Facebook Tries to Woo Marketers

Like a lot of people I am skeptical of advertising potential in social networks, insofar as it being massively disruptive to traditional display ads. The reason for my skepticism is simple, Facebook and Myspace both have positioned their ability to target based on profile data and activity as far superior to dumb display ads but the data doesn’t suggest their ad systems are more effective than display ads.

Facebook has a lot to prove with the new ad format, which it began quietly testing in August and started making available to all advertisers this month. The company says 70 of the U.S.’s 100 largest advertisers have advertised on its site since 2007. But its share of total number of U.S. online display ad views was just 1.1%, according to market research firm comScore Inc., in its most recent report in June.

[From Facebook Tries to Woo Marketers – WSJ.com]

It may well be that the schism here is that the user experience is so fundamentally different than a content site, therefore any form of ad detracts from the user experience in such a way that repels users rather than just making them ad blind. We have seen countless examples of social network users rebelling at efforts to monetize their activity, proving once again that Facebook doesn’t own Facebook but rather the millions of people who use it own it.

Having said that, the fact remains that Facebook in particular is generating some decent revenue and should continue to grow, even if that growth doesn’t come at a rate that Zuckerberg doesn’t find acceptable. Despite his pronouncements that revenue is not their focus, they seem to be expending a lot of energy over the last year in mechanisms that are solely focused on extracting dollars from advertisers.

The advertising market really does need something more effective than display ads and despite years of talk about behavioral targeting the fact remains that there hasn’t been a lot of that going on and contextual advertising continues to dominate the stage.

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Dapper MashupAds Turn Your Website Into Contextual, Display Ads

This is a great example of what is possible when you enable widgets with a communication mechanism (as in communicating with other data elements) and take advantage of microformats. Great work by the Dapper team, this is a very novel solution (in all fairness, it is essentially what AFC is doing, so novel is subject to interpretation).

The most important ad for a company or brand is its Website. So why not use that Website to generate ads? Dapper, a startup that can create a feed from any Website, is applying its technology to generate contextual, display ads from the constantly changing content on an advertiser’s own site.

[From Dapper MashupAds Turn Your Website Into Contextual, Display Ads]

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NAA Advertising Estimates Down ONLY 5.5%

Does anyone really believe that newspaper advertising next year will decline less than this year? I guess at some level you could argue that there has to be a floor but given the macro conditions and the two largest industries who advertise in newspapers going to crap, financial services and automotive, it’s hard to believe next year will look less bad than this year.

Jen: The Newspaper Association of America calculated the industry’s ad revenue forecast for the remainder of 2008 and 2009. For 2008, the association is estimating that print revenue will fall 12.5% while total revenue will drop 11.5%. The numbers look at little better in 2009 with total revenue declining 5.5%.

[From Fitz & Jen: NAA Ad Forecast]

Ad Networks Race to the Bottom

The Interactive Advertising Bureau (IAB) and Bain & Company today announced the release of a benchmark study which suggests that online publishers are increasingly turning to sales intermediaries known as ad networks to sell off excess inventories. The use of “ad networks” surged from 5% of total ad impressions sold in 2006 to 30% in 2007, according to the newly released “Digital Pricing Benchmarking Study” from Bain, the global business consulting firm, conducted in coordination with the Interactive Advertising Bureau.

[From Use of “Ad Networks” Surges Six-Fold as Media Companies Step Up Monetization of Unsold Online Advertising Inventory]

Keep in mind that the above study is being promoted by the IAB… for a more sanguine look at online ad networks you should read this piece in MediaWeek:

“While ad networks and their cousins, ad exchanges, offer an efficient way to unload inventory that would otherwise go unsold, common complaints are that networks amount to paltry ad rates, low-rent ads and, ultimately, the threat of undermining a brand’s value. “

Why is this a race to the bottom? For starters, the only real differentiator that the 300+ ad networks can control is price and even there the unit metric is entirely direct response based, as opposed to brand metrics that advertisers care about equally if not more so than how many people are clicking on the ad unit.

I’m still learning my way around the online advertising space but I do know enough to suggest with some certainty that simply commoditizing a fungible product leaves you with little maneuvering room in a very crowded and noisy marketplace.

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Maybe Blogging Is Just a Loss-Leader?

But I doubt most bloggers are trying to be the next Arrington. Most of them just want to support themselves blogging, right? This post reminds me of the phenomenon a few years back as the open source movement was taking off.

[From SarahLacy.com: Maybe Blogging Is Just a Loss-Leader?]

I get asked a lot why I don’t run ads on my blog. The simple and honest answer is that I while I have a desirable audience with a tightly banded demographic, the fact remains that I don’t have enough of an audience to generate the level of display ad impressions that an ad network wants to serve. I could go out and sell house ads and sponsorships but then I’m in the business of blogging and the economic model starts to matter.

Let’s say I quit my day job and started going to all the conferences, focusing on the breaking news style of blogging, and throwing up some detailed and well researched analysis. I’m basically a hybrid journalist analyst, something that blogs actually are well suited for.

For the sake of easy math, let’s say that I can get up to 50k pageviews a day on average, and because of my audience I can generate a relatively conservative $8 CPM. That’s a paltry $12k a month in display ad revenue.

So I’m a year into this and I realize that blogs are actually ill-equipped to generate meaningful display ad revenue because the format does not lend itself to driving leveraged pageviews that way that traditional media sites do. What I mean by that is with a blog you get relatively few pageviews per site visitor because they are either coming in through a search engine to a specific page or hitting the front page and not clicking through because all the content is front and center.

Then there is that issue about RSS not being easily monetizable. I could use Feedburner to drop Adsense into my feed, but experience suggests that there is not a lot of cash to soak up with that route. With that in mind, RSS becomes leakage in my business model, something I have to deal with but don’t profit from.

At this point I have in inflection moment. I can degrade the readability of my site by putting full content behind a “click here to read more” link, in which case I am theoretically doubling my page inventory but because not everyone will click through I am really more likely to grow it incrementally by some factor less than 1, let’s say 1/3. I also decide to put out partial text RSS with the objective being to draw feed subscribers back to the main site, thereby increasing my pageview count.

I also decide to add a few writers but because I don’t have the traffic to support dedicated staff I decide that syndicated content is a better path to follow. I also expand my blog, adding additional sections and feature areas, in effect becoming more and more like a media site than simply a blog. After all that work I manage to triple my pageviews and because I have better analytics on my demographic data I am getting a few dollars more on a CPM basis, resulting in a nice revenue ramp.

So now I’m making real money on my top line and my wife compliments me on my decision to jump in with both feet, but as I put on my green visor and crunch the numbers what I learn is that because I’m paying for a SEO consultant on retainer, a graphic artist/coder, an ad sales person, syndicated content, my own benefits and expenses, a small increase in hosting costs, and most likely hiring some offshore research assistants, well now my bottom line is looking a lot less impressive. In fact, I may be supporting myself but not nearly as well as I could by doing something else…

I may still run some ads or sponsorships in the sidebar but before I do that I really need to refresh the design templates and probably focus in my content as well and quite honestly I’m not sure I want to be in a position where I can’t write about some of the things I care about. Adsense is an easy choice but it’s really just loose change for a site like this so that’s why I haven’t made the effort to run ads.

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Behavioral Advertising

If Charter offered this as an opt-in service, I’d sign up (although I’m not a Charter customer!) because anything that makes advertising more useful and relevant is something I’d jump on.

Cable and high-speed Internet service provider Charter Communications (Nasdaq: CHTR) Latest News about Charter Communications will not move forward with plans to test a service that automatically targets users with advertising E-Mail Marketing Software – Free Trial. Click Here. based on their online surfing activity after it sparked privacy concerns.

[From E-Commerce News: Privacy: Charter Scraps User-Tracking Plan After Privacy Outcry]

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Google Ad Planner

Look out comScore, Nielsen, and Hitwise. Anytime a company like Google puts out a product that is functionally rich and does it for free, the companies that sell something similar are going to suffer. This happened when Google Analytics came out, it will happen here.

What will be interesting to watch is how companies that are offering ad spend analytics will adjust to accommodate Google. I am thinking Rubicon Project and AdMeld specifically. It may be that these companies are not affected because they are optimizing spend across a portfolio of ad networks, of which over 300 exist to chose from.

To make your life easier, we’re introducing Google Ad Planner, a research and media planning tool that connects advertisers and publishers. When using Google Ad Planner, simply enter demographics and sites associated with your target audience, and the tool will return information about sites (both on and off the Google content network) that your audience is likely to visit. You can drill down further to get more detail like demographics and related searches for a particular site, or you can get aggregate statistics for the sites you’ve added to your media plan.

[From Inside AdWords: Introducing Google Ad Planner]

Support the Source

Tom wrote an interesting piece about Fair Use and an alternative monetization model. In the comments he posted this and it’s something I fear he is spot on right about.

I’m afraid that the future is going to be a largely closed web and a web where the usefull information is going to be expensive and the preserve of the rich… and it will benefit the rich.

[From Support the Source: Creating a New Media Business Model and Keeping the Web Open]

The cold hard fact is that eyeball monetization isn’t working broadly outside of search, as this piece in today’s Chronicle aptly points out.

To be really crystal clear, I don’t think this is about people expecting things for free, I do think we are witnessing the gasps and spasms of a dominant advertising model that is failing – display ads. For all the talk about behavioral targeting and pay-per-performance, the fact is that people buying advertising and people selling advertising are guilty of seldom looking beyond impressions.

Unlike television where you sample a market or in print where there’s a wink-and-a-nod that the numbers are good, online is pretty exact and up-to-the-minute. Most display ads are simply ineffective because of a failure to target a demographic or technographic, and as a consequence they are priced that way. It’s remnant advertising on a massive scale, and it shows with clickthrough rates that rarely break .45%.

I wish I could point to something as the future, but I just can’t.

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Intractable Business Model Conflicts

In one sense, the Web is a blessing. Daily circulation for the newsprint Post, now 673,000, may be down from 813,000 in 2000, but we are drawing an eye-opening 9.4 million unique visitors online each month, 85 percent of them from outside the D.C. circulation area. Those readers don’t bring in the cash that print subscribers do — given the gotta-be-free mentality of the Web — but they do expand our reach.

The ticking time bomb here is the wholesale abandonment of newspapers by younger people who grew up with a point-and-click mentality. When I was speaking at Harvard recently, a smug graduate student said, “I get everything I need from YouTube. What are you going to do about it?”

[From Howard Kurtz – Post Buyouts Come With an Emotional Cost – washingtonpost.com]

What an interesting juxtaposition of thoughts in this column in the Washington Post. Like many manufacturing industries have done in recent decades, the newspaper industry is in the midst of structural reorganization as a consequence of technology and consumer behavior shift.

What Kurtz is observing is an interesting conflict of business models born out of the inefficiency of one and the brutal requirement to be efficient in the other. Print subscriptions are suffering and as a consequence the ad margins that newspapers enjoy for advertising and classified advertising that eyeballs never see is going away.

Contrast this to the online side where pretty consistently it is found that online unique readership of newspaper websites is 10x greater than print subscription numbers. Yet because online is a somewhat performance based model with display advertising, newspapers can monetize only those parts of their web sites that generate impressions. More people see the website but revenue per unique visitor is lower.

Scott Karp recently observed that traditional advertising fails on the web and it is no more evident than in the newspaper business where they enjoy high, and growing as well, traffic but have a failing online business model.

Kurtz is wrong about younger generations abandoning newspapers, indeed it would be very difficult to support any statistical argument that begins with the premise that only old people are clicking on newspaper web sites. What younger generations are abandoning online, as they are in broadcast, is dumb advertising that provides little utility and in a digital world can simply be ignored or fast-forwarded through.

Kurtz also offers this observation:

The economics of the Web, for now, won’t support a staff that can hold public officials accountable across the region and still cover every Nationals game. So I cling to an old-fashioned, almost mystical belief in the power of ink on paper.

He’s right but in making his observation he is exposing his own ignorance to the broader underpinnings of “being digital”. Online web media won’t support hundreds of staffers because they simply don’t need to. We are entering an age where we rediscover the power of syndication at the hands of technology that has driven down integration to the cost of text. The Washington Post online doesn’t need to cover every Nationals game because ESPN, MLB.com, and numerous blogs are already doing it. Syndicating that content either through exclusive agreements or with public RSS provides readers with a far more compelling and comprehensive experience than any single newspaper alone can manage.

Of course, syndication is nothing new in newspaper, the AP and various other wire services have build large businesses on this idea, and most recently the Washington Post itself is syndicating TechCrunch’s stories.

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A Web Shift in the Way Advertisers Seek Clicks

I wrote about this last week, studying vertical ad networks has been really eye opening for me. It’s the long tail in advertising…

The improved technology has helped. Ad networks once served ads to pages where no advertiser wanted to be, like pages that get few hits or those with controversial content. Now, though, many attractive sites are not major home pages. Also, many ad networks now offer targeting (as do portals, for a higher price), matching ads to likely buyers.

[From A Web Shift in the Way Advertisers Seek Clicks – New York Times]