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Youtube’s entry into online video overlay will be good for its competitors August 23, 2007

Posted by jeremyliew in ad networks, advertising, business models, Consumer internet, contextual targeting, video, web 2.0.
6 comments

Google’s announcement yesterday of overlay ads in Youtube has prompted a lot of discussion about the format of the ads, and who invented overlay ads first.

As Henry Blodget and others have noted, some of the most interesting commentary on the overlay ad unit comes from Brightcove CEO Jeremy Allaire:

To our disappointment, there has been extremely limited uptake by the advertising community around [overlays]. There are a lot of factors behind this limited uptake, including:

– the advertising community buying video have been very focused on leveraging existing creative and buying patterns in the online video space

– most content publishers and media owners have been focused on getting the ‘basics’ up and running, and also responding to the RFPs from marketers and advertisers, which are almost 100% focused on basic short-form video commercials

– for premium brands and content, the basic pre-roll and companion banners are yielding extremely attractive CPMs and there is little evidence that :15 ads have any negative impact on end-user viewership behavior — in fact, our own metrics show that sites that run without any ads, and then introduce :15 pre-rolls and banners achieve identical usage and performance (e.g. no drop-off in users because of ads) on their content.

Nonetheless, we remain very bullish about ‘composite’ video advertising formats that combine overlays and unique and non-intrusive calls to action with deeper interactive marketing experiences. We’ve been pushing this for years and only now are starting to see the publishers and media owners that we work with begin to take an interest in these formats. I believe this is because we’re now entering a phase where content companies are looking at ways to maximize yield and revenue within their content, and they are introducing more mid and long-form content which require, by economic necessity, a different suite of formats to deliver a good user experience.

Jeremy’s experience is not surprising. As I have said in the past, new forms of advertising are hard. They take longer to catch on then you expect. Until standards emerge, it can be difficult to cross over from “early adopter” advertisers who are willing to experiment, into the mass market of advertisers. If the media buyer at the agency doesn’t see your sort of advertising as a line item, she can’t allocate you part of the ad spend.

That being said, Youtube’s entry into the market is a game changer. With Youtube representing 50% more market share than ALL other online video sites combined (according to Hitwise), and with Google’s existing relationships with advertisers, they have both the volume and the connections to be able to create a standard. And that is great news for VideoEgg, Brightcove, AdBrite, and all the other online video ad networks. Online Google/Youtube can create the standard that the industry needs to be able to really grow into scale.

The Prisoner’s Dilemma in online advertising August 1, 2007

Posted by jeremyliew in ad networks, advertising, Consumer internet, economics, video, web 2.0, widgets.
11 comments

I posted previously about how increased innovation in online advertising is driving up costs. Online media companies would generally prefer more standarization and less customization in online advertising; this makes their processes more scalable and keeps their costs down. However, they face a prisoner’s dilemma situation that has made it hard to drive standardization as an industry.

The prisoner’s dilemma is a staple of game theory classes. Wikipedia summarizes the problem as follows:

Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?

Classic game theory predicts that in a single instance of the game, the dominant strategy is to betray your accomplice. However, if the game is repeated, the best strategy for rational players repeatedly interacting for indefinitely long games can lead to sustaining the cooperative outcome.

The Wikipedia article cites several real world examples of the prisoner’s dilemma, including one involving cigarette advertising.

When cigarette advertising [on TV and radio] was legal in the United States, competing cigarette manufacturers had to decide how much money to spend on advertising … cigarette manufacturers endorsed the creation of laws banning cigarette advertising [on TV and radio], understanding that this would reduce costs and increase profits across the industry.

While not advocating that we use cigarette companies as a role model, I believe that the online advertising industry currently faces a similar opportunity to reduce costs and increase profits over the issue of increasing customization in online advertising that I posted about last week.

So how does this relate to the prisoners dilemma? Rather than the police asking suspects to confess, advertisers are asking online media companies for costly custom advertising. If one media company is willing to customize and its competitor isn’t, then the customizing company is more likely to win the deal.

But if both companies customize then creative and production costs go up while the size of the ad spend does not. More money is spent on creating the campaign, and less goes to buying media. Thus both media companies suffer.

If neither company customizes, then less money is spent on creative and more goes to buying media and filling the online media companies’ coffers.

To make this situation more complicated, there aren’t just two prisoners who need to cooperate, but rather many online media companies. With many players, it can be very hard to drive towards a cooperative outcome.

For media companies, the “cooperation” case means adhering to a set of standards in creative format. While this doesn’t eliminate the costs of creative, it does at least set boundaries to help control creative costs.

While these standards exist in banner advertising, (728×90, 300x 250, 160×600 etc), they do not yet exist in other, newer forms of online advertising (including social media marketing, widget marketing, online video marketing, and casual immersive world marketing). But through the IAB, we saw standards eventually emerge in banner advertising, and hopefully we will see the IAB and other standards bodies (perhaps the newly formed Widget Marketing Association?) help set standards within the newer forms of online advertising as well.

This is a necessary but not sufficient condition for the industry to converge to a stable “cooperative” equilibrium in this version of the prisoner’s dilemma. I’ve campaigned for standards in social network advertising before.

What else do readers think can be done to promote cooperation?

How to monetize UGC video June 28, 2007

Posted by jeremyliew in advertising, business models, Consumer internet, Internet, social media, user generated content, video.
8 comments

Over at NewTeeVee, Liz Gaines says that Ad startups are turning away from user generated video. She says that all of the online video ad startups that she is interviewing these days are focusing on professional video over user generated video, calling out Kiptronic, Blinkx, DigitalSmiths, Brightroll, YuMe, Adap.tv and Broadband Enterprises by name. She says that only Scanscout hasn’t dissed UGC.

Liz did omit from her list VideoEgg, which is taking on monetizing UGC head on (with social networks like Bebo, Tagged, and Dogster among its client list) and making some good headway. Notwithstanding what they told Liz, Brightroll is also serving a lot of UGC video sites.

But Liz is right, advertisers prefer professional video inventory. The market has spoken. These startups are going to where the money is, and today, its easier to monetize professional content than user generated content.

However, there are a lot of “shades of gray” between professional and user generated video. Its worth while parsing out some of the issues that separate the two:

    Professional content can guarantee no “Objectionable content” that would be problematic for an advertiser (e.g. hate speech, risqué content, violence etc); UGC can not.
    Professional content can guarantee to not have copyright/rights issues; UGC can not.
    Professional content tends to have better metadata for targeting advertising than UGC.
    Professional content tends to have higher production values than UGC.

The first two of these are show stoppers for many advertisers. Proctor and Gamble or Budweiser just can’t afford to have their ads show up next to videos of naked people, neo nazis or street brawls, or against copyrighted content.

The other two are a matter of degree – they just affect CPM. Diggnation for example, which comes close to UGC on production values and has limited metadata for targeting, has no problem getting advertising because it keeps on the right side of the line on the first two points.

I think that if we see user generated video that can guarantee no “objectionable content” and no copyright violations, and if it has the ability to target ads well (e.g. through a synthetic channel, or behavioral targeting), then lower production values will not prevent a healthy market for advertising against this inventory. Examples might be sites like Turn Here, Diversion Media and VoD Cars.

I’d love to hear reader’s thoughts.

Also, please don’t forget to switch your RSS feed to feeds.feedburner.com/lightspeedblog if you haven’t already.

Video may not be best way to monetize online May 25, 2007

Posted by jeremyliew in advertising, business models, Consumer internet, Internet, social media, social networks, video, web 2.0.
9 comments

Online video is hot and everyone is scrambling to figure out how to best monetize it. Google just launched their “adsense for video” product, Advertising.com has Instream, and there are a host of startups attacking the problem as well. I think these online ad network plays are very interesting, as are all the infrastructure plays betting on the underlying rise of online video.

I wonder though if online video is the best way for websites to monetize their traffic.

Online video certainly commands a premium to banner advertising on a CPM basis. Videoegg powers the video at many of the top 20 social networks, and its rate card for run of network advertising starts at a $12 CPM, an order of magnitude higher than the CPM’s for banner ads on those social networks. The big portals (AOL, Yahoo, MSN) and the TV network’s online properties are “selling out” their video advertising at $20 CPMs and higher. While there is always remnant inventory available at steep discounts to these rates, there is no question that online video ads are selling at 5-10x banner CPMs.

Now, while on TV the ratio of advertising to programming is very high – about 8 minutes of advertising to 22 minutes of programming (ie 16 “30 second” spots per half hour), the web is nowhere near this ratio today. The norm is only one video ad per short clip, with clips typically in the 3-10 minute range.

The trouble is that for a website visitor, the scarce resource is not “impressions”, but TIME.

Lets say a typical video-watching visitor watches a clip for 5 minutes. They get exposed to one ad in that time.

Suppose that instead of watching a video, that user spent the same five minutes looking at regular web pages instead. Comscore says that the average time spent per page for the entire internet is about 0.7 minutes (April 2007 data). So in 5 minutes they would have seen 7 pages. Since the average webpage has multiple ad units (say 2), they might have been exposed to 14 ad impressions in those five minutes. So even if a video ad unit had a 5-10x pricing premium, the site might still have generated more revenue from regular web pages in the same amount of time because they would have served 14x more impressions.

This effect is more pronounced if users watch videos for longer (e.g. long form programming) or if they churn through web pages quicker (e.g. picture galleries). Now, of course, the visitor might not stay a full 5 minutes if they were not watching video, so this may not be an apples to apples comparison. But it bears thinking about. Sites focused solely on online video may be missing a revenue opportunity.

In the early days of TV, many shows were of the “talking head” variety – essentially televised radio shows. It took a little while for TV programmers to break out of their old habits (in radio) and to create programming that took advantage of the new medium.

I suspect that we’re in that stage with online video today. Many “online video sites” or “web video channels” are primarily focused on the video (perhaps with some ratings and commentary features associated). Over time I suspect that we’ll see a richer integration of video, text and picture content that is optimized and designed for the web. News sites are leading the way on this integration, regardless of whether they started from a print and pictures perspective(e.g. the Washington Post) or from a video perspective(e.g. CNN). Video may be the “sizzle” that brings visitors to a site, but the “steak” of pictures and text churns pageviews, and ad impressions, to keep the revenue ticker running.

Readers thoughts welcome.

Time Rich or Time Poor? March 19, 2007

Posted by jeremyliew in Consumer internet, Ecommerce, Internet, Lead gen, Search, social networks, start-up, startups, user generated content, VC, Venture Capital, video, web 2.0.
62 comments

Broadly speaking, there are two types of internet users, Time Rich (more time than money) and Time Poor (more money than time). I’d speculate that many of the readers of this blog fall into the Time Poor category, but the vast majority of internet users fall into the Time Rich category. If you’re starting a new internet company, its important to know who your audience is, and to make sure that you don’t let your own experience and that of other Time Poor people guide you wrong.

Time Poor

Time Poor people use the internet to get things done. They are very task focused, and their favorite websites help them use their precious time more efficiently. Great examples of websites built for the Time Poor include search engines, first gen comparison shopping engines (trying to find the lowest price as quickly as possible), ecommerce and lead gen sites where the purchase is more functional than emotional, and many of the “social news” websites that filter the news for you.

If you’re building a website for the Time Poor, your focus should be to minimize their time and pages on site. As a result, business models around e-commerce, CPC and lead generation are good matches for these sort of site – it aligns both user and site around getting to a transaction as quicly as possible. Depending on what you do, you may even be able to charge a subscription as well.

Time Rich

Time Rich people use the internet to kill some time. They are bored. They are willing to be diverted and entertained. Great examples of websites built for the Time Rich include broad based social networks, targeted social networks, picture sharing sites, anything celebrity related, anything sports related, social shopping sites (recreational shopping), social discovery websites that suggest new sites to you, all video websites and causal games websites.

If you’re building a website for the Time Rich, your focus should be to give them options to explore. Links density is the name of the game – more links means more clicks. Suggest a next click at any natural pause point, and keep people clicking within your site. Stimulate communication and community – it keeps people engaged and coming back. Give people reasons to bookmark you and come back often with fresh content and evergreen favorites.

You’ll likely monetize through advertising – sponsorship and CPM as well as CPC. Subscriptions may work for you too if you have certain features held back. If the products you sell are bought spontaneously, then ecommerce may also work for you. But don’t fall into the trap of creating extra pageviews for your own benefit and not that of your user (e.g. by splitting articles across multiple pages, or creating extra steps in a process to edit a profile page) as your users will wise up to your game soon enough. Time Rich does not mean unsophisticated. Your users spend enough time on the internet, and on your competitors sites, to know what are the best practices.

Know your audience when you build your site, keep the target clear, and you’ll have a better chance of meeting their needs.

UPDATE: New visitors, if you liked this post try the second most popular post, Three Ways to Build an Online Media Business to $50m in revenue

Failure IS an option January 24, 2007

Posted by jeremyliew in browsers, Consumer internet, Digital Media, Search, startups, Venture Capital, video, web 2.0, widgets.
47 comments

There have been a lot of posts on startups laying people off, losing founders or closing down in the last couple of months, part of the natural cycle in the valley. But what has disturbed me has been some of the mean spirited things that have been left in the comments to some of those postings. Often anonymously. It really bothers me. People can (and do!) reasonably disagree about a company’s business plan and prospects, but some of this stuff is just over the top.

The great thing about Silicon Valley has been the entrepreneurial culture, and the acceptance that working for a failed startup is not necessarily a judgement on your character or your ability. But recently there seems to have been a change in attitudes at least amongst some people (trolls?) who are taking joy in the misfortune of others. When a startup closes down, founder’s dreams die. Employees find themselves looking for work, and at least for a period, worrying about paying their bills and supporting their families. This should never be a cause for celebration.

I don’t personally know the teams at Backfence or Peerflix or FilmLoop, or Bitpass, or Findory, or Browster or many of the other companies that have recently entered Techcrunch’s deadpool recently, but I think that they are to be applauded for their willingness to take a chance on starting a company, not condemned because that particular company wasn’t successful.

Companies die, founders and employees learn from the experience and move on, and hopefully start more companies. I for one would love to see the second acts from the teams that are newly freed up.

Update: Hot or Not founder James Hong has a good related post.

Having the best product; neither necessary nor sufficient January 23, 2007

Posted by jeremyliew in Consumer internet, Digital Media, startups, video, viral, viral marketing, web 2.0, widgets.
11 comments

I’ve been thinking a bit more about how consumers adopt “new” products online recently, in part because of a couple of recent posts I wrote in reaction to rumors of a Safari browser for Windows and questions on the value of widgets. What struck me is that very often, the “best” products don’t win majority market share. Many claim that Firefox is a “better browser” than IE, and I’ve lost count of the number of times I saw a pitch from a video sharing site last year that claimed to be “feature for feature, far superior to Youtube“. Yet IE and Youtube dominate their markets. And the same is true in so many categories.

Cynics might attribute this to bad luck or my favorite, user stupidity (because its always good to have contempt for your customers), but often there is a pattern at work. In a new consumer market, the winners win on distribution.

In a new consumer technology market, users don’t yet recognize that the category exists. They don’t recognize that they have a problem, so they are not going out looking for a solution. They’re not issuing RFPs, they aren’t even compiling shortlists of possible vendors. They are stumbling on solutions by accident. And that is why distribution is key in a new market.

Lets take an example; online travel. The early market share winner was Travelocity/Preview Travel. They won that early market share on the back of distribution deals with Yahoo! and AOL. In the late 90s, most internet users didn’t even realize that they could book travel online. But they were actively using portals, and through the “travel channel” on the big portals, they stumbled across the online travel agencies and started booking online.

Google is another example. It was a “better search” product when it launched in 1998, acknowledged among the Digerati. But it wasn’t until it struck its distribution deals with Yahoo! in 2000 and then AOL in 2002 that it really started to get used widely. Before users were exposed to Google through their portals, they didn’t know that better search existed.

Product is of course important. Your product can’t be actively bad. If Travelocity’s booking engine didn’t work, or if Google’s PageRank didn’t produce more relevant results at that time, then users would not have come back. But they needed distribution to be found in the first place.

Updating to 2007, the same principles apply. But whereas portals were the only path to distribution in Web 1.0, today social networks offer another way to reach internet users. But now the “discovery” process is a little different. Take embedded online video. A year ago, users didn’t understand that this was a category, they didn’t realize that they wanted to embed videos in their profile pages. But when they saw an embedded video on a friends profile, they could say “Hmm, I want one of those”, click through and get one for themselves. Now the category is established in users’ minds, and brands have been established. But earlier, “distribution” was what drove growth.

Social networks offer a different challenge than portals. Whereas you could get distribution by doing a single business development deal with a portal, on social networks, you need to convince each individual user that you’re worthy enough to keep. But as you get more penetrated into the community, a new user is more likely to run into you and try you. So scale matters and it is a virtuous circle – the more share you get the more likely a new user is to stumble on you as a provider. Going up against an “incumbent”, even with a “better” product, can get very hard. Distribution and adoption end up meaning almost the same thing. This is why Rockyou and Slide are the number one and number two fastest growing widget makers in social networks, and why VCs pay so much attention to “traction” and so little to the fact that its easy to replicate the features of these widgets.

The other web 2.0 distribution mechanism is virality. Users inviting users is the other way that a user can get exposed to a new product – solving a problem that they didn’t even know that they had. Ravi has posted on this a couple of times so I won’t go into it again.

So the next time you build an absolute killer product in a new consumer category, don’t stop there. Unless you’ve got a plan to get new users exposed to your new product, your efforts may be for naught.

The Venice Project – both easier and harder than people think January 14, 2007

Posted by jeremyliew in Consumer internet, Digital Media, startups, video, web 2.0.
1 comment so far

Patrick wrote a post on “The New Must See TV” on Friday and I know that he wanted to include some information on The Venice Project but was unable to say much because of the NDA that we signed. However, it looks like Om was not under the same constraints as his excellent and informative NewTeeVee post goes into a lot of detail about the company. Both Om and Mike Arrington at Techcrunch comment that they see two key hurdles for TVP which I think are surmountable, but I believe that a third hurdle exists that will limit TVP’s eventual scale.

1. TVP lacks compelling content

I haven’t seen the NDA material so my thoughts here may be way off base, but I don’t think that a lack of compelling content today is likely to be a long term hurdle.

Much has been written about the long tail of video content, all of which is legitimate. However, its no accident that Youtube is now pursuing licensing agreements from the major TV networks, music labels and movie studios. Long tail notwithstanding, as even Chris Anderson says, “Hits aren’t dead”.
Furthermore, the major studios and networks seem to have turned a corner on their willingness to license their content. When startups like Guba, Wurld Media and Bit Torrent can get licensing deals done with major studios, its pretty clear that the policy rubicon has been crossed, and now the only haggling to be done is on price. As soon as TVP is willing to pay the prices asked, it can get content.

2. TVP requires a download

Requiring a download is certainly a hurdle, but not an insurmountable one, as the founders of TVP have demonstrated twice before, with both Skype and Kazaa. However, both Skype and Kazaa are clients that benefit from obvious network effects, as do many other successful consumer clients such as AIM, ICQ, Y! Messenger, Bittorrent, Limewire, Morpheus etc. Other successful downloads that do not benefit from the network effect have mostly been focused on security concerns, including the Firefox browser and the many anti Adware/Spyware products. One of TVP’s challenges will be how to balance making its network effects obvious with the likely desire of content owners to keep some level of control over their content. The social aspects that they’ve built into the product are certainly a good start. I haven’t peered behind the NDA curtain on this issue so don’t have any further PoV on the matter.

3. High quality video is too bandwidth intensive

The issue that I think may be underestimated is that of bandwidth. Om alludes to this issue in his post and seems to give the benefit of the doubt to TVP, although he points out that TVP would require 250MB/hour which is enough to violate many ISP’s terms of service. Video is an incredibly bandwidth intensive application, especially at higher quality levels. At high levels of penetration, even p2p solutions are not sufficient to support high quliaty video streaming because of asymmetries in the upload/download bandwidth for most consumer’s broadband connections. If TVP is successful to Skype like levels, then there simply isn’t enough upstream bandwidth from peers to fulfil the downstream bandwidth demand from users who are trying to watch high quality video. Most upstream bandwidth pipes are only 1/5 to 1/10 the size of downstream bandwith.

Now this only becomes a problem at real scale, but it may put a cap on how big TVP can become before video quality becomes degraded or expensive server farms need to go into place to supplement peer delivery. Jeremy Riemer makes a similar point at ArsTechnica.

None the less, althought there is likely no VC investment opportunity here, this will be an interesting company to watch!

The new “must see tv”… January 12, 2007

Posted by pchiang in Consumer internet, Digital Media, Search, startups, Venture Capital, video.
2 comments

On Wednesday, Yahoo! and Akimbo announced a new partnership to bring the most popular selections of Yahoo! Video to the Akimbo video-on-demand service. This announcement comes on the heels of the launch of Apple TV, a set top box that wirelessly transfers digital media from user’s computers to their TVs. Both announcements highlight, the increasing convergence of video platforms. As Jeremy points out in his “2007 Consumer Internet Predictions”, time spent consuming videos both online and on the TV are increasing. Not only are people watching more videos than before but they are also watching videos in many more ways. Television/video viewer behavior is in the middle of an evolution.

A number of factors are driving this change:

1) There is the increasing adoption of TV/video technologies such as digital video recorders, video on demand and video downloads/streaming, not to mention Apple TV and iTunes/iPods. According to Forrestor, “DVRs have entered the hypergrowth phase, reaching more than 13 million households, including 17% of digital cable subscribers and 19% of satellite subscribers. DVRs will surpass 50% of homes within four years.” DVRs and the other technologies are enabling the “time shifting” of programs, the skipping of commercials and the ability to consume videos in smaller chunks and in different locations.

2) Decreasing costs of bandwidth and storage are removing the economic and practical barriers of having and distributing videos for both content owners and consumers. Broadband is dramatically improving the user experience of watching streamed videos. Peer-to-peer networks only increase the ease of distribution and access.

3) As everyone knows, alternative video platforms such as YouTube and other streaming videos sites (NBC Rewind, CBS Innertube, ABC.com, Fox On Demand…) are proliferating. The major studios saw what happened to the music industry and are trying to find ways in which they may embrace these changes without losing control over their assets. They are making more and more content available on their online destination sites and iTunes. For the consumer, this equates to more types of content and in more places.

These fundamental changes in the way people can watch videos are shifting mindsets to an “on demand” mentality. People are becoming the programmers of their own personal television network, dictating what they want to watch and when they want to watch it.

In recognizing this shift, two areas of opportunity come to mind.

1) Search/navigation/discovery of content. With so much content coming from so many different sources, the networks and cable channels are no longer the ones telling you what you “must see TV” is. Interesting content can now come from anywhere. However, more video options mean more videos to sort through to find something of interest. Some companies such as Blinkx and CastTV address the problem through improved video search relevancy. While others, such as CozmoTV and StumbleVideo, focus on video discovery through the votes of the community of users. Convergence of platforms and media types only promises more complication.

2) New advertising models that will capitalize on these shifts. As many people have predicted, TV advertisers will to continue to see their 15 and 30 second commercials go increasingly unwatched. Brand advertisers, who spend the $60B a year on television advertising, will still need to find a way to reach their target consumers. Advertisers still don’t seem comfortable associated their brands with the unpredictability of user generated content. While I agree with Jeremy’s assessment that the shift will take time, this advertising budget will go to new ad models that reach consumers in a more targeted and relevant way. One such model is that of broadband television networks, such as Revision3, which produces serialized content targeted towards specific interest groups at a fraction of the cost of mainstream television programs. Brand sponsorships are embedded into the programming itself and can be targeted toward the specific demographic of the show. Revision3 makes their content distribution platform neutral, allowing users to choose how and where they watch each episode.

These are only a few of the many new models bubbling up. I believe there will many opportunities for entrepreneurs who understand the evolution in user behavior and recognize the power of the different players in the value chain.

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