Overture must transform itself from ad company to search company

Overture still looks like a loser, as new competitors enter its indefensible niche and its customers drive harder bargains. [Thanks MarketingFix]

Since [last year], Overture’s traffic acquisition costs have skyrocketed from about $40 million in the first quarter of 2002 to just over $120 million in its most recent quarter.

What’s more, Overture’s Ebitda profit margins have decreased from about 23 percent in the first quarter of 2002 to slightly north of 10 percent today

If Overture is to survive as an independent company, it’s going to have to pull off one of the greatest transformations of the Internet era. Overture will have to transform itself from ad company to search company. It will have to move from thinking of its customers as advertisers to thinking of its customers as consumers looking for information.

Twilight of the Net

Pipe companies shouldn’t be allowed to own the content that runs on their pipes.

I’ve been saying all along that it’s bad business and that pipe company shareholders are ill-served by their ventures into the content business. But it’s beginning to interfere with the proper operation of the first amendment.

A bunch of really big companies, including Amazon, Microsoft and Disney, are petitioning the FCC not to change the rules that govern cable and DSL access monopolies. They’re afraid these monopolies are going to limit what equipment can be used to connect to the Internet and what content we can see. There is already plenty of evidence that the telcos want a share of Internet content for no other reason than consumers go through their networks to get to it.

Independent producers (and Democratic FCC commissioners) want to keep the FCC from making it easier for distribution oligopolies to squeeze them out. Lawrence Lessig shows us that the squeeze has been going on for a couple of decades already.

Comcast, the largest cable company in the US, won’t permit competitors like DSL companies to advertise on their systems.

In the eighties, the cable monopolies used their clout to get a controlling share of every new cable channel they agreed to carry. The deadening sameness of cable programming isn’t surprising. All the creative decisions were made to please an industry whose core competencies are political payoffs and digging holes in the ground.

Lessig points to an excellent interview with Barry Diller, where Barry says that the guys that own the pipes into our homes are going to end up owning all the content. If the FCC permits pipe companies to discriminate against content in the name of competition, there will be a lot less competition in the content business ten years from now.

Apple's music store: one step in the right direction, five steps back

Apple has built a great music store, but it’s not enough to get me to switch.

For the cost of a “CD” from Apple’s music store, I can by a real CD from Amazon.

Apple’s CD has DRM built in. A real CD isn’t copy protected (yet).

Apple’s CD doesn’t come with liner notes and lyrics. A real CD has all its information.

Apple’s CD uses 128bit lossy compression. A real CD sounds better.

Apple’s CD can only be played back on iPods. A real CD can be made to play back on all MP3 players, including iPods.

A lot of Apple CD’s don’t have all the tracks. A real CD has all the tracks of the original (and sometimes more).

David Galbraith is right that Apple’s music store hasn’t changed the economics of the music business. It may be a big step forward, but until the business itself is changed, consumers are still going to take it in the neck. In the meantime, I intend to insist on physical CD’s without DRM.

Slate's making money

Slate took in more money than it spent last quarter. That doesn’t mean they’ve paid back the $20 million that Microsoft invested in them or justified all the free promotion that MSN gave them, but it’s great news for a number of reasons.

  • It’s remarkable that they did it in the very slow first quarter of the year. That bodes well for them as the online ad market warms up.
  • Microsoft is a lot less likely to pull the plug at some point now that they’re not losing more money every day they operate.
  • They did it by producing thoughtful content.
  • It gives us some hope that Salon will be able to make it past their current difficulties.
  • This should give some encouragement to those who believe that we’ll all be better off if Web content is free.

Congratulations, Slate!

Google is a search company

Google is a search company. “Duh!” you say. But, The idea has been going around that Google is becoming an advertising company:

Google is an advertising company. Search is a fairly finite field in computing – and Google’s research team is now bigger than any University’s – they have this area sewn up. What they don’t have sewn up is the technology and services required for advertising, and this is how Google makes its money.

That’s wrong. Google is a search company. Overture is an advertising company. The difference is obvious when you look at what they deliver to their users. Overture delivers ads, Google delivers search results.

The idea that Google is an ad company stems from a misunderstanding of the content business. While a content company may get most or even all of its revenue from advertising, it never forgets that its user loyalty flows from its quality of service and content. And no one knows better than Google how quickly that loyalty can shift to someone else.

That doesn’t mean that Google won’t be working hard to advance that state of the art in online advertising. But the meme “You’re not a X company, you’re a Y company.” is one of those things that have given management consultants a bad name.

Research hints at new revenue pressure on telcos

TNS Telecoms says that per-user telecom spending in the US decreased in the fourth quarter of 2002, the first quarterly decrease in more than three years.

For years, telcos have been relentlessly focused on increasing ARPU (average revenue per user, not the guy who runs the Kwik-E-Mart) to the detriment of customer service and rational pricing. Between competition for zombie telcos, their inability to deliver any new value propositions to their customers, their debt chickens coming home to roost, and the Bush recession (or the Bush dip in the Clinton recession if you prefer) these guys have what positive thinkers refer to as “an insurmountable opportunity”.

Short-term, don’t expect the telcos to cut publishers any slack. They’re going to be looking for change under every cushion in the marketplace. Long-term, look for their receivers to loosen things up after they’ve written off their debts.

Reclaiming the Web with simplicity and hackability

Sterling Hughes is right. The Web is becoming too complicated for its own good. I have a long list of new technologies I have to learn if I’m going to understand how to build “modern” web pages.

One big reason for the triumph of the Web is that it was so easy to build sites with HTML. New standards and theoretical purity are beginning to stand in opposition to the beauty and simplicity of “good enough”. The good news is that “good enough” usually wins in the end.

Sterling’s post inspired Jeremy Zawodny’s praise of Moveable Type for its simplicity and hackability. It’s difficult to think of a single piece of software that is as loved as MT. Certainly there are no other content management systems are as loved by their users.

I love CSS because it has simplified my site design, markup, and therefore maintenance immeasurably and has inspired me to play around with site design and structure. I felt the same way about tables for a month, but eventually changing table-based designs made my head hurt.

Are you laying out the Unwelcome Mat?

Steve Yelvington says that unless readers are willing to accept Javascript, they’re unwelcome on most newspaper Web sites:

Another common complaint is “it doesn’t work with Javascript turned off.” Well, here’s a wake-up call: Since we often use Javascript to deliver advertising, users with Javascript disabled aren’t particularly welcome. They’re not participating in the fundamental free trade that enables news sites to exist: Your attention (which I can sell to my advertisers) in exchange for my content.

Why turn away readers?

Steve says it’s a limitation of Open AdStream, which is used by most newspaper sites. It seems to me that this is not the users’ problem to fix by welcoming Javascript. It’s the publishers’ problem to fix by figuring out a way to serve ads to users to who choose not to let you run programs on their computers.