Data is Free

Local newspapers are imploding for a lot of reasons, but those reasons have nothing to do with the quality of the product or the value of local news as an advertising medium.

The Chicago Trib, the Seattle PI, the SF Chronicle are shutting down because (a) their balance sheets are a disaster, (b) the product they are offering isn't suited for how advertisers want to reach people right now, (c) their cost structures - debt service, printing, etc. - can't be supported by the online advertising they do get.

But this doesn't mean that local news isn't valued. Ask any group of people what they think of local newspapers and they might shrug their shoulders. Ask them if they are interested in news about their community and they'll say they like it. Speaking from a sample size of n=1 I can tell you that I value having good reporters covering the state capital, city hall, the school board, the local sports teams, and the local restaurant and arts scene.

What is interesting is that the price of reporting is a really small part of a newspaper's overall costs. You can look it up. Reporter and editor salaries are usually less than 15% of a paper's costs.

So, if you have a low-cost model for having professionals gather the news - and can augment that with a robust local community of bloggers - then you have an interesting product.

Now, what is the revenue model.

According to an analysis by the Kelsey group mobile advertising will see a CAGR of 80% over the next 5 years. Mobile local search will increase from $20 million to $1.3 billion for a CAGR of $1.3 billion.

Cut those numbers in half and you still have a big number.

Other findings from the Kelsey Group report, Going Mobile: The Mobile Local Media Opportunity, include:

* The percentage of mobile searches that have local intent will increase from 28% in 2008 to 35% in 2013.
* Currently there are 54.5 million mobile internet users in the U.S., representing 25% of online users.
* Approximately 15% of iPhone applications are local.

And according to Comscore, 42 million people used their mobile devices in October 2008 to access news and information content on the Internet, an increase of 57 percent from October 2007.

As smart phones proliferate, the demand for local search is going to rise as well. And local search IS search. A local news source - properly marketed with the right connection to the community to attract eyeballs - could quite arguably capture the lion's share of mobile search.

Yes, this assumes that you can get people to use their phones to surf a local news source. Yeah, I know. But if you can pull that off, and if you can stitch a few dozen local news sources together so you can sell national advertising campaigns, then you have reconstructed a media empire. In 10 years we will look back and see that, while News Corp and Gannett have ceased to exist, new media companies rose to take their place.

A lot of people like to use the metaphor of "people selling buggy whips" to describe what dead tree newspapers are currently doing. Perhaps. But just because people stopped riding in buggies when the automobile came along didn't mean that the need to travel disappeared.

The need for high quality, local news and information is as strong as ever. A local news source with some marketing muscle behind it could capture that market. More importantly, the need for a trusted local news source to advertise in is not going away either. If you a local business where do you want to advertise, Craiglist, Google or next to a trusted, branded, local newspaper reporter?

The only real mystery is (a) when does mobile/portable device penetration grow to the point that reach is sufficient for decent sized ad campaigns, (b) the identities of the business people with the smarts and access to cash to launch the next great media company.

Mobile network operators in the U.K. are preparing to sell behavioral user data to help advertisers target mobile ad campaigns more effectively.

Mobile industry body the GSMA (Global System for Mobile Association) has proposed a measurement process that provides anonymous audience metrics and aggregated user behavior data, which it hopes will stimulate the uptake of mobile advertising and create an ad market akin to that of the fixed Internet.

The GSMA has formed a task force comprising major European operators, including Telefonica, Vodafone, Orange, T-Mobile International and 3. It now hopes to launch a fully audited mobile measurement service in the second half of 2009, alongside three further working groups, one each for advertisers, media and advertising agencies, and publishers

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This is a brilliant idea. Working together the carriers can (a) mitigate the competitive privacy concerns while (b) actually providing enough data to be useful to advertisers.

From a strategic issue the biggest problem has always been carrier reluctance to be the first to offer behavioral data due to the likely response from their competition, as well as bearing the brunt of the privacy backlash. By banding together the problem is solved.

From a tactical point of view the carriers' aggregated data will prove far more valuable than a single source of data. It also places the carriers in the driver's seat for dictating the terms by which networks and advertisers buy their data. It will be fascinating to see how the carriers elect to monetize this asset, which seems tailor made for an exchange/auction mechanism

Interesting article today in the NY Times about the issues impacting the wireless industry. Though the current situation is a bit grim, the long term outlook should be great for both consumer electronics, Internet services, and carriers.

The state of the industry according to the article is.

1) People love smart phones because of the apps.
2) Smart phones are expensive.
3) The economy is down right now so sales are expected to be slow.
4) Carriers and handset vendors (like everyone else) are laying people off.

Yet over the next 18 months we know that:

1) The price of smart phones will drop, increasing penetration.
2) The greater the number of phones, the more robust the market will be for applications.
3) The bigger the installed base, the more developers who will create cool applications.
4) The cooler the applications, the more people will love their phones.
5) Go back to the top!

Another issue is that data not only wants to be free, it wants to be mobile. As Craig McCaw once remarked, people don't want to call places they want to call other people. The same goes for data.

I don't want data to come to my laptop. At least, I don't want to have to be tethered to a desk or coffee shop table where my laptop sits. I want a robust mobile device that provides the same level of functionality as a laptop, and I want that to device to fit in my pocket.

The iPhone is the most effective of those devices. There is no reason that Nokia, Microsoft, or another company can't launch similar devices that are competitive on both price and functionality.

Last word to Nokia:

Olli-Pekka Kallasvuo, Nokia’s chief executive, said recently in a conference call with investors to discuss the earnings. He added that he believed Internet-centric phones and mobile services would drive a new generation of growth.

“It is clear that there is a tremendous opportunity to extend the value of the handset market through the integration of device hardware and Internet services,” he said. “This will drive the next wave of industry growth, and innovation will not stand still.”

Call me crazy, but it seems like AOL has perfectly good display advertising options AND the ability to monetize its premium subscribers and page views via behavioral targeting.

Ad networks - including Google - are not there to rescue publishers or newspapers. Maybe the publishers should focus on attracting advertisers by giving them a product which drives clicks and raises awareness.

How? Targeting and data analysis would be one place to start. Publishers might want to (a) grow and know their audience, (b) use behavioral targeting and other targeting methodologies to give advertisers what they need which is clicks and/or awareness, (c) sell and serve the ads.

Outsourcing everything to Google, or pumping your impressions through a network, and hoping for the best isn't going to get the job done if you are AOL.

"The losers are the ones that don't keep it simple," said Westergren. "Companies that make things drop-dead simple are the ones that will win over and over again."

Today's article in MediaPost describes a panel at an AlwaysOn media event in NYC with Pandora founder Tim Westergren and Marco Argenti, vice president for media at Nokia, among others.

Westergren revealed that in the two days after the iPhone came out Pandora gained more subscribers than it had in the prior two years through distribution deals with Sprint and AT&T on 50 different handsets.

Not only was growth prior to iPhone slow, but the company was burning resources customizing its app across multiple phones due to a lack of standards. "We've been looking for a hero device," he said. "As a company now, we're thinking, 'what's the next iPhone?'"

I think the leap of genius in the iPhone app is abandoning the browser in favor of tiles, a move enabled by the touch screen. For years at Openwave and every other wireless software system the notion of the ultimate mobile browser was pursued. But a browser presumes that you can easily access content in a stream, and you have the ability to dip in and out of those streams.

But a phone isn't a computer. When someone uses a phone they are using it for discreet, bounded activities. Tiles are perfect for this because it directs the user to those discreet activities: make a call, play a game, listen to the radio, etc.

The message is that UI designers have to focus on keeping things simple. And wireless carriers and software/handset vendors that want to compete with Apple need to figure out how to make easy to use SDKs that run across their handsets.

The other day I was driving to Snoqualmie with Steve Kuhn to take our respective children to their ski lesson. All week I had been considering a thought experiment: what happens to the economy if energy was placed under Moore's Law.

Presume that technological advancements in solar, wind, and nuclear energy encounter massive investment such that the price of energy begins to fall over the next 20 years the way that the price of computing power has fallen over the past 20 years - what happens?

The first conclusion was that our standard of living would dramatically rise. Free energy = free heating for the house. Free transport costs = no longer having to burn a gallon of gasoline to buy a gallon milk. Free transport costs = no longer having to burn gallons and gallons of milk to transport milk from the farm to the dairy. Free energy = lowered costs of producing the feed required to raise a cow.

Ok, but what does that really mean for the economy? Assume nearly all of the energy costs are pulled out the economy, what happens to the manufacturing, transportation, and agriculture industries, among others.

When I got home that evening the McKinsey Quarterly arrived with a potential answer: power curves. The argument is that larger firms have increasing returns as the scale. The example is that over the past 30 years the biggest banks have gotten bigger as they have acquired smaller firms and used their resources to out compete the remaining firms.

The exhibit shows how much bigger the big firms are (or were).



This tendency has been repeated in other industries. In fact, in industries where access to capital but creativity is the constraint then the tendency to have dominant firms is even more pronounced.



So what does all of this mean if energy is subjected to a kind of Moore's Law? I think the answer is in the article

Power curves are also promoted by intangible assets—talent, networks, brands, and intellectual property—because they can drive increasing returns to scale, generate economies of scope, and help differentiate value propositions. ...the more labor- or capital-intensive sectors, such as chemicals and machinery, have flatter curves than intangible-rich ones, such as software and biotech.

If the cost of energy is no longer the chief constraint on goods and services, then the only thing left to differentiate on is creativity. Factor in additional conditions such as low cost of capital and the ability to harness creativity/organizational development becomes THE critical competitive advantage.