Advertising in the age of Social Media

I just finished reading and consuming all of the materials for week 6 and the topic of advertising, promotion, and public relations in the web world.  The article about Why Advertising is Failing on the Internet really stands out the most to me. 

Reason being, it seems like all I hear about when it comes to social media is how to monetize the site, or how to generate revenues, and how to make it profitable. It's definitely the hottest topic of discussion in my own life, as we try to monetize social casino content through various mobile channels.  But then I read the Professor of Operations and Information Management at the prestigious Wharton School, Eric Clemons, post that states, "People don't trust ads....people don't want ads...people don't need ads" and I could not help but immediately think of how the online titans like Facebook and Google will fare in the future, let alone all the small mom and pops that are trying to grow up and make it.  It just seems to defy logic.  But then again, his reasoning seems sound, but there is one additional point of consideration that really makes it sound that I would like to add...

In addition to online users not wanting it or needing it, I think the current social users primarily want to interact with friends, but they also get distracted easily, and the latter is what really limits the amount of time a company can advertise.  30-second ads like viewers see during the Super Bowl are not acceptable in social circles online, because users are not willing to even consider such a length ad.  They quickly move onto the next link, image, sound bite, you name it, and thus advertisers have extremely limited attention spans with which to work in the first place.  And to the previous point, Randall Stross is spot on when he cites, "Members of social networks want to spend time with friends, not ads."  These two points coupled together will spell the ultimate demise of traditional advertising techniques in the social media age.

If that is not enough to convince you anecdotally, then consider this article from June 2012 that empirically shows how ad funded internet models drained over $40B of venture capitalist money between 2002 and 2012.  At the time the article was published only an estimated 5% of global mobile revenues came from advertising.  And as the number of mobile and table users continues to exponentially increase, that does not bode well for those companies. The author, an executive advisor to large and emerging tech firms and advisor to venture capital firms, summarized his position with the phrase, "Traditional online advertising is looking like a $40+ billion money drain."  Wow.  That really does say it all.

Though it is quite interesting to me how the COO of Facebook, Sheryl Sandberg, spins it and states, "The goal of our advertising business is to get users to interact."  That would make sense given that Facebook is the world's most dominant social media application and platform, but it sure sounds a little fishy to me.  It's obvious Facebook is pushing ads, because it helps to keep their investors happy and make the company most profitable, as evidenced by the over $1.5B in revenues it earned last quarter that was propelled by ads.

But the underpinning lesson in all of this is that all social sites, and titans like Facebook included, need to be weary about their users' preferences and behaviors.  Trying to chase the money by continually monetizing the site, which can easily ultimately inhibit the user experience, can just as soon chase away the users themselves. 

Marketers need to seek new ways to promote awareness, bolster, and advertise their brands in this new web world.

Business Model Canvas: Pinterest

Pinterest is the latest successful site in the Web 2.0 era. 

The Pinterest site provides users the ability to "pin" images and videos to their pinboards, as well as the ability to manage that content based on user defined themes.  But beyond that, Pinterest allows their users to view each others boards and "re-pin" that content to their own boards.  Some say that Pinterest rivals Facebook regarding the rapid growth rate the site has experienced over the past 24 months.  It is estimated that the site grew over 1000% in 2012, and at current, Pinterest has an estimated 47 million active users. And what makes it attractive is that it appeals to individuals' desire and/or sentimentality to collect things, and the site attracts users who are drawn to imagery.   As you can tell from the graphic on the right, the user demographic can be broad and the business model canvas below lists some specifically. The Pinterest site also allows users to signup through Facebook and Tweet about their pinning activities.

Pinterest raises most of its revenues through venture capitalists and in their latest round of raising revenues they fetched $200M.  To date, Pinterest has avoided generating revenues from advertising, but there is obvious upside long-term revenue growth if they choose to go that route eventually.  Their costs are primarily related to the hosting, maintenance, and development of their website. 

Pinterest is unique in that it lets it users segment themselves based on the content on their boards. And based on the themes of their boards, the users are essentially creating their own more granular segments.  Additionally, businesses are keen on this technology, because they can use it for marketing purposes and furthering recognition and branding of their products.  And the site also offers some web analytics to let businesses know which pins are most popular, most repinned, and how the pins fare over time, which can give companies valuable insight.

As also noted in the business model canvas below, the channels used are PCs, tablets, and smart phones and propagated through user communities.  And the key resources for Pinterest are their website and their active users.


Business Model Canvas: Pinterest







Humans Reduced to Bits and Bytes

I just completed reading and reviewing all of the materials for week 5.  I now feel, in a word, "used".  Almost violated, though not quite. But certainly uneasy, and seemingly less than human. 

I have previously read articles in Harvard Business Review and the like about "Big Data" that explained how companies could use these volumes of data to better target their customers.  I thought it was really more an exercise in gleaning competitive advantage from "unstructured data" volumes.  That is until today.

Particularly after reading the introduction to The Numerati, and how mathematicians and programmers create algorithms from the world of data that is "a giant laboratory of human behavior" to target me more specifically, I feel vulnerable.  It's like they are cutting me down to just a few consumer preferences and behaviors while trying to stick a virtual siphon in my wallet.  And after reading how Tacoda uses cookies to track internet usage in order to determine patterns and essentially guess your next move, it is like every human being is being reduced to bits and bytes from simple little mouseclicks. 

And as if that wasn't enough, I read the article  Advertisers Get A Trove of Clues In Smartphones and it makes me feel almost unsafe.  Marketers can track my purchases and my location from my Smartphone to target me on something specifically nearby based on those pieces of information.  But if marketers can readily get that information, who else can??

Despite my uneasiness, this got my wheels turning and I had to do some more digging.  So I decided to research further Google AdWords to see more exactly how the technology works. 

AdWords allows keyword driven advertisements to show up on the right-hand side of the search page after a user search in Google. It is a pay-per-click service and sounds great for advertisers, though there are some things apparently that they too should keep in mind.  But after seeing it in further detail, particularly how marketers use my search words to target me, my concern is the personal information are companies able to track through the use of this technology.  Imagine how easily it is collected and how many companies can have it.  I sure hope they all have secure servers and upstanding employees!  I even reviewed Google's policy on information harvesting, but I am still not satisfied. 

To me this conjures the notion of Big Brother in George Orwell's book 1984, but it is even beyond that. Not only are they "watching you", but really their goal is to guess your next move and target a sale specifically for you at that juncture. 

It all feels right now as if I don't have the free will that I thought I did.  That the marketers know my next logical choice based on the preferences relayed in my previous searches, and they are going to help me make that choice.  And not having that free will would reduce me to something less than human, at least in a metaphysical sense. 

I have never felt so enlightened and disenfranchised at the same time!

On a separate note, during the writing of this week's blog I explored Google Analytics some more.  It is a statistics service offered by Google that allows webmasters and marketers to see detailed statistics about their web page. But during my research I discovered some funny videos in this regard.  It was a laugh I felt I desperately needed knowing what I know now.  I embedded one of them here for your pleasure.

Enjoy!

Week 5: Big Data and Marketing Research here I come...

I just read the headlines of the materials in this module.  Awesome! 

I can't wait to delve into the video titled "Brief History of the Internet".  I hear something like that and the first thought that comes to mind is, I wonder if that invidual finished it -- finished the internet.  Ha!  But nonetheless it sounds intriguing. 

Also, I am looking forward to reading more about Big Data.  My IT buddies from my past life have been talking nonstop about big data for about the past 12 months.  I'm curious what all the fuss is about.

And finally, I cannot wait to checkout the report on which of the world's most valuable brands are the most engaged.  Time to get crackin'...

Business Model Canvas: WMS Gaming

I chose to model my own company, WMS Gaming, for this Business Model Canvas assignment.

WMS Gaming is one of the four largest slot machine vendors across the globe.  They design and manufacture the Electronic Gaming Machine cabinets (EGMs), and are recognized as the innovator in the gaming industry when it comes to the game content, which they also design, produce, and test in-house.  The game studios produce video reel AND mechanical reel content for slot machines, as well as game content for video lottery terminals (VLTs), for sale and distribution across the legalized gaming industry worldwide. Additionally, WMS recently launched a competitive poker platform. 




Business Model Canvas:  WMS Gaming

    

WMS Gaming, not to be confused with the online division Williams Interactive, sells and leases gaming machines and game content to casino operators, route distributors, and government lotteries worldwide. They operate in a B2B fashion, though the creative teams pay very careful attention to slot player segments, and research their preferences and behaviors.  The company uses account executives to directly sell to casino operators and government lotteries, as well as uses route distributors in various markets, primarily international markets. 

Revenues are generated directly from cabinet and game sales, but a little more than half of the overall revenue comes from the leasing of premium games like Wizard of Oz, The Lord of the Rings, amongst many other titles. Costs are primarily related to the manufacturing costs of the EGMs, brand licenses, and R&D spend on the creative talent.  WMS has the highest percent of revenue spend on R&D in the industry, but they pride themselves on that and believe in this investment as they continue to seek being the industry leader in innovative game content.  They have recently brought such innovations as Community Gaming, Adaptive Gaming, and motion chairs to the casino industry.

WMS does necessarily require leading-edge performance and state of the art graphics, but they regularly seek that capability for the extra curb appeal and entertainment value it provides players. The real value, though, is derived in the overall experience that the creative team produces, particularly the math model and game mechanics, which are geared at certain player segments and niches. WMS protects these ideas with intellectual property patents.

The competitors focus more on their systems businesses, in which WMS essentially does not compete, or licensing branded content, or being a low cost, copycat content provider, respectively.  One in particular is primarily focused on being the overall market share leader.  Hence, WMS' competitive advantage is with their innovative content, intellectual property, and creative game designs targeted at certain player segments.

Week 4 - Post 2

Well as suspected, I am really enjoying learning about the particular business models that have evolved in this digital age.  But before I go any further with the options "interesting readings", I thought it best to pause and summarize a few sound bites about the "required reading" materials.

I like in particular how the Business Models on the Web article succinctly stated many of the typical categories.  It is almost too simplistic, but they capture the essence of the models well.  And I loved the video on the Dollar Shave Club YouTube channel. The use of video to not only tell a funny and edgy story, but to be the primary marketing conduit for selling the product, was absolutely fantastic.  And the whole debate about "bricks versus clicks" and anecdotes about Warby Parker and Hointer were, in a word, very enlightening.  But what stood out most to me was the professor's Breeze presentation about the various business models and Zynga in particular.

Professor Talbott's summary about the revenue model was spot on, but there really is more to the story... 

I had the pleasure of hearing a presentation from Zynga's former COO a few months ago.  Their revenues are clearly based on game sales, but typically Zynga earns far more on the game down the road and not at launch.  That is contrary to say something like EA's John Madden NFL 25, which will earn the crux of its revenue when it hits shelves in August. 

Dissimilar to EA games, Zynga launches their games initially with as minimal an investment as possible, and then ramps up their studios to create additional content for that game. The reason is that they know their players are casual gamers and will finish the game or typically get bored with it more quickly, and therefore players need a compelling reason to keep spending on it.  And that is the ticket -- these players spend their money on "virtual goods" provided within the game.  In fact, the virtual goods sold garnered Zynga nearly $1B in revenue in 2011, which was about 95% of their total. Now that is a powerful model.

For example, Zynga's hit FarmVille had several new services added post-launch.  And as those revenues grew, so did their studio in order to make more such content.  All of the points in the graphic on the left are expansions of FarmVille that enabled the sale of "virtual goods" and bolstered revenues for the company. Point being, it is not just about the game content and initial sale for Zynga, but rather about the additional sales it can garner within the game.  Zynga is acting as a virtual merchant by selling additional content.

Additionally, what has really helped Zynga's model explode over the last few years is the growing number of mobile internet users and the widespread use of tablets.  Smartphone audiences have been projected to reach 151M users and tablets to reach 106M users by the middle to end of 2013. And 14% of smartphone gamers (i.e. Zynga's demographic) spend about $25 per year on virtual goods.  And over 10% of them are spending over $100 in the same period!

There is a lot of money in the online gaming space, there is no question.  And I look forward to business models yet to come knowing that...especially when we consider the legalization of online wagering, as already being done in Delaware, New Jersey, and Nevada.  Wow!

Week 4 - Post 1

I will start by wholly admitting that this week has been nothing short of difficult.  I have started and stopped the assignment and materials for this week a few times, which is entirely unusual.  But between running four studios, conducting video shoots for The Price Is Right in LA this week, and having two sick kids under two years of age at home all the while,it has been nothing short a challenging week.  But I don't let any of that stop me!

This week I have been absolutely looking forward to learning more about business models particularly in this web 2.0 era.  Of most interest is the article about mobile devices changing the traditional brick and mortar retail, as well as the business models of news websites.  And I am particularly keen on reading more about from Business Model Generation, as that book got off to a very compelling start in my opinion...