June 13th, 2006

Google Is Killing the Economics of Content

by Scott Karp

  •  Comments

When Seth Jayson at Motley Fool suggested the other day that Google’s AdSense is killing the internet by driving the creation of sites that exist solely to squeeze money from AdSense, many people scoffed. But here’s more evidence that he’s right:

A venture-backed Waltham company that’s quietly amassed more than 650,000 Internet domain names is stepping out of stealth mode today and unveiling its plans to build a substantial Boston-area Web 2.0 business around the emerging field of “direct navigation.”

The company, called NameMedia, is being led by Kelly P. Conlin , 46, a veteran media executive who previously had been chief executive of International Data Corp. in Boston and Primemedia Inc. in New York. NameMedia has already hired 75 people in its office near Route 128 to buy, sell, and develop businesses around Internet domain names.

NameMedia, which already is profitable, says it owns more Internet domain names than any other party and draws more than 25 million consumers monthly to its vast collection of websites. It makes money when computer users type the name of one of its sites, such as photography.com, bookstore.com, or jobfinder.com, into the Internet address bar and then click on advertising links.

Here is a new term to line up next to “click fraud” — “direct navigation.” Here’s what this means:

People have been buying up Internet domain names since the early 1990s, though most of the early speculators were “domain parkers” or “cybersquatters” who owned static websites. As companies like Google and Yahoo deployed technology to monetize Internet traffic through advertising, some of those website owners were able to piggyback on their success by hosting advertising links. The sites attract traffic because millions of Internet surfers bypass search engines and type domain names directly into address bars.

The sites were talking about here are NOT about content and they are NOT about serving web users in any meaningful way — they exist for one purpose — pay-per-click ad revenue.

Here’s an example of one of NameMedia’s properties: Photography.com

When you got to the site, it appears to be content-based:

Photography Home

But when you click on a category, you find that it is nothing but a pay-per-click link farm:

Photography Camera

If you click on one of the ads, you’ll catch a glimpse of an Overture domain on the way to the company website, suggesting that this is actually a Yahoo link farm.

Here’s what the CEO of NameMedia has to say:

“The analogy we use is real estate,” Conlin said in an interview. “Our objective is to build the largest portfolio of undeveloped real estate on the Internet. Some of the sites we have will be held for resale. The best ones, the waterfront properties, we’ll build businesses around. It’s a content-light, user- friendly way for people to find what they want.”

“Content-light”

Pay-per-click advertising is destroying the economics of content, making it more profitable to create entire sites with nothing but ads.

Why bother with the expense of creating content? Google certainly doesn’t care. And the advertisers dumping billions of dollars into AdWords and similar ad networks don’t seem to care where their ads appear. It’s all about the click.

The media business has been reduced to pure transaction.

Just read NameMedia’s description of their “business”:

NameMedia’s core business is creating value when consumers and online advertisers connect.

It’s all about “consumers” and “advertisers.” No need for content. No need for an intermediary.

“Direct navigation” is a euphemism for navigating around content and right to ads.

What happens when the web becomes one big network of ads?

UPDATE

I should add that this phenomenon also threatens the economics of Web 2.0 — at least for those companies that are betting on advertising as a revenue model. Web applications and user-generated content are just more intermediaries to be “navigated” around.

Note to Web 2.0: Welcome to the wonderful world of post-Google media.

UPDATE #2
First, yes, of course this phenomenon is not new and not limited to Google’s pay-per-click ad network — Google is merely emblematic.

That said, in response to some of the assertions below that this is really not a big deal, here’s some data to chew on from the original article:

Within the world of Web 2.0, the name coined for the second wave of businesses to capitalize on the Internet, direct navigation, sometimes called direct search or ’searching without a search engine,” is considered one of the fastest-growing niches. It is projected to generate $650 million in sales this year in the United States, about 7.5 percent of all search revenue, much of it from revenue sharing with search engines like Google Inc. and Yahoo Inc. on paid placement ads hosted on its sites, said Jordan Rohan , an Internet stock analyst for RBC Capital in New York.

Rohan estimates that revenue pool could double in the next three years if direct navigation companies like NameMedia can refine their processes and develop e-commerce portals on their sites.

Hmm…$650million, 7.5 percent of all search advertising revenue, projected to double over the next three years — doesn’t sound all that trivial.

And “domaining,” as Danny Sullivan calls it below, has taken on a new life in the larger ecosystem of search marketing that Google pioneered, where all value accrues to the transaction. The economics of search are not based on how useful the information is to the consumer but rather on the efficiency with which the consumer can be connected with a prospective seller.

Dave Winer thinks it’s good news that the old media system is being destroyed because now everyone can have a voice — from the standpoint of democracy, that’s great, but it does not bode well for the economic wellbeing of long tail of publishers.

Post to Twitter Tweet This Post  Post to Facebook Share on Facebook

 Subscribe to Publishing 2.0 |  Follow on Twitter

Topics: Google | Media Economics

Publish2 Ad
  • This company is a carbon-copy of another company in Seattle called Marchex. They are fairly large -- public in fact -- and they also use the term "direct navigation" as a more positive sounding euphemism for "accidental patronage". If you'd like a blueprint for how this business may work out (good or bad), just look at what Marchex has done over the last couple of years.
  • Hmmm. I'm not sure this is as dire as you indicate.

    First, blaming Google for link farms is sorta like blaming VCRs for Jim Carrey films. Google isn't creating the link farms. They just provided an environment where things like link farms can exist.

    However, it's a rich environment and natural selection will eventually take over. Link farms like Photography.com don't offer as much value as, say, dpreview.com. My thinking is the truly interested consumer will gravitate to latter over the former.

    Second, it doesn't seem to have much impact on the flow of things. A search for the term Photography on Google doesn't put Photography.com in the top 10 links. Instead, all the natural listings are sites with rich content (not pure link farms), therefore supporting my natural selection idea: better sites will prevail.

    To compete against the rich-content sites, the link farms would have to spend more money than they make from the links for high ad placements. It doesn't seem justified.

    In the long run, Photography.com is nothing more than a lucky domain squatter. Eventually, someone is going to want that URL and will offer NameMedia a price that is worth more than the limited adsense revenue they will generate. Then the game will be over.

    That's how I see it.
  • Scott, more like welcome to the world of domaining. And actually, it's been going on for years. The pioneer in the space was probably Applied Semantics, with along with Overture, for years helped those with good domain names monetize them with paid links. It's not a Web 2.0 thing. It's not a oh-Google-created it thing. But it certainly has Google involved in a big way, since they bought Applied Semantics back in 2003. If you want some further background, see Search Engines Making Millions Off Type-In Traffic From Domains and Google AdSense For Domains Program Overdue For Reform -- And Yahoo & Microsoft Should Also Take Note from my blog.

    To be fair, the idea these are destroying content sites doesn't really hold water. So what if photography.com is auto-generated. Who is going there? People who type in photography.com into their address bar, who have learned that often this brings up a site on the topic they want. Plenty of people do this, but far more are performing actual searches on search engines, where entering photography as a word brings up sites that generally aren't auto-generated. These sites still get rewarded.

    Moreover, this domaining isn't new and Web 2.0 publishing (whatever that is, aside from a fun argument over trademarks) seems to have thrived despite it, I don't think ringing the alarm bells that the end is near holds up.

    The biggest problem with domaining is simply that despite their policies, the search engines do seem lax in allowing typo domains to get monetized. They need to fix that, definitely.
  • I didn't say it's good news, I said it's much ado about not very much.

    And that proves my point -- so much is lost in transmission, even when the intent is good. And sometimes the intent is anything but good.
  • Like many I was at one time a big fan of Google. I still am a fan of their innovation and drive, but at what cost does this come? I believe that Google is not only sacrificing their core compentency of search in exchange for corporate growth, but that they are also violating some of the pricinciples that made them a great company to begin with.

    This internal conflict is evidenced when you read Googles Philosophy which talks about it's guiding principals such as "It's best to do one thing really, really well" or "Democracy on the web works."

    Google could easily have their cake and eat it too, but when you are the 800 pound gorilla I guess it's just easier to feather your own nest even at the expense of your own values and mission.

    I no longer use Google as my search engine of preference.
  • Dave, perhaps it was your referring to Old Media economics as a "horrible system" that led me to infer the converse, which is that the passing of the old system is "good news."

    And it's rather blase to suggest that, good or bad, the unwinding of an industry's decades-old economics is "much ado about not very much." I would argue that the consequences for companies, employees of those companies, consumers of information, and Democracy with a big D, again whether good or bad, are indeed quite significant.
  • What are the trends in direct navigation? As people become more experienced in using the internet, do they use search engines more often and abandon "direct navigation?" I would think so.

    In addition, how do the conversion rates compare for these sites vs. content sites? If they are lower, either ppc rates will drop or advertisers will demand an easy way to be excluded from these sites. Now that search engines are learning to evaluate the quality of a website, it shouldn't be too hard to:

    __ Check here to only advertise on high-quality websites.

    Both of these factors should reduce the profitability of domaining over the next few years.
  • Google didn't pioneer search marketing. Search marketers, individual search marketers, pioneered search marketing before Google existed or became a serious force in search.

    I think you mean they pioneered search advertising, payment for placement. If so, they didn't. That's Overture, now Yahoo, that pioneered paid search placement. Google simply expanded upon what they already started. Overture deserves the credit, especially as they were the first to push ahead despite the fall out over the real pioneer, Open Text's experiment in 1996.

    With respect, Scott, saying "economics of search are not based on how useful the information is to the consumer but rather on the efficiency with which the consumer can be connected with a prospective seller" demonstrates that you don't understand how search engines work.

    Search engines have never, ever always listed the best sites with information in their top results. Many great sites are indeed there. Many bad ones slip through, by both overt means of those working to increase rankings and also passive ones in that the search engines are not perfect creatures.

    But actually, search -- I mean real search, where you enter words and get results -- does remain tied to ensuring the consumer is pleased, not the advertiser. If you have poor relevancy, especially because you bend to please advertisers, you lose traffic. Ask Lycos about this. You remember Lycos, a former top search engine that just couldn't keep its eye on relevancy.

    Direct navigation, domaining, can be akin to search by those who are entering words into their address bars to fulfill a search desire, rather than a navigational one (I want to reach a specific site). Well hey, that's not the search engines' problem that people do this. You don't get to photography.com by entering only "photography" into IE or Firefox. You have to consciously think, hmm, I want something about photography -- I know -- I'll put photography + .com together. That's not a smart user choice, in my view -- but it's a user choice, not your choice, not my choice nor something they were forced or tricked to do. And if it isn't working well, then guess what? People will stop doing it. So the system will correct itself.

    As for "it’s rather blase to suggest that, good or bad, the unwinding of an industry’s decades-old economics," which decades old economics are you talking about here. The web's? It's barely over one decade old, and it has had economic shifts all the time. Banners, Amazon affiliate links, AdSense. Seems to carry on just fine.

    Finally, "pay-per-click advertising is destroying the economics of content, making it more profitable to create entire sites with nothing but ads." OK, so the CPM-based Feedburner delivered ad at the bottom of your post is OK, but pay per click is bad? And all those sites that grew out of having good content plus AdSense -- that's a downside?

    AdSense and similar programs fuel a lot of spam and junk on the web, absolutely. I'm sick of it myself, and people have been complaining about it for ages. But they're also, to be fair, helping fuel a lot of good content. Basically, I see plenty of bad advertising fueled junk in the offline world, product placement increasing in movies, ads on cable channels despite me paying subscription fees. I'm glad you think the web and Web 2.0 is supposed to be some type of nirvana where the normal pressures don't apply. I wish -- and do hope -- it won't grow to be as bad as offline. But I'm also realistic. There are downsides to everything, but those downsides don't necessarily spell out disaster.
  • Sam
    Rather than bad versus good, it seems like a question of valuation. The real problem is that the market for auctioned keywords is inflated and the has yet to correct itself based on a lack of transparency. There are uses to link farms but transparent and efficient market dynamics are slowing the speed at which true advertisers and marketers understand the dissonance between what they pay for a click and what it's worth. Thus link farms are more profitable in the short term than they eventually will be.
  • Danny, that's a lot to digest (including your always useful correction of my misuse of terms), but let me go to the key issue: the economics of search.

    When I say the economics of search, I don't mean the utility of search results, I mean how Google (as the principal example) maximizes revenue.

    Is it not true that the objective of AdWords is to maximize the amount of revenue Google receives for each click, as a function of both the amount bid and the likelihood that someone will actually click? If so, isn't true then that this revenue maximizing strategy means that the ads that work best for Google do not necessarily deliver to consumers the products that best fit their needs? There is a some correlation between the utility of the ads to consumers, but the objective is not to maximize utility of the ads because the amount bid is a key variable.
  • The transmission, flow, and context of information is certainly changing quickly. The use of 'direct navigation' to a ad is a trick to interrupt the flow to the value content, similar to the way the TV commercial interrupted broadcast content. It's ultimately doomed for the same reasons.

    However, it's not hard to envision a near future when the network of ad sites becomes the preferred high ranking in a search on the major search sites. In this scenario the user would search for a term (looking for content) and Google would list direct navigation sites in the top 10 hits. The hapless user, following these links, would spend 5 minutes viewing ad sites before realizing they were all ads.

    The issue for the user is that direct navigation links, posing as content sites, are not authentic (and are evil). At least the old AdSense was more authentic; the user chose to follow the link looking for product information. (is product information different from an ad?)

    What happens when the web becomes one big network of ads? We'll leave, of course.

    //
  • ted
    Thank you for this post. As someone who has built a successful business by actually paying top-shelf content creators (and by licensing exisiting legacy content, often at very high prices) to create useful and interesting websites designed to inform, enlighten, and entertain people, it's quite annoying to see these intermediary pages suck up so much ad revenue. Basically, all they do is provide a barrier between real content and real users.

    In the end, both they and my business are dependent on search engines (mostly Google) so it's difficult to complain about these sites as Google clearly loves them for the clicks they generate. But in the end, it looks like a house of cards to me, and one that shakes consumers trust in the internet. A site like you show, photography.com just makes real sites look bad, as user frustration ultimately ensues when they realize the site is nothing more then a collection of ads.
  • The object of AdWords is to make Google as much money as possible. My view. I doubt Google would be so blunt.

    Making the most money, fortunately, doesn't mean necessarily selling to the highest bidder. Google uses a complicate formula of looking at bid, clickthrough rate, ad copy and even now landing page copy to determine if a searcher will consider an ad to be relevant. Relevant could mean useful to the searcher; could mean as measured by advertisers getting conversions; could mean Google making more money. Pick your explanation -- the good news is, generally, just selling out to the highest bidder isn't in anyone's favor.

    Now when you talk of the economics changing, you seem to be saying that the current economics are for Google to ensure it favors itself first, even if that isn't always helpful to the users. IE, fine, let eBay keep showing whatever ad comes up for whatever you search on, or fill those domains with ads, even if the users don't care.

    Sure, I can generally hang with those current economics. Google will look out for itself, and while it is fortunately finding the best way to protect itself is to protect its searchers, it still might let some things slide. And by slide, you'd probably lump in domain traffic.

    That brings me back to what I said before. If domain traffic isn't useful, searchers will stop deliberately going to these sites. Moreover, the conversion advertisers are getting will drop, and Google and others will be forced to give advertisers more choice over where their ads appear. We do have more grumblings over this stuff already, and it's one reason Google finally -- after years -- gave people an easier ability to selectively choose contextual placement. But by and large, advertisers are not beating down Google's doors on this issue. I think that will grow, but I think many of them likely will still find this traffic also does convert, even if at a less spectacular rate than true search. And if it keeps working for advertisers, it's a big sign it's working for these particular type of searchers, even if it's not the way I'd do things. But then again, something like MySpace isn't a fit for me. Different strokes.

    "The real problem is that the market for auctioned keywords is inflated and the has yet to correct itself based on a lack of transparency."

    No, the market is grossly undervalued. Search -- real search, where ads come up in response to search terms -- is one of the most powerful forms of advertising out there. You are in a place where someone is telling you precisely what they want. Prices are climbing because advertisers are even better learning just how well it converts and the lifetime value of a searcher, once they've captured them. More transparency on where exactly ads appear would be great (and domaining, by the way, isn't the same at all as link farms). But search ad prices will continue to rise, sucking money out of broadcast advertising which -- given the piss-poor measuring it provides -- is the place where values are really inflated.


    Now you argue that populating parked domains with ads is a change to the economics
  • And sorry about that hanging sentence there at the end!
  • Scott, you said "Dave Winer thinks..."

    And you don't have any way of knowing that I think that, unless you either:

    1. Ask me, or

    2. I told you.

    You didn't ask, and I didn't say.
  • Me thinks "direct navigation" will also have a negative impact on Google - specifically, the value of their search results. People will turn to search engines (in the long run) that can filter out sites like photography.com. Social link networks like digg.com and del.icio.us will become more important to finding quality content over time. "Generic" search results might not have a long-term future.

    -- Cale palmit.com
  • None of this is new.

    In the offline world, we've had plenty of advertising-only publications of various sorts for a very long time. At the bottom of the barrel, we've got "Thrifty Nickel" classifieds, for example. 0 content, all ads.

    At the higher end, we have special-interest magazines (say, ones that cater to people restoring Craftsman bungalows) that people buy (at least in part) *because* of the ads for, say, period reproduction hardware.
  • Z
    Frankly I don't see how this is a bad thing. It is not pushed into your inbox - you need to type photography.com into the address bar to get there. And if you don't know too much about internet and you really type photography.com into the address bar, it is more usefull if that page aggregates some photography related searches than if you got an 'domain not found' error. And PageRank should be immune for that. I don't see where this can have negative utility.

    That said I do see how sites with domains made from common mistakes do decrease the value of the Net.
  • Fred Laruelle
    (have not read every single post ahead of me, so this point might have been made already)

    What prevents Google, Yahoo et al. from detecting and treating linkfarms as such?
    I can't see why this problem could not be addressed programmatically... , and sorry (or not so) for these unscrupulous businesses.
  • PJ
    Word of mouth is the #1 source of traffic--there's nothing to worry about.
blog comments powered by Disqus

Subscribe

Receive a free daily email newsletter with new Publishing 2.0 posts


Recent Posts

Media 2.0 Workgroup
Publish2 Ad
Clicky Web Analytics