Month: March 2007

Digital Transmission Rights: Revisiting with Internet Radio

Last week, digital music hit the headlines again when news came that Internet Radio was now at risk. Increasingly popular online radio services, such as Pandora, have stated that these fees would put them out of business. In short, a company can broadcast music over the radio by compensating the song writer while that same company must pay double fees if it streams the music over the Internet:

Internet radio royalties have become a thorny issue in part because conventional stations do not pay [labels] to use recordings. Both online and regular stations pay royalties to songwriters. But under a 1995 law, companies that transmit music using the Internet … must compensate both. … The $500 minimum for each channel is among the ruling’s more difficult aspects. Many Web radio sites offer thousands of channels, a strategy that would be impossible with this rate structure.

I can not understand why these labels are pushing so hard to destroy their own business in a time where CD sales are seeing record declines. The simple answer is that they don’t understand the Internet as a new medium, but the true answer is that they understand it all too well. They recognize that in an age where content is digitally distributed, the labels will be the first to die.

Bennett Lincoff, recently famous for this article on the Digital Transmission Right, followed up on his original article and addressed this exact issue last month. In it, he argues why Internet Radio could thrive at the benefit of content owners if the entire right to distribute was sold as a package, rather than as a per-play fee. This right would give the recipient nearly unlimited rights to give away, stream, or sell the content over the Internet to anybody who wants it. Legal versions of services such as Kazaa could resurface, so long as they pay for the transmission right. The cost of this right could be offset with ads and subscriber fees, but the benefit to consumers is clear. Lincoff goes on to predict:

Moreover, new businesses may arise to displace record labels as the source of funds to underwrite concert tours … And, as the digital music marketplace matures, the network itself will become the primary channel of “distribution” and licensed transmissions will displace sales … These circumstances suggest that the relative importance of the roles played by the major record labels … may diminish over time.

While the Transmission Right sounds great, it has a very long uphill battle.

One of the main problems in the uptake of this Transmission Right is who it needs to lobby. Because it will potentially sideline any major label, anybody who supports it could be seen as a hostile entity. Thus music producers may be less willing to support it because they would be afraid of upsetting their label. This means most mainstream artists will not join this movement. The labels themselves would do everything in their power to crush the idea of a transmission right that encourages activities like file sharing. Thus higher Internet Radio fees would be pressed faster than ever, in a short-sighted attempt to kill Internet Radio in its infancy, thereby destroying general demand for rights like the one Lincoff suggests.

Right now, the world is probably still not read for this right. Not because it isn’t a good idea, but simply because the politics involved: there are too many people with very deep pockets who want digital distribution to fail. But with CD sales hitting a recent all-time low, the tides are shifting.

For something to change, it will require a smart and savvy entrepreneur to build a company that negotiates these rights individually with the artists. This would probably need to start with the indie bands and slowly expand. In short, a band would need to understand how these rights benefit them. Here are the four closing points that every artist should know about the Digital Transmission Right:

  1. The rights to the music remain in the artist’s control.
  2. Income is only limited by how many deals the artist makes. The transmission right can be resold to any number of distributors for any price the artist can get, which could scale based on the size of a particular medium. For example, this means a different distribution deal with Yahoo Music, iTunes, and Myspace.
  3. The end user gets a DRM-free copy of the music. They may have paid for this song, perhaps through a service like iTunes, but it is 100% DRM free.
  4. Music discovery explodes. A consumer can listen to full tracks with no legal repercussions. They can find new artists they like and share these songs with their friends and family.
  5. No middlemen. The artists make money from selling this right and through proceeds at concerts. They keep the majority – possibly all – of the renevue.

Everybody wins. Well, everybody, but the RIAA.

Yahoo’s Secret Weapon is Answers – Google in Trouble

Finally, a post not directly about Google!

My friend Ji predicted the story I’m going to share today. It first became clear when the story broke that Google bowed out of the answers service and Yahoo slapped them around. While Techcrunch simply referred to this as Yahoo’s “Morale boost,” my friend pointed out that this could be the beginning of Yahoo’s come back in the search engine market.

It all started today when I read an article that talked about how few ads Google has compared to Live and Yahoo. The supposed reasoning is that Google serves less ads per page to reduce noise, which increases click rates in the long term. So on a search where Google only shows two ads, Yahoo shows eight. At first glance, Google is beating the pants off of Yahoo. Not only are their ads clearly less cluttered, but Google has 50% more results and a map with restaurant reviews.

But wait, scroll down to the bottom of Yahoo’s result page and notice this:

who wants sushi

I don’t know about you, but if someone types in “San Francisco  Sushi” and got that, I can’t see them ignoring that result.

This is Yahoo’s power play, and they’re doing it in relative stealth mode. Perhaps they don’t even realize just how ground breaking this can be. For example, if I search for “Which game console should I buy?”, on Google, I get a bunch of results from review sites. On Yahoo, I get all those, plus these:

excellent results

As you can see, the potential is amazing. Yahoo may not have the biggest index or the best search algorithm, but who needs it when you can mine answers to common questions out of an Answers database! Yahoo shouldn’t be sidelining these results near the bottom. They should be right at the top, perhaps even displacing a few ads on the right. After all these years, we have come full circle to a search engine that performs best when it is literally asked a question.

This is “ask Jeeves” all over again. Except this one works.

Yahoo Answers is barely a year old. What happens in another two years when this service has fully matured and becomes far more ubiquitous? This won’t ever replace Google, but it has the potential to get users acquainted with asking questions on Yahoo, which has the residual effect of converting them over the long run. Google should be afraid of this application because it has the potential to steal a large slice of Google’s search engine pie.

Keep on eye on this feature as we should see it become a larger part of Yahoo’s search results this year (if they have half a brain).

Note: this was originally going to also cover Live’s shameless sponsored result for San Francisco Sushi that promoted something completely unrelated. I was also going to discuss how bad the sponsored results were. Since I took the screen shot, I have decided to include it here. The caption is, “Which one doesn’t fit?”

which one doesn't fit?

I really hope that maps ad is because I typed in a location and not because they are randomly spamming ads to their other services.

The Importance of Google Checkout: The Pieces Come Together

I have repeatedly predicted that Google will expand its promotion of the Google Checkout program this year. Well, it seems they’re hastening the pace. Google is now offering $1 referral fees for people who forward them new Google Checkout users. google is giving away moneyThe users you refer get a $10 discount. That means for the first purchase a user makes, Google loses out on $11! Not only that, but Google Checkout is currently free to stores that support it, costing Google another chunk of fees for credit card processing.

As I’ve asked before, what other product has Google marketed so aggressively, paying out everybody in the financial chain? Right now, Google is doing a land grab with Google Checkout, and its primary competitor is the already entrenched payment processors such as PayPal, 2Checkout, and even Amazon. If you’ve ever used the service, it’s pretty much like Google’s version of Amazon’s checkout system, except it works on any site that supports it.

For those of you who haven’t read my theory on this topic, Google is banking its future in text advertising on Google Checkout. To understand the theory, let me explain to you the CPA (cost per action) market, where people are paid out whenever someone makes a purchase. Then I will explain where Google Checkout comes into play.

The players:

  • Advertisers – These are the people who are selling stuff. Examples could be Coca Cola, Nike, or Apple. They pay Google to have ads show up on publisher web sites through AdSense.
  • The Ad broker – Google. They act as the middle man.
  • Publishers – This is you and I, e.g., the website that hosts ads. These ads exist to sell products for the advertiser. Ads you see on Google’s search results make Google a publisher as well, in some contexts.

How the CPA market works:

  • When a purchase is made, the advertiser pays the ad broker, and then the ad broker pays the publisher.
  • There is a strong incentive by the advertiser to under track in order to reduce the payout.
  • Tracking is done with cookies, JavaScript, and 1×1 pixel images. Many ad block programs cause under counting because they block the cookies or images.
  • If an order is fraudulent, there is often a great deal of manual work that must be done to “scrub” the customer list. This requires trusting that the advertiser does not remove excessive records. This can cause disputes when the broker tracks different numbers than what the advertiser reports.

Google Checkout’s role:

Google is now testing CPA ads. Up to this point, there was no real competitive advantage for Google, especially since there are already several heavily entrenched and well funded competitors in the market. Google Checkout helps even this out, a fact that is apparent by the timing of this new referral program (the day after the CPA tests began).

  • Google Checkout can track a purchase the moment it happens. Unlike competitors, users with JavaScript disabled or ad blocking programs would still be counted.
  • Tracking can be done by forwarding all Google related sales to the Google Checkout system. This means no cookies need to be used either. If someone clicks on a Google Ad, the URL they see makes them checkout using Google Checkout.
  • If later, a card turns out to be stolen or the customer demands a refund, Google can immediately adjust account balances to the publisher and advertiser (much like it does with click fraud with their current ads) without bias or human intervention.

Anybody with any real knowledge of the CPA network knows that it is very different than the CPC, aka “pay-per-click”, market. This is because the industry thrives on trust, human relationships, and lots and lots of human deal making. Google may change that with its classic “algorithm for everything” mentality, but, for now, it’s clear that Google has no plans to take the entire market. It seems like they are only interested in pure e-commerce advertising market (just a slice of the entire market).

So in the coming months, you should start seeing Google making power moves to get major retail chains to start using their checkout system. This won’t come easy because one of the things Google does is hide customers from the seller (advertiser). Not having customer contact information is bad for repeat business, so many larger retailers will resist Google. This is why Google is fighting from the bottom up: giving incentives to people like you and me to spread the word, one dollar at a time.

Comcast Getting Bought Out Somehow Made Things Worse

I was a subscriber of Comcast broadband for the past few years. My IP hardly ever changed, which was great for remote desktop, and it was down maybe a handful of times over a year. The speeds were always near advertised rates, and over all, I really couldn’t complain.

Then Time Warner bought out Comcast and all hell broke loose. My connection definitely does not drop out every day (that would be exaggerating), but it has not been the same.

Over the last 6 months since the switch, I have had my connection drop at least a dozen times, packet loss (that’s like a minor connection hiccup) at least once a week, and my download speeds drop to dial up more times than I can count. I don’t understand how the Internet quality could drop so suddenly when only the owners changed.

I’m not trying to say Time Warner is a horrible Internet provider. I am asking why my experience is possible!

Perhaps I misunderstand how buy-outs work, but it’s not like Comcast’s Internet servers packed up and took a vacation. It’s not like they went in and downgraded their pipes. All of the infrastructure is the same, or so it should be. And with the additional resources of Time Warner, you would think quality would actually improve.

I don’t know if this is something I should blame on the monopoly status that Time Warner now has. Maybe they decided that they wanted to literally fix what wasn’t broken (upgrade all the servers). Maybe a new marketing blitz doubled their subscriber base. I have no idea. But it angers me that an otherwise great service got dragged into mediocrity by being bought out by a more successful company.

I’m glad net neutrality didn’t get smashed because the Internet is already jacked up enough from the consumer’s side.

I Broke My RSS Feed Because I Stupidly Decided to Hack it

Sometimes, I am too much of a hacker for my own good. Note the distinction: I am not a good hacker, apparently.

This morning, I had this wacky idea of making the default RSS link for WordPress (my blog) point to my FeedBurner link. But I didn’t want to change the code in WordPress because I didn’t want to have to do it again later when WordPress got an update. So I opted to use the .htaccess file. For those of you curious, the code was (this works):

RewriteRule ^feed http://feeds.feedburner.com/MichiKnows [L,NC]

In non-nerd terms, it meant all default blog software accessing my website would be automatically forwarded to FeedBurner. This is good because it centralizes my reader base so I can track how many I have. Unfortunately, I was dumb and forgot that FeedBurner scans my RSS feed to generate its version of it.

That meant after about six hours, my feed completely broke when I made FeedBurner go in an infinite loop. 🙁

I’ll take a second shot at this problem later, but for now, I’ll concede and put things back to the way there were. Thanks J.M. for pointing out this issue!

Update: My friend pointed me to this plugin. It is very easy to install, so I’ll leave my hacker ambitions alone for this task and use it instead.

Google Beta Tests Click Fraud Killer

Google has finally started a public beta for a pay-per-action ad model. I already explained how important Google sees these types of ads. For text-based advertising, this is where Google will focus its attention next. These types of ads are much harder to cheat because actual actions (such as a purchase) must occur before an ad pays out. This destroys the click fraud industry that has plagued Google. While there is a form of fraud associated with pay-per-action, it is much more difficult to pull off, and relatively easy to spot (My previous employer was this type of ad agency).

As this beta rolls out and the mainstream launch nears, I firmly believe you will see even more active promotion of the Google Checkout application. As I mentioned before, Google checkout is a critical edge in Google maintaining any market share it steals from the current top pay-per-action companies. In short, Google Checkout kills a variety of potential loopholes that exist in the pay-per-action ad model. Since Google controls the payment processing, they can track:

  • Valid vs Invalid payments. Sometimes a payment is invalided later, such as when a credit card is reported stolen. These are lost revenues for the publisher since they’ve already paid the ad broker (Google) money to place their ad. The ad broker also gets shafted sometimes because the advertiser would withhold payment, causing problems down the chain with the publisher who displayed the ad. With Google Checkout, such events can be properly tracked and all parties involved can be refunded or credited as necessary. 
  • Refunds and chargebacks. This is the same issue as above, but involve abusive or fraudulent customers. Again, this is otherwise lost money to the advertiser, which is of course the single most important entity for Google to make happy.
  • Actual sales volume, instead of what is reported by the publisher. In regular pay-per-action ads, there is a big incentive to cheat the tracking of sales and conversions (which is done with cookies and embedded images). This is to reduce payments owed to the ad broker. Google Checkout makes this much more difficult since Google knows exactly how much an advertiser has made. There will still be hurdles to overcome, but it definitely will make things more transparent for everybody.

Like I said, Google Checkout isn’t done yet. Google will fight to the bloody end before they let it languish in obscurity. It’s a vital part of their text ad strategy, moving forward.

Gosh, a lot of Google news lately, huh?

Google Pooh-poohs on the Google Phone – It’s Not Real

First, there was that rumor about the Google Phone. I stated my clear disbelief for the idea. Then Google “confirms” the story, so I corrected myself like any man with honor.

Now Google is saying the Google Phone is not real, citing – as I like to put it – reality:

The search giant said it was more logical to form partnerships with existing handset makers instead. … “At this point in time, we are very focused on the software, not the phone,” … Google was keen on porting its search and other technologies to mobile devices, but it was not interested in entering the crowded handset market, as Apple has recently done with its iPhone.

Exactly. You aren’t going to see Google pissing off its mobile handset partners any time in the future. This is a critical time for Google since the mobile Internet market is still in its infancy and a totally new king of the hill could be born if enough partners get annoyed with Google.

Mobile search is probably going to be another big cash cow for Google once it becomes as pervasive as it is in Asia.

What about the hissy-fit Larry Page threw the phone plans first leaked? Was it because his top secret project was now exposed? Hm, perhaps a better explanation is because he knew it would irk Google’s mobile partners, and the rumor is absolutely false? I mean, I’d be mad too if my partners thought I was going to stab them in the back based on a completely fabricated product announcement.

Google’s CEO vs Microsoft’s CEO: Who’s More an Adult?

So I covered Ballmer’s boo-hoo speech a few days ago.

Today, I found a podcast of Eric Schmidt talking about Google. When asked about his competitors, this is what he said:

Interviewer: What’s one thing that your big competitors like Microsoft and Yahoo are doing that really impresses you?
Schmidt: The big competitors we face are well managed. And, they are innovating in spaces we don’t innovate, and using their strengths there in ways we can’t or we choose not to. So in that sense I think their execution is impressive.

In short, he patted them on the back. Never once in the entire interview did he even mention the word “Microsoft.”

Why is the CEO of Microsoft so Immature?

I think it’s great that a company has an aggressive leader that has a vision. It’s exactly how Bill Gates got to where he was. People have noted how he ruthlessly took the market away from IBM and dominated the computing industry for the last two decades.

Ballmer being himself... And now it’s Ballmer’s turn to drive. And he’s doing a really bad job.

Right now, Microsoft has so much momentum, that it would take a whole lot of screwing up (about 10 years straight of it, actually) before they go bankrupt. But they aren’t invincible. Google is closing the gap, and the web is threatening many of their cash cows. Things like thin clients and web applications threaten Windows and Office. So what’s Microsoft — no, Ballmer — have to say about it’s first real threat in a decade?

“A one trick pony.“

While people can point out how incredibly hypocritical the statement is, what’s really wrong is who’s saying it. As one of the top business people in the world, you really should expect more professionalism. Sometimes, Ballmer just comes off as a grade school bully who got the CEO job. He doesn’t have anything nice to say about anybody else, loves to ruin other people’s days, and when he gets caught being naughty, cries and whines like society owes him one.

The problem with this man is that he is not sincere. He’s willing to spit on his competitors no matter how they’re doing, and never acknowledges their success. While you can’t expect a CEO to be touting the successes of another company, you do expect him to at least give credit where it’s due. Such a person, therefore, is hard to trust because you never know what he’s really thinking.

If I were doing business with Ballmer, and looking at the history of Microsoft’s backstabbing nature, I would be afraid. I would never trust him. It really is a matter of time before Microsoft becomes the next IBM. Well, at least so long as people like Ballmer are at the helm.

Why Having Two Model’s of PS3 Was Dumb

So Sony’s goal is to be the “Mercedes of the video game field.” And it’s true that there are various models of Mercedes: some that are pricey, and some that are really pricey. So logic goes to show that having two PS3 price points would get the “budget” consumers. Right?

Wrong. Unfortunately, when your “budget” machine’s price is still at the top of a market that is historically cost conscious, you have a problem. In the car market, having a BMW, any BMW, means you’re a big shot now. When your product is not a status symbol, you simply can’t apply the same logic! A PS3 is hardly gloat material. So if you’re buying it, you’re buying it for value, not to show off your salary.

Add to this the fact that the price range of the machine is already double that of some of its competitors, and you end up with a situation where most consumers can’t even consider buying it. The people still interested simply aren’t counting pennies because they can afford $600 either way. So if you can afford to get this machine and believe it has a ton of value, why would you skimp?

Apparently this is exactly what is going on right now: nobody is buying the 20GB PS3s.

Best Buy is no longer carrying 20GB PS3 models.

This is extremely troubling for Sony. Did you ever hear of a retailer actually abandon the XBOX 360 Core because it sold less (which it does)? No. In order for a retailer to drop a product, it must sell really bad. It is essentially a tell that the PS3 20GBs collect dust and actually negate profits for Best Buy. In short, they are better off putting something else — for example, a Wii — in its place.

It is also troubling because Best Buy is a major force in the consumer electronics market. Let’s say I go to Best Buy to buy a console. What am I going to see? $250 (Wii), $300 (360 Core), $400 (360), and $600 (PS3). That’s a pretty big jump. Without that middle price tier, the PS3’s price sticks out like a very sore thumb.

Lastly, with Best Buy ducking out, you can expect other retailers to follow soon.

How does this all relate to the stupidity of having two models? Because Sony has to cater to both the 20GB and 60GB models forever, as if they both sold equally well. They have more overhead in developing patches for both, and any software or hardware differences in the machines will need to be kept in the minds of every developer of the PS3 forever down its life cycle. Good luck finding those wired PS3 controllers when the PS3 20GB market tanks and nobody sells wired controllers anymore (the 60GB one uses wireless). Or worse yet, it will suck for the eBay market when a 20GB owner decides to offload his or her system.

These are all factors that will hurt the PS3’s over all image in the long run.

This is a pretty heavy blow to Sony.