While the other telcos have divested their Yellow Pages units, AT&T maintains that there is real synergy in pursuing a three-screen strategy. Rather than selling the YP unit and using the proceeds to build out its network, a la Verizon, AT&T is betting that there is a home field advantage in keeping its landline, mobile and U-verse video customers intact, and selling advertising — especially local advertising — across the digital channels.

It is a big bet. U-verse apparently has had start-up pains in an intensely competitive video marketplace. And mobile advertising obviously needs to be very sensitively handled. AT&T could always change course and spin out the YP unit. But for now, I like the ambition of it all.

Speaking at its 2007 analyst conference, Ray Wilkins, group president of diversified businesses, said his revenues are $600 million today, but that he hopes to see $1.5 billion in non-print advertising revenues by 2010. Yellowpages.com, especially, is the core of the opportunity, since it represents a giant umbrella for all the products. It is expected to get 30 percent revenue growth CAGR over the three-year period.

The basis for these projections is integrated sales from the YP sales force, a boost in searches from 2 billion to 3 billion, the integration of Ingenio’s Pay-Per-Call platform and the general growth from search revenues, especially on the mobile side. Wilkins noted that 18 million wireless handsets will be pre-installed for AT&T mobile search next year, and enabled in 20 million others. By the end of the year, he said, digital ad insertion will begin in U-verse homes.

Jake Winebaum, president of RHDi and CEO of Business.com, a self-admitted neophyte in the local search space, shared his unique “new guy” perspective of the state of selling local search to small businesses at ILM:07. Now working for a large incumbent directory publisher, R.H Donnelley, Winebaum outlined a number of critical challenges and advantages of incumbents including:

• Brand history can impede incumbents from doing what is necessary to meet consumer needs since they must also be concerned about balancing the needs of their existing advertiser base.
• To compete effectively in local search, companies need to aggregate a critical mass of advertisers and queries to make local search work.
• Local search on IYP needs to be more keyword and geographically based to deliver more relevancy and more loyal users.
• The winners in local search will be those that leverage their existing sales force and advertiser base and make search accessible and easy to manage.
• Deep, structured, relevant content that can be aggregated for easy use will help win over small advertisers.
• Transparency of pricing and results to advertisers is critical; if SMBs are not savvy now they will be in a very short timeframe.

While many questioned the acquisition of Business.com, the real value for RHD is the advancement of its online strategy by 12 to 18 months. “The acquisition provided RHD with an experienced online management team, more effective content management, search technology and user navigation that will allow the site to function more effectively to drive consumer traffic,” Winebaum said.

“An additional benefit of the acquisition,” according to Winebaum, “is that B2B companies are a high growth rate segment that spends a greater amount of money on their advertising in order to generate high quality leads.” As an example it was revealed Business.com is generating $0.60 revenue per visit, offering RHD a high return vehicle going forward in the B2B segment.

With all its online properties now under one RHDi management team, the focus is on creating more pay-for-performance products on the publisher’s own properties as well as partner networks. This move may also signal a pay-for-performance model being utilized across all its advertising products.

One year ago, head of AT&T Directory Operations Dennis Payne (apropos to the previous post) mentioned during his DDC keynote address that AT&T would push hard on bringing directory listings to new formats, most notably IPTV. Then last march at the Drilling Down on Local conference, Yellowpages.com CMO Matt Crowley presented some mock-ups of screenshots of how this might look as a feature on AT&T’s IPTV service (U-verse).

Now this week, as AT&T announced a milestone in IPTV subscribers, the first publicly available screenshots have begun to emerge showing the IYP module that can be found within the U-verse service package (Sebastien Provencher has screenshots).

This brings up an interesting point about the way things are moving: If you look at online video, a content format traditionally owned by the living room is gaining ground and finding new use cases on the PC. Now we also have things moving in the other direction, where IYP content is moving onto the television (media cross-pollination, as I like to call it).

These cases follow a general trend where content is becoming more and more pervasive across devices. This is at the heart of the bundled services (”triple play“) battle being waged by telcos and cable companies. It’s also behind the “platform agnosticism” you hear in nearly every business presentation given these days. This has evolved into the “three screen strategy” that many content providers, including Yellowpages.com, are touting to get in front of users with a continuity of services across mobile devices, PCs and televisions.

Worlds Colliding

For U-Verse, IYP integration would be analogous to MSOs’ (most notably Comcast) integration of local classifieds ads that are browsable through the on-demand programming menu. Like Comcast, the challenge for AT&T will be creating an interface controlled by a television remote that isn’t so cumbersome as a departure from the way users are accustomed to searching or browsing online.

Generally, this represents one of the challenges for IPTV and for online video that is shared between the PC and television (the first glimpse of which we’ve seen from Apple TV).

To really unlock the interactive potential of IPTV, will we have keyboards and mice in the living room? Likely not, but IPTV promises better interactive capabilities for searching for programming, directory content, classifieds and many other things (explained here). Will this hit a wall with the lacking interactivity of a television remote? Perhaps some sort of tablet device will be developed.

Selling IPTV

As these questions are answered and as more content is available in more interactive ways on IPTV, usage will likely increase for IYP content, and other local search applications could find a home there. From this, a new local search use case could emerge, and advertiser demand could likewise grow, as it has online.

If this becomes a media outlet where consumers search for and find things locally, it should join cross-platform selling efforts of directory publishers. AT&T Advertising & Publishing is in a unique position in having a direct channel into U-verse. No other directory publisher has this, but partnerships will likely form to bring competitive branded IYP modules to other IPTV providers (ironically, Verizon), and possibly cable providers as well.

One of the biggest challenges, as with online video and performance-based ads, will be selling new ad units to small businesses. Cross-platform ad selling is being talked about more and more by directory publishers and possibly being embraced, finally, in earnest. This was a theme at last week’s joint ADP/ADM event, which John Kelsey attended and wrote about, and one that will be addressed at next week’s DDC conference.

This is also an important theme that will be raised in two part series of reports, the first of which will publish next week, on the challenges in selling online performance-based advertising and other bundled ad units to SMBs. We hope to hear your opinions on these topics.

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Related: Following are related conference sessions at DDC next week:

Wednesday, Sept. 19, 2007

9:30 am - 10:30 am
Selling Search, SEO and Performance-Based Advertising
Yellow Pages publishers are staking much of their future online growth on selling access to traffic acquired through reseller relationships with major search engines. This panel will outline the challenges involved in selling search and look at how publishers have moved up the learning curve.
Daniel Deal, VP, Local Sales, Yellowpages.com
Kirsten Mangers, Cofounder and CEO, WebVisible
Alexandre Rambaud, Founder, Chairman and CEO, AgendiZe
Neil Salvage, Executive VP Sales and Service, Citysearch

11:00am - 12:00PM

The Evolution of 3-D, Video and Audio — The Future of Rich Media and Yellow Pages
Imagine moving from an aerial photo map view of a listed business in your hometown, moving down to the street level, then navigating through a 3-D rendering of the street the business is located on, then entering the store and viewing a video tour of the business, complete with a message from the owner on current special offers. Top it all off by making an online transaction — say scheduling a hair cut and redeeming a coupon for 10 percent off the price. All this is possible today, and much of it is happening. The question is, will this ever become the typical online directory search experience? We will put this question to a panel of leading-edge thinkers on online Yellow Pages and local search.
Rob Angel, Vice President, Merchant Product, Citysearch
Jeff Folckemer, Executive VP and COO, White Directory Publishers
John McWeeny, Senior VP, Business Development, TurnHere.com

It’s been a while since we’ve written about IPTV because of the immediacy of other developing media and their impact on local. There are nonetheless some interesting local implications for IPTV (examined before), though they will take longer to have an impact.

The most recent news from the IPTV world is that AT&T’s U-verse package has reached 100,000 subscribers. This is a drop in the bucket compared with competitive offerings from cable television incumbents. But is a good start for AT&T’s foray into the living room, which also beats Wall Street expectations, according to GigaOm. U-verse was also recently named “best business strategy” by Frost & Sullivan (I haven’t examined methodology yet).

This is generally part of the quad-play battle that will continue to play out as MSOs and Telcos step into each other’s territories. Cable will have the first run advantage in this territory battle, based on the simple reality that it’s easier to establish and roll out digital voice service than digital video. Indeed, telcos have to lay down costly fiber infrastructure and rip up new customers’ lawns and walls in some cases to get IPTV installed.

Initial IPTV service offerings will also be no better than cable service, partly due to the challenge in signing content agreements, which is something with which telcos have zero experience. But over time, this will change, and the key is that the underlying switched video architecture of IPTV will allow for much greater volumes of content and interactive ability. (see past post and a video from Rocketboom). IP-based ad targeting will also have a leg up on the neighborhood targeting that MSOs employ.

The Real Battle

But the main point is that AT&T, Verizon and other telcos that will wage this triple-play battle aren’t doing it for the customer retention benefits inherent in a product bundling strategy. This is attractive but clearly nowhere near enough to recoup the $50 billion-plus that they’ll collectively spend to deploy fiber networks and install service to the home.

Instead, owning the networks across these media and devices will allow these providers to move beyond being the “dumb pipe” to become content producers, aggregators and distributors, and to serve targeted (IP-based) advertising across devices. In other words, the real bundled service battle will be in developing and marketing the continuity of services and content across these devices, which will involve IP-based targeting down to the set-top box level.

So for AT&T, video is indeed an important element in its ability to serve more targeted ads to consumers across devices and on a local level. Add the synergies possible with its directory operations (video + mobile + IP based targeting + local sales force), and this will get interesting.

It’s a long way away, but the company just got a step closer to being the threat it could someday be in local video distribution and advertising.

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Related TKG Reports: Triple and Quad Play: Who Will Win the Bundled Services Battle; and From Reach to Targeting: The Transformation of TV in the Internet Age

Summary

Ad network Specific Media focuses on premium inventory across major Web sites for national brand advertising. But it also has some interesting methods for tracking the influence of branding on search behavior and some interesting implications for local advertising. This will gain relevance and effectiveness with the acutely targeted IP-based advertising that upcoming IPTV packages and triple-play systems will bring to both national and local advertising, and it will tie them together more effectively.

Analysis

Specific Media focuses mostly on the head content: the most visited media Web sites including those of Fox, CNN, ABC, ESPN and 450 other publishers. It likewise attracts brand advertisers interested in large-scale national impressions, and it’s the seventh-largest ad network in U.S. unique visitors (120 million) and reach.

But the ad network also has an interesting ability to give these large-scale ad buys demographically relevant targeting. It does this by collecting cookie data across 2 million Web sites to determine valuable patterns in Web surfing behavior and extrapolate who’s who online, which enables it to place advertising in front of desired consumer groups that marketers specify.

“We collect massive amount of Web surfing data and are able to look at each user and score them to the likelihood of age, income, location and demographic,” says CEO Tim Vanderhook.

Many ad networks apply their own, sometimes similar, methods to target ads more effectively. But Specific Media has also engaged comScore (via an anonymous consumer panel of 2 million individuals) to track subsequent search behavior –  up to a few weeks – to see the effectiveness ad impressions have on search down the road.

This is conceptually similar to the tracking and ad serving method known in the search world as post search (see AlmondNet) and is particularly relevant in high-consideration, high-cost verticals such as autos, where there is often a great deal of latency in search behavior.

Brand advertising will never go away in such categories and will maintain an important place at the top of the purchase funnel. Assessing a return on such brand ad investments has always been difficult. But these types of tracking methods can get advertisers closer by seeing, on a large scale, where their online display ads influence search behavior further down the funnel when clicks, leads or conversions are generated for specific model cars and specific local dealers.

IPTV: Tying It All Together

Performance tracking for brand advertising from exposure, to search, to even lead generation and conversion, will become even more effective in an IPTV environment, Vanderhook agrees. Here, the ultimate national brand advertising tool –  the 30-second auto ad –  can be better served and tracked down to a set-top box level (compared with cable television’s current ZIP code level targeting).

“Right now, we rely on a cookie to tell us where that IP comes from. Soon there will be no need for a cookie anymore,” says Vanderhook. “ISPs will offer triple-play package and will be able to look at who consumers are more effectively.”

This value of this position and the ability to act as a content and ad distributor across systems will be where telcos will recoup the massive investments currently being made on fiber network deployments (IPTV), as examined in the TKG Triple Play Advisory (summary here).

As Specific Media has begun to do, the pull-based search tools that IPTV will offer can better track the success of brand advertising in influencing search behavior down the road. This is also true with some cable offerings (see last week’s post on Vehix’s interactive TV). This gets even better when you bring in more elements of triple play and have IP-based call tracking (via VoIP), and a higher degree of integration between the television, search interface and the telephone.

Here, click-to-call functionality and pay-per-call ad models and call tracking will gain importance. Vanderhook wants to position Specific Media to be ready when this happens and is already testing products with some IPTV systems. This will also be very relevant to local if national advertisers more effectively integrate ad campaigns with local dealers using set-top box IP targeting for both behavioral and geographic targeting.

“Pay-per-call will gain importance with better integrated VoIP platforms. It allows you to do a lot of routing around the call, and it can be more effectively tracked,” says Vanderhook. “ISPs will have triple-play relationships with consumers, and everything will be tracked from ads served to phone calls placed to dealer leads. The dealer and manufacturers can meanwhile track sales more effectively, and marketing spends.”

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Related: Market research firm iSupply projects the global IPTV market to grow from $779.2 million in 2006 to $26.3 billion by 2011.

After a five-hour installation job – apparently, many are longer – I am now among the first in San Diego County to have AT&T U-Verse, a new fiber-based service with a node down the street. They are definitely not calling it “IPTV.”

The service provides cable modem-like speeds for Internet, a wireless router and 400 channels of video, including 25 HD channels. A free Digital Video Recorder is also thrown in. After one day, I can report that the picture looks great on my new HDTV, and the Internet speeds are good, too.

For AT&T, U-Verse is considered critical to its future in media and communications. Accordingly, the company’s vision isn’t just confined to TV and Internet. This spring, for instance, AT&T showed off a TV version of Yellowpages.com (although it isn’t expected to be widely deployed for several years).

That’s basically it for the local connection – although home shopping efforts, launching down the road, are probably going to be tied in with the Yellow Pages service and might have some local capabilities. Three colorful buttons in the middle of the universal remote have been expressly reserved for shopping.

Beyond local, there will also be voice services. Today, I found out (by reading my instruction manual) that AT&T plans to introduce a full line of U-Verse voice services – just like Time Warner, which competes against it locally. (The current absence of a phone tie-in is actually kind of strange.) AT&T will also be introducing the ability to show your Yahoo! photos on TV.

My friendly pair of installers – AT&T employees, not freelancers – told me the company provided them with three weeks of classroom training but nothing in the field. So they were pretty much learning on the job. But they were good.

AT&T followed up on the installation with a college student, who came around to show my wife and me how to use the DVR features, etc. For instance, I learned that I can program the DVR directly from My Yahoo!. That is cool – especially when I am travelling. Their excellent care made me kind of melancholy, because I am not used to getting such good service from AT&T.

I’ve got the complete package for two months for just $74, and there is no contract. And I get $50 for every neighbor I refer. I think there will be several. Let’s see how Time Warner competes against it. This is one war that I am looking forward to.

A handful of articles came out today that together triangulate some interesting points on the future of IPTV and local.

The New York Times examines a few automated ad platforms and services that are following the trail blazed by Spot Runner. We’ve always recognized Spot Runner as a game changer for bringing television ad creation and placement within the grasp of small businesses, but it’s also interesting to note how it can allow national advertisers a more cost-effective way to reach local audiences (Spot Runner CEO Nick Grouf will keynote at The Kelsey Group’s upcoming Drilling Down on Local conference).

According to the article:

“The new systems threaten some of the roles that advertising agencies have traditionally played. National advertisers, mainly in the retail, real estate and auto industries, are using the systems to make their messages more relevant on the local level.”

This is the logic behind some of the deals Spot Runner has formed with national Realtors such as Coldwell Banker that gives its far-flung Realtors and constituents these ad creation and placement capabilities.

“They can automatically add names of local sales agents or dealership addresses, and they can change the content of the ad, depending on where it is showing, to appeal to various demographic groups. Among the companies that have used these services are Wendy’s, Ford Motor, Coldwell Banker and Warner Independent Pictures.”

The article also talks about Fort Lauderdale-based Zimmerman Advertising, a subsidiary of Omnicom Group that seems to be a smaller Spot Runner-type play. Its automated ad creation engine, called Pick-n-Click, is currently only available for automotive advertisers, but it has many of the customization features of Spot Runner, such as voice-overs and text.

Targeting Local Audiences

The automation and cost effectiveness of creating ads is only half the battle; the ad targeting we’ve come to expect from online search will take this to the next level.

“If there’s a man and a woman watching television in two different houses and you are Procter & Gamble, it would be more efficient to show one of them an ad for a Gillette’s men’s razor and the other a woman’s ad,” said Mark Read, director of strategy at the WPP Group, an advertising holding company that has invested in Visible World and Spot Runner. To customize ads, the companies, to a varying degree, link ZIP codes with census and other third-party data to develop local demographic profiles, isolating viewers more finely than typical cable operators.”

Still, this misses the point. Yes targeting will be possible, but the potential here will be much greater than using ZIP codes and census data. This is where the technology exists today, but the real story is where IPTV could take this (referring to telco-delivered IPTV service packages). The “switched video” architecture of IPTV will be much like the Web. Every time a viewer switches the channel, it will be like clicking on a Web link  that channel will be called up from a server. This contrasts with cable’s architecture, which crams into one pipe 300 channels that are there all the time for users to surf.

Long story short, IPTV’s architecture will let us go from ZIP code targeting to IP targeting. In other words, the question of what ads come on and when will come down to the set-top box level rather than the neighborhood level (no more Craftmatic adjustable bed commercials because of your geriatric neighbors). There are many other legal, organizational and cultural hurdles to cross before this scenario is realized, but this is where we’re headed with IPTV.

The other wild card here is looking at what IPTV’s architecture could do for the economics of ad inventory. Because one channel is called up at a time, as mentioned above, there are no technical limitations on the amount of channels you can have  unlike with cable. This opens up lots of space for content and thus ad inventory. An increased supply could yeild falling prices and a long-tail effect that will make television ad inventory more affordable for small businesses and more efficient for national brands (eMarketer reports today on an Accenture study showing the growing enthusiasm among executives for the idea of IPTV targeted advertising). Combine that with the lowering cost of video ad creation and distribution, a la Spot Runner, and this starts to get very relevant to local.

Of course there are other factors preventing the creation of thousands of TV stations, such as content creation, licensing and the control that IPTV providers such as AT&T will no doubt exert. But this could change over time as some consumers sidestep the telcos and watch Web-delivered video (the jerky, low-res quality of YouTube-like video clips will improve with higher broadband speeds, and adoption will rise when you can watch this content on your television set  see AppleTV). Regardless of these other factors, if you look at IPTV’s technical specifications and the possibilities they bring, it starts to get interesting. We’re not there yet, of course, but it’s certainly time to start talking about it.

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Related: B&C reports that local television revenues are up 41 percent. This is attributed to strong growth in local advertising and more SMEs in auto and real estate verticals coming around to the idea of television advertising to augment or replace newspaper and Yellow Pages ad spends.

AT&T’s triple-play product bundle, U-verse, is currently available in 11 U.S. markets and is largely in testing phases. It has a long way to go before it can compete with cable offerings in many markets, but once it clears content aggregation, licensing, and infrastructure and deployment hurdles (Verizon faces the same issues), it will be a compelling offering.

As we’ve pointed out in the past, the architecture of IPTV will be much like that of the Web, which will allow for the contextual, behavioral and geographically targeted advertising we’ve seen grow online. Many other factors must fall into place before this goal is realized though.

One of these, mentioned above, is content aggregation, which telcos like AT&T are finding to be a challenge, given their lack of experience doing it. Once they have this content in place, they will be able to distribute it across many channels and devices, which is where their efforts in bundled services (voice, video, data and wireless) come in.

AT&T recently signed a long-term deal with Hearst-Argyle Television to acquire local news, sports and weather broadcasts for U-verse subscribers in six markets near AT&T’s San Antonio headquarters (its biggest IPTV test market). The San Antonio Business Journal has the scoop.

Elsewhere in the world of IPTV, IPTV News reports on a study that shows there are currently 3.6 million subscribers. ISupply meanwhile predicts there will be 65 million worldwide subscribers by 2010, and an overall IPTV revenue stream to telcos of $18 billion by 2009.

The New York Times reports that Comcast attributes its strong fourth-quarter earnings  in which profits tripled  on bundled services (voice, video and Internet).

Competition is heating up in the triple-play space, as we keep saying. It should be more accurately called quad play given the ability for competing telcos to add wireless service to this product bundle. This could give them a competitive edge on cable companies to attract and retain customers, but cable companies have made steps to partner to bring in this capability. Comcast’s partnership with Nextel formed last year was for this very reason.

There will be lots of competition in this space over the next few years, both on price and features. Users will ultimately win. Providers will meanwhile use the fact that they “own” the network across many devices to move beyond their traditional status as a “dumb pipe” and instead position themselves as distributors of content and advertising.

Bring in the directory assets of telecoms and the local sales force of Comcast and this gets interesting on a local level. Battle lines are beginning to be drawn and it will be very interesting to watch this play out. More in our Advisory Triple and Quad Play: Who Will Win the Bundled Service Battle?

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Related: ZDNet reports on an iSupply study that expects 65 million IPTV subscribers by 2010, and an ABI Research study that expects 267 million residential VoIP subscribers worldwide by 2012.

I missed this late last week because I was out, but AT&T has fired the latest shot in the bundled services (or “quad play”) battle by offering free wireless calling to landline phones. In other words, it’s free when Cingular (soon to be “AT&T”) users call landline phones (no minutes are eaten up), and vice versa. This also brings wireless and landline service closer together with the singular (bad pun intended) bill, characteristic of quad play.

As competition heats up in triple play, we’ll continue to see lots of feature enhancements like this and lots of price competition. Triple play not only has benefits of economies of scale and customer retention, but ownership of all these services also creates a network effect for providers, allowing them to go beyond “dumb pipe” status and more effectively deliver content and advertising across devices and services. Examples are programming your DVR from your cellphone; watching the ending of a TV show on your cellphone that you weren’t able to finish at home; sending local search results from a PC to a cellphone; the list goes on and on.

Triple play is therefore important to the local search and media space, and we’ll continue to watch it closely. Read more in our recent Advisory Triple and Quad Play: Who Will Win the Bundled Services Battle? and blog coverage here, here, and here.

On the lighter side, here is a funny YouTube clip from the Colbert Report on the Cingular name change and on AT&T’s slow metamorphosis back into Ma Bell-like form (interesting metaphor  previously made by Greg Sterling  to the Terminator T-1000 creature made up of liquid metallic pieces that constantly break apart and come back together).