Contextual Advertising: Fear Today, Great Tomorrow

There's lots of room to disagree when it comes to contextual advertising -- and that's what make the decision on whether or not to participate in programs such as Google AdSense so challenging for publishers right now. What I'm seeing in the market are the first steps towards refining and improving the whole concept, and that, as with all things Internet, will mean even more confusion before we get to anything approaching clarity.

One company that's getting some buzz right now is Quigo. By mixing technology with a new model that combines contextual ad placement with categories such as travel, it claims it is creating an even higher level of relevancy. The underlying logic seems good. For example, if you are a cruise ship operator, do you want your ad on a recipe site where there is mention of a recipe found during someone's travels to Spain , or a travel site talking about all the wonderful things one can do if one travels to Spain? Neither site is a bad place to advertise, but from a clickthrough perspective, the cruise ship company is likely to do better on the travel site.

Some theorists are going further, suggesting that advertisers could place their ads at a central location, and publishers would select what ads to place on their sites. Presumably, they would select the ads most relevant to their audiences in order to maximize clickthroughs, and thus their own revenue. A nice side benefit is that publishers would have complete control over what appears on their sites.

That's an interesting peek into the future, but what about today? My contention is that publishers can't come out winners in the current game of contextual advertising. Here's my reasoning, excerpted from my June speech at the Canadian Business Press annual conference:

Some of us are already engaged in a form of self-abuse by allowing contextual advertising on our sites. The rationale for a publisher to accept advertising from a search engine is simple and seductive: some money from advertisers you'd never sell anyway is better than no money. Some publishers are already reporting nice monthly checks rolling in -- with no work at all. What's not to like? After all, aren't you the clever one for turning the search engines into ad sales reps for you?

Yet what would you say if an independent sales rep came to you and made this proposition:

I want you to give me space in your publication, and by the way, I'm looking for good positions, maybe even your home page

I'll sell ads into that space, and keep the lion's share of the revenue

I won't specifically chase your advertisers, but if they should come to me, tough on you

I'll sell using a whole different pricing approach than you use, which may turn out to be a cheaper rate than you offer your advertisers

I'll essentially be the judge of who advertises what on your site, without regard to your brand or your market position

I'll be building a huge syndicate, so you'll always need me more than I need you

I will be telling the advertising community, day in and day out, that my approach to advertising is far superior to yours

How long would that rep be in your office? Probably just long enough for you to stop laughing. Yet when Google talks, we listen.

Contextual advertising may in fact be clever and beneficial if most of your revenue doesn't come from advertising. But if you generate the bulk of your revenue from advertising, you need to be afraid -- very afraid -- of contextual advertising. Let's go back to that rationale I mentioned earlier: you're getting some money from advertisers you'd never sell anyway. Actually, that was the rationale for going with some of the old syndicated advertising services like DoubleClick. They sold massive traffic in broad categories to marketers of broad-appeal consumer products. That is indeed free money for any specialized publication. But if you publish a magazine for, say, the machine tool industry, and a contextual ad appears on your site based on the keywords "NC simulation," that's your advertiser -- or it should be -- meaning the search engine supplying that ad is competing with you and you're helping them do it. Let me say it another way: by definition and design, contextual advertising is competitive with your own advertising sales efforts.

The future of contextual advertising might be a lot friendlier to publishers, but for now, fear and loathing appear to be the correct response.

Why Newspapers and Directories Don’t Mix

Just weeks after noting the newspaper industry's on-again off-again love affair with yellow pages, I see an announcement by Hearst that it's acquiring White Directories, one of the nation’s largest independent yellow pages publishers, and that White will become part of the Hearst newspaper group.

Is this a case of another newspaper publisher getting an expensive and painful lesson that local ad sales expertise and local directory ad sales expertise are not synonymous? Perhaps not. I spent some time flipping between a list of markets served by White and markets served by the Hearst newspapers, and found very little overlap. What we probably have here is Hearst making an investment in a growing and dependable stream of profits, just like the bevy of private equity funds that have discovered the yellow pages industry over the past few years.

So why don’t newspapers and directories mix?

The primary problem is that directory salespeople aren’t like other salespeople, and I offer that observation as high praise. There was a time when it was widely believed that yellow pages salespeople, particularly those with the benefit of Donnelley sales training, were among the best salespeople in the media business. But that’s not the same as saying they could sell any medium equally well. Directory salespeople are indeed a breed apart, and the general experience to date is that they don’t do well selling other forms of media. It's not for lack of yellow pages publishers trying to make it so. Part of this is a natural salesperson’s tendency to focus on what they know best and are making money at today.

But the larger issue is that the directory sale is almost totally opposite to the sale of most other media. With yellow pages you sell retention, discovery, saturation distribution and response. Add in an annual frequency and rates so high they have to be expressed in terms of the monthly cost, and you can easily see the challenge. Yellow pages salespeople can't sell newspaper ads, and newspaper people can't sell yellow pages ads. That’s why the potential sales synergy that looks good on paper has never worked in reality.

Consider too the cultural divide. Newspapers provide important news and have a strong and proud journalistic tradition. They sell subscriptions and they sell advertising. Yellow pages sell advertising and give their publications away. In the yellow pages business, the advertising is the content. That’s simple to say, but hard to absorb, particularly if you grew up in the newspaper business. Add into the mix that yellow pages and newspapers have different pre-press needs, are manufactured differently and distributed differently, and you knock out loads more potential synergy.

Finally, there is the "grass is greener" issue. When newspapers look enviously at yellow pages, they look at the market leaders, the Verizons of the world. But when they finally take the plunge and buy yellow pages, they buy independents, the scrappy competitors, the "we try harder" publishers. Nothing wrong with that, as these independents can be both large and profitable. But what it does mean is even more emphasis on advertising sales in a highly competitive, take no prisoners environment. That can be a real eye-opener for newspapers, many of which operate with effectively no competition.

Does yellow pages make great media investment vehicles? Yes. Should they be acquired by newspapers to build "a highly synergistic, integrated local media advertising platform" (I just made this up, but doesn't it sound so ... plausible?). No.

Dialing for Domains

ENUM, an initiative we first reported on in March 2001, seems to be finally picking up steam. Originally spearheaded by VeriSign and Telcordia Technologies , the initiative attempts to bridge the Internet, Phones, Fax and Wireless with a single contact address -- your phone number. The UK Government is seriously involved in efforts to stimulate the growth of ENUM in the United Kingdom , adding to a general endorsement of ENUM by the U.S. Department of Commerce last year.
In essence, ENUM is a distributed database that translates telephone numbers to IP addresses, which means that phone numbers could be used in place of, or in addition to, domain names. Currently, when you enter www.infocommercereport.com into your browser, Domain Name Servers (DNS) perform a lookup up on that name, find that it is associated with a specific IP address, and take your browser there. ENUM works identically, and is actually integrated into the existing DNS infrastructure.

Interestingly, ENUM can do more than a one-to-one translation to an IP address. It can also link to email addresses, instant messaging identities and cell phone numbers. It's also important to note that ENUM is designed to be queried by machines as well as humans, meaning that all sorts of interesting applications to perform seamless communications are likely to emerge, not the least of which might be streamlining voice over IP (VoIP) call connection.

A lot of governments seem excited about ENUM as a way to bridge the wired phone network with the Internet. Needless to say, the usual suspects in the domain registration space are all circled around ENUM, hoping to become the central registration, and hoping to tap into all the associated registration fees.

Fees? Well, somebody has to pay for all this somehow, and the current notion seems to be to use the existing model for domain registration. And with all those millions of consumers out there hankering for ENUM, revenues could be huge.

Consumers? Hankering? Here we go again. Develop a new technology, and everybody immediately assumes a consumer market exists, primarily because they want a consumer market to exist. After all, there are far more consumers than businesses out there. Businesses want to be contacted, and they want to make the contact process as simple as possible. Is the same true of consumers? Will millions of them rush out to link and expose all their electronic contact data in a searchable public database? I suspect that caution will figure into this at some point.

As to hankering, I have to ask, just as I did with the national cell phone directory: does the market really want this? It's a huge issue, because not just revenue is at stake, but the ability to achieve a critical mass of listings, without which nobody will bother to use ENUM, and the whole initiative will collapse. Too much ambition and greed too early means the almost certain death of ENUM.

Governments are behind ENUM in the general belief that it will lead to technological progress, and hey, they're not paying for it (and they may well tax it). The big companies involved in ENUM see big profit opportunities, although ENUM has all the characteristics of technology in search of an application. And unlike directory assistance and the white pages, there's no opportunity to impose "unlisted number" fees because the database does not exist, and it depends on consumers to populate it.

It will be interesting to see how ENUM evolves, but in my opinion, success will depend on scaling it down before ramping it up.

Stop The Presses: Google's Entering the Content Biz

Google, not being content merely indexing all the free content in the world, has just announced the introduction of Google Print, a new service designed to index the full text of books. Since books are rarely plopped onto the Web in full form free for the taking, Google is now actively striking deals with book publishers for access to the contents of their books. Most significant of all: Google won't give away the full contents of the books it indexes. Rather, it will show only a few pages of the book to show the user's search term in context. If the user wants more, Google will provide links to online retailers where users can buy the book. Yes, Google is now supporting and facilitating the sale of content! This is huge.

Consider the possibilities: subscription-based database and directory publishers can use this new service to merchandise their products and develop direct online sales. This approach, adapted properly to the special issues of database publishers, could prove significantly more powerful as a sales tool than buying search terms. Since Google wants to aggressively grow this new area, it's also likely to remain free for some time.

Initially, Google says it wants to provide online purchasing links to online book retailers such as Amazon. My guess is that this is a temporary gambit because Google doesn't want to look like it's trying to compete with Amazon. While I don't see Google getting into online bookselling, what seems inevitable to me is that Google will ultimately offer links direct to publishers, for a fee, so that participating publishers can sell directly. That's critical for serials publishers, who need to capture the customer's name and address to generate renewal sales. The only way to get this information is to cut the book retailer out of the picture, and Google's platform could make this happen. By the way, Google Print could be a boon to the e-book business, because if you've found a book through a Web search, my guess is you want to get your hands on it sooner rather than later, and e-books provide that through instant downloads.

I've always liked the integration of paid content with free content via search. I first saw it with the old Northern Light service many years ago, and it seems to be coming back into fashion again. You can argue about the best ways to co-mingle free and paid content, but everybody seems to agree that overall it's a good idea.

To my mind, the best part about co-mingling free and paid content is that it offers a constant if subtle reminder to search engine users that not all content is free. The most damaging aspect of the big search engines is that they have inadvertently created a perception that they offer most if not all of the information in the world for free. Those of us who sell content have all been hurt by this. That the biggest search engine of them all will soon start including and merchandising paid content is absolutely a good thing. To the extent we can use it to better sell our own products it's an even better thing.

Google Desktop: Blurring the Lines

I must say I am enormously impressed with my initial experience with the new Google Desktop tool which creates a miniature search engine on my local computer. I was stunned at how easy it is to locate information on my hard drive, including items I had lost, forgotten, and even some I thought I had erased.

To download this remarkable and free new tool, simply go to http://desktop.google.com and you’ll be just a few mouse clicks away from installing it on your hard drive. The installation is one of the smoothest and easiest I have ever experienced. This is due in large part to the compact size of the software. Once installed, the application fires itself up, and immediately starts indexing your hard drive, including all documents, emails, notes, presentations. In fact, Google Desktop will also archive and index all your Instant Message exchanges. My only disappointment so far was learning that it doesn’t index the contents of PDF files. "Our goal is to have it behave like a photographic memory for your computer," said Marissa Mayer, Google's director of consumer Web products. That’s a laudable goal, but when exact copies of things start getting made, copyright questions immediately start to surface.

I say this because in addition to indexing your own information on your computer, Google Desktop also stores and indexes an exact copy of every Web page you visit. This could arguably put the user in violation of copyright law as well as violating the terms of use conditions of some sites. "Fair use," the common defense against claims of copyright infringement, is a bit murky and often in the eye of the beholder. The same holds true for users of paid access subscription sites (Web pages delivered with SSL encryption can also be indexed by Google Desktop by the way). One possible nightmare scenario: a user purchases one-day access to a content site, and uses the Google Desktop to capture huge amounts of information, all automatically indexed for easy future retrieval. Further compounding the issue is that Google Desktop is integrated into your Web browser, blurring the lines not only between personal and Web-based content, but where that content resides, and the ownership of that content as well. Yes, you can engage in serious content piracy without Google Desktop. My point is that it's just gotten significantly easier, and some people may end up doing it without even realizing it.

Google certainly didn’t create this problem: other desktop indexing tools already exist (and you can count on a lot more in the near future), but it is taking it to a new level by making the capture of Web-based data automatic, seamless and essentially invisible to the user. And it’s one more encroachment to which content producers will need to remain alert.