Wednesday, April 30, 2008

If a Copy Falls in the Forest, Does it Make a Sound? Court Challenges Music Publishers on File Sharing

There's been quite a rumble in the publishing community in the wake of this week's ruling by the U.S. District Court in Arizona in favor of Pamela and Jeffery Howell, defendants against a lawsuit raised by the Atlantic Recording Corporation for their alleged role in copyright infringement. Atlantic, with RIAA backing, was seeking a summary judgment against the Howells claiming that they had put music files on the KaZaa file sharing service, and by doing so violated Atlantic's rights to distribution under copyright law. That word "distribution" turns out to have become the pivotal point in a key decision that puts copyright law in its true perspective.

The key finding by U.S. District Judge Neil Wake is a simple but fairly profound observation. Wake notes that although statues and court precedents state clearly that a distribution of content is a publication, not all publications are distributions. Specific to file sharing, the defendants claim that they did not put any music in the KaZaa file folder designated for file sharing - and that the record company's claim that more than 4,000 files had been designated by them for download was due to a glitch in the KaZaa software that made their music files, present in a folder not designated for sharing, identifiable by others in the KaZaa network. So although these songs were made to look as if they were available for distribution by KaZaa, they were not by any intent of the defendants. The Howells also pointed out that their computer was accessible by others who could have made their files exposed to the KaZaa network.

The judgment reasserts that copyright is really not about the right to make copies but rather about the right to distribute copies of protected works for use by others. Implicit in that position is that individuals or institutions making copies for purposes other than distribution are not subject to copyright law. In other words, if you're using copies for your own licensed purpose, you're not a distributor: distribution is when you willingly make a work available for distribution and it's actually distributed. In the instance of the Howells, the judge perceived that through whatever happenstance an index saying that copies were available for distribution was not the same as saying that any specific person was actually distributing copies.

Though there is already a growing body of legal decisions that seem to be weighing against RIAA efforts to discourage individual consumers from copying content, the Howell decision is notable in that the judge went to particular pains to delve into the technological "hows" of file sharing as well as into legal precedents. In doing so, Judge Wake has challenged publishers pursuing such suits to recognize that the more that they go into these suits the more that they create a wide portfolio of rulings that begin to flesh out the full reality of electronic content use - a portfolio that over time has weakened rather than strengthened their claims to inhibit content copying. Put simply, the more that these suits continued, the more circumscribed their claims become and the more that their presumption of complete power over copying will weaken.

Already many in the music industry have recognized that trying to inhibit copying per se is counterproductive, as it weakens their ability to build brand value with consumers swapping from one platform to another at will to consume content. If your customer gets a new mobile phone, do you really want to hassle digital rights management issues when they try to transfer their music files to the new phone or do you want them to still be able to love the artists that you have in your stable? Increasingly being able to sustain passion for a brand is winning out over the absolute right to prevent copying. Distribution enables a relationship with a content brand: once that relationship is established, the relationship becomes more marketable than the content itself over time.

Music publishers are beginning to get a far stronger sense of building marketable relationships with audiences as the key to their future profits. Digital watermarking techniques are one key element of moving away from fortress-like content packaging and towards being able to understand the value of the relationships being formed with content as it moves from one context to another. If a CD is copied but nobody cares about it, that's probably a bigger problem in the long run than someone copying a CD and discovering that people care about it very much - and will give you opportunities for revenue that spring from that distribution. Managing copyright via asserting distribution rights is still a very key mechanism for enabling revenues, but the future is in recognizing that you're far better off in the long run taking advantage of free distribution to get content into the hands of people who are likely to be your most valuable customers. Once it's there, have your content packaging ready and able to start the value conversation.

Monday, April 28, 2008

Business Information Social Media Plays Heat Up notes the USD 50 million that Austin Ventures has announced that it is pumping into its CEOs-in-residence fund to back Razorfish ex-CEO Jeff Dachis as he explores B2B opportunities for social media. While social media backing for consumer ventures seems to have cooled somewhat there appears to be a rising tide of private equity beginning to back social media plays for business services. Details are highly vague, just the promise of a Software-as-a-Service suite that would be positioned against LinkedIn, Generate, VisualPath, and others already in the social media business information space, according to PCDO.

And there you have it - a quick 50 million infused into a trusted ex-CEO and before you know it there will be another choice in the rapidly expanding market for B2B social media. While it's far from clear where Dachis will take this venture what's already clear is that business information aggregators are going to have more points of potential disintermediation for their services as new forms of content aggregation begin to arise in the space between media, enterprise and personal content services that is neglected oftentimes by traditional database licensors. All this in a year in which many subscription content services are going to be challenged in their renewal cycles as the ROI arguments for their services come under increasing scrutiny.

While some business information services are fairly young and already very promising, I would caution those beginning to put their investment dollars into this space that while there's lots of money to be made in the space there are only so many good tools for managing business conversations that are going to take hold in any particular market sector or for any particular role. This is in part because those services that are already out there have been building a few years' worth of content quality from mined content and socially collected content that is not going to be reproducable from the Web or brand-new social networks - no matter how good one's technology is. This will mean a) licensing content from existing distributors, b) taking more time to build up one's own unique content assets and likely c) needing to position one's services carefully so that they are not trying to reinvent already extant wheels.

So invest on, courageous private equity people, there are indeed great opportunities to create valuable business information services using social media. But be prepared for a lot more careful analysis of what it takes to succeed with business information using social media tools.

Friday, April 25, 2008

Dow Jones and the Future of Business Information: Navigating to the Real-Time Economy

I had the pleasure to speak recently on an analyst call with Dow Jones' Darr Aley, incoming VP of Marketing and BD for their new Business & Relationship Intelligence unit being formed from their acquisition of Generate, along with Simon Bradstock, VP of Corporate Products. After congratulations to all for a great acquisition we went through some of the ins and outs of how Dow Jones will be using Generate's assets to generate new market opportunities and to accelerate their existing deal flow. While many of the details that we went over parallel closely my earlier post on this acquisition, we explored also the ways in which Generate assets will help Dow Jones to penetrate both global markets and other specific market sectors. Certainly, as I discussed earlier, the potential for assets to benefit from this new relationship will loom large, as will integration with Factiva content and platform assets, but in looking at the other assets of Dow Jones Enterprise Media Group, including its news wires, one can see more than just a few extra sources for an already robust business intelligence platform.

What the Dow Jones-Generate acquisition deal represents in its broader context is a dawning era in business information in which new methods of rapid content aggregation and analysis from any potential source are creating a powerful new real-time economy with a high potential payoff for both enterprises and publishers. Much is still made about having leverage through licensable content. When the content's truly unique that's still a reasonable premise, but too often aggregators rely on commoditized content that doesn't enable businesses to get real execution advantages in business over their competitors.

By providing semantic analysis of freshly harvested information from the Web and other sources and mapping it to the relationships that an individual or an enterprise have that can respond to that analysis the combined capabilities of Dow Jones and Generate create powerful new real-time opportunities for creating value from those insights with specific business partners and clients. It's not so unlike what happened in financial markets as they provided more real-time harvesting and analysis of market data and news, but now business information sources from a far wider array of souces can provide similarly valuable and executable insights for a far broader array of business professsionals. If personal relationships drive the highest margins in business, then tools such as Dow Jones' new stable of business intelligence tools from Generate are going to be a key factor in helping professionals to harvest value from those relationships when they're the ripest for the picking.

Dow Jones is not completely alone in this, of course: I reviewed recently Yellowbrix's very intriguing value-add semantic analytics that map trends in news to financial markets and InsideView's semantics-driven sales tools driven by online news sources, subscription databases and relationship management tools are recent examples of how broader real-time insights into events affecting companies and people are driving the value in today's publishing. Much of this value comes not from externally licensed content from from the added value provided by the real-time analysis of this content regardless of its source. Over time the time series data built up through these kinds of services will provide other aspects of unique value for licensing, but these will be secondary to the ability to provide real-time context that can lead to deals at the most important point in time. It's like watching the financial market data business being reborn for the entire range of opportunities for executing business in a wide variety of business sectors. The future of business information is taking shape today - and it's very interesting and high-value stuff. Here's to very interesting times ahead indeed.

Thursday, April 24, 2008

The Online Economy Booms Through Looming Woes

Yahoo joined the list of online companies reporting rosy quarterly earnings, with earnings stronger than anticipated and profits nearly tripling based in part on earnings from new Chinese acquisitions. In the meantime Valleywag notes that Amazon's 1Q sales were up 37 percent over last year's 1Q results and earnings up 29 percent. Meanwhile Google reported revenues up 42 percent over last year's 1Q and net income was up 31 pcercent, powered in large part by continuing strength in U.S. markets and rising strength in overseas operations.

For those who invested in the future of publishing and ecommerce, the payoff has been handsome indeed. For some the growth of Web services in overseas markets in which they invested heavily is a key factor but in the instance of Amazon it's a combination of people who have time and money to shop online and less of a motive given high gasoline prices to sally forth to the mall. In both of these instances there's the continuing emergence of self-service for goods and content. the tendency for people to what what they want where they want it and to favor those who are best at doing this. "Find a need and fill it" was the succinct definition of marketing given to me years ago, one that online services have done well indeed.

In the meantime over at the Web 2.0 conference there are the usual nods of the head towards Tim O'Reilly and other gurus of social media, but at least according to one report the conference is as revealing for its emerging political correctness as it is for a meaningful exchange of ideas. As now-traditional online properties come up rosy in earnings, is Silicon Valley getting bored with social media's long-term promise but short-term question marks? Perhaps so, given a toughening economy and a lack of fully effective monetization tools: just as the dot-com crash came before contextual ads made monetizing search and non-mainstream media profitable, we're sure to see a short-term fall-off in new social media investments as quick exits begin to seem less likely and the over-saturation of the market with publishing tools fragments opportunities for both marketers and publishers alike to reach scale effectively. This, too, is reminiscent of earlier dot-com days, when many publishers adopted a "wait and see" attitude - and eventually lost major market share and brand value.

What's likely to light up the charts over the next few months for new investments is "social knowledge," a loose label that combines the ability of analytics software and aggregation services to divine patterns from social media and online expert services such as WikiAnswers that build repositories of how-tos from topic experts. Whatever the particular play, being able to get more definitive insights from social media seems to be where the money is being spent.

Missing in this mix so far is a huge push by traditional publishers to counter these trends. Most social media investments by major publishers are still largely incremental, moving at a pace that's not likely to lead to strong offsetting revenues any time soon. For enterprise-oriented publishers this is probably not a major concern right away, as traditional publishing methods for scientific papers, while under great scrutiny, are not likely to hit a breaking point this year due to social media. But we're starting to see more signs of services such as content federation and software as a service creating new competitors for enterprise publishers that are going to be worrisome as service renewals begin to come up against budgets in any long-term economic slowdown. Toss in a slow start to developing social media services and we could be in a relatively brief period in which traditional database services have an opportunity to catch a new uptick in their value proposition.

This all adds up to a pattern that is clear and unmistakable: good content will find good markets, but building good brands for good content requires more new contexts than ever before. The biggest mistake that dot-com naysayers made was disputing the value of those "eyeballs" in the long run. Those fettered to quarterly returns may have felt differently about that in the short run, but once effective monetization and contextualization tools took off, the revenues and the profits followed surely. Monetizing contexts will continue to be a hot spot, and those with the tools to monetize them - not necessarily synonymous with those who own the content being contextualized - are going to do just fine for years to come. More to the point, social media is drawing us to a time when microcontexualization will increase the value of these types of venues for monetization, enabling higher-value transactions to be monetized more effectively than ever before.

So yes, it's a gloomy time for the global economy as a whole, especially for those services that depend on people walking through a doorway that might cost a fiver or so just to get there. Great for the carriage trade, but not so good for mass market sales. This will put more pressure on social media services to provide not just interesting chats but interesting opportunities to survive and thrive - as I am outlining in Content Nation. It may turn out that the greatest motivating factor for social media will be not Silicon Valley greed but worldwide need to build a more effective economy. Anyhow, congratulations around to all those who enjoyed glowing earnings reports, let's not forget that it was less then a decade ago when your revenues were mere blips on the corporate charts.

Monday, April 21, 2008

Socialprise in Search of Sales and Marketing: InsideView's Take on Blending Business Information and Social Media

I was a bit nonplused to read an article in ZDNet today about InsideView's newly launched SalesView platform that just didn't seem to "get" what business information services are all about - much less what they are now starting to accomplish within some of the leading sales force automation platforms. Kind of strange, given the power found in the particular application that InsideView has launched.

InsideView has dubbed the mapping of business contact relationships to filtered content from Web harvesting and premium content sources inside collaborative software as "socialprise," a good label that describes how business information is gaining value in key contexts through aggregation and value-add services.

SalesView accomplishes this with content from the Web, from social networking services such as LinkedIn and Facebook and, at premium levels, major subscription databases such as Hoover's, D&B, Jigsaw and Reuters. Similar in general concept to Dow Jones's new Generate acquisition but more oriented towards existing Sales Force Automation platforms, SalesView filters incoming content to determine if it represents actionable triggers in a sales and marketing relationship with existing and potential clients and partners and maps it to relationships harvested from personal networks from both online services and SFA services.

The headline in the ZDNet article asks, "SalesView from InsideView: feature or product?" Apparently they weren't too tied in to how different the mission of most SFA platform providers is compared to most business information providers today. The data that most companies load from their internal databases or third party service into a sales force automation platform is just a starting point for people trying to figure out what they should be concentrating on in their sales, business development and marketing efforts.

Think of SFA contact records as the file cards onto which much be attached the prioritization of these targets and the intelligence that can help people understand who's really ready to move on business today. SFA tools don't provide those kinds of capabilities at all. It takes rich content, filtered through tools that will tell a person who's likely to be in a place where a call would be productive, to tell someone whether it's worth using that contact information in the SFA tool. Yes, from a platform standpoint this may look like a "feature," but if it's a feature that drives the key activities needed to generate revenues, then what's really important, the content "feature" or the software "product"?

SalesView takes a different approach from Generate's G2 platform, focusing more on aggregating a wider potential array of sources and social networks into a number of popular SFA platforms, as opposed to G2's focus on its own standalone application and enterprise API. Both approaches have their advantages, but the SalesView platform is nice in that it offers people hooks into a number of the business information services that they're already probably using to manage business social networks and to acquire information about businesses - all filtered through their sales trigger analysis software.

Generate may have gone down the road further in terms of building its own high-quality company and person information from Web-harvested sources, but SalesView enables people to leverage their own personal networking content very effectively for those who are already making use of social media services, while still being able to leverage intelligence from both online sources and subscription databases very effectively. For those companies that fit this usage profile, it looks to be that SalesView can give them a very cost-effective leg up on integrated real-time business intelligence that can yield greatly enhanced productivity. Sure sounds like a content product to me.

Thursday, April 17, 2008

Hi-Def Online Ads: Goes Wraparound on Ads

If you go through Grand Central Terminal in New York and many other major transportation hubs you're likely to encounter the new immersive style of ad campaigns gaining popularity, with huge stick-on panels for one product following one after the other on walls, floors and any other surface that will get your attention. Grab the shuttle subway train to Times Square and you're likely to wind up in a car that's a head-to-toe ad for rum, athletic shoes or whatever other consumer experience that someone wants you to deep-fry in for a few moments. It appears as if such methods are making their way onto the Web as well, now.

Jason Calacanis Twittered about a new site called, a new site specializing in little video clips, photos, games and such for those seeking some well-packaged time wasters and potential big bucks - up to USD 2K if your uploaded content makes it to their home page . Digg meets YouTube, if you will. The site itself is amusing enough, well-designed and sure to gain some attention, but the interesting thing that I found about it was that it has an ad for an upcoming movie wrapping itself entirely around the main content area on the site's home page. Immersive ads have made their way to the Web - courtesy of the high-res screens that are the typical norm now for most Web consumers. View the page in a smaller display and the sides clip off neatly, making for a big banner ad with a little noise on the side.

As much as this is about making more of an immersive experience online I think that it's also acknowledging another immersive medium that's beginning to get the attention of consumers: HDTV. Before we got our new hi-def set I rarely focused on the TV itself unless it was breaking news or a key sporting event. With HDTV, the quality of the picture is so much closer to the visual quality of the typical PC monitor that you actually wind up watching shows again - and sometimes the ads that go with them. The all-screen ad makes use of all of the screen real estate to get a message across, a large-scale distraction on a page that's all about distractions. Oddly enough, then, it fits right in - and helps to get through to consumers equipped with both HDTV and TiVo-like devices. I suspect that we'll probably see some back-channeling of this technique into HDTV channels as advertisers begin to realize that some shows have blank screen margins that can be exploited more effectively for their campaigns. Myself, I'd rather see Web content of my own selection in that space, but that's for another post.

Dow Jones Acquires Generate to Build Up High-Margin Enterprise and Media Assets

I was chatting with someone from Dow Jones' Enteprise Media Group at Buying and Selling eContent exhorting them to get more into virtual aggregation products while noting that folks from Generate were saying that a deal announcement with someone was eminent. This morning the deal news broke - with Dow Jones coming out the victor in a range of financing and exit options that Generate was considering. The Generate team will form the core of a new business unit at Dow Jones to be called Dow Jones Business & Relationship Intelligence, to be headed by Generate President and CEO Tom Aley in a SVP slot with Darr Aley, his twin brother and EVP of Marketing for Generate, taking on a VP of Marketing role in this new business unit.

With a softening economy challenging Generate's value-add strategy for short-term growth, this is one of those win-win deals that you hope for and are glad to see when they come about. Dow Jones' Factiva business unit, the business information backbone for their Enterprise Media Group, has done well enough but had seemed mired in its efforts to move its business intelligence capabilities beyond traditional aggregation of licensed content for most of its clients. The acquisition of Generate provides Dow Jones three critical springboards into a much more robust future based on The New Aggregation concepts that we've advanced here at Shore for many years.

The first springboard is the virtual aggregation capabilities that Generate's web harvesting provides. Generate, unlike some other Web harvesting tools for business information, has focused very heavily on ensuring that harvested data is cleansed and de-duplicated before releasing it into its databases. This doesn't make their data perfect, but with more and more institutions making their own Web publishing the "golden source" for publishing business information it does give them a distinct advantage in both update cycles and overall breadth of content quality that will accrue as more and more data gets released into the Generate/DJ databases. Now Dow Jones has an engine to build an independent and powerful source of business information that will not have to rely as heavily on licensed content sources.

The second springboard is a very robust intelligence front-end in Generate's G2 platform, which combines semantic analysis of incoming content for events that may trigger specific types of deal-oriented activities with a very rich and well-designed business intelligence application and API toolkit that has enabled Generate to build a market very quickly for its high-end business intelligence services. G2's integration of watch lists for both companies and people combined with real-time triggers will give Dow Jones a real-time business intelligence service far more powerful than what is currently in their quiver - with Factiva content helping to add value rapidly to the application.

The third springboard into making virtual aggregation a reality for Dow Jones is Generate's gClick tool, which enables content on people and companies served up from Generate's database to appear in a pop-up window or other Web display with a click of a browser-embedded icon or a Web page link. An entire page or a highlighted section of content can be analyzed by gClick to determine which companies and people are present and a customized dossier is prepared and displayed automatically. While the media applications of this tool have proven to be useful for some of Generate's clients, expect this to be particularly useful in enterprises where it's easier to manage features like this on a standardized basis. With many enterprise Web portals and search engines failing because they don't provide the right content in the right context this capability can help to build a foundation for many virtual aggregation services within the enterprise.

Put these three capabilities together and you have a huge leap forward in Dow Jones' ability to add value through business intelligence services beyond its traditional base of users. While they had been making some new inroads with their Factiva SalesWorks tools into the line managers who need more value from business information the data sets that Factiva alone could provide were not particularly better than any other set - with Web content left to the side in raw form. With its Generate acquisition Dow Jones has set the stage for a new era of growth in business information services based on the real-time, all-the-time world of Web content combined with sophisticated analysis that can transform this information into highly actionable business insights quickly and effectively. My congratulations to all involved: business information just got a lot more fun again.

UPDATE: A couple of extra thoughts that have been rattling around in my head today. The gClick feature will be a very nice proprietary advantage for the site in time, although it's likely that they'll still market the feature to non-competitive media outlets. Also, if you think of how the G2 platform has done well in financial markets to date it makes a wonderful complement to other DJ products in this sector - providing a new real-time oriented service that need not mess with stock exchange market data to make an impact on the markets. Neat.

Yahoo-Google Ad Deal: Perhaps the Best of All Possible Worlds

In war it's said sometimes that the enemy of my enemy is my friend. If business deals are a form of warfare then we're seeing some interesting friendships in Silicon Valley these days. The Wall Street Journal covers an emerging wrinkle in the battle for Yahoo as they march closer to a deal to replace their ad network with ads from Google's more powerful stock of advertisers. WSJ speculates that this will make it harder for regulators to approve other acquisition offers from Microsoft and News Corporation to take over Yahoo - or at least slow down a potential re-upping of a bid from them. That may be the case, but it seems as if step by step Yahoo is navigating to a peaceful conclusion to its current woes - and forming a more healthy revenue picture that could help it to define a more comfortable independent future.

With the USD billion -plus boost it's likely to receive from Google's ad networks for ads displayed on its search pages and other page inventory and a potential pickup of already Google-friendly AOL, we're beginning to see the outlines of a duopoly to counterbalance the strong push of Microsoft and News Corp to dominate online media. In broad terms, think of Google as the search, video, database/API and ad backbone for the commercial Web and Yahoo as the media licensing, aggregation and community backbone. Each of these specific domains will overlap, of course, but in broad terms there's a symbiosis between them that offers each a path to revenue growth and the industry as a whole two distinct partners with two distinct strength sets.

This is probably the way that it should have been a while ago. I don't think that there was ever really a strong rivalry in many ways between Yahoo and Google on the product level. Each has always had their specific strengths, and probably both would have benefited greatly for earlier cooperation of this kind. Google was never going to "do media" as well as Yahoo and Yahoo was never going to "do technology" with quite the intensity and neutrality as Google. But between the two of them they both do online content very well indeed. And between the two of them they will have oodles of page inventory for ads to help them weather tougher economic times with fewer concerns - hopefully a key factor that can appeal to Yahoo shareholders being faced with choices.

More to the point, perhaps, such a duopoly would restore some natural balance to the Web that would enable marketers and publishers to understand who to deal with more effectively. There have been too many players with designs to be a "new number one," too much time wasted on kingmaking and not enough time spent on product development. It still leaves Microsoft plenty of room to focus on new and better platforms for content with mobile operators, auto manufacturers and appliance makers and to try to lock up entertainment deals for those platforms. News Corp may prove to be a stepchild in this situation for the moment, but with MySpace still chugging along healthily I doubt that it will be out of the game in any long-term sense.

The key loser in this deal would seem to be not so much Microsoft as Microsoft's strategy of domination by selling intellectual property. Be it software or content, Microsoft's continuing focus on proprietary consumer goods and services is distinct in many ways from the more open and collaborative assembly of value found in many Web-oriented environments. This may work to Microsoft's advantage where they can provide new and powerful platforms for content, such as in their Sync line of automobile communications technologies, but with ownership of content being more at the mercy of companies that own contexts it tends to be a strategy that conflicts with successful online media. It's that conflict that seems to be at the heart of their failure to convince Yahoo that a marriage would be good. At its heart, after more than a decade of online development, Microsoft still doesn't "get" the Web in some fundamental ways - nor does it seem to want to.

I'd be very happy if this path towards collaborative independence for Yahoo works out the way that it's headed currently. None of the acquisition paths for Yahoo were looking very positive for either Yahoo or the industry as a whole, even if they would have been good portfolio matches for potential stockholders. Here's hoping that we can let this deal fracas die off so that we can get back to focusing on the growth of the Web's greatest strengths - great content and powerful contexts.

Wednesday, April 16, 2008

Buying and Selling eContent 2008: Soaring Highs, Crashing Lows

The Marriott Camelback Inn in Scottsdale, Arizona has been the site of the Buying and Selling eContent conference for nine years, now, usually a most beautiful spot that lets your cares melt away so that you can focus on good people, good food, a bit of sun and great presentations. But Camelback was not its usual self this year, stuck in the middle of a major construction project that had the revitalized conference halls in good shape but much of the rest of the facility in turmoil. Rumor had it that Bill Marriott himself showed up over the weekend and flipped his lid when he found out how messed up and behind schedule the project hd become.

This turmoil seemed to reflect the unsettled nature of this year's Buying and Selling eContent conference, an event that brought together some very good speakers overall but which had some crashing lows to go along with its resounding highs. Attendance was off from last year's healthy showing but still had a good collection of both content vendors, technologists and institutional content buyers. Some of the presentations were downright brilliant and spot on: Y.S. Chi, Vice-Chair of Elsevier, gave a fantastic assessment of the content industry, underscoring his belief that the content industry was going to have to move towards providing experiences and not just content.

I had to smile at Y.S.' use of experience as a focus for content's value, having made experiences part of our definition of content five years ago: "Information and experiences created by individuals, institutions and technology to benefit audiences in venues that they value." I posted it on Wikipedia not long thereafter and there it remains in somewhat modified form (my thanks to Wikipedians who helped me to refine it). Y.S. demonstrated briefly what appeared to be a bog-standard MediaWiki platform that Elsevier is using to enable qualified medical practitioners to develop a medical knowledge base - an important step forward for Elsevier to compete with other scientific publishers experimenting with social media and one which I am sure will not be their last foray into social media as they begin to focus on building knowledge community experiences from the expertise available in their client base.

But this was counterbalanced by Andrew Keene, the self-professed "Anti-Christ of Silicon Valley" whose keynote rant on the "Cult of the Amateur" repeated his performance of vivisecting social media at the SIIA Information Industry Summit earlier this year. On Content Nation I go into this presentation in more detail, but the nut of his argument - or shtick, as the case may be - is that people creating social media are a bunch of monkeys typing on PCs who should step aside to let the established media be the professionals in charge of content creation and curation. I imagine that the doctors contributing to Elsevier's wiki project would take exception to that label - as would many professionals of significant insight who contribute to social media publications globally.

The thing of it is, though, is that there were more than a few people at the conference who were glad to side with Keene's point of view. Certainly there is a need for professional content creators and curators but overall we should be glad that so much additional value is being created through social media. If there was anything that I found to be particularly disappointing and disturbing at the conference it was the number of people who were not only invested in traditional content buying and selling models but who were on some levels downright hostile to emerging and highly valuable concepts such as social media. I was very pleased with the presenters in my own panel who tried to explain how Jigsaw, ECNext's Manta and the Near-Time social media platform were creating mission-critical business information, but for some reason their leading-edge efforts seemed to be greeted with some skepticism.

The low point for this "rear guard" action, though, was the Special Libraries Association-sponsored panel, in which Janice Lachance, CEO of the SLA , led a well-presented but utterly stale list of complaints about content vendors that could have been written from ten-year-old slide decks. I know Janice, and she's a wonderful person who has great insights, as do the people who presented: I expected far better. I think, though, that it's really not a matter of personalities or presentations but more a core factor with which SLA members need to wrestle.

Having come through many years of upheaval, in which more than a few SLA members have seen their careers shuffled from one part of their organizations to another, it seems that too often SLA members have been disconnected from much of the "experience"-oriented generation of content in their organizations that drives much of the value of content for their patrons. If they allow themselves to focus too much on licensing agreements their careers are going to be tied ever more more closely to their vendors, whose main revenues continue to come through licensing content. As long as there's content to license then they have a job, might be one argument, which tends to chain their organizations to ever-weakening vendor business models.

I don't think that this unfortunate symbiosis really has to be the full truth of the matter, and I know that for many progressive SLA members it is far from the truth. Certainly Bill Noorlander's panel on win/win relationships helped to show some shadowy outlines of more progressive thinking. But the vendor "dance" on licensing has been stalemated for far too long, a stalemate that's been dragging down both the vendors themselves as they drown in complex licensing deals that slow down and reduce sales and service, but as well their clients as they try to justify pricing schemes that seem to have little bearing on the ROI required by the line managers who need to justify content acquisition costs in their budgets.

Put simply, it's time to get the lawyers and the fiefdom-builders out of the way and to come up with a new and more highly automated regimen for content licensing that will meet the increasingly "just-in-time"demands of institutional content buyers. The manufacturing industry came up with computer protocols that helped to automate materials acquisition from suppliers nearly two decades ago: why has it taken the publishing industry so long to invest in similar techniques for enterprises? Perhaps increased competition from new sources of valuable content will stimulate their thinking. In the meantime I think that it falls upon the SLA to become far more visionary and to start participating in the development of standards for automated licensing already being developed commercially to help their institutions to use premium content far more cost-effectively as they adapt to the ROI requirements of institutions trying to survive in a real-time economy.

Stephen E. Arnold gave a well-polished and insightful presentation on the state of the search industry's place in the content game as old models for charging for content come up against the ability of search engines such as Google creating ever more sophisticated ways to aggregate and organize content. As Steve pointed out the enterprise search engine market is booming but failing to pull together all of the content resources that their clients need to create the most valuable and comprehensive content collections that their clients need. At one surveyed institution two thirds of users were dissatisfied with their search engines. Steve sees federated content services as one key solution to this problem, but in the broader picture with a new global audience for content growing up around devices such as mobile phones and an ever-wider array of publishing services from technology providers it's not clear that solving the role of search engines in their marketing is going to be that much of a solution for any content provider. There are far too many things in motion to which publishers simply haven't reacted.

I don't mean to short-change the other good panels that the conference had, which all provided some great examples of how best practices are being applied today for content, but I was not taking my usual by-the-blow notes in the middle of launching Content Nation, so some of my recollections are now sketchy. Suffice it to say that most presenters provided some good examples of how content value is being created more from value-add services such as better content organization. Collexis, for example, demonstrated powerful new ways in which content categorization can be used to discover people's expertise in highly specific areas that help to accelerate research in medical and research fields. I think that Collexis CMO Darrell Gunter's best example of this capability's power was when one scientist discovered something that he never knew - the fellow in the office next to him was working in the same area in a key line of research!

Mike Orren, President of Pegasus News, uses user-contributed content and networking to enable marketers to target offers that have a more than 60 percent response rate and zero opt-outs in some instances, driven by very careful matching of opportunities to audiences based on content analysis. And Cengage Gale demoed an online book club that helps people to drive book downloads and sales based on building communities of book enthusiasts.

But whatever the particular focus of the conference's presentations, the same theme seemed to pop up again and again: the increasing polarization of publishing inside and outside the enterprise based on the rise of social media. There are some publishers such as Karen Christensen's Berkshire Publishing Group that try to balance both very traditional forms of publishing while exploring the development innovative social media outlets. But for many publishers the need to balance traditional revenue streams while investing in social media technologies, which push their business model ever further away from their core expertise, is proving to be quite challenging.

Social media's rise seems to be just as challenging to content experts in enterprises, who see the rise of social media content uncurated by information professionals as a challenge that stretches their expertise that much further from being interfaces to licensed content providers. Jeff Cutler, now an independent consultant, pointed out in comments how the rapid rise of's WikiAnswers online Q&A community is one example of how social media is creating powerful "social knowledge," aggregations of expertise that are increasingly competitive with traditional sources and likely to eclipse them in time. Steve Arnold pointed out how Google's Knol project, meant to assemble reference articles on key topics, is as much about creating definitive topic mapping from social media to empower its search engine as it s about attracting people to social media itself. Any way you look at it, the elephant in the room was Content Nation - the ability of millions of people to influence others through highly scalable online publishing.

Social media is more than just a generational divide: it's a cultural divide as well. While I might be a bit greyer than the average Twitterer, somehow I was one of those willing to cross the divide and to agree that social media has become the emerging center of publishing, much as the Web itself became that center several years ago prior to many publishers being willing to accept that fact. But unlike their initial transition to the Web, social media challenges both publishers and institutions to come up not only with new skills but entirely new inventories: you can adapt news, book, magazine and even audio and video content to the Web but there's nothing in most publishers' quivers that can be repackaged into social media.

Social media certainly helps to enhance the value of many publications and in many instances can create premium content to drive very valuable new content products and services. But in most instances what we're seeing is the rise of a new parallel content industry whose rise in a medium now familiar in some ways to most publishers has caught them yet again by surprise. The divides created by social media are far more profound in many ways than the divides created by the Web. Most people of an employable age have an email account, perhaps even a few. But there are few in senior positions in the publishing industry today who have a Facebook account or even seem to want to have one - while younger people may not even see an email account until they get their first job.

One familiar and vocal person at the conference tried to downplay social media as "nothing new." And she was right, of course: social media has been with us for thousands of years. But the scale of social media's influence creates a social divide that seems to be leaving many publishing experts flat-footed in their responses to the marketplace. That's a problem that future iterations of this conference will have to address more fundamentally. The events industry, the social knowledge industry, the technology industry and the media industry are merging in ways that are helping to create a new real-time knowledge economy that cannot be responded to easily by many.

I am hoping that the next iteration of this conference will bring back both some more healthy crowds and more of a focus on the value propositions that people are seeking in the content marketplace. From buyers, I hope to hear more about how they are creating value from content in their enterprises and what they need to do to achieve ROI from internal and external content. From sellers, I hope to hear more about how they are leaving old licensing models behind to find new ways to respond to the real-time needs of their marketplaces. And from the Information Today, Inc. staff I hope that we get a return to a commitment to the thoughtful assembly of topics and presentations that drive people to more provocative thinking about the future of the content industry. Let's hope that both Bill Marriott and conference attendees will return to Camelback next year to find both a familiar place and a place transformed by a new outlook on its mission.

Yellowbrix Powers Sentiment Analytics that Drive Financial Markets

Jeffrey Massa, CEO of Yellowbrix grabbed my ear at the Buying and Selling eContent conference in Scottsdale, AZ, for good reason it turned out. Yellowbrix is well known in both online and enterprise markets for its content aggregation, portal development tools and financial information services, but like everyone else in the aggregation game they've been looking at higher value tools to create better opportunities for insight through their content. The Sentiment Performance Indicator tool that Jeff showed me is one such tool - and a killer app at that.

The Sentiment Performance Indicator is a set of data and graphics tools built off of a Yellowbrix-developed semantic engine that munches through the content in its media feeds to determine whether stories on a particular company are positive, negative or neutral. This data then drives simple data displays and charts that enable one to get a grasp on likely market sentiment for a company's securities very quickly. This can be especially important before a securities market opens - there's that period before trading begins when analysts people on sales and trading desks in financial institutions try to get a fix on market sentiment is overall and for particular investments. Traditionally this is done with phone calls to trusted contacts, browsing through news, morning reports and other more quantitative tools to get a feel for what's going to happen.

The Sentiment Performance Indicator takes this type of activity to a whole new level. Instead of working on largely "seat of the pants" sentiment, the Sentiment Performance Indicator gives data that provides really strong correlations with likely market activity. In the chart on the right, reduced a bit but I hope still readable, shows in this instance a graph of the Dow Jones Industrial average in blue. The Sentiment Performance Indicator in this instance looks at all the news relating to the index and the companies that comprise it and out pops the sentiment data. Note how the green line, showing positive sentiment, tracks strongly ahead of negative sentiment for today before the market opened. Note the strong correlation with how the market performed after the open. Note also that as positive sentiment began to drop and close in on negative sentiment that the market levels out. Highly predictive.

Jeff walked me through similar displays for individual stocks and the data correlations were truly eye-popping - this coming from someone who stared at Reuters and Quotron screens and wallboards for more than a decade. What I found interesting was not only how closely the sentiment data tracked and predicted subsequent stock performance but also how changes in sentiment correlated closely to typical trading activities. For example, in one particular example Jeff showed a stock where negative sentiment rose sharply and there was a subsequent selloff. However, there was at the same time a steep fall in negative sentiment but no increase in positive sentiment. In other words, once a stock starts falling from bad news the damage is done and it will keep falling until there is countervailing news - to put it another way, once you have bad news, no news is the equivalent of bad news. That is a very, very accurate portrayal of real-life market activity.

Another example of a display in the Market Sentiment Indicator is a simple tool that shows cumulative sentiment data, the top positive companies and the top negative companies. Very easy to interpret - and very useful not only to securities traders but investor relations, management dashboards and other business applications where there is a need to see at a glance the real-time changes to how companies are being perceived in the marketplace.

This is certainly not the first sentiment analysis tool on the marketplace and no doubt there are several major investment banks, asset management firms and hedge funds that have cooked up their own custom version of such a tool. But I must say that to my jaded eyes this was one of the most powerful applications of semantic content analysis that I have seen in a long time. The top positive/bottom negative display should be on every desk tracking U.S. markets unquestionably, an invaluable tool that can help financial experts prepare for their trading day effectively and to get a handle on how trends are likely to unfold during the day.

More sophisticated tools are no doubt required for sentiment analysis to trigger low-latency basket trading during the market day, but for moving one's seat-of-the-pants sense of market sentiment into more firmly grounded views of market realities, especially in those critical minutes before markets open, this has to be one of the more powerful human-oriented tools that I have seen since PCs first started providing bar and line charts for securities analysis. No kidding. Thanks, Jeff, for a demonstration of such a simple yet powerful application of value applied to aggregated content.

Tuesday, April 15, 2008

Bloggers Worry About Content Commoditization and Unlicensed Use. Welcome to the Club!

Read/Write Web notes a hue and cry rising up from bloggers who are concerned about their content being appropriated by aggregation services such as Shyfter that take blog feeds and develop ad-based services using their content without bloggers' approval. Bloggers are apparently concerned that aggregation services are stripping off revenues from their ad-supported services. I suppose that there's more than one publisher chuckling on the sidelines of this affair as bloggers by the bucketful begin to discover an uncomfortable fact - if you decide to be a publisher via social media there's no magic spell that removes one from the problems that all publishers have. Commoditization, unfair use and redistribution of content without verifying a publisher's rights in a new context - these are common complaints in the publishing industry as a whole. This is, unfortunately, where many social media platform providers have fallen short.

Quick to create new features to embed content and to distribute it, many social media platforms have fallen short in their ability to help people monetize their content effectively. Yes, we've had contextual ads on blogs for years, but in essence contextual ads are telling bloggers and other social media creators using them that there's enough demand to sustain their publication on mass media ads. Unfortunately this is rarely the case - the supply of social media content is vastly greater than the demand for media-scaled ads and programs such as AdSense, while beneficial, will not pay huge dividends for most bloggers. It takes blogs with large, media-scaled audiences such as TechCrunch to sustain business with the existing advertising tools. The irony here is that as some social media properties have grown to such proportions they are recognizing that they really have the same problems as any other mass media-oriented property. Aggregation without licensing for commercial purposes draws off a blogger's revenues as much as it does a major newspaper's revenues. In Content Nation the problems of traditional publishers have become the problems of social media publishers, and vice versa.

Companies such as Newstex help bloggers to benefit from companies who want to play by copyright rules and license social media content, but in general there is little to be found in most standard weblogging packages that help a publisher to capitalize on the value of their content in contexts other than their native Web site. Some of the solution is better standard features for bloggers - technology such as Attributor can enable a publisher to track content usage more easily and relicensing services such as Copyright Clearance Center's RightsLink and iCopyright can help companies to manage content relicensing opportunities more effectively. And on Near-Time, the platform that we use for Content Nation, there is the capability to define subscription access to content, a "gated community" that sets a bar for both content access and creation as desired. These types of tools are the basic "block and tackle" for any online publisher today, whether in social media or mainstream media, to ensure that they understand who is using their content and making it easy to establish good commercial relationships with those valuing content to make money through content aggregation or reuse.

Unfortunately the technology for social media ads and licensing is really only addressing one part of extracting value from social media. Individuals such as myself build value for focused audiences that gets converted into marketable value other ways - through consulting engagements, through the sale of research and other services that we provide. Other people look for more broad social transactions, building a reputation and relationships that can be converted into personal or professional brand value on any number of conversational and tribal levels. Be it positioning yourself for your next job or promotion, fostering a willingness to participate in events and projects, giving or receiving endorsements or just being tapped into the things that you really love, social media creates value in ways that advertising and licensing don't begin to encompass.

What's really needed to help make social media more successful are better tools to extract value out of social relationships when one's content travels into contexts away from their own home base for their social media. For example, when my blog is picked up in a feed reader, I'd sure like it if there were an easier way for me to embed offers from other people in my social networks that were valuable to them as well as to me. Some of these might be monetizable, others more purely social, but it's the weak point for most ad networks - they assume that transactions have to be based on mass marketing rather than personal marketing. This is one of the reasons why marketing events, services and publications via Facebook is becoming increasingly popular - the groups and people who congregate there are explicitly opting in to relationship networks, making marketing on any level far more effective when done as a member of the community.

So my condolences to bloggers who are burning out as their dreams of big-media glory come face to face with the true nature of electronic content. If you came to glory because you were glad to have free distribution and never demanded any better of your social media platform providers, then shame on you. But as important as it is to have better tools for commercialization through aggregation and reuse it's more important to think about the basics of how to create value in social media.

Thursday, April 10, 2008

Online Armageddon: Should We Care About the Romancing of Yahoo?

One of the more interesting things about coming back to blogging after a short hiatus is that the Yahoo deal drama has only gotten worse. There's great coverage from many sources, including a good summary of recent analyst takes on, as well as a New York Times story now circulating that News Corp may combine with Microsoft to complete a deal for Yahoo, presumably to combine MySpace's social media strengths with MSN and Yahoo's strengths along with a combined ad network. The counterfoil to this is a possible deal to merge AOL into Yahoo.

Certainly an AOL/Yahoo merger would help Time Warner's plan to get out of the portal business and help Yahoo to grow market share significantly - and certainly working towards one set of user accounts, one messaging network and other combined infrastructure could become very valuable over time. But one wonders how much time and effort would be spent on merging plumbing on these two legacy platforms to get a unified portal business when they could have been focusing on the growth in traffic comes from social media products that operate largely via other platforms.

By contrast the Microsoft/NewsCorp/Yahoo combination may offer a lot more punch for a shareholder's money. Leveraging the power of MySpace, a still-powerful social media platform well-attuned to mass media markets with Yahoo's strength in content aggregation and user accounts and Microsoft's strength in software development, platform strength and ad network brokerage, all in one package, has a lot of interesting parts that could produce more value in the long run. AOL and Yahoo combined, for example, will do little to penetrate mobile markets more effectively. Yahoo, Microsoft and MySpace, by contrast, could make some interesting things happen in mobile between platforms, social media, user accounts and ecommerce.

This is all well and good, but why are we so fixated on this deal, anyway? It's not that it won't create some sea changes over time, but the strengths of a deal with Yahoo come largely from what the partners may offer in combination. Yahoo is big, still powerful - but for the most part in its lifecycle a cash cow with relatively low new product investment waiting to be turned into hamburger. The real issue is what this means in terms of exit plans for online content and technology companies, as pointed out by Fred Wilson over on A VC - that is, if a company with fairly obvious marketable attributes like Yahoo has a hard time cashing in, what does this mean to online plays in general? If there's no exit at the top, what does that say to other players?

Somehow a deal will be forged for Yahoo in the next few months if the company's staff doesn't implode before then from takeover stress. But in the meantime I honestly don't think that it's all that significant a deal to watch from the overall industry's standpoint. Big will get a bit bigger - and that combined entity will still look nothing like Google. I think that we're seeing that overall getting any bigger is not necessarily going to solve anything in online markets. Online publishing is still in its infancy, still requires an enormous amount of investor patience as new ideas face daunting risks and still will have periods of high uncertainty that don't lend themselves to quarterly reports, much less private shareholder reviews. In other words, while some people are still focusing on making larger dinosaurs the long money is still probably in making more and better mammals. Be patient, be foresightful - and don't get too caught up in the scuttlebutt.

Back from Bookwriting: What Did I Miss? Not Much.

Yes, I've been conspicuously absent for the past few weeks. Pumping out a couple chapters of a book will do that to you, unfortunately. I am also realizing that I was working ever-harder to find news where there just wasn't all that much news. A few things have happened - more on the Yahoo mess shortly - but the industry was definitely in a bit of a real-news slump for the most part anyway as far as I could see.

What I did see was the New York Times article on blogger burnout. Blogging can give me headaches sometimes, but I am grateful that I didn't keel over with a heart attack like some. Humbly I have to take this at my own pace: I love being there for ya, but the NYT article reminds me that there's gotta be a me first and foremost for myself and my paying customers. My feeling from the beginning is that ContentBlogger should be an unbiased source of industry analysis, so I have avoided the commercial route - knowing also. of course, that this frees me to be somewhat neglectful of my blogging duties sometimes.

In the meantime I will catch up with some posts that I owe you and I thank you for your patience. I love doing ContentBlogger, but sometimes I need to balance that love with other things.

Wednesday, April 9, 2008

SIIA Brown Bag - Pricing Content: Defining Rules in a No-Rules Marketplace

Darrell Gunter, CMO for Collexis holdings, kicked off the session noting some key examples from the past and present of how radically different pricing schemes can help to define marketplaces anew. A couple of decades ago, companies like Telerate were dominating financial markets with USD 700 terminals, yet Bloomberg started with USD 1500 terminals and eventually went on to dominate the financial information marketplace. By contrast, today - now folded into - tried doing oncology journal content in an ad-based online model. Disruption can come from both sides of the scale.

Adam Bernacki, VP of Sales for Leadership Directories, noted that revenue retention is always a key goal while at the same time listening to clients and understanding what they really find to be valuable. Neal Posner, for VP of Pricing for Avaya and Elsevier, pricing is a practice focused on bridging many conflicting approaches between internal divisions
and a limited sales force that can sell only so many ways. One of the biggest challenges is when new players come in with completely different business models. When Avaya found more competition for their core technology from companies with different goals they began to focus more on value-add content.

Rob Docters, Managing Partner for Abbey Road Associates, runs a boutique consultancy specializing in price strategy. He sees pricing not as the price tag, or price level, but the inputs into that tag, the gross or net value, including the brand value. Brand drives price when it tells a story that you can't tell yourself. USPS was looking at rate pricing, they did some interviews on bulk mail pricing, noted that people throw out mail with the bulk mail insignia. People will spend more for first class mail just not to get into the junk-"branded" stack. Toys 'R Us tried having no tags and a kiosk with a device that could tell you what the price was. This enabled experimental pricing to adjust pricing and discover the best price, much as Web sites do via ecommerce software. Goods such as software are not tangible, you need to know how much your customer knows to understand brand value. With tiered pricing, but in minimal effort to de-feature, the manual will tell them what they can and cannot do. A key problem is when customers get out of touch with the benefits of a product - don't cancel, give your advocate for the product the product for a year to keep your brand value still in the door.

Charlie Terry, President of, has a customer base of brand managers in consumer products, biotech,investment banking and professional services. The challenges for an aggregator are different, pricing and discount don't play as much of a role. The customer's perception of value is the most important factor, have to have a sale - the customer being comfortable with a price - but you need to capture the market as well, to price to what's generally accepted for a given marketplace. It's oftentimes perception - originally black Motorola Razr phones were USD 35, red ones double or more that price. Getting the price right is a tactical issue oftentimes, you have to match delivery with the people's expectations for a given medium. In the mid '90s, hardware was driving much of the value of many financial information services, not the content. They had to adapt their models accordingly as the Internet shifted the value point of information delivery.

How do you establish value in pricing? Neil: oftentimes there are many different price points that will work, buying behavior is not always rational. There has to be a group to monitor what's happening with pricing,typically - though only one person in the audience had such a unit. On bundling for pricing, Rob notes that there can be weak bundles, for example, cross-promotion of car rentals from airline reservation services. This is stronger overall than when airline companies bought car rental companies and discovered that this was not necessary or even advantageous to make good price bundles. Bundling can also help to make complex products more simple to sell, whereas simple products are easier to de-bundle. Terry: There's a temptation to think that selling value is good, selling price is bad. If you sell a report one year you may not buy the same report next year - and you may be able to bundle other products, such as a newsletter, that extend the research's value.

Adam notes that it's important to make pricing a collaborative process, the process originates with a calculation to understand how much one can afford to lose on a product, then with other groups to understand what it means to a product group, and so on. More constituents have more of a voice these days. How do you determine if you've done a good job? It has to be consistent within the company's own scheme and with the methods used to deliver the product. It has to be logical, so that an average sales person can explain it in a minute or so easily and consistently. Finally, it has to be transparent on some level; if you've done a good enough job and it becomes known in the marketplace it doesn't become a target for discounting, because it's sensible and accepted.

Charlie notes that a major publisher put all their books on the Web in PDF form, their print sales doubled. Rob notes that this example of "hooking," where one thing leads to the purchase of another. In amusement parks, you get "hooked" into being in line for a particular line. Lawyers that practice only in Pennsylvania won't buy federal content - until they need it, at which point a service like LexisNexis will charge six times for a "rush order." Question from Jeff Cutler: pay walls reduce SEO optimization, how does that affect a premium service and how much do you give a "bite of the apple". Charie: will return table of content and synopsis at first, after a few times you need to register, so this enables search-enabled sales. Sales reps will also help you to search Need "real words" there, work with publishers to get the right content for search engines.

A real difference between price and cost, how is that managed? Neil: What's the real cost to you of not having the product? Work from there. My question: how do we do better in publishing at establishing value in context? People look at the internal data too much, look at your customers. Large companies less sensitive to cost drivers, small companies more sensitive. Neil: Look at net price as much as list price, if you're in control of a net price - the price after terms and discounts and concessions - you can match the sale more exactly to people's value sensitivities.

A good session, I think the real question is perhaps not so much how pricing itself needs to change but how publishers discover demand in the marketplace. The relatively fixed pricing that we see in enterprise content publishing especially tends to create the ever-present compaint about content commoditizatization. Too much money is spent on creating custom workflow applications - the equivalent of Rob's example of the airline buying the car rental company - to have a captive context. But the Web is showing us that content thrives when it's more able to travel quickly and effectively into different context where it's valued highly. Publishers are relying far too heavily on old production-oriented models for pricing when they should focus more on market-driven models more akin to a transaction-driven marketplace. This will carry more risk, but ultimately more reward for those who can get content into the right contexts most efficiently.

Tuesday, April 8, 2008

Quality Is as Quality Does: Ratings Agencies' Failures in Mortgage Crisis Put Question Mark over Content Value

I've done quite a bit of research through the years for people in the securities ratings industry, a very interesting arena in which financial experts from major ratings agencies are paid by institution to rate the financial quality of their debt and stocks issued and traded in the securities marketplace. In turn these ratings agencies sell their ratings research to financial content vendors and directly to financial institutions. The content side of the business is nowhere near as lucrative as the ratings side, especially in the arena of stock research, where ratings agencies must now compete with independent research mandated by reform-oriented regulations. But in the arena of structured finance, in which bonds, mortgages and other types of potentially risky investments are repackaged into portfolios that offer more understandable and acceptable risk, ratings research has been in theory a useful tool to help people understand these complex investments and to provide market liquidity that might not otherwise exist.

That is, until the current mortgage crisis erupted. In many instances major ratings agencies were assigning very rosy ratings to the structured finance packages developed to package highly risky mortgage debt into more palatable forms. Yet these complex packages went south very quickly in the markets once many of the underlying borrowers failed to be able to adjust to the draconian interest rates that were triggered by their home loans' contractual terms over time. In short much of the market for these mortgage-backed structured investments, supposedly built on the highest quality research and analysis into investment quality by major ratings agencies, was built upon sand that crumbled away at the first real signs of financial trouble.

It would be unfair to assign blame to ratings agencies entirely for this whole mess, but from the perspective of the content industry the role of ratings agencies in this now-global financial disaster calls into question just what it is that people are paying for when they purchase financial research from ratings agencies and other suppliers of premium business information. The main problem that I perceive is that there has been an erosion of the power of editorial checkpoints within the ratings agencies that were supposed to act as a strong counterbalance to the all-too-natural tendency to put the lucrative process of getting paid by an institution to offer an opinion about their securites ahead of the objectivity of the research produced by that process. For debt markets rating the risk of securities is one of the oldest "cash cow" businesses in financial information, a tight setup in which just a few government-recognized agencies in the U.S. get rate bonds and structured finance debt packages with no real competition. It's no surprise, then, that pricey ratings contracts from debt issuers lured ratings agencies into editorial complacency.

The securities industry, of course, is not the only instance of such cozy setups. For example, we all know that there is an inherently incestuous relationship between major I.T research firms and vendors eager to have their products appear in their widely distributed research papers focused on specific types of technology solutions. B2B and consumer magazines reliant on income from major advertisers feel the pull of major accounts who are eager to have their products treated fairly by their editorial staffs in their articles and product comparisons - especially in niche market publications where there are a relative handful of major advertisers available. Bias is always a temptation when the bottom line beckons.

But in the instance of financial securities the stakes can be much higher, as seen in the trillion-plus U.S. Dollar estimate for settling out the bad debt in the marketplace. The moral of the story should be clear to all content providers: the cost of compromising editorial quality can be far greater than your own bottom line in the short run, and can level the value of your brand as a source of editorial quality in the long run.