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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

Science Fiction: Mining My Own Exhaust

 

A few thoughts on Big Data, self-knowledge, and my hopes for the emergence of a new genre of services.

I’m about to fulfill an old fantasy — the Great American Road Trip. Over the next three weeks, we’ll be driving all the way from Key West, FL to Palo Alto. In that spirit, today I’ll luxuriate in another, more distant reverie: Mining my own data exhaust.

I’m spurred to this indulgence by the words of Satya Nadella, Microsoft’s new CEO, at an April 15th event in San Francisco [emphasis mine]:

“The core evolution of silicon, software and hardware is putting computing everywhere humans are present,” Nadella said. “And it’s generating a massive data exhaust of server logs, sensor data and unstructured social stream information. We can use that exhaust to create ambient intelligence for our users.”

Nadella’s right. I leave a cloud of data exhaust with my Web browsing, credit card purchases, cell phone use, monthly blood tests, pharmacy purchases, and airline trips. Server logs detail the length and breadth of my social interactions on Facebook and Google+… And I don’t have to be on a computer to add to the cloud: I’m tracked by toll passes and license plate snapshots as I drive my car. The car itself monitors my driving habits with its black box recording of my speed and direction. This list, far from exhaustive [no pun intended], is sobering – or exciting, full of possibilities.

Today, we’ll skip the Orwellian paranoia and fantasize about an alternate universe where I can “turn the gratis around”, where I can buy my data back.

Google, Facebook, and the like provide their services for free to induce us to lead them to the mother lode: Our cache of product preferences, search history, and web habits. They forge magic ingots from our personal data, sell the bullion to advertisers, and thus fuel the server farms that mine even more data. I’m not here to throw a monkey wrench into this business model; au contraire, I offer a modest source of additional revenues: I’d like to buy my data back. And I’ll extend that offer to any and all entities that mine my activities: For you, at a special price today, I’m buying my data.

(We all understand that this fantasy must take place in an alternate universe. If our legislators and regulators were beholden to us and not to Google, Verizon, and “Concast” [a willful typo from Twitter wags], they would have long ago made it mandatory that companies provide us with our own data exhaust.)

Pursuing this train of thought, one can conceive of brokers scouring the world for my exhausts — after having secured the right permissions from me, of course. Once this becomes an established activity, no particular feat of imagination is required to see the emergence of Big Data processing companies capable of merging and massaging the disparate flumes obtained from cell carriers, e-merchants, search engines, financial services and other service providers.

So far, especially because it lacks numbers and other annoying implementation details, the theory sounds nice. But to what end?

The impulse can be viewed as a version of the old Delphic injunction: Know Thyself, now updated as Know Thine Quantified Self: Quantify what I do with my body, time, money, relationships, traveling, reading, corresponding, driving, eating… From there, many derivations come to mind, such as probabilistic diagnoses about my health, financial situation, career, and marriage. Or I could put my data in turnaround, mandate a broker to shop facets of my refined profile to the top agencies.

Even if we set aside mounds of unresolved implementation details, objections arise. A key member of my family pointedly asks how much do we really want to know about ourselves?

This reminds me of a conversation I once had with a politely cynical Parisian tailor. I ventured that he could help his customers choose a suit by snapping a picture and displaying it on a 80” flat screen TV in portrait mode. My idea was that the large scale digital picture would offer a much more realistic, a more objective image than does a look in the mirror. The customer would be able to see himself as others see him, what effect the new suit would produce – which, after all, is the point of new duds.

“No way,” said the Parisian fashionista, “are you nuts? My customers, you included,” he tartly added, “really don’t want the cruel truth about their aging bodies…”

Still, I’m curious. And not just about the shape and color of the data exhaust that I leave in my wake, about the truths — pleasant or embarrassing — that might be revealed. I’m curious about the types of companies, services, and business models that would emerge from this arrangement. Even more fascinating: How would the ability to mine and sell our own data affect our cultural vocabulary and social genetics?

JLG@mondaynote.com

PS: As offered here, I recently downloaded my Facebook data set. The data doesn’t appear to be very revealing, but that could be the result of my low Facebook involvement — I’m not a very active user. I’d be curious to see the size and detail level associated with a more involved participant.

PPS: I’ll be on the road, literally, for the next three weeks and may or may not be able to post during that time.

Religion is a safer bet than Facebook

 

Facebook’s incredible global reach and success appear to forestall challenges. In the long run, though, the social network’s growth and its frantic quest for new revenue sources raise questions. (First of two articles)    

Casting doubt on Facebook’s future is like going to Rome and questioning the existence of God. It’s not the right venue to do so. First, you can’t argue with figures, they’re overwhelming. Each institution features about the same number of devotees: 1.2 billion across the world. As for financials, Facebook’s annual report shows strong growth and wealth: $7.8bn in revenue for 2013 (+ 55% vs 2012), net income at $1.5bn and a $11bn cash pile. As for the Catholic Church, since it doesn’t not issue financial statements, we are left to guesstimates. Two years ago, a story in the Economist provided a back-of-the-envelope calculation putting the operating budget of the American Catholic Church alone to $170bn, the bulk being health and educational institutions, with $11bn for parishes where hardcore users are – which, for that part, is much better than Facebook.

Why, then, question Facebook’s future? Mainly for two reasons: ARPU evolution and diversification.

Let’s look at a few metrics. The most spectacular is the Monthly Active Users (MAUs) base: 1.23 billion people for the entire world. An interesting way to look at that number is to break down the global MAUs into geographic zones and combine those with ARPU numbers (calculated from the quarterly figures stated in the annual report). The results look like this:

316_facebook_arpu

Facebook’s long term challenge comes from these two factors: North American growth will be flat this year, and the rest of the world doesn’t bring much. The company is heavily and increasingly dependent on advertising: from 85% of its revenue in 2012 to 89% last year. Logically, its only option is to squeeze more money per user — which it steadily managed to do thus far. But, in the Facebook ecosystem, making more money from ads means milking more cash from users’ data. This, in turn, will lead to a greater invasion of privacy. It certainly doesn’t seem to bother Mark Zuckerberg, who is a transparency apologist.

Actually: Is he or was he?

As author David Kirkpatrick pointed out in his excellent opus, The Facebook Effect, Zuckerberg once said that “Having two identities for yourself is an example of a lack of integrity” (and judging by FB’s content policy, anyone can wonder if putting a breast-feeding pictures a sign of depravation?)

That was then.

Now, to address privacy concerns, Facebook is said to consider anonymous logins. It’s probably a good idea to back off a bit on the totalitarian pitch quoted above, but since the extensive data-mining performed by the network is made much more valuable by its use of real user names, anonymous logins are sure to impact the ARPU in the more mature markets. Along that line of thought, in Europe, Facebook’s ARPU is less than half of what it is in the US & Canada: $8.04 vs. $18.70. This significantly lower number stems from privacy concerns that are much more developed in European countries. There, the 20-25 segment seems especially worried about the consequences of spending too much time on Facebook.

A remaining lever is what I’ll call the Big Tobacco strategy: Do elsewhere what you can no longer do on your home playing field. Facebook might not be as cynical as Philip Morris (reborn as Altria as an attempt to erase the stain), but it is undoubtedly bound to try and replicate its successful collect-and-milk consumer data mechanism.

This might take a while to achieve.

First because of the ultra-slim ARPU generated by emerging markets users. You might object that the Indian market, as an example, currently enjoys growth along two dimensions: more users, with growing incomes. Granted. But the more sophisticated the India market becomes, the more inclined it will be to create a social network much more attuned to its own culture than a Menlo Park-based system manned by geeks in hoodies. Never underestimate the power, nor the determination of locals. And, let’s not dream too much about a huge Chinese version of Facebook.

Also, for Facebook, the cost of operating its service will make the ARPU question one of growing urgency. Again, based on the 2013 annual report, FB’s Cost of Revenue — mostly infrastructure —  amounts to $1.9bn. Divided by the 757 million DAUs, it costs $2.5 per year to serve a single daily user, that is connecting to his/er pals, hosting photos, videos, etc. If we aggregate all the cost structure components (networking, giant data centers and also R&D, sales & marketing, administrative), the cost of taking care of a single daily user rise to $6.69 per year and $4.12 for a monthly user. It’s still fine for an American and a European, much less so for an Asian who brings a yearly ARPU of $3.15, or an African who brings a mere $2.64 (in theory, the strain on the infrastructure is roughly the same, regardless of user location).

But some will argue Facebook is doing quite well on mobile. Out of its 1.23 billion monthly users, FB says 945 million reach its service via a mobile each month and 556 million do so on a daily basis. And, as stated in its 10-K, mobile is at the core of Facebook’s future:

There are more than 1.5 billion internet users on personal computers, and more than three billion mobile users worldwide according to GSMA Wireless Intelligence, and we aspire to someday connect all of these people. 

Fine, but once again, the ARPU weakens the ambition. While a mobile subscriber in the US and Europe brings respectively $69 and $38 each year (source: GSMA), according to the Cellular Operator Association of India, a Indian mobile subscriber yields only $1.72 per year. This makes advertising projections a tricky exercise.

As it expands, Facebook’s current model will inevitably yield less and less money per user. Hence, its frenetic quest for diversification and service extensions — a topic we’ll address in a future Monday Note.

As for the Church, it certainly is a safer bet than Facebook: The user base is less volatile, the interface blends much better into local cultures, barriers to competitive entries are stronger (and much older), and believers have long sacrificed their privacy to articles of faith.

frederic.filloux@mondaynote.com