Archive for the ‘New Media’ Category

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Time was when 2.7 billion seemed like quite a lot of people. That is how many of us are on the internet. But hold on, if the population of the world is around 7.1 billion, what about the remaining 4.4 billion of us? Never fear, Facebook’s founder Mark Zuckerberg has a plan.

Actually, according to the Facebook press release, the plan is to get another five billion people online. It is not clear how Zuckerberg will manage this, given that – according to the maths expressed above – there are only 4.4 billion people on this planet who are not online, and some of them are babies, but hey this Mark Zuckerberg. He is very clever. Maybe he is including family pets or Martians in his projections. More likely he is projecting growth in the population into his targets.

Then again, it is not just Zuckerberg who is at it. He has set up a company called internet.org, which Facebook describes as “a global partnership with the goal of making internet access available to the next 5 billion people.” In addition to Facebook, Ericsson, MediaTek, Nokia, Opera, Qualcomm and Samsung are all signed up to the project.

Some are cynical, and say Zuckerberg is only doing this because he wants more users for Facebook. But so what if that is the case.

Sometimes monopolies can be a good thing. A social media tool such as Facebook is a natural monopoly. It just won’t work as well if some of the people you want to connect with are on a rival platform.

Facebook won’t last forever. History tells us that dominant businesses lose their dominance as technology changes. It is called innovators’ dilemma. Kodak has been a recent victim. It looks as though Microsoft may well be. Facebook will be one day.

But just imagine for one moment what it will be like if the world – that’s the whole world, or at least the human bit of the world, let’s exclude the animal kingdom – was online at the same time, logged on using say 5G, giving them pretty much instant access to all knowledge and anyone else on the internet.

What a very different world that will be. It is one that may be less than a generation away.

© Investment & Business News 2013

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If you are really nerdy, not unlike the author of this article, you may never have recovered from the death of Blake. He was the eponymous hero of the TV series ‘Blake’s Seven’, who was killed off halfway through the series, only to apparently reappear in the last episode, but this time as villain, who killed all the other main characters. So what has that got to do with the price of bread? Well, it turns out that Microsoft – that’s Microsoft a company better known for a product you may have heard of called Windows – is re-making Blake’s seven for Xbox Live service. It’s a part of a – sorry to use an overused word – revolution in the world of content. It is one that will affect us just as much as a sharp change in the price of bread.

Microsoft is not alone. Netflix has had a go at another old BBC series, ‘The House of Cards’, and it has been praised to the hills too. To misquote the rather nauseating fictitious politician Francis Urquhart, played by Ian Richardson in the original series: “You might say it is better than the original, I cannot possible confirm that.”

Amazon is making a TV series called ‘Alpha House’. They are at it because these companies realise something crucial: content really is king. They need content to promote their distribution channel.

Not all are going for unique content. Vodafone is licensing BSkyB sports content to appear on its 4G network. BT, as you will surely know, is taking on BSKYB in its own back yard. Virgin is in turn licensing content from BT.

But are the companies with real value the ones that create content, and why does their content have to be sold on an exclusive basis? So HBO or the BBC are examples of content producers – although in the case of HBO it has its own premium network, and in the case of BBC asking whether it is a distributor of content or a producer of content is akin to asking which was first: the chicken or the egg. But content producers also include producers of sports, football clubs, and cricket clubs and, well you can continue the list.

And as mobile internet evolves from 3G to 4G to 5G, we will all have access to the means of distribution. Do we need the distributors, or can we go direct to the content producers?

© Investment & Business News 2013

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Dotcom bubble: what madness? How could anyone have been so stupid not to have seen it coming? And then it happened again, a company with a p/e ratio off the charts, a track record going back just a few years, founded by a person/persons so young they looked as though they should still be at school, and yet they queued up to buy shares on flotation. How stupid was that? It is just that it may not have been so stupid after all.

Replace the word Facebook with the word Google and things look much the same, except we can now look back with the benefit of hindsight, and say that Google was cheap when it was floated. It is just beginning to look as though Facebook was cheap too.

The latest result from Facebook told an impressive tale. Sales were up 53 per cent in the latest quarter, profits were up by… well …numbers can’t tell us, because the company went from losing $157 million in the equivalent quarter last year, to making $333 million profit this time around.

Now look at the company’s valuation. Its market cap is $83 billion. Turnover was $1.81 billion in the latest quarter. That is still quite a multiple. Just bear in mind, however that on flotation the p/e was… well, as the company was making a loss at the time, it was infinite.

Now consider a story doing the rounds a couple of months ago. The ‘Guardian’ in particular made a lot of noise about it. It cited research from SocialBakers indicating that the company had lost four million users in the US in just one month. It was a real ‘woe is Facebook’ story; proof, or so many said, that the company was full of naïve hope over reason. It is just that SocialBakers reacted to the ‘Guardian’ story saying: “Sometimes, journalists get stats wrong.

The Facebook stats found on our page are not primarily intended for journalists, but rather Ad estimates for marketers.” It added: “Around 50 per cent of the UK’s entire population is on Facebook – which is amazing!” and suggested: “The bottom line here is that there is no story.”

Jan Rezab, CEO at SocialBakers, said: “We previously published a clarification to one of The Guardian’s articles three months ago. In this article, I explained the stats in question, revealed the source of the stats, and admonished journalists against jumping to conclusions about them going forward. Well, The Guardian did not heed the advice, jumping to an even bigger conclusion this time.”

And that in a nut shell says it all. No one can really know for sure whether Facebook is worth its current value, but to laugh it off is not wise. It is fun to suggest companies such as Facebook are made of little more than smoke and mirrors, but little things like facts are rarely allowed to get in the way of a good story or indeed a bit of fun.

Take the argument that Facebook can’t make money from mobile advertising. In the latest quarter mobile advertising made up 41 per cent of the company’s ad revenue.

Consider the story of Google. Its share price has risen from around $100 in 2004 when it was floated to around $900. Yet during this time, its p/e ratio has crashed, so that now it is around 26 – still highish, but nothing spectacular. At flotation, Google’s market cap was around $23 billion, now it is making more than that in profits in less than a year.

Facebook has another similarity with Google. Back in the mid noughties, soon after Google was launched, its Ad Words program represented perhaps the most cost effective form of advertising ever invented. The markets did not get that, which is why they undervalued the company. It is not like that now for Ad Words, of course; the auctioning process has seen to that.
Today it is Facebook that seems to represent an incredibly cost effective advertising medium.

This is why its revenue will probably continue to grow at a very rapid rate for some time, and profits to revenue will probably grow too, meaning that total profits may yet grow at a rate that dwarfs even the growth enjoyed by Google during its golden period.

No one can say for how long Facebook will occupy such a high proportion of the world’s consumers’ time? It may or may not go the way of MySpace, but based on current popularity the potential for the company to increase profits is enormous.

© Investment & Business News 2013

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This may come as a shock. But apparently there used to be a system in the UK where if you wanted to send a message to someone, you wrote it down on a piece of paper, put the paper in a flat paper bag known as an envelope, stuck an adhesive picture of the queen in the top right corner of this ‘envelope’, and put it complete with this likeness of the Queen in a big red box.

Some people put other things in the red box, but they were not thought of positively by society. And then, something miraculous occurred; this envelope appeared on the door mat of the person for which the message inside was intended a day or two later.

It seems like a primitive custom, but that, according to a research recently made available on Facebook and emailed to journalists, is how things used to be.

And now, a company that operates in this state of the art way of delivering messages is set to be privatised. The Unions say that the Royal Mail is the type of company, offering such an essential service as it does, that should be under state ownership.

The Unions are right. How could we possibly manage without the Royal Mail if it wasn’t for email, Facebook, Twitter, Skype, LinkedIn, oh and DHL and TNT and, well… the list goes on a fair bit.

Delivering messages by the British postal service was once a lynchpin of the British economy, and indeed of the British Empire. Where would Victorian Britain have been without it?

But, and this may come as a shock to some, Queen Victoria is no longer on the throne and these days we have this thing called the Internet. Funnily enough, in this Internet age the Royal Mail has found a new function – namely to be the means by which shoppers and eBay users can have the products that they buy online delivered.

Some of the products shipped over the Internet will be sent that way only on a temporary basis. Love Film is a great user at present, but for how much longer? Given the increasing ease by which we can watch films online whether there will be a need for DVDs delivered by post seems unclear.

The Unions don’t like it, and it may be harsh to say that they need to accept Queen Victoria isn’t the throne anymore, but their concerns are legitimate. But the government has come up with a way to appease workers; 10 per cent of the shares on offer will be given to staff. Unions may try to block the privatisation, but once it has happened they will surely be forced to step back.

The Royal Mail has too many competitors for the Unions to risk weakening it, and the job security of members.
But there are some questions.

Does Royal Mail have an unfair advantage? In much the same way BT used to have (perhaps still does) an unfair advantage in supplying cables to the home (which the competition authorities tried to counteract), the Royal Mail has a distribution monopoly. When was the last time you went to the Post Office to send a parcel and the clerk asked you if would be using the Royal Mail or DHL today?

And then there is timing.

Privatising state companies, such as the Royal Mail and indeed Lloyds Bank and RBS, may well be a good idea. Frankly, the government coffers could do with some extra money. But does that mean the ideal timing is now? It may, but right now the government can raise money easily and cheaply.

The plans to privatise the Royal Mail have nothing to do with whether this is a good time, and a lot to do with where we sit on the political calendar.

Finally, there is a question mark over the belief, commonly held, that governments are lousy at running companies and that the private sector is always best. Maybe the private sector is best, but perhaps not for the reasons generally given. Lots of private firms turn out to be badly run, even more badly run than state owned firms. It is just that such firms go bust. State firms tend to get more subsidies.

See it in terms of evolution.

This works by having lots of different ideas, and selecting only a very small proportion of them. You can’t second guess what evolution will throw up next. The private sector scores over the state sector because it has survivor bias built in. Good businesses evolve. The state sector tries to do things via a kind of intelligent design, and that is what doesn’t work.

© Investment & Business News 2013

Don’t write-off Microsoft yet. It has patented an application for incentivising people to watch more ads. It’s a clever idea, but may suffer from a fatal flaw. Erm….adverts. They are everywhere.

Have you ever had the misfortune to watch a programme on the ITV player? If you are interrupted and put the programme on hold, and you lose connection, you may have to re-start the app. Each time, you have to sit through the ads before you start watching. If you are unlucky, and keep being interrupted, you have to watch ads over and over again, before you can start viewing the content.

That is an extreme example. But we have all had that frustration of channel surfing only to find ads on virtually every channel. And you must have noticed that on some shows the ads seem to appear every few minutes. Take the ‘X Factor’. In part one we are reminded of what happened last week and what is happening in part two. Then we have the ads. In part two we get the highlights of part one, a sneak preview of part two and then we get the ads. It continues.

So we look away. It’s like a battle between our ingenuity in avoiding ads, and advertisers’ ingenuity in putting their ads in front of us.
Now Microsoft has patented an app for its recently announced Xbox One, due out later this year, using the technology behind its Kinect product to incentivise us to watch ads.

So the technology knows when we are not watching ads, when our eyes are, as it were, averted, but gives us credits when we give the ads our full attention.

It is thought we will be able to trade the credits for free content. There is one snag. Advertisers want to target their ads as accurately as possible. And if people start viewing them because they are being paid to do so, is there not a chance they will be the wrong type of audience?

The advertising industry itself, talks about ads being more interactive; about us choosing to view them. Well, let’s wait and see.

© Investment & Business News 2013

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In 2002 it was worth £200 million. In 2012 it was worth £5 billion. So, get out your abacus and work that one out. It is the equivalent of doubling every 26 or so months. That’s a near Moore’s law-like trajectory.

So what is that has seen such growth? Why online advertising in the UK, according to the Interactive Advertising Bureau (IAB).

Last year, digital advertising grew 12.5 per cent to a value of £5.5 billion. Within that, video advertising rose 46 per cent, social media by 24 per cent, but, and – take a deep breath before you read this figure – mobile advertising rose by a stunning 148 per cent on a like for like basis.
The value of total mobile advertising in 2012 was £526 million.

Here is a puzzle. Have you noticed that the ‘Telegraph’ has gone premium? You have to pay for content on its web site now. So that’s the ‘FT’, ‘Times’ and ‘Telegraph’. It is intriguing isn’t it? At a time when online advertising is growing at an extraordinary rate, mainstream newspapers are pretty much giving up on trying to use advertising as the main means by which they generate online revenue.

Drill into the IAB figures and a partial explanation may be revealed.

IAB said: “Paid-for search marketing increased 14.5 per cent on a like-for-like basis to £3.17 billion from £2.77 billion – representing a 58 per cent share of digital advertising.”

In the world of online advertising, ads are more closely targeted. Paying for keywords is incredibly accurate. Advertising in a newspaper is a bit more hit and miss.

Maybe the rise of video advertising will change that.

In the olden days before there was an Internet, adverting was about creating brands, about creating a warm feeling about certain products. It was harder to quantify effectiveness, but it did work.

Internet advertising is less subtle, and is more closely linked to very specific aims. Brand advertising provides the best hope for the publishing industry.

All this leaves some interesting questions? For how long can the growth continue?

Well as this article argues – see: The new convergence, advertising, shopping and entertainment – maybe for some time.

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here

Microsoft’s latest idea could be used to force us. Google’s plan is for us to want to. To do what, you may ask? Answer: view advertisements. The advertising industry is set to change and fortunes will be won and lost.

Consider the difference between the way Google makes money and the way Amazon does. Amazon is a store, an online retailer. Online retailers use online advertising as one of the main drivers of their sales. Actually when you think about it, the difference between Google and Amazon is quite subtle. In traditional retail position is everything. Rent for a premium spot on the High Street is a major overhead. For online retailers, position on Google or Facebook is the key.

This is the change that accountants are struggling to keep up with. There are ways to value a company’s assets based on real estate. But what about virtual space?

Microsoft, or so says the rumour mill, is planning to use its next Xbox, to try to gain control of the living room. And its Kinect technology may be the key. One of the ideas being suggested is that the Microsoft device will be able to detect when a viewer is not watching the TV, so that it can pause automatically.

Its sounds exciting, except of course the reason why the viewers has averted his or her gaze may be because they are bored with the programme. The implications for advertising are more interesting. Maybe the technology can be used to ensure we watch the ads. Similar ideas have already been mooted for smart phone’s. Powerful stuff, if a tad intrusive.

That’s not to say that Microsoft has advertising in mind with its product, as a general rule of thumb the company is not big on generating revenue from advertising. But is that not a possible consequence of its technology?

Google, on the other hand, has a more deliberate advertising-centric plan.

Have you seen that Pepsi ad yet? It’s pretty compulsive viewing. It shows a stunt car driver test-driving a new car, and giving the car salesmen the fright of his life. The ad has secured 33 million hits on YouTube. The other interesting thing about the ad is that that the joke underpinning it fits in well with the message Pepsi is trying to convey.

Susan Wojcicki, vice president of advertising at Google, has been making lots of noises in the press of late trying to express the Google vision of the future of advertising. She cites the Pepsi ad as an example of where she sees the medium going. She says that in the future digital advertising will be voluntary; that is to say customers will choose to watch an ad; that ads will be more relevant to viewers, more interactive and beautiful, and the effectiveness of the ads will be easier to measure. She cites another idea which is a little harder to explain. Essentially she says ads will run across platforms and devices, and will be targeted at people rather than specific mediums. See: Here’s The future of advertising, according To Google. 

Here is an alternative idea; the future of Internet advertising is video. One expert in the industry predicts that video advertising will double every two years until it dominates the industry. See: Soon all online advertising will be video

To be honest the Google idea is more appealing. Don’t you like concept of ads being fun, and watched out of choice, rather than kind of forced upon us. And don’t the ads on TV drive you potty?

The mistake some analysts make when considering online advertising, is to compare it with traditional advertising. Online advertising is more. It’s virtual real estate too, it as much overlaps with commercial property and related fields as it does offline advertising.
The big challenge is privacy. How can the online companies match their commercial interests with the natural desire for privacy? It is the unanswered question.

PS Here’s a dichotomy for you. According to the Institute of Practitioners in Advertising’s quarterly Bellwether survey, total advertising spend – that’s off line and online – fell in 2012, and it forecast a 0.3 per cent contraction this year.

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here