Content Matters

Wal-Mart yesterday announced that it was offering bundled versions of a DVD plus a downloadable copy of the new Superman Returns movie.
There are a few configurations available - high and low-resolution, depending upon whether you want to view it on a PC or handheld device.  The download adds between $1.97 and $3.97 to the price of the base DVD, depending upon the version you want.

The downloadable version uses the "PlayForSure" DRM system and is not compatible with iPods, so the initial audience may be somewhat limited.  That said, this is a big step forward.  The entertainment industry has been doing everything in its power to stave off the day of downloadable content.  Yet here is Wal-Mart, the most mainstream retailer in America, partnering with Warner Bros to offer this bundle. 

These constraints have led some some to knock the offer, notably TechCrunch who anticipate that "we’ll be filing this under Failed Movie Download Models in the near future."  I think that misses the point.  With this effort, on top of recent announcements by Amazon and Apple, the genie is out of the bottle, and we can expect to see solid solutions for downloadable video in the near future.  I don't expect to see those advances from Wal-Mart, and maybe not Amazon either, but with the licensing framework starting to take shape, innovators will quickly fill the space with better solutions.

Mark Cuban, always full of provocative ideas, has an interesting post on the Blog Maverick blog suggesting that Newspapers rethink their value proposition.

Rather than focusing on their editorial expertise, Cuban suggests that their core competency is local advertising sales.  And, much as Google has repositioned itself from being a search company to being a traffic monetization company, Cuban suggests newspapers are well-positioned to sell local web advertising on behalf of global media companies like Google, Yahoo and MSN.

As the post points out, Google and Yahoo will never have the feet on the ground to make small ad sales to local merchants.  At the same time, applications like Adsense remain too complicated for the typical local merchant to master on their own.  That leaves an opportunity for someone to step into that void and make web advertising accessible to local merchants.  Cuban suggests newspapers fill that void, though you could make a similar argument for yellow page vendors.

While Cuban's argument is logical, on a practical level there would be some substantial hurdles.  "Old media" companies have already found it difficult to convert their print ad sales reps to selling online advertising.  Though it would seem to be a reasonably easy leap, in practice it's not.  Many of the print sales people I've worked with are very resistant to learning how to sell in this new world (and those who are not have probably already moved to new media companies).  One approach used by old media companies has been to bring on a separate, specialized sales staff to sell digital ads.  Unfortunately, the print sales reps often view them as a threat (competing for same ad dollar) and don't give them access to their customers.

The other challenge would be getting a commitment to this model from the top.  Few of the C-level newspaper executives I've met could be considered innovators.  With ongoing consolidation, most are focused solely on cost-cutting, rather than investing to grow the top line.

That said, if a newspaper wanted to make this switch, here's how I'd suggest they make the model work:
- First, create a set of digital advertising specialists to work hand-in-hand with the local sales reps
- Next, build a set of tools and reports - call it "Adsense for Dummies" that could be used online or offline (so local merchants would not even have to get on the Web to manage their program)
- Then, incent your local sales reps by paying a substantially higher premium for digital ad sales than for print ad sales, even if it means double-paying of commissions (to sales rep and specialist)

Could this work?  I'm skeptical.  Tell me what you think.

Last week's NY Times article, “For Wallflowers, a Time to Dance” described how some old media companies have become the darlings of private equity firms.  That comes as no surprise to anyone who has watched the private equity dollars flow to the content space in recent years.   

While much of the article focused on ClearChannel Communications and the antitrust hurdles it will have to clear, it also discusses the recent $1.6 Bn (plus $0.7bn in debt) deal to take Reader’s Digest private.  Ripplewood investor Robert Berner describes how he likes old media businesses, which tend to have strong cash flow and low multiples (Reader’s Digest sold for about 11x estimated 2007 EBITDA).  According to the article, “Private equity firms believe they can unlock value by selling off pieces or making drastic operational changes, in that they can sell off pieces and reduce operational expenses.”

I have no doubt that you can take a company like Reader’s Digest private, shed some unproductive assets, cut out some costs and improve short-term profitability.  So, I understand why this model makes sense to the private equity firms.  In a fairly short timeframe (24-30 months) you can “clean up” a company and flip it to a larger private equity firm or, depending upon market conditions, take it public again.

What’s less obvious to me is whether this is in the long-term interests of the Company.  Companies like Reader’s Digest are not going to build a sustainable business model simply by cutting costs.  I know – I’ve been places where they’ve tried.  For companies where growth has been flat or negative for more than a couple of years, the only way to reinvigorate the brand is to turn the model on its head.

If I were running a company with strong brand recognition and substantial but declining subscription revenue, I’d look to capitalize on the brand by aggressively changing the business model.  One obvious switch move in the content industry is from subscription to advertising, but you could also explore lead generation and freemium approaches.  The transition would be slightly uncomfortable and probably wouldn’t be feasible for a publicly traded company, but if you’re going to go private (or are already privately held), you can sustain the short-term turmoil in return for creating long-term, sustainable value.

The SIIA has added a new facet to January's Information Industry Summit.  "SIIA Previews" will take place the prior day (January 29) and will be an opportunity for emerging content and content technology companies to showcase their capabilities to potential partners, investors and clients.

Submissions are due by December 1, so before you pick up that turkey leg, take a look at the details here. 

Danny Sullivan, search engine guru and longtime editor of Search Engine Watch (acquired by Incisive Media this summer), has announced the formation of his new blog platform to be entitled Search Engine Land. 
While the name may conjure images of "Toto, I don't think we're in Sunnyvale anymore", the content itself will surely be top notch (and, let's face it, the available domains which include the term "search engine" are pretty limited by now).  Danny has partnered with "Paradox of Choice" author Barry Schwartz and SEW alum Chris Sherman to write content for the blog.
The official launch will be December 11.  In the meantime, if you can't wait to read Danny's thoughts, you can see his personal blog, Daggle (I especially like the Stonehenge pictures).
Best of luck to Danny, Barry and Chris with their new venture. 

EContent Magazine has just published its annual EContent 100, their listing of the most important companies in the content industry. 

The list is always interesting and brings a blend of content and technology companies.  In past years, the magazine provided a brief blurb on each of the 100.  This year, they’ve made a change.  Rather than a short description of each, they’ve created their 20/20 list, providing more detailed analyses of the twenty companies that provoked “the most banter” among their panelists.  I was thrilled to see that Alacra was on that list, along with companies as diverse as Feedburner, Groxis, Mark Logic, Factiva and Apple.

Perhaps it’s my darker side showing through, but one thing I like to do is to see which companies have dropped from the list.  Thirty-eight companies included in the 2005 list did not make their top 100 list this year.  Some, like Delicious, Intelliseek, QPass and Hummingbird were dropped simply because they were acquired and are no longer stand-alone businesses.  Others were “one-hit wonders”, showing up on the list for the first time in 2005 only to disappear a year later.  For example Active Navigation, Metatorial Consulting and Texterity  all appeared for the first time last year, only to drop off this year.  Perhaps they were “on the bubble” in 2005 and were edged out by more intriguing offerings in 2006.  Some decisions seem arbitrary.  Two of the leading consulting firms in this space, Shore Communications and Outsell, were included in the 2005 list but excluded this year.  This year, the classification and taxonomy entries shrunk, with my alma mater ClearForest and Recommind among those dropping off.

Those who dropped off can take solace in that it does not doom you to irrelevance.  This year’s dropped company list includes companies that dominate their industries such as Bloomberg, the Associated Press and Dow Jones.  Past year’s “dropped lists” have included companies such as Yahoo.

Here’s the full list of companies dropped from their list in 2006:

• Active Navigation, Ltd.
• Associated Press
• Blinkx
• Bloomberg
• ClearForest
• CM Professionals
• Day Software
• Del.icio.us (acquired by Yahoo)
• Dow Jones
• eMeta (acquired by Macrovision, who are on the 2006 list)
• HighWire Press
• Hummingbird (acquired by OpenText)
• Ingenta
• Intelliseek (acquired by Nielsen/Buzz Metrics)
• Mediasurface
• Metatorial Consulting
• Mirror Image Internet
• Moreover Technologies
• NTTDoCoMo
• NXTbook Media
• Outsell, Inc.
• PTC
• Qpass (acquired by Amdocs)
• Recommind
• RLG
• Sealed Media (acquired by Stellent, subsequently acquired by Oracle)
• Serena Software
• Shore Communications
• Step Two Designs
• 10-K Wizard
• Texterity
• Thunderstone Software
• Verity
• WebEx Communications
• WebSide Story
• Welchman Consulting
• Xrefer
• Zinio Systems

All in all, the eContent 100 is an interesting snapshot of the content industry.  And while no list or ranking can please everyone, Michele Manafy and the eContent team do a great job overall.

Where do technology professionals turn for the latest information about Web 2.0 applications?

Traditionally, that role has been filled by trade publications like InfoWorld and, once-upon-a-time, PC Magazine.  But in the Internet age, they’ve largely become irrelevant for the professional market.  CNET seemed to hold that mantle for a while, but they’ve struggled to balance between software applications and personal technology and have been in a downward spiral this year.

For those involved in application development for the web, the place to turn for relevant, updated information is Michael Arrington’s TechCrunch blog.  Initially begun as a hobby, the blog today serves up more than a million page views per month and has more than 140,000 subscribers to its RSS feed.  According to a Wall Street Journal interview of Arrington, the site today generates more than $120k per month from a combination of advertising, on-line job postings, sponsorships and hosting parties.  That’s all with a staff of three.  TechCrunch leverages John Battelle’s Federated Media ("FM") to secure advertisers, so the only staff they need is editorial, resulting in a minimalist cost structure.

TechCrunch has also caused a phenomena often referred to as the TechCrunch Effect.  Sites profiled on TechCrunch see a significant and immediate increase in traffic, often seeing 5-10% of the TechCrunch audience visit or register within a 24-hour period.  Looking at their impact through another lens, Metrics 2.0 suggests that Web 2.0 applications profiled on TechCrunch will receive roughly $1 Billion in venture funds in 2006.  As of early November, 62 such startups have received more than $855M (though Limelight Networks alone accounts for $130M of that).

I’ll leave it to Brad Feld and others to debate whether the TechCrunch effect is good or bad (as in Geoffrey Moore’s Crossing the Chasm, these early adopters may not be the customer base you should target your application to), but it’s clear that TechCrunch is having a huge impact.

Will CNET concede their spot to TechCrunch?  Not without a fight.  CNET has just launched a new blog site, Webware, led by editor Rafe Needleman, who will also tap four other CNET writers and editors.  The site is not as focused as TechCrunch, but is sure to improve over time.  In the meantime, TechCrunch has shown that a nimble blog can secure a dominant position in a competitive market.  And for that, TechCrunch is clearly one of the fifty content companies that matter.

This weekend, John Markoff of the Times penned an interesting article on the potential of the Semantic Web (aka “Web 3.0”). 

Where Web 2.0 has introduced social applications and collaboration, the so-called Web 3.0 is focused on providing context and meaning to content.  The Web 3.0 world Markoff describes will act more as a guide than a simple navigation system, providing answers to natural language searches.

The article describes the current debate over whether the Semantic Web will require a new infrastructure, or whether it will emerge organically, on top of existing web content.  Each side presents a huge challenge.  The organic growth, based upon tagging concepts like Delicious, Flickr and Digg, supposes that users will tag content making its meaning accessible to others.  That works to some extent, but I’m not sure how well that model scales.  Flickr has proven that we can get users to tag limited content on a large scale, but only because that tagging makes it easier to organize photos, something they need to do for their own use.  Delicious has gained acclaim, but still has only a million users and many of them have only a handful of bookmarks. 

It will be difficult to get users to tag content on a widespread basis.  Even bloggers, seeking to get their content read by the masses, infrequently tag their content for Technorati or other search engines. 

The other opinion is that we will use technology to read and understand content, automatically generating the metadata to make content understandable.  While the future holds great promise for this, today’s semantic tagging technologies have their own limitations.  Technology providers often point to defense/intelligence community initiatives as laying the groundwork for the semantic web.  Having spent a good deal of time in that space, I can tell you that the hype typically exceeds the results.  These technologies are highly effective when working with homogenous forms of content.  A rules-based engine can easily be trained to understand concepts in, for example, FBI field incident reports.  Apply that same engine to informal message traffic or blogs, however, and its accuracy drops way down. 

I think that the Semantic Web will evolve over time; it won’t be a massive new framework, but instead will be a combination of organic (“collective intelligence”) and technology solutions.  The solutions won’t try to “understand the web” as a whole, but instead will provide solutions for specific tasks or sectors.  In the meantime, vendors should try to avoid over-hyping these capabilities, the way that artificial intelligence was hyped during the 90’s.  Let’s try to deliver small, targeted solutions, then build upon those.  Then, at some point, we can look around and say “oh, I guess all these cool new apps are what we meant by the Semantic Web”.   In the meantime, I wouldn't be so quick to give it the Web 3.0 label. 

Zimbra, a provider of hosted collaborative applications, announced that it will be adding some offline capabilities to its Ajax-based office suite. 

Zimbra's applications are in the same category as Google Docs & Spreadsheets and Google Calendar, Zoho, Preezo and a host of other online would-be Microsoft Office competitors.  The SaaS concept and the collaborative capabilities of an online office suite are appealing.  But the downside is that most of us still are not connected 24x7. 

Many of the hosted applications seem to believe that offline access is anathema to their business model.  When I began to use SalesForce.com, my greatest frustration was that I had no offline access.  A plane trip following a week's worth of sales calls is the perfect time to enter all those detailed contact notes.  But not for Salesforce users; not with their "no software" logo.

Zimbra, along with soon-to-launch Scrybe (see TechCrunch post from October), seem to understand that (at least limited) offline capabilities are a must-have in order to gain any meaningful level of adoption.  Zimbra's goal is for users to have the same experience whether online or offline, supported by synchronization of any work performed offline.  That will include use of calendars and contacts lists, as well as documents.  The announcement first came at O'Reilly's Web 2.0 conference last week.

Down the road, we will reach a point when connectivity can be taken for granted, even in planes, trains and automobiles.  In the near-term, adoption of hosted solutions will be higher for those providers who provide a bridge to the offline world.

For more on Zimbra's announcement, take a look at the Zimbra blog and O'Reilly Radar.

The private equity market for content companies remains strong.

Summit Media, a newly formed company funded by Wind Point Partners and former Primedia founder Bill Reilly, announced it has acquired Highline Media and Pfingsten Publishing.

Pfingsten is a b2b publisher with magazines, conferences and web products focused in three markets - Art, Industrial Manufacturing and Retail Financial Services. 

Highline was funded by Spire Capital in 2003 to acquire the assets of the National Underwriting Company (NUCO) and later added Insurance and banking data assets from Thomson Financial.  Highline, led by Andy Goodenough, has had strong growth the past three years across its magazine, data and conference businesses.

Congratulations to Highline, Spire and Pfingsten, and best of luck to Bill Reilly and the new Summit Media.