Attention Markets

On Monday December 13, Majestic Research will be hosting its second annual Internet conference:  Majestic Conversations 2004: Does Online Shopping = Paid Search? In pulling together the event, it was clear that we were going to have to deal with the extremely high noise/signal ratio affecting the search engine marketplace, especially among institutional investors who cannot seem to get enough shares of Yahoo!, Google and others. 

By posing the question of whether shopping and searching are part of the same process, we have called into question the traditional distinction between Retail and Media.  It is surprising how many funds project their traditional sector specialties (Consumer Retail, Tech Media Telecom, etc) onto that “bloomin’, buzzin’ confusion” that is the Internet.

Internet businesses, in so far as they fundamentally transact data (be it impressions, clicks, leads, sales, etc), are more alike than they are different.  Amazon is more like EBay than it is like WalMart.  Yahoo! Is more like Google than it is like Disney.  Browsing, searching, comparing and shopping as all part of the same process designed to satisfy, simultaneously, the needs of the consumer and the commercial needs of those businesses interested in such consumption. 

Keywords have no inherent value, but they do typify how both Madison Avenue and Wall Street are valuing the Internet economy circa 2003 (in the same way that impressions and page views signified such in 1998).  Soon, keywords will become replaced by leads (or some derivation) and there will be a new group of old and new companies competing for the spoils.

At the end of August, Ross Mayfield, John Battelle and Joi Ito all chimed in on the emergence of a new sort of online advertising model, one in which the ads were liberated from the media and could report back to a central server when a relevant customer performed something of value.  The notion that John used was “sell-side” advertising, which of course to readers here is overdetermined by the history of Wall Street research.

And yet, the conceptual overlap of Wall Street and Internet Advertising is interesting.  Not in the traditional sense of Yahoo and Google as public companies, but rather as frameworks for understanding the behavior of complex markets.  Whereas in the financial markets buyers and sellers may meet to transact commodities, equities, bonds or derivatives, on the Internet they are meeting to trade consumer interests. 

Buy-Side

The Buy-Side represents advertisers who invest in media to influence consumers to behave in a certain fashion.  This behavior might be purchasing certain products from Amazon.com, or booking a family vacation at Expedia, or buying a new blue iPod on EBay. 

Exchanges

Exchanges aggregate consumers.  Similar to how NASDAQ and the New York Stock Exchange list different sets of companies who want to be traded on the exchanges, Google, Yahoo! and others aggregate consumers who express their commercial interests by virtue of the keywords they search for, the links they click on, and the forms they complete.  Content sites, whether it be traditional newspapers or personal blogs also represent exchanges, albeit with less inventory.  Together, all of these exchanges provide liquidity for the online media marketplace.

Sell-Side

The Sell-Side fulfills the demand of the buy-side for certain consumer behaviors with the liquidity of consumer interests found in various exchanges.  The sell-side includes the brokers associated with the exchanges (ie  Google’s Adwords and Adsense) as well as independent entities such as keyword brokers, shopping engines, and ad networks.  In equity markets, the sell-side is responsible for making markets where there is not enough liquidity, executing trades between buyers and sellers, and providing research about companies and access to their management.  Online media provides many of the same functions for advertisers and publishers.

I am preparing a more detailed articulation of this framework as the introduction to our upcoming conference.  I would like to hear from anybody that has ideas that can help.  Our conference is by invitation-only, for institutional investors and industry executives, but we are holding a a few additional slots open for those that may have unique insights on this subject.  For more information, check out our event site or email me.