New forms of advertising are hard February 19, 2007
Posted by jeremyliew in Consumer internet, Digital Media, Internet, Lead gen, Search, advertising, start-up, startups, web 2.0.trackback
I’ve seen a few startups recently that are relying on launching a new form of advertising as their business model. These can include product placements, sponsorships of various flavors, new forms of local advertising, interactive out-of-home advertising, and lots of variations of mobile advertising. This is a hard business. If successful, it can be very, very successful (e.g. Overture/Google with sponsored links in search) but entrepreneurs often underestimate how long it will take for revenues to ramp.
To understand how new forms of advertising get adopted, you need to understand how advertising is bought today. In most instances, ad agencies control the ad budgets for the largest advertisers in the world. Within those ad agencies, one of the functions is media buying. A media buyer’s role is to optimize reach (and sometimes quality of audience) for their client across all possible advertising channels. The problem with new forms of advertising is that they are often not represented in the media buyers’ spreadsheets and models. And if it’s not in the model, it doesn’t get allocated any ad spend.
Startups sometimes get traction with a new form of advertising because there are always some forward thinking advertiers who are willing to experiment. This early traction is often a customized program negotiated with an advertiser that is friendly with the startup through personal relationships. However, crossing over from a “business development” focused model (where each new deal is custom crafted) to an “ad sales” focused model (where standardized products are sold off of a rate card) is the key to massive scalability of revenues. To do this you need to get into the media buying model; you need to sell a standardized product.
For internet companies, that usually means that you need to get the IAB (Internet Advertising Bureau) to issue a new “Standard” ad unit, in much the same way that the IAB issued its first set of “voluntary guidelines” that set up 8 standard banner ad units in 1996, a massive reduction from the over 150 ad sizes that were in use at the time. This standardization greatly eases logistical complexity for both advertiers and media companies.
The process of creating a new standard can be quite a lengthy one. It usually involves a coalition of both media companies and advertisers coming together and negotiating the key elements of the standard. The composition of the IAB board is usually dominated by larger online media companies and it can be hard for a startup to have much influence on this decision making process. It can often be easier to align youself with the interests of a larger media company and let them carry the water up the hill, rather than trying to do it independantly as a startup. If you’re Dogster, you’ll have less success pushing a new standard for “sponsored profiles” than MySpace/FIM or AIMpages/AOL. So making sure that your sponsored profiles packages contain the same elements as those of the big guys will make your life easier as they take this new ad unit through the standardization process
The alternative approach is to make sure that your new form of advertising so closely parallels an existing standard ad unit that it can be considered within the existing bucket. 30 second online video ads (same format as TV),online leads (similar to phone leads) and new variations of CPC advertising (similar to search) have all been “close enough” to an existing ad unit that they have been able to tap existing ad budgets and grow quickly.
In either case, when building business plans on the assumption of the adoption of new ad units, make sure you give yourself enough time in your plans for the market to be created before it can grow to scale.
[...] a great post on the Light Sped Ventures Blog which does a great job explaining why … “New Forms of Advertising Are Hard.“ Definitely worth a [...]
another piece of advice I’ve seen — once you’ve got the small trial deals in place to provide the case study, aggregate all your traffic into significant sized bundles. If there’s a particularly vertical/demo you want to sell, focus your product efforts on building around that one first in order to get to scale.
The large advertisers/media buying agencies predominantly aren’t interested in cutting small checks.
“new forms of local advertising”… I assume that’s not with local merchants since they do most ad buys in-house. Do you see new lead generation models in the local space (click to call, online coupons, other) having difficulty gaining traction? If not, do you see YP companies embracing pay for performance as a competitive hedge even though its less attractive than their fixed fee model?
John D,
You’re right that small business local merchants do their buying inhouse. But it can be hard to reach them and educate them about new forms of advertising too - they are busy people! If you can fit it into a form of advertising that they are familiar with (its coupons - just online etc) then it is an easier sale - same principle but slightly different reasons. In general, local is hard due to cost of sales - if you can find a low cost (ie automated) method of sales then you have a much better chance, but then you need to have a simple value proposition and mental model for your product, and that often means paralleling an existing standard ad unit.
There’s also more of an “outsourced” approach for publishers. There are a host of interesting start ups trying to make this process better, and help publishers monetize their traffic, perhaps helping to alleviate these challenges you list above. These include the myriad ad networks. AdBrite, for example.
But does that approach fully maximize the value of traffic. I dont know, but there are also more interesting new companies that take another approach looking at things from a different angle. The Right Media exchange is one relying on more transparency in the market. Lotame is another utlizing advanced analytics. There are more too.
[...] UPDATE: If you liked this post you will likely like my prior post on why new forms of advertising are hard [...]
[...] spät, aber ich habe heute erst den Artikel “New forms of advertising are hard” gefunden. Um mir das ganze etwas zu veranschaulichen habe ich die folgende Grafik [...]
[...] New forms of advertising are hard « Lightspeed Venture Partners Blog “The problem with new forms of advertising is that they are often not represented in the media buyers’ spreadsheets and models. And if it’s not in the model, it doesn’t get allocated any ad spend.” (tags: internet advertising marketing startup iab trends) [...]
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[...] “The problem with new forms of advertising is that they are often not represented in the media… Posted on April 27th, 2007 in Interesting [...]
New Advertising Product Webmercials an interesting for of internet advertising for the small budget. http://www.webmercialsrus.com/samples/prelaunch/preview.html
Site to be launched very soon
New forms of advertising are hard « Lightspeed Venture Partners Blog
how advertisers buy ads, and how a startup needs to fit into the exisiting models or schedule lots of time into business plans for the introduction of new ad “units”
[...] is a smart guy, and based on current data, he is right. But as I’ve noted before, new forms of advertising take a while to develop, and until a standard emerges, they do not scale up quickly. Today, Google is 40% of all online [...]
[...] This advice can be difficult to follow in a new market where there are no standard product lists, which is why new forms of advertising are hard. [...]
Heres an idea… Mens bathroom advertising with custom urinal cake holders.
http://www.peepeeface.com