BRW magazine’s annual Digital Generation Flagship Edition came out today. It’s an excellent report and review of the digital space in Australia. Foad Fadaghi, the technology editor of BRW, has come to the media business from the research industry, having held senior analyst and director positions at Frost & Sullivan, Jupiter Research and IDC. This way of looking at the world results in the BRW Digital issue showing how journalism at its best is becoming a lot more like analysis, creating real value-add and insights that can’t be found elsewhere.

Data in the report (with a few snippets available here) includes market shares in online publishing (Google #1 at A$389 million with 89% growth), relative online ad revenues (e.g. NineMSN earns $99 million), surveys of corporate activities in online advertising (e.g. 37% of companies measure their online advertising ROI), shares of online social networking advertising (MySpace wins at 75%), and far more, complemented by a neat visual map segmenting the players in the Australian digital media market.

The report’s article on Web 2.0 draws extensively on an interview with me, with quotes from me as below. The article goes on to cover in more depth some of the players in the space.

The costs involved in web 2.0 development are so low it has spawned a large number of small one and two-person companies that can be profitable with a small user base, Future Exploration Network chairman Ross Dawson says. This means web 2.0 development is unnoticed by venture capital and other investors.

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I have just been interviewed by SBS TV about Microsoft’s bid for Yahoo! The interview will appear on their World News program tonight as part of their coverage of the story.

I’m not sure what parts of the interview they’ll use, but some of the points I raised were:

* This is a massive deal. It would be the second largest media merger in history, after the $106 billion AOL – Time Warner merger in 2000. The next biggest after that, as shown in our analysis of the largest media transactions over the last 15 years, is Viacom’s $38 billion acquisition of CBS (with the two companies splitting again in 2005).

* There are three possibilities of what will happen from here. The first and most likely is that the bid succeeds. When Yahoo! turned down overtures from Microsoft around a year ago, it was a reasonable stance to say they could do better alone than owned by Microsoft. The last year, and in particular the last six months, have created an entirely different picture. Yahoo!’s stock has declined 44% since its highs last October, its profits have fallen, and the company doesn’t appear to have a clear, differentiated strategy. In contrast, Google’s fourth-quarter results showed revenues up over 50% year-on-year. Given the 62% premium that Microsoft is offering, constrasted with a falling stock price, it would be very difficult for the board to justify turning the offer down.

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The December/ January issue of Marketing magazine includes predictions for 2008 from an array of industry commentators, including myself.

One of the quotes they took from me was:

Social media shows no sign of slowing down any time soon, with more advertisers looking likely to jump on the Web 2.0 bandwagon in 2008. According to Dawson, a new trend could see a proliferation of smaller, more targeted social networking sites. “The social network landscape will be highly dynamic, and new specialist social networks are likely to do well,” he says. “Open, independent platforms for storing social network information will become a real force in how people use social networks.”

Dawson also forecasts a challenge for Second Life. “ A major competitor for Second Life will emerge, taking advantage of its technical problems.” He also suggest virtual worlds will be used more frequently in work settings.

Some of the other predictions for 2008 I made include:

“Inevitably the marketing industry will consolidate. In just the same way as happened in the accounting industry several years ago, consolidators will actively acquire smaller operators in an attempt to build large businesses. A few will succeed at this, and more will fail.”

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Reuters has just reported that the European Union’s advisory body on data protection intends to scrutinize targeted online advertising and its implications for privacy in 2008. The Facebook Beacon debacle this week has brought to public attention the ramifications of targeted advertising for privacy, and the EU is already taking this to heart.

The EU’s machinations are among the most powerful forces shaping global business, and in particular the online world. To take just a couple of examples, Microsoft has come afoul of the EU on monopoly abuse, and Google’s mooted acquisition of Double Click is being delayed until April while the EU extends its probe. On a far broader canvas, extremely strict EU data protection laws shape how online business is conducted all over the planet.

There is no question that targeted advertising is one of the most fundamental forces shaping the entire media landscape. The greatest power of digital media (which is evolving to eventually cover almost all media, including many forms of TV, much outdoor advertising, and will also encompass newspapers come the advent of e-paper) is that it allows advertising messages to be targeted to the individual. This is not just about showing advertisements to those who will find them relevant, but also about customizing advertising content so that it is more likely to influence the individual viewer.

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A few days ago Rupert Murdoch reaffirmed his previously stated intention to make the Wall Street Journal online free. At this point WSJ.com is the biggest-earning online subscription content site, so this in itself is a critical shift for the industry. He has been reported as seeking 10-15 million viewers for the site, compared to the current 3 million, which given the fantastic reader demographics, would make up for the lost subscription revenue.

To support Rupert’s case, the September Nielsen Online figures for online newspapers are just out (see Editor and Publisher’s figures for the top 30 US online newspapers for September). These are the first figures since the New York Times disbanded its Times Select subscription section, making the whole paper free. The net result is 2.9 million more viewers in the month, rising to 17.5 million. It’s a tidy result. See the video interview of NYT’s Vivian Schiller on beet.tv for the background.

As has been reported in The Economist and elsewhere, the Financial Times firmly plans to maintain a subscription section. However it has opened up to the point that it allows 30 free article views a month, hardly a lock-out policy.

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