Commentary
Motorola Deal Means Google Controls Digital Pipeline
- by Jim Courtright , August 29, 2011
On the surface, one might think Google/Motorola wants to emulate Apple's success in the SmartPhone area. Not only do you create the great software, but you design the product too, like the iPhone. That went from nothing to become Apple's cash cow. It's a very lucrative business that will do nothing but grow.
Now Google can make the phones and the software, too. Smart strategy. There's a lot of money there. But that's not where the really BIG money is.
The real money is in controlling the digital pipeline to smartphones and home TVs. These are the current "dumb pipes" that the CellCos and ISPs deliver. With the acquisition of Motorola, Google has access to the set-top hardware technology to make those dumb pipes a lot smarter. And make Google a lot richer.
Here's how I see it working.
For years, the ability to target ads perfectly to the right consumer has been the much-promised holy grail for marketers. They will spend big bucks in an effort to target their message more efficiently. Comcast and the other cable companies have failed (read Canoe) to find a way to allow custom-served ads to find their way to consumer TV.
This set-top technology was supposed to eliminate the wasted dollars inherent in broadcast advertising. But they never really delivered. So as the dust cleared, only one company has emerged as the leader in targeting ads to consumers.
Google.
It does it better than anyone. It has the technology to serve unique ads to unique targeted audiences with unbelievable efficiency. But at this point, it only does it online.
So what if Google decided to expand their online AdServe technology to be ubiquitous? To be able to reach every SmartPhone and TV?
I think they might start by giving a mandate to Motorola's engineers: Create a unique chipset that allows SmartPhones to run Googles proprietary AdServe technology natively. (Motorola makes chips too, BTW).
And while you're at it, make that chipset work inside cable broadband set-top boxes so anyone watching HDTV at home can also benefit from laser-targeted advertising. Advertising served exclusively by Google. For a price.
Here's the scenario: Five years from now, Google phones are battling Apples Nextgen iPhones for supremacy. Apple phones sell for a premium. Google phones are free, because they are ad-supported with Google's proprietary AdServe chipsets.
Simultaneously, your wall screen at home delivers ultra HD video through your ISP. (Over-the-air broadcast will die as all content gets delivered more efficiently over the Internet. Can Google handle all this content streaming? Oh yeah, they run YouTube. They know how to stream a lot of video.)
Google's AdServe technology allows your ISP to give you free access to all programming because it gets a cut of ad revenues from Google. In one fell swoop, Google controls the entire cash flow of the current broadcast TV machine: Over $150 billion (with a B) a year. They deliver it more efficiently than any other medium in the history of media. Apple would have to do a deal with Google to get a cut of the action.
Suddenly, Google gets to throw the most lavish upfront parties ever seen in the history of the ad business.
I think those upfront parties alone would be worth the price Google paid for Motorola. All because they leveraged Motorola's technology expertise to serve Google's ultimate master plan.
I just LOVE the line "Over-the-air broadcast will die as all content gets delivered more efficiently over the Internet."
You know what. When I look for an entertainment option I don't sit there and ponder .... gees I wonder who or what can deliver the content I want the most efficiently.
What I am after is the quality and originality of that content. Last time I looked virtually all of it was produced by either the over-the-air broadcasters or the cable companies.
So some conclusions (i) video-based entertainment will be pretty boring if Jim's naive prediction of over-the-air broadcasting comes to fruition (ii) the existing model of the content creator controlling the distribution mode (of which the internet will clearly be a distribution channel) will continue for many years (iii) the timing of the content release to each channel will continue to be based on the return to the creator, so while Internet returns continue to lag other channels it will remain down the hierarchy (iv) to break the nexus of this model internet-based companies will need to move on from the content aggregation model to the content creation model.
Similar to my thoughts written in April,2011
Behavioral Based Social Media System for the Cable TV Market
Cable has long history of failing to develop 1-1 target marketing. Canoe Ventures (latest MSO venture) was touted as the Holy Grail of targeted advertising and is reportedly less than a success at this stage.
http://tech.fortune.cnn.com/2011/01/03/the-56-billion-ad-question/
Excerpt from above link on January, 2011 Fortune.com –
“Advertisers will spend $56 billion putting ads on TV this year,...The cable industry thought it would be a big opportunity too, but its efforts have fallen short. Canoe Ventures, a two-year-old project of the six biggest operators, has launched just one notable product…”
http://www.businessinsider.com/jason-kilar-here-are-my-thoughts-on-hulu-and-the-future-of-tv-2011-2
Excerpt from above link on February, 2011 Business Insider
Identifies advertising market being missed by Cable TV operators
“Advertisers have weighed in heavily on the future of TV, with both their thoughts and their considerable wallets. Advertisers are increasingly expecting to present their advertising messages to just their desired audience…and not to anyone else. For over 60 years, video advertising could only be bought via a TV show’s projected audience, which served as a blunt proxy for a certain target audience. The result has been many wasted impressions and an often irrelevant experience for consumers. In the near future, advertisers will demand the ability to target their messages to people rather than targeting their messages to TV shows as proxies for people.”
The obvious alternative, with the least cost to implement is an independent Cloud CRM solution designed to cross index cable subscriber households with their corresponding social network interests. The current regulatory and privacy issues experienced by cable TV operators gathering unauthorized data from set-top boxes could be minimized, by validating subscriber and even eliminated by essentially having an opt-in plan (provided conveniently by the social media). Access along with profile and interests of households would be controlled by the subscriber’s social media platform of choice. Facebook has high consumer acceptance and could be used for household profiles, product interests, social interests, and viewing entertainment interests. There would be incentives to the subscribers to opt-in including notification and reminder of viewing favorites, Groupon type ads, and specific ads matching interests with infomercial type group discounts and urgency to buy.
The current design of target marketing advertising ventures is fundamentally flawed. They focus on demographics, and fail to identify the individual behavioral current and future household interests.
I would propose using a data cross indexing similar to a data warehouse project I was involved with at iN Demand. http://www.indemand.com/ .
Project would involve developing a bidirectional Cloud interface program using a CRM application between the social media and MSO subscriber records and communicating behavioral marketing - business advertising, discounts, specific videos/groups, family albums – providing subscriber awareness of TV programming -- movies, products, etc. similar to Amazon and Groupon. This would make subscriber stickier and substantially reduce turnover.
To paraphrase a comment I made in the CED 1999 publication about the Internet, cable TV operators need to become the new best friends with the 600 million members of social media.
Cable TV has always been able to raise subscriber rates with impunity (analyst Craig Moffett term). For that reason they have adopted a flawed revenue model that has reached the tipping point. Not only is the poverty level a problem at 40%, there are over 60% of the Gen Y's at risk.To quote Pogo, we have met the enemy and he is us. Netflix has more subscribers than Comcast; and satellite has 30% of the market, for a reason. Subscribers are creating a de facto ala carte - Amazon, Google, Apple,etc.. Unfortunately as long as cable owns the content and sells it, as well, there appears no way to circumvent the continued rate increases to their suicidal final demise. But there are some ways for cable to survive. Cable has to eliminate its “Field of Dreams” mentality. Cable can become a positive influencer by changing their revenue model. Internet has proven there are targeted ad models that work. Cable must incorporate a targeted ad strategy along with reducing subscription rates to absorb future content increases. The hybrid model would be based on social media interests and preferences, starting with direct ads on all time shifted programming. Groupon like infomercials, with word of mouth on steroids, group buying, and urgency to buy. Amazon like preferences and alerts. Cable is currently using data from demographics and set-top boxes, a flawed strategy, with privacy issues. They could be using analytics from behavioral marketing data. Maybe we are at a time when they are more interested in constructive suggestions with all that is at stake?
Footnote
It could be a win-win situation. Cable MSO's have a failed investment in Canoe Ventures and Google a failed venture in TV. If both are content to do what they do best, they both come out better. With a seamless system, content costs and subscriber rates could be controlled and even reduced using social media to target market - TV ad business is $70 billion business
Personally, my cable system can eliminate the sports channels, the kiddie channels and invisible friends channels and deduct the carrying costs from my bill. Yeah. There can be more categorizing to be done even without (or before) they play with the rented boxes. However, I don't see this being tackled until the segmentation is very easy (balance the cost and efficiency to figure out what they want to see and what they would want to see of e.g. Neflix + AppleTV = less than cable and the variations thereof) for consumers to get what they want and drop cable.
Just a tiny bit of research by the author on the relationship between Moto set-top boxes and the Pay-TV industry would have eliminated a lot of the embarrassing predictions in this article...but seeing what the author does for a living, I understand now why he didnt bother.