Cogblog

I have noticed recently that tons of people that have built interesting tools to help people create ads: ClearSpring, AdReady, PaperG, and Jivox among others, for some reason spun that into creating ad platforms of some sort.  That made me wonder:

Why?

Those are actually pretty different core competencies and there is a lot to do when it comes to building great creative building tools.  Are there not opportunities to license this technology?  Is anyone so extraordinarily focused on solving this problem that they don’t think about anything else?  When I look at what AdReady built several years ago, it has not really evolved.  Is “good enough” acceptable?  Why can’t anyone focus on being best-of-breed in a few key areas any more?  It seems like that would be a good idea.

Maybe the market is not good enough.  People like Sprout, KickApps, and Gigya that started out in this space have since moved on to other things.  But Pointroll got rich and sold out doing this.  Medialets started out as a network and has actually decided to focus just on making great creatives.

The approach of people that want to do a lot of things and have this as a “differentiator”, but not the absolute focus of their business sound like people that are unlikely to win.  Focus, focus, focus.  EOM.

http://lifeinthenhs.files.wordpress.com/2009/02/facebook.jpg

The blogosphere is abuzz, errrr, atwitter, err, atalking (“TALKING – A NEW TOOL FROM MICROSOFT – TALKING IS THE BEST WAY TO TALK TO YOUR FRIENDS!  START TALKING TODAY!  IT IS SO EASY TO START TALKING, A TWO YEAR OLD CAN DO IT!”) about how Facebook wasn’t making any money from Ad Networks and their proprietary self-service ad platform is making all the money.  While I am a believer in self-service advertising………..

I have to say that checking out the trees in this forest is fairly instructive.

First, this data is probably wrong.  Inside Facebook revises the run rate from $150m to $50m because it turns out that the $150m includes Microsoft’s cut.  Is Microsoft really paying out a 33% rev share?  Unlikely.  It is far more likely that Facebook keeps at least double that.

Second, Facebook is courting hard-core DR guys on their self-service platform.  The ads they run are ads that Microsoft would never approve.  Those ads perform better because they are designed to.  Facebook is doing things they would not allow Microsoft to do: run brand-degrading ads that are probably illegal all over their site.  This renders higher CPMs.  True story.

Third and more important, Facebook wants them to fail.  Yeah, you heard me right.  Facebook is the reason why banner ads fail on Facebook.  Why would their self-service ads succeed when their banners fail?  Is there some magical structural difference?  Nope.  The difference is this: When you buy a banner ad impression on Facebook from Microsoft, you get exactly that: 1 impression on Facebook.  When you use the Self-Service platform, you get something a little different: A CPC campaign targeted at a man in Wisconsin who likes cheese and the green bay packers.  Exactly what you wanted.  Facebook is not passing data to advertisers on their banner network so their impressions look like the worst ads on the Internet: non-contextual, brand-unsafe, high-frequency UGC inventory.  The ad that shows there is a speculative guess with respect to performance.  The advertising version of throwing stuff at the wall and seeing if something sticks.  Advertisers have no framework for segmenting the inventory so optimizing it is impossible.  It performs like crap because it is crap.  Microsoft can’t sell that on a CPC.  Without data layered in, it performs too poorly to make money on a CPC.

Facebook is selling advertisers on the self-service platform highly contextualized, highly targeted inventory on a performance basis.  Advertisers like that.  Advertisers want to buy that.  Not high-frequency, nameless, faceless impressions.  End of story.

I was reading Zach Coelius’s article defining DSPs the other day and it made me wonder, why does it seem like new companies, generally, are winning the DSP wars?  For that matter, how did no one jump into the space now dominated by Pubmatic, Rubicon, and AdMeld?

• Zach says that DSPs should have access to billions of impressions per day.  Ad.com had that years ago.  Valueclick was big.  Right Media, theoretically, could have tried to spin around and be a DSP.  One wonders how they let so many new companies enter this gap.
• Zach emphasizes reporting, impression attribution and other features as key aspects of a DSP.  Traditional third-party ad servers are all perceived as excelling in this area.

Certainly, there are features that they did not have, but it seems like extending the product would be easier than building a new product.  I can point to several things that probably made transitioning to this new exchange/DSP world difficult:

• The quarter-to-quarter pressure of publicly traded companies.  The ability to invest to meet new market technologies is frequently limited for large companies.  If you look at exchanges, Right Media was a well-funded private company.  DoubleClick was going nowhere until it went private.  Then it was able to escape some of the quarter to quarter pressure and before you know it, they used Project Wolf to sell themselves at a huge mark-up to Google.
• Legacy architecture.  Sometimes it is simply easier to build from scratch than to build with a legacy code base.  Particularly with the growth of new abstractions for rapidly developing technology such as Ruby on Rails.
• Margin and other business structure limitations.  This is the real killer.  There was a certain expectation for how the relationship worked and breaking new ground was hard.  When people have revenue and profits, sacrificing those if you want to change the structure of the industry is hard.  This is classic Innovator’s Dilemma kind of stuff.  Making an advertiser or publisher think of you differently if they are already a substantial source of revenue is a big risk.

How did the big ad companies of the first half of this century sleep on these new opportunities in the market?  Give me your thoughts.

I love Junior Hines blog.  He rarely lets on what he is thinking, but the drift you get from reading the things he finds interesting tell you what a star he is.  But I absolutely love this statement:

Putting banner ads on a social networking site was more or less bolting on a scalable advertising system onto a site with massive traffic, regardless of the fit with the product experience.

While I think, at some level, this is certainly true, I also think that Facebook never really tried to make it work.  The reason that their ad platform is better is because they are using their data, but they would never share that data with third parties.  If you wanted relevant ads that performed well on your site, why never share?  For the ad networks they worked with, every impression was the 500th ad some guy has seen on the site and he hasn’t clicked on anything yet and we aren’t optimistic about the future.  Of course the ads they have to show are going to perform poorly.

Just saying…

http://www.flickr.com/photos/casalemedia/3471980910/

Brian Tomasette continues to have some nice posts on his blog.  His most recent discusses how it is possible to wire together DFP to work like an ad network technology stack.  In fact, he points out, Collective Media uses it this way. (or used it this way.)

Couple of thoughts:

1. Love that Brian is willing to put it all out there like this.  Maybe he doesn’t view it this way, but I view this as a pretty good knock on Collective Media (more on that in a second).  When I was an AOL employee, I tried to be pretty restrained in bashing competitors (although I am sure some would disagree).  It is very tough for Brian to be a sales guy at AOL and make fun of Collective.  But telling the truth is, at some level, never wrong…. it is just not PC.  And really interesting!
2. Lot’s of ad networks are doing this.  I mean a lot.  If you and I started an ad network tomorrow, we would probably do this.  If Brian started a network tomorrow, he would do this.  Great optimization only comes if you have the liquidity to have things to optimize off of.  So the focus of every small network is signing up publishers and advertisers.  It is rarely the algorithm.  The result is that people get just enough technology to get by.  Essentially, you fix your technology costs as a percentage of revenue when you use this.  It isn’t necessarily great tech, but it would take a few people a bit of time to do better.  Most people say, “why bother?”  One of the main reasons that DMX was shut down by Right Media, in my opinion, is that people were simply using it to run tiny ad networks and, given that most of the inventory was just more frequency from the same publishers and more CPA ads from the same advertisers, they were not adding a lot of value.  This is the “not premium” that Yahoo was complaining about.
3. The advent of exchanges has made this even more popular.  Now we don’t need to front the inventory to run a tiny ad network and we barely need to optimize to go out and sell retargeting.  All you need is an account on DoubleClick or Right Media’s exchange and you can start selling network services.  But all this inventory is the same!  Zero value has been added, it is just more sales people selling the same inventory.  And CPA advertisers don’t particularly care, although as they allow varying frequencies of inventory to be inundated with tiny advertisers, they lower the eCPA for the big guys, potentially hamstringing campaigns.  This is why the really big guys are a little careful about this stuff.

When a new network calls you, do some diligence.  Take their tags.  Look at ‘em.  Are they Right Media tags with a cname?  Do a traceroute.  Look at cookies they set.  This isn’t hard and doesn’t take a lot of time.

There are tons of people starting ad networks.  Generally, those people aren’t engineers, they are ad network sales people.  Are they really building something unique or are they cherry picking inventory off of exchanges?

UPDATE: Let us be clear, I mis-characterize Brian as making fun of Collective in this post.  All he actually does is state the fact that at one time they used a third party’s tech stack for optimization technology without rendering any opinion regarding the decision to do that.  As Brian remarks in the comments, he respects Collective Media.

Lot’s of people, and AOL is a well-documented party here, are trying to figure out how to cut the number of ad views on a page and increase the CPM they charge advertisers while not drastically reducing their page CPM.  Similarly, decreasing low quality “picture galleries” or breaking articles into numerous pages, can decrease “available pages” while increasing the quality of the product being sold.

Unfortunately, that is incredibly effective and easy to execute in straightforward direct sales, but has relatively low perceived value in the world of exchanges.  In exchanges, where people are typically buying audiences, one impression feels as good as another to most advertisers.  When Fetchback wades into an exchange bidding $2.00 CPMs and charging their advertisers $6.00 CPMs, it doesn’t matter if there are 8 ads on the page or two ads on the page.  The biggest challenge in a retargeting campaign is acquiring volume, so they are probably happy to get it any way they can.  Generally, this ends up being true for lots of advertisers seeking audiences.

Further, advertisers have very little data about aggregate ad frequency per user (is this the hundredth ad they have seen on the site, on the exchange, or on the network today?)  That data would help in the valuation process and is notoriously absent.  Of course, as we discussed, only the most sophisticated advertisers would be able to value it.

Finally, were one to be one of those sophisticated advertisers, it would probably be all about the performance.  Determining lift in performance for pages as the ads on them change is critical to effectively managing an exercise to decrease aggregate ad views across a web site.  Split testing is important and I can tell you from experience that it needs to be a real split test.  Simply changing and comparing a past period to the present exposes the test to too much variability of advertising supply.

Most publishers will struggle to justify the resources to conduct an exercise like this.  Particularly when, unfortunately, given the simplistic perspective of many advertisers, there are reasonable odds that this will not move the needle at all in increasing the true net value of their sites inventory.

While it is in everyone’s best interest (theoretically) to have fewer, better performing ads on a page, in an exchange where little is known about any given placement, a bad actor can exploit good actors in the system to unfairly maximize his yield at the expense of other players.  This results in a prisoners dilemma situation.  The result is that, in many tests, publishers may find themselves in a death spiral of adding more ads to inventory to increase the effective yield of a page.

It will be interesting to see how we evolve the Internet to be a good place for advertisers and readers.

Was DMX a tool for non-premium advertisers?  I didn’t think so.  Someone help me out here.

I thought DMX was a tool for non-brand name inventory.  Specifically, I thought DMX was a daisy chain management system that competed with Pubmatic and Rubicon and was getting beat badly.  Positioning this as enabling premium advertising in the exchange seems like an exaggeration and a way to put a positive marketing spin on the orderly shutdown of a niche product without hope at Yahoo.

Someone tell me I am wrong?

Report from Alley Insider that AOL is planning to pull ad inventory from Ad.com.

Not being on the inside for more than a month now, I thought several things when I read this:

1. Everyone has seen how Tim is working to cut ad volume on AOL, focusing on ads with positive yield (e.g. get rid of worthless photo galleries and tons of ads below the fold).  This is super smart and if the point is simply that, with less ads, less are flowing downstream to Ad.com for remnant monetization, then yay, Tim.
2. Will this decrease Ad.com’s reach?  It would be a bitter pill if Ad.com was no longer the biggest ad network.
3. The talk of improved eCPM and yield in the comments is interesting.  Has decreasing volume to Ad.com really increased the sell-through rates of AOL inventory?  If so, is this simply a sales management problem and that is how they are addressing it?  Seems a little counter-intuitive, but it is possible.  Now, this makes a lot more sense if #1 is true and there are simply less worthless ad space on AOL.  (LIKELY)
4. As Yahoo has refocused on putting their Class 2 inventory into places like Right Media, it is interesting to see AOL consider going the other way.  Furthermore, it is ironic to note that the original investment thesis behind AOLs acquisition of Ad.com those many years ago was that if they owned their own remnant monetization engine, it would be smart because they could keep their margin.  Deciding that AOL inventory should not be remnant monetized now is funny.  Particularly when many people acknowledge that AOLs acquisition of Ad.com was the best acquistion ever by AOL.
5. AOL inventory was great differentiation for the Ad.com network.  Although maybe that was what devalued AOL inventory.

Net-net, I like what Tim is doing, although I am sure if Alley Insider is correct (UNLIKELY), then it sucks for my buddies at Ad.com.

Ad.com’ers that lurk here, comment away!

(As always, I want to note that this is not disparaging AOL, I love this.  Simply making industry observations.)

Silicon Alley Insider did a post that was filled with lots of comments about whether offering a voluntary package is a good idea or not.  Do the best people leave?  Do the worst people go?

I thought I would throw out two cents on this:

Economically speaking, any AOL employee that did not spend the last 2 weeks job hunting is not optimizing their income.  If you are able to get a job somewhere else very quickly, then you can bank a fair amount of income by taking the package, knowing that you have a job lined up.

So if you assume every employee has spent the last few weeks furiously job-hunting, that is probably not good for AOL.

That argues that it is smart of AOL to minimize the window.  Given that people only had three weeks, could people really have lined up interviews, conducted interviews and gotten offers?  I suspect it is hard.  So lots of people now have to decide what to do but they haven’t yet gotten positions.  That will probably encourage even the superstars to stay if they have an iota of risk aversity to them.  The good news for superstars is they were probably more likely to line up offers quickly because they have a network of people that want to keep them.

Poor performers have to make tough decisions.  This is not about whether you are in the bottom third because some departments will cut deeper than others and few people know in advance whether that is their department.  If you are in a team of 5, the bottom three might go!    So if you are not the top couple of people in your department, you seriously have to consider prophalactically taking the package.  Yet, your average person considers themselves above average, so in all likelihood, few people will.

Should more people take the package than the number that will?  It seems likely to work out that way.  Unfortunate because it would be better if everyone volunteered.

I read recently that Millenial Media and Admob both see around 6-7b impressions per month.

Pretty good.  Obviously, a reasonable next question is what does that business look like?

First, we need to speculate on what kind of CPMs they achieve.  We have absolutely no idea, so let’s make up a number.  A reasonable starting point might be “regular ad network CPMs”.  So here is Pubmatics numbers:

OK, so $0.27 is a real network value.  But that is the publisher payout.  So if we inflate that 40%, to get the network revenue:  ~$0.50.  In the interests of being conservative, let’s make the mobile network CPMs $0.25.  That also makes our math easy.

So a 6.0b impression/month network yields a $1.5m/month business with ~$600k gross margins.  That means they could probably support 30 employees with that business.  From this, one could imply that Admob, with ~150 employees was losing a lot of money and Millenial Media, with ~50 employees (and ~1b more impressions, yielding an extra ~$100k in gross margins), actually close to breakeven.

Are these margins realistic?  I have no idea.  Maybe they have to rev share with the carriers.  Maybe a lot of these are international impressions and hence worthless.  (Although the Millenial team, at the least, is smart enough not to buy those impressions.)

Seems like a great business.  Obviously, Millenial is sending a message with their raise, as did Google with their acquisition, that the market is a lot bigger than these two companies current implied run rate implies (implications imply!), but these numbers actually seem to make a lot of random anecdotal sense to me.  I had heard that Admob was doing around $10m in revenue annually , so this kind of lines up, given their ramp.

The obvious question is “was my imaginary CPM correct?”  Anecdotal information is that CPM prices are high and CPC prices are low in the industry.  When I try to unwind all of the math from the blog post, it sounds like $0.25 is about right.

I would be shocked if this back of the envelope calculation was too far off.