On Benefits of Microhoo Search Scale, Disagreeing with Hal Varian

I disagree somewhat with Hal Varian's (Google's Chief Economist) criticism of the theory that combining Yahoo and Microsoft in search will lead to improvements based on scale, data, etc.

Statistically, for sure, scale is already high enough that more won't apparently lead to significant improvements in either search performance or ad program performance due to the impact of data on improving relevancy. That's on paper, in the lab.

Off paper, in the real world lab:

  • Yahoo's reported 20% share is fiction. Globally, it's much lower. In the US, the real number is actually lower.
  • Data is highly granular in a number of ways. So to start, Yahoo and Microsoft have different search shares in every language and every country in the world, and different search shares in sub-regions of the world. In many, one or the other currently hold share of 1% or less. By bringing both up well over 1% and closer to say, 3%, you get a significant increase in useful data.
  • Even the tools that Microsoft provides for advertisers will improve markedly with a doubling or tripling of available data across all major markets, because usable data also comes in the form of highly granular data about keywords. Google doesn't have every last useful tool for researching keyword and consumer behavior: Microsoft has and will develop some really useful ones. Currently, as an advertiser trying to use the tools, you get "insufficient data".
  • And though this may stray somewhat from the subject of how to improve a search engine's relevancy... what about something super real-world and practical: running an ad rotation test for a group of keywords and trying to select a winning ad from a field of eight? Isn't that search marketing? Right now, no one is testing very much on any platform other than Google. I suspect they'll be more likely to try tests specific to the Microhoo audience now, rather than just porting all of their consumer feedback driven campaigns over to the Yahoo and Microsoft platforms. The current way is just guessing: really testing in the actual auction you're buying the media in, is more precise.
  • By "now," of course I mean when the Microsoft-Yahoo platform consolidation is complete in around a year's time.
I believe that Varian's assumption is mainly wrong because he's giving his competitors credit for having more consistent share across all major segments than they actually do. Aggregate numbers look impressive, but the information is less consistent as you drill down. Doubling or tripling the available information in any given segment, especially small ones, is bound to be helpful.

To double predictive accuracy, Varian suggests you need "four times as big a sample". Well depending on whether you're looking at it from the standpoint of Microsoft or Yahoo for any given teeny tiny segment, the number of instances where one of them now has "four times as big a sample" is going to be very high. Doubling predictive accuracy on teeny tiny segments - either as a search advertiser or a researcher looking into search trends - is our bread and butter out here. We'll take the "bogus" scale of the Microhoo deal any day.

P.S. I loved Varian's other insights, including the interesting note on the emergence of the "micro-multinational" type of growth company. Though I might have to take a run, at some point, at the recurring Google theme about "communication costs basically going to zero." The costs for collaborative tools have gone close to zero. But...

Vid-Biz: Magnify, Tremor, Spinal Tap

Magnify.net Raises $500K; new funding comes from previous investors, brings total amount raised to less than $3 million. (paidContent)

Two Execs Leave Tremor Media; co-founder and Chief Operating Officer Andrew Reis and co-founder and Chief Strategy Officer Jesse Chenard depart the video ad network to pursue startup opportunities. (MediaPost)

Smell the Glove, Apple to Produce Original Spinal Tap Content; first original short film from iTunes reunites the aging mock rockers. (Tubefilter)

ESPN Bans its Workforce from Twittering Sports News; supposed internal memo from the network says “If ESPN.com opts not to post sports related social media content created by ESPN talent, you are not permitted to report, speculate, discuss or give any opinions on sports related topics or personalities on your personal platforms(.)” (CNET)

Study: Out of Home Video Reached 155 Million Americans Last Month; video displays in retail locations, grocery stores, gas stations and more are becoming ubiquitous. (MediaWeek)


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Watch Out, Flash; Google Buys On2

Google today announced it bought On2 Technologies in a stock-for-stock transaction worth $106.5 million. On2 has historically been a core underpinning of online video with its encoding and compression technologies. However, the company is not an obvious pick for Google, especially given that its main VP6 product is much less dominant than it used to be. The purchase makes it evident that Google is preparing to make a video infrastructure play.

Just about everyone that powers online video or has their own Flash player, including Adobe, continues to pay On2 licensing fees for its VP6 video codec. However, in the last couple of years, the industry has largely chosen H.264 as VP6’s successor. Though H.264’s selling point is its high quality, a big part of the reason people moved away from VP6 was those On2 licensing fees. “It was like dealing with Tony Soprano every year,” said a source today. “If you were a day late…It was archaic licensing. It was just a nightmare.”

Still, VP6 is already installed on computers everywhere, and with Google managing its licensing (or even dropping it), the format could come back into power. The open-source video compression format of choice, OGG Theora, which is being pushed by Mozilla, has not won industrywide confidence, so it could be that Google is trying to substitute another contender. Google, with its Chrome browser, is one of the leaders of the new HTML 5 standard, which handles video natively and could eventually eliminate the need for Flash and Silverlight-type plug-ins.

Google Vice President of Engineering Vic Gundotra demonstrated YouTube mocked up in HTML 5 at a recent developers’ conference. There’s no indication YouTube will trade in Flash just yet, but clearly that’s figuring into people’s long-term visions. However, another funny twist is that, at least according to our source, YouTube itself is thought to use an open-source version of VP6.

We wouldn’t be surprised if Google goes ahead and open-sources On2 itself. From the press release:

“Today video is an essential part of the web experience, and we believe high-quality video compression technology should be a part of the web platform,” said Sundar Pichai, vice president, Product Management, Google. “We are committed to innovation in video quality on the web, and we believe that On2’s team and technology will help us further that goal.”

Shares of Google are essentially flat, off less than 1 percent at $449.98, while shares of On2, which is traded on AMEX, have rocketed higher by 49.7 percent to change hands for 57 cents. Adobe shares, meanwhile, are down 3.5 percent to $31.84.


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Podcasts, podcasts, podcasts

I have two podcasts to plug this week:

* The latest Guardian Media Talk USA podcast is up. David Folkenflik, NPR correspondent, and John Temple, ex editor of the Rocky Mountain News and now a damned fine media blogger, and I talk about the AP, the TechCrunch/Twitter affair, and news as charity. I also interview Josh Cohen, product manager of Google News.

* Leo Laporte, Gina Trapani, and I recorded the inaugural edition of This Week in Google (TWiG). You can watch it in video here and listen to the podcast here. We discuss all kinds of things: Apple (AT&T) blocking Google Voice; the importance of Google Wave and the live web; the AP (again); Gmail getting rid of that damned “on behalf of”; Microsoft Office (finally) going into the cloud. Great fun.

I wish I could embed both of them here (hint, hint) but go take a listen and please subscribe.

Vid-Biz: Schmidt, Netflix, YouTube

Eric Schmidt Resigns from Apple’s Board; move comes as the two companies increasingly compete head-to-head in multiple sectors. (GigaOM)

Report: Netflix Coming to iPhone/Touch and the Wii? Multichannel’s unnamed industry source says you’ll be able to watch on additional devices (though probably only over WiFi). (Multichannel News) Meanwhile, Netflix CEO Reed Hastings said there is no magic number that would trigger the company offering a streaming-only solution, and that the company is still focused on its hybrid strategy. (Video Business)

YouTube Gets Into Local News; video site wants to work with news outlets to deliver (and monetize) News Near You content, but local stations aren’t sure if hooking up with Google is really in their best interest. (The New York times)

Real-Time Animation Starting to Transform TV Production; the ability to create graphics and animation on the fly helps with visualization during green-screen shooting. (Variety)

WGA to Rep CBS New Media Writers; 15 news, promo and sports writers creating content for CBS in the LA area joing up with the scribe’s union. (The Hollywood Reporter)

Add Some Asparagus to Your YouTube Video; CollegeHumor gives you the secret codes to spice up any YouTube clip. (via Mashable)


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Guardian column: Micohoo vs. Gulliver

My Guardian column this week on the Microhoo search lashup:

In bringing together their search traffic, Microsoft and Yahoo are fighting an unwinnable war. Worse, they are still fighting the last war. . . .

But while they pound their little fists on Google’s shins, Google remains the unchallenged giant in the arena that really matters: advertising revenue. According to the blog Search Engine Land, Google takes almost a third of all online advertising money – $21bn a year – and it doesn’t rely just on search.

And Google is turning to the next battlefields: mobile, social media, the live web, and online tools. . . .

Yahoo can now jettison the technology resources that went into search. That’s rather sad. After all, 15 years ago, it was Yahoo that first organised the web for us. Its original ambition seems quaintly naive today: human editors cataloguing every site worth visiting and deciding which were the hot ones we should visit. Back then, we, and Yahoo, thought the web was a medium, like TV, that we experienced together. Yahoo never quite broke out of that thinking. It still treats its site as a destination we have to go to with walls around it to keep us in. It just introduced a new homepage to some fanfare. Homepages are so 1999. . . .

So, let Yahoo and Microsoft celebrate their deal. Yahoo doesn’t have as much to celebrate. It turned down acquisition offers and now it gets no cash from Microsoft. And it is surrendering its earliest competence to a competitor. Microsoft has more cause to grin. It got Yahoo’s search traffic for no cash and doesn’t have to manage the rest of the old beast.

And Google? One wonders whether it notices beyond that irritating poking at its shins. It’s too busy trying to conquer what comes next.