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New forms of advertising are hard February 19, 2007

Posted by jeremyliew in advertising, Consumer internet, Digital Media, Internet, Lead gen, Search, start-up, startups, web 2.0.
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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.

Comments»

1. Profitable Signals: » Blog Archive » New Forms of Advertising Are Hard … ABSOLUTELY! - February 20, 2007

[...] 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 [...]

2. hunter walk - February 20, 2007

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.

3. John D - February 21, 2007

“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?

4. jeremyliew - February 22, 2007

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.

5. Weissman - March 7, 2007

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.

6. Three ways to build an online media business to $50m in revenue « Lightspeed Venture Partners Blog - March 9, 2007

[...] UPDATE: If you liked this post you will likely like my prior post on why new forms of advertising are hard [...]

7. Web 2.0 Advertising Model at myWhere2go - Blog von Stefan Berge - March 17, 2007

[...] 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 [...]

8. links for 2007-03-19 « David Black - March 19, 2007

[...] 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) [...]

9. Nomadishere : Seeker of Truth » Blog Archive » links for 2007-04-18 - April 18, 2007

[...] New forms of advertising are hard « Lightspeed Venture Partners Blog (tags: new.advertising new.media advertising2.0 advertising) [...]

10. Jackson Fish Market - April 27, 2007

[...] “The problem with new forms of advertising is that they are often not represented in the media… Posted on April 27th, 2007 in Interesting [...]

11. Oliver Naujok - June 13, 2007

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

12. Stickiing around - July 5, 2007

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”

13. Is there really an advertising model for social networks? « Lightspeed Venture Partners Blog - October 8, 2007

[...] 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 [...]

14. Forecasting ad sales for web startups « Lightspeed Venture Partners Blog - April 3, 2008

[...] 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. [...]

15. Brian Fogel - April 8, 2008

Heres an idea… Mens bathroom advertising with custom urinal cake holders.

http://www.peepeeface.com

16. billy001 - June 1, 2008

This is the nice information. I also want to suggest one online advertising network to you – Hooqy.com.

It pays 10% of referred advertisers’ expenditure and 5% of referred publishers’ earnings. Publishers have full default campaign management to manage their unsold space. Monthly payments by check or Paypal with $50 payout.

http://publisher.hooqy.com/publishers_account.php?ref=3

17. Softolio » Three ways to build an online media business to $50m in revenue - August 7, 2008

[...] UPDATE: If you liked this post you will likely like my prior post on why new forms of advertising are hard [...]

18. Josh - September 18, 2008

I have figured out the solution to make wireless advertising work and be accepted. I have a design for a cell phone that has multiple advertising platforms. The ads are delivered effectively to satisfy the advertiser yet will not bother the cellular client. This will enable people to never have to pay for wireless airtime again, no monthly fees, while allowing them to use their phone, text message and surf the web when they want for free.

I hope that you can see the value of this. This is an industry where several companies are investing millions and I have figured out methods that can make this a reality. Companies are now starting to come out with phones that have advertising platforms although they do not have what I have. I need to do something with this soon because eventually someone will figure out my methods. I have to be careful of what I say about my concept because I do not have anything pattented. I have something that is of significant value and probably has a realistic income of 50 to 100 million a month(low estimate) and at the same time will eliminate monthly phone bills for people.

This will give advertisers multiple new ways to get their targeted messages to cell phone users without annoying the clients. This creates a whole new platform for advertisers that will far exceed other media. Airtime fees are continuing to decrease while giving the cellular clients more. How long until airtime is free? This is a forward thinking, outside the box concept. Some companies have spent millions pursuing technology in this sector but I have the answer. Can you help me with this or point me in the direction of someone who can?

19. Which online media companies will survive the ad recession? « Lightspeed Venture Partners Blog - October 6, 2008

[...] advertisers appetite for experimentation is low. They like to stick to the established ad standards. New forms of advertising are hard. Startups whose sales processes feel more like business development than selling off of a rate card [...]

20. Kevin L - November 10, 2008

Josh, nice idea, but all the majors have not only thought of this, they’ve actively blocked it as it is not in their interests. If you hooked up with a small, aggressive and hungry national mobile provider competitor to the big oligopolies in your country, you might find one willing to try launching a parallel ad-supported mobile provider, but it would require getting to a very forward thinking CEO very quickly.

Interesting that you think you’ve got a working cross-platform delivery model for mobile ads as, in pitching AT&T with a different concept, we found that every single mobile phone maker, and every version of their OS, required a uniquely written version of the mobile phone app. It’s not simple — yet. (No cross-platform standards which, as noted above, are essential to getting the ball rolling.)

21. TVloop Blog - Discussing TV and Social Media - November 11, 2008

[...] appetite for experimentation is low. They like to stick to the established ad standards. New forms of advertising are hard. Startups whose sales processes feel more like business development than selling off of a rate card [...]

22. Tim Tracey - November 11, 2008

Jeremy,

Social media has the potential to turn traditional advertising upside down and inside out.

Instead of paying for media placement with little ability to measure results, businesses can be connected to qualified prospects through their network of customers, neighbors and friends.

Instead of paying in advance for advertising with no guaranteed results, businesses now have the opportunity to directly reward their network for word-of-mouth referrals after they have resulted in revenues.

The revenue model for this new advertising is intrinsic to its virality. In other words, the more consumers and businesses use it, the more it grows and the more they benefit from it.

23. Facebook’s engagement ads could be the standard we need for social media advertising « Lightspeed Venture Partners Blog - November 11, 2008

[...] I believe that this is because most of the ads the Facebook sells are not standard units, unlike most of the ads that MySpace sells. As I’ve mentioned before, new forms of advertising are hard. [...]

24. Brian Feinstein » My take on online media. - December 14, 2008

[...] not easy to cut through the noise (particularly if selling non-IAB standard units). Jeremy Liew further explains that until there are standards across ad formats and properties, each purchase is like a business [...]

25. What would Facebook look like if it sold out to ads? Click here to see… | Andrew Chen (@andrew_chen) - April 14, 2010

[...] relevant articles on this topic, Which online media companies will survive the ad recession? and New forms of advertising are hard. Both are worth [...]


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