Digital Memes

I get little agitated when I hear people say things like: ”I really only trust things written by my friends.”  Usually it’s said in the context of online reviews, recommendations and the like about restaurants, movies, music, local businesses, products, etc.   

But this sentiment is intermingling two related, but different things: trust and taste

Trust mostly relates to the authority of the source of the information.  Is it from a reliable source that you can count on to be telling the truth?  Or is it from a scammer who is pursuing some other agenda?  Naturally, people are inclined to trust their friends more than strangers.  But they may also trust recognized experts or noted personalities whose reputations are otherwise established and accepted.

But is it enough to simply trust the information?  It depends on the situation, but oftentimes no, because a trusted source may or may not have similar taste to you.  Taste speaks to whether or not someone likes similar things to you.  Trusted information that points you in the wrong direction isn’t very useful. 

For instance, since my good friends tend to have different musical taste than I do, their recommendations aren’t very useful - even though I ‘trust’ them completely.  In fact, I’d rather hear from a complete stranger with similar music taste.  It would even be fine if that ‘person’ were wholly fictitious - as long as they pointed me to some cool new tunes.  Likewise, book reviews written by an elderly aunt who likes English village mystery stories aren’t very useful to me.  Her favorite books are likely to be the opposite of mine. 

In both these situations, I would gladly trade trust for taste.  In fact, there are lots of cases where I don’t really care that much about trust.  Generally, I favor taste in sectors where there are wide preference variances between people and/or where I can sample the goods directly or cheaply.

That said, there are other cases where I would trade taste for trust.  Examples might include hiring a contractor for my kitchen remodel, finding a new doctor, or maybe finding a good tailor.  These are cases where taste preferences don’t vary as much between people and/or where the cost of failure or error is relatively high. 

So, the key points are:

• Trust and taste are distinctive things
• The right balance between them varies from sector to sector

While consumer reviews are clearly very valuable and becoming a ‘must have’ feature on commerce-oriented websites, people don’t make buying decisions on the basis of consumer reviews alone.  They are a helpful addition to the mix - often they are even decisive - but I think they are currently getting too much credit as a purchasing decision factor.

A very informative recent study by ForeSee Results showed that satisfaction with the shopping experience increased by around 4-5% for sites with consumer reviews vs. sites without.  The specific data was ~86% satisfaction for sites with reviews and ~82% satisfaction for sites without reviews.  That’s very meaningful difference in a tough market like on-line retail, but it shows that other types of information are also involved - and that that information is, in fact, of greater overall importance. 

In the on-line world, we sometimes seem to be so obsessed with consumer reviews that we lose sight of how important facts and expert opinion are in helping people make purchase decisions.  Note that by ‘purchase decision,’ I don’t strictly mean things that result in an on-line purchase transaction, but also things like choosing a restaurant or a movie, etc.

Perhaps its stating the obvious, but facts relate to product features, brand, price, color, availability, and other objectively describable or observable attributes of a product.  For most people, this is really the starting point - and the basis for filtering out the majority of possible alternatives.  They are looking for a restaurant in a certain area or with a certain cuisine or a certain ambiance, etc.  Once the basic product attributes are met, then they begin looking for other information to help sharpen the focus and improve the quality of their choice.

Expert opinion is just that, opinions about the product generated by someone who makes a living (or serious vocation) out of reviewing products in a certain field.  Expert opinion is not available in every field all the time, but there is a lot of expert opinion out there and it can be very valuable.   Amazon has expert opinion.  CNET.  Movie sites.  Music sites.  Before the web, we relied on expert opinion much more than we do now, but it is still important.  And I think currently a bit undervalued.

 So, long live consumer reviews, but let’s not forget about the other things that influence purchase decisions.

Much is being made of google’s stunning growth and its commanding presence in on-line advertising.

But, google’s advertising dominance is overstated and it’s model has natural limits that we are now beginning to touch. 

The simple view:  If advertisers were completely happy with 10 word text ads then why are they about to pay $85,000 a second to advertise in the Super Bowl?  That’s a lot of click-thrus!

First, let’s put the google juggernaut into perspective.  Google’s 2006 revenues will be announced shortly, but they are likely to come in around $10 Billion for the year.  That’s a lot!  And they are growing pretty fast. But advertising is a big, big, big marketplace - $150 Billion per year as projected by TNS Media Intelligence plus another $15B for yellow pages plus $15B more for events.  And then you’ve got the whole direct mail/direct marketing industry that clocks in at $200 Billion a year, as well.  So, we’re talking $10B in a $350B-$400B market - ~2.8% share.  Very impressive, but cleary there’s a lot of other stuff going on. 

Second, there are weaknesses in google’s search-driven advertising format.  It mints money, no doubt, but it is not an endless well.  When you look at it from the advertiser’s perspective, you see three things:

1. rising prices
2. limited inventory
3. limited formats

It isn’t widely discussed, but Google keyword prices are rising astonishingly fast.  At some price, the logic of paying for clicks, which seemed so compelling when clicks cost $0.10 or $10 or whatever was right for that market, doesn’t make sense anymore.  A recent MarketWatch article cited prices rising at 40%-60% a year. In our local sector, prices have climbed as much as 100% for some keywords in the past year.  Doesn’t take long at inflation rates like that before people start looking en masse at alternatives - in fact, as the article points out, it is already happening.

Rising prices are being driven by highly limited inventory.  We see google as an infinite well of keywords and hear all about long tails, etc.  But, end of the day, for any particular keyword, google only has 6-8 valuable slots to sell. Anything beyond page 1 placement is utterly useless. It’s even dubious to be anywhere but the top 3-4 paid slots.  Given that for most businesses, there are typically not more than a handful that really matter and you’ve got a real bottleneck.  Great for google, but not so good for the advertiser.

And lastly there is a big problem with format. Many firms and products don’t show well in 10 words of black and white text. If the entire advertising universe was well represented by small text ads, we wouldn’t see companies spending tens or hundreds of thousands on flashy ads in newspapers, magazines, and TV. Text classifieds on TV?  I don’t think so.  Point being, some advertisers need and will seek out richer formats to tell their story.

Obviously, we all wish we had problems like these, but still they’re worth noting.  And from there, it is worth thinking about what does that mean for the rest of the advertising universe - both online and off?  Despite today’s intense concentration of online ad spend with google and other top sites, I think the future of on-line advertising is going to prove itself out in much the same way as it has in other media channels - some dominant players and then an amazingly wide and rich universe of smaller, more targeted alternatives.

Hello folks.  I am just getting this blog up and running.  I have a series of topics lined up for my first posts.  After that we’ll see where things take us.

Digital Memes will focus on the rapidly changing world of digital media in all (or at least many) of its many forms.  I will generally be talking about vertical and niche media sites in sectors such as music, movies, travel, cars, dating, real estate, etc.  I also have a thing for locally-oriented plays. 

I will touch upon not only the social and community aspects of these types of sites, but also the rich data, tools, and other mechanisms these sites use to deliver value to their users - and revenue for their owners.  Mostly I will be looking at consumer oriented sites since I tend to find these most interesting, but I will also look at business sites as well. 

In talking about these sites, I am looking to provide a somewhat analytical and business-y view of things.  So you will tend to hear more about business models, revenue sources, markets, marketing, competition, strategy, and the like, than you will about specific feature sets or funding rounds.  That means this probably won’t be the place to hear about the latest news on company x or y or the latest ajax enabled gizmo - except insofar as these things represent innovations in business as well as technology.

Having said all that, we’ll see where it goes!