‘No Appointment Necessary’ Television

Same_Bat-Time_Same_Bat-ChannelThe recent release of House of Cards by Netflix was as much-anticipated for its production value (starring Kevin Spacey and produced by David Fincher) as for its release strategy (all 13 episodes were made available to Netflix subscribers on the same day). While traditional media outlets have questioned Netflix’s decision to release the entire first season at once, which eliminates the water-cooler effect and anticipation build-up from episode-to-episode that traditional television show experiences have been built around, fans of the all-you-can-eat approach to serialized content can’t get enough of it. So it’s not surprising to hear that House of Cards has become Netflix’s most-watched program in terms of number of subscribers and total hours according to Chief Content Officer Ted Sarandos.

But is binge-viewing the future of television then? Not exactly, though it is part of a broader trend in how content consumption habits are evolving thanks to technology. Just look at some recent stats from two new series on FOX’s network- The Following and The Americans. The Following debuted to an audience of 10.4 million viewers on FOX who watched the premiere either live or the same-day. That audience figure doubled in size though when DVR (which contributed 23% of the audience), encore showing (14%), streaming (7%) and video-on-demand (5%) viewing was also included. Much like The Following, FX’s The Americans also showed audience growth of 44% and 58% across its first and second episodes respectively when DVR viewing data for the 3 days following the original airing (the period that encompasses the original broadcast plus DVR viewing up to 3 days afterwards is relevant because it is used determine the cumulative ratings used by advertisers to determine the size of the audience that saw their ads) was counted.

The story being told by these stats is that the appointment-based model of watching TV popularized in the 1960s by the likes of the original Batman series (remember ‘Same Bat-Time, Same Bat-Channel’?) is becoming a relic of the 20th century. But to what extent? That question will finally start to get answered this fall when Nielsen, the de facto standard in determining how the $60 billion television advertising market is allocated across television networks, will begin counting TV shows consumed via video game consoles and broadband connections in its show ratings (with an eye towards including iPad and tablet viewership in 2014).

By expanding the definition of what constitutes an addressable audience, Nielsen will be legitimizing viewers of shows that are already being quantified (as The Following data shows) but not valued from an advertiser perspective. This will give broadcasters the incentive to both expand the availability of their television content through additional channels (which both ABC and CBS seem to be set to do with the launch of new streaming mobile apps) as well as aggregate these cross-platform audiences to provide more reach and value to advertisers (as Disney’s networks are doing now).

Another potential benefit in this approach to TV content distribution and monetization will be the unification of pricing across digital screens (PC, tablet and smartphone) which have traditionally seen a wide discrepancy between PCs and their mobile counterparts (especially smartphones). While digital might not reach parity with television ad rates, the increase in revenues from parity within digital should convince broadcasters to make more content available online and with less delay from the original television airing day and time (depending on how all-encompassing Nielsen’s new ratings get).

The days when broadcasters knew what was best for audiences (which really meant what was best for their advertising clients) is coming to an end as consumers are exerting more control over the pace at which they consume content and the devices they use to watch it. This will have an interesting effect on event-based content and advertising as sports (especially football and playoffs or championship in any sports) audiences along with those watching voting-oriented reality TV (like American Idol and The Voice) and award shows (Golden Globe, Grammy’s and Oscars) will become even more valuable to time-sensitive advertisers (such as movie studios promoting a new weekend release) looking to reach large audiences in one fell swoop. Conversely, it will create opportunities for ad technology platforms, along the lines of BlackArrow and Freewheel, that can both deliver ads in different formats and dynamically synch the delivery across multiple platforms for advertisers looking to reach this newly identified ‘appointment-less’ audience.

Tune-in whenever you feel like it to see how it plays out.

Photo image source: Batman

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Why Viewable Impressions Won’t Matter

Reading the increasing velocity of articles written on the topic over the course of last year, ‘viewable impressions’ has displaced ‘ad verification’ as the hot delivery topic in the adtech industry for 2013. But when you start to consider how the media consumption habits of internet users are changing, does trying to determine which approach is the most accurate in identifying whether ads are being served within a viewing pane really going to matter in the near future?

Consumers are spending a growing amount of time on social networks- more than any other category of sites on the web and as such are becoming accustomed to a content consumption experience that differs from typical website content management systems. The traditional web page is an adaptation of legacy print media which pieces together multiple columns of static content with blocks of ads in a portrait layout. Led by Facebook’s News Feed, social networks are popularizing a different approach that displays standardized units of content, in the form of text, links and images, from a user’s social graph in a single column that updates with new information in real-time.

Quartz_AppThe pace of adoption of mobile devices is furthering the spread of this stream-based approach to presenting content, as digital media companies attempt to package all of the information embedded on a traditional web page into a mobile app or website which is limited by the smaller screen sizes of smartphones and tablets. An early example of this has been Atlantic Media’s launch of Quartz in September, which is a digital only business media property built specifically for the mobile web that just announced that it has already reached 1.4 million unique visitors as of December.

Facebook_SponsoredStoriesThe reason the adoption of a new digital consumption experience matters to the viewable impressions conversation is in how the content and associated ads are being presented to users. Both Facebook and Twitter have shown how this combination can work in the age of social streams and mobile devices with Sponsored Stories and Promoted Tweets respectively. Both ad units are integrated into the content feed from a look and feel perspective and targets users based on their social graph relationships. The ad units themselves can be fixed in the flow of the content stream, moving down the page as the feed refreshes with new updates, or fixed at the top of the feed. In either case, since the content cascades down from the top of the app or web page the ad is always being presented, and thus seen, in the user’s viewing area.

The stream-formatted approach to content presentation is also starting to make its way on to traditional digital media websites like ESPN which launched the beta of its SportsCenter Feed in September. ESPN, which has traditionally been an early adopter of digital technologies and experiences, is taking a similar approach as Quartz in delivering a real-time, ad-supported, news feed with the added capability to consume subsets of the stream via content-specific tabs as well as the ability to add skins to the background that further promote the content sponsor.

ESPN_SportsCenterFeed

In all of these stream examples, the ad creative is muted compared to the typical bright and flashy ad unit and consists of a single advertiser. So what the advertiser loses in ‘wow’ factor (or ‘ow’ from the user perspective) with a traditional ad experience is made up for in relevance (hopefully) and singular attention by not having to compete with other advertisers on a page and by being presented front-and-center to the user- ensuring the ad is seen. As the real-time news feed approach to presenting media proliferates, it will alleviate the need to utilize delivery verification services for viewable impressions for digital media entities adopting this new approach.

Remember, it wasn’t that long ago that the adtech industry was consumed with a different delivery issue- ad verification, with the likes of AdSafe Media and DoubleVerify raising over $50 million combined over the course of 2010-2011 to build a business around solving for this issue. In 2012 both AdSafe and DoubleVerify replaced their CEOs while AdSafe also underwent a rebranding as ad verification became commoditized at the ad server level and smaller problem, especially related to premium content publishers, than the industry led everyone to believe. Let’s not go through this again with viewable impressions.

Photo image source for Quartz: @erichfranchi

The Valuation Disconnect in Mobile

Well before the media anointed mobile the Next Big Thing, venture capitalists saw its potential. Consumers have rewarded VCs for their foresight by how quickly they’ve adopted non-voice mobile services over these past couple of years. The result has been a number of high-profile liquidity events this year starting with mobile ad network Millennial Media’s IPO followed by Facebook’s acquisition of Instagram for an eventual price of $736 million and record levels of gaming sector acquisitions led by mobile. With all this positive momentum it’s not surprising that VCs continue to allocate an increasing share of deals and dollars to mobile startups as the overall number of investments has reached its highest levels since the dot-com days.

In contrast to this optimism in the venture community, Wall Street is down right negative towards mobile. Google’s third quarter earnings announcement was met with a 8% drop in share price in part due to the increasing number of search queries being performed on mobile devices which is causing a deceleration in the company’s revenue growth. And while Facebook’s most recent quarterly earnings report resulted in the stock rising 20%, the company’s market capitalization is still only at 60% of its peak value from its first day of trading. This is in largely due to concerns over Facebook’s ability to monetize their growing mobile audience, which now consists of 600 million users, including 126 million of which use Facebook mobile exclusively.

The Typical Relationship

So why the disconnect in how these investors value mobile? It can be partially explained by how each type of investor evaluates investment opportunities to begin with. Venture capitalists, especially early stage ones, typically look to buy private, and thus illiquid, stock in pre-revenue companies with nascent, but potentially market-disruptive, ideas. As such, these investments may take up to 10 years to realize a return for their VCs, if at all. Contrast this with public market investors, such as hedge and mutual funds, which focus on the predictability of earnings and revenue growth relative to a company’s market value and reevaluate their investments in real-time based on news and quarterly earnings reports since liquidity is readily available in these stocks.

So when VCs invest in start-ups, especially consumer-oriented ones that are ad-supported, they are betting not only on a company’s potential to execute on their business plan but also on the formation of a rapidly growing market. Due to this, the focus is usually on customer acquisition and market share growth- not revenues. As a market begins to mature in size and opportunity, monetization solutions are developed, usually by other start-ups, allowing the entire market to benefit from the creation of new revenue streams. Companies that don’t get acquired and can show they have a path to profitability have the opportunity to go public and in the process become industry bellwethers, using their new capital infusion and stock shares as currency to further enhance their market position.

Why Mobile Had Been Different

In the case of mobile, a couple of things happened that has affected the usual relationship between the private and public markets. First, the consumer adoption of mobile has outpaced any other technology in the history of the U.S.- including radio, TV and the internet. As such the native monetization solutions that were developed alongside these other technologies have been slow to scale in mobile because (1) the ad formats currently being used are largely re-purposed ad technologies from the desktop internet, such as banner and rich media ads, which were easy to launch with in an effort to capture mobile revenue early on and (2) advertisers have been slower to allocate advertising budgets to mobile than previous technologies due to this speed of growth- funds that would be used to help spur innovation in ad experiences on mobile devices.

The economic realities of increasing supply of mobile ad inventory coupled with relatively low demand for quality ad experiences thus far has resulted in effective CPMs that are 1/5th the price of desktop internet advertising. This disparity in monetization capabilities between mobile and desktop is forcing public investors to reevaluate consumer tech investments where mobile is becoming impactful enough from a usage perspective to potentially affecting earnings. With Millennial Media, a pure-play mobile ad network, and Pandora Media, whose ad-supported internet radio audience is now 75% mobile, still not profitable as publicly-traded companies, investors will continue to discount the mobile businesses of public consumer technology companies for the foreseeable future.

Without having proven their business models to Wall Street yet, Millennial and Pandora can’t be considered mobile bellwethers, which is needed to preserve the private-to-public valuation relationship. Companies such as AdMob and Instagram might have achieved bellwether status if they hadn’t been acquired before realizing their potential as stand-alone public companies. As such it might be left to existing ad-supported consumer internet tech leaders who are able to make the audience and business transition into mobile to perpetuate the ecosystem. Facebook, which has faced scrutiny over its performance as a public company in part due to mobile, has the momentum in user growth and sheer audience size to accomplish this transformation if they can prove their various mobile ad products can profitably scale. Because of this you could argue that Facebook actually went public too early, instead of too late, if you look at it as a mobile-first company. Probably the best positioned public company though is Google which acquired what is now the most popular mobile operating system in Android, largest mobile ad network in AdMob and is seeing mobile growth in its core search business as well as across YouTube.

Mobile is Really Two Different Experiences

The second part of the answer to the valuation disconnect is in the definition of mobile. When research companies forecast trends and investors talk about opportunities they always speak about mobile as if it were one cohesive distribution channel when in fact it is composed of two distinct experiences- smartphones and tablets. Being able to differentiate between the two is critical because of the activities each device is best suited for based on the physical limitations of each display as well as their monetization opportunities.

Smartphones

While Apple might be credited with ushering in the consumer mobile era with the launch of the iPhone in 2007, it was the launch of the App Store the following year that enabled smartphones to properly leverage their mobility as the physical limitations of mobile phone screens (3 to 5 inches in length) required task-specific applications be built instead of all-encompassing web experiences. Because of this, the most successful app experiences, as Benchmark Capital’s Matt Cohler eloquently describes it, mimic a remote control in that they are easy to use and provide a specific utility to consumers. In turn, advertising on mobile phones need to abide by these same principles in order to be valuable.

Rare Crowd’s Eric Picard described the current mobile ad format problem in a recent article while also presenting a possible solution for smartphones that is interruptive without being intrusive- and can be delivered at scale. For app developers that have large enough user-bases though, creating native experiences, especially ones that can leverage location, will always result in better value for both the advertiser and consumer. Expanding on sponsored ad units that Facebook (via Sponsored Stories) and Twitter (via Promoted Tweets) have popularized in the social activity stream and more recently on mobile, location-based social exploration platform Foursquare launched Promoted Updates for local merchants this past summer and crowd-sourced traffic app Waze launched its own self-service advertising platform earlier this month that focuses on solving users’ location-based needs.

Tablets

Like smartphones, Apple can also be credited with jump-starting the tablet market a mere 3 years ago. The company was prescient in introducing the iPad as a tool for consuming media as users have made watching TV shows, playing games and reading the primary uses for the device. This makes sense when you consider the screen size of tablets (ranging from 7 to 10 inches) allows consumers to replicate the offline experience of reading a magazine or watching television in a more convenient and personal format than traditional computers allow for. Because of this, advertising on mobile tablets can be interruptive like traditional media and less concerned with other vectors such as location since most people are using their tablets at home and as a second screen complement to watching television. That means online video and rich media interstitials, which are higher-valued ad units than traditional banner ads, will work with minimal refactoring compared to smartphone ad experiences. That doesn’t mean there isn’t an opportunity for companies to innovate around the ad experience as start-ups like Kiip are proving by rewarding user engagement and retention within mobile apps with real world rewards.

When It’s All Said and Done

With tablets expected to outsell PCs by next year, focusing efforts on this part of the mobile market might be the most prudent move for consumer tech companies with mobile audiences since the advertising experience most closely resembles the desktop internet from both a format and value perspective. The smartphone advertising market will take longer to scale simply because of the utility-oriented nature of the user experience.

As these advertising solutions sort themselves out though, so should the discrepancy between public and private market investor valuations around ad-supported business models. As start-ups fill these gaps in the consumer mobile space with monetization solutions that prove to be effective, so to will public investors get comfortable with the long-term value mobile users have to offer, which, at the end of the day, will benefit everyone involved in growing the value of the mobile industry.

Not All Users Are Created Equal (For Ad-Supported Consumer Businesses)

Facebook’s first earnings announcement as a publicly-traded company last week was not well-received by investors, as the company’s stock hit new all-time lows after only being able to meet analysts’ already lowered financial expectations.

Most of the discrepancies between Facebook’s growth trajectory and stock performance can be summed up in these two slides from the company’s earnings release:

While directionally these charts look good, going up and to the right, a closer look reveals a growing problem in the relationship between Monthly Active Users (MAUs) and Average Revenue Per User (ARPU). The MAUs chart shows quarter-over-quarter user growth in each of Facebook’s four geographic regions over the past two years. The largest of these regions, Rest of the World, is growing the fastest though (at 9% over last quarter) while US & Canada, which is the smallest region in terms of MAUs, is growing the slowest (at 2%) which is an issue since Facebook is able to monetize US & Canada users over seven times better than Rest of World users on average according to the ARPU chart. Optimizing per user monetization is further exacerbated when you consider that growth is increasingly coming from mobile-only users where advertising is still in its infancy.

Facebook’s ability to attract and monetize a large U.S. audience is what has enabled the company to go public. Whether Facebook becomes a successful publicly-traded company will rest largely on how quickly it’s able to reduce the ad monetization gap between U.S. users and every other region of the world. Until then, the financial markets will continue to recalibrate Facebook’s valuation (downward) to reflect the realities of the company’s current revenue capabilities.

This situation isn’t unique to just Facebook though. For example Twitter, the second largest social network out there, recently passed the 500 million account mark according to analyst group Semiocast, which also saw the proportion of U.S. user accounts decline relative to the rest of the world since the beginning of the year and identified Jakarta, Indonesia as the most active tweeting city- statistics that have a similar looking trend to what Facebook has experienced, growing but mostly in less mature advertising markets. As any free consumer tech services starts to grow quickly, they too will eventually face this same situation.

If you’re fortunate enough to be involved with such a consumer product that is gaining millions of users, focus on growth in countries where advertising is a mature industry so mobile will also be monetized more quickly (places like the U.S., Japan, Germany, and U.K.) and also accessible (so not China). If growth takes off in less-mature ad markets, but sizeably populated countries such as India or Indonesia, find a local advertising partner with strong ties to large conglomerates and marketers in the region before committing resources.

So when Josh Elman, venture capitalist at Greylock Partners, blogs about getting meaning from growth numbers provided by startups, we should probably add users by region to the discussion for ad-supported consumer start-ups in order to better understand the real opportunity and value being created for investors.

Rise of the Middle Class (Ad Inventory)

In the past month or so I’ve had the chance to attend several online advertising industry events where a recurring topic of conversation has been how can publishers better monetize their remnant ad impressions. While technologies like real-time bidding (RTB) have made accessing and transacting this type of inventory easier for buyers, the corresponding growth in the use of RTB has not translated into increased revenues for online publishers. There is hope though.

By applying the same underlying technologies that power RTB, a new class of ad inventory has emerged that exists between traditional direct-sold (tier 1) and remnant (tier 2) inventory that is being referred to, conveniently enough, as tier 1.5 inventory that might be able to bring together the best of both inventory worlds. In a traditional RTB environment, ad inventory from one publisher to the next becomes indiscernible outside of pricing, removing the contextual relevance of each ad impression in the process. Even if you incorporate audience data for targeting specific web visitors, without knowing the context or even website that will be surrounding the ad prior to bidding on the impression, campaign performance, and thus publisher CPMs, will remain poor. It will be the ability to automate the entire process of targeting the right user on the appropriate website alongside relevant content that will improve the fortunes for all parties involved.

That’s where private exchanges come into play. They bring the efficiencies of RTB into an environment where advertisers know the context of where their ads will be delivered and publishers can set parameters as to which advertisers can have access to their audience and at what prices. Entities like quadrantONE for local news in the U.S. and the just announced pact between three of Canada’s largest broadcast companies are taking this one step further by pooling impression inventory from multiple online publishers across the same content types to provide a larger audience pool for advertisers to target in hopes of garnering larger portions of ad budgets. Layered on top of this, semantic technologies from the likes of Crystal Semantics, Peer39 and Proximic, can be leveraged as part of the set-up and bidding process within private exchanges to better organize content into categories in an effort to complete the contextual picture for the available ad inventory.

Instead of relying on advertisers coming into their web environments, others like the New York Times are looking at new ways to expose their content for monetization by leveraging social media. The company recently announced the release of Ricochet from their R&D Ventures group, which allows advertisers to wrap their ads around relevant articles from any Times Co. publication that these brands can then distribute across social media channels to interested fans and followers.

All of these opportunities don’t mean that publishers can get away with just enabling technologies for ad buyers at the transaction level in hopes of improving their indirect revenues though. In addition to building audiences through more engaging content, there are a number of services being brought to market by start-ups at the user interaction level that can help drive a better web experience, which can translate into more ad revenues. Companies like Visual Revenue are helping online publishers determine what content to highlight on their homepages through predictive analytics, while Sailthru’s Concierge provides content recommendations to keep users engaged once they are on the site. Finally, Yieldbot is attempting to tie all this activity together into the appropriate context for advertisers to target users on an impression or even session basis to create an on-going advertising experience.

In society, a growing middle class is beneficial to the overall health of the economy. The same can be said for online advertising where the rise of middle class ad inventory will benefit the entire online ad ecosystem. This doesn’t mean that tier 1.5 inventory will be a panacea for all remnant inventory nor will it replace direct sales relationships. Instead it will offer buyers and sellers more choice around how inventory is bought at scale thanks to the ad standards developed over the years by the IAB. There will always be a need for full service ad sales teams that can create a native advertising experience that guarantees audiences for those advertisers willing to pay for better access and services. It’s those companies that figure out the right experience for their site and users and can optimize revenues across these 3 tiers of ad inventory that will be able to gain the advantage in a still nascent ad market.

Photo image source: Time Inc.

Social Isn’t a Transaction

In late April Facebook celebrated a birthday as the ‘Like’ button turned one. The adoption (2.5 million websites) and engagement (250 million people) of the thumbs-up icon over those first 12 months has provided Facebook with a treasure trove of additional data related to its users’ interests. Combined with the social graph, this data can be leveraged by advertisers to target consumers on Facebook in a manner not available through any other web property or advertising medium. And with web surfers now spending more time on Facebook.com than any other website in the U.S., companies are taking notice, enabling Facebook to double its share of the online advertising spend domestically between 2009 to 2010. Beyond just delivering impressions though, marketers are looking for ways to stay connected with these users, which the Like button has enabled by allowing brands to re-message their ‘Likers’ within the Facebook News Feed. The goal of connecting with as many consumers as possible has led to the emergence of an entirely new sector of online advertising dedicated to helping corporations drive more ‘Likes’ to their brands’ Facebook Pages.

The result? Contests, giveaways and promotions of all types are requiring ‘Liking’ the company as part of the entry process. So what began as an opportunity for brands and fans to find and connect with one another in a social setting has turned into a competition between entities to see who can compile the most Likes in a 24-hour period. So thank you Frito-Lay, you’ve helped turn social into a transaction.

The socialization of the web was the most important development to come out of the web 2.0 era. The advent of blogging platforms and social networks allowed the internet to evolve from a read-only medium to a read/write experience for consumers who quickly became comfortable with blogging, posting and tweeting about every topic imaginable in the process. Inevitably some of these conversations turned to discussing experiences with, and opinions about, products and services, which corporations were not prepared to deal with, since advertising had traditionally been broadcast through a channel that didn’t allow for real-time user feedback.

To justify the time and money being allocated to understanding and managing this social activity, corporate departments, along with their agencies and social media consultants tasked with this job, have turned to quantitative measures such as number of friends, followers, Likes and subscribers as a way to validate their respective effectiveness in addressing the social web. As a consequence, advertising across social environments has quickly become a $2 billion business according to local media advisory firm BIA/Kelsey, which also forecasts that social media-related spending will grow to $8.3 billion in the U.S. by 2015.

The problem with this approach, as Steve Rubel, SVP of Digital at public relations firm Edelman, pointed out at The Next Web Conference earlier this year, is that social isn’t an industry, it’s a behavior. So instead addressing consumers at a personal level, web users are being treated as a metric by advertisers looking to fill their social media quotas. The difficulty for most companies in trying to adopt a customer service-oriented approach to social is that they don’t know how to quantify the return on investment for this type of activity (if you are interested in understanding the right approach to communicating with consumers on the social web I’d suggest reading The Thank You Economy, the most recent book from author, video blogger and wine enthusiast Gary Vaynerchuck, or watch him speak, as I recently had a chance to, about the ROI of his mother).

Worse yet, from an advertising perspective, these user metrics can be easily inflated, as there are plenty of companies that can acquire social connections in bulk for brands to show high Like counts. With the amount of time being spent by consumers in their Facebook News Feed, the ability to re-message these fans and the viral potential of content distribution through the social graph the Like has started replacing email as the most desirable means of communicating with potential consumers. Combined with low open rates, spam filters and unsubscribing options in email, the Like also become more valuable to marketers, leading to pricing of up to $1 per Like from social ad networks.

Buying Likes is the wrong means to building relationships with consumers though, as it is akin to offering kids on the playground gum to be your friend- it makes you feel good about yourself at that particular moment but doesn’t actually change the dynamic of the relationship. Certain users will use the Like button because they generally appreciate the brand, while others will use it in order to receive discounts and promotions, so paying for these types of fans doesn’t make sense, and in the long-term, could end up damaging the relationship between brands and consumers on Facebook.

Many consumers migrated from their initial ISP email accounts because of email spam resulting from signing-up for free services or giveaways, rendering these accounts unusable. By cluttering users’ News Feeds companies risks annoying consumers in the same manner and potentially causing users to leave Facebook over time for newer, less spammy social networks.

So where are the investment opportunities in social?

While Likes are a form of social currency, the business models being built around driving social connections are highly questionable. That’s because the continued growth and success of companies providing social cost per action pricing is predicated on finding the next great social action to arbitrage before advertisers lose interest in paying for Likes because of the lack of quantifiable return on investment.

Salesforce’s acquisition of Radian6 for $340 million earlier this year, to tackle social CRM, does highlight the value of being able to decipher the conversations occurring across the social web. Beyond just monitoring consumer chatter, start-ups need to help brands understand the sentiment of these conversations (both positive and negative), the change in velocity of the discussion associated with the sentiment and the influencers behind these topics. Only then can start-ups provide real value by automating some of the activity around information gathering and distribution across social platforms.

A couple of companies with recent announcements are trying to address this need for clients on the advertising and distribution side of the market as well. Taykey, which just came out of stealth mode with its $9 million Series B announcement, provides advertisers with ways to reach audiences across the social web in real-time by identifying users who are displaying an active interest around a product, service or topic at any given time. SocialFlow, which recently hired an online industry-veteran as President after raising $7 million in April, focuses on solutions for publishers and media companies who want to increase engagement with their audiences by putting new content in front of consumers at the appropriate time.

The automation being provided by these types of companies is intended to deliver better value to consumers and not de-humanize the social experience on the web (which is a risk for Taykey since they do provide cost per action Likes as part of their offering). Since the Like is here to stay, my only hope is that advertisers and consumers both engage with the button at the right time, and for the right reason- like in this ad.

Mobile Video: The Final Frontier for Ad Networks?

Earlier this month TechCrunch broke the news that mobile video ad platform Transpera had been acquired by online video ad network Tremor Media. The deal came almost exactly three months after Tremor’s last transaction, the purchase of video ad network ScanScout. The Tremor-ScanScout merger was part of a string of announcements in the online video ad space last fall which began with top 10 online display advertising network Specific Media acquiring video ad platform BBE and ending with another leading ad network, Undertone, buying Jambo Media, a video solutions company.

With advertising a major theme at last week’s Mobile World Congress in Barcelona could this latest Tremor news set off the next round of capabilities expansion and provider consolidation amongst ad networks?

With online video projected to grow 55% annually through 2014, making it the fastest growing online ad format worldwide, it’s easy to see why there’s interest from both traditional display and pure play video ad networks in acquiring online video market share. Looking at recent industry trends and projections, mobile video might be poised to follow this same type of growth trajectory, creating a similar opportunity for ad networks looking to provide cross-platform digital ad solutions to agencies and advertisers.

  • Devices: Worldwide smartphone shipments passed PCs in total volume for the first time in the 4th quarter of last year while tablet shipments, led by Apple’s iPad, are expected to reach nearly 56 million this year and 172 million by 2014.
  • Network Traffic: In Cisco’s Visual Networking Index Forecast, updated this month, the company predicted that, by 2015, two-thirds of all global mobile data traffic would be video.
  • Advertising: Mobile ad spending is projected to exceed $18 billion worldwide by 2015, representing over 15% of digital advertising’s spend. While in the U.S. video is expected to continue growing faster than any other mobile segment through 2014.

Together, these data points confirm that the PC-based era of the web has been officially replaced by the mobile web, which consumers are already taking advantage of through the proliferation of mobile device types. According to The Nielsen Company, Americans, led by teens and young adults, watch an average of 3 ½ hours of video a month on their mobile devices. To understand just how quickly video consumption habits are evolving look at YouTube’s announcement last month that it has reached 200 million video views per day on mobile devices- an increase of 300% over the beginning of 2010.

Media companies and marketers are looking at ways to quantify this audience in aggregate in an effort to bring advertising economics to parity across all “three screens” (television, web and mobile). This represents a big opportunity for ad networks willing to put forth the technical and execution effort to target mobile audiences fragmented by app-type (mobile web versus native apps), device (smartphones versus tablets), operating system (Android, BlackBerry, iOS, etc.) and ad unit interactivity (passive versus touch-screen).

Because ad guidelines and standards for the mobile web are still maturing in comparison to display and online video, ad networks interested in entering the mobile video space would benefit from acquiring video delivery expertise and an embedded distribution network. Any M&A activity would involve one of these three types of acquisition strategies:

  1. Buy capabilities and market share: This tact was used by Specific Media to enter the online video market by acquiring a top 10 video ad provider and instantly gaining reach. If leading online video advertising networks BrightRoll and YuMe, which launched their respective mobile advertising solutions last fall, don’t see adoption of their offerings, they might be forced to take this route in order to match Tremor Media’s cross-platform scale in video. From the display advertising perspective, only Microsoft and Yahoo as well as the largest ad networks will be able to afford this type of acquisition due to lofty valuations in mobile and video.
  2. Buy capabilities, leverage market share in current business: Undertone took this route by leveraging its own scale on the display advertising side with its video technology purchase to become a top 10 online video ad provider of its own within a couple of months of the acquisition. This is the most capital efficient way for any ad networks to enter the mobile video business, though acting quickly will be the key to successfully executing this strategy due to the limited number of acquisition options and venture capital being invested in the segment.
  3. Extend capabilities and market share: As for Tremor Media, already a leader in the online video advertising space, its deal allowed the company to add product expertise (video overlay ads) while growing its reach and video ad volume. Millennial Media, the largest independent mobile ad network which raised $27.5 million earlier this year, and has raised $65 million overall, is the best positioned mobile ad network to take advantage of this strategy due to its profitability, exit options and capital on hand.

While Google bought its way into a dominate position in the U.S. mobile advertising market (including interactive video ad capabilities) with its purchase of AdMob last year, the growth of YouTube’s mobile website has allowed Google to become a cross-platform provider of mobile video monetization solutions. Apple on the other hand used its acquisition of AdMob competitor Quattro Wireless to build the iAd Network solely for its own mobile operating system (iOS). With two of the largest ad networks having been acquired by the two leading mobile operating platforms what merger opportunities still exist in mobile video advertising?

  • JumpTap: The company added video to its suite of mobile ad formats last year in an effort to broaden its appeal to clients. JumpTap, which delivers ads across all major smartphone platforms (Android, BlackBerry and iOS) as well as the iPad, is considered the largest independent mobile ad network in the U.S. after Millennial Media. As such, the company will most likely have to wait and see what happens with Millennial (which will either go public or get acquired) before drawing interest from the likes of Microsoft, Yahoo and potentially Research in Motion (maker of BlackBerry) who have all been rumored acquirers of a mobile ad network and the only companies large enough to digest JumpTap’s $69 million in capital raised.
  • Mogreet: The company provides mobile video advertising solutions through SMS and MMS mobile messaging services, allowing Mogreet to address the feature phone audience as well. Considering the limitation of their offering, especially when you consider the growth of the smartphone and tablet markets, and the $7 million invested in the company thus far, an acquisition of this company would be a stretch for a U.S.-based ad network but maybe not for a network in a large developing market such as Brazil, India, Indonesia or Russia where feature phones dominate the market.
  • Rhythm NewMedia: From a pure play mobile video ad network perspective, Rhythm NewMedia has built the most envious, cross-platform network out there of the remaining independent players. The company, which recently raised $10 million, only works with premium brand advertisers and publishers across Android and iOS mobile platforms covering both smartphones and iPads. Having raised $37 million in total funding makes Rhythm a pricey acquisition for anyone not named Microsoft or Yahoo at this point though.
  • Vdopia: While the company is an online video ad network with extensive operations and market share in India, it also operates iVdopia, a mobile video ad network. Its mobile offering covers both Android and iOS platforms (including iPads) as well as mobile websites. Claiming it has reached profitability, and with only $4 million raised, Vdopia would be a prudent acquisition for an online global ad network.

Beyond these mobile video ad companies there are several other start-ups that focus on providing rich media advertising solutions for smartphones, tablets and the mobile web that could provide the framework for a video offering for ad networks interested in getting into mobile video. Greystripe which focuses on rich media banner ads primarily for the iPhone, while supporting Android  and Java feature phones as well, has raised the most venture capital of the group ($18 million), followed by Medialets ($10 million) and Crisp Media (at least $5 million). Greystripe’s strength is in its ability to transcode Flash ads into HTML5 in order to support Apple’s Flash-restriction on iOS devices. Both Crisp Media and Medialets, neither of which are an ad network but instead earn revenue from serving rich media ads to mobile devices, do provide video ad solutions for both smartphones and tablets. The biggest challenge facing these companies will be potentially pricing themselves out of the M&A market if they continue to raise capital. Based on this, Crisp Media might be an ideal technology pick-up for an ad network with a strong client-base and distribution network.

With the display inventory component of mobile advertising already being automated through demand side platforms like DataXu and real-time bidding exchanges like Mobclix, mobile video might be the last digital ad segment where ad networks can extract additional margin out of the industry through ad effectiveness and audience scale. Perfecting the online and app video experience will be important beyond just mobile as internet television, the next great digital ad opportunity, will leverage these advertising frameworks for its own platform monetization. As agencies begin to provide digital services at global scale to their advertising clients, ad networks that can deliver audiences across devices and digital formats, at scale, will garner the lion’s share of ad campaign dollars coming from these agencies going forward. To accomplish this ad network’s need to boldly go where most networks haven’t gone before.

Photo credit: fdecomite/Flickr

How Online Advertising Ecosystems Evolve and the Death of the Ad Salesman

 

Last week Clearspring Technologies [disclosure: I used to work there] publicly announced its new direction as an audience buying platform, leveraging the widespread distribution of its AddThis social sharing tool (which I include at the end of each of my blog posts) to aggregate intent-oriented data from keyword searches performed by web users (AddThis accomplishes this by capturing search query information contained in the referring URL string when a visitor lands on a web page where the tool is embedded). Search re-targeting has become a big driver in the growth of data-augmented display ad campaigns this year as advertisers look to find consumers that exhibit particular characteristics across the web versus targeting visitors to a particular website based on traditional geographic and demographic parameters. The incorporation of data into online advertising has been greatly aided by the creation of self-service platforms that allow advertisers and their agencies to define their audiences and buy access to these users, as well as the accompanying ad inventory, in the process.

These platforms are able to bring efficiencies to the demand side of the of the equation by automating components of the online display advertising ecosystem, something that wouldn’t have been possible without the standardization of display advertising units (which the IAB has achieved by defining such things as ad unit pixel dimensions, file weight and animation length). Without this type of inventory standardization neither the evolution of ad networks, ad exchanges and now demand side platforms (DSPs) would have never occurred, nor the ability to leverage data sources like Clearspring when buying online ad impressions.

This type of evolution hasn’t only been limited to the online display market though.  The IAB began the process of standardizing video advertising in online video players two years ago, creating guidelines that enabled online video ad networks to emerge. These specifications have matured enough to enable the likes of Adap.tv and BrightRoll, who coincidentally enough is a major video ad network itself, to launch video ad exchanges in an effort to bring efficiencies to the scale already available through these video ad networks. On the heels of launching BrightRoll Exchange (BRX) last week, BrightRoll announced this week that it will be leveraging search data from Magnetic to allow video advertisers to re-target audiences across the BrightRoll Video Network as well as BRX in the same manner they do with display advertising today.

As you can see the online video advertising market is following a very similar path as online display advertising has in its maturation- leveraging ad unit standardization to bring scale to the industry, which in turn has led to platforms being launched in order to bring efficiencies into the marketplace and incorporate data to enable audience targeting at scale- albeit in a much more condensed time line. Where online video advertising trails display advertising in delivery effectiveness is in the nascent state of its exchange marketplaces and integrations with DSPs and data sources, which should both evolve rapidly over the course of the next 12 months.

Based on this pattern, mobile applications should be the next advertising segment to follow this evolution as mobile ad networks focusing on the Android and iPhone platforms have proliferated. The biggest thing holding back the mobile application advertising industry from further efficiencies is ad unit standardization as the IAB is not yet willing to go down that path, only providing best practices as of yet.

This automation and scale being brought into buying online advertising inventory has started coming at the expense of ad sales people. Case in point, in June the Fox Audience Network disclosed that it would be laying off 5% of its staff, all from direct online ad sales, as a result of the success the company was seeing from the self-service display advertising part of its ad network business. So is there a future for ad sales people in online advertising or will they be a casualty of efficiency like blue-collar line workers of the industrial age?

To survive and thrive, ad sales people need to re-orient their thinking from selling impressions to creating experiences for brands and advertisers that focus on two core concepts: integration and social. Integrated campaigns enable advertisers to achieve higher engagement and mind share than through individual ad placements. In traditional display advertising this can be accomplished by implementing branded skins into websites or sponsoring sections of content. In video this might mean product placement in episodes or storylines and for mobile it might involve sponsoring the give-away of previously paid apps or premium features. The key is subtly associating the advertiser with the site and content so as to create a positive connection versus an annoying one elicited by standard display and pre-roll video ads.

In terms of social, I’ve previously written about the lack of innovation in online advertising since its advent 15 years ago and that the focus should be on creating socially-oriented ads (since social networking is what most web users are spending their time doing online these days). Developing ways for users to interact with and provide feedback on ads in real-time as well as leveraging a web property’s user base to collaborate in the creation of campaigns, which I’ve also written about, creates engagement because the users who participate have a vested interest in the outcome- just ask the Old Spice Guy.

Regardless of finding the right experiences to drive success for advertisers, ad sales people need to evolve ahead of these online advertising ecosystems or they will end up like Willy Loman.

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Online Display Advertising’s Data Game- Who Will Be Left Out?

2010 is likely to go down as the Year of the Audience in online display advertising as marketers, looking for better returns from their investments in a challenging economy, are turning to search advertising’s strengths to help reach specific individuals across the internet. Search is the largest, and continues to be the fastest growing, segment of the $20 billion online advertising market in the U.S. because it brings advertisers results. The move toward delivering ad impressions on a unique visitor basis across disparate websites is an effort to improve the results of display advertising campaigns by leveraging what makes search advertising so effective- matching web users’ displayed interests and intentions with an advertiser’s defined audience.

This trend in data-driven ad targeting, which is expected to be the primary growth driver for display advertising going forward, has given birth to a number of new intermediaries in the online display advertising ecosystem:
As one can see, depending on an advertiser’s needs and requirements, there are many components to delivering ad impressions to targeted audiences. The new companies that have launched to fulfill the roles of these new intermediaries, especially around data, are capturing most of the additional value being created in the ecosystem. With so many new entrants competing for a piece of the display advertising pie who are the winners going to be?

Before answering this question, it’s worth defining what data is actually being captured and how it’s being leveraged by intermediaries on behalf of advertisers. When someone performs a search query through a search box on a browser or through a website the URL associated with the results page will contain the keywords used in the search request.

When the searcher clicks on any link on the results page, this URL string is passed to the destination website along with the user. While the keyword data is being captured by the web publisher, social tool services, such as commenting and sharing services, can also gain access to this data if their service requires JavaScript implemented on the web page. Marketers, through various demand side intermediaries can reach this searcher by having the intermediary place a cookie on that individual’s computer once they land on the publisher’s site to identify that person when they visit a different website where the advertiser has the ability to serve a banner ad based on the interest the user has shown through their search activity.

Here’s an example of how it would work. Johnny searches for “cell phone” on Google.com and clicks on a link on the result page that sends him to Engadget.com, where a cookie is placed on Johnny’s computer by Invite Media on behalf of AT&T’s agency. When Johnny visits Yahoo.com, a website through which the agency has the ability to buy inventory via Invite Media, he sees an ad from AT&T for a cell phone.

Because audience targeting revolves around intent-oriented data, the intermediaries that have arisen within the ecosystem to fill various data needs are going to experience the greatest consolidation as some of the services being provided morph into one another or become more standardized across other demand side intermediaries. Anticipating and addressing the needs of this evolving marketplace will be the only way for companies to survive and prosper.

Stand-alone data selling is not a viable business. While selling intent-oriented data to online display advertising intermediaries can be a low-effort revenue stream, it’s an ancillary business even for the largest data providers. As more web publishers and social tool providers begin to offer advertisers access to user search data, that data starts to become commoditized as advertisers and their intermediaries have more partners to choose from to create their audiences. Automation around identifying data from appropriate partners and delivering audiences for campaigns will only hasten the commoditization of keyword data. Google on the other hand, by keeping its search-related data proprietary rather than selling it to third-parties, has been able to determine the value of its data through the development of AdWords. Companies that sell their data to third-parties are allowing these parties to determine the value of the data to their own detriment.

Data exchanges must evolve or die. Being a broker between data suppliers and intermediaries is a short-term business model. Because the whole notion of using intent data to target users is in its infancy, data exchanges have become an easy starting point for advertisers to find data to test display campaigns against. The problem is that as other intermediaries within the ecosystem get more experience and smarter about audience targeting, they will seek out direct relationships with the largest and most effective data providers, thus bypassing data exchanges all together. For data exchanges to survive they need to evolve to provide value-added services to their clients such as those being offered by Demand Side Platforms (DSPs) and Social Data Targeting companies.

Adding social data points will prove to be valuable. While keyword data has the potential to become commoditized as previously explained, data culled from users commenting on articles and sharing links into Facebook and Twitter provides unique additional value to display advertisers. Continuing with the “cell phone” search example, if Johnny ends up on a web page after searching for “cell phone” and then shares a link  to a positive article about the iPhone, the additional information associated with the link being shared (iPhone versus just cell phone) helps better define Johnny’s interest and provides a stronger signal of his purchase intent. Even though social data can provide a higher degree of confidence related to search intent, the data itself is not as structured as search data. As a result, being able to package the information effectively and make it actionable will be the key to success.

But can social data targeting companies find the holy grail? A number of companies are exploring how to leverage social data, in combination with search data in many cases, to provide better conversion and larger audiences for targeted campaigns. While the approaches to finding the best algorithm might differ (Media6 Degrees looks for network neighbors while 33Across creates influencer social graphs and Lotame categorizes user activity on social networks), any sign of superior, and repeatable, results will quickly drive acquisitions of these companies by one of the GYMs (Google, Yahoo or Microsoft) to be leveraged internally or by their respective ad exchanges. DSPs looking to expand and enhance their platform offering could also be an acquirer, but would need to do so before valuations get to high.

Demand-side platforms’ dilemma. The proliferation of DSPs is not without warrant as they hold the promise of tying together disparate ad exchanges and ad networks, as well as data providers, into a single interface to enable real-time bidding of online display inventory for targeting purposes by media buyers. The key to how this market evolves will depend on which companies will be the first to be acquired and which ones decide to make a go of it alone. The two most natural types of acquirers, GYMs and agency holding companies, each face their own potential challenges in purchasing one of the players in this space.

Agencies would benefit the most from owning one of these platforms, but are unlikely to pay the full or potential value that the venture-backers of these companies are looking for because any revenue being generated from competing agencies on these platforms would disappear upon acquisition by another agency. Even though Google is a likely acquirer at some point this year, they, along with Microsoft and Yahoo, risk alienating clients and partners of potential acquisition targets by bringing the neutrality provided by the DSP platform into question. Preferential treatment of intermediary services from the GYMs, such as ad exchanges that are integrated into the DSP, would destroy the platform’s business and partnerships. Companies such as AppNexus, Invite Media and MediaMath have the early client adoption and capitalization (i.e. they haven’t raised too much money) necessary to be likely acquisition candidates.

Because DSPs are already enabling data to be combined with inventory acquisition on their platforms, one or two of these companies have the potential to incorporate the capabilities of Data Exchanges as well as Social Data Targeting companies (the latter through acquisition) to create a more robust offering that simplifies the demand side of the display advertising equation. With its early success and strong management team, AppNexus could be the one to create a viable, stand-alone entity.

The supply side will strike back. The early days of data-driven targeting has enabled advertisers to find audiences across premium websites that charge higher CPMs for ad impressions and target those same individuals across ad networks and websites with cheaper advertising inventory. This has created an opportunity for inventory yield optimization companies to help publishers retain some of the revenue opportunity and CPM value being lost to the demand side platforms. This is likely to include enabling audiences to be created and targeted across disparate websites of premium publishers as well as the development of supply side exchanges, as suggested by Will price, CEO of Widgetbox. Companies such as AdMeld, Rubicon Project and Yieldex will be the biggest benefactors of this in addition to their publisher clients at the expense of ad networks and ad exchanges.

As competing offerings begin to look and sound the same within and across intermediaries, analytics and transparency will be the keys to building a successful business. Analytics will not only need to serve as a dashboard for campaign results, but also provide insight into which aspects did or did not perform well and potential reasons as to why. With so many parties involved in every transaction, transparency will grow in importance from a trust and verifiability perspective as well as enable insights to be drawn from each aspect of the value chain.

Beyond this, determining the winners in the online display advertising ecosystem will be somewhat dependant on Google’s actions as they have made it apparent that display advertising is the company’s next growth opportunity. Google has not been afraid to pay top-dollar to acquire the pieces they need or build these services themselves, thus driving potential acquisition targets into the arms of Microsoft or Yahoo and leaving the rest of the competition out of the game.

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Now That Banner Ads Have Turned 15, It’s Time for Them to Get Social

Head in the SandA couple weeks ago the advertising industry celebrated 15 years since the first display banner ad was presented online. In the years since then as the ads themselves have become more creative and dynamic through the use of Flash and JavaScript technologies, and the units through which these experiences are being delivered has been standardized across the web, how consumers engage with these ads hasn’t actually changed.

For the most part agencies and their clients have treated advertising on the internet much the same way they have older content mediums like print, radio and television: as a one-way channel to broadcast a marketing message to consumers. Since the internet has been a read-only environment for most users over much of its existence, it’s easy to see why advertising online evolved in the same manner as these other content channels. With the rise of blogs and social networks though, web users now have both read and write capabilities that allows anyone with an internet connection and keyboard to give their two cents online. Advertisers have been slow to acknowledge the two-way relationship that now exists on the web with consumers, whether they want to take part in the conversation or not.

Some social media-focused companies have taken it upon themselves to develop more engaging ad experiences on behalf of advertisers, such as enabling video ads to be shared across social websites [disclosure: my company Clearspring powers this feature for VideoEgg]. While this does create value for advertisers through individual endorsement, since the ad is being perpetuated by a person versus an ad server, the messaging doesn’t provide for any feedback. The same could be said for ads which aggregate Twitter commentary or Dugg articles around a particular brand, event or topic. Even though these ads dynamically insert content from specific sources into traditional banner ad units, the information is  moderated before being broadcast and isn’t necessarily oriented to the actual campaign.

Getting agencies and advertisers to embrace the idea that making their ads social will actually benefit their business requires participation from the largest social media sites with the necessary social capital (i.e. a big or growing coolness factor) to experiment with non-standardized advertising. Facebook and Twitter are obvious candidates to lead this effort not only because of their large audiences but because they incorporate the most prevalent user experiences on the social web: community-oriented, information streams of shared content.

Facebook has already put a lot of effort into creating new display ad units and ways for advertisers to engage with their audience, allowing Facebook users to not only interact with ads (by watching videos, RSVP-ing to events, voting in a polls, becoming fans of companies, etc.) but also provide feedback on uninteresting ads.

Facebook Ads

Since Facebook has created a self-service platform to manage the entire advertising process, ads can automatically be delivered at scale across  the entire site. And with Facebook focusing on providing the social identity layer to the web via Facebook Connect it’s easy to see how they could standardize and distribute their own ad units and engagement across participating Connect sites- much like Google has done with search and AdSense.

While Twitter has thus far avoided placing ads DiggAdson its platform, many Twitter apps are primarily monetizing their service through traditional display advertising units. To create a unique and more valuable advertising experience though, ads should be integrated into the actual functionality of these apps. Since tweets consist of text and links, the most logical type of ad unit would mimic sponsored search ads. Digg, whose community is similar to Twitter’s in that they share the most popular content on the web, offers the best example of what socially oriented, stream-based ads might look like.  As with Facebook ads, Digg allows its users to provide feedback on the sponsored articles on the site in real-time.

Whether it’s Digg, Facebook, Twitter or someone else, whoever can define the new display and in-stream social ad standard has a tremendous financial opportunity as Digg understands in contemplating syndicating their ad format to third-party websites via its own ad network. Developing ad standards are important for agencies as it allows them to execute campaigns on behalf of their clients at scale, with minimum creative friction, across a wide variety of websites.  For  most social media web properties that can’t command their own ad standards this gives them a framework for incorporating more relevant monetization experiences into their sites and services. Let’s not forget that Facebook leveraged standard display ads as a way to generate revenues when the site first launched.

These examples are just a starting point for social ads and will evolve over time. The key is that experimentation is occurring now with willing advertisers (whether they are participating because they truly care about the feedback or just want access to consumers on these sites is another story).  While some advertisers will be brought kicking and screaming into the socialization of advertising, early adopters will yield the greatest benefit from capturing the data and engagement directly from their audience versus pretending the conversation doesn’t exist.

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