Dawn of the Dead

Is Your Ad Technology Company Disruptive, or Just Another Zombie?

AdTech 2011, San Francisco CA – Every year, San Francisco is abuzz with hope and opportunity as thousands of ad technology executives pour into a  few square blocks around the Moscone Center to try and turn technology dreams into riches. On the inside of the convention center, an odd assortment of e-mail and affiliate marketing tools vie for the jaded eyes of direct marketers. On the outside, more seasoned media technology executives find themselves in and out of luncheons and panel discussions, mostly trying to figure out the real time landscape, and the data surrounding it.

There is a lot of high risk venture capital fueling the ad technology business, as a very crowded LUMA map can attest. The Kawaja logo vomit slide never seems to shrink, although the dotted red lines indicating acquisitions appear from time to time. Burst Media is probably getting updated on the map as we speak.  Its recent acquisition by Blinkx at a 1-time gross revenue valuation is a stinging reminder that not all dreams (even those with scale) turn to gold. Despite reaching some 61% of the US Population, Burst lost $3M in its last year as an independent operation.

At the recent AdWeb 3.0 conference, venture investors Josh Stein of Draper Fisher Jurvetson (Glam, Skype, Targetcast, Cafe Mom) and Jon Soberg of Blumberg Capital (Legolas, HootSuite, DoubleVerify) talked about what is getting VCs excited in the space…and those companies that are not. Obviously, mobile is seeing an influx of early stage capital as next generation media technology application development progesses. For Stein, “the engagement in mobile is extreme—you may only be getting 3 minutes [of a consumer’s attention], but it is full engagement.” Video is also an area that will see significant investment capital as more and more video content finds its way onto computer, mobile, and tablet screens. YouTube’s recent moves with “Next” around original content creation were cited as positive developments in the space. Also mentioned was the growing area of social curation of video content (using social media technology to make sense of the potentially thousands of “channels” in the ether).

On the other side, Stein questioned the “long term economics” of Groupon and its many clones and also threw cold water on Foursquare by wondering aloud whether  “checking in” is a “long-term, sustainable” business model.  An audience member inquired whether we are currently “in a bubble” in terms of media technology, but the question was quickly dismissed. Unlike real financial bubbles that sweep up pension funds and real estate, “this bubble will likely pop on VCs…not consumers.” I suppose that is refreshing enough for the average consumer, but it is likely that many of the technology executives at AdTech have the fear of being popped along with their overinflated companies.

Lumascape

The recently updated "Display Lumascape" (as of 6.7.2011)

That leads me to the heart of the conversation: what our venture capital friends think of the crowded ad technology landscape, and their assessment of the companies within it. Jon Soberg seems to think that there are a lot of “walking dead” companies on the LUMA map: those companies that “can get quickly acquired by Google for $10 or $20 million, but don’t move the needle for venture investors.” Looking at the LUMA map, I think it is hard to argue with Jon. There are a lot of hands in the middle of the transaction between advertiser and publisher, and many of the companies therein aren’t adding as much value as they are taking out. The difference between truly valuable and exciting companies can easily be summed up by one word: disruption.  In other words, is your company’s technology doing something completely different and revolutionary, or is your company merely adding another incremental improvement or technology layer on an existing process?

It seems like most companies in the middle of the map are the type of companies that are walking dead. “Nice to have” technology rather than “must have” technology that will drive our business forward. So, what advice does the investment company have for the current companies in the space—and those that are looking to raise capital and jump into the crowded ad technology pool?

  • Disruption: As Soberg points out, “it’s not about shaving at the margins, it’s about disruption.” For Soberg, the value of facilitating real time media trading is interesting, but is being “squished out,” making it entirely possible for companies to “arbitrage themselves out of existence.” For me, this simply means that being a bolt-on technology for media trading is not the path to riches, only the path to a low-value exit. Your technology must create value with your data, rather than simply creating more of it.
  • Publishing: How can technology add value to the media transaction to publishers? This is an area ripe for investment and plenty of high value exit potential. In a world of highly commoditized inventory, where publishers have (foolishly) undervalued and overexposed their inventory, technology has a chance to fix things. How can the recent “app” revolution (where people actually pay for content) “reset” online publishing, and start to create higher value inventory? Glam and Tremor were cited as two companies that “add value in the middle of the transaction.”  Technology that enables publishers to “figure out” mobile and video (rather than just helping them sell more remnant inventory) are going to win.
  • Creative: One quote that struck me was Josh Steins’ excellent observation that “the Madmen [advertising] model wasn’t efficient…but it was profitable.” In other words, much of the magic and creativity in advertising has been replaced by technology, but technology isn’t what makes advertising effective. It’s ideas. Absolut bottles represented in every way possible…subservient chickens…the things which get and keep our attention. Maybe technology will standardize a good part of the transactional process of advertising, but the real winners in the ad tech space will be those technologies that help agencies put their focus back on creativity, rather than figuring out month-end billing and reconciliation.

It’s a crowded landscape out there, and there are many more red dotted lines to be added to the LUMA map. The ones that offer disruptive technology ideas that start returning value back to the advertisers and publishers, and away from the murky middle, will be the ones that avoid death…or “walking death.”\

[This article appeared on 4/28/11 in Business Insider]

Rise of the Machines

Where do People Fit into a World that Promises Endless Media Automation?

Ever since man tied a rope to an ox, there has been a relentless drive to automate work processes. Like primitive farming, digital media buying is a thankless, low-value task where results (and profits) do not often match the effort involved. Many companies are seeking to alleviate much of the process-heavy, detail-oriented tasks involved in finding, placing, serving, optimizing, tracking, and (most importantly) billing digital media campaigns with various degrees of success.

Let’s take the bleeding edge world of real-time audience buying. Trading desk managers are often working in multiple environments, on multiple screens. On a typical day, he may be logging into his AppNexus account, bidding on AdBrite for inventory, bidding for BlueKai stamps in that UI, looking for segmentation data in AdAdvisor, buying guaranteed audience on Legolas, trafficking ads in Atlas, and probably looking at some deep analytics data as well. If he is smart, he is probably managing that through a master platform, where he can look at performance of guaranteed display and even other media types. How efficient does that sound?

To me, it sounds like six logins too many. Putting aside the obvious fact that an abundance of technology doesn’t lead to efficiency (how’s “multitasking” working out for your 12 year old, by the way?), I wonder we aren’t asking too much of digital as a whole. How many ads have you clicked on lately? If the answer is zero, then you are in a large club. Broken down to its most basic level, we are working in a business that believes a 0.1% “success” rate is reason to celebrate. But the “click is a dead metric” some say. Really? Isn’t the whole point of a banner ad to drive someone to your website? When did that change?

All of this is simply to illustrate the larger point that the display advertising industry, for all of its supposed efficiencies, is really still in its very nascent stages. Navigating the commoditized world of banner advertising is still very much a human task, and the many machines we have created to wrestle the immense Internet into delivering an advertiser the perfect user are still primitive. For a short while longer, digital media is still the game of the agency media buyer…but not for long.

Let’s look at the areas in which smart media people add value to digital campaigns: site discovery, pricing, analytics and optimization, and billing.

Site Discovery

In the past, half the battle was knowing where to go. Which travel sites sold the most airline tickets? Which sites indexed most highly against men of a certain age, looking for their next automobile? What publisher did you call to get to IT professionals who made purchasing decisions on corporate laptops? Agencies had (and still have) plenty of institutional knowledge to help their clients partner with the right media to reach audiences efficiently and—even with the abundance of measurement tools out there—a lot of human guidance was needed. Now, given the ability to purchase that audience exactly using widely available data segments, the trick is simply knowing where to log in. I just found the latter IT professional segment in Bizo in less than 2 minutes. So the question becomes: how are you leveraging data and placement to achieve the desired result, and how efficiently are you doing it?

Pricing

It used to be that the big agencies could gain a huge pricing advantage through buying media in bulk. Holding company shops leveraged their power and muscled down publisher rate card by (sometimes) 80% or more with promised volume commitments, leaving smaller media agencies behind. Then, a funny thing happened: ad exchanges. All of the sudden, nearly all of the inventory in the world was available, and ready to be had in a second-price auction environment. Now, any Tom , Dick, and Harry with a network relationship could access relatively high quality impressions at prices that were guaranteed never to be too high (in a second-price auction, the winning bid is placed at the second highest price, meaning runaway “ceiling” bids are collapsed). Whoops. With their pricing advantage eliminated, large agencies did the next best thing: eliminated the middleman by building their own exchanges, which we have been calling “DSPs.” So, you don’t need human intervention to ensure pricing advantages.

Analytics and Optimization

What about figuring out what all the data means? After all, spreadsheets don’t optimize media campaigns. Don’t you need really smart, analytical media people to draw down click- and view-based data, sift through conversion metrics, and build attribution models? Maybe not. Not only are incredible algorithms taking that data and using machine learning to automatically optimize against clicks or conversions—but programmatic buying is slowly coming to all digital media as well.  In the future, smart technology will enable planners to create dynamic media mixes that span guaranteed and real-time, and apply pricing across multiple methodologies (CPM, CPC, CPA). Much of that work is being done manually right now, but not for long.

Billing

Sadly, much of the digital media business comes down to billing at the end of the day. Media companies struggle tremendously with reconciling numbers across multiple systems, and agency ad servers don’t seem to speak the same language as publisher ones. The bulk of a media company’s time seems to be spend just trying to get paid, and an incredible amount of good salary gets burnt in the details of reconciliation and reporting. This is slowly changing, but the advent of good API development is starting to make the machines talk to each other more clearly. The platforms that can “plug in” ad serving and data APIs most easily have a lot to gain, and the industry as a whole will benefit from interoperability.

So, are people doomed in digital media? Not at all. There are going to be a lot less digital media buyers and planners needed—but what agencies are really going to need are smart media people. Right now, you need 4 people to manage 10 machines. In the near future, you will need 1 smart person to manage 1 platform—and the other three people can focus on something else. Maybe like talking to their clients.

[This article originally appeared in ClickZ on 4/14/11]

Notes from DPS 2011

Going Beyond Content and Delivering Value in a Multi-Platform World

Deer Valley, UT – If there is one thing I learned after spending several days at Digital Publishing Summit 2011, is that the people in this industry really love what they do. It’s not easy walking past world class spring skiing in what is arguably the United States’ best ski area, and enter a dim conference room to listen to a speech on “Auto-nomous Data Management,” but every session played to an SRO crowd of media and technology executives. The crowd was a veritable who’s-who of the “Digital Display Advertising Landscape” (LUMA) map, so I suppose you could argue that these guys got where they are today by skipping lots of fun, and building advertising and media technology instead.

Among the highly informative (albeit sometimes sales-y) content at the conference, there were some gems to be had. So, here is DPS 2011, organized by quote:

“Value is shifting from those that produce the content, to those that deliver the experience of consuming it.” – Saul Berman, IBM

Saul Berman’s keynote address touched upon the disruption happening in our space, but even the overhyped keyword “disruption” doesn’t touch upon the true chaos happening as publishers learn how to navigate the through all the new social media, exchange-based sales, and various technology partnering opportunities out there. Do you make Facebook Connect your friend (as Kristine Shine from PopSugar Media does), to drive new unique visits, and build your audience? According to Shine, for her organization, the call was to “go all in” with Facebook. For others, like Todd Sawicki, CRO of Cheezburger, Facebook can kill publications by migrating all of their native traffic (like message board comments) to their environment, without returning the favor.

So, for publishers, the challenge is not just continuing to produce quality content, but to make it for a multi platform world, where consumers are just as likely to value the way they are consuming it. That means having a multi-platform approach—and a multi-revenue approach as well. Why does a full song from iTunes cost $0.99, but a 10-second sliver of that song, sold as a ringtone, cost $3.00? In that case, it is the application of content in a clever way that adds value, a nice use case for anyone monetizing content in an experiential way.

“Media will be sold like pork bellies” – Frank Addante, Rubicon Project

There was quite a bit of discussion around pricing at the conference, and the founder and CEO of the Rubicon Project was not wrong in insisting that, without significant changes, media would indeed be as commoditized as the humble pork belly. Unfortunately, this trend has already happened. Addante was right to highlight the unfortunate fact that the same article in the NY Times commands a $20CPM in print as opposed to $2CPM online. That value gap, Addante argues, can be closed by “realizing the true value of digital experiences.” Rubicon would like to see one big gigantic “open market” that enables the industry to expand the digital advertising pie from $40b to $400b with full participation, but the details were cloudy. If that market concept involves having publishers suddenly not to sell their entire remnant inventory into an exchange, then maybe we can avoid the pork bellies fate.  Addante may be on to something, however. What the industry needs is one trusted third party aggregate high quality inventory, and create value around it, but that battle is in its very nascent stages.

That being said, a good bit of the conversation was around pricing. Both Saul Berman and Tim Cadogan of OpenX deployed the airline pricing scenario, to argue for dynamic pricing models. For Cadogan, three levels of inventory equate to three levels of seating: Exclusive (first class), Premium Guaranteed (business class), and Non-Guaranteed (coach). Just as airlines frequently change the configuration of their seating to account for their routes, seasonality, and passenger mix, so must the industry dynamically price inventory, based on its placement and value. The OpenX Enterprise server hopes to achieve that by putting guaranteed and real time exchange inventory into the same platform, and use smart decisioning  technology to maximize yields. A very smart idea.

For Berman, it was not only about “having 5 different passengers, paying five different prices,” but also about exploring entirely new revenue models, like Apple did in “switching the razor blade model” with the iPhone (expensive “razor,” cheap “blades”). Publishers must go beyond monetizing their content through advertising, and start looking at generating revenue from the larger  “marketing” bucket. Right now, that is called “selling apps.”

“Premium brands need to be associated with premium content” — Eric Klotz, Pubmatic

Truer words have never been spoken. Klotz explored some recent survey data which asked publishers and advertisers how the way they are buying media is shifting. The results were fairly predictable: more and more budget is finding it’s way into real-time bidding environments, as brand and direct marketers seek new ways to target their desired audiences. That’s nothing new. What is changing rapidly, however, is that all marketers are demanding more placement control, increased transparency, and brand safety. Brands want the same direct connections with publishers they have enjoyed with guaranteed buying, with the ease and cost efficiency of exchange-based buying. The takeaway? If you are a publisher, and not looking at building private exchange connections with your demand side partners, you are in trouble.

That sentiment was hinted at in a panel called “Selling in a Cluttered Market.” For Jonas Abney of Hachette Filipacchi, “general content gets beaten by specific content every time.” Marketers are looking for laser-focused, topical content that captures user intent, rather than more generalized content. Moreoever, today’s advertising sale is more educational than ever. For panelists like AdMeld CEO Michael Barrett and PubMatic’s Andrew Rutledge, a sales force cannot simply have media experience–they have to know the ecosystem, and be prepared to add value by educating clients. For Whitepages VP of Sales Craig Paris, it is simple math: Agencies get 100+ unique sales calls a month, from an increasing amount of new technology and media companies. Unless you differentiate yourself, you are not going to win business. “Thirty percent of your day should be spent reading the industry trades so you can have credibility, and provide insights to your customers.”

“Nielsen says people visit 2.9 sites a day, and one of them is Facebook” — Greg Rogers, Pictela

Last minute speaker Greg Rogers of Pictela provided some insights on how premium advertising units (specifically the new IAB 300×1050 “Project Devil” unit from AOL) can drive user engagement. If the above quote is true, it means that brands have to find a way to engage the user more deeply on the the sites they visit every day, and that way is through interactive units. Rogers has data that points to “dramatic” CPM increases from premium RM units, and makes a case for replacing three 300×250 units with the single 300×1050 “devil” slot. Patch and Huffpo have seen great results, and advertisers are getting good engagement, and plenty of reporting. Highly premium, brand-safe, engaging advertising…sounds like something from the past called “premium guaranteed.” I bet PopSugar’s Shine would agree. She has built a virtual in-house agency to build premium campaigns for her customers, and demands “150% control over every ad unit on the page.”

“Cookie Targeting Doesn’t Scale” — Michael Hannon, Aperture

Sort of a dark horse moment for me was Michael Hannon’s first slide, which threw down the gauntlet on cookie targeting. All the energy in the space for the last several years has been about  targeting using 3rd party data . But what if it doesn’t work? This is the 900 lb. elephant in the Ecosystem. Not only have many marketers had difficulties achieving significant scale when overlaying data on top of exchange buys, but the legislative tsunami of “Do Not Track” threatens to reduce that scale even further. Hannon makes an elegant argument for real audience measurement, and doing so in a cookie-less way.

That leads me to a great conversation led by Alan Chapell, a lawyer specializing in just these types of issues. In a room full of ad publishing and ad technology executives that depend on using data to identify target audiences, there was a great deal of confusion regarding how our industry is getting on top of what may be a very severe problem. More direction from the IAB in the form of specific self-regulatory principles and mandates is needed, and needed fast. For Chapell, inaction may cause the “privacy disaster, which enables Google, AT&T, and Facebook to own all the data,”  leaving the rest of the industry on the side.

[This article originally appeared in Adotas on 4/4/11]