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Thursday, March 19, 2009

Yes, Twitter's Business Model Is To Be Acquired, and Yes, It Will Be

This is the type of subject matter we set out to write about nearly ten years ago when we launched Traffick. And I'm a little surprised that we're still writing about it.

The upshot is Google is a massive funnel today. So not all of its individual lines of business need to make near-term profit. But the whole enterprise, right now, is geared towards dominating core streams of user attention and user functionality, with enough of that attention being monetized through advertising to pay for everything. That's the kind of scale the major players in the same race are all seeking. And it colors the prospects of standalone services looking to be acquired (or pretending to want to go it alone).

When we launched this site, our subhead/tagline was "The Guide to Portals" or "The Portal Portal". At the time, the "portal wars" raged. They don't call them that anymore, but the principle is still the same. In this emerging space of core online standards or starting points, or diversified digital lifestyle brands, or however you want to describe them, there's room for only a few major players. Since AOL took the lead in the area with Yahoo following on as the savvier version of same, the leading digital lifestyle monopolists have knitted together their various services in such a way that they keep you in their garden, or at least coming back. They had various grand visions of how they would accomplish that; few predicted that one feature -- search -- would be at the heart of the grand takeover of first place by Google, which hasn't looked back in years. Many of those schemes revolved around the idea that the ISP would be the lock-in point. Some thought nice features (better email) would do it. Microsoft hoped the browser or the OS would return them to universal dominance. Just buying up a big enough percentage of the important online stuff was another theory. IAC Interactive pursued that path, but never far enough to get anywhere close to scale. The others have played the "buy not build" game enthusiastically at times. They have to! User loyalty can't always be produced out of thin air. Orkut, Knol, and a good list of other Google inventions may never dominate their verticals.

Every so often a standalone service would emerge that would be so popular on its own it would be eagerly snapped up by one of the leading players. Sometimes it helped them build a nice feature (Rocketmail became Yahoo Mail) or add something viral and even more cool than many realized at first (ICQ by AOL). Yahoo made many great bets, though paying staggering sums for some of them: eGroups and Geocities beefed up community. They made some subtle bets (Flickr) and some awful ones (Broadcast.com). Their aggressiveness has left them where they are today: in second place (not bad). History buffs know that many wannabes (Excite, AltaVista, Go2Net) died unceremoniously, failing to reach top of mind.

Yep, this is all about scale - sustainable scale, but scale to be sure. Few of the standalone services would be household names today without those mega-acquisitions. They'd be popular, and bankrupt.

Google has made some subtle acquisitions (Applied Semantics, Blogger, Dejanews, Keyhole) and some stunning ones (YouTube), while developing far more great products and functionality in-house than any of their competitors. Without both the subtle and stunning acquisitions, they most certainly wouldn't be in the position they're in today.

In any case, this post is supposed to be about Twitter. Nielsen's recent report shows the service growing a stunning 1,328 percent year over year.

How to interpret this? One one hand you have the camp that understands what such a rapid growth rate means in this space. It's a rush of user attention - a locus of operations for the savviest of users that is now crossing the chasm to become a mainstream attention - that the big guys just cannot ignore. The month-over-month growth numbers are hugely important to anyone watching.

On the other hand you have the chicken littles who say that companies like Twitter have no business model.

Both are right. It's much harder for a get-big-fast online service to build a business model on their own than it is to sell. On the other hand, if they dominate a category, they can be pretty scary to the big guys.

The best precedent would be with YouTube. YouTube could have made a lot of noise about wanting to stick around for the long term, but where would they be today had they not sold to Google or someone else? It takes a long time to continue growing and investing in a platform before monetizing in a way that doesn't kill your user base. On the other hand, Google Video had largely failed. YouTube was already the People's Platform for online video. In the end, Google got great value for money. They talked the price down by referring to the copyright threats that were in the air.

The "poor man's email service" that is Twitter is both growing so fast that it cannot be ignored, and it has no credible way of handling all of the coming hyper-growth *and* monetizing in time to keep itself afloat financially, despite raising large sums of money. (Facebook's in a similar position but that's a separate topic.) Like YouTube, it is hurdling headlong towards an acquisition, in a game of chicken with the leading potential acquirers to see who can hold out the longest.

Which brings us to the question of which gigantic company can afford to underwrite such high-volume expansion that will eventually funnel into a bigger monetization picture, as Google did with YouTube.

It's an uncomfortable scenario in that Yahoo has been forced into a frugal state, and simply cannot afford to acquire Twitter. That's most uncomfortable for Twitter, as it leaves them looking at Microsoft -- who took an expensive stake in Facebook -- and Google as the only two logical acquirers. Oddball acquisitions can happen -- see eBay & Skype -- but they aren't ideal in the sense that the oddball could get spun out again in a couple of years, and who's to say the oddball acquirer would be the proper environment for growth.

In a weird sense, Twitter is most like ICQ, in the sense that it's gone viral and offers a certain kind of immediacy at a certain moment in digital communication history. AOL isn't the kind of company that acquires a Twitter today, though.

For companies like Twitter, the messy and as-yet-unconsolidated patchwork left by the also-rans (Microsoft, Yahoo, AOL) in the digital space may be bad news valuation-wise, as it creates too many distractions for these lesser candidates, and points so heavily towards a single acquirer.

Make no mistake about it, if Twitter can't find themselves an acquirer with deep pockets, and soon, they are in deep trouble. They are actually growing too fast.

Eric Schmidt's comments about Twitter being a "poor man's email service" may have been even more telling than we realize. Twitter under Google could go anywhere, but the literal interpretation of its value is typically how Google would look at the value at first. Could you slap targeted contextual text ads next to people's Twitter streams -- that look much like a thread in GMail? Why yes. And how much money do those ads make for Google? A healthy sum, but nothing stupendous. So in looking at Twitter as analogous to GMail, Schmidt is actually trying to put a real-world value on the company. And he's trying to knock that value down a peg from the hyped values that refer to untried monetization methods.

A similar game of chicken happened before -- with YouTube. And the valuation was a bargain for Google and didn't exactly make paupers out of the company founders and their investors. If I had to lay down a chip, I'd expect Google to acquire Twitter by the middle of May. We'll see.

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Posted by Andrew Goodman




Wednesday, March 18, 2009

YouTube Analytics Data - More Democratization of Analytics by Google

It is difficult to overstate how much of a data-driven culture Google maintains. And right on the heels of that aspect of their philosophy is their commitment to providing more of everything for free.

Recently I heard a bit of a different spin than I was expecting, casually chatting with a client about our recommendation that they finally switch over to Google Analytics. The reservations weren't coming from the expected places - the IT team not liking the idea, or the fear that Google would have access to private data. Rather, he said he fully expected Google to get people hooked on the free offering and then slap a hefty monthly price tag on it. Hmm! Hadn't heard that one. (And Google does offer a fuller-featured product, with pro versions of Urchin.) I opined that Google wouldn't be charging for GA: they might stop adding massive numbers of features, but there will be quite a bit left over in the free version whichever way the wind blows. And if you're an advertiser... you definitely don't have to worry.

If you gave me $500 and told me the winning number on the roulette wheel in advance, I'd probably fail to put a chip down. I'd shove the $500 in my pocket and make a dash for the nearest door at the casino. In other words, I'm not generally a betting man.

But I'll put a chip down on this one. I think it's unlikely that Google will raise prices on free Google Analytics for as long as you're running your business. (As long as you promise to sell it in ten years or less.)

Today we're seeing word that Google is offering a whack of new stats on YouTube. Instead of just seeing how many views your video got, you can look at where people viewed from, user ratings by geography, and more.

So is this functionality only available through some special program for advertisers? Nope! It's open to anyone with a YouTube account. Anyone who uploads video.

Google's data-driven culture and their compulsion to provide more services for free: the trend continues with this release.

Liz Gannes comments from the entertainment industry point of view, but in the end, this announcement is for every YouTube user that uploads video and wants to understand their audience better.

[Edit 10:51 EDT: link to item changed from outdated link to today's announcement on the YouTube blog.]

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Posted by Andrew Goodman




Saturday, August 09, 2008

YouTube Copyright "Fair Deal" Methodology

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)."

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Posted by Andrew Goodman




Thursday, July 31, 2008

YouTube and Speech Recognition

The digital world will take a step towards being even more searchable when YouTube videos are annotated with metadata pulled out of speech with the aid of speech-to-text technology.

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Posted by Andrew Goodman




Thursday, July 03, 2008

Stunning Court Decision Hands Private Viewing Habits Over to Viacom

Danny's trenchant analysis of this recent court order to Google starts by playing the WTF card, but does much, much more. In this detailed post, he cogently argues for a savvy national Internet privacy act. Absolutely. We cannot endure repeated episodes of clumsy application of outdated law, with judges spinning theories about cookies and IP addresses, sometimes ignoring real privacy concerns, sometimes overzealously protecting users by deriding innocuous practices at the expense of legitimate new economy companies that are the driving force of US productivity.

Physically, my reaction was exactly the same. Reading that Google might have been conciliatory enough to allow that user logins are basically anonymous pseudonyms, my jaw, too, literally dropped.

Will Google refuse to hand this information over? Surely they will fight with every legal means available. Similar to their response to the DOJ, an important principle is at stake. I'm not the legal expert you're looking for, but the legal requirement to hand over private information needs to meet strict tests. The most classic case would be an episodic criminal act where particular information relevant to a particular case is given up by court order. "Fishing expeditions" that allow lawmakers or complainants to see large amounts of data from millions of users is a huge violation of business privacy and individual privacy. Let's hope this putrid decision does not stand.

In whatever legal system, online platforms that do a poor job of preventing harm to companies in a variety of ways - be that stolen content, counterfeit goods being sold as in the recent French case against eBay - are liable to sanctions and fines, and should basically "clean up their acts." How that equates to allowing the legal system and a plaintiff to engage in a full audit of massive amounts of private data is something best left to a legal expert to explain... and, I hope, for Google's legal counsel to argue vigorously against. Decisions like this trend towards the state of affairs private companies and free market advocates have always feared the most: an arbitrary state where "they" can shut you down out of fear, prejudice, or misunderstanding. What national political candidate will now get up to the podium and intone: "America. Deserves. Better."?

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Posted by Andrew Goodman




Thursday, May 29, 2008

Obama Campaign Opens Vault for Google Ads

When a certain kind of data is really close to your heart and mind, you'd like to think that some leading indicators are just too blatant to dismiss.

To date, "Internet-inflated" political campaigns have often had that easily punctured quality to them. What turned out to be niche candidates had disproportionately strong donor bases and loyalties through cliquish but still impressive online channels. They got puffed up a bit in the early going, then proved to be paper dragons in the end.

The field is fast evolving, however. Top candidates today are employing real online marketing tactics to boost already solid campaigns, pushing themselves over the top with savvy, controlled, and tightly measured spending of campaign funds on the ads that we here know and love so well: paid search and contextual ads.

ClickZ News is reporting that the Barack Obama campaign spent a cool $1.7 million on Google ads in February alone.

I'll also go out on a limb and take this as a leading indicator for an Obama victory in November. It just doesn't seem that much different for me from customer acquisition in retail and B2B. Companies that are already strong, who add this targeted channel to their mix and pursue it aggressively before their competitors catch on, tend to pull away from the others. It isn't magic.

The only roadblock I see that could prevent this from happening would be a low turnout among youth voters. And by youth, I mean the entire 18-44 demographic that is currently most impacted by the online ad strategy. With unprecedented turnout in this demographic, Obama would win in a cakewalk. Without it, he could actually lose to McCain.

Hard to say what impact the wildly popular "Obama Girl" videos might be having on the candidates' fortunes, but again, if you compare what is happening -- and what *can* happen -- for McCain or Clinton at least in this social media realm... well... this Obama thing feels like a movement; yes, as some have stated, on a par with JFK (or PET for you Canadian viewers).

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Posted by Andrew Goodman




Thursday, July 26, 2007

When Second Place Isn't Bad

Look out Youtube, here comes Veoh.

Edit: As I posted this, I came across the news that senior Yahoo ad platforms exec Steve Mitgang has been appointed Veoh's CEO, replacing founding CEO Dmitry Shapiro. This one looks magnetic!

Hmm, so who will buy them out? :)

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Posted by Andrew Goodman




Sunday, March 11, 2007

Spot the Suit: Cuban Suing Google

So Mark Cuban doesn't wear a suit, but he is one. Go figure.

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Posted by Andrew Goodman




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