Today at a fascinating VC panel, Roger McNamee, one of the top Silicon Valley investors, said Silicon Valley is doing great (despite the lack of exit strategies, and a mediocre IPO market.)

"For the first time, Silicon Valley is now represented in every form of media except television," he said.

About two years ago on a visit to New York, I wrote that someone should tell Mayor Bloomberg that the center of the media industry is moving to Silicon Valley and the West Coast. Because Google, Yahoo, EBay, (and now YouTube, FaceBook, etc) are all media companies.

New York is very cool partly because of its large media industry. The largest news and magazine companies have a heavy presence in midtown where I was staying. You can't avoid seeing their ticker tape news headlines whirl around their buildings, and their giant logos at night.



My alma mater, the Financial Times US HQ is there, and so are large offices of Reuters, CNN, Time-Warner, Hearst, etc.



But it's a shame that the center of the media industry has moved to Silicon Valley and nobody told New York :-)

http://www.siliconvalleywatcher.com/mt/archives/2005/09/a_report_from_n.php



GOOG, YHOO, EBAY, etc, publish pages of content with advertising around it. They are not technology companies, they are technology-enabled media companies.

Yes, GOOG et al would rather not represent themselves as media companies because they republish content for free from media companies. Media companies will let a "technology" company do this but not another media company...

...

Please see:

A Report From New York City...

September 2005

Silicon Valley has become Media Valley - someone should tell NYC Feb 2007.

It is a company that has quietly managed to establish itself as a major real-time exchange for trading online advertising. It is a market that is very difficult to break into once first mover advantage is established because scale and liquidity are the most important attributes for the success of any exchange.

Mr Urschell said that there is probably only room for about three ad exchanges.

A neutral MSFT

An important aspect of AdECN is that it is neutral, it is not competing with advertising networks for ads, it trades the ads themselves, linking buyers and sellers, along with demographic, regional, and time-based delivery of advertising.

This neutral model could be a feather in MSFT's cap because Google is competing with its own publisher network. Advertising on Google's own sites has climbed to 64 percent of total revenues when it used to be evenly split with third-party publishers.

MSFT's AdECN exchange combined with its ad server technology could position MSFT as a preffered advertising partner for some publishers because it is not a direct competitor.

- MSFT recently won a major client, Digg, the community powered news aggregator.

- MSFT recently won EA, the world's largest gaming software company, to serve ads in online games.

MSFT is less of a competitor

- MSFT's own sites aren't doing that well, so it could claim that its own sites aren't competing against its publishing partners.

- In contrast: GOOG's own web sites grew 9 per cent in revenues in the most recent three months compared with no growth over the same period for its partner sites - GOOG 2Q 2007.



- Microsoft could sweeten deals with aggressive revenue sharing offers. It could potentially pay out more than 100 per cent of advertising revenues to publishers.

Google and Yahoo have tied up some of the largest online publishers into multi-year deals, however, most of the publishers in their ad networks can leave at anytime. Billions of dollars in online advertising revenues could switch to MSFT in an instant from GOOG and YHOO. It is a huge vulnerability for those companies.

A bonanza for publishers?

A battle for online publishers among GOOG, YHOO and MSFT could result in a bonanza for content producers. The revenue sharing agreements would favor the publishers and it could help some struggling newspapers and magazines.

Advertising agencies have become the prime target of the Internet giants in their most recent M&A activities.

It is all part of the roll-up in the industry, as Sramana Mitra describes it well.

It is also a way for GOOG, YHOO, and MSFT to acquire advertising agencies as part of their inevitable move up the value chain.

The goal in these acquisitions is not the technology but the revenues and customers. Why split revenues with advertising agencies? Especially if you know how much advertising content you can publish in the months ahead. And you have the computing platforms to scale the advertising content much more efficiently.

It is much better to acquire those companies because:

• You recover the share of ad revenues paid to the advertising agencies.
• You also buy the customers. And those customers are going to be increasing their online advertising spend dramatically as they finish up with advertising contracts elsewhere.

These are easy numbers to crunch for the CFOs and justify the valuations of the deals.

But the Internet giants will face challenges:

• These are more people based businesses than they are technology based.  They don't scale nearly as well as servers-and-software. Google and the others know how to grow through servers-and-software but not through people.
• Managing the advertising businesses is going to require skills in managing relations that are nothing like software developer relations. Managing those businesses well and not killing them will be a challenge.
• Their market valuations might come under pressure if their cost of business rises because of the people-scaling factor and impacts operating margins.

The Rise of the West Coast Media

This is all part of a larger trend as the new media companies of the West Coast grow in value, while the old media companies of the East Coast cutback and shrink.

GOOG, YHOO, EBAY, AMZN, and MSFT are all publishers. They publish pages of content and advertising. Some of it is subscription based, some of it is advertising supported. These are technology-enabled media companies.

Our West Coast media companies are growing by leaps and bounds. The East Coast media companies are shrinking.

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Additional:

Silicon Valley has become Media Valley - someone should tell NYC

 Silicon Valley is rapidly turning into Media Valley--and New York, NY should look out--the capital of the media world is shifting about 3,000 miles westwards. Some of Silicon Valley's largest companies are media companies: Google, Yahoo, EBay, for example are...

Posted by Tom Foremski on February 24, 2007 5:18 PM

The acceleration in the disruption of media

I'm often invited to talk to groups of people about what's going on in the media sector, and I often start with a simple observation: At no other point in our lives will we be witness to such a...

Posted by Tom Foremski on November 22, 2006 3:53 AM

Cherry picking advertising and not paying for the journalism

Google can sell advertising for much less because it doesn't have to pay for any journalism. Newspapers, TV and radio sell advertising so that they can pay for the journalism. Craigslist can operate a global classified ads business with...

Posted by Tom Foremski on May 17, 2006 2:17 AM

What happens if the old media dies too soon? The urgent need for solid online news media business models

Exploring the new media business models

Posted by Tom Foremski on November 14, 2005 7:00 AM

I met with Dave Goldberg recently, when he was in town along with other Yahoo media execs, and asked him about DRM.

"I've long advocated removing DRM on music because there is already a lot of music available without  DRM, and it just makes things complicated for the user." He said that Yahoo Music has done experiments where it has offered music with or without DRM, and that removing DRM boosts music sales.

He said that the Microsoft DRM that Yahoo Music uses "doesn't work half the time."

Mr Goldberg said that Yahoo Music will explore ways it can get "off the PC." He said that there would be an announcement later this year with a large partner. Removing DRM would make it easier for music to be played on different systems.

"The car is the one thing that is keeping CD sales alive. Getting music into the car is a challenge, I don't know what the best solution is," Mr Goldberg said.

.......

Additional Info:

Jobs welcomes the death of DRM

1.24.07: Apple DRM illegal in Norway

In media, the medium defines the DRM

DVD Jon says he has cracked Apple DRM

Digital Rights Management Primer

.......

By comparing publicly available traffic data from companies such as Nielsen Research, with research of its own, IDC found a big discrepancy in terms of the number of search queries tracked. Ms Feldman said, "Our model showed that there were seven to ten times more search queries being made and that the large search engines had only about 30 per cent of the search query traffic."

Ms Feldman said that the missing search queries, the dark matter of the search engine world, were coming from direct queries. People would go to a web site such as Amazon.com and type in a search query.

"This means that there is a massive business opportunity still to be had. The top search engines do not own the web, at least yet," said Ms Feldman.

The IDC results will be released at a Friday session at a conference organized by Fast Search & Transfer, a client of IDC and a vendor of search enterprise software. Earlier this week Fast introduced its AdMomentum product which allows online publishers to set up their own advertising networks instead of sharing revenues with Google, Yahoo or other ad networks.

. . .

Foremski's Take: The IDC findings are not a revelation for any online publisher. Peeking into the server logs reveals where traffic is coming from. For example, SVW gets less than 5 per cent of its traffic from search sites, and that is great because my traffic is not "surfer" it knows where I live and comes in direct. Yet, the bandwidth used by the search engine robots is one third of my total--to serve less than five per cent of my visitors.

The IDC numbers will help to dispel one of the big myths about the Internet, that the search engines drive substantial amounts of traffic therefore sites need to optimize for the search engines.

I've long said: optimize for your customers/readers not for the search engines. SEO, beyond basic principles, is not worth it, yet many companies spend a lot of money making their sites searchbot friendly rather than user friendly.

- - -

Additional Info:

Fast Forward conference blog

Fast Forward Conference Agenda

SVW:

The lie of distribution--search engines return very little value to news/blog sites yet hog bandwidth and increase server loads

GOOG: give us your content for free!

craigslist: Battling the bot armies

The lie of distribution

Posted by Tom Foremski on October 26, 2005 5:51 AM

The FAST AdMomentum software could increase ad revenues by more than 200 per cent for some publishers, compared with large advertising networks such as Google AdSense and Yahoo Publisher Network.

This is a software package installed in a publisher's data center. FAST says that it could also be used by a third party to offer a ready made online contextual advertising network that could be used to service many smaller online publishers such as blog networks. This means it could be used to compete with up and coming advertising networks such as FM Advertising, and AdBrite.

Publishers collect between 30 per cent to 70 per cent of the revenues that their advertising network partners receive--an amount that varies according to each deal. Google doesn't disclose the revenue split.

With AdMomentum, large publishers can establish their own advertising networks that support contextual ads, and also offer a wide variety of other types of advertising revenue such as impressions, pay per click, and also auctions.

Advertisers have a self-service interface and the software API is compatible with current advertisement tracking tools.

More than a dozen large publishers around the world have been beta testing the software.

Perry Solomon, VP of strategic market development at FAST, told SVW: "AdMomentum can be used to target ads to specific groups of people. One of our customers in Norway is using it to target ads to people on a street by street basis."

"This is a way for publishers to capture the share of the revenues that have been going to the advertising networks," he added. "The publishers already have advertisers, and they have the content, they don't need the advertising networks. We can provide them with a revenue engine."

Nearly one-half of Google's revenues in the past, have come from its AdSense network, which serves advertising on sites owned by online publishers. Large publishers such as New York Times, Knight-Ridder, and Time-Warner use AdSense.

Foremski's Take: This is potentially a game changing product and it brings back the advertiser relationship to the publisher--where it belongs.

For example, I've always wondered why the New York Times would run AdSense on its online front page, and the AdSense ads carry a text link at the bottom "advertise on this site." That says to everyone "we have no clue how to monetise this space and have handed over the customer relationship to a third party." That is suicide in today's world.

The advertising networks take a huge cut considering that they establish self-service advertising interfaces and run a bunch of servers and some software. Well, now the publishers can now do the same and cut out the middleman.

I can also see AdMomentum being used by local newspapers to essentially become the "AdSense" for their regions. They could sign up smaller online publishers within their local towns and neighborhoods and provide a much better targeted service to businesses and residents.

Additional Info:

FAST is headquartered in Norway and is publicly traded under the ticker symbol 'FAST' on the Oslo Stock Exchange. The FAST Group operates globally with presence in Europe, the United States, Asia, Australia, the Americas, and the Middle East.  For further information about FAST, please visit www.fastsearch.com.