Tuesday, July 12, 2005

Yahoo Accelerates Classified Ad Cannibalization

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

Thursday, July 07, 2005

Look Ma No Ads!

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!

Wednesday, July 06, 2005

And Now for Something Completely Different: Insurgent vs. Terrorist

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:
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.

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...

Friday, July 01, 2005

Printed Yellow Pages are in Strategic Peril

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.

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.