ThinkLocal

An interesting Web 2.0 Service

2005-12-23T09:24:00.000-08:00

Here’s an interesting Web 2.0 service that enables media sharing among groups of friends. It hasn’t been released yet, but you can check it out here and sign-up for their free beta.

While it enables the free-for-all media sharing of a service like Flikr, it also allows sharing among defined groups or individuals. It is built into Firefox, making it seamless. I can’t wait to try it.

More on Googlebase and Automat

2005-11-10T14:50:00.000-08:00

I feel like the modern day equivalent of Paul Revere riding through the newspaper industry yelling "Googlebase is coming, Googlebase is coming!" Googlebase is going to hit the newspaper-based classified ads hard. Revenue from newspaper classified ads has already been hard hit by Craigslist and eBay. Google’s forthcoming Googlebase will kick it up a notch.

Just about any search you do on Google these days results in an ad for eBay. In fact, I just tested this by searching for "dog crap" and yes there was an eBay ad. Man they sell everything at eBay. Anyway the forthcoming "patent pending" Automat from Google will place the Googlebase ads next to the AdWords ads integrated right into users' search results.

As I mentioned in my previous article on Googlebase, its real advantage is in providing structured forms for various types of goods to ensure: (a) more complete information on items/services for sale; (b) the ability to find exactly what you want and filter out the junk, since you can search by field. This will further decimate newspapers' classified revenue.

What can newspapers do about this? Well there are three options: (1) Throw in the towel on classifieds and simply milk that cow dry; (2) Jump in bed with LiveDeal; (3) Launch your own Googlebase with a classified ad solution we will be releasing soon. You can see an almost complete implementation at www.southland.la the mapping of ads will be added within days.

The LiveDeal option is tempting. This has no upfront costs and you get a branded site pre-populated with content. The downside is that your ads are pooled with everyone else. So if you spend $10M promoting your site and building up ads, I can open one just down the street for free and have all of the same ads. In essence you aren't building your own base of advertisers, you are building LiveDeal's base of advertisers. Then there is some revenue sharing for all of the money you generate through your traffic. This isn't too different from receiving affiliate revenue from sending your customers to eBay. But, I’m sure that this will do well for LiveDeal, because the quick jumpstart is tempting.

Our classifieds provide more structure, like Googlebase. There are specialty forms for every subcategory just like the forthcoming Googlebase (see description of the benefits above). We provide a mapping of all ads too, which Googlebase will probably have or add shortly after launch. But the benefit of our solution is that you own it. You can do whatever you want with it. You get the source code and you can make changes or we can. For example, we are also adding scraping to go out and spider websites to pull in ads. Maybe we'll scrape Googlebase once it goes live.

If you run a media property and see the tsunami of Googlebase on the horizon following the pounding you've already received from Craigslist and eBay, you might want to jumpstart your online classifieds. LiveDeal and ZiXXo are your best options, consider them carefully.

Tags: Googlebase Automat Classifieds Classified Ads Newspaper

Is Knight Ridder the First Domino?

2005-11-07T14:55:00.000-08:00

In the time since I wrote Plotting a Course for Newspapers (Part 1), there have been a few moves that have sent shockwaves through the Newspaper publishing world. I’m referring to major investors Private Capital Management, Harris Associates and Southeastern Asset Management calling for Knight Ridder to be sold. In explaining their rationale, they point to “limited revenue growth across the newspaper industry”. This indicates that Knight Ridder is the first, but probably not the last newspaper company to face such pressure. Knight Ridder has responded by hiring Goldman Sachs to explore a possible sale.

I have followed the travails (including declining circulation) of the newspaper industry in this blog for some time now, so this clearly comes as no surprise. Knight Ridder owns 84 newspapers (31 dailies and 53 non-dailies). I doubt that the new media barons (Google, Yahoo, MSN, AOL) are interested in shelling out $6B to buy KRI, only to cannibalize the papers with their online offerings, but who knows.

Alternately, the company could be broken into pieces and sold, but that doesn’t solve the underlying problem. What can newspapers do to retain relevance in an increasingly Internet-age?

I don't know who will buy KRI, but since the entire newspaper industry is suffering from lack of revenue growth, is KRI the lead domino that will set-off a chain reaction?

Windows Live vs. the Web OS

2005-11-02T11:27:00.000-08:00

In a previous post titled The Web OS vs. The Desktop OS, I talked about how Microsoft was moving to evolve desktop applications by extending their functionality into the web, while the web companies (Google et al.) are evolving web application by leveraging client side functionality via technologies like AJAX.

Now Microsoft’s Live.com shows their hand in this battle for dominance of what I believe is a “hybrid platform”. It is a hybrid between the desktop and the web. If users want to edit their documents locally and then integrate that with group editing, sharing, etc. via the web, then Microsoft wins. If users want to do everything on the web, with a responsive user interface via AJAX, then the web guys win.

With Ray Ozzie as the CTO (his background being Notes and other collaboration tools), there is no question that collaboration will be increasingly built into everything Microsoft does.

Given the installed base and learning curve invested in the feature-packed Office applications, it will be hard for companies to pry users away from their desktop applications. I believe that email is a different beast because it is inherently network-centric.

Windows Live.com provides the tools to extend the functionality of their core system by building gadgets. Again, Microsoft is going for a platform play, trying to get developers to build gadgets that extend their core functionality. The old embrace and extend play directly from the tried-and-true Microsoft playbook.

On the other hand, we are finding more and more value from collaboration, social networking, etc. Do these AJAX-powered network applications provide sufficient value to usurp the network-aware desktop applications? My guess would be that a few applications will shift toward online apps, like email and calendaring, but the rest of the Office suite will continue to dominate with their growing network-aware capabilities.

What Does Googlebase Mean to the Newspaper Industry?

2005-10-26T12:17:00.000-07:00

In case you haven’t heard, Google is building a massive database for user generated content, called Googlebase. Having studied this problem for years, I believe I can offer some insight particularly with regard to the impact this will have on the newspaper industry.

It appears that Google came to a similar conclusion I did on the classified ad market. Of course, this didn’t surprise me since Google’s VP Engineering (Adam Bosworth) and I were early XML/database/structured data guys. That conclusion is that current classified ad solutions, including Craigslist and eBay don’t provide a scalable user experience.

The systems scale quite well, but as the amount of information grows, it becomes increasingly hard for users to find what they are looking for. If you want to buy a 1985 Corvette on Craigslist, a search will find everything that has the term 1985 and the term Corvette. This can include a lot of junk (parts, services, etc.).

Furthermore, when an individual creates an ad, there is little to guide them. They simply get a blank text box. As a result, the ads are pathetically deficient. For example, when listing a car for sale, many people forget to describe the interior, transmission, engine, and various add-ons.

The answer to both of these problems is to use category specific forms for both data input and search. The forms then guide the advertiser in creating the ad, and allow buyers to search by field (e.g. year = 1985, Make = Chevrolet, Model = Corvette).

From what I understand, this is exactly what Google is building into Googlebase. They provide a variety of forms based upon what you are selling and, presumably, what you are looking for.

I believe that the combination of:

Google’s traffic/brand + Structured Data Entry/Search + Free = Killer!

There are a couple of areas where Googlebase may have an Achilles heel. They still need to develop a sense of community that eBay and Craigslist provide. They could also benefit from an online transaction mechanism a la Paypal, possibly a Google Wallet. If the final version of Googlebase provides these capabilities, then watch out.

So, what does this mean to newspapers? We’ll if you thought Craigslist and eBay were tough competitors, this is your worst nightmare. If newspapers still harbor any hope of being able to charge for classified ads, this should permanently dispel those outdated thoughts. Welcome to free, now deal with it.

Newspapers can only play in this game if they: (a) provide an equivalent or superior classified solution; (b) lead the way in offering free listings; (c) move quickly; (d) cannibalize the classified ads by converting usage with a hybrid online/offline solution (reprint the free listings in your newspaper for free or very cheap).

The newspapers have a local presence, users, local business relationships and a local brand. They MUST throw all of this at drawing a line in the sand against the Google onslaught. They must capitalize on their local presence or they might as well kiss off classified ads forever.

The problem is that newspapers cannot afford to kiss off the classified ad business. They need the fresh content and usage that classified ads generate. They need that local anchor. News is good, but that is being aggregated by everyone. How can newspapers differentiate themselves as a local portal? They need a depth of services, and classifieds is a big one.

I know what I’m talking about. Our company started by building a collection of destination sites offering classified ads services in over 100 U.S. cities. We decided back in March (two months after our release) to get out of this business because we cannot compete with eBay, Craigslist, all of the newspapers and now Google. But in the process we built the best classified ads solution on the market, complete with simple category-specific forms for data input and search, advertiser ratings, everything.

Instead of competing with these big guys, we have instead decided to sell our classified ad software to newspapers and others who want to put a stake in the ground around local classified ads. Our company isn’t big enough to be a combatant, but we’re happy to be arms merchants in this battle for local dominance. If you are interested in getting into the local classified ad business and you want a “Googlebase” of your own, drop me an email and mike.hogan (at) zixxo.com.

Additoinal Insight into Googlebase is available from Greg Sterling at The Kelsey Group, Charlene Li at Forrester, John Battelle and others here too.

Plotting a Course for Newspapers (Part 1)

2005-10-12T17:21:00.000-07:00

In the past few weeks six of the largest newspapers have executed significant cuts in their newsroom staff. Between the San Jose Mercury News, Boston Globe, New York Times, Philadelphia Inquirer, San Francisco Chronicle and Philadelphia Daily News, there have been 352 newsroom jobs cut.

Joe Strupp of Editor & Publisher explains that, with the exception of the Chronicle, all of these newspapers are profitable. So these cuts seem targeted at increasing profit margins not stemming losses.

I have blogged about the dilemma facing newspapers as they confront the impact of the Internet, particularly the cannibalization of classified ads, general advertising, editorials (blogs) and news.

Anyone can point out the problems facing the newspaper industry, which requires no deep insight. The challenge is plotting a course through this changing sea that enables the newspapers to maintain their prominent role.

Before I delve into this topic, I must point out that the newspaper world has been populated by a collection of locally dominant newspapers. With a few exceptions (e.g. Wall Street Journal, USA Today and New York Times) newspapers serve a city or metro area. Of course, some companies such as Tribune, Gannett and Knight Ridder own a few such local papers.

The Internet threatens such local monopolies. More precisely, the largest Internet properties are challenging the need for local newspapers. Instead of relying on the local newspaper to provide the syndicated news, you can get that, and more, instantly online for free.

As a result, I foresee a bifurcation of the newspaper business into a very few serious national/global players and a collection of smaller local portals. The big Internet news outlets will be the Yahoo, Google, MSN and Time Warner/AOLs of the world. I believe that Rupert Murdoch’s News Corp. is attempting to position itself as a player in this space as well.

The big question is whether the pure-play model like Google (all Internet) will dominate this segment or whether “mixed-media” companies like News Corp and Time Warner can exploit those oft referenced “synergies” to provide a better user experience. If the Time Warner/AOl example is any indication, I would bet on the pure-play companies.

Yahoo is using an interesting alternative. They are a pure-play Internet company, but behind Terry Semel, they are attempting to leverage mixed-media synergies through partnerships. Yahoo provides Hollywood with a toehold in the Internet.

News Corp has bought Internet properties like Scout Media, Intermix and IGN and word is that they are attempting to acquire Blinkx. But if they really want to be a player in the Internet business (which will subsume the global/national non-TV news business) then they should consider buying Barry Diller’s Interactive Corp. The synergies would be excellent. Also, given the P/E multiples for Internet properties (YHOO: 31.7, GOOG: 89.69) they could improve News Corp’s current 21.7 P/E and IAC’s “also-ran” P/E of 12.75 by combining and providing a serious alternative to the big Internet companies.

A News Corp/IAC combination makes sense because it would create a credible competitor in the upper echelons of the Internet market. I believe that the combination would garner a higher P/E multiple for both properties; the old 1+1=3 scenario. The combination would probably earn a P/E multiple in the area of 25 or 30.

Independently, I think IAC could easily double their value if they found a home with a larger partner that can make a play at being a top-tier Internet property. While there might be some personal issues between company heads Rupert Murdoch and Barry Diller, this combination looks to me like a winner.

There is also talk of Comcast or Google buying AOL from Time Warner at a supposed valuation of $20 billion. At this price tag, which seems quite high, it is beyond the reach of all but the largest Internet properties and Microsoft.

In the future, you’ll probably get the bulk of your non-TV news from the Internet and there will probably be only 4 real players in this field. The question is who will be left standing after the partnerships dust settles.

Of course, this leaves the local newspapers out in the cold. What can they do to chart a course toward future relevance? I’ll address this in a future post.

Just for fun, my long-term stock picks are:
Interactive Corp. (IACI): $24.98/share with 12.48 P/E
Yahoo (YHOO): $33.93/share with 31.56 P/E

eBay/Skype: Royal Wedding or Royal Mistake?

2005-09-13T18:04:00.000-07:00

eBay’s ability to extract value from their Skype acquisition hinges on the following:

(a) eBay’s successful integration of Skype’s VOIP into the eBay suite of eCommerce services: eBay, Paypal, Shopping.com., Classifieds (Kijiji/Craigslist/Marketplatz/Mobile.de/Rent.com/etc.);

(b) The market evolving toward proprietary VOIP networks;

Point (a) is pretty straightforward. The synergy makes sense on paper (or whiteboard) and it is a matter of making it work in practice. Implementation on this account is largely within eBay’s control. In a nutshell:

Paypal + Skype:

Paypal is used to pay for Skype = more Paypal users = Paypal grows dominance as payment mechanism, creating barriers to entry by Google and Microsoft.
Skype taps into Paypal vendors for a pay-per-call (PPC) add-on with associated SkypeOut revenues.

eBay + Skype:

eBay taps into the Skype user base, comprised of bargain-hunting, technically savvy, early adopters (nice correlation). eBay adds PPC to improve communication, increase sell-through, enable international sales and raise barriers to entry by competing auction solutions.
Skype taps into the eBay user base of bargain-hunting, technically savvy early adopters (buyers and sellers) and introduces them to VOIP with PPC.

Shopping.com + Skype:

Shopping.com benefits from better communication, helping to grow the percentage of users who buy, versus just research and buy locally. Improved communication = improved comfort = improved sell-through rate.
Skype taps into yet another base of technically savvy bargain-hunters.

Classified Ads (Craigslist, Kijiji, Marketplatz, Mobile.de, Rent.com, etc.) + Skype:

Classified users can get additional information and schedule to meet/transact, it can all be anonymous too.
Skype enables eBay to monetize the large number otherwise free transactions by providing PPC services. And of course taps into yet more technically savvy bargain hunters.

Point (b) is a little more challenging. Will Skype continue to win the hearts and minds of users, resulting in a proprietary network/client combination? Or will something like the SIP protocol and Gizmo project or Asterisk or other such clients/PBXs using an open and interoperable network win the market?

If the telephone network is any indication, it started as a collection of proprietary networks, evolved into national networks and then the national networks worked among themselves to interoperate. Skype leapfrogs much of this with an instantly International network, but does it have the legs to remain the dominant proprietary network. Will, for example, IP phones circumvent the need for Skype? Will Skype license its solution to mobile phone companies to leapfrog POTS (plain old telephone service). This story is not yet written, and there are successful examples for both proprietary and open networks. The open TCP/IP protocol beat out Netware’s proprietary IPX/SPX despite a solid early lead. On the other hand the IM clients are all still proprietary networks.

If eBay can pull off point (a) that would be goo, but they need success on point (b) as well, in order to recoup the investment in Skype. If they also pull off point (c), described below, then the acquisition of Skype will go down in history as a great deal by a visionary company.

Point (c) is straightforward. I firmly believe that there will be a communications suite. People will use one platform for all real-time communication. That one platform should provide voice, file sharing, chat/IM and potentially even slide/whiteboard presentation capabilities. The $64,000 question is whether users will want their voice solution to handle IM or whether they will want their IM solution to handle voice. Which feature drives the user’s product selection?

Why will these features be offered in a combined platform? Because they go together like chocolate and peanut butter. Because you want to communicate with people, and communication involves all of these capabilities. I’m on the phone with someone, I want to send them a link, copy a quote, send emoticons (conference calls especially). Or I might be IMing and we get to a point that requires more verbal interaction, so we shift to voice. Also, keep in mind that Microsoft taught the world about the power of bundling with its come from behind to own the market effort with Microsoft Office.

If users want a voice platform that handles IM, Skype could dominate this field. If they want IM that provides voice, then AOL, Yahoo, Microsoft and others are in the lead position. If you ask the average person on the street, which of the two functions is most important, they will say voice. This bodes well for eBay/Skype. If they pull this off, it will be huge!

My recommendation is simple: eBay needs to buy Cerulean Studios. Their Trillion product is a meta-client for IM that operates across AIM, ICQ, MSN, Yahoo Messenger, and IRC. eBay needs to add this to Skype, in essence saying, get our VOIP solution and you can interact with any IM folks as well. Embrace and extend. Cannibalize IM with a meta-client and make everyone play on your home field: voice.

Wildcard Alert: Microsoft could also bundle all of this into their next operating system. That, of course, has the potential to reshape a market’s dynamics just as it did with the IE/Netscape market.

In short, it looks to me like it could be a great bet for eBay, given the current market conditions and resulting prospects. But those prospects could change with customers wanting voice added to IM, instead of vice-versa or with a killer Windows communication client.

The Internet vs. Newspapers

2005-09-09T14:35:00.000-07:00

I always find it interesting when a combination of seemingly independent news stories starts to unveil interesting patterns or trends. Here are a couple of interesting recent news items:

So a small San Diego newspaper is walking away from what has traditionally represented 40% of the revenue for newspapers. News Corp. is buying into non-newspaper Internet properties. And Google is looking to be a one-stop advertising solution for SMBs.

This tells me that free classified ads are a tsunami washing away everything in its path. Craigslist handles the local offline transactions, while eBay dominates the geography independent online transactions (fee-based of course). Who needs newspaper classified ads? Nobody. That’s the point.

Rupert Murdoch is no slouch. He saw the fecal matter colliding with the fan and figured, “hey if you can’t beat ‘em join ‘em.” He’s spending big bucks—$1.5 billion so far—to become a big player in the Internet. Ironically, these acquisitions are well outside the News Corp.’s traditional newspaper business.

As if undermining the profit opportunity in classified ads wasn’t enough, news is also free on the Internet. Just look at Topix, newspaper websites and blogs…all free. So if newspapers can’t make money on news or classified ads, what can they charge for? Local advertising?

Along comes Google, who’s clear goal is to become the one-stop shop for SMB advertising, both online and offline. Once Google, and others, take this advertising effort local, the newspapers are going to be in a real world of hurt.

Together these news stories begin to form a map of the trends in the intersection of the traditional newspaper and the Internet that does not bode well for printed newspapers.

Web OS: The Battle for Dominance

2005-09-08T15:51:00.000-07:00

My prior post addressed the brewing battle of the two dominant computing platforms: the Web OS vs. Desktop OS. The value of the platform is the ability to aggregate developers/applications and end-users and then make these two groups use your platform (traditionally the operating system) to access the each other. For example, if you’re an end-user and you want the largest selection of applications, you run Windows. If you are a developer, and you want access to the largest collection of end-users, you write your application to Windows.

This dynamic then feeds upon itself according to the Law of Increasing Returns (AKA the Virtuous Cycle). More developers = more applications = more users = more developers…

Traditionally, the operating system has been the chokepoint between developers and end-users. By owning this chokepoint, IBM in mainframes and Microsoft in PCs, have been able to extract tremendous value and leverage. Both companies exploited this leverage to dominate their respective markets.

We have also seen a number of competitors attempt to compete with Microsoft as platforms. Novell, Sun/Java and Netscape have attempted to define a platform alternative. All three have attempted to woo developers and end-users in an effort to assemble their own platform. All three have failed for one reason or another, not the least of which was Microsoft’s ruthless competition.

Let’s look at what it takes to assemble a platform:

1. End-users.

If you are going to knockout Microsoft, you must have either more users, or a trajectory that, if maintained, provides the promise of more users. At the very least, you need to provide access to a roughly equivalent number of users.

2. A Superior Solution for Developers

This is comprised of a number of things.

Tools: You must provide excellent tools, so that developers can work in an environment they like, and one in which they can assemble cutting-edge applications
Opportunity to Pioneer: You must enable developers to build unique and interesting applications, something they couldn’t build on the competing platform.
Opportunity to Profit: Developers—with the exception of open source—want to make money. If the costs to build, test, package, promote, sell and support their product is too high (as with mainframe software) they will look for a less costly business opportunity.

[Note: Clearly, the operating system isn’t the only platform. A good example of a non-OS platform is Oracle’s database. It followed the formula described above, by building both an end-user base and a developer base. This then started the virtuous cycle that has fueled the company’s growth.]

The big question is whether the web now provides the characteristics necessary to become the dominant platform. The answer is yes. The web has the user base. The web provides developers with the opportunity to pioneer, especially in the areas of community, social networking, collaboration, etc. There is also the opportunity to profit on the web because your web application has access to a tremendous web user-base, while virtually eliminating traditional costs associated with publishing, distribution, marketing and support. Any kid with a computer and a broadband connection can now launch a web application.

The ability to both pioneer and profit are demonstrated by web start-ups like Yahoo, eBay and Google that have become multi-billion dollar companies.

The current web application development tools are server-centric. And building server-centric applications on the web has been sufficient, until now. Now the game is shifting. Now applications, in an effort to battle head-to-head with desktop applications, must be more graphically appealing, more responsive and more powerful. In short the user experience needs to mimic the user experience of desktop applications.

For this reason, web development tools (languages, IDEs, frameworks) need to: (a) provide more desktop-like functionality (e.g. drag-and-drop); (b) facilitate client-side processing. This is happening. In some respects, it appears to be a race. Microsoft is racing to leverage web resources, while the web developers are racing to leverage client-side resources.

Handicapping this race is interesting. Microsoft has the edge in user-base, but the web is closing fast. This is a new and unique challenge for Microsoft. Microsoft’s tools and developer programs still lead, but there are some very good tools emerging on the web side. Where the web has the edge is in the opportunity to pioneer and the opportunity to profit.

People are building very cool web applications that you could never envision on the desktop. Applications like Flikr, Del.icio.us, Facebook, various mashups, this stuff is really new, unique and interesting. The killer advantage of the web is its low cost structure and the ability to build something cool and watch it spread, simply by word-of-mouth. This results in a tremendous opportunity to profit.

Web development tools are evolving. They are beginning to enable developers to leverage client-side processing more easily. This will result in even better and cooler applications. As a result, the web will evolve as a platform that more directly competes with Windows.

The question is whether one company will emerge as the owner of this platform. By virtue of the web’s distributed nature, it looks like we won’t have a single chokepoint on the web platform. Instead we’ll have alpha-dog companies, like Google, who will lead and influence the evolution of the platform, but there won’t be a single owner of the platform.

The Web OS vs. The Desktop OS

2005-09-06T12:33:00.000-07:00

As Microsoft has demonstrated, and IBM before them, owning the platform standard is computing’s equivalent of boxing’s undisputed heavy-weight title. Owning the platform means that you own that critical juncture between developers and users. Users must use your platform to operate their applications and developers must program to your platform in order to access the users.

IBM owned the platform back when the platform was the mainframe. The mainframe, as a platform, had both pros and cons. When the mainframe was king, computers were large, expensive and complex. Maintaining them centrally offloaded the pain and expense from individuals, while sharing the benefits across a large group of users.

As the costs and physical dimensions dropped, computing became personal. The real driver of personal computing was economics. Anyone could afford a PC and so the barrier to entry by users and developers dropped precipitously. This, in turn, led to unprecedented innovation. It also meant that while the mainframe remained an important platform, the desktop operating system merely became a more important platform.

The Internet has resulted in a sea change once again. The Internet lowers barriers to entry yet again for both users and developers. Users can promiscuously try any number of applications on the Internet, often for free. Developers can build and release applications without the typical production, advertising and distribution costs.

Now, the two predominant types of applications are desktop applications and web applications. Both have their pros and cons. I look at some of the pros and cons from a user’s perspective. (Note: There are also pros and cons from a business’ and a developer’s perspectives, but I don’t address those here.)

Desktop Applications
processing occurs on the desktop

Pros:

Disconnected operation: continues to function without Internet connectivity
Responsiveness: responds more quickly, you don’t have the latency caused by loading pages
Rich Functionality: enables things like drag and drop, real-time spell checking, type-down suggestions, cut & paste, etc.

Cons:

Turns every user into a systems admin, managing the operating system, applications, upgrades, conflicts, spam, etc.
Turns every user into a security specialist, managing firewalls, back-ups, etc.
Application functionality evolves more slowly, according to release cycles
Weak in providing interactivity and community benefits (e.g. group editing)
Not integrated with the rich data on the Internet

Internet Applications
processing largely occurs on the server

Pros:

Very powerful interactivity and community benefits
Hyperlinked to rich data throughout the Internet
Rapid application evolution and bug fixing
Managed services offload system admin and, to a lesser degree, security functions.

Cons:

Requires connectivity, doesn’t work when disconnected or mobile
Less responsive, more latency as pages are loaded
Less rich functionality, lacking things like drag and drop

Hybrid or Shared Processing

Recent developments are enabling a blending of processing, or a hybrid processing model. Internet applications are shifting some of the processing to the client, using methods like AJAX. This approach reduces the latency in web applications, because the applications aren’t refreshing whole pages, instead they send small pieces of information that can be processed locally.

An example of this is Gmail’s type-down capability. When you compose an email you start typing the recipient’s email address and Gmail offers you suggestions based upon the letters typed. It does this without refreshing the entire page.

At the same time, Microsoft and Apple are adding more Internet functionality to their operating systems. For example, Vista, the future version of Windows will provide an RSS platform. This will make web-based data available to applications through a common API. Imagine, for example, using Outlook to set-up a meeting with someone out of state. Outlook might automatically offer flight options, weather information, hotel and car information, and more, without requiring you to request that information, but merely selecting from what it finds on the Internet.

In short, operating system companies are embracing the Internet and exposing it through their OS platforms. At the same time, the Internet companies are processing more and more information on the client to provide desktop-like application functionality. This hybrid approach moves the processing dial somewhere into the middle between server and desktop processing.

This is nothing new. We’ve had client-server architectures in the past that shared processing between, well the client and the server. We’ve seen applications like Half-life’s Counter-Strike. Counter-Strike relies on server-based data management and local processing to create multi-user virtual worlds with incredible responsiveness.

The press and Silicon Valley act like Don King promoting the next heavyweight battle with a fresh contender going up against Microsoft for control of the platform. Which of course, means battling for the hearts and minds of users and developers. We’ve seen failed efforts before, is the webOS destined for success?

There are several unanswered questions that will ultimately handicap this battle.

Generally speaking, where is the right balance of processing between the server and desktop?
Is connectivity sufficient to support a webOS model?
Will a standard local suite like MS Office suffice for most disconnected requirements?
Can web development leverage its speed and cost advantages to own the hybrid computing “platform” or will Microsoft leverage its installed base (developers and users) and resources to overwhelm the web upstarts?
Can a generalized engine, possibly the Java VM, browser, etc. satisfy the local processing needs of all web applications?

Let’s hope this isn’t yet another quick knockout in the early rounds. This sort of battle can be hell for developers (think OS/2 versus Windows), but it is great for consumers.

GoogleNet, Echoes of Orwell

2005-08-18T21:57:00.000-07:00

Is Google building Googlenet, a free national Wi-Fi network, in an effort to leapfrog the telcos and cable companies? If so, what would it mean?

Could Be
There are rumors about them building such a network. They recently said they want to raise about $4 billion, and the domain name wifi.google.com returns a server error instead of a “server not found”, meaning it is a placeholder.

This is consistent with prior moves by Google. They want to be your start page. They did a deal with T-Mobile to be the start page on mobile phones, and they pay to be the start page and default search engine on the Firefox browser. They are taking a page right out of Microsoft’s playbook: own the user interface.

Besides, Google is only an innovation or two away from being surpassed in search by someone else. Their best barrier to entry is to become the entry point, or access point, to the network.

What Could It All Mean?
Well, like anything, this development could have some very nice advantages and some very scary disadvantages.

The Good:
• Free broadband for all (helps education, the poor, commerce, etc.)
• Mobile broadband…anywhere (enables killer mobile applications like VOIP)
• They can triangulate your location enabling them to instantly provide more relevant location-based information

The Bad:
• Google locks itself in as the start page stifling innovation by others (echoes of Microsoft)
• Google could leverage this into domination of developing areas (e.g. VOIP, TV over IP, etc.) where innovation is stifled again

The Ugly:
By owning the access points, through which all data flows, Google would be in a position to analyze huge amounts of data about you. They could learn where you go physically and what sites you visit on the Internet, what you do, what you buy, from whom, when, how you pay, everything. Some people are concerned about the massive databases assembled by credit card companies or the carnivore project, well this would make them look like child’s play!

You might say, oh, they wouldn’t do that. Well, if you use Gmail, they are already analyzing your email. They are already analyzing what you search for. So what’s to stop them from analyzing your every move on the Internet? It sounds pretty Orwellian, but hey they would need to recoup their multi-billion dollar investment in building this huge network. By collecting and using, or selling, information about your every move on the Internet they could make a fortune. I guess your perspective on this all depends on whether you believe Google’s credo “don’t be evil”.

p.s. If Google announces a free Googlenet, short the telcos and cable companies they would be roadkill, especially the telcos.

tags: google, googlenet, carnivore, wifi

Will Advertising Sponsored Content Remain A Viable Business Model?

2005-08-08T13:36:00.000-07:00

On the surface, you might look at the success of Google, Yahoo and others with their advertising sponsored business models and conclude that this model IS the future. I believe that this business model faces serious near-term challenges. Let me explain why.

Yes Google, the bellwether of the advertising sponsored business model, is making money hand-over-fist. But let’s look under the covers (as far under as Google will allow us to look). Here are some basic facts:

Google’s ad views are growing considerably through: (1) increased use of their search engine; (2) expanded services (e.g. Gmail, local search, etc.) which add ad inventory; (3) an expanding base of websites carrying ads syndicated through AdSense. In short, more people are seeing more ads.

In speaking with webmasters, VCs and businesspeople I am hearing that aggregate ad views are growing much faster than ad revenue. At the same time, the prices of keywords, through the bidding process, are increasing.

What does this mean? It tells me that more people are seeing more ads, but the click through rate (CTR) per ad is dropping. The growth in number of ads displayed and the price per click of ads are growing fast enough to mask an underlying weakness in CTR on a per ad basis.

The dropping CTR is going to get worse, here’s why:

Users Are Trained to Ignore Ads:
Users know that clicking on some Internet ads can result in nothing but trouble. These ads can install adware, spyware, change your browser home page, increase your spam and result in endless pop-ups or pop-unders. As a result, users quickly learn to ignore the ads around the border of the page and focus instead on the actual content in the middle.

Granted, the branded ads like those served by Google and Overture are free from these annoyances, so the impact on these types of ads is lessened. But with users being trained to ignore all ads, even these safe text ads suffer.

Technologies Are Removing Ads:
Software such as AdBlocker removes ads on the client side, enabling users to view websites without even seeing the ads. If you cannot see the ads, you certainly cannot click on them. Clearly, this technology undermines advertiser sponsored business models.

The biggest threat, however, is the hottest wave on the Internet today, RSS. RSS is an abbreviation for Really Simple Syndication (others have begun calling it Really Simple Stealing, for a completely different reason). RSS enables individuals to extract the latest content from a website without the graphics, layout or ADs! Yes there are some programs for inserting ads into RSS feeds, but their CTR is 1/10th that of the same ads on websites.

While RSS decimates web advertising (actually killing 9 out of 10 instead of 1 out of 10 as in the etymology of the word decimate), it will get even worse. The 90% decline in CTR is based upon today’s RSS usage which is largely through RSS readers that are read by people (versus applications). What happens with Microsoft’s upcoming Vista OS where RSS becomes part of the platform and an increasing number of desktop applications consume web data, automatically stripping the ads and removing the human reader? Very simply, the CTR will drop precipitously.

Imagine, a Windows Vista desktop application that scours blog feeds and news feeds and caches the information locally as a personalized newspaper. It won’t pass through ads, those will all be stripped out. How do those content providers get paid?

Fortunately, the web is a breeding ground for innovation, and some smart people will figure out a solution. Here are a few ideas:

Other Forms of Advertising:
1. Product placement: As TiVo and other TV recording devices make it easier to strip ads from TV , advertisers have increased their use of product placement. I expect this to increase on the Internet.

2. In-situ advertising: Content creators will increasingly add hyperlinks directly into their content. Companies like Vibrant Media will embed paid links directly in the main content. However, these ads could be stripped out if they carry the important tracking code, in the same way that virus and spam Much like affiliate IDs, any sort of tracker code will alert anti-virus and anti-spam software remove hyperlinks with affiliate code.

3. Paid placement: More bloggers and websites will take money for favorable articles about companies or products. This model has been used in traditional publishing, but it typically bears the “Advertising Section” label. I’m not sure blogs will use this same mechanism, but by not using such a label they will undermine their credibility, and credibility is the lifeblood of blogs.

4. Coupon-based advertising: Coupons are the one form of advertising people actively look for. In fact, more than 43% of Sunday newspapers are purchased primarily for the coupons. There were 350 BILLION coupons distributed in the US last year. I believe that you will see the rise of coupon-based ad syndication networks on the Internet in the near future, because people won’t want to strip out coupon ads, they’ll want to find and use them.

So, using the example above where a desktop application assembles a personalized newspaper for you, it might actually add coupons for items you buy regularly. Full disclosure: My company will release a beta of our coupon syndication network solution in the August/September timeframe.

Conclusion:
I realize that the advertising sponsored business model is hot right now and it is demonstrating significant growth. I don’t suggest that it will go away any time soon. What I am suggesting is that we are in the early phases of advertising on the Internet and what we see in a couple of years could be very different that what we see today. It has taken the PVR a long time to hit critical mass, where it is reshaping advertising, but by definition, the Internet is accessed through computing devices (of all sorts) that have the ability to filter ads just as the PVR does. I’m sure that this capability is keeping entrepreneurs, VCs and Internet strategists awake at nights…or maybe it’s just me.

Tags: RSS, Google, CTR, PPC, Internet, Business, Ads, coupon, adblock

The Pending Death of Directories & Newspapers?

2005-08-05T10:44:00.000-07:00

A reader asked me which would die first, newspapers or yellow pages directories. First let me state that the leaders in both of these industries have the time and money to redefine themselves or simply buy into the new media world. I doubt that they will roll over and “die”. A good example of this is News Corp.’s acquisition of Intermix, parent of MySpace. Other examples include Gannett/Knight Ridder/Tribune acquiring Shoplocal and Topix.net. Clearly the newspapers are feeling the heat from Internet upstarts and they are actively partnering and acquiring companies to fill that need.

The publishers of directories are not yet feeling the heat to the degree newspapers are. They have seen Yahoo’s Internet Yellow Pages take a dominant leadership position, but the printed side of the directory industry has not yet felt the Internet breathing down their necks like the newspapers have.

The traditional directory publishers have teamed up among themselves in an effort to make their yellowpages.com the leader in the space. Yellowpages.com has also partnered with AOL and Switchboard to better enable them to go after Internet Yellow Pages (IYP) leaders Yahoo and Verizon/MSN.

The fact that they are focused on distribution and internal partnership, instead of attempting to buy outside technologies, is an indication that the directory business is not yet feeling the heat from the Internet, like newspapers are. They aren’t as desperate and seem to be moving more cautiously. There are other factors to consider as well.

Shelf-life/Contract Cycles:
Two factors, which go hand-in-hand, are the shelf-life of the product and the length of the advertising contracts. Newspapers have a one-day shelf-life, while directories have a 12 month shelf-life. This is further reflected in their advertising contracts. The majority of the advertising contracts for newspapers range from daily (one-time) to monthly. This means that advertisers, presented with a better solution, can switch rapidly to exploit Internet solutions. For directories, the contract runs 12 months. Advertisers are locked in to the contract, so switching isn’t as quick.

Switching/Testing Costs:
A newspaper advertiser can easily test an Internet alternative, because if it fails to meet expectations, that advertiser can easily re-engage the newspapers advertising again, getting into the following day’s paper. However, if an advertiser declines to advertise in the printed yellow pages, they must wait 12 months before they can get back in. Because of this, directories have higher switching/testing costs.

Instead of leaping into an Internet alternative to the printed directory, the prudent advertiser might scale back their directory ad, say from a half-page to a quarter-page, while they try Internet alternatives. This has a buffering effect on the financial impact on directory publishers.

Competitive Threat:
The competitive threat to newspapers is very high, because the user experience is dramatically better online. The news is fresher, typically free, classified ads are more comprehensive (often times including pictures) and in many cases free, coupons are more convenient (and improving), Blogs provide more detailed and hyperlinked information from specialists in the field. Basically, everything a newspaper offers is much easier and better online.

The improved online user experience is taking its toll on the newspapers. For example, look at the classified ads segment. In 2003 there were 120M classified ads in newspapers in the US. At this same time, there were 602M listings on eBay. Craigslist and others present a growing threat to printed classified ads, so newspapers are facing an immediate threat.

Directories don’t have that level of threat yet. The experience is not yet that dramatically better online. Yes search is nice, being able to link to their website is nice, but the user experience with a printed directory isn’t too bad. As a result the competitive threat isn’t that serious yet. But it is coming. Search engines are all testing local search, and local search is the new front-end to directory information. Local search must keep the traditional directory folks awake at night…it should.

Tipping Point/Event:
There is often an event that wakes people up to a new technology and enables that technology to achieve critical mass or mass mindshare. For Blogs, it was the combination of the Rather-gate scandal and the 2004 election cycle. In both of these cases, the blogs had the news well ahead of the mainstream press and provided more detail than the press. As a result, people woke up to the entire concept of getting news and editorial from blogs. Combine this with feed subscription a la Bloglines and people can assemble their own ad hoc newspaper.

We haven’t seen an event that will provide a tipping point for online directories just yet. The integration of local search into general Internet search may be that tipping point. Adding some significant value such as a large number of online coupons or some other capability or event is needed to push Internet directories to their tipping point, otherwise it will take some time.

The confluence of these factors means that the impact to newspapers is more of a clear and present threat to their printed revenue streams today. This is accelerated by declining readership of newspapers, a 20 year trend. At the same time, these factors describe why I have suggested that directory publishers are probably 3 years out from feeling the impact of the Internet on their bottom line.

The Speed of the Transition:
But there is another aspect of this question that demands consideration, and that is the speed of the transition from print to digital content. In other words, once the transition to online solutions starts, or even once it hits the tipping point, how quickly will it siphon readers away from its hardcopy brethren?

We have seen a fairly rapid transition for classified ads, with Craigslist and eBay soaking up most, almost all, of the growth. This will continue to grow and printed classifieds will soon start declining. But newspapers offer a diverse set of offerings. Having seen the impact on their classifieds, they are learning and applying this knowledge to other areas, including coupons, city guides, editorial content/blogs, etc. This diversity and their painful lessons in classified ads, and news, are helping them make the transition to diversified local portals.

The yellow pages don’t have this luxury. They are, for all intents and purposes, one-trick ponies. When the Internet starts to siphon readers away in earnest, what do they do? They are trying to build a local portal, much like newspapers, but the newspapers are way ahead. When online directory information is available through your mobile phone, VOIP phone, PDA, iPod, Internet search engine, etc. and it provides richer information such as hours of operation, areas of specialty, user ratings, user reviews, coupons, etc. and it hits the tipping point, the impact on directory publishers will be more rapid than the impact on newspapers.

So while I don’ predict the death of the industries or even the companies, I believe that both newspapers and directories will, over time, shift to a predominantly online delivery mechanism. I believe that the newspapers will feel the impact sooner, and have felt it sooner. But once it starts to really impact printed directories in earnest, their fall from leadership will be more precipitous.

…but hey, I could be wrong. What does your crystal ball say?

BTW, I was on vacation, but I'm back and will be puiblishing more frequently again...

Tags: localadvertising internet business, IYP, yellowpages, newspaper, strategy

Yahoo Accelerates Classified Ad Cannibalization

2005-07-12T15:40:00.000-07:00

Yahoo recently announced that they would add job posts, spidered from other job sites and company job listings on the Internet, to their HotJobs. This might seem like a simple way for the #3 job board to address the critical mass issue and leapfrog the competition. But the ramifications are far deeper and should scare the hell out of online classified ad companies and, more importantly, newspapers.

In a previous post, I mentioned that owning the customer is far more important than owning the advertiser. Well HotJobs seems to agree. As the number three job board, they decided that they wanted to become the #1 destination for job seekers at the expense of cannibalizing the entire segment.

It is a classic approach of cannibalizing the market in order to leapfrog the competition. Become the leader, then make money through additional features. Retailers used to call it the loss leader that generates customer traffic. I’m sure this scares Monster and CareerBuilder, but the people who should be quaking in their boots are the newspapers.

Let me explain: In 2004 online employment generated about $1.2 billion in revenue. But printed employment ads generated $4.6 billion for newspapers. That represents 27.7% of their total classified ad revenue, which was $16.6 billion in 2004. It is one thing for Craigslist and their bohemian classified ad board to offer free ads (and even they charge for job posts in some areas), but when a major portal tells companies that instead of paying to list their ad with a job board, they can put it on their own website and Yahoo will aggregate it for FREE, that is a game changer.

So what is the next shoe to fall? Housing and Automotive are the other two of the big three revenue generators for newspapers and online classified ad companies. Are they next? In my opinion, it is just a matter of time before these two segments are also spidered into an early death. It’s enough to give newspapers a serious case of arachnophobia.

Sure some little job boards were already aggregating job posts for free, but Yahoo has now made it the standard. They have created a slippery slope and it’s the newspapers that are sliding down it. Printed classified ads only provide a listing. Yahoo is making that free in order to sell add-on services. On top of this, online classified ads provide a far superior user experience than printed ads. So how will newspapers compete with free?

I wrote a while back that basic classified listings would become free, Yahoo has now made it official. No doubt Google will be right behind Yahoo, and then the floodgates will fly open.

Craigslist has been a thorn in the side of newspapers, now Yahoo puts a stake right into their hearts. By cannibalizing online employment, they have started down a slippery slope that will send newspapers into the abyss where their $16.6 billion in classified ad revenue begins drying-up.

tags: classifieds, yahoo, jobs, craigslist, newspapers

Look Ma No Ads!

2005-07-07T13:39:00.000-07:00

tags: ads, advertising, adblocker, coupon

A brief history of consumer behavior:
Spam got annoying, consumers got spam filters
TV commercials got annoying, consumers got TiVo to skip commercials
Internet pop-ups got annoying, consumers got pop-up blockers
Now, Internet ads are annoying, consumers are getting ad blocking software

Do you see a pattern? I think there’s a message here. Unfortunately, we consumers often overreact and throw the baby out with the bathwater. I’m sure there are TV commercials that would interest me. My spam filter catches real emails and offers that might interest me. Some pop-ups add value, but they too are caught by pop-up blockers. But once my annoyance level gets too high, these inconveniences become a small price to pay for my sanity.

In the 1970’s consumers viewed 500 ads in an average day, that number is now over 3,000 ads a day. With my surfing habits I would say my screen sees probably twice that number. I say my screen, because advertisers have trained me to ignore ads. And that points to a real problem that is brewing for the Internet. Advertisers, through their behavior, are training users to ignore ads.

What Internet surfer hasn’t been duped into clicking a banner, often disguised as a shooting game, only to be barraged by one banner after another? Or maybe the advertiser infects us with adware or spyware, the gifts that keep on giving. That negative reinforcement does wonders for training people NOT to click on ads. Hell, negative reinforcement works on dogs, what makes you think you can pull one over on people?

So how do advertisers respond? They make their ads flash like multi-colored strobe lights. I guess these advertisers aren’t targeting the epileptic demographic (strobe lights set off epileptic seizures). So, I hit the stop button on my browser to stop the pulsating fluorescent strobe effect. Advertisers learn from this and modify their strobe-ads so that they are impervious to the stop button.

These rogue advertisers live by the motto: carpe diem. They don’t care about the long-term effects this consumer harassment has on their industry as long as they deliver a tenth of a percent higher click through rate (CTR) than the other guy.

The result is simple. Consumers are being trained to ignore ads, or anything that even smells like an ad. And there are plenty of technologies out there to help us. One is AdBlock, a nice little plug-in for Firefox. It allows you to kill ads on webpages, but takes it one step further. It blocks all future ads from that same ad server.

So what is my message to advertisers?
Create ads that add value, and serve them in context to ensure that they add value.

Google’s AdWords and Yahoo’s Overture services provide fairly innocuous text ads and embed them into search results matching the context of the search. This is acceptable, to me. In fact, sometimes it is the only way for an innovative company to get attention/traffic in order to build their organic search rank.

But you know what. Although these ads are more subtle they too are training people not to click on them. Additionally, they might be the baby that is thrown out with the bathwater. I haven’t seen any studies on this, but I would bet that as consumers become more web savvy, their personal CTR drops over time, even for these contextually relevant ads.

So what are advertisers to do? TV advertisers are inserting ads in the context of the shows. Look at the sodas TV characters drink, look at the computers they use. This is called product placement, and it’s big business and getting bigger.

Another approach is to truly deliver value. In case you haven’t noticed, the Internet is one big value shopping bazaar. Look at eBay, Craigslist, the recent acquisition of Shopping.com and Shopzilla for more than $1B combined. It’s simple: help people save money and they will beat a hyperlinked path to your door. I may be biased, OK I am biased, but I believe that coupons will become all the rage in Internet advertising. I’m talking about real coupons that achieve the advertising companies’ business objectives (see my previous post on this topic).

The bottom line is ads either need to hide in the content, like product placement, or even better they need to deliver value, real value, like coupons. Otherwise the constant effort to push the envelope, in order to build short-term CTR will bite you and your industry in the butt!

And Now for Something Completely Different: Insurgent vs. Terrorist

2005-07-06T10:36:00.000-07:00

tags: terrorist insurgent labels

I realize that this has nothing to do with local Internet issues, but it is nonetheless something that needs clarification, because it annoys me...

Print and TV media predominantly refer to the “fighters” in Iraq as “insurgents” while conservative talk radio often refers to them as “terrorists”. Which label is correct? Obviously, this is a politically charged issue, but I believe that we can cut through the political rhetoric and get down to the facts, at least in certain situations that are clearly black-and-white.

First we need definitions for these labels:
Insurgent:
noun: 1: a person who rises in revolt against civil authority or an established government; especially one not recognized as a belligerent; 2: one who acts contrary to the established leadership (e.g. of a political party, union, or corporation) or its decisions and policies.

Terrorist:
noun: someone who uses of violence (or the threat of violence) against civilians in order to attain goals that are political, religious or ideological in nature; this is done through intimidation, coercion or instilling fear. Terrorists usually organize with other terrorists in small cells; often using religion as a cover for terrorist activities.

(Note: you can look at the politically charged definitions in the Wikipedia, but the term “insurgent” was added April 11, 2004 and the term “terrorist” was added in 2001, so they are both at least somewhat suspect.)

When determining the appropriate label, one most consider the following:

1.The perpetrators – Are they local residents? How can foreigners fight against an illegal occupying force, when they themselves are not local residents? The fighters must be local residents to be insurgents, freedom fighters or guerillas. If they are foreign, they are at best mercenaries, but only if they are paid for their actions.

2.The target(s) – If the fighters target the government or the military infrastructure supporting the government, while attempting to minimize collateral damage to the indigenous civilian population, then they can be considered insurgents, freedom fighters or guerillas. Insurgents or freedom fighters will carefully avoid civilian casualties in order to build local support and recruit followers. Some people might consider government employed police forces a legitimate target for insurgents, but attacking foreign diplomats, Iraqi female civilians and the like, is clearly an act of terrorism. Terrorists tend to target civilians in order to incite terror among the populace.

3.The methodology – Are they attempting to merely kill these targets to undermine and destabilize the government they deem illegal? If they are desecrating the corpses or killing the individuals in a publicly distasteful manner and then broadcasting it, they are merely attempting to instill fear. An objective observer might consider the killing of the military support personnel in Fallujah a legitimate action by freedom fighters, but the desecration of their bodies by dismembering, hanging and burning them is clearly a terrorist act. In the Middle East, decapitating an individual might be considered a reasonable form of execution, but triumphantly displaying the severed head, video taping and distributing the video tape makes this an act of terrorism.

Based on these criteria, we should be looking at the individual acts. As I understand it from people who are in Iraq, or have been in Iraq, there are three types of homicides taking place there:

1.Ethnically Motivated Murder: Sunnis Killing Shiites and vice versa. Much of this activity is motivated by revenge for past activities of the groups. This is the stuff civil wars are made of. The Shiites kill Sunnis because of injustices caused by Saddam Hussein’s (Sunni) government. The Sunnis respond by killing Shiites, and the cycle continues. Generally speaking these are not the acts of insurgents or terrorists, they are simply murders by murderers.

2.Terrorism: As defined by any one of he following: the perpetrators (foreign fighters), targets (civilians, foreign diplomats, etc.), or the methodology (e.g. video taped decapitation that is publicly broadcast).

3.Insurgency: Must satisfy all of the following criteria: Perpetrators (local residents), targets (government or military infrastructure, while minimizing civilian casualties) and methodology (killing merely to kill or disable the infrastructure).

Then, of course, there are the gray areas. Are police considered a viable target for freedom fighters? Are Palestinians in Israel considered foreigners, because they consider it their land? The gray area is where your political perspective or objectives come into play. But clearly, we can and should be more precise about automatically labeling perpetrators terrorists or insurgents and look instead at the circumstances and use the proper term.

...Now back to our regularly scheduled programming...

Printed Yellow Pages are in Strategic Peril

2005-07-01T19:11:00.000-07:00

Tags: yellowpages, local, business

After my last post, some people in the yellow pages industry questioned some of my conclusions, so I thought I would detail them out here. First I’ll address the challenges facing the traditional yellow pages publishing industry.

Tactical Challenges:
These are significant challenges, but they don’t dramatically change the game, like strategic challenges do. In other words, the traditional directory publishers can meet these challenges by simply better executing their business than the competition:

1. Deregulation has resulted in competition from Independent publishers. These publishers are undercutting the traditional publishers pricing. As a result, they are capturing much of the growth in the industry. According to Simba the Independent Yellow Pages publishers grew 13% in 2004, while the overall industry grew only 3.9%. The Independent publishers were responsible fo the bulk of the growth in the industry.

2. As mentioned in my last post, as a result of Feist v. Rural competitors can buy national directory data for between $250K and $500K a year. This lowers the barrier to competition, resulting in more independent publishers.

3. Advertisers pay for a year of advertising. At the same time, most families throw out the old yellow pages when they receive a new one. So, the independent publishers stagger their printing cycles. The result, in a two-yellow pages town, is that each yellow pages book has an average shelf life of six months. So advertisers are paying annual prices for six months of advertising.

Strategic Challenges:
These are challenges that can effectively change the game. These challenges are the result of disruptive technologies that threaten the very need for and existence of printed yellow pages. Traditional yellow pages publishers cannot overcome these challenges by better executing their traditional business. These challenges require that the company modify, or at the least extend, its behavior to continue to maintain its role in the future.

1. Mobile Phones: When phones were tethered to the wall, a large yellow pages directory made complete sense. With mobile phones, bulky printed directories make little sense. This is compounded by the growing storage capacity of phones. It’s just a matter of time before phones come pre-loaded with local directories that are updated via the Internet. Many younger people, like my brother, don’t have a home phone; they just use their mobile phone for everything. In what must really scare the yellow pages (or at least it should) T-Mobile has decided to make Google’s search engine the default home page for their mobile phones. T-Mobile is effectively telling mobile phone users not to use the directory, instead use Internet search.

2. The Internet: The Internet provides users with an experience that is far superior to printed yellow pages. The advantages the Internet provides in terms of data freshness, richness, supporting data, etc. is overwhelming.

Let me dig a little deeper into the challenges presented by the Internet to provide a more complete picture.

User - Easier to Use:
The yellow pages rigidly force companies into predefined categories. These categories may not be intuitive to you or me. If I’m looking for in-home care, do I look under Nursing, Health, Health Services, Home Health Services, Hospice, Medical Management Consultant, Medical Service Organizations, Senior & Aging? Before long, I’m tearing my hair out…oh, hey, there’s hair replacement. In the Internet, you simply search, and in addition to the results you are presented with similar categories. Internet yellow pages are far faster and easier to use.

User – More Detailed Information:
Not sure whether that attorney in the yellow pages handles wills? Well, you have to call and ask. But with the Internet you can click on the law firm’s website, read the attorney’s bio. You can even Google the attorney to see what people say about him/her. The IYP might even have user ratings and reviews. If you’re looking for a restaurant, you can look at their menu online. The list of information available on the Internet is constantly expanding.

User – More Services:
With pay per call services Internet yellow pages can offer a call button that uses your PC speaker/microphone to call the attorney above. Or it might automatically place the call and ring your phone. You can get a coupon online. You might even be able to view the attorney’s calendar and schedule an appointment. A printed yellow pages can’t do any of these things.

User – Access:
Back in the day when we still used the printed yellow pages, I could never find it. I’d put it in a drawer and then I’d go back and it would be gone. And when was the last time you saw a complete yellow pages connected to a payphone? People rip pages out, lose it (or use it to prop-up a piece of furniture or something). I don’t know about you, but I know where to find the Internet, at home, at work, on the road, it’s always there.

Advertiser – Real-Time Modifications:
Yellow pages are printed annually, Internet pages are dynamically generated from the latest data each time you visit them. In other words, we are comparing a 12-month data refresh cycle to a real-time data refresh cycle. Seasonal businesses can leverage the Internet whereas they couldn’t take full advantage of the printed yellow pages. Real-time changes are very important in today’s fast-paced business environment. Not only can you change basic contact information, but you can also fix mistaken data and add more background information.

Advertiser – More Complete Data:
With printed yellow pages you pay according to the amount of space you use. This is because printed materials have ink, paper and distribution costs. The Internet has none of these. As a result, it is in everyone’s best interests that the advertiser put in as much information as possible to enrich the user’s experience. Advertisers can add menus, list selling points, services, inventory, specialties, include images of the people or the business itself, and much more.

Advertiser – Measurable/Trackable:
On the Internet you get a great deal of information about the visitors, what they click, where they go, etc. This is valuable information you can use to tailor your advertising. Ask any yellow pages advertiser how many responses they get to their ad. Most have no clue whatsoever.

Advertiser – Shorter or Even No Commitment:
Advertising in the yellow pages is a 12-month commitment with no guarantee of results. Advertising on the Internet, depending on the program, may have no commitment. With search engine advertising, you can try something for a few minutes, and then try something else, if you want to.

Advertiser – Costs:
A full page ad in the yellow pages can range from about $40,000 to $80,000 per year. Ads in search engines start at 5¢ to 10¢ per click. Shopping engines start at about 20¢ a click. The annual fee for the highest level listing on Yahoo’s Internet yellow pages (#1 in the industry) is $720 per city or $4,600 per metropolitan area, or between 1% - 10% of the printed directory pricing.

Conclusion:
The confluence of disruptive technologies impacting printed yellow pages presents a serious and growing threat to their dominance of this valuable market segment. As mobile phones get more sophisticated they will store more directory information locally, and they will use the Internet to supplement this information.

Internet portals and search engines will continue to integrate more services to enhance their offering. As their advertiser self-service interfaces become more user-friendly, they will dramatically improve their appeal to small businesses. Newspapers are also adding local directories to their websites in their effort to remain atop the local advertising business.

The printed yellow pages are also suffering from an aging user base. A much higher number of new businesses are turning to search engines, Internet yellow pages and other alternatives to the printed yellow pages. This is evidenced by the steadily declining growth rates of the yellow pages revenues. This is a trend that will soon start to accelerate as Internet advertising becomes more approachable and more accepted and as more companies establish websites.

“The traditional media--newspapers, radio, and television--have seen spending by local marketers erode despite improved business conditions...Ad spending on the Internet will be up 15 percent to $7.8 billion” – Bob Coen, Universal McCann

I’m sure some readers, particularly those with a vested interest, will discount these arguments by pointing to the financials of printed yellow pages companies. I’ll address this in a follow-on post. But I will add that according to Harvard professor Michael E. Porter, growing profits and sagging revenues are actually a sign a business or industry in its twilight years. There is always talk of the sales forces of the yellow pages vendors. This reminds me of modern warfare, where air superiority is everything. Simply bomb the ground forces into oblivion, then mop up the pieces. More on this later.

Owning the Consumer vs. Owning the Advertiser

2005-06-28T16:46:00.000-07:00

Tags: business, IYP, local+Internet, yellowpages

The Internet yellow pages market is shaping-up as a battle between the yellow pages publishers (YPPs), who own the advertiser, against the leading Internet portals, who own the consumer. The $100 billion question is who will win.

Owning the Advertiser
The YPPs clearly own the advertisers. For over a century, they have built an infrastructure around selling and managing one of the primary advertising channels for local businesses. The YPPs each have thousands of salespeople on the phone and on the street, building relationships with local businesses.

These salespeople, their “feet on the street”, maintain and nurture the greatest asset the YPPs have, the relationships with the local businesspeople, the advertisers.

As with newspapers, telephone directories have encountered very little regional in-market competition. Just as cities naturally evolved toward a single dominant newspaper, the local telephone company owned the directory business in markets in which they operated, with a few notable exceptions. This provided the YPPs with regionally insulated monopolies. The advertiser had other options for their advertising budget (e.g. the newspaper), but the consumer was essentially a captive audience. So by default, they owned the consumer.

The Internet has broken regional monopolies on information. As a result of Feist v. Rural, directories are now aggregated on a national basis, and local users get their own local slice of this information on demand. The typical “one newspaper town” and “one directory town” has given way to a competitive free for all. The result is that the YPPs no longer own the consumer; the consumer is a free agent.

Owning the Consumer
In the other corner, we have the challengers, Internet behemoths like Yahoo, Google, MSN and AOL. In terms of sheer numbers of website visitors, these companies clearly own the consumer. Even focusing solely on the yellow pages market, Yahoo’s IYP is the clear market leader.

An even bigger threat to the YPPs is search engines. Consumers are increasingly using search engines to find everything on the Internet. Will the search engine become the de facto local directory? That is exactly what Google’s local search engine, and every other search engine, is attempting to do.

Consumers are being wooed by portals, search engines, local newspaper sites and Internet yellow pages (IYP) sites. The YPPs can certainly buy consumer attention through Internet advertising. But that buys visitors; it is up to the YPPs to turn those visitors into loyal customers. You cannot buy loyalty, you need to earn it.

Can the YPPs deliver sufficient value to earn consumer loyalty, or will the Internet portals integrate other value-add, such as local search, coupons, voice-over-IP (VOIP), instant messaging and much more to create a more comprehensive and more compelling consumer solution?

This train of thought raises another question. In the software business we always ask whether something is a standalone product or a feature. This question must be asked of the IYP as well. Is IYP a product or a feature? And what does the future hold? Remember, WordPerfect was once the leading product, until Microsoft released the Office Suite and turned it into a feature. The once mighty WordPerfect is little more than a technology footnote now.

What Does it All Mean?
Let us assume that the Internet companies own the consumer and the YPPs own the advertisers. Given the current market shares and trajectories, this is not an unreasonable assumption. Does this create an opportunity for coopetition? We’ve already seen some relationships between Internet portals and YPPs.

Can the market settle into an equilibrium where the Internet portals own the consumer relationships and the YPPs own the advertiser relationships? The answer is short-term: yes, but long-term: no. There are two very powerful dynamics to consider in answering this question.

The first rule of advertising is: Advertisers follow consumers, not the other way around. If the consumers all choose to use Internet portals, local search engines, or newspaper websites to find contact information for local businesses, then that is where the local businesses will advertise. Another way of saying this is that owning the consumer trumps owning the advertiser.

Internet-based self-service is finally driving the long anticipated disintermediation. You may recall the early days of the Internet, when every pundit said that consumers would work directly with businesses and the Net heralded the death knell of the middleman. Instead, it created a number of new middlemen. But self-service is changing that. Just look at how the airlines have unceremoniously cut off the travel agents. The only travel agents airlines pay are the large travel sites that own consumers. Look at how companies are selling direct to consumers and businesses through eBay. Look at how people are selling directly to others through Craigslist, and the impact this has had on the newspaper classified ads. The list goes on and on. Self-service interfaces are becoming simple enough that disintermediation is starting in earnest.

Internet-based self-service is the ultimate in disintermediation. Local advertisers won’t jump to self-service right away, in fact it could take years to build critical mass. But it will happen. As self-service solutions get better and advertisers come to realize the benefits afforded by self-service, they will adopt this mode of operation.

At this time, the YPPs’ large local sales organizations are a valuable asset. As Internet portals leverage their natural cost advantages (no ink, paper or distribution costs) in combination with simple self-service interfaces, the average deal price will drop well below the level that will support inside sales, let alone outside sales. Then the large local sales forces become a liability.

While this article paints a dire picture for YPPs, it is by no means a foregone conclusion that the Internet portals will eventually displace the YPPs. The YPPs have a window of opportunity—during this transition phase—to act decisively in the Internet. If YPPs are proactive they can win. But being proactive means fully embracing the resulting price destruction that the Internet will force on the yellow pages market. It means cannibalizing huge and profitable revenue streams, and that is a tough pill to swallow. But somebody is going to do it. If the YPPs don’t do it themselves, there are plenty of competitors waiting in the wings to do it to them.

Straddling Services: Offline is the New Online

2005-06-23T13:53:00.000-07:00

Tags: straddling, IYP, business, Internet, eBay, OnlineOffline, local

I’ll pick-up the Internet Yellow Pages (IYP) thread soon, but I had a thought on a related topic and realized that if I didn’t commit it to words, it would be lost forever.

Today I was reading about eBay’s slowing growth (registration req'd), and how they are attempting to target the 95% of transactions that occur offline. They are doing this by acquiring companies, or stakes in companies, that facilitate transactions by straddling the online and offline worlds. I refer to online companies that match buyer and seller for offline transactions as straddling companies. eBay is hot to sink their teeth into the other 95% of the transactions, so they are betting big in straddling companies.

There are plenty of 1:1 and 1:n cases of straddling. For example, radio talk shows promote ProFlowers. You go to ProFlowers and there is a microphone in the upper right corner. You click on it and enter the broadcaster’s name and you receive a discount and the broadcaster gets a commission. This is a 1:n inbound straddle. It is 1:n because it involves one company, ProFlowers, and multiple broadcasters/users. It is inbound because the objective is to bring outside users into the companies website.

Advertising doesn’t qualify as a straddle because it merely promotes a website or a location. Most advertising cannot be tracked to a specific action by the user. This link to a specific action by the user is critical because only with such a causal link can it be monetized using the performance-based model that is becoming the de facto standard model on the Internet.

What is most interesting, in terms of attacking the other 95% of transactions is outbound straddles. Outbound straddles use the Web to drive measurable offline transactions. An example of a 1:n outbound straddle is online coupons, like that offered by FreshChoice. This coupon can be tracked through both clicks and redemptions, to determine how its effectiveness.

Online coupons are a straddle enabling technology, because they enable companies to straddle their online/offline worlds. Another straddle enabling technology is pay-per-call from companies like Voicestar and Ingenio. These enable the virtual world to extend into the real world in a manner that can be tracked and monetized. For example: Bob visits the Joe’s Pizza website and clicks the call button. This connects Bob to Joe’s Pizza via voice-over-IP (VOIP). Through the pay-per-call function, not to be confused with pay-per-click, Joe’s Pizza knows which website that call originated from.

There are also straddle companies. These companies operate websites that facilitate the straddling of the online/offline worlds. Examples of these companies include classified ads, yellow pages, local comparison pricing (e.g. ShopLocal). ShopLocal is an interesting one, because the company name is CrossMedia Services. With a name like CrossMedia, they get it.

eBay is salivating over the other 95% of the transactions, the offline ones, so they are buying straddle companies. They have acquired classified ad sites, a rental matching website and Shopping.com.

Now, you might say, hey Shopping.com is strictly online. People compare pricing of online stores, along with product features, reviews, etc. But then you would be missing the fact that most people, I am told by a ratio of 4:1, use Shopping.com to compare features and pricing, but they buy offline! In other words 80% of the value of Shopping.com, while currently untapped, is as a straddle company.

Next we come to straddle services. I believe that the big guys, like eBay, are all chomping at the bit to offer n:n straddle services. Maybe an example would help. Yahoo Local provides the market leading Internet yellow pages. They could go to the vendors and offer them pay-per-call services, coupons, maybe even online scheduling for services companies. This makes Yahoo the single source for straddling services for businesses. This sort of n:n opportunity is huge.

When eBay says they are eyeing the 95% of transactions completed offline, and then they buy various straddling companies, this is what they mean. They want to offer a host of services that enables businesses to straddle the online and offline worlds. Whether your business is selling online or offline, eBay wants it to go through them and they want their cut.

Straddling is obviously big business, and could lead to the next wave of Internet growth. Instead of battling over the 5% of business transacted online, they can battle over the other 95%. Straddling is all about local, since that is where the bulk of the transactions take place. Straddling is shaping-up as the battle royale for Net dominance. It is why Amazon is investing in A9’s local efforts, why every major search engine has a big local effort underway and why the newspapers and phone directory publishers, traditional local barons, are in a battle for their lives…whether they know it or not. So, as Michael Buffer would say, “Let’s get ready to rumble.”

…More on straddling to follow...after I finish my thoughts on the IYP market.

The Internet Yellow Pages Jockey for Position

2005-06-17T11:33:00.000-07:00

The Internet Yellow Pages (IYP) market is a very interesting one. While search is great for finding stuff online, when you want to buy locally the yellow pages help you find businesses to buy from, making them a key influencer of transactions. With 98% of all transactions occurring offline, this is clearly the big market. Needless to say, some big players are fighting over the market.

Here is the current market share breakdown:
Yahoo – 25.5%
Verizon/MSN – 18.4%
SBC/BellSouth (SmartPages.com & Realpages.com) – 12%
Switchboard – 7.6%
Infospace – 6.3%
Yellowpages.com – 5.4%
DexOnline – 5.2%
AOL – 5.2%
Other – 14.4%

The regional bells are playing aggressively to defend their print franchises by combining efforts through a joint venture between Yellowpages.com and the regional efforts of SBC and BellSouth, giving them a virtual share of 17.4%. They have also distribution partnerships with Switchboard and AOL giving them even broader reach. Game on!

The Kelsey Group values this market (market cap not revenues) at $100 billion. It is shaping up as the “virtual” Bells et al. against Verizon and Yahoo. Of course, virtual companies (through joint ventures and distribution partnerships) are notoriously harder to manage and less conducive to innovation than centralized companies or divisions. On the other hand, the Bells have huge sales forces on the ground meeting with and selling integrated solutions (search engine clicks, print yellow pages, IYP, etc.) to the local businesses, with whom they have existing relationships. Therein lies another question; how will the sales force rationalize selling fixed price offline advertising and less expensive pay-for-performance online advertising?

The bigger question hanging over this market is who really owns the online consumer. Because the company that owns the online consumer will, by default, end up owning the advertiser too. In other words, will consumers find businesses through search or through an IYP destination site? That is the $100B question.

If consumers decide to enter “plumber san jose” in a search engine instead of going to their IYP and searching for plumber in their zip code, then the IYPs must either partner with search engines or eventually watch their role and revenues dwindle. [Note: Google and BellSouth have a partnership]. With a $100B market at risk, buying a search engine might even make sense. The search engines would benefit from the feet on the street from the Bells. On the other hand, the search engines can buy the same basic IYP content from InfoUSA or Acxiom, and quickly jump into the market.

Of course, Yahoo has the ideal position of having the Internet traffic, search engine, leading IYP and other services like VOIP that they can weave into the mix. If I were an IYP, Yahoo would be the biggest competitor and Google would be the biggest threat.

In my next post, I’ll spell out some strategies I would recommend to the IYPs to help them bolster their ownership of the consumer. The one thing we have learned from Microsoft is that the company that owns the user interface has tremendous influence (dare I say monopolistic influence). If the IYPs cede the interface to the search engines, then they become invisible and replaceable.

Local is as Local does

2005-06-16T16:58:00.000-07:00

Tags: business, local, smallbiz

Being considered local, by local residents and businesses, is a good thing. You are part of the in crowd who are doing battle against the out-of-towners. The evil out-of-towners are perceived as siphoning money out of the community. Doesn’t everyone want their money to stay local and help the local economy? Since the vast majority of money spent is spent locally, being considered local is a good thing for any business. Of course, Walmart demonstrates that being cheap is more important than being local when it comes to consumers, but being local carries considerably more weight with business customers.

In any case, as I pointed out in my previous post, the “local” label is not black-and-white, there are shades of gray. However, perception is reality, and perception tends to be much more black-and-white than reality. If you ask people to label businesses as local or out-of-towners, there is no hesitation to convey labels. But these labels are often influenced either by personal knowledge of the people who own the business, or by a personal interaction with the business. In other words, if you know the local owner of McDonalds, you consider that McDonalds local; if you don’t, you typically consider it an out-of-towner.

This leads me to my point. The more interaction a business has with the local population, the more people begin to think of the business as local. For this reason, putting a human face on a business and getting involved in the local community and local business organizations is a great way to earn the title “local businessman” and that title is then conferred to your various ventures as well.

In fact, even company owned stores can earn the local label by putting a local human face on the employees and immersing themselves in local projects. Sponsor a little league team that bears your name. Put a human face on your business with a picture and story about the local manager. Highlight the community service of your employees. Join local business groups. Speak at local business functions. Make it a priority to buy from local vendors and make it clear to them that you are buying locally because you want to develop relationships within them. In short the more you put a human face on your business and the more you interact with the community, the more you will be considered local, and being local is good for your business, no matter who you are.

Now, I'm off to our local bar...

What is Local?

2005-06-10T16:33:00.000-07:00

[Please tag: business, local, flatworld, local+internet]

As you’ll notice, the name of this blog is ThinkLocal. I started it because I believe I have some unique and valuable insights into the intersection of the Internet and local business. But when it comes to defining “local business”, things get fuzzy very quickly. Let me explain:

Local clearly means that a business has a local presence. So, we can say that Amazon is located in Seattle, so here in silicon valley it is not a “local business”. But they have a research group (A9) in Palo Alto. Does this make them local or does a satellite office, employing a fraction of the number of people as their headquarters, fall short of conveying the local title upon them. It gets worse.

In Georgetown KY, Toyota is the largest local employer, with 8,000 employees. They seem pretty local to people in Georgetown, but are they? In total Toyota employs 36,360 people in the United States, so are they foreign or domestic? In the individual towns, I’ll bet they feel pretty local. Does the fact that their headquarters is in Japan make them less local?

If you ask a local coffee shop, Starbucks isn’t local. But Starbucks employs local people. These employees describe themselves as working at the local Starbucks. Is a single store owner-operated coffee shop more local?

So what about franchises? They are owned and operated locally. My closest McDonalds is owned by someone here in town. Sure they buy supplies from corporate and pay franchise fees to, among other things, pay for national advertising, but they are independently owned and operated. Aren’t they local? They’re certainly more local than company owned stores, but not as local as the single store owner-operated burger joint.

What other factors are considered when proclaiming yourself a local business? Is the source of the goods or materials you work with factored into the equation? Would McDonalds be considered more local than a mom & pop store whose inventory is primarily manufactured in China? Do we consider where the items come from? Do we consider who added what value in the manufacturing process? Or is ownership of the business where the items are sold the sole consideration?

OK, consider this one. I just bought a laptop from HP, a major local employer with their headquarters here in the valley. Sounds local right? Well it was manufactured and assembled in China and shipped directly to me. If I have technical problems I call an 800 number and speak to someone in India. Did I buy from a local vendor?

Does it matter whether a business is local or not? Yes, people like to buy from local vendors, to keep the money local, to support the local economy. My business makes a point of saying “Support your local vendors”. But what does local truly mean? In speaking with friends they don’t always grasp the nuance that franchises like McDonalds are locally owned and operated. They view McDonalds as a mega-corporation (that also happens to be the international symbol of American imperialism). So to them a single store burger joint is local, but McDonalds isn’t. HP is considered local because it employs so many people here in the valley, but is it?

In the end, as Thomas L. Friedman says in his book “The World Is Flat: A Brief History of the Twenty-first Century”, everything is being blended. Almost nothing is 100% local these days. Instead we get degrees of locality.

In the end, the underlying facts about what is local and what isn’t are meaningless. The real issue is whether businesses and individuals perceive a company as local. Perception is reality. So, in effect, when we say support your local businesses, we’re actually telling people to support businesses they personally believe are local, because local isn’t black and white, it’s shades of gray.

Online Shopping Engines vs. Local Businesses

2005-06-07T13:16:00.000-07:00

EBay’s recent $620M purchase of Shopping.com and Scripps purchase today of Shopzilla (AKA BizRate) are a testament to the fact that consumers are increasingly using the Internet as a bargain-hunting tool. People are using the Internet to “spend time to save money”. Studies have also shown that online content drives 4 offline sales for every 1 online sale. Based upon this, the next wave of activity will be solutions, like the price comparison engines that enable people to save money offline as well.

There is ShopLocal, but they repurpose the circulars that are sent out in the mail. They ship them off to India where the data is input into a database that powers the site. In other words it is a very manual process and doesn’t rely on self-service by the companies. For this reason, they only provide sale information for the large chains…for now.

I believe that the next wave of bargain-hunter tools on the Internet will provide offline shopping information that leverages a self-service interface, enabling local companies to enter and manage their own inventory and pricing information. This sort of “local deals” website will enable local businesses to capture online bargain hunters, instead of sitting idly by while the shopping engines (Shopping.com, PriceGrabber, Froogle, NexTag and Shopzilla, et. al) funnel these consumers to online stores.

The Mac is Suddenly So PC

2005-06-07T11:58:00.000-07:00

[Please tag: business, computing, Intel, Mac]

In 1994 I was interviewing for a job with Apple and everything was going well until they asked me: “If you were the CEO of Apple, what would you do?” Without hesitation, I responded: “I would port the Apple user interface to Windows, because once you hook the customers with the UI, you can start to build Mac services behind that and hollow out the Windows OS, becoming the standard operating system across both platforms.” Needless to say, the interview was quickly terminated and I was sent packing for my heretical statements. At least they didn’t call security.

The bottom line is that anyone who has used a Mac prefers it to Windows (except those masochistic types who enjoy the break-fix-break cycle). But the Mac has a 2% market share. Computing loves standards, and at 2% Apple isn’t even close to being a standard. But what would happen if they followed this plan:

Phase 1: Apple ports OS/X (a Unix-based OS from NeXT) to the Intel architecture
Phase 2: Apple convinces PC peripheral vendors to write OS/X drivers
Phase 3: OS/X and OS/X applications run on generic PCs

[Note: Like The Brain in Pinky and the Brain, I always enjoy a good world domination strategy.]

Apple could then operate as a platform/apps company like Microsoft, and have a separate high-end hardware company spitting out well-designed laptops, desktops and servers. Then the Mac lovers, those who used Macs in school and have been forced into adopting the PC to fit into corporate infrastructures, can once again embrace the Mac.

Close your eyes (after reading this paragraph) and imagine this. Years from now, you're configuring your new HP laptop online and they ask what operating system you would like: Windows, OS/X or Linux…hmmm.

The Businessperson's Guide to the Web: Past, Present & Future

2005-06-03T16:47:00.000-07:00

[Please tag: Web2.0, Internet, future, tagging, digitalDJ]

The future of business is increasingly intertwined with the future of the Web. Yet, most businesspeople slip into a coma when they hear techie-speak about XML, RSS, BFD. So, I thought it would be helpful to provide a non-technical review of where the Web is heading. Unfortunately, you need a little context on where the Web came from, to better understand where it is going. So, here it is, laid out much like Charles Dickens' A Christmas Carol:

The Web - Past:
"Those who ignore history are doomed to repeat it." --George Santayana

After Al Gore invented the Internet (Ha!), a guy named Tim Berners-Lee realized that we could use it to publish stuff in a machine-independent way (def. so that any machine could display it, Mac, PC, Altair, etc.). So he invented HTML (HyperText Markup Language) and some other stuff I won’t bore you with. It was really simple, it basically labeled stuff bold, italic, etc. and it also allowed links from one page to another. Thus the World Wide Web (AKA Web) was born along with that annoying www thing for webpages.

Other guys built simple applications to view all this stuff (see Netscape, see Microsoft, don’t see Netscape anymore). The Web became such a big deal and it's simple enough that now my Mom uses it to Google me (not always a good thing).

The net result of all this is that we have freed the pages from books, brochures, magazines, and other stuff to put them up on the Web where anyone can read them. Very cool stuff. As the number of websites grew, we realized that finding our way through this mess was going to be a royal pain in the ass. So a couple of guys at Stanford started keeping a categorized list of websites. This becomes Yahoo, founders David and Jerry become multi-billionaires and we become jealous that we didn't invest early enough.

Important Point #1: The Web is a mess, and making sense of it is worth big money!

Problem: Yahoo cannot keep up with the growth of the content on the Web. So search engines evolve. The search engines use machines to automatically surf the Web, so they can gather information a lot faster than a bunch of sleep deprived Yahooligans. Search engines like Infoseek, Excite, etc. make their founders rich.

Important Point #2: (a) There is so much stuff out there that even big rich Yahoo cannot manually make sense of it all. (b) Helping people find information on the Web is still worth big money.

Problem: As the amount of stuff grows, search engines lose their value because every search results in 100,000+ webpages, and you have to sift through it all to make sense. So Google figures out that they should not only index the Web, they should also figure out how many websites link TO each webpage. The idea is that the more links there are to a particular webpage, the more interesting it must be. This enabled Google to rank its search results more effectively. This made Google so popular they were able to give Wall Street the finger and IPO their way (Dutch Auction), making yet more billionaires.

Important Point #3: Provide people with a better way to find relevant information (search plus ranking) and you'll be rich enough to buy a small country. Do you see a pattern evolving here?

Problem: The amount of stuff on the web continues to grow and even with ranked search, we need to be able to better make sense of it all.

The Web – Present:
"In order to figure out where you are going, you must first understand where you are"

The Web liberated the text from books, brochures, magazines and more and put it all on the web where we can search for it. Now you can search for any term or phrase and get millions of page links. Then you can sift through this to find something of value.

Problem: Wouldn’t it be great if we could get people to add more value in terms of context and ratings? Clearly Google’s counting the links to pages helps with ranking popularity. The problem is that an older webpage may have more links to it than a really interesting new article. We’ve found that no one company, not even Yahoo, can categorize the entire web. So like the Dewey Decimal Classification, we turned to the users to add value.

1. Open Directory Project: Instead of relying on Yahoo employees to categorize the ever-expanding Web, some smart folks figured they would create a community-edited directory. At this point 68,375 people have edited this directory (Yahoo's total employment is about 1/10 of this number).

2. Wikipedia: What the Open Directory Project did for the directory, the Wikipedia did to the encyclopedia. It is a Web-based free encyclopedia where tens of thousands of users write individual articles and link to other applicable Webpages.

3. Tagging: Isn’t that what punks with spray paint do to walls, trains and buses? Yes. But on the web it means people adding their personal notes to webpages. For example, you see a Webpage about word-of-mouth marketing that mentions Gmail, you tag it with the words "WOM", "Marketing" and "Gmail". Later when you have forgotten the address of this webpage, you can easily find it by searching your personal tags using any of the key words. More importantly, you can see what other people are tagging. This is important because is provides us a window into what the aggregate group finds interesting on the Web, sort of a list of "what’s hot now" for every category. Del.icio.us, Spurl and Furl are some of the more popular tagging applications. (BTW, here is a cool application for Del.icio.us called scrumptious)

These applications demonstrate that: (a) automated solutions like search are great, but nothing beats context added by humans; (b) the only way to scale the effort of adding context to this mass of information called the Web is to encourage large numbers of users to do it.

Problem: The Web is so filled with content that a combined solution of ranked search and consumer-driven context, while helpful, isn't enough. It may be enough to make a few more billionaires (yet again) but it is by no means the ultimate answer. It is more a partial solution. The problem is that Internet is still about people "surfing" around to find relevant "pages" of information. Wouldn't it be better if your computer could find and process small bits of information, instead of you having to read many pages to extract those tidbits?

The Web – Future:
"The Web liberated pages from books, now we need to liberate information from the webpages" – Mike Hogan (just made that up, you like it?)

A fair amount of the content on the web is generated from databases. These databases store the data in well-labeled and organized fields. For example, you might have clothing, in clothing you have pants, in pants you have jeans, in jeans you have Levis. Then each pair of Levis jeans has a style, size, price, color, etc. When you flatten this out to put it on a webpage, the computer can no longer process that information, instead a user must read it. But more and more, website owners are exposing the original database content as well. This is hugely valuable.

At the same time, you have people using tagging tools to label content. You also have consumer applications that provide users with forms to enter information. This information is then presented in a structured format as well. taken together, this means that there is growing amount of structured information available on the Web.

Big deal, structure, labels, who cares? Well, now that your computer can understand what the data "means" it can do cool stuff with that data. Let me give you an example:

GasBuddy: This is a simple application that allows users to enter the gas and diesel prices at their local gas stations. You can search the data to find cheap gas near you. In essence, this community of users has created a database, meaning the information is all labeled (gas station name, address, gas price per gallon, diesel price per gallon). Pretty cool information.

Google Maps: This is a service that can place structured information on a map. Pretty cool service.

CheapGas: Essentially, this individual mixed the information from GasBuddy with the service from Google Maps, to create a new service. It enables you to search via a map for cheap gas in your area. Extremely cool solution.

Cheap gas is just one example, there are hundreds more. Another good one is HousingMaps that mixes Craigslist information with Google maps. Here is a collection of other cool sites using the Google maps. The point is that as more structured data and services are exposed on the Internet, we will see people mixing various data sources with various services to create new a cool solutions, tens or hundreds of thousands of new solutions. Just as local DJs create mixes of songs, people will create mixes of Internet data and services. The popular ones will take off, creating a life of their own.

The ability to consume structured data and mix it with various cool services is the future of the Internet. As they take off, they will drive a tremendous wave of structured data sources and services to consume them. While your computer can’t read web pages, it can process structured data. As the web becomes more structured, individual computers will start "reading the web" for us and acting on that information, leaving us to make high-level decisions.

How Can You Profit From This?
1. If you provide content on the Web, in addition to the flat webpage version, you should also expose the structured data.

2. Get your users to create structured content. This approach results in more quantity, quality and lower costs.

3. Your content is no longer constrained to your website, in fact it may only be read by computers, so find a business model that addresses this. For example, look beyond banner and text ads (sorry). BTW, if you don’t liberate your content someone else will do it for you.

4. Create simple services that consume data and offer real value.

5. Encourage "digital DJs" to mix your content/services with other content/services to assemble compelling niche solutions.

I realize that this is contrary to everything you've been taught in business school. I'm telling you to essentially give away the crown jewels in terms of content, services, intellectual property. I'm not saying this because I'm an anarchist, but because it is the future. You can try to fight it, but if you do, some 24-year old with a laptop will do it without you. Oh, I guess I should point out that this new wave will undoubtedly create a couple more billionaires just like the previous technology waves...maybe you.