Friday, December 19, 2008

The Power of Openness - New Media Case Study

Why does openness matter? Perhaps no industry can help us understand the answer better than new media - defined roughly as information and entertainment, including video, delivered over IP networks, especially the Internet.

The new media market is still at a nascent stage, with large media companies like Turner and Disney reporting that their new media revenue comprises just 5-10% of total. However, it is growing rapidly and analysts predict that within 5 years the advertising revenue for all new media will be somewhere in the $5-10 billion range (NewTeeVee). This growth of advertising in online video echoes people's shifting viewing habits. ABI research recently reported that the percent of American households that watch video online doubled from 32% in 2007 to 64% this year. So, it is natural for advertisers to follow the eyeballs to online. Recently, provided a comprehensive look at global growth of online video viewing and how this is translating into network traffic, as shown in Tables 1 and 2 below.

But what's driving the growth in online viewing when there seems to be a lot of negatives? Computer screens are smaller than TVs, the resolution is typically inferior and the sound is often poor. Research indicates a couple things are the primary motivators for online viewing: people like the flexibility to watch whenever and wherever they want, and they really like the immersive, social aspect of web watching.

The Internet Began as a Social Network

I am probably not the first person to observe that the Internet began as a social network. It was a way for researchers at different government bodies and universities across the US and then the globe to easily share information and collaborate on projects. What the Internet then evolved into during the late 1990s and earlier in this decade - what we might call the corporate Web 1.0, or the read-only web - really should be thought of as an aberration. Just as every business in the pre-Internet era had to be listed in the white pages, and some took out ads in the yellow pages, as the Internet became the way for buyers to find offers, every business needed to essentially list themselves on the Internet with a web page, and then a site. For those of us still needing proof, this week's news that newspaper advertising fell 18% year-over-year in Q3 should be convincing evidence of the power of openness (See Editor and Publisher ).

Unlike phonebooks, however, which were closed systems controlled by the publishers and constrained by print economics, the openness of the corporate Web 1.0 led to an explosion in the number of web sites, which can be seen in Figure 1.

Figure 1: Total Sites Across All Domains August 1995 - October 2008

Source: Netcraft

The emergence of the current generation of Social Networks, then, can best be thought of as the Internet coming full circle, back to its social roots. Of course, in the 30 plus years since the original ARPANET was launched, the types of things people can share across the Internet has exploded. The original Internet was bandwidth constrained and the computers it connected relatively weak and expensive, and so the Net was consequently reserved for collaboration on only the most serious pursuits. Today, though, the combination of ubiquitous broadband network connections, powerful and cheap computers (and other devices), advances in technology to IP-enable everything, and amazing pieces of code called Web APIs, has ignited an incredible diversity of Web applications, or ways for people to share across the Internet. Voice (Skype), Video (Hulu, YouTube), Photos (Flickr), Relationships (Facebook, Myspace, LinkedIn), Commerce (eBay, Amazon).

TV 2.0

The same forces that boosted the number of web sites seen in Figure 1 are today drawing video viewers online. Internet video opens up a new set of opportunities for viewers to engage in the content in ways that were previously impossible – they can do things like choose different camera angles, delve into interactive stats and, depending on the business model, share the viewing experience with friends online. Ultimately, online video gives the audience a different, and a potentially richer, experience than television.

The ability to offer a richer experience is due in large part to the open nature of the Internet. The Internet’s openness invites innovation in the user experience because it transforms video content from a siloed piece of media into a social and contextual piece of media.

Consider MySpace, where 2/3 of videos are viewed from user profiles. This marriage of video and social networks portends radical changes to video discoverability and monetization. Imagine the power to offer brands the ability to target their advertising based on the meta data from the video and extensive details of the user profiles. This is just one example of the power of the Internet to reinvent TV. As more and more video content goes online, the openness of the Internet will reveal new consumption patterns, which will in turn drive new business models


Anonymous said...

Hi Greg,

I found this post very interesting. I was wondering if you could expound on some of the marketing capabilities you mentioned in the last paragraph.

Greg Wallace said...

sorry for the late reply - I must have turned off email notification on comments...

So, Walt Mossberg said it really well when he commented (I'm paraphrasing) that online video will have come of age when it is as smart about ad targeting as search is today. For that to happen, new media companies need to know alot about the viewer and the video and have the ability to match those two so that the viewer receives relevant recommendations/ads.

I think that social nets are the shortest path to reach this point, since Facebook knows a heck of a lot about me, ditto for MySpace, LinkedIn, etc. On te video side, it's easy to capture all sorts of meta data. And there are companies that are working on letting you take your social network profile with you when you visit different sites (Ringside was one such company, now defunct, and there are others).

Holding this back a little, or slowing it down, is the lack of standards, but they're working on it. (see:

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