Sue Decker, president of Yahoo! Inc. (Nasdaq:YHOO), addressed the advertising industry during a keynote this morning at the 2008 Advertising 2.0 New York conference.

“Yahoo! is helping to accelerate the transformation of how display advertising is both bought and sold,” Decker told the audience earlier this morning. “First, we are developing the technology, products and platforms that are designed to help advertisers find the right audiences and publishers find the right advertisers. Second, we are partnering with publishers to secure and monetize inventory that advertisers and agencies find desirable. And third, we are partnering with advertisers and agencies to channel demand to the right consumer.”

Yahoo! President Sue Decker Outlines Vision for Online Advertising Transformation in Advertising 2.0 New York Keynote

Over time, the company also looked beyond click-through rates to rank ads. Google now takes into account the “landing page” that the ad links to, and, for example, gives low grades to pages whose sole purpose is to show more ads. Soon, the loading speed of a landing page will also be considered, Mr. Fox said.

These factors contribute to an ad’s “quality score.” The higher that score, the less the advertiser has to bid to secure top billing. For example, an advertiser who offers to pay $1 per click to attract those searching for “vacation rentals in Colorado” may receive more prominent placement than another who bids $1.50 for the same query but has a lower quality score. An advertiser with a very low quality score may have to bid so much for placement as to make it uneconomical.

Quality scores work as an incentive to advertisers to improve their ads, which benefits users and, in turn, benefits Google, Mr. Fox said.

The Humans Behind the Google Money Machine

“An incentive to advertisers to improve their ads.”

Think about that for a second.

Compared to: “help advertisers find the right audiences and publishers find the right advertisers”

While Yahoo is developing systems to enable advertising online to work the same as it does offline, Google is completely reinventing how advertising works.

I gave a keynote at the MagsUniversity conference in Toronto yesterday, and I put this on slide:

Dear Advertiser,

Based on our evaluation, including feedback from our audience, we regret to inform you that your ads suck.

To improve the performance of your campaign, and to stop annoying our audience, please take immediate steps to improve the quality of your campaign creative.

Sincerely,
Your faithful publisher

P.S. Fed up with your agency? We’d be happy to help.

In the room full of publishers there was stunned laughter, and a lot of nodding heads. Publishers understand the problem of bad advertising at a deep level, and yet what do they do about it? They are stuck in the system. The advertiser gives you a crappy ad, you run it, it creates no value for your audience, and the advertiser blames you.

Google, on the other hand, has the numbers to call bullshit on bad advertising.

Social networks are running crappy traditional ads and vaporizing ad value.

When I wrote last week about why traditional advertising fails on the web, some responded that this is why an ad-supported Web 2.0 will fail.

But the problem isn’t advertising as a means of monetizing media — it’s a complete lack of new ideas.

So let’s sum up the new ideas for digital media advertising:

• Social network user data
• Video
• Mobile

Am I missing anything? I’m sure I am, but you get the point — these aren’t even ideas, they are contexts. Lot’s of social networks. Lot’s of video. Lot’s of mobile use. So we should be able to make money with advertising, right? Just slap on some banners, some pre-roll, and some text ads.

Google got to bcome Google because nobody thought search was monetizable — even Google wasn’t sure, until lightning struck.

Just think about the term “monetize” — it’ generic. It assumes that innovation is not required. Just get an audience and then “monetize.” Then flush.

But even Google, outside of pay-per-click search and contextual ads, is as stuck as everyone else. They put someone in charge of YouTube “monetization” and the result (according to Om):

My sources say that YouTube made around $80 million in 2007, a number that could grow by more than 50 percent this year to around $125 million. A Bear Stearns report estimated YouTube revenues at around $90 million for 2008.

Advertising 2.0 = FAIL (so far)

Tweet This Post  Share on Facebook

Google is the ONLY company that has succeeded in web advertising. Why? Because they perfected search advertising, an entirely web-native form of advertising, whose value proposition is perfect for the web and which has no offline analogue.

Why do traditional advertising formats fail on the web? Because people have no patience for them, as they did in traditional media, where we were habituated to looking at print ads or watching TV commercials.

Research by Jakob Nielsen puts this into sharp relief:

Now, when people go online they know what they want and how to do it, he said.

This makes them very resistant to highlighted promotions or other editorial choices that try to distract them.

“Web users have always been ruthless and now are even more so,” said Dr Nielsen.

“People want sites to get to the point, they have very little patience,” he said.

This is why pre-roll ads on online video = fail, why overlay ads on online video = fail, and why online display advertising is a commodity business, where online publishers have to shovel page views and battle for every $1 increase in CPM. Some sites can get $50-100 CPMs on some pages from certain advertisers, but $1 — even $0.10 — CPMs are common on the web.

Just ask newspapers and magazines about their ad pricing power in print vs. online. Can you imagine a print publisher getting $1 for 1,000 times an ad was seen? You’d go bankrupt after one issue.

Here’s a sobering thought: If all advertising in offline media got converted to current online media CPMs, it would probably be worth a fraction of the value, i.e. $300 billion would become $50 billion.

If 1 to 1 transfer of advertising value is at one end of the spectrum and 1 to 0 transfer of classified advertising value to Craigslist is at the other extreme, most of online media is closer to Craigslist — online publishers are vaporizing advertising value in the shift of dollars online.

Even Google has struggled with this problem, as they still make virtually all of their money from pay-per-click search and contextual ads.

But why, why is this so? Because most online advertising creates NO value for consumers.

Search advertising, because it is relevant to what users are already searching for, creates enormous value. But the search advertising is largely about helping people buy what they already know they want.

What about the objective of advertising to convince people to buy things they don’t yet know they want or need (or what never otherwise want or need)?

Consider this: What is the most successful type of advertising online advertising that convinces people to buy something they weren’t in the market to buy?

Email spam.

Spam is probably the most inefficient form of advertising every created, and it creates more hate and loathing among consumers than the worst 30 second TV ad ever created.

But it works. With millions of emails sent at virtually no cost, a 0.001% response rate can still be highly profitable.

The reason why most online advertising fails is that web users see it as little better than spam.

Display ads are ignored in the same mindset as spam is ignored — I’m trying to get something done online and your display ad is getting in my way.

As Nielsen highlights, web use is driven more and more by utility.

Despite the popular notion of viral content, e.g. viral videos, even entertainment on the web most often happens in a utilitarian context.

Sure people browse videos on YouTube, but searching YouTube is the killer app. Want to find video content? Search for it on YouTube, and chances are someone has uploaded it (legally or not). Why do you think Google acquired it?

Social networks have hit hard against the online advertising wall — I’m trying to talk to my friends and you’re showing me ads — get out of my face. I’m trying to talk to my friends and you’re shoving down my throat notifications of what my friends are buying (i.e. Facebook Beacon) — get out of my face!

Is it any surprise that most ad spending still happens offline? Most advertisers use the web themselves. They know how annoying traditional ad formats are on the web.

So what’s the solution?

We need to invent new forms of advertising on the web. But it’s more than that. Facebook introduced Beacon as a new form of advertising — but it didn’t create a lot of value for users.

Online advertising must create value for users or it will create little or no value for advertisers.

This would seem self-evident, but it has not been the case with traditional advertising, which was developed for CAPTIVE audiences, and web users are increasingly anything but captive.

Tweet This Post  Share on Facebook

Here’s why I think it would actually be, from a long-term perspective, good news if Google proves vulnerable to a recession and a cutback in ad spending — it means Google is a REAL business.

Remember back in 90s when everyone argued that the New Economy wasn’t subject to the same cyclicality as the Old Economy? That New Economy companies were recession-proof? Well, you know how the story ended. The New Economy companies didn’t just slump with a cyclical downturn — they vaporized — poof.

Why? Because they weren’t real businesses.

If Google’s paid search business continued to grow during a recession, during a period of rational pullback by consumers who click on ads and business that pay for those clicks, what would that suggest about Google’s business?

Bubble. Irrational exuberance. Pick your buzzword.

Any business that operates based on cyclical inputs — i.e. consumer spending and ad spending — that appears immune to cyclicality is defying the laws of economic gravity. And when gravity kicks in, it’s not like water rolling down a hill — it’s like Wile E. Coyote realizing there’s no more cliff underneath him.

If Google’s paid search business turns down when consumers and businesses spend less, it makes it far more likely that these consumers and businesses are making rational decisions about paid search advertising — that there is real value there.

Google may slide along with the economy, which is bad news for short-term investors. But it’s good news for long-term investors because it makes it much more likely that when the economy recovers (whenever that is), Google’s paid search business will respond as positively to a resurgent economy as it did negatively to a downturn economy.

It also remains to be seen the response from advertisers who are managing their Google search advertising as a profit center rather than a cost center, i.e. advertisers who can calculate that they get more than $1 back for every dollar they spend on Google search ads.

If you can calculate the profit margin on some of your ad spending, when times get tough, aren’t you more likely to put MORE money into the advertising that you know to be profitable — and do so perhaps by shifting dollars out of the advertising that is of more speculative value, e.g. TV brand ads? Or at least until the profitable advertising ceases to return a profit?

And if Google is indeed a bellwether of online advertising, and it online advertising is rationally tied to the economy, it’s also much more likely the online advertising will accelerate its growth even more when the economy eventually recovers.

Tweet This Post  Share on Facebook

This is the holy grail because the biggest bucket of advertising dollars is still in offline brand advertising, e.g. TV commercials, and the big players — Google, Yahoo, Microsoft, et al — are all trying to drag those big brand dollars kicking and screaming online. Although billions of dollars are gleefully poured into offline brand ads with little or no quantifiable ROI measurement — certainly nowhere near what is possible with search advertising (AKA direct marketing) — the expectation is that when those brand advertising dollars shift online, they will suddenly become much more measurable.

The problem is that the “last click” before an online purchase is typically a search or other text ad, which get clicked far more often than banners and other brand ads (including video ads). Even advertising clients who have been die hard believers in the soft ROI of branding suddenly become obsessive click counters when their ads go online.

So Microsoft is trying to solve this problem with an integrated tracking system that ascribes value to the brand ads that a consumer sees before clicking on a text ad.

The end game of course is to convince advertisers to run all of their ads through Microsoft’s growing online advertising infrastructure (which they still hope will include Yahoo), so that they can consolidate all of the available user data — and thus all of the ad dollars.

What’s shaping up is a battle of the titans between Google and Microsoft for control of the big advertiser dollars as they shift online — and brand advertising ROI measurement is key.

Here are two observations on Microsoft’s announcement:

1. It’s a black box

Microsoft’s Engagement Mapping system announcement is VERY short on details — the proverbial “black box,” which has been a scourge of advertising measurement for years, because clients typically don’t trust what they can’t understand.

During the post crash years, I spent some time studying the econometric modeling approach to ROI measurement, sometimes called marketing mix modeling — it’s a form of regression analysis that attempts to establish causal relationships between advertising data and key client metrics. It’s powerful — and expensive — stuff, but most clients are wary because you need a PhD to understand how it works (literally, the people who do this stuff are PhDs).

Here’s what I mean by black box (via CNET):

Say a consumer sees an ad for a product in a video ad one day, and then clicks on a text ad to visit the retailer’s site the next day, and then eventually sees a banner ad that leads to a purchase. All of the monetary credit tends to go to the text link that was clicked on, says John Chandler, principal analyst for Microsoft’s Atlas ad serving division.

“Under our (Engagement Mapping) model, those will share the credit,” for example, with 40 percent each going to the video ad and the text ad and 20 percent going to the banner, he says.

And you arrived at those percentages how? Oh, don’t you worry your pretty little head about it… we just feed all the data into our big black “Engagement Mapping” box, crank this handle right here, and it spits out the answer. Remember, any sufficiently advanced technology is indistinguishable from magic — just tell that to the brand manager writing the eight or nine figure check.

2. It’s Microsoft

If you worked in advertising up until say the Google IP, it probably seems on the face of it totally nuts that companies outside of Madison Avenue should have the lead on seizing the holy grail. I mean, Microsoft is a SOFTWARE company, for crying out loud.

But the problem with advertising has always been that it was more art than science, when it should have been about dollars and cents. Google AdWords was so pioneering because it enabled many companies who couldn’t afford for advertising to be a cost center to turn their advertisng into a profit center.

When you think about it, it makes perfect sense that technology companies should take over the advertising industry. Nobody in Silicon Valley will win a Clio Award, but they will help clients get more than $1 back for every $1 of advertising they spend — and advertisers have always cared more about their bottom lines than Madison Avenue’s ego.

Tweet This Post  Share on Facebook

McKinsey polled 410 marketing executives in five sectors, and among those already advertising online, 52 percent said “insufficient metrics to measure impact” was the biggest barrier, followed by insufficient in-house capabilities (41 percent), the difficulty of convincing management (33 percent), limited reach of digital tools (24 percent) and insufficient capabilities at agency (18 percent).

Does that mean advertisers really believe metrics like cost per lead, cost per sale, or even cost per visit are inferior to traditional “bottom line” metrics like reach and frequency, gross rating points, and rate base? Does that mean advertisers believe mass media have better “capabilities” than online advertising platforms like keyword-targeted search advertising, behavioral targeting — or Google’s new Gadget Ads, announced today:

According to Christian Oestlien, Google business product manager, Gadget Ads are also backed by actionable metrics. “In addition to the combination of precision and scale, advertisers get a whole system for tracking interactions. They can specify particular behaviors like mouse-overs or clicking-throughs, and get an interaction report in the AdWords Report Center.”

Tracking the Gadget Ads ROI wasn’t difficult, according to Bladimiar Norman, head of interactive advertising for Paramount Vantage.

The division of Paramount Pictures was part of the search giant’s first gadget trial, promoting “A Mighty Heart” (a thriller based on journalist Daniel Pearl’s kidnapping and murder in Pakistan) through a widget that featured the movie trailer and a news ticker, as well as a clickable timeline that enabled users to relive the 16 months surrounding Pearl’s kidnapping.

“Of course, selling tickets is the bottom line,” said Norman, “but we were able to track which articles users clicked on, how long they watched the video and whether they shared it with others.”

Well, no. Suggesting that a platform like Google’s Gadget Ads lacks the “metrics” and “capabilities” of traditional media would be silly.

The reality is that the attitudes expressed in the McKinsey report are all a smoke screen, intended to protect vested interests and organizations adapted to static media models, which went unchanged for decades, and not the dynamic innovation of the web. But they can’t deny that the future of advertising and marketing is online.

Regardless of the mode, clients and agencies are all scrambling to keep pace with consumers whose desire to live and shop online is growing. By 2010, McKinsey’s survey respondents expect a majority of their customers to discover new products or services online and a third to purchase goods there.

What this report demonstrates is that the barriers to accelerating the growth of online advertising have nothing to do with questioning the web’s increasing dominance of media consumption or the huge innovations of online advertising — including those still to come.

No, billions of dollars still remain in traditional media because the advertising industry has to go through its own transition page views are a terrible currency for media buying — this buying model, a holdover from Web 1.0, mirrors the familiar traditional media modes of buying that have been used for decades.

Online media and advertising companies share some of the blame — there’s a lot of innovation, but not a lot of standardization. Traditional media adverting — like traditional media consumption — isn’t about to go away, so the inability of many online advertising platforms to map easily to traditional media remains a huge barrier.

Indeed, although a majority of the respondents to McKinsey’s survey find online vehicles to be more efficient than traditional advertising, the relative newness of the medium and its still developing benchmark data make it a hard sell internally to bosses who demand accountability, said client consultants. What’s more, the multiplicity of online channels can make it difficult to isolate what’s working and what’s not, digital agency chiefs said.

It’s not that traditional advertising is more “accountable,” but rather it’s more “comfortable,” more “familiar.” Just ask media companies how uncomfortable the transition to digital can be.

But as the media industry has painfully discovered, the advertising industry is now discovering that making the case NOT to change is no longer viable.

Tweet This Post  Share on Facebook

TIME SPENT ON THE INTERNET is set to surpass time spent watching TV in the average American household, according to the results of an IBM survey released Wednesday.

Overall, 19% of respondents said they spend six or more hours a day on the Internet, versus 9% for TV. More telling, 60% reported that they spend one to four hours using the Internet, versus 66% who spend the time watching TV.

Of course, the time spent on the Internet includes growing consumption of online video, according to the global survey of about 2,000 respondents (including 885 Americans) conducted in April-June of this year. Globally, 67% of consumers say they watch video on the Internet, or would like to do so.

TV is dead. Long live TV.

As for the propping up part, Kantar Media Research and Pointlogic released a report based on what is arguably one of the most suspect types of consumer research — asking consumers how ads effect them, a category of questions most people couldn’t answer honestly if they tried (via MediaPost again):

NEW AND EMERGING DIGITAL MEDIA platforms may be the rage on Madison Avenue and in the news media, but some highly regarded consumer research suggests they still have a long way to go before they replace traditional media as effective advertising alternatives with most consumers. The conclusion, which comes from the 2007 release of Compose, a collaboration of WPP Group’s Kantar Media Research unit and Netherlands-based Pointlogic, is one of an array of new research studies being used by big media shops to evaluate the efficacy of using a wide range of communications platforms to reach consumers. Of the 33 channels – ranging from traditional outlets like TV, radio and print to new media and marketing channels like sampling, promotions and direct marketing – the study found that the vast majority of consumers still find mainstream media to have the greatest influence.

The “conclusion,” of course — we have to prop up the declining business:

“The conclusion is that the traditional media should still be the cornerstone for brand advertising and that the new media still have a long way to go before they can replace the traditional media.”

The unspoken subtext — Madison Avenue still hasn’t figured out the how to make buying new media as profitable as as buying traditional media, so they are going to continue to push traditional media on their clients, come hell or high water.

But sooner or later big corporate advertisers are going to wake up and wonder why they are only allocating single or low double digit percentages of their ad budgets to a medium that commands more than half of most people’s media time.

And then Madison Avenue is REALLY going to have to tap dance.

Tweet This Post  Share on Facebook

Contrast your average interruptive TV ad with the other end of the advertising value spectrum, which is currently occupied by search advertising. Search advertising brings you relevant information about a company’s products or services, in the moment when you’re thinking about it, and typically takes you directly to the company’s website where you can actively “engage” (depending on the quality of the site).

The push for “branded entertainment” as a form of online advertising is still closely aligned with the traditional TV commercial ethos — it’s also aligned, on the positive side, with the YouTube Web-as-micro-entertainment ethos. But as anyone who has ever tried viral video knows, creating value for consumers around entertainment — to actual ENTERTAIN — is very hard to do well.

In contrast, creating value for consumers by providing useful, relevant information is MUCH easier. That’s why there are tens of thousands of advertisers that have done so successfully with search advertising — and so few that have succeeded at creating truly entertaining content.

Certainly there is an emotional component to branding — a world of pure utility information-based advertising wouldn’t be a panacea either.

But it’s embarrassingly clear how bankrupt of value most traditional TV advertising is — and how wasted the majority of those billions of mass advertising dollars are.

How long before big TV ad spender wake up to the imperative of creating REAL value for consumers? How long before the shareholders of big public company advertisers spending millions on valueless advertising start holding their feet to the fire?

Until advertising agencies realign themselves to themselves with digital advertising platforms that create more value for consumers, it may still be awhile.

Tweet This Post  Share on Facebook

Page view-driven advertising is a product of Internet 1.0 advertising, which was modeled after traditional media advertising. But its actually worse than that, because even traditional media values audience above all. Selling online ad impressions is a holdover from a time when online audiences were difficult to measure because people used different IP address and different computers — oh, wait! Online audiences are STILL difficult to measure, with rampant cookie deletion and the same problem of multiple access points for the same person. So instead of delivering advertising to people, we deliver it to pages. And when you charge by the page/impression, the more pages the better.

That’s why online advertising economics are so messed up. Actually, there are two online advertising economies.

There’s search advertising, which ingeniously targets ads to keywords, which are a direct reflection of what’s on someone’s mind. No demographics, cookies, or individual identifiers necessary. It doesn’t matter where I use the search box — the advertising always works. A search results page is microcosm of the larger search advertising economy — it’s profitable at any scale.

The page view/CPM advertising economy is a raw volume game — the Web is awash in page views, and since advertisers are buying page views in large volumes, that forces publishers to bulk up their share, even as the over-supply drives down the price. Behavioral targeting is addressing the problem of huge amounts of low value page views by targeting people rather than pages, based on their use of the high value pages. This is akin to targeting search keywords, but unlike pay-per-click text ads, behavioral targeting display ads are still caught up in the page view economy, which makes it an uphill battle.

As Larry Allen of newly acquired behavioral targeting pioneer TACODA pointed out in an interview with me, online ad spending is still relatively low (particularly as a percentage of all ad spending), so those ad dollars get spread thin across the ever-increasing page view inventory:

There is still a large gap between the volume of ad inventory on the Web, especially when you consider news and social media, and the amount of ad dollars being spent.

But the biggest problem with page views/CPMs is that there could not be a more blunt, less nuanced metric for valuing online media. The newspaper industry, as with so much else in the rapidly evolving media industry, brings this problem into sharp relief.

The Newspaper Association of America just released the results of a custom study done by Nielsen/NetRatings, which had findings that sound like great news:

An average of more than 59 million people (37.6 percent of all active Internet users) visited newspaper Web sites each month during the first quarter, a record number that represents a 5.3 percent increase over the same period a year ago, according to Nielsen//NetRatings NetView custom analysis. During the same time period, the overall Internet audience grew just 2.7 percent.

Even better than the increasing headcount, these people who visit newspaper websites have great attributes:

• Nearly 12 percent (11.9 percent) of those who have visited a newspaper Web site have annual household incomes in excess of $150,000 compared with less than one in 10 (9.3 percent) of the overall Internet audience.
• Nearly nine in 10 (88.1 percent) newspaper Web site visitors have made a purchase online in the last six months compared with 78.9 percent of the overall Internet audience. Four in 10 (41 percent) newspaper Web site visitors are employed in professional or managerial occupations compared with one in three (32.7 percent) of the overall Internet population.
• Nearly three in 10 (28.9 percent) newspaper Web site visitors have sought out or posted a product review online in the past month compared with 16.1 percent of the overall internet population.

So where’s the problem? The only way that advertisers have to value newspaper websites at this media category level is by page views (via MediaPost, since this data is oddly not in the NAA press release):

These same visitors generated nearly 2.7 billion page views per month throughout the second quarter, the NAA reported Monday. That compares to slightly more than 2.5 billion page views during the same period last year. It represents a decrease from 3.0 billion page views in the first quarter.

OK, so page views are down slightly this year, but still, 2.7 billion page views is A LOT — except that, in the page view/CPM economy, it’s not as much as you might think.

Let’s say newspaper websites have an average of 3 display ads per page, which would be 8.1 billion ad impressions. If you divide 8.1 billion by 1,000, you get 8,100,000 thousands of page views. If an advertisers paid (a generous) $30 CPM, that would be $30 x 8.1 million, which is $243 million per month or $2.9 billion a year.

OK, that’s a lot of money, so where exactly IS the problem? Well, that’s $2.9 billion in CPM-driven online media value for the ENTIRE NEWSPAPER INDUSTRY! An industry that NAA currently values at $59 billion.

But this is all just silly back-of-the-envelope math, right? Well, actually…

Advertising expenditures for newspaper Web sites increased by 22.3 percent to $750 million in the first quarter versus the same period a year ago, according to preliminary estimates from the Newspaper Association of America.

So, $750 million per quarter is…that’s right, $3 billion a year. Looks like newspapers are indeed monetizing their page views at an average rate of $30 per thousand ad impressions, or $90 per thousand page views, using my assumption of 3 ads per page. Not too shabby by online media standards. Of course, newspapers don’t sell anywhere near all of their online advertising on a CPM basis, but it sure puts all the numbers in perspective.

That said, here’s the real scary math:

On a CPM basis, to make $59 billion in online ad revenue, at a $30 CPM, you need 1,966,666,666,666 ad impressions. That’s right nearly 2 TRILLION impressions, or 655 BILLION page views at 3 ads per page, which is 24 TIMES as many page views as newspaper websites currently have.

I’m picking on newspapers here because they are at the nexus of the transformation of media, but the problem with the page view/CPM economy applies to every online media company, including every traditional media company website and every Web 2.0 startup.

Google was the first online media company to break out of the CPM/page view trap in a big way — no wonder they have $10 billion in ad revenue.

Search advertising, driven by a dynamic marketplace for keywords, was a BIG idea. Behavioral targeting might prove to be a another big idea. But it’s going to take a lot of big ideas for the online advertising economy to cast off the page view/CPM albatross.

Tweet This Post  Share on Facebook

Publishing 2.0: How would you assess the current state of relevancy across all online display advertising? Where/how are display ads being served with the greatest relevancy? Where/how are display ads being served with the poorest relevancy?

Larry Allen: In general, marketers are still using context to drive most of their online buying decisions for media. This creates some challenges as it negates relevancy for many visitors to a particular page. There is still a large gap between the volume of ad inventory on the Web, especially when you consider news and social media, and the amount of ad dollars being spent. The earliest adopters of online media have been direct response focused clients willing to pay only on a lead or transaction basis, which has promoted massive amounts of untargeted advertising to run freely across the Web.

P2: How does behavioral targeting for online advertising work?
Allen: TACODA observes anonymous online behaviors across a wide network of publisher partners in order to determine active and passive interests of visitors in aggregate. These interests are then packaged into targetable and predictable audience segments. These pre-qualified segments are then sold to advertisers to promote relevant products and services to those individuals. TACODA’s publisher partners contribute ad inventory that is evaluated, and then appropriate advertisements are delivered based on the audience segmentation of the visitors visiting those Web page.

P2: How has behavioral targeting improved relevancy for online display ads across websites using the technology? Are there elements of Tacoda’s system that make it uniquely able to improve relevancy?

Allen: TACODA has shown on an advertiser-by-advertiser basis that the consumers reached in aggregate for their campaigns are more likely to be interested in their products than a typical run-of-site or run-of-network advertising campaign. TACODA is uniquely positioned to provide insights about how various audience segments respond to creative messages and products in an effort to improve relevancy over time. One major challenge we as an industry face is the massive amount of ad inventory on the Web, it is a daunting challenge to dramatically improve overall advertising relevancy given the number of advertisements required to fill every available impression. TACODA is trying to improve this one ad impression at a time.

P2: How is TACODA “uniquely positioned” relative to other behavioral targeting companies?

Allen: Other BT companies do not provide publishers or advertisers with the advanced analytics or deep behavioral audience information. These analytics provide advertisers with a blueprint for the discrete audience segments that deliver the highest quality results.

P2: It seems that the surplus ad inventory problem reflects the current display ad economy, which is based on page views and impressions rather than on people. BT overcomes one major aspect of this problem by focusing on people and what their behaviors their intentions and interests. But doesn’t valuing display ads based on impressions still reinforce the whole ad inventory problem by forcing publishers to value their content based on how many impressions it generates? Do you agree, and how much is this an issue for TACODA, i.e. how much does TACODA work with advertisers on a CPM basis vs. cost-per-click or cost-per-action?

Allen: TACODA only works with advertisers on a CPM model. However, marketers are very aware of the back end metrics and how that CPM converts to ROI for their business. Large auto manufactures or CPG companies are looking at brand metrics like engagement and consideration. These metrics do not lend themselves to be purchased on a CPA or CPC basis. TACODA is about delivering a marketer the right audience to give their message the best chance at resonating and driving to a sale, whether online or offline.

P2: For large publishers like the New York Times, how would you compare the relevancy of ads served by the TACODA network to ads served by other ad networks and to ads sold through the publisher’s ad sales force?

Allen: TACODA is delivering ads to consumers based on the targeted segments prescribed based on intent and previous behaviors. This creates a significantly higher level of relevancy for the consumer over contextual and other optimization techniques. Other ad networks use creative and placement optimization to make ad delivery decisions, which tend to show ads to people based solely on their willingness to click on ads. Our research has shown that the majority of click responders come from a very small percentage of the overall online audience. Therefore, this method forces advertising to be less relevant for the masses.

When publishers are selling their own property, they are often selling the demographics of their audience and the context of their site to marketers that would be more relevant to their readers. The challenge is most web sites have more inventory than their sales team can sell directly, which creates the need to fill the inventory with a paid advertiser regardless of relevancy. This is especially true for news, social or sports sites, which tend to have less obvious commercial relevancy to advertisers. Auto and Financial sites tend to be in high demand, creating sold out scenarios and generally a higher level of relevancy.

P2: The mix content with high commercial value and content with low commercial value on a newspaper site, for example, is the legacy of the previous “bundled” media age, when some sections subsidized others. In the digital age, where each unit of content stands — and has to be monetized — on its own, is there now an incentive for publishers to only publish content with high commercial value? Or can BT essentially provide the same subsidy by allowing publishers to more effectively monetize content with low commercial value?

Allen: We believe that BT can provide publishers with the ability to monetize the undervalued pages that consumers find very important. There will continue to be fragmentation in the media business, and publishers will need a variety of ways to monetize their pages in order to offer content that satisfies the demands of their consumers.

P2: How would you compare the relevancy of behaviorally targeted display ads to that of keyword-driven contextual text ads? Is there a difference in relevancy between ads served contextually on search result pages and ads served contextually on content sites (vs. behaviorally targeted ads)?

Allen: There is definitely a difference. Contextually targeted ads require the content on the page to provide some immediate clues into the interests of the user. If one is reading about a plane crash you certainly don’t want to be showing text ads for travel. One of the clear benefits of behavioral targeting is that it uses historical references to produce more relevant advertising, and it can also be predictive based on look-a-like modeling. BT creates the best opportunity to show relevant ads to consumers regardless of the context of the page, especially in those environments that are less commercially relevant, like weather or news.

P2: Can you explain “look-alike modeling”?

Allen: We are able to build a blue print of those audiences that are working for an advertiser by evaluating their behavioral traits and then create segments of new consumers that exhibit similar traits online.

P2: It seems that the strength of behavioral targeting is for contexts that have little or no commercial relevance. From that perspective, can BT be viewed as a complement to contextual targeting, e.g. if someone has viewed travel content and then goes to view auto content, it’s better to show a contextually targeted auto ad on the auto content than a travel ad on the auto content, i.e. better to save the behaviorally targeted travel ad for when the user is viewing content with low commercial value? Or does behavioral targeting play a role in targeting ads in contexts with high commercial value?

Allen: We certainly do not see BT replacing large branded sponsorships within contextual environments. BT offers marketers a way to scale reach and frequency of those targeted audiences outside of context in a very efficient way. We do work with a number of highly relevant context sites in our network like auto that find value in our service. Every site, even the most relevant, have some level of undersold inventory due to a variety of reasons.

P2: Where do you see the greatest opportunity for improving online display ad relevancy?

Allen: As more publishers and marketers adopt networked behavioral targeting the level of relevant ads online will naturally increase. There is great opportunity to improve ad relevancy in general but especially in contextual environments that do not directly correlate to an advertising category; news, weather and sports come to mind immediately.

P2: Why do you think some publishers have been slow to adopt BT?

Allen: The largest reason is scale – most publishers have limited information on their audiences available for BT. We have seen very fast adoption of our networked behavioral model across the largest media companies as we provide the best solution for their needs.

P2: What are the greatest barriers to improving display ad relevancy, including data, technology, and human resources (e.g. for creating customized ad creative)? How do you think these barriers can be overcome?

Allen: TACODA is focused on creating a platform that scales and improves over time to provide the most relevant online display ads to consumers. The greatest barrier is the ever growing amount of inventory and the marketers’ adoption of behavioral and other targeting methods.

P2: Why do you think some marketers have been slow to adopt BT?

Allen: It is simply about education and comfort. Most media buyers have been trained that the internet is a direct response medium only. As an industry, we need to be educating the market about how it can be used for brand building. You are starting to see more major marketers adopt behavioral to drive awareness and consideration, from Pepsi to P&G.

P2: What will be the next big advancements in ad customization?

Allen: Predictive audience segments creating increased opportunity for ad relevance, Dynamic video creative insertion, dynamic creative messaging.

P2: How do you think the trade-off between privacy and ad relevancy/customization can best be addressed?

Allen: TACODA believes that the consumer must be in control and have a choice when it comes to their privacy. As long as publishers and ad networks are clear and concise with their notifications on privacy, consumers will be less likely to have concern. Consumers want more relevant advertising and are willing to give up some level or privacy to ensure that. As long as there is a clear method for opting out of the program, consumers generally do not have a problem.

Tweet This Post  Share on Facebook

1. Google’s competencies and focus around publisher analytics, distribution, and monetization map perfectly to our suite of services.

2. Publishers want a single dashboard and single source for the metrics that give them feedback about the value of their content and its impact on their business. By combining our market leading feed metrics with Google’s market leading site and marketing analytics, publishers now get a comprehensive, 360-degree view of their audience. This ‘total perspective’ has long been a goal of ours, and we think our combined analytics offering is going to provide publishers with previously undiscovered insights and opportunities.

3. The measurement of awareness advertising is evolving from unique impressions to audience engagement. By providing our hundreds of thousands of publishers with Google’s world-class advertising marketplace and metrics, we can provide far more value to publishers and begin to deliver this next step in ROI measurement to advertisers.

4. Speed of innovation. We have always prided ourselves in our ability to deliver extensive functionality to the market rapidly. As we have grown to hundreds of thousands of publishers with global demands, we are delighted to be combining forces with an organization that has a deep understanding of the most efficient ways in which to deploy significant functionality to the widest possible audience. It is one thing to roll out a capability to 3 percent of your customers and it’s something else entirely to roll out a broad set of new services simultaneously to customers around the globe.

Reasons #2 and #3 point to what a tremendous impact this acquisition could have on online publishing — the web is DESPERATELY in need of new metrics, and since feeds have become the building blocks of online publishing, well…it all makes perfect sense.

FeedBurner succeeded because they focused on metrics and hit the ball out of the park. Google is now positioned to close some of the huge metrics gap in online advertising ROI.

Congratulations, officially, to everyone at FeedBurner. You guys rock!

Tweet This Post  Share on Facebook

“We think we have the largest audience to monetize,” Mehdi said, when looking across the entire Microsoft suite of products–from Office to Xbox. “I don’t think it’s the end of inning one.”

Didn’t Microsoft used to “monetize” it’s Office software through licensing? It was a good business, but Google has shifted the business model for software from licensing to advertising. Now it’s all about audience — monetizing audience. I guess the $6 billion aQuantive acquisition is intended to help with that. Mehdi went on to say:

With the aQuantive purchase, Mehdi said, Microsoft is poised to become a leader in what he called discretionary advertising–matching an ad buyer with an audience rather than specific pages.

It’s not entirely clear what this means, but it could certainly be read as a swipe at page-view-based advertising and contextual ad placement. As to the assertion that matching advertising with audience, i.e. media 101, is “discretionary” — that suggests media has traditionally been rife with indiscretion. I suppose that’s true, given that no one ever shied aware from the half of advertising is wasted maxim.

Mehdi also says:

“The ad market has converged,” Mehdi said. “Anyone who thinks it’s just online search is missing that. It’s all just inventory.”

Indeed, the “convergence” is upon us. Microsoft, like everyone else, is clearly making it up as it goes along. But it’s clear that the center of gravity for the media and advertising industry has shifted even further west.

Tweet This Post  Share on Facebook

If you ask an online media buyer, they will bemoan the classic display ad Catch 22 — clients insist the goal of the online display ad campaign is “branding,” but then do nothing but obsess over clicks. The impulse to treat online advertising as direct response marketing is only natural — the web is the greatest direct response medium ever — witness Google AdWords, not to mention dozens of pay-for-performance ad networks and online affiliate marketing, which have thrived for years.

But the BIG question — which is preventing billions of big brand dollars from flooding onto the web — is whether online display ads can achieve any meaningful branding objectives. According to research published in the Journal of Consumer Research (via Ars Technica):

The research concludes that repeated exposure to a product via banner ads generates a positive feeling towards that product.

BUT

The good news for consumers is that a critical reevaluation of the product can make these positive feelings vanish.

AND

So, the psychologists have a better grip on their theories, and advertisers have a few things to consider. The first is that banner ads may provide a valuable function in fostering familiarity even if those that view them never click through to the source of the ads. The downside for advertisers is that any evaluation of the positive impressions that this familiarity creates, even one based on false premises, is enough to make those positive feelings vanish. This suggests that familiarity-based advertising may work best for impulse buys, where more detailed evaluations aren’t likely to occur. More importantly, this gives us a glimpse into the way our unconscious works with visual stimuli.

The research suggests that online display ads do have tangible value — they “foster familiarity,” which could lead to a designed action, such as actively considering a product or service. BUT…display ads can’t make up for deficiencies in products or services, i.e. the “messaging” isn’t going to make anyone buy.

The challenge for the online display advertising is that the research is based on displays being only “minimally perceptible” to most users:

There is a long history of experiments that show that repeated exposure to a stimulus that’s barely perceptible can enhance a person’s feelings towards what’s otherwise a neutral object. These feelings can include a liking or more subjective things such as “fame, truth, duration, loudness, stimulus brightness and darkness.” The authors hypothesized that banner ads should work well as such a stimulus, given that “most viewers pay minimal attention to banner ads.”

That’s why clicks on display ads are so low — but without clicks or some kind of response mechanism, how do advertisers determine the ROI of their display advertising?

One reason why Google’s AdWords program has been so successful is that the ads use the format of the universal call to action on the web — the text link. Unless a display is itself a call to action, which usually involves text that calls upon users to click through from some benefit, there is no way to really know what impact that ad had. Many advertisers use random sampling “brand lift” surveys through companies like Dynamic Logic, but in a medium so rich with data, this is hardly an exact science.

This is to say nothing of the quandary over video advertising, particularly pre-roll ads, which are the best way to ensure a user sees the ads, but which, unlike asynchronous display ads and text ads, are a barrier to the content. This has lead many publishers to place those minimally noticed display ads next to the video player — so back to where we started.

It would seem that online display advertising hasn’t progressed much beyond the old “half of my advertising is wasted” rule. The opportunity for the new vertically integrated media and advertising companies — or any startup — is to figure out how to avoid wasting the other half.

Tweet This Post  Share on Facebook

Ok, so that was a loaded question. The answer, of course, is Google.

Scoble revisits the perennial hand-wringing by website owners over the inaccuracies of panel-based online traffic measurement and asks:

What stats do you think are the most important? What’s the most accurate way to measure your sites’ visitors? What will advertisers insist on seeing in the future?

The answer is right in front of everyone’s face. Google never had to worry about old fashioned audience metrics because Google figure out how to optimize the delivery of ads based on what people DO, and more importantly, based on what’s on their minds — their intentions they reveal every time they type words into a search box. Google also optimized ad delivery based on text-based context for any web page ( i.e. AdSense), which isn’t as efficient as search keywords, but its worked pretty darn well.

The secret is that advertisers don’t really need head counts — they need to get into people’s heads.

Dan Mitchell had a piece in the NYT about online ads vs. privacy, which looked at the privacy-related downside of get-inside-your-head advertising, but for Google, the upside of getting inside people’s heads is clear.

And it may turn out to be Google that rescues every other website from the tyranny of the headcount — beyond sharing in some pay-per-click AdSense revenue — if Google (with DoubleClick in tow) succeeds at creating the universal ad platform.

Tweet This Post  Share on Facebook

This is the main reason why Google acquired DoubleClick — relationships. From the Official Google Blog post:

To that end, we are truly excited to announce our acquisition of DoubleClick. DoubleClick provides a suite of products that enables agencies, advertisers, and publishers to work efficiently, that will enable Google to extend our ad network and develop deeper relationships with our partners.

Google has realized that it cannot growth solely through the value proposition of hyper-efficiency, because most of the ad dollars are still controlled by companies focused on “branding,” which is far from hyper-efficient, to say the least. As Fred Wilson points out:

But, banners carry branding value that text ads don’t. The return on investment measure is not as cold and hard with banners. And the big branded advertisers that are leaving TV and print in search of better performance on the internet want to be able to brand with their ads. And they want to control where those ads are run. They’ll pay more for those two features.

In other words, brand advertisers will pay more not to be raked over the coals of hard ROI. And this isn’t necessarily a bad thing — while a lot advertising is probably still wasted, a media and marketing world driven entirely by Google’s hyper-efficiency would not necessarily be an attractive place.

Ultimately, Google knows that control advertising means controlling the fuzzy middle between branding and direct response:

Ads served by DoubleClick exist in the fuzzy middle, and those ads are still bought and sold more via connections between people than they are via connections between machines.

The Google rep I heard present towed the party line about Google not wanting to be an ad agency — and that’s probably right. Instead, Google is creating a people-driven platform centered on their huge regional offices and DoubleClick’s advertiser and publisher relationships.

People aren’t nearly as efficient as machines, but that doesn’t mean they can’t be programmed to feed Google’s money making machine.

Tweet This Post  Share on Facebook

Reading this analysis by Compete was one of those Doh! Of course! moments (and, as a commenter on the Compete post points out, obvious to anyone who bothers to look at listing counts on Craigslist). Sex-related content has lead every technological revolution in media. Why should classifieds be any different?

To get a sense for how newspapers measure up again Craigslist, I checked out the personal ads on the New York Times, Washington Post, and San Francisco Chronicle. So what’s the big difference between web-native Craigslist and the newspapers’ online version of their print cash cow?

Craigslist is an open platform.

The Washington Post and San Francisco Chronicle required registration, clearly with the intent of legitimizing all participants in the personals marketplace. The Chronicle’s registration process is quite intensive, with minimum word requirements for describing yourself. The New York Times has this barrier:

To respond to an ad call: 1-900-226-7144 ($2.99 /min with a $2.00 connection fee.) Must be 18 years or older to call. Charges are accrued for each minute for the duration of the call. If you would like to pay via credit card: 1-866-423-7761 ($3.49 per minute)

On Craigslist you post for free, and respond for free by email — quick, easy, no friction.

The big question, of course, is this: Is Craigslist better because it has no bariers or standards, or worse? I guess it all depends on who you are and what you’re seeking.

Newspapers probably have the right positioning with their barriers to entry for personals — TRUST is the only reason to choose a familiar local newspaper brand over Craigslist. If you don’t want a newspaper acting as a filter in your quest for intimacy, you’d better be prepared to BYOFilter.

In any case, Compete also points out interestingly that Craiglist, for all its glorification, hasn’t cornered the classified market for everything:

Local news, business supplies for sale, real estate and web design are probably better off advertising somewhere else since they contribute less than a whisper to the overall site traffic.

Tweet This Post  Share on Facebook

The reason that Google has struggled to apply this core competency to offline media, i.e. magazines, newspapers, and now TV, is that these media lack both the scaled of activity and the natural feedback loop that enables Google to create efficiencies by harnessing these market dynamics.

If you read Google’s press release about its new TV ad system, it’s clear that they are aiming to pump as much feedback data and activity into the system as possible:

Advances in set-top-box technologies make it possible to report aggregate statistics on how many times an ad was viewed and whether it was watched through to the end. As part of this trial, we will be working with partners to use aggregate, anonymized set-top-box metrics to deliver timely and accurate viewing reports. Advertisers can use this data to understand the effectiveness of their TV ad campaigns and use this information to provide more relevant ads to viewers.

The problem is that the “sensitivity” and “specificity” of the data and the scale of activity (i.e. number of advertisers using the system and the number of bids per advertiser) don’t even begin to compare to what exists in search. First, the number of advertisers who will be able to create video ads is likely to be dwarfed for some time to come by the number of advertisers who have created text ads. Second, the ability to track, at the individual user level, the performance of each text ad for each keyword AND, critically, the ability to track that individual user’s behavior on a site AFTER they click doesn’t even begin to compare to “aggregate statistics on how many times an ad was viewed and whether it was watched through to the end.”

The irony here is that Google is running in the completely opposite direction with its cost-per-action advertising program, which provides the ultimate feedback loop.

Back in the days of mass marketing of mass products, i.e. when everyone was a potential customer, TV was an immensely efficient medium because reaching everybody was the objective. As consumer audiences and product target markets fragmented, TV became more and more inefficient, to the point where the entire system is now propped up by the inertia of deeply entrenched economic interests. While Google will no doubt introduce greater efficiency into the TV ad sales system, it will have the net effect of driving money out of the system.

Of course, if that money is driven into the more efficient online marketing space, Google will ultimately be the beneficiary — perhaps the whole foray into offline media is all a strategy to crush the competition from other media by completely disrupting each medium’s core advertising market, and thereby freeing up those dollars to flow into Google’s online coffers.

Rather than create new money-making machines, wouldn’t it be far more efficient for Google to find new ways to feed the one it already has?

Tweet This Post  Share on Facebook

If they push this as hard as they did AdSense or search it is going to teach advertisers and publishers to create efficient conversion oriented content and sales funnels. It will fundamentally change the structure of the web.

Google’s contextual advertising revolution has already transformed the structure of the web, leading to the creation of millions of web pages with no other real purpose than to serve AdSense ads. The content on these pages is purely a vehicle for advertising — the traditional Chinese Wall between editorial and advertising has been obliterated. And it has force many publishers who follow a more traditional editorial path to start poking holes in the wall. Content has always been a marketing vehicle, but never at such a granular, easy-to-manipulate level.

With its CPA program, Google will drive this phenomenon to the next level. With cost-per-click ads, spammers create bogus pages where confused consumers click on ads in an effort to escape. But with CPA ads, clicking is not enough. The game is now to manipulate consumers not only to click, but to take some further action. And I don’t use the word “manipulate” arbitrarily. This is about turning the web into one big pile of junk mail, aimed at getting you to sign up, buy, or commit to something that you hadn’t necessarily wanted.

Of course, everything exists on a spectrum. Many CPA ads will be placed next to high quality content and lead consumers to offers that they will genuinly find valuable. But that “lighter touch” publishing model isn’t what made Google the cash soaked monster it is. No, Google became big by giving “publishers” (i.e. people with no editorial goals, only profit goals) the tools to turn the web into a giant direct marketing machine.

If you think the web is filled with marketing now, you ain’t seen nothing yet. It will make you long for the days of network TV when you only had to sit through three minutes of commercials.

Google will also increase, by an order of magnitude, the pressure on advertising as a creative art, where it was once acceptable to waste half of a brand’s money. No, Google doesn’t profit from advertising. It profits from direct marketing, where the ends always justify the means.

Tweet This Post  Share on Facebook

CHAD AND RYAN STEELBERG, THE founders of an automated radio ad placement company purchased by Google in January 2006, have left the company.

The brothers resigned amid reports of growing tension between dMarc, the company they founded, and Google over differing approaches to radio ad sales. There was also said to be tension over the limited remuneration dMarc could expect under the performance-based terms of its original deal with Google.

The MediaPost article makes reference to “sluggish revenue” for Google’s radio ad program and a Valleywag report that only $200 million out of a potential $1.3 billion performance incentive from the dMarc acquisition deal will likely be earned by management and investors.

Could it be that Google’s high efficiency advertising engine is only succeeding in exposing the gross inefficiencies of traditional offline advertising to Google’s huge stable of ROI hungry online advertisers?

Can Google continue its torrid pace of growth if offline advertising turns out to be a brick wall?

Tweet This Post  Share on Facebook

Sites like Forbes.com and BusinessWeek.com can get $100+ CPMs for vaguely defined “business executives.” Why shouldn’t Guy be able to get a $100 CPM from the right advertisers? I’ve heard Rafat Ali say that he won’t take any mainstream consumer advertising on PaidContent — that’s probably because he’s aiming at the high CPMs that his pure niche audience should command, and he doesn’t want to dilute that with low CPM “mass” advertising.

I’m sure the folks at Federated Media, Feedburner Ad Network, and a few others have their sites set squarely on this problem. The reality is that, despite the efficiencies that Google has brought, the online ad market is still rife with imbalances and inefficiencies, which means there’s a significant opportunity for anyone who can correct them.

Chris has a great line buried at the end of his post — he calls the web ad economy a “land of skim milk and honey flavoring.” Indeed.

Tweet This Post  Share on Facebook

THE MERGER OF DIGITAS WITH Publicis’ interactive media assets creates a new digital media powerhouse, the likes of which has not been seen on Madison Avenue before. The resulting organization will have the global resources of Publicis’ multinational marketing services network, as well as the media-buying scale to compete in a sector where the power has been steadily shifting to the major portals and search players.

“This allows us to work with Yahoo, Google and Microsoft in a different way, because we are clearly the biggest player in digital media now,” boasts David Kenny, chairman-CEO of Digitas, who emerges from the deal with responsibility for leading Publicis’ overall digital media strategy.

“We can really scale up with the portals in a way that has not been done yet. Nobody has the media scale and the global reach we have now. Those are the two main structural things we gain from this.”

Kenny says Digitas had already been developing the means of leveraging its estimated $1 billion in annual digital media billings on its own–but coupled with the digital media-buying clout of Publicis’ shops, will triple or quadruple its market presence virtually overnight.

Everybody is betting on online video advertising and the prospect of taking a big bite out of the $67 billion TV ad market. The key ingredient here is the creative. Anyone can pick up a video camera, but creating compelling video ad content is not as easy as creating compelling text ad content. And Madison Avenue is starting to wake up to the fact that they can’t just bring TV ads online.

Here’s an excerpt from an interview with Jamie Tedford of Arnold Worldwide, whose clients include brands like Volkswagen, Fidelity Investments, Timberland, and RadioShack:

Advertisers think, `We’ll just put our existing TV spot up, and it’ll become viral.’ A lot of marketers are learning quickly that the rules for what makes something viral are a totally different set of rules.

Video also gets passed on because it’s surprising, funny, new, comical, sexy, or provocative. People want the currency of having found something first.

Many clients have a more traditional view: `Here’s the product message I want to come through, and if you can get some entertainment in there, great.’ Now, you’re asking someone to discover this on their own, and figuring out what would make a consumer forward it to a friend.

The whole notion of viral video “advertising” is disruptive even to the disruptors like Google — Google ads still need to ride along with content, which is why they bought YouTube. But when ads become fully fledged entertainment, they don’t need to ride along with content. They don’t need to be in Google’s ad system — you can just post the ad content on YouTube for free:

If YouTube is overtaken by Google’s monetization, Madison Avenue will find other platforms for distribution — video distribution platforms will become (and to an extent already are) a commodity. (The idea that you can “own” the “community” will also be disproven, I predict, but that’s a topic for another post.)

The big structural issue to be resolved is the separation of “creative” from “media buying” that has taken place on Madison Avenue over the past decade or so. With online media completely changing the game, some ad agencies are recombining these functions, even as Google and others in Silicon Valley position themselves to disintermediate the agencies. It may be that media buying agencies are more vulnerable than the creative agencies, because Google has sent the ball rolling downhill towards the commoditization of media buying, with national advertisers developing their own platform with eBay. If that happens, the power may resides in the hands of the “creatives” — somebody is going to have to create all of these online video ads.

The credit rating service Fitch issued a fascinating report this week on the evolution of Madison Avenue in a digital media world — MediaPost has a great summary. Here are some excerpts:

Madison Avenues’ biggest players face some considerable challenges – the erosion of the traditional TV advertising marketplace, the continuing fragmentation of media and a corresponding consolidation of media services, a shift from traditional advertising to “below-the-line” marketing services, the reintegration of creative and media services, and the threat of “disintermediation” from advertisers dealing directly with online services – but are generally better positioned than the rest of the media industry to weather some big changes in the years ahead. “The rapid evolution of the media landscape has required that ad agencies adapt their offerings in favor of the new media alternatives that are gaining acceptance with clients.

One of the biggest organizational developments, Fitch says, is the reintegration of media and creative services. Citing Interpublic’s recent realignment of media shops (Initiative and Universal McCann) with brand agency networks (Draft FCB and McCann WorldGroup, respectively), and Publicis’ integration of Arc Worldwide with Leo Burnett, the credit agency said it believes that agency holding companies, “that fail to develop tighter coordination are at risk of client defections to other [holding companies] or upstart agencies that can deliver integrated solutions to clients.”

“So far, major advertisers typically buy their Internet advertising with one of the [holding companies'] buying operations acting as intermediary. There is the potential for the Internet companies to try to move up the value chain to deal directly with advertisers,” warns Fitch. “These developments, and others described previously, continue expose agencies to potential to the risk that certain functions may get commoditized or that agencies themselves could be disintermediated in this broad media transition toward more consumer and advertiser control.”

Here’s a prediction for 2007 — the convergence of media and technology will manifest in an increasingly overt battle between Madison Avenue and Silicon Valley for control of the $300 billion advertising market.

UPDATE

Matt Terenzio thinks my prediction is wimpy, and he’s right, so here are some bolder predictions (which are of course likely to have a lower hit rate):

- Google buys or forms its own creative agency to produce video ads for video advertisers, and starts producing ads for TV in addition to ads for online video
- Google launches a platform to compete with eBay for auctioning TV ad space
- Google becomes the agency of record for a major national advertiser
- At the behest of a group of national advertisers, eBay adapts its ad buying platform for online video, and the advertisers pressure Google into making YouTube compatible with the system

Tweet This Post  Share on Facebook

The reason page views persist is that they are a key variable in the still dominant currency of online advertising — impressions, and its derivative CPM. Impressions themselves are merely the clunky online analogue to TV ad “exposure” — the currency in big money advertising has long been whether the ad was seen.

The reason Google has been so disruptive is that they abandoned not only page views and impressions but also all audience demographics, and they replaced them with the elegant keyword and click. Clicks have their problems, of course — they can be gamed and they are only a way-point on the way to a destination. But they sure beat the hell out of impressions as a clear measure of advertising value. CPA, or cost per action, has long been positioned as the next evolution, because advertisers only pay for the end result — the problem is that in many instances it’s difficult to attribute an end result, particularly long sales cycle purchases, to one specific ad.

I’ve written before that the future of online advertising lies in the fuzzy middle between direct response and branding — at the end of the day, the challenge is finding currencies for advertising that map to advertiser objectives.

It’s no coincidence that Jason Calacanis is studying multivariate analyses of advertising effectiveness — the “traffic game” remains a clash of titans (as Richard MacManus demonstrated), but all the action going forward will be the quest for Google-like innovations in advertising value.

Tweet This Post  Share on Facebook

Randy Mountz, former vice president of sales for MySpace.com’s Midwest region, has joined PayPerPost as the company’s vice president of sales, a new position.

Also notable:

In a novel move, PayPerPost utilized the its own platform to assist in recruiting Mountz. The company paid a handful of the consumer content generators in its network to create Web videos designed to entice Mountz to join the PayPerPost team. The videos, posted on YouTube, demonstrated the power of the platform to Mountz, and were instrumental in attracting Mountz to his new Position.

Who knows what the back-story is, but on the surface it would seem that Mountz’s decision to sell an ad format that can result in government fines isn’t exactly a ringing endorsement of the growth opportunities in ad sales at MySpace. Of course, this deal appears to have been done before the FTC announcement…still interesting, given the endless MySpace worship in the media (such as all the fuss over MySpace’s web-design-driven ascension to the #1 page-view spot), you’d think they wouldn’t have trouble retaining anyone if they were having runaway success in “monetization.”

Tweet This Post  Share on Facebook

The Internet Advertising Bureau has launched an ad campaign to “convince” advertisers to spend more money online (via MediaPost):

To help develop the campaign, the IAB hired Luntz, Maslansky Strategic Research, owned by The Omnicom Group, to conduct qualitative and quantitative research to understand how marketers view interactive advertising. The research firm, founded by former political pollster Frank Luntz, interviewed marketing executives at nearly 500 brand marketers to find out what they found most compelling and distinctive about the interactive medium.

“The idea is that there is a great place for interactive in the media mix,” said Michael Maslansky. “It’s not intended to be the only element, but it’s supposed to play an important role.” He explained that while corporate leaders may talk big on interactive marketing, large organizations are slow to embrace newer forms of advertising.

“Regardless of how big and bold you hear marketing professionals talk about interactive, the reality is that it’s a lot more methodical, step-by-step approach in new directions,” said Maslansky. But he said he believes Internet ad spending has reached a “tipping point” as marketers have gradually become convinced of its effectiveness.

They’ve launched a flashy “microsite“:

And, in a deeply ironic turn, the campaign uses the same concept of “engagement” that newspaper and magazines have used to promote their shrinking mediums (via MediaPost):

AT A TIME WHEN PRINT publishing trade associations representing newspapers, consumer magazines and trade magazines have embarked on big advertising campaigns to promote the vitality of their medium, a group representing online publishers is about to do the same. And like its print counterparts, the online group is leveraging the media theme du jour on Madison Avenue: engagement. Interestingly, that group, the Interactive Advertising Bureau, will be using a combination of print and online advertising buys to get its message out. The message: “Media More Engaging.” The theme, which was crafted by Brand New World, is based on an extensive research study conducted among senior marketing and ad agency executives on how to best position interactive media, but its findings appear to be the same ones that could be applied to any medium.

Isn’t “engagement” supposed to be old media’s euphamism for dancing around the issue of ROI? Isn’t online advertising supposed to be the wave of the future because it’s so measurable? And didn’t Google wash away all of the hyped up over-promising on measurability from the 90s? Well…

According to a study conducted by the interactive agency Brulant, even some retailers with millions of dollars of online revenues do not know the ROI of their Web sites.

In fact, in a survey of more than 100 senior managers across industries — with retailers making up about two-thirds of the total — 56% said they could not confidently demonstrate the ROI of their online channels.

“It’s not that the online channel doesn’t generate more ROI,” Len Pagon, CEO of Brulant, told Internet Retailer, “it’s that companies haven’t figured out how to measure it, even ten years along the Internet adoption curve.”

via eMarkter

and

Online marketers have taken to pay-per-click (PPC), and many use it, but apparently not everyone understands it very well.

Although online marketers have been investing in PPC search marketing for a number of years, a new survey of marketers — all of whom have been using PPC for at least two years — conducted by the e-tailing group found that managing PPC programs poses a challenge.

The fact that marketers use PPC was clear from the survey. In fact, with 44% of e-commerce executives surveyed saying they allocate 20% of their entire advertising budgets to PPC search ads, it constitutes a significant portion of online marketing budgets.

via eMarketer

Then you have the discussion today about the imminent demise of page views as a metric — as Steve Rubel sums it up:

The page view does not offer a suitable way to measure the next generation of web sites. These sites will be built with Ajax, Flash and other interactive technologies that allow the user to conduct affairs all within a single web page – like Gmail or the Google Reader. This eliminates the need to click from one page to another. The widgetization of the web will only accelerate this.

This is a dirty little secret in the advertising business that no one wants to talk about. Media companies love to promote how many page views their properties get. They’ve used the data to build equity. They will fight it tooth and nail to protect it, perhaps by not embracing interactive technologies as quickly as they shuld. But that’s not going to stop the revolution from coming.

Lastly, there’s now data that confirms my theory that online ad revenue is a long tail phenomenon, with all but the large players receiving very little (via AdAge):

TV’s Big Four environment has turned into the Big Four online, with Google, Yahoo, MSN and AOL dwarfing other online players. Consider the Interactive Advertising Bureau’s analysis of revenue by company size — the top 10 companies online accounted for 72% of all interactive ad revenue last year, up from 71% in 2004. The top five? They account for more than half of all spending, and that figure has likely been boosted in ‘06 by the rapid growth of News Corp.’s MySpace. (And the IAB figures exclude Google and Yahoo’s ad networks, which monetize the tiniest sites on the internet through text and simple graphical ads.)

I do think these are growing pains, and they’re bad because change is happening so fast. Online advertising will likely outgrow this phase and deliver a prosperous future — but we should have no illusions about how much pain there’s liable to be along the way.

Tweet This Post  Share on Facebook

Here’s a Coke commercial that played at Web 2.0 and, of course, on YouTube, but never ran on TV.

For the brand, these “viral videos” are perceived as a massive success. For media companies looking at the future of video, the elephant in the room is — why should anyone pay for video distribution if virality is the new metric of success? For agencies the elephant is — how do we charge for this value when it doesn’t fit within any of the established billing models? Metrics for value creation in this new mode of advertising are still in the stone age, and in most cases non-existent.

But wait, consolidators of attention will say, what about targeting? Viral is an uncontrollable force of nature. Google has shown that micro-targeting with hundreds of key words and dozens (or hundreds) of creative units can be a powerful force. Isn’t the value of media in delivering the right message to the right people at the right time?

That’s when you hit the other structural problem — WHO is going to create all of these creative messages? Who is going to manage them? Who is going to optimize them? The agencies – particularly the “creative” teams — are not structured or staffed or trained to translate the “big idea” into 1,000 customized messages for 1,000 different audiences. Optimization of rich media and video creative – creating and trying lots of different ideas to see what works best – is an expensive proposition. Oops, there goes the profit margin.

And then there’s “conversation” — the new marketing paradigm shift is supposed to take us away from “targeted messages” to engaging in meaningful conversation. But who is going to engage in these conversations on the brand side? If one-to-many is now one-to-one, there are A LOT of “ones” on the consumer side – there just aren’t enough “ones” on the brand side to create these individualized, personalized connections.

The company that caught my attention at the Web 2.0 Launchpad was Turn, an automated platform for delivering graphical and text-based cost-per-action ads:

Here’s all Turn advertisers need to do:

1. Define one or more action goals, such as a site visit or purchase.
2. Set a Cost Per Action (CPA) bid price.
3. Load graphical or text ads into the network.

Now it’s our turn.

Turn automatically analyzes the advertiser, its web site, and each ad loaded into the network. And we apply the same process to the publishers and web pages that generate ad impressions. The result: we find the optimal placement for your ads based on the actions you’d like to achieve. But we don’t stop there. We use continuous learning to refine the process and improve performance over time as more impressions, clicks and actions are observed.

Intriguing, but here’s the problem: Garbage in, garbage out. Search marketing has created an entire ecosystem for managing the infinite variables of search marketing — add brand marketing and video, and suddenly the complexity grows geometrically.

Software can optimize, but it can’t be creative. It can’t carry on “conversations.” That still requires people. And that’s going to require the restructuring — or more like the reinvention — of the entire advertising industry.

Tweet This Post  Share on Facebook

Google — Even if newspaper print advertising continues to decline, Google’s share will be greater than zero and will be highly profitable.

Newspapers — Revenue from Google for unsold ad space will be greater than zero.

Downside

Google — AdWords is a direct response marketing vehicle, which is why the magazine print ad program failed; if AdWords advertisers don’t get a “response,” i.e. traffic from print newspaper ads, they won’t come back for more.

Newspapers — Handing the reigns over to Google’s efficient direct response advertising machine will only hasten the realization that the Web is much more efficient than print at driving action and response.

The likely net effect of the Google/Newspaper program will be increased efficiency and therefore fewer advertising dollars in the system, as is already anticipated:

“I’m hopeful the program will lower advertising costs in the print world,” said Bruce Telkamp, a senior vice president of eHealth, an online insurance agency. “By aggregating a large number of advertisers, Google should get purchasing power.”

Tweet This Post  Share on Facebook

If individuals can bypass traditional media and connect directly with a community of common interest, why can’t brands do the same with their customers? Well, they are (via Search Engine Journal):

A growing number of Louisville businesses are turning to the social-networking Web site MySpace.com to connect with customers, promote events and, ultimately, make money.

Taverns, clothing stores and gift shops — many of them independently owned — are creating virtual profiles of themselves on the site as an informal approach to free online advertising. For Peter Berkowitz, owner of Old Louisville Coffee House, the effort was so successful that he abandoned his traditional Web site in favor of MySpace.

I’ve written before about the challenge MySpace faces in getting companies to pay for what individuals can get for free, i.e. a MySpace page. But really all of media — including the newly adopted software industry — faces the same problem. In fact, small businesses connecting with customers directly sounds like a challenge to Google as well.

Despite massive innovation on the content side (what used to be called “editorial”) — blogs, MySpace, YouTube, Flickr, Digg, search — there’s only been one real innovation on the old “business” side — pay-per-click text ads. But even search advertising is based on companies paying to ride along with a content provider (search results) to deliver a commercial message — sure it’s more relevant, but it’s still paying a big media company to deliver the message. Search ads can lead people to useful information or “meaningful brand experiences,” but when you push the new media revolution to its logical conclusion, you get companies setting up their own identities on the network (in this case MySpace) for free, empowered just like everyone else.

Sure, companies paying to advertise isn’t going to go away anytime soon — old habits die hard, and the network isn’t nearly efficient enough yet. But if brands drink enough of the Kool-Aid new media is serving, they may start to realize that self-empowerment is indeed liberating — and much more cost effective.

Or to put it another way, if it’s all about “conversation,” then why play a game of telephone by putting a media company between you and your customers?

Tweet This Post  Share on Facebook

Several factors have combined to put pressure on the billions of dollars spend on traditional brand advertising — TV above all — to demonstrate “engagement” (i.e. what’s the ROI of all that money we’re spending?):

1. Mass advertising of mass brands is dying
2. Audiences are fragmenting at an exponential rate
3. The share of media time spend online is rapidly growing
4. Online video has arrived
5. Google has made billions on direct response advertising, finally realizing the promise of the Web to revolutionize advertising ROI measurement

The advertising industry has realized it’s only a matter of time before the pressure to demonstrate the return on invest for TV advertising threatens to collapse the whole system. That’s what drove NBC to negotiate what may be the first pay-for-performance deals in the history of TV advertising (Alan Wurtzel, President of NBC’s Research and Media Development, who spoke at the conference, wouldn’t confirm or deny, but it was pretty clear that’s where they are headed.)

So the problem I have with the working definition of “engagement” — “turning on a prospect to a brand idea enhanced by the surrounding context” — is that it obfuscates the real issue:

How much so companies profit in the short term and/or the long term from the billions they spend on brand advertising? In other words, show it to me on the P&L statement!

The coming showdown over brand advertising is only going to intensify as Google comes at it from the other end. At the conference, Patrick Keane, Director of Field Marketing & Sales Strategy at Google, presented the results of — get this — an eye tracking study to show that consumers were more likely to look at an ad in a relevant context. Not click on the ad — just look.

Welcome to the wild, wooly, squishy word of brand advertising, Google!

Google is opening a 300,000 square foot New York office where “newer initiatives into print and audio advertising are being done,” but we all know that TV advertising is the real prize.

Between Google, with its algorithms, oceans of data, and direct response measurements (click!), and TV brand advertising, with its outdated input metrics that are useless for measuring real return on investment in dollars and cents, is the “fuzzy middle” where the battle for the future of advertising will be fought.

Whoever figures out how to bridge the chasm between brands and dollars will win the prize.

Tweet This Post  Share on Facebook

eMarketer predicts that this year the growth in online branding ads will equal the growth in online direct response ads, and that branding ad growth will exceed that of DR across the next few years.

Thanks to the explosive growth of direct response over the past few years, driven by search, absolute spending on direct response ads has already eclipsed spending on branding ads.

I think the BIG question here is how companies vying for these dollars and the companies spending them will parse the definitions of branding and direct response:

Note: branding includes display ads/banners, rich media/video, sponsorships, slotting fees; direct response includes paid search, classifieds, e-mail advertising, referrals

For the purpose of forecasting, which requires clear bucketing, these definitions are perfectly reasonable. But the reality is that “brand” advertisers using banners and rich media are still obsessively tracking clickthrough rates, while many “direct response” advertisers want to find ways to build their brands (which was evident in the OMMA session “Beyond Response: How Search Builds Brands“). Many ad categories (e.g. auto, financial services, consumer electronics) consistently wear both brandng and DR hats.

On the media side, you have branded content sites like The New York Times, Yahoo, and AOL receiving the lion’s share of the branding ad dollars, while search engines receive the lion’s share of direct response ad dollars. But each camp wants to control more of the pie, with Google’s ambitions looming largest.

Then you have social media, i.e. blogs, MySpace, YouTube, etc., whose control over online attention is growing at a torrid pace, wondering what their share will be.

Then you have the X factor of online video, with TV advertisers turning to online, and a growing frenzy over the video ad space. Beyond 800 numbers, most TV ads were never intended to be direct response. Will that change as video ad dollars move online? Will a new science of DR video ads arise following the path of DR text ads?

Right now the fuzzy middle between pure branding and pure direct response is still up for grabs (thanks to Marissa Gluck for getting me thinking about the middle).

If you feel the urge to quibble with my graphic, then you understand the problem with the fuzzy middle — even the ends of the funnel are not that easy to define — assuming you even believe in the funnel.

Traditional approaches to advertising, rooted in TV and print, still hold sway over branding. And search clear dominates direct response. Whoever can figure out a new value proposition for the fuzzy middle will be able to take a big slice of the pie — and possibly even growth the pie, as search did.

Tweet This Post  Share on Facebook

NON-ADVERTISING-BASED FORMS OF MARKETING – especially newer sectors such as branded entertainment, event marketing and experiential marketing – have emerged as the fastest growing segment of the media economy, outpacing advertising, as well as consumer and industrial spending on media. The finding, which comes from the 2006 edition of the Communications Industry Forecast being released this week by Veronis Suhler Stevenson, comes as strong evidence that U.S. marketers and their agencies are shifting spending into forms of marketing that have tangible measures of ROI associated with them. It also suggests that Madison Avenue’s shift from conventional ad-based media planning toward marketing-based communications planning is also having an effect, and that the definition of media is expanding well beyond traditional formats like TV, radio, newspapers and magazines. Perhaps most significantly, much of the shift toward new forms of marketing spending, especially the kind of experiential marketing aimed at active young adults, is a sign that marketers need to find new ways of reaching some important consumer segments.

Just as the media is bleeding into technology, we’re seeing advertising, marketing, PR, and CRM all bleeding into each other — companies are starting to de-silo the end-to-end processes of customer acquisition and customer relationship management. This presents a huge opportunity for media.

It used to be that media was strictly a delivery mechanism. Now that media is becoming a two-way, participatory, community-driven 2.0 entity (MySpace, YouTube, blogs, etc.), media companies can do more than just deliver messages — they can create services across the entire marketing services value chain.

PQ’s Kivijarv says much of marketing services growth, in fact are forms of media that are not classified under traditional advertising spending, such as custom publications created by consumer or B-to-B marketers that are beginning to supplant conventional ad spending in magazines – a big factor holding down growth in the magazine marketplace.

But as much as these new and traditional forms of marketing are beginning to cannibalize on traditional ad-supported media, VSS’ Greenberg notes that many traditional media companies are beginning to become significant players in marketing. “Take event marketing aimed at 18- to 34-year-olds,” he says. “Companies like MTV are helping to drive that.”

There is an opportunity for a single entity — call it media, marketing services, agency, whatever — to help companies connect with current and prospective customers through meaningful brand experiences and to empower those customers to participate in and increasingly drive the marketing process.

Media companies need to focus on leveraging their most important assets — relationships, engagement, and community — these are the new “vehicles” for marketing. Companies have these same assets with their loyal customers, but media holds the key to new customers. It’s no longer about just delivering a message — it’s about leveraging the connection that media (be it New York Times, MySpace, Boing Boing, YouTube, Digg, or Google) has with its users, who are increasingly driving the media (and in the case of MySpace ARE the media). It’s about enabling people to discover and connect with brands through meaningful, entertaining, and useful content and experiences, which media companies, who should know their audience/users best, are ideally positioned to facilitate.

Tweet This Post  Share on Facebook

What does Microsoft do when it says “we have the most blogs?” Or, when it says really ANYTHING about its Internet services?

It takes them to advertisers and says “pony up, we know you paid MySpace ‘XXX’ and we have the most now, so we want ‘XXX+y’.” See, the little game we’re all playing in this Web 2.0 world is advertising.

The other little dirty secret of advertising? Not all readers are the same. Unfortunately if you’re an A List blogger it’s egotistical (and elitist) to point that out. Since Dare pulled out the ad hominem card already might as well slap this elephant in the ass and make it sing!

Quick. Is Jeff Jarvis worth more or less to an advertiser than this guy? Or this? Or this?

Donna Bogatin wisely drills down on the issue of metrics:

Scoble may have pulled off the covers of Windows Live Spaces metrics, but, at the same time, puts forth advertising metrics related assertions about Google, MSN, Federated Media…that may need to be “audited” as well.

Donna proceeds to quote some available audience metrics from MSN and Federated Media, but it’s all Old Media-style demographics.

Regardless of whether Scoble is right about the definition of a blog, I do think he pointed to the elephant in the room, and what blows my mind is that it’s such a qualitative elephant — is Windows Live Spaces more “valuable” to advertisers if it’s defined as a “blogging” service? Are influential bloggers of higher “perceived” value to advertisers?

Is this 1.0 all over again? Where are the ROI metrics? Do bloggers vs. non-bloggers (if such a distinction exists) drive higher clickthrough rates? Do A-List bloggers drive higher clickthrough rates? If it’s about “branding” and not direct response, then what are the metrics? Are brands that are advertised on blogs or A-List blogs seeing a bump in brand perception metrics? Are they more likely to be discussed on other blogs? Do they SELL MORE STUFF?

For decades, Old Media has been selling the value of media and audience based on smoke-and-mirrors perceptions rather than any quantifiable ROI metrics. Search marketing, which actually has some workable ROI metrics, gave a good kick in the head to that old model, but apparently it’s still alive and kicking.

So my advice to the emerging blog media moguls — get better metrics! If it’s all about influence and buzz, then find a way to quantify it. Companies like Nielsen Buzzmetrics are trying to inject some metrics into this space — it’s not like people aren’t working on this.

But whatever you do, please don’t run back into the squishy quicksand of Old Media value propositions.

Tweet This Post  Share on Facebook

1. Search marketing has come of age

You can see this in the standing room only sessions in the ballrooms at the San Jose McEnery Convention Center. You can see it in the parade of representatives from Google, Yahoo, Microsoft, Fortune 100 companies, small businesses from every imaginable sector, and the swarms of SEM consultants, agencies, and software vendors. You can feel it in the energy of the conference that everyone knows search marketing has driven the renassaince of online advertising (and, and one might argue, advertising in general). I haven’t attended SES conferences in years past, but many people commented to me on the tremendous growth in the size and stature of SES, which reflects the maturing of the industry.

2. Goolge’s dominance is still growing

You can see this in the competitive analysis charts from Hitwise, comScore, and Nielsen/Netratings showing Google’s still growing dominance in visits and total searches. You can see it in the way AdWords dominates the case study presentations. You can see it in the Google clone features of Yahoo’s new Panama platform. You can see it in the widespread hand wringing over the negative impact of Google’s landing page quality score. You can see it in Google’s ostentatious display of power and wealth at the Google dance. You can see it in the packed auditorium listening to Danny Sullivan’s conversation with Google CEO Eric Schmidt.

Google’s dominance was evident when makers and users of search marketing management software railed against Google’s “API tax,” i.e. Google’s decision to charge advertisers for the once free access to Google’s AdWords API. They also complained about the Google API terms of service that prevents Google data from being used in apples-to-apples fashion alongside data from competing search engines — its clear to many SEMs that Google wants to control the whole search marketing landscape.

Google is to this decade what Microsoft was to the last decade. In a session on “Search Engines: Friend or Foe,” I asked David Jakubowski of Microsoft’s AdCenter about the irony of Microsoft’s effort to be the anti-Google, and he wisely declined to comment.

What struck me most is that few people were ready to concede the war to Google — of course, you hear this from Yahoo and Microsoft. But you also hear it from SEMs, who are begging for Yahoo, Microsoft and others to give Google a better run for the money.

3. Effective ROI measurement is far from universal

There is no shortage of software and SEM consultants that do a great job helping companies measure the ROI of search marketing — but my sense is that many companies are still far from state of the art. You can see this in the rudimentary questions that advertisers ask — and these are companies that had the wherewithall to attend Search Engine Strategies — and the way SEM consultants talk off the record about the state of practice. On the click fraud panel, Lori Weiman of KeywordMax cited statistics that 1/3 of advertisers aren’t tracking post-click customer behavior, and 50% of those who are don’t analyze the data to make bid adjustments and optimize performance.

There was undoubtedly a huge learning curve on display at SES, and all to the good — companies are making progress on ROI with the help of consultants, agencies, and new platforms. But the amount of learning still to be done makes me more skeptical than ever of arguments that assume most search advertisers are operating at best practice when it comes to ROI and optimization, e.g.

- The market can compensate for click fraud

- Pay-per-click key word prices reflect a high degree of market efficiency

- Pay-per-click arbitrage will diminish as the market becomes more effient

Of course, paid search remains several step functions more efficient than tradiitonal paid media advertising — effective ROI measurement is actually possible for the first time — but in practice, it still has a long way to go.

4. Transparency is declining and the black box is growing

In Yahoo’s new search advertising platform, Panama, advertisers will no longer be able to see how much their competitors are bidding — like Google’s AdWords, which Panama imitates, this data will be drawn into the “black box.” Yahoo had little choice but to reduce the transparency of its ad system in order to compete with Google.

Eric Schmidt reaffirmed the black box party line in his conversation with Danny. Google will not release data on anything, from click fraud to spending on search vs content ads — Google has developed a number of standard “reasons” for this lack of transparency:

Competition — this is a universal catch-all excuse

Bad actors — they can’t disclose click fraud data because that will help the click fraudsters

Misinterpretation — they don’t want to release data without context because it can be misinterpreted — this was a new one for me

Every Google rep I saw at SES — Shuman Ghosemajumder, Business Product Manager, Trust & Safety; Kim Malone, Director of Online Sales & Operations; Shashi Seth, Product Manager for Google Co-op — was carefully tight-lipped about revealing any data of any sort that might help anyone understand what’s happening inside the black box.

And the frustration among advertisers and SEMs over the search advertising black box is growing. With all the talk of market efficiency and ROI, it’s sobering to listen to Dana Todd of SEMPO and SiteLab make an impassioned plea for a full click-by-click data audit — who clicked on each ad, how much they paid, etc. — and she knows she’ll never get it.

The battle lines have been drawn in the war over data — the issue of click fraud is of course front and center, with Google’s surprise attack against third-party click fraud measurement at the SES panel.

But I was also struck by the view of some SEMs that paid search is getting harder, given the risk of triggering Google’s quality score algorithm, which can explode keyword prices overnight. Because Google’s effort to prevent abuse of the system is done with so little transparency, it may have the unintended consequence of stifling innovation and making advertisers afraid to do the kind of experimentation necessary for optimization and better ROI.

5. Advertisers are getting frustrated and suspicious of search engine hegemony

I asked a diverse set of advertisers whether they planned to use Google Checkout — NEVER, was the near universal answer. I’ll never share my data with Google. I’ll never put my data into Google’s black box, because then they will know how much I’m making on keywords and they can raise prices to squeeze my margins. I heard similar attitudes towards Google’s conversion tracking tool and Google analytics. The collateral damage of the landing page quality score has only hardened this view.

Dana Todd talks about Google addiction — the inability to look beyond Google’s unequaled capacity to drive traffic. She is clearly worried that advertisers are becoming blind to the risks of over-reliance on Google.

The risk of over-reliance on Google is nothing new — advertisers learned that lesson after Google’s “Florida” algorithm adjustment in 2003, which drove so many merchants out of natural search results and inevitably into paid advertising. But the introduction of landing page quality scores and the growing awareness of click fraud is leading more advertisers to question Google’s degree of control.

On the click fraud panel at SES, Jessie Stricchiola of Alchemist Media pointed to a little publicized section in the Tuzhilin Report which disclosed that Google waited until 2005 to stop double charging advertisers for double clicks:

The change in the doubleclick policy that was considered in Winter 2005 and implemented in March 2005. It turned out that the change in the doubleclick policy (i.e., not to charge advertisers for the immediate second click in a doubleclick) had non-trivial financial implications for Google. Being a publicly traded company at that time, this change would have had a noticeable effect on Google’s total revenues with corresponding implications for the financial performance of the company.

Advertisers, of course, had no idea that they were being double charged because it all took place inside Google’s black box. And advertisers are starting to wonder what else may be going on inside the black box to maximize Google’s revenues at their expense, with click fraud being only the most publicized issue.

6. Search marketing is still in its infancy

Most SESers agreed that we are just at the beginning of the road with search and search marketing — with the notable exception of Eric Schmidt.

When Danny Sullivan made the observation to Eric Schmidt that search is “boring” and wondered whether it has matured like the TV set or whether there was something new and exciting over the horizon, Eric looked at Danny like he had three heads and said defensively (regarding Google’s simple interface): “People like that. Don’t you?” When Danny pressed him, Eric responded by saying that anyone wanting a “complex” search experience could use Google’s personal homepage with RSS feeds and gadgets.

Yes, indeed, we’ve still got a long way to go.

Tweet This Post  Share on Facebook

In a conference call, FIM executives noted that a very large number of people leave MySpace to go to Google. According to data collected by Hitwise, an Internet traffic tracking service, nearly 10.8% of Google’s traffic was coming from MySpace.com for the week ending July 29, 2006. Had Fox gone with Yahoo or Microsoft, it could have been a serious blow to Google.

It also gives them access to inventory to sell more ads, and thus become even a bigger player in the fast-growing online advertising business. But the ad-inventory that can be sold is unlikely to come from MySpace. Rich Greenfield of Pali Capital notes that most of the safer (read advertiser friendly) “Myspace-programmed” sections such as the homepage, main Music page, main Comedy page, etc are off limits for Google. Eric Schmidt, Google CEO during the conference call said that they would not serve ads on all MySpace pages and in fact they will let a lot of ad inventory go unserved.

First, I disagree with Om that FIM’s going with Yahoo or Microsoft could have been a serious blow to Google because of the loss of traffic from MySpace. Here’s what Bill Tancer of Hitwise observes about the 10.8% statistic:

Since over the last year there has been no formal relationship between the two companies, this high volume of traffic flowing from MySpace to Google would most likely be the result of users using their Google toolbar or manually navigating to Google while engaged in their MySpace session.

Google gets 10.8% of its traffic from MySpace because so many Google users are also MySpace users, and so they just happen to be on MySpace when they decide to do a search. Does that mean these MySpace users would suddenly stop wanting to use Google if Yahoo or Microsoft was the default search for MySpace? Unlikely. Perhaps Google will gain more search users from other FIM properties, but I’m not sure that was worth paying for.

So what about the advertising component of the deal? As Om observed, “the ad-inventory that can be sold is unlikely to come from MySpace” — Google is even more savvy than most corporate advertisers when it comes to avoiding ads running next to questionable content.

Through Om, Robert Young speculates:

“The real story here (in my opinion) is how Google is now going to adjust/modify their ad network to optimize for social networks.”

It seems on the face of that there should be a huge opportunity to better “monetize” social networks, but I don’t see how this deal is going to make the problem of uncontrollable MySpace content any easier to solve.

MySpace still can’t get more than $1 for a big chunk of its page views. Maybe Google can figure out how they can do better…good luck!

Tweet This Post  Share on Facebook

That shocking statistic, delivered to the company’s Fortune 100 clients in a report on media proliferation, assumes a 15% decrease in buying power driving by cost-per-thousand rate increases; a 23% decline in ads viewed due to switching off; a 9% loss of attention to ads due to increased multitasking and a 37% decrease in message impact due to saturation.

“You’ve also got pronounced changes in consumer behavior while they’re consuming media,” said Tom French, director at McKinsey. “And ad spending is decreasingly reflecting consumer behavior.”

According to the report, real ad spending on prime-time broadcast TV has increased over last decade by about 40% even as viewers have dropped almost 50%. Paying more for less translates into a much higher cost-per-viewer-reached — a trend also true in radio and print.

Wow, you’ve got to love those numbers — almost the inverse of what’s happening online, e.g. the announcement of Google’s deal with Viacom/MTV:

Viacom Inc.’s MTV Networks has agreed to distribute clips from its cable networks over Google Inc.’s advertising network, in a test of what could become a new economic model for Web-based video delivery, the companies said on Sunday.

The project, a year in the making, marks the first time Google will distribute ad-supported videos across its AdSense network from a major programming provider. The ad-supported video distribution project will begin testing later in August.

Google’s AdSense network currently handles primarily text and graphical-oriented brand advertising. The MTV trial, if successful, would highlight the progress Google is making in evolving beyond its reliance on delivering Web-based text ads from which it derives most of its revenue and profit.

It’s undeniable now that TV is falling and online video is rising — the real question is how fast and how messy will the transition be:

“Should everybody shift 30% of their dollars to the web?” asked Amy Guggenheim Shenkan, senior practice knowledge specialist in McKinsey’s San Francisco office. “No. There wouldn’t be room today if everybody wanted to shift online. Last year [online media] was $12.5 billion, by end of 2007 digital advertising will be $18 to $25 billion. … So we’re seeing a lot of growth, but if you want to match up share of attention and share of dollars it couldn’t happen for that reason.” The TV ad industry is a $68 billion one.

Google has an infrastructure set up to receive those dollars — but will advertisers want to buy that way? Everyone is learning online video from scratch, so while infrastructure has some advantages, measuring the ROI of online video ads is still a brand new “science.”

While traditional video content providers like MTV still have strong brands, the meteoric rise of YouTube shows that the playing field is a lot flatter.

Of course, there’s another option besides “shifting” all of those TV ad dollars to online video — spend them on other forms of advertising with higher ROI — just as soon as it becomes clear what those are.

Tweet This Post  Share on Facebook

Pay-Per-Click Ad Council
(From CNET)

The Interactive Advertising Bureau (IAB) and the nonprofit Media Rating Council said they are teaming with Google, Yahoo, Microsoft, Ask.com, LookSmart and others to form the Click Measurement Working Group.

The group’s mission is to establish guidelines for what constitutes valid clicks and invalid clicks on ads. Guidelines can help the industry measure how prevalent click fraud really is. Third-parties who sell click-fraud-combating services to advertisers claim that click fraud rates are as high as 30 percent. Google and Yahoo counter that click fraud rates are minimal.

TV Commercial Ad Council
(From MediaPost)

IN THE WEEKS SINCE NIELSEN revealed plans to begin providing ratings for TV advertising minutes significant problems have emerged in the way those ratings are processed. Now a coalition of influential buyers and sellers wants to put the brakes on that process before and is planning a meeting to rethink how the so-called commercial ratings should be manufactured. The meeting, which is expected to take place next month, before the launch of the new TV season, and before Nielsen begins doling out the new ratings, will likely lead to a new round of discussions on what data should – and should not – go into the commercial ratings, how they should be processed, disseminated and used in TV advertising deals. “I don’t think there’s anyone out there who thinks that Nielsen has a full grip on this,” acknowledges Alan Wurtzel, president of research and media development at NBC, who is one of the executives trying to organize the summit. We need to find a forum in which the industry can get together and start to deal with some of these details.”

In both instances, the problem is a lack of data transparency. Greg Stuart, chief executive of the Interactive Advertising Bureau, who is part of the click council, said (from BusinessWeek):

Media need to operate with transparency. There’s marketers and agencies who are paying money for things. They need to know, what are they paying for? What does that look like? What is the standardized way in which that’s being counted? And also ultimately, is that audited? Can we validate that (using a third party)? And so, in an industry that is now going to be close to $16 billion this year, it should be relatively obvious that we need to operate with the principles that all media operate under.

The problem is that the current pay-per-click and TV ad systems both make it difficult, if not impossible, to provide data transparency. For clicks, it’s the ad networks, e.g. Google AdWords and Yahoo Search Marketing, that can’t provide all the the data. For TV ads, the problem is Nielsen, who acts as the data proxy for the TV networks.

Pay-Per-Click Ads
(From the Tuzhilin report)

An operational definition [of click fraud] cannot be fully disclosed to the general public because of the concerns that unethical users will take advantage of it, which may lead to a massive click fraud. However, if it is not disclosed, advertisers cannot verify or even dispute why they have been charged for certain clicks.

TV Ads

One of the chief problems surrounding the new ratings is that the commercial ratings are processed by using a relatively shaky system for identifying when the commercial minutes actually air. That system, Nielsen’s Monitor-Plus service, was designed as a competitive advertising monitory system, which apparently does not have the same level of detail or rigor as the systems Nielsen uses to compile and process TV ratings.

I can’t fault the formation of these ad councils because, given that they can’t fix the real problem of data transparency, it’s the only way that all of the interested parties can address the problem. Of course, having interested parties like Google, Yahoo, ad agencies, and TV networks on these councils turns them into a tug of war between deeply entrenched economic interests.

Advertisers will begin to get wise to the similarities between the lack of transparency in pay-per-click ads and TV ads. Although pay-per-click is a leap forward in measureability and accountability, it still falls far short of a truly transparent system. You can see it in how Greg Stuart talks about pay-per-click ads (i.e. “search” ads):

Search produces results. End of story. It produces results. My guess is that these advertisers would like to see any concern that might seep into the view that their management has, or anybody else. Because they know in their heart of hearts that this really works. It’s in everybody’s interest to clean this one up.

“They know in their heart of hearts that this really works” — old media companies have been using such language for years to describe advertisers’ ostensible faith in poorly-measured and unaccountable TV and print advertising.

Wouldn’t it be great if there were an advertising system that was fully transparent and thus didn’t require advertisers to form industry councils and adopt articles of faith to prop it up?

That’s why we will we soon see the transition from clicks to actions and conversions.

Tweet This Post  Share on Facebook

As readership declines for newspapers and online readership grows, every publisher faces the threat coming from the edge of the network. Sites like Google News, Yahoo News, and Digg are becoming the new destination sites because of the mere fact that they point to where the news is, no matter where on the Web it may be. But on Monday, news Websites ranging from the Washingtonpost.com and The Oklahoman’s NewsOK.com to the Huffington Post will have a new way to counter that threat. New York-based startup Inform, which last year launched it’s own consumer news aggregation site, is rebooting as a search utility for mainstream news sites (yes, HuffingtonPost, welcome to the club). Inform is offering to replace the sub-par search on most news sites, and add in results not just from their own articles and archives, but from the Web as well (including blogs, video, and audio).

Since Erick has all the details, I’m going to delve into two key questions that Inform’s strategy raises:

1. Can content sites with relevant links and search results pull people out of search pathways that originated with Google, Yahoo, etc.?

2. Can parked domains improve ad performance by providing links to real content?

On the first question, Inform’s theory of the case is that searchers who come across a news story on an Inform-powered content site will find relevant links aplenty and continue their quest through those links rather than backing up to the original search results that brought them to the content page. This is an intriguing theory — the key question here is how important are the search engine’s results relative to other relevant links that a searcher encounters? Do searchers have such deep faith in their search engine’s results that they will always go back to the original results page? Or are they sufficiently fickle that a good list of additional relevant links will pull them off their usual path?

My gut says that for Google or Yahoo search, it will be hard to shake users loose from their habit of exploring search results. But for Google News or Yahoo News, it might be an easier task.

So much depends on the value of the content brand. If someone goes from Google News to the Washington Post and finds relevant links, how important is it that those links are being provided by the Post vs. impresonal Google News?

For that reason, I think combating Digg is much tougher, because there the driver is not relevancy than but popularity — users are more likely to go back to their exploration of Dugg stories.

All of this is just speculation, of course — what I’d really love is to see the traffic data from Inform’s first set of clients a few months out. That will be very telling for the future of news online.

Interestingly, Inform is also trying to compete in the search engine wars with key features like clustered results (a la Ask.com) and “did you mean?” keyword clarifications:

The second question arises from one of Inform’s first clients — parked domain powerhouse NameMedia. Erick argued a while back:

As domainers account for more of the search advertising inventory one of two things will happen. Either the price per click will go down because advertisers will figure out that all those clicks coming from the domainers (which will make up a bigger and bigger portion of Google’s external ad network AdSense) are worthless, or the domainers will get smart and figure out that the best way to get people to click on those ads is if they actually build out their sites with real content. NameMedia, for one, intends to go down that route for at least some of its major domains.

Many parked domains already use scraped content from Wikipedia and other open sites, but Inform seems to be more in the business of providing relevant links than content (of course, links are a form of content).

So here’s the question — will links to actual content compete for clicks with pay-per-click ads that now dominate most parked domains? And if so, why bother with the content? Unless the goal is to turn some of these parked domains into real information sites that people may have reason to go back to.

What could change this equation — and make the domain game a lot more interesting — is the transition to cost-per-action ads, where the goal is not just clicks but actual purchases (or some other high-threshold action). In that case, there maybe a stronger argument for parked domains’ providing a more substantive context CPA ads.

One last interesting question is how Inform fits in with all the deals that Google and Yahoo have been cutting with news organizations:

Google and Yahoo, along with dozens of other Internet companies, have been quietly agreeing to deals that compensate some of the country’s top news organizations for their content and help drive more traffic to their Web sites.

Recently completed deals, which include arrangements in which media organizations such as the Associated Press will be compensated on a pay-per-click basis, could herald a major shift in the relationship between the old media and new Internet gatekeepers.

“The people who own the content did a lot of work to generate the content,” Google Chief Executive Eric Schmidt said in an interview with the Mercury News. “We want them to get the majority of the revenue from advertising.”

Looking at the big picture, Inform’s approach speaks to a future where the competition over relevant links, the coveted click, and the holy grail of meaningful actions will become ever more intense.

Tweet This Post  Share on Facebook

According to the official Google blog:

As part of the settlement in the click-fraud case Lane’s Gifts v. Google, we agreed with the plaintiffs to have an independent expert examine our detection methods, policies, practices, and procedures and make a determination of whether or not we had implemented reasonable measures to protect all of our advertisers.

What’s fascinating is that the Google blog crows about the report’s findings because Google’s efforts to combat click fraud were deemed “reasonable,” which probably has positive legal ramifications for Google — but the report (available here) is at the same time a damning indictment of pay-per-click advertising.

The report’s author, Dr. Alexander Tuzhilin, a professor of information systems at NYU (my alma mater), offers two possible solutions to what he calls “the fundamental problem of invalid (fraudlent) clicks”:

• The “trust us” approach of the search engines. The search engines can assure advertisers that they are doing everything possible to protect them against the click fraud. This is not easy because of the inherent conflict of interest between the two parties: the money from invalid clicks directly contribute to the bottom lines of the search engines. Nevertheless, it may be possible for the search engines to solve this trust problem by developing lasting relationships with the advertisers. However, the discussion of how this can be done lies outside of the scope of this report.

• Third-party auditors. Independent third-party vendors, who have no financial conflicts of interest, can work with advertisers and audit their clickstream files to detect invalid clicks.

These two approaches would still constitute only a partial solution to the Fundamental Problem because there is no conceptual definition of invalid clicks that can be operationalized.

Will Google invite independent auditors under their tent? Ha! They’d sooner put pop-up ads on Google.com, so it looks like the only alternative is the “trust us” method, rife as it is with conflicts of interest.

But the real indictment of pay-per-click and Google, which Tuzhilin ties to an inability to “operationalize a conceptual definition of invalid clicks,” lies in this Catch 22:

An operational definition cannot be fully disclosed to the general public because of the concerns that unethical users will take advantage of it, which may lead to a massive click fraud. However, if it is not disclosed, advertisers cannot verify or even dispute why they have been charged for certain clicks.

That plus the following are the coup de grace:

Finally, the measures (1) – (6) above are only statistical measures providing some evidence that Google’s filters work reasonably well. This does not mean, however, that any particular advertiser cannot be hurt badly by fraudulent attacks, given the evidence that Google filters “work.” Since Google has a very large number of advertisers, one particular bad incident will be lost in the overall statistics. Good performance measures indicative that filters work well only mean that there will be “relatively few” such bad cases. Therefore, any reports published in the business press about particular advertisers being hurt by particular fraudulent attacks do not mean that the phenomenon is widespread. One simply should not generalize such incidents to other cases and draw premature conclusions – we simply do not have evidence for or against this.

Translation — while it is not likely that a significant percentage of advertisers are being harmed by click fraud, it is entirely possible that some number of advertisers are being massively harmed. The lack of evidence cuts both ways — so advertiser beware!

This report should dispel any doubt that cost-per-click needs to transition to cost-per-conversion. The real question is whether Google can leverage its scale to pull it off — or whether $6 billion+ in cost-per-click revenue will prove to be too great a liability — especially with Wall Street’s stratospheric expectations for the continued doubling of profits.

Tweet This Post  Share on Facebook

Every day new evidence is emerging that Google’s new landing page quality scores and Google Checkout are all part of larger strategy to transition to a new advertising market where they control the value chain from attention to transaction.

Some of the power users of the AdWords/AdSense system like Graywolf are getting hit by Google’s effort to seize control of the system:

Over the past few days I’ve had a large number of my keywords disabled for “low quality” ( see Threadwatch.org). Other than the merchant the only sites who’s ads I see running where my keywords were disabled happen to be the big publishers such as eBay, shopping.com, bizrate.com and so on. I find the double standard of big guys getting keyword research on a silver platter while I can’t even get a straight answer as to why my ads are disabled very disturbing to say the least.

The problem for Google is they have a tremendous amount of crap in their system, all of which they incented. More interestingly, in the case of Graywolf, the issue is not crap but lack of Google control:

The landing page is not an arbitrage page, it’s a single product with descrption and a buy now button. The buy now button goes through a redirect page (for my tracking) and then onto the merchant. Since it’s an affiliate product getting them to put the google conversion tracking code is not an option, and to be perfectly honest shouldn’t enter into the equation.

And indeed, further evidence emerged today that Google is trying to drive gaming of the affiliate marketing systems out of AdWords (from Search Engine Roundtable):

A WebmasterWorld thread shows a conversation one Google AdWords advertiser had with his representative. Basically, what it says is that Google will be doing what they can to remove affiliate ads from the AdWords program.

To make the transition from clicks to conversions, Google needs to seize control of the system from end to end, and somehow find a way to control for fraud, which is still very much a risk with cost-per-action (from a comment on one of my recent posts on this issue):

What could save PPC value relative to CPA is just how difficult will the CPA model prove to be to implement? How do you monitor the middlemen? How do you monitor the merchants? Would any fraud simply be shifted from adsense publishers and random people clicking to Affiliate marketers and deep pocketed advertisers?

Markus from Plentyoffish.com has a similar concern:

My biggest concern these days when doing CPA stuff is am I going to get screwed over by the middle man? I can tell you there are a LOT of affiliate networks that are skimming off the top. Now even if you go direct to merchant what is the chance that the merchant isn’t going to screw you over? Lets say they decide to report only 80% of the leads you actually generate? Now in the CPA world this happens all the time, you have to remember these are the exact same people that will do anything for search engine ranking and do any kind of spam as long as they don’t get caught. Advertisers have also created 2 billion dollar adware industry, whose sole job it is to hack your computer and display ads. There are a lot more advertisers out to screw people over then there are people trying to game google adsense.

I was intrigued by the response to these concerns from Brian Wiegand at Jellyfish:

I agree completely with you about the difficulties of implementing a CPA based ad sytem and dealing with the trust issue (which has been called CPA fraud) with merchants participating in the advertising. They clearly would have an incentive to not report transactions which would be a nightmare for the intermediary. This is why at http://www.jellyfish.com we have built a CPA based advertising auction that actually brings another VERY interested and important party into the mix – THE CUSTOMER. We give a customer a share of the CPA advertising. This erases the CPA fraud issue because There are 3 parties involved that all need to get their share of the transaction. If a merchant doesn’t report a transaction we would have a very angry customer that would let us know immediately This eliminates the CPA fraud issues altogether and actually drives some additional value to the consumer who arguably deserves more for their attention and participation with advertising.

It remains to be seen whether involving the customer in the transaction incentive can act as a check again fraud, but I imagine that Google has similar ideas in mind when it waves the “user experience” banner over its efforts to drive uncontrollable affiliate marketing out of the AdWords system.

AdWords worked because it offered advertiser a much more accountable, more controllable, and, thus, more efficient advertising system, but it was only a transitional stage. The real question now is which system(s) will drive the next big leap in efficiency, and who will be able to earn (or keep) advertisers’ trust. For Google, the question is whether their tremendous scale will enable them to keep advertisers with them through the transition.

Tweet This Post  Share on Facebook

Google is testing a new advertising model to deal with click fraud: cost-per-action ads. Advertisers don’t pay unless the customer performs a certain action: buys a product, fills out a survey, whatever. It’s a hard model to make work — Google would become more of a partner in the final sale instead of an indifferent displayer of advertising — but it’s the right security response to click fraud: Change the rules of the game so that click fraud doesn’t matter. [Bold is mine]

Schneier used this “indifferent displayer” phrase in the context of discussing the security problems inherent in the specter of click fraud. But it points to the larger problem with pay-per-click advertising — it’s measurable and accountable, which is a huge leap forward from traditional advertising, but at the end of the day, pay-per-click ads DON’T CARE what happens after you click.

As Schneier points out, this is why Google is focused on developing a cost-per-action model. And he’s right that it’s “a hard model to make work” — especially if you’re Google, with a $6 billion pay-per-click cash cow at risk. How does Google get advertisers to value cost-per-action without fundamentally devaluing cost-per-click? Google will try to have it both ways — to be a true partner in carrying the risk of cost-per-action and an erstwhile “partner” in pushing cost-per-click.

But the problem of click fraud will likely lead a lot of advertisers to seek out advertising platforms that are “partners in the final sale” and not “indifferent displayers.”

Google of course has its huge network of AdWords advertisers and AdSense partners, which is a considerable advantage in developing a new cost-per-action model.

But like Microsoft, which had previously enjoyed the advantage of a huge installed base, Google hasn’t cornered the market on innovating advertising value propositions and creating new dynamic models.

Tweet This Post  Share on Facebook

Google CEO Eric Schmidt thinks that market forces will correct the problem of click fraud (via Donna Bogatin):

Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen.

In theory, he’s right, but theory may not be the issue. The market-driven solution will only work if advertisers are willing to play along, and as I’ve pointed before, they may not be.

To get a sense (no pun) for how much AdSense has become an end unto itself, from gaming to outright fraud, all you need to do is Google “AdSense” and check out the ads — a cottage industry of “get rich quick” schemes has grown up around AdSense.

This sale of ad-ready content sites is part of what’s killing the economics of content.

Then of course there are “subtle” ploys like “BotCandy”:

(Incidentally, all of these screenshots are linked through the AdWords links so that these sites will pay for the privilege if you want to check them out.)

Beyond those actually pertutrating fraud (and the definition is debatable), I can’t fault all of these AdSense schemers. They saw an opportunity and they seized it.

The critical question is how do AdWords advertisers feel about being part of these get rich quick schemes?

According to the AdSense blog, Google is trying to crackdown on sites with “low quality user experience” (via JenSense):

From time-to-time, we improve our algorithms for evaluating landing page quality (often based on feedback from our end-users), and next week we’re launching another such improvement. Thus, over the coming days a small number of advertisers who are providing a low quality user experience on their landing pages will see increases in their minimum bids. It is important to note, however, that the vast majority of advertisers will not be affected at all by this change, as they link to quality landing pages.

It’s unclear whether Google intends with this initiative to take down the entire “AdSense Wealth Empire,” as it were.

The conventional wisdom, which Schmidt follows, is that none of this really matters because the numbers will work it all out.

And maybe they will.

Or, as Joshua Allen observes, “Until Google has credible competition, I don’t see how clickfraud does anything but help Google.”

Indeed.

UPDATE

A further debate on click fraud has erupted, with a number of theories being put forth on why the corruption of AdSense, rather than being self-correcting, may in fact be caught in a vicious cycle:

Mark Cuban:

if a site is selling advertising and needs to hit a critical mass of traffic to their site just to be able to sell advertising, they arent going to care how they get it. As long as the CPC is reasonable versus their traffic needs. clickfraud actually does them a favor. They buy cheap keywords in huge quantities. At a nickel a click, if they are selling CPM based advertising, its obvious what they have to sell their advertising for to get their moneys worth.

And doesnt Google now sell CPM based advertising ? So is it possible a click through from a Google ad to a site selling CPM based advertising from Google could be clickfraud that pays Google twice.

Remember this. The worst bad guys are the smartest bad guys. They use the strength of the CPC system against the advertisers , where they are least susceptible to be discovered. clickfraud is real. its not going away. Its making CPC sellers a lot of money. How much, i dont know.

What i do know is that its not a self correcting problem

Eric Schonfeld:

In other words, there are many reasons why a business’ ROI on its Google ads might go down, and clickfraud is just one of them. So if a business were to attribute its reduced ROI to increased competition for a particular term as opposed to an increase in clickfraud, it might actually make economic sense to bid up that term even more. That would put more money in the click fraudtse’s’ pocket. Rather than be self-correcting, in such a scenario, click fraud would actually be self-perpetuatiing.

Tweet This Post  Share on Facebook

The perception of pervasive fraud has prompted many advertisers to change their spending. Many are asking why they should fork over money – significant amounts, in some cases — for phantom shoppers.

The study found that 27 percent of advertisers reduced or stopped spending on click-based advertising. An additional 10 percent said they intend to curtail spending.

Among the predictable responses to this news was this fascinating analysis from Michael Rogers on the potential of cost-per-action to replace cost-per-click:

But CPA is a very slippery slope. The issue goes back to why online publishers traditionally resist cost-per-click pricing for display advertising: your revenue becomes dependent on the advertiser’s creative. A good ad is going to get more clicks than a poorly executed one. CPA action takes that dependency a step further: the search engine’s revenue depends on both a well-designed pitch after the click plus an enticing offer. If the advertiser fails on either of those points, you’re not going to get paid and your inventory isn’t generating revenue.

If I ran a search engine, I’d be spending a lot of time and energy trying to maintain the credibility of my cost-per-click business. If the market really does turn to cost-per-action, we may end up looking back on these as the Golden Days of search engine advertising, when the money just fell from the sky.

First, he’s right that the days of “easy money” from pay-per-click are numbered — it doesn’t matter (Danny) how big click fraud actually is — the system can’t escape the inexorable death spiral of negative advertiser perceptions. Google knows this, and that’s why they’ve been chasing offline media and experimenting with cost-per-action.

But what about Michael’s theory that cost-per-action might not work because of the publisher’s “dependency” on the advertiser having a “a well-designed pitch after the click plus an enticing offer”?

If you simply converted the current AdWords model to a cost-per-action payment, then I think you would have a big problem. Publishers would still be dependent on advertisers writing good ad copy and they’d be even more dependent on what happens when someone clicks off to the advertiser’s site.

But what if there were an approach to cost-per-action that could overcome these problems?

Sounds like an opportunity for someone to eat Google’s lunch.

Tweet This Post  Share on Facebook

Here’s the problem with this strategy — from the consumer perspective, Google is not an efficient way to shop online. Google’s blog mentions Starbucks are one of the merchants that signed up for Google Checkout, so let’s try searching for “gourmet coffee.”

There’s nothing wrong with the ads in the search results — each of these gourmet coffee merchants is potentially relevant. The problem is that I have no way to compare them — all I can do is click and browse, click and browse.

Google revolutionized search by leveraging the network effect of hyperlinks to determine relevancy — but the 2.0 efficiencies of page rank are completely missing from AdWords. Sure, advertisers compete on keyword relevance, but I as a consumer am unable to benefit from the network effects of the larger online shopping community. Which of these merchants has the best value proposition for people like me? Where do people like me most often shop? Which has the most relevant products? Which has the best prices?

Navigating Google ads feels like Yahoo circa 1997 — a lot of clicking and browsing in hopes of finding the right fit. The organic search results may be super-relevant, but the “sponsored” results are of limited value because the cost-per-click bids are too big a factor in ranking and there is no information available from my peers. The advertisers are in complete control. The ads are relevant to a degree, and certainly more relevant than the random interruption of old media models, but as a consumer, I’m still at the mercy of the system. And the return on my attention is marginal at best.

To put it simply, shopping through Google is a very 1.0 experience.

Here’s Umair:

Media is deeply personal, social, cultural, human, creative – and so it’s economics aren’t those of simple technological scale, because, more often than not, technological scale kills those things (think Clear Channel roboDJs). The real opportunity is in leveraging the new forms at the edges of the firms – markets, networks, communities – to explode just how personal, social, cultural, human and creative media can be.

It should be painfully clear that, in the Googleverse, media is none of those things – it’s just a commodity filtered, sorted, and “processed” by machines. Which is deeply reminiscent of the 20th century’s scale and scope driven Great Rationalization of consumer industries, where goods ultimately became “commodities” which were “processed” by machine, assembly line, and bureaucracy (think meat-packing, clothes, and cosmetics).

I don’t want an algorithm and a bunch of ad copywriters determining what’s “relevant” for me. I want my peers — people like me — to determine what’s relevant.

If Google increases its dominance of search advertising by dominating checkout, it will drive up the costs of search advertising, which, even in a new cost-per-action model, will ultimately be passed on to me as a consumer.

So Google gets more profitable. And we hand over more data to Google for not a whole lot of return. As Marshall Kirkpatrick observes:

The biggest question then appears to be whether consumers trust the Google brand enough to look to the company for more than just access to the rest of the world’s data, but as a repository for our own data kept private from a world of online shopping vendors.

This of course, brings me back to Jellyfish’s vision — they want to create a system that rewards peer reviewers who help people make smarter buying decisions by putting money in the reviewer’s pocket — a value per RELEVANT transaction — this creates a virtuous cycle, increasing the network effect of information and in turn helping me find what I really want at the best price.

The obvious implication here is that Google is becoming the new Microsoft — far more focused on its own dominance than on innovating and creating life-changing value for it users.

Tweet This Post  Share on Facebook

All week at Cannes, advertising and media executives have grappled with the implications of virals which have reached millions of people via the internet, often by-passing traditional media. A few have involved no spend on media, offline or online.

With the success of viral video content, courtesy of YouTube — in some case with millions of views — it’s starting to dawn on advertising and media companies that brands no longer need them to reach and interact with consumers on a large scale:

One of the world’s biggest advertising agencies has urged marketers to learn from consumer-created content on websites such as YouTube.com, which now has greater reach among some US audiences than MTV, the music broadcaster.

But not only are ad agencies and media companies being cut out of the loop — the brand owners themselves can’t even get between consumers and their direct experience with the brand:

Consumers are hijacking top global brands using blogs and online communities but advertising companies are trying to find ways to embrace the revolution rather than fight against it.

The Internet has turned the traditional world of advertising on its head with a growing shift of spending to online from print and TV. The Web is giving millions of consumers an outlet for their views on products and brands, bypassing traditional media.

“Our audience has gone from watching commercials to making them,” said Mark Tutssel, the chief creative officer for Leo Burnett Worldwide, a division of Publicis.

“We’ve gone from monologue to dialogue in a nanosecond,” he added. “Marketers are no longer in control. The consumer is.”

So what does it mean to “embrace the revolution”?

“Citizen media and consumer generated content are here to stay, so marketers must learn to let go of the control they think they have over their brand in the open marketplace of ideas,” Tutssel said.

I think that companies need to forget about advertising as “persuasion” — in fact, they “let go” of marketing entirely.

In a post-advertising era, when the consumers are in complete control of brand perceptions, there’s only one effective way to “advertise” — create REALLY great products and services that people love and that offer an unrivaled experience, i.e. make stuff that people REALLY want to buy.

The product is marketing and marketing is the product.

Tweet This Post  Share on Facebook

Laura Desmond, chief executive of Mediavest USA, which advises clients such as P&G, Masterfoods and Kraft on buying and planning media, said: “Google is going to have to change its business model soon. Search alone isn’t where marketing is today. It is about search and branding and putting the two together.”

Of course, Google and Yahoo push back:

At the Cannes Lions, Google and Yahoo!, two leading search engines, on Monday promised to share more research with advertisers to persuade them search can be used in effective combination with traditional advertising to build brands as well as generate sales.

Damian Burns, head of European agency relations at Google, said: “There is a need for self-education among agencies and clients. But I don’t believe that you can have people being exposed to brands on search results day after day without that having an impact on brand building.”

Ok, let’s try an empirical test. I went over to Style.com and found this ad for Prada Perfume at Neiman Marcus.

If you click through, you’ll find that Prada Tendre perfume sells for $95 — not cheap. Why would anyone spend that much on a bottle of perfume? Hmmm.

Next I went to Google and searched for “designer perfume” — sure enough, there was “Prada Perfume” at the top of the “sponsored” listings.

So there, you see, search advertising is just as effective.

Except it’s not.

There is only ONE reason why anyone would click on the Prada Perfume text ad — the Prada brand. And how did Prada build that brand? Through compelling IMAGES.

If it’s just text vs. text, then the transactional, price-driven ethos of search kicks in and instead the click likely goes to the Scentiments.com ad, because who wouldn’t want to “save up to 80% on perfume”?

So without brand, instead of shopping here…

You shop here…

Google needs to figure out brand advertising or it’s going to hit a wall very soon.

That concludes our demonstration.

Tweet This Post  Share on Facebook

Advertising took another significant step yesterday towards graduating from paid media placements (i.e. traditional ads). Ironically, it starts with a paid media placement on The Huffington Post:

HUFFINGTONPOST.COM THIS WEEKEND LAUNCHED A video ad promotion featuring seven TV ads, all selected for their high “viral” potential–meaning some quality that makes them likely candidates for e-mail forwarding. So far the ads, produced by agency JWT, are purely voluntary viewing; visitors have to click on a small video screen on the site’s right-hand side to see them.

JWT, formerly J. Walter Thompson, purchased the ad space for this pilot initiative, which will offer TV ads for Ford, JetBlue, Levi’s, the Partnership for a Drug Free America, Scruffs, and Billy Collins–all chosen for humor or novelty value.

This is the future — advertising that is worth watching not because you are forced to do so through interruption, but because the marketing message itself is entertaining or useful.

And thanks to the fully networked Web 2.0, viral marketing is no longer just a buzzword. Sharing has gone mainstream.

So JWT paid The Huffington Post for its “reach,” but as for all of the emails forwarding ads to friends and colleagues, well, that’s FREE, i.e. media DOES NOT GET PAID. Perhaps the Huffington Post is selling that viral reach — if so, more power to them — but that comes at the expense of other paid media.

But the truth is that advertisers don’t need media anymore…at least not for traditional ad space…and if they do, it’s only to kick-start a viral marketing effort with an influential site like the Huffington Post, or with a bit of search advertising. And then that’s it — just a bit of paid media, and the social network kicks in.

But companies do need marketing services firms like JWT (who did make a major 1.0 mistake by trying to control the email forwarding mechanism and not allowing the embedding of the ads on blogs and other sites like YouTube does, but these kinks will be worked out eventually).

Robert Young writing on GigaOm images a new kind of advertising that MySpace could do with “micro-celebrities,” which ends up sounding a whole lot like marketing services:

When it comes to advertising in mass media, a big name is required since such campaigns are only effective if the viewer already knows who that celebrity is. But in a social network, micro-celebrities who are well known within their network of micro-communities could prove just as effective and potentially even more so, particularly if such campaigns are able to generate buzz, excitement and a cool-factor.

As for MySpace’s role in all this, they are in the unique position to know better than anyone (as the owner of the platform with all the user data) who the “brand-safe” users are within its network.

Thus MySpace can effectively play the role of talent agent by aggregating a list of users who would be appropriate for advertisers within various categories. In fact, the incentive “to be discovered” is likely to spur many users to express themselves in a manner that will position them favorably for consideration. The result is a win for everyone involved.

As a commenter pointed out, this is already being done:

The Old Navy scenario is already happening. Take a look at the DHL site, waitinwoes.com, where you can upload and animate a photo of your friend’s face and splice it into the action.

Here’s another example I found on Brand Autopsy:

Brains on Fire has helped Fiskars to identify some of its customer evangelists and in turn, crafted a Fiskars Brand Ambassador program cutely named, “Fiskateers.” Not only can other Fiskars evangelists become Fiskateers, they can also participate in a Fiskateers blog.

On the just-launched blog, four Fiskateers are actively blogging and sharing their love for all things scrapbooking.

While the business of traditional paid media advertising placements is headed into a death spire, there is a very bright future for marketing services.

Someone has to help companies create compelling content that will be a destination unto itself. Some has to help companies create value for prospective consumers once they actually land on the company’s site. Somebody has to help companies understand the communities (the group of people formerly known as “the audience”) they want to connect with for viral marketing.

Media companies (should) know a lot about how to connect with their audiences, they (should) know a lot about how to create valuable content for their audiences, and they already have channels to reach those audiences — and the best media companies are also learning how to connect their audience with each other and to leverage the power of “communities” — in theory, this should give media companies a huge advantage over traditional marketing services companies.

This is the driving force behind lead generation in B2B media, which has made TechTarget a success. Creating white papers and webinars for IT companies is a marketing services function — TechTarget is as much, if not more, a marketing services company as it is a media company.

So what does that do to traditional content that media companies create, like news, features, journalism, dramas, sitcoms, etc.? — Those businesses will likely survive, but most won’t grow very much, some will shrink, and some media brands may not survive at all.

Tweet This Post  Share on Facebook

But despite this huge innovation, search advertising still provides a relatively low return on consumer attention — in ad brokering systems like Google AdWords, which are based on auctions, relevance is often in conflict with revenue per click. AdWords must balance the likelihood of a click — and its correlation with relevance — against the amount of revenue Google receives for that click. And advertisers who win the key word game can direct consumers to sites that may not be fully relevant to the actual intent of their searches.

Let’s look at a specific example. I’m thinking about buying a video camera, but I don’t want to spend too much. So I Google “best inexpensive digital video camera” (I may be cheap, but I still want the best I can get):

So now I have two options:

1. Explore the “organic” results for reviews to help me choose which camera to buy
2. Explore the “sponsored links,” i.e. the ads

The headlines of the sponsored links sound good — “Best Video Camera,” “Inexpensive Video Camera” — but if you try the search and click on any of the links, you’ll find that there’s no way to know whether you’re getting the “best” or the most “inexpensive” video camera.

What I’m getting is not the “best inexpensive digital video camera” but rather offers from the best gamers of the AdWords system with the deepest pockets.

But here’s the bigger problem: In my search for the video camera that I will ultimately purchase, money will change hands between advertisers and intermediaries as my attention — and my intention to buy — is “monetized.” But not a dime of that ad money will make it into my pocket.

It’s MY attention, MY intention, and MY purchase — Google and other intermediaries will make all the money, and I won’t see a dime.

In a previous meditation on this problem I wrote:

Imagine a Robin-Hood-like application that could somehow take a percentage of the revenue that we generate through our attention and redistribute it to us. Imagine if Google had to pay YOU for the attention that you give each AdWords advertiser when you click.

The other day I spoke to Brian Wiegand and Mark McGuire, who have dreamed up just such an application, which they call Jellyfish (more transparency, etc.). Here’s how Mark describes it in the Jellyfish blog:

I think we will soon reach a tipping point where consumers are going to realize that when it comes to their buying intentions, search intermediaries like Google/Yahoo/MSN (and a host of vertical engines) are keeping too much value for themselves (advertising $’s) without delivering a corresponding increase of value to the consumers participating in this system.

At Jellyfish, we want to be this tipping point. We think the way to do so is to fix the underlying advertising model to align the incentives of all three parties involved in a sale (buyer, seller and intermediary). The advertising market does a good job of maximizing the value your intention (GYM have PPC auctions that do this everyday); it just hasn’t done such a good job of fairly allocating that value among the key stakeholders. In our marketplace, we plan to allow the existing advertising system to set a value on your intent to buy, but that value (e.g., your intention currency) will flow to you, to the advertiser, and to us only when we do a good job of using that intent (and your historical buying intentions) to connect you to the product or service that is right for you. This will happen seamlessly and without you even thinking about it in terms of driving a maximum return on your buying intention. In the transparent marketplace at Jellyfish, advertising will transform into intention currency and that currency will be used to efficiently match buyers and sellers.

And this is the way we think the attention economy will start to catch on for the masses: By integrating its core concepts into an easy to use application that has direct, tangible benefits to the end consumer and advertiser alike. The average consumer may not think about it as intention currency, but we hope the increased value to that consumer will ensure that she continues to come back each time she has intent to buy something online as opposed to just an intent to search for information.

Brian and Mark shared with me the details of how Jellyfish works, which got me more jazzed than I’ve been in a while about the prospect of some game changing evolution. I promised not to disclose the details pre-launch, but that should happen any day now, and I’m eager to delve in once they’re live.

The folks at AttentionTrust have of course been all over the return on attention issue — in fact, they have an interview with Mark.

What we need to really change the attention game — and to dramatically increase advertising’s return on consumer attention — is a way for AVERAGE PEOPLE to increase their skin in the game “seamlessly and without you even thinking about it.” We’ll soon see whether Jellyfish can seize this opportunity.

Tweet This Post  Share on Facebook

WB is certainly capitalizing on MySpace’s prime homepage real estate, with an appropriately participatory marketing program that invites fans to upload their own superman pictures. And fans have indeed uploaded some fun pictures and made “friends” with Superman. (Although 25,000 out of 75 million users doesn’t seem like a high penetration for participatory involvement with the ad campaign.)

What’s interesting is what you find when you click past the cherry picked pictures on the main Superman page to see all of Superman’s friends, where, of course, you see MySpace denizens in all of their unwashed — and in many cases scantily clad — glory (including the ubiquitous “Tom”).

When you give your brand over to a community that controls its own images, this is what you get.

It will be interesting to see whether companies like Time Warner think this is a positive aspect of what they paid for.

It would also be interesting to compare the results of the MySpace marketing effort with the Superman TV channel on AOL Television, which could prove to be an actual example of the fabled but never really seen AOL Time Warner synergy.

To put it more plainly, this is user-generated content vs. “professionally produced” content.

Which would you rather pay for?

Tweet This Post  Share on Facebook

The 30-second spot, maligned as it is, “still works, despite TiVo and clutter,” says Andy Donchin, director of national broadcast at media-buying firm Carat North America. “[Let’s] stop talking about how the upfront is broken. It works for clients, it works for networks, and it works for agencies.”

“I see TV budgets holding,” says Heather MacPherson, a managing director of ad giant Ogilvy & Mather. “Most of the shift [to the Web] is coming out of print.”

“Overall, we are thinking flat,” says Betsy Lazar, who as executive director of advertising and marketing operations for General Motors (GM ) oversees one of the nation’s largest ad budgets.

No need to worry — it will surely take a while for the house of cards to collapse.

But today, just a few weeks later, we learn (from MediaPost):

THE REALITY OF THE UPFRONT is now clear and financially brutal: Program prices for many broadcast networks will be lower than year-ago upfront deals–an event that hasn’t happened in a number of years.

In a slow-moving market, about 20 percent of network inventory has been sold so far to advertisers, with CBS, Fox, CW, and NBC making deals late into Tuesday evening, according to media buying and selling executives.

Contrary to earlier reports, pricing is much lower than first assumed, with most deals lower in price than the upfront of a year ago. For example, CBS’ cost-per-thousand viewer prices (CPMs) are 1 percent below last year, say media buying and selling executives. Fox is registering flat pricing versus a year ago, while NBC will take a mighty hit, dropping anywhere from 5 percent to 6 percent in CPMs versus a year ago. The CW is posting CPMs about the same as WB prices last year.

“It’s slow, real slow,” says one veteran media-buying executive. “Agencies are in one place and networks are in another. The money is just not there. The market is much closer to negative than people think.”

I’ve made many predictions about radical change to media and advertising economics (here, here, here and here, for example).

No, no, I’m told — change won’t happen that fast.

Don’t be so sure.

Tweet This Post  Share on Facebook

“It’s a question of whether our system, which is so highly measurable, can really handle that . . . We have not yet come up with an approach that meets the kind of measurable . . . based advertising that we’d really like to put our brand and our name behind.”

Ah, the irony. Google came along and made advertising into an honest, measurable, P&L business — and companies signed up in droves, to the tune of $6 billion. But there are many more billions of ad dollars that still play by the old, unmeasurable, smoke-and-mirrors “branding” rules.

So the irony is that Google is a victim of its own success — they’re so darn measurable and accountable that they have no idea how to play the brand advertising shell game.

Brand building by its nature is non-transactional, so it’s inherently “unmeasurable,” at least according to the transactional, P&L standards of pay-per-click advertising — which is really a form of direct marketing. Branding and direct marketing are at opposite ends of the spectrum, and Google is caught at the far end.

Google wants to get into video advertising and become the broker for TV advertising. Let’s hope for the sake of Google shareholders that Google does better with video brand advertising than it did with print brand advertising — and that niche sites don’t get wise to fact that they don’t need Google to sell brand advertising.

Tweet This Post  Share on Facebook

GOOGLE’S RECENT FORAY INTO PRINT advertising fell short of the company’s expectations, a company executive said Wednesday. Speaking on a conference call with investors and the media, Jonathan Rosenberg, Google’s senior vice president for product management, said the venture to auction off print ads in magazines, which launched in February, has been one of the biggest disappointments in the last six months.

In other news, the long tail is starting to wake up to its deep subservience to Google and is trying to wag the dog:

IN ANOTHER EXAMPLE OF A social networking site reaching out to brand advertisers, StyleDiary.net, a fashion-oriented site, has stopped accepting Google AdSense links in favor of cost-per-thousand impression-based ads.

StyleDiary isn’t the only social networking property to recently start offering image ads. Photo-sharing site Flickr also recently struck a deal for its first branding campaign. In Flickr’s case, the marketer was the camera company, Nikon.

What if the Google proletariat were to suddenly rise up en masse and throw off the yoke of AdSense?

What if the masses of sites that only make a few bucks a day off of Google decide that the chump change isn’t worth being complicit in supporting Google’s hegemony?

What if we all tell AdSense to take a frigging hike and stop living off us like leeches?

To misquote Morrissey: Content producers of the world, unite and take over!

I’ve taken down my PPC ads for a day in protest — care to join and see what happens?

Tweet This Post  Share on Facebook

Think of this way… what if “American Idol” had been produced solely by the capabilities of the contestants themselves, without the expertise and talent of the show’s producers, directors, writers, etc. As talented and entertaining as the contestants are, the resulting production quality, the level of emotional engagement, viewership/ratings and monetization potential of the full package would likely be far inferior to what we all see on the air today. Well, social networks should be seen in a similar way… people want to express themselves and the platforms that allow them to do so with the most creativity and production value, are the ones that people will flock to.

There are two huge problems here:

1. What if people don’t care about production values (and other such Old Media standards)? Look at MySpace — it has perhaps the greatest compilation of poor production values in the history of media, and yet it has 70 million users and a gazillion page views (at least for now).

2. What’s the business model? As Nick Carr points out, “American Idol works in the context of traditional television, but most self-commoditization occurs on the web itself, and even highly popular platforms, like MySpace and YouTube, have yet to prove they can turn an attractive profit.”

If the business model is “gather audience, sell advertising,” that’s not a recipe for innovation or growth, given that it’s now everyone’s recipe for growth.

All Robert is really advocating is a new — free — way to create content for the same old paid media advertising model.

But paid media advertising is on the decline.

Consider Vonage vs. Skype:

Vonage

In 2005 alone, it lost about $210.3 million, nearly quadrupling losses from the previous year. It currently has a deficit of about $467.4 million. Most of the loss stems from an aggressive marketing program that plasters the orange-and-blue Vonage logo in national TV advertisements, on Web pages and throughout print magazines.

Skype

Putting aside all debates over who pays for what and whether Skype was a smart buy for eBay, there’s no question Skype is one of the great word-of-mouth stories. As CGM goes, this is a brand that’s left an unprecedented trail of what I’d call “digital lipstick.” These love prints dot every corner and crevice of the Internet with enthusiastic, if not religious, tributes to Skype.

Vonage has nearly killed itself on the cost of paid media advertising — it’s like standing in quicksand.

Robert is right that consumers are the new medium — but unlike Old Media companies, they’re willing to deliver your message for free.

So I’ll keep asking — where’s the BUSINESS MODEL?

Tweet This Post  Share on Facebook