Zango CEO Blog

It has been a heart wrenching couple of weeks for our management team. Due to the transition that we are under way to move all of our resources and focus to our new product Platrium, we made the difficult decision to reduce our headcount and lay off 68 people this week. There is nothing worse in business than saying goodbye to smart, hard-working, dedicated employees. These employees were loyal to us and they wanted to stay, and we wanted to keep them. It is unfortunate, but sometimes these things are necessary. As I stood before them this week I told them that while this is a business decision, I recognize that it has very personal implications – and for that I am very sorry to have to make this decision. Zango has a unique culture and as a result most of our employees are far more dedicated and committed to their jobs than is typical.

One laid off employee told me, “I’m not surprised that this is happening, I just wish it wasn’t happening to me.” Another wrote to me and said, “I’m sad I won’t be there to continue to help drive things forward… and I’m truly appreciative of the opportunity.” Still another laid off employee wrote, “I thank you…and others for giving me the chance, helping me develop some new skills, and for believing in me.” I don’t believe that these are the sentiments of employees from a “normal” company, but rather are indications of just how special this place really is.

As difficult it is to say goodbye to some truly wonderful employees, my passion and my focus is on how to make our business win. To that end, I’m thrilled with the progress we have been making with Platrium. Platrium is the final integration of all of the companies we have acquired over the past four years and promises to be a fantastic consumer product.

If you’ve followed Zango at all you know that we have our fair share of detractors, people who love to hate us. There are a couple reasons why. First, they don’t like how we use Web publishers to distribute Zango – they think that it is possible for some of these partners to game our system and to not provide the consumer with a consistent experience when installing our software. That may have happened in the past, but since 2005 we’ve invested millions of dollars in technology development and have added a full staff of compliance experts to ensure this isn’t the case anymore. But while the facts have changed, the arguments from our detractors have not (in fact, some continue to tell only parts of the story – see “Close Butt… Not Quite” on the Zango corporate blog). Their second point is that they think we steal affiliate advertising commissions by using our Targeted Visitor ad format. I can state emphatically that we don’t, but the reality is that a few affiliates have tried to break our rules strictly prohibiting this behavior by attempting to use our automated advertising system to stomp on affiliate cookies. We police this activity aggressively through policies and technology and frankly it is a miniscule problem that always gets detected and corrected, but it does provide for some good fear mongering and headlines. In any case, the noise around these two points has been a drag on our business and has kept us from the growth that we should be experiencing.

So here’s the good news; Platrium doesn’t have either of these problems. In order to install Platrium you have to go to Platrium.com, so there is no complex affiliate network for a detractor to point to. And we have the very highest standards of notice and consent – far better than Google or Yahoo! or anyone else for that matter. On the second point, since Platrium doesn’t deliver popups or Targeted Visitor windows there is no way for an advertiser to attempt to game our system by stepping on cookies. The reality is that we have an incredibly powerful business model, a great consumer service that literally millions of consumers around the globe use every day, a targeting platform that delivers unprecedented ROI for advertisers and a monetization tool for webmasters and content providers that makes them more money from their traffic than they can get elsewhere. Platrium keeps all of those things and at the same time gets rid of the two pieces of our business that have drug us down. Needless to say, I’m very excited about the future.

Today we launched our new product Platrium. This is the result of a lot of work from our extremely dedicated and hard working employees. With Platrium you get a ton of high-quality casual games in exchange for installing the Platrium Playbar - and no popups! Please check it out and tell me what you think. It is still in beta so we can make changes based on your feedback, but also be aware that there may be a bug or two (it is still in beta after all).

Check it out here: www.platrium.com

The way we are consuming content is changing and changing fast. Take video as one example. Going back just five years there was essentially one way to view TV shows; on your TV and for the most part supported by in-content advertising. Now if you have a favorite show you can TiVo it and blow past the ads, buy it on DVD without any ads, or watch it online with in-content ads that you can’t fast-forward. With this change in consumption comes a change in business model for the content producers and publishers – something that is proving difficult.

Several people this week have forwarded me Mark Cuban’s blog on the related topic and the stats are dire but certainly aren’t all that surprising. The key take-away is that an online viewing of a TV episode is currently generating about 1/8^th the revenue of a traditional television viewing of the same episode (and that’s assuming that the inventory is actually being sold and in most cases it still isn’t). These aren’t exactly economics that are going to compel the networks to continue to move their content online – something that consumers are clearly clamoring for.

So how do we continue to make content freely available on the Web? My stated thesis has been that context (user mindset) matters. When consumers are in an entertainment mode, they should be entertained. When they are searching for something commercially relevant, they should be advertised to. It’s a pretty simple concept, and it is precisely that concept that is powering the roughly $20 billion in revenue that Google will generate this year. So why then do we continue to insist on showing in-content advertising when the content is entertainment related? The economics clearly aren’t there yet the annoyance factor to consumers is. The example here is about video, but the same problems exist with other online entertainment content, including; casual games, downloadable software (instant messaging, screensavers, etc.), social networking, and even most blogs. In other words, most of the traffic on the web.

My contention is that ad supported content is the right answer, but the ads need to be time-shifted to a time when the consumer is actually going to be receptive to the advertising. This model essentially brings search-like economics to entertainment related content. Or to look at this from a business model perspective, time-shifting advertising allows you to buy entertainment related traffic (low value) and turn it into quality search traffic (high value).

Ultimately there are going to be lots of smart folks working on this problem resulting in lots of smart solutions for how to keep high-quality, entertainment content free on the Web. But time-shifting is one of the solutions that will do a great job of addressing this problem. As such we will be releasing a product early next month that I believe will be an extremely effective solution for exactly this problem and will ultimately have a huge impact on the Internet’s content economy. We have built a solution that we think works very well for the content producers and publishers as well as the advertisers – but most importantly for the consumers of all of this entertainment content. Stay tuned for more, but as content consumption changes so must the business models that support the content and that simply means opportunity.

Read this post by my brother and our CTO, it highlights the absurd nature of Microsoft’s supposed war on potentially unwanted software.

About a decade ago a friend told me that what you will be in five years depends in large part on who you spend your time with and what you read. So I try to read as much as possible and try to get my team to do the same. With that goal in mind, every quarter I select a book and everyone in our leadership team reads it (45 key employees spread across the globe). This not only encourages a good read, but also allows all of us to get on the same page and share a common lexicon. I’ve found it helpful over the years and thought I’d share a few of the books I’ve “assigned” during that period of time.

Straight From the Gut by Jack Welch

Pour Your Heart Into It by Howard Schultz

Winning by Jack Welch

Built from Scratch by Bernie Marcus and Arthur Blank

1776 by David McCullough

Freakanomics by Steven Levitt

Leadership by Tom Peters

The Essays of Warren Buffett: Lessons for Corporate America edited by Lawrence Cunningham

Influence the Psychology of Persuasion by Robert Cialdini

The First 90 Days by Michael Watkins

Jack Welch Speaks by Janet Lowe

Next quarter we’ll be reading Barbarians At the Gate. It is educational, insightful and a blast to read – definitely in the top 10 of my all time favorites.

I’ve been assisting my brother and my Dad in caring for my 95 year old Grandfather for the past 10 days after he fell and broke his hip. My Grandfather has been my biggest hero for as long as I can remember so it simultaneously an honor and a surreal experience to be assisting him in his time of need. Ken tells the story of his recent trials and tribulations better than I could: http://smithkl42.blogspot.com/2008/03/my-grandfather.html

I’m happy to report that my Grandfather is doing amazingly well at this point. Yesterday he came home from the rehab center and is staying with me for now. His incredible sense of humor, undying faith and bright outlook seem to be combining to make him better and stronger every day.

Nordstrom stores have been around in one form or another since 1901 and as they grew from an 8 store shoe chain to a national department store they gained a much deserved reputation for incredible customer service. They are legendary for having an open-ended return policy and they empower their employees to do whatever it takes to make the customer happy. The culture that they have built around customer service is something I’ve marveled at and tried to replicate here at Zango. But something is amiss at Nordstrom as of late. In the last 10 dealings I’ve had there, it is no exaggeration to say that 8 of those interactions have left me with a bad taste in my mouth. The bad experiences range from a salesperson who clearly doesn’t want to do anything extra, to repeatedly bad tailoring jobs, to a complete lack of follow through for orders. I may just be unlucky lately, but I’m getting the sense that there is something systemically wrong that is causing this sudden change.

I don’t have the answer for Nordstrom, and this isn’t meant as simply a bitch posting; but rather I had two take-aways from my recent experiences.

1. A company can never take their core values for granted. Just because your business was founded on a principal and it has been ingrained within your institution for over a hundred years doesn’t mean the leadership of the company can assume it will continue automatically. You have to stay vigilant and you have to keep preaching core messages. I’ve seen similar back-sliding around here, and I’m often reminded that just because I said something a thousand times last year doesn’t mean I can stop saying it this year. If it is foundational and core, the leadership has to keep preaching the message – and that is a tough thing to do.

2. A company can never take customer loyalty for granted. On the whole, Nordstrom has been incredibly good to me. If I’m busy, the manager from the local Nordstrom will pick a huge rack of clothes and bring them to my office so I can literally shop in 15 minutes in my office. What kind of store does that? It really is amazing. But now, in just three short months I’m so annoyed with the place that I’ll shop anywhere else first in order to avoid Nordstrom. Customers have a what have you done for me lately mentality, which means a company’s reputation is only as good as their customer’s last interaction.

These are common tenants in business; just because you did something great for me yesterday (whether it be your culture or your customers) doesn’t mean you can rest on your laurels. Both culture and customers need constant nurturing and catering – a lesson I too seem to keep forgetting, but I’m now reminded again.

I thought this picture said it all. Somebody taped a $2 bill to the door leading into the Bear headquarters. Heartless. But damned funny.

For a slightly more in-depth analysis of the deal, click here.

I am constantly amazed at how many times our industry (online advertising) has to keep learning the same lessons. Remember in 2002 we all laughed at how foolish those people were in 2000 because they didn’t pay attention to revenue and profits but instead simply counted up “hits”? Well we’ve certainly gotten a lot smarter this time around but I still find myself shocked on a regular basis by the fact that some people seem determined to learn that lesson all over again.

I watched in amazement last year as industry analysts began expanding their definition of the “search space” to include search of videos, maps and images. They do refer to these searches as “non core”, so I guess that isn’t so bad except that the analysts began making comments along the lines of “when non-core search monetization catches up with core search monetization…” These people were actually making the assumption that it was just a matter of time until this happened, as if one was simply less mature than the other and that was the only real difference. This wrong-headed thinking then led the same analysts (as well as lots of other people) to begin thinking that all traffic is essentially the same, and that Facebook (as just one of many examples) traffic will eventually be equal in dollar value to the traffic on Google. In fact I even heard the argument that Facebook traffic might be more valuable since people stay there longer and view lots more pages yet on Google they simply come in and leave quickly to an advertiser’s site.

If I were having this discussion with my 7 year old son I wouldn’t have been so flabbergasted, but these were educated people who know our space. Unbelievable. I’m sure every good reader of this blog gets the difference, but on the off chance there are one or two of the yet-to-be-enlightened crowd stopping by; let me see if I can clear this up.

Mindset matters. The reason why Google is killing it and has better margins than the U.S. Mint is because when people go there they very often have a commercial transaction in mind. They are in what we call a “commercially relevant mindset.” In fact Google makes money on fully 50% of the searches performed on their site, which by its very definition means that half the time you use Google you leave Google. Of course doing so makes Google nearly a dollar every time this amazing little phenomenon happens. However when a person arrives at a social networking site, they are not typically looking to buy something and don’t fall into that golden category of being in a “commercially relevant mindset”. Given the CPMs and click-through rates that a typical social network is getting these days you’d have to show an average user between 500 and 600 ads per session (conservatively) to replicate the same economics that Google gets.

A headline of an analyst’s report last month read, “Social networking inventory becomes a drag” and went on to state that due to guaranteed payments from Google to MySpace Google is actually paying out more than 100% revenue share since they had contracted to “sell” the ad inventory for MySpace. Not bad for MySpace short term, but probably not a winning model for either company long term.

In any case, I’m glad to see that we are once again learning the lesson that you can’t just count impressions and users. In other words, mindset matters.

Comparison of share of page views; Google versus Facebook versus MySpace (according to Alexa). Almost the same, but not nearly equal.