Posts from — June 2009

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It has very much been commented that YouTube was making loss for Google. Credit Suisse said it would lose 470 MM $ for 2009. From the beginning, this news has been difficult to believe, but I did not have arguments to doubt it.  According to Telco 2.0, there is a set of indirect benefits for Google, but, still, where is the return on investment? From my view, even they made an interesting analysis; those arguments are still not explaining why Google makes such a huge loss (if it were true). There are some arguments in which I do not personally have the same view they develop. I will talk about them first, and then, I will expose what I think is a problem for the healthy development of digital products and services: our bias to analyze as businesses products that we love.

Argument 1. More eyeballs longer time will mean more advertising budgets.

This is a recurrent argument, more exposure equals more advertising and more $$. How much exactly? Is it enough to pay back costs? When will they have a positive return? Why more viewers will necessarily mean more advertising dollars?

Argument 2. Information about users may help to optimize advertising.

How much is it increasing advertising revenues?  CPMs are so cheap nowadays that even the development of behavioral targeting is now not so clearly profitable.

Argument 3. Google profits went up, so they can afford YouTube.

This is more an opinion than an argument, but, ok, it is easier to understand that you make the bet when you have the power of doing it. But really, can you hold an investment that is making you to lose money just because you can afford it? Maybe, that would not be an investment but a cost.

Argument 4. Google is deploying network capabilities based in a superior scale economy.

Ok, this could be a strong argument to support why Google should keep YouTube.

Argument 5. It would eventually cut the middle men for audio and video contents in a supposedly future environment without piracy.

Again, we believe that first mover advantage will make a longer term difference. This is something not really demonstrated, and that did not happen even with MySpace (surpassed by facebook), nor probably with facebook (surpassed by twitter ¿?). In other words, it is not so clear that being first mover, even in a community network driven economy is such a barrier to entry nowadays.

Many analysis on digital products and services are still made from heart, goodwill and hope by all of us who are amazed and love all these products. We want them to succeed, so we try to find behind a great product, a great business. Great product does not necessarily mean great business. Trying to hide $ figures after faith arguments and supposed potentials is something we should be limiting when analyzing digital content businesses. Otherwise, we may continue to mislead investments. Our mindset should swift when we look at digital products as a business.

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Amazon has always been famous for its affiliate program, who has always been a reference. It seems they are now shutting down their affiliate program in North Carolina for tax reasons. This issue recalls 2 questions on ecommerce and affiliate programs:

1. It is not yet totally clear how tax will be applied when governments realize how much is not under their total control, we may well find news on this during coming years.

2. Once an ecommerce gains a considerable position in a market, to what extent it needs to continue sharing revenues with affiliates? Is performance marketing something that we can use to launch but less necessary in a maintenance period? Probably, keeping affiliate programs up would also help in keeping a barrier to entry to new players. So, what will happen now in North Carolina? will it be an opportunity for different players to increase marketshare unattended by amazon?

It will be interesting to follow what happens with amazon traffic and sales there to size the power of affiliates. If amazon made a move like this one in its affiliate strategy worldwide, performance marketing and affiliate networks could get a great impact. For the moment, we can just wait and see.

I very much like the idea developed now by outside.in. In fact, I made a very similar business plan three years ago that I unfortunatelly could not develop (so, if need partners in Spanish get in touch with me ). That is the reason I looked so much at what Peter Kafka exposed yesterday. There is an spreadsheet that shows figures for a sustainable local online media business.

Figures are too optimistic revenue side, although it is compensated because they are also generous in the cost side. What I like the most on this is discussing on a model that could work healthy no matter the size. I would change this:

1. With so many software as a service, I do not really think future media will run on many fixed technological costs (as stated in this model). I see it more like getting capabilities as you grow. Therefore, being all variable (or nearly), we are in a totally different way of thinking about it.

2. Same applies to content production costs. Salaries are not 70K$ multiplied by the number of employees. Salaries are a low base, plus a variable based on KPI from our scorecard that always give positive margins to the organization. Our organization could be more a marketplace let’s say, journalist to consumer, than a b2c (news organization to consumer). So our news organization is a kind of content marketplace like eBay.

3. Finally, IT costs are, from my view, too expensive at 0,95$. And CPMs overestimated.

Of course, all these are questions in which we may have different opinions.

Changing contents formats and structure in order to create new and more “sellable” products is a possibility for incremental revenue generation we should follow up closely. Digital Newsbook Publishing Project is an attempt to standarize a format so that dynamic contents from newspapers can be brought into more “static” devices like e-readers. That means, trying to adapt contents to an additional user experience taking into account current multiplatform realities. This way of distributing contents, even when it could theoretically cannibalize part of our business is basically an incremental channel. It is similar to creating podcasts from texts.

There is a value creation adapting contents to different usages and platforms, this is widely known. Opening up to allow others to use contents to find new ways of selling them, for the moment, is the right thing to do to encourage research on contents monetization before doing things in-house. Allowing third parties to innovate with our contents is a way of fostering research in our business, and doing it together with our competitors’ just underline that coopetition and media convergence that we have repeatedly outlined. 

Getting more juice from our created contents is the only way of capitalizing (and demonstrating) our higher quality contents.

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By the way, after stop posting any original contents, I am back. I have been preparing my GMAT (I got 660 in my first attempt) and my TOEFL (still waiting for results).