Decoding the new economy

Bridging the online advertising gap

Mary Meeker’s State of the Internet report reminds us that the online advertising model is yet to be found

At the Code Conference held outside Los Angeles last week, analyst Mary Meeker delivered her annual State of the Internet slideshow covering the trends and opportunities in the online world.

One of the most watched graphs is the time spent on media versus the advertising spend on that channel.

For years Meeker has shown print is receiving a higher share of advertising dollars for the amount of time consumers spend on it compared to online channels.

That implies print revenue is due for collapse and online advertising revenues will surge. Here’s the 2014 chart.

If we track this over the last five years, here’s what we see with the ‘difference’ column being the sum of print’s over-representation and online’s (mobile and web) under-spending.

Year	Print time	Print share	Online time	Online share	difference
2010	12	26	28	13	29
2011	7	25	36	23	31
2012	6	23	38	25	30
2013	5	19	45	26	35

The collapse in print’s share of consumer time, down 60% in five years, is stunning and the 2012-13 changes may indicate advertising spend may is now collapsing as marketers start to adapt to the changed marketplace.

It could be however that advertising as we know it has to change; one of the key reasons for online – particularly mobile’s – spending being under represented is because no-one is quite sure what works in the newer mediums.

Advertisers may know that consumers are moving from print channels, but at least they know what works in print. Online the experts’ guesses are still not much better than the amateurs’.

In short, we’re still watining for the digital era’s David Sarnoff. As Mary Meeker keeps reminding us, it’s a $20bn a year opportunity.

Three business lessons from the New York Times

The New York Times Innovation study has important lessons for all business owners and managers.

“The New York Times is winning in journalism,” starts the newspaper’s much discussed internal Innovation Report. Then in great detail it goes on to describe how the audience is being lost to upstarts like the Huffington Post and Buzzfeed.

Given the number of digital forests that have been felled discussing the report in the last week, it’s not worthwhile giving an in depth analysis of the study – particularly given Nieman Labs’ comprehensive dissection of the document.

What does stand out though are a number of over-riding themes that apply to almost any business, not just struggling traditional media outlets.

Being digital first

A constant mantra in the NY Times report is about being ‘digital first’ – if you’re thinking about that today, then you’re probably too late in your industry.

Every industry is now digital: If you’re designing widgets, you’re doing it on CAD system; if you’re selling real estate, you’re listing online (one of the great killers of the old metropolitan newspaper model) and if you’re selling doughnuts, you’re placing your suppliers’ order electronically and maybe 3D printing your icing patterns in the near future.

There isn’t one industry that isn’t being radically changed by digital technology.

Breaking down silos

One of the areas that’s been most resistant to digital change, and yet is the most threatened, is management.

Silos within organisations are a triumph of management power and make it difficult for a business to be dynamic when it’s necessary to negotiate with different fiefdoms just to change the colour of paperclips.

Those silos are fine when industries are cosy and there’s little competition but when disruptors enter the market those management empires become a dangerous, and expensive, weakness.

The New York Times study spends a great deal of its pages discussing how to break down silos within its own organisation and this is something every business owner or manager should be exploring.

With modern communication, information management and workplace collaboration tools many management roles are no longer needed.

For smaller businesses, this is the greatest strength when competing against larger corporations as Huffington Post, Buzzfeed and Business Insider have shown in stealing the market from the New York Times.

You need to be found

One of the toughest conclusions from the NY Times study is that the quality of content actually doesn’t matter in the marketplace; The Huffington Post and Buzzfeed do an excellent job of taking the NYT’s work, repackaging it and redistributing it in a way readers prefer.

That might be a transition effect – it’s hard not to think that should original content creators like the NY Times be driven out of business then Buzzfeed will have to start employing more journalists and Arianna paying her writers – however right now gloss beats quality.

Buzzfeed and the Huffington Post are attracting audiences because their stories are easy to find online and their headlines almost beg you to read them.

For non-media businesses, the lesson is you need to be found; you may be the best restaurant, electrician or accountant in town but if you’re on the fifteenth page of Google in search results for your industry and suburb then you’re doomed.

The New York Times faces its own unique set of challenges, as do the publishing and media industries, many of the lessons though from the NYT Innovation paper though can be applied to many businesses.

Peak Google and the limits of internet advertising

The warning that online advertising revenues may have hit their limits has huge consequences for the internet industry.

Last week, Google’s share price slumped on news of poorer than expected revenue results and website Asymco has a detailed examination of how the company’s growth might have reached its limits.

Asymco’s warning to the online advertising industry is clear with the warning that revenues might start to decline in 2016.

That online advertising may have reached its peak means even an even more uncertain future for businesses rely on those revenues, and times have been tough for those sites in recent years as returns have fallen.

At the same time online ad spending seems to be peaking, print advertising revenues in the United States dropped a further 8% last year with income at now at 1982 levels. It seems publishers can’t win either way.

So its now wonder that online services like Google and Facebook are looking to payment systems and other ways to generate revenue, for online publishers things are even more problematic.

What is clear is the advertising driven revenue methods that work so well for the broadcast industry aren’t working for online publishers and quite possibly other internet based businesses as well.

The online industries need a David Sarnoff to figure out a model that works.

No country for small business

Online advertising for small business is wide open again as the Internet empires focus on big business.

Facebook’s latest changes to its layout creates more problems for small business using social media as the real estate available on its site for eyeballs gets smaller.

The social media giant has been catching criticism recently for changes to its algorithm that make it harder for businesses to be seen online.

In the hospitality industry, discontent was articulated by the Eat 24 website which closed its Facebook Page down after finding the problems too hard.

With the changes to the online advertising feed, it makes it even harder for small business to be seen on the platform as reduced space means higher prices for the space that remains available.

It’s hard to see small businesses getting much traction with the changes when they’re up against big brands with large budgets.

On the other hand for the big brands, the importance of proper targeting becomes even greater as wasting

A challenge for small business

The big problem now for small business is where do you advertise where the customers are?

A decade or so ago, this was a no-brainer – the local service or retail business advertised in the local newspaper or Yellow Pages. Customers went there and, despite their chronic inefficiencies, they worked.

Now with Facebook’s changes, it’s harder for customers to follow small business and this is a particular problem for hospitality where updates are hard.

The failure of Google

Google should have owned this market with Google Places however the service has been neglected as the company folded the business listing service into the Plus social media platform.

Today it’s hard to see where small business is going to achieve organic reach – unpaid appearances in social media and search – or paid reach as the competition with deep pocketed big brands is fierce.

Services like Yelp! were for a while a possible alternative but increasingly the deals they are stitching up deals with companies like Yahoo! and Australia’s Sensis are marginalising small business.

So the online world is getting harder for small business to get their message out onto online channels.

For the moment that’s a problem although it’s an interesting opportunity for an entrepreneur – possibly even a media company – to exploit.

Facebook’s advertising struggle

The next few years promise to be interesting for everyone in the social media industry, particularly Facebook’s shareholders and advertisers.

Facebook is further restricting the reach of brands on their social media platform reports industry news site Ad Age.

It’s not surprising that Facebook is doing this seeing their stock is currently trading at 120 times current earnings and sixty times estimated revenue. The income has to come from somewhere to justify those prices.

The social media service is quite blunt about it’s objectives in making brands pay more to get their message out on Facebook as Ad Age reports;

“We expect organic distribution of an individual page’s posts to gradually decline over time as we continually work to make sure people have a meaningful experience on the site.”

Facebook’s idea of a meaningful experience though might be very different from its users, who are showing their irritation with the service messing around with their news feed. It remains to be seen just how interested those posting on the site are in clicking on sponsored or promoted posts as opposed to finding updates from those they care about.

For smaller businesses, Facebook’s moves make it harder to use the service as an effective marketing or engagement platform as it means stumping up substantial amounts of money to get your messages in front of your customers and friends.

It’s going to be interesting to see how this pans out for Facebook and the social media marketing community. It may mean that social advertising is monopolised by big brands while small and local business finds other channels to get their message out.

One thing is for sure though, the idea that social media would replace the news media is beginning to look shaky as people’s feeds start to be dominated by messages they don’t want.

The next few years promise to be interesting for everyone in the social media industry, particularly Facebook’s shareholders and advertisers.

For smaller businesses, it’s clear that Facebook is no longer a cheap marketing platform.

Never going to let you go – the failing businesses clinging desperately to baby boomers

As younger people turn away from old business models, those comfortable with the status quo cling desperately to their established but shrinking markets

Probably the driving factor of the consumerist society’s development was the baby boomers’ growing up.

Through the last fifty years everything from Coca-Cola to baby products and hair loss treatments has been aimed at the cohort born between 1945 and 65.

For many businesses and marketers this group has been so profitable it’s been hard to let them go.

The US motor industry is a good example of this with Bloomberg reporting the over 55 age groups are dominating domestic car sales as younger folk turn away from car ownership.

A similar thing is happening in Australia as TV executives decide that competing with the internet for millennials is too difficult so sticking with the over 50s market is safer.

“We’d go out of business if we stayed with our traditional demographic of 16-39.” Channel Ten CEO Hamish McLennan told the Mumbrella360 conference in Sydney earlier this year.

The problem for both the US motor manufacturers and Australian TV stations is the trends are against them.

For TV stations trying to compete against the internet, the older age groups are following their kids across to the web at the same time that they are beginning to save for retirement.

That need to save is also working against the car dealers, while many boomers fawn over new cars a large number simply aren’t going to be able to afford these indulgences. It’s not a good prospect for the motor industry.

In the meantime, younger people are turning away from the motor car, Bloomberg quotes University of Michigan Transportation Research Institute s researcher Michael Sivak who penned a report on generational shifts in the US motor industry.

“I have a son who lives in San Francisco; when I get a new car and I tell him what I got, he couldn’t care less,” Sivak said. “To him, it’s a means of getting from A to B. He goes into great lengths about taking a BART or bus, even though it takes him an hour longer. He does have a car, but uses it very rarely.”

The movement away from the motor car indicates something much more profound about western society — if the baby boomer represented the age of consumerism, the entire Twentieth Century was defined by the automobile.

For politicians and town planners wedded to a 1950s view of economic development, it may be they are making terrible and expensive mistakes in pushing freeway and other road projects.

While aging baby boomers purr over their expensive cars, the forces of history may be passing them by. Those businesses pandering to those older groups might just want to consider whether they want to be left behind as the economy, and the kids, move on.

It’s comfortable to cling onto what has worked for the last fifty years, but sometimes the lowest risk lies in letting go.

Tag: advertising

Bridging the online advertising gap

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