Filed under: Products and services, Consumer experience, Apple Inc (AAPL), Marketing and advertising

7digital.com, a British-based digital music retailer, reported to Billboard Monday that the store has seen a 300% increase in sales of MP3 tracks during the first half of 2008. The report is attributed to the availability of MP3 tracks without anti-piracy technology from Warner Music Group Corp. (NYSE: WMG) and British music company EMI Group. EMI also enjoys two of the three best-selling albums in the store: Coldplay’s Viva la Vida or Death and All His Friends, Kylie Minogue’s X. If EMI hadn’t lost Radiohead last year, the company would have all three with the band’s In Rainbows.

Ben Drury, 7digital.com’s CEO, commented on the place of the newer, higher quality, DRM-free tracks in the digital market, calling them “the future for digital music” and a sign that all on the internet music sales will be handled in the format. In the meantime, 7digital.com has become the number two digital music retailer in the United Kingdom, amusing almost two million consumers each month. Although it is a UK-based company, American consumers can use the site and enjoy high-quality DRM-free MP3 tracks via a credit card and a currency conversion charge.

I’ve utilized 7digital.com in the past for the very reasons that the company is now reporting increased sales, although the conversion charge and prices are not easy to determine due to the lower value of the dollar compared to the pound. The digital market deserves to be less about borders than it is and 7digital.com proves that DRM-free and internationalization can co-exist even with extra fees and charges for American users. Apple Inc. (NASDAQ: AAPL)’s iTunes Store is another digital retailer that could benefit from these types of sales, but the company maintains different stores for national markets.

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Filed under: Marketing and advertising

A couple of weeks ago, Carol Vinzant noted that Hertz (NYSE: HTZ) had stopped its practice of gouging customers for gas fill-ups. Rather than charge exorbitant prices for gas, the renter instead chose the market rate, merely tacking on a $7 surcharge for the cost of paying somebody to fill up. While Hertz claimed that this was a voluntary decision, it coincided suspiciously with the Maryland Attorney General’s threat to sue big rental firms for their exorbitant gas charges.

Whether Hertz is trying to find ways to offset their gas losses or is just trying to generate a tiny extra income in what are becoming hard times for the rental industry, their latest revenue stream is pretty smart: they’re renting out ad space in their rental fleet. In addition to printing ads on ticket jackets and hang tags, the company is planning to utilize printed trunk liners and will also be offering free samples to customers. This, of course, follows the lead set by some airlines, which have begun plastering ads atop everything that doesn’t move.

Hertz is hoping that its advertising strategy will help offset losses that it has incurred as high gas prices have caused customers to cancel trips, severely undercutting the rental industry. These days, anything that helps keep prices down and service up seems like a burst of genius!

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Filed under: Internet, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Time Warner (TWX), Marketing and advertising, News Corp’B’ (NWS)

This past holiday weekend my colleague Doug McIntyre gave support to a blog I wrote in Might 2007 when he posted Google (GOOG): The Failure Of YouTube. In my rant I gave a detailed analysis outlining how Google had overpaid for YouTube by a fantastic amount.

In the story Doug quotes projections that 2008 revenue generated by Google might gross $200 million from YouTube. That’s revenue, not profit. A 20% profit would be $40 million if that was possible. In the article I wrote: How can I state Google overpaid for YouTube? I said the case in plain English why the YouTube investment would have to earn $300 million (net, not gross) minimum, in its first year not to be dillutive.

They missed the target by a mile. They’ll continue to miss the target and I don’t expect it to ever justify the cost. Just because Google has lots of cash slushing around does not mean they have money to waste.

One of the reasons that AOL (a division of Time Warner (NYSE: TWX), Yahoo!, (NASDAQ: YHOO) and MSN (a division of Microsoft Corp. (NASDAQ: MSFT) are floundering is that the World wide web in general is a very dilutive mechanism by its very nature.

It takes almost no investment to begin a new site or a new company to compete with the bigger sites. Even though most individual sites are not directly a threat, the fact that there are tens of thousands of sites added daily means that cumulatively they take viewers away from the main huge sites.

The fact that Google itself came out of nowhere to overtake each other web site in a relatively short period of time, or that Facebook has overtaken MySpace (a division of News Corp (NYSE: NWS) in many respects is further evidence of this fact. I think Microsoft was smarter to partner with Facebook rather than buy it, although I do not know that they wouldn’t have if possible.

We can only speculate what someone might pay for Craigslist or Wikipedia, but most assuredly it would be a great fortune and the bidding likely would drive the price up beyond reason in most cases.

Look for Time Warner to figure out how to dispose of AOL or separate itself from the portal. The same is true of Rupert Murdoch. I anticipate him to parlay MySpace into some other venture that might be more profitable. Both companies will make more money as sellers then owners of these sites.

One of the dilemmas making it hard to sell advertising on the YouTube site is the poor quality of many of the videos and their short duration. I could not help but think the site has an modify ego somewhere called RubeTube, and it turns out there are several, but none seem to be affiliated with the early twentieth century cartoonist Rube Goldberg, who would be amused by many of YouTubes participants.

Google’s closing stock price Friday July 3, 2008 was $537.00.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of TWX.

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Filed under: Google (GOOG), Marketing and advertising

About two years ago, Google (NASDAQ: GOOG) paid $1.65 billion for YouTube. The buy is now starting to look like a poor decision.

According to The New York Post, “YouTube’s numbers for 2008 don’t look pretty: while 3 billion videos are viewed each month, revenues could total an anemic sub-$200 million this year.”

Some analysts believe that the trouble with YouTube is that the videos are too short, or that it is difficult for marketers to figure out in advance which content will pull well with users. Those views are wrong.

The basic trouble with YouTube is that that video quality of 99% of the content is terribly poor. Source material for many clips comes from home video cameras or cellphones. None of that’s of “production value.” Putting ads that cost millions of dollars to create next to low-resolution content is a hard sell.

YouTube has a very basic problem. Most of its videos don’t look good and a lot of them are barely watchable.

Douglas A. McIntyre is an editor at 247wallst.com.

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