Web 2.0: Predictions and Pithy Analysis
In this discussion, panelists from Nielsen/NetRatings and from an adserving company discussed Web 2.0 and its place in the world of online advertising.
Moderator: Geoff Ramsey, eMarketer
Panelists: Roy deSouza, CEO, ZEDO, Inc
Charles Buchwalter, Sr. VP Industry Solutions, Nielsen/NetRatings
What is Web 2.0? Somebody suggested “when community meets e-commerce”. According to Roy deSouza, Web 1.0 was sites that were content- and editorial-driven. Builders knew best. We were talking about websites like print: build them and expect people to look at them.
In the second generation, a whole new way of doing things arose in 2004-06: much more freedom from editorial control, much more open. Often not a website but an online tool for users to play with, sometimes defined in terms of technology: AJAX, etc. It’s really a kind of site that is a tool that allows users to talk with their friends—via e-mail messages, reviews, photo sharing, blogs—to exchange info. Talk not to do work, just talk to their “friends”.
According to Charles Buchwalter, social networking sites are in a class by themselves. News gets a lot of traffic/time. Many web 2.0 categories didn’t exist a year ago. This category, which doesn’t yet exist in Nielsen NetRatings, is the fastest-growing category on the web. Web 2.0 rankings: number 1 in web page views, number 3 in visits per person, number 4 in time per person. Yet not all these sites are growing fast. Just because web 2.0 collaboration sites are hot doesn’t guarantee success. Many large web 2.0 sites showed a seasonal decline in August-September reflecting the likelihood that many visitors are students with a seasonal back to school effect.
Which sites account for growth? Feedburner, Digg, MySpace Wikipedia, Facebook. MySpace has 47 million unique monthly users and is still growing the fastest. Digg has 500k users a year ago but grew to 2 million. MySpace has 47 million, still growing 170% annually, and approximately 46% of MySpace users are older than 35.
Some exciting web 2.0 companies discussed:
- yelp, user reviews of restaurants, little editorial unlike CitySearch
- xfire, online gamers chat while playing, acquired by Viacom (it’s an app like Yahoo messenger, while gamers play they chat and can see player stats for their friends)
- eons, social networking for people 50+
- dogster, dog pictures, discussions.
- Bittorrent is a YouTube copy for any length videos (Youtube has a 100 MB max filesize), they’re peer to peer and don’t pay for bandwidth, and they let you keep videos (YouTube doesn’t since it’s streaming).
Some “not the best” web 2.0 companies:
- Friendster: the first social network. Was big, was arrogant, fell. Friendster had slow technology and lost the feature battle to MySpace.
- Kiko online calendar, became famous only when the site was auctioned off on eBay
- Engage, dating with friends’ help. Great theory but no user engagement yet.
- Ryze, first business networking site. Good but killed by LinkedIn which was just done better.
- Tribe, a social network, had famous VCs and famous founders, but no success.
Worthwhile reading is Dion Hinchliffe’s web 2.0 blog, The Essentials of Leveraging Web 2.0 Sites (http://web2.wsj2.com/). According to him, these are the key success factors for Web 2.0 Sites:
- ease of use
- open up your data: “there is no future in hoarding data”
- aggressively add feedback loops to everything
- continuous release cycles
- make your users part of your software, “give up non essential control, turn your applications into platforms “a platform as the foundation for something much bigger
- Don’t create social communities just to have them—Wal-mart tried social networkgin and it bombed because it wasn’t used and the credibility factor failed.
Rishad Tobaccowala says “iterate, don’t pontificate”.
Myspace developed very fast. Used ColdFusion as a rapid development platform. Their philosophy was, throw it out and see if users use it, then scale it if it’s used.
Huge sites like Yahoo Mail and Yahoo IM are a platform, not content. Web 2.0 users use search more: 63.8 searches per month vs. 44.7 total market, 21.9 search sessions per month vs. 16.2 total market.
Source: Nielsen NR Megaview Search, Sept. 2006.
As far as ads on Web 2.0 sites go, there are different types of inventory. The key is that there are lots of users making long site visits. There are two main classes of ads:
- Primary inventory: formerly called “remnants”, now class 2. It’s high volume, low cost, mostly untargeted. Yahoo sells this by phone and in bulk, works well if you know what you’re buying. It’s a young demographic: users see 10s of ads per day. Good for direct marketing, not sure what you’ll get, but you need to watch what’s happening. Freeipods.com is a great ad on site—teens fill in real info. There’s room for very creative media buying. CPMs are low.
- Premium ads: usually bought from company directly. Many do creative deals: sponsored groups, customized background, change home page, competitions. As a case study, T-Mobile created a freestyle rap contest on hi5.com. Premium ad CPM run from $2 to $20. There will be more video ads at the upper end of CPM cost. MySpace is now selling premium inventory well.
Nielsen has done an interesting analysis looking at aggressive web20 users. 15-20% of population is really making it part of their daily life. The web 2.0 users went to exactly the same news and info sites as everybody else did. What stood out is that the average user goes to 17 news sites per month, average Web2.0 users goes to considerably more because many use aggregation technologies like RSS. One of the lessons in selling ads to these communities is that sales staff really needs to be able to incorporate this isnfo into their sales strategies.
When Murdoch bought MySpace, he said “God knows what we’ll do” with Myspace. What’s the predominant business model? Advertising, not subscriptions. They’re here to stay. Myspace is very successful, 15 million monthly users who spend time there. Selling low cost ads today, premium ads soon, video ads also. You have to give credit to Murdoch for having bought MySpace without knowing how it will work. How MySpace works will circle back to news corp. it’s the ultimate community group. Part of it is being able to leverage the fundamental benefits back into the traditional model. Video will play a huge role. Video advertising is expected to take off, growing 80% this year and 89% next year.
Sites need a traffic threshold of 3 million users to be able to sell targeted advertising. If you go back 5 years to web 1.0, if it’s a small site but demographics are in demand, can get $40, $50 $100 CPMs. Sites will have to demonstrate that they’re reaching this audience. Larry Chase asked a great question, “who’s spending on Web 2.0, where is the money coming from?” The panelists believe mostly on DM ads a lot of them are incentivize offers (freeipod.com, etc.), the lower end which pushes you into some sort of lead. On photo sites they see mortgage refi ads, like lowermybills.com. We’re starting to see brand ads on premium ads, contextual advertising as well, such as Google Adwords.
When you combine behavioral targeting with video, you’ll see a big increase in spending.
Nielsen recently did a survey on response to ads. Found that some ads were OK, users hated popups.
Performance: on class 2 ads, .1% clickthrough rates, but the cost per acquisition is reasonable since all the space is sold out. This seems low but users see hundreds of ads. On the premium side, performance seems pretty good.
Web 2.0 currently has a huge coolness factor, what happens when the coolness factor ends? Get an audience, keep it, sell it. How do we keep the audience? According to Charles Buchwalter of Nielsen, the most important thing is feeling that they’re on the cutting edge. You need to continually serve your users. The market is changing very quickly—whatever investment you make to keep in touch with your users, it will not be lost.
