CNET's Traffic Decline: An Alternate Explanation

There has been a lot of buzz recently about how CNET's traffic numbers are way down year-over-year. By some reports, CNET's traffic has been cut in half in just the last year. By any measure that's a big decline and certainly CNET should be worried, but I'm not yet writing off a company who has stuck around since the earliest days of the web.

CNET's traffic decline has been widely attributed to the upsurge of tech-related bloggers, though no one has given any evidence whatsoever that this is the true cause. Yes, there are more blogs than ever, and yes CNET's traffic has declined, but this doesn't mean one caused the other.

In fact, although CNET's page views have declined in the last year, I have not seen any data that suggests unique users have declined. So the same number of users are viewing fewer pages. Is this cause for worry? Probably not and here's why: CNET is getting more efficient at serving users.

What has been widely overlooked is that CNET's pages have been redesigned, for the better, over the last year. Each of CNET's product reviews - the heart of CNET's business - are now on one page rather than spread over 4 or 5 pages. So the user who goes to CNET researching digital cameras may have been generating 4 or 5 pages views last year, but is now generating one.

Here's why this is actually a good thing:

• CNET holds on to the user. Keeping all the product review info on one page makes it less likely to lose the user along the way and more likely that a user will click to buy the product from one of the merchant's who advertises on CNET. CNET is a sales lead generating machine and making it faster and easier for users to click through to merchants is only a good thing.

• A decline in page views does not necessarily mean a decline in revenue. Like almost all online media companies, CNET sells only a fraction of its overall page views at high CPM rates. The rest is excess inventory which is monetized by ad networks and other remnant ads with much, much lower CPMs. I don't know what CNET's advertising sell out rate is, but I would be surprised if it were more than 50% for all their sites combined. So lopping off 50% of CNET's page views only cuts out the remnant ads - not the high CPMs, for which CNET gets some of the highest rates in the industry.

CNET reports quarterly results on October 23. This will be a good opportunity to see how much, if any, declining page views have had on the company's top line. CNET has a lot of challenges ahead of it, but I think it's premature to write off the company's prospects on just one piece of potentially misleading data like page views.

Full disclosure: I am long on CNET. I used to work at CNET several years ago, but have no inside knowledge of the company at this point.

Selling art on the Internet

I come out of both the Internet and art worlds. In '99 I sold my Internet company to CNET. After that I opened an art gallery, first in San Francisco and then in New York.

For quite awhile I've been thinking about why fine art has not taken off as a product category on the Internet. I should specify that by "art" I am referring specifically to contemporary art in a variety of mediums: painting, drawing, sculpture, photography, video, installation, etc., and not to posters or other mass-produced art-related products.

On the face of it, art seems like an ideal candidate for selling via the web:

• art is a visual medium, making it easy to be displayed on a screen
• buying art requires a large amount of background information in order to properly value and appreciate it, for which the web is well suited
• maintaining a retail space is often the single largest cost for a gallery. Certainly galleries would be economically motivated to move their operations out of a brick and morter retail context.

However, after being in the business of selling art (or, more specifically, trying to sell art) for three years, I now have some insights on why art doesn't sell on the Internet:

• buying art is a social process. Most collectors buy art not for purely aesthetic reasons, but rather for social ones: which artist is "hot"? which artwork did their friend buy? which piece of art will provide the most prestige or avant-garde edge? This may sound cynical, but for many of the biggest collectors there is definitely some social component to why they buy art, and this can't be replicated over the Internet.

• a gallery provides a necessary context that the Internet cannot. The way a gallery looks, where it is located, what press it has received - all these play into how much a piece of art that the gallery exhibits is valued. With so few widely accepted standards for judging and valuing contemporary art, the physical presence of the gallery becomes paramount. This is why so many dealers go to so much trouble to maintain an aura of exclusivity - it's the only way to make buyers perceive the art as being valuable.

So the very strengths of the Internet - transparency, full information, levelling of the playing field - are what works against it when attempting to sell art.

We'll see if anyone figures out how to bridge this gap and make the Internet a viable way to sell art.

GigaOM picks up on Google/YouTube analysis

GigaOM today published an analysis of Google's acquisition of YouTube that concurs with the article posted here last Thursday, namely that the increase in Google's stock price following announcement of the sale basically paid for the acquisition. I agree. :-)

LoopNet: the anti-Zillow

By this point, nearly everyone with even a passing familiarity with real estate websites has heard of or visited Zillow. The folks who brought you Expedia are behind Zillow and, in addition to creating great buzz for the site, have collected around $57 million in venture capital (though obviously the $57m and the buzz are not entirely unrelated). At Zillow, users can get an automated valuation of almost any home in the U.S. - a very neat trick that involves the intake of countless different types of sales data from counties across the country.

I think Zillow is a technical marvel and I like their clean interface. But I see two problems with their business model: 1) The site isn't sticky. While users may go there once or twice to see the value of their home, or more likely their neighbor's home, there's not much that would keep an average user coming back week after week. 2) Zillow has competition. Several automated valuation services have sprung up in the wake of Zillow, perhaps most notably RealEstateABC (horrible name and it's interface could be cleaner, but it works well).

In contrast to the buzz surrounding Zillow, LoopNet is a real estate website that has largely flown under the radar. LoopNet went public earlier this year and currently has a market cap around $500 million. One reason why you may never have heard of LoopNet is that the site caters exclusively to commercial real estate - apartment buildings, shopping centers, industrial warehouses. LoopNet has basically created a multiple listings service for commercial real estate - a central place where both brokers and buyer go to look at investment property. Before LoopNet, this information was all on the local level.

Unlike Zillow, whose business model I question, LoopNet is in an enviable position for the following reasons:

• It is rapidly creating a network effect (a la eBay) - the more brokers list properties, the more buyers turn to LoopNet to find a property, which then encourages more brokers to list more properties, etc.
• With the value of commercial properties often starting at $500,000 and going up into multi-million dollars, LoopNet can charge both brokers and users hefty fees. The value to an investor of finding the right property more than outweighs the monthly fees you have to pay to become a "premium member".
• Unlike residential real estate, commercial real estate shows no signs of slowing down. Investors increasingly view commercial properties as safe havens which provide good returns.

I don't own any LoopNet stock and I have not followed their financial performance since their IPO. But I think the contrast between a company with a lot of buzz and an uncertain business plan, and a company that has kept a low profile and built a very nice business, is an interesting one.

Is Google the new Yahoo?

There was a time from around 1998 through 2001 that Yahoo was the undisputed leader on the Internet. Other portals (remember those?) followed Yahoo's every move. If Yahoo acquired a web calendar company, the other portals followed suit. A slew of acquisitions ensued: email companies, calendaring companies, personal website companies, online store building companies, etc. etc. This was a very good time to be an Internet entrepreneur. You could almost predict which area would get hot by looking at the path of Yahoo's acquisitions.

With the acquisition of YouTube is Google now setting the pace? Will Yahoo feel the pressure to go out and acquire a video sharing company? There's already a lot of talk about Yahoo needing to move quickly on an acquisition of Facebook, just to show it can be decisive and keep up with Google's moves. Will this translate into other areas as the big 3 (Google, Yahoo, MSN) try to one-up each other? It didn't seem like Google was playing this game, but with the YouTube acquisition, something may have changed.

We'll see how Yahoo and other companies respond to Google's move. But it looks like once again it may be a good time to be an Internet entrepreneur.

It's good to be Google: What some people missed about the YouTube acquisition

Now that the hubbub surrounding Google's acquisition of YouTube is starting (maybe?) to die down, it's time to take a closer look at how this move changes the Internet landscape.

First off, let's look at Google's stock price since Friday when rumors of the acquisition started flying around the web (props to TechCrunch for breaking the story). On Friday Oct. 6, GOOG closed at 420.50. On Monday Oct. 9, when pretty much everyone knew the acquisition was going to be announced, GOOG closed at 429 - an increase of about 2%. Doesn't sound like much until you look at Google's market cap of $130 billion. A 2% increase equates to $2.6 billion - a full $1 billion more than Google paid for YouTube. One could then argue that Google's acquisition of the biggest web phenomnenon since MySpace was essentially free. It's good to be Google.

Next up: Google as the next Yahoo.