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Simeon Simeonov points to some data from a Comscore survey talking about the effectiveness of advertising in UGC sites vs general media sites by advertising category for the coveted 18-34 year old demographic:

Effectiveness of advertising by category for UGC vs general media sites

It suggests that this demographic is more receptive to advertising on UGC sites in “high fun” categories such as music, movies, food, apparel and entertainment than it is to advertising on general media sites. For “high expenditure” items (travel, autos, etc) their responsiveness is about equivalent between UGC and general media sites, but for “high trust” items (healthcare, financial services) they prefer general media.

Its interesting to compare these categories to where advertising dollars are being spent. I’ve pulled this data from an old Deutsche Bank analyst report initiating coverage on Primedia; they sourced Ad Age 100 data from 2003 so its a little dated but probably directionally correct:

ad spending by category

Movies/Music/Entertainment features prominently in both charts. Hopefully this bodes well for our portfolio company Flixster!

More generally, note the categories where there is both a lot of advertising and a lot of consumer passion. Its these areas where explosive growth of user generated content and social media can combine with an online media model that works. When you overlay the criteria of reasonable receptiveness of the audience to advertising within social media channels, it suggests that other than in movies/music/entertainment, other categories with potential include apparel (we’re an investor in Stylehive), food/beverage, travel and auto. I would be interested to hear from social media companies with meaningful traction in any of these categories.

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Well it was a busy week last week, what with WPP agreeing to buy 24/7 and Microsoft agreeing to buy Aquantive. I was on vacation overseas, so didn’t get a chance to post my thoughts on it as it happened, but there was a lot of thoughtful coverage.

Since these deals came hard on the heels of Yahoo’s acquisition of Right Media and Google’s acquisition of Doubleclick last month, most of the coverage was in the vein of “watch everyone play catchup to Google”.

I have a slightly different take on this spate on transactions. I think that in the case of Yahoo and Microsoft, they are actually playing catchup to AOL’s acquisition of Advertising.com in 2004. This happened under Jon Miller’s watch (I was his chief of staff at the time). It has since proved to be a prescient deal.

It is no accident that AOL was the first big portal to move to acquire an ad network as they were the first to experience the trend of deportalization. The big three portals (Yahoo, MSN, AOL) are losing share (of total US pageviews), as the chart below shows.

share-of-all-us-pageviews1.jpg

They will likely never regain their lost share – their tried and true techniques of recycling traffic into their own sites don’t work anymore. Users want best of breed content and, thanks to search, they can get it – within or without the portals. Its been well documented that both Yahoo and MSN have seen flat/negative advertising revenue growth in the last few years. See the below chart from Valleywag for a comparison of Google vs Yahoo gross revenues for the last few quarters.

Yahoo vs Google quarterly gross revenues

AOL has fared better because it opened up its proprietary content, so its year on year comps look better, but it took its traffic hit earlier and will likely start to see similar trends once the growth spurt generated by opening up AOL’s content to the web slows down.

Public companies must show growth.

If you can’t grow by selling your own inventory, then you’re forced to sell other people’s inventory. That was the driver of AOL’s acquisition of Advertising.com, and it’s the driver of Microsoft and Yahoo’s recent acquisitions as well. It also explains the prices that they paid, which some fear to be too high. Fear of loss is always a greater motivator than the prospect of gain. The big portals are looking down the barrel of a loss of their share of total pageviews, and are willing to fight hard (i.e. pay up) to avert that loss.

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For many US based startup online media companies, intenational users are largely an afterthought. As I am an Australian, this has always annoyed me. But it is becoming increasingly clear, much as it pains me, that US based startups are right to focus on their home market. When it comes to creating value, non-US users largely don’t matter to them.

I was looking at some research pulled together by Yazid Aksas, a student at Stanford Business School. He pieced together estimates for the 2007 internet advertising market size and the number of internet users in each of the ten countries with the most internet advertising in the world, from various sources*.

The obvious analysis is to look at online ad spending per internet user by country to see where marketers are spending their money to reach internet users

online ad spend per user per country

Interestingly, although the US is close to the top of the list, most of the G8 show high ad spend/internet user (with Russia and Italy being the unsurprising exceptions). The UK is even 20% higher than the US. This suggests that there are sizable online media businesses to be built in each of these countries.

Why then are Bebo and Piczo so focused on building their US user bases? Their home in the UK, where they have the most strength, is the market that spends more in online advertising per user than any other in the world!

The answer lies in the absolute size of these online ad markets, and the extremely high economies of scale in the advertising business.

online ad spend by country

At $19.5bn, the US is four times bigger than the next biggest market, and bigger than all the other markets combined. Internet advertising, like all advertising, is bought on a country by country basis. The fixed costs of setting up a sales office are going to be roughly the same in any country. Given that the upside opportunity is so much bigger in the US, and given that startups need to focus, its no wonder that most US based online media startups focus on their home market. There is more than enough opportunity to build a business here without worrying about the complexities of other geographies.

More mature companies, which can undertake multiple independent initiatives, do start attacking some of the other international markets. Myspace has been very focused on rolling out new geographies in the last twelve months as it can leverage a mature world wide ad sales force through its Fox/News corporate parent.

Google’s advertising revenues match the overall distribution above quite well, with 53% of their revenues in the US and 47% internationally. Their huge scale and self service model allow them to serve all countries without being forced to focus on just one due to the need to focus. Others with a self service model can also take this approach from the beginning

Online media companies that start outside the US tend to be more international in their outlook from the beginning. This may be a reflection of a greater international awareness among European and Asian entrepreneurs, or it may be simply a reflection of smaller domestic markets. Successful startups may outgrow their smaller domestic markets sooner, forcing them to turn to new geographies if they want to maintain their growth. Some of the new generation of European internet startups that have been most aggressively international include Tradedoubler, Skype, Netvibes, Joost, Jahjah, and Wikio (a Lightspeed company) and it is likely no accident that these companies were all founded in countries with a smaller domestic online advertising market.

Can any readers provide some counter examples of US based companies which deliberately targeted an international market before attacking the US? (Friendster‘s South East Asian bias, Orkut‘s Brazilian bias and Hi5‘s Indian bias don’t count since they were not deliberate). if so, please comment.

* Sources were IAB, IAB of Canada, Deuteche Bank, Vunet.com, Internet & Mobile Association of India, eMarketer, Susquehanna Financial Group, Intermeios, GroupM, Comscore

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Walter E. Hussman Jr., the Publisher of the Arkansas Democrat-Gazette (the major paper in Little Rock), wrote a fascinating opinion column in today’s Wall Street Journal (subscription required) entitled “How to Sink a Newspaper“. He take a contrarian …

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On Friday Om Malik put up an interesting post about how small companies can now fully benefit from the internet in a way that was once open to only companies at greater scale.

In his article Om namechecks Moocards (mini …

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On April 29th, 2007, the Boston Globe published an interesting article in praise of peer pressure. Coming shortly on the heels of the NY Times article about cumulative advantage, it gives a separate set of examples on how …

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On April 15th, 2007 an excellent article in the NY Times magazine asked “Is Justin Timberlake the product of cumulative advantage?“. It describes an experiment in which a group of unknown songs was exposed to different sets of …

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I’ve posted in the past on applying game mechanics to social media. Robb Web’s blog pointed me to a fantastic lecture by Luis von Ahn about how to design games to take advantage of human computation. In effect, he …

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Searchengineland points to an interesting article in PC World which pitted the top search engines against each other to determine which had the best (ie most relevant) search results.

Their conclusion was that Google had the best overall results across …

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On Monday Myspace announced the results of a research study that they commissioned, showing the effectiveness of marketing campaigns within social networks. It was widely covered. The key results were that:

– More than 40 percent of all social

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