Interesting announcement out of Google this week that points to a potential model that service providers might be able to replicate — ie, steal – in the advertising market.

At issue is Google’s Ad Manager, a new service that lets Web sites — mostly small and medium sites — manage their ad serving for free. To manage such ads on the Web, sites typically have to buy an ad server or pay an ad serving service or network. Google’s proposition is to offer ad serving technology for free in order to get sites on its ad serving platform. It then offers users the *option* of filling up unfilled inventory with Google AdSense ads for a split of the revenue. The ad platform even has some tools that will let sites know if they can make more money running Google ads then their own spots — a sly move thatfurther leverages the full platform effect.

The NYTimes story on the service called it a “trojan horse” and we agree. It could become even more of a Trojan horse now that Google’s acquisition of ad network/vendor DoubleClick is official. While Google is currently positioning DoubleClick as a premium (for-fee) service targeted at larger advertisers (with free Ad Manager serving the long tail), it’s not difficult to envision Google offering the same platform deal to these larger advertisers — free ad serving and probably even free customer service in exchange for letting Google get a shot at placing ads on their sites. It’s that type of potential market power that led regulators to look at the Google/DoubleClick deal in the first place.

It’s interesting to note that Google isn’t the first free ad serving tool. Venture backed open source company OpenX also offers free ad serving. A post on the OpenX blog breaks down the elements of Google’s ad server play, noting that Google is now an 1) ad network provider, 2) an ad server/analytics provider and 3) a publisher that itself makes money off from advertising.

While OpenX obviously touts the dangers of this approach, Google’s platform approach works it is able to subsidize elements of its strategy — free Ad Manager; free Google Analytics; revenue sharing AdWords/AdSense — to drive total ad impressions, Google’s real cash cow.

It also could make it a model worth copying.

Service Provider Take:

Carriers are eying the advertising market carefully (see: Advertising Chaos). But where will the revenues come from and are they big enough to really matter? Dan Taylor, Yankee Group analyst, sums it up well:

It continues to perplex me. Telcos talk about getting into the media business, and the two businesses they talk about are neither big nor as significant as their core business. Those two businesses are advertising, which for them is selling local spot ads — which was a $5.7 billion business last year — and selling personal subscriber data, which means they will be competing against 12 or so established companies that do nothing but external data today. Neither of these businesses approaches the volume of what telcos do today.

One approach to making advertising matter may be to copy the Google ad platform play, where making things easier and cheaper for advertisers becomes a trojan horse providing them with access to ever-larger pieces of the advertising pie.

It’s even more important to note that Ad Manager is only one part of Google’s larger platform play; each piece — search, email, advertising, office apps, cloud computing, etc — builds on and complements the other.

On the ad side, telcos have the data and tools — including location, identity and subscriber information and management, billing, fulfillment and CRM systems — to build a Google-killer platform in the advertising space. And while Google rules the Web (and is trying to enter a variety of other ad markets, from radio to print display and more), service providers are going to have the best, first-crack at key new ad markets, notably IPTV and mobile.

An even better play is to see this advertising platform as *just one* part of a larger telco services platform — including payment, fulfillment, customer data, billing, logistics and much more — all backed by the world’s most reliable and secure networks.

With such a world view in place, a surprising thing happens: Google/Doubleclick starts to look not only like a competitor (which it is), but a potential partner and customer for this telco platform as well.

How’s that for a trojan horse move?

The “long tail” — the idea that (largely thanks to the Internet) distributing large numbers of obscure items can be as profitable as delivering only “the hits” — has had a broad impact on all aspects of the digital economy.

It’s an idea that throws a wrench into many of the traditional ideas about how to make money serving customers. Or as one Amazon.com employee has been quoted as saying: “We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday.” That’s a game-changer.

The long tail has important implications for the service provider market, where the economies of scale of public networks and subscriber-driven distribution have always focused strongly on delivering hits. Unless a carrier can sell a service in the millions (or even better, bill for individual instances, such as a text message, in the billions) it hasn’t been worth pursuing.

Of course, one of the big questions as networks “open up” and Web 2.0-style app and service distribution comes to the telecom market is whether traditional carriers can — or even should — focus on the long-tail of services and service revenue.

There’s no easy answer. Carrier billing systems enable billing for long-tail products in ways simply not possible on the Web, where micro-payments have always been a non-starter. That’s largely why, of course, that advertising is the major revenue stream on the Web. But just because they *can* bill for long tail services — or provide elements, such as location or QOS-guaranteed call completion, of a mashed-up long-tail service — doesn’t mean that service providers *will*, largely because it so goes against their service heritage.

Because the long tail has such implications for service providers, it’s important to notice the attention a new idea — to me, a clear cousin to the long tail — has gained across the blogosphere in recent days.

The concept: 1000 true fans.

First introduced by former Wired editor Kevin Kelly on his blog, 1000 true fans describes how content providers can make money in a long tail world, where massive distribution brings with it constant downward pricing pressure and a free, pass-along P2P economy. While Kelly focuses on “artists” — – the concept really can be extended to anyone producing a long tail-style product.

The core idea of 1000 fans:

A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author - in other words, anyone producing works of art - needs to acquire only 1,000 True Fans to make a living.

A True Fan is defined as someone who will purchase anything and everything you produce. They will drive 200 miles to see you sing. They will buy the super deluxe re-issued hi-res box set of your stuff even though they have the low-res version. They have a Google Alert set for your name. They bookmark the eBay page where your out-of-print editions show up. They come to your openings. They have you sign their copies. They buy the t-shirt, and the mug, and the hat. They can’t wait till you issue your next work. They are true fans.

An example makes it clearer. Music artist Trent Reznor recently launched his new Nine Inch Nails album online with a variety of packaging options. One was the “Ultra-Deluxe Limited Edition Pacakage” — targeted at True Fans. The package included high quality downloads, two CDs, a data DVD, a Blu-ray high def DVD and assorted extras, all signed by Reznor. The offering was printed in a limited edition of 2500 and quickly sold out, grossing $750,000 in just a few days for the “true fan package” alone.

While the long tail focuses on how distributors or aggregators make money via the long tail, 1000 fans is about how the individual content creator can survive and ultimately thrive. If long tail entrepreneurs can’t find a reason — not just the thrill of making art, but a living too — to produce their content, the long tail economy will ultimately flounder as well.

So again: what are the implications for service providers?

One clear take-away is that 1000 fan/long-tail content providers need to control their own customer base and have a tight connection to those true fans. What they need in a distribution platform is one that a) has broad reach and b) has little interest in playing a mediating role between an “artist” and its fans. Content providers must own that relationship themselves. If they don’t, there’s absolutely no way they can turn casual fans into the types of obsessive fans they need to make the 1000 fan model work. Distributors don’t have the incentive or passion to convert fans — only the content-makers themselves do.

It’s hard to see service providers rolling out new services 1000 fans at a time. The bigger question is: will they play a role in enabling the 1000 fan model?

Clearly the Web is such a platform.

Will service provider networks and services be a 1000 fan platform as well? Will addressable IPTV networks be a conduit for 1000 streams for 1000 fans? Or will they focus on hits? Will wireless networks and decks move away from the mass-market on-deck portal model to enable 1000 devices customized to the needs of 1000 fans? Or will they drive usage to hit-making search boxes and content widgets?
For service providers wrestling with their long tail strategies, the concepts and impact of the “1000 True Fans” model need to be strongly considered as well.

UPDATE: I was amiss not to mention that Chris Anderson, whose Wired article, book and blog launched the popular concept, of the Long Tail is working on a new book, recently publishing a kick-off article:

Free! or Why $0.00 is the Future of Business

Talk about your downward pricing pressure….

This is clearly not an apples to apples comparison, but Amazon.com is apparently having great success moving beyond its core business (e-commerce) into what is often called “cloud computing.”

Mashable has the breakdown on Amazon’s latest earnings report, including these juicy nuggets on areas of new revenue growth:

Amazon’s S3 service now hosts more than 10 billion files, doubling in just the past six months. Meanwhile, an additional 25,000 developers signed up for the company’s web services program in the past quarter, bringing the total to 290,000. Additionally, sales from third-party merchants (aka, affiliates and people selling via Amazon’s web services) made up 32% of total sales. All of these factors point to Amazon diversifying its revenue, as well as in the long-run reducing the amount of money it spends on marketing as more people build applications that link into the company’s huge product database and fulfillment capabilities.

These gains reflect the promise of telecom service providers “opening up” their networks and 1) offering core services (storage, API access to call management and other services) and 2) allowing others to mashup applications that use carrier services among the piece parts.

To me, the interesting question is this: can telcos combine their never-ending, triple/quad-play-based effort focus on increasing ARPU — average revenue per user — with new revenue streams based on open access-driven scale and volume?

In Amazon’s case, open access-driven scale equals 10 billion files and 250,000 developers consuming its APIs.

What are the analogous telephony 2.0 metrics of scale and volume success?