Topic: Business models
Pandora has been testing a new ad model for some time and is now launching it broadly. The model offers users an opportunity to trade watching a video ad for extra skips and playbacks, both of which are normally limited under its ad-based option. That’s a familiar model from the mobile gaming market, where games often offer users additional lives or other in-game features in return for watching video ads, although anecdotal evidence from my own family suggests that those ads aren’t really being “watched” in any meaningful way – they basically insert a 30-second delay in game play during which the player does something else. Pandora says a high percentage – 42% – of its active user base has signed up for this program, which is called Video Plus, so that’s a good start, but the key metrics here aren’t the number of signups or even the number of times people agree to trade an ad view for in-app functionality, but brand recall and other more traditional ad metrics which would demonstrate that users are actually watching and taking in the content of video ads. There’s no mention of any of that in the Adweek article linked below, and whether this new model ultimately succeeds or fails will depend entirely on whether brands actually see a decent return on the investment.
This article is a bit of an oddity – the Wall Street Journal reporting on the Wall Street Journal – but the news itself is important: Google is relaxing the policy that currently penalizes sites like the Journal which no longer allow Google searchers to view an article linked from search results for free. Since the Journal instituted that change, it’s seen traffic from Google (which in turn is likely a big chunk of total traffic) drop enormously, because sites that don’t participate in Google’s “first click free” program are penalized in search results. This is yet another sign of a softening at Google towards news organizations, which have been increasingly critical of its (and Facebook’s) power over them, though Google still seems to be months if not a year behind Facebook in coming around and making serious concessions.
Spotify Wants to Rival Facebook and Google in Advertising (Aug 17, 2017)
Amazon Expands Program Paying Popular Alexa Developers (Aug 16, 2017)
The Wall Street Journal reports that Uber is planning to shut down its US car leasing business, which was apparently losing $9,000 per car instead of the $500 Uber projected it would lose when creating the program. It sounds like Uber might have around $800 million in cars leased through the program, which Uber apparently holds titles to in trust rather than on its books, and it may have to sell many of them and the associated leases to get out of the business. The program and this outcome are indicative of Uber’s enormously aggressive expansion strategy and the huge sums it’s sometimes incurred in poorly thought out initiatives which have ended up significantly worsening its losses. Though it’s most common to see Uber’s losses attributed to its subsidies in ride sharing itself, a good chunk of its losses are made in these other aspects of its business and could be cut back significantly as it focuses on more rapid progress towards profitability. I suspect cutting the leasing program in particular wouldn’t dent growth much but would certainly go a long way towards improving margins. It’s also likely another example of an area where Uber might well do better to partner with a small number of large, reputable firms rather than taking such a direct role in the operation – in general, Uber seems far less willing to partner than Lyft, which is arguably holding it back in some areas.
Microsoft has today announced a leasing and upgrade program for its Surface line, offering a 24-month payment plan for the devices, and an option to trade in for a new device after 18 months rather than paying it off over the full 24 months. The program is called Surface Plus and there’s also a version for business customers, though it seems like a missed opportunity not to call it Surface as a Service… We’ve obviously seen the installment and leasing models become the default for smartphones on US carriers over the past few years, and there are already examples of hardware vendors getting into the game directly, notably Apple’s iPhone Upgrade Program. So this is both a familiar model and a smart move for Microsoft, which recently began to offer bundled Windows and Office subscriptions to business customers and can now offer a single bundle of Surface hardware and those two software packages for businesses. But it’s also a great way to lower the barriers to entry for what are fairly pricey machines for the most part, as Microsoft has stayed firmly above the fray with its Surface line, in contrast to the much lower overall average selling prices of Windows PCs. The Surface Pro starts at $799 (or $33.29 per month over 24 months), while most of the models are over $1000. Reducing that to $40-60 per month for many models should make it much more affordable and predictable as a cost for both individuals and businesses. We’re going to see lots more of this, with hardware vendors packaging up access to one or more devices on a subscription basis with additional subscriptions to software, content, or other services layered on top.
Facebook Confirms News Subscriptions Coming in October (Jul 19, 2017)
Campbell Brown, the former news anchor Facebook appointed as head of News Partnerships in January, has finally confirmed what’s been rumored for some time now, namely that Facebook is readying a subscription product for newspapers. It sounds like it will adopt the familiar though not universal approach of allowing readers to access ten articles before having to pay for a subscription to a given publication, though it’s not clear that the ten articles will include those readers read separately in their browsers, so that will be a key point for papers to nail down before signing up. Another will be payments and how those will work, since Facebook still doesn’t have credit card details from the vast majority of its users. Since some publications don’t allow any free articles before the paywall kicks in, this won’t be a perfect or universal solution, but on paper should neutralize one of the big criticisms of Facebook’s gobbling up of news consumption. However, given that this has been in the works for some time, and the largest publications will be aware of that, the recent PR push by the News Media Alliance against both Facebook and Google suggests that it certainly won’t assuage all their concerns. Update: also today, Facebook announced analytics for Instant Articles with support from Nielsen, to allow publishers to compare results from their IA and web-based versions. The lack of comparable analytics has been another bugbear for the news organizations using IA, so this should check another box in resolving those concerns, at least on paper.
Some Online Publishers Increase Revenue by Reducing Ads (Jul 13, 2017)
The Wall Street Journal has a nice bit of reporting here on several websites which are reducing the number and toning down the nature of ads, and seeing positive results in terms of ad revenue as a result. Reading the article, it’s hard to avoid asking “You mean you dramatically improved the user experience and more people spent more time on your site?” The changes being described here seem so obvious that it’s easy to forget that the received wisdom in online advertising (as in TV advertising, arguably) has been that the best way to generate more ad revenue is to show more ads and make them harder to ignore, at the expense of the user experience. The backlash against advertising online (manifested in both use of ad blockers and refusing to visit sites with obnoxious ads) and on TV (manifested through ad-skipping DVRs and the rise of ad-free properties like Netflix, Hulu, and HBO) is now finally forcing a reckoning among those that have swallowed that line of thinking. And the results should surprise no-one: prioritizing anything over the user experience is always going to worsen the experience and therefore usage, while prioritizing the user experience will improve it and usage, and in the process may well improve revenues too. This isn’t a panacea for online display ads, many of which will be blocked anyway even if not obnoxious, and whose value compared to native and search ads continues to erode, but it’s better than continuing down the road most online publishers have been on. The solution for TV advertising, on the other hand, isn’t nearly so simple, given the broader declines in viewership.
The News Media Alliance, an industry group representing major newspapers, is beginning a push, launched with an op-ed in the Wall Street Journal from its president, to get permission from Congress to act collectively in negotiating with Facebook and Google. I’m linking here to a piece in the New York Times on the topic, but it’s from the media columnist and therefore almost as much opinion as reporting, something I’ve found with most of the stories on this, which feels a little ironic. But the thrust of both the op-ed and the opinion side of the New York Times piece is that the news industry is being lorded over by the digital giants, and that single publications or even media groups are powerless to negotiate better relationships without being able to bargain collectively. That, in turn, would be a violation of antitrust rules unless Congress were to pass legislation providing legal cover, something it seems rather unlikely to do, especially in the current political climate. The op-ed is disingenuous to say the least – this is the money quote, in my opinion: “But the two digital giants don’t employ reporters: They don’t dig through public records to uncover corruption, send correspondents into war zones, or attend last night’s game to get the highlights. They expect an economically squeezed news industry to do that costly work for them.” That feels like a distortion of the true relationship here, which is that Google and Facebook both point people to the content those people find interesting, including content from major newspapers. If those newspapers decide to make that content available for free either on their sites or through Instant Articles or AMP, that’s their decision. But that’s not nearly the same as those companies doing that work “for” Google or Facebook. While the idea that the newspapers face an imbalance of power in negotiating individually with Facebook and Google has more merit, it’s also disingenuous to argue that these two companies are somehow singlehandedly responsible for the inequitable distribution of advertising revenue between them, given their respective audience sizes and all else that ails newspapers and their business models. At the same time, it’s worth noting that Facebook is pushing ahead with its plans for subscriptions and other improvements to how it works with publishers, but publications including the New York Times continue to be skeptical of those changes, which makes one wonder just what these papers would kind of relationship with these companies the papers would find acceptable. All of this merely reinforces my sense that the companies don’t really have any solutions to propose, but in fact are angling for some kind of punitive regulatory action against these companies on the basis of their size and influence.
SoundCloud is significantly reducing its staff and closing two of its offices in a bid to cut costs and reduce losses as one potential acquisition after another seems to fizzle. Twitter and Spotify were each reported as suitors earlier, but both ultimately moved on, and just in the last few days French music streaming service Deezer was also mulling an acquisition. I’m guessing these cuts are a sign that that deal also fell through and SoundCloud now realizes its only hope for survival is going it alone. That continues to be a really tough proposition, because SoundCloud continues to struggle to find a role for itself as a paid rather than free service. It’s become enormously popular as a free music source, but almost all the artists who start their careers on SoundCloud eventually cross over to the mainstream music industry and its more established business models, including paid streaming, which is becoming increasingly important and is driving almost all the revenue growth in the industry. SoundCloud’s failure to cross over with those artists to the paid streaming world is likely to be fatal unless salvation comes in the form of an acquisition.
Uber Talking to SEC About Giving Drivers Equity (Jun 29, 2017)
According to Axios, Uber has been meeting with the Securities and Exchange Commission to discuss giving drivers equity in the company. As the piece notes, this was something recently-acquired ride sharing startup Juno promised to do, but which it found legally difficult given SEC regulations. Of course, if drivers were employees, there would be entirely standard ways to deal with stock-based compensation, but the combination of the fact that Uber is a private company and drivers are contractors rather than employees make this more complex. Given the historical meteoric rise of Uber’s valuation, I could certainly see the appeal for drivers of getting a stake in the company, though the attraction will have waned a little as there have been reports of shares selling at lower prices in the private markets over recent months. Longer term, there are still big questions about whether Uber’s valuation will continue to grow if it doesn’t have a clear path to profitability and doesn’t seem to be winning decisively against Lyft and other big competitors in its important markets. And its big investment in autonomous driving is another potential huge cash sink which isn’t guaranteed to pay off, especially given the distraction and uncertainty created by the Waymo lawsuit and the departure of Anthony Levandowski and Travis Kalanick in recent weeks. Still, Uber does seem to be genuinely interested in trying to find ways to improve its relationship with drivers recently, and this is another potential step in that direction.