Information Alchemy

One of the first rules I learned as a consultant was to avoid people you barely know who wanted to take you to lunch. Such meals invariably were suggested by people who want to tap into your knowledge and expertise without paying for it. Worst of all, you always left the meal hungry, because you spent the whole time answering a non-stop stream of questions.

These lunchtime "brains drains" have been largely replaced by so-called "expert networks," online marketplaces that allow consultants and other experts to sell their knowledge on an hourly basis to those who want a crash course on a specific industry, trend, technology or company. These expert networks have long been popular with private equity firms, hedge funds and other investors. It's a fast and efficient way for investors to check out a proposed investment. It's also a way to develop ideas and insights that gives an investor an edge.

If you've been following the recent spate of insider trading indictments, you'll note that a number of them involve expert networks that allegedly went over the edge, moving beyond providing ideas and insights into providing insider information.

So if an expert network has crossed the line into providing insider information, shut 'em down and move on, right? Yes, except for one thing: the definition of insider information has always been a bit murky, and seems poised to get murkier, so much so that data providers may feel some of the fallout. That's because there are those who contend that you can create non-public information (the stuff of insider information) out of publicly available information. Information alchemy, or so it would seem.

Yes, the public data most of us sell, often for purposes of business and competitive intelligence, when combined with other public data can, through some type of information alchemy, become non-public data that is subject to insider information rules. Even scarier, nobody seems to know exactly when that line gets crossed.

As I understand it, data providers need not worry directly, because the information we individually provide is clearly public, and only part of the picture being assembled, the "mosaic" in Wall Street parlance. However, this heightened scrutiny puts an uncomfortable spotlight on the expert networks (for example,MedaCorp, the first expert network in the healthcare area, announced this morning it will close).

Even more worrisome, we could see a chilling effect on how extensively and aggressively investors acquire data to build their mosaics, and that could have a bottom line impact for many data publishers. As investors seek to turn obscure bits of data into gold, regulators seem poised to turn that gold into dross. 

Of Babies and Bathwater

The debate has begun over the Federal Trade Commission proposal to protect online privacy, which suggests that web browsers offer a "do not track" option that allows users to indicate they do not wish to receive targeted advertising or be tracked across different websites. Thus far, reaction has been predictably extreme. Some are suggesting that this policy will cause the death of the entire Internet economy. An editorial in the Silicon Valley Mercury News makes the questionable claim that, "Many consumers would be disappointed if they stopped getting personalized advertising." The leading browser software companies claim they already have robust features that allow users to opt out of being tracked online, which is kinda, sorta true, making the discussion even more complicated.

But step back from the issue a bit. Does anyone care if ads are targeted to them based on the content of the web pages they view? I don't think so. Does anyone care if an ad "follows" them from site to site because website are sharing information about your online viewing habits? It's a bit creepy at first, but if you think about it rationally, there's not a lot to get exercised about. If you look at a review on a Ford car on one site, and suddenly start seeing Ford ads on other sites you visit, there are far worse things in life, and at some level you have to respect the cleverness of this advertising technique.

But imagine if someone tracked the sites you visited, perhaps even the content you read, and built a giant database of detailed, intimate knowledge of your interests, your lifestyle preferences and possibly even your health concerns. Starting to get a little worried? The immediate response from those in the business is, "We don't know who you are. You're just an IP address to us." But what if someone matched your ostensibly anonymous IP address to an online registration database where you have supplied your name, address, email and possibly a lot more information? Impossible you say? Well, (dirty little secret) when you register online, it's common for the website operator to collect your IP address.  As a data publisher, you know how easy it is to match two files that both contain a common unique identifier.

Some users think they can stay ahead of the game by deleting cookies from their computers after each browsing session. But Flash cookies contain lots more information than a standard browser cookie, and don't get deleted with regular cookies. To see the scope of this for yourself, search your hard drive for files with the unfortunate file extension "SOL." I found several hundred on my first try, all placed by parties unknown, tracking who knows what and passing this information on to who knows who.

The point is that in tackling the privacy issue, a distinction needs to be made between benign activity and the nefarious practice of secretly capturing and selling highly personal details to unknown third parties for unknown uses.  Used responsibly, there's a valid place for sophisticated online tracking techniques. So we need to be very clear that the problem is not tracking itself, but what is being tracked and for what reasons. Don't throw the baby out with the bathwater.

Buying and Selling 4.0

Reduce all our complex economic activity to its essentials, and you are left with just two activities: buying and selling. Given the fundamental role and importance of these activities, there is a lot of money to be made by those who can streamline the process. Traditionally, this has been a space occupied largely by publishers. And it is a space -- happily -- where data can play an important role.

Until quite recently, the gold standard was buying guides and yellow pages that provided buyers with little more than a starting point ("we think these companies probably sell what you want -- good luck"). Advertising in these guides was intended to help buyers further refine their search by providing more detail, but few of these guides had enough ads with enough information to truly alter the dynamic.

The opposite extreme of the spectrum are services that match buyers and sellers. The buyer indicates a specific need, and the intermediary service introduces the buyer to one or more pre-screened and qualified sellers. We've seen some enormous successes here, ranging from BuyerZone to ServiceMagic to perhaps the granddaddy of them all, 1-800-Doctors. There are lots of variant models here, but underlying them all are several hurdles. The intermediary must convince the buyer that the matching process is not only fast and efficient, but that it is honest. Is the buyer being connected to truly qualified, high quality sellers, or just anyone who spends money with the intermediary?

 Another area of tremendous growth is in user-generated supplier reviews. We all know about remarkable success stories like TripAdvisor and Yelp. But reviews come with problems as well. They seem most popular with so-called experience goods: things you can't properly evaluate until you experience, purchase or consume them. You don't, for instance, see a lot of user reviews for stainless steel ball bearings. But when people start reviewing their individual experiences, you get tremendous variability that can ultimately be unhelpful. When I go to TripAdvisor to check a hotel, I invariably encounter 50 reviews extolling the perfection of the hotel, and 50 reviews vehemently denouncing it. What am I to conclude? Generally, I leave TripAdvisor more uncertain than enlightened. And let's not forget there is increasingly a trust issue around anonymous reviews these days. We've certainly proven people are willing to offer up their opinions. The work now is to fashion them into something that offers real and consistent information value.

The most audacious new direction for bring buyers and sellers together is the so-called "social graph," a concept advanced by Facebook. From a buy-sell perspective, you can think of it as seller recommendations filtered by the recommendations of your friends -- the people you trust most and have similar tastes and interests to yours. Think of it as putting structure around word-of-mouth recommendations. There are a lot of issues with getting the social graph properly scaled to support a broad array of buying activity, but it can certainly happen.

One interesting start-up puts a clever spin on the social graphy concept. Called Bizzy, it lets people write reviews just like other sites, but only if you first answer a series of demographic and lifestyle questions. In exchange, Bizzy returns a list of sellers highly recommended by people like yourself. You get the benefits of the social graph without the constraints of being limited by what your friends know about.

The process of helping to connect buyers and sellers is big and vibrant, and chock full of creativity, with new business and content models emerging with great frequency. It's one we are watching carefully.

Doubling Down on Print

A recent news report indicating that telephone companies are winning regulatory approval to discontinue their white pages directories is one sizable piece of evidence to support the broadly-held belief that print publications are well on their way to extinction. Problem is, while print certainly isn't thriving, it's also a long way from dying. That puts many publishers in a tough situation.

There is the well-known problem that publishers can rarely afford to walk away from their print revenue.

It's also well-understood that print advertising tends to be more profitable than online advertising. What is fascinating is that the shift to online advertising by many advertisers hasn't caused print advertising rates to collapse. That's because those who don't want to advertise in print won't do so at any price, so lowering rates won't bring them in.  The net of this is that if you can sell a print ad today, it's still typically a very nice piece of business. Most frustrating of all for some publishers is that they remain convinced that some percentage of their audiences still use and value print, but a growing number of their advertisers don't believe it.

So what's a publisher to do?

One approach is to emulate what the consumer magazines are doing with their "Magazines: The Power of Print" campaign, that seeks to convince advertisers that print is not just viable, but is thriving. Call it "doubling down on print." For those advertisers who already believe in print, this campaign is just preaching to the choir. To those advertisers who have aggressively migrated to online advertising, this campaign simply reinforces their belief that a large swath of publishers are nothing more than Luddites. And to the small group of advertisers who may be wavering, this campaign aims to push them to print. That's lucrative in the short-run, but a dead-end in the long-run.

My concern with aggressively promoting the print medium at this stage of online migration is the confused message it sends. It's smart to position print as a useful and important part of an integrated media buy. But the harder you sell print, the harder it will be to ultimately wean yourself from print. And along the way, you confuse your own organization about your priorities, and your marketplace about your own grip on your audience and maybe your sanity.

DataContent Conference Round-Up

What was most impressive about our  DataContent 2010 conference, which concluded just one short week ago, is the industry's remarkable creativity in monetizing data products. What is also exciting is that many data publishers are producing true industry-standard data that's not only entering industry workflow, but easing transactional friction as well, a point made powerfully by our own Scott Taylor in his energized presentation on the power of master data.

It's hard to sum up such an intense and wide-ranging conference in just a few paragraphs, but here is what stood out.

1. Accidental publishers. A number of companies that presented at DataContent 2010 don't look like data publishers, and in fact didn't start out to be in the data business, but have now seen the opportunity to mine the data they generate as a natural by-product. Examples were provided by Spiceworks, Quantros and HealthPrize.

2. Full service providers. Compare Networks provided a powerful (video) presentation of how it has successfully moved into producing product videos, a business that actually scales well and is less labor-intensive that you might think. Universal Business Listing, which helps businesses manage their contact and product database across the web, is now offering a service to data publishers to resell to their customers. At the same time, keynoter Iain Melville, of Reed Construction Data, offered a powerful cautionary note about offering more service to customers, noting that it is important not to get so excited about additional services that you neglect your core business of selling data which will almost always remain your best business.

3. Profitable Partnerships.  In two great case studies, ThomasNet described its data partnership with e-marketplace Ketera and McGraw-Hill Construction described its partnership with Autodesk. Key takeaways: these partnerships can be mutually beneficial, but deals need to be fluid in structure and the partners must remain flexible because so many unexpected things happen when the partnership moves from concept to reality.

4. Domain Dominance. In a presentation by GlobalSpec, we learned how the company leveraged a highly detailed database of product information to become a full-fledged media company with a suite of e-newsletters and now virtual conferences. A presentation from Innovadex described how the company provides access to behind the firewall product information (how's that for a competitive advantage over the search engines), and provides gated access to that content, actually rejecting a significant percentage of those who register to use the site. Frames Data described how its database of eyeglass frames effectively powers the entire industry -- from serving as a buying guide, to driving health plan reimbursement rates, to actually operating grinding machines in optical laboratories.

5. Conquering Conundrums.  Judy Diamond Associates explained how the company sells database subscriptions by giving (a portion of) the same information away for free. LexisNexis Martindale-Hubbell described how in a world full of user reviews, it is differentiating itself with an additional layer of peer reviews. And UBM Canon Communications explained how it built a better buying guide by tossing out most of the listings, and making companies apply for inclusion.

DataContent 2010 was one of our strongest conferences ever. This year's audience was packed with "up and comers," as well as those innovators we showcased early on and who have since gone on to become industry leaders. It was a perfect mix of inspirational and practical, and we look forward to serving it up again in Philadelphia next year. Stay tuned for dates!