subscription based music service taking over Yuan (Danny) Xu

The music industry is going through some of the most significant changes in retailing models in recent years. Ever since the start of internet era, we have seen challenges of piracy, P2P circulation that the music industry has been combat for years. However, this transformation of the revenue model might have just crushed the traditional record selling retailing model. 

The market seems to be very optimistic about Spotify's future. According to WSJ:

Analysts at Manhattan Ventures Partners forecast Spotify had 2014 revenue of $1.3 billion, meaning the company is being valued at about 6.5 times its revenue. That is higher than Pandora, which is trading at about 3.9 times its 2014 revenue of $920.8 million.

Spotify is also valued at roughly the same amount that SoftBank Corp. offered to pay Vivendi SA to acquire Universal Music Group in 2013. Vivendi rejected that $8.5 billion deal. EMI Group—the smallest of the four global music companies—was split into two and sold collectively for $4.1 billion in 2012.

Spotify was valued at more than $5 billion last September, according to filings by GSV Capital Corp., a private investment fund that owns the shares.

 

Spotify is raising another $400 Million which put their evaluation at $8.4 Billion now. According to WSJ:

The deal would place Spotify in the upper ranks of the world’s most highly valued private tech companies. Goldman Sachs Group Inc. and an Abu Dhabi sovereign-wealth fund have agreed to invest in the round, and Spotify has held talks with a range of asset managers and venture-capital firms around the globe, the people said.

The terms have been set and the funding round is expected to close in the coming weeks, one of the people said. Nine-year-old Spotify, which previously raised more than $500 million in equity funding, hasn’t established any timeline for a possible IPO.

This evaluation again probes people to think about the changing business landscape in the music industry. The idea has been floating around that the millennials in general have a stronger preference for shared economy compared to owned economy. For example, for city residents, Zipcar has become a popular choice due to its simplicity and no hassle for parking, car registering, insurance, etc. Music industry, similarly, has moved along that trajectory in response to the demand of the young customer groups. With lowered prices for data usage and internet access, streaming has become feasible without much cost. This accommodates people's need to constantly trying out new music which, preferably, are similar to their existing stock. However, this new business model are impacting the traditional record sales significantly. The possibility to access millions of songs instead of buying all of them educates consumers today to give up their purchase intentions, therefore reduce the overall revenue stream for record companies. It provides both challenges and opportunities for these big name traditional entertainment companies to rethink their business strategy, maybe it is still not too late to join the crowd? 

Mobile Marketing and Google

It is less certain that Google is the sole dominant player in the online advertising landscape. Companies such as Facebook, Amazon, Yelp are catching up fast with their own special weapons. Specialized search, which is invisible to Google, are taking an increasing part of the market share. This trend has becoming dangerous in some sense because the more specialized search would most definitely take over some of the search volume from Google. More importantly, these specialized searches are usually the most profitable searches where people are looking into one specifically category of products/ services. This trend is further catalyzed by the movement into mobile where a lot of searches are done in specialized apps. Android has been a great platform for Google to maintain its dominance in searches. Recently, WSJ recently commented:

Google is a big player in mobile through its Android mobile-operating system, which ran about 80% of the smartphones shipped in 2014, estimates Strategy Analytics. Its apps, including Google Maps, YouTube, and Gmail, are among the most popular for smartphones. When smartphone users do open a Web browser, Google is even more dominant than on personal computers, with an 84% share of U.S. searches in February, according to StatCounter. ComScore doesn’t release its mobile estimates.

The company’s tactics, particularly the agreements that Google signs with smartphone makers, have piqued the interest of antitrust regulators in Europe. Those deals have required device makers to install a range of Google’s less popular apps and to set some Google services like search as defaults in order to gain access to more popular apps like Google Maps and the Play Store digital bazaar, where users can download more than a million other apps and games.

http://www.wsj.com/articles/mobile-is-altering-the-landscape-where-google-operates-1427414659

Facebook steps into the "marketing consulting" game

For long Twitter has been the oil field for many Big-Data companies to mine customer feedbacks on products. Using people’s tweets and their connection map, marketers can not only get realistic and prompt responses on their products and services, but also assess the impact of such comment in the social network by assessing the role of the poster. Businesses have been benefited greatly from such services, and looks like Facebook is not going to let Twitter alone have the whole pie. 

As one of the dominating social network of the world, people on facebook share tons of information about products and services actively. Compared to Twitter, since the network itself is more private comparatively, people are more likely to share their true opinions about things. Moreover, the social relationships have a better representation on facebook as well. We might be following a lot of celebrities on twitter, but most of us by no mean would be friends with them. This allow facebook to have a greater power in assessing the opinions and how they impact the real world consumption, thus naturally put them in the marketing consulting chair. In this week’s WSJ report , Twitter said it generated $47 million from “data licensing and other revenue” during the fourth quarter of 2014, and Facebook has the potential to surpass that. Apparently this is a lucrative chair to sit in.

For more details:

http://www.wsj.com/article_email/facebook-takes-on-new-role-marketing-consultant-1426036185-lMyQjAxMTE1NjE0MDIxNjAyWj

Google WalMart fire off over local maps

For a long time Google and Wal-Mart have been coordinate over local ads, yet things don’t seem to go so where now. The local ads that Google does require companies such as Walmart share their inventory and pricing information with Google. The coalition has been holding strong until now. Apparently big retailers such as Walmart, among others, do not feel that assured about their data usage by Google. After all, the inventory and pricing information are crucial for running businesses, and they provide a whole lot of information into the inner operations of a company.

Recently, Walmart has broken out of this marriage with Google local ads. People familiar with the matter says that the major concern is over the sharing the inventory and pricing data. Given the gigantic size of Walmart, such a worry is indeed legit. If google have such data from most of the retailers, then basically they have the power to “see through the market”. Although in terms of overall market efficiency this might be a good integration, but too much information sharing could bring more harm to retailers than the benefits. That might explain why only 17% of the surveyed companies are using it. 

Report from WSJ:

Wal-Mart was also concerned that Local Inventory Ads forced it to compete with smaller rivals to attract shoppers, diluting the advantage of its brand name. The move was striking because Wal-Mart was an early test partner for the program, one person familiar with the matter said.

Once a shopper clicks on a Google Shopping ad and ends up on Walmart.com, the company can steer users to its brick-and-mortar stores, by showing what’s available nearby, offering fast delivery or allowing shoppers to pick up products they’ve bought online, Mr. Copeland said.

Finally, Comcast is on board Yuan Xu (Danny)

Comcast is reported to acquire the TV ad-targeting company: Visible World – Finally.

The transformation towards data driven advertising has been a long march especially in the TV industry. We have seen targeted ads everywhere on the internet for years, same in tablets and even phones. Yet little movement had been seen in the TV industry. Magazines could be hard given the high customization cost of prints, but for TV channels, the cost of customization can be fairly low. Also, given the hardware set up these broadcasting companies already have, it requires minimal hardware changes in the delivery of customized content. This move by Comcast may well be a pioneering act that hopefully can wake the rest of the industry.

Advertisers have long been dreaming to target consumers across different screens. Given the important role that TV has in a typical US family’s life, it is an inevitable part of the ideal comprehensive targeting strategy. I am very curious how Comcast will utilize their new acquisition to better integrate their program with the rest of the advertising industry.

The Wall Street Journal commented:

Such a move would thrust the cable giant into a stronger position in the burgeoning market for data-driven TV advertising.

New York-based Visible World has long helped advertisers deliver ads to specific audiences and households based on zip codes, using data from cable set top boxes and other sources. In 2013, the company rolled out AudienceXpress, a subsidiary whose software tools help marketers buy TV ads the way they do online.

Youtube for Kids: not just a $$ move? Yuan (Danny) Xu

Google is about to release a kid-version youtube app for smartphones and tablets featuring popular television shows for preschoolers.  Interestingly, this App will not be available at the popular IOS platform, at least initially. You might want to ask, what, no IOS app? And how do the ads work, if any, for these kids audience? One thing for sure, there are still a lot of uncertainty around the economics of this App.

Sources has indicated that Google is planning on showing ads in the App, but one legal concern is that “Google will have had to comply with the Children’s Online Privacy Protection Act, which is overseen by the Federal Trade Commission. Among other COPPA rules, websites that cater to children must notify parents if they collect personal information.” (WSJ.com) If individual level data cannot be collected, then it is unclear how Google is going to effectively do their ad distribution job. Another concern might come from the lack of platform support. The data has shown that on average, IOS users have higher income than Android users. If there is no IOS platform support, then is there a strategic portion to the move as well?

A $$ Move

No doubt that an App just for kids will attract a vast amount of advertisers who are thirst for a channel that they can use effectively to target the kids “consumers”. Think about it, preschoolers rarely have any kind of smart phone, thus almost impossible to identify among all the mobile device users. Given such a kid specific channel, advertisers could finally identify this segment easily. According to WSJ, “Darcy Bowe, vice president and media director at Starcom, an advertising agency, said her clients are often frustrated by lack of digital advertising venues geared for children.” Given that there aren’t many competing platforms that have such a huge potential for attracting kids (yes, kids are in general addicted to watching TV programs), the bargaining power of Google is in much favor.

But could there be a deeper level of reason for such an App, Given all the potential hassle of getting it approved?

A Strategic Move

Well, one thing we know is that at least in the US, the annual sales of android devices are dropping compared to IOS. Just last quarter in 2014, the IOS devices accounted for 47.7 percent of sales compared to 47.6 percent for Android. Although Android is still dominating the overall smartphone market, Google does need to worry about this change in sales trend. Having an App like this, if later proven to be popular, will likely to fuel the sales of Android devices.

One thing they might miss though, are the higher income families that mostly use IOS devices.  If the advertisers on this App can only target kids from the comparatively lower income families, then that might be a slight disappointment for potential advertisers.

A more important aspect might be the long term effect on people’s consumption habit both for the mobile platform and how they interact with TV programs. First, if a kid growing up using Android platform, this could potentially affect their choice of devices when they become teens. Second, kids nowadays are shifting away from the traditional TV-watching habits that the last generation might have. One director from Comcast once said that the 7-11PM prime time is the “God intended” way to watch TV programs. However, it seems that the majority of teens do not think that way. Watching TV programs on mobile devices has increasingly become popular not just among teens, but also among young adults and even mid-ages. An App like this one could further catalyze the process, resulting in more TV-program consumed from mobile platforms in the future, therefore eating away TV broadcasters’ share. We will see how that plays out in the future.

Advertising in more personal communication channels

Recently, Wechat App announced that they would push out advertisements in the “moment” section in their app. This news immediately generated much discussion among the public, especially in China, where the majority of Wechat users live. This move, albeit within expectation, raised a lot of question on how to advertise in a more personal environment for communication. Why is that? Let me give you some background on the app itself first.

Wechat is an app across multiple mobile phone platforms that allows the user to send instant text messages to each other. It functions much like whatsapp, but with many more extensions that tap into different aspects of life: a personal page or “moment” much like the facebook idea, a payment system that can be linked with various bank account, a cooperation with a Chinese taxi hailing service make it possible to use it for better travel arrangements around Chinese cities, and they even have radio, audio and video chat functions that rivals with services such as Skype, facetime, gchat ,etc. Given its vast amount of functionality and ease of use, it has grown very fast in China and all over the world. Collectively, Wechat has attracted more than 400 million users globally, and almost the entire market in China.

Given such a huge user base, there is no doubt that marketers all have their eyes on the pie. Additionally, given all the chat history that the company holds, the data contain extremely high value in figuring out when and what to push to the user – data mining becomes super important and useful here. However, advertisements on such a platform are considered much harder than the other platforms since this platform is much more personal compared to the others. Looking back to when facebook initiated their advertisements on people’s timeline, there is no doubt that a fair amount of people would feel offended as they considered their facebook page to be very personal. If that has been the reaction, can you imagine if Whatsapp starts to put advertisements in to people’s phones? That is the danger Wechat is facing, and it is no small step, an inappropriate move could potentially drive away users and fuel rival apps’ growth. So what should they do?

Well, first of all, you can never be more careful in making this transition. So far the Wechat team has been extremely cautions in bringing marketers on board. They started with a Wechat team message that was posted on people’s moment section as part of the effort to educate their customers about the upcoming ads. Then, only a handful of prestige firms, such as BMW, Cadillac, were brought in to do the initial ads. This not only ensures the branding and image of the app itself, but also offers the best chance to bring high quality ads into the platform. More interestingly, the ads themselves are targeted based on users’ history, such that Cadillac can only target people who they thought be the most appropriate receivers, or likely car buyers. More interestingly, people in China actually took the ad injection very well. If anything, some people even refresh their pages many times a day in the hope to be targeted by the ad so that they can show to their friends how “high end” they are. We will see what is coming next after this initial round.

Privacy in the Digital Marketing Age

One of my Professors once said: in this internet era, privacy is dead.

Indeed, it seems that out of all the people who live in this world, the second person who knows us well besides ourselves is Google, or Apple if you are a 100% iPerson. Today it is almost a norm that wherever we go on the internet, we are surrounded by advertisements, and these are not just any ad, very often these ads would show products we just browsed, recently purchased, or even something related to what we just searched. Sometimes it almost feels like we have been followed everywhere we go, except that not many people know who are following them. When we were discussing retargeting in class, most of the responses from students concentrated on one word: “creepy”. Yep indeed, it is just not normal to realize that there seems to be some eyes behind our back when we browse the internet, it annoys people so much that some browser plug-ins were born just to clear up your trace when browsing.

But do people really always resent the idea that their privacy is not protected on the web? Well, maybe it is too soon jumping to the conclusion. After all, it appears that we all trade in our privacy for some service. Gmail, Facebook, Android, iPad to some extent they exists for free because we are actually paying with our personal information, which was in turn used by companies to improve their advertisement targeting. The question is, though, is this healthy?

A group of Marketing researcher did an interesting experiment in Shanghai. Since the mobile phone service carriers in China have the right to push commercial text messages to users, it appeared to be one of the few places where we could test how much people accept the idea of targeted ads without been annoyed. The researchers developed a geo-fencing system combined with store sales data in certain shopping malls. Then, when they detect someone walking into the “fence”, who have shopped in the store before but have not returned for long, the mobile network would push out a message saying: “Hi Mr/Mrs.X, YYY stores thanks for your earlier purchase with us. As a gratitude to our loyal customers, here is a 20% off discount if you make a purchase within these three days.” Since cellphones are very personal device, you would expect a lot of people complain about this type of spam messages. To the researchers’ surprise, not so many people complained. Rather, a fair amount of them actually did revisit the store and made another purchase. There were no indications that they feel offended whatsoever! If they are so comfortable with targeted text message pushed to such a personal device they have, does it really make sense that they would complain about targeted ads on their browser which is arguably less personal than the cellphone? The result seems puzzling in explaining human rationale.

Perhaps this new era with targeted ads synced with every service would push people to adapt and live with them. It is hard to say what would become the future, are we all going to accept this as a norm? Well, there is certainly a possibility for that. At least from the study result, it seems that people can comfortably accept targeted ads when they really bring values or convenience to them. If the same can be applied to online advertisements, then it would not mean that people hate targeted ads in general, but only mean that the current targeting method is way too naive to figure out what people really want. With the advance of big data and marketing analytic models, maybe we would see the day come when the targeted ads can really bring the “just right” product to the exact consumer. Isn’t that what marketing is about?

It may sound controversial, but what the professor summarized may very well be the reality of the future: perhaps it is time for us to forget about all the privacy complains, and embrace the advances in technology that would eventually bring us the most efficient communication between firms and consumers.

The Million Dollar Dump

The Super Bowl is here! And so is the golden season for advertisements. As one of the most celebrated sports events in United States, Super Bowl attracts the biggest buyers for advertisements. In 2014 we saw a record average of 112.2 million viewers for the game (MarketingCharts), arguably putting Super Bowl as the best place to reach out to American households.  With that it is then not hard to justify the $4.5 million price tag for a mere 30 sec ad during Super Bowl.  But is it truly worth it?

If it were in the previous era, judging the effectiveness of a TV ad would solely rely on impressions. In this digital marketing era however, a lot of the impressions and even conversions could finally be measured. A glimpse at the number shocked me: 2.4 million Twitter users posted 4.9 million tweets about the ads; conversation about the Super Bowl (including the game, halftime show, and brands) reached 25.3 million tweets by 5.6 million authors, equating to 1.8 billion impressions and a unique audience of 15.3 million accounts; advertisers enjoyed social mentions that were 7 times higher than on their typical day. (MarketingCharts) Who wouldn’t give it a try if their target audience is all US residents?

Traditionally, the automobile industry would take the major share in the Super Bowl season, and this year is no exception. The interesting thing is, some of the major car manufacturers are backing out this year while many new companies have joined the race. Is that a sign of ad ineffectiveness? Perhaps only the companies know. Nevertheless we do see many companies took full advantage of the opportunity in expanding their influence. For example, T-Mobile had several awesome ads that were pushed out and went absolutely viral. This year they are back with Kim Kardashian, well, I guess a video is worth a thousand words:

It is also interesting to look at different companies’ strategy in releasing their Super Bowl ads. Some companies chose to release their ads in entirety weeks before the actual event, whereas some other companies such as Nissan, chose to release just part of their ads. (Movie Trailers? Really?) Interestingly, data have shown that companies who released pre-game content saw 175% higher viewership compared to content released only during the game. Looks like some companies should reconsider their strategy now.

In addition, there is an increasing trend of multi-screen consumers who would not be engaged with the Super Bowl TV ads that well. Data show that 83% Super Bowl viewers use a second screen (Lab42), and mobile sharing was up by 67% compared to last year. Given that, many digital marketing companies have developed new solutions for their clients: cross-platform targeted advertisements, so that no matter what device you are using, you would most likely see the same ad appearing on your phone as on your TV. (God, where can we hide now?)

All in all, it seems that the true value of super bowl ads lies way beyond the 30 seconds on screen. With the help of Youtube, Facebook, etc., many well produced super bowl ads were shared and promoted basically at no additional cost to the producer. Serving as the best seeding point for companies, Super Bowl ads have created a resonating synergy between traditional and innovative media platforms. 

Power of Data Mining in the Digital Marketing Age for Consumers Yuan Xu (Danny)

The Target store knows your family member’s pregnancy progress better than you do. Can you believe it?

For many people, this might be hard to even imagine, but it can be true if you shop there often. Just three years ago, New York Times published an article that raised a lot of tension on the topic of data mining. The story started with an angry father stormed into a Target store in Minneapolis demanding to see the manager. The father assail the store’s abrupt move of sending her teenage daughter coupons for baby clothes and cribs, accusing the store for encouraging teenagers to get pregnant. The store manager was so confused by the strange event, he gently apologized and called back a few days later to console the family. To his surprise, the father had a conversation with his daughter and apologized to him instead and said: “It turns out there’s been some activities in my house I haven’t been completely aware of. She’s due in August. I owe you an apology.”

All these might have been shocking for many, but definitely not statisticians such as Andrew Pole who was hired by Target to do data mining. Just a couple of years back, the terms Big Data, Data Mining were still vague to the general public but a small group of people.  At that time, people had already been utilizing computers to improve work efficiency in various organizations, yet not so many have imagined how Information Technology could revolutionize the way we actually conduct businesses, especially marketing.  Target is one of the many companies who are utilizing the amazing power of these methods to improve their business conduct, well, “improve” might be hard to justify given the unpleasant experience of the father. Nevertheless, these methods do open doors for future development in how marketing and sales are conducted. As much evidence would suggest, this is just the commencement of a greater trend. But how do the consumers view it?  

Every technology advancement we made could be a double edge sword, Data Mining is no exception. If not played safely, there is no guarantee that the power would not backfire. For businesses who rely heavily on long term customer loyalty, more often than not this could lead to a massive publicity crisis where thousands if not millions of customers would be affected. For example, when Facebook just started to put ads in the event streams on people’s Facebook page, there were a lot of push backs from users who view this as an insult to their privacy. However, these ads did prove to be more effective than billboards on the streets. A lot of the firepower of these targeted online ads actually come from data-mine information that people voluntarily post on their webpage. Assuming most of these information is true, Facebook actually knows you so well that they probably know more about you than any one of your friends or even your parents. This offers the online marketers great potential to present suitable products to people who have the highest probability to be converted into customers, not to mention the speed this matching process has.

One anecdote I heard from before is about a jeans retailer who had a lot of trouble selling off the remaining stock of its jeans. When they advertised on Facebook targeting people based on their posts, they had a much higher conversion rate since people who were targeted were inherently more likely to purchase giving effective data mining methods.  The retailer sold out all their stock, and the newly acquired customers found their jeans at a cheaper and more efficient way, who wouldn’t say it is a win-win situation? Although not every story turned out to have a happy ending, people do take advantage of the benefit of data mining results when they are presented appropriately.

So what might the future be for data mining and statistical-model driven online marketing? No one knows, but it do seem like customer analytics and purchase predictions are growing, which could potentially help us find our best-match product in a more efficient way. That been said, it is hard to judge how fast the society would accept such a way of marketing and sales.

In closing, let me quote Joanne’s comment on the NYT article: Target, just because you can, doesn't mean you should.