What the Crash Means
Investors should prepare for an economic and financial climate as bleak and unforgiving as last September, when the S&P was about where it is now.
Outsourced Pessimism
The irrepressible Jason Calacanis has a fairly new blog covering tech stories. Calacanis has long been notorious in the SEO field for calling out the practice in fairly flagrant terms while competing with them. Launch.is has all the dour cynicism of BetaBeat or the departed ValleyWag, but none of the humor. Worse, it gets most of its complaints secondhand: witness this post, which (via semicolon) attributes LinkedIn’s price drop today to James Altucher’s argument that it’s worth $3 or $4.
Demand Studios Cleans Up
One good story from Launch.is: Demand Studios is preparing to fire their lower-quality writers. As more of their business comes from third-party sites, that’s exactly what one should expect. Google’s algorithm updates clearly haven’t helped them in the long term, but Demand’s plan has always been more focused on the high end of the low end.
This will likely reduce their content output in the short term, but Demand’s lower-quality writers cost more editing time than higher-quality writers (except in cases where higher-CPM, higher-traffic content gets extra editorial attention). Their incremental ROI should do well from this, but it’s hard to tell how much: their worst writers may not be contributing all that much content.
Misunderstanding LinkedIn’s Content Strategy
Ashkan Karbasfooshan claims, a bit tongue-in-cheek, that LinkedIn will need to buy the Wall Street Journal for the content. But LinkedIn’s goal isn’t to own content. LinkedIn wants to be a way to get to content, but the whole idea of a social news service is that people’s friends find the stuff that those people need to read. A LinkedIn user in HR is going to see HR articles; a LinkedIn user in the oil industry will get oil and gas trade magazines in their feed. Owning content would only make sense if they were going to buy it in serious bulk.
The Implications of Google’s Surprising Search-Within-a-Search Patent
SEO by the Sea has another Google patent analysis, this time covering a counterintuitive search tactic: taking a specific search and breaking it down into a general search and a search within those results.
Imagine a site owner with a hotel in Las Vegas (an example from the patent), who strives to create the finest buffet on the Strip. He or she may spend a lot of time and effort creating a web page about that buffet, and expect it to rank well in search results on a search for [las vegas hotel buffet]. When someone actually performs that search, Google might initially search for [las vegas hotel], and then search within the top results for that query for [buffet], and never return the page from our buffet owner who may have optimized for the longer term.
The whole pitch for long-tail content strategies was that these are terms that big companies won’t bother to rank for. So the small company that can’t ever rank for “Las Vegas Hotels” can still get a shot at an audience—and a well-targeted one, at that. Like numerous other updates, this favors larger sites. The average site ranking for a head term is much bigger than the average site ranking for a long-tail term, so a search whose cutoff is that the result must rank for a head term will necessarily cut out smaller sites. However, this is just a patent, not something Google is using yet.
Facebook’s Semantic Clustering
Speaking of changes that help big brands: Facebook is now aggregating conversations about brands even if the brands aren’t explicitly tagged. There are a few screenshots of this feature (the Search Engine Land one was clearly the result of someone gaming Facebook’s news feed in order to demonstrate the feature)—Inside Facebook has a few. Since this kind of content gets surfaced when multiple people, all friends of a user, mention the same product in rapid succession, it’s far more likely to favor generically popular products, or products that are popular within the user’s social group.
This could be helpful for future viral Facebook campaigns. Not only is it a new way to surface multiple mentions of the same story, but it gives Facebook a better idea of which users are good vectors for trends. If users know what interests their friends have in common with them, each social group should develop more homogeneous interests, which makes it easier for memes and ad campaigns to glom onto those interests as a means of propagation.
LivingSocial Releases More Data
All Things D has an oddly unsourced article showing off LivingSocial’s most popular regions and products. One surprise: the third most popular food item is the usually high-ticket sushi (the most popular foods are Mexican and pizza). Given sushi’s higher ingredient cost and higher labor cost, this is hard to explain—unless LivingSocial is giving restaurants good deals in order to attract a sushi-eating demographic, who will be more likely to pay up for their expensive travel deals.
Yahoo’s Premium Display Woes
During their last conference call, Yahoo alluded to sales team turnover to explain why their display revenue was showing anemic growth. Another reason: it’s getting harder to sell premium ads. Most other online media companies are aggressively looking for premium ad partners, so Yahoo may be facing the inevitable fate of an early leader in an evolving market.
Rimm-Kaufman: “There are NO legitimate businesses that are totally dependent on Google’s organic traffic”
George Michie at Rimm-Kaufman argues that no real business depends on Google traffic. There’s an impressive array of bullet points to back that up: true, a company with no branded searches hasn’t built much of a brand. True, sites that don’t get natural recommendations from users are probably not doing much for their users.
But that doesn’t mean that a good business can’t be dependent on Google traffic. Online businesses have fixed costs. A company that gets 20% of its traffic from non-branded search would clearly fit Rimm-Kaufman’s definition of a real business—but plenty of online businesses would have to shut down if they permanently lost 20% of their traffic.
The usual pattern in online business is to make giant fixed investments in hard-to-replicate competitive advantages, and then to amortize those fixed investments over as many traffic and revenue streams as possible. No one traffic source makes the company, but it’s possible losing for any of several traffic sources to break the company.
Rimm-Kaufman is correct in noting that this is not a good reason for the FTC to intervene.
The Latest in Price Discrimination: Selling Not-Print for $8/Year
Journalist Steve Outing is mystified that Wired will send him a print subscription for less than they’re charging for iPad use. For a quick primer on why price discrimination is so profitable:
If I was truly committed to avoiding the extra resources consumed and pollution created by taking the print edition, I could of course just pay the extra $8 a year. It’s not much, right? I considered that… what logic is there to charge subscribers more for getting less (i.e., digital-only subscription), and charging more for subscribers who want to do the right thing environmentally? It’s stupid.
“Stupid,” is not often how one would describe finding a way to charge people $8 to feel good about themselves, and to recoup the lost CPM from switching to a tablet from a magazine. It works in some parts of the food industry, most notably low-fat ice cream (which is a low-density version of the regular stuff).
Comparing Google+ and Twitter (Some More)
Danny Sullivan has a decent interview with Eric Enge, covering Google+ to other social networks. Sullivan confirms Yishan Wong’s thesis that “circles,” like Facebook’s “lists” feature, just isn’t something users want to deal with.
(Meanwhile, Yishan is at it again, proposing a taxonomy of real-names that substantially clarifies the issue.)
The Challenges to Facebook’s Payment Platform
Nicholas Carson has a perceptive summary of Facebook’s business strategy: “[Zuckerberg] wants companies for other industries to figure out ways to use Facebook’s “social graph” to increase their own profits… Then, as soon as those companies grow depedent on Facebook, Facebook will come in with some kind of tax on their business.”
The payments industry may be tougher. Paypal is already surprisingly good at detecting fraud and signing up merchants, and even Facebook might be taken aback by the challenge of building their own payment confirmation system (though using social network-based trust metrics rather than Paypal’s traditional metrics may have some potential—one caveat being that, like real-world social networks, it will be prone to smooth-talking con artists, just as scale).
An early issue of Digital DD suggested the small chance the Facebook could buy Paypal. Given eBay’s strategy of minimizing the fixed cost of e-commerce in exchange for making Paypal the payments layer for as many transactions as possible, that is now less likely. A long-term Paypal partnership and a few stabs at social credit verification may be the best Facebook can do in this area.
The Most Intellectually Bankrupt Business News Stories…
… follow this template: “Bad data, extrapolated forward, will reach meaningless benchmark.” This trend hit its apogee as Apple’s enterprise value, then market cap, matched Microsoft’s. In the days leading up to each event, journalists would write about how Apple was “poised” to overtake Microsoft, transparently trying to break the non-story by reporting it before it actually happened. (A short summary of the Efficient Market Hypothesis: if you think stocks “poise,” you probably aren’t in charge of very much money.)
Another example of that weak, weak journalism: Google+ will become the #2 social network, based on a survey of adults and their planned social networking decisions. One big problem with this story is that it relies on people’s estimates of how likely they are to either join a particular social network or close their account, in the next year.
Now, it’s possible to extrapolate Google+’s growth and think that people will open accounts. And it’s possible to extrapolate MySpace’s decline forward, and think people will close them. But it is extremely unlikely that people plan such actions a year in advance. It takes under a minute to start a social networking profile. There’s pretty much no way to effectively procrastinate before opening up a Google+ account—opening a Google+ account is how people procrastinate.