Author: Andy Atherton

Business Development Partner @ Link Ventures. Complete background on LinkedIn...

A “future” cure for online ad pricing volatility

A very interesting post on AdExchanger today covering the first installment in what DataXu expects to be a monthly series of reports on market trends.

DataXu disclosed historical volatility of prices across the landscape of biddable online ad inventory they saw through their DSP platform – billions of impressions across multiple exchanges – between 4/10/10 and 5/10/10.  The figure?   102%.  That’s huge pricing volatility on an absolute basis and (as they point out) much higher volatility than we see in Goldman Sachs share prices, oil prices and even presidential approval ratings.

Broadening the aperture doesn’t change the picture.  For example, 102% is much higher volatility than we typically see in historical data for a wide variety of exchange-traded commodities – themselves a notoriously volatile asset class.  I think the way DataXu has calculated volatility for online ads may even understate the difference.  From the notes on the source post here, it looks like DataXu is calculating this 102% number by measuring the variance of average daily prices within that month period.  Volatility in financial markets is usually expressed in annualized figures (like this).  I’m not sure exactly where DataXu got the other figures they list, but since annualization is very common for these types of figures I wouldn’t be surprised if those are annual figures.  If I am right, then the apples:apples annualized figure for online ads would likely be much higher.

Either way, there’s simply no question that the spot market for online ads is tremendously volatile.

So it has always struck me as odd that the same large manufacturing companies that have active, sophisticated, futures-based hedging programs for raw materials like oats and soybean oil with 30-40% annual price volatility would tolerate volatility many times higher in purchases of online media – an increasingly critical raw material input.  As I have written previously in a pair of articles in Ad Age and Ad Exchanger, I think this will change and indeed must change for online media to become a greater share of overall media spend for key categories like CPG.

But in order for that to happen, we need to give them better tools.  We need a Futures market.

Of Taxes & Chaos…

Interesting blog entry from Eric Porres of Lotame earlier this week, about the various and increasing “taxes” levied on online advertising.  I particularly liked his closing thought on 3rd party verification providers.  In a very early stage market with multiple competing vendors and approaches, the real potential exists for the scenario he outlines – i.e., several different parties to a media transaction winding up with different, conflicting “verification” reports and creating chaos. We have seen examples of this in our own business already on campaigns where 3rd party verification was used.

Let’s also keep in mind this problem only gets worse if the verification market moves (as is claimed to be the goal) from passive verification (reporting) to active prevention (blocking).   It’s one thing to have a set of false positives in a reporting package, creating a media provider / agency discussion that is pure friction for both sides.  It would be an entirely different thing to have “underdelivery” (and thus underpayment) due to those false positives.  What is friction squared?

I tend to agree with Eric that the right answer is for the incumbent ad servers to develop their own standards for verification, much as they have done with impression counting.  Personally, I think this could actually be done as either a feature within the demand-side ad serving platforms (DFA, Atlas) or the exchange platforms (AdX, RM, AdECN) themselves.

There are arguments for both, but I think the exchange platform might actually be the right integration point, particularly if blocking is the ultimate objective.   It seems like this approach would also facilitate additional active services.  On the demand side, perhaps focusing more broadly than just objectionable content.  On the supply side, perhaps helping publishers to avoid instances of “blocking” by preventing problems before they occur.

friction2

What Online Advertising Should Learn From TV’s Upfront Market

Just a short post today to steer folks to this year’s Ad Age Network & Exchange Issue.  In it I have a byline that outlines, in a more popularly accessible way, the main ideas of my previous technical piece on on the importance of the futures market for Brand marketers.

We think that the Futures market is a critical and under-served space in online advertising.  So we’re proud to offer the industry’s first and only web-wide Media Futures Platform, which has powered guaranteed delivery of high-quality campaigns with phenomenal offline sales results since 2008.

As always, we welcome your thoughts and comments!

There is an “I” in ROI

An interesting report came out last week looking at the relative cost and effectiveness of behavioral targeting vs. other approaches.

The headline finding was that BT cost on average 2.7 times what non-BT did and converted viewers into customers 2.4 times as well.  As the mathematically dexterous may notice immediately, this combination of numbers means that BT spend had a slightly lower ROI than non-BT spend.   I.e. BT was more effective, but not quite enough more to make up for its higher cost.  For the rest of us, here’s the calculation spelled out:

In short, according to this study, each conversion cost about 10% more with BT than without it.

This finding is doubly interesting given that it was obtained from direct response ad networks who typically focus on driving online activity.  In the pure online environment ad impact can be measured quickly and with very high resolution, enabling a tight feedback loop for improving targeting performance.  For the other 95% of sales that occur offline, however, it’s a different story.  While the online advertising environment enables powerful, accurate offline sales measurement capabilities, the same type of high-resolution, fast feedback optimization simply isn’t possible.

So if BT isn’t “earning its keep” in the pure online environment with all the data advantages that this environment provides, it’s certainly reasonable to have a healthy skepticism of how well it might perform in driving offline sales.  Indeed, the data we have seen suggest that other media approaches can be just as effective as BT, if not moreso in driving offline sales – very similar relative performance to this study.

The bottom line is simply to measure and hold your media vendors accountable to the metrics that are most important for a particular campaign’s objective.  It’s not enough that a particular targeting select has a catchy name or offers “zero waste”.  It’s not enough that campaign didn’t run next to objectionable content.  It’s not enough that X many consumers engaged with your ad.  Advertising is about changing attitudes and driving sales.  Those impacts can and should be measured and benchmarked for efficiency across all media approaches.

For most advertisers the most important goal metric is offline sales.  As approaches are compared for effectiveness in the context of cost and operational efficiency (collectively, the “I” in ROI), some buyers might be surprised to find that quality media, with well-managed frequency, high composition against the target and reasonable rates, delivers fantastic results.

…and “Go” they did!

A great blog post from Yahoo! Monday with another example of great brand work ringing the cash register.

This Quaker campaign certainly created a personal impact for me and the data from Y! proves I have *lots* of company in that regard.  Remember when this ran – March of 2009, the very blackest bottom of the financial meltdown.  The message was positive, energizing and timely.  A great combination that clearly activated customers.  According to Nielsen, the campaign generated $1.2M incremental sales.  Estimating that the 2 half-day Y! FP executions described cost ~$300K each that would yield ~100% ROI.  Not too shabby.

Yet more proof that well-executed brand campaigns efficiently drive sales where it matters: offline.

Privacy Issue Reheating?

Interesting articles in Ad Age and MediaWeek today calling attention to potential privacy & regulatory issues surrounding Behavioral Targeting (BT).

The specter of regulation has loomed since the NebuAd debacle, but has seemed somewhat less menacing as Washington has focused on a stream of crises beginning with the financial meltdown in late 2008.

That now seems to be changing.  In addition to these articles and others, privacy/regulation was recently both a major theme in IAB CEO Randall Rothenberg’s remarks to the IAB’s 2010 Leadership Meeting and the subject of the hilarious Onion article mentioned in the Ad Age piece.  Quite a range of coverage.

I think there is legitimate discussion to be had about both consumer privacy and the related issue of data rights/ownership in the value chain.  These are both critical issues and the industry has only just begun to scratch the surface on both.  So it will be interesting to see if the privacy angle in particular gains steam once again in Washington now that the Health Care battle seems nearly over and the dust has settled somewhat from the “Great Recession”.

Something tells me the embers of the NebuAd conflagration are still good and hot, just awaiting a little oxygen.

An exciting step forward in measurement

I am very excited about today’s release of yet another batch of fantastic campaign results for an Ad Age 20 CPG brand.  I am excited about this release in particular because of the use of both Nielsen and Vizu measurement technology for this campaign – an important step in establishing a link between improvement in purchase intent and improvement in offline purchase rate.

The Nielsen data establishes that this campaign, like our other SalesLink campaigns, drove a fantastic ROI as measured by offline sales compared to media investment. This metric is obviously critical because 95% of retail commerce still occurs offline. It’s easy to forget that in Silicon Valley, but ultimately advertising is about selling stuff and it makes a lot of sense to focus on the 95% rather than the 5%, regardless of medium. The Nielsen data is great in that sense, but it also has two drawbacks; Results aren’t available for 3 months after the campaign ends and those results have very limited granularity so it can be difficult to know what it was about the campaign that worked best.

Adding Vizu to the picture allows us to get granular data about what’s working best (creative, media mix, frequency) during the campaign, when we can still use those results to optimize. Vizu measures purchase intent not actual purchases like Nielsen, but we saw a very intuitive relationship between the two for this campaign. If this relationship holds reliably through further studies, then Vizu can be a very important tool in improving campaign impact. We don’t stop measuring offline sales, we just know a lot more a lot faster about what makes those results better.

Brands repeatedly tell us they want to be confident their vendors are doing what they say, but even more important are a) proving that their campaigns are effective where it really matters and b) helping them understand why.

Say what we do, do what we say and drive proven results. That’s our business.

More great stuff from Michael Zimbalist

Another great article from Michael Zimbalist in this week’s Ad Age, echoing many of the themes we discuss on this page.

A very smart publisher indeed!

It’s Time For The Futures Exchange

A quick post to direct readers to today’s guest article for AdExchanger.  It will be pushed to the broader AdExchanger audience tomorrow in John’s roundup, but I wanted our readers to have a “sneak peek” to get the dialog started.

As always, I am very interested in your thoughts and comments.

The (Ad) World is Flat

I wrote a recent post in which I outlined our view on convergence in the online media market.  At a high level, we believe there are two major forces at play in the media market:  (a) increasing standardization of “online” media formats and (b) device convergence blurring the lines between what are today thought of as “online” and “offline” media.  Because of these forces working in parallel online display, online video, mobile display, TV, print and even billboards end up not that far down the line as one big (huge) 12-figure market.

In addition to expanding the market for online players, these twin consolidating forces will drive several broad and related trends:

  • Trend 1: Niches Vanish. Differentiated solutions for big, general problems will drive the most value (for customers, companies and investors) in this future, merged media marketplace.  That means focusing less on the medium and more on the customer’s business objectives, solving problems that exist in and across all media.  Solving format-specific problems will mean limited opportunity, as it will increasingly be the case that relatively small improvements within the pool of media that has already converged will be more important than even a major breakthrough in a specific medium that has yet to be “plumbed to the main line”.  And while we’re on the topic, that plumbing itself is more trade than investment.  It can create speculative value in the short-term, but gets marked to zero quickly as industry-driven, open standards emerge.
  • Trend 2:  “Good” gives way to “Best”. Building on the notion that niches vanish, the bar will quickly rise for what capabilities qualify as “differentiated”.  This dynamic echoes globalization.  In a global market, the best athletes (literally and figuratively) can earn dramatically more than the best athletes from previous generations.   However, those with less differentiated skills are increasingly marginalized – there’s a reason why millions of manufacturing jobs have moved to China.  As best of breed vendors in each medium begin to jump format boundaries and compete aggressively in a converged media pool, only the strongest, most customer-centric solutions will survive.
  • Trend 3: Higher Technology Hurdles. Scalable differentiation requires technology, so this rising tide of convergence also raises the bar sharply for technological sophistication.  As Warren Buffet famously said, when the tide goes out you see who has been swimming naked.  Well, as this tide comes in you’re going to see a lot of folks who can’t swim at all sink to the bottom, surprised by the speed at which the water rises.  For example, there was a time when a network could be run as a bucket shop, substituting hustle and excel for real technology.  That model won’t float in the media mainline.

So who wins in this world?

  • Data and Data Infrastructure. Information and insights are always valuable, and become ever more valuable as size of the spend across which you’re deploying them expands.  As more and more media becomes effectively “online” media and thus more dynamically targetable, the value of targeting technology and data itself increases.  This will benefit targeting technology providers like Blue Kai and Exelate, but will also benefit data owners like Acxiom, Facebook and Expedia.
  • Measurement. While I believe online media have over-emphasized measurement relative to other elements of the online media value proposition, this is a moot point in a converged media world.  It is true that measurability is a particular strength of online media so as more media comes “online” it will create opportunities for measurement vendors like Nielsen, comScore and Vizu to innovate, expand and drive increasing value for customers.
  • Supply  Side Platforms (SSPs). The fact that it will be technically possible for an increasing number of players to join this media mainspring does not mean each of them will have the knowhow and capability to do so competitively.  There is a space to help the “supply side” players– content owners and media companies – connect into the media mainspring, and make the most of it.  Folks like Rubicon and Yieldex have opportunities here, although the technology bar will be particularly high in this space.
  • Demand Side Platforms (DSPs).  Finally, we come to the “demand side” – the buyers of media. Last, but by no means least as demand drives the market.  Similar to the supply side there is a space for broad platforms to help manage and optimize campaigns over a diverse and complex online media inventory landscape.  As I have previously mentioned, there are fundamental differences between technology required to service DR objectives in the spot market and technology required to service Brand objectives in the futures market.  Most of the energy here has been focused on the DR/Spot side, but we’re going to see that change rapidly as major consumer brands get into the game for real.   For DR/Spot, Turn and Efficient Frontier are well-positioned and aggressively pursuing this opportunity.  Appnexus also has an interesting “meta-DSP” play.  For Brand/Futures, Brand.net is the clear leader, with market leading technology and strong customer traction.

Winners mean losers and the main theme in the “loser” category is the ad network shakeout – widely and frequently predicted over the last 5 years – finally materializing.  Here we go:

  • Single-Format Players. Those players whose businesses are built primarily on execution in one format and who don’t have best of breed capabilities that are broadly applicable to all media will wither without the shelter provided by format barriers.
  • Naked Swimmers. Demand side players that have substituted people for technology will get increasingly squeezed between agencies and exchanges.  Supply side players will find themselves with stiff competition from large exchanges in providing more/easier functionality for publishers.
  • Non-Aligned Exchanges. Between Google and Yahoo!, the market already has more than enough basic spot-market transactional capability.  Microsoft will likely also make an additional acquisition to accelerate their internal efforts, but once it does the music will have stopped.  With these huge, technically sophisticated, players already ramping quickly it’s too late for new entrants.  Only one current player will get picked up, and the rest better have a very strong DSP or SSP option or they’ll find their game over.

While this next wave of evolution poses serious challenges to many current players, it unlocks tremendous opportunities for those players with the right capabilities to ride the wave.

As always, I welcome your thoughts and comments.