Kenny Hemphill
In the street markets of Turkey, traders of carpets and jewellery, among many other wares, will go to almost any lengths to get your attention. They’re not exactly places for the faint-hearted, but if you’re happy to take refuge from the blazing heat and sample the shop owner’s apple tea, it’s a very enlightening experience.
Those markets have changed little in a couple of thousand years, but in the ultra-modern digital world, the clamour for your attention is even greater. Whether it’s to show you adverts, persuade you to sign up to an email list or sell you something directly, it seems everybody online wants your eyeballs.
Attention has become a currency in itself. It may be a decade since the pre-dotcom bubble-burst era when the valuations of Internet companies were based on price/earnings (PE) ratios that were the stuff of fantasy, but we haven’t moved on a great deal. Take Twitter as an example. Last September, it engaged in its second round of venture capital funding and valued the business at $1 billion (about £660 million). This was despite the fact that, at the time, its annual revenues were somewhere in the low tens of millions. An internal spreadsheet, apparently stolen from the company and seen by Tech Crunch, showed forecast earnings of $110 million (about £72.4 million) in 2013, on an assumed user base of 1 billion.
Earnings of $50 million (about £32.9 million), which is an overly generous estimate of its profitability at the time, and a valuation of $1 billion would have given Twitter a PE ratio of 20. Apple, by comparison, a company that has grown solidly and consistently for a decade, has a PE ratio of 16. Yet few experts or analysts raised eyebrows at Twitter’s valuation of its own worth, despite the fact that with a user base of 1 billion, it will already have reached half the people in the world who have access to the Internet, leaving little room for growth.
Why this confidence in Twitter? Precisely because it has the attention of so many people. Attention is the reason Google bought YouTube, even though it had little idea whether or not it would ever be profitable. It’s the reason Google developed Android and Chrome OS, and why so much of the Internet is currently free at the point of access.
The model is a simple one: you give away something with a high perceived value for free, whether it’s the ability to send short messages to friends online, or share videos, or your latest MP3 track, in order to capture – and, if it works, hold – the attention of lots of people. You then monetise that attention, somehow. It’s the model that most online newspapers and magazines have used since the dawn of the web – that is, give away content for free in the hope that the sheer number of visitors to your online property will attract advertisers in large enough numbers to be profitable. And it’s failing – badly.
So badly that News International took the bold decision to start charging for much of its online content by putting it behind a pay wall. Now, if you want to read The Times online, you’ll have to get your wallet out, just as you would if you wanted to read it offline.
Ironically, News International’s move comes at a time when much of the traditional print media market is moving in the opposite direction. The Evening Standard, now London’s only evening newspaper, is free. And one of the most successful magazine launches in recent years, Shortlist, is also free. Again, the aim is to grab your attention and sell it to advertisers.
So if attention as a revenue generator is failing for old hands such as News International and its competitors, why do upstarts such as Twitter and Facebook seem to be valued so highly? Their model, after all, is broadly similar: give away the farm and use the number of visitors and users as leverage to generate advertising revenue. There’s one important difference, however: data. Online newspapers and magazines know virtually nothing about their visitors. Facebook, on the other hand, knows everything about its users. The reason Facebook’s privacy policy has been so controversial recently is precisely because it gives it huge leeway in how it gathers data about you and what it does with it. The information in your profile is only a small part of the picture it has of you.
That data allows it to target adverts extremely carefully, and so give advertisers a much better return for their money. And its the headway that Facebook has made by exploiting user data commercially, and the success its had with Facebook adverts, that has investors so excited about Twitter.
The model on Twitter may be different, allowing businesses to ‘sponsor’ Tweets that already exist, but the end result is the same: the ability to carefully target customers based on preferences they exercise. That’s something Turkish rug salesmen can only dream about.
