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Ad CTRs and A/B Testing

Posted: Tue, 15 May 2012 17:49:08

Whenever I take over an account, I often see that there are many ads in an ad group, each with a different CTR (click-through-rate.) The CTR ranges from high to low. The person didn't delete the weak ads. That hurts the number of sales. Why?

Let's say an ad group has three ads. The ads have 100,000 impressions each. The CTR is 5% for the two top ads and 1% for the weak ad. Let's assume they all have a 2% conversion rate (sales rate) (in reality, the strong ads will have a higher sales rate, but let's keep this simple.)

That means the top ads have 5,000 clicks and the weak ad has 1,000 clicks. The 2% sales rate means the top ads produce 100 sales and the weak ad has 20 sales.

If the weak ad had been deleted, its 100,000 impressions would have gone to the two top ads, thus producing 80 additional sales. By keeping the weak ad, the campaign lost 80 sales.

Look at your ad groups. Create four or five ads (to test various ads). When they reach 1,000 impressions, compare the CTRs. As a rule, I don't keep ads that have a CTR lower than half of the top ad's CTR (i.e., if the top ad is 2%, then no ad should be less than 1%.)

Facebook's ComScore White Paper

Posted: Thu, 14 Jun 2012 06:13:22

FB social advertising works, because ComScore says so. Really? Let's look at the evidence. Fetch a copy of Facebook's ComScore Document (21-page PDF, free, registration required.)

You can go straight to p. 13-16. These contain the key data. FB carried out four-week campaigns for Starbucks, Target, and a large retailer (unnamed). They used control groups.

The Results

There was some lift in transactions. For Starbucks, 0.58% over the control. For Target, Fans were 19% more likely to shop and Friends of Fans were 27% more likely (these are ratios of unstated numbers, which are likely small fractions of 1%). For the unnamed retailer, there was a 0.2% lift for instore and 0.22% lift in online purchase.

Problems with the ComScore Document

The lift in control groups also increased. Why would this happen? The control should be flat. The document does not explain this.
The important data is missing: ROI, CPL, CPA. ComCast does not state cost-per-lead or cost-per-acquisition.

Summary

If you carry out a massive campaign, there will be lift, even if it's 0.58%. After all, FB itself showed a billion ads to get 0.038% engagement for their privacy vote. But at what cost? FB won't state the cost of the campaigns or the CPL/CPA. There can be only one reason: the numbers are bad, which means the campaigns were financial failures.

This was FB's attempt to prove FB advertising works. They failed. It's also bad news for social media: social advertising does not work for lead gen or sales. Any CFO who sees this will shut down the FB campaigns.

Comparison against Google, Bing, Yahoo

How does FB compare against other digital marketing tools, such as Google Adwords, Bing, and Yahoo?

I have data for a $2.7 million 60-day campaign for a large nationwide US bank. Ads were placed in Google, Bing, Yahoo, and Facebooks. Over one billion ads were shown. The CPLs: Google at $5.78; Yahoo at $4.20; Bing at $3.94; and Facebook at $57.06. There were 2.26X ads in FB over Google (383.7m vs 169.8m ads), but Google's CPLs were within the target CPL and thus profitable. Google's CPLs were 10% of the cost of FB CPLs. FB's CPLs were not profitable. If the money spent in FB had been spent in Google, it would have produced 19,700 more leads.

If your digital marketing is based on sales, FB is not a viable choice. Put your money into Google, Bing, and Yahoo.

Added

For additional analysis, see also:

Solar Charger for USB Smartphones

Posted: Tue, 07 Aug 2012 02:42:11

Because we live in California, we were talking about earthquakes and the question came up on how to recharge a smart phone. These phones use USB cables. Rechargers usually don't have those.

Several years ago, I bought a SolarVerter F6220 solar cell panel. It can replace four C, AA or AAA batteries (6 volt @ 220 mA). But it doesn't have a USB connector.

I have a bunch of extra USB cables, so I took one apart to see if I could adapt it.

It's pretty easy. You can do this in 10 minutes.

Unplug the USB cable.
Use scissors to cut the cable near the big USB plug.
Use a razor blade and gently cut around the cable, about an inch from the end. Pull the rubber cover off.
Under that is woven wire; this insulates the cable from electrical noise. Snip it away.
Next is a thin paper wrapper. Remove it.
There are several strands of string (to strengthen the cable). Clip those away too.
You now have four wires: red, black, white, green.
The white and green wires are data wires. Clip those too.
The red and black wires are for power.
The (+)red wire is power.
The (-)black wire is the ground wire.
Gently trim off the rubber insulation. You end up with about a half inch of bare wire.
At this point, you're ready to power your phone. Put it in a sunny spot. Connect the wires to the solar panel. Bingo! Your phone starts charging.
It doesn't matter if you reverse the wires. If it's wrong, it won't charge. That's all. If it's not charging, switch them around.
If you want to get fancy, you can use solder to clean up the tips. I added little alligator clips. But it's not necessary.

Bring on the earthquakes! :-)

Facebook's Black Hole

Posted: Mon, 13 Aug 2012 16:07:51

Facebook has become one of the top places for posting comments, reviews, and information.

But that's good only if you can get to it. Go ahead and try to find something that you wrote six months ago. There is no search tool in Facebook. None of the major search engines (Google, Bing, Yahoo) show search results for Facebook. You can't find it. Your postings fell into a black hole.

FB says you can download your archive of postings. Go to "Account Settings" and click "Download a Copy of Your Facebook Data." You'll get a message that FB will send an email when it's ready. About six hours later, you get the message. It says "Sorry, we were unable to create your archive. Try again." I and other other social media experts tried two or three times each: same result: FB Archive has been disabled.

FB doesn't want you to be able to download your postings because you might take them elsewhere. Welcome to the Black Hole at the center of Facebook.

Does Twitter have this problem? I scrolled back in my Twitter postings, selected a posting ("How do you say G+ in Chinese? Hexie? Let's sing in three-part harmony... hmm... I only hear the sound of...") and searched for it in Bing, Google, and Yahoo. It shows up in Google (bit.ly/NtTlr1) but not in Yahoo or Bing. They're not indexing past tweets.

Why does this matter? If you're using FB and Twitter for PR, marketing, or outreach to your audience, FB is pretty much useless. It can be seen only today. After a day or two, it simply disappears.

I am concerned about archives at FB. Billions of photos are hosted at FB. FB's financial situation is not good. If they collapse, all of the postings and photos will disappear. There is no way to save that.

What's a KPI anyway?

Posted: Thu, 11 Oct 2012 22:45:38

Darryl McDonald, CMO of Teradata, pointed out a Columbia business school study with remarkable data about the (lack) of ROI in marketing:

57% don't use any KPIs
28% set marketing budgets on gut instincts
7% are spending most or all of their marketing budget with "no metrics" at all.
29% say their marketing departments have "too little or no customer/consumer data"
51% use mobile ads but only 17% use KPIs
85% use social ads, but only 14% use KPIs
60% say multichannel marketing metrics is "a major challenge"
31% said that they believe simply measuring the audience you have reached is "marketing ROI"

However, 70% say their marketing efforts are under greater scrutiny than in the past.

This explains why Facebook can make money even if it doesn't work: the CMOs don't know it doesn't work!

Read the summary of the Columbia Business School's 2012 BRITE-NYAMA Marketing Measurement in Transition Study

A Great Leap for Marketing...

Posted: Tue, 16 Oct 2012 19:58:45

One small bunny hop for a man, one big leap for marketing. Red Bull pulled off the biggest marketing stunt of the last 20-30 years.

It drives a silver spike in the shriveled heart of television: the jump organizers were able to broadcast uninterrupted without commercials and with total control (no clueless NBC moderators, no delayed broadcast) for more than three hours. They bypassed the entire US TV broadcast system. Red Bull essentially showed a 2.5 hour commercial worldwide without paying a dime to TV. I'd guess the jump had about a third of the viewership of the Super Bowl. Total ad revenue for the 2012 Super Bowl was $250 million. Red Bull's costs were under a million.

So... when will the Olympics and the Super Bowl be shown via YouTube? When will they drop TV broadcasting?

We started watching Felix Baumgartner's space jump at 8:30 am (Pacific). Some three million people were on Youtube. As the balloon went up, so did the viewers: 5m, 6m, 7m...

By the time he jumped, some 8 million were watching. But that's eight million pages. How many people were sitting around the screen? Probably several times more. 16-30 million viewers?

The Red Bull jump reminds me of the marketing stunts of the 1800s and early 1900s. Everyone still remembers P. T. Barnum and many of the crazy stunts to get attention, such as the "Miss America Beauty Pageant", which started as a marketing gimmick and turned into a national institution (and again a gimmick when Trump took over.)

Janet Fouts, social media expert, writes about the jump's data and its implications for brand retention. See feedburner.com/janetfouts.

Google Consumer Barometer

Posted: Mon, 26 Nov 2012 01:23:23

Google released the Consumer Barometer a few months ago and I've been using it more and more.

It shows you how people search and purchase in several categories and several dozen countries.

For example, US buyers of computer hardware are more than twice as likely to start their research on manufacturers’ websites instead of search engines. If you're selling computer hardware, it's much more important for you to be sure that your products are showing up in websites. Make sure the website has a clear navigation path to your product and that your visitors can quickly find your product in the site's search box. Many large manufacturers' sites are nearly useless and visitors give up in frustration.

I'm using the Consumer Barometer to set priority for marketing.

Try the Google Consumer Barometer (ConsumerBarometer.com).

BurgerBots: Who needs workers anyway?

Posted: Sun, 02 Dec 2012 00:05:41

So they're making a BurgerBot.

BurgerBot spits out 360 burgers an hour. That's a burger every ten seconds. It even wraps the burger and put it a bag. It takes up only 24 square feet. Best of all, no minimum wage, no employment taxes, no health insurance, no overtime, no union dues, and it won't vote incorrectly.

In 2010 , the US fast food industry total revenues were US$184 billion in over 300,000 restaurants. The industry employs 3.9 million people.

Just exactly what are 3.9 million people going to do after these burgerbots roll out?

Google Glass

Posted: Tue, 04 Dec 2012 19:55:27

A comment by someone about Google Glass:

> I can see glasses will be a hit when celebrities switch on their videos whilst wearing their glasses on key public or private events, like they tweet at present. Users will subscribe to their live feeds with commentary or accompanying tweets.

That's a clever idea. 100m girls will instantly sign up for live all-day Bieber TV.

120m football fans will much prefer to watch first-person live feed of a Superbowl player's point of view instead of a TV commentator. Every player on the field will have his own viewcast, along with his comments about the game, other players, etc.

Experience Lady Gaga's Shanghai concert from her point of view. Go LA nightclubbing with Lindsay Lohan. TV will seem so primitive in a few years.

So, yes, Google Glass will be big. It won't be seen as a computer thing. It'll be an entirely new form of entertainment. Not music or movies or TV or books. Different and new.

Google and the American Revolution

Posted: Wed, 05 Dec 2012 02:32:38

When did the American Revolution happen? You know, Fourth of July, fireworks, and apple pie? It was in 1776, wasn't it? Or wasn't it? Can we find out with Google?

A few years ago, a group of friends were sitting on a hillside, watching fireworks on the 4th of July. Stephanie asked me "but what do fireworks have to do with the 4th of July?"

I replied, it's in memory of the rockets red glare and the American Revolution and all that.

She replied "Oh, give me a break! There's never been a revolution in the USA!"

Okay, she's a California 20-something and their knowledge of history is a bit spotty, but in a way, that made sense: the US isn't really a revolutionary country. France, the USSR, China, and Iran had revolutions. Egypt had a revolt (yes, there's a difference.) But the US never had a real revolution. It was a revolt.

But what exactly happened in 1776 with George Washington, Valley Forge, and all that?

I began to wonder about it so I looked at original letters and documents. One of the first things I notice was that nobody at the time called it a revolution. It was, quite simply, "the American rebellion" (with a lower-case "r"). Often, they called it the American war. The king of England called it the American rebellion. But nobody called it the American Revolution: not George Washington, Benjamin Franklin, Thomas Jefferson, and so on.

So when did people start calling it the American Revolution?

A few days ago, I realized I could find this through Google. No, not the search engine. Google has many tools, including one called Google Ngram Viewer. I use this occasionally. I realized I could use it to find when the term was first used.

nGram is text search in books. Google has scanned millions of books and you can search in them.

It turns out that Benjamin Rush, MD, one of the signers of the Declaration of Independance and a significant figure in the political activity of the time, used the phrase "the American revolution" in a discussion in Oct. 15, 1785. (I posted the image above.) That's 1785, which is nine years AFTER the war in 1776.

With nGram, you'll see the term was used occasionally until 1812, when the US had another skirmish with the UK, during which the term was widely used.

I suspect the French Revolution (1789–1799) led the Americans to consider their rebellion to be a revolution. As Dr. Rush pointed out, the Americans had a war, but that was just a war. The revolution wasn't yet completed in 1785.

Stephanie was right. The US never had a revolution. It had, at best, a revolt that was later renamed to a revolution.

I find it remarkable that I was able to find this with Google nGram. Otherwise, it requires many years of research by a professor of history.

If you can find an earlier use of "the American revolution", please let me know.

KPIs: Tracking the Numbers

Posted: Wed, 12 Dec 2012 20:22:09

Spent the last three days in restructuring the tracking at my website and the reporting of tracking in Google Analytics. Got it to work.

This is for my upcoming book Content Marketing Strategy and Tactics. The key chapter will be, of course, the chapter where I show you how to track results. It's all very nice to create lots of buzz, but CFOs, the board, and investors only care about the financials (see note at the end).

There are three types of things to track:

Event Tracking: When someone clicks a link, Google Analytics registers it as an event (instead of a page view). This lets you track action on clicks (e.g., someone clicks a link to go to an external site or send you an email), downloads, redirects, Flash, video, and so on.
Link Tracking in Other Sites: You post to Facebook, Twitter, a blog at Techcrunch, send out a press release, etc. and in it, you include a link to your page. By using tracking tags, you can see how many clicked on those links. You can also see which links were clicked. For example, you see that you got 400 clicks at FB, 600 at Twitter, 350 at LinkedIn, and 500 from your press release. You can track as many as you like. Conversions can be tied to these, so you know that FB produced 100 sales and Twitter produced 200.
Tracking of Events as Goal Conversions: You can also track events as a goal. If your project's goal is to get leads via an event, you can set up goal tracking for that event. It shows up as a conversion, incl. a conversion value (e.g., $100.)
(Of course, there's also the basic items for analytics tracking: page views, traffic, keywords, goal conversions, etc. That's standard analytics. Here, I'm looking at content marketing, which has mostly to do with off-site tracking, tracking of downloads, emails, etc.)

This is the basics. You can create a list all of channels (FB, Twitter, Google Adwords, Youtube, email lists, LinkedIn, Pinterest, Instagram, TV ads, post cards, QR codes, bus signs, the Goodyear blimp, etc.) and platforms (desktop, tablet, smartphone, etc.) and then track all of it, incl. the traffic, visitors, clicks, leads, and sales. Add the marketing budgets and results to track the cost-per-lead (CPL) and cost-per-action (CPA).

Yep, total tracking of top-line and bottom-line KPIs.

I showed this to Alok Vasudeva, who said "Put that in a spreadsheet report and call it an investor dashboard." That's a great idea: this is what investors what to see.

I met with Harry Petty this morning, told him about the dashboard, and he added "Plug industry trends and competitor data into the model and you can project sales and trends for investors."

(Note: Wendy Chang and I were at a Keiretsu Forum event in Palo Alto several weeks ago. Six early-stage startups were pitching to a roomful of investors. One of the projects was pretty silly and made no sense, yet the investors' discussion utterly ignored the business idea. The only thing they discussed was the financials. Frankly, they couldn't care less about the startup's idea, founder, or history. Two startups presented their idea but focused on the numbers and financials: they got attention.)

Finally, Easy Semantic Web Markup

Posted: Thu, 13 Dec 2012 18:13:00

There's been talk of the semantic web, XML markup, Rich Snippets, RDFa, and microdata for at least seven years. But only very large sites can afford the technical team to implement this.

No more. Google came up with a clever way to allow anyone to mark up a site by just highlighting.

Why do this? Whew. Long explanation here. Blah, blah, blah, and so on and so forth. You nod off. Let's skip to the summary.

Wake up! So, to wrap up, this lets Google know what you're talking about, so it can index your content better. It knows that 10.95 is a price, not the weight in kilo, and it knows that's the price in Euros. You can mark up titles, prices, dates, and all sorts of information. This is Very Important. Tell your webdev team to look into this.

At first, you can only mark up pages about events (concerts, conferences, performances, etc.) I expect they'll add other types soon.

To learn more, see the article at Techcrunch or go to Google's video about Data Highlighter.

Dealing with Google...

Posted: Wed, 26 Dec 2012 20:41:13

Here's something to think about when you deal with people at Google.

I was having lunch with a director at Google. I asked her about her previous company. She replied this was her first job. She just graduated from college, only four months ago.

I asked her if it was intimidating to be so fresh in the workforce at Google. She said to me "I was afraid of that too. But here's something really weird. At Google, we have this page that tells you your seniority compared to everyone else. And the crazy thing is that I'm at the 50% mark. Half of Google has been there less time than I've been. People actually think I'm senior!"

Three months is enough to be halfway? Half of the 20,000 people at Google are recent hires?

A few days later, I was talking with a friend who is an executive recruiter in Silicon Valley. I told him what she said, and he replied, "Yeah, Google is a revolving door. People join, get their ticket punched, and go somewhere else. With Google on their resume, they can get a job anywhere."

I asked "Is that why they pay so low?" (Google offers ridiculously low wages, such as $65,000 for a senior director position in charge of global projects.) He said "Yes, the kids don't mind. It's only for a year, plus they get free food and a free bus."

It explains a lot about Google. Ask someone a question and you get vague general replies. They just don't know. Another senior director at Google is a close friend; we were chatting one night and she asked me "Hey, I'm wondering about something. Why do KPIs matter so much?" She has literally no business experience at all. For her, ROI and CPL was just a formula, but it meant nothing to her.

Look, they're really bright kids with 4.3 GPAs from great schools, and maybe in 10-15 years, they'll be good at something (yes, it takes that long.) But right now, it's a hell of a problem for Google: it's made up of kids with no experience of business or the world. I wonder how many of them have been there for three years: 10%? 5%? 2%? It explains why Google launches so many projects that disappear, why they make decisions that ignore the outside world or common sense. They just don't know. And it's not like they'll be there forever.

How does this matter to you? You have a 90-year old family company. You've invested a good deal of your money in your startup. You have a restaurant in San Francisco. But none of these are showing up in Google. The kids at Google don't understand why this matters.

The Problem with Marketing

Posted: Sun, 30 Dec 2012 19:29:05

Why does marketing have such low credibility among CFOs? Much of it has to do with the lack of metrics. There's a way to fix this, but that will come from somewhere else.

Mark Jeffery, author of Data-Driven Marketing (Wiley, 2010) and professor at Kellogg School of Management, writes that of 252 enterprise companies with $53 billion in marketing budgets, 80% do not use data for decision making (page 5). Those 252 companies spend an astonishing $42 billion without any meaningful decision making. No wonder CFOs are frantic.

No Control Group

Jeffery reports that 70% of marketing departments do not use controls (p. 33). Without a control, you can’t tell if the change was due to the campaign. Let's say a marketing campaign produces a 12% increase in sales. It also wins Best Ad of the Year. Everyone loves it. Good, right?

No, actually, you don't really know anything about the campaign. It's possible the market changed (new craze by consumers, a key competitor fails, etc.) so sales would have gone up 12% if nothing had been done. Worse yet, it's possible that sales could have gone up 20%, but the campaign was so lousy that it lowered sales to only 12%. Without a control group, you have no idea if the campaign had a positive or negative effect.

Insufficient Data for Statistical Significance

Many case studies or tests use only a few dozen or a few hundred samples. This means the +/- margin of error is so large that the results can be misleading.

For example, a company asks 24 housewives to try a product. Five love it. That's 20%, so they can expect to get 20% of the market. The company launches a campaign. It flops. Why?

With a data set of only 24, the margin of error is 20%, which means it could range from 40% to... zero. To get a value with better confidence, the margin of error has to be +/- 3%, which requires 1,067 samples or more. This means practically all of those studies in marketing, sociology, psychology, and so on which use 50-100 college students are worthless. (To make it worse yet, they didn't use control groups.)

Marketing Doesn't Do Numbers

One reason is the lack of basic mathematical skills among many marketing people. Jeffery writes that 55% of marketing executives say their staff don't understand basic marketing metrics. Many people go into marketing or sales because they're good at talking with people, but they're poor at mathematics.

A few years ago, I was presenting results to a client team. I said there were 100 leads and ten sales, which is a 10% conversion rate. The VP of marketing said "Wait, how did you calculate that?"

Here's the real laugh: he had an MBA.

Although advertising is a $609 billion dollar industry, the number of books on LTV, CPL, CPA, and similar could easily fit on a small bookshelf. The mathematics isn't difficult; in fact, it's mostly basic arithmetic. But marketing people don't do numbers.

Marketing Doesn't Want Numbers

There's a deeper reason for marketing to avoid metrics. Most marketing teams are paid by activity, not the results. If they look busy ("hey, we did 403 campaigns and spent $200m last quarter!"), they get paid. In fact, it is not in their interest to track results. It might show their work had no effect (or worse, their project lowered the results.)

The same applies to sales. Sales people are generally rewarded for volume (the number of units), not revenues. This gives them a strong incentive to offer products at the lowest possible price. Jeffery writes that studies show some salespeople with the highest volume are often the least profitable and indeed, may produce negative results for the company. A smart salesperson knows the quickest way to make a sale is to offer the lowest price as fast as possible. They don't negotiate: they give it away. They get points for the Bermuda vacation, but the company makes very little profit.

The Solution

How to fix this? Change the system from activity to results based on metrics.

This will be difficult to achieve because (let's be honest here) most organizations are either bureaucratic or political.

Bureaucratic organizations use authoritarian top-down decision-making, where there is no incentive for staff to make improvements (innovation is seen as not obeying and thus punished.)
Political organizations are dark labyrinths of fiefdoms, personal loyalty, and backstabbing. These are run by powerful, charismatic leaders.
Many organizations are a combination of bureaucratic and political: on the surface, it's a formal structure, but in reality, a hidden political system is in control.

That means sales and marketing, on their own, won't change the system. Not only is there no incentive: metrics is actually a threat.

There's a ground for hope. Rational companies (which are based on data-driven decision making) will win. Why? It's simple. The engine of US business is now financial, not industrial. Companies are now often managed by private equity firms. This means VCs, angels, investors, financial managers, and CFOs use metrics and data to measure and evaluate all aspects of a company: investments, production, delivery, distribution, support, maintenance, repairs, and so on. Even HR is now measured by metrics. The last dark closet of a company is sales and marketing. It's time for CFOs and investors to demand metrics from them.

One-Page Business Plan for Your Startup

Posted: Sun, 04 Nov 2012 18:25:41

I live in Palo Alto and I'm an advisor to nine Silicon Valley startups. At many VC and angel investor events, we watched other startups go through their presentations. I pulled together the best parts of their business plans to create a one-page business proposal.

Looking for additional resources and documents for startups for your startup? I've put together a library of free business documents and legal forms, including:

Sample NVCA Term Sheet.
Stock Purchase Agreement
Contracts for your Contractors
Learn about Silicon Valley VC Funding
How to Write and Distribute Your Press Release
List of the best books on SEO, PPC, Analytics, Content Marketing, Social Media, Twitter, ASO, and so on
List of the best tools for SEO, PPC, and analytics
And much more information

Go to Build Your Own Silicon Valley Startup.

Write or Curate? Do It or Talk about It?

Posted: Thu, 08 Nov 2012 19:52:45

So there are three essential active roles in content marketing:

Creator: The 1%. Those who write original material. And I mean, really original. Not just a summary, commentary, etc. These are the authors, artists, musicians, developers, etc. who come up with things.
Curator: The 10%. Those who write comments, opinions, attacks, whatever. They follow the 1%.
Distributor: They pass along material by the creators and curators. Facebook, Twitter, Google+, AllTop, Scoop.It, etc., are all distributors. They're the platform.

And of course, there's the 90%: the audience. They consume content. They read. They watch videos and movies. They use software.

That second group has grown fast. The word "curate" has exploded in use. Somewhere in 2010, it took off. Look at this Google Trends chart.

And now there's Snip.It, which lets you copy/share. They call themselves a "social curation" site. Well, so is Pinterest and Instagram. Which means "curation" is just a fancy word for "share." You share stuff in Facebook? Wow! You're now a Curator!

That's it? A new word for the same stuff?

Like I said, you either do it or you talk about it.

What's the Best Sources for News and Information?

Posted: Fri, 16 Nov 2012 17:11:13

Friends often ask me for the best places to get news and information.

If you want to be informed, you have to read critically: that means you consider what is said and what isn't said. You also have read informed views. The following offer balanced, researched, thoughtful articles. Their journalists are generally the best in their field with deep experience in their topics.

The Guardian (UK) guardiannews.com
New York Review of Books (NYRB). Many of the articles are written by leading professors in their field. nybooks.com
London Review of Books (LRB). Excellent coverage of European politics and economic issues. lrb.co.uk
The New Yorker newyorker.com
The Christian Science Monitor. One of the top US newspapers
McClatchy. The best news agency in the US. Their blogs on China, national security, and Washington are excellent. mcclatchydc.com

I subscribe to the print editions of the NYRB, LRB, and the New Yorker (I strongly recommend this). I follow all of the others via the web daily.

Regrettably, the New York Times, the Washington Post, the Wall Street Journal are too light. They don't offer in-depth, detailed stories.

Yahoo vs Facebook: Who Will Win?

Posted: Thu, 15 Mar 2012 19:30:44

Yahoo sued Facebook (FB) for several patent issues. What's the history behind this and who will win?

What Is Yahoo's Claim?

FB is using pay-per-click (PPC) advertising. When a visitor clicks an ad, they are sent to the advertiser's website. Yahoo has the patent on that. FB has been using this without paying. Very likely, they have been notified of being in violation and they've chosen to ignore Yahoo.

Has Yahoo Won on this Issue Elsewhere?

Although this is probably the single most valuable web patent in the last ten years, very few people know about it. In 1998, there were many kinds of search engines. GoTo.com came up with a crazy idea: a search engine that was also the Yellow Pages: companies paid to be listed. When you click the listing, you go to the company's site. It was "pay to be listed". I heard about this and a number of us thought it wouldn't go anywhere; why pay if you can show up in Yahoo, Dogpile, and many other search engines?

Google was started in 1998 with a few hundred thousand dollars in venture capital. By early 2002, it had run out of money. Nobody wanted to licence the search engine. They tried to sell Google, but nobody wanted that either. Looking for ways to make money, Google met with GoTo. They signed a nondisclousure agreement (NDA) and GoTo showed Google how to place ads for a fee. Sergey Brin famously ran out of the meeting and demanded a bucket of gasoline so he could set himself on fire to cleanse himself of the filth of advertising.

But Google wasn't paying salaries, the food had run out, and they had only a few months of rent left. So Google engineers reverse-engineered (copied) GoTo's idea and placed ads on Google. They figured this would be a temporary solution until they could figure out how to make money.

Months went by and the advertising revenues grew. The money problem was solved. But they ignored GoTo.

GoTo changed its name to Overture and a year later, it was bought by Yahoo for about $1.6b.

Google set its IPO for 2004. Before the IPO, Yahoo sued Google for violation of the patent.

Google had two choices: settle the lawsuit or go to trial. The trial would take time and happen after the IPO. If Google lost the trial (which was very likely: copied the tool, signed NDA), Yahoo would collect damages. Worst yet, Google's new investors would then sue Google for the amount because it was a liability that had been passed on to the investors. If Yahoo won $3b, the investors would sue for an additional $3b. Google would have to pay twice.

So Google settle just before the IPO. Yahoo got 2.7 million shares of Class A stock. With the IPO, this became worth a billion dollars.

In return, Google got a perpetual licence to use GoTo's PPC patent.

This is Google's deepest secret. Google prides itself as a technology company, run by engineers, based on innovation. Over the years, Google has spent close to $30b in innovation and research. Not a single one of those hundreds of projects has produced money. Nothing at Google has ever made money. 98% of Google's revenues come from advertising, an idea that was stolen from GoTo and for which Google had to settle a lawsuit. If it wasn't for GoTo's advertising, Google would have disappeared in 2002, just another startup.

What about Facebook?

And now we come to Facebook. The same situation: FB made $3.7b in 2011. Most of that was from advertising: yep, same PPC, the same as Google, the same as GoTo, the same patent. Therefore Yahoo is suing.

How much will Yahoo get? FB thinks they are "bigger than Google", so Yahoo will ask for more. Can FB get out of it? This is business. Yahoo won't let them out of it. Watch for a quiet announcement that FB and Yahoo have settled the issue.

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