Shaping your digital business for 2010

What struck me most about the AOP’s forum was the gentle patter of realism.

Similar digital publishing seminars and conferences in the past have often boasted what might best be described as “digital extremists” who argue that traditional media is doomed and digital business should be built from scratch. At this event, speakers from the FT.com, Deloitte, WAN-IFRA and Auto Trader focused on the challenges for any traditional media company trying to increase the percentage of its digital business. But they also argued that this current, hybrid state was not just inevitable but appropriate.

The best parallel came from Deloitte’s Howard Davies. He pointed out that a hybrid car like the Toyota Prius was absolutely essential until cheaper rechargeable batteries or recharging points became widely available. He then argued that traditional media similarly had to “run a mixture of models for a while” because “the digital motorway still did not run everywhere in the UK” and its take-up was slowing.

I’ve copied my Twitters (and expanded some of those that are less than comprehensible!) from the event below.

FT.com’s Head of Product Management Mary Beth Christie

• All attendees to the forum were invited to draw smiley faces on a flipchart – FT realised its employees had as diverse views of the web as the variety of smiley faces drawn by the attendees of the forum.
• FT’s solution to the conflicting demands of journalists, protective of the value of their content, and management focused on revenue was pay wall for each user after 10 free stories a month.
• FT’s advice: make all those impacted by a launch (journalists, sales or operations) make the time to find out about a new launch. No one (CEO to reporter/sales exec) is too busy. Or don’t complain after launch!
• More expensive to make a traditional business digital than from new – like rewiring an old house than building new.

Deloitte’s Media Partner Howard Davies

• Don’t just push yourself into an exclusive digital space because everyone else appears to be there; the boundary between traditional and digital media is an area not a wall.
• “The digital motorway does not go everywhere.” In fact the numbers for digital conversion are slowing leaving the percentage of those using traditional media at a considerable number remains substantial (only 84% on mobile, 76% have a PC and only 62% are on broadband).
• Just as the electric hybrid car, the Prius was produced because it was just too early for pure electric cars, so media will continue to run both traditional and digital media for a while.
• Good leaders see digital’s frequent failures as part of the learning process.
• Take some breaks from your digital journey.
• Few publishers value the Long Tail any more (a reference to Chris Anderson’s book which argues that the web allows retailers to sell a large number of unique items, each in relatively small quantities), claims Davies, since who has resources to cater for the visitor who comes once a month.
• Digital forces not just a change of behaviour but also culture. And you cannot change culture, you can only build it.
• Why resistance to digital? Lack of vision, goal, structure, support, communication, information and involvement lead to a climate of fear.
• Most problems with change management occur because people are expected to implement without explanation and adopt without support.

WAN-IFRA’s Dr Dietmar Schantin

• Digital forces a change to a company’s culture, not just behaviour. Yet you cannot change culture only build it.
• Why resistance to digital? Lack of vision, goal, structure, support, communication, information and involvement from team leaders create a climate of fear.
• Most problems with change management occur because people are expected to implement without explanation and adopt without support.

Trader Media Group’s Digital Publishing Director, Edwin Ulak

• Historically, the Trade Media Group set up its digital business as a national one to compete with its existing 13 print businesses.
• When the company’s digital revenue overtook print revenue there were only 250 employed on digital and 3500 still on print.
• Incentivise and motivate sales team not just on revenue but also profitable growth.

Runcat Consulting’s Tom Turcan

• Don’t underestimate the value of a good party to help relieve stress during a period of change.

Here is the AOP’s own report on the forum.

Guest post: recombu shows how even affiliate sites are now competing with traditional media

Peter Moore’s guest post does two things: first, he shows how far affiliate marketing companies are prepared to change their business models to maintain their paid search rankings and, second, he drums home the argument that it is content, and quality content to be specific, that is the best way to survive the judgement of Google’s Quality Score.

It seems like a pretty harmless ambition until, as Peter argues, you realise that such ingredients are yet more competition for traditional media hoping to make a go of it online.

Peter’s own blog is “My Digital Notebook“.

At the start of last month, a new website called recombu was launched. It’s a publication that deserves some attention. 

Let’s look at the facts
Recombu is a commercial site that is centred on a tight niche: mobile phones. There are mobile phone reviews, comparison tables and there are links to the latest mobile phone deals. The site also features news articles – by my reckoning there are about 50 of them so far – on everything imaginable to do with mobile phones.

You can get RSS updates of these latest articles, become a fan on Facebook and follow them on Twitter.

The name ‘recombu’ is an amalgam of the words ‘recommend’, ‘compare’ and ‘buy’. Andrew Lim, who was formerly the mobile phones editor at CNET, has been appointed recombu’s editorial director and he has added various other notable journalists to the pack, including Susi Weaser – the former ‘editrix’ of Shiny Shiny.

A new business model
Nothing out of the ordinary so far, but when you dig into recombu’s business model, then things get a little more interesting. Recombu has been built by UK Web Media, one of the UK’s leading affiliate marketing companies. Jamie Harwood, UK Web Media’s managing director, is one of the country’s wealthiest Internet entrepreneurs. Therefore, the site follows the old affiliate model of driving its traffic to various different merchants – in this case Apple, Nokia, Blackberry and so on – but it differs from many other affiliate sites in one key point: recombu is one of the first clear attempt to create a brand, a true publication that can rival established websites for market share.

The high profile writers and emphasis on content will bring fast SEO rankings – the area where affiliates have usually performed poorly – and with Facebook and Twitter there is evidence that recombu is planning to build an online community through social media marketing. All of this is backed up, of course, by paid search. But what business do affiliates have stepping on the toes of specialist online publications, stealing their journalists and competing with them for readership? What is the point and what are the implications for online publishing? Let’s go back to the beginning

Affiliate Marketing – a (very) quick history
Affiliate marketing is almost as old the modern Internet. It is based on a simple commercial chain: that one website (the affiliate) will drive traffic to another (the merchant).  The merchant will then reward the affiliate with a percentage of the profits of any subsequent sale. Affiliate marketing is best explained as an application of online crowdsourcing. It was pioneered by the adult entertainment industry in the early 1990s before being adopted with great success by emerging e-commerce sites such as Amazon and CDNOW a few years later.

When Google launched AdWords in 2000, affiliate marketing became more widely accessible – affiliates were able to bid on keyword searches, amass traffic and direct it in great numbers towards a merchant’s store page. AdWords was to affiliate marketing what the steam engine was to the industrial revolution – it allowed the affiliate model to work on a vast scale.

In the years since AdWords’ introduction, the affiliate marketing sector has grown sharply. It is Google’s primary source of income (it made the company $21bn in 2008) and in the UK econsultany estimated that the industry would be worth more than £4bn in online sales in 2009. 

The Google Quality Score – (In the beginning)
In the early days of AdWords, anyone could drive paid search traffic. All you needed was knowledge of the relevant keywords and a well-written advert that appeared at the top of the Google search results. This changed in around 2004, when Google demanded that its advertisers create landing pages, to give consumers more information about a product before they clicked through to the merchant’s page. These landing pages were often very basic and of poor quality: loaded with keywords and stuffed with outbound links.

It was not important for affiliate sites to rank highly in organic search results or to tempt their visitors back. With Google AdWords they could ensure that their page featured at the top of the search results every time. Their aim was to get visitors to click through as quickly as possible and hope that they completed a sale so that they could collect their slice. It was a numbers game. A gigantic scientific experiment.

Between 2000 and 2005 were the boom years for affiliate marketing. Hundreds of landing pages were created for almost every conceivable product. To counter to spam and to raise the quality of their sponsored links, in August 2005 Google introduced the Google Quality Score, an algorithm that rated each paid search landing page individually. In a blog post later that year Google explained its intentions:

Why are we doing this? Simply stated, we always aim to improve our users’ experience so that these users (your potential customers) will continue to trust and value AdWords ads. Have you ever searched on a keyword, found an ad that seemed to be exactly what you wanted, and then clicked on it only to find a site that had little to do with what you were searching for? It’s not a great experience.

Quality Score attacked poor quality affiliate landing pages. It awarded these landing pages with a score between 1 -10. The lower the score, the more expensive it was for a marketer to bid on a particular keyword term. Sites that only achieved a Quality Score of 1 for specific terms found that their cost per click (CPCs) rose massively – sometimes to as much as £5. Entire business models were wrecked in an instant. It was the start of a slow death for the first wave of link-heavy, keyword rich, and hastily assembled affiliate landing pages.

Quality Score and Online Publishing
From the start, Google was clear about what it wanted to see, demanding that their advertisers produce (1) relevant content that was (2) transparent and (3) easy to navigate. Although a list of these requirements was published on their website  – the exact components of Quality Score were never revealed and inevitably it became the subject of endless speculation. It was the digital equivalent of the recipe for Coca Cola.

Many of the poorest quality landing pages were hit continuously in merciless attacks. These assaults, in the vivid vocabulary of the Internet, became known as the ‘Google Slap’. Meanwhile, elsewhere, the Quality Score became a catalyst for development. Affiliates developed from one-man operations to full-sized companies: with custom-built technology supporting complete websites that included news, features, product reviews, comparison tables, blogs and photo galleries. To run these sites, affiliates hired copywriting specialists, talented designers and technological wizards in an attempt to make their sites Quality Score proof. It wasn’t necessarily important that people read them; it was important that Google granted a high Quality Score and left them alone.

It was (almost) journalism by (complete) accident
It was worth it. At this point the industry was growing by around a billion pounds each year in the UK alone; more and more brands were investing vast budgets in digital strategies, and, in 2006, the power of the Internet was reflected when Google overtook British television channels as the largest recipient of advertising in the country. All the time the Quality Score was being strengthened. In July 2009, Google increased its power yet again. It hit almost every affiliate in the country. Perry Marshall, an author who has published a book about Google AdWords, wrote on his personal blog:

I got word from several affiliate marketers that Google dropped the hammer today on affiliate review pages.   Many pages went from quality scores of 10 —> 1 overnight. And these were NOT skinny sites, rather well build [sic] out, consistently updated blogs with good navigation above the fold, xml site maps, high click through, hyper-relevant keyword mapping, low bounce rates, long average time on page  … everything else Google loves. 

The Future – blurred digital boundaries
There is far too much money in affiliate marketing for publishers to abandon the whole business model altogether. But while the boom years may be over, the industry is far from dead. If the choice is ‘evolve or die’, affiliate websites will evolve, and this will have consequences for other online publishers.

Recombu is not alone. There are many such affiliate sites currently appearing in all corners of the web, and their emergence is reflective of the growing power and evolving strategies of a number of the top affiliate and search marketing agencies. Whether or not recombu is a success is yet to be seen, but observers in traditional media should treat the development of these emerging affiliate websites with interest. By creating brands, hiring notable journalists and investing time in developing online communities, affiliates are taking a bold step into marketplaces that are typically the fiefdoms of specialist publications from the traditional media.

And while recombu has claimed the mobile phone sector, equal opportunities exist in any other vertical in which affiliates typically perform well: travel, computing, insurance and digital television are just a few. Publishers in these sectors would do well to take note. Affiliates are inexperienced at developing vibrant publications, they have little history of generating journalistic content or forming online communities and they have none of the authority or objectivity of traditional media. But they do have a tried and tested business model.

And, as I write, that is something that many of their competitors don’t.
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Also of interest might be:
Jeff Jarvis on The Link Economy  and The Ethic of the Link