Saturday, November 19, 2005

We'll all be rooted, said Hanrahan

ROOT! Aussies everywhere are cacking themselves laughing. For non-locals, it's like calling your company Screw or Bang or Shag. Head Rooter Seth Goldstein has just published his Root manifesto. Seems to be a lot of that about these days.

Steve Gillmor roots for Root (sans disclosure), which I guess would make him a Square Rooter. He and the Gillmor Gang spent a good 70 minutes dancing around the real topics. Someone (is it just me, or is it hard to figure out who's talking in the Gang podcasts) mentioned price a few times - meaning "what economic value does this system have for the consumer" - but Seth kept parrying the questions like he was Mark Schwarzer.

Here's what I think is going on. The Rooters are confusing two issues, whether on purpose or not I don't know. One issue is how individuals manage their precious time in a media-saturated world. Another issue is how suppliers manage behavioural data for "consumers" navigating through this world. The apparent strategy of the Rootery so far is to attract users by promising a solution to the first problem, and attract advertisers by promising a solution to the second problem. The carrot is an application that will act like a personal information manager, the stick is customer relationship data that is only of economic use to huge corporations when collated in large quantities. Where developers fit in there is anybody's guess, since Seth is strictly an ideas man.

Goldstein's strategy for our Root-centric future is revealed towards the end of his piece, where he talks about how the home loan market was revolutionised by securitisation. In what I think is the key passage, he applies this arbitrage model to the Internet advertising market by saying cost-per-click advertising is still too risky for advertisers.

Just to be clear, the fact that the risk now resides with the advertiser and not the publisher does not a pure market make. Advertisers are companies in the business of selling things to consumers and other companies. Their business is not buying advertising space. And so this remains the final obstacle to a liquid, efficient Media Futures market; namely that advertisers and their agencies continue to look for customers online when in fact they have no pure business doing so.

He's talking about outsourcing sales. Dude, that never works. It's been tried countless times before, and companies eventually realise that while they're not strictly in the business of selling things, they are in the business of selling THEIR things. Selling your own products is so fundamental to the success of a company that it should never be outsourced to a third party who doesn't care as much about their company as the company's own employees.

How would Root outsource sales? They would analyse the attention data of their participants, and deliver advertisements from Root clients based on what Root thinks the consumers want. Remind you of anyone? Yep, Root's main target is Google. Root is aiming to disrupt Google by drilling down further than just what you search for one site, but anything you do online. AttentionTrust's main antecedent is Google Desktop.

Oh, but Seth doesn't want to stop there. He wants to sell insurance too.

So if advertisers don’t advertise online, how will the market survive, much less prosper? In the same way that the mortgage security market transferred credit risk away from the balance sheet of operators and into the portfolios of professional investors, a media futures market will enable non-advertisers (aka speculators) to take on the risk from the balance sheets of publishers. Publishers will be happy to hedge out their inventory, limit earnings volatility, and focus entirely on creating value-added programming; rather than spending their time speculating whether CPMs are going up or down.

Similarly, companies (ie the buy-side) can concentrate entirely on developing better products and service. Their marketing groups can focus on creating and communicating their brand images, while their sales organizations can simply specify the kinds of customers they are looking for and the prices they are willing to pay; the Media Futures market will take care of the rest.

What a wondrous image, a company that doesn't care what its sales are because it bought insurance, which is an everyday word for "hedging risk" and "limiting volatility". I can't wait until I see Wall Street brokers trading futures for The Podcast Network alongside pork belly rinds. As the stock analyst on Landline often says, pigs are flying!

I'm no drinker of the Cluetrain red cordial, but the "markets are conversations" meme does have some potency. The Internet collapses the gap of understanding between big companies and the everyday J. Sixpacks who buy their products. Buyers can have closer relationships with suppliers by interacting with them directly, rather than through intermediaries. Instead of the highly desirable effect of disintermediation, the roto-Rooters want to stop all this conversation nonsense and put a middleman in between the buyers and sellers.

Seth, companies don't want to "concentrate entirely on developing better products and service". They want to concentrate entirely on finding out what the consumer wants and then giving it to them how they want it. That function is not something that smart companies outsource.


Anonymous seth goldstein said...

Paul, thank you for taking the time to read my post and respond with such thought. We may be using different words to describe same things and similar words to describe different things. Historically, financial exchanges have enabled direct trading between parties that otherwise did not know how or where to meet. This is in some ways the opposite of outsourcing. Middle men in the form of market makers and brokers inevitably pop up and intermediate, but it is within a market where all participants typically have access to the same data. This is what is missing online, imho, because all of the technology and media companies are hiding "price" not sharing it. Publishers, advertisers and consumers are all having conversations indeed, but they are being wire tapped at most steps of the way by search engines, data brokers and other intermediaries that are capturing attention without sharing it back. Hence the need for an open market for attention/intention/leads/whatever you want to call it to level the playing field and enable real competition. You have paid attention to this emerging theme and I have a lot to learn from your questions. Including what "root" means for aussies (ugh, not sure i really want to know...)

10:30 am, November 20, 2005  
Blogger Paul Montgomery said...

Seth, thank you for taking my sometimes raucous prose seriously.

I come from a publishing background, where publishers understand that their database of readers is their most important asset. The very basis of competition in publishing, and in most other customer-facing industries, is how the quality of your CRM data. This is why I don't understand why you think it's inevitable that an open market for that CRM data has to arise. I think it's inevitable that such a venture would fail if you're relying on publishers to ante up, because winners don't want to give up their competitive advantage.

So your only option is to encourage customers to break open the CRM-data-as-competitive-advantage system by offering up their CRM data to a middleman, like AttentionTrust. However, you have still not communicated in a succinct way what the advantage to the consumer would be. Sure, they can manage their attention, but they can do that now with PIMs, or just a bit of common sense. They don't need to give that information up to third parties in order to organise their lives. What's so compelling about giving up your CRM data that will encourage people to violate the privacy of their own experiences? You can't promise them sufficient monetary compensation, because the value of each person's data is minimal on an individual scale, it's only in totality that its value is meaningful. I don't get the value proposition for participants in moving beyond a PIM to AttentionTrust.

From where I'm standing, you're trying to create a market for a good that neither buyers or sellers want to acknowledge the existence of, let alone allow to be commoditised.

12:25 pm, November 20, 2005  

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