The Long Haul to Capitalizing on Web Trends

By Geoffrey A. Fowler and Emily Steel

November 2nd, 2011

Web companies often upend industries. But they can labor for years to fully make money on their revolutions.

Take Google Inc. When the Internet titan came onto the scene in the 1990s, the company first focused on building technologies for searching the Web before considering its advertising prospects, recalls Rishad Tobaccowala, chief strategy and innovation officer at Vivaki, the digital advertising company owned by Publicis Groupe SA.

It wasn’t until a competitor, GoTo.com, created a pay-for-placement search product in 1998 that Google got serious, he says. The way that service worked, a company would make a bid to appear at the top of a search results page then pay if a consumer clicked. Google launched a similar advertising product in 2000. The key difference was that the system took into account the relevance of the ad to decide its placement on the search engine results page, not just the amount that the advertiser paid.

But the company’s early successes didn’t come from major corporations, but rather the so-called “long tail” – smaller, often local businesses. Gradually, search advertising gradually grew in importance across a wide spectrum of marketers, especially those in the automobile, tech and finance industries where online research became an important factor in people’s decision to buy a product or services, Mr. Tobaccowala says.

Google gradually expanded to selling a wide range of ad formats, including search to display to mobile. Today, Google leads the Internet advertising business. The company is expected to capture 40.8% of the U.S. Internet ad market this year, or $12.8 billion, according to research firm eMarketer Inc.

Similarly, Facebook’s earliest success with paid advertisers has come from that “long tail” with the businesses largely using the site’s demographic targeting abilities to reach a niche audience.

According to comScore Inc., almost 62% of the ads shown on Facebook in the July through September quarter came from advertisers that are not among the top 1000 digital advertisers in the U.S.; on Yahoo Inc., just 23% come from such small advertisers. These sorts of Facebook advertisers range from nail salons marketing to people who live a particular town, to recruiters targeting employees at a specific company.

“Facebook has the great opportunity to change the way that people think about advertising. Now, if only they can make it happen,” says Sean Corcoran, an analyst with Forrester Research Inc.

Lately, Facebook has been amping up its pitch to Madison Avenue by touting the capabilities of ads that incorporate information about users’ friends, and even their names and photos. It has invented out a new genre of paid advertising formats, dubbed “sponsored stories,” that let marketers spend money to republish user comments involving companies as ads.

The idea is that customers can be turned into promoters.  “The most effective way to influence someone is through word of mouth marketing,” says David Fischer, who runs Facebook’s ad department. Stimulating and measuring friend referral has long been the Holy Grail for marketers – but it has become tantalizingly possible at scale on a social network like Facebook.

“On Facebook, for the first time, you have the ability for marketers and brands to connect to people — and ultimately to tell their stories through people,” says Mr. Fischer.

Sponsored story ads are exact copies of what a users already post to Facebook – the difference is that the sponsored ones get plucked out and posted again next to other ads.

Facebook tells advertisers that sponsoring a post increases the chance friends will notice it, since new postings in the news feed push others down and off the page.

Only 20% of free messages posted by companies to users ever actually get seen on the site, Facebook says. Buying sponsored stories is a way to dramatically increase the odds that a piece of content will get seen. Moreover, Facebook says that some of the early users of sponsored stories have found that users are more than twice as likely to click on sponsored stories than typical Facebook ads.

To be sure, Facebook isn’t counting its entire future on advertising. It is also nurturing a digital payments business called Credits, in which it takes a 30% cut on consumer purchases of digital goods in social games, such as those made by Zynga Inc.

Source: http://blogs.wsj.com/digits/2011/11/01/the-long-haul-to-capitalizing-on-web-trends/

Trends: Demographics & Investment Trends

Matthew Lynn's London Eye

Nov. 2, 2011, 12:00 a.m. EDT

7 billion reasons markets will change direction

Commentary: Five trends for investors to watch as population grows

By Matthew Lynn

LONDON (MarketWatch) — The markets may be full of their usual noise — another twist to the Greek tragedy, poor growth figures, a central bank somewhere printing some more money — but sometimes it is worth raising your eyes above all the day-to-day chatter and concentrating on the really important things that are happening in the world.

When the history books get written, 2011 won’t be remembered particularly for the overthrow of Col. Gadhafi in Libya, nor for the endless wrangling over the future of the euro, or even for the United States losing its triple-A rating, even though all of those events may manage to merit a footnote.

Click to Play

7 billionth person born in Philippines

Hospital workers and family welcome a newborn in the Philippines as the world population reaches 7 billion. (Video, photo: Reuters)

By far the more significant thing to happen in 2011 was the world’s population smashing through the 7 billion barrier — as it did on Monday, according to United Nations calculations.

The world’s population is exploding. How is that likely to impact on the global economy and markets in the next two decades? The West will decline in importance, Africa will rise in significance, commodities will get steadily more expensive, and the world will become more mobile. Despite all that, growth will resume, even if there will be some terrifying bumps along the way.

The world’s population has been on a steep upward trend ever since the industrial revolution taught us how to support more and more people on a planet that doesn’t get any bigger.

It took us from the beginning of time until 1922 to get up to 2 billion people, but these days we add the odd billion to the total faster than the Greeks run up their national debt. We went over 6 billion in 1999, so it has only taken 12 years to add the latest 1,000 million. According to U.N. estimates, by time we reach the end of this century, there will be 10 billion of us.

Reuters

The planet is getting crowded, but there are still opportunities to make money, as these commuters in Hanoi can attest.

In the end, economics is just demographics, with some extra charts and equations. How many people there are in the world impacts fundamentally on what gets made, what gets consumed, and how much you have to pay for it.

So what will be the medium-term impact of the fast-rising numbers of people? Here are five big trends to watch.

One, the decline of the West will accelerate. Europe and the U.S. will account for a smaller and smaller percentage of global population. They may be richer overall, if they follow the right policies, but they won’t be richer compared to the rest of the world, and they probably won’t feel better off either. Their influence will decline, and so will their currencies, as well as their bond and stock markets. Is a world with 7 billion people in it going to use the money of a country with 312 million people as its reserve currency? It doesn’t sound very likely.

Two, Africa will rise and rise in significance. The fastest increases in population will be in sub-Saharan Africa, a region that most investors and companies have mistakenly written off as a basket case. Not so. That is where the fastest growth will be. Industrialization and a rising population are a formidable combination, a lesson that has been proved many times over the last three centuries. They produced rapid growth in the past, and will do again. Some of the biggest winners of the next three decades will be the African markets, and the companies and investors who get into those counties on the ground floor.

Three, the pressure on resources will grow and grow. You don’t have to be a fully-fledged Malthusian to realize natural resources will get scarcer. For three centuries now, technical progress and human ingenuity have allowed us to continually out-wit the prophets of ecological doom. We are good at finding new resources in unexpected places, and at making what we have go further. We’ll carry on being good at that. Even so, there are limits. The rise in population will mean there is less food, less water, less energy, and fewer minerals to go round. That can only mean one thing. Prices will go up. We’ll learn how to live with that — but the bull market in commodities will run and run.

Four, mobility will rise. The developed world will have lots of old people, with plenty of money, but not many young people to look after them. The developing world will have lots of young people, but few well-paid jobs. It isn’t hard to see the fix to that — bring the young people to the old people, and vice-versa. The rapidly aging populations of Europe and Japan, and to a lesser extent the U.S., will all have to overcome their reservations over large-scale immigration. Increasingly, retired people will go and live in the developing world, where the meagre returns on the savings and their devalued pensions, will buy them a lot more than in the countries where they grew up. The world will see mass migration on a 19th-century scale — when huge swathes of the European population moved to the U.S. And every industry — from airlines, to telecoms, to property — involved in that will do well.

Five, growth will get growing again. True, there are lots of challenges ahead. There is too much debt. The currency system is in turmoil. Inequality is rising. Stocks seem stuck in a permanent bear market. But, at the simplest level, more people means a lot more stuff being bought and sold. Which means when that 7 billionth person starts looking for a job sometime in the 2030s, the world economy will be a lot bigger than it is now, and probably richer overall as well.

The markets will rise and fall as they always do, But so long as the human race is still expanding, it will always end up growing somehow. Keep those big themes in mind and your portfolio will remain in decent shape, even if there will be some inevitable bumps along the way. 

Source: http://www.marketwatch.com/Story/story/print?guid=D707A5F6-0498-11E1-B7EF-002128040CF6