Ads, Spyware and Adware Directions

Ever since Google announced that they would NEVER put ads on the same page as search results (1999) and then proceeded to build the biggest business in Internet history based on doing exactly that, the world of digital ads has been something we need to look at daily with fresh perspective. Yesterday's view of the way things are or should be has no validity.

So, given the proposition that what I say here will be wrong by tomorrow, where are we today? What's important, where are the opportunities, what are consumers doing?

Let's start with the last query- what are consumers doing? Contrary to the view of Google's founders, the Trust-e compliance boys and FTC, most consumers consider advertising to be the price of great software and content. If you hear a complaint, it usually indicates that the consumer did not get enough to justify the ads! Of course noone wants software installed on their system without permission and the industry is fast moving away from that (recent FTC settlement with Zango is illustrative) and Spyware is an unacceptable invasion of privacy that is in fact, a violation of the law.

But what about adware that is installed with permission? Where the ads being served have real value based on contextual and behavioral technologies. It does not violate the law...so why does the real government (US and States) and Internet government (Google) hate it so?

The Google answer is easy- they plan to launch a business in that space and want to slow the industry movers in advance of their own initiative. And the Government....well, there are no laws against adware 'per se', just installation without permission or use of private information...but the FTC and NY Atty General's Office have both indicated that they wish they had the authority to prosecute adware providers. It's a classic case of overzealous, underemployed lawyers looking for an issue to make themselves famous without regard for consequences.

So, in today's world, adware purveyors need to be extra careful and that is no guarantee that they won't get caught in the wringer. And tomorrow? There will be adware everywhere, integrated into every application with software monitors that make certain that the value of ads displayed does not exceed the stated value of the software or content the consumer receives.

How will this be done? Intel should do it with its position as the trusted third party (the technology has been in their house since the mid-90s). But, since Intel has never seen an internet market it can time right, better to license the software to someone else, build the capability into the chips (this is what the Trusted Computer Platform initiative was supposed to do) and help this market continue to mature.

Much more on this issue to come!

Is it YouTube or Flash? What's next?

For the last few weeks, everyone has been talking about YouTube and its acquisition by Google for a cool $1.65B. The most common question from industry outsiders is "how could YouTube be worth it". That's easy and I'll address that first. The more interesting question in my view is whether the thing that made users go to YouTube in the first place was the content and Web 2.0 presentation or Adobe's Flash software that made it so easy on users AND what the answer to that question might mean for the industry.

So, first the valuation. Just do the math- with the metadata YouTube collects the value of Google Ads on 1,ooo YouTube pages is about $2.50. If they show 100M videos a day as reported, Google can move in right away for $250K/day; over a year that's close to $100M with no additional traffic direction or ad optimization. Since Google can absorb the entire operation with no additional impact on their budgets, all revenue is accretive. At a conservative 15:1 earnings multiple, you get to $1.5B pretty easily; take it to internet type 50:1 multiples and you get a picture of the upside for Google.

Now the real question: why is YouTube a killer service? Is it the Web 2.0 video implementaion (and enabling the theft of rights holder content) or implementing Adobe software so effectively that users get the holy grail- seamless video!

If you know me, you know I like to take the contrarian viewpoint! While Web 2.0 is cool and the social elements are lots of fun, my view is that Web 2.0 and the over hyped rights issues are a sideshow. It's this simple: people love the presentation; YouTube delivered on a long sought after premise- video displayed in the browser with no additional application launch! YouTube's value to users is in the implementation of Flash! The amazing thing is that they own nothing! Not the content, not the technology! They are a pure portal play....

So, what's next! I say watch the real winner here- Adobe. With the brilliant acquisition of Macromedia and its stellar Flash browser plugin, they are positioned with the best implemenation of the "give it all away free and get 'em addicted" strategy since your local dope dealer, or Intel in the late 1980's. Oh, and isn't it funny how Intel's long time SVP of Advertising and Marketing, Anne Lewnes, slipped quietly in the side door at Adobe (now "CMO")...what better way to capitalize on a strategy developed at Intel than to hire the person who implemented most of the killer marketing strategies based on the dope dealer analogy!

And here's the long shot- Google will make a play for Adobe or run the risk of losing their position as the #1 alternative to MS on the consumer desktop. And this time it will be a $50B+ play that will stun us all...more to come.