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Sunday, August 16, 2009
I disagree somewhat with Hal Varian's (Google's Chief Economist) criticism of the theory that combining Yahoo and Microsoft in search will lead to improvements based on scale, data, etc.
Statistically, for sure, scale is already high enough that more won't apparently lead to significant improvements in either search performance or ad program performance due to the impact of data on improving relevancy. That's on paper, in the lab.
Off paper, in the real world lab:
- Yahoo's reported 20% share is fiction. Globally, it's much lower. In the US, the real number is actually lower.
- Data is highly granular in a number of ways. So to start, Yahoo and Microsoft have different search shares in every language and every country in the world, and different search shares in sub-regions of the world. In many, one or the other currently hold share of 1% or less. By bringing both up well over 1% and closer to say, 3%, you get a significant increase in useful data.
- Even the tools that Microsoft provides for advertisers will improve markedly with a doubling or tripling of available data across all major markets, because usable data also comes in the form of highly granular data about keywords. Google doesn't have every last useful tool for researching keyword and consumer behavior: Microsoft has and will develop some really useful ones. Currently, as an advertiser trying to use the tools, you get "insufficient data".
- And though this may stray somewhat from the subject of how to improve a search engine's relevancy... what about something super real-world and practical: running an ad rotation test for a group of keywords and trying to select a winning ad from a field of eight? Isn't that search marketing? Right now, no one is testing very much on any platform other than Google. I suspect they'll be more likely to try tests specific to the Microhoo audience now, rather than just porting all of their consumer feedback driven campaigns over to the Yahoo and Microsoft platforms. The current way is just guessing: really testing in the actual auction you're buying the media in, is more precise.
- By "now," of course I mean when the Microsoft-Yahoo platform consolidation is complete in around a year's time.
I believe that Varian's assumption is mainly wrong because he's giving his competitors credit for having more consistent share across all major segments than they actually do. Aggregate numbers look impressive, but the information is less consistent as you drill down. Doubling or tripling the available information in any given segment, especially small ones, is bound to be helpful.
To double predictive accuracy, Varian suggests you need "four times as big a sample". Well depending on whether you're looking at it from the standpoint of Microsoft or Yahoo for any given teeny tiny segment, the number of instances where one of them now has "four times as big a sample" is going to be very high. Doubling predictive accuracy on teeny tiny segments - either as a search advertiser or a researcher looking into search trends - is our bread and butter out here. We'll take the "bogus" scale of the Microhoo deal any day.
P.S. I loved Varian's other insights, including the interesting note on the emergence of the "micro-multinational" type of growth company. Though I might have to take a run, at some point, at the recurring Google theme about "communication costs basically going to zero." The costs for collaborative tools have gone close to zero. But...Labels: google, hal varian, microhoo, microsoft, yahoo
Posted by
Andrew Goodman
Friday, May 29, 2009
Although I currently lack 4,000 words to match his analysis, (and 10,000 to match Danny's), I agree with Henry Blodget's answer to Microsoft's search problems, I think. In case you somehow missed it, I also roughly believe that it's a good idea to spin Bing and MSN into Yahoo, in exchange for a major share in the company. (Add a Bartzian Boatload of $ to that, for good measure.)
Still and all, a lot of folks have an ever-optimistic take about what money can do for market share. Not everyone agrees with our grizzled search analysts' take that says: the money won't move the needle. Folks I had dinner with last night said "$80mm in marketing has to do something." You would think constant TV ads would get to people somehow right?
Many of us have seen this movie before, and we disagree. Users try out the new thing, the traffic spikes incredibly for one or two weeks, and then it goes right back down to where it was and people resume using Google. This has happened with Ask, Hotbot, A9...
One interesting twist with Bing is, well, the bling. If there is any segment that is amenable to switching, it's customers who will subscribe to loyalty programs for cash or points. I'll tell ya, I'm a pretty big points addict (Aeroplan miles) and that would almost get me to switch. So I think if Microsoft is absolutely dead set on spending cash to build market share, they might be able to build it one customer at a time and one giveaway at a time, and keep market share holding steady just north of 10%. With weak profit margins, but at least in the game and gathering valuable data.
So with all that being said, Bing is a major search product and it therefore deserves our full attention - some people (I think they'd need convincing with some points or cash, though) will use it if it's actually good. With that in mind, I'll be attending a demo and gathering notes for a review next week.Labels: microsoft, microsoft search
Posted by
Andrew Goodman
Thursday, January 29, 2009
Toolbar installation for cash or points isn't new. It has an uneven history in Internet lore, with the crash and burn of a few schemes back in 2000 as they were overrun by teens and hackers gaming the systems.
That wasn't the only reason I was skeptical when Microsoft rolled out a program to reward users for the searches they do, a few months back. (It's been a modest success, while share of non-incented searching on Live Search seems to be still declining.) It's also because people are not always eager to change their behavior just to get some small reward. Changing brand loyalty from Google to another search engine would take more than just points, you would think.
So how will this program whereby Yahoo (teamed up with a toolbar software company) rewards Air Miles cardholders for the searches they do, shake out? Will people switch to Yahoo just for the points? Well, they pick credit cards on that basis. But it probably isn't the reason why I bought Tropicana orange juice over another brand.
Despite not being overly impressed with all incentive schemes, I do know that some loyalty programs are much more popular than others. People love Air Miles. (They love real air miles even more, so a frequent flyer program toolbar like Aeroplan might be a bit more exciting.)
Still, one of the key reasons Air Miles works and keeps working is that your behavior is constantly being prompted. The clerk at the store, or the display at the gas station, asks you if you've got an Air Miles card. That isn't happening with your choice of, say, search engines or browsers (and when it does, unless it's at the top of your device or OS setup funnel, i.e. when you're just configuring it, you tend to get annoyed at the "browser war" or "search war" that puts all these prompts in your face).
So for this to work, somebody needs to prompt web users to install a toolbar or to make use of a loyalty program. Otherwise, far fewer searchers are going to take the trouble to make the switch. I'm sure a purple flyer in the Air Miles mailing will help. But that won't be enough, either.
That's why a merger between Microsoft and Yahoo (or, given that Microsoft isn't interested, the all-encompassing partnership they're probably going to work on) makes so much sense. If Microsoft, along with other players such as the makers of computers and mobile devices, prompt owners of new computers, new software, new OS's, etc., with the reminder to install the toolbar or to activate it with the rewards card information, now you're seeing some serious adoption that might win some market share back from Google... who would be unlikely to follow suit, as it would look tacky for the market leader to try to copycat such a transparent attempt to bribe people to use their search engine.Labels: google, microsoft, yahoo
Posted by
Andrew Goodman
Saturday, August 09, 2008
Stale news, but interesting:
Jeremy Toeman received a notice from UMG regarding his posting of a video on YouTube that included copyrighted content (U2's Beautiful Day) in the background. The offer from the copyright owner, facilitated through YouTube, basically said, go ahead and leave the video up if you wish, but we'll be showing advertising on it.
To some this might sound heavy-handed; to others, a nice compromise. I tend to think the latter. As Toeman writes, "I'm basically being encouraged by a copyright owner to user their content for my purposes (fun) and yet meet their basic business needs as well (profit)."Labels: copyright, microsoft, pussycat dolls, youtube
Posted by
Andrew Goodman
Tuesday, May 13, 2008
Henry Blodget's post on the impending crisscrossing of lines on Google's and Microsoft's core businesses is timely. In 2009 sometime, Google's search ads business will be larger and more profitable than Microsoft's core Windows operating system business. (If Microsoft is lucky, that won't be the day Google launches a hostile takeover bid for Microsoft, a development Sergey Brin slyly alluded to several years ago, when such talk could easily be dismissed as a joke, or painful delusions of grandeur.)
Cloud computing, and ad-supported online business models are assumed to be a new naturally dominant business model. Chris Anderson has begun talking about the "power of free," as he gets set to release a new book on the concept.
But I think many analysts fail to grasp the complexity of the scenario. (Well, maybe it isn't that complex, actually. My wife, who teaches labour market theory among other things, notes that China can win a lot of business by simply undercutting other companies in the garment sector. But then India, or somewhere else, undercuts them. The result isn't beneficial to the guys who did the first round of undercutting.)
Today, Google is very wealthy, from a core economic driver. It is so wealthy, it is able to give away many products and services for free - sometimes, after acquiring a leading paid or freemium player in a space. This activity has been rampant. Blogger was acquired and its premium version was given away for free. Google Analytics continues to grow in sophistication. It costs $10,000 - $200,000 less than competing products; i.e. it's free. Google Checkout simply undercuts the pricing of PayPal on merchant services. Google Docs and Spreadsheets takes aim at Microsoft Office, and again, it's free.
This is what Microsoft used to do. It used to take out whole lines of business by adding them as a "feature" to Windows or Office. Now, it seems, the tables may have turned. Microsoft could only do that when it had a natural monopoly. That's being whittled away by open source, cloud computing, and giveaways galore. Much of that competition is going to come directly from Google.
So why do some analysts feel that Google itself is immune from tit-for-tat, any more than China can lose garment trade to an even cheaper competitor?
As consumers find ways of getting what they need from companies who choose to make it accessible with no advertising, ad supported models themselves are shaky. Brin has often said it himself: a competitor is only a click away. I can't avoid all commercial messages: I can't drive on a different highway, use a different subway platform, or wriggle out of my airline seat. It's a bit difficult to miss the glossy ads on the magazine I choose to read. And some messages, I actively seek. Google's business isn't going away anytime soon. But the real heyday of Google from a consumer standpoint might have been in the years when expectations of future profit (and some funding still in the bank) were subsidizing a search site that showed *no* ads.
[And as an aside, it's essentially the same phenomenon and "ethos" (an "ethos" that is more of an economic model dependent on acquisition or massive funding) that drives many Web 2.0 companies. Many of them make the mistake of divorcing "the power of free" from the need to be acquired. Others are smart enough to know when to fold 'em, for healthy valuations.]
  If "free" is so great, then isn't even freer even better?
There is a certain false cleverness, then, about business models that smugly give stuff away to put others out of business, based on the knowledge that some other parts of an enormous (and hopefully, diversified) conglomerate can subsidize the insanely great deal consumers are getting on the other stuff. It works as long as that profitable part is safe! For most companies, it isn't.
Make no mistake though, for a handful of gigantic companies, these models are *very* clever and they work very well. The overall profitability comes from bringing a very large number of consumers and businesses into the "fold," and figuring out how to maximize profits from the few areas that consumers will actually "pay" for. Yes, in an era when everything seems free, I even have to put "pay for" in scare quotes.
That's why today I dub the large Internet companies (we used to call them portals) Super Funnels. It's far more complex than just the rather simplistic idea that we can offer cloud-based services cheaper, or free, or support whole lines of businesses with ads. But it is all about the rampant amount of investment capital and cash flow that makes it possible to create amazing user experiences and products that cost very little... as long as some element of the whole process, and hopefully many elements, are wildly profitable. Achieving this is not like falling off a log. The funnel has to be very well engineered, and the pockets have to be very deep.
Connected to my analysis (which basically says, beware of "the power of free" if all that means is an ad-supported model that assumes x% of users will tolerate and act upon advertising) is the rampant assumption that display ads online are holding up well as an economic model. What are the CTR's and ROI on such ads? So poor, metrics gurus have to come up with new measures that disguise the lack of engagement. Where people are really going to share and interact - platforms like Facebook - will let you bother users for a $0.30 CPM... and this may be the high-water mark.
Search ads are largely safe, for now, because they are quasi-classifieds, and because Google engineers the ad program to make the ads and the sites they lead to actually as good as or better than the sites in the organic/blended index results. That leads to the question, won't somebody eventually come up with more pleasing organic index results? What if someone releases something very, very good, and makes it available without ads for three years? They'll need a few hundred million dollars to try that stunt on any serious scale.
Can someone out-Google Google? Eventually, someone will, but for now the discourse of "the power of free" will sync up well with the next 5-10 years of Google hyperprofits. It's just a mischaracterization that "free" has true power, divorced from its rare, Super Funnel context. Google is the most efficient Super Funnel today, which will continue to be very disruptive to former dominant ones like Microsoft (other targets will be phone monopolies and the list goes on). To get back to a scale that can challenge Google's dominance, Microsoft has been rightly looking to bulk up to achieve more scale in today's dominant ("power of so-called free") business model. Hence its interest in Yahoo, Facebook, and others. Can Microsoft "go it alone" in this quest, as the current discourse of Ballmer and Gates suggests? It's highly doubtful. If they do not return to several bargaining tables soon, the buildout will take too long.Labels: facebook, free, google, microsoft, search engine advertising, windows, yahoo
Posted by
Andrew Goodman
Saturday, February 02, 2008
According to a source at Techcrunch, News Corp. is trying to put together a syndicate to launch a bid for Yahoo. But I tend to agree with Paul Kedrosky's and Mathew Ingram's take, that Microsoft's high bid means it's already headed off potential rival bids. Yahoo is worth more to Microsoft than to any other company, and especially to hostile bids by opportunistic hedge funds.
Yesterday, I reminded you that I advocated a News Corp. bid for Yahoo in 2001. Back then, it would have been cheaper -- YHOO traded at a split-adjusted $9-10, in the depths of the dot com bust.
In related news, I agree with Louise Story's take in the NYT -- this deal would create more, not less, competition in search and display advertising. Recently, Google had been enjoying a situation whereby it had no serious competition. A Canadian ad buyer quoted in this Globe and Mail story, implying that three players currently makes it an ad buyer's market, is missing the point, which is that two players would be more competitive than three in this case, particularly given that Google is set to become even more powerful with the acquisition of DoubleClick.
Finally: check out the great piece in SEL where we get words right out of the MSFT horse's mouth as to the benefits of scale in this industry.Labels: microsoft, news corp, yahoo
Posted by
Andrew Goodman
Friday, February 01, 2008
Microsoft has offered to take over Yahoo again, a year after being quietly rebuffed. This time around, the very public offer comes in a context of swirling turmoil around the big Y!.
Of course, most pundits saw this deal coming, or at least have figured they have known what Yahoo should do next. We're all so smart! I've personally been telling Yahoo what to do for years. The advice changes from year to year.
My most recent attempts (the open letter to Jerry Yang, and followup) to advise the big Y! brought up the M-word, advising a partnership with Microsoft in search advertising and search generally, did not go so far as to advocate a merger (as some did). I think I just assumed Yahoo was strong enough not to need to merge entirely, and there are issues of cultural fit between Y and M. However, in a context of an unraveling financial picture and the imminent loss of (even more) Yahoos through departures and job cuts, suddenly, niceties like "fit" seem less germane.
Last night, a group of us Toronto-based search marketing folks had another informal social gathering. There was considerable talk about Google's power, but other than this, mostly small talk. The flipside of "what can competitors and players in the ecosystem do to survive in the context of Google's dominance" got lost in anecdotes about road rage and Caribbean vacations. But what should have been the next logical topic for discussion would have been to inquire if there was anything Microsoft might do in this regard. That hasn't been a common theme among the technorati, because many have spent years trashing Microsoft's products - and hoping for better.
My knee-jerk response so far to reports of this deal is, at first, "holy crap," quickly followed by the obligatory "yeah, I thought so," and then, "well, they don't have to accept the offer."
If the deal does go through, one clear wish will likely come true: no need to plumb the depths of two competing ad platforms to Google's. Yahoo can keep Panama, and borrow all kinds of little Microsoft innovations and advantages to build into the next version of the platform (such as MSN adLabs tools, demographic bid boosting, a robust new analytics platform that will give Google Analytics a run for its money, etc.). That, and the opportunity to buy more ads, more quickly, for less money, and with less overhead costs for the ad platform providers, is pretty much a win for all concerned; it's the kind of consolidation that makes (check that -- would make) sense, even if also there is some sadness and some potential disadvantages to subtracting players from the competitive landscape in search and online advertising.
On a concluding note, before I get back to the mundane details of the day, I'd like to thank Steve Ballmer for making this Friday a little more interesting for all!Labels: microsoft, yahoo
Posted by
Andrew Goodman
Monday, April 16, 2007
Because I'm a lazy writer, I'll begin this next sentence thusly:
"In the ultimate irony..." Microsoft invokes antitrust in response to the Google-Doubleclick deal.
BTW, stay tuned for my forthcoming post on the "Brain Exchange" over at ContextWeb on the topic of "Is Google Too Powerful?" My general (and somewhat evasive) commentary was written without the DoubleClick deal in mind.Labels: antitrust, doubleclick, google, microsoft
Posted by
Andrew Goodman
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