Time to cut the Internet Bureaucracy.

I am frequently struck by how Internet businesses seem to grow staff numbers on an exponential basis. Employing new people - preferably MBA types and under 35 - in endless non-jobs with little or no impact on the creation of new and exciting areas.  

Yahoo! are a interesting example.  Anybody who comes into contact with that organisation can see that at least 50% of their 15,000 staff could be made redundant and the underlying business would not suffer.  They are hugely overmanned and it seems that the management is either too inexperienced to see how to change things or view a the number of direct reports relates to the bonus they can demand.

Take Google, they now employ over 20,000 people worldwide.  The only business line that is really driving the revenue of the business is the original search business and the associated AdSense revenue.  Today the product is much the same and just as brilliant as it was when I met with Brin and Page when the company had just 7 employees back in 1999.  I suspect that percentage of today's 20,000 employees directly involved in that search and AdSense business line is fewer than 10% of the total workforce.  A friend of mine was telling me about a meeting he recently had with Google.  A recently appointed Director spent 45 minutes trying to explain precisely what her roles and responsibilities were within the company.  Anyone who takes 45 minutes to communicate such a basic aspect of their job is probably trying to desperately cover up the fact it is a non-job.  The same stories can be found in Yahoo!, Microsoft, and eBay.

The major Internet business have frequently fallen into the same trap that ultimately caused the demise of major telcos, steel companies and car manufactures back in the 1980s.  They failed to understand their markets and had grown into huge bureaucracies. This recession maybe a good time for the major Internet businesses to look critically at their businesses and start to cut the deadwood and also look to fund the brightest of their exiting alumni to start new businesses and generate real dividends.

Has Rich Media Advertising come of age?

Following on my comments on the future of ITV and their multimedia future post Friends Reunited, I thought I might take a look at the state of rich media advertising and how it is developing.

On a recent assignment I was tasked to develop a revenue model that would support a free-to-air Internet TV service.  Most of the models in place utilised versions of Google’s Adsense, but I felt that the user would be unlikely to click on such ads and so I started to look at rich media advertising such as ad-rollers of various types such as this pre-roller ad for the Jaguar XF.

Future revenue will be as a result of a user driven addressable advertising model whereby income is derived from the advertising model powering the Internet today.  Rich media addressable advertising is a new class of advertising currently being deployed across the internet and it makes extensive use of video traditionally associated with the TV and Cinema advertising and extends the capability of the internet to enable users to interact with the advert offering numerous opportunities for advertisers to extend the contact with an interested party.

Rich media advertising provides addressable, accountable television advertising solutions that enable the delivery of targeted messages and engage viewers through interactivity. This advertising solution improves the overall effectiveness of advertising campaigns while providing true accountability through real-time reach measurement.

The New Advertising Model

Consider the advertising model from simple pre-roller advertisements which are shown whilst applications are loading and simple pay per click advertising for the purposes of building the revenue model.  Pricing for rich media vary, but ads such as a 20 second pre-roller ad is approximately £12.50 CPM. 

The IPA TouchPoints Survey in July 2008 indicated that the current consumer usage of broadband access is 34 hours per month in the UK per subscriber and according to a May 2008 Report from Forrester, typical online video viewing is achieving average levels of 4 hours per month per user.  Over a 4 hour period a Internet/TV viewer is forecast to view ten 20 second pre rollers.  For 100,000 users, this would equate to £50,000 in advertising income per week.  Pre-rollers are the cheapest form of video rich media ads available.  Longer 30s and 60s linear ads, mid-rollers and end rollers generate higher levels of CPM income.  In the US, Microsoft is experimenting with running 60s mid-roller ad breaks for every 15 minutes of video viewed.  High advertising rates are being generated by the likes of Navic Networks (recently acquired by Microsoft) who are providing a range of interactive TV ads powered by web capabilities enabling users to respond to ads and make requests and provide feedback on content.  Internet/TV advertising pricing is currently at a higher level than corresponding standard Internet advertising as it is being treated as an extension of TV advertising which is historically very expensive per viewer compared to the Internet.

Pay per click (PPC) advertising provided by Google has been tried with internet video applications such as RooTV.  These PPC ads currently attract and average click price of around 40p per click on Google and 29p per click on Yahoo!  Click through rate (CTR) is dependent on subject matter and targeting. However, I would suggest that for the purposes of modelling use a CTR of 2% which is equivalent to current run of site rates across PPC advertising and the lower Yahoo! rate of 29p per click.

Addressable Advertising solutions help advertisers to reach the full potential of television advertising and improve the overall effectiveness of campaigns. These solutions allow advertisers to target groups of viewers using overlays on 30-second, 60-second, targeted video, or long-form advertising using any or a combination of the following: Request for Information (RFI), Telescoping, Viewer Polls, or Targeted Information Overlays.

Request for Information (RFI) & Fulfilment

RFI overlays are targeted, interactive enhancements that invite viewers to elect to receive more information on a product or service. RFIs generate highly qualified leads and provide the most targeted and direct connection with digital cable viewers. Advertisers are able to send coupons, product samples or brochures to self-selected viewers.

Telescoping

Telescoping is also known as linking to long-form advertising and bridges both linear and on-demand advertising by connecting customers with enhanced product information and enabling direct ecommerce.  Interactive overlays allow viewers to link directly to long-form VOD content such as the Jag ad above.  Telescoping combines the reach of linear advertising with the one-on-one nature of interactive on-demand content.

Telescoping brings together targeted interactive overlays with 30-and 60-second roller ads pushing viewers into longer more in-depth information about the advertised product or service.  Telescoping to VOD solution addresses one of the biggest challenges facing advertisers today that of implementing VOD advertisements without having viewers’ access content through a complex click through process.  By clicking on an interactive prompt, viewers are linked directly to the long-form video advertising content without the risk of them losing interest while navigating menus.

Viewer Polling

Poll overlays are graphical, interactive enhancements that are designed to engage viewers while obtaining their interests and opinions through viewer self-segmentation. Viewers use their existing remote controls to respond to questions posed in the overlay. Poll results are recorded, compiled, and electronically communicated back to the advertiser and can then be used to define targets for subsequent advertising campaigns.

Targeted Impressions/Spot Tags

Targeted Impressions are non-interactive overlays that enable advertisers to update their spots with time-sensitive information, address or phone number of the nearest location, product/service specials, etc.  Using targeted impressions, advertisers can customise a single spot for different groups of targeted viewers.

Conclusion

Rich media advertising combines with Internet TV content now offers a powerful new advertising medium for traditional broadcasters to extract a whole range of new advertising revenues to support their transition away from declining broadcast advertising.  The increase in efficiency of TV based advertising for delivering relevant messages to targeted viewers has huge additional benefits and allows the broadcaster to target new advertisers who have not traditionally tried TV advertising due to the high cost and unaccountability.  Rich Media Advertising has clearly come of age and so will the major Broadcasters be able to move from the dying big budget ad spend to this form of accountable advertising?  Time will tell and probably very soon!

Direct Internet Navigation and Error Correction

Direct Navigation and error correction are becoming significant areas of web development, enhancing the Internet surfing experience for users, enabling ISPs to monetise hitherto error traffic, helping brands to grow traffic through keywords and building advertising revenues for PPC and CPA players through the delivery of qualified direct navigation traffic. Today the PPC sponsored click through or the pay for transaction approach is the fiscal model behind all of the current error and keyword redirection companies such as Golog, Barefruit and Paxfire.

Originally pioneered by RealNames in 1998, the user entered a keyword and was taken directly via a paid-for route to a specific web page. Hence ‘jobs’ would be bought by Jobs.com for $1m. Each time the word ‘jobs’ was typed in the browser address bar of IE4, the user was taken to jobs.com website via an interstitial advising the user that they were navigating by a RealNames keyword. RealNames had a database of over 1.5m keywords, all of which were paid for. They were both brand names and a limited number of paid-for generic terms. The user of generics was restricted by MSN to use by them to navigate to MSN results pages. Other examples of direct navigation technology existed including the AOL keywords and Common Names.

The raison d’être of direct navigation was that a study by MIT in 2000 revealed that each time a user was forced to click to the next page to uncover a particular location, 50% of the audience was lost. Hence if a deep site location was 5 clicks away for every 1000 users searching for the initial site only 31 users would follow through. A subsequent study by the University of Boston proved that direct navigation improved eCommerce conversion by between 65% and 300% depending on category .

RealNames was forced into Chapter 7 by MSN because they viewed the rapid growth of keyword use as damaging their search business. Between October 2001 and May 2002 RealNames PPVs rose from 2m per month to 30m per month. The growth was 75% per month.

The direct navigation approach used by RealNames was successful because it had near 100% of user coverage through the embedding with Microsoft IE3 and IE4. This was also its main Achilles heel; since MSN were able to terminate this exclusive contract.

Since 2002 there have been a number of direct navigation solutions based on keywords that have been deployed. Most notably AOL continues with AOL keywords (although their use is restricted AOL subscribers). Yahoo! has deployed their own version on Yahoo! enabled browsers, as have Firefox and Opera.

Two years ago Google moved to introduce a ‘paid-for’ keyword direct navigation system based on the RealNames approach with the so-called “Browse by Name” approach, as well as a browser based spelling correction service using stored URL data. Google offered both Brands and Generics with direct navigation. Since it used the Google enable browser they have dispensed with any interstitial page. Type “Ford Explorer” in Google Browser and it will navigate directly to the deep site Ford Explorer page. Similarly type “Mortgages” it will directly navigate to “UK Mortgages Online”. All these solutions are browser-based. Google moved away from monetising error traffic but maintained its direct navigation approach with it's Google Toolbar and through a commercial relationship with Mozilla to apply direct navigation to results and brand sites to browser bar search on Firefox. The only other major keyword driven system was deployed by J-Word in Japan, which is based on 3721 company's downloadable system. 3721, a Chinese company, was acquired by Yahoo! in 2003 for $120m.

Error correction as a result of mis-spelt domain names and broken links in search results, resulting from 400 and 500 class errors are relatively new phenomena. Initial approaches that have been adopted were limited to the analysis of non existent domains (NXDomain). The first to be introduced was SiteFinder from Verisign using “wild card” technology provided by Paxfire in the US. This technology identified when a non-existent domain was being sought and offered the user the opportunity to buy the erroneous input. However, the service responded to both the “A” record domain name request to the authoritative name servers and “Mx” record which is associated with email. Providing a positive answer to a incorrect email address resulted in opening ISPs SMTP mail systems to virus attack. The service was quickly abandoned after a formal request by ICANN , the Internet’s governing body. This experience has made ISPs very suspicious of any DNS “modifications”. However, the level of NXDomain traffic has been identified as being a significant source of error traffic. Total network error traffic is estimated by Verisign to account for approximately 15% of total network traffic of which NXDomain traffic makes up about 20%. A recent study by Google recently indicated that 404 HTTP errors alone account for 6.96% of published pages on average of the 11.5 billion web pages currently published on the web or some 800 million error pages!

A more sophisticated approach is being rolled out by a British company called Barefruit. Barefruit is aiming to provide a relevant result for nearly 100% of network error traffic by not only dealing with the mis-spelt URL error resulting in an NXDomain response, but also covering the 400 and 500 class errors.

The Barefruit Service
Barefruit has a service which is based on the evaluation of broken links in search results and the identification of DNS errors. It can resolve 400 and 500 errors in particular the eponymous 404 Error as well as isolate NXDomain errors. It does this by utilising a proxy server to store a temporary cache of the page prior to the display of the error page. It then detects the error response and then analyses the broken link data and provides a further set of links rather than an error page. Barefruit estimate that a typical broadband user will generate fifty errors every month.

Barefruit patented solution covers the broadest range of error traffic.

1 Mis-spelled urls (NXDomain)
2 Keywords
3 400 Errors
4 500 Errors

The addition, of direct navigation methodology is relatively simple to achieve by combining the NXDomain redirection patches currently in the public domain with an extended taxonomy.

It differs from the previous direct navigation approaches in that it works at the ISP level and not the browser level, although a browser download is available, only deploying when an NXDomain event occurs in the browser or when a 400 or 500 error occurs in a link.

The Barefruit solution provides the ISP with an opportunity to take back a degree of control over “their” user traffic rather than losing it to third parties and also creates a revenue stream from users clicking through on sponsored links. One significant fillup for Barefruit is the rapid adoption of DPI - Deep Packet Inspection, which allows broadband and cable operators to monitor their web traffic and so identify http errors relatively easily and allow Barefruit to analyse and identify user preferences and hence present highly relevant results instead of errors.

Other Developments

Other developments in ‘Direct Navigation and Error correction’ are being pursued by a number of players although none currently offer a solution as comprehensive as Barefruit.

Google has launched its own keyword system in ‘Beta’ which is a direct click through system running from the address bar of Google enabled browsers. They are also introducing spelling correction at the browser bar level for mis-spelled URLs of the URL data stored in their database. This operates in a predictive mode similar to the methodology used in mobile phone text services. It does not eliminate mis-spellings but does reduce MURL events. The approach is not DNS based but its deployment in Europe is limited by the need to comply with EU Directive EU 2002/53. It also tends to offer the ISP with limited income opportunities.

Yahoo! is also developing a direct navigation service similar to Google’s ‘I feel lucky’ approach, taking users directly to the sponsored website. This is likely to be deployed through Yahoo! enabled browsers and their ISP partners such as BT Yahoo! in the UK. BT Yahoo! enable browsers already use keyword navigation utilising direct navigation. Yahoo! will use a variation in their T&Cs to overcome the issues associated with the EU Directive.

Both Yahoo! and Google suffer from lack of independence in respect of ISPs given Overture’s ownership by Yahoo! and relationship with BT Yahoo! and Google’s recent link up with AOL.

Paxfire, a US based company, has been promoting its mis-spelled URL service to ISPs. The service is based on a proxy server solution and relies on a data update solution similar to the ‘black listing’ of sites deployed by website filtering solutions. It was this service which was the basis of the Verisign SiteFinder service and has been demonstrated to be difficult to configure successfully to avoid key issues. Paxfire's Look-Up Service allows ISPs to capture search terms and misspelled URLs entered into any Internet web browser address bar and deliver relevant content and advertising. Paxfire's technology works at the network level and provides a plug and play platform that requires installation of the Paxfire Look-Up Engine (PLE) in front of a DNS server in the ISP’s network.

Golog is limited to NXDomain events and the current business model in Europe and appears to rely on a “forced redirection” after 4 to 7 seconds. Golog installs a software patch into an ISPs DNS infrastructure which redirects the NXDomain to a Golog analysis server which identifies a key term which is then looked-up against a Golog database and where appropriate Golog monetises its mis-spelled URLs through partnership with Miva (formerly eSpotting)or a PPA partner such as Zanox. The Golog solution does not cache the request and cannot deal with any 400 or 500 error traffic. There are some risks associated with the “forced rediection” approach as it can result in the user feeling that they have received an unrelated result which is a poor user experience and can result in the advertiser being charged for a click that a user hasn’t selected.

Conclusion

The development and interest in direct navigation and error correction is growing at a significant rate. In the competitive on-line advertising market, its user ability and untapped potential, it has the potential to supersede the current listings and search approach as users become more familiar with the ability to use the address bar as a direct navigation tool combined with auto error correction both at the browser and in the search listings. One key aspect of any solution that an ISP may apply lies in offering its customers a route to "opt-out" of any error redirection.

To date only Barefruit has developed a combination of direct navigation and error correction which covers nearly 100% of error traffic and it also enables the ISPs to be offered a very powerful revenue generating service from what had previously been regarded as rubbish traffic.