The Long Tail

More evidence that ad CPMs are higher in the Tail

Following up on my post about how niche social networks can command higher  ad CPMs than the big generic sites such Facebook and MySpace, here's some new data from PubMatic that makes a similar point about web publishing:

Not only do small (Long Tail) publishers montetize their content at 3-5 times the rate of the larger publishers in PubMatic's survey, but they're improving in the current environment while the big publisher decline.

Segment Definitions

• Small Web site segment: Less than 1 million page views per month.
• Medium Web site segment: Between 1 million and 100 million page views per month.
• Large Web site segment: Over 100 million page views per month.

The real meaning of "there's ain't no such thing as a free lunch"

Econ geeks like me know George Mason University economist Russ Roberts as one of the best commentators on the dismal science, not only for his Chicago-school clarity but also his ability to communicate economics to a broad audience through everything from novels to a popular podcast. So I was delighted when he asked me to be the guest for today's audio installment, which you can find here.

The highlight for me was his explanation of what "There's ain't no such thing as a free lunch" (TANSTAAFL) means, and how it squares with my own suggestion that, at least from a consumer's perspective, lunch really can be free.

From Robert's summary of this part of the podcast:

What do economists really mean by this phrase? Common interpretation: If you think it's free it's only because you are not counting the externalities and repercussions. Suppose you go up to a sort of friend and say "I'm going to take you to lunch, a fancy restaurant." Friend demurs. Maybe feels he might feel pressured to reciprocate. Or that he might be asked for something down the road. Is if free to you if you never intend to reciprocate or do anything even if asked? It may be free to you, but it costs someone else or costs you in opportunity cost.

Everything has an opportunity cost--something else could be done with those resources. Walking down the street, someone presses into your hand that you recognize as a coupon for a meal at a great restaurant. No out of pocket costs, don't even have to deal with Russ's conversation, better than even daydreaming through Russ's conversation. It's free in the out of pocket sense, free in the sense of everyday language; but in fact it still costs you your time--the time you spend eating at the restaurant is time you're not doing something else. That's what economists mean by Tanstaafl ("There ain't no such thing as a free lunch"). Reading Wikipedia takes your time as a reader. Tiny cost, eyeball cost, zero compared to the alternative of looking up the information somewhere else--which would also have the eyeball cost. Milton Friedman meant the opportunity cost.

So there you have it. In the purely monetary economy, there are plenty of free lunches. But include such non-monetary factors as time, attention and the value of the other things that you might have done with your time and attention, and eventually you'll pay, one way or another. Fair enough--free in the monetary economy is close enough for me.

We had a lot of fun on the podcast and Russ is always a treat to learn from. Check out the rest of his summary of the wide-ranging conversation here, along with reading sources and furious comments from Russ' listeners  (or better yet, download it to your iPod and listen to it as God intended in the car)

You may be on Facebook, but the money's in the Long Tail

I've argued before that social networking should be a feature, not a destination, and that the one-size-fits-all model of Facebook and MySpace will eventually give way to a multitude of narrowly focused sites with social networking built in, such as the 220,000 niche networks hosted on the Ning platform.

It turns out that it's not just the experience that's better on the smaller, more focused sites: the economics work better there, too. Yesterday MySpace's parent company, News Corp, released quarterly financial results and although traffic was up on MySpace, they're having trouble making money. COO Peter Chernin said:   

We remain incredibly optimistic about social media. But there are specific challenges 1) Tons of inventory. Lack of scarcity creates a liquidity challenge. Working on bringing big brands aboard. 2) People who are visiting social networks there for different reasons, different uses. Figuring out how to target. 3) What's the value of a "friend"? Trying to figure out new metrics to communicate with marketers.

Indeed, last I checked, display ads on MySpace were going for a rock bottom $0.13 CPM (price per thousand views). Meanwhile, although Ning isn't disclosing its revenue across its entire network, I can give you a sense of it from my own robotics site hosted there, DIYDrones. The AdSense ads we run there (mostly accelerometer and other sensor parts, as per the example above) generate an average "effective CPM" (CPM after Google's cut, which can be as much as 50%) of $3.60. Before Google's cut, that's as high as $7.00.

So that's $0.13 on a general-purpose social network like MySpace and $7.00 on Long Tail social network like DIYDrones. Even with a more generous scenario--$0.50 on MySpace and $5.00 on a focused Ning site--the difference is still a factor of ten.

Sure, the traffic today is still mostly going to Facebook and MySpace. But as they struggle to target ads based on the faint signals of consumer behavior in a generic social network, the smart money is going to the niche sites, where laser-focused content and community makes targeting easy. The Long Tail of social networks isn't just more satisfying if your community is actually about something, it's richer, too.

[UPDATE: See this excellent post by a marketing strategist who reports on the disastrous results from his Facebook advertising experiments. Bottom line: it was only a $0.30 CPM and not worth even that. Tell me again why Facebook is valued at $15 billion?]

DIYDrones and GeekDad at Maker Faire This Weekend

Two of my side projects--DIYDrones and GeekDad-- are going to be at Maker Faire this weekend in San Mateo. We're going to be in booth 166 in the Expo Hall (click on the map for detail), all day Sat and Sun. We'll be showing:

• The BlimpDuino
• The Mindstorms UAV
• The Basic Stamp UAV
• The Lego Mindstorms FIRST Tech Challenge competition kit (first time seen on the West Coast!) .

Also, our rocket friends will be there in our booth with a 22-foot Delta Rocket that has to been seen to be believed. If you think the amateur UAV guys are nuts, you should see the amateur rocketry guys. They also seem to have unlimited budgets (it helps that some of them are VCs).

I'll be giving a live demo of the Lego UAV at the Maker Main Stage on Sunday at 1:30. (No flying alas, but if the air currents are calm I might let a blimbbot loose to do its patterns))

Oh, BTW, I''ve got five free tickets left. If you want one, email me.