I just re-read this bit from Techdirt from a couple of weeks ago about eBay’s super-secret Skype plans. Techdirt contributor Derek Kerton was underwhelmed by the apparently small news that eBay buyers will be able to communicate directly with eBay sellers. He suggested that eBay got caught up in the VoIP hype and is now trying to find an excuse for doing the deal. Derek certainly may be correct.
But I wonder if there is a bigger picture, whether eBay sees it or not.
In case you were wondering, the next big thing in the mobile space is…
(drum roll)
(…after the current next-big-thing opportunity in mobile social networking, that is…)
(more drum roll)
is…
Advertising.
Ta. da.
::yawn::
I have seen several business plans over the past few months that are all trying to crack the code on the mobile advertising opportunity. I am not talking about mobile marketing like sms campaigns from companies like ipsh and the like (which do a great job and are very useful, btw.) I mean advertising like commercials on TV and banners on the internet.
Here are the basic ideas I have seen:
- Little clickable banner ads on wap pages that take users to other wap pages.
- Merchandizing mobile content and applications within other applications.
- P2P-like content “superdistribution” of promotional content.
- Free minutes in exchange for looking at ads.
- Carrier-branded “offer lobby” where people go to an application category called “promotional.”
- Pre-roll mobile video advertising.
- Mobile yellow pages.
- Short codes on billboards.
My favorite is the LBS-inspired “You walk by a Starbucks (it’s always a Starbucks) and your phone vibrates to tell you that you just got a free mobile coupon for half off a triple grande latte” idea.
While there is nothing wrong with them, I would not personally invest in any of these models. They are all lacking in that they do not offer a complete loop to create a valuable advertising ecosystem. (Though there is nothing wrong with building one link on the value chain as long as you can sustainably defend your position.)
My biggest issue with most advertising is that it is annoying, and so I want it to be done right on my mobile phone.
WWRHDD?
When I am looking at a massive opportunity in advertising and how to absolutely own it, I like to step out of my provincial thought process and ask, “What Would Reuben H. Donnelly Do?” History’s first publisher of a telephone directory apparently knew a thing or two about capitalizing on an advertising opportunity. His directory became the ubiquitous Yellow Pages. When value is determined by supply and demand, having a monopoly on the supply can put one in a very valuable position.
So say you want to own 90% of the supply of mobile advertising but you don’t want user to have to walk around with gigantic phone books. What would you have to do?
So far, eBay is a good analog to the yellow pages in that they bring a Buyer and a Seller together at the moment when the Buyer wants to reach the Seller. The result is a low annoyance factor because the Buyer wants to be sold something and therefore is not being bombarded with irrelevant advertising.
Isn’t eBay’s model just an evolution of the yellow pages? The phone book sits there full of advertisements that are not annoying you in any way. When you open the phone book, you are still not annoyed because you are actually seeking information.
The yellow pages model worked for a long time, though you probably haven’t used the yellow pages since the nineties. At one point, you could fairly argue that directory assistance supplanted the value of the Yellow Pages when they started providing open-ended search services. Rather than having to know the name of the listing and using 411 to get the number, (for instance, “Dominos pizza”) you can now call 411 and say, “I am looking for a pizza place near my house,” without any specificity, and they will provide you with a few options.
Great. So back to eBay and Skype. You know how Amazon.com turned into a utility? They built this great e-commerce engine that powered Amazon.com, and they are such leaders in that regard that nobody can touch them, so they made the platform available to other online retailers. Here’s one such company: http://www.beveragebin.com/
Amazon’s zShops is another example. Amazon Web Services essentially turned Amazon.com into a utility – a very different business from where they started as an online seller of books.
I am reminded of Harry Sonneborn, Ray Kroc’s silent partner in McDonald’s, who viewed them not as being in the fast food business but in the real estate business. His model was to buy the land under the stores and lease it back to the franchisees at a minimum of 20% to 40% markup on costs, using their security deposits on the franchise as downpayments on the land. Brilliant. Buy a piece of shit lot in Victorville with someone else’s money for $1000. Put a McDonald’s on it and now it’s worth $1,000,000. Make the guy who made it possible pay you 20% to 40% above what you are paying to develop a massive asset base.
So Amazon is in the ecommerce infrastructure business.
Is eBay in the auction business or in the advertising business?
eBay provides real estate in their marketplace to sellers who promote their goods and services. The addition of each new seller increases the value of the real estate in their marketplace, and eBay charges them a fee for doing so. Good model. Once they got to critical mass of buyers and sellers off of their auction business, they made their infrastructure available to retailers in the form of eBay Stores.
Ok, that’s their infrastructure business. But where can it go from here?
If you empower online retailers with a turn-key infrastructure for setting up their stores, complete with a billing mechanism (PayPal) which you also own, how can you add additional value? Give every eBay Store owner their own 800 number, or in this case, their own Skype handle. So if you are a florist and you own a physical store and 80% of your business is people calling you, ordering flowers, paying you over the phone and having you deliver the flowers, why not dump your physical location and sell via your 800 number exclusively. That’s what the largest flower delivery companies in the world have done. And you can get a turn-key solution to power your entire business from eBay. Cool.
Now how about offering advertising? Nobody calls a florist expecting to pay less than $50. Knowing that, how much would you pay to someone advertising on your behalf for every call they generated for you? Around Valentine’s Day? Zero. How about the month following Valentine’s Day, the slowest time of the year for florists? Then you might pay five bucks, ten bucks – depends on how much profit there is in flowers. Same thing with restaurants on a slow Tuesday night, when they would happily give up 10% on a reservation worth $100.
The great thing about the eBay model is that it works a lot like Google in that the market determines the value of an item. Similarly, they could determine the value of their slotting fee in their advertising construct.
Great. So what is their advertising construct? Well, the most unstoppable company in the world would be GoogleBay, providing the search facility, infrastructure and communications for all small- and medium-sized businesses. The Skype acquisition is a brilliant move in the future GoogleBay because you can actually measure conversion on your advertising because it is your 800 number.
To complete to loop, eBay needs a search facility that is close to the user, like on their mobile phone.
Long post again, I know, so let me pull it all together. The mobile advertising model that will win, and I mean really really win, is local directory that is thin to the user/buyer and robust to the business/seller.
Here is all you need to do to capitalize on the mobile advertising opportunity:
- Create a directory of every local business on the planet
- Create a simple SMS-based search interface that allows users to enter a search phrase and get relevance-ranked results based on location. Provide a simple click-to-call interface. Make it sticky to the consumer by becoming a “personal directory” of frequent searches, favorite vendors, etc. and allow them to publish this as content if they wish, building virality.
- Give every local business a free 800 number powered by your infrastructure, which will enable you to monitor call volume and origination
Give every local business a payment processing mechanism powered by your infrastructure
- Sell listing and premium slotting fees to every small business
It is critical to give the phone number to every business and tie it to your payment infrastructure because then you can measure conversion on your ad inventory and establish the proper CPMs. eBay could totally do this.
Here are some other companies that can rule the world by executing on this strategy:
Google already has a local search tool, and it works pretty well. They need a decent payment processing facility, which they already announced they were building, and are launching this week according to the blogosphere. (Google Checkout, apparently.) Google CEO Eric Schmidt denied that their payment processing facility would compete with PayPal. In a WSJ article, Schmidt said Google didn’t intend to offer a “person-to-person, stored-value payments system,” which many people consider a description of PayPal’s service. Right, because this isn’t about person-to-person, it is about enabling businesses. All they have to do now is give everyone a free “800 number” through GoogleTalk and they win. They will get extra points for also adding to their package GoogleNet so they can also monitor traffic.
Microsoft, which many people are starting to say may be too bloated to do anything right anymore, has a strong chance at winning here also. Their slow-and-steady mobile OS strategy could be just what they need to get close to the consumer, right on the handset. Implementing their MotionBridge search toy as part of every mobile deployment would be simple. Remember I talked about Microsoft offering a free WiFi VoIP client for mobile devices in the mobile version of Microsoft Office Communicator. It’s a small step to package a free “800 number” for every business in the world. They have a decent payment processing tool and could simply buy a better one.
Now you understand why MicroSoft bought MotionBridge.
They also recently announced they are licensing local directory assistance information from infoUSA. Do you see the pieces coming together?
INFOSPACE, which seriously needs to recognize its massive opportunity here, has the best local search tool I have seen and it is being adopted by carriers. They also have one of the best local directory databases available. They have a mobile storefront platform that can sell ringtones and graphics, so why not other stuff? Turn that into a click-to-play platform and they have a solution to rival eBay Stores or Amazon’s zShops. So now all they have to do is give a free VoIP number to every business on the planet. They have the best chance at creating a carrier-centric solution in that they already integrate with all the billing systems. In the earlier example, you could pay for your flowers by putting it right on your cell phone bill. That would rule. The real winners in this example would be the carriers themselves, though many of them seem insistent on giving the search business away to Google or Yahoo, not apparently seeing the size of the opportunity.
Lastly, one of my favorite companies, TellMe, could actually win here, too. They power the 800 directory. That is huge. They have the kick-assiest voice interface in the world. To turn into the “google of voice” would be a small feat. All the backend stuff would have to be built or bought. Now that I think about it, if anyone has aspirations such as I describe, they have to seriously consider buying TellMe.
Anyway. I could be wrong. Interesting to see the pieces moving together toward something though.
