the sheer size of the local ad market (over $100 billion per year) and how little local businesses spend on digital media (less than 10% of their ad budgets.)
 
But it is, and always has been, the toughest of markets to crack and achieve any degree of national scale.  Soliciting and servicing millions of highly demanding, not particularly tech-savvy businesses who have limited resources and a laser-like focus on results is a monumental task.  AOL, at the height of it's popularity, couldn't crack it and Google, at the height of it's power, has only had limited success.
 
From that post ...

    "... local advertising is a tough business. As a well-known local media consultant said, "local is sold not bought." Three things are needed for a company to succeed in local: a great product, significant capital to drive awareness and, most importantly, a big local sales force. The Yellow Pages became a $20 billion category, dominating local advertising for years, based in large part on a famously aggressive local sales force numbering in the thousands. "

Groupon not only has the three ingredients (their sales force is already among the largest in media history), but appears to be turning the "sold not bought" assumption on it's head (businesses are calling them and can't sign up quick enough).

And that is why Groupon may be worth every penny of it's latest estimated $7 billion valuation.  Creating enormous new marketplaces that bring businesses and customers together, exciting both parties along the way, is what made eBay and Google such extraordinary businesses.  And, as Google has also proven, new forms of advertising that cut through the clutter and provide businesses with clearer metrics of accountability will be readily embraced. Finally, with a rumoured $2 billion revenue run rate, Groupon may be outpacing Facebook, which is now seriously encumbered with a ridiculous market valuation and quite frankly, does not have as clear a scalable revenue model as Groupon.

A blog called Measuring Measures summed it up well:

    "Advertising has become quite spammy and irrelevant. We've gotten away from the core issue, which is not inherently spammy at all - merchants interacting with people to retain their existing customers and win new customers. There is nothing evil about that, and the direction that advertising has taken for decades has been largely disrespectful, manipulative, misleading, and lacking in creativity. As a result, it has become quite boring.

Groupon shines a light on a new direction with a different vibe. It is more fun, more down to earth, and a far more compelling proposition for the customer."

There are still many questions about how big Groupon can become.  They just haven't been around long enough to accurately gauge repeat buyer and seller trends. Two key questions that will indicate their future significance: What is the real, long term impact a Groupon deal has on a business's bottom line and, are folks actually redeeming all those deals they purchased in the spur of the moment?

I have been a subscriber via email for 3 months now and still haven't purchased a deal (a fair amount have been relevant and I was close a couple of times), but a week doesn't go by when I am not forwarded one from a friend via email or on Facebook.  (Another "social shopping" company, Living Social, which I just signed on to, seems to be even more popular among my friends but isn't getting the same level of media attention, yet.)

And my friends who own local businesses can't stop talking about both companies.  One friend in particular, who owns one of the largest and most successful dance schools in the country said, "It's advertising that sends you a check." But she is an early adopter and tech-savvy entrepreneur who started building a fan base on Facebook years ago.

Seems the real value in Groupon will be unlocked when they move beyond the curated deal a day model and introduce a self service platform that enables local businesses to communicate more consistently with a more finely targeted audience.

Stay tuned.  Will be fascinating to see how it unfolds.

Tony Soprano And The Future Of YouTube

I am what media research organizations would classify as a light television viewer - someone who watches just a few hours per week at most.  Based on our demographic profile, light television viewers like me are extremely sought after by advertisers.

Up until recently, about half my limited television viewing time was spent lazily channel surfing with no specific idea of what I wanted to watch - just bouncing up and down the channel line up with a glazed look on my face until something grabbed my interest.

The other half of the time was, and still is, spent watching stuff I specifically intended to watch.

And other than our weekly family "Glee"viewing party (including, quite inappropriately, my 8,10 and 12 year-olds), the Sunday Jet's game, the odd big live event (Academy Awards, Grammys, Superbowl, etc) and the occasional breaking news story, most of this "appointment television" occurs on my timetable via DVR or VOD technology, or a Netflix DVD or stream.

It takes a pretty fine-tuned TV advertising plan to reach me.  And it is getting harder.

Over the past 6 months or so, I have almost completely replaced the channel-surfing portion of my TV diet with YouTube clips, watched on our family's 22" iMac down the hall in another room.

With a beer or glass of wine in hand, I now surf YouTube, which has, under the wary and litigious eyes of the biggest media companies in the world, aggregated an unrivaled library of video entertainment.

YouTube reported last week that 35 hours of new content is uploaded to the service every minute, twice the amount from just a couple of years ago.  And while much of it is family videos or silly user generated attempts at viral fame, a significant amount is copy-right protected content from the likes of MTV, HBO and AMC, uploaded in reasonably good quality by individuals wanting to share and discuss their favorite pop culture moments.

Here is one of the clips I watched the other night...

 

... one of the greatest scenes in television history, uploaded in decent quality by a random YouTube subscriber with no apparent connection to HBO.  The big question - where are the ads?  My guess is that a pre-roll ad unit in front of a seminal TV moment like this is worth... $25 per thousand? $50? $100?  A $50 CPM against the current 2 million view count represents $100,000 in potential revenue for this one clip.

Or why doesn't HBO insist (I am assuming they know this clip exists) on promotional messages for current HBO programming?

Next I watched this...



... from the 2003 MTV Video Music Awards - one of the funniest openings ever of any awards show. (Was there any doubt Jimmy Fallon would become a superstar?)

But also uploaded by a random YouTube subscriber with no authorization.

And this content is owned by MTV, the company that threw down their gloves and sued YouTube in a very public dispute just a few years back.

According to an article in The New York Times last month, some of the big entertainment and media companies are beginning to work with YouTube in finding mutually beneficial ways to capitalize on the site's enormous social media power.

The article described an unauthorized clip from Mad Men that Lions Gate (the rights holder) allowed to remain on YouTube in exchange for a 50% ad revenue split.
  
If YouTube can structure deals like they did with AMC with HBO, MTV and all the other premiere content owners, the revenue opportunities are substantial.

Of the approximately 2 billion daily video views on YouTube, 14% include ads, helping the company finally reach profitability this year with over $400 million in revenue.  Just doubling the ad load could bring YouTube within range of $1 billion, putting it in the same ad revenue league as some of the larger cable networks.

YouTube has ambitious plans to convince users like to me to start browsing the service on my television.

NY Times tech columnist David Pogue recently wrote that browsing the web on TV is an idea whose day will never come.  Not sure I agree.  At a party recently, a group of us stood around a web-connected TV laughing at some random YouTube clips.   For the most part though, surfing YouTube in it's current form is a solitary, small-screen, head-phone insulated experience.

However, might YouTube, with so many resources at their disposal, be able to reformat the experience for lean back viewing, integrating longer form programming as they develop better relationships with their network partners? 

They are working on it.  Here is a link to a job posting for a new position at Google:  "Product Manger, YouTube on TV".

And might YouTube's growing clout provide some leverage to Google in their grander Google TV initiative?

Whether they succeed in bringing the service to TV or not, YouTube is clearly a major force for the entertainment and ad industry's to reckon with.

My Experience With Cable's "TV Everywhere" Platform

ESPN, arguably the most valuable TV programming franchise in the world, is making all their programming available online, live, to authenticated Time Warner Cable subscribers.  Seems like a huge story, but much like the entire "TV Everywhere" initiative introduced by the cable industry nearly 2 years ago, the actual service is shrouded in quiet - like the stealth launch of a new product that all stakeholders are unsure about, as it represents enormous disruption for their industry.

I could find no mention of the new offering in any Time Warner Cable marketing materials or on the customer web site.  There was some coverage in the trade media, but quite frankly, I expected to see much more.   I initially found out about it on a blog, which took me to this ESPN/Time Warner Cable co-branded web site:

After entering my account number and customer code, within seconds I was watching Sports Center and a bit later, a college football game - basically, a live feed of the cable channel, without commercials, although I am sure that will change quickly.

The problem with TV Everywhere has been the lack of compelling content.  Up until now, the most prominent programmers to participate - Time Warner's TNT, TBS and HBO - have only made limited content available; and very little promotion has resulted in minimal consumer adoption. 

Some toes in the water, but no real commitment.  And as a result, everyone had heard about TV Everywhere, but very few have actually experienced it.

(Comcast's TV Everywhere initiative features a somewhat broader line up of content but has struggled with the additional issue of a poorly designed authentication process, frustrating the customers that tried to sign on.)

Not surprising, it is ESPN that is the first to make such a dramatic move.  They are consistently among the most innovative and technologically nimble of all the media brands.  Yet both ESPN and Time Warner Cable have significant risks to consider.   ESPN's subscriber fees are the highest in the business, bringing the company billions in revenue from their cable, satellite and telco distribution partners.  And for the distributors, live sports is among the most valuable and highest rated programming, justifying in large part why consumers are willing to fork over so much money every month for a bundled package of programming options that includes channels they never watch.
 
Yet as more and more consumers are connecting their TV's to the web through one means or another, and they start to see some of their favorite programs outside the realm of the set top box, the whole business model of the bundle weakens.   A column in Tech Crunch earlier in the year addressed the looming bundle versus a lá carte challenge facing the cable companies:

 "... on the Internet the more empowered consumer has become comfortable with picking and choosing the content for which they pay. Thus the success of iTunes over the Rhapsody model. So the really interesting business question which TV Everywhere raises is whether the old media model of bundling all-you-can-eat content in a single monthly price can work in the digital age of this empowered consumer.  Perhaps, in parallel with TV Everywhere, cable companies would be wise to also offer the option of paying for online video content on an a lá carte basis..."

With so many big guns (Google, Apple, Amazon) and smaller ones (Netflix, Hulu) aiming at them with lá carte options for consumers, the cable industry will need to respond quickly.

Our Rewired Brains

There were 500 articles from various media outlets and blogs waiting for me when I opened my Google Reader this morning.  Just a few months ago, the same feeds (about 20 in all that I subscribe to) were generating less than half that number.  To grow traffic and ad impressions, these outlets are adding content at an extraordinary clip.   But the quality is clearly being diluted; I have to scan 100 headlines and open 20 articles before I find one of any value.

I feel like my brain is being dumbed down by the sheer onslaught of information, much of it poorly written and poorly researched, yet often luring me in with a sensationalistic headline, all part of the fast growing "content farm" industry that pays hundreds of thousands of freelance contributors as little as $10 per story with the overarching purpose of creating cheap ad impressions. 

(And yes, I know, I am adding to the onslaught, as are the millions of other bloggers using every imaginable new platform to publish random thoughts and opinions. But many of us are writing because we have something to say and are not part of some content assembly line designed to gin up ad revenue.)

Author Nicholas Carr, in his latest book "The Shallows: What the Internet is Doing to Our Brains", argues that the web's flood of information is destroying our ability to focus and is actually rewiring our brains. 

"When we go online, we enter an environment that promotes cursory reading, hurried and distracted thinking and superficial learning.  Even as the Internet grants us easy access to vast amounts of information, it is turning us into shallow thinkers, literally changing the structure of our brain."

I find myself craving high quality, in-depth pieces of journalism, written by pros who take their subject and audience seriously  and succeed in crafting powerful stories and posts that leave a lasting impression and break through the chatter.   Often the content that is serving this need for me is coming from the traditional media companies - NY Times, Wall Street Journal, Ad Age,  or veterans of traditional outlets that have joined digital brands, or sites that carefully curate their content, or a small group of passionate bloggers that have compelling stories to tell.

David Carr, a veteran reporter for The New York Times who also writes "The Media Equation" column every Monday for the paper's business section, described in last week's column the thrill of publishing a time-consuming, labor-intensive story about a an important topic in a world of commoditized, homogeneous, omnipresent news bites. 

"Yes, you can make news working in your pajamas and running stuff past your cat and no one else. But even in 2010, when a print product is viewed as a quaint artifact of a bygone age, there is something about that process, about all those many hands, about the permanence of print, that makes a story resonate in a way that can’t be measured in digital metrics. I love a hot newsbreak on the Web as much as the next guy, but on some days, for some stories, there is still no school like the old school."

I just hope our brains haven't been completely rewired yet and there is still a strong appetite for this type of content.

Nicholas Carr strikes an ominous chord in his book: "What we're experiencing is, in a metaphorical sense, a reversal of the early trajectory of civilization:  We are evolving from cultivators or personal knowledge into hunters and gatherers in the electronic data forest.  In the process, we seem fated to sacrifice much of what makes our minds so interesting."

The Genius of the Tinkerer

I just got around to reading a riveting essay that appeared in the Wall Street Journal a couple of weeks ago titled "The Genius of the Tinkerer." 

The essay is adapted from author Steven Johnson's book "Where Good Ideas Come From: The Natural History of Innovation" and expounds the notion that innovation, of all sizes and levels of impact, comes from tinkering with existing systems and platforms.  Or put another way: great ideas are usually not the result of eureka moments, but of recycling and combining old ideas.

Invention, innovation and, ultimately, change are based on "the adjacent possible",  a famous scientist's phrase that captures the essence of how ideas are intermingled to create great new things.

"The adjacent possible is a kind of shadow future, hovering on the edges of the present state of things, a map of all the ways in which the present can reinvent itself.  The strange and beautiful truth about the adjacent possible is that its boundaries grow as you explore them. Each new combination opens up the possibility of other new combinations. Think of it as a house that magically expands with each door you open. You begin in a room with four doors, each leading to a new room that you haven't visited yet. Once you open one of those doors and stroll into that room, three new doors appear, each leading to a brand-new room that you couldn't have reached from your original starting point. Keep opening new doors and eventually you'll have built a palace."

The essay goes on to provide some familiar and not so familiar examples of great innovation such as the Gutenberg Press which co opted the technology of a wine-making press to bring the printed word to the masses and Willis Carrier's redesign of a heating system in the early 1900s to facilitate air conditioning.

In the present, there is no industry being more shaken to it's core by tinkerers exploring the adjacent possible than the media industry.   And judging from the chatter at the Annual Advertising Week conference in NY last week, the pace of change is increasing at such a rapid pace, media companies big and small, old and new,  have no idea what is coming next or which aspect of their business will be permanently altered by some new innovation tomorrow.

It was particularly fascinating to see the tinkerers and the incumbents on the same stage together.

One panel I sat through featured an investor in Twitter and a top exec from NBC jousting with each other and appearing in many ways to be from two different worlds.

When Twitter was conceived just a few years ago, did the founders imagine it would become the primary news and information source for a growing swath of the population, a role companies like NBC served for generations?

Google’s towering position over the advertising industry was evident throughout the conference, yet is now well known that Google had no plans for advertising in it’s initial business plan. 

Seems quite true, particularly in the media business, that boundaries grow as you explore them, but it creates one confusing landscape.

The Common Denominator of Success

Engaging with new technology does not come naturally to me.  Adding new features to this blog, moving from hand-written notebooks to Evernote, experimenting with a new contact management platform like Gist - all things that younger generations and the more technically literate from my generation find as easy as programming their DVR - are things I have to really push myself to do.

I am still more comfortable sitting back and reading the print edition of the NY Times, yet I know it is critical that I become comfortable reading it on my smartphone or Kindle, along with live feeds from all my other news and information sources.

I clearly recognize that at this point in my life and career, too many analog media habits can cast me as “behind the times” in the fast moving media industry.  I hope I am really following  - and not just giving lip service to - the advice of Albert Grey in his essay "The Common Denominator of Success" which is referenced in Steven Covey’s “The Seven Habits Of Successful People.”

“The successful person has the habit of doing things failures don’t like to do. They don’t like doing them either necessarily.  But their disliking is subordinated to the strength of their purpose….we've got to realize right from the start that success is something which is achieved by the minority of people, and is therefore unnatural and not to be achieved by following our natural likes and dislikes nor by being guided by our natural preferences and prejudices."

The same theory of success can be applied to businesses, and in particular, two magazines I have been following that are realizing vastly different fates based on their responses to the digital media revolution.

Newsweek, once on of the most powerful brands in media, was woefully slow to adapt to new consumer media habits and was ultimately rendered valueless in its recent mercy sale to a philanthropic-oriented billionaire.  Like most print businesses, Newsweek stayed in it’s comfort zone too long, guided by it’s natural likes and preferences.  It made stylistic and content changes with the hopes of adjusting it’s demographic profile, but never went deeper, enacting a wholesale reinvention that the changing landscape called for.

Entertainment Weekly, another iconic American magazine, forced to deal with the same booming land shifts shaking every print entity in the world, is actually thriving in a multi-platform media world and appears to be more valuable to it’s parent company Time Warner than ever.  In a recent article that actually paints EW more as a full-on digital media company than a magazine making smart digital moves, a spokesperson describes them as “obsessed with technology.”

The article highlights a series of initiatives that clearly reflect this mindset:

• A partnership with YouTube that will proved sneak peeks at the new TV season
• An iPad app featuring the week’s top 10 books, movies, TV shows and songs
• Video ads in the print version of the magazine featuring a wafer thin video technology
• 2D bar codes in the print magazine that link to web content

Seems they are experimenting with every conceivable application, from the usual suspects (YouTube, iPad) to imaginative technologies that can perhaps keep their legacy print platform relevant and valuable.

The message for companies and the people that run them and work there is clear ... embrace and experiment with new technologies or be left behind.