RockYou Raises Another $17 Million In Funding From Softbank >> Widgets Lab

One of the powerhouses of the Widgets space is RockYou, the people who brought to you Slideshows, PhotoFX and what not, has announced that it has successfully raised another $17Million in Funding from Softbank. This puts RockYou's total funding to date to close to 81.82Mn USD (unverified), surpassing close rival Slide Inc's 58Mn USD to date. Investors this round includes lead investors Softbank and SK Telecom Ventures. The Asian heritage of the 2 investors somehow hints at RockYou's determination to slug it out in the East Asian battlefield. (Widget Labs Report Here.)

This report comes just a month after Valleywag quoted RockYou CEO Lance Tokuda as aiming to make RockYou “the Electronic Arts of Social Networks and build games for Social Networks” . RockYou put their money where their mouth is by acquiring Speed Racing, one of Facebook's favorite game widgets. This bold step to diversify RockYou's offerings, promises to slowly ease off the stifling rivalry between Slide Inc and RockYou, as they each venture off into separate pastures. (Slide aims to be a more integrated Online Entertainment offering)
(Related reports: WidgetLab >> RockYou wants to be a Social Network Game Widget Powerhouse &
Valleywag >> RockYou diving deeper into Social Games)

I've summarised a head to head comparison of Slide Inc. and RockYou.


Source: VentureXpert, Kitchen Report

Internet Advertising Revenues in Q3 '08 at Nearly $5.9 Billion >> IAB

“a weakening economy will continue to be a challenge to all forms of advertising-supported media. However, the Internet should be better poised to withstand the storm given its ability to combine performance-based advertising along with broad-based branding.” - David Silverman, a partner at PricewaterhouseCoopers LLP

Following my previous post on the record ad sales in China's CCTV, here is an official report that Online Advertising revenues are weakening. The report published collaboratively between IAB and PWC reports revenues reaching $5.9Bn in 3Q08 amidst the economic turmoil. Yet, this figure does little to bring comfort to the anticipated onslaught ahead. QoQ growth figures show that figures are up 2 percent from 2Q08, but growth in itself is evidently slowing, and there is no guarantee where it'll go in Q4. Nick Denton of Gawker Media thinks it'll cliff off with a 40% plunge in advertising spending in the foreseeable future.

I hate being pessimistic, but lets face it. Growth rates will certainly have to slowdown to reflect the state of the economy. But it is certainly no cause for despair. I'd rather approach this downturn as an opportunity for businesses to finetune their offering and operations, streamlining themselves for better efficiency. There is still money in it for Value-for-money advertising methods, as advertisers look to maximise their dollar. With the plethora of ad networks out there, few are truly targeted and scientific in their measurement methods. This will be the crunch where advertisers seek the most effective media to spend that last dollar they have in their pockets. And this is time for change for the ad networks and other online ad technologies out there.

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Internet Advertising Revenues in Q3 '08 at Nearly $5.9 Billion: "November 20, 2008
Internet Advertising Revenues in Q3 '08 at Nearly $5.9 Billion

11% Increase from Q3 '07, Up Slightly from Q2 '08 Despite U.S. Economic Woes

NEW YORK, NY (November 20, 2008) — The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers LLP (PwC) today announced that Internet advertising revenues reached almost $5.9 billion for the third quarter of 2008, representing an 11 percent increase over the same period in 2007. While double-digit annual growth continues, the quarter-to-quarter curve remains relatively flat compared to recent past performance. The Q3 2008 figures, published in the IAB Internet Advertising Revenue Report, are 2 percent higher than the Q2 2008 results. Set against strong economic headwinds in the U.S. economy, Q3 '08’s $5.9 billion represents nonetheless the second-highest quarter results ever. For the first nine months of 2008, revenues totaled $17.3 billion, up from $15.2 billion in the same period a year ago and surpassing the record set in the first nine months of 2007 by nearly 14 percent.

The growth of interactive advertising that we’ve been experiencing over the past few years has stabilized due in large part to the difficult current economic climate,” said Randall Rothenberg, President and CEO of the IAB. “Interactive advertising continues to be the most measurable and cost-effective way to reach consumers, and we see more and more marketers seeking to harness its power.”

David Silverman, a partner at PricewaterhouseCoopers LLP, added that, “a weakening economy will continue to be a challenge to all forms of advertising-supported media. However, the Internet should be better poised to withstand the storm given its ability to combine performance-based advertising along with broad-based branding.”

Quarterly $ Revenue Growth Comparison – 2000-2008 YTD

Source: PwC/IAB Internet Advertising Revenue Report (www.iab.net)

Record ad sales for China’s state TV network >> Financial Times

CCTV has reported record ad sales on its prime time slots for the coming year. These reports come amidst the China economic slowdown and my previous post on worldwide advertising spending cuts. The announcement came even more as a surprise since most Olympic host countries have been reported to experience advertising cuts following the games. Yet, the golden spot of the year went to Midea, who was reported to bid as high as 47Mn RMB; the evening news spot was bagged by Giant Interactive (an online game company headed by 史玉柱, and listed on the NYSE) with 43.3 Mn RMB.

With 359Mn households within reach, CCTV commands more than 3 times the reach of foreign counterparts in the likes of CBC, NBC and Fox. Yet earnings in 2006 which amounted $1.8Mn fell short of the foreign broadcasters. Given the media dynamics in China, CCTV is the only broadcaster capable of reaching the entire nation. The alternative, is of course online hubs such as Sohu, Baidu and Sina. Looking at the vitality of the ad sales, one can reconfirm his doubts that the Chinese domestic demand continues to churn out hefty revenues for its local producers. And with this confidence in place, Online ad dollars should not expect to plunge off the mark of traditional media. Perhaps it'll still be a good year for Chinese online advertising services.

On another note, with the economy expected to pick up in the 2nd Quarter of 2009, it may be a good opportunity for Chinese startups to gain momentum in the relatively decoupled Chinese market in the coming year, then subsequently prepare for a launch into the worldwide spotlight as the world economy recovers.

Full FT Article Here

Google pitches digital ads amid the slowdown >> Financial Times

FT.com / Companies / Technology - Google pitches digital ads amid the slowdown: By Andrew Edgecliffe-Johnson, NY
Published: November 20 2008 02:26 | Last updated: November 20 2008 02:26

Google is telling clients that it can help them beat the recession and is urging them not to turn their backs on digital advertising as the economy slumps, according to its most senior executive outside the US.

Nikesh Arora, the senior vice-president in charge of Google’s operations in Europe, the Middle East and Africa, will tell an Ofcom conference in London on Thursday that the internet cannot make businesses recession-proof, but it can help make them more recession-resistant.”
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Amidst consumer doubts and a looming depression, marketing budgets have been slashed leaving much less ad dollars available for spending on the different facets of online advertising. Whilst analysts at Citigroup highlighted the strength of Search Engine Advertising, banner ads, classified and lead generation were notably showing weakness. That is to say, newer online technologies (such as Rich Media, Widgets, Online Videos) would have to "take the back seat".

Alas, the myth of a shielded e-Commerce sector, reinforced with a growing online audience, rising audience confidence in the internet, has been busted. But the extent of it? We don't know yet. We can only hope.

On the flipside, with the hype cooling off for the moment, maybe it is time for online startups to take a step back and review their models fundamentally. It has been noted that downturns may actually be a good time to search for the much needed executives they've been direly lacking. And while cutbacks of lower level employees might seem inevitable, packing in a good mid-high management may help these startups kickstart when the outlooks take off.

WPP invest(ed) in Chinese in-game ad firm >> Digital Media

A retrospective piece of information.

WPP, one of the world's largest advertising group acquired a minority stake in InGame Ad Technology Interactive, a subsidiary of global IGA giant, IGA.

According to Credit Suisse's analyst report in 2007, the Online Gaming Market in China will hit 17.5Bn RMB by 2010. In fact, Online Gaming is the 6th most popular internet activity across Chinese users (CNNIC, Jun 2008) with 59.3% of users engaging in gaming, and a further 42.8% of these users spending more than 10hrs per week on online RPG games. Backed by this healthy population of hardcore gamers, advertisers are confident they can get strong brand awareness and retention through In Game Advertising. Its no wonder IGA has become a deal worth watching in China.

In Game Advertising may be a solution to game service providers like SNDA, Giant and The9 who've been trying innovative ways of charging the highly price sensitive gaming population in China. By providing free play on usual gameplay, and charging for additional levels and in game items, providers are trying to strike a balance between attracting a strong following and actually monetising them. By allowing IGA providers to stream ads into predetermined spots both ambient (dynamic) and static, game service providers have a new stream of revenue that can be sustained for as long as the game is alive. And for popular titles like Starcraft, WOW and Diablo, that may mean decades...

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Digital Media - The voice of Asia's digital communications industry: WPP invests in Chinese in-game ad firm
25-Aug-08, 12:27

SHANGHAI - WPP has taken a minority stake in a Chinese in-game advertising firm to boost its exposure to one of the region’s fastest-growing online sectors.

The holding group’s WPP Digital arm has acquired 12.82 per cent of the issued share capital of IGA, parent company of Shanghai-based InGame Ad Technology Interactive.

InGame Ad (a separate company to global in-game advertising giant IGA) focuses on ads within PC-based online gaming. China differs from Western markets in that the PC is the most popular gaming platform, as opposed to consoles such as PlayStation 3.

Scott Spirit, strategy director at WPP, described the deal as an “early-stage investment” similar to a tie-up with HDT Holdings, a Chinese rich media ad-serving company. The investments are part of a strategy to take stakes in emerging Chinese companies within the digital sphere.

“All companies in this space are a tiny at the moment,” said Spirit. “Nobody has yet made it work in China.”

Other investors in IGA include California-based venture capital firm Revolution Ventures.

Baidu under fire for fraudulent search results

The Financial Times today reported China's homegrown search engine titan, Baidu under fire for admitting to using its website to market fraudulent information.

The local search engine which enjoys a stronghold in the Chinese search market, was reported to mix sponsored links with actual popularity and relevance based search results without appropriate indication. In fact, this model which allows advertisers to bid for search keywords with the highest bidder placed on the top of search results, contributes significantly to Baidu's revenues, as opposed to its competitors in the Chinese and global markets.

The Full FT Article Here: Baidu’s search model under fire

This incident simply reflects the failure, or rather difficulty of traffic rankings and other web metrics in the Chinese market.
Despite the aggressively growing Chinese Online Advertising market, many Chinese advertisers are still unfamiliar with the tricks of the trade. Instead, the frenzy of online spending stems from a blind bandwagon effect fuelled by China's incredible Internet proliferation rates. With over 250mn users connected, spending is spurred more by a fear of missing out, than deliberated marketing campaigns.

The lack of awareness of advertisers is exacerbated by rumored attempts of portals and premium websites masking their actual traffic performances, buffing it up with fraudulent clicks and unsubstantiated traffic. Newly emergent services who claim a unabridged and accurate measurement for campaigns have also been allegedly boycotted by these premium sites, denying them of the reach and exposure they thrive upon. These attempts have made it extremely difficult for 3rd party measurement houses such as Nielsen NetRatings to provide accurate and timely data.

While Online metric models might be a thriving business model elsewhere in the world, it may take much time before best practices to filter through, and for the concept to take-off in China.

Crying Wolf: Or what Broke the VC Investment Model >> Venture Capital Cafe

A response to TheFunded.com Editor, Adeo Ressi's previous presentation on how the VC model is broken.

VCCafe.com is a blog "focusing on early stage tech startups and VC news with a spotlight on Israel". They were ranked one of the top 100 VC blogs, and featured by WSJ. The author of the Blog, Eze Vidra is currently a SEMBA student at LBS.

His response is as follows:
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Venture Capital Cafe: "Crying Wolf: Or what Broke the VC Investment Model?

Doom and gloom reports return to all the major tech blogs - this time the crisis hits the Venture Capital Industry - starting with TheFunded.com’s editor Adeo Ressi, and his presentation to the Finance and entrepreneurship faculty at Harvard Business School titled “the canary is dead - something is wrong in venture capital“. The basic claim is that the venture capital industry has hit a new low in Q3 of 2008. According to the latest reports by the NVCA, the amount of capital raised by VCs is higher that the returns from VC investments. In other words - VCs are now having a net negative affect on the economy.

Matt Marshall at VentureBeat has a good summary of why the situation looks so ugly for the VC Industry. In short:

(1) from being a niche investment class, early successes in the first tech boom attracted too much capital that drove up demand - resulting in higher prices/ valuations and lower returns.

(2) Rather than paying a premium for companies that go through expensive investment rounds, large industry players compete with VCs by snatching the startups early on - a fact that decreased the large exits that VCs are depending on. One thing I would add to Matt’s analysis is that the lack of IPOs doesn’t help either. Exit opportunities limited to selling the company to Google or Microsoft.

(3) Greed - the 2% management fees become bigger as the fund size grows. From my experience talking with Israeli entrepreneurs, VCs are being criticized for ’sitting on the money’ rather than taking risks. Now that leverage is completely gone, the PE and VC industries will have to put their money to work somehow.

Erick Schonfeld at TechCrunch takes a more abbreviated view (perhaps he was trying to quickly get indexed by TechMeme - I know that Arrington is always excited about that), saying that Adeo Ressi is simply crying wolf: “He is kind of like the Nick Denton of the VC world, always saying that the sky is falling. It’s just that at this moment he happens to be right“. Erick - I’d like to be as optimistic as you - but we should be careful not to fall into a self fulfilling prophecy: reporting on apps and web services that will likely never exit or make any significant returns to the VCs that poured millions into them. The farmer that didn’t listen to the boy crying wolf could end up getting his sheep eaten.

Also worth noting is HipMojo’s Ashkan Karbasfrooshan who sounds frustrated with VCs lack of understanding of online content. Akshan believes that there’s a lot of “UGC Crap” out there, and as people spend more time at home (trying to save money) there will be plenty of audience to consume it. Unfortunately, the only content company that really took off is Wikipedia - you don’t see much of the quality UGC out there. Content hungry blogs are happy to publish whatever crappy press release is thrown in their inbox and everyone faces the same problem at the end of the day: monetization.

Lastly, below are the slides for your viewing pleasure. Let’s just hope that the wolf is not really coming this time.