Cogblog

Well, Stylehive figured out a way to get me to come back: Send me spam.

Here is an email I got from them this morning and almost spam filtered:

Subject: Help me pick a hot bikini!

From: “honeybee@stylehivemail.com” <honeybee@stylehivemail.com>

Hey, Brent!

http://www.stylehive.com/slideshow/Editors-Pick-Smokin-Swimwear-in-Hive-Central-535

I’m going to the beach next weekend with the new boy, and I need help deciding what bikini I should get to surprise him with. I thought you could help me decide. Hive the ones you think are the hottest! Thanks in advance, I will let you know how this little experiment turns out.

To see all your messages and respond here

If you want to follow me just click here.

Happy Hiving!

honeybee

I felt like this reeked of desperation so I went back to see what the hell was going on. So honeybee is a stylehive employee and she “used” the “send this member a message” button on thousands of members. How do I know she sent virtually everyone on Stylehive a message? Because she is getting dozens of new people “following” her this morning - more than 300 new friends this week.

Why does Stylehive need to send me sketchy email to check out their site? Probably traffic is flat. Let’s look:

Not exactly news, but traffic has flattened out. If they were getting $10 cpm’s per page, an outrageous amount for essentially demographic inventory, with 2 million page views/month they have a $20k/mo business. That does not get them there.

I do have to say that the site is headed in the right direction philosophically, it seems. Here is a product page that actually gives you data above the fold:

So that is the right kind of thing to help them improve frequency. A single 728 across the top and then the content you were looking for. Me, I would move the links to photo galleries at the top to a more compressed area, shrink the logo a bit, and jam the 728 into the very top. Page layout seems really clunky with the 728 where it is.  They picture the “hiver” more prominently than the clothes you came to look at.  Is that bizarre?

Unfortunately, the other direction they are heading to improve frequency is photo galleries, and there seems to be a big focus on driving traffic to the photo galleries on the site now.  No surprise, it is mildly nefarious: Slide shows (their term for photo galleries) are automatically advancing pages that load a 728 in the bottom and a skyscraper on the side. When a slideshow finishes it automatically advances to a new slideshow.  So they can generate a lot of high frequency traffic off a single inattentive visitor.  Of course, this is all worthless traffic. I see a bunch of adify tags, so they are likely seeing < $1 cpms.

I saw back in December that they made an acquisition and in the article, PaidContent references several competitors. I put together a quick Alexa chart showing their traffic ranks:

I remember when Stylehive and ThisNext were the Web 2.0 shopping sites.  It must be Web 2.1 because they are getting pwned by the new kids on the block.  Stylefeeder has moved super quick.  What are they doing?  Couple of simple thoughts, although you never know without testing:

• Picture first, then description and tags.  Stylehive does tags, then description, then picture, frequently pushing the picture below the fold.  People are shopping visually.
• Celebs: Stylefeeder gets recommendations from celebrities.  Stylehive from fashionistas.  Celebs probably have a broader appeal.
• No ads above the fold.  They have a 300×250 on the side and a 728 at the bottom, both below the fold, the result is a cleaner, less cluttered look.
• Recommendation that shows you other related things that people liked.  Easy to do, why haven’t they done it

Seems unlikely that Stylehive will have the runway to turn this around.  I suspect it is hard to raise more money with such anemic traffic growth in the past year.  Even if they doubled it again next year, they don’t have the revenue to build a real business.  Would Glam buy this business?  Hard to imagine given that they are getting all of Stylefeeders ad space without having to take the risk of traffic generation.

Valleywag reports that ValueClick is considering buying Revenue Science.  I have blogged extensively about the challenges in raising a lot of capital and exiting appropriately.  This would be a great example.  As Valleywag notes, Revenue Science has raised more than $70 million dollars.  If investors owned 90% of the company, the business would have to sell for $770 million dollars to achieve 10x returns.  If investors own less, the company would need to sell for far more in order to achieve those kind of returns.

What are the odds that the company sells for a price like that?  Well, today VLCK is trading for $940 million.  So even if they sold the business for $250m, they would be getting 20% of a publicly traded company.  That strikes me as unlikely.  A $250m exit, if the investors owned 100% of the business is less than 4x returns.  On an absolute basis, not too bad, but it strikes me as aggressive.  What if they exit for $100m?  They are getting 10% of a billion dollar publicly-traded business.  Pretty good exit!  Probably the investors take basically all of the money and feel like they barely got out.

Bad outcome for all concerned.

Contrast that with Tacoda, raising ~$30m and exiting for $270m.  Huge victory for all concerned by being more efficient with capital and selling out to someone much bigger than the $1b VLCK.

I am sorry, I can’t stop going after posts I disagree with on the web.

The head of Group M complains to Ad Age that if Yahoo isn’t competing with Google, search prices will rise:

“The party who bids highest and who achieves the highest quality score, comprised of price, relevance and likelihood to click, wins. And in a competitive market the price is capped by the incremental cost of the click to the advertiser in search engine A vs. search engines B, C or D and the total volume of clicks that the advertiser wants, needs or can afford.”

There are real issues in pricing in this specific monopoly (read here), but this economics theory argument misses the reality of the situation.  As Aaron Wall already pointed out, breaking down the data, you already pay more for clicks on Google, but that is only because the backend performs so much better.

Rob misses the target further:

“Inevitably, the per-click price of search will continue to rise if other channels deliver less volume and efficiency, and, if not capped by internal competition in the market, they will rise to a fraction below the costs of non-search channels.”

Err, I think the real economic theory here is that the price rises until the market CPA is exactly the same across channels.  For ease of discussion, a simple market like mortgage leads can be looked at.  Let’s say that a mortgage lead is worth $100.  If 10% of clicks turn into mortgage leads, then a mortgage lead firm is willing to pay up to $10/click.  If Yahoo offers worse converting clicks (as Aaron illustrates), then maybe the conversion rate is only 5%, lowering what an advertiser is willing to pay to $5.  If we are theorizing an efficient market, and that is certainly what he implies, then the backend performance will be equal across search and non-search channels.  If it is unequal, then there is an arbitrage opportunity and the advertiser is inefficiently spending in one medium or the other.

Now, search performs great, don’t get me wrong.  People are actively seeking things related to a product!  That is going to perform great.  But the result is higher per click prices in an efficient world, driving to the same back-end result.  This happens regardless of how many search providers there are.

How does internal competition in the market keep per click prices low?  Really, it isn’t about having lots of players, it is about optimization.  Better optimization provides better targeting.  More players doesn’t lower prices.  In fact, by distributing budgets across many algorithms, testing costs rise, creating potential inefficiencies.

VentureBeat, along with everybody else, covers a press release about the Pubmatic AdPriceIndex that I love, because it is data-driven, and will now proceed to pick apart because there is not enough data. In summary, this high level analysis of the data doesn’t really tell us enough about what is going on. Pubmatic should let us at the raw data so people can do a more nuanced analysis. Far be it from me to criticize people much, much, much smarter than me (PhDs!), but I think there are probably some aspects of the industry/Pubmatic offering that might not be understood and prevent the data from being controlled in a way that allows for effective analysis of the data set.

Anyway, I know I said in a previous post that I would try to be less harsh to people, but let’s dive in.

The most obvious question is with regard to the most prominent aspect of the press release. They announce that prices went down by a penny month over month. Of course, the first drilled down detail they offer is that small sites (under 1 million impressions) went down $0.32. They don’t provide compositional data, but it would stand to reason, given a data point like this, that small sites may have made up all of the penny shortfall. In fact, they do say that medium and large sites saw their CPM rise.

In fact, as their report spells out, big sites and medium sites have made higher CPMs every month! Maybe the recession is confined to small businesses? Not a chance.

So if we are saying that the penny shortfall was caused entirely by small web sites, the next question is how can we break down those sites. We have almost no insight into this, but one thing we can intuit is that they are working with many more small web sites this month than they did the previous month. If you read the June report, then you see that they worked with 3,500 web sites in that report, whereas they worked with 4,000 for the July report.

I bet most of those are small sites.

So they added a ton of new publishers to their service and prices fell. Web sites that weren’t being monetized previously or were being monetized poorly (either way, probably signs that it isn’t the most valuable inventory) signed up for Pubmatic, dragging price points down. That is not an unfair hypothesis.

One thing you could do is look at how publishers that participated in June saw their prices change month over month.

Alternately, the study indicates that as sites give Pubmatic more inventory, CPMs decline. Maybe they are signing up larger small sites (more profitable business for Pubmatic) and they are yielding lower new CPMs. Some analysis of how CPMs are linked to volume in Pubmatic’s system could explain this.

Considering even more alternatives, every ad network (and Pubmatic’s service) have testing costs. Maybe with the rapid influx of publishers and Pubmatic’s distribution of that publisher inventory over many advertising networks, the yield is artificially lowered by the need to test many new publishers across many new networks. Once again, controlling for the introduction of new publishers is important.

I am tired of typing now, but you can imagine the problems that might lurk in the other parts of the data. Incidentally, I bet that Pubmatic prints these great bio’s of the statisticians to imply that this is good, but I bet that at the very least the Chicago guy is embarrassed to be repping this data:

• Albert Madansky, Ph.D. is the H.G.B. Alexander Professor Emeritus of Business Administration at the University of Chicago Graduate School of Business, and was the recipient of the 2005 American Statistical Association Founders Award.
• Michele Madansky, Ph.D. is a media and market research consultant and former VP of Global Market Research for Yahoo!

Obviously, I work at an ad network, so don’t construe this as validation or not validation of what they are saying at all (prices rising, prices falling, don’t know and if I did I wouldn’t tell you).  It is neither.  This is simply a constructive critique of the information they reveal.

Clickety Clack comments on a ZDNet post that there might be a roll-up opportunity among smaller advertising networks. Implicit in his post is the concept that rolling together a bunch of 30-40% reach vehicles might give you some sort of 70% reach vehicle. That might happen, and I am certainly painting in fairly broad strokes here, but a lot of the inventory on these sites is Right Media and MySpace. To my way of thinking, almost anyone can rapidly build a network with 30%-ish reach by doing low frequency buys on MySpace and Right Media.

The real question is what the overlap in their advertising base is. If they actually have differing demand and are not all working the same CPA deals, there could be some leverage to a roll-up there. Unfortunately, there is basically no way of knowing from the outside what that opportunity may be.

Today I had this sudden sensation that many of my posts tend to be about how things are a little harder than people expect them to be.

Today’s “actually, this problem is pretty hard” is based on an article in Advertising Age about Portfolio.com.  Portfolio.com is planning to extend the reach of their web site by buying exchange inventory, allowing them to sell more of their audience in the face of sold out inventory.

Advertising.com has been selling this off and on for years under the name “Audience Extend”.  Theoretically, this is an extremely powerful product for an oversold publisher because it gives them access to the exact same audience on relatively inexpensive inventory.  This can be valuable to an advertiser that is trying to reach this audience and valuable to a publisher eager to continue to take revenue.

I have always found that these deals are extremely challenging to make work because in a situation like this, the salesforce of the publisher (in this case Portfolio.com) is used to representing a premium inventory placement (it is sold out!).  Once you start working to educate the sales force about how to sell in a network model (sometimes blind placements, uneven, usually non-guaranteed distribution of advertising across placements, etc.), you are taking your sales force out of your sweet spot and asking them to do something different.  Furthermore, usually you need to find someone on the network side who is experience at the network model sales approach and involve them in either training or directly supporting the sales cycle.  Obviously, this is not a job you can ask your worst salesperson to do.

Given the margin compression that results from the network sharing revenue with the selling publisher, plus the cost of inventory, it can be hard to justify on the network side investing appropriately in the partnership.  In the same vein, when the network offers to put forth substantial resources, the publisher sometimes becomes concerned that the sales force may take their eye off the ball with the constant barrage of network rhetoric.

Managing partnerships is a delicate challenge that necessitates both parties investing significantly upfront to maximize the likelihood of success.  It will be interesting to see if Adsdaq and Portfolio.com make this work in any context outside of a one-off deal opportunity.

So everybody knows that Technorati has been flailing around looking for a business model.

Unfortunately, the business model du jour is Yet Another Ad Network.  So of course, Technorati announces they are starting an ad network.  The only thing that could have been more depressing in terms of expressing strategic genius would have been announcing a bidded text link marketplace.  Frankly, this announcement has all the same problems.

What makes business models like Glam have a prayer of success relative to ad networks such as Advertising.com and Yahoo! are that they have a very focused group of inventory and advertisers that they are matching up.  This allows them to have a smaller sales force and publisher services team and still have good coverage in their target market.

Technorati launches an all things to all people strategy and says they will be able to overcome Google/Yahoo/Ad.com due to their awesome contextual search technology?  To be able to pay publisher more, I think it is a function of two things: Optimization technology and a strong marketplace of advertisers to bid up inventory opportunities.  Contextual targeting is a tiny part of overall optimization and without the marketplace of advertisers, great optimization doesn’t create huge value because if you are decisioning off of one advertiser, there is only one possible outcome, regardless of how much you optimize.

I can’t see how Technorati overcomes the marketplace building barrier.  For that matter, virtually any company executing a YAAN strategy today puts themselves behind the eight-ball.  To get access to inventory, you have to pay higher than Google and Ad.com.  They are setting the marketplace floor because they have a strong enough market to buy every impression and offer something.  To pay more than Google and Ad.com, that implies that you have to have some level of optimization and the marketplace.  Glam did this by taking their tens of millions in venture capital and using it as a loss leader to overpay for inventory relative to the value of that inventory to Glam.  Technorati doesn’t have that capital runway, despite the $7.5m in new capital they just raised.

Odds that Technorati can focus on non-premium inventory and build a marketplace fast enough to reach escape velocity: FAIL.

I say all of this in a nice way.  I love Technorati.  Use it all the time.

Just saw Facebook talk at Graphing Social Patterns.  It was basically a 45-minute ad for Facebook ads!  Drill down on their hyper targeting mechanisms, performance, etc..  As the speaker said, Facebook is an advertising driven business, so they walked us through their focus.

I think Facebook completely missed the boat here.  First, this is a geek conference.  They should have given this presentation at Advertising 2.0.

Second, I think this is not actually the optimal strategy.  What are they doing to help people using the platform make money!  Developers, developers, developers.  To justify a $15b valuation, what they need is an ecosystem.  They need multiple billion dollar companies using their infrastructure and then a tithing system to take a slice of the revenue.  To really scale, rather than focusing on selling their ads, they should focus on enabling people to sell their ads.

I love Google’s announcement that people can sell their own Youtube inventory.  Obviously, they are headed in the completely opposite direction by engaging the masses to make Google money.  Conceptually, they have the right strategy.  Tactically, they could still blow this - the minimum deal size of $10k seems to fly in the face of the validation Google has gotten around building a long tail of advertisers and publishers.  The smartest thing about this deal is that the concern with selling Youtube inventory has always been dicey content.  If people sell it themselves, then they represent their own content and ensure quality.  That essentially gets Google out of the quality discussion by having the inventory manage its own quality.  A slick solution to the problem.

Glam Media tries to do something new, which is nice, but not necessarily a brilliant idea.  They launched GlamTV, which licenses video content from third parties and allows their publisher network to then show the video content with Glam-embedded ads.

I assume this was driven by a lack of web sites that had significant video volume in Glam’s sweet spot, so they are trying to build out the content themselves.  My gut is that the best web sites in Glam’s network won’t want to use this syndicated content, so the upside to building their own video inventory and then building a video network on top of it will be minimal.

As I have long said when it comes to start-up ad networks, it just takes a couple of deals to look like you have a nice little business - they could close eight or nine $50,000 tests the first month and think (and sell to investors or acquirers) that this is the base of the hockey stick when it is really just the same kind of bump a new web site gets when they get TechCrunched.  Huge traffic for the first week and then a tiny fraction of that traffic actually sticks around.  Getting $50 cpms, as they have discussed at length, is great, but there are a bunch of other important questions: Sell-through rate and eRPM.  If they are selling all of the inventory at $50, that is a hit it out of the park business, but if publishers aren’t getting a couple of bucks (both the syndicator and the syndicatee, I would suspect), then it will be hard to build a viable business.  Can they build to a decent sell-through that nets out to an eRPM that high?  Seems challenging.

Some days I feel like 90% of my blog posts are posts disagreeing with other blog posts.  Am I the alternate voice crying out in the wilderness?

Anyway, today’s post that I take issue with comes from Silicon Alley Insider.  I actually have to dig in with a little of the line-by-line:

The burn rates and valuations of many Web 2.0 companies are predicated on this article of faith: The Web will benefit from a massive share shift as marketers choose the measurable (online advertising) over the not-so-measurable (newspapers, TV, etc.).

Wait a second, it is not just about measurable vs not, it is about where people spend their time.  I read recently that almost 20% of the media that people consume is online.  The percentage of US ad spend that is online is in the single digits.  So you have to assume that online ad spend in the US will double or triple in the next few years.  That means 30%+ sustained growth rates.  Even if ad budgets shrink, growth should still be significant.  Anything less creates a substantial arbitrage opportunity for smart marketers.

But what if at least one of the core assumptions — that online ads motivate consumer behavior — is wrong, or maybe just half-right?

The beauty of a measurable medium, including mediums where transactions are measured, is that prices become appropriate.  The reason we have banner blindness is that people just consume more pages, seeing more ads.  Many pages have literally a dozen ads on the page.  Those ads are, in many instances, virtually worthless and will be priced accordingly.  6.5 billion pages on MySpace every day: Mostly not valuable.  But that is ok, things will be priced accordingly.

Then SAI tries to question the conclusion:

Does it hold water? Certainly banner advertising had been hit by the perception that it is roundly ignored, but a raft of research concludes that video advertising — even annoying pre-roll ads — has some of the highest recall in the business.

What does this have to do?  Nielsen says TV works because it is entertaining and you are focused on it…. just like pre-roll.  Pre-roll is different than banner ads.  Pre-roll is annoying for the same reason commercials are annoying:  I don’t want to watch them and I can’t ignore them.