jump to navigation

Ad Networks: Synthetic channels June 11, 2007

Posted by jeremyliew in ad networks, advertising, business models, Consumer internet, Internet, start-up, startups.
12 comments

One of the hallmarks of the last few years on the internet has been the growing length of the “long tail”. Compete released some data last year showing that its panel was visiting 77% more websites than it did five years ago:

Long tail getting longer

Interestingly enough, Compete also released data showing that the “head” of the internet was growing in size:

Top Sites account for a larger percentage of pageviews

Together, this suggests that there are now many new sites getting only moderate traffic. While these sites may never grow big enough to become public companies, they are very likely getting to a scale where they can break even. I spoke on this topic at the web 2.0 expo where my presentation analyzed how big sites needed to get to hit both of these goals.

Many of the smaller ad supported sites turn to ad networks for monetization. This trend is being matched by advertisers embracing the channel. A recent report by Collective Media found that:

* 66% of advertisers plan to increase their usage of ad networks in 2007

* 88% of respondents planning to use online ad networks in 2007 (up from 77% in 2006).

* 57% of respondents believed how an ad network targets audiences was the #1 differentiating factor between networks

* Reach (at 52%) and Efficiency (at 66%) were still the key drivers for why agencies/advertisers include ad networks on the buy

I believe that among the biggest beneficiaries of these trends have been the content specific ad networks. With more advertising buying on networks, and with audience targeting being the #1 differentiator, networks that can offer extremely targeted audiences focused where an advertiser is endemic are hard to beat. As I’ve posted about in the past, having endemic advertisers makes for higher RPMs, and hence a smaller level of overall traffic scale to get to high revenues. At AOL, the channels with endemic advertisers always got the highest CPMs and sell through rates, and content specific ad networks are essentially creating synthetic channels.

Many ad networks do contextual targeting in their efforts to get endemic advertisers next to content (with Google and Yahoo being the most prominent). Others use behavioral targeting. Both of these approaches have been effective in lifting RPMs, but both require a leap of faith from the advertiser that the “black box” truly works. To mitigate this risk, contextual networks usually have CPC or CPA based pricing models. However, these models don’t capture all the value of a branding campaign, which can only be fully priced by a CPM model. This leaves some value on the table. Many endemic advertisers are not looking just for “in market” buyers who are looking to make a purchase decision imminently. They are also looking to build brand awareness to influence future purchase decisions.

Synthetic channels, like the channels on the big portals, have an advantage in this respect. By guaranteeing that all sites in their network are about a single topic, they can aggregate a critical mass in traffic while still enjoying endemic site RPMs. This is, in a sense, a “hack” to true contextual targeting, but it has the advantage of being simple to understand and hence simple to sell to advertisers.

One example is Jumpstart, a synthetic channel reaching 5m UU/month and focused on the auto industry. It was bought by Hachette Filipacche (publisher of Car & Driver and Road & Track) in April of this year for up to $110m.

Another example is Glam, which started life as an site focused on fashion, but quickly morphed itself into a synthetic channel focused on “Women: Fashion and Lifestyle” and reaching over 12m UU/month. It claims to be the “fastest growing web property in 2007“.

A third example is the Health Central Network, a synthetic channel focused on medical information and tools. Many of Health Central Network’s sites are actually owned and operated by the company as it rolled up small health content sites during the internet bust.

I think we’ll see more synthetic channels emerge, focused on the high ad spend categories:

ad spending by category

Note that automotive, retail and medicine, the content targets of the three examples above, are the three of the top four advertiser categories. I’m sure this is not an accident! Are readers aware of other synthetic channels?

Update: Conincidentally, Techcrunch just posted about Active Athlete Media, another synthetic channel.

Best practices in hiring June 8, 2007

Posted by jeremyliew in Entrepreneur, hiring, start-up, startups.
4 comments

Marc Andressen’s latest post on how to hire the best people you’ve ever worked with is long but useful reading for all entrepreneurs. It reminded me to post a hiring process that I recommended to some entrepreneurs recently; I figured I’d paste it from the email as it may be of broader interest:

1. Get resumes prescreened against a profile from a recruiter (or from some referral source you trust like me or friends in the industry or whatever)

2. For resumes you like, do a phone interview of no more than 30 minutes – you’re looking for reasons to say “no” at this point

3. For people that you like on the phone, have one person do an initial interview in person for one hour. Ideal is to aim for end of day, say 4pm or later.If it IS working out, make sure that others are available to meet afterwards if the first interviewer likes them so that you don’t have to bring them back. But If its not working out, be frank about it, and don’t be afraid to cut the interview short rather than wasting your time and theirs. You can just say “thanks, bye” and not waste anyones time.

Make sure that you have a standard set of questions that you ask people interviewing for the same job. I personally prefer “behavioral interviewing”. e.g. focus on behaviors and not just skills. Skills you can test quickly and from resume. But behaviors are things like “Can you tell me about a time when you had to launch a new product – a release 1.0, rather than an upgrade of an existing product”; “We work on short deadlines here – can you tell me about a time when you had a project to do on what you thought was an unrealistically short timeframe”. etc. You frame up a specific behavior that you need and ask them about a time when they faced that same behavior. They often tell you what they WOULD do – make sure you keep them focused on a REAL SITUATION and what they DID do. Then look for behaviors in their answer that would either fit or not fit.

4. If you like ‘em, make an offer almost right away. Its a hot labor market right now, so know what “market comp” is beforehand (we can help with this; so can a contingent recruiting firm”) and the best folks are not on the market for long.

5. Reference check yourself (ie don’t rely on the recruiter), and do it obsessively. Not just the people that they supply you with – look deeper, call people you know at those companies, ask the references for other people that they worked with etc. This is a massive time suck, and you will hate doing it, but it is the single most important thing that you can do.

6. Once you find people you like, sell them hard and from every angle. [Your investors] can help with this, so can partners, other employees etc.

7. Its not likely for top calibre talent that you can bring them on as a contractor first, then transition to full time. Some employees (a small minority) prefer this becasue they are test driving you as much as you’re test driving them, but don’t count on it.

8. If its not working out, don’t let it fester – move quickly to terminate. You’re too small to be able to afford people who are a bad fit and you can’t carry dead weight. And people rarely come around – your first instincts are usually right.

If you forget everything else, make sure you remember #5. Reference check obsessively. People don’t do it anywhere near enough.

Ecommerce 2.0 is happening now June 7, 2007

Posted by jeremyliew in business models, Ecommerce, Entrepreneur, Internet, start-up, startups, web 2.0.
12 comments

I just spent the last two days at the Internet Retailer conference, and emerged convinced more than ever that we’ve just scratching the tip of the iceberg with ecommerce opportunities. There are still many more $500m+ revenue ecommerce companies to be built, and many of the people building them were at the show.

A lot of attendees were entrepreneurs running businesses doing single to double digit millions in revenues in categories ranging from diapers to skis, from power tools to blinds. While many had built their technology in house, there really isn’t any need to do that anymore. The sheer volume of vendors who can help with everything from the ecommerce platform to the affiliate and search engine marketing, from alternative payment systems to pick, pack and ship, was just remarkable. An entrepreneur willing to do the work to pick a good category and line up vendors could launch a business with very little technological expertise.

To illustrate the depth and range of vendors to whom you can outsource just about anything, two of the more interesting companies I talked to were PAC Worldwide and Arroweye Solutions.

PAC supplies customized and branded mailing/packaging material to ecommerce vendors. For example, they produce the envelopes that your Netflix DVD’s arrive in. Its a great idea for e-tailers focusing on building a brand and an ongoing relationship with their consumers.

Arroweye allows retailers to sell customized giftcards and greeting cards. A customer can not only buy a giftcard for a friend, but can put their own picture on the card, get it inserted into a custom printed greeting card, and get the whole thing mailed, all from inside the browser. Its an incredible boon for the delinquent gifter, and an additional revenue line for retailers.

Excitingly, many of the vendors work on a SaaS/variable cost basis, so an ecommerce merchant can trial with very low risk (both technological and financial) new functionality whether it be customized gift cards, behavioural marketing (NB Lightspeed is an investor in MyBuys), collaborative filtering, or customer reviews. How very “web 2.0″.

Its definitely a good time to be an ecommerce entrepreneur! I’m interested in hearing from merchants who have passed the $10m sales mark, see real sales momentum, and are looking to raise capital to accelerate growth and address large market opportunities, as well as vendors looking to address a common pain point for etailers.

More on online media sites with endemic advertisers June 3, 2007

Posted by jeremyliew in advertising, business models, Consumer internet, Internet, social media, social networks, user generated content, web 2.0.
4 comments

I’ve posted in the past about the three ways to build an online media company to $50m in revenues. One of the three ways is to focus on a topic with endemic advertisers – because RPMs are higher, you don’t need to be as big to reach the same revenue target.

Friday’s Wall Street Journal had two articles about user generated content websites with endemic advertising potential.

The first was an indepth review of Tripadvisor (subscription required), mostly from a user’s point of view. The key takeaway was that you need to look at the backgrounds of reviewers to know how to weigh how relevant their review will be to you – not exactly breaking news. However, there was an interesting nugget about Tripadvisor‘s financial performance that highlights the power of endemic advertising:

The company’s revenue is still small, at $105 million in 2006, compared with sites like Expedia and Travelocity. However, with profit margins estimated above 50% and a growth rate thought to be over 50% a year, the site offers potential at a time when hotels and airlines are trying to take back online bookings and get consumers to go directly to their sites, says Aaron Kessler, an analyst at Piper Jaffray Companies.

While the WSJ may consider $105m in revenues “still small”, it seems pretty good going to me, especially with 50% profit margins! The company was founded in 2000. Another interesting tidbit in the article is that the company has 173 employees, which underscores the point that even user generated content companies have substantial overhead.

The second article was ‘Design by Committee‘(subscription required) and namechecked HGTV’s Rate My Space and Apartment Therapy as it talked about how users are turning to the web to show off their homes or to ask for advice and feedback about decorating ideas. This is more true of Rate My Space, whereas Apartment Therapy is more of a blog/micro publisher focused on apartment decoration, with occasional posts soliciting user feedback or advice on other users homes. Both sites, while vastly smaller than Tripadvisor, show the potential for endemic advertisers.

Automotive is another category that has similar characteristics, and its no surprise that after leaving TripAdvisor, its co-founder Langley Steinert, founded CarGurus.com

This thesis was part of what drove our excitement about our investment in Flixster, despite the team being second rate. (Just kidding! ;-)). The intersection of highly social media and endemic advertising potential is very powerful. As an aside, and an indicator of how quickly social media apps in areas of user passion can grow, Flixster is now the #1 “recently popular” app on Facebook.

Flixster currently #1 “recently popular” app on Facebook

I’d be interested in hearing from other teams taking a similar approach in the intersection of social media and endemic advertising potential in categories with high advertiser spend.

x_me is aweso_me June 1, 2007

Posted by jeremyliew in Consumer internet, distribution, facebook, Internet, social media, social networks, user generated content, viral, viral marketing, web 2.0, widgets.
3 comments

I’ve been obsessing over the Facebook platform since it launched last week. As has been extensively covered, its an incredible distribution platform for other companies. The most popular apps in the platform early on were existing companies like iLike, Rockyou (a Lightspeed company), HotorNot and Flixster (a Lightspeed company) who quickly ported their preexisting functionality to Facebook from other social media environments.

When I congratulated James Hong on HotorNot’s great growth in the platform yesterday, he responded:

We haven’t yet seen the native apps in Facebook. When they come they’ll grow even faster.

It’s taken less than 24 hours for him to be proved right. For the last 12-18 hours or so, the top recently popular app in the Facebook directory has been X me.

X Me
By Timothy Green
Tired of just poking? X me opens up a whole new world of action-based communication, for example ‘Hug Her, Slap Him, Tickle Them!’
346,696 users (15 friends) – 627 reviews

As I’ve posted about in the past, users can quickly adopt and understand new behaviors if they mirror current behaviors. It makes these new behaviors “easy to learn“. By mirroring the “poking” behavior that is well understood and native in Facebook, X Me has been able to quickly catapult to widespread adoption. The author, Tim Green, a freshman at Cambridge university, had done an outstanding job of building an incredibly viral app.

The Rockyou team was quick to spot the growth and has now brought Tim on board. Happily for them, they now have all three of the top three recently popular apps on Facebook. Congrats to both Tim and Rockyou!

Facebook most popular applications as of june 1st 2007

Good SF Chron article on kids and casual immersive worlds June 1, 2007

Posted by jeremyliew in Consumer internet, gaming, Internet, kids, media, social media, social networks, user generated content, web 2.0.
2 comments

For those who liked my previous post on how casual immersive worlds are hitting the mainstream in the US, there was a good article in Sunday’s San Francisco Chronicle, found via Ypulse.

My favorite comments was about webkinz, the plush toy that comes with a unique code for a matching online avatar:

“I don’t really play with it a lot,” Laurel said of her plush toy. “But sometimes, when I see it, it reminds me to go play (with the computer game).”

Genius.

Follow

Get every new post delivered to your Inbox.

Join 30 other followers