My Facebook at Work Launch Analysis – September 2015

As with my Minecraft post, I do have an ego-driven need to see my insights proven correct. (Don’t worry, I know I am often wrong) Below is a slide deck I put together in an interview with Facebook for Facebook at Work (now called Workplace) in September 2015.

After 1+ years and only thousands of paying users and questions about what how the site should be used, however, perhaps my Slide 5 was onto something.

Facebook claims it has already signed up “thousands” of paying subscribers to Workplace Premium, spokeswoman Vanessa Chan told CNBC. Facebook’s name recognition and user familiarity could be a major asset that should help it muscle into the marketplace. But the social media site needs to overcome the perception that the site is a productivity killer at work and convince employers that staffers will be using the tool for work, not social purposes.

Silicon Valley Business Journal – April 2017.

The Case for Yelp User Subscriptions [Product Monetization, Revenue Ideas]

Yelp

Yelp’s financials have been fairly strong lately, and with $550M projected revenue for this year and the aim of getting to $1B (82% jump) in 2017, the company will need to be open and aggressive about new revenue steams. Let’s explore how to generate an additional $100M (conservatively) in yearly subscription revenue that would directly monetize (and further diversify revenue streams) Yelp’s most loyal users, generate data that can improve the overall service, and avoid conflict with existing advertising partners. (note: my sister used to work at Yelp as an accountant, but provided no information or insight for this article.)

Yelp Power User Subscriptions

The basic premise is to provide additional functionality for a subset of Yelp’s users and charge them for it, but using the benefits from their usage to positively impact the service for all.

Personalized Recommendations – Replacing “Best Match”, Netflix Style

The problem with Yelp reviews, as with many review systems, is that actual results are skewed. On a 5 point scale, one might think that 2.5 / 5 would be an average venue. However, for Yelp, the average score is more like 3.8. And while Yelp may want people to be forced to dive deeper (Virtually identical ratings mean people have to dive into reviews to understand what’s different, said Vince Sollitto, who heads communications for the San Francisco-based company.) into reviews because these scores make it harder to differentiate among venues, this is not a very user-centric, empathy-driven approach. In fact, this is better for venues and Yelp – the more venues are better ranked, the more open venues will be to working with Yelp on advertising. The more venues are better ranked, the more people will visit them. This is a clear conflict of interest.

I would like to see smarter recommendations with the option of going deeper into reviews only when I want to. If you have ever used Netflix’s recommendations system, you understand how this could work. As a user creates more reviews, the system is able to predict which others users are similar to that user and provide predicted rankings for new venues. Admittedly, this only works if you and other reviewers have a common set of visited locations and would thus work best in places you live in. However, if you visit a new place, Yelp could use your demographic data to create a profile that may match other users in new locations – there are a number of different approaches to predicting responses without historical data, and this would be a very useful data experiment to create value across all users.

A simple story to explain the need for personalized recommendations comes from a friend. She is Vietnamese and went to Palo Alto in California for Vietnamese food. It was not only expensive ($50+ per person) but terrible. Yet, people in Palo Alto love it and review it accordingly. With a personalized recommendation, I would be steered away from this place despite its positive reviews and to a place that people with my tastes enjoy.

Personalized Recommendations – Incorporating External Data

In addition to predicting scores and using that to sort recommended places for each individual user, Yelp should incorporate external data. While user ratings are great, I also want to know what has been featured on TV (Bourdain) or has won awards from professional reviewers. In many ways, that data already exists on Yelp, created by users – for example, search for “Michelin” and you should find a good list of Michelin-places in that city. These metadata should be officially added into listings. Such locations would automatically receive a bonus in the personalized recommendation scoring or include special badges, and users who value (and visit) them would see more such venues in their recommendations.

Normalized Review Scores

Beyond ranking places for the individual user, scores should be normalized over the last one year of reviews using the full 1-5 spectrum. Ever see complaints about a restaurant that changed ownership recently? Or a place that lowered its quality standards after building a strong reputation? How good is this place right now? Current Yelp review scores don’t take currency into effect very well. I want to create clear separation in order to compare places more easily. How much better is this place than the other place?

While the math to normalize is pretty easy, the process (by area radius, venue category?) to do so is a little complicated and would need to be tested to finalize on format.

Getting More Data – Allowing Data Export and Pure Numerical Reviews

Although Yelp has the most user-review data of any source, it creates barriers preventing additional data that could be used for the product features mentioned above. For example, I am very uncomfortable with Yelp owning my data and making money off of it, thus I would rather write on this blog than for Yelp. I do not need Yelp to share money with me, but I would like to export my data (reviews, bookmarks, check-ins) for myself.

In addition, Yelp forces reviewers to write reviews. I prefer the IMDB method which allows both numerical-only ratings and detailed reviews for those who like to do so. To see the stark difference this can make in conversion and user data, my IMDB history has over 1,100 reviews (average of 70 per year) while my Yelp has 2 after eighteen months.

And More

It is unlikely I will ever be a Yelp Elite because I am not much a Yelp community driver. However, that does not make me a non-active user. I am joining a couple of official Yelp events below soon, but would like to see more, with exclusive slots set aside for paid Yelp users as an added benefit of subscription.

Yelp Events

Paid subscribers should have the right to opt-out of ads (but can be on by default) and receive exclusive promotions (offers) for subscribers from businesses. Similar to social media ads on Facebook and Twitter, users would be allowed to vote for or share promotions in order to show interest. As on Google Adwords, advertisers who are just paying to spam users would have to pay more as a penalty for being less relevant. This would create a win-win scenario for both users and businesses who truly care.

I would like to see the ability to review individual plates or meals, not just the venue. Not everything a place serves is equal in quality, and I would like reviews to be broken down into smaller components such as service quality. Some styles of restaurants are affected by lower grades of service, but often I do not care about that. I just want to know what is the best food for a best price, and there is no way to quickly determine this. Yelp should be making this possible!

Revenue Forecast

This service would be provided at $5 per month or just $30 per year for annual subscriptions. Imagine the $5 per month as a perfect solution for travelers visiting a new location (ex. 4 day trip in Chicago) and needing to know the best places specifically for them. It’s not too much different from buying a travel guide. Perhaps only yearly subscription users would have certain features such as the history export, but I think that numerical-only reviews should be opened to all. I use $30 per year as a personal preference that seems reasonable to me but also as a stark contrast to paying the per month fee ($60). Fees would be due at the beginning of any subscription period, providing Yelp instant cash flow, but could be refunded at a pro-rated level. Yelp Elites could be given free subscriptions.

Yelp currently has approximately 150 Million Users (including international markets). To reach $100M in yearly subscription revenue, just 2.22% of these users would need to subscribe – I believe (based my own experience in social networks) that this number could reach 5%. Please note that I have simplified the calculation, not accounting for regional user / wealth populations, single month purchases, future growth, mobile vs. desktop, and new ad product growth for subscribers, etc.

If you are thinking you would never pay for such features, that is ok! You are one of the 98% who would not need to. However, I am one of the 2% who would. 2 out of 100 people is fairly low on the requirement side.

Stakeholder Impact

Since Yelp is trying to reach $1B in revenue in two years, they clearly are concerned about their existing sales, which has been slowing in growth the last few years. Although paid subscribers could turn off ads, by keeping them on by default, Yelp would reduce impact on the ad impressions removed. Normalized Reviews could impact businesses, but this would only be available for subscription users and would be a complimentary score to the existing system – most people could still remain confused (yay!) by the overly positive Yelp review system. Yelp’s current display of Google Display Network ads would be minimally affected.

A great benefit of reducing the review barrier and allowing numerical reviews is providing more data that can be used to promote businesses, which in turn helps businesses. In particular, this would help smaller businesses with less than 100 reviews because they have the most to gain from more reviews. (If you are concerned about fake reviews with the numerical-only system, there are different ways to filter and normalize that data as well) Offering advertising access to paid subscribers also creates new revenue opportunities for Yelp and focused opportunities to improve the perception of the business. Paid subscribers are more likely to review and create content for a business and Yelp helping businesses get subscribers in the door first is a more cost-effective method to seed business perception.

Recap and Conclusion

Here is a recap of my proposal:

For All Users:

  1. Enable numerical-only reviews, with breakdowns for specific aspects, such as service quality and food quality (but not required)
  2. Enable dish-specific reviews, numerical and tagged text reviews
  3. Enable personalized recommendations, IMDB-style, based on past review history and incorporate external data such as Michelin and TV mentions – do not show predicted ratings

For Premium Users:

  1. Normalized reviews for easy comparison, including recency data
  2. Show predicted ratings for personalized recommendations
  3. Op-out for ads
  4. Exclusive targeting from advertisers for promotions, using Google Adwords and Facebook style feedback to penalize spam
  5. Subscriber-exclusive invite slots for official Yelp events
  6. User Data Export

Revenue:

  1. Conservative estimate of $100M in revenue (150M users * 2.22% * $30 /year / user)
  2. Not including monthly one-time payments for “tour guide” like service
  3. Long term potential of $225M (even with no further growth of userbase)

Yelp is in competition with Facebook, Foursquare, Google and others for local advertising dollars. Despite Yelp’s data trove, it can do more to get more data as well as create more value to its users through that data. Over the long term, this would create more loyalty lock-in to the service, even without forcibly locking users in (as it does now). 

I welcome all comments and thoughts below!

Predictions for the Future of Ad Blocking and Digital Advertising

Image from: http://www.dsero.com/img/home-splash-stop.pngOver the past few weeks, it feels like the marketing discussion around Ad Blocking has reached a fervor, particularly as Apple started allowing Ad Blockers on Mobile, pushing awareness of ad blocking into the mainstream. Let’s discuss the future of ad blocking and digital advertising.

Situation

Most content publishers (whether large like The Wall Street Journal or small, like this lowly website) generate revenue by showing advertisements. However:

  • People (usually) hate ads
  • Ad Blockers (AdBlock likely the most well known) have been around for the last ten years
  • Publishers are increasingly not getting paid (by showing ads) for their content, with an increase in ad blocking users of perhaps 5x over the last two years to nearly 250M today – in Europe and the US, % of users blocking ads can range from 15% to over 30%
  • Creating good content does cost significant money (try writing it!)
  • The decline of newspapers has shown that in most cases, people are unwilling to pay for content, thus subscription revenue is not a valid option for most publishers

Publisher Point of View

Publishers can claim ad blocking is similar to media piracy (music, movie downloads). I feel this argument is valid – they provide content on the implied agreement that you will accept (and click on, if appropriate) the ads they show. Using ad blocking breaks this agreement. If 30% of your readers are not viewing ads, 30% of your traffic is not (simplified argument) generating revenue.

Advertiser Point of View

Advertisers are not as affected by ad blocking, in the sense that blockers prevent ads from even being rendered, thus they are not affected when paying under CPM (cost per thousand impressions). However, I wonder what percentage of users who are blocking ads would be affected by ads if people saw them. For example, if these users are more affected by ads than non-blocking users, advertisers are missing out on a more lucrative (cost effective) source of conversion. The other effect is that CPM rates could be higher than they should be (but not CPC – cost per click) because CPMs now have to address the cost of providing content for users who use ad blocking in the CPM figure (cost of creating content for 100% of viewers charged over the 70% actually viewing without blockers). However, this should not actually be the case for ad inventory that is simply going to the highest bidder through programmatic means.

User Point of View

As you are reading this, imagine, would you look at ads if you didn’t need to? I would guess not. Regardless of medium, if you can get something for “free” (consume content without ads, not pay directly for content) easily, you will – when piracy was easier than dealing with DRM content, piracy ruled. Perhaps threat of lawsuit affected some, but overall, ease of piracy forced content creators to deliver better products, value-added services, and more reasonable pricing that rendered piracy less damaging. You can see this evolution in Spotify (subscription / in-app ad music buffet) for music, Hulu (similar to Spotify) and Netflix for movies & tv content.

Despite news like IAB Starts Publicity and Engineering Battle Against Ad Blocking, most people do not (and will never) care about ethical concerns. Organizations like the IAB may threaten to sue ad blocking software companies, but it is easy to see this will be a wasteful, and ultimately losing (see battles against torrenting) long term battle. The individual user will always do what is best for himself, which in this case is a faster, smoother internet experience with ad blockers. Just as with piracy, no matter the number of lawsuits or technology battles, ad blocking itself will always be easily available.

Many consumers “don’t make the connection between turning on an ad blocker and cutting off someone’s livelihood,” said Scott Cunningham, SVP at the IAB and general manager of the IAB Tech Lab, which announced a series of initiatives around the ad-blocking issue. (from: Ad Blocking – Unlike Fraud – Comes At The User’s Behest | AdExchanger)

The Individual vs the Faceless Entity (Big Corporate)

I have used ad blocking for extended periods of time over the last decade. Through my work in marketing and advertising, however, I forced myself to turn blocking off at times to make sure I understood the changes in advertising and the ways advertisers are trying to gain attention. While there are sites that do effective advertising, how many times have you been interrupted in similar ways to the following?

  • Watch a 2 minute video, forced to watch a 15 second ad. If given the option, you press skip as soon as you can.
  • Click a link, greeted with an ad right away.
  • Go to a website, and audio starts playing somewhere. You spend several seconds looking for it and turning it off. Particularly annoying at night or in an environment in which the sound is disruptive to others.
  • New browser windows and popups appear randomly
  • Looking for a download link, you see banners trying to trick you that the download is through the banner instead

Often, the content payoff is not worth battling through the ad, and even if you do look at the ad, are you really in the positive mindset to evaluate the ad properly? I think more often than not, I am more likely to attach my negative mood to the ad at a subconscious level. These ads may thus harm both the advertiser and the publisher beyond just the user bouncing away from the content entirely, as I often do.

When it is a case of choosing the individual versus the big “evil” corporation, the individual always knows who to choose. Herself.

Evolution of Ad Blocking: Throwback to Traditional Media

I believe that while publishers may fill up headlines with complaints today, they will eventually realize and act on addressing users’ root needs for ad blocking.

Let’s look at advertising in traditional media as references. In these, advertising is often done naturally, at a pace that does not interrupt your natural media consumption experience. For example, in television, advertisements are inserted in break periods, and as you watch, you build a general feeling of when it is commercial time. Writers write for advertisement breaks, making sure the pacing doesn’t jar you, that scenes naturally lead to and out of breaks. Product placements (i.e. character drinks Sprite) are done naturally. In magazines, ads are shown in the natural manner that you read the publication. As you turn pages to read articles, you sometimes see an ad, which you can then turn over after glancing at it. In newspapers, sections with ads tend to be inserted in a way in which your eyes are not bouncing back and forth between content and ad, fighting to keep focus.

Imagine however, you are reading a magazine, and an ad pops out at you, as in a pop-up book. Or on TV, mid-joke, there is a 15 second interruption with an ad.

My natural response would be, this is ridiculous! I would likely stop watching or switch to content that does not disrupt me. This is often how I see my experience with internet advertising.

Expect Digital Marketing and Content Revenue Models to Evolve (Predictions)

  1. Ad blocking will continue to rise in the short term. This will create revenue issues for many publishers, but this will also force publishers, as music and video companies did, to adapt their models.
  2. Companies will adjust (as they always have, just as in this example: Google says it won’t make advertisers pay unless ads are 100% viewable). In an evolutionary sense, if a world with ad blocking is not sustainable for publishers, this is the next step. If users refuse to look at ads, publishers will look at new revenue models. Or even return to old ones, like subscription.
  3. Smaller, individual sites will be unable to command subscription fees, or enough in donations. These sites will either die, or aggregators will appear providing subscription revenue for a network of sites. Does this sound familiar? It’s what cable providers do. We all pay a package fee, even if we use 10% of the channels offered. This fees is then disbursed across all partners which in aggregate is enough to fund content creators. Would you pay $20 a month for unlimited reading (to most sites)? I think that future is coming. This is no different from what you see with Netflix and Spotify. Wait a minute, couldn’t Facebook do this with Instant Articles, its product to help publishers deliver articles quickly while controlling the ad experience? Isn’t Apple doing something similar with News and Apple Music? Why, yes.
  4. Facebook, Google and other Internet media giants will lead the way in acceptable internet advertising standards. Some ad blockers will agree to allow these non-disruptive ads in, others won’t. Depending on the level of adoption, this will make subscription / ad revenue dependent services tilt accordingly.
  5. Advertisers will Demand Quality Impressions from Publishers (see below for more on this)

What do Good Ads Look Like?

I believe that ads do serve a need. They provide information for things that you may not be aware of, advertising is the origin of push discovery. If we remember traditional media, ads reached a happy balance for the user. When they begin to push too far (ridiculously obvious product placement), users push back, and the balance must be restored. This is what we see in internet advertising today when users install ad blocking.

I believe a large problem is the focus on pure CPM, the number of impressions, rather than the quality of that impression – are you giving a user enough time to focus on your ad without delivering in a way that is obnoxious? Think back to TV and magazines, in which I would argue, yes. The medium (magazine page, TV screen) switches completely over to the ad. In internet media, however, oftentimes, if I can just show some kind of banner on my site, and it’s then rendered somewhere on a person’s screen, I can say mission accomplished to the advertiser. From the advertiser side, I understand why this may not be so effective for my company.

Let’s look at an example below from IGN (screenshot from Sept. 30, 2015)

IGN Ad Takeover Example2

The “Wildstar” banner above is a normal banner. As you scroll down, it disappears. From my experience, you are probably scrolling down right away. If you put the ad in front of me, making me get through it, as discussed before, I will fight through it or leave. Thus, I can claim this as an impression for my CPM count, but I bet the advertiser is not too happy with its quality.

Let’s take another look at IGN below:

IGN Ad Takeover Example

This is actually the full screen of IGN, with a “takeover” seen on the sides from Wildstar. Basically, a takeover means the advertiser takes the background of the site. As the user scrolls, the ad continues. It’s not obnoxious and has a chance to stay with the user, when he has time to process it. Perhaps he will never click on it or read it carefully, but that brand has a chance to sink in, as it might on TV or print. It doesn’t interrupt your experience but can still seep in.

It’s much more natural, and assuming the takeover doesn’t change when the user changes pages within IGN, pretty good. This an experience publishers should be providing, at higher cost, for clear resonance. Yes, there are lower quantities available, but the quality is higher, and publishers can and should charge accordingly for it to make up the difference. Programmatic ads should still be possible as standards are created on how to create takeovers.

There are other examples in online media today that I love. I experienced one on a long form article on The Verge. As you scrolled down, an ad would slowly appear in-between sections of content. You saw it coming, and you could keep scrolling to get past it. However, the size of the ad was essentially full screen, thus through the process of scrolling, you would experience it for a few seconds. Because the process was seamless and natural, as in magazine reading, you didn’t have to play whack-an-ad to close it. You experienced the ad at your own pace, the feeling was great. I saw this same form of ad on mobile through Bleacher Report’s app recently as well.

Those seconds of full screen bliss are an advertiser’s dream and I think they are directly comparable in attention to traditional media ads. Those small 200 x 200 banners that are hiding in some corner in-between content – don’t we all simply learn to ignore them completely?

Good ads have to parallel what we experience on traditional media (in terms of the mental process and stress level) – you can see them coming, you are not shocked into them, you take a natural action (like scrolling down).

Evolve or Die

Despite all the hoopla and concern over ad blocking, this is simply an evolutionary phase. Companies and users will adjust until there is a balance that creates a sustainable model for content. Publishers are right in that users don’t realize that they have to pay for content one way or another, but publishers shouldn’t fight momentum, trying to hold on to their idea of how that money should be generated.

I would love to hear what you think about the future of internet advertising! Feel free to comment below.

For more information see:

Ad Blocking – Unlike Fraud – Comes At The User’s Behest | AdExchanger,

Ad Blocking Is a Hot Topic for Marketing, Media Executives – WSJ,

Ad Blocker – UntangleWiki, Study of Ad-Blocking Software Suggests Wide Use – The New York Times,

Widely Cited Ad Blocking Study Finding $21.8 Billion Loss Is Incorrect,

The ethics of modern web ad-blocking – Marco.org,

Apple’s Ad-Blocking Is Potential Nightmare for Publishers – CMO Today – WSJ,

Ad Blockers and the Nuisance at the Heart of the Modern Web – The New York Times,

Adblock Plus Changes ‘Acceptable’ Ads Program)

A Kellogg MBA Competitive Analysis: Major Stakeholders in Augmented Reality / Virtual Reality (Sony, Oculus, Valve)

Over the Winter Quarter, our Technology and Innovation Strategy class at Kellogg culminated in a final research paper. The paper looked at the shuttering of Google Glass and what Google’s next steps should be. As part of this, I got to look deeply into the current state of Virtual Reality, which I have been following and waiting for (hello Oculus!) since I was a child, and Augmented Reality. I will be posting portions of the paper (it’s quite long) in digestible chunks here over the next week. Our team was comprised of Melissa Caldwell, Raghu Chirravuri, Olga Gordon, Jeff Hoffman, and me, Michael Nguyen. 

To see all of the sections, see my tag virtual reality.

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Competitive Analysis: Major Stakeholders in Augmented Reality / Virtual Reality

While numerous firms are engaging in VR or AR headset platforms, firms that have major corporate backing to avoid being acquired and have the finances to pose a legitimate threat to Google are discussed below and in summary Table A.

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Sony (Project Morpheus – Virtual Reality) and Valve (HTC Vive – Virtual Reality)

Sony and Valve are similar in their focus on gaming entertainment through VR headsets. While Sony has its own console platform (Playstation), Valve focuses on the PC market, creating a consistent gaming experience for PC gamers regardless of hardware manufacturer or operating system through its Steam gaming platform. In March 2015, both companies revealed they are planning to release their products by the end of 2015. Sony will develop and manufacture its own headset, while Valve will work with partners such as HTC to release headsets, similar to Oculus and Samsung in producing Gear VR. With both firms’ focus on entertainment, these are greater threats to Oculus, discussed below, rather than Google AR and VR.

Facebook (Oculus Rift – Virtual Reality)

The Oculus headset is a tethered (wired) unit that requires a high-end PC to power, creating a sit-down user experience. Oculus has gained traction in VR and AR by creating an ecosystem of applications and new hardware add-ons that add functionality to the device such as body movement and finger tracking for user interfaces.

Oculus initially had a pure focus on gaming and simulation rather than productivity, making it less of a threat to Google. However, with the Facebook purchase of Oculus VR and the announcement of the partnership with Samsung to release Gear VR (more detail below), the Oculus platform is more of a threat. Aside from its current dominance as a social platform over Google+, Facebook has also launched search, advertising, and portal-like products that combined form a significant threat to Google as the default source of information of the masses.

Oculus has released several developer headset kits to the community, with the first consumer-focused version expected in 2015. Oculus has repeatedly stated the consumer product must be oriented to the mass-market not only in functionality but also price. While Facebook does not have direct experience in producing hardware at mass levels, Samsung, its partner on the Gear VR, does. Thus, we believe that Oculus will be able to deliver a mass-market headset more quickly than other competitors.

Samsung (Oculus Rift / Gear VR – Virtual & Augmented Reality)

Samsung’s Gear VR is an untethered (wireless) headset that requires the Galaxy Note 4 mobile phone. Note 4 users simply insert the device into the headset. Using Oculus technology, the Gear VR has an advantage over Oculus because it supports AR through its outward facing camera. Unlike other AR solutions, Gear VR cannot not reasonably be worn outdoors. While Gear VR does not compare to full-powered VR solutions such as Oculus, the partnership creates two concerns for Google. First, Samsung is a dominant global hardware partner for Facebook, with experience in display and mobile technologies. With Samsung as a manufacturing partner, Oculus would have an advantage in merchandising over other platforms. Second, the partnership creates more exposure to the Oculus platform for users and app developers. The Gear VR was released in December 2014 at $199 (non-mass market focused “Innovator Edition”); based on Samsung’s aggression in the mobile market, we can expect rapid iterations on the platform and increased compatibility with new phones.