————————

Many organisations are banking on the paid subscription model – from music, news, movies etc..whether its the answer is another question.

Clay Shirky understands this better than most people. He explains the paid content model, comparing music subscription vs news subscription model here:

http://www.shirky.com/weblog/2009/03/why-itunes-is-not-a-workable-mod…

I have also been thinking about the music subscription model today. Apple has a whole ecosystem supporting the music experience. People will pay for this convenience and experience.

In terms of music, lets use Spotify as an example since they are most likely to extract value from the rest of the value chain. Is Spotify profitable?

Spotify has 10million users. News articles suggest they have approx 650,000 paying subscribers (~ 1 in 20 paying).

http://eu.techcrunch.com/2010/09/15/spotify-10-million/
http://gigaom.com/2010/11/22/spotify-2010-revenues/

MUSIC REVENUES

90% of users pay $10 Euros/month = $120 Euros yearly
10% of users pay $5 Euros/month = $60 Euros yearly

On a revenue basis, Spotify generated $74m Euros last year on music  subscriptions alone.

ADVERTISING + “VALUE CHAIN” REVENUES

Gigaom reckons that Spotify made $58m in advertising. I take this with a pound of salt cause I don’t see how this could be true. My estimates below are based on the low side.

I project the following revenue streams:

- Advertising (PPC): 10m users x 1% of users click on ads x $0.02 x
365 days = $730k/year

- Ticket sales: $5 commission x 10m users x 1% purchasing yearly =
$500k/year. Using the average Posse commission prices.

- Merchandise: $20 tshirt x 10% commission x 10m users x 1% purchasing
yearly = $200k/year

That’s roughly $76m in revenue.

COSTS

The only cost that’s public is music royalties at $30m. That leaves $46m on table.

I wouldn’t think the operating cost of a lean startup business would be any more than 40% of remaining revenues (assuming 20 staff, low overheads). Opex = $46m x40% = $18m.

Total profit is = 76m – 30m – 18m = $28m profit.

So in short, their music subscription model is profitable.

I’m sure they’ll have other revenue streams from deals with mobile companies. I think that’s where the real value is for Spotify – the mobile apps. People will subscribe to this. They probably need to get it to 10% – 20% of paying users (currently at 5%). Their push into the US is more likely to build a barrier to competition cause it will prevent other people from moving in.

I’m out like Myspace,

Matt Ho.

I must admit I have a pair of Cloverdale Park 25th Anniversary Edition Air Force 1′s. They are actually a bit tight, making them a bit uncomfortable and they are kinda heavy. But that’s more a sizing issue as they only had limited sizes when I bought them at the Nike Factory.

There’s a lot of documentaries about Nike Air Force 1. This particular documentary is part of WBF (World Basketball Festival) in New York which is sponsored by Nike. This looks like an awesome 4 days of celebrating the best sport in the world (MMA/UFC is second).

Nike also created this series of online docos called 1Love, which highlights the 5 boroughs in New York (Brooklyn, Queens, Staten Island, Bronx, Manhattan). They also have a video for Harlem, but I don’t think Harlem is a borough, and there’s no video for Manhattan. But enjoy nonetheless!

If you want to check more video’s look here:

Air Force 1, Part 1
Air Force 1, part 2
Top 100 Air Force 1 (Prolly my most favourite video, especially part 2)

One of these is the content industry. We have seen recently that the Readers Digest filed for bankruptcy. News Ltd posted a $300m loss in the last financial year.

The World Wide Web can give you almost unparalled access to any kind of information that you want. Its changing the way that we read the news and how much we pay for it. If I can access information anywhere, will I be prepared to pay for it? Will users be prepared to pay for it? And how can publishers and content producers make money from it? How does this affect online services?

At the same time, it is also altering our view of online services.

I’ve just started reading Chris Anderson’s “Free” book which has inspired me to write this as well as the current debate around this topic. The problem is that everyone now expects everything to be free. Chris Anderson’s discusses this briefly, on the divide between the older generation (30+) who are skeptical about anything offered for free, and the younger than 30 (gen x & gen Y) who have grown up in this free era.

Free online services but at what cost?

We get email services for free – gmail, hotmail, yahoo, et al. And these are all really good email services. There’s almost an unlimited capacity of email storage now. Gmail offers 7GB storge for free (Seven! that’s right). Sidenote: You can actually upgrade to 10GB – 400GB for $20 – $400 USD.  Except the cost of free email is advertising. And most people are willing to put up with it.

Free wifi is available in many cafes, particularly in Starbucks in the US – but there is an expectation that you will buy a Starbucks coffee in exchange for the price of free internet access. Its really an economic cross subsidy. Give me one service in exchange for paying for another, which allows the provider to make a profit margin. Free internet means you will stay longer in the cafe, sipping more cups of coffee whilst browsing the internet.

Many internet services like Huddle.net, Yammer and countless others more offer you a good service for free. They try to entice you by giving you a basic version and hoping that a percentage of users will upgrade to the paid version (when the 80/20 rule kicks in). It forces these kind of companies to be innovative and their competitors as well. Because if I’m not using their service, I could easily jump onto their competitor’s service. 20% of the paid/enterprise customers are subsidising the 80% free customers.

This is the same thinking behind the next release of Microsoft’s office 2010. They’ll give you a web version for free, most likely stripped down. Because if your not using this, your going to be using Google docs which is free.

I use Huddle, a project management software and it gives you a certain amount of capacity for free. It’s quite convenient, and I am seriously considering paying for it to use in my church for project management. I just need to investigate how it would work with many users, etc… I would consider this, because I have used the free service and seen how useful it can be.

The CEO of Box.net, which offers a similar collaboration/storage solution, said this gem of a quote:

“Free is not a business model. It is a distribution and marketing tactic”.

I agree with this 100%. You cannot last in a business environment (especially in a harsh GFC climate like now) without thinking about how you will eventually monetize your business. Free can only last for so long. Really its for marketing purposes, to allow users to sample your services and provide stickiness. If your service isn’t good enough, I’m just going to go somewhere else. So it keeps these online service providers on their toes.

With Google, they provide such superior search services (bing who?), it keeps drawing you back. They surround the organic search results with paid advertising in the form of search engine marketing on the right hand side. And I am perfectly cool with this, as are many other people. It’s done in a way that is unobtrusive and occassionally offers relevant paid results. Not that I have ever clicked on them, but someone must. Right?

I remember hearing one of the google maps engineers who was asked why does Google provide the google maps API? It’s really comes down to advertising. The more you use google services, the more advertising you are exposed to. However is the cost of free……… advertising? In relation to Google services, yes. Because Google typically starts its services with free and needs a way to monetise its services. It’s really a advertising/media company which also has a side business selling enterprise apps =)

You can provide a free service, but there needs to be something else which is making money. Anderson uses the example of King Gillete who gave razors away but made money through the sale of blades. Wow you with one hand, take your money with the other.

Its the same example for VCR’s/Playstations/Computers, etc… Subsidise the sale of hardware, so you’ll buy the software. Its the software / videos/DVD’s which have a higher profit margin and you’ll consume more of once you have the hardware.

I actually think that they could offer the iphone for almost free or heavily subsidised. And make the money back through apps. I know there’s a group of people out there that refuse to pay for apps. But there’s enough people (a minority) that will pay, and scaled over the millions that own iphones, its enough to generate significant revenues for Apple and the developers that create those apps.

So what’s the deal with online news content?

If I want the latest news, I can jump onto news.com.au and read any of the articles. If they build a paywall around it, I’ll just go to New York Times. I’m really only one click away. Or more likely, I’ll just search in google and end up reading an article from Google news, which is the king of all aggregators. They suck in content, strip it down and spit it out.

You can’t simply just aggregate content. Because you’ll just be re-aggregated by someone bigger or some other new service. It’s a continual battle. You need to produce original content which draws people in and they want to share.

The news industry is very different to many other industries because of its dynamics which focus on content, editorial standards, readership/subscription model, rapid distribution of news, classified advertising, etc…

I spoke about it with David Meerman Scott about it briefly this morning and he had some thoughts around creating customised content based on the user’s preference. I think this idea is worth exploring. As I’ve stated before, the business model of the  news industry needs to change. The question is – to what? What will people pay for?

You can’t just give stuff away for free. Their is a cost involved. You need a cross subsidy or some way to generate income back in return – whether through advertising ala google, or a freemium model.

But give me the news that I WANT, on demand and I might pay for that. I see BBC news and also news.com.au moving to this model. They allow you to rearrange the content based on what I want to read. Allow me to select my preferences. Perhaps they can build some intelligence around my behaviour. Understand what I like to read, what is sticky to me, what engages me, what I share with my friends. What conversations I am having on facebook, twitter, etc… about your news article.

Feed that loop back in. Know that I am interested in sports, particularly basketball & football. Hip hop music, international affairs, quirky news articles, etc… Make sure these kind of articles rise to the top. Create me an igoogle type portal or a popurl interface.

I would consider paying for this type of service. Would I consider paying on a ala carte basis per article? No. I would pay a monthly fee and consume as much as I could. If it works for Pay TV, this could work for news as well. Even though there is free to air tv, people pay for premium tv services that offer a greater variety of shows, and latest movies. Give me somethign superior to what is free, and I believe users will pay. It works for huddle, yammer and other online services. Why can’t it work in the news industry (despite its different dynamics)?

I don’t believe that the news industry should solely rely on advertising to monetise content despite the advances of advertising technology. Consumers are sick of pop-up ads, pop-unders, take over ads, pre-roll ads, banners. That stuff doesn’t work anymore.

If you know me, I’m a big fan of Mark Cuban’s blog, and he’s also got some ideas around this which are worth reading.

I’m out like free content,

Matt aka Inspiredworlds

A few weeks ago I went to TEDxSydney. One of the videos we watched was the one above from Seth Godin. It’s quite good. Its about how change no longer comes from mass marketing, cheaper labour & faster machines, but rather tribes. Tribes can be used to start movement and connect people.

Very inspiring video. There’s more here. I’ve been watching them all night. There’s lot of really cool videos on music, design, technology. Other diverse topics include health, education, etc.. It’s more about innovative ideas. 

I’m out like tribes,

Matt

At 6.30pm when I arrived, the place was pumping. They had two levels booked out, and the bottom level where the main arena was, was absolutely packed. Standing room only! (Well bars are made for standing room).

Man with the $349 jacket

Adam Ferrier went first and spoke about their infamous “girl in the jacket campaign”. This campaign was created for Witchery to launch their mens range and they had a budget of zero (emphasis) and wanted to generate a lot of buzz. So they created a fictious story where girl sees boy in cafe she fancies, boy leaves jacket, girl wants to find boy. Girl then goes to the enormous length of posting a video on youtube. The story then got amplified as the main stream press picked it up and they showed that Sunrise breakfast program, newspapers, etc… Their intention was to get the brand noticed and get people talking about Witchery Man. Check it:

As of now, 212,100 views in youtube. Pretty impressive for a budget of zero. I’ve watched the video for the first time, and although I have the benefit of hindsight, I would have been highly skeptical of it at the time. The way that she goes to great lengths to describe the jacket and how the “perfect guy” would be wearing it. In fact its not a bad jacket. Subliminal advertising must work on the weak.

Then the press started asking who is this girl, is this a marketing campaign, who is behind this? They eventually got outed. Naked & Witchery came clean and posted a video response saying yes it was us. I’ve only seen the videos now (after the talk) so here it in all its glory:

Man, I cringed when I saw this. It could have been executed a lot better and definently with more class – the way that Heidi turns it into a ad for the jacket. In fact, the only time I cringed even more in the last 24 hrs was when I heard Adam Ferrier’s response as to whether Naked was arrogant.

Its all about generating conversations

It seemed that for most of the night Adam was defending Naked’s actions. He even had stats to back himself up. But at the end of the day, I think he was convincing and I agree with Tim Burrowes comments on Mumbrella that he did help to sway the crowd onto his side.

Honestly, I don’t have a problem with this tactic of creating a false story or building a mysterious story to get customers engaged and talking about a brand. Brands do it all the time. It’s what we do as marketers. Can Jordan really fly? (Wait, there is doubt?), are pure blondes really made from pristine rivers? Brands make up stories and fantasies all the time to get customers talking and excited. All they want to do is generate buzz. If that’s the objective, then Naked slam dunked it.

Was the public misled about Girl in the Jacket. I have no doubt they were. Was their a line that was crossed? Yes – only when they made that cringeworthy followup video. If Naked did not do the followup video like that, I think it would have been a great campaign. Consumers are smarter than what we give them credit for.

Was it groundbreaking? Of course not. In fact some guy in the audience asked “Did the Witchery Man campaign helped increase the popularty of social media?” – dude are you kidding me? They posted a youtube video about a fake story and it got picked up by the press. It’s not as if they created Twitter. When the story was being told, I immediately thought of the real life campaign of NY girl of my dreams, the cybersearch by one NYC man for an aussie girl he met on the subway. I came across this when I was travelling in the States, and I had actually thought about it when I started reading about this campaign and the connection became even more clearer last night. 

I agree with Adam’s insight that social media is a communication channel. It could be more than that, but at the end of the day that’s primarily what it is. Yes it is democratizing media (see Ashton Kutcher). However, it does make it a lot harder for brands and marketers to do something similar now because people think they got screwed over.

It nots really Stephen Conroy?

I love Leslie’s work as the fake stephen conroy. Dude is funny but a walking PR disaster. He didn’t have a lot to say on the night and Tim was trying to involve him as much as possible by asking him questions as well. But he definently had a couple of good insights – that not everything created by companies on social media is great. Everyone does go nuts when they see a brand do something on social media. 

If you want to see more of the Witchery Man campaign check the video from the night.

I’m out like the man in the jacket, 

Matt

Yuri Narciss, Head of Technology Industry Sales talks Innovation.

The event was held on Thursday 12 March 2008.

This is Part 1 of 4.

Slides will be coming soon.

[viddler id=f22f29b&w=437&h=392]

AFL Season Launch Ad 

[youtube=http://www.youtube.com/watch?v=5oxpyRreruU]

NRL Season Launch Ad 

[youtube=http://www.youtube.com/watch?v=jgxGWvaPz6w]

I’m out like the offseason, 

Matthew Ho

And these ads are so clever! Some of them are very simple but so witty and funny. Minimalist is the key.

LEGO – TANK

LEGO – ALICIA KEYS

For more check out here. It’s worth it, trust me!

I’m out like lego exhibitions,

Matthew Ho.

p.s. someone bring them back!

I’ve copied some of the more pertinent parts of the article below. 

——————-

Call to Legislate Internet Privacy

The debate on Internet privacy has begun in Congress.

Phil McCarten/Reuters
Representative Rick Boucher

I had a chance to sit down recently with Representative Rick Boucher, the long-serving Virginia Democrat, who has just replaced Ed Markey, the Democrat from Massachusetts, as the chairman of the House Subcommittee looking after telecommunications, technology and the Internet. Mr. Boucher is widely regarded as one of the most technologically savvy members of Congress……..

But high on his list is a topic that is very much under his discretion: passing a bill to regulate the privacy of Internet users.

“Internet users should be able to know what information is collected about them and have the opportunity to opt out,” he said.

While he hasn’t written the bill yet, Mr. Boucher said that he, working with Representative Cliff Stearns, the Florida Republican who is the ranking minority member on the subcommittee, wants to require Web sites to disclose how they collect and use data, and give users the option to opt out of any data collection. That’s not a big change from what happens now, at least on most big sites.

But in what could be a big change from current practice, Mr. Boucher wants sites to get explicit permission from users — an “opt in” — if they are going to share information with other companies.

“I think that strikes the right balance,” he said. “Web site operators are very concerned that if they have an opt-in regime for the internal marketing of the Web site themselves it would be very disruptive. The default position of most Internet users will be not to check any boxes at all. It is a very different matter if the site takes the information and sells it to gain revenue.”

I spoke to Mr. Boucher on the day that Google announced its new plan to track data about customers for advertising. And I asked him about such behavioral targeting, which presents an ad based on what you did on other sites.

For the rest of it here

——————–

Google’s announcement on interest based advertising

[youtube=http://www.youtube.com/watch?v=aUkm_gKgdQc]

 Check out this article on Google’s new privacy controls here and Google’s take on it via their public policy blog. This is exactly the point I was making in my post about relevancy of advertising v privacy of information:

“In her post to the Official Google Blog this morning, Susan Wojcicki, VP of Product Management, announced that we are making interest-based advertising available in beta for our AdSense partner sites and YouTube. Interest-based advertising uses information about the web pages people visit to make the online ads they see more relevant. Relevant advertising, in turn, has fueled the content, products and services available on the Internet today.

Providing such advertising has proven to be a challenging policy issue for advertisers, publishers, internet companies and regulators over the last decade. On the one hand, well-tailored ads benefit consumers, advertisers, and publishers alike. On the other hand, the industry has long struggled with how to deliver relevant ads while respecting users’ privacy.”

 

I will discuss it in more detail when I get my head around all this information. 

I’ve always been curious about technology and the law. And now more so. Technology is an evolving beast, where the business models are constantly changing and new competitors, trends, viral campaigns emerge overnight. Whilst the law is seen as conservative, slow to adapt, and very traditional. Generalisations yes, but ask any lawyer or laymen and they’ll agree with these perceptions. Evidently, these two are at opposite ends of the spectrum. The law seeks to maintain order and protect society, yet also to enable the creation of new ideas and businesses. The internet is disruptive, fast moving, changing and global in its reach. Law is often seen as jursidictional, often applying to only member states (i.e on country by country basis) unless treaties are ratified by Member states.

On Wednesday morning, I attended an Advertising and Marketing law CLE. What is a CLE? It means “continuing legal education”. For those that are unaware, I’m still a qualified lawyer (amongst other things) and to maintain your status as a lawyer, you need undertake ongoing education. It might involve some lectures, preparing presenting a lecture, or watching some videos.

I wasn’t sure what to expect with this lecture but went with an open mind. I heard the following lectures:

1. New commercial models in advertising and marketing using the internet 
2. Comparative advertising 101
3. Copyright in advertising
4. Children & the law

Topic 1: New commercial models in advertising and marketing using the internet 

They were well presented, but the most useful to me was probably Internet Business models by Peter Leonard. Peter is a partner at Gilbert & Tobin, and counts Google amongst his clients. He described some basics about adwords and how it worked – I knew most of this stuff since I do some work on adwords. However, he had some really interesting points on whitelisting v blacklisting of keywords, something which I was not aware of. 

Blacklisting of keywords

Apparently, some brandnames are “blacklisted” on google, so advertisers can’t use them. For example, “Toyota” can only be used by Toyota. A car reseller, wholesaler, etc… can’t use that term. People are very careful which words they blacklist since it does not enable to aforementioned parties to advertise on google. And google applies this policy on a global basis. So if Toyota actually had a reseller in china under a distribution arrangement, they could not buy that keyword to sell a Toyota car.

Contextual and behavioural advertising

The other relevant thing he discussed was contexutal and behavioural advertising, which is becoming quite a big area in the online marketing world. Advertising has always been about relevancy and recency. Erwin Ephron developed the recency theory which is about showing someone an ad when they are in the mood to purchase. The idea of “top of mind”. It’s not about showing them an ad 3 times to get it to stick, rather at the right time when they want to buy. I believe that is what behavioural advertising and contextual advertising seeks to do as well – tying relevancy and recency together. 

 Behavioural looks at your past behaviour on the internet – which websites you’ve been to, how you use the internet. Contextual advertising is 3rd party advertising based on the content on the website (i.e. your current session on the web).  The whole idea is to serve you more relevant ads. Websites now, may reserve a space on their site for advertising local content to you based on your IP address – you’ve probabaly seen it! Look at an American website, yet its giving you ads for Australian flights or credit cards. Online advertising has gotten smarter. It was really insightful because at ad:tech and even in my work, these are topics which people are talking about. third party advertising, serving of ads, affiliate marketing, etc… On the flip side, there are privacy concerns, because your ISP tracks where you’ve been and keeps all the information about each individiual user. To me, this is also two competing concerns – serving you more relevant ads v capturing your private information.

It enhances the user experience and the advertising by having geographically and behavioural based ads, but aren’t you worried that someone is keeping tabs on you?

Other interesting points he discussed was how keywords get bought, and the difficulty of proving trademark infringement for keywords. Since the prices and the allocation of paid ads on Google was constantly changing, its hard to prove in such a dynamic environment. 

I must admit the other seminars weren’t as relevant to me or as interesting, hence my interest did drop off. Copyright issues in advertising were ok, about database compliation and the rights attached to that. Children and the law & comparative advertising was extremely boring, but still handy to know. I learnt that advertising needs to get clearance from legals, very important so you don’t get sued (!) and meets all legal and regulatory requirements. Also, there’s so many various regulatory codes for each type of media (radio, tv, outdoor) and legislation. 

I’m out like Johnny Law, 

Matthew Ho.