Posts Tagged: yahoo
With Demand Media filing for their long-expected IPO last week, the discussion around scalable content generation platforms (or “content farms” as critics of those models prefer to call them) is back in full swing. As an investor in Suite101 (the third-largest platform behind Demand Media and Yahoo‘s Associated Content), I have been watching the space evolve over time and getting to understand and appreciate the business model behind these platforms. Since the Wired article on Demand Media last year a lot of the discussion in blogs has however solely focused on the algorithms versus humans topic with some people even calling for the “death of hand-crafted content“. What was discussed much less is the fact that these new content generation models provide crucial solutions for media companies in an Internet age characterized by fragmentation of audiences, high demand for long-tail content and increased performance-based monetization. There are 5 key differences that make platforms like Demand Media, Associated Content or Suite101 superior to traditional media platforms for generating high-quality content in a scalable way:
- Distributed model: having access to thousands of contributors around the world (instead of dozens or hundreds in a traditional media model) increases the chances of having a true (and often very passionate) expert writing about the topic of choice
- Aligned incentives between platform and content creators: most content creators are being paid on a revenue-share basis (Demand Media also pays a fixed amount per piece but increasingly moves to revenue-share arrangements like Suite101 and Associated Content) which perfectly aligns incentives across all participants – you only get paid if the content you create generates revenues
- Demand-driven content creation: all platforms use content guidance systems that help contributors understand what readers actually want and take the guessing game out of deciding what content to publish
- Scalable editorial models: editorial oversight is being implemented based on scalable models that try to maximize efficiencies while guaranteeing the highest level of quality possible
- Performance-based monetization: a large percentage of the content is being monetized through performance advertising like Google AdSense
Content generation platforms are often seen as pure search engine plays. And while it is certainly true that they all get a significant share of their traffic from Google and Co., I would argue that the long-term vision of all those platforms is a much broader one: to build up the largest talent pool of passionate contributors that can create highly targeted, high quality media experiences in the most efficient and scalable way, delivering value for readers, advertisers and contributors alike.
I personally think that this is how media will be created in the Internet age.
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There has been a lot of development in the display advertising markets in the past 18-24 months and there is no better place than New York City to dive into this vertical. Terence Kawaja did an excellent job at his a few weeks ago to show how complex the display advertising technology landscape has become. So with 192 companies in 24 categories the marketplace is clearly overcrowded with billions of invested dollars at stake. While this growing complexity currently limits the amount of additional ad dollars flowing into display, it is probably a very efficient trial at large scale to find out what features, tools and types of marketplaces will be ultimately needed. keynote address
So when I envision the display advertising landscape in 2-3 years I see 3 distinct categories: exchanges for ad inventory, exchanges for data and tools for publishers (e.g. DSP’s) and advertisers (e.g. yield optimization) to connect into these exchanges more efficiently. Once some of the big ad players (Google, Microsoft, Yahoo, AOL, etc.) will start consolidating this marketplace, we will most likely see a big inflow of new money into display advertising. At the same time, margins for intermediaries will see some downward pressure (assuming we will not have a quasi-monopoly like in PPC advertising) and winners in this scenario would be advertisers (getting more value for their money) and publishers (getting potentially higher CPM’s but definitely more volume). For investors it feels that it is going to be tough to make money in this space as the overall market size for intermediaries will remain flat (higher volume but lower margins) and the only viable strategy at this stage might be to invest in startups building very specific features that could get picked up in a consolidation play.
The biggest unknown in this scenario is however the same that has limited innovation in the past and it is the fact that “display advertising is sold and not bought”. People and human relationships have always played a huge role in this market and might limit the development of stock market-like models in display advertising.
It’s Friday and time for summing up the lessons learned this week:
- Yahoo’s (newish) CEO Carol Bartz clearly failed as a leader this week when it became public that she apparently sold Yahoo stock cashing in close to $2 million. 2 days later she declared that the sale was purely for tax reasons and that she had reacquired the stock but the damage was done as she got killed in the blogosphere and on Twitter for 2 long days of silence. I originally liked her tough talking style and thought that this might be a great way of shaping up Yahoo but the events this week also showed that she doesn’t know how to handle sensitive situations. Such an event should have required upfront open communications about the purpose of the stock sale or at least a very quick reaction after it became public and the bashing began. But by waiting a full 2 days to clarify things she failed as a leader and most likely destroyed all goodwill that she had built up in the past months.
- In the past week lists of 10 characteristics of great investors and companies made the round. Part of a great company is always how productive team dynamics are and a really good strategy meeting with Nexopia‘s management this week reminded me of some success factors: finding the right balance between praising and challenging other team members; always putting the overall company interest over your personal interest; respecting everybody’s contribution to the success of a company; using humor to take pressure of people. There are probably many more but these are some characteristics I like to see in every team.
Every time I read about Yahoo‘s share of the search market I wonder to what sites the Yahoo traffic is actually going. Here is the mystery: depending on the source, Yahoo’s share of the US search market is around 20% give or take (e.g. Compete numbers or ComScore numbers) but when I look at the actual numbers of our portfolio companies I have never seen a site that gets more than 7% of its search engine traffic from Yahoo with many sites rather being in the 1-2% range. So while the sample might not be perfect, it can definitely not explain this large discrepancy – so here are a few theories that I came up with:
- Google Analytics over represents Google’s traffic (all above mentioned portfolio companies use Google Analytics)
- Yahoo Search Submit program skews the results towards paying clients
- Yahoo drives a large amount of traffic to its own properties (like Yahoo Finance or Yahoo Sports) instead of third-party sites
Perhaps it is a combination of these factors but it is such a large discrepancy that I just don’t fully understand what is happening.