Sisyph.us - Erik's personal blogs

Google is bailing on radio.

I predicted this in this blog post a few weeks back.

I actually predicted Google would fail with CPM based radio ads exactly two years ago.

Google is giving up their newspaper and magazine print ad sales business. Will google be abandoning their terrestrial radio ad sales experiment next?

When I spoke at Radio Ink Forecast last year one of the mantras of the executive leadership of the industry was "well at least we're not as bad off as the newspapers". Truly, as bad as things are for radio, (Clear Channel fired 10% of their work force yesterday) the newspaper industry is in worse shape. The question really boils down to whether radio in on a different road than newspapers or the same road, just not quite as far along.

Newspapers and radio have very similar problems, neither on of them have any real accountability of the efficacy of the ads they run for their advertisers. This is the fundamental mismatch between google and both the newspaper and radio industries. The reason people advertise using google adwords is because you know precisely how effective your campaign is. I wrote about this nearly two years ago.

Both newspapers and radio have another similar problem. Both are distribution channels that are fundamentally becoming obsolete (the newspaper guys understand this better than the radio guys, there are a lot of tower huggers in the radio business). Both are in process of switching to new distribution channels (newspapers faster than radio). Both have a big mismatch between the cost structures and business models of the old channel compared to the new. Both have been hurt by an abysmal understanding of their traffic (or in their parlance, their cume/circulation). Both have been hurt by expanded expectations of both their audience and their advertisers.

The newspaper industry understands that the "dead tree" distribution channel is coming to an end. They have done a good job of leveraging their core competence (writing and photography) to the web. They have lots of web traffic. Their problem is monetization.

To understand newspaper's monetization problem we have to look at why print newspaper ads are seen and online newspaper display ads seem invisible. The answers are mainly templates and search. How do you find something interesting to read in a print newspaper? You turn pages and scan headlines, when one catches your eye, you stop and read it. Interspersed in an irregular pattern are advertisements. Your eye is forced to see those ads because of the page layout. Since they're not always in the same location you scan the whole page because you can't predict where the ads will be and it becomes harder to train yourself to ignore them. The behavior is very different reading an online newspaper. First of all, you tend to use search to find what you're looking for. You're not leafing through pages and scanning headlines. But the real problem comes from the templated nature of web design. If the ad units is always in the same places on the page it becomes easy for your eye to ignore them. This is the problem that the newspaper industry needs to solve to become viable online.

The lesson there is monetization techniques do not always transfer from one channel to another. It's easy to end up with a meatball sundae.

In many ways the radio industry is not learning the lessons of the newspaper industry. They are far behind the newspapers in leveraging their core competence to a new distribution channel. Sadly many people in radio see their industry in a temporary downturn rather than a fundamental paradigm shift (kind of like the newspaper execs myopia 5-10 years ago). It is not merely an issue of radio moving to a narrowcast model but how to monetize the audience once they get there. Listeners are moving online and to mobile, but the types of ad units that are effective in a linear broadcasting environment are not effective in an interactive narrowcast world.

These are the challenges that radio must solve or they will end up hanging out with newsreels, town criers, and print newspapers in the dustbin of obsolete media.

I tend to not blog much here recently about the larger technology industry but the recent developments at Yahoo! compel me to write.

YHOO gave its investors a tremendous return (and if you bought YHOO on the day of the IPO you're still looking at a nearly 10X return, in fact if you bought $1000 worth of YHOO on the day it went public and $1000 worth of GOOG on the day they went public, your YHOO shares are still worth a lot more than your GOOG shares).

There was a time in the late 1990s when Yahoo! was the most respected brand on the internet. It built tremendous products. Its communications products, its finance products, its news products, its entertainment products (which I had something to do with) were industry leaders (many of them still are).

The one thing that YHOO never did well in house was search.

Search was outsourced to Alta Vista (~1997)

Search was outsourced to Inktomi (~1998-9)

Search was outsourced to Google. (~2001)

Search was not a core competence of YHOO. They were NEVER going to beat Google at search.

Earlier this year Microsoft tried to buy YHOO. That fell apart. Then Microsoft tried to buy YHOO's search business. That fell apart.

YHOO tried to fight back, but frankly Jerry is too nice (I knew Jerry quite well 10 years ago, he is very nice). YHOO has a ton of dead wood and Jer doesn't want to be the guy to fire folks, but that's what Y! needed.

Now MSFT has expressed interest in buying the search business again. Please, for the love of everything purple; please SELL SEARCH!. Let Google kick MSFT's ass in search not yours. Focus on verticals. Focus on mobile. Pocket MSFT's money for the search business and watch them fail.

Fight the battles you can win, not the battles you will lose.

Google is launching a gTalk client for the iPhone. While that's terrific, some of the reaction to it is over the top. Some in the digerati to proclaim the death of texting via SMS is nigh.

They are wrong.

There are 3,000,000,000 cell phones in use.

There are 6,000,000 iPhones in use.

The iPhone is 0.2% of the cell phone market. If I want to text someone who doesn't have an iPhone (99.8% of the market) I have to use traditional SMS. But that's not the real problem. The real problem is that I don't know what kind of cell phones my contacts carry. That uncertainty will prevent me from trying to reach them via that channel.

Being ubiquitous is powerful. Working on every device is imperative.

Rhetorical question: If Google launched a web app that only ran on MacBook Air computers with solid state drives would that be a good business move for them?

My Yahoo! has been my browser start page since the summer of 1996.

As of this morning, My Y! no longer my start page. This morning I switched to the customized iGoogle start page.

The overwhelming reason is speed. The new, improved, version of My Y! is just plain slow. They've redesigned stuff to add more graphics and to look all "Web 2.0", but in the process they've killed the usability. My Y! was a great start page because it had everything I wanted and it was wicked fast. Perhaps My Y! just became a mismanaged anachronism of the pre-RSS revolution.

iGoogle on the other hand just rocks. It's really fast, there are lots of modules, and the design is clean. Most importantly, it's open, if I need a module that doesn't exist, I can just write it myself.

There's a lesson to be learned here for all startups (including Foneshow) about user centered design and targeting your platform.

Jerry Yang is back in charge of Yahoo!. I've seen a ton of blog commentary in the last few days, some of it good, some of it incredibly misinformed. The best comment I've seen is from Jason Calacanis

Jerry should rebuild the management team to focus on product and forget about hitting numbers for a year or two. The focus has to be on making better products than Google--not an easy task.

Jason is totally correct. When I started at Yahoo! everything was about the product. Get it out, iterate it, and integrate it with the rest of the network. That was the mantra. Somewhere in late '98 or early '99 it stopped being all about the product. We had beaten Excite, Lycos and Infoseek and Y! was in cruise control. The focus turned inward. Y! built a campus. Office politics became rampant. They opened a Santa Monica campus. The focus was off product. People got scared to take product risks. Lots of new hires were in "vesting-in-peace" mode from day one.

And along came Google and they kicked Yahoo!'s ass. They did it by building a better product in an area that Y! had long been neglecting; search.

Now Jerry is back and his mandate is clear, take on Google.

I don't think taking Google on in search will be successful even if Yahoo! does search better than Google does, there's just too much momentum. Incremental improvements are not enough, you'd need an order of magnitude improvement. That won't happen unless Google eases up on search technology and rests on their laurels (unlikely in my view, there are lots of ex Y!'s at GOOG who know first hand what happens when you do that).

But Google is vulnerable in other areas. Mobile is one of them.

Right now mobile is where the web was in 1995. It's wide open with a huge market just opening up. Yahoo! can win in mobile using the same techniques they used to win online in '96-'98.

Yahoo! won online by addressing the big audience. Yahoo worked the same on every OS and every browser, no plug in needed. The pages were lightweight and loaded fast. They need to do the same in mobile. They need to be carrier and handset agnostic. They need to build apps that don't require 3G. It's not about distribution deals. You need to end-run the mobile carriers. Y! did countless distribution deals (MCI, HP and countless others long forgotten), I don't think combined they amounted to a hill of beans. Distribution is not their problem, good product is. If you build a good product that works consistently across all platforms you will win.

I'm pulling for you Jerry.

Donna Bogatin at ZDNet wrote an opinion on Google Audio.

As we talked about earlier, accountability is what makes AdWords work. If you're going to try to disrupt an existing industry, you need to do something disruptive. I don't see anything very disruptive in Google Audio.

What I'm curious about is TargetSpot.

I've been skeptical of video on cell phones for some time. I've mentioned it here and here. I've been meaning to blog about it for a while. Hunter (who runs some segment of video for Google and/or YouTube) reminded me to finally do it, so I am.

There are a number of real challenges to mobile video. Technology can solve many of them at some level. But one of them is much more fundamental and does not have a real technological solution. That problem is driven by biology, and by market forces. There are also a number of business issues involving the cellular carriers, but we'll assume the carriers will wise up at some point and those will go away.

Technology challenges include:

Battery life
Bandwidth
Local storage
Limited UI capability of handsets
Screen size

Batteries are getting better all the time. Mobile bandwidth is also improving (here in the US it lags, but that too will pass). Storage is always getting cheaper. Clever engineers can make good UIs. Screen resolutions are getting higher and higher.

Technological advances will solve many problems, but Moore's law will never give us better eyes.

A biological fact: Human eyes are limited in their capability. Very small complex video images, even at very high resolution, are difficult to see. It has more to do with the angle subtended in your field of view than with how many pixels there are. If you get a small screen close enough to your face to subtend an acceptably large angle, it will be too close for your eyes to focus on.

A market reality: People really like small cell phones.

So...

A) On one hand you have a downward market pressure for smaller and smaller handsets.

B) On the other hand to make video viable and viewable a handset needs to have some minimal X-Y dimensions.

If the dimensions required by B are greater than the maximum acceptable mass market size defined in A, cellphone video will be niche.

The iPhone will provide an interesting test here. There's been a lot written about the iPhone; battery issues, connectivity issues, storage issues. The one thing that is seldom discussed about the iPhone is how physically large it is. It's bigger than an iPod. It's bigger than a Treo or a Blackberry. It's MUCH larger than a RIZR or a KRZR. It's big enough to need a belt holster. It's smartphone size and smartphones are a niche market. The iPhone has 3.5 inch screen. I suspect that's about as small as you can go for an acceptable video experience. But a 3.5 inch screen necessitates a really big phone.

FWIW, I rarely see people watching video on their video enabled iPods.

Usually Google does a pretty good job on their "Did you mean..." options.

But "Did you mean tina's pretty piggies"? WTF?

Sorry about the lack of posts recently, we've been really busy (in a good way).

MobiTV closes UK office, cuts off 3 and Orange. I owe you all a post about why I've been dubious of cell phone video for aeons.

There's a serious lobster shortage. Lobster Rolls at Red's Eats this year are $21! Eeek.

Podshow and Sirius have not renewed their contract. No one is talking about why.

Is Google making a big database of voices?

Bridge has new projections out,

"Growth of the podcasting phenomenon is severely limited by the process, according to this sample of the general population. A simplified process for listening to podcasts would greatly enhance the technology's growth potential."

Hey that's a good idea...

I love the GeekDad Blog

I Google everyone. If you cold call me on the phone, I'm Googling you while we talk. I Google all meeting participants before every meeting or conference call. I Google everyone who I interview or who interviews me.

Valleywag (yes, I read Valleywag) has a rather tongue-in-cheek (as is their style) article on managing your Google reputation. However, there are some good lessons there.

The New York Times has another piece on Google's offline advertising ambitions.

In particular, Google’s effort to sell radio ads, the oldest and most advanced of its major offline advertising plans, has run into several hurdles, including radio stations that are wary of losing control over the sale and pricing of ads.

The promise Google offers old-line media markets is that it can replicate the formula that has worked so well for it online. It is a formula that relies heavily on technology to allow advertisers to buy their own ads, have them appear on relevant pages across a vast network of Web sites, and then track the results.

The key phrase there is "then track the results". How do you programatically track the results of CPM based advertising?

I blogged this extensively a while back.

I used to have an investment strategy centered on using the construction of an office campus as a contra-indicator for near term success. When tech companies start to build buildings everyone gets distracted. Employees moving offices is distracting. Divvying up the new shiny space churns up office politics. Senior level management spends time reviewing renderings and looking at swatches. Focus is lost. Apple nearly died after building Infinite Loop. I think the excite@home temple is still empty. SGI went splat after building their campus (although Google is doing well in the old SGI space). Yahoo!'s glory days were when they were on Central Expressway, not in their new digs in Sunnyvale (not to mention the Santa Monica debacle).

Foneshow is currently virtual and we intend to stay as virtual as we can for as long as we can (although it does look like we'll be subletting some space in the Old Port neighborhood of Portland in the near future). VC Confidential has a great post of the perils of start ups dabbling in real estate. There are a lot of great lessons in there.

Last year Google bought dMarc for ~$100 million in cash and a earn-out option for another billion. Last week the two dMarc founders left Google and there's speculation that things are not going as planned with Google's into move into the $22 billion radio advertising industry. There are rumors of cultural clashes between the radio people and the Google folks, clashes between Google's fundamental belief in an automated sales process and the radio industry's historical use of sales reps.

Google's automated sales process for AdWords works so well because their cost per click model (CPC), tied to their auction system for pricing and selling ads, leaves emotion entirely out of the ad purchase decision cycle. The purchase decision ends up being a strictly intellectual process of looking at the cost of the ad buy, looking at the conversion rate of clicks to purchases, and setting an auction bid that gives you an acceptable return on investment for the ad.

Traditional radio advertising is a whole different ballgame. Radio ads cannot be CPC advertising; they are based on cost per thousand (CPM) impressions. The primary value of CPM advertising (especially in a one-way medium like radio) is increasing brand awareness. It is very difficult to make a hard correlation between radio ad buys and incremental revenue. The ROI on radio ads are much fuzzier and harder to quantify. Therefore the decision to do brand advertising, and more specifically how much to spend on brand advertising, is a more emotional sales process. An emotional sales process goes much more smoothly when a sales representative is there to ease the buyer along.

It's an interesting problem to tackle. The move toward mobile is creating a hybrid market. Which sales model do you follow? We're developing the clickable audio ad, which you can do with a feedback-enabled audio system like the cell phone. You can combine the emotional pull of audio ads with the demonstrable ROI of CPC ads. The goal of audio ads in a mobile medium starts to be less about brand building (though it still is), and more about invoking a direct call to action, AdWords-style. Hear an ad, press the "5" key, and be connected to the advertiser. You're listing to a movie review; you "click," the call is transferred to MovieFone, and you buy your tickets. Or you initiate any of the other options possible with a live connection -- like requesting follow-up emails with more information; or calling open API web services and, for example, clicking on a preview for a TV show and programming your TiVo. We're continually inventing new implementations for the clickable audio ad.

It's a new world out there.

I had some meetings in Mountain View today, after I finished up I had lunch with an old friend at the Googleplex. He's been there for about seven months. In those seven months Google has essentially doubled in head count. It boggled my mind. They are handling their growth so much better than Yahoo! did. They are keeping their hiring standards WAY up, something that Y! did well for a while, but really slipped on in the late '98-99 time frame. No one is hiring people just so they don't "lose the headcount". The place is just so much better run than Y! was. The energy is amazing.

Of course, the food at Google is head and shoulders above the old Yahoo! meal plan in 3400...

Was Google's acquisition of YouTube a defensive move to take out a competitor? Will Google care if they kill YouTube?

There's been much sturm und drang about the Y! peanut butter memo this weekend. One of the main points of the memo is that YHOO has similar products in the same space that compete against each other. Commentators have mentioned that one of GOOG's strengths is that they don't have multiple products in the same space.

A little bell went off in my head. When the YouTube acquisition was announced GOOG CEO Eric Schmidt went out of his way to say that Google Video "is not going away."

A few points:

-The bump in GOOG stock due to the YT acquisition means that YT was essentially free.

-There's no way in hell Google Video was beating YouTube in the marketplace.

-GOOG would be hurt if YouTube were owned by MSFT or YHOO

-Google is a company that thrives on technology solutions. YouTube has no proprietary technology (the interesting tech is Adobe's).

-There's a snakepit of trouble with YouTube vis a vis copyright issues (especially once people realize that Progressive Download!=Streaming).

-An unfavorable legal judgement against YouTube would hurt all online video efforts (see A&M RECORDS V NAPSTER).

I'm not suggesting Google is going to try to kill YouTube. I just suspect that if it doesn't work out, Google won't shed too many tears.