About Frédéric Filloux

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The Rise of AdBlock Reveals A Serious Problem in the Advertising Ecosystem

 

By Frédéric Filloux

Seeing a threat to their ecosystem, French publishers follow their German colleagues and prepare to sue startup Eyeo GmbH, the creator of anti-advertising software AdBlock Plus. But they cannot ignore that, by using ABP, millions of users actively protest against the worst forms of advertising. 

On grounds that it represents a major economic threat to their business, two groups of French publishers are considering a lawsuit against AdBlockPlus creator Eyeo GmbH. (Les Echos, broke the news in this story, in French).
Plaintiffs are said to be the GESTE and the French Internet Advertising Bureau. The first is known for its aggressive stance against Google via its contribution to the Open Internet Project. (To be clear, GESTE said they were at a “legal consulting stage”, no formal complaint has been filed yet.) By his actions, the second plaintiff, the French branch of the Internet Advertising Bureau is in fact acknowledging its failure to tame the excesses of the digital advertising market.

Regardless of its validity, the legal action misses a critical point. By downloading the plug-in AdBlock Plus (ABP) on a massive scale, users do vote with their mice against the growing invasiveness of digital advertising. Therefore, suing Eyeo, the company that maintains ABP, is like using Aspirin to fight cancer. A different approach is required but very few seem ready to face that fact.

I use AdBlock Plus on a daily basis. I’m not especially proud of this, nor do I support anti-advertising activism, I use the ad-blocker for practical, not ideological, reasons. On too many sites, the invasion of pop-up windows and heavily animated ad “creations” has became an annoyance. A visual and a technical one. When a page loads, the HTML code “calls” all sorts of modules, sometimes 10 or 15. Each sends a request to an ad server and sometimes, for the richest content, the ad elements trigger the activation of a third-party plug-in like Adobe’s Shockwave which will work hard to render the animated ads. Most of the time, these ads are poorly optimized because creative agencies don’t waste their precious time on such trivial task as providing clean, efficient code to their clients. As a consequence, the computer’s CPU is heavily taxed, it overheats, making fans buzz loudly. Suddenly, you feel like your MacBook Pro is about to take off. That’s why, with a couple of clicks, I installed AdBlock Plus. My ABP has spared me several thousands of ad exposures. My surfing is now faster, crash-free, and web pages looks better.

I asked around and I couldn’t find a friend or a colleague not using the magic plug-in. Everyone seems to enjoy ad-free surfing. If this spreads, it could threaten the very existence of a vast majority of websites that rely on advertising.

First, a reality check. How big and dangerous is the phenomenon? PageFair, a startup-based in Dublin, Ireland, comes up with some facts. Here are key elements drawn from a 17-pages PDF document available here.

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Put another way, if your site, or your apps, are saturated with pop-up windows, screaming videos impossible to mute or skip, you are encouraging the adoption of AdBlock Plus — and once it’s installed on a browser, do not expect any turning  back. As an example of an unwitting APB advocate:

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Eyeo’s AdBlock Plus takes the advertising rejection in its own hands — but these are greedy and dirty ones. Far from being the work of a selfless white knight, Eyeo’s business model borders on racketeering. In its Acceptable Ads Manifesto, Eyeo states the virtues of what the company feels are tolerable formats:

1. Acceptable Ads are not annoying.
2. Acceptable Ads do not disrupt or distort the page content we’re trying to read.
3. Acceptable Ads are transparent with us about being an ad.
4. Acceptable Ads are effective without shouting at us.
5. Acceptable Ads are appropriate to the site that we are on.

Who could disagree? But such blandishments go with a ruthless business model that attests to the merits of straight talk:

We are being paid by some larger properties that serve non-intrusive advertisements that want to participate in the Acceptable Ads initiative.
Whitelisting is free for all small and medium-sized websites and blogs. However, managing this list requires significant effort on our side and this task cannot be completely taken over by volunteers as it happens with common filter lists.
Note that we will never whitelist any ads that don’t meet these criteria. There is no way to buy a spot in the whitelist. Also note that whitelisting is free for small- and medium-sized websites.
In addition, we received startup capital from our investors, like Tim Schumacher, who believe in Acceptable Ads and want to see the concept succeed.

Of course, there is no public rate card. Eyeo doesn’t provide any measure of what defines  “small and medium size websites” either. A 5 million monthly uniques site can be small in the English speaking market but huge in Finland. And the number of “larger properties” and the amount they had to pay to be whitelisted remains a closely guarded secret. According to some German websites, Eyeo is said to have snatched $30m from big internet players; not bad for a less than 30 people operation (depending of the recurrence of this “compliance fee” — for lack of a better term.)

There are several issues here.

One, a single private entity cannot decide what is acceptable or not for an entire sector. Especially in such an opaque fashion.

Two, we must admit that Eyeo GmbH is filling a vacuum created by the incompetence and sloppiness of the advertising community’s, namely creative agencies, media buyers and organizations that are supposed to coordinate the whole ecosystem (such as the Internet Advertising Bureau.)

Three, the rise of ad blockers is the offspring of two major trends: a continual deflation of digital ads economics, and the growing reliance on ad exchanges and Real Time Bidding, both pushing prices further down.

Even Google begins to realize that the explosion of questionable advertising formats has become a problem. Proof is its recent Contributor program that proposes ad-free navigation in exchange for a fee ranging from $1 to $3 per month (read this story on NiemanLab, and more in a future Monday Note).

The growing rejection of advertising AdBlock Plus is built upon is indeed a threat to the ecosystem and it needs to be addressed decisively. For example, by bringing at the same table publishers and advertisers to meet and design ways to clean up the ad mess. But the entity and leaders who can do the job have yet to be found.

frederic.filloux@mondaynote.com

News Heads Back to Intermediation

 

by Frédéric Filloux

Thanks to digital, news publishers thought they could build a direct relationship with their customers. Recent deals signal the opposite. 

Two recent deals between media and technology companies struck me as a new trend in the distribution of news. One involves the personal note management service Evernote and Dow Jones (publisher of the Wall Street Journal and owner of the giant database Factiva); the other involves Spotify and Uber.

The first arrangement looks symmetrical. Based on the Evernote Premium user’s profile and current activity, an automated text-mining system — “Augmented Intelligence” in Evernote’s parlance — digs up relevant articles from both the WSJ and Factiva. A helpful explanation can be found on the excellent SemanticWeb.com quoting Frank Filippo, VP for corporate products at Dow Jones:

Factiva disambiguates and extracts facts about people, companies and other entities from the content that comes into its platform. With the help of Factiva’s intelligent indexing, “as users capture their notes, we detect if a company name is mentioned and dynamically present back a Factiva company profile with related news about that company” from any of its premium news and business sources.

The deal is reciprocal: WSJ Subscribers who pay $347.88 a year (weird pricing) get one year of Evernote Premium (a $45value); and Factiva subscribers are eligible for a one-year five-login Evernote Business membership (a $600 value). This sounds like a classic value vs. volume deal: per subscriber value is high for Dow Jones while it should allow Evernote to harvest more Premium and Business accounts at smaller ARPUs. At this stage — the service starts this month and for the US only — it’s unclear which company will benefit the most.

At first, the Spotify-Uber deal doesn’t look at all related to the news business. But it breeds a broader trend in the distribution of news products. The agreement provides that Spotify Premium users will be allowed to stream their music in participating Uber vehicles. In this case, respective ARPUs differ even more than in the DowJones/Evernote arrangement. A Spotify Premium is charged $10 while, according to Business Insider, the average Uber rider spends about $50 to $60 a month. To sum up, it looks like this:

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In the these two deals, the advantage goes to the distributor. Without risking anything, Evernote get access to a valuable professional target group. As for The Wall Street Journal and Factiva, they push content that bears the risk of being more than rich enough for Evernote Premium users – without further need of a subscription to the Journal or Factiva. In this case, the key metric will be the conversion rate of users who are in contact with WSJ articles and opt for a trial subscription. (Based on past experience, publishers always overestimate the attractiveness of their paid-for contents.) This doesn’t mean Dow Jones should have passed on the deal; every new distribution channel needs to be explored. As for Spotify/Uber, it shouldn’t move the needle for either partner.

Except for the data issues.

This is the key point in which parties may not equally benefit. Having dinner with a business predator like Uber requires a long spoon — a strong legal one — to determine the accessibility of stats and customer data. To me, this is much more critical than the difficult to assess financial parameters of such deals.

What’s next? There is no shortage of possibilities. Among many:

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Deciding wether it is an opportunity or a danger for the news media sector is, to say the least, chancy. One sure thing: Digital technologies have successfully reconnected news media publishers to their customers. Some media outlets such has The Financial Times have successfully removed the intermediaries in the path to their audiences– whether these are B2C or B2B.

Today, everyone is worried about the unfolding of Facebook’s ambition to become the essential news distributor (see a previous Monday Note: How Facebook and Google Now Dominate Media Distribution.) In such context, letting other tech companies control too many distribution channels might create vulnerabilities. Possible ways to prevent such hazards are: (a) bullet-proof contracts and (b) approach new distribution schemes in a collective manner. (That’s the science-fiction part of this column.)

frederic.filloux@mondaynote.com

Hard Comparison: Legacy Media vs. Digital Native

 

by Frédéric Filloux

From valuations to management cultures, the gap between legacy media companies and digital natives ones seems to widen. The chart below maps the issues and shows where efforts should focus. 

At conferences and workshops in Estonia, Spain or in the US, most discussions I recently had ended up zeroing on the cultural divide between legacy media and internet natives. About fifteen years into the digital wave, tectonic plates seems to drift more apart that ever. On one side, most media brands — the surviving ones — are still struggling with an endless transition. On the other, digital native companies, all with deeply embedded technology, expand at an incredible pace. Hence the central question: can legacy media catch up? What are the most critical levers to pull in order to accelerate change?

Once again, it’s not a matter of a caricatural opposition of fossilized media brands versus agile and creative media startups. The reality is far more complex. I come from a world in which information had price and cost; facts were verified; seasoned editors called the shots; readers were demanding and loyal — and journalists occasionally autistic. I’m coming from the culture of great stories, intense competition (now gone) and the certitude of the important role of great journalism in society.

That said, I simply had the luck to be in the right place at the right time to embrace the new culture: Small companies, starting on a blank slate with the unbreakable faith and systemic understanding that combine into a vision of growth and success, all wrapped-up in the virtues of risk-taking. I always wanted to believe that the two cultures could be compatible — in fact, I hoped the old world would be able to morph swiftly and efficiently enough to catch the wave, deal with new kinds of readers, with a wider set of technologies and a proteiform competition. I still want to believe this.

In the following chart, I list the most critical issues and pinpoint the areas of transformation that are both the most urgent and the easiest to address.

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[Footnotes]

1. Funding: The main reason why newcomers are able to quickly leave the incumbent in the dust. When venture firms compete to provide $160m to Flipboard, $61m to Vox Media, or $96m to BuzzFeed, the consequences are not just staggering valuations. Abundant funds translate into the ability to hire more and better qualified people. Just one example: Netflix’s recommendation system — critical to ensure both viewer engagement and retention — can count on a $150m yearly budget, far more than the entire revenue of many mid-sized media companies. Fact is: old media companies in transition will never be able to attract such level of funding due to inherent scalability limitations (it is extremely rare to see a legacy media corporation suddenly jumping out of its ancestral business.)

2. Resource Allocation. Typically, the management team of a legacy media will assign just enough resources to launch a product or service and hope for the best. This deliberate scarcity has several consequences: From the start, the project team will be in the fight/survival mode, both internally (vs. other projects or “historical” operations); second consequence, in the (likely) case of a failure, it will be difficult to find the cause: Was the product or service inherently flawed? Or did it fail to achieve “ignition” because the approach was too cautious? The half-baked, half-supported legacy product might stagnate for ever, without making sufficient money to be seen as a success, nor significant losses to justify a termination. By contrast, a digital native corporation will go at full throttle from day one with scores of managers, engineers, marketers and sufficient development time for tests, market research, promotion, etc. The idea is to succeed — or to fail, but fast and clearly.

3. Approach to timing. The tragedy for the vast majority of legacy media is they no longer have the luxury of long term thinking. Shareholder pressure and weak P&L impose quick results. By contrast, most digital companies are built for the long term: Their management is asked to grow, conquer, secure market positions and then monetize. It can take years, as seen in many instances, form Flipboard to Amazon (which might have pushed the envelope a bit too far.)

4. Scalability vs. sustainability. Many reasons — readership structure, structurally constrained markets — explain the difficulty for legacy media to scale up. At the polar opposite, disrupters like Uber or AirBnB, or super-optimizers such as BuzzFeed or The Huffington Post are designed and built to scale — globally.

5. Customer relations. On this aspect, the digital world has reset the standard. All of a sudden, legacy media companies appeared outdated when it comes to customer satisfaction, from poor subscription handling to the virtuous circle of acquisition-engagement-retention of customers.

In the chart above, my allocation of purple dots (feasibility) illustrates the height of hurdles facing large, established media brands. Many components remain extremely hard to move – I personally experience that on a daily basis.  But there is no excuse not to take a better care of customers, not to reward the risk-taking of committed staffers, assign resources in a decisive manner or induce a better sense of competition.

frederic.filloux@mondaynote.com

Europe: The Digital Squeeze Is Coming

 

By Frédéric Filloux

A recent Bain & Co survey paints Europe’s digital future as squeezed between the explosive demand of emerging countries and the dominance of US-based internet giants.

The “Next Billion”, a phrase coined and propagated by the Quartz team, refers to the explosive internet growth in emerging countries — almost entirely fueled by mobile usage. The new phrase got its own  conference (last week in NYC, next May 19th in London) and a dedicated section on the Quartz site.

For Europe, the Next Billion will be hard: Last week, the global consulting firm Bain & Co published a survey that exposes what’s at stake. The report, titled Generation #hashtag (pdf here), was commissioned by The Forum d’Avignon, a yearly gathering of intellectuals and business people that explores cultural changes; the survey was conducted by Bain’s staff in Paris and Los Angeles over 7,000 respondents in 10 countries with the following internet status:

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Source : Internet World Stats

Bain’s key findings follow:

The next period is going to be dominated by digital natives, i.e. audiences that won’t have even known other forms of media vectors (video, communication, news or entertainment). In emerging countries, powerful forces are now in motion (emphasis mine):

Across the BRICS countries, the percentage of consumers 25 and younger—who are, on average, 40% more prevalent than in developed economies, according to Euromonitor—suggests the rapid rise of Generation #hashtag in emerging markets. (…) Over the past year, smartphone ownership rose significantly in emerging markets: from 45% to 50% in China, 14% to 21% in India, 45% to 54% in Brazil and 45% to 63% in Russia.

The chart below shows two important elements. One is the importance of the Generation #hashtag: the digital population comprised with digital “migrants” and “natives”. The second and even more interesting is the demographic distribution which, for emerging countries, clearly states the potential:

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These demographics show two major gaps: disposable income and networking infrastructure. Taking the long view, the first one could be overcome by strong growth in key areas. For the second, in many countries of Asia or Sub-Saharan Africa, land lines equipment is staying flat — and sometimes decreasing — while cellular networks are growing like weeds. A couple of weeks ago, Benedict Evans, from the Andreessen Horowitz venture firm, released his Mobile is Eating the World slide deck – from which I extracted these two charts :

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These figures might prove to be conservative as heated competition for the Next Billion has already started between tech giants. Google’s Project Loon, Facebook’s future drones network, both aimed at delivering broadband internet in developing countries, are soon to be joined by  Elon Musk’s plan to deploy 700 micro-satellites at a cost of $1bn to serve the same purpose. If we factor in Mark Zuckerberg’s idea to get a 100x improvement on internet delivery (10x reduction in cost of serving data multiplied by 10x improvement in compression and caching technologies), we can project the internet’s global availability challenge as solved within the next five years or so.

In this picture, Europe faces a huge industrial problem. The players who will benefit from the exploding demand in emerging markets are everywhere but in Europe, except maybe for Nokia Networks (not the handset division, now owned by Microsoft, but the remaining independent infrastructure business), and Sweden-based telecom maker Ericsson. Other are mostly Chinese, Taiwanese and Korean (Samsung and many others), they cover the entire field from networking infrastructure to mobile terminals. Symmetrically, most of the engineering brainpower and very large investment capabilities are concentrated in the United States with immensely rich companies such as Google or Facebook (or Musk’s Space X) thay are focused on capturing this Next Billion.

Europe’s options are limited. With no common language, no political leadership, encumbered by a gigantic bureaucracy, scattered and uneven access to capital (compared to the Keiretsu-like American venture capital system), Europe could choke, squeezed between Asian hardware markers and US-based software giants. Unfortunately, instead of organizing itself to favor the emergence of tech leaders — through decisive education programs and smarter immigration policies for instance — Europe’s main contribution to technologies has been the creation of tax havens. A textbook example of a missed opportunity.

frederic.filloux@mondaynote.com

The New York Times and Springer Are Wrong About Blendle

 

by Frédéric Filloux

With its idea of creating “iTunes for the press”, Blendle rattles the news industry’s cage. In spite of blessings from The New York Times and Axel Springer, the shiny new thing might just be a mirage.  

Last week, two young Dutch people came up with a string of magic words: “iTunes for the press”, “New York Times”, and “Axel Springer”. The founders of Blendle, Alexander Klöpping and Marten Blankesteijn, were promising a miracle cure to a sick industry: a global system for the distribution of editorial products (the iTunes reference), backed by the gold standard of digital journalism (The New York Times), and also supported by the European leader of the rebellion against Google (Axel Springer). Great casting, great promises. Like handing out Zmapp doses in an Ebola ward.

Blendle’s principle is to unbundle publications and sell stories by the slice, for €0.10 to €0.30 ($0.13 to $0.38) each. (Actually, on Blendle.nl, some articles shoot up to €0.89 or $1.11, publisher’s choice). Basically, you register and get €2.50 credit, browse a well-designed kiosk (or an equally good app), and cherry-pick what you want. Blendle added unique features such as the possibility of a refund for a story you don’t like; its founders saying its a mandatory feature for any e-commerce business (“returns” account for around 4% of transactions). Launched in April on the Dutch market, the service is a success: 135,000 subscribers so far. According to the founders, 20,000 to 30,000 are added each month. Not bad for a 16-million-people country that enjoys an internet penetration of 94%.

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This indisputable success spread beyond Netherlands when Blendle announced The New York Times Company and Axel Springer SE had invested a combined €3m ($3.8m) in the startup. (For more on the subject, see coverages by Les Echos (in French), The Guardian, Bloomberg BusinessWeek.)

I see many reasons to cast strong doubt about Blendle’s sustainability as a global business, and I see no benefit for digital media. The idea of unbundling news content is an old one. I recall a 1995 conversation with Nicholas Negroponte, at the time head of MIT’s MediaLab. Back then, he envisioned exactly what Klöpping and Blankesteijn are trying to implement now (both were 8-year old at the time.)

Negroponte’s vision never materialized and there are many reasons for this.

The first one is the hyper-abundance of free content, especially in English, a notion completely overlooked by Blendle’s advocates. Years ago, I used to tell my colleagues at Schibsted ASA in Norway that their country was so small (4.5m inhabitants) and their market position so dominant, with the huge traffic machines of their large print and digital publications, that if they put out online text in Pashto, it would still drive serious audience numbers. (Schibsted became a $2.2bn global player thanks to a strong diversification strategy served by a remarkable execution.) In the case of Blendle, the Dutch language serves as a cordon sanitaire, a kind of firewall mostly shielding publishers from the interference of free contents. In other words, it makes a relative sense for De Volkskrant, NRC, or De Telegraaf  to join Blendle since they are already well-positioned on a small market.

This cannot work for the English language and its 1.2 billion speakers spread across the world, including 350 million native speakers. Pick any subject in the news cycle — say, Blendle precisely. In a few clicks, I will get a 800 words story from the Economist, a 900 words one for the Guardian, another 700 words article for BusinessWeek and a 1600 words piece from TechCrunch. And I’m not mentioning the… 24,400 other “Blendle” references that pop-up in Google News. In this list, only The Economist intends to join the Dutch service. Hence my question: Would you pay even 20 cents to get the Economist story while a profusion of good coverage is available just one click away for free? Me neither.

Second reason for discounting the Blendle model: News media have always built their business on a “cross-subsidy” system. Quite often, high audience stories — that don’t even cost much to produce (sports as an example), support low audience but costly reporting such as foreign coverage or “enterprise journalism” (that is when editor decide to assign large  resources to go after a worthwhile subject –needless to say, this concept has become an endangered species.) Granted, a media powerhouse such as The New York Times still produces unique contents that justify paying for it (about the recent NYT economics, read Ken Doctor’s piece on NiemanLab). But I doubt that a buy-by-the-slice Blendle revenue will contribute for more than a fraction of a percentage point to the $200m a year cost of operating the Grey Lady’s 1300-staff newsroom.

Third reason: Lack of serendipity. A well-edited media — print or digital — is a clever assemblage of diversified subjects aimed a triggering readers’ curiosity for topics outside their usual range of interests. That’s not likely to work in Blendle’s model, because it relies on three entry points — Trending, Realtime and StaffPicks — that actually transfer the classical user-induced serendipity to the editors of the service. I doubt lots of media are actually willing to give up the opportunity to capture reader’s attention on the widest possible spectrum by leaving the reins in Blendle’s hands.

Fourth reason: Advertising loss. While digital ads is mostly a failure for the news industry, separating ads from content sounds like a weird idea. Today, publishers are working hard to get a more granular profile of their audiences in order to serve them with more relevant contents, tailored ads, and ancillary products. Content dissemination won’t help this process.

Why then do the NYT and Springer, both strongly attached to the value of their editorial production, jump aboard this boat? For the Times, it might have to do with the idea of diversifying revenue streams in every possible ways by extracting more dollars for its vast supply of occasional readers. Axel Springer’s motive is different. The German giant is literally obsessed with undermining Google’s de facto position in the news sector. Hence the bets it takes here and there, buying the French search engine Qwant or taking over the babbling Open Internet Project. Both choices are far from promising high potential, scalable moves.

Publishers who are tempted by the Blendle model also choose to ignore the damage suffered by the music industry. Once the user was given the opportunity to buy each song separately (for a dollar, not 20 cents), the ARPU quickly collapsed, and there was no turning back. Also, at the time, the paid-for music was not competing against free content — except for piracy — in the way that today’s paid contents have to face a profusion of free editorial, sometimes excellent.

And finally, let’s not forget that the original “iTunes model” is not as shiny as it used to be. For Apple, its ARPU went from $4.3 per user for Q1 2012, to $1.9 per user for  Q1 2014, a 56% drop. The reason: Users are massively switching to the flat-fee/no ownership model of music streaming (hence Apple bet on Beats.)
Even before it reached news media, the iconic iTunes system was already seriously damaged.

frederic.filloux@mondaynote.com

The two things that could hurt Google 

 

Google’s recent Search Box feature is but one example of the internet giant’s propensity to use weird ideas to inflict damage upon itself. This sheds light on two serious dangers for Google: Its growing disconnection from the real world and its communication shortcomings. 

At first, the improved Google search box discreetly introduced on September 5 sounded like a terrific idea: you enter the name of a retailer — say Target, Amazon — and, within Google’s search result page, shows up another, dedicated search box in which you can search inside the retailer inventory. Weirdly enough, this new feature was not mentioned in a press release, but just in a casual Google Webmaster Central Blog post aimed at the tech in-crowd.

Evidently, it was also supposed to be a serious commercial enhancer for the search engine. Here is what it looked like as recently as yesterday:

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Google wins on both ends: it keeps users on its own site (a good way to bypass the Amazon gravity well) while, in passing, cashing on ad modules purchased, in this case, both by Amazon.fr itself bidding for the keyword “perceuse” (drill) on Google.fr, and also by Amazon’s competitors offering the same appliance (and whose bids were lower.)

In due fairness, the Google Webmaster Blog explains how to bypass the second stage and how to make a search that lands directly to the site, Amazon.fr in our example. Many US e-commerce sites did so. Why Amazon didn’t is still unclear.

Needless to say, this new feature triggered outrage from many e-commerce sites, especially in Europe. (I captured these screenshots on Google.fr because no ads showed up for US retailers, most likely because I’m browsing form Paris).

For Google’s opponents, it was a welcome ammunition. Immediately, the Open Internet Project summoned a press conference (last Thursday Oct. 23), inviting journalists seen as supportive of their cause. In a previous Monday Note (see Google and the European media: Back to the Ice Age), I told the story of this advocacy group, mostly controlled by the German publishing giant Axel Springer AG, and the French media group Lagardère Active. The latter’s CEO, Denis Olivennes is well-know for his deft political maneuvers, much less so for his business acumen as he missed scores of digital trains in his long career in retail (he headed French retailer Fnac), and in the media business.

Realizing its mistake, Google quickly pulled back, removing the search box on several retailers’ sites, and announcing (though unofficially) that it was working on an opt-out system.

This incident is the perfect illustration of two major Google liabilities.

One: Google’s disconnect from the outside world keeps growing. More than ever, it looks like an insulated community, nurturing its own vision of the digital world, with less and less concern for its users who also happen to be its customers. It looks like Google lives in its own space-time (which is not completely a figure of speech since the company maintains its own set of atomic clocks to synchronize its data centers across the world independently from official time sources).

You can actually feel it when hanging around its vast campus, where large luxury buses coming from San Francisco pour out scores of young people, mostly male (70%) mostly white (61%), produced by the same set of top universities (in that order:  Stanford, UC Berkeley, Carnegie Mellon, MIT, UCLA…). They are pampered in the best possible way, with free food, on location dental care, etc. They see the world through the mirrored glass of their office, their computer screen and the reams of data that constitute their daily reality.

Google is a brainy but also messy company where the left hemisphere ignores what the other one does. Since the right one (the engineers) is particularly creative and productive, the left brain suffers a lot. In this recent case, a group of techies working at the huge search division (several thousands people) came up with this idea of an improved search box. Higher up, near the top, someone green-lighted the idea that went live early September. Many people from the left hemisphere — communication, legal, public affairs — might have been kept in the dark, not even willfully, by the engineering team, but simply by natural cockiness (or naiveté). However, I also suspect the business side of the company was in the loop (“Google” and “candor” make a solid oxymoron).

Two: Google has a chronic communication problem. The digital ecosystem is known for quickly testing and learning (as opposed to legacy media that are more into staying and sinking). In practical terms, they fire first and reflect afterwards. And sometimes retract. In the search box incident, the right attitude would have been to put up a communiqué saying basically, “Our genuine priority was to improve the user experience [the mandatory BS], but we found out that many e-retailers strongly disliked this new feature. As a result, we took the following steps, blablabla.” Instead, Google did nothing of the sort, only getting its engineering staff to quietly remove the offending search box.

There is a pattern to Google’s inability to properly communicate. You almost discover by accident that these people are doing stunning things in many fields. When the company is questioned, it almost never responds by providing solid data to make its point — that’s simply unbelievable from a company that is so obsessed with its reliance to hard facts. Recall Google’s internal adoption of W. Edwards Deming’s motto: In god we trust, all others bring data.

In parallel, the company practices access journalism, picking up the writer of its choosing, giving him/er a heads-up for a specific subject hoping for a good story. Here are two examples from Wired and The Atlantic.

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These long-read “exclusive” and timely features were reported respectively on location from New Zealand and Australia. They are actually great and balanced pieces since both Wired’s Steven Levy and Atlantic’s Alex Madrigal are fine journalists.

While it never miss a opportunity to mention its vulnerability, Google is better than anyone else at nurturing it. Like Mikhail Gorbachev used to say about the crumbling USSR: “The steering is not connected to the wheels”. We all know what happened.

frederic.filloux@mondaynote.com

How Facebook and Google Now Dominate Media Distribution

 

The news media sector has become heavily dependent on traffic from Facebook and Google. A reliance now dangerously close to addiction. Maybe it’s time to refocus on direct access. 

Digital publishers pride themselves on their ability to funnel traffic from search and social, namely Google and Facebook (we’ll see that Twitter, contrary to its large public image, is in fact a minuscule traffic source.) In ly business, we hunt for the best Search Engine Optimization specialists, social strategists, community managers to expand the reach of our precious journalistic material; we train and retrain newsroom staff; we equip them with the best tools for analytics and A/B testing to see what headlines best fit the web’s volatile mood… And yet, when a competing story gets a better Google News score, the digital marketing staff gets a stern remark from the news floor. We also compare ourselves with the super giants of the internet whose traffic numbers coming from social reach double digit percentages. In short, we do our best to tap into the social and search reservoir of readers.

hand_drawn_social_media_icons_by_rafiqelmansy-d41q4gm

Illustration by Rafiq ElMansy DeviantArt

Consequences vary. Many great news brands today see their direct traffic — that is readers accessing deliberately the URL of the site — fall well below 50%. And the younger the media company (pure players, high-performing click machines such as BuzzFeed), the lower the proportion of direct access is – to the benefit of Facebook and Google for the most part. (As I write this, another window on my screen shows the internal report of a pure player news site: In August it only collected 11% in direct access, vs. 19% from Google and 24% from Facebook — and I’m told it wants to beef up it’s Facebook pipeline.)

Fact is, the two internet giants now control most of the news traffic. Even better, they collect on both ends of the system.

Consider BuzzFeed. In this story from Marketing Land, BuzzFeed CEO Jonah Peretti claims to get 75% of its traffic from social and to not paying much attention to Google anymore. According to last Summer ComScore data, a typical BuzzFeed viewer reads on average 2.3 articles and spends slightly more than 3 minutes per visit. And when she leaves BuzzFeed, she goes back to the social nest (or to Google-controlled sites) roughly in the same proportion. As for direct access, it amounts to only 6% and Twitter’s traffic is almost no existent (less than 1%). It clearly appears that Twitter’s position as a significant traffic contributor is vastly overstated: In real terms, it’s a tiny dot in the readers’ pool. None of this is accidental. BF has built a tremendous social/traffic machine that is at the core of its business.

Whether it is 75% of traffic coming from social for BuzzFeed or 30% to 40% for Mashable or others of the same kind, the growing reliance to social and search raises several questions.

The first concerns the intrinsic valuation of a media so dependent on a single distribution provider. After all, Google has a proven record of altering its search algorithm without warning. (In due fairness, most modifications are aimed at content farms and others who try to game Google’s search mechanism.) As for Facebook, Mark Zuckerberg is unpredictable, he’s also known to do what he wants with his company, thanks to an absolute control on its Board of Directors (read this Quartz story).

None of the above is especially encouraging. Which company in the world wouldn’t be seen as fragile when depending so much on a small set of uncontrollable distributors?

The second question lies in the value of the incoming traffic. Roughly speaking, for a news, value-added type media, the number of page views by source goes like this:
Direct Access : 5 to 6 page views
Google Search: 2 to 3
Emailing: ~2
Google News: ~1
Social: ~1
These figures show how good you have to be in collecting readers from social sources to generate the same advertising ARPU as from a loyal reader coming to your brand because she likes it. Actually, you have to be at least six times better. And the situation is much, much worse if your business model relies a lot on subscriptions (for which social doesn’t bring much transformation when compared, for instance, to highly targeted emails.)

To be sure, I do not advocate we should altogether dump social media or search. Both are essential to attract new readers and expand a news brand’s footprint, to build the personal brand of writers and contributors. But when it comes to the true value of a visit, it’s a completely different story. And if we consider that the value of a single reader must be spread over several types of products and services (see my previous column Diversify or Die) then, the direct reader’s value becomes even more critical.

Taken to the extreme, some medias are doing quite well by relying solely on direct access. Netflix, for instance, entirely built its audience through its unique recommendation engine. Its size and scope are staggering. No less than 300 people are assigned to analyze, understand, and serve the preferences of the network’s 50 million subscribers (read Alex Madrigal’s excellent piece published in January in The Atlantic). Netflix’s data chief Neil Hunt, in this keynote of RecSys conference (go to time code 55:30), sums up his ambition by saying his challenge is “to create 50 million different channels“. In order to do so, he manages a €150m a year data unit. Hunt and his team concentrate their efforts on optimizing the 150 million choices Netflix offers every day to its viewers. He said that if only 10% of those choices end up better than they might have been without its recommendation system, and if just 1% of those choices are good enough to prevent the cancellation of a subscription, such efforts are worth €500m a year for the company (out of a $4.3bn revenue and a $228m operating income in 2013). While Netflix operates in a totally different area from news, such achievement is worth meditating upon.

Maybe it’s time to inject “direct” focus into the obligatory social obsession.

frederic.filloux@mondaynote.com

News Media: Diversify or Die

 

The era of news media based on single product is over. In every field, diversification is mandatory, but yields will vary. Decisive prioritization will make a big difference. 

Below is a list – by no means exhaustive – of products and services to be found in most media organizations. Their targets include both individual customers (I use the term on purpose because it goes well beyond the notion of readers), as well as corporate clients. Difficult as it may seem, I’ve assigned a tentative value to each item. In turn, the sum of items in any given mix must translate into the famous Average Revenue per User (ARPU), a number that should be everyone’s obsession. (In the end, the metric of choice ought to be the Margin Per User, but it is very complicated to assess for two reasons: one, some products take a while to take off and, two, in integrated media companies, most resources are spread across many products). These precautions aside, here is a quick overview:

338_table_diversif

Now, let’s examine each item in detail, looking at the nature of the product (or service), its business potential and its priority level.

Daily Print Occasional Reader. This is, by all means, the least valuable customer. For premium brands that increased their street price in recent years, the margin can remain significant. But, for the vast majority of media outlets, the costs of serving occasional, rare customers in remote places are staggering. The practice needs urgent reassessment. In most cases, this means eliminating the weakest point of sales.
Potential: Zero. Setting rare exceptions aside, this amounts to decay management.
Priority: Low. (Well, high priority when it comes to cleaning up this line of business.)

Daily Print Subscriber. Its indisputable value relies on a single fact: Some customers (note the emphasis) will pay almost any price to see their dead-tree copy on their doorstep or on their desk every morning. True. But less and less so. It won’t resist the generational shift nor the objective practicability – and depth – of the digital vector.
Potential: Limited due to unavoidable reader depletion
Priority: Limited. Stick to the well-known mechanism of subscribers gathering (good data management helps).

Weekend Print Occasional Readers and Subscribers. Basically, same as above – with one caveat: Some weekend print products still bring sizable advertising revenue. In the US, large dailies are said to bring half of their revenue on weekends (another reason to reconsider weekday products).

Digital Occasional Reader. Can be funneled in through SEO and similar tactics. In most cases, annual ARPU (mostly ads) remains in the single digit.
Potential: Depends on the ability to go for volume and on decisiveness in terms of advertising creation. To put it another way, if you stick to IAB-like formats, you’re doomed. Conversely, If you take control of advertising creation on your own properties, the stakes rise quickly.
Priority: High. Go beyond the usual low-yield system.

Digital Registered Users. In short, anything must be done to get your audience to leave names and email addresses. These are your high-contribution customers of tomorrow. Then, don’t spare any resource, both in terms of technology and smart people to operate it.
Potential: High.
Priority: Top.

Digital Subscribers. For quality media, this is the most precious revenue stream. (It doesn’t apply, of course, to commodity news providers or aggregators who bet solely on volume.) Hence the importance of harvesting as much registered users as possible. Next step is to work on the conversion rate. A good CRM mechanism is a plus, but a great, valuable, unique product is mandatory. User’s won’t pay for digital access (whatever the platform — desktop web, mobile, web, apps) unless they are convinced that you provide irreplaceable stuff.
Potential: High.
Priority: Top.

eBooks Publishing. Disappointing, so far. This must remain cheap to operate. Preferably, opt for partnering with an established digital publisher eager to take advantage of your brand’s reach and reputation. They’ll do the tedious part for you, sparing you most operating costs.
Potential: Average, can become a quiet and steady P&L contribution.
Priority: Low.

Intelligence & Special Reports / Customized Intelligence. This only applies to highly regarded B2B brands. It can be expensive to operate (it requires specialized staff — that must be kept small). Highly customized, bespoke intelligence reports carry significant upside, but they border on consulting.
Potential: Sizable if you are able to sell high premium products to a high-paying niche of solvent customers (every word in the phrase counts).
Priority: Average. There is a significant risk of losing money for a long time before achieving traction.

Events & Conferences. According to people who organize such, the segment is (a) very crowded, (b) highly dependent on the general business climate. Conference attendance usually is the first budget item slashed by corporations in down times. One sure thing, tough: Conferences & Event indeed are editorial products. They must be supported (ideally induced) by the news staff; like the so-called enterprise journalism, they must be the product of deep editorial thinking, with an angle; and they must be focused on providing something unique. If these boxes are checked, high margin will ensue. (Read The Eight Types of Journalism Events That Works on PBS Blog)
Potential: High if well engineered and executed.
Priority: Depends on the level of competition in your market. I’d say: High.

Moocs & Training Products. One of my favorites. Three reasons: One is demographic: More and more people will have no choice but to immerse themselves in deep training simply to survive in the job market. The second is the dual market potential: Corporate for paid-in-advance products, and B2C for sponsored courses. I no longer believe in the ability for a media company to collect paid-for users since big Mooc outlets (Coursera, Audacity, Kahn Academy and others) are sterilizing the business of online education by proposing great courses at no charge. But media can leverage on their brand, reach, as well as their portfolios of advertisers.
Potential: High
Priority: Top. Because we are talking about tomorrow’s customers here. Better start showing up on their radar. Risk is limited as long as you stick to a cost structure in which productions costs are pre-guaranteed.

eCommerce. Important, but impossible to detail here: Too many possibilities. Some media are doing well selling tickets for sports events or concerts, other are more into high-priced items aimed at corporations. In the end, it depends on the performance of your lead-gathering machine. Many companies are learning fast. Potential varies widely, depending on your market.

Content Syndication. This needs serious consideration. Digital news is overwhelmed by shallow, recycled, often mediocre contents. Premium is rare because it’s expensive and risky to produce. Therefore it carries tangible value. Hence the importance of a selective dissemination towards outlets that can’t afford original production. In order to realize its full potential, quality editorial production needs the adjunction of essential attributes such as granular semantic and a powerful, API-based distribution platform.
Potential: High (especially for well-structured and well-distributed contents).
Priority: Should be on the very Top.

Again: Many more items can be added to this enumeration. But a fact insists: As journalism sees its economics faltering, diversification is mandatory. It requires agility, light structures (in some cases disconnected from the mother ship), dedicated staff who think fast and react faster. The upside is promising.

frederic.filloux@mondaynote.com

Brace For The Corporate Journalism Wave

 

 [Updated with fresh data]

Corporations are tempted to take over journalism with increasingly better contents. For the profession, this carries both dangers and hopes for new revenue streams. 

Those who fear Native Advertising or Branded Content will dread the unavoidable rise of Corporate Journalism. At first glance, associating the two words sounds like of an oxymoron of the worst possible taste, an offense punishable by tarring and feathering. But, as I will now explain, the idea deserves a careful look.

First, consider the chart below, lifted form an Economist article titled Slime-slinging Flacks vastly outnumber hacks these days. Caveat lector, published in 2011. The numbers are a bit old (I tried to update them without success), but the trend was obvious and is likely to have continued:

336_PRvsJ_516px

Update:
As several readers pointed out, I failed to mention a Pew Research story by Alex T. Williams that contains recent data that further confirm the trend: (emphasis mine)

There were 4.6 public relations specialists for every reporter in 2013, according to the [Bureau of Labor Statistics] data. That is down slightly from the 5.3 to 1 ratio in 2009 but is considerably higher than the 3.2 to 1 margin that existed a decade ago, in 2004.

[Over the last 10 years], the number of reporters decreased from 52,550 to 43,630, a 17% loss according to the BLS data. In contrast, the number of public relations specialists during this timeframe grew by 22%, from 166,210 to 202,530.

 Williams also exposes the salary gap between PR people and news reporters:

In 2013, according to BLS data, public relations specialists earned a median annual income of $54,940 compared with $35,600 for reporters.

And I should also mention this excellent piece in this Weekend FT, on The invasion of Corporate News. –

In short, while the journalistic staffing is shrinking dramatically in every mature market (US, Europe), the public relation crowd is rising in a spectacular fashion. It grows in two dimensions: the spinning aspect, with more highly capable people, most often former seasoned writers willing to become spin-surgeons. These are both disappointed by the evolution of their noble trade and attracted by higher compensation. The second dimension is the growing inclination for PR firms, communication agencies and corporations themselves to build fully-staffed newsrooms with editor-in-chief, writers, photo and video editors.

That’s the first issue.

The second trend is the evolution of corporate communication. Slowly but steadily, it departs from the traditional advertising codes that ruled the profession for decades. It shifts toward a more subtle and mature approach based on storytelling. Like it or not, that’s exactly what branded content is about: telling great stories about a company in a more intelligent way versus simply extolling a product’s merits.

I’m not saying that one will disappear at the other’s expense. Communication agencies will continue to plan, conceive and produce scores of plain, product-oriented campaigns. This is first because brands need it, but also because there are often no other ways to promote a product than showing it in the most effective (and sometimes aesthetic) fashion. But fact is, whether it is to stage the manufacturing process of a luxury watch, or the engineering behind a new medical imagery device, more and more companies are getting into a full-blown storytelling. To do so, they (or their surrogates) are hiring talent — which happens to be in rather large supply these days.

The rise of digital media is no stranger to this trend. In the print era, for practical reasons, it would have been inconceivable to intertwine classic journalism with editorial treatments. In the digital world things are completely different. Endless space, the ability to link, insert expandable formats all open new possibilities when it comes to accommodating large, rich, multimedia contents.

This evolution carries both serious hazards for traditional journalism as well as tangible economic opportunities. Let’s start with the business side.

Branded content (or native advertising) has achieved significant traction in the modern media business — even if the quality of its implementation varies widely. Some companies (that I will refrain from naming) screwed up big time by failing to properly identify what was paid-content as opposed to genuine journalistic production. And a misled reader is a lost reader (especially if there is a pattern). But for those who pull out good execution, both in terms of ethics and products, native ads carry a much better value than banners, billboards, pushdowns, interstitials, or other pathetic “creations” massively rejected by readers. I know of several media selling dumb IAB formats that find out they can achieve rates 5x to 8x higher by relying on high quality, bespoke branded contents. These more parsimonious and non invasive products achieve a much better audience acceptance than traditional formats.

For media companies, going decisively for branded content is also a way to regain control on their own business. Instead of getting avalanches of ready-to-eat campaigns from media buying agencies, they retain more control on the creation of advertising elements by dealing with the creative agencies or even with the brand themselves. Such a move goes with some constraints, though. Entering branded content at a credible scale requires investments. To serve its advertising clients, BuzzFeed maintains 50 people in its own design studio. Relative to the size of their entire staff, many other new media companies decided from the outset to build fairly large creative teams (including Quartz). That’s precisely why I believe most legacy media will miss this train (again). Focused on short-term cost control, also under pressure from conservative newsrooms who see branded content as the Antichrist, they will delay the move. In the meantime, pure players will jump on the opportunity.

Newsrooms have reasons to fear Corporate Journalism — in the sense of the ultimate form of branded content entirely packaged by the advertiser — but not for the reasons editors usually put forward. Dealing with the visual segregation of native ads vs. editorial is not utterly complicated; it depends mostly on the mutual understanding between the head of sales (or the publisher) and the editor; the latter needs to be credible enough among his peers to impose his/er choices without yielding to corporatism-induced demagoguery.

But the juxtaposition of articles (or multimedia contents) produced on one side by the newsroom and on another hand by a sponsor willing to build its storytelling at any cost might trigger another kind of conflict, around means and sources.

In the end, journalism is all about access. Beat reporters from a news media will do their best to circumvent the PR fence to get access to sources, while at the same time the PR team will order a bespoke story from its own staff writers. Both teams might actually find themselves in competition. Let’s say a media wants to write a piece on the strategy shift of major energy conglomerate with respect to global warming; the news team will talk to scores of specialists outside the company, financial analysts who challenge management’s choices, shareholders who object to expensive diversification, advocacy group who monitor operations in sensitive areas, unions, etc. They will also try to gain access to those who decide the fate of the company, i.e. top management, strategic committees, etc. Needless to say, such access will be tightly controlled.

On the corporate journalism side, the story will be told differently: strategist and managers will talk openly and in a very interesting way (remember, they are interviewed by pros). At the same time, a well-crafted on-site video shot in an oil-field in Borneo, or on a solar farm in Africa will reinforce the message, in a 60 Minutes way. The whole package won’t carry silly corporate messages, it will be rich, carefully balanced for credibility and well-staged. Click-wise, it is also likely to be quite attractive with its glowing, sleek videos and great text that will have the breadth (but not the substance) of professional reporting.

I’m painting this in broad strokes. But you get my point: Authentic news reporting and corporate journalism are bound to compete as audience could increasingly enjoy informative, well-design corporate production over drier journalistic work — even though it is labelled as such. Of course, corporate journalism will remain small compared to the editorial content produced by a newsroom, but it could be quite effective on the long run.

frederic.filloux@mondaynote.com

How Linking to Knowledge Could Boost News Media

 

A key way to differentiate value-added news from commodity contents is to rework the notion of linking. Thanks to semantics and APIs, we could move from dumb links to knowledge linking.

Most media organizations are still stuck in version 1.0 of linking. When they produce content, they assign tags and links to mostly internal other contents. This is done out of fear that readers would escape for good if doors were opened too wide. Assigning tags is not exact science: I recently spotted a story about the new pregnancy in the British Royal family; it was tagged “Demography”, as if it was some piece about Germany’s weak fertility rate.

Today’s ways of laying out tags and and structuring topics are a mere first step; they are compulsory tools to keep the reader within the publication’s perimeter. The whole mechanism is improving, though. Some publications already use reader data profiling to dynamically assign related stories based on presumed affinities: Someone reading a story about General Electric might get a different set of related stories if she had been profiled as working in legal or finance rather than engineering.

But there is much more to come in that field. Two factors are are at work: API’s and semantic improvements. APIs (Application Programming Interfaces) act like the receptors of a cell that exchanges chemical signals with other cells. It’s the way to connect a wide variety of contents to the outside world. A story, a video, a graph can “talk” to and be read by other publications, databases and other “organisms”. But first, it has to pass through semantic filters. From a text, the most basic tools extract sets of words and expressions such as named entities, patronyms, places.

Another higher level involves extracting meanings like “X acquired Y for Z million dollars” or “X has been appointed to Finance Minister….”, etc. But what about a video? Some go with granular tagging systems; others, such as Ted Talks, come with multilingual transcripts that provide valuable raw material for semantic analysis. But the bulk of contents remain stuck in a dumb form: minimal and most often unstructured tagging. These require complex treatments to make them “readable” by the outside world. For instance, a untranscribed video seen as interesting (say a Charlie Rose interview), will have to undergo a speech-to-text analysis to become usable. This processes requires both human curation (finding out what content is worth processing) and sophisticated technology (transcribing a speech by someone speaking super-fast or with a strong accent.)

Once this issues are solved, a complete new world of knowledge emerges.  Enter “Semantic Culturonomics“. The term has been coined by two scholars working in France, Fabian Suchanek and Nicoleta Preda. Here is a short abstract of their paper (thanks to Christophe Tricot for the tip):

Newspapers are testimonials of history. The same is increasingly true of social media such as online forums, online communities, and blogs.
Semantic Culturomics [is] a paradigm that uses semantic knowledge bases in order to give meaning to textual corpora such as news and social media. This idea is not without challenges, because it requires the link between textual corpora and se-antic knowledge, as well as the ability to mine a hybrid data model for trends and logical rules. [...] Semantics turns the texts into rich and deep sources of knowledge, exposing nu- ances that today’s analyses are still blind to. This would be of great use not just for historians and linguists, but also for journalists, sociologists, public opinion analysts, and political scientists.

In other words, and viewed through my own glasses, these two scientists suggest to go from this:

335_semantic1

…To this:

335semantic2C

Now picture this: A hypothetical big-issue story about GE’s strategic climate change thinking, published in the Wall Street Journal, the FT, or in The Atlantic, suddenly opens to a vast web of knowledge. The text (along with graphics, videos, etc.) provided by the news media staff, is amplified by access to three books on global warming, two Ted Talks, several databases containing references to places and people mentioned in the story, an academic paper from Knowledge@Wharton, a MOOC from Coursera, a survey from a Scandinavian research institute, a National Geographic documentary, etc. Since (supposedly), all of the above is semanticized and speaks the same lingua franca as the original journalistic content, the process is largely automatized.

Great, but where is the value for the news organization, you might ask? First of all, a trusted publication (and a trusted byline) offering such super-curation to its readers is much more likely to attract a solvent audience: readers willing to pay for a service no one else offers. Second, money-making business-to-business intelligence services can be derived from modern tagging, structuring and linking. Such products would carry great value because they would be unique, based on trust, selection and relevance.

frederic.filloux@mondaynote.com