AOL AMERICA'S ONLINE LUNACY

When AOL and The Huffington Post teamed up last month it sparked controversy that is now spilling over into the investment world.

AOL stock is being shorted by investors betting that the company will tank. Not far from its all time low of $18.51 on March 16th, it may only be a matter of time before it, like MySpace, begins to drift towards the Bermuda Triangle.

Further complicated by a class action suit instituted by one of Huffington Post's contributors, the complaint charges that none of the $315 million paid by AOL for the news and opinion website co-founded by Arianna Huffington and Kenneth Lerer was shared with the writers and other creators of the site’s content. The suit seeks class-action, or group, status.

The complaint claims that 9000 writers provided the site with free content worth as much as $105 million, which “should be returned” to the plaintiff and the class. Huffington Post derives revenue from advertising on the site.

Adding insult to injury, the majority of the contributors who supported Arianna's site as a more liberal platform are now taking a back seat to the more conservative AOL.

Did AOL not believe that a site whose content, driven by 9000 freelance, unpaid writers, would not create a backlash? It is so very obvious that AOL's CEO and largest shareholder, Tim Armstrong, is desperately rearranging deck chairs on a sinking ship.

Watching and waiting.


Click on the chart to enlarge it

EVERYTHING POPULAR IS WRONG

The headline is a quote borrowed from Oscar Wilde. In the context of this blog post it reflects on the often misguided and mass movement of special interest and demographic groups to tilt the needle on the sanity scale towards hysteria.... and that's not good.

Let me explain.

As marketers we believe our job is to inform the consuming public about a product or a service and to make a sale. We are charged with listening to them in order to understand their needs and then fill those needs as best we can. If we are smart marketers, we seek to connect and stay connected. Again .... make the sale, and then another.

We would like to believe we accomplish this is spades. We do not. We are not even close.

To a large (very large) degree we somehow managed to shift away from filling a need, moving instead towards creating a need. Some might call these creations fads. Others grasp them and market the hell out of them only to eventually concede to the definition of fad or phase or meme.

As the fad becomes "popular" and is collectively followed by an enthusiastic population, driven by emotional excitement and often peer pressure, it eventually succumbs as a faded novelty.

Social interaction, now defined and monitored as social "media", is a trend that has been tracking time over centuries. The Agora was a marketplace that encouraged social interaction and in some manner is believed to exists today in the form of Myspace, Twitter, Facebook or China's RenRen.

It is not.

These channels, or open air markets, are simply fads that have not yet recognized the true dynamics of a social marketplace. MySpace failed. AOL is gasping. Twitter struggles to find a workable model and Facebook may soon be approaching a privacy tipping point that forces a reversal of growth.

The market channels that will survive the test of time, innovating as they move forward, are best defined by Apple, Microsoft and Google ... companies that create lasting trends ... not fads.

Let's not be marketers consumed by the emotionally young chatter that disguises itself as "the future". That market represents a disproportionately small segment of consumer spending today. And I promise you that their behavior and attitudes will change as they mature.

SORRELL'S PREDICTIONS

The number of high ranking executives at the holding company level, willing to step outside the comfort of their well furnished offices to "tell it like it is" are few and far between.

Except for Martin Sorrell.

At a recent UBS Media Week Conference, Sorrell covered topics that ranged from short-sighted media price guarantees (in a volatile market) to digital media and global emerging markets.

Espousing the danger of taking comfort in a 25 percent decline in revenues he suggested those companies would be out of business in three years. Citing a forecast of a 1 percent global expansion in spending and pointing to Interpublic's forecast of 6 percent growth as "rogue", he suggested the economic climate is "more, less worse".

Turning to the digital landscape as "the driver for growth", Sorrell does not believe firms like Google can sustain long term traction as an advertising company and that the phenomenon of Facebook and Twitter will be short-lived, replaced by the next new social trend.

Sorrell's crystal ball is not that far off.

Price guarantees in this (or any other) economy by ad agencies for media time/space is at best insane. CPMs in the broadcast market have gone up while digital auctions through the on-demand platforms are commanding premiums for hyper-targeted impressions. Betting on media futures is not a good thing.

Twitter recently experienced a drop of 3 million users and activity among current users is declining. Facebook is still bleeding and MySpace is slowly withering away. The social networks have yet to discover the value of audience data applied to the millions of eyeballs they generate. I would venture that applications developed for the Twitter platform are making more money than Twitter ever will.

Reading what is in the cards today, right or wrong, however, will quickly be forgotten in anticipation of the early signs of a modest recovery.

SPAM ALOT ?

How much Spam will $945 million buy?

Facebook's triumph last month over the notorious spammer, Sanford Wallace, secured a judgment of $711 million for the company .... money it will never see. What appeared to be a hollow victory, however, has set the stage for Wallace's referral to the U.S. Attorney's Office with a request by the judge that he be prosecuted for criminal contempt charges and possible jail time.

Facebook will be standing in line for a long while before it recoups a penny. MySpace won a judgment against Wallace in 2008 for $230 million following a $4 million fine by the FTC in 2006 for running excessive pop-up ads.

Today, the self proclaimed "Godfather of Spam", Alan Ralsky, was sentenced to 51 months in prison. Ralsky's appetite for spam started back in 1997 when he began sending out 70 million messages a day. In 2004 his operation began sending out billions of illegal e-mail ads pitching penny stocks in a pump and dump scheme that grossed millions.

Other indictments are pending as conspirators are facing jail time as well.

Kudos to the companies and law enforcement agencies for diligently tracking down illegal mailers.

Do they serve Spam in prison?

I'M AGAINST IT !

Lately, some of my readers suggested that I often take a contrarian position on new developments in the ad business. I accept those observations as generally true with a need to explain why.

Our industry is hurtling forward at breakneck speed trying to desperately keep up with the technology that precedes it. Since the explosive growth of the Internet in the late nineties, the bubble that burst in 2001 and the rise of the venture capitalists out of the ashes, the movers and shakers of our industry are at it again.

I smell a land grab of sorts. MySpace, Facebook and, God forgive us, Twitter all attempting to make something out of nothing more than a conversation. None of them have yet to yield a return to their investors.... not a penny!

Ad exchanges and ad networks are popping up like ducks in a shooting gallery ... most of them simply replicating one another, offering identical inventory that has been dumped into them by publishers.

Skeptical? Yes. Let's set the record straight. Many of these ideas are very bad ideas and will lose money and jobs as we have recently witnessed by MySpace and soon, AOL.

It's the skeptic in me that keeps my strategic focus on the reality and business of our business in tow. It also often keeps clients that will listen and learn from making dreadful mistakes.

There are many advances in our business that make both traditional and digital media exciting, productive and return valuable insights and actionable results.

And while I am skeptical of many new "toys", I am also playing with them to see if I can keep from breaking them.

So thanks for the feedback. The video that closes this posting was found on Bob Hoffman's great blog, The Ad Contrarian. Bob is the CEO of Hoffman/Lewis in San Francisco and St. Louis.

WHAT WERE THEY THINKING ??

At the heels of the MySpace announcement that they are cutting 30 percent of their staff to accommodate a more efficient view of the site's future and to bring staffing in line with its Facebook rival, I had to sit back and think .... WTF!?

Where was Rupert? Has he been that distanced from the business of running a business that the oversight of News Corp's major investment ran away with itself?

To suggest, as Jon Miller, the new Digital Officer for News Corp does that their labor pool was "too big considering the realities of today's marketplace" is nothing short of a lame excuse for his predecessor's lack of vision and a complete misread of the fickle markets that make up their user base.

Blame Rupert. By contrast, Miller is a brilliant strategist supported by his turnaround of AOL.

It will be tough sledding, if not impossible, for Miller and the new CEO, Owen Van Natta (39) as they learn to scale the business to meet the falling demand for their network.

And as MySpace fortunes decline, a reciprocal increase in users for Facebook and Twitter take the stage,front and center. Never mind that neither has come up with a business model that turns a profit. They will continue to pile on the users until they become so top heavy with unchecked expenses and debt that the cash burn will ignite the house that Facebook and Twitter built.

These social networks, built in an instant, are the "course du jour" .... until the kids in the garage down the street launch yet another version of the same game by any other name.