About Frédéric Filloux

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Blogs: the emergence of democratic publishing

In its last edition, Business week ran an updated version of a 2005 story about blogging. “What changed?”, asks Business Week “Two big things: technology and media”. BW recalls the hero of its 2005 article : ” A smart and hyperactive PR guy with a blog could actually be a leader in tech coverage. (…) Since then, megablogs with paid staffs, such as Michael Arrington’s TechCrunch and Om Malik’s GigaOm, have become titans. And sites like Techmeme
and Digg aggregate the hottest news—much of it from the megablogs. These are New Media champions, and they come from outside Old Media ranks. Some of them, it could be argued, wield more power than large metro dailies, or even magazines. Go to the Technorati search engine and see how many blogs link to TechCrunch, the leading source for dealmaking in Silicon Valley. Links are only one measure of influence, but a vital one in the blogosphere. The number is 170,908. That’s more than (gulp) BusinessWeek.com”.

Google traffic : comply or ignore?

Each and every media gathering those days includes one subject: how to deal with the increasing traffic derivated from search engines, should our sites be “optimized”, just “compliant” or “aggressively attractive” to search? Of course, Google is at the epicenter of the debate since it commands a market share for search ranging from 60% to 90% (depending on the country).

Search crawlers have given to our business a peculiar dimension. This Fall, managers will experience a queasy feeling as they fire up the spreadsheets and begin work on their ‘09 budgets. Search engines bring 40% to 60% of their traffic to be converted into revenue. How can they make sensible bets on revenue streams and forecast their expenditures when depending so much on the opaque workings of search engines? How to deal with such a level of inpredictability?

At stake is the ranking of a site when a user performs a search. The higher the site shows up in the response page, the likelier it is to be clicked on. And, in this matter, winner takes (almost) all since users generally don’t to look beyond the second page of results.

How to get to the top of the page? The first parameter is depth of content ; search crawlers give a better spot to rich sites rather than to shallow ones. Second is contents optimization; SEO (Search Engine Optimization) has become a (black) science; most of the work is done on structural aspects: internal linking, recursive contents, archives accessibility. Third is a more controversial approach: SEM for Search Engine Marketing, SEM involves the acquisition of keywords more likely to be searched by users. If I’m a lawn-mower manufacturer, I’ll do my best (means: pay a lot) to retain keywords associated to my business ; if I’m running a news website, I’ll try to react swiftly enough to see when a news item is likely to be hot in order to capture the biggest chunk possible of search requests on a particular event or developing story.

Let’s review and assess the three approaches.

First, let’s not forget there is some fairness in the increasing dependency to search: the better a site is in terms of content and user-friendliness, the better it will naturally perform. The search system uses a ranking algorithm, PageRank, based on the popularity of a site

Second question, should sites spend time and money to be optimized for search? Of course they do. I my view, there are at least two good reasons to do so:
a) Traffic is traffic. Media buying agencies tend to look at the bottom line: how many page views and unique visitors a month a site is harvesting. When a visitor lands in your site through a search engine, it is likely to stay for a very short time (one, two pages, no more) before bouncing elsewhere in the cyberspace. Actually, this behavior is on the rise, as shown by a recent study: in four years, the proportion of users accessing a site via its home page dropped from 40% to 25%. That’s the way it works, if you don’t like it, try newspapers. Once again, if the content is interesting, if an article is surrounded by cleverly arranged related links, then the visitor will tend to stay on the site and perhaps will bookmark it — then, bingo.

b) Reviving the long tail. One of the nicest things on the Internet, is its ability to revive its inventory. Undoubtedly, an optimized site helps to value old stories. That leads to the deep-linking policies. An increasing number of English language websites become more open to deep linking, even in their paid areas. For them a visitor searching for a 2006 article is a potential subscriber, rather than the mere purchaser of a $2.00 article. The reasoning escapes many French news sites, which remain stubbornly opposed to any open deep-linking policy.

Third big question, what about Search Engine Marketing, i.e. keywords acquisition? The answer depends upon your taste for mind-altering chemicals. SEM is a good way to improve your stats. But: a) it is very expensive, and b) the remanence of purchased traffic is low. You get a high, but it is a fleeting one. A major French newspaper is said to have spent E100,000 a month on keywords acquisition, a ridiculously expensive habit. Of course, from time to time, when you feel able to outsmart the market, you go for a one-shot deal. But doing so as a regular operational matter makes no sense. Plus, gravity always prevail in the end. One day, media buyers will take some time to have a closer look at the client’s statistics and will be able to discern the strong, sustainable, solid traffic from the elusive SEM-generated flow.

Last question — which is key in my view. Should editors and publishers remain stoic facing their increasing dependency to search engines? Of course not. We all know that slight alteration of search algorithm by Google has pushed many companies out of business. Applied to the news sector, it means that a 45% rate of traffic coming from Google can plunge overnight because of the mathematical tweak of a geek in Mountain View, California. The only way to mitigate such risk is actually to talk to the geeks. Media execs should send the following message to Google: OK guys, we’ve been able to develop a great business together — you bring us traffic, we send you back advertising revenues –, but in order to preserve this great relationship, we should manage better our dependency on your clever algorithms. In a nutshell, let’s find a way to work more closely to avoid Google affecting our business when your are fine-tuning your search process. We won’t interfere with your math wizards, but we need some guarantee that they are not going to mess-up wit our business. Of course, it won’t be as simple: SEO/SEM wizards try their best to cheat the Google system, which, in response adjust its algorithm to preserve some fairness in search results. The idea is simply to avoid collateral damages.

No doubt that, for the sake of preserving its “Don’ Be Evil” motto, Google will listen. Even in its position, the search giant cannot afford a PR offensive from desperate medias.

The Plaxo deal and the Facebook/Goolge clash

Two significant news items last week in the social network fray. First, cable giant Comcast bought Plaxo the n°3 social network behind Facebook and MySpace for a reported $100m (euro 64m). Plaxo sports a 40m members base (and a 50 people staff – I kind of like the ratio…) Why is Comcast doing this? According to New York Times tech blog Bits, “Comcast was a natural partner since Plaxo was already providing the Philadelphia-based cable giant with software to help integrate its cable TV, phone and Internet services into a common platform”. The integration is a bet on the inclination of TV series’ fans to congregate. It will be interesting to watch. The second item is the launch of Google Friend Connect. The service is of the typical Google everything-on-it kind. It enables every site to add a social network layer — and, here is the catch, to tap into big social networks such as Facebook or MySpace. As the state of the art now demands, it is a plug-in anyone can easily paste on their site. (To understand how it works, go to the Google video) or to read this description. Predictably, social networks giants are not elated. Three days after the Friend Connect rollout, Facebook decided to ban the new Google service from linking into Facebook. In a detailed statement on its developers site, Facebook is invoking privacy, the butcher touting veggie food. This is just the beginning of the showdown between the two giants.

South Korean Telecom’s American expansion

By Pierre Joo*

Virgin Mobile USA, one of the biggest US Mobile Virtual Network Operator (MVNO) confirmed preliminary talks with Korea’s largest wireless carrier SK Telecom “to explore possible strategic opportunities.” These are surely related to Helio, another troubled US MVNO that SK Telecom controls through a 69% stake (Earthlink being the other shareholder). One possible scenario according to mocoNews.net, which first broke the news, would be for SK Telecom to buy out VM, inject some fresh cash in the newly bought company, which would in turn buy Helio in an all-share transaction. SK Telecom’s move comes as no surprise. Sure, Korean high school kids switch cellphones every four months, and probably represent the earliest of early adopters of new mobile applications. Yet, the Korean giant can expect no exciting future from a saturated market of only 42 million subscribers, more than half of whom already are frenetic 3G, or 3.5G users. SK Telecom’s future growth obviously depends on overseas expansion. SK Telecom launched Helio in the US market in 2006, expecting that its superior technology (among many other innovations, it was the world’s first carrier to launch 3G, or broadcast TV on mobiles, significant investment capacity, and local partnership with well-established Earthlink, would give it enough competitive edge to attract all the tech savvy, high-ARPU driving users, starting with the Korean American community. Yet in a mature market such as the US, it was simply not enough to convince users to massively switch to Helio. With a mere 200,000 customer base, Helio has not been able to lure enough users, in spite of significant investments from its shareholders (last September, SK Telecom threw in another $270 million). SK Telecom lacked two key assets: a larger customer base to start with, and its own network. Last year, it approached Sprint Nextel, the very carrier which sells wholesale airtime to Helio, with a USD 5bln bid along with PE firm Providence Equity Partners, an offer Sprint turned down last November.

Virgin Mobile appears to be SK Telecom’s second pick, but can it be the right one? A Helio-VM merger could make sense: both run on the Sprint network and target different users. VM has focused on prepaid services aimed at young users different from the tech-savvy crowd Helio has been busy luring with high-end handsets and innovative services inspired from those offered in Korea. Yet, VM is badly hit by the US market downturn and experiences increasing pressure from investors: the company has lost more than 75% of its IPO value a year ago, and its earnings are heading south. Some would argue that taking advantage of VM’s shrinking market cap is a good opportunity, but can two troubled MVNOs make a right mobile operator? — Pierre Joo

*partner at Attali & Associés specialized in asian affairs

Bloomberg hires a press veteran as content chief

Out of the blue, Bloomberg LLC, the financial news service giant created by New City mator Michael Bloomberg, created a new position to fit the size of its new recruit: Norman Pearlstine. The man is a veteran editor: 22 years at the Wall Street Journal (including 9 at the top news executives) and 11 years as the editor-in-chief of Time Inc where he oversaw 154 publications and acquisitions of two portfolios worth $2bn. Another particularity of Pearlstine is its career in the private equity business. He joined the Carlyle Group in 2006 where he worked in the media and telecommunication division.

Why bringing up this résumé? Because it fuels further speculation that Michael Bloomberg could buy the New York Times, and combine its operation with Bloomberg (see Monday Note’s special report about the battle of newspapers in New York). As New York Times Dealbook put it, “Mr. Pearlstine’s hiring — and [Bloomberg Press release] talk of “growth opportunities” — might signal that Bloomberg LP is more apt to be a buyer than a seller these days”. Rupert is watching closely.

media finances — Shareholders pressure and the bubble

The examples stated above epitomize the increasing pressure of shareholders activists. The CBS/CNet deal has been, for a large part, prompted by an angry campaign led by the investment firm Jana Partners LLC. Jana criticized CNet strategy and called for a complete overhaul of the board. Actually, more and more media companies are facing shareholder actions. In past Monday Notes, we described the New York Times under attack by the Harbinger-Firebrand combined hedge funds. The Deal.com, a financial website, reviews the scope and the reasons behind such activism.

The flurry of deals in the Internet sector raises another question: are we facing another kind of Internet Bubble? In a lengthy article, the Wall Street Journal tells the story of financial bubbles in general, from internet to Chinese stocks or the US housing market. Here are some clues: – “Bubbles don’t spring from nowhere. They’re usually tied to a development with far-reaching effects: electricity and autos in the 1920s, the Internet in the 1990s, the growth of China and India. At the outset, a surge in the values of related businesses and goods is often justified. But then it detaches from reality.” And therefore, it is extremely difficult to go against the tide of optimistic investors. Until the tip of the curve. – Then, “When a lot of borrowed money is involved — as it often is in a bubble — once prices peak, the speed of their fall is intensified as investors sell urgently to pay down debt”. – Finally comes the “trading signal” : “At the height of the tech bubble, Internet stocks changed hands three times as frequently as other shares. “The two most important characteristics of a bubble are: People pay a crazy price and people trade like crazy”, says one of the researchers

Interestingly enough, this excellent WSJ story details the sources for its research. The Princeton trio the article refers to had been hired by current Federal Reserve Chairman Ben Bernanke, who was at the time head of Princeton economics department. The team was made of foreign born students (Chinese, Vietnamese and German) ranging from 32 to 39 year-old. This speaks well of some American Universities’ vitality and cross-pollination with the public sector.

CBS buying CNet, the content equation

When an aging TV network acquires one of the oldest independent web media properties, what does it mean? Last week, CBS took a major step to increase its internet presence by acquiring CNet Networks for a $1.8bn (euro1.56 bn). Created in 1992, CNet Networks is of the oldest media property on the internet. It runs a bunch of websites, ranging to news, games and downloads. The Company’s leading brands include CNET, GameSpot, TV.com, MP3.com, Webshots, CHOW, ZDNet and TechRepublic. On the financial side, CNet Networks shows mixed results: a nice revenue base ($406m for 2007) but a low operating margin (4%) (full statement here). For 2008, management expected revenue to grow by 8% to 13%, compared to 10% growth in 2006. Unfortunately, Q1 results were not exactly in line with those prediction: the first three months of 2008 yielded only 3% growth and a loss of $18m for the period. Wall Street made its unhappiness known. Those results prompted CBS to make its move: it offered a premium of 45% over the stock price. This is a strategic move: the TV network expects to triple its size of its Internet operations. Audience wise, CBS is expected to be among the 10 most popular Internet companies in the US. (CNet sites add 32m unique visitors a month to CBS’s 25m UV).

The sale of one of the last independent content site remaining, also emphasizes the intense competition in the sector. Last week, in San Francisco, I happened to spend time with Dan Farber, editor-in-chief of CNet news. Farber has 25 years of experience in journalism. He runs a tight ship of specialized reporters and editors (about 30 for the news operations, 120 for all CNet content-related personnel). In a sense, they compete the old (and good) way : thorough journalism, expertise, persistence, breaking news, and scoops. When we talked about competition, Farber took the example of the gadgets sector — an important segment for the tech crowd. Rather that facing competition from news organization similar to his, Farber has to deal with sites such as Endgadget or Gizmodo. These are run by very small teams and yet get a significant audience. Asked about the notion of “trusted brand”, an important pillar of journalistic presence, he said: “This notion becomes more and more fluid and dynamic”. Basically, audiences are less faithful in this Internet age, and this makes the news gathering process much more challenging. Part of the response, in Farber’s views, is to deliver news on a wider variety of platforms, such as aggregators and social networks. (As we speak, he watches is laptop and sees that the story he ran that morning on his blog was taken by Techmeme, a clever small news machine, part human part tech. “Excellent! This is the guarantee pages views numbers”. OK, he added, you don’t make money on social networks, but they represent an indispensable tool with which to build your brand among a young audience. To him, the last thing to do for a news site is to be shy about dispersing its content in the broadest possible way. This includes allowing deep-linking from others, even for a paid-for website, and being good at Search Engine Optimization (SEO). Like everyone else, CNet is getting 40-45% of its traffic from search engines, mainly Google.

This CBS move is reassuring: true journalism — as long as it adapts to the medium, to its unstable audience and its peculiar competition — remains a valued asset. This also applies — in a much smaller but nevertheless interesting way — to the acquisition of ArsTechnica, an excellent tech news site, by Condé Nast, for a reported $25m. Again, Ars is cleverly crafted news product, mixing original reporting and conversational style. Should the United States not being in a recession, the price would have been much higher.

AP and 100 partners to launch iPhone news products

In the previous issue of the Note, we run a story titled “Why publishers should grab the iPhone business Today, I’m glad to report that the Associated Press did it. AP announced last week that it was lining up to 107 partners to make stories available for the iPhone. The service will deliver local news from participating member newspapers and national and international news from AP. The reports will be organized by ZIP code (and we hope could be geolocalized for the future GPS embedded phones). Companies that help connect advertisers with networks of Web sites will be among the sellers of ads for the service and will share revenues with the news providers, AP statement said. The next logical step would be to develop specifically designed readers that will allow pages storage and fast offline reading.

A majority of editors believe in the free model (well, almost)

This is called having one’s head buried in the sand very, very deep. In preceding articles, we have seen the extent of the shift (and the upcoming shrinkage) the western press is about to experience. And, in parallel, how much newspapers from emerging countries are booming.

Guess what? In a survey made by Zogby International for the World Editors Forum, (details on the Editors Weblog) 56% of editors think that most of the news will be free in the future, whether it is print, online or mobile. But the most amazing is this: only 48% Western European editors — they are supposed to be in struggling mode — believe that news will tend to be free, versus 61% of news executives from emerging markets such as Latin American, Asia, Eastern Europe, Russia, where paid press still enjoys great successes. Let’s grab the shovels and head for the sand dunes.

Another interesting finding of this report: almost nine editors out of ten think that newsroom integration is inevitable. What strikes me is there could even be a discussion about this integration question: a) we all know the business is massively shifting towards digital; b) most of the resistance comes from the oldest dead-tree personnel; c) therefore what a better instrument to dilute this resistance-to-change culture than blending the most conservatives forces of a newsroom into younger, fresher minds? Having said that, integration must be done with extreme care, taking into account many elements such as the size, the age of the structure and the people, the cooperation of senior news executives (most of them, yes, will have to be replaced in the process). I’m not saying it is simple, I’m saying it is inevitable and that it must be anticipated, planned right away.

Origami advertising — In Brazil ad executives are smiling

Last week in Beverly Hills, one man was grinning. Marcelo Benez, advertising director of La Folha de San Paulo is a happy man. His mission is to use every possible features allowed by modern printing machines, to offer his advertisers a variety of special formats. This goes beyond the limits of the publication itself : pop-up that surge from a page, complicated origami glued inside the paper, poster-like ads 16 times the size of a broadsheet page (“we don’t sell by the inch-column, but by the meter sometimes”, he laughs). That led to a stream of exclusive campaigns for the launch of products and services. A French daily for instance, does less that a dozen of “special operations” per year. By contrast, La Folha took up 287 of such events last year! Results are stunning : in 2007, the overall Brazilian economy grew by 5.4% ; for the ad market the growth was +9% and la Folha de San Paulo made a +19.3% progression in ad revenues.