NonesNotes

New Business Models for Newspapers: Tilting at Windmills?

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Hope springs eternal in the newspaper world, despite the fact that the business has been unremittingly bleak for … it seems like ages.

And yet, new business models are being trotted out. In addition to publisher Rupert Murdoch announcing that he intends to begin charging for viewing online content of his various papers beginning next year, Journalism Online announced in August that it has signed up nearly 180 dailies as affiliate partners.

Journalism Online is author and lawyer Steven Brill’s venture which is offering a variety of “pay models” that allow for micro-payments, subscriptions, sampling, and versatile flexibility in what news content is offered free or for a charge. Reportedly, more than 500 newspapers, magazines and other media properties have now agreed to sign up.

According to Brill, “By creating a platform of flexible hybrid models for paid content that maximizes online advertising revenue while creating a new revenue stream from readers, Journalism Online has helped shift the debate over charging for online news from ‘if’ to ‘when and how.’”

Just how is this supposed to work in a practical sense? The idea is for newspapers to focus attention on the top 10% of their most avid online readers, which would result in preserving approximately 90% of page views as well as ad revenues, even while migrating to a paid-content structure.

Oh, really?

This forecast pans out only if all of those “avid readers” continue to visit the site after a fee or subscription program is introduced. But what’s to ensure that will actually happen?

The marketing world is littered with examples of rosy projections and expectations that flamed out – despite a bevy of opinion research and focus group interviews predicting otherwise. That’s because talk is cheap.

But most online news is even cheaper – as in free. Nevertheless … hope springs eternal.

The “age-old, old-age” disconnect in advertising.

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Here’s an interesting statistic: Consulting firm McKinsey & Co. projects that by 2010, half of all consumer spending in the United States will be generated by people age 50 or older.

It’s a reminder of just how important the Baby Boom generation has been to the U.S. economy over the past three or four decades. And now, just when you might think that power has shifted to younger generations, the McKinsey statistic helps us realize that Baby Boomers aren’t ready to leave the stage just yet.

In fact, they’re not even ready to leave center stage yet.

Here’s another interesting stat: The average age of creative personnel at ad agencies and related communications firms is … 28 years old. And the number of personnel over the age of 50? Fewer than 5%.

And therein lies the age-old, old-age disconnect.

Perhaps it isn’t surprising that ad agencies are stuffed with creative types who are mostly between the ages of 20 and 35. After all, that’s traditionally the demographic group most likely to buy and spend … and so the vast bulk of marketing dollars – traditional and emerging – are devoted to this segment (as true in the 1970s as it is today).

And of course, having a bunch of twenty-somethings spending time developing marketing pitches to other twenty-somethings makes perfect sense. It’s just that the 18-34 target is no longer where the bulk of the buying power is happening. That’s still happening with the Boomer group, whose average age as of 2009 happens to be 53.

Just how significant are “the oldsters” today? McKinsey’s statistics are telling. They include the finding that the over-50 population in the United States brings home nearly 2.5 times what the 18-34 group earns. Which makes it no surprise that the over-50 group represents more than 40% of all disposable income in the U.S.

And when you look at spending, the over-50 segment — which makes up only about 30% of total U.S. population — accounts for well over half of all packaged goods sales and three-fourths of all vacation dollar expenditures. These spendthrifts buy more than 50% of all the automobiles. They even spend significantly more than the average online shopper during the holidays – 3.5 times more, to be precise.

These are strong financial figures.

Now, consider for a moment to what degree ad creative personnel who are 20 years younger are going to really understand older consumers. Sure, they’re well-versed on the ever-growing interactive and social marketing tactics that are available today. But how likely is it that they’re actually able to craft compelling advertising and marketing messages to older consumers?

Undoubtedly, many will scoff at the very question. For one thing, these creatives grew up with Boomer parents.

But when you consider how many common, worn-out clichés one sees in the advertising that’s aimed at the over-50 set — online as well as off — it does make you wonder if the communications firms are putting their creative emphasis in the right hands!

The Broad and the Beautiful

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It took awhile, but access to faster Internet service is finally beginning to even out across all geographic regions of the United States.

A new study on broadband growth conducted by comScore, Inc., a digital marketing intelligence firm, finds big gains for broadband in rural areas. As of the end of 2nd Quarter 2009, an estimated 75% of rural households with Internet access now have broadband service. (Rural markets are defined as those having less than 10,000 population).

Two years ago, comScore counted only 59% of rural households connected to the Internet having broadband service.

Not surprisingly, large metropolitan areas with populations over 50,000 have higher broadband penetration (92% of Internet households), but this percentage is up only a couple points in the past year.

Who’s providing these broadband services? A just released study by Leichtman Research Group found that 19 service providers account for well over 90% of the U.S. market – the largest among them being Comcast and Time Warner for cable … and AT&T and Verizon for telephone.

Indeed, some metro markets are beginning to approach broadband saturation. For instance, in the New York metropolitan area comScore finds 96% of all Internet households are using broadband. It’s 92% in Chicagoland, and nearly 90% in Philadelphia and San Francisco-Oakland-San José.

The Internet broadband penetration for the country as a whole — at nearly 70 million households now — is estimated to be over 85%, meaning that rural areas are still relatively under-served. But the differential is shrinking quickly. Chalk up yet another instance where regional differences are disappearing – thus making rural markets more attractive not just to consumers, but also for rural-based businesses and for companies that rely on far-flung employees who telecommute from home.

It makes saving money on gasoline and avoiding rush-hour traffic snarls more attractive than ever!

Click fraud: How much is really out there?

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One of the knocks against pay-per-click advertising is concern about fraudulent clicks being made on online ads that cost advertisers money and drain their account budgets needlessly. And while Google, Yahoo and various online publishers have long held that their SEM operations can detect patterns of fraud and then credit-adjust advertisers’ accounts accordingly, that hasn’t mollified the skeptics at all.

And now SEM critics have new ammunition in the form of two click fraud reports issued in July by Anchor Intelligence and Click Forensics, two of the industry’s leading traffic auditing and traffic quality management firms. Researchers at both companies have discovered that “scripted” programs that click on ads increased in volume during the second quarter of 2009.

Click Forensics estimates that the overall average click fraud rate was nearly 13% over the quarterly period. According to the firm, this also included an ominous rise in “collusion fraud” on advertising networks. That’s when publishers rotate IP addresses (botnets) to click on ads on their own sites to generate inflated commissions from unprotected ad networks. Many ad networks have difficulty differentiating these attacks from valid clicks.

Based on these results, Click Forensics estimates that the amount of money lost yearly due to click fraud exceeds $4 billion. And while a large chunk of those dollars are presumably reimbursed to advertisers in the form of discounts or rebates, it is impossible to know what portion that amount actually represents because SEM program providers don’t share that information with the outside world.

Anchor Intelligence reported even higher rates of attempted click fraud during the second quarter 2009: nearly 23%.

Where are the nefarious attacks coming from? Richard Sim, Anchor Intelligence’s vice president of product marketing, says, “Vietnam stands out in terms of the fraud as a percentage of all traffic. Nearly one out of every two clicks from Vietnam was registered as click fraud.” That’s nearly double the rate of attempted click fraud found by Anchor Intelligence for the next highest ranked countries – Canada at ~28% and the U.S. at ~26%.

What this says is that click fraud is very much with us, despite all of the best efforts that go into trying to root it out. This should be taken into consideration by advertisers when planning and executing an online advertising program. And it wouldn’t be a bad idea to factor in a 15% or 20% “degradation” factor on all advertising goals and results when evaluating clickthrough rates and calculating ROI.

The good news is that, even with this reduction factor applied, when you compare search engine advertising against alternative forms of promotion, it’s still one of the better buys in the business.

Credit Card Reward Programs: Cut to the Chase

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Chase Card Services has just announced the introduction of a new credit card rewards program. Dubbed Chase Sapphire, it’s aimed at the top 15% income-earning households in the U.S. The program offers the usual premium travel services, a variety of reward-level awards, reward points that never expire, a 24-hour access to a dedicated customer service team, and other perks.

What is Chase Card Services up to, introducing a new rewards program at this particular time? It seems like Sapphire Rewards is destined to deliver only mediocre results at best in the current toxic consumer environment.

But Chase is pressing forward, undaunted. In fact, it’s offering two program levels, including a “preferred” level that offers a bevy of additional goodies such as the ability to transfer reward points to various airline and hotel programs, free bonus points for high spenders, enhanced identity protection and so forth – all for a “low” added fee of $95 per year (waived the first year).

It all sounds so ordinary. But just as you might be thinking that this new rewards program has all the pizzazz of a cold mashed potato sandwich, look more closely. There’s something actually pretty unique being offered among the grab-bag of benefits.

What could be the best benefit of all is the 24-hour dedicated customer service team that comes along with the Sapphire program. What does this mean for customers? To quote the Chase press release, when a cardholder calls in, “a specially trained advisor picks up the phone – with no need to navigate a voice-response system.”

Well, well!

Maybe, just maybe, Chase has conducted focus groups and discovered how wildly unpopular telephone trees are with consumers. Those obnoxious trees may be the single most irritating aspect of customer account service.

Phone trees transform what would normally be a short, simple phone contact into a marathon event. Moreover, often the myriad account information, social security numbers, phone numbers or other data that have been so painstakingly voice e-n-u-n-c-i-a-t-e-d or punched into the phone keypad never make it to the customer rep who finally does come on the line … and who then proceeds to ask for the same information all over again.

And here’s another black mark: How many consumers end up having to yell into the telephone in order for the voice recognition system to do what it’s actually supposed to do – correctly recognize what the person is saying? It’s no wonder the decibel level of many phone calls escalates from “normal” to “screaming” within the span of mere seconds.

Seeing as how Chase is targeting only affluent households with its new Sapphire Rewards program, perhaps they’re willing to spend a few extra dollars on “real live” customer service, figuring the ROI will work itself out with this customer segment.

Certainly, for beleaguered consumers who are tired of doing battle with the annoying phone trees, the prospect of interacting with real customer service people must seem like nirvana.

Here’s an idea. Why don’t the folks at Chase Card Services try scrapping all of the reward benefits associated with the Sapphire program and leave just the 24/7 live customer service feature in place? And then use the savings to extend that courtesy to the rest of the Chase credit card customer base. That would be novel, wouldn’t it?

Besides, they might actually gain more customer loyalty in the bargain.

Searching for effective lead generation and conversion.

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In the current business climate, companies are relying more than ever on new sales opportunities to replace business that has been lost with current customers. And it’s pretty clear by now that “search” has emerged as the form of online promotion that generates the best lead generation and conversion results — outstripping other e-promotional tactics such as online display advertising and newsletter sponsorships.

This isn’t surprising, of course. Search advertising captures the interest of online viewers precisely when they’re in “search mode” for specific products and services, rather than when they’re just surfing the ‘net for news and updates.

(In fact, some advertisers have come to believe that even print advertising outperforms online display advertising. That’s because readers are more likely to browse all the way through print publications. Compare that to visiting informational web sites where viewers are far more prone to selectively pick and choose the pages that they open. A well-placed display ad on a “new technology news” page, for example, might be invisible to the vast majority of viewers who come to the home page and then decide to click through to only one or two additional pages on the site.)

But back to search. Many advertisers wonder which is most effective: gaining high “natural search” rankings that occur based on the content of the web site, or opting for pay-per-click search listings such as Google’s AdWords program with their entries on the right side of the screen.

As it turns out, both tactics have their pluses.

In fact, a new year-long study that ended June 30, 2009 of more than 25 e-tail web sites by Engine Ready, Inc., a search engine software development firm, found that visitors who clicked through to the sites from paid search ads were ~50% more likely to make a purchase, compared to visitors who came to the same sites via clicking on a natural search link.

Specifically, Engine Ready discovered that the conversion rate from pay-per-click links measured 2.03%, while the conversion rate was only 1.26% from organic search clickthroughs.

On the other hand, various research studies conducted over the past few years demonstrate the clear popularity of natural search listings over paid search listings. It’s been shown pretty consistently that around two thirds of total clicks are made on natural search listings, compared to just one-third on pay-per-click listings.

So the key takeaway is that any marketing program worth its salt incorporates search marketing as a key component. And in most cases, that effort should encompass search engine optimization for natural search rankings along with a pay-per-click advertising program.

Caribbean Tourism: Calypso … or Cataclysmo?

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Palm TreesWhen it comes to the travel and tourism industry, the Caribbean seems to have it all: Exotic locales, yet not far from home … a “live and let live” culture that outdoes even Las Vegas or New Orleans in its breezy permissiveness … an area blissfully free of terrorism or other nasty intrusions of the “post-911” world.

And yet, the 2008 financial numbers are in on the Caribbean tourism industry, and they’re not pretty. According to PKF Hospitality Research, hotels across the Caribbean experienced a 16% decline in profits in 2008. And the prognosis for 2009 doesn’t look any better.

The downturn is having a major negative impact on most Caribbean economies, because in this region, “tourism” and “the economy” are essentially one and the same.

How are hotels and resort properties responding? By offering all sorts of special incentives and package deals. Or course, that’s what hospitality properties are doing all over the world, so the law of diminishing returns comes into play.

Many hotel and resort development projects are being shelved, too. PKF Hospitality Research counts as many as 51 of 105 development projects in the region that have been mothballed for the foreseeable future.

Is a turnaround in sight? If there’s to be one, it won’t be known until next year. Most of the region’s tourism dollars are brought in during just three months of the year — January through March.

In 2009, of course, that three-month period just happened to parallel the very worst part of the global downturn. So, based on that very low benchmark, most observers are expecting — hoping — that early 2010 will turn out to be “Calypso Season” rather than “Cataclysmo Season.”

Rupert Murdoch’s “Paid Content” Gamble

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Rupert MurdochMedia mogul Rupert Murdoch’s pronouncement last week that beginning in July 2010, online content for all of his news media properties will be available for a fee – not for free – has surprised many in the industry.

“Quality journalism is not cheap,” Murdoch declared. His announcement comes hard on the heels of his massive media conglomerate News Corporation reporting a ~$3.4 billion loss for the last fiscal year.

While admiring Mr. Murdoch’s brave stance and willingness to get out in front of an issue that has bedeviled the newspaper industry for the past four or five years, one is left wondering if he’s playing the role of Don Quixote rather than Richard the Lionheart in this drama.

For sure, the pay-per-view business model looks great to any publishing company that has seen the advertising-driven business model come under so much stress and strain in recent years. And The Wall Street Journal, one of Murdoch’s properties, has been able to charge a fee for online access in a practice that dates back prior to that publication’s acquisition by News Corporation.

So what will happen in this glorious experiment? Will legions of newshounds flock to the various Murdoch sites – The Wall Street Journal, Times of London, Australian, New York Post – and plunk down pay-per-view dollars or a monthly access fee for the privilege of reading the latest news bits?

Or will people rely on the many other (free) outlets for news, while also receiving and passing along “copy-and-paste” materials over the web — an effortless task that can be completed in mere seconds?

[And good luck trying to use legal means to prevent the dissemination of copyrighted material; the litigation costs could well outstrip any compensation dollars awarded, while being a major distraction inside the company and causing a PR kerfuffle outside.]

That giant sucking sound you hear could be the hordes of cyber-visitors heading on over to CNN, USA Today and other free news sites, whose traffic volume will spike and perhaps even bring in additional advertising revenues off the extra hits. Would these and other free, advertising-driven media properties like to find ways to increase revenues? Sure. But most of them would prefer to be #3 or #4 to take the leap on paid content – not a high-risk first or second.

There will always be some people willing to pay for premium content. But let’s face it; most news isn’t “premium.” It’s a commodity – and its dissemination is helped along by hundreds or thousands of people copying and forwarding articles and and/or links via e-mail, Twitter, LinkedIn, Facebook … you name it.

Rupert Murdoch has a history of being pretty savvy when it comes to the news business. And certainly he has the power and the resources to undertake this new effort.

But his naiveté may be showing on this one. He is, after all, nearly 80 years old and notoriously online-illiterate himself. And while the saying goes that “knowledge is power” … “power without knowledge” isn’t usually a good recipe for success.

USPS: Why don’t we just throw another couple billion around?

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Last week, the United States Postal Service reported its latest quarterly financials — a $2.4 billion loss. Compare that result against the same quarter last year (pre-stock market dive), when the USPS lost only a mere $1.1 billion …

But what the heck? Why doesn’t the government throw a few more billions of dollars around? That’s probably in the cards, because Postmaster General Jack Potter has let it be known that the USPS may be on track for losing as much as $7 billion for the year … and that’s even if the USPS follows through on its plans to shutter ~3,200 post office locations (nearly 10% of the total).

Of course, one of the reasons for the sorry financials is a decline of USPS operating revenue on the order of around 9%. The most recent postal rate hike couldn’t make up for the ~14% decrease in mail volume, which dipped not just because of the recession but also because of changing communications practices, online bill-paying and the never-ending growth of e-mail.

Still, those volume declines are not as steep or as challenging as many private-industry companies have faced in their industries. Could it be that the USPS, as a government entity with all of the bureaucracy and HR/personnel strictures that entails, simply cannot be as nimble and flexible as firms in private industry? And what does this portend for us in the realm of government-managed healthcare?

Maybe the words of singer-songwriter Bobby McFerrin are applicable here: “Don’t worry. Be happy.”

Besides, what’s the alternative — clinical depression?

How “social” should your office environment be?

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In the early years of the Internet, companies worried about the loss of productivity if employees were tempted to surf online in amongst their work duties. There was also the issue of the “appropriateness” of the web content being viewed. In response, various web tracking capabilities were introduced that enable companies to monitor online activities on networked computers.

On the other hand, as the Internet became all-pervasive in daily life, many companies also adopted a policy of allowing a modest amount of web surfing during work breaks to allow employees to conduct personal business such as shopping and bill-paying.

Now, with the rise of social media, the whole issue has been brought to the fore once again. The proliferation of Facebook accounts in particular has resulted in a new spike of personal online activities at work. A recent study by Nucleus Research bears it out. Based on study findings, Nucleus deduces that companies allowing employee access to Facebook lose an average of 1.5% in total employee productivity. And in an era of cutthroat competition globally, 1.5% of productivity is no slouch amount.

To reach this conclusion, Nucleus Research found that slightly more than three-fourths of the employees surveyed have a Facebook account. Of those who do, nearly two-thirds admitted to accessing their account during working hours.

The average amount of time spent per day on Facebook on office time is about 15 minutes – although the study uncovered a few employees who spent upwards of two hours daily during work hours. (Shame on those employees … but shame on their employers, too, for being so utterly clueless about those employees’ behavior!)

Of course, some people’s activities on Facebook have a business purpose, don’t they? Well … it is true that some employees manage “fan” pages for their company as an adjunct of their personal Facebook account. But that shouldn’t represent more than a small portion of any firm’s workers – perhaps those in the marketing, sales, HR or shareholder relations departments.

And the Nucleus Research study findings reflect this as well, because nearly 90% of the respondents who access Facebook at work could not articulate a business justification for doing so.

Perhaps the study’s most surprising finding was the ~5% of respondents who never access Facebook anywhere but at work. What this may mean is that they built their entire Facebook profile on work-time as well. Chalk up some more wasted hours!

The Nucleus Research findings demonstrate that as time progresses and various social media platforms like Facebook and Twitter become even more pervasive communications tools for people at all levels in the organization, the old guidelines for balancing work and personal life must continue to evolve.

The kneejerk reaction is to simply block access to Facebook on all office computers. But there will always be some employees who have a legitimate business reason to be on Facebook. And then there are the the ever-growing ranks of telecommuters working offsite, who surely have access to alternate laptops or PDAs even if their company-issued equipment blocks access.

As is usually the case with situations like this, the easiest fix is sometimes not the best one. And at the end of the day, “big brotherism” could reduce employee morale even further — hardly the result one would hope for in the current difficult business climate where “improving company morale” is far more just an abstract concept in an HR textbook.