Why Investors Love Yelp Even As They Hate Other Social Stocks

Image representing Yelp as depicted in CrunchBase

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Unlike those other two little social media companies whose disappointing second-quarter reports last week knocked their shares to all-time lows, Yelp today wowed investors with better-than-expected second-quarter earnings and outlook for the rest of the year. After falling almost 6% today to $18.82, shares in the local business reviews site have rocketed up in after-hours trading by 14%.

Needless to say, a good quarter and outlook both help, but there’s more behind investors’ enthusiasm about Yelp versus Facebook and Zynga. They perceive some key positive fundamentals, too:

* Reviews of local businesses present a clear, understandable opportunity for advertising, and local advertising is a nut that no one online has yet cracked the way the Yellow Pages did in phone books. Yelp’s reviews provide a prime place for this advertising to appear. Local advertising rose 89% in the quarter. Meantime, fairly or not, both investors and advertisers still aren’t sure about Facebook’s and Zynga’s business models.

* Yelp has network effects in its favor, since the more reviews it gets (up 54% from a year ago, to 30 million), the more businesses are likely to create Yelp pages and advertise, in a self-reinforcing cycle. Active local business accounts rose 113% from a year ago, to 32,000. …

Read the complete post at The New Persuaders.

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Report: Apple’s Mobile Ads Make More Money Than Google’s

From my Forbes.com blog The New Persuaders:

Despite the rapid rise of mobile devices based on Google’s Android operating system, marketers are still getting better results from their advertising on Apple’s iPhone and iPad.

Ads that run on Apple’s iPhone command significantly higher prices than Android, and way higher prices than any other mobile platform, according to a new report from mobile browser maker Opera Software, which also operates a mobile ad network. The iPad in particular, thanks to its large touchscreen and ease of use, gets the highest effective cost per 1,000 impressions (eCPM) of all devices–$3.96 to the iPhone’s $2.85 and Android’s $2.10. All the other platforms are far behind.

That gives Apple’s iOS platform an outsized lead in actual ad revenues compared relative to its market share in traffic: Together, the iPhone and iPad capture more than 61% of revenues to Android’s nearly 27%. Again, all the others bring up a distant rear.

Read the complete post at The New Persuaders.

The $6.3 Billion Dud: Will Microsoft Ever Master The Online Ad Business?

From my Forbes.com blog The New Persuaders:

Microsoft just wrote off nearly all of the $6.3 billion it paid for online advertising technology firm aQuantive back in 2007. It’s an admission that the purchase, even more expensive at the time than it seems today, hasn’t worked out well–and a stark acknowledgment that its online ad business continues to lag the fast growth of Google and a couple of generations of Internet startups.

In a release, Microsoft essentially concedes that virtually all of the value, or $6.2 billion, of that $6.3 billion acquisition has been “impaired,” in the dry language of accounting. “While the aQuantive acquisition continues to provide tools for Microsoft’s online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the write down,” Microsoft said in the statement. “While the Online Services Division business has been improving, the company’s expectations for future growth and profitability are lower than previous estimates.”

Since expectations on the outside for the perennially money-losing division already were low, that’s a pretty grim admission–one that belies its recent hopes for a resurgence. …

Read the complete post at The New Persuaders.

LIVE From Google I/O, Day 2: Google Compute Engine Takes On Amazon Web Services

Sundar Pichai, Google’s senior VP of Chrome and Apps, at Google I/O June 28

From my Forbes.com blog The New Persuaders:

It’s all about the Web here on Day 2 of Google’s annual I/O developer conference–Google’s Web. In contrast to yesterday’s focus on the search giant’s Android mobile operating software, today will focus on the power of the Web, in particular Google’s Chrome operating software for cloud computing.

There’s another keynote whose highlights I will liveblog below, though it’s hard to see how Google will outdo yesterday’s skydiving demo of Google Glass wearable computers. No doubt Google has reserved a surprise or two, though.

Update: The big announcement is Google Compute Engine, a rival to Amazon Web Services, which powers many websites. It’s promising it will offer 50% more compute power for the price. Also, Google Docs now will work offline when you don’t have an Internet connection, solving a big obstacle. Offline presentations and spreadsheets to follow later. …

Read the complete post at The New Persuaders.

Why Google’s New Tablet Could Be The iPad’s First Real Competition

From my Forbes.com blog The New Persuaders:

Google is just a couple of days away from debuting a new tablet that could finally shake up a market utterly dominated so far by Apple’s iPad.

Reports from Gizmodo and others say Google is likely to introduce the diminutive 7-inch tablet at its Google I/O developers conference (whose Wednesday keynote I will be covering live here). The kicker, according to the reports: The tablet, built by Asus, will start at $199 for an 8 GB of memory, up to $249 for a 16 GB version.

Amazon.com’s Kindle Fire already plowed this pricing ground, of course, so such a tablet wouldn’t be entirely new. But while the Fire has been reasonably successful for Amazon, it hasn’t made much of an apparent dent in the iPad because of its limitations, including a somewhat app platform controlled by Amazon itself. And the Fire doesn’t run a standard version of Android, making it tougher yet for developers to do apps for it.

Let’s not forget Microsoft’s coming Surface tablet, either. But the reported pricing on that device, introduced last week, sounds quite close to the iPad’s. So unless it’s significantly better, which seems doubtful, it seems unlikely to mount a serious challenge.

But Google’s tablet, assuming as Chairman Eric Schmidt has promised (and this is a very big assumption) that it performs well, could for the first time challenge the iPad. And it would come at a time when tablets are the focus of everyone in tech from chipmakers and hardware manufacturers to app developers to marketers and publishers hoping to capitalize on a new mobile Internet device that could give them the creative canvas to rival (or exceed) the appeal of television and magazines. Here’s why Google might have a hit this time:

* It’s cheap. Now, merely being cheap won’t guarantee people will buy it in sufficient numbers to matter. But at $199, it doesn’t have to be every bit as good as the iPad. As Clayton Christensen has noted in cases dating all the way back to the transistor radio in the 1950s, a rival can most successfully challenge an established incumbent not by matching it feature-by-feature, but by offering something good enough for most people for a lot less money.

* The rock-bottom price will attract more app developers. If it’s decent enough to sell a lot thanks to the low price, that suddenly makes Android a more attractive platform for app developers. One of several reasons the iPad is the most popular app platform is that Apple controls the operating system version so developers don’t need to rewrite an app for each device running different versions. …

Read the complete post at The New Persuaders.

Google Makes Renewed Grab for the Rest of Online Advertising

New DoubleClick ad system heats up battle to create an operating system for digital marketing

Cross-posted from my Forbes.com blog The New Persuaders:

It wasn’t supposed to be this way. Hundreds of well-funded online ad technology companies have sprouted up in recent years, each aiming to make it easier and more efficient for marketers to reach just the target audience they want.

Terence Kawaja, CEO of boutique investment bank Luma Partners, created this now-famous Display Lumascape to show how complex the online ad tech industry has become.

Yet the result is a crazy quilt of companies–graphically illustrated in that mess of a chart on the right–that drives marketers and agencies crazy. The very existence of so many competing products, in fact, has made placing ads online and measuring their impact more complicated and cumbersome than ever. “Venture capital has supported and financed a bunch of chaos,” advertising veteran Randall Rothenberg, CEO of the trade group Interactive Advertising Bureaugriped at a recent ad conference.

The result: Most ad dollars, nearly $200 billion a year, still get spent on television because it’s so much easier.

That’s the problem Google aims to solve with a revamped ad buying system it will announce today at a private Future of Advertising event hosted by its DoubleClick display-ad management and technology unit. (Part of the event will be livestreamed here.) The company, which already dominates 60% of the online ad business–those little text ads that appear on the right and top of the page when you do a search–now has its sights set on the remaining 40% of the industry. That would be the $25 billion worldwide market for display ads, the graphical and video banners familiar on virtually every commercial website.

Google’s goal: Provide the leading one-stop shop for advertisers and publishers to buy ads on websites, mobile phones, social networks, apps, and whatever other new media the Internet spawns. Essentially, it’s building an operating system for ads much like Microsoft did with its Windows for PCs–with much the same appeal to marketers and agencies as Windows has for PC users. “When you’re putting together a campaign, you want everything connected vs. trying to piece it all together,” says Kurt Unkel, president of the online ad buying operation at Publicis Groupe’s VivaKi digital ad agency, a Google partner.

Google’s announcement is the latest salvo in a war to control the next era of digital marketing. After a decade in which Google’s search ads overtook display ads with an unmatched ability to turn clicks directly into sales, many advertisers and publishers expect–or at least hope for–a resurgence of new kinds of display ads that could woo brand advertising dollars from TV. Neal Mohan, Google’s vice president of display advertising products, has predicted that display will be a $200 billion industry in a few years.

Read the rest of the story at The New Persuaders.

What’s Coming in Internet Advertising: 12 Predictions for 2012

I did my annual predictions first on my Forbes blog, The New Persuaders, since they’re focused largely on the Internet media and advertising I cover there. On that blog, they’re done as separate posts, but I wanted to gather them up in one place here, as I’ve done in previous years. So here’s what I think will happen (or in some cases, not happen) this year in my corner of the technology and startup world:

Facebook goes public, but won’t start an IPO landslide: Facebook will make the signature stock offering of the decade, one that reportedly will value the social network at up to $100 billion. But it won’t launch a thousand IPOs as a gazillion venture capitalists and angel investors hope.

Of course, the first part of that prediction is a gimme. But I can’t go without mentioning it because the Facebook IPO will be one of the biggest stories of 2012. Assuming Goldman Sachs or Morgan Stanley don’t stumble in pricing and selling the offering, Facebook’s IPO will be every bit as important as Google’s in 2004. It will be a sign that Facebook is a real, sustainable company (if there was any doubt left by now), but also a sign that social networking is getting woven into the fabric of our entire online experience.

The second part of the prediction depends less on how the Facebook IPO goes than on how (or whether) the economy recovers. If the recover remains slow to nonexistent and the stock market reflects that, IPOs will be sparse. If we get the slow but growing economic improvement we seem to be seeing now, more companies will go public but not a gusher. But the point is that Facebook is such a singular success that it’s not going to set the tone for lesser (often far lesser) Internet companies.

Facebook’s ad business booms–but not at Google’s expense: Facebook’s social advertising looks promising, but won’t come close to challenging Google’s huge success in search ads this year–maybe ever.

Obviously, Facebook is having no problem raking in the bucks from advertisers eager to reach its 800 million-plus audience–or more specifically, the millions of people in whatever target markets they choose. EMarketer reckons the company will gross nearly $6 billion in ad revenues this year, up from $4 billion in 2011. And that’s before we know anything about Facebook’s likely plans for mobile ads or an ad network a la Google’s AdSense that would spread its ads around the Web.

From reading a lot of articlesyou’d think Facebook is stealing all that money directly from Google. That’s not mainly the case, given Google’s own considerable growth in display advertising, though Facebook’s success may well blunt that growth in the future. Instead, Facebook currently is eating Yahoo’s and AOL’s lunches, and those of many ad networks that, until Facebook ramped up its ad business, were the main alternative for advertisers looking to target sizable audiences.

What would make Facebook a huge Google-scale company is the theft of an entirely different meal: television advertising. After all, Facebook shows much more promise as a brand advertising medium than a direct-marketing medium like Google. It needs only to draw a small fraction of the $60 billion or so spent on television advertising, the biggest brand medium, to be enormously successful. But even then, it’s not mainly a Facebook vs. Google contest.

Facebook still needs to answer a big question, however. That’s whether its “social ads,” which incorporate people’s friends in ads in a 21st century version of word-of-mouth marketing, will have nearly the effectiveness in driving attention and ultimately sales as search ads, which appear in direct response to related queries, often involving products people are looking to buy. The potential is intriguing, and there are some nice examples of how well social advertising can work.

But despite Facebook’s considerable work in providing new kinds of metrics on marketing and advertising impact on its users, marketers and agencies aren’t yet universally convinced they need to spend a lot of money on Facebook ads. After all, they can get a lot of mileage out of their free Facebook Pages and Like buttons around the Web. (Not to mention, it remains to be seen whether these ultra-personal ads will cross what blogger Robert Scoble calls the Facebook freaky line.)

Bottom line: If Facebook is to be the Google of the this decade, its advertising has to at least approach the engagement of search ads, especially as Google itself moves to become more of a brand advertising platform with YouTube and continues its push into display ads. While Facebook is building what seems likely to become a great business on anew vision of advertising that could change many decades of tradition,2012 won’t be the year it closes that deal.

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