Every time I’ve written about the potential future of online advertising, I’ve claimed that at the very most, online advertising will collect 25% of the total advertising pie because, well, we currently spend 25% of our time online (and marketers currently spend less than 6% of their budgets online).
A few people have emailed or commented saying that online ads will eventually garner more than 25% of total ad dollars. The more I read about wi-fi penetration etc., I ask: what if we’re connected to the web more than 25% of the time. What if we’re on, all the time? All right, we need sleep. But when you think about it, it’s true that we could be “online” for 33, 40, 50 or 60% of the time… if that’s the case, can you imagine how huge online advertising will get?
When you think about it, we still separate Web from Wireless but technically, if Asia and Europe are any indication, the line between one and another will blur and that will surely lead to a global digital advertising market that could be much larger than the offline ones combined.
- 2021: When Online Ads will Surpass TV ads?
- 2020: US Online Ads = $100B and Google = $375B market cap?
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WatchMojo NewsletterWenda Harris Millard, who joined Yahoo! the same year Terry Semel did and helped take US ad sales from $240M to $1.5B in less than a decade resigned today. Gregory Coleman, Yahoo’s EVP of Global Sales added:
“While Wenda Harris Millard was a big contributor to our success in the past, the industry has shifted and requires a different set of skills to take the business forward. We appreciate her dedication during her years of service and wish her well in the next chapter of her career.”
WTF? I don’t know the backstory, rumor was that Millard would be leaving for OMD, turns out she left for Martha Stewart instead. But why did Coleman find the need to add that line?
In fact, it’s not just Coleman, whom I don’t know, but all management types tend to become royal assholes with one another. I’m really not talking about Coleman, but generally, my experience and observations are that folks in management roles think that the Board, the very senior management or investors will think highly of them if they tow the company line to the extreme when in fact it makes them look like spineless saps. Ultimately, I think it makes them all look bad.
You see it all of the time: a guy is employed by a company and goes out of his way to demonstrate some kind of fake, phony loyalty. Then he’s out, for whatever reason, and he turns on his former employer and pisses on them publicly.
They’re all a bunch of hypocrits. A good example was a senior executive I once worked with who’s now at a major media company: he himself bragged about bolting from his old employer and breaking his non-compete and joining the competition… he had no qualms. Then months afterwards when one of his subordinates left to start his new company, the SOB went all legal and sued to shut the new business down even though he had no merit. Did he think his employer would think highly of him? All he did was look like a putz.
Folks, avoid either extreme: don’t be a doormat and suckup when you’re on payroll, and don’t be a douche bag when you’re off of it. When your boss, the Board, etc., see that you’ll sell out so easily and bend over so willingly, they’ll see your weakness and return the favor in due time.
Coleman’s line there, totally uncalled for. The woman raised sales sixfold! What happened to loyalty? As a Yahoo! shareholder I don’t find that classy at all.
File this under “Assuming You Care/Advice You Didn’t Ask For”, but here’s what I would have said:
“Wenda joined Yahoo! at a challenging time for the industry, she played a major role in helping make Yahoo! the place major marketers turn to to advertise online, we’ll miss her and MSLO is lucky to have her, but we won’t miss a beat because yada-yada-yada.”
Everytime someone asks me why I left corporate life to start a company, I point to corporate BS like that.
Peter Thiel is investors in both companies, LinkedIn founder and Chairman Reid Hoffman invested in Facebook.
One is for social networks, the other is a professional network. One bills itself as a social utility, the other is about to become one, according to its founder: “over next 9 months LinkedIn would deliver APIs for developers, ostensibly to make it more of platform like Facebook, and create a way for users who spend more time socially in Facebook to get LlinkedIn notifications.”
I see more and more people using Facebook for professional and social settings, it’s almost inevitable that LinkedIn becomes a tool for social networking as well as professional intermediation.
Can it be that the companies will look almost identical in a few months? Will they merge? And if one gets acquired and used to enter the other’s market, what does it do to the value of the other?
Maybe it was planned, maybe it was not. Yahoo!’s Head of Sales leaves the company for Martha Stewart Omnimedia, reports Rafat Ali.
Operationally and structurally it might be sound to have “to organize product management, engineering, and distribution around marketing customers rather than advertising products,” but the fact is that 10 of 26 of Yahoo!’s executives listed on its management page have now vanished into thin air.
The likely result of this power vaccum? I personally see a private equity firm (or two) making a move to buy Yahoo!
Yes, Yahoo!’s P/E are higher than what a PE typically likes to see, but the market is growing very quickly and the shift of ad dollars is accelerating. I did the math, YHOO is now at $36B but could be a $100B IPO by 2010 (disclaimer: I own shares in YHOO).
Here’s the math (Scroll down to 9. Analysis). Problem facing YHOO has as much to do with Wall Street as it does with main street.
Ideally, Yahoo! should remain patient but its investors will continue to bail if they keep suffering from Google-envy. And that is the cost of remaining public.
Increasingly, they’ll wonder why not accept MSFT’s $50B offer, and truth is, there’s no real guarantee that this was even ever offered or will be again in the future.
Other options?
A merger with MSN.com/Live.com would mean giving up 40% of the company to MSFT.
A merger with eBay is not really a win, since it means a merger of not-so-equals where Yahoo! shareholders give up 56% to eBay shareholders.
Ultimately, this one is too easy to call: private equity has yet to really make a big, big move online (H&F’s $1.1B purchase of DCLK was peanuts, compared to the size of PE deals we’re seeing, after all).
The online space is booming, Yahoo! is so out of vogue, a PE firm should buy Yahoo!, take it private, forget about Wall Street, and if the market continues its course and Yahoo! maintains what it’s got, the PE firm can at least triple its money and do an IPO for $100B in 3 years. Here’s the math, again.
Disclaimer: long YHOO
Sometimes, the nicest things you can say about someone come across as awfully critical. I say that because this post actually is intended to give a lot of credit to both Jason Calacanis and Jimmy Wales, but a cynic would argue it strives to do the opposite.
This morning it occured to me that Jimmy Wales might have blown his opportunity for redemption, before he even had a chance. I’m hoping I’ll be proven wrong, but we’ll say.
The Background?
Last year, between Christmas and New Year’s, Wikipedia co-founder Jimmy Wales said that he was looking to rely on humans and open source technology to build a Google-killing search engine. That raised a lot of eyebrows, but it got a lot of people excited. Over the next few months, people rushed to join his army of developers in the attempt to develop an open-source search engine built by legions of programmers. That’s right, people signed up to a mailing list and got cracking. I always wondered: how many Google employees signed up to that list, too?
Frankly, from the get-go, it was a hazy objective with a murky action plan. To his credit, Wales had built one of the most successful social media properties in Wikipedia.org, the world’s largest free encyclopedia, relying on wiki software that allows everyone and anyone to make changes to a text.
Wikia = a for profit Wikipedia
When the plans were being conceived, people were confused as to Wikipedia.org’s role in the new startup, whose name, it was reported by Wikiasari, then Wikia Search. Wikia was the for-profit company Wales had set up to develop wiki-powered communities. By the looks of it today, the name of his search is Wikia Search, though we could be wrong and this could change.
All Quiet on the Inbox Front?
Sometime in February or March 2007, I was going to publish a cynical post wondering if all of the members on the mailist list had been kidnapped, because I went one whole day without getting an email. At its peak, subscribers would get bombarded with 20-30 emails per day with everyone chiming in on everything you can imagine. It would start off with someone introducing themselves, why they wanted to collaborate and what they saw as a problem with the current search landscape. It was information overload but a great social experiment. Things have settled down now, but you still get the odd flurry of emails, usually when there is something in the news that touches on the project.
Enter a New Incumbent
In all honestly, this mailing list information overload phenomenon led me to realize why Google was successful: there were only two guys early on. It was easy to get things done. Ultimately, I thought, Wikia Search’s biggest drawback was its greatest strength. The wisdom of the crowds theory was making it unlikely for anything to get done, at least on the surface.
Over the subsequent months, web entrepreneur Jason Calacanis - who had founded and ran Silicon Alley Reporter in the late 1990s and sold his second startup Weblogs Inc. to AOL for $25M - encouraged Wales to embrace advertising on Wikipedia. That prompted me to publish “What would Wikipedia.org be worth as a for-profit,” which got a lot of people excited about the commercial upside of Wikipedia.org. Calacanis was one of them.
What If…
But, because Wikipedia.org had launched as a non-profit, it had to remain as such, and Wales to this say maintains, quite honorably and candidly, that launching Wikipedia.org as a non-profit was his best and / or worst decision ever. No doubt, Wikipedia.org would have maybe not become as big had it been a for-profit, but then seeing socially-edited content sites like Digg and YouTube explode run counter to that assertion… what if Wikipedia.org had been a for-profit all along?
With that thought in the back of Wales’ mind, he sought out to start a new company, one that was structured outside of Wikipedia.org, but built on a lot of the tangible and intangible tenets thereof, that would become his brass ring.
Man’s Hubris: Search
And in order not to try to re-invent the wheel - though technically he was doing that too, with Wikia - Wales decided to tackle search. I’ve long stated that search is the hubris of the Web entrepreneur.
Why, I thought, would someone with Wales’ mythical stature risk it all to lose to Google in search? And lose badly?
By way of disclosure: I should state that I too developed a search engine, called MetaMojo.com, but I did so out of a personal interest as a hobby, and because it was something that would not violate my employment and non-competition agreement. Today, I spend a good amount of my time and energy on search, but the bulk of it goes to video, a far more nascent field when we’ve already developed a leadership position.
After all, search, while still a somewhat new sector of the overall communications and commercial economy is a more mature space. Oh, there’s also a massive player in the room called Google that has gone from $0 to a market cap of $160B in less than ten years, which last year generated $10B in revenues, over $3 billion in profits and could at current growth rates surpass Microsoft in market valuation by 2010, maybe at least.
Enter the Naysayers
Wales was not only ridiculed by many for attempting to create a Google-killer out of thin air, but he also has been criticized in the past six months for what comes across as inaction. As the mailing list at Wikia Search expands every day, people become impatient and Wales himself has frequently stated that “you can’t build a search engine like his overnight.”
To his credit, he recently hired Jabber founder Jeremie Miller to spearhead the project. I say this to emphasize: no doubt Wikia Search is making a lot of inroads and advancing, and there’s plenty of time left in search, but clearly, others are not standing still.
Thank You for nothing!
Of course, as excitement and innocence surrounding that mailing list gave way to cynicism and frustration, others have not sat still. Today’s New York Times article on search and the human touch should have technically talked mainly about Wales’ project, be it Wikpedia or Wikia Search. But instead, it does not, it touched on Jason Calacanis’ Mahalo. And not too long after someone in that same venerable mailing list sent the article around, another subscriber asked:
I am not sure if something similar like Mahalo (e.g.
http://www.mahalo.com/Java) was considered by Wikia.It seems to me that their way of providing search results is closely
related to the idea of a public Wiki.
I wonder what the reactions of both Calacanis and Wales were after that email was opened. Surely, Calacanis must have grinned when he clicked and opened that message, and Wales must have been somewhat miffed, for Calacanis is surely combining a lot of the elements of Wikipedia into his new project, Mahalo. I’m not saying that Calacanis borrowed from Wikipedia, though the use of wiki software, the human-compiled database etc., are all signature tactics of Wikipedia.org, though clearly by way of its open source status, not proprietary to it.
What Could Have Been?
It should also be stated, that had Wales long ago encouraged Wikipedia editors to add the most relevant and pertinent links for each topic, it would already have a human-compiled search engine directory consisting of millions upon millions of web sites. Of course the same things that plagued Yahoo! Directory, Looksmart, DMOZ and that will plague Mahalo would threaten it, but as it stands now, you can’t help but think that Calacanis pulled a Digg/Netscape 2 by borrowing heavily from Wales’ baby and applying to search at Mahalo.com. In no shape, form or fashion does this imply that they two are directly competing etc., but when I opened that email this morning (yes, I’m on the list) my reaction was: “Wales must not be smiling.”
Heavy Backers
While Wales was able to secure funding from the likes of Amazon.com and raised $3.5M for his search project, Mahalo raised a massive $16M on a valuation on $100M. That is an insane amount of money for a startup that many will ridicule as Looksmart or Squidoo, or even Chacha, all companies with many obstacles in the marketplace and no real strategy to be relevant.
In Search, Distribution is Everything
After all, the key consideration in search is not the quality of the algorithm, size of the index etc., but rather the distribution thereof.
While Wales had been openly talking about his new search engine since Christmas in a mailing list, Calacanis was coy. It was only recently that Valleywag eerily accurately described Calacanis’ project that the details came to light. Shortly thereafter, Calacanis unveiled Mahalo.com and the naysayers outnumbered the believers quite a bit.
I’m still not sure of how relevant Mahalo.com or Wikia Search will be, frankly. I do think however, that by having secured Sequoia as a backer, Calacanis has managed to ensure his company’s exit before Wales even hits the entrance.
Of course, if distribution is king in search, then Wales cannot be written off, since adding Wikia Search (whenever it launches) across the sprawling Wikipedia.org site would overnight create a winner out of his project, too.
The lesson, I suppose, is that online advertising is only starting to come to fruition so even the laggards in the space might have better prospects than the winners of many of the new segments of online commerce and communications that many are getting over-excited about.
TechCrunch and Venture Beat are reporting that Greylock has invested $8M in Revision3, a content producer with eight or so shows. There’s no indication of it, but one would presume David Sze led the funding. Disclaimer: when I’m not writing on this blog, I run WatchMojo.com, one of the largest producers of web video content.
Anyway, I’m not sure quite it takes $8M to do what Revision3 does, or wants to do, but if you’re a VC who’s worked with Digg’s Jay Adelson and Kevin Rose and back their first project, I guess you can’t say no to project #2… and Adelson and Rose can command any pre-money valuation they want given their success in making Digg a force in social news.
But while they can command a valuation on paper for a financing round, ’tis quite different to get someone to sign a check in an exit. And this takes me to a couple of issues I see here:
Problem #1: Focus Taken Away From Digg
Last year apparently Digg asked for $150M from News Corp., News Corp. balked and instead launched MySpace News.
Digg denies this and the rumor might be false, but the company with 20 or so employees and said to be cash flow profitable - went on to raise more money just before the end of 2006. That put the company’s financing at over $10M.
I wrote, somewhat jokingly, would you pay $10M for Digg? let alone would you invest $10M in Digg?, for the simple reason that user-generated news is very precarious, to put it mildly. Digg since then was once hijacked by its users which demonstrated the bastardly double edge sword that social news presents to companies and advertisers.
Admittedly, I’m not sure that MySpace News has really taken off, but then again, I’m not sure Digg has a very “defensible” strategy: they don’t own anything other than a URL, in my eyes. Of course, that URL - and brand - has proven quite valuable, but the:
Content? Not their’s.
Editors? In puberty.
Just last week though, Compete.com (a sponsor of this blog) said that Digg had crossed the 20M unique figure and was in fact, larger than Facebook. I was personally shocked, and while such a figure would imply that Digg’s exit window might have opened up again, if the stat is true, then it implies a very high valuation for the company… which really only means that the company has practically priced itself out of an M&A. Who would pay $100M or more for Digg, which unlike a social network where someone creates a presence ultimately has no real lock on the users who create the content?
Will they realistically do an IPO? I doubt the market would price Digg at a premium over Facebook, who is a lead candidate for an IPO in 2008.
I also don’t think Digg is anywhere near the $100M IPO investors usually ask for before a company hits the the roadshow circuit.
Problem #2: Admission of Weakness in Digg Model?
As I write this, it occurs to me that what I’ve been saying for some is becoming more and more true and correct. User-generated and user-appropriated media is powerful in that it helps a site scale content quickly, but it proves to yield very little advertising revenue. Based on my calculations, YouTube should have been making $7.5M per month throughout 2006, when the kimono was opened, it said that it did $15M all year!
I think that while Revision3 currently seems like a bit of a side show, it’s an indirect admission that one needs to own the content to generate value for shareholders. Earlier this year I mentioned that VCs were about to get back into content, though the focus would be broadband content. Benchmark hired Dave Goldberg, which was an indication of that.
Please, please, pretty please, bear in mind my full time job (my actual gig, in fact) is as major producer, publisher and syndicator of video content, so I am very biased in saying that. But then ask yourself why I chose that as line of work…
Problem #3: Crazy Valuations?
My problem with the $8M round is that it puts a very high valuation that might be hard to overcome and bring “in-the-money” because online video remains very young and embryonic.
I wrote about this as well, in “What’s Up with the Crazy Valuation Rounds?” and “Not Sure About the Crazy Valuations, Frankly.” People, to quote Chris Rock, I can drive with my feet, it doesn’t mean that I should.
I had the same feeling, frankly, when Next New Networks raised a similar amount from Spark Capital. N3 is founded by the cream of the crop management-wise, but to raise too much money too early is a dangerous proposition (disclaimer: we might be working with N3, we might not…. but it’s worth disclosing that, too, I suppose).
Anyway, there’s a lot of money flowing around these days… and online video is a high-growth area, so some of these deals might not be surprising. Just remember, getting someone to agree to a deal on paper with intangible valuations is one thing, getting someone to pay you for that asset with a firm, tangible price is quite another.
Let’s hope Kevin and Jay can digg that.
Last week I wrote: Ask.com should stop spending $100M per year in ads and buy up new search companies, then once bloggers began to increasingly criticize its ad strategy (and thus put the company in the spotlight), I asked maybe I owed them an apology, after all, it encourages folks like yours truly and many others online to put forth what Ask.com should be stressing. I doubt the thinkers at Crispin Porter Bogusky actually planned it that way, but welcome to marketing: where you get paid regardless and someone will find a way to suggest you’re brilliant.
Anyway, today the New York Times talks about how more and more people are still launching search-based startups, and how backers like Sequoia - who invested in both Yahoo! and Google - are still open to suggestions.
Engines like Hakia, Accoona and Powerset are trying to grab market share by writing a more sophisticated algorithm. A growing number of entrepreneurs are placing their bets, however, on a hybrid system that puts humans back into the search equation. They are grouped under a newly coined rubric, “social search,” and it is becoming a crowded field.
Newcomers like Squidoo, Sproose and NosyJoe offer search results based on submissions or votes by users. Bessed also relies on users to suggest the best Web pages for a topic, but then has editors refine them. ChaCha gives customers the opportunity to have an online chat with a human being who can provide search assistance.
Sometimes a small variation on an existing idea is enough to make it stand out. In October 2006, when Bessed began its search service with the manually edited results pages, it had only two editors and covered just a few hundred search terms suggested randomly by users.
Last month, another company, Mahalo (Hawaiian for “thank you”), inaugurated a search service with manually edited results. It started with several advantages: venture capital backing, 30 editors, systematic focus on the most commonly requested search terms, and the added idea of supplying Google’s search results for any search not covered by its own best-of-the-best lists.
Mahalo will run into challenges, but much like YouTube, Sequoia’s already planned its exit wisely.
The article references (even though the online version does not link to!) Don Dodge’s post where he suggested that 1% market share translates to $1B. I wrote a follow up saying that that is actually not true for laggards, though search is lucrative enough to create winners out of losers.
Just this past week, Business.com - who has been on the auction block for a couple months but yet to find a buyer - whispered its financials to the market in the hope of finding a suitor, at a $300-400M price range. Photobucket did the same thing, via the same method, and ultimately sold on the low end of the desired $300-400M asking price, when News Corp. paid roughly $250M plus an earn-out of $50M for the Denver-based photosharing site.
I think Ask.com - after selling to InterActive Corp. for $1.85B in January 2005 - is now worth $3.15B. This NYT article only reiterates the notion that if Ask.com stopped advertising tomorrow and bought a bunch of search engines, it would be money better spent.
I don’t want to pretend that I’m the first or only person who’s suggested this, but trust me, not enough people are. Ask.com’s market share has fallen, and I’d be hard pressed to find many people who have turned to Ask.com as a result of their marketing.
Disclaimer: Our sister site, MetaMojo.com, runs two search products: a domain specific, contextual vertical search network and a video meta search engine. As well, I own shares in Yahoo!, Google’s main competitor.
I make that [first] disclaimer in the middle of the post, because I think that for the odd search query, any search engine can be better than Google. Our MetaMojo.com is very strong in health, travel, entertainment, etc. Take for example our result for Barcelona versus that of Google’s. But the problem is in the context of who can be relevant in search, the quality of the search result is secondary to the distribution the results will get. We boost search queries by growing the overall ad traffic on the Mojo Supreme network. Many of these search engines might die, not because their algorithm or results are weak and ineffective, but rather, because they will fail to get the search market’s equivalent of oxygen: traffic and distribution.
But once you have traffic, as does IAC, then you better ensure that your search is up to snuff.
Remember this week Terry Semel resigned from Yahoo!, one of this cardinal sins, say critics, was not buying Google for $1B early on. I doubt any one of the engines NYT mentions is the “next Google,” but I wonder how many of them $100M would buy.
