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Re: Riches in Mobile Ads, Just No Profits – The Wall Street Journal
Action Ads
Instead of branding, the most valuable ad experience in the mobile space will most likely be a combination of demographic and geo data aimed at inducing a desired action at the moment the ad is shown.
This is all possible by integrating the social sign up (log in via facebook), identifying the location of the person via triangulation, gps or other methods, and remembering their behavioral history. This mixture would allow for highly targeted ads that request an action, such as increasing a sale amount at the checkout lane.
Take for example someone waiting in line to pay at Walmart. The phone can identify the user through the background running walmart app, which knows who the user is, what has he purchased before, what matches his interests, current specials, current store inventory, etc. The union of these variables can be used to determine convinient action ads, which can automatically generate a personal coupon or suggest to the user an item to buy.
Another example would be from a third party app. In this case, the same user at walmart is not running the walmart app in the background. Instead, a user is reading the news via an app like wavii, which both uses facebook login and maintains personal information of the user. That user within the wavii app can also be shown an action ad from walmart, suggesting the purchase of an ideal product match or coupon.
It needs no explanation that an action ad’s impact can be measured almost instantly. This allows marketers a more direct understanding of their ad performance and cost analysis. From an app owner perspective, action ads can serve as higher revenue sources than CPMs or CPC arrangements, given that an action ad can be tied to a commission on the sale.
An Internet of Things
The whole action ad strategy gets even better with the introduction of RFIDs into products. With this “Internet of things”, mobile business becomes the center stage of a large chunk of commerce. In this scenario, a person’s smartphone can identify the products in a household in realtime and keep a history of typically available products. An app can determine when there is a shortage of a product or whether there are special sales on the internet or nearby stores of commonly purchased products. Again, action ads can trigger the purchase of these items, like generating an online order with delivery.
Action Ads can also be beneficial for the travel industry. When arriving to an airport, action ads can display nearby hotel rates for booking, available taxi and drivers (ubercab), individual housing (airbnb), or available dining seats at the hottest restaurants (opentable) targeted to a user’s preference.
BTW: this response was written using a smartphone and the WordPress app after having used the WSJ app to read this article – Riches in Mobile Ads, Just No Profits
Twitter as a Personal Productivity Tool
When people think of Twitter, many associate it as a place to post just about every meaningless thing you are doing, as well as reading the latest gossip straight from your favorite celebrities, but Twitter can be something completely different – a productivity tool. In this small article, I will try to explain how you can use Twitter to gain insight into the world’s trends and the minds of great leaders as well as to use it as a source for managing your most important data consumption.
Twitter as a Knowledge Exchange Tool
Your Twitter account can be your window to the rest of the world on what you find interesting and valuable to share. Your “tweet” becomes a vote towards a stream of information flowing through all of the web users, where your tweet becomes an influence in that stream. In other words, the more tweets there are about a specific subject, the more likely that it will reach a broader audience. Twitter can also be very narrow and specific. You can use it to follow professionals concerned with particular interests. These professionals will likely share valuable information on those topics as soon as they discover them.
When was the last time you spoke to a Nobel laureate, world leader, or a successful business man? With Twitter, you can “follow” these people and gain the knowledge of the valuable pieces of information they share. Sometimes, it will be small thoughts, and other times they will direct you to a wealth of knowledge sources. You can comment back to them on what they have shared by using the format “@username” and this will reach their account.
So how can you incorporate yourself into this knowledge stream aside from commenting? First, integrate your current information consumption applications with your Twitter account. Many applications and web services allow you to integrate your Twitter account so that you can share content with a single mouse click. When you are reading an article or when you stumble into something of value then you can just click on the Twitter share button and the content will be shared. This form of sharing is an automated way that consumes about 1% of one second of your time each time you share content. Other people will be able to see what you have shared and comment back to you. And this is only a very simple way of sharing knowledge, Twitter is highly flexible in allowing how you decide to share information.
Twitter as your Information Consumption Tool
Once you are comfortable with Twitter, you could switch to the service as an information consumption tool. If you are familiar with RSS and RSS Readers, you will understand this part (if not, look for an article to learn about RSS first). Many of us use RSS Readers for information consumption. However, Twitter offers a more “submersive” way. First, you can identify the places which you have RSS subscriptions for. Many of them will also have Twitter accounts. For those that don’t, there is a very usefull service called TwitterFeed. That free service creates an instruction that sends the RSS feed postings as tweets to your account. You can have more than one Twitter account if you want to segregate the topics.
Once you have integrated all of the information streams so that they all run through Twitter, you have created a highly efficient consumption tool. With Twitter, you can even specify accounts that are of so much importance to you, that you get an SMS in your cellphone with the “tweet”. This is very valuable for people that need to be notified of information changes instantly, like for example when a site goes down or has been penetrated by a spammer, or when a stock goes down or up to a particular price level. Any information change can be programmed so that you are sent an SMS immediately.
These examples serve as a general introduction to the practicalities of Twitter and are aimed at people who care about time and efficiency. As you can see, Twitter can serve as a gateway of valuable and timely information that you can consume and share. You have access to influential leaders and what they are working on. You can reach the content, or the content can reach you through instant notifications to your mobile. You can reach millions of people and millions of people can reach you.
Irrational Beings – Susceptibility in Decision Making
If y/a = Z, and (y+x)/a = Z, (where Z doesn’t equal 0) then we could logically assume that the value of x = 0, right? When it comes to decision-making and behavioral economics, the answer many times is no. x could have a significant value in our decision process. Our brains are susceptible to influences that cannot rationally be explained. In the video below, you will see this in more detail. It is interesting to understand it for the applications that it could lead in the formation of pricing structures, establishment of public policy, and many other areas.
Dan Ariely asks, Are we in control of our decisions?
On Stock Market Valuations, some light to the recurring scandals
“There must certainly be a vast Fund of Stupidity in Human Nature, else men would not be caught as they are, a thousand times over, by the same Snare, and while they yet remember their past Misfortunes, go on to court and encourage the Causes to which they were owing, and which will again produce them.” – said Cato several thousand years ago (from The Battle for the Soul of Capitalism)
Here’s an interesting analysis from John C. Bogle‘s book “The Battle for the Soul of Capitalism”
“When the S&P Index rose from 130 in March 1981 to 1,527 in March 2000, the return on investor capital, excluding dividends, was 13.8 percent per year. Earnings growth amounted to 6.2 percent annually, less than half of the return, with the remainder the result of a rise in the price-earnings ratio from eight times to thirty-two times. That increase alone accounted for 1,100 points of the 1,400-point gain, or 7.6 percent per year. If one were to attribute even a 5 percent corporate cost of capital as a threshold for stock option grant- a return a company might have earned merely by placing all of its assets in a bank certificate of deposit- corporate management could claim responsibility for an extra 1.2 percent per year.” (emphasis added)
So how does Wall Street manage to “meet” or “exceed” their generous quarterly guidance with such a high success rate? Here’s an example:
“In 2001, Verizon Communications reported a net income of $389 million and awarded its executives bonuses based on that amount. Net income would have been negative, however, had the company not included $1.8 billion of pension income. Thus, Verizon was able to use pension earnings to convert net income to profits, giving the firm cover to provide managers with higher bonuses [and meeting expectations, and keeping their stock options way high in the black]. It gets worse. It turns out that Verizon’s pension funds did not generate any real income in 2001; they had negative investment returns, losing $3.8 billion in value [What?!]. How then, could Verizon report income of $1.8 billion from its pension assets? The company merely increased its projection of future returns on pension assets to 9.25 percent, a move allowed under the accounting rules then in effect. Thus, the $1.8 billion in pension income used to move Verizon into the black did not even reflect actual returns generated by the pension funds. The pension income was simply the result of a change in the accounting assumptions. This certainly did not create any value for the firm or its shareholders.” (emphasis added)
OK, so lets do this simple math. They claim they made $389 million in net income, because of the $1.8 billion of magic pension fund money that doesn’t exist. This means they actually lost $1.4 billion, but that’s not it. They didn’t make $1.8 from pension, rather lost $3.1 billion in value for that fund.
Who ends up carrying those losses? The individual investors, fooled to believe a company is stable, holds the stock and takes the heavy losses when all the cards in the table are finally shown at once.
Acquisition Opportunity for Yahoo or Google- Marchex
Last time I analyzed CNET’s individual assets, the company was acquired 4 months later. Now, amidst the current economic nightmare, there is a fresh new opportunity to grab a gift – Marchex (MCHX). Yahoo, who’s recent conflicts have left many asking for Yang’s head and who’s stock has lost almost 50% since failed negotiations with Ballmer, has a small opportunity to vindicate themselves.
Of course, there’s also Google who needs to continue increasing their revenues in order to support their generous stock PE. Although I would insist that this is a more logical acquisition for Yahoo! to build themselves into a more attractive position for Yahoo! to be acquired, possibly still by Microsoft.
So, what does Marchex bring to the table?
High quality traffic and prime Internet Real Estate.
By its own, Marchex is priced slightly below their current value. However, when you take Google or Yahoo’s advertiser base and traffic sources and fuse it with Marchex’s high quality domain portfolio you get a multiplier effect.
Marchex has made two brilliant moves:
1. Spanish domain portfolio acquisition
This portfolio contains over 100 of the most attractive Spanish domain names and was calculated to generate more than one million unique visitors per month. Of course, these are mostly visitors coming straight to the sites, because of type-in traffic. Take a look at the jewels:
mujer.com (women.com)
fotos.com (photos.com)
deportes.com (sports.com)
salud.com (health.com)
peliculas.com (movies.com)
mascotas.com (pets.com)
futbol.com (soccer.com)
cocina.com (kitchen or cook.com)
tarjetas.com (cards.com)
dietas.com (diets.com)
computadoras.com (computers.com)
The whole list is found here http://www.emediawire.com/releases/2007/5/emw527846.htm
The value of these domain names are like a slow curve that quickly accelerates exponentially as the Spanish market (Spain, Mexico, Caribbean and South America) online advertising solidifies. One must understand that this market has been extremely slow to develop, mostly because of the number of computers available in each household and lack of understanding from old school marketing executives. However, the panorama is changing quickly and will fuel advertiser dollars to the ‘net.
The Spanish domain portfolio could be easily worth $500 million to $2 billion in a 5 year window, depending on the development of all these domain names into fully usable content and social portals.
The second source of value in Marchex is their 2004 acquisition of UltSearch’s domain portfolio.
In this portfolio, there are over 100,000 domain names of high search traffic value. There are also a few generic jewels in the mix like beijing.com, debts.com, and remodeling.com.
It’s hard to value the whole portfolio and I suspect that most of the names would probably not be of any significant worth. However, assuming even 1% of the names are of the quality of debts.com and beijing.com would make the portfolio highly attractive.
I wouldn’t doubt that this portfolio had at least $100 million in value (Marchex paid over $150 million a few years ago for the portfolio).
Finally, someone over at Marchex decided to accumulate zip code domain name. Wrap them up, put a bow on top of them and sell it for a few million to some telephone company still figuring out their online strategy. I’d also garage sale the auto content generation technology.
Marchex is currently priced at $300 million. Year-to-date they are down almost 30%. This is exactly how much it is worth.. a 30 to 50% premium on its current price.
Quick Q&A: Could the value of a premium generic domain name depreciate?
This is a debatable subject. The specific question I want to consider is: When a company accomplishes a dominant leadership position in an industry, how will the generic domain most descriptive of that industry be affected in its value?
Here are three examples to consider:
Books.com – This is a powerful generic domain. Yet, it would be interesting to learn how many actual type-in visitors it generates for Barnes and Nobles. The reason – Amazon.com. Amazon has become synonymous to books for most Americans. So, when people buy books, how much type-in traffic has Amazon taken from Books.com due to a powerful brand?
Auctions.com – You probably said it in your mind before actually reading it – eBay.com. Perhaps their success was greatly influenced by fate/luck, when they tried to register echobay.com as their website’s domain name and it had already been registered. This is why they had to shrink it into the catchy four letter word. Again, when you want to buy or sell in auction format, how likely would it be for you to type-in Auctions.com, rather than eBay.com.
Search.com – Some lawyers are even trying to stop reporters from using the term “googling”, as search giant Google overshadows even the phrase “to search” with the increasingly popular phrase “to google”. How would you think this change has had an impact on the value of Search.com?
If in these three cases you agree that the word actually lost value, rather than appreciated in value as a company grew into a leadership position of the industry, and you own a premium generic name for an industry in which a new company is growing to become a leader of that industry; then you should try to sell the domain name before the company establishes itself as the leader. Or at least for accounting/tax purposes, you should be able to begin a trend of depreciation from your asset as the company’s leadership position solidifies.
CNET Acquisitions
For the past several months, I have been watching and considering an investment in CNET Networks, precisely because of its attractiveness of individual assets, which if spun off could suggest a much higher total worth than the current $1.3 billion. However, upon closer inspection of the individual parts, I am still not convinced that the sum of its parts, under current conditions, is worth more than its 1.3 billion. CNET is currently carrying too much fat and producing mediocre returns on their prime jewels. Take for instance News.com, which as suggested by the NY Times produced in October a mere 6 million page views, compared to 8 million page views produced by a small group of bloggers with minimal costs over at TechCrunch.
The key of course, is finding buyers for CNET’s crown jewels, which are:
- TV.com – This is currently a site which alone could be worth more than CNET’s current market cap, but the focus of the site is its main problem. TV.com is aimed at providing a TV guide resource – big mistake!
Instead, TV.com could become the place to go for TV watching, think YouTube or Hulu. Capitalize on the millions of confused visitors coming in from the highly marketed .TV extension. Strike deals with media companies to stream television through TV.com. Stream everything under the sun! Sell the idea to Mark Cuban, sell it to Murdoch. Try to get a link from future generation television sets that are integrated with wireless internet, so that TV.com is the link to online television. How many people are looking to buy a TV and just type TV.com? Have a section in the site for TV purchases, cable subscription services.
The current site is probably 10 to 15% of the traffic and revenues it could achieve.
My current price – $100 to 500 million. Future worth with minimal refocus – $1 to 5 billion.
- News.com – When you type News.com, the first thing you see is technology news. Get over it. If I want technology news, I will type TechnologyNews.com, Technology.News.com, or TechCrunch.com. I don’t even want to know how many of CNET’s 2,600 employees it takes to run this charitable venture costing investors $16.65 million last quarter. Again, as TV.com, News.com is being used for less than 15% of its capacity.
When I type in News.com, it should be news about everything. I want to see videos of what’s happening around the world. I want to get international perspectives for what is happening in the war in Iraq. People should find ALL possible resources on news information and be able to interact and contribute. Oh so many possibilities!
My current price – $50 to 300 million. Future worth – $0.5 to 1 billion.
- Download.com is fairly well developed and should fetch a good price. I don’t have specifics on how much it costs them to offer what they claim to be a, “a rigorous testing process to ensure it is safe and spyware free”. Unless this rigorous testing process is subsidizing a considerable number of employees, an automated system should not represent a considerable cost. Advertising money here should be flowing comfortably in the black.
My current price $50 to 150 million.
- Search.com – Wow, these people really knew how to pick their names. However, as Google becomes a household synonym for “search” I am less confident in this domain than what I would have been five years ago. I would assume that this is a rapidly depreciating asset and should have been shopped around much earlier. Sell it to Sahar Sarid for his search venture Assista. I am sure he’d appreciate the value it can bring to own the direct synonym to Google in his quest to take a bite of that space.
My current price $10 to 20 million (perhaps more depending on current traffic and revenue numbers)
- Chat.com – Give me a break! This baby redirects to cnet.com? Yes, it should be a crime punishable to death. Chat.com has no home of its own. I’ve personally shopped around to buy chat ccTLDs and have already developed one into a chat site. These sites are great, because they are cheap to build and to maintain, and user loyalty is huge. Chat.com is a dream domain with immense potential. I want it.
Suggestions for this site are obvious – build chat channels and capitalize on the type-in traffic, which will serve as the commencement of an avalanche of visitors. These people spend 20, 40, 60 minutes straight in a page. Even at $2 CPMs, this is one site that could produce millions. Instead, old grandpa CNET reasons – if they type in chat.com it must be they want to read technology product reviews! Shame on you CNET.
My price $300k cash, right now! OK, seriously – $5 to 10 million – and the 10 is pushing it, because there’s no community. This is just a domain name purchase.
Future worth – $10 to 50 million easy.
Mp3.com – $5 million
GameSpot.com – $4 million
ZDNet.com – 3 million
TechRepublic.com – $2 million
mySimon.com – $1 million
UrbanBaby.com – $500k
Chow.com – $300k
As you can see from current conditions, a $1.3 billion market cap is reasonably priced. Yes, many of us see potential in a much higher worth, given the properties they own, but right now there is no bargain investment in CNET unless you have the power to enforce radical changes to current management or have faith in Jana’s capacity to push for that change.
Alibaba IPO and Yahoo Valuation
Call me old, but am I the only one that remembers the Palm IPO? OK, so I was among the cattle desperately trying to get shares of Palm, back in the day – March 2000. Now, something with Alibaba smelled very similar to that Palm IPO…
March 2000:
- Palm IPO rises 150% by closing bell
- Palm closes opening day with a $53 billion market cap
- Main Palm shareholder 3com rises drastically as a result of Palm’s market cap
November 2007:
- Alibaba IPO rises 193% by closing bell
- Alibaba closes first day of trading with a $25.7 billion market cap
- Main Alibaba shareholder Yahoo! drops 4.6%???
OK, so Mr. Yang is in the hot seat, but is it so serious as to discount the more than $6 billion they just made off of the Alibaba IPO, plus a nearly $2 billion more in the drop of today?
Then again, investors could be discounting the huge dot-comish PE that Alibaba carries.
Oh, and for those of you wondering how Palm did ever since that monumental IPO… PALM Market Cap: $0.9 billion
Ciao Record Labels
Do you smell blood in the water?
In the latest seismic shift to rock the music industry, pop superstar Madonna is close to leaving Warner Music Group Corp.’s Warner Bros. Records for a $120 million deal with concert-promotion giant Live Nation Inc., according to people familiar with the deal. Madonna still has another studio album left to deliver with Warner Music.
The shift in power, mainly (if not totally) by the Internet distribution channel for music downloads, is causing a slow and painful death for music labels. It might be time to start filling those Christmas stockings with put options of record label companies.
Domain Deals – New Column
Thanks to Google Reader’s tag share option, from now on I’ve added a new column called “Domain Deals”. On a regular day, I read several hundred rss items and evaluate hundreds of domain deals. All shared domain deals are considered to be attractive. The number of attractive deals has grown so much, that I’ve decided to share this list with everyone.
You can find this column of deals in the right side of my blog, and it will update every time I tag a new deal. Feel free to subscribe to the feed to read as many domain deals as you like. I hope this new column helps all those people interested in domain investing.
For all the newbs in the house, please read “Potential Domain Investment Risks” before jumping in the water.
Happy domaining!
Rafael Sosa's Weblog 