Monthly Archives: March 2012

The Ethical Issues with 3rd Party Behavioral Tracking

(Originally published on AdExchanger, October 2011) by Eric Picard

Companies that track consumers’ behavior across the web without their consent, and without providing them any recognizable value, should stop. I’ll argue that virtually no company that tracks consumer behavior across multiple sites actually provides consumers with recognizable value.

And the real issue here is that consumers never opt-into being tracked this way – if we required this, then the ethical issues would go away. But we don’t require an opt-in because in reality, consumers don’t want this, don’t benefit from it, and as an industry we’re acting in unethical ways. I realize that for this audience, my position makes me as unpopular as a New York City steam bath in August, but I challenge the industry to really stand up and do the right thing here.

For clarity – Publishers that track what their visitors do on that one publisher’s site face completely different issues. Consumers who visit a publisher’s site are engaging in a direct relationship with that publisher. As long as the publisher is collecting data to be used only on its own website, this is defensible – the consumer has elected to visit their site, and gets the value of content that the publisher provides. And if the publisher asks the consumer to opt-into being tracked across multiple websites, then there is no ethical issue at stake. But cross-publisher behavioral tracking should definitely require an opt-in.

As long as a publisher has a clear privacy policy, data collection for their site without an opt-in is ethical. The consumer gets value from personalization of content as well as enabling the publisher to sell behaviorally targeted advertising. And the publisher has the right to collect this data to optimize their business, especially given that most publishers make the most of their revenue from advertising – this data is generally used to better sell ads to advertisers.

While a consumer is visiting a publisher’s site, the publisher certainly has the right to track his or her behavior. And having a user specifically ‘opt-out’ of being tracked on that publisher is the ‘right’ option to provide in terms of creating consumer good will.

There are three arguments commonly used by advertising industry professionals that make a case for behavioral targeting today:

1. Behavioral targeting makes advertising more relevant, a consumer benefit.

Targeting doesn’t make advertising more relevant – it makes a small percentage of the ads people see more relevant. In order to really increase relevance of advertising via targeting, the number of advertisers would need to vastly increase. There are more than 5 trillion ad impressions per month in online display. And more than 90% of US display ad spend is driven by less than 6,000 advertisers.

Frequently the argument is used that with Paid Search, consumers feel that contextual targeting makes the ads more relevant. But contextual targeting doesn’t require consumer behavior data. And further, the basis is completely wrong: Paid Search has roughly 250 billion impressions a month, and 400,000 active advertisers (verses 5 trillion ad impressions and 6,000 – 8,000 for display ads.)

The math is pretty simple – there is very little opportunity to target display advertising against niche segments today in order to increase overall relevancy of the ads. The reason people aren’t seeing relevant ads is not because targeting is not good enough, or we’re not collecting enough behavioral data, it’s because there are too few ad creatives to apply against the vast number of ad impressions.

This could change over time as more advertisers start moving into display – especially if we ever find a way to make display advertising efficient and effective for local advertisers, at which point there’d be lots more creatives. But even in these cases – cross-publisher tracking wouldn’t be necessary. As long as we had geographic targeting available (which doesn’t require any browsing history) and basic data that the publisher could track themselves, the ads could be much more relevant and valuable. But, until we grow the number of advertisers, and more importantly, the number of creatives to more closely match paid search – this is a moot point.

2. There is no harm in the third-party tracking technologies, the tracking is anonymous.

So-called anonymous tracking is not very secure – the anonymity is fairly easily broken. Cracking open that anonymous shell and merging it with personally identifiable information from other sources is a fairly easy engineering feat. Search for, “netflix prize privacy” in any search engine for one example. (Keeping in mind that this example is from 2007). There’s been a lot more examples since then.

Beyond this, many of the players in the behavioral targeting space are small startups, without a huge amount of investment in security infrastructure. Even major corporations have leaked millions of people’s data into the public domain. Searching for “AOL Data Leak”, “Sony PlayStation Data Leak”, “Skype Android Data Leak”, “Epsilon Data Leak” should prove interesting. More of these happen all the time. If these major corporations can’t keep your personal data secure, the idea that a small startup is a safe place for this data simply doesn’t ring true. And I say this with all respect to my friends working at these companies – at the same time, I’m worried about it.

There are lots of very ethical people in this industry who would never do anything intentional or nefarious with the behavioral data that is collected. But that doesn’t mean that bad actors don’t exist. And even if good people are at the helm in some of these companies today – over time, mergers and acquisitions, or bankruptcies can cause changes in ownership over this potentially sensitive data.

I think I’ve shown above that the potential for damage is both real and proven, and could be quite harmful.

3. We’re not as ‘bad’ as the offline marketers.

I probably shouldn’t have to even engage in this kind of argument. But just because I hear this a lot – I’ll address it.

Yes, the offline direct marketers do use a lot of targeting data – much of it using personally identifiable information – in order to target users on direct mail campaigns and other mechanisms. Yes, they use credit card purchase data, and financial data that no consumer really would ever be excited about anyone getting access to. And yes – they’ve been doing it for years. As far as I’m concerned, this is unethical as hell. And I’ve written lots of articles over the years that state my position on this.

That doesn’t justify us doing this online, even if we were doing things in a vacuum. However, we’re not doing things in a vacuum. The process used in the online space in order to support a lot of this behavioral targeting data being actually used for buying ads requires cookie matching.

Cookie matching requires the use of a third party to find some kind of ‘data key’ that sits in a third party data provider, which is used to match two anonymous sources together. This can be an email address, or could be a telephone number, or a mailing address, or something else. This ‘key’ allows two separate anonymous cookies to be matched together as one single user.

The main providers of this service are the same exact ‘offline marketing’ data companies that are referenced by people in our industry as the ones who are ‘worse than we are.’ In other words – there is no difference whatsoever between the online and offline data providers – as they are both used in order for this behavior to function in our space.

Some of you may remember that the acquisition of Abacus (an offline data provider to direct marketing companies who built targeted mailing lists) by DoubleClick was blocked way back in 1999 because of fears that Abacus’ data would be able to merged with online data, and that this was a dangerous thing to the privacy of consumers.

But in reality – only a few years later, other providers of offline data for direct marketing began offering this kind of cookie matching service to online marketers – without any acquisitions. If this was such a concern that it caused DoubleClick’s acquisition to be rejected by regulators – then why is this not a concern when it’s done as part of the day-to-day business of the online advertising industry?

In the end, this is really just about doing the right thing – from my perspective. Consumers should give their approval before anyone without a direct relationship with them begins tracking their behavior across numerous web sites. This seems self-evident to me, and to most consumers I’ve talked to about it. The only argument to the contrary I’ve ever gotten was from professionals in the marketing industry. And as I’ve shown above, these don’t hold water as far as I’m concerned.

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Why Facebook will ‘own’ brand advertising

(Originally published in iMediaConnection, February 2012) by Eric Picard

I’ve been watching and reading the Facebook IPO announcement frenzy with curiosity. The most curious meme floating around is the one that pooh-pooh’s its strike price, market cap, and valuation because its ad business “clearly isn’t going to be able to sustain growth the way Google’s did” — to which I call BS.

Here’s why Facebook will ultimately be the powerhouse in brand advertising online (and eventually offline as well):

Facebook is a platform

To really do this one justice, I’d need to write a whole article about the power of platforms and explain why platform effects are almost impossible to defeat once they’ve started. Platform effects are similar to network effects, so let’s start there in case you’re one of the 20 people left on the planet who haven’t learned about them. Network effects are basically when multiple users have adopted a platform or network, causing the platform or network to be more valuable. Telephones are the primal example here — the more people who have a phone, the more valuable the phone platform or network is to its users, therefore more people get telephones. Facebook has cracked that nut — it’s a vast social network, and network effects have rendered it as difficult to avoid getting a Facebook account as they have rendered not having a telephone or email address to be almost impossible.

Platform effects are similar, but even stickier: They come from opening a platform to third party developers. Once you have developers creating software that relies on the use of a platform, the platform becomes more useful and therefore becomes more adopted by end-users. This has been proven repeatedly — from Windows beating the Mac originally because so many software developers and hardware manufacturers supported the Windows PC platform. Apple has of course had the last laugh there, with the iPod/iPhone/iPad apps marketplace taking a page right out of Microsoft’s playbook and kicking them in the teeth.

Facebook is a platform that “consumer facing applications” like Zynga and other game companies have made good use of. But also it’s a massive data and business to business platform, which has been less broadly publicized, but which is beginning to gain adoption. And that part of its platform, tied to the data from the consumer side of its platform, is why advertising will ultimately bow to Facebook (barring some horrible misstep on their part.)

Facebook takes user data in return for free access to the Facebook platform

Facebook requires all users to opt into its platform — and despite all the various privacy debates and discussions about Facebook, it is actually pretty good about being transparent and providing value to users in return for sharing all sorts of data.

Facebook is right now (my opinion — open to debate) the most authoritative source of data on consumers, their interests, and brand affiliations. It’s going to grow and become more comprehensive, meaning that it will become the main source of all data used by brand advertisers to reach targeted users.

To my mind this is already destined to happen — and locked up due to the fact that Facebook is a platform. It builds content that no media company would be able to build (social content.) So in that way it really doesn’t compete with online publishers. Online publishers wisely have adopted Facebook as a distribution platform as well as an authentication platform for allowing consumers to accesstheir content.

It’s only a matter of time before publishers become so intertwined with Facebook’s platform that all their content becomes effectively part of the Facebook platform. But not in a way that publishers should be worried about Facebook disintermediating them. If Facebook is smart, it will work this out now and find a way to give publishers what they want in return for this: Let the publishers own their own targeting data, and work out a way to help them make more money without losing that data ownership.

Facebook will own brand advertising, and will not need to own direct response

Most of the wonks in the ad space are pooh-poohing Facebook because of a near-sighted over focus on direct response advertising. They believe in this false premise because of a single proof point, which is Google paid search advertising. The idea is that, “Since Facebook owns ad inventory that is further ‘up’ the purchase funnel than Google’s, Facebook will never justify a high enough CPM to compete for supremacy in the online space. Since Google is the owner of advertising online, and it did this by creating a vast pool of inventory that is sold at extremely high CPMs (because it is so close to the purchase on the purchase funnel) and because most of the online ad industry has been focused on DR for its entire existence, DR is where online must go.”

The wonks are wrong on this topic. Google undisputedly “owns” paid search advertising. But the entire paid search market is made up of something close to 250 billion monthly ad impressions. Google gets a very high premium on those ads — around $75 CPM. But Facebook has many more ways to play in the ad space than Google, and a lot more inventory to play with. Estimates put display ad volume well above 5 trillion monthly impressions, and Facebook has a huge percentage of these.  Since Facebook can cater to brands, it can be an efficient platform for selling ads to brands that target authoritatively to very granular audiences. Nobody has cracked that nut yet — the targeted reach at granularity and scale “nut” (disclaimer — this is specifically the problem I’ve been working on for the last year.)

So Facebook could own brand advertising online, could own a role as the authoritative data provider for brand advertising, could own the way that the big brand content platform of TV makes its way into a more modern and effective ad model, and could very well be the winner of the online advertising (nay the entire advertising) space for brands.

Facebook will dominate local advertising

Facebook has already grown a massive advertising business, and my bet is that when the details of its ad revenue are fully disclosed, a big chunk of that business will prove to be locally based. It is the only real play to be had for local businesses online right now; the only place to get local audience reach at any kind of scale. Local is a massive advertising market — one that nobody has been able to crack online, and Facebook will be the gateway between traditional media and online media for local advertising. Zuckerberg must already secretly have 200 people working on this problem as I type.

I’m very bullish on Facebook, but then, this is all just my opinion: I don’t have any idea how much of this Facebook really understands itself. All it really needs is some decent ad formats, and it’s got everything pretty well sewn up.

Why publishers should stop selling remnant inventory

(Originally published in iMediaConnection, December 2011) by Eric Picard

Typically, online publishers make their money through the sale of online display advertising, with a few making a lot of money from paid search. But the way that publishers monetize their sites has evolved over the last 10 years to a point where a lot of energy is expended on work that doesn’t pay off very well.

The one thing to keep in mind as we progress through this discussion is yield. From a publisher point of view, this is essentially the profit on inventory sold. It’s always important for publishers to consider yield in any discussion of revenue, because while they may sell inventory at a higher CPM through the human premium sales channel, the cost of sales is always going to be very high there. So when you strip away cost of sales and technology costs, what revenue the publisher keeps is its yield.

Many publishers began selling their remnant inventory off at wholesale prices to ad networks and an ever-changing and evolving ecosystem of other vendors who buy cheap remnant inventory, apply some “special sauce,” and resell the same inventory for a higher price. This arbitrage has evolved as many publishers saw an opportunity to liquidate their entire pool of inventory at any price and never leave any money on the table. But liquidating all inventory at “any price” is a horrible idea, and has led to many unintended consequences, namely driving a perception of “unlimited” inventory out to the market. There’s a reason that the broadcast networks limit the amount of remnant sales they do to approximately 10 percent.

I’ve stated before that most companies get addicted to “bad”‘ revenue that operates at a net loss. I would argue that almost any remnant ad sales at wholesale prices sold in bulk to resellers is “bad” revenue. While cost of sales may be much lower on this sales channel, all the value gets stripped off the inventory, and then the final clearing price of the inventory is super low — probably well under $1 CPM — probably as low as $0.30 in many cases, and often under $0.10.

Yahoo recently announced that they’re going to stop selling inventory this way, and I think this is one of the gutsiest and smartest things I’ve seen a big publisher do in a long time. Here’s why:

Publishers have gone to immense effort to build a refined product to sell. Your audience is not a “raw material.”  You’ve taken the effort of cultivating an audience to consume your content, and you’ve developed a sales force to represent this inventory. By selling wholesale to a reseller, you’ve turned that inventory into a “raw material,” and it’s up to the reseller to then refine the inventory and make it more valuable.

In a perfect world, you would sell your refined audience through direct sales channels and liquidate it all at a very high yield. Since this is simply unlikely for basic human scale factors, there needs to be secondary sales channels that don’t suffer from the same scale problems. One way that publishers have been trying to handle this problem is by applying a dedicated human sales force and yield optimization team to manage their remnant liquidation.

In my opinion they should have a dedicated team to manage selling inventory that “fell through the cracks” of their human sales force, but this is not remnant wholesale practices. They should only be selling the inventory that can be sold as a “refined good,” not a “raw material.” All publishers have high quality inventory that is not able to be sold by their sales team, even if they are “sold out” in the publisher’s sales interfaces.

Because of the way that inventory prediction works, there is generally more actual available inventory than most systems will allow to be reserved. This is because of a technical reason — since the industry has told software engineers that guarantees are being made contractually, it’s using a very high confidence interval on the prediction of avails. Confidence intervals specifically refer to how confident the engineers are that the inventory will actually exist, which is a mathematical prediction.

Since the engineers are being conservative due to the nature of the contract being guaranteed, there is actually always inventory that has sold out in the sales system due to high demand, but at delivery time there is actually more in existence. Additionally, since most publisher side sales systems allow (for very good reasons) the sales team to pull avails and reserve for a short period prior to the deal closing, hoping that their IO will be signed, this causes a lot of premium inventory to get locked up until it’s too late for another sales person to actually sell high demand inventory.

Let’s look at a hypothetical example: Samantha reserves a bunch of inventory for a December 15 start date for a big pharma client who has a proposal in front of them. On December 10, the client comes back and refuses the offer saying it will come back in January. Samantha frees the inventory up to the rest of the sales team, but with only five days left, it goes unsold (even though many other buyers would have loved to get access to it two weeks earlier.)

This high quality inventory is dropped on the butcher shop floor like some sad porterhouse that is washed off and then ground up for hamburger. Across the industry, there are tons of great inventory going to remnant sales that could be sold by the publisher as New York strip, filet, and rib eye rather than ground into hamburger. But the remnant sales channel doesn’t allow for this — and everything looks like hamburger.

Finding a way to offer this inventory to the market through a secondary sales channel and selling it with as much of a possible premium is a critical issue. The inventory should be sold not in a wholesale way with all data stripped away. It should be sold in a channel that avoids conflict and that drives highest possible yield. I’ll give some ideas on what these channels can look like below — but first, let’s discuss the most basic approach: Simply stop selling remnant.

If publishers would simply reinvest the resources they spend selling the 40 to 60 percent of inventory that is currently sold “wholesale” remnant, and put the same headcount to use (maybe different people) focused on selling premium, they only need to increase premium sales a very small percentage would completely offset all their wholesale remnant sales. When 10 percent of your revenue comes from half your inventory — there’s a problem. Better to stop selling it wholesale and bolster your average CPM, and protect your user experience. Ideally remove ad units when there isn’t a sold impression (rather than always delivering ads.) This does require some design changes, but could be well worth it. At the very least, if you can increase your sell-through on premium sales just a tiny percent, you will more than make up for all that unsold remnant.

Yahoo certainly has done this math and determined that it doesn’t want to feed the remnant piece of the pie chart above any longer. Its decision is that it’s going to push the inventory into the purple piece of pie I’ve labeled “audience-based sales.” It’s doing this through Right Media Exchange (RMX), which it owns. It’s requiring that advertisers have a seat on the exchange, and it’s creating programmatic mechanisms for those advertisers (through its partner agencies, trading desks, and DSPs) to purchase Yahoo’s premium inventory in an automated way without going through the premium sales channel. And it looks to me like it’s going to do this in a non-blind way, meaning the buyer will not be buying hamburger — it’ll buy porterhouse or New York strips.

This is a bit of a gamble, but a super smart gamble. Publishers can create “tunnels” through any of the major exchanges, where they can set agency- or advertiser-specific rules about who can buy inventory at what price, with what discounts, and in what ways. This technology has been around for a while, and some publishers have opened “private exchanges” using it. But Yahoo’s taking this to the next level, where it’s only selling its “remnant” inventory this way now. A move I applaud (whoever made this call and got it pushed through, let me know — I want to buy you a drink!)

My sincere hope is that Yahoo sets hard price floors on what it sells through this sales channel, and that it doesn’t liquidate the inventory at any cost. And when it does let retargeting companies or its other former “wholesale” customers of remnant purchase the inventory — it should ensure that it’s getting paid what the inventory (based on the audience they’ve attracted) is actually worth — and force the reseller to identify who the buyer is, and what the closing price of the inventory is. But baby steps are fine with me!

Why the display ecosystem might implode

(Originally published in iMediaConnection, November 2011) by Eric Picard

I sat on a panel at OMMA display on Monday, and the discussion was designed to determine if ad exchanges were going to be relegated to the land of direct response advertising, or if they would foster brand-friendly environments.

I’ve written a lot over the past few years about the future of display, and the issues we face and need to overcome. But this panel brought up many key issues that I thought I’d take a quick look at in this article.

Creative formats for display are really awful
If we don’t solve this, we might just need to give it up. Display ads are just too small to really give an effective brand experience. Even the “brand-friendly” banner units like the venerable 300×250 are too small. Are we really saying that pre-roll is the best we can do?

I suggest we think through the issue of brand-friendly space, and fix websites to accommodate it. We should strip all the banners off every page of a major publisher, and replace with a brand-friendly unit that gives the advertiser a great venue to show brand content and is still user friendly. It’s not so hard — there are all sorts of vehicles to use here.

“Sliding ad units” that move the content down for a moment on page load, then retract to reveal a “leave behind” unit that can be explored by the consumer (and re-expand the ad) if they’re interested are my personal favorite. I like this better than over-the-page ads that cover the content in general. But even expanding ads (my last startup, Bluestreak, pioneered expanding ads back in 1997, so I’ve thought about this a lot) work well for this kind of thing as long as they don’t expand on mouse-overs. They should expand for one to three seconds on page load, and only re-expand on clicks. If they very quickly expand on page-load, retract to show that they’re “there” and interactive, and the entire expansion and retraction takes less than three to five seconds, consumers won’t backlash too badly.

Targeted reach is critical to brand advertisers
Brand advertisers will pay to reach audiences that they define. They don’t need to have a conversion tracked, nor do they need to track CPA during the life of the campaign. They don’t need to track clicks — except you’ve fought so hard to convince them of this, that they finally have shrugged their shoulders and said, “Fine, show me the clicks.” Too many people in our industry are drinking their own Kool-Aid.

Why do I still have people argue with me that GRPs and TRPs are not what we should use? They’re good enough metrics for massive amounts of ad spend — tens of billions of dollars, in fact. And we have the arrogance in this industry to simply refuse to adopt and promote something that people with money have been requesting for more than 15 years. Really? The customer isn’t right? You know better? They have money to spend.

I get worked up on this topic — it’s ridiculously stupid that we won’t sell a product that customers with big budgets would like to buy from us. And the argument I continue to hear come out of the mouth of smart people? “We can do better.” This is a fool’s errand. When people say, “I’m thirsty, and I’d like to buy a nice bottle of seltzer water from you”, the response isn’t, “No, that’s not what you want. We sell the water and bubbles separately. It’s much, much more effective that way — I have data to prove it.” And they keep saying, “But I just want a nice bottle of seltzer water.” And we keep telling them to pound sand.

More than this — we keep building incredibly complex tools to manage buying and selling in our space. That makes it very hard and inefficient for brand media buyers to adopt online display since they can get massive reach at a reasonable price from traditional media — but not so much from online.

So I have an idea: Let’s sell the customers something they want — gross and targeted reach and frequency (GRPs and TRPs) that mesh well into the combined cross-media plans that they do, and let’s give them tools that don’t require them to get an advanced math degree to use.

And still I’m going to have comments on this article that “we can do better than GRP and TRP.” Fantastic — you go do that. But why not give them GRP and TRP too? Does it hurt to give them what they’re asking for? Calculating GRP and TRP isn’t that hard.

Build tools that are ideal for brands to use and that make it really easy to buy online display advertising in ways that make sense in the context of all the other money they spend. Give consumers better ad formats that actually are great venues to showcase brand ads with emotional impact. It’s not hard technically. It just requires some group consensus. And I fear that we’re not going to pull it off — despite its relative simplicity.

On the OMMA panel I was on, three of five panelists said that they felt that there was a real chance that the economics of display advertising could implode over the next few years. I was on the dissenting side of this panel. Let’s not make me a liar, shall we?

3 ways that display advertising must change — or else

(Originally published in iMediaConnection, October 2011) by Eric Picard

Despite all the excitement in our industry about programmatic buying and selling of inventory (via ad exchanges, DSPs, SSPs, and a variety of direct-to-publisher vehicles like private exchanges and private marketplaces), the vast majority of dollars today are still spent the “old fashioned” way.

Since display ads began being sold in the mid-1990s, very little has changed in the way that the vast majority of ad dollars are spent. Most ad dollars are spent via a guaranteed media buy — either a sponsorship (the brand is placed on a specific location for all impressions served to it) or a volume guarantee (ad space of a specific volume is reserved against either a specific location on a page, or a specific group of pages, but will rotate out dynamically on a per-page view).

Sponsorships are great for buyers and sellers because they’re easy to manage. The buyer gets a fixed location, takes over every impression delivered to that ad location, and the seller doesn’t need to worry much about over- or under-delivery. (Sometimes they will sign up for a volume guarantee here, but many times they don’t.) And generally while sponsorships tend to yield low CPMs for the publisher, the ad buys are frequently for solid brands and the size of a sponsorship tends to be large on a dollar figure, if not large on CPM basis (e.g., it may be a multi-million dollar buy, but the CPM is probably low).

The oft-misunderstood publisher benefit of sponsorships, despite the low CPM, is that the cost of sales tends to be much lower. A sponsorship buy can be executed quickly and doesn’t require a lot of labor after the fact. I’ll discuss more about the issue of cost of sales when I touch on efficiency. But don’t underestimate the importance here.

Guaranteed volume-based buys are in many ways the cause of vast problems in our industry, despite being generally more lucrative and higher yielding on a CPM basis than sponsorships. First, they tend to be very sales and operations intensive, which means the cost of sales is often extremely high (frequently above 30-40 percent, and sometimes significantly higher for some of the most complex campaigns). There are several reasons why guaranteed volume-based buys are complex and costly.

First is that when inventory is sold in advance, there is some degree of prediction involved to determine how much inventory of any specific type or location will exist in the future. This inventory prediction problem is still one of the biggest issues we face as an industry. The ability to predict how many users will visit a specific section or page of a site is quite difficult on its own. Given the guaranteed nature of these buys, the prediction methods need to be extremely accurate, and getting accurate predictions is hard, even just based on seasonality and one or two locations. Once additional parameters, like various types of targeting, frequency capping, and various competitive exclusions are applied, the calculations are near impossible to calculate accurately.

This difficulty with predicting specific inventory in advance is the root of the second problem — optimizing buys on the publisher side during the life of the campaign. This rears its head in general, but much more so when the buy is targeted. Most buyers have no idea of the complexity of delivering these buys and how much work happens behind the scenes at most publishers to pull it off. Frequently there are daily (sometimes multiple daily) optimizations done behind the scenes to make sure a targeted campaign delivers against its goals. This can involve making changes to prioritization in the ad delivery systems, spreading the buy to larger pools of inventory, and bumping lower-paying campaigns out of the same inventory pool (at least temporarily) in order to ensure delivery.

Most publishers are not aware of the vast amount of labor done by ad agencies on their buys across publishers in order to ensure that advertiser goals are met. This can range from just ensuring that volumes that were agreed to are met, to ensuring that click or conversion rates driven by the buy are meeting a performance goal (for the direct-response advertisers). In either case, the amount of work done by agencies to optimize these buys, frequently across dozens of publishers, is huge.

Buying and selling inventory must get more efficient
This brings us to our first big problem that must be solved. Media buying and selling needs to get more efficient. If you compare efficiency (i.e., costs) of buying and selling traditional media versus online media, there’s a very clear difference. I’ve been told by numerous sources that the efficiency is between 10-15 times less efficient for big spenders for buying online versus offline media. And certainly there is a similar lack of efficiency for selling of online media.

One way that both buying and selling can become more efficient is through basic automation. Much of the back and forth of a media buy between buyer and seller is manual. There are not simple standard efficient means of automating the media buying process. There are numerous tools on the market that try to do this in the guaranteed space, but adoption has remained small so far. Between TRAFFIQ (full disclosure: I run product and engineering at TRAFFIQ), Centro, FatTail, isocket, Donovan Data Systems, DoubleClick, and others, there is plenty of choice to automate buying and selling of guaranteed between systems focused on the buy or the sell side of the problem.

And despite the promise of programmatic buying and selling removing much of the inefficiency from the space, most publishers are so worried about putting premium inventory into exchanges that we are still relegating exchanges to massive repositories of remnant inventory. Publishers must start using the private exchange and marketplace functionality that’s available to represent premium inventory.

This doesn’t mean that salespeople go away, and it doesn’t mean that publishers lose control of their inventory. It just means that much of the inefficient order-taking and campaign optimization that is done on both sides of the media buy can be removed from the system and automated. Sales become a more evangelical process, less work goes on behind the scenes, and salespeople stop spending so much time “order-taking.” Today publishers can set dynamic floor prices against exchange cleared inventory, buyers can automate their bids, and at the end of the day, the whole marketplace can get more efficient.

Publishers often say they don’t want this to happen because they fear a drop in the CPM of their guaranteed buys. The reality is that the cost of sales is so extreme on guaranteed media buys — especially targeted or frequency-capped ones — that publishers could easily skim 20-30 percent off their floor price if the cost of sales was significantly reduced.

One major reason that we’re having such trouble in the display industry is the predominance of performance or DR spend in our space. This overemphasis on DR for display has huge consequences to our space — from depressed CPMs to a focus on metrics and methodologies that require a lot of work. This leads us to our second major change that must take place.

Online display must become a brand friendly medium
Let’s face it. As a brand advertiser, you’re much better off putting your message on television or in magazines than on almost any digital vehicle. Our ads are too small to give the brand a proper emotionally reactive vehicle to reach audiences. Even the “brand friendly” 300×250 ad unit is tiny on today’s modern high-resolution screens. Luckily the IAB is responding to this problem with action, and there are many new larger standard ad sizes being promoted across the industry. But publishers have got to adopt them, and buyers have got to demand them as part of their RFPs. We should be moving much faster here — especially when you consider how many new tablet form-factor devices are moving into the hands of consumers.

But beyond the simple size of the ad, the design of most web pages leaves a lot to be desired from the perspective of a brand advertiser. There are too many ad units, not enough “white space,” too much noise on the page, and not enough back-and-forth value to the site’s own visitors or to the brands from the “advertising experience,” meaning the way ads are integrated with content. In a perfect world, the audience and the brand should be at the very least “neutral” in tension, and ideally the ads should be adding value to the viewing experience.

But there hasn’t been a huge outcry from the brands to fix this because they don’t see online as a medium that caters to them or is brand friendly. The flat CPM pricing is fine, but the lack of available GRP or TRP measurement in order to provide some cross-media evaluative metrics is a major roadblock.

Another reason that the biggest brands haven’t come online, beyond both the efficiency and brand friendliness issues, is that the ad units are shared with numerous less brand-centric advertisers, many of which run creatives that no brand advertiser would ever want running alongside their own creatives. This massive over focus we have on direct response or performance advertisers has somewhat tainted online display, and the willingness of publishers to liquidate every single available impression at fire-sale prices has led to overall much lower CPMs than media that have focused on brands as their primary customers. This issue leads to our third and final major change that must happen in online display.

Online display must increase overall CPMs of inventory
If we can transform display into a high-quality space for brand advertising, we should be able to demand higher CPMs. This sounds nice and wonderful to most publishers, but many of the people reading this article will somewhat cynically push back at this point and talk about the “reality” we face in online display today.

So let me dispel a few myths by explaining the economics of our space in terms many of you have probably never heard.

Every emerging media that I have researched or lived through has focused initially on DR advertisers as their primary target in the very beginning. There is an economic theory that drives this: budget elasticity. The idea is that a DR advertiser is theoretically managing spend based on pure ROI. That is, they only buy ads that drive profitable sales of product or services (i.e., the budget is “elastic”). This, in theory, means they will spend as much as they can as long as the media buy creates more revenue than ad spend. And because the media experience is new in an emerging media, and the advertising is novel, response rates to those new ads in new media types tend to start out much higher, and then they will eventually plateau.

The problem with this theory is that it only works out well for publishers catering to DR buyers when the conversion rate on their inventory is high enough to drive high CPMs. The type of inventory that drives high conversion rates is typically extremely well-targeted inventory, typified in our space by paid search advertising, where the users tend to be searching for the very thing that the advertiser is selling. There are some forms of display advertising that also drive high conversion rates. They are frequently driven by retargeting of search queries, very lucrative behavioral segments that show a user’s propensity to buy is higher than average, or similar principles.

Like all other emerging media, when display advertising first started out, the focus was on getting DR advertisers in the door. And like all other emerging media, the response rates on ads were relatively high in the early days. But unlike all emerging media before online display, we wrote software that managed media buys online right at the beginning of this industry. And all of the DR “knobs and dials” were locked down in code, which made it much harder to evolve out of DR into brand advertising. If response rates had grown or remained high, this wouldn’t have mattered. But like most “top of purchase funnel” ad experiences, the response rates are too low to justify high CPMs by the DR advertisers.

When a media type does not drive a very high conversion rate, DR advertisers are only willing to spend a very low CPM. There’s a magic point at which the price of the inventory is low enough that the DR formula for positive ROI starts to make sense even for low performing inventory. This inventory is generally cheaper than 50 cents and frequently cheaper than 5 cents. And there’s a ton of it available in our space. This overemphasis on DR has numerous unintended or unrealized consequences.

Many large publishers sell their guaranteed inventory at well above $3 on average, and many publishers average between $5 and $9 for what is sold by hand. But this typically represents well under half of their inventory, and for many publishers it’s more like 30-40 percent of their total inventory. Once you dip below the conversion threshold of a DR buyer on most ad inventory, you’re driving very hard toward the basement on your prices. And if more than half of your inventory is sold off for less than 20 percent of your total revenue, then something is very wrong with the way we’re managing our space.

Publishers would be much better off stripping half the ads off of their site, redesigning the site to accommodate larger brand-friendly ad units, selling a lot more sponsorships with their human sales force, and selling the remainder of those ads mostly through a very automated sales channel, such as a private exchange, or at the very least automating their sales with one of the available tools.

Even selling10-20 percent more ad inventory through premium channels would significantly increase yield for most publishers than all of the remnant sales that take place today. Simply repurposing the sales and operations teams away from the remnant inventory problem and focusing them on selling premium could solve this.

To conclude, if we can make buying and selling inventory across the online display space more efficient, more brand friendly, and significantly increase our CPMs, then we’re going to have a rapidly growing and expanding space — one that would rival venerable offline media like print and television in size and scale. And that would become the perfect vehicle for those media to travel through as they become “tablet-ized” and “streamed.” But with such a huge overemphasis on DR, massive inefficiencies in buying, and low CPMs, we have a ways to go.

Why the ad industry is ripe for consolidation

(Originally published in iMediaConnection, September 2011) by Eric Picard

The other day I was talking to a good friend of mine who is on the executive team at a startup in the ad technology space. We were talking about strategy — and in the midst of the conversation, I suggested that since the company hadn’t taken any money yet, it should strongly consider selling at its early “life stage” for $10-20 million now. He gasped and told me, “Are you kidding me? I’d put our valuation at between $100-200 million.”

I stopped talking for a minute, and then said, “I’m not sure how you could possibly have the revenue to justify that.” This is, after all, an early stage startup that only has been in business for a year or two, and I’m fairly familiar with the company and its customers; I know it’s not doing more than $2-3 million of annual revenue right now.

And he said, “In (insert niche here) nobody is bought on a multiple of revenue — it’s always based on strategic value.”

To which I replied, “That might be true of funding — of course VCs and increasingly PE firms are betting on the long-term value of disruptive technologies. But for an acquisition, at least for a rational one, nobody is bought without some discussion of ‘comps’ for similar companies and revenue, and some ‘reasonable’ multiple is definitely a factor.”

My friend rattled off several examples of companies that have been acquired (for what I see as irrational amounts of money) lately and some of his beliefs on their revenue pictures — and we picked over the specifics of the acquisitions. And that’s when I started to get worried.

This conversation has been rattling around in my head for days now, and I have to say I’m concerned about the market. I see this space as primed for consolidation. The Luma Partners display ecosystem slide is a perfect example of much that is wrong in our space:

As dollars move between advertisers and publishers, the folks sitting in the middle are trying to find a way to strip off some money as it passes through the ecosystem. The only way they’re going to be able to strip some pennies off of the dollars as they flow through is if they provide some value back to the ecosystem. The problem is both the number of companies in this space and the exuberance of those companies for how they believe they’ll participate. Many are not realistic on what they should be paid.

There’s opportunity in this space; don’t get me wrong. I wouldn’t be invested so heavily in online advertising if I didn’t believe that there is a strong opportunity for me and my company. But let’s all be very clear about what that opportunity really looks like. The greater the provided value, the more money that the company in the middle can take away. So is the value a moderate improvement in efficiency — or a substantial change in value? How significant is the change? At the end of the day, the market will bear only so much being stripped away, so only those companies that have disruptive technologies are going to be able to extract significant amounts of money.

It might be useful to look at what percentage of spend various vendors are able to extract today. Let’s start with agencies, which are often the target of technology companies trying to find a place to disrupt the market through disintermediation. But that’s crap. First of all, the agency lives in thepower position in the ecosystem. And despite the kvetching of the technically minded who don’t “get” what agencies do (nor even the difference between a creative and media agency), agencies provide a lot of value to the advertiser (their customers). Agencies are not easily disintermediated — nobody has been able to disintermediate them so far.

Most startups vastly inflate the amount agencies get paid — typically the number that is thrown out is somewhere between 15 and 20 percent of spend, which would be freakin’ awesome if it were true. But those kinds of percentages went out of style in the ad space along with well-tailored suits, smoking a lot of cigarettes, and drinking whiskey and water like it’s going out of style. Most big agencies no longer negotiate their contracts with the marketing team as an advertiser; they negotiate with procurement offices and negotiate for fixed margins — very low margins, in many cases. They’d be psyched to claim 15 percent of spend. They’d be excited about 10 percent of spend — even 5 percent, in some cases, would be cause for ecstatic celebration.

OK, so agencies are not where the money pools. What about tech startups? The reality is that technology vendors take small percentages of the dollars out of the flow and make it up on margin and volume.

Ad serving is a great example of this. A third-party (buy side) ad server is typically getting between $0.07 and $0.15 CPM for its service. That is really not a huge amount of money. It typically comes in at less than 5 percent of spend — and at volume, and depending on price, it frequently is down below 1 percent.

In traditional media, typical vendors are well below 1 percent of spend as the money travels through their systems. But ad serving is commoditized, you might say (and I’d argue that before too long, most technologies are commoditized). Look at DSPs, which have been the much-laureled darlings of advertising technology for the last three years. There’s very little differentiation here. They’ve all commoditized out to varying degrees, competing only on price or service, or minor feature differences, rather than by disrupting each other. (And for the record, there’s nothing wrong with this — which is sort of my entire point.)

“But the DSPs are the future,” you might say. “They’re the ones who are bringing automation and efficiency to this space; they’re the future of advertising! Damn it!”

Well — yes and no. DSPs are playing in an emerging media — the real-time inventory market. In emerging media, the top-line media spend CPMs are generally higher. (Let’s not have any illusions here — it’s a product of supply and demand in which the amount of available inventory is low and the demand is high.) DSPs are in an emerging space where supply is vast, and demand is small (but growing), and they still are taking a proportionally large chunk of spend (8-20% depending on the contract and volume) because the market is emerging and the average deal size is still quite small.

In emerging spaces, the technology vendors typically take much bigger pieces of the pie. For example, look at ad serving back in 1998 — CPMs were closer to a dollar. Look at rich media vendors, which could easily pull close to $2 out of the ecosystem back in the early days. But the core CPMs of the media in an emerging market are higher. Look at mobile: In 2004, the average mobile CPM was between $60 and $80, and is now below $5 (depending on who you talk to). And when the CPMs are high, and the market is still figuring itself out, vendors can take a big piece of the pie. Even in paid search, which hasn’t seen the bottom drop out of CPMs (for very strong economically provable reasons), the percentage of sustainable media spend by vendors hasn’t been very high. The simple truth is that mature media markets are only willing to allow very small amounts of money to leach away between buyer and seller for “table stakes” technologies.

Does this mean that the online advertising space is not as “hot” as investors have believed for the last decade? I think this space is incredibly hot — and that there’s a huge amount of value to be created and we’re only at the beginning of it. But let’s be clear. Let’s look each other in the eye and not pretend that the dynamics of an emerging market are sustainable over the long term.

There are only two tricks to play out here: You either need to be the Donovan Data Systems of your market (i.e., you are indispensible, are taking a reasonable percentage of spend as the dollars flow through you, and you’re the stand-out leader in your space). Or you need to be the company that redefines the market completely (i.e., you will use technology to fundamentally change the way the market operates). And if technology is at the center of that disruption and technology is the driver of that fundamental change, then suddenly the rules are different.

What bothers me about the space we’re in right now is not only that it’s getting really crowded, but also that most of the parties playing in the middle are not adding the value that a full corporate entity needs to be adding in order to both create and extract the value needed. Most of these startups are really more of a feature rather than a whole business. But if they’re just a feature, what do they plug into?

The problem is that consolidation is not easy. It actually sucks majorly — for everyone involved. I speak from experience; I was on the deal teams for of a bunch of companies we acquired when I was at Microsoft. I was involved in the projects to consolidate those acquisitions, and I’m friends with a bunch of folks who were in similar roles at Google, AOL, Amazon, Yahoo, etc. And it’s just never easy. The buyer has this nasty problem of a new and generally incompatible technology, plus a completely different culture — both of which are super hard to converge successfully.

And what about when you’re getting bought? It only works out well for those who are fairly mercenary — the ones who ran after the idea because they wanted to exit well, and who were determined to exit well, and were plenty happy to exit as early as they could. But what about for those who are in love with their own startups, who see them as children? Great entrepreneurs I’ve met look upon an acquisition as an opportunity to get their struggling products the visibility and distribution might that they deserve. And it’s called an exit for a reason. When your company is acquired, it ceases to exist. It’s no longer your company; it belongs to someone else, who is very likely going to screw it up and kill it.

The trick for having a successful startup in this space and a successful exit (not only for the cash value, but to have your beloved business count for something going forward) is for folks to be realistic about both the value they bring to the table and the way they can be leveraged. And let’s not forget that in order to really be valuable when you are acquired, your technology has to somehow rationally live in the context of the acquiring party’s landscape — both technically and culturally.

Exit earlier rather than later if you can — while you still own a good chunk of the company. As a founder, would you rather have 30 percent of $20 million, or 5 percent of $80 million? I’ll give you some advice — earlier is better. Exit before you have to scale the thing up — before you have to invest in customer support or in operations, before hosting everything in the cloud stops scaling for you cost effectively and you have to invest seriously in capital expenses and need to raise a lot more money.

And please — build your technology in as abstracted and “ingestible” a way as possible. Please — I’m begging you!

But I digress. The reality is that there are a lot of companies that are stuck. They’ve taken a lot of money, but they aren’t the leader of their space or disrupting their space significantly. And most of them have become targets for new companies coming in and running after them — and either exactly copying them (further commoditizing them) or disrupting them.

It’s these second-generation companies that are the ones to watch. They’re typically bootstrapped and generally doing more interesting things than their established competitors. And they’re the ones who are most ripe for consolidation because they can afford to exit for much less money since they haven’t taken as much from investors.

The only question is this: What happens when they get acquired? And what happens to the middle of the market — those that have raised $15-40 million and that have stalled on growth and suddenly face a plethora of competitors? They had better find a way to get profitable real fast.

An online marketer’s guide to the full product life cycle

(Originally published in iMediaConnection, July 2011) by Eric Picard

Let me state the obvious — because clearly it’s not so obvious, especially to those of us working in online marketing. Most products and services are designed with a target market in mind. This market could be as broad as those of us with teeth, who hope to keep them healthy into old age, or as specific as 38-year-old women who want white teeth for their 20th high school reunions. The trend for the last few decades has been toward designing products for narrower and narrower markets — and using specific differentiation between target markets to drive sales and profits. And of course, with better targeting available all the time, the ability to hone the product to a specific subset of customers will become ever more possible.

The best companies use a combination of personas and scenarios to ensure that they are nailing the product requirements early in the design phase. These scenarios (sometimes also called use cases) are pushed into the hands of eagerly waiting marketers, who in turn get the product put into a strong series of marketing messages (and even the actual creative) that tie to specific target customers (the personas). The personas for which the product and marketing teams have developed their products ideally make up the basis of a media plan.

I’m frequently shocked at how few of the basics are used in the development of media plans for online marketing. And I’m frequently shocked at how products are released with marketing messages and targeting that don’t match. In many cases, the creative for online is either just completely different than the offline creative, or it has been so incredibly simplified for online that none of the powerful messaging from other media actually make it through.

So I thought I’d write a short primer for online marketers so that they understand the whole product life cycle and how they should be plugging into it. In advance, I’ll warn you that there are numerous methodologies here, and almost every company does this just a bit differently. So I’ll just push forward a simplified version of a typical process, and you should be able to apply the concepts as you stumble across them. And of course, if any companies you’re working with don’t use some variant of what I’m describing, you should be a bit concerned.

Product planning
In a perfect world — where there are plenty of resources, time, and money to properly plan a product — the model goes something like this:

Three to six months of market research are commissioned, funded, and executed to ensure understanding of the market demand for the product in question. This process begins with a series of ideas and invention, combined (at least for existing products and services) with feedback from existing customers, and is turned into a strategic plan for what product will be built.

In this process, the target personas for the customers to whom the product is designed to appeal are created. Ideally some market sizing is done to determine what the financial opportunity for all companies running after similar products and services might be — and what the specific opportunity for the product in question might be. Simultaneously, work typically is done to determine what scenarios will be supported in order to bring clarity to all members of the product team, from research to development to marketing to sales.

Example persona: Wealthy, highly educated, sophisticated urban empty nesters — Brad (64) and Sandra (62)

Example product: Online banking services for wealthy clients with multiple homes

Example scenario: Brad and Sandra live in New York City during the spring and fall, in Martha’s Vineyard during the summer, and in Killington, Vt., during the winter. They need a way to ensure that all their bills are paid on-time for all their properties, all year round, even when they are rarely there. This service creates a very clear portfolio of all their properties, and all their expenses, such that bills can be easily assigned to a property, tracked, and managed in a clear automated way.

Product planning is really the process of defining the opportunity at a broad level, and ultimately answers the question of why a product or service should be rolled out. The more discipline, time, and effort put into effective product planning, the easier the job of all the subsequent teams engaged in the process.

Product management
Once the product has been planned and approved, it’s time to build it. In this case, we’re talking about a software development project that will be rolled out via a website and a variety of apps across PC, phone, and tablets. The process entails defining the specific features, creating the project plan, working with the product development teams to ensure the correct product decisions are made, coordinating internal communications, and development of the appropriate key performance indicators (KPIs) to measure the product’s success in the market.

In most companies, the product management team is really the “product owner” and makes all the decisions and prioritizations of features of that product. Essentially, the team defines what will be built, leaving the how to product development. In some companies the what is shared between the product management and product development teams.

The key to strong product management is always being customer driven — which means creating very powerful and accurate personas and scenarios that always drive the “true north” of what is being built. This process should become the basis of what is handed off to the sales and marketing teams in order to drive the go-to-market strategy and sales positioning.

Product marketing
Product marketing is typically one of the most important teams, leading one of the most important efforts — but frequently this discipline is under-funded and under-resourced. In an appropriately resourced product marketing effort, key partners and customers are engaged in deep ongoing conversations. Ideally, the personas and scenarios that were created during the product planning effort received vast input from the product marketing teams. The go-to-market strategy for how that product will be launched, including all the marketing and training materials used by sales and customer services within the company, is managed by this team, which also feeds the key marketing positioning to the marketing communications teams.

If the product marketing team does its job correctly, the corporate marketing and sales efforts will be successful. Product marketing ultimately owns the decisions related to where and when the product will be rolled out (with huge dependencies on all the other teams).

Marketing communications
Given the intended audience reading this article, I won’t spend a lot of time here — as this is either you or your direct customer. However, a few key points are worth spending time on:

If the correct personas were created, the media strategy and even the core media plan should come together like a breeze. If the correct scenarios were chosen and executed against correctly by product management and product development, then the creative of the advertising should be quite easy to conceive and execute. In a perfect world, there is a direct feed from inception to creation to getting that product or service in front of prospective customers — and converting them to active customers.

There are, of course, many other teams involved any business, and all play critical roles at varying moments of the product lifecycle. Hopefully this rather nuts-and-bolts summary of the overall process will help those of you who have grown up attached to this mechanism either internally or externally, but who haven’t had full exposure to the processes and roles.

3 ways to increase ad engagement, conversions, and ROI

(Originally published in iMediaConnection, June 2011

We’ve been at this online advertising thing for about 15 years now — give or take a few years. And we’ve seen time and again all sorts of tricks, tools, approaches, and technologies that can be used to increase ROI from the advertiser’s perspective and yield from a publisher’s perspective. I’ve written tons of articles saying what we should do as an industry to improve advertising from a policy, approach, and technology perspective. But today, I have a nice little article about how to improve your results as an advertiser.

In 1997, I started one of the first rich media advertising companies. Many of the ads we built — back in the days of 56K modems, before broadband, and when creative file size limits were tiny — would win awards today and still be recognized as groundbreaking. As an industry, we’ve gone backward, not forward.

Disrupt your own creative approach
My overall recommendation is to “productize” your advertising. You can do this by creating standardized ad units with preconfigured types of interactivity and with one defining trait from a creative perspective that immediately connects with the user. This last element is important — and is the trickiest to pull off — but once you nail it for one set of campaigns, you’ll be done with that work.

Example: For an advertiser selling cleaning products, surround the border of each ad with a froth that animates little popping bubbles.

Whatever that unifying theme is, break it down into the simplest graphical treatment that doesn’t overwhelm the rest of the ad, but that is both noticeable and engaging. Work with your rich media vendors to find out what is possible across the publishers you want to work with — and make it real.

Since our display advertising space is small, and the units make up a tiny non-disruptive portion of the screen, you need to force the issue about space. That might mean you need to create very compelling creative that somehow creates interaction between multiple units on the page, breaks outside the boundary of the border of the creative unit, or just uses simple and arresting copy or images to capture the user’s attention.

I realize this is a bit of Advertising 101. But we spend too much time in this industry running ads that don’t differentiate from each other, don’t capture the user’s attention, and are just plain old boring ads in standard IAB-sized units.

Every rich media vendor out there offers a variety of simple solutions to the ad mechanism, whether the mechanism is a 300×250 banner that breaks outside the boundaries of the creative, or whether it enables an over-the-page experience in which the ad expands and is not rectangular.

Create multiple engagement opportunities within the ad
Even within standard ad units that run on a significant number of sites, many opportunities for engagement exist. Whether we are talking about a 300×250 ad unit, a 300×600 half-page unit, a 728×90 leaderboard, or 160×600 wide skyscraper, all of these formats are large enough to create deeper opportunities to create content — not just an ad.

Ads that just offer a click-through to a landing page are very straightforward and miss out on massive opportunities. My recommendation is to always offer at least two — if not three — specific and clear opportunities for engagement with the user. One should be the primary execution; the others should be highlighted but not overwhelm the primary.

Example: For a cleaning product, the primary creative should be an engaging brand message with eye-catching graphics and a simple story. The second opportunity should be more direct-response driven (e.g., print out a coupon or request a free sample by mail). If a third opportunity makes sense, it should pull in a different direction (e.g., sign up for a cleaning tips newsletter or go to a store locator for places to buy the product).

In any case, this should always happen right within the ad itself, not requiring the user to jump to another website. Conversions within an ad unit tend to be much higher than those that require leaving the site that the user is on — and the larger ad units certainly have enough room to put some simple forms in front of the user and capture data. Every rich media advertising vendor out there has ways to do this for you; just work with your vendor to see what’s possible.

Tie online ads to the physical world (ideally locally)
Every ad should be a combination of engagement opportunities — driving brand engagement and brand metrics, but also offering quick-twitch direct-response opportunities.

Users are not going to buy a car or a washing machine from an ad. But they might well be willing to sign up for a test drive or visit a store for a scheduled demonstration of a large-ticket product. Working with opportunities that are localized is very smart, if at all possible. Frequently the possibilities exist, but they are outside the normal consideration set for an online component of an overall advertising campaign. So don’t use normal considerations — break outside the boundaries of the norm and drive change.

Examples: If you are advertising a product that is sold by dealers (cars, agents, etc.), retailers, or resellers, create engagement packages with them to drive customers into their stores. In some cases they might be willing to share some of the expenses for successful engagements, or at the least could be willing to participate in a broader proposal. These could be as simple as setting up a special event at their location that ties to the lifetime of the campaign, such as having food grilled at a car dealership on a specific weekend, or offering to give product demonstrations one evening a week.

Getting your online creative to pop outside the box of the ad unit, to drive deeper engagement with the customer, to offer some kind of outcome driver as part of every unit, and to tie to offline (physical world) engagements in the local community will completely change the game and drive much greater ROI for the advertiser.

It’s not your data!

(Originally published under the title “Our industry’s Unethical, Indefensible behavior”, in iMediaConnection, April 2011) by Eric Picard

I’ve been writing a lot lately on the topic of online privacy at the intersection of advertising, and particularly the way the third-party tracking ecosystem has been evolving for the past few years. There is an ongoing onslaught of discussion about legislation and how we’re probably going to get regulated. Some of my closest friends in the industry are at odds with my position, and many people are finding themselves diametrically opposed to people they respect over this issue. People are claiming that if we stop the targeting, all the value in this industry will bottom out — that another bubble will burst, and advertising Armageddon will follow. I disagree. I believe a huge amount of value can be generated without marginally ethical behavior.

To me, it’s a very clear issue — one based on ethics and logic. If companies are tracking people across multiple websites without their consent, and without providing any recognizable value, and those people want the tracking stopped — then it should probably stop. There is real money on the table for the companies that do this data collection, and changing the opt-out model to an opt-in model would decimate their financial outlooks. But this ultimately doesn’t matter. As an industry, we are doing something that most people simply don’t want us to do.

When a publisher tracks what its visitors do on that one publisher’s site, tracking is a defensible practice. The online users who visit a publisher’s site are electing to visit that publisher, and as long as the publisher is collecting data to be used only on its own website, then this falls into the standard quid pro quo relationship that already exists.

People get free or reduced-cost content that they desire to consume from a publisher. The publisher shows them ads, and frequently requires that the consumer register or subscribe (regardless of if this is a free or paid subscription) and hand over some data to be used to better sell ads to advertisers. While a person is visiting a publisher’s site, the publisher certainly has the right to track his or her behavior. There are lots of reasons justifying this right. And consumers can choose to simply avoid visiting that particular publisher if they disagree with the publisher’s privacy policy. And having a user specifically opt out of being tracked on that publisher’s site is a great option to provide.

However, my issue is with the practice that has exploded over the past few years, where third-party companies place tracking tags all over the internet — across multiple publishers — and create comprehensive profiles of consumer behavior. This without any discernable value given back to the consumer (I have lots more to say on this issue below) and without their direct knowledge or consent. This tracking is all enabled by third-party tracking using third-party cookies. This capability was not what the browser designers created cookies for, and it is a sort of hack of the way browsers operate. If “hack” is too strong a word, it’s at least an unintended loophole in browser design that has been used in ways that are hardly defensible.

While I am passionate on this topic, I actually think this argument is a moot point in many ways. I predict that the browsers are going to very elegantly enable consumers to block third-party cookies in the next few releases, and the whole house of cards built on top of this loophole in cookie security is going to fall to the ground.

The Internet Explorer team at Microsoft has already announced that IE 9 will make it extremely easy to block third-party cookies and content. And most technical people running the browser groups at Firefox (keep in mind, there really are no business people involved in this open-source browser) and Google (where technology drives most decisions) are all pretty smart; they understand the tracking behavior that they want to shield the public from. This is clearly an issue that technologists understand better than the general population, and most technical people I’ve talked to have arrived at the same conclusion: Blocking third-party tracking is in the best interest of consumers, it should be extremely easy to do, and the decision should be pre-populated as an opt-out.

Most of the discussions I’ve had on the opposite side of this issue have been with business people. They believe that there is no danger to consumers from what they perceive to be anonymous tracking of online behavior. And they continue to look at people who don’t agree with them as privacy fanatics who are irrationally trying to limit their businesses from succeeding. This isn’t the case, and I certainly am not fanatical about privacy. But I’ve learned a lot over the past 10 years about this topic, and on top of this, the market has radically shifted in the past three years. The amount of tracking going on has seen a huge increase, and the safeguards on the data being collected are quite squishy.

There is a real issue here that apparently hasn’t been understood by a lot of non-technical people. So-called anonymous tracking is fairly easily cracked open. And now that there are many mechanisms that have been created for matching cookies across domains and companies, there are numerous broadly correlated profiles of user behavior floating around. Many of the companies that have copies of these profiles are small startups, many without nearly the funding or maturity needed to build extremely secure environments. And even some of the biggest companies out there have had significant security breaches over the last few years — breaches that have leaked millions of people’s data into the public domain.

Many of the executives at the companies operating in this sphere are very reputable and honorable people who are certainly not being malicious or trying to hurt people. But what happens if their companies are purchased by less-reputable entities? Clearly those with scruples will simply quit and find other work. But now we’ve got a company run by unethical and dangerous individuals with access to a ton of data that can pretty quickly and easily be reverse-engineered to do diabolical things.

Or what if a startup isn’t successful and goes into bankruptcy — and the data assets get auctioned off to the highest bidder? Or what if there is a security breach and a hacker gets access to the company’s log files or plants spyware on its servers? There have been cases in this industry of crackers getting into server farms and hosting software there that gave them access to a lot of data. And of course, there is the other problem of companies that are just unethical to begin with.

Many proofs have been created that show how easy it is to reverse-engineer anonymous tracking. With a small amount of data to correlate with non-private activity, any decent engineer can take apart the anonymous shell around a person’s profile and merge it with personally identifiable information from other sources. And suddenly we’ve got non-anonymous profiles with all sorts of data in the hands of not-so-scrupulous people. Not a recipe for comfort.

At this point, the business people typically try to argue that without the work they do, consumers will have the horrible (never mind that it’s what already exists) experience of having to see advertising that is not relevant. The fallacy of this argument states that if we have better targeting, the ads that consumers see will be more relevant, and they will have a better experience visiting websites that are ad-funded.

There is no persuasive argument to be made that consumers benefit (really at all) from third-party tracking. The ads are not perceptibly more relevant (to the consumer), despite the advertiser’s ability to do deep statistical analysis and see a measurable lift in performance. The only groups really benefiting from the third-party tracking that’s going on are the companies that sell it, and to some degree the advertisers that are able to make use of it for a tiny percentage of their overall spend.

This argument is really hard to defend, and has been made by the ad industry for the past 15 years. I’ve made this argument myself a bunch of times. See this video for definitive proof. Please note that watching myself in this video drove two major shifts in my life: First, I saw that even I didn’t really believe this argument anymore, and I stopped championing this position. Second, I realized I needed to lose a ton of weight (which I’ve since done).

The argument of more relevant display ads is a fallacy. There is simply not enough ad inventory available to really improve relevance to a degree that it would meet the bar of a consumer. Getting a tiny percentage lift on CPAs that are already tiny doesn’t matter enough to justify the issues I’m complaining about from a consumer perspective.

Just because I looked at a pair of shoes online and then one out of 50,000 of the ads I see afterwards are for the same pair of shoes doesn’t mean that we’re making advertising more relevant. It means we’re making a few ads more relevant. A tiny handful. A handful that is so small that it won’t for a moment change the way that consumers feel about online ads. And in order to make ads more relevant, we’d need hundreds of thousands or even millions of ads from a similar number of companies in order to make advertising feel more relevant to consumers.

One argument I hear a lot is that consumers prefer the ad experience from paid search because they feel the ads are more relevant. But there is no real comparison to make here. There are something like 5,000 advertisers that make up more than 90 percent of the U.S. ad spend on display, across approximately 5 trillion monthly impressions across hundreds of millions of ad locations. Paid search has more than 400,000 active advertisers at any given time, with only about 250 million impressions per month and only something like 2-3 million commercially viable keywords. Paid search has more relevant ads than display because of this high concentration of advertisers across a small number of ads. We’d need a similar kind of ratio to really appear more relevant to consumers based on targeting in display ads — and we’re nowhere close to this. If someone ever figures out how to get local advertisers to buy display advertising, this could happen — but we’re a long way from this nirvana.

Another argument I hear is that we’re “not as bad as the offline direct marketers, who have been doing much more of this for years, and who have way more data than the online marketers.” And generally the argument is included that consumers clearly haven’t rebelled against direct mail, so they shouldn’t have a problem with what online marketing does.

This is simply silly from my point of view. First, the companies that lead the offline direct marketing industry are exactly the pivotal players that are enabling much of the third-party tracking going on in the online space. They’re the ones gluing together the cookies from multiple parties, so there is no “them vs. us.” We are the same exact industry, and the players are active across the board, across any perceived boundary.

Second, just because consumers have given in on the offline tracking that is going on and data sharing that happens regularly across the credit card and finance industry, this doesn’t imply their implicit acceptance of similar behavior in other venues. Like a frog dropped in warm water and slowly boiled, they didn’t understand what was happening in the offline world until it was too late. Now most consumers understand the issues, and they are not happy about this happening again in the online space where companies are more visibly collecting data about their behavior without permission. At least with the credit card companies, consumers get tangible benefit from the use of the credit card. In the online space, there is no perceptible value.

If you still believe that there is a credible argument to make to the average consumer on this topic, try explaining to an acquaintance who doesn’t work in the online advertising industry what tangible value they get from allowing a third party to track them. And be sure to explain what is really happening, including how many different sites they’re being tracked on without their consent. See if they call foul on you.

And frankly, you need to really question this issue yourself. Imagine your reaction if you found out that some company was hiring people to follow your wife, husband, mother, or children around and note what they do all day in order to build segmentation models for marketing. Imagine that when you confronted them, that their response was, “But we anonymize the data — trust us.” It just doesn’t cut the mustard from my point of view.

I have discussed this issue with lots of consumers, and not a single one — not one person — has ever said that he or she was satisfied with the ability to opt out. Every single one has complained about the fact that this was done without permission.

From a moral and ethical standpoint, I can’t any longer say that third-party tracking is OK with a straight face. I simply don’t believe it. There is no justification I can see from a consumer point of view that they should simply sit back and swallow all this tracking that doesn’t benefit them. Companies are making money off of their personal activity data. Every person I’ve talked to outside of our industry believes they have the right to expect that someone should need to ask permission before tracking.

I now believe that companies with no direct relationship with a consumer should not have the right to track that consumer’s behavior across multiple websites, make money off that consumer’s data, and potentially put that user’s privacy at risk without explicitly asking permission first. First-party tracking is acceptable and justifiable. If I visit a publisher’s website, there’s an understood quid pro quo that all consumers are fairly aware of at this point; they know they need to put up with advertising in order to get access to content and free or reduced-cost tools (e.g., email, IM, etc.).

On the advertiser side, consumers generally don’t have a problem if they are tracked when they visit the website of a company of which they are a customer. Amazon is often used as an example here. Just as there is a reasonable expectation that a shop owner would watch what you’re looking at and make suggestions to you inside their store, Amazon has legitimate reasons to track shopping behavior and provides customer value by doing it.

In the end, just because we can do something doesn’t mean we should do something.

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3 ways to ensure your company is amazing

(Originally published in iMediaConnection, March 2011) by Eric Picard

Recently I was part of a fascinating discussion among some luminaries in the online advertising and media space. The conversation was kicked off when someone mentioned that a friend was starting an internet company. This led to a rollicking debate about the role of technologists in a startup.

This conversation was interesting because it’s an issue at the heart of my personal passion. I believe that technology has the power to transform business and to transform industries. I suppose that belief is founded upon a lot of evidence. But I found the discussion fascinating because people who wouldn’t argue with the idea that technology has the power to transform industries and businesses often don’t take the next logical leap in their thinking.

Powerful technology — the kind that can transform the world — only comes from the minds of amazing technologists. People who are rare and valuable and extremely creative.

I’ve been fortunate to work with many amazing technologists in my career. The kind of people who create new products and businesses and services — who invent as they breathe. I’ve viewed their willingness to work with me, to aim their big brains at ideas that I brought to the table, as a fantastic gift. And I am incredibly grateful for their collaboration and their partnership. (Thanks John, Phani, Brian, Tarek, Mike, Alex, Wayne, and oh so many others!)

Too often when a business is started by business people who bring technology people in behind them, or as an afterthought, a huge opportunity is wasted. There’s some kind of bad meme at work. There’s a common misconception about how best to build a technology startup. Many entrepreneurs believe that the right way to utilize the engineering resources of their team is to simply dictate to the team what they should build. This bad meme works itself out as something like this: Business team says why the product will be built and what it will be (the market requirements and product requirements), and the engineers just figure out how to build it and when it can get released.

In thousands of companies around the world, this is the path that is followed every day — the path of engineering as a solution provider. It is possible to build products this way; it’s been happening for a long time. But rarely does something world-changing, industry-changing, or even company-changing come out of this kind of process. Don’t use process as a fence. Don’t use process as a way to control your engineering team, or you’ll get crappy products without any spark of inventiveness. Give your amazing technologist room to breathe and experiment and invent.

There is a reason that technology companies tend to trade at much higher multiples than service companies. Technology has the ability to act as an incredible multiplier. It can supercharge a business. It’s the difference between recreating a process that existed in paper on a computer screen, and inventing a new recommendation engine that helps you find flavors of ice cream you never realized you might like. Don’t fall into the trap of thinking that because you’re a smart business person that you can remove all the thinking from the development process.

So, what direction can I give you to ensure that your business is not creating business solutions rather than game-changing technology?

1. Don’t hire a programmer to work for you; partner with an amazing, creative, and capable technologist.

I wasn’t kidding: I mean a partner, not an employee. If you can’t invent the future without a technologist, don’t be stingy — find the best you can, and invent the future together. In my experience, amazing technologists tend to be amazing at a lot of things. You might find that they were a race car driver, or a musician, or a professional cyclist. Or maybe they just write amazing code.

2. Only hire A+ people.

Once brought on board, your amazing technologist (unless he or she is just inexperienced and not quite as amazing as you thought) will not hire anyone who is not an amazing developer. So why are you going to hire a B- marketing person and a C+ sales person? A+ people will simply not work with people who aren’t also A+ players. Will not.

When you hire the niece of your VC’s sister to be a marketing assistant, you’re quietly killing your company. I’ve seen a lot of situations where amazing technologists simply refuse to listen to business teams because the business team is made up of idiots. Hiring anyone on any of your teams who is below the quality bar you’ve set for the engineering team will alienate the rest of the team. It will drive them nuts. Only hire people who are amazing, creative, argumentative, and who seek the truth. And I promise you harmony and success.

3. Don’t be stupid and set up the corporate structure with the product people reporting into marketing or sales.

If your company is making breakfast cereal or toasters, then maybe it makes sense to put product management under a marketing leader. And if you’re a media company, maybe it makes sense to put product management under the VP of sales (I don’t think so — but I won’t argue the point).

If you’re building a technology company, product management probably isn’t even necessary. But since nobody is going to listen to me about that, do the next best thing. Put product management under the right other person. If you listened to me with No. 1, then your amazing technologist is probably good enough to own product management as well as the developers and test team. But if for whatever reason that doesn’t work out, then you should keep product management reporting into the CEO or the COO.