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Performance advertising success stories in social media April 24, 2009

Posted by jeremyliew in advertising, facebook, performance, social media, social networks.
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On Wednesday I moderated a panel at ad:space (an ad:tech satellite conference centered on performance advertising) focused on how performance advertisers can be successful in social networks. The discussion from panelists Ro Choy (Chief Revenue Officer at Rock You, a Lightspeed portfolio company), Seth Goldstein (CEO of Social Media) and Tim Kendall (Director of Monetization at Facebook) was very enlightening.

Comscore recently noted that performance advertising adopts online media faster than brand advertising because it is easier to measure results over short time periods. The knock on social media ad inventory has been that CTRs are low. This is less relevant for performance advertisers who only pay on the click or the action anyway. We heard about some terrific success stories for performance advertisers in social media on the panel who are seeing ROI on their ad spend comparable to Google.

The panelists called out two particular examples of advertisers seeing real scale results. Seth highlighted mobile services as a category that has seen terrific success in customer acquisition in social networks (if you’ve seen the “crush” or “IQ test” ads on Facebook or Myspace you’ll know what he is referring to) and is generating hundred of millions in incremental revenue from this channel. Ro mentioned that Rockyou generated 1.5m new users for an online game advertiser in just one month. Although not represented on the panel, MySpace is selling hundred of millions of dollars worth of performance advertising per year. These are impressive numbers.

The panelists highlighted one key difference between social media performance advertising and Google AdSense style performance advertising. AdSense uses contextual targeting to improve performance. Social media uses demographic, behavioral and social targeting to improve performance.

In the open web much demographic targeting is inferred from behavior. For example a user who visits ESPN.com, Nascar.com and NFL.com might be inferred to be male. This is often, but not always, correct. Social networks take a different approach. On their profile pages, users declare many key aspects of their demographics, including age, gender and location, the three key elements for targeting. Targeting based on these self declared demographic elements can be very effective for performance advertisers within social media. Ro related the example of Rachel’s yoghurt, an advertiser that targeted coupons to women living within 5 miles of Whole Foods in 10 cities through Rock You. The campaign delivered 0.20% CTRs to the Rachel’s Yoghurt site, with a 35% coupon download rate. These are impressive numbers, and led the advertiser to renew the campaign for an additional 12 weeks. Doing such a high level of targeting can result in relatively small numbers of impressions, but this is one area in which social media excels. Because of the high reach and high number of pageviews, social media sites can still deliver sizable campaigns to even highly targeted campaigns.

Behavioral targeting also benefits from the scale of social networks as even tightly targeted campaigns can still deliver meaningful reach. Retargeting works well, as it does for the open web, but once again this can be combined with declared interests on user profile pages. Tim described a very detailed campaign that a politician, Patrick Mara, ran on Facebook to defeat a 16-year incumbent in a DC city council primary last year. Mara was in favor of allowing gay marriage, so he pushed information about his stance out to DC Facebook users who’d listed their sexual orientation as gay. If Facebookers had kids, he targeted them with ads about the school system, and if they were Republicans, he hit them with information about taxes, school vouchers and similar conservative favorites. Very clever! And apparently quite cheap for the results — Patrick found Facebook advertising to be a great way to recruit volunteers. Future local campaigns, take notice.

Social targeting is one area that is unique to social networks. Integrating knowledge of social ties into the creative of the ad can really lift response rates. Seth described one campaign that Social Media ran for Live Nation, the concert promoter. Seth himself saw an ad with the name and picture of a friend of his saying “Dan is going to see Cold Play at Shoreline this summer. Do you want to go with him?”. This is a great example of an ad that takes advantage of knowledge of behavior (Dan is going to see Coldplay), location (the concert is near where Seth is) and friendship ties (Dan is a friend of Seths) to build a very compelling piece of creative.

The theme of customizing ad creative for social media came up repeatedly during the panel. While good results could come from running standard web creative and using the targeting that social media provides, the best results came from building campaigns that appeal to behaviors that are native to social networks. Often this had to do with identifying friends (names and pictures) in the creative, as well as integrating a compelling social call to action. Ro described a campaign that Rockyou ran for Pentel Pens that asked users to enter “their smoothest (pickup) line” into a sweepstake. The rich media with video campaign led to real engagement with a 22.5% engagement rate (2x av performance for the category), a 0.6% CTR and 60% of users watching at least half of the video. The campaign drive over a million entries into the contest and worked well to drive high engagement with an “unsexy” CPG brand because it was well crafted for a social environment.

It is clear that social networks provide a real opportunity for performance advertisers. Smart targeting allows the first level of performance lift, and custom campaigns and creative that are “native” to social media can deliver even further lift. I think we’ll see much more adoption of this channel by performance advertisers over the coming months

Best practices in contextual and performance advertising in social networks. April 15, 2009

Posted by jeremyliew in advertising, performance, social media, social networks.
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I’m moderating a panel at AdSpace 2009 next Wednesday. The conference is focused on contextual advertising and is in partnership with ad:tech at Mosconne in San Francisco.

My panel is at 5pm on social media strategies for contextual and performance advertisers;

Social Media Strategies
Social media sites are garnering billions of page views a month, yet many advertisers have yet to dip their toes into social media advertising. Find out how advertising on social media sites differs from contextual advertising and whether social media advertising will drive ROI for your business.

MODERATOR:
Jeremy Liew, Managing Director, US, Lightspeed VP

PANELISTS:
Ro Choy, Chief Revenue Officer, RockYou

Seth Goldstein, CEO, SocialMedia

Tim Kendall, Director of Monetization, Facebook

If you’d like to come, use the code 25ADSPACE to get a 25% discount at registration.

More ad networks or less? April 6, 2009

Posted by jeremyliew in ad networks, advertising.
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In their most recent Razorfish digital outlook report, Razorfish (a leading interactive ad agency) found:

A closer look at the distribution of ad spend by Razorfish clients reveals several trends, including:
– An increasing reliance on ROI and proven channels like search
– A continued shift of budget away from portals
– Renewed fragmentation in the ad network space

More specifically:

Despite the drive towards increased efficiency because of the recession, ad networks as a category saw only a slight increase in share year-over-year. One trend reversal we saw was in the concentration of spend amongst the top five ad networks dropping to 62% from 76% in 2007. A few things contributed to this change in direction. The first is a rise in spend outside the U.S. and the development of branded networks such as Forbes, Turner Entertainment and Fox Audience Network, and the move of many premium advertisers away from general networks. Additionally, the rise of specialty vertical networks like the community sites BuzzLogic, Six Apart, Lotame and BlogHer has further fragmented this category and put a refocus on testing the emergent opportunities.

But at the same time as Razorfish is seeing more ad network diversification, they are predicting:

4. Online ad networks will contract;open ad exchanges will expand

In 2009, the online ad network world will see both contraction and expansion:

• The traditional ad network world will contract as competition for declining ad dollars increases. There are simply too many broad networks competing for the same inventory and not telling a new story.
• At the same time, branded networks will expand. Large publishers (e.g. the Fox Audience Network and Turner Entertainment) will continue to take back control of their inventory and monetize it themselves, or they will work with fewer ad networks to ensure quality and maximize value.
• Expansion will also come in the form of Ad Exchanges like Right Media, DoubleClick and AdECN, which are newer open markets for online ad inventory that increase buying efficiency by delivering unprecedented transparency in the process. Development of this ecosystem will put further pressure on small and mid-tier ad
networks to survive. If Ad Exchanges are widely adopted, it could revolutionize how online media is bought and sold.

So which will it be, more ad networks or less? Most pundits are predicting less. However, I believe that there will be more. The fourth generation of ad networks are living in an environment where access to inventory is getting commoditized (through ad exchanges), data for targeting is getting commoditized (albeit slower, through companies like Lookery and Blue Kai), and targeting algorithms are turning out to be not as effective as previously thought (more data usually beats better algorithms). In this instance, sales execution becomes the key differentiator. And sales teams typically work best when they can focus on a set of accounts with a lot of commonality, whether demographic, industry, or geography. This means that it will be easier (not harder) for smart small teams of sales people to start their own targeted ad networks. We’re already seeing some of this as Razorfish notes above.

I think we’ll see more ad networks, not less.

What do readers think?

Myspace suspending some categories of performance advertising? March 29, 2009

Posted by jeremyliew in advertising, myspace, performance.
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PlentyOfFish claims that MySpace is suspending all dating and diet campaigns:

Apparently they got an email saying:

I have a bit of news about your campaign. Rupert Murdoch has decided to put all dating & dieting campaigns on MySpace on hold for a few days. They are discussing about dating creatives currently and planning to come up with a set of standards for them. I wanted to notify you and let you know that the campaign will be halted today and I will keep you updated as soon as I hear some news. I apologize for the inconvenience

Dating, Diet and Mobile comprise the three biggest categories of performance based advertising on social networks, so two of the big three are affected. If this suspension continues it will likely have a measurable impact on MySpace’s revenues.

Youtube to do $500m in revenue in 2009? March 16, 2009

Posted by jeremyliew in advertising, video.
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Today in an article about Tim Armstrong’s departure from Google, the WSJ offhandedly says:

But advertisers mostly haven’t committed a large amount of ad dollars to these emerging areas. YouTube, for example, will account for only roughly 3% of Google’s net revenue this year, or $500 million, estimated Youssef Squali, an analyst at Jefferies & Co.

That Youtube revenue estimate is far higher than other estimates I’ve seen. In November, Screen Digest provocatively claimed that Hulu would catch Youtube in revenues in 2009, but at the much lower level of $180m. Said the FT:

Neither company breaks out its advertising revenues but Arash Amel, analyst at Screen Digest, forecasts that in 2008 YouTube will generate about $100m in the US, compared with about $70m at Hulu. Next year both sites will generate about $180m in the US, he says. YouTube currently earns around half of its revenues in the US, while Hulu has not yet launched internationally.

I suspect the $500m estimate of Youtube’s 2009 revenue is way too high, especially in light of the current advertising recession. What do readers think?

Which categories of advertiser are still buying online media? March 10, 2009

Posted by jeremyliew in advertising, Internet, recession.
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More from James Mitchell’s presentation last week:

Checks with large online buyers confirm the obvious – that discretionary and some lending-oriented financial verticals remain weak. Also, we do not forecast a speedy recovery of the auto sector, though comments from overseas manufacturers are encouraging, with brands such as Audi planning to double its online ad budget this year, despite sales trends.

Also encouraging are announcements from players in the hardest-hit verticals moving all ad spending online. For example, Century 21 Real Estate recently committed to moving 100% of its national ad campaigns to the Internet.

Surprisingly, financial categories such as insurance, refinancing, and deposit accounts remain strong, as financial institutions seek to raise capital and take share in fee-based businesses.

Also, education and books categories have been growing recently, with textbook retailers and continuing-education institutions such as the University of Phoenix seeking to capture counter-cyclical demand.

Mitchell also identified travel as a potential area of weakness as airlines cut back capacity. However, he noted that there is a lot of hotel inventory currently in development that would come online over the next two years. These new hotels and resorts would likely drive travel advertising to recover.

One other area that Mitchell noted may change in the future was pharmaceutical spending. While this has been holding up very well so far, he noted that some changes that the Obama administration is contemplating may limit pharmaceutical companies ability to advertise their products.

Other attendees noted entertainment advertising (particularly movies), advocacy advertising (political issue based advertising) and CPG (consumer packaged goods) as areas that are showing continued strength, and “green” as an area that could potentially show weakness.

Long term future still bright for online advertising March 8, 2009

Posted by jeremyliew in advertising, Internet, recession.
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James Mitchell, lead internet analyst for Goldman Sachs, presented to a group of around 100 internet and mobile media company CEOs that Lightspeed pulled together last week.

There is clearly near term gloom. Goldman is projecting internet advertising revenue to be flat in 2009 in the US, and to see just 4% growth world wide. However, Mitchell showed that there is still plenty of long term headroom for growth in the internet advertising market. He pointed out that in the US, internet advertising represents around 8% of all advertising today, and this could as much as double over time:

Experience overseas leads us to believe that as Internet penetration, broadband penetration, smartphones and mobile access, and general comfort with the Internet grow, so too will online advertising as a percentage of total advertising.

For example: Online advertising is 17% of total advertising in Korea, with search comprising 11% and display & other making up 6%. Korea reached 50% broadband penetration in 2001, when search advertising that year was about 2% of the total ad market. The US took until 2005 to reach those levels.

Similarly, in the UK, online advertising is 13% of total advertising. In the US, online was only about 8% of the total at the end of 2008. We believe that the US and UK will catch up with Korea, and that the rest of the world will gradually converge with developed Internet economies.

Further, we believe that the transition to online will occur more quickly in developing markets such as China, as advertisers “leapfrog” traditional forms of advertising and begin advertising solely or primarily online.

Search and Display internet advertising as % of total: US vs Korea

Search and Display internet advertising as % of total: US vs Korea

He speculated that online advertising share of all advertising could reach as high as 23% if a scalable advertising solution for social media could be found.

Clearly, the companies that make it through to the other side of this advertising recession will have plenty of growth left ahead of them.

What do fourth generation ad networks look like? February 25, 2009

Posted by jeremyliew in ad networks, advertising.
23 comments

There has been a proliferation of online ad networks over the last decade. There are three distinct generations of ad networks, and they have each excelled at a different part of the value chain:

First Generation: Controlling Inventory

The first generation of ad networks were built on their ability to aggregate and control inventory from a wide array of websites. They did a terrific job of building publisher relationships to be able to bundle together wide reach (even within a channel) and offer this as an efficient way for advertisers to buy ads. In some cases, this first generation of ad networks integrating themselves directly into their publisher sites by supplying their ad server or other elements of their advertising infrastructure. Most of the biggest ad networks are good at doing this.

Second Generation: More data

The next generation of ad networks came up with the innovation of third party cookies. They dropped pixels on their publishers pages in order to be able to track users across all of the sites in their network, and to start to target advertising based on recognizing a user when they showed up on different sites.

Third Generation: Better Targeting Algorithms

The third generation of ad networks pioneered behavioral targeting. Not only were they able to recognize a user across their network, but they could begin to predict which users had a greater propensity to click on a particular ad based on their past web surfing behavior.

Together, these three elements represent three of the four core competences of ad networks:

    Aggregating Inventory
    Aggregating Data
    Targeting
    Sales

We’re starting to see a few changes in the market that are going to serious affect the relative importance of these factors. Firstly, the ad exchanges (Right media, doubleclick exchange etc) are rapidly commoditizing access to inventory. Networks with publisher relationships as a core competence may find that this is less of a competitive advantage going forward.

Secondly, a new generation of startups including Lookery, BlueKai and others are commoditizing data. Ad networks and advertisers can now buy fairly detailed demographic and behavioral data on users, and simply watch for those users to turn up on media that they control. They can even buy cheap impressions from the ad exchanges and enhance this with the data that they bought.

This places additional emphasis on the two other core competences of ad networks, targeting and sales.

Performance ad networks who have targeting as their core competence are going to be safe for a while. Performance advertisers don’t care how your “black box” targeting algorithm works, as long as you’re able to hit their CPA targets.

However, this is less true for brand advertisers. A “black box” approach to targeting brand advertising (unless there is a performance component to their campaign that they can measure) simply isn’t going to work. Advertisers won’t just trust your algorithm. As a result, the targeting that they are looking for is typically not algorithmically complex, but simply a repurposing of demographic or behavioral data (e.g. women 18-35, auto intenders). For brand ad networks, algorithms are not going to be a differentiator.

That leaves sales. It is somewhat obvious, but sales must always be the core competence of the fourth genearation of an ad networks.

Would love to hear readers thoughts.

Online direct response shows booms and busts by category January 30, 2009

Posted by jeremyliew in advertising, targeting.
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Earlier this month the Lookery blog looked at the booms and busts of behavioral targeting.

They point out that behavioral targeting is most visibly effective for online direct response in considered purchases (where the decision to buy takes a while, so there is some time to notice purchase intent and start to target advertising). They also point out that some of the industries that have these characteristics have gone through wild cycles of increased then decreased demand, sometimes for structural reasons, sometimes for legal reasons, and sometimes for economic cycle reasons:

online direct response booms and busts

online direct response booms and busts

* Auto – 2004-2008
Auto has always been a major driver of behavioral targeting the last few years benefitting everyone from Google to Internet Brands (aka Carsdirect.com)
* Household Durables – 2004-2008
The rise of high end e-commerce fueled consumer electronics and appliance e-commerce sties
* Mortgage & Finance – 2003-2006
With qualified leads selling from $50-500 a pop, companies like LowerMyBills made a killing
* Mobile Phones & Ring Tones – 2004-2006
A key driver of under 30 monetization as mobile co’s and ring tone services went wild chasing this high converting group
* Online Dating – 2004-2006
Before the rise of free sites like OkCupid, Plentyoffish, Woome, & Craigslist, dating paid some of the best CPA’s online
* Online Gambling 2002 to 2005
Gambling esp. poker was a major gold rush for online pubs emerging from the last ad recession with high payouts at least until the FTC decided to get all uppity

The economic cycle will turn eventually and bring back auto, mortgage and durables demand. Mobile and Online Dating may not return as strongly as they have been pressured by prices falling to marginal cost. I think online gaming will drive the next cycle. Let’s see.

Advertisers and big internet companies get behind standards for online video advertising. January 28, 2009

Posted by jeremyliew in advertising, standards, video.
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Last week I missed the announcement of “The Pool“, a new initiative to help build standards in online video advertising:

Media companies including Microsoft, Yahoo, CBS’s CBS Interactive and Hulu.com are joining forces to attract more money to the fledgling online-video advertising marketplace by testing ad formats.

The project, dubbed “the Pool,” is the brainchild of Publicis Groupe’s Starcom MediaVest, which buys roughly $16 billion in U.S. ad time and space annually for big advertisers like Procter & Gamble.

Starcom MediaVest and sister agency VivaKi say they are trying to create standards in the online-video market, which is popular with consumers but hasn’t turned into a serious money maker.

The Pool, which includes six media companies and several marketers, such as Allstate, Capital One Financial and DineEquity’s Applebee’s, met in November, drew up a list of 30 online ad formats and whittled it down to five, which will be tested in focus groups this week. The two highest-scoring ad formats will be put into beta testing on the media companies’ sites. The Starcom MediaVest clients involved in the Pool have agreed to use the winning ad format and buy time on the media sites involved in the research.

This is a very exciting development and likely will be a great catalyst to help boost the online video market. The IAB put out their online video standards in August and the Pool is further momentum towards the standards that will drive this market forward. It’s very good news.

Next I hope we see a “pool” for social media, perhaps around engagement advertising?