The next ‘re-intermediation’ business opportunity?

 entrepreneurs, innovation, Media, Strategy, Web 2.0  3 Responses »
Jul 302008
 

I recently had cause to investigate how you might use a utility/cloud computing service, like Amazon S3, to provide an efficient and modestly priced solution to serving up video-on-demand content services, as an alternative to the more traditional offerings of streaming video platform providers.

I was impressed by the level of intelligence behind not only the pricing of such services (just cheap enough so it makes more sense to outsource – Coase theorem at work), but also the dynamism reflected in the engineering of their underlying infrastructure.

Amazon, and others, provide some seriously ‘grunty’ utility/cloud infrastructure. The recent S3 outage notwithstanding, utility/cloud computing is here to stay. Its adoption by businesses is likely to be accelerated by the early successes of server virtualisation technology adoption by enterprise users, spearheaded by VMWare.

This points to an exciting new realm of opportunities for "middle men" to move this capability into the hands of consumers. Allow me to explain.

We are the last generation who will ever have to worry about launching an installation CD.

We are the last generation who will ever have to worry about disk (storage) capacity.

We are the last generation who will ever have to worry about CPU speeds.

Finally, but importantly, we are the last generation who will ever have to worry about bandwidth throughput (speed).

Imagine what you could do in a world when you’re free of these kinds of constraints.

We’re starting to see the potential indirectly, in the guise of the rapid proliferation of Facebook apps. These apps exist "out there". We don’t care where they reside. Importantly, we play no active role in their installation, configuration or management. Equally, these apps care little about the end user equipment/device or infrastructure being used to access and interact with them.

This is how software (and services-powered-by-software) will look for all users within the next decade.

The promise of utility/cloud computing infrastructure, then, is that it will finally hide the technology. And history tells us that when technology ceases being ‘technical’ – when technology shifts from the core of the experience to the periphery – immense behavioural changes follow.

Now back to the opportunity for middle men.

While utility/cloud computing infrastructure has hidden (or, at least, is starting to hide) the technology, it is still a fairly immature offering, in that – as a product offering – it is largely focused at technical users.

While it is easy to setup an Amazon S3 account, for instance, it is still quite difficult to configure and manage the services that you purchase/consume. This represents an unnecessary hurdle in the current environment, in which – thanks for ‘mashup’ services and the like – non-technical users are being increasingly encouraged to ‘develop’ software-based solutions to every day problems.

This creates a market for an intermediate layer: companies who take utility/cloud computing services and repackage them in a way that makes them accessible to non-technical users. Companies like Morph have taken a step in the right direction, but there is still plenty of scope for innovation in this new market niche.

$1 CPM industry standard?

 Media, Web 2.0  2 Responses »
Jul 182008
 

I just had a quick scan through a  report by JP Morgan’s Internet analyst Imran Khan, titled Nothing But Net, released in January 2008.

In an almost throw away line, he notes that "[m]ore than 80% of online inventory currently sells for less than a $1 CPM," with an average CPM rate of just $US3.31 for display advertising in 2007.

As indicated in the two charts below (the first showing the global market, the second the US market), while rates are forecast to lift in coming years, they won’t do so by any order of magnitude.

 

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I found these figures quite surprising, given that in several recent projects, clients were forecasting (and, based on trading history, expecting to secure) CPMs ranging from $A30-$A70.

There are a number of contributing factors that create pressure on CPMs for display advertising, with the primary two causes being:

- A glut of non-premium advertising inventory (as mentioned previously, sites like Facebook are generating so much traffic that it completely devalues their inventory)

- Low adoption of ad targeting platforms and other revenue optimisation techniques.

But how did it come to pass that display advertising rates have slumped so low?

The rise of ad networks, which aggregate unsold/distressed advertising inventory and sell bulk quantities at low rates to advertisers who are happy to run "spray and pray" campaigns, is certainly a factor.

Another factor is that marketers expect a much higher correlation between digital marketing activities and confirmed sales than they do in any of the ‘offline’ media, which I have also covered previously. This is quite ironic, yet by viewing online marketing as undifferentiated from other types of direct response campaigns, marketers have driven CPM rates down.

However, the main reason why CPM rates for display advertising remain at such artificial lows is that publishers (and the online industry in general) have still not developed a compelling story for advertisers when it comes to achieving ‘best practice’ for display advertising in online brand/branding campaigns.

With the dominant mindset among marketers being that the online environment is a sales-focused medium and, consequently, the aim of online campaigns is to secure reach, they buy based on tonnage: how many impressions will you deliver for my budget?

Publishers need to start the process of educating marketers about engagement and, in particular, the types and degree of engagement that can be achieved within an online, interactive environment that could never be achieved in other, display-like mediums (such as newspapers, magazines and TV).

Importantly, publishers need to get marketers thinking about how online advertising can be better utilised to achieve brand awareness, interest and preference. Marketers need to recognise why online advertising should be part of the marketing mix at all stages of the purchase cycle, rather than only at the ‘buying’ stage.

The first step in this process is to get everyone on the same page as to what ‘engagement’ is and, importantly, how you can tell whether you have it (yes, another metric!).

The second step is to recognise that the ad units themselves need an overhaul. Display ads have been around since the very first Web browsers were released (some 15 or so years ago). This might lead you to think that they are now a ‘mature’ product. But display advertising is still a very young format, when you consider how long print and TV advertising formats have been around. There is still plenty of opportunities to refine and evolve the advertising formats themselves.

Lastly, publishers need to recognise the importance of creating and sustaining their own brands. Having a well-defined, understood and trusted/respected brand is key to achieving engagement with audiences. Furthermore, publisher’s brands create the opportunity and the context for introducing advertisers (and their brands) to the audience.

All too many publishers fail to adequately engage with their own audiences and nurture their relationships. Until they solve this part of the equation, they will be hard pressed to improve advertisers’ perception of value for their advertising products.