Welcome to Cultural Convergence, Argentine Style

By Bob Garfield

Published: October 08, 2006

As of this writing, rumors were swirling that Google would acquire YouTube, probably for about $1.7 triquillion.

Should that occur, nobody will be surprised. YouTube, with its 100 million streams a day, has come as close as anyone to offering a missing link between The Old Model and the new. But the key to its success turns out not to be some visionary's vision of distributed content. YouTube instead has built an online destination for the masses to watch some really cool stuff, plus just endless tons of crap. You know, like a TV network.
YouTube isn't Web 2.0. It's Boob Tube 2.0, and therein its genius.

Convergence culture
It is also pretty much ground zero for what MIT Professor Henry Jenkins calls "convergence culture" -- the interaction between content makers and their audience. Once upon a time they were interdependent but utterly separate. In the digital age they increasingly symbiotic -- a symbiosis that's sometimes overwhelming, like opposing mirrors, in its infinity.

Such as the ad for Arnet Broadband from Santo, Buenos Aires, Argentina.

It's about Gary Brolsma, the young New Jersey guy who created an Internet sensation by taping himself as he lip-synched to a mindless but catchy Romanian pop song. Gary is not your classic matinee idol, by at least 125 pounds, and the song is manifestly terrible. Yet the whole package was irresistible -- not merely to watch, but to imitate. Thousands of others have posted imitations, often incorporating video from the original. Thus has the post called "Numa Numa" come to represent the essence of YouTube's appeal and of cultural convergence itself.

Arnet Broadband
Enter Arnet Broadband, which sells access to that culture. The spot opens with the familiar 13 notes of the Romanian earworm: Maya heeeeeeeee, maya hooo, maya ho, maya ha-haaaaa. Then, there's Gary, familiarly goofing on video along to the song. Then, intercut with the action, a title card:

One day Gary posted a video of himself ...

After some more Numa-Numics, another title card:

People saw it and began imitating him ...

Then we see a series of imitators and Gary intercut as the title-card narrative proceeds:

Today there are over 3,000 Numa Numa videos ...

Broadband for everyone.

All in all, it's a pretty fetching appeal. Others are participating in the participatory culture, it argues, you should, too. And we'll rent you our pipes to do so for a low monthly fee.

Sans Gary Brolsma
But there's one very strange thing going on here. The star of the ad is not Gary Brolsma. It's some vaguely similar-looking local fat dude. Now, what's that all about?

We know -- because it was widely reported -- that Brolsma did not enjoy the aftermath of his original post. He shunned publicity, confined himself to his parents' house and expressed regret at having allowed himself to be gaped at worldwide. Although three years later he has decided to cash in with a new song and a NewNuma.com website (download the ringtone for only $2.49! Buy your Gary gear!), he has done no third-party ads.

So what does it say about the Brand New Participatory Culture if you are forced to participate without your consent? The rules of the online universe are one thing -- when you upload to YouTube you acknowledge that your work is fair game to be parodied, mashed up and otherwise appropriated by other participants -- but they don't transfer to the Old Model. The opposing mirrors here reflect opposing ethics.

The ostensible message is to converge with the digital culture. The subtext is: Chaos abounds. Here's a brick. Loot the store.

Marketing on Google: It’s Not Just Text Anymore

Just as Madison Avenue once helped convince consumers that orange juice is “not just for breakfast anymore,” Google is turning to Madison Avenue to help convince marketers that Google is not just for text advertisements in tiny type that appear adjacent to the results of searches on google.com.

Google is teaming up with Goodby, Silverstein & Partners in San Francisco, an Omnicom Group agency known for offbeat creative work, on a project for one of the agency’s largest clients, the Saturn division of General Motors.

The project begins today with a test of a campaign for Saturn, bundling together several Google products and services like clickable video clips, the Google Earth satellite mapping tool and geographic finding of computer users.

Visitors to a variety of Web sites in six cities around the country that are home to 22 Saturn dealerships will see what look like typical banner ads for Aura, a new Saturn midsize sedan. Clicking on an ad will produce a view of the earth that zooms in on the dealership nearest to the computer user.

The doors to the virtual dealership fly open, revealing the general manager, who introduces a brief commercial about Aura. After the spot ends, the general manager returns, standing next to an Aura and offering choices that include spinning the car 360 degrees, inspecting its engine, printing a map with directions to the dealership and visiting the Web sites of Saturn (saturn.com) or the dealer.

The project is intended to stimulate demand for Aura test-drives with a twist: the dealerships will deliver the cars to the homes of consumers. The theme of the project is “Take the 250,000-mile test drive.”

Sellers of online advertising are seeking to persuade mainstream marketers to devote more of their ad dollars to new media. That mission took on added resonance this week when a Google competitor, Yahoo, disclosed an unexpected softening of ad sales in two major categories: automotive and financial services.

Of course, some forays into the online media go more smoothly than others.

For instance, the Air Force this week decided to take down a profile it put up last month on MySpace, the social networking Web site (myspace.com), partly because of concerns about inappropriate content that could be linked to the profile. The decision was reported by AirForceTimes.com.

Colonel Brian Madtes, strategic communications director for the Air Force recruiting service, said yesterday that the Air Force would probably continue to run banner ads on myspace.com but was unlikely to run profiles again. The profile was intended to generate interest among computer users ages 18 to 24 in new Air Force commercials created by GSD&M in Austin, Tex., also owned by Omnicom.

Google is known for its expertise in what is called search engine marketing, epitomized by the text ads that appear next to results from online searches. Google sells the rights to present the ads onscreen when computer users type in keywords.

Google now wants to call attention to its more elaborate types of online advertising, like click-to-play video, and to encourage marketers like General Motors to buy those as well.

“We’ve been out there meeting with a lot of agencies and clients so they understand at a brand level, at a creative level, at a media-planning level, how they can use the palette we have,” said Tim Armstrong, vice president for advertising sales at Google in Mountain View, Calif.

Out of those meetings came the idea to “let the creative brains at Goodby look across our suite of products and services and think about ways those could work for specific clients,” he added. In addition to General Motors, clients of Goodby, Silverstein include Anheuser-Busch, the California milk producers (“Got milk?”), Comcast, Emerald Nuts, Frito-Lay, Hewlett-Packard and Motorola.

Rich Silverstein, co-chairman at Goodby, Silverstein, said the decision was made to have Saturn take part in the test because the local nature of its dealerships meant the brand would be a good guinea pig for the geo-targeting elements of the campaign.

“Google wants to prove it’s an effective way to market,” Mr. Silverstein said. “Saturn wants to sell Auras. And we want to show how we can tell good stories in a 21st-century way.

“The world doesn’t need another area to run a commercial; we’ve got plenty,” Mr. Silverstein said.

“I am so excited,” Mr. Silverstein, who is usually not given to hyperbole, said of the project. “I feel 10 years younger.”

The 22 Saturn dealers involved in the test are in Buffalo; Dallas (Irving is a suburb); Harrisburg, Pa.; Indianapolis; Las Vegas; and Raleigh, N.C. The six markets were chosen because they, and the dealerships, are among the best performers for Saturn.

“We have a key focus on digital this year,” said Dave Smidebush, marketing director at Saturn in Detroit, “and when Goodby approached us with this opportunity after Google approached them, we thought it was a very innovative initiative.

“Seventy percent of all new-car buyers go to the Web for information,” he added, “and the Google Earth technology takes you right through the dealer’s front door.”

The test will run for a month, Mr. Smidebush said, and after that Saturn executives will evaluate “how it drives traffic and how it affects sales, and then we’ll decide next steps from there.”

One possibility would be to roll out the project to the 25 largest markets, Mr. Smidebush said, and another would be to introduce it nationally. The project may be used, he added, to help Saturn bring out another new model, Outlook, a midsize sport utility planned for 2007.

Saturn is paying Google for the test, but Saturn and Google executives would not discuss the budget.

Teams of employees from Goodby, Silverstein visited all 22 dealerships to obtain the video clips of the stores and the general managers.

“Some were ready for prime time,” said Guy Seese, a creative director at Goodby, Silverstein. “Some nailed it in five takes.”

“One poor guy kept us after hours and did it in 22 takes,” he added.

The agency has ideas for Google projects for other clients, Mr. Seese said, declining to discuss them until they are further along.

By that time, there may be additional elements to incorporate into the projects, he added, because “Google is constantly coming up with new technologies.”

Music Store Called a Logical Next Step for Social-Networking Site

NEW YORK (AdAge.com) -- The decision by MySpace to add a music store -- and test its e-commerce legs -- has analysts and industry watchers asking one question: What took so long?

One analyst has called the MySpace music store a 'no-brainer.'

The new feature lets the site's independent and signed musicians sell their work directly from their MySpace profile pages, and it is being supported by a relationship with Snocap, a copyright-services company co-founded by Napster creator Shawn Fanning.

Launching pad for local
MySpace now hosts more than 106 million profiles, including roughly 3 million musical acts that post tracks online. By allowing users to self-publish, MySpace has become a launching pad for small local acts, as well as a place where national movies and artists can be promoted.

As long as songs for sale do not violate a copyright, artists and labels can set their own price and let MySpace members buy songs the way they would on iTunes. The service is in trial and will be available broadly by the end of the year.

Gartner analyst Mike McGuire said the move is a natural next step for MySpace. "It's kind of a no-brainer," he remarked.

A first step
It is a first step into e-commerce for MySpace, which until now has relied on ads and sponsor partnerships to generate revenue. Also, Fox Interactive parent News Corp. recently struck a $900 million deal with Google to provide search on sites like MySpace. That deal is likely to generate far more revenue that any e-commerce deal in the near term.

"By introducing a powerful commercial tool set into the industry, we expect to see artists translate their community reach into sales," said Chris DeWolfe, CEO and co-founder of MySpace.

The songs, which initially will be bought through credit card or PayPal accounts, will be delivered in an MP3 format. That is compatible with most digital-music players, including the popular Apple iPod. The new online music store is likely to appeal to many unsigned artists, but its appeal to labels is questionable because the music store will not attach files that restrict how the downloaded songs can be used.

Napster connection
Snocap, a 4-year-old San Francisco company that manages a registry of copyrighted music, will operate the software behind the online music service. Snocap was co-founded by Mr. Fanning, known best for launching the Napster file-sharing program in 1999, sparking years of controversy over the fair use of copyrighted music.

Last week, Universal Music Group and SpiralFrog announced they will make UMG's catalog available for free so long as consumers are willing to sit through a host of ads.

NEW YORK (AdAge.com) -- You may not have heard of OK Go, but the Chicago rock power-pop outfit just made history. The band's ultra-low-budget clip for "A Million Ways" recently became the most-downloaded music video of all time with more than 9 million downloads.

Filmed in lead singer Damien Kulash's backyard, the three-and-a-half minute ditty features the band performing an elaborate choreographed dance over one continuous take, with bassist Tim Norwind lip-synching Kulash's vocals.

The video proved so popular that fans across the globe began to submit unsolicited copies of their versions of the dance video to the band. The outpouring of video tributes prompted OK Go to conduct a contest with YouTube to select their favorite fan film and invite the lucky winner to perform the dance with them onstage at an upcoming concert.

So how does one top the most downloaded video of all time? With the if-it-ain't-broke-don't-fix-it approach, of course. The band went the DIY route again with another dance video -- this time with a set of eight treadmills, for the song "Here It Goes Again." That video's popularity -- a million downloads in its first month -- earned the band a performance slot at MTV Video Music Awards Aug. 31. (Oh, last week it also played Letterman and supplied the theme song for ABC's "Saturday Night Football" debut.)

The band was en route via limo to the video awards when Mr. Kulash, 29, took time out from a legitimately hectic schedule to talk to Ad Age about his group's viral success.

Ad Age Digital: Who came up with the idea for the "Million Ways" video?

Mr. Kulash: It can really be attributed to no one because we came up with the idea of a choreographed dance that we wanted to do onstage. We asked my sister to help us with it -- she's a ballroom dancer from New York -- so she came over and we worked on it for a half week or more. We came up with a routine and we'd been practicing in our backyard so we decided to make it a home video. We were so happy with the results we sent it to a bunch of our friends before it slowly made its way on to the internet.

Ad Age Digital: So is your sister receiving any royalties for creating the choreography?

Mr. Kulash: Yeah, she gets 1% of every download [laughs]. No, we've been thanking my sister in many ways, some of them are financial. But, yeah, there is no way to account for what the "Million Ways" video did. It's been an incredible boost to our career, I think, but it's a bit hard to put into numbers.

Ad Age Digital: You guys filmed the "Here It Goes Again" video a while ago, before it was officially released this summer. Why'd you sit on it for so long? And why treadmills?

Mr. Kulash: The "Million Ways" video kept growing online and we wanted to stand out with the new one. And some of us just wanted the chance to tour for awhile and do the traditional rock and roll thing. .... [Using treadmills] was a really good idea. My sister thought of it, and once we saw that idea, we thought, "Well, if you have an idea that good you just gotta do it."

Ad Age Digital: Was that the only successful take? I can only imagine with treadmills somebody falling down at some point.

Mr. Kulash: Our collective memory of it is a little hazy. We all know that we used "take 14." We think there were about 20 takes, but we can't remember how many there were. If I remember correctly there were 17 total takes and I think we only got through the whole thing three times. ... Luckily no one was hospitalized but there was a lot of scraping and rubber-burning and that kind of stuff. There was a move we tried working into the choreography we later excised. We tried somersaults on the treadmill, that got a little of bruising -- getting eaten by the vicious machine.

Ad Age Digital: How has your guys' career and awareness changed since the release of the videos?

Mr. Kulash: Well, you called at an interesting time for that question. I'm getting stuffed inside a limousine right now so we can drive about 45 feet near the top of the red carpet and walk back out. This is something we couldn't imagine a month ago.

Ad Age Digital: Is being at the VMAs right now something you had ever thought about?

Mr. Kulash: Only in a sort of joking sense. In fact, we told our label when we handed them the video, "We will never perform this live unless you can get us on the VMAs." And they actually did. The question on everyone's minds is, "How did you guys do this with two $5 videos?" But since the success of the first video, our label has kicked into mega overdrive and we couldn't be happier with how that's worked out.

Ad Age Digital: Tell me about the contest you guys are having with YouTube for the "Million Ways" video. Have you picked a winner yet?

Mr. Kulash: We have not picked a winner yet. The deadline is today. We will pick winners soon. The idea of the contest is, after we put the "Million Ways" video online, we started getting unsolicited copies of the video from people all the way from Korea to Thailand to Latvia and all over place. People were doing it in [salt and pepper] shaker costumes and some people were doing it as part of a Christmas pageant. Some people green-screened themselves into my backyard. A significant number of these were unsolicited and we started thinking about how fun it would be to set up a contest with YouTube to let people in on the action, basically.

Ad Age Digital: Any plans to choreograph any more dance videos?

Mr. Kulash: We do have what we think is another good idea. But we are making them on our own terms, so if we don't like it we just won't show it to anyone.

  FORT WORTH, Texas - One day after federal officials announced indictments of operators of an offshore Internet gambling site, there were signs of how difficult it will be to prosecute the case.

A federal judge on Monday issued an order barring BetOnSports PLC from taking bets by U.S. residents. But on Tuesday the site appeared to be operating normally, offering bets on Major League baseball and season-opening college football games.

The company's founder, Gary Stephen Kaplan, the biggest target in the indictment, was somewhere in Costa Rica. He had nothing to say about the case, according to a spokesman.

Trading of the company's shares was suspended in London on Tuesday. They fell as much as 24 percent Monday following news that the company's chief executive, David Carruthers, had been arrested and closed down 17 percent at 122.50 pence ($2.24).

In the fiscal year ended Feb. 5, BetOnSports reported a 65 percent gain in operating profit on continuing operations to $20.1 million. The company said it handled $1.77 billion worth of bets for the year, up 25 percent.

On Monday, federal officials unsealed a 22-count indictment that charges 11 people and four companies with conspiracy, racketeering and wire fraud in taking sports bets from U.S. residents. Authorities said BetOnSports falsely claimed that Internet and phone wagering on sporting events was legal and licensed.

Five of the 11 individuals were arrested, including Carruthers, who remained in custody in Fort Worth pending a detention hearing on Friday. Carruthers was arrested Sunday at Dallas-Fort Worth International Airport as he waited for a connecting flight to Costa Rica.

The Justice Department is seeking the forfeiture of $4.5 billion, plus several cars, recreational vehicles and computers from the defendants. Prosecutors convinced a federal judge in St. Louis to order BetOnSports to stop accepting bets placed from within the United States.

A company spokesman, Kevin Smith, declined to say Tuesday whether any bets were being turned down.

"We are still in a holding pattern," Smith said. "Our attorneys are mulling over all the information and deciding the next legal step."

Legal experts and those who follow the online gambling industry said it was unclear what would happen if BetOnSports defies the judge's order to stop taking U.S. bets. Americans accounted for virtually all of the company's business until recently, when it began aggressively courting bettors in Asia.

If the company continues to take Americans' bets, federal officials could respond by pressuring the governments of the United Kingdom, where BetOnSports is incorporated, and Costa Rica, its major base of operations.

But such appeals might not work, especially in Costa Rica, which has become a haven for Caribbean online sports books and casinos in the past decade because of its light approach to regulation, experts said.

"There are probably at least 140 sports books operating down there. Those are a ton of jobs," said Sue Schneider, president of a suburban St. Louis firm that tracks the industry.

About 2,000 people work at BetOnSports' offices in San Jose, Costa Rica, according to a local newspaper.

Even if BetOnSports were shut down, there are plenty of sites to take its place. Some online sports books might stop taking bets from U.S. residents, but only if the United States is a small part of their business, Schneider predicted.

The indictment is likely to have even less effect on online casinos — those that take bets on poker or other games, but not on sporting events.

In the past decade, federal officials have prosecuted many operators of online sports books with U.S. ownership or operations because federal law prohibits using phone wires to place those bets, said Anthony N. Cabot, a Las Vegas lawyer who has represented traditional and online casinos.

In a celebrated case from 2000, prosecutors won a conviction against Jay Cohen, a U.S. citizen who ran an operation in Antigua that took sports bets from Americans over the Internet. He was sentenced to 21 months in prison.

But the wire law doesn't cover other types of casino betting, a federal appeals court in New Orleans ruled. That has left some doubt about whether prosecutors can shut down poker and other casino games that target American players, Cabot said.

And unless the operators set foot in the United States — as Carruthers and Cohen did — it's difficult to extradict them, Cabot said.

GOOGLE has trained millions of people to head first to the Web to find information. Can it now train consumers to buy?

Late last month, Google Inc. introduced Google Checkout, a service that stores a user’s financial information and quickly shuttles them through checkout at retail sites. The program is still being tested, but the roster of participating merchants is growing (consumers can register to use it at checkout.google.com).

Some analysts believe the service could be a boon to online merchants, which have been saddled with the reality that about half of Internet users are still too afraid of credit card fraud and identity theft to buy anything online, according to surveys. Payment alternatives like PayPal and Bill Me Later have helped some merchants entice nervous shoppers to cross the line.

“It hinges on a couple of things, but I think Google can be a significant accelerator for alternative online payments,” said Dan Schatt, an analyst with Celent Communications, a Boston-based financial consulting firm.

Google Checkout functions as a virtual wallet of sorts, storing the user’s credit card and personal information in a database. When someone registers with Google and visits the page of a merchant who accepts Checkout as a payment method, they click on the Checkout logo to sign into the service and are shown a page with their personal information and the transaction amount. One click later, the transaction is completed.

The service could mean more problems for PayPal and its parent company, eBay — both of which are in Google’s cross hairs. Google’s free classified listing service, Google Base, is already competing heavily with eBay, with more than 185 million items for sale, and now Checkout threatens to take market share from PayPal. (PayPal executives declined to comment on Checkout.)

Google would not comment on how many users the service had attracted, or how many merchants would soon join the roughly 100 that were using Checkout as of late last week.

Google charges merchants 20 cents, plus 2 percent of the purchase price for each transaction; credit card companies typically charge about 30 cents and 1.95 percent of the purchase price. Google will make up the difference when it sends each purchase through the credit card systems. For every $1 a merchant spends on Google advertising, Google will also waive transaction fees on $10 worth of purchases.

Fred H. Lerner, chief executive of Ritz Interactive, which, among other things, operates the online photography store RitzCamera.com, said that new payment options for customers almost always gained a following on his sites.

“I was a doubting Thomas in the past, but each time we introduced a new payment type, it got a substantial amount of traction,” Mr. Lerner said. RitzCamera.com, which was among the first handful of Web sites to offer Google Checkout when the service made its debut on June 29, also offers customers the ability to pay with PayPal, gift certificates and Bill Me Later, which, as the name implies, lets customers pay after they receive a bill in the mail.

Mr. Lerner said consumer reaction to Checkout has been good, thanks partly to a $10 rebate offer for those who use the service. (Google and Ritz Interactive are paying jointly for that rebate.)

Credit and debit cards have lost some ground as the payment method of choice online, according to Mr. Schatt, of Celent. Roughly 86 percent of online shoppers pay with credit or debit cards today — 10 percentage points less than in 1999. By 2009, Mr. Schatt predicted, consumers will use such cards for fewer than half of all online purchases.

Consumers have migrated quickly from credit cards to PayPal and Bill Me Later, in particular, Mr. Schatt said. Take, for instance, Overstock.com, an online retailer and auction service that began offering the Bill Me Later service two years ago. In the first three months of offering the service, the company said the average purchases of Bill Me Later customers were twice as large as the purchases of credit card users.

An Overstock.com spokesman would not say what percentage of the company’s sales were executed with the Bill Me Later service, but Mr. Schatt estimated that the figure was 6 percent to 9 percent.

Gary Marino, chief executive of I4Commerce, which provides the Bill Me Later service to merchants, said 270 Web sites now offered the technology, up from about 60 at the start of last year.

The service rivals that of Google Checkout in its simplicity. Consumers who use the service type their addresses and the last four digits of their Social Security numbers into the merchant’s site, and I4Commerce’s systems quickly trace the consumer’s credit before granting them permission to pay later.

Wealthy customers make up the bulk of the Bill Me Later users, Mr. Marino said. “If you had an easy, safe way to pay for a $79 item and you didn’t have to expose your $50,000 credit line with your card, why wouldn’t you?” he said.

PayPal has also in recent weeks moved to increase its exposure. The company, which accounts for 10 percent of overall e-commerce payments, this month started testing a service that allowed shoppers to use PayPal on any site that accepted MasterCard.

The service, called the “PayPal Virtual Debit Card,” requires users to download a piece of software and register their payment information with PayPal. When users are on a merchant’s checkout page, PayPal’s software prompts them to log into the PayPal system. The service then issues a temporary debit card to the merchant for the transaction amount, thereby sparing users from giving out their credit card information.

Chris George, PayPal’s senior director of financial products, said an increasing number of big online stores, like Dell.com and PetSmart, now accept PayPal.

Still, according to Mr. Schatt, PayPal, Bill Me Later and other payment companies are justified in having “big fears” of Google. “Checkout is valuable to consumers,” he said, “and it’s also a great deal for merchants.”

Online advertising has been experiencing impressive growth rates. According to a study by the Interactive Advertising Bureau and PricewaterhouseCoopers, online ad revenue jumped 38% year-over-year and 6% sequentially to a record $3.9 billion in the first quarter of 2006. At the same time, television ad revenue fell 2% to $9.1 billion last year, and Johnson & Johnson, which spent an estimated $500 million on television advertising last year, is sitting out the upfront season, where advertisers generally commit 70% to 80% of their TV ad budgets.

Online kiddie marketer Alloy has been delisted. But is it still worth buying? Click here for the answer in FindProfit.

While these trends are clearly beneficial to online firms such as Yahoo!, Google and Microsoft, they are also having an especially positive effect on online marketing firms.

While online advertising may conjure up thoughts of the lack of success at companies like DoubleClick (which was taken private last year) during the dot-com implosion, the landscape of online advertising has changed dramatically. Back before the Internet bubble burst, online advertising was done mostly by Internet, tech and media companies.

Today advertising online is an integral part of the marketing strategies of the world's most recognized brands, from Ford Motor to Anheuser-Busch brand Budweiser to American Express. In addition, innovations both in technology and payment platforms have raised the effectiveness of online advertising for both multinational corporations and small startups.

Advertisers can now pay based on performance measures such as pay-per-click, and software can better track and manage customer patterns. Microsoft's new adCenter is supposed to raise the bar even further. Meanwhile, broadband has not only brought more eyeballs to the Web and promoted longer Web surfing, it also allows for more sophisticated ads, from Flash banner ads to video commercials. Together, these forces have helped create a more stable online environment than what we saw at the height of the Internet boom.

Special Offer: What's going on with hedge fund buying of Southern Union (SUG), and is it a reason to buy more or bail out? Click here for answers from FindProfit.

For firms like ValueClick, aQuantive, 24/7 Real Media and Digitas, the opportunities are real. These firms currently provide a variety of services to both advertisers and ad agencies alike. Some of the services offered include matching advertisers with online ad space, online ad management, providing analytical software and helping create the ad campaigns themselves.

While the opportunities for these firms are enormous, as demonstrated by the tremendous organic growth they have been putting up, competitive pressures from the aforementioned online giants and traditional ad agencies also exist. Thus consolidation among some of the major players in the industry could go a long way to help foster growth, gain scale and reduce competition.

According to the Wall Street Journal, ValueClick and aQuantive were set to join forces, but the merger broke down last month. While a merger of equals is rarely easy, as egos and control issues can get in the way, it could have been a huge boost to both firms.

For now, the two firms will have to go it alone, but both showed they are doing quite well on their own, especially aQuantive. Immediately following the demise of the merger talks, the firm posted solid first-quarter results, growing revenue 42% year-over-year and 5% sequentially. Earnings grew 19% compared with a year ago, and 64% excluding stock-based compensation. More importantly, the company guided for second-quarter and full-year earnings and revenue numbers above analyst estimates.

Special Offer: Intel looks cheap, but what about RSA Security? Click here to find out which stock is more likely to double over the next 12 to 18 months...in the Prudent Speculator TechValue Report.

ValueClick, meanwhile, reported robust sales growth, more than doubling revenue compared with the same period last year while handily besting its own and analyst estimates. Earnings per share figures fell short of analyst expectations by a penny, though, as a 23% year-over-year increase in diluted shares lowered EPS from a year ago. The company did, however, raise full-year revenue and earnings before interest, taxes, depreciation and amortization forecasts, and increased its stock repurchase program by $100 million.

On a valuation basis, ValueClick is the better value of the two, trading at under 12 times 2006 EBITDA compared with about 23 times for aQuantive and about 20 times for the ad services sector. On a forward price-to-earnings ratio basis, though, Digitas is the sector winner, trading at under 17 times projected earnings with a price-to-earnings growth ratio under 1.0. While not putting up quite the dramatic top-line growth as some of its competitors, the firm is putting up solid numbers that are flowing to the bottom line. In the first quarter, revenue rose 27% versus year-ago levels, while earnings jumped an astounding 40%.

One note of caution for Digitas investors, though, is that recommended list member American Express accounted for 26% of the company's fee revenue in the first quarter and 14% of total revenue. While the relationship between the two is believed to be strong, whenever one client accounts for such a large percentage of revenue, investors need to pay heed to the situation. Additionally, based on Bear Stearns estimates, Digitas is trading for 14.9 times 2007 EBITDA, versus 14.5 for aQuantive.

For investor looking for more exposure to the burgeoning international online ad markets, 24/7 Real Media is well positioned in both the Japanese and European markets. Like its rivals, 24/7 Real Media reported solid year-over-year revenue and adjusted earnings growth. It also raised full-year revenue and adjusted earnings guidance. Stock option expensing kept the firm from reaching GAAP profitability, however. Based on company estimates, the firm is trading at about 22 times 2006 adjusted earnings estimates.

Overall, the online marketing sector is showing tremendous growth, and each firm in the space has its unique advantages and offerings. Competitive threats exist and consolidation among some of the larger midtier names mentioned would be advantageous

But even as stand-alone companies, these firms are much more attractively priced today since the recent market decline. For investors interested in the space, a basket bet wouldn't be a bad move, especially if consolidation is in the cards. If we could only choose one stock, though, we would go with ValueClick due to its valuation and superior gross margins.

Posted on Jun 21st with stocks: GOOG, VCLK

David Jackson submits: Last night, after market close, I received the following email from Google’s AdSense team:

The Google AdSense team would like to invite you to test a feature that provides you with a new way to earn revenue from your website by hosting ads that are compensated based on a Cost-Per-Action [CPA] basis. These ads are very different in that you will be able to choose amongst a selection and you will also have more flexibility in promoting them…

The attachment contained the following:

How do I participate in the CPA test?

Simply reply to the invitation email and express your interest in participating and we will send you some sample CPA ads. You can then choose which ads you’d like to host and we will send you the code to copy and paste on to your site. It’s just that easy!

What can I do to optimize my revenue from the CPA ads?

While we encourage you to experiment as much as possible with these ads on your site, here are some general tips on implementing a CPA ad:
1) Ads that blend in with the site and are placed prominently tend to perform better. Look to integrate the ad within the page.
2) Ads that are relevant to the interest of your site visitor also tend to perform better. For example, if you have a travel site, having ads relevant to airline travel would generate higher interest. For more tips on increasing revenue, please see our optimization tips page at: https://www.google.com/support/adsense/bin/static.py?page=tips.html&sourceid= aso&subid=ww-ww-et-asui&medium=link

How do I get paid?

You get paid whenever a site visitor clicks on the ad on your site AND performs a specified action, such as generating a lead or purchasing a product.

Do these compete with regular content ads?

These ads will not compete with contextually targeted ads. Instead, they will show across a separate network, the Content Referral network. To place one of these ads on your site, you can set up a new ad unit that supports any of our current ad unit sizes.

How much could publishers expect to earn with this CPA test?

How much a publisher will earn will depend on a number of factors about the publisher and advertiser, including whether the ads match the topic of the site, and level of interest of their site visitors. We have tried to match the appropriate publishers with advertisers for this test.

Will CPA offerings compete with my current AdSense revenue?

We expect that the CPA test will offer ad units that will expand publishers AFC revenue because the ad units are separate and appeal to different types of users. These CPA ads are also additional inventory to your existing AFC ad units.

How can I promote the CPA ad unit?

Since this is a test and these CPA ads are not regular ad units, we are giving you more flexibility in saying things like “I recommend this product” or “Try JetBlue today” next to the CPA ad unit. However, you should still not incite someone to click on the ad, so saying “Click Here” is not ok.

Where do these CPA ads comes from?

The CPA ads come from a limited group of high quality advertisers that are interested in displaying ads on a CPA basis. They pay you whenever a site visitor performs a specified action, such as generating a lead or purchasing a product.

Will I be able to see reports within my account?

When the test begins, you will receive weekly email reports of conversions you have accrued and your total revenue within the CPA test.

In other words, Google is launching a fully-fledged cost-per-action — otherwise known as affiliate marketing — network.

Let’s not mince words. This is Google’s ValueClick (VCLK) killer. Google has greater resources than ValueClick, a larger advertiser base, and the advantage of being able to offer publishers a full range of ads based on page views [CPM], clicks [CPC] and now actual purchases or leads [CPA]. Google can translate the performance of all these ads into “effective CPMs”, allowing publishers to compare and optimize for whichever type of ad produces maximum revenue.

This morning, soon after the market opened, I shorted ValueClick. Stock buyback or not, this spells the end of ValueClick’s Commission Junction business.

Full disclosure: short VCLK at time of writing; may cover at any time without notice.

June 14, 2006

You’ve heard us talk about the unprecedented advertiser ROI  we’re able to deliver as a result of our ability to get the right message to the right users at the right time; well apparently advertisers are catching on to the increased benefits of online advertising and are driving more and more ad buys online as a result. According to a report released this week by the Interactive Advertising Bureau and PricewaterhouseCoopers, Internet advertising revenues reached a record level $3.9 billion for the first quarter of 2006.

According to Peter Petrusky, Director, Advisory Services with PricewaterhouseCoopers, “The Internet continues to shape the media landscape as more advertising dollars are going online. It is abundantly clear that marketers are seeing a compelling opportunity to leverage the Internet as a powerful medium that drives both branding and sales results.”
 
Further speaking to the change in advertising behavior, David Silverman, partner, Assurance, PricewaterhouseCoopers noted “consumer habits are continuing to change and mature. Companies are effectively learning to devote more of their advertising budget to this fast-growing advertising platform in order to reach the right audience at the right time.”

For more information on how we can increase your ROI, check out www.directanetworks.com

180solutions, a company whose behavioral advertising practices have resulted in a slew of spyware/adware lawsuits, has purchased Hotbar reports the Seattle Times. The latter’s Internet Explorer plug-in is known for letting users customize their toolbar wallpaper, and for tracking their online activities. 180solutions’ purchase of Hotbar is a way for the beleaguered company to increase the size of its audience and ad inventory. Still, 180 hasn’t disclosed how much it paid for Hotbar, but 83 of Hotbar’s 140 employees in their New York and Israeli offices will be merged with 180, including CEO Oren Dobronsky.

To reflect the merger, 180solutions is now known as “Zango,” also the name of its behavioral advertising service. “Zango” will continue to provide the same Hotbar and 180 services as before.

“We have built an extensive user base and effective advertising opportunities through a wide variety of Internet services,” said Dobronsky in a statement. “The scale of this merger makes possible an array of opportunities to fulfill consumer and advertising demand for the products of the new Zango.”

This is perhaps the most bold move from 180solutions to clean up its image as an advertising provider. In January, the company fended off complaints filed by the Center for Democracy and Technology with the FTC for deceptive business practices.

By Robert Hof

What every CEO needs to know about the array of new tools that foster online collaboration -- and could revolutionize business

Silicon Valley loves its buzzwords, and there's none more popular today than Web 2.0. Unless you're a diehard techie, though, good luck figuring out what it means. Web 2.0 technologies bear strange names like wikis, blogs, RSS, AJAX, and mashups. And the startups hawking them -- Renkoo, Gahbunga, Ning, Squidoo -- sound like Star Wars characters George Lucas left on the cutting-room floor.

But behind the peculiarities, Web 2.0 portends a real sea change on the Internet. If there's one thing they have in common, it's what they're not. Web 2.0 sites are not online places to visit so much as services to get something done -- usually with other people. From Yahoo!'s (YHOO ) photo-sharing site Flickr and the group-edited online reference source Wikipedia to the teen hangout MySpace, and even search giant Google (GOOG ), they all virtually demand active participation and social interaction (see BW Online, 9/26/05, "It's A Whole New Web"). If these Web 2.0 folks weren't so geeky, they might call it the Live Web.

And though these Web 2.0 services have succeeded in luring millions of consumers to their shores, they haven't had much to offer the vast world of business. Until now. Slowly but surely they're scaling corporate walls. "All these things that are thought to be consumer services are coming into the enterprise," says Ray Lane, former Oracle (ORCL ) president and now a general partner at the venture capital firm Kleiner Perkins Caufield & Byers (see BW Online, 6/5/06, "A VC's View of Web 2.0").

CORPORATE BLOGGERS.  For all its appeal to the young and the wired, Web 2.0 may end up making its greatest impact in business. And that could usher in more changes in corporations, already in the throes of such tech-driven transformations as globalization and outsourcing. Indeed, what some are calling Enterprise 2.0 could flatten a raft of organizational boundaries -- between managers and employees and between the company and its partners and customers. Says Don Tapscott, CEO of the Toronto tech think tank New Paradigm and co-author of The Naked Corporation: "It's the biggest change in the organization of the corporation in a century."

Early signs of the shift abound. Walt Disney (DIS ), investment bank Dresdner Kleinwort Wasserstein, and scores of other companies use wikis, or group-editable Web pages, to turbo-charge collaboration. Other firms are using button-down social-networking services such as LinkedIn and Visible Path to dig up sales leads and hiring prospects from the collective contacts of colleagues. Corporate blogging is becoming nearly a cliché, as executives from Sun Microsystems (SUNW ) chief executive Jonathan Schwartz to General Motors (GM ) Vice-Chairman Bob Lutz post on their own blogs to communicate directly with customers.

Just as the personal computer sneaked its way into companies through the back door, so it's going with Web 2.0 services. When Rod Smith, IBM's (IBM ) vice-president for emerging Internet technologies, told the information technology chief at Royal Bank of Scotland about wikis last year, the exec shook his head and said the bank didn't use them. But when Smith looked at the other participants in the meeting, 30 of them were nodding their heads. They use wikis indeed. "Enterprises have been ringing our phones off the hook to ask us about Web 2.0," says Smith.

ONE GIANT COMPUTER.  Also just like the PC, Web 2.0's essential appeal is empowerment. Increasing computer power, nearly ubiquitous high-speed Internet connections, and ever-easier Web 2.0 services give users unprecedented power to do it themselves. It doesn't hurt that many of these services are free, supported by ads, or at their most expensive still cost less than cable. "All the powerful trends in technology have been do-it-yourself," notes Joe Kraus, CEO of wiki supplier JotSpot.

In essence, these services are coalescing into one giant computer that almost anyone can use, from anywhere in the world. When you do a Google search, for instance, you're actually setting in motion an array of programs and databases distributed around the globe on computer hard drives. Not only that, people who tap services such as MySpace, eBay (EBAY ), and the Internet phone service Skype actually are improving the tools by the very act of using them. MySpace, for instance, becomes more useful with each new contact or piece of content added.

The collective actions, contacts, and talent of people using services such as MySpace, eBay, and Skype essentially improve those services constantly (see BW Online, 6/20/05, "The Power Of Us"). "We're shifting from a presentation medium to a programming platform," says Tapscott. "Every time we go on these sites, we're programming the Web."

PROBLEM SOLVING.  Not surprisingly, a lot of executives remain skeptical. For some, it's hard to imagine the same technology that spawns a racy MySpace page also yielding a new corporate collaboration service. "There's a big cultural difference between the Web 2.0 people and the IT department," notes consultant John Hagel, author of several books on technology and business. More than that, information technology managers naturally don't want people using these services willy-nilly, because they're often not secure from hackers or rivals.

Nonetheless, the notions behind Web 2.0 clearly hold great potential for businesses -- and peril for those that ignore them. Potentially, these Web 2.0 services could help solve some vexing problems for corporations that current software and online services have yet to tackle.

For one, companies are struggling to overcome problems with current online communications, whether it's e-mail spam or the costs of maintaining company intranets that few employees use. So they're now starting to experiment with a growing array of collaborative services, such as wikis. Says Ross Mayfield, CEO of the corporate wiki firm Socialtext: "Now, most everybody I talk to knows what Wikipedia is -- and it's not a stretch for them to imagine a company Wikipedia."

MORE FLEXIBLE.  And not just imagine -- Dresdner Kleinwort Wasserstein, for instance, uses a Socialtext wiki instead of e-mail to create meeting agendas and post training videos for new hires. Six months after launching it, traffic on the 2,000-page wiki, used by a quarter of the bank's workforce, already has surpassed that of the company's intranet (see BW Online, 11/24/05, "E-Mail Is So Five Minutes Ago").

Corporations also are balking at installing big, multimillion dollar software programs that can take years to roll out -- and then aren't flexible enough to adapt to new business needs. "They're clunky and awkward and don't encourage participation," grumbles Dion Hinchcliffe, chief technology officer of Washington, D.C. tech consultant Sphere of Influence.

That's why companies are warming to the idea of opening their information-technology systems to do-it-yourselfers. And they spy an intriguing way to do that with what are known as mash-ups, or combinations of simple Web 2.0 services with each other into a new service (see BW Online, 7/25/05, "Mix, Match, and Mutate"). The big advantage: They can be done very quickly with existing Web services.

BUSINESS NETWORKS.  IBM, for instance, last year helped the U.S. Chamber of Commerce Center for Corporate Citizenship mash together a one-stop shop for people displaced by Hurricane Katrina to find jobs. People type into one box the kind of job they're seeking, and the site searches more than 1,000 job boards, then shows their location on a Google Map. "This [mashups] could be a way to provide solutions to customers within hours instead of months," says IBM's Smith.

Companies are starting to take a page from MySpace, Facebook, and other social-networking services. The reason: As appealing as that social aspect is for teens and anyone else who wants to stay in closer touch with friends, it's even more useful in business. After all, businesses in one sense are social networks formed to make or sell something.

So it's no surprise that corporate-oriented social networks are gaining a toehold. LinkedIn, an online service for people to post career profiles and find prospective employees, is the recruiting tool of choice for a number of companies. "In 2003, people thought of us as a weird form of social networking," notes LinkedIn CEO Reid Hoffman. "Now, people are saying, 'Oh, I get it, it's a business tool.'" (see BW Online, 4/10/06, "How LinkedIn Broke Through").

STAYING YOUNG.  Despite all the activity so far, it's still early days for this phenomenon some techies (who can't help themselves) call Enterprise 2.0. For now, the key challenge for executives is learning about the vast array of Web 2.0 services. And that requires more than simply checking in with the premier Web 2.0 blog, TechCrunch (see BW Online, 6/2/06, "Tip Sheet: Harnessing Web 2.0").

Where to start? Watch what kids are doing. If they use e-mail at all, it's a distant fourth to instant messaging, personal blogs, and the social networking sites, because they're much easier to use for what matters to them: staying in touch with friends. Companies need to provide more compelling ways for this highly connected bunch as they move into the workforce, bringing their valuable contacts in tow. "Young people are not going to go to companies where they can't use these new tools," says Lane. "They'll say, 'Why would I want to work here?'"

It's also critical for executives to try out these services themselves: Create a MySpace page. Open a Flickr account and upload a few photos. Write a Wikipedia entry. Create a mashup at Ning.com. "The essence of Web 2.0 is experimentation, so they should try things out," says venture capitalist Peter Rip of Leapfrog Ventures, an investor in several Web 2.0 startups.

FREE P.R.  Then there's blogging. It's worthwhile to spend considerable time reading some popular blogs, which you can find at Technorati.com, to get a feel for how online conversation works. Only then should execs try their hand at blogging -- and perhaps first inside their companies before going public. Thick skin is a requirement, since the "blogosphere" can be brutal on anything that sounds like spin.

But the payoff can be substantial, if hard to quantify. Genial Microsoft (MSFT) blogger Robert Scoble, for instance, is credited by many Redmond watchers with doing more to improve the company's image than millions of dollars in public relations. In no small part that's because he has shown a willingness to criticize his company at times.

And companies should to provide open forums for their customers to express themselves. That can mean critical, even vicious comments. One Boeing (BA ) exec who started a blog, for instance, was told early on: "Take down your blog. You embarrass us (see BW Online, 5/22/06, "Into The Wild Blog Yonder")."

NEW MANAGEMENT.  But the upside can be a brand to which people feel a stronger emotional tie. Says Forrester Research analyst Chris Charron: "In the end, the brand is owned not just by the people who create it, but by the people who use it."

All that's going to require more than slick technology. Executives, long used to ruling from the top of the corporate hierarchy, will have to learn a new skill: humility. "Companies that are extremely hierarchical have trouble adapting," says Tim O'Reilly, CEO of tech book publisher O'Reilly Media, which runs the annual Web 2.0 Conference "They'll be outperformed by companies that don't work that way." Ultimately, taking full advantage of Web 2.0 may require -- get ready -- Management 2.0.

Later this week, Google will introduce pay-per-click video ads across its AdSense network. Appearing first as a static screenshot in a small box on screen, the videos will be entirely user-initiated.

Google is pitching the video space as a perfect way for smaller businesses to enter the online video channel, furnishing the ads on their own servers for an affordable rate and with a speedy turnaround. The company also believes larger advertisers will be interested in using the space to test new spots for upcoming traditional video buys.

“We are offering a very, very non-intrusive ad product,” Gokul Rajaram, product manager for Google AdSense, tells Reuters. “Only users who click on the ad see the video.”

This format may scare advertisers who are acclimated with the current standard model of preroll, midroll and postroll ads embedded within content. However, Google believes its videos will afford advertisers a unique measurability on the interaction they are able to produce. “It is very good for advertisers because they now know the user is engaged,” Rajaram said.

Compared to most video ad servers, who charge around $20 per thousand user interactions, Google will reportedly offer the space for single- to low double-digits per thousand clicks.

No video ads will appear on Google’s own pages anytime soon. The user-initiated videos will run on the thousands of pages in its AdSense network, which currently make up for about half of the company’s total revenue.

May 11th 2006 | SAN FRANCISCO
From The Economist print edition

If it's cool, it's probably Web 2.0

IN 2003, towards the end of the dotcom depression, Dale Dougherty and Tim O'Reilly, the founders of O'Reilly Media, a book publisher and conference firm, were brainstorming, and Mr Dougherty dropped the term “Web 2.0”. It was an allusion to the nomenclature for software upgrades, and Mr Dougherty was applying it to what he hoped would be a second generation of the internet. “We think of ourselves as an enzyme,” says Mr O'Reilly. “When we see something coalescing, we give it a name.”

In marketing terms, it has been a great success. In 2004 Mr O'Reilly and a partner, John Battelle, started a new annual conference, called Web 2.0, which has become a big event for Silicon Valley's aristocracy. “Web 3.0” is already discussed at Web 2.0, the conference.

But what is Web 2.0? It began with a specific and useful definition. In contrast to the static web pages of the 1990s, the second wave of websites would use software (such as AJAX, or “asynchronous JavaScript and XML”) that makes web pages look like dynamic software applications that traditionally run only on personal computers. These applications, moreover, would work with one another in so-called “mash-ups”. Google Maps, for instance, is a web page that not only updates itself constantly but can also share data with other websites to yield independent web pages that display, say, crimes committed or houses for rent in an area.

At some point “Web 2.0” took on a life of its own, being applied to online social networks, collective intelligence, blogging and podcasting and “participation” in general. It started being used in sentences that also contained other buzzwords, such as the “long tail”, “folksonomies”, or the “semantic web”. It is in danger of meeting the fate of “core”, “synergy”, and “leverage”, but, for the time being, Mr O'Reilly is delighted.