Author Archives: Eric Picard

Mar 03 2012
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Ad Ecosystem, Media Agencies

Automating Media Agencies

(Originally published in ClickZ, September 2007) by Eric Picard

I spend a lot of my time with media agency folks. And two recent conversations with senior people have struck me.

The first conversation was with a digital agency managing director in the U.K. We were discussing advertising’s future, and he said:

Agencies don’t spend nearly enough time strategizing for ourselves. We purport to be the strategists for our customers, but there is enough of a gray area in all the things we touch that even in online, there isn’t a huge amount of accountability. We suggest a strategy, we decide how it will be measured, and we get buyoff from the customer. If it doesn’t seem to be working as the campaign rolls out, we shift strategies and attack from another direction.

We try to keep our fingers on the pulse of advertising innovation on behalf of our customers — but we don’t hold our finger to the wind on our own behalf. We don’t invest in research or strategies that let us evolve or be particularly proactive. Mostly this is because everyone at an agency is focused on winning, keeping and improving business for the next quarter’s revenue. We have no idea how we’ll differentiate from competitors in five years — because we don’t have the time to think about our own business.

I’ve had plenty of conversations with smart, even brilliant, people at ad agencies over the past few years that were very forward-leaning. And I’ve had many great discussions about the market’s future . But this managing director was right: almost all these conversations focused on how to help their advertiser customers win. Not how the agency could win.

This is actually a large part of my work at Microsoft. I spend a lot of time thinking through the impacts of market changes on all advertising ecosystem participants, and I try to build models that will help them evolve and thrive as the ecosystem changes. Advertising agencies occupy a big part of my thought process.

Which brings me to the second conversation I had, this one with a senior executive at a U.S. digital agency. We were ruminating on my earlier conversation, and I asked him how agencies were going to evolve. He responded:

All the major agencies, especially at the holding-company level, recognize that the market is shifting and the existing models aren’t going to work much longer. We get paid mostly on an hourly rate, which worked out as a proxy for value for the last hundred years or so.

But as media fragments, we can’t keep shoving more people into the mix. At a certain point, this all needs to be automated. Our agency buys from hundreds of publishers a year — significantly more than our traditional agency counterparts. The average ad network deals in thousands of publishers. Just logistically, we can’t deal with trafficking, reporting, billing, and mundane issues like over- and under-delivery with any more publishers than we buy from right now. We need to automate the buying and campaign management process significantly. And once we automate things, if it actually works correctly, the billable hourly rate system simply won’t work any more because the manual processes will be too efficient.

I asked him how the big five holding companies were going to figure this out, and he said something striking: “They’re just going to watch the market and buy their way out of the problem. Why do you think WPP bought 24/7 Real Media? They’re trying to figure out how to scale. How many publishers does the 24/7 ad network deal with? Can they apply that model to media buying?”

This fascinates me because it intersects with my thinking for the past year. How will ad agencies deal with automation? I’ve talked to almost all of the major digital agencies and a bunch of traditional agencies, and everyone agrees we must find a way to scale online advertising. Everyone agrees that traditional media will move to digital processes over time (even if the delivery isn’t digital, the buying, selling, and measurement tools will use online ad models). And everyone agrees that even with the most cutting-edge tools for online media, we’re not close to solving the problem yet.

Whether they figure it out internally or buy their way out of the problem, media agencies must keep an eye on the future. They must find a way to scale their businesses, grow margins, and add significant value to the ecosystem.

People who don’t understand this ecosystem, especially those from a technology background, will rub their hands together gleefully and drool over the opportunity to disintermediate the agencies. But this is asinine. Agencies perform a valuable service to advertisers, and it isn’t just about manual execution, even though this has been the accepted proxy for value from a billing standpoint. Agencies aren’t to be trifled with. Antagonize them at your peril, technology startups.

The opportunity is not to kill agencies but to help them survive and thrive going forward. There’s a lot of money in that business, and that sounds suspiciously like an exit strategy.

Mar 03 2012
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Ad Ecosystem

Ad Exchanges are the future

(Originally published in ClickZ, July 2007) by Eric Picard

Advertising is one of the last significant business markets that remains opaque, manual, archaically complex, and requires a large relatively skilled set of humans to perform each transaction. It’s a market ripe to embrace technology for automation, liquidity of inventory, pricing transparency, and simplification of business process.

Today, every ad campaign can be traced back across a host of human driven processes. The final cost of the inventory is calculated through an opaque process that smells more like 1907 than 2007. The vast majority of hours spent by media buyers and media sellers are related to process and nailing down the minutiae of “the order.” The buyer ends up with inventory that had no clear price when the discussion began, and frequently contains inventory they really didn’t want or need tacked onto the package in order to meet the seller’s sales goals. The seller ends up spending most of their time putting the package together and meeting the requirements of the order-taking process rather than working on strategic relationship sales.

A few years ago, a friend complained that moving to an exchange for advertising would reduce inventory to a commodity status. I argued then, and even more strongly now, that inventory is already a commodity – one with an explicitly time-sensitive shelf-life. Selling an ephemeral commodity through a complex, time intensive process doesn’t make sense. Additionally, as technology evolves and gives us the opportunity to evaluate and enrich the value of inventory (through various types of targeting and optimization), the complexity moves from content associated inventory to audience attributions evaluated in real-time. With all this complexity we must simplify the buying process, and things are only going to get more complicated.

An advertising exchange creates a transparent, automated clearinghouse that will enable publishers to get maximum yield (highest price per impression) while enabling advertisers to buy each impression with complete transparency regarding the value of that impression, evaluated against their own buy criteria. Bidding in these scenarios would occur in real-time, but unlike the current auction environments, there’s no reason why the activity couldn’t replicate the reserved (guaranteed) buying that happens in display premium advertising today.

To accommodate this new world, we require a variety of new functionality that not offered in the current market, particularly much more interoperability across the various tools. For example, in real-time the agency side ad server could customize the offer based on targeting data available from an outside vendor, and the bid optimization system could alter the bid based on targeting attributes offered by the publisher. The exchange sits in the middle and simply acts as a clearinghouse, ensuring the highest bid wins the impression. This scenario isn’t technically feasible today.

In the short term, ad exchanges are relegated primarily to the remnant ad market, where they optimize yield for the publisher by ensuring the highest bid always wins a real-time auction. This isn’t terribly different from what happens in other real-time auction environments such as search. But this is display advertising. The inventory owner can set a minimum for the impression to be accepted by the exchange.

Ad-exchange-diagram

The future of advertising via ad exchanges is the place where advertising’s promise is met. To illustrate, let’s drill into a single ad impression on a news Web site.

The page that the impression sits on is an article on anti-lock brake technology. Some amount of inventory bought against that page is explicitly a buy against news. Additionally, some inventory is booked against this page and also the auto section of the news site. Audience-based buys were also made against various targets as run of network buys.

How does this play out in the future advertising exchange?

1. Person visits a Web page with an ad call sitting on it.
2. Ad call is made to the publisher’s ad server.
3. Publisher shares the impression with the ad exchange.

  • The publisher’s ad server enriches the impression data with anonymous targeting attributes owned by that publisher
  • Publisher sets a minimum price of $5 CPM on the impression because they already sold inventory on that page, as described above

4. Ad exchange exposes the impression to a variety of bidders in real-time

  • Bidder 1 has a pre-set bid for the targeting criteria delivered by the publisher system set for $8 CPM
  • Bidder 2 uses a bid optimization system that evaluates both the publisher’s enriched data and uses its own set of targeting capabilities. They determine an exact match between the browser behind this impression and past visits to the advertiser’s site and bid $20 CPM
  • Bidder 3 is a contextual network that scrapes the page the impression is sitting on. It determines they’re willing to take a risk and bid $1.85 CPM on the impression because there’s a high likelihood of a click.
  • Bidder 4 has a pre-set bid for news pages at $.50 CPM.
  • Bidder 5 has a pre-set bid for auto-related news stories at $1 CPM.
  • Bidder 6 has a pre-set bid for any content at $.10 CPM.
  • Bidder 7 uses a bid optimization system integrated with their own database of behavioral targeting data. He knows the user behind this impression is searching for red SUV Hybrids, and has visited several automotive Web sites that day shopping for them. They have several advertisers with creative that show red SUV Hybrids. They bid $35 CPM.

5. Ad exchange reviews the bids in real-time and determines Bidder 7 has the best bid. It connects them back to the publisher ad server, which redirects to Bidder 7’s system for ad delivery.

This brave new world scenario isn’t far away. In some ways, this is how exchanges could function with current technology (the Bidder 7 example is a bit extreme). Within a few years ad exchanges and the various technology components needed to serve this need will be able to deliver on a scenario exactly as I’ve described. And there could be thousands of bidders on every impression.

So what happens to the media buyer and seller roles? They evolve.

Media buyers will move more to an analyst role. They’ll create business rules that match their advertisers’ campaign goals and that will function in the bid-management/optimization system of their choice. Their work will be somewhat automated, but much more technically complex. It will require more skills and knowledge than a junior media buyer may be able to handle today.

The sales roles will move away from order taking to focus on relationship sales, educating media buyers on the value their inventory may have beyond the simply quantifiable. That means fewer but more senior sales people. New technical roles that involve higher scale will arrive on the publisher side. Bear in mind some portion of inventory will always be sold directly, and super-premium inventory (home pages, site takeovers, etc.) are unlikely to move into auction environments any time soon. But for the vast majority of inventory, auction based sales and exchanges that act as clearinghouses for inventory, will be the norm. This future is coming. For some companies, it’s already here.

Mar 03 2012
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Startups

Starting a company in the ad ecosystem

(Originally published on ClickZ, July 2007) by Eric Picard

As a serial entrepreneur who’s started a few companies in the ad technology space, I get a lot of requests for advice about starting companies. This is also a byproduct of my current job, which involves much work with ad tech acquisitions. Given events of the past few months, the venture and start-up communities are hungrily looking at advertising as a place to invest.

So today, some advice for both investors and entrepreneurs who are looking at advertising and trying to figure out what to do.

Honor the Ecosystem

Most people starting companies believe they’ll succeed by disrupting the ecosystem. They look at a value chain to see where they can cut a major player out of the mix and capture its value.

In advertising, the focus is often put on disintermediating the ad agency. It’s been tried many times, and it never works. People who don’t work in advertising erroneously think an agency is a creative production shop. Agencies play a huge, valuable, and constantly evolving role in the advertising ecosystem. They also have immense power and are not to be trifled with. They’re not just creative shops. They provide a wide range of services, including strategy, creative, media planning, media buying, marketing analytics, and many others.

Rather than try to disintermediate agencies or other players, look at market inefficiencies in the advertising ecosystem. Where can you provide value? How can you make things easier for companies in this space? Where can you provide transparency for things that are opaque? Those are the ways technology companies have succeeded in the space.

The Entrepreneur’s Formula

Back in the day, a formula was widely used to figure out how to make millions as an entrepreneur. It went something like this:

  1. Raise a few hundred thousand dollars from angels, friends, and family.
  2. Build a team, create some software, get a good proof of concept, maybe get a beta and some strong client relationships, if possible.
  3. Raise a few million dollars from a reputable venture capitalists (VCs), giving away 20 percent of the company (Series A funding).
  4. Hire more people and some experienced executives. Build out a strong version one product and get some customers signed up.
  5. Raise $8-10 million (Series B funding) from several VCs, giving away 20 percent of the company.
  6. Hire a new CEO, get the company profitable, hire more people. Get to about 50-75 people.
  7. Raise another $8-10 million or more (Series C funding) from the same VCs and a few strategic investors, giving away 20 percent of the company.
  8. Maximize revenues to justify a $60-100 million price tag.
  9. Sell the company to Google, Microsoft, AOL, or Yahoo.

The problem with this formula is most of the time, it doesn’t work well for entrepreneurs. It’s very hard to get acquired for $100 million. And it’s hard to meet the formula’s requirements.

It also pushes the founders’ ownership percentage relatively low. And God forbid you don’t sell the company in the first three to five years, because the VCs will typically have dividend payments that grow over time, eating into company ownership. Investors are always paid before anyone else. The amount the company must be sold for so founders and employees see a return is quite high by that point.

Say you’re the founder of a company that followed the above formula. By the time you get through series C, you personally own 5 percent of the company, and you’ve taken $25 million in funding across three rounds. Here’s how it works:

  1. The company’s sold for $60 million.
  2. Investors have a (typical) 1.5 times conversion on their preferred stock: $25 million x 1.5 =$37.5 million. That leaves $22.5 million.
  3. Their stock converts over to common stock.
  4. Investors participate again (typical) as common shareholders.
  5. As the founder, you get 5 percent of $22.5 million, or $1.12 million.

Technically, you’re now a millionaire. But you must pay capital gains on this money at a pretty high rate. So now, you’re not a millionaire.

Think Smaller

Let’s think about this with a new formula:

  1. Start a company with a $200,000 investment from angels, friends, and family.
  2. Build a technology that adds specific value to the ecosystem, is relatively simple, and takes engineering talent and resources to build. The technology should have extremely open APIs (define) and be very defensible to acquire (i.e., doesn’t contain lots of other people’s technology).
  3. Raise a few million dollars from a reputable VC, giving up 20-40 percent of the company.
  4. Hire more developers and one or two killer business development people with strong industry relationships. Get the company to 20 people, very engineering heavy, and complete version 1.0 of the product.
  5. Get some customers to adopt the product, including a big company.
  6. Sell the company for $10-40 million.

What happens in this case?

  1. The company takes $3.5 million in investments and is sold for $20 million.
  2. Investors take $5.25 million off the top, leaving $14.75 million.
  3. Founder owns 30 percent of the company at this early stage (assuming two other cofounders and employee stock options) and cashes out with $4.42 million.

Right about now, you’re thinking, “Wait a second, Eric. Are you saying it’s in the entrepreneur’s best interest to sell his company early for less money? That seems wrong. Shouldn’t you try to build a big company with a complex product set that solves big problems?”

No. The new world we live in is very different. You’re better off building a small company that solves a small to medium-sized problem that’s very technically complicated. Before joining a big company, I erroneously assumed these guys had so many resources that nailing small technology problems was a no-brainer. I’ve found, however, big engineering teams are focused on solving big engineering problems. Big companies suffer from the same problems small companies do: they never have enough resources to do everything they need. The difference is the big guys have money to acquire companies to speed their time to market.

Most startups try to solve the whole problem. They build really fast with a small engineering team and a large marketing, sales, and operations team. The engineers hardcode everything and don’t keep the code open, don’t document the code, and insert all sorts of crazy open-source widgets into their technology. Often, the engineering is outsourced to another country, and founders give very little thought to ensuring security on the other end of the pipeline.

When a big company comes along and does due diligence on the technology, it finds security holes, spaghetti code (define), lots of technical problems that have to be mitigated prior to the acquisition, and lots more that have to be solved later. And if the start-up created an entire operating platform, there’s likely a ton of redundancy between the acquirer’s and the startup’s platforms.

And the outsourced development that sounded like a great idea? Let’s just say if you haven’t visited the team building your product and have no idea what type of security and source code management they’ve used, you might have some trouble. If you’re trying to sell your technology to a big company, it probably isn’t great that every developer in Eastern Europe or Asia has access to bits of your source code. It’s better to build an engineering team locally that’s a strong asset and adds value to the acquisition price. It’s hard to find talented engineers at a big company who have experience in advertising technology. Startups have better luck recruiting engineers, and they can gain valuable years of experience building a version one or two ad technology that makes them more valuable.

Conclusion

The biggest pieces of advice I have, then, are:

  • Find a place in the ad ecosystem where you can add significant value without taking on a powerful adversary.
  • Build a strong technology company that solves a piece of the problem.
  • Expect to exit by selling early for less money — before taking a lot of investor money.
  • Don’t try to boil the ocean. All the redundant code you write that mirrors what an acquirer already has is probably not of great value to it.
  • Focus on where you can create value to the company buying you.
  • Hire great engineers locally.
Mar 03 2012
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Ad Serving, Ad Technology

Ad Serving 101 (Revised)

(Originally published in ClickZ, April 2007) by Eric Picard

Way back in October 2001, I wrote a column with this same title. To this day, I get numerous e-mail from people thanking me for covering this topic. Given the state of the market right now, it’s probably time for an update.

Ad serving is increasingly becoming a commodity. The actual delivery of ads is certainly already commodity. The term “ad serving” is misleading and misunderstood. It sounds like just something that coordinates an ad’s delivery. There’s much more going on here than just that. Lets walk through it.

Publisher Ad Serving

Let’s begin with the nuts and bolts, the most basic functionality of ad serving, then I’ll dive in and explain where the complexities lie. Below is the simplest scenario. An advertiser bought advertising from a publisher and sent the files to the publisher to be delivered onto the page.

Examples of Publisher Ad Servers include Doubleclick DART for Publishers (DFP), Accipiter Ad Manager, and 24/7 RealMedia’s Open Ad Stream (OAS).

Publisher Only Scenario:

Publisher_Ad_Server_1.jpg

  1. Browser points to a Web publisher and communicates via a publisher Web server. The publisher Web server responds back to the browser with an HTML file.
  2. In the HTML file is a pointer back to the publisher ad server. The browser calls the ad server looking for an ad. The ad server responds with the ad’s file location. In this case, the file is sitting on a content delivery network (CDN) such as Akamai or Mirror Image.
  3. The browser calls out to the CDN requesting the specific file containing the ad’s creative content (JPG, GIF, Flash, etc.). The CDN sends the file back to the browser.

This is relatively simple and easily understandable. But this deceptively simple diagram masks what’s going on behind the scenes at step 2. Let’s talk about that for a moment.

ad_server_backend.jpg

Every time an ad’s called, a series of very fast decisions and actions must take place. All this very detailed work should take only a few milliseconds:

  1. The ad delivery engine is called and handed an ID that’s unique to a specific Web page or group of Web pages.
  2. The delivery engine reads the ID and asks a sub-routine to choose which ad to delivery based on a bunch of facts – we’ll call this subroutine the “ad picker.”
  3. The ad picker has a very complex job. It must hold all sorts of data ready, typically in memory or in very fast databases.
    • Picker looks to see if the browser in question is part of any targeting groups in high demand, e.g. geographic location, gender or demographic data, behavioral groupings, etc.
    • Picker looks at all business rules associated with each campaign assigned to the unique identifier.
    • Picker looks at yield across the various options for each creative that match delivery criteria (which ad is most valuable to deliver at that moment).
    • Picker sends final ad selection to the delivery engine. The ad is sent to the browser.
  4. Data handed to inventory prediction system to help determine future ad availability and yield optimization.
  5. Delivery and performance data handed to the reporting and billing systems.

I’ve masked some of the incredible technical complexity, particularly around inventory prediction and yield optimization, but the moving parts are relatively easy to track. I haven’t discussed the business management features of the publisher systems. Bear in mind there are sales interfaces, order input interfaces, billing and reporting interfaces, and many other features I do a bit of disservice to in skipping over.

So that’s publisher-side ad serving, and it’s relatively straightforward. Let’s look at the advertiser side of the equation.

Advertiser/Agency Ad Serving

It’s a bit misleading to call advertiser/agency campaign management systems “ad servers.” These solutions do serve ads, but only as a function of tracking them. Rhere are technical realities in the market that require the serving of ads in order to track delivery across multiple publishers from a central source.

Why does an advertiser or agency use these tools? Two reasons: workflow automation and centralized reporting. These agency tools allow a big chunk of an agency’s grunt work to be automated; the data input, creative management and trafficking steps are significantly automated. Since these tools deliver the ads across all Web sites in a campaign, they centralize reporting into one report set comparatively showing all publishers.

Examples of Advertiser Side Ad Servers include the Atlas Suite, Doubleclick’s DART for Advertisers (DFA), Mediaplex’s Mojo, or Bluestreak’s IonAd system.

Agency Ad Serving Scenario:

advertiser_ad_server.jpg

  1. This begins as before: Browser points at a Web publisher, and communicates with a publisher Web server. The publisher Web server responds back to the browser with an HTML file.
  2. In the HTML file is a pointer back to the publisher ad server. The browser calls to the ad server looking for an ad. This is where it changes. Instead of the publisher ad server pointing toward its own CDN, the ad server delivers a secondary ad tag, a simple piece of HTML that points toward the agency ad server.
  3. The browser calls the agency ad server, which returns the final location of the creative in its own CDN.
  4. The browser calls to the agency ad server CDN requesting the specific file with the ad’s creative content (JPG, GIF, Flash, etc.). The CDN sends the file back to the browser.

While there’s an additional set of hops between browser and ad server in this scenario, bear in mind that this entire transaction takes less than a second. As before, this relatively simple set of actions makes the complexity of what’s happening seem much simpler.

Behind the scenes is a complex, business-facing workflow system that automates about half of the tasks in a media buyer or agency ad operations person’s job. Without this automation, already complex agency roles would be unbearably difficult.

The next step is to get the last half of the agency workflow mapped into these systems and really automate the tasks.

Mar 03 2012
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Ad Ecosystem

Content Distribution: The Final Media Revolution

(Originally published in ClickZ, October 2006) by Eric Picard

I’ve been yelling from the rooftops for years now that the consumer is in control. (I’m making a real effort to start calling consumers “people” after Rishad Tobaccowala’s talk at OMMA.) I could probably find a few dozen columns to point at, but I won’t. Just get it through your heads that people are in control of their media consumption and you can’t control their consumption habits the way you used to.

So many business models are based on controlling people’s access to media that this seemingly simple concept will create an amazing amount of pain before it sinks in. Music, TV, movies, magazines, newspapers, books, you name it. Every single media outlet is amazingly constrained in the way it enables content distribution because the world used to work that way.

Unless you had a printing press, you couldn’t get your story told. Unless you owned transmitters, you couldn’t send music or TV over the airwaves. Unless you had relationships with movie theaters, you couldn’t get your film distributed. Distribution has always been a control point, and it’s been leveraged masterfully for hundreds of years by media companies large and small.

That’s all ending.

Marshall McLuhan envisioned everyone having his own television channel. He was really talking about the Internet’s promise — and that was only a piece of the story. He didn’t quite envision the complexity of social networking, and we’re only now beginning to see the power that will evolve from the intricate web of connections that are forming and what those will mean. One thing that will become quickly apparent is that if people can share media content that they’re passionate about with their personal networks, their friends will consume those media.

Remove the constraints from content distribution, and you suddenly arrive in a strange new world. And as we saw with Napster and the music industry, the entrenched media business doesn’t handle sea changes very well. TV is trying. The networks recognize they need to figure out the Internet. My last column discussed financial models the networks should use to sell media over the Internet. But I didn’t have time to cover distribution in detail.

Owners of content in all media types have struggled with what open distribution will mean to them. RSS (define) was one of the first technologies to gain wide adoption in content distribution, but advertising support was simply not thought through very well. And as soon as good DRM (define) was available, content owners began slapping restrictions on how content could be shared.

You can’t really blame them for wanting to maintain control. They don’t want people sharing content they should be paying for. It’s resulted in billions of dollars of lost revenue for the media companies, even more when you consider people sharing content that’s monetized by advertising. Not only does the media company lose out, but advertisers lose huge volume of sales that would be driven had the ads had been delivered.

The real question we in the ad industry should be asking is how we can more appropriately make use of technologies like RSS and DRM. How can we let people stay in control of their content consumption while ensuring advertising still functions? That’s really the trick. And how do we keep the ads while providing a reasonable advertising experience, with value to the advertiser and without annoying the people viewing them?

I’ve talked recently about some ways we can do this, particularly for video with the :05 format. I’ll cover plenty of other ways in coming months. There are ways to salve the wounds we’ve inflicted on the people we advertise to and to provide value to advertisers. And it isn’t all product placements, brand channels on YouTube (or Soapbox), and paid subscriptions for media content. Yes, those types of things will become more important, but they aren’t the only answer.

We must evolve into a world where all content owners provide their media to all people wanting to consume it, in ways that empower them to instantly and easily share that content. In ways that maintain the advertising embedded in the content, don’t annoy the people consuming it, and still provide value to advertisers.

We’re on the cusp of a media revolution to end all media revolutions. The new world will be ad funded.

Mar 03 2012
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Ad Ecosystem

How to Succeed in Emerging Media

(Originally published in ClickZ, May 2006) by Eric Picard

I’ve been working with emerging media my whole career, since I began working with ad agencies in grad school. I helped them learn how to shift from print to CD-ROM design in the early ’90s. As I started working on the technology side, I learned an immense amount about how to bring a new advertising technology to market — and how not to. So this column will focus on some of the standard mistakes I see when companies in emerging advertising categories try to build their businesses.

Agencies Are Not the Enemy

Advertising technology companies look at the advertising industry value chain and think the best approach to creating value is to cut advertising agencies out of the loop. At the very least, they think they’ll have more success dealing directly an advertiser’s own marketing team. At the other end of that spectrum, they believe they can create corporate value by disenfranchising ad agencies.

But agencies have proven impossible to disintermediate. Advertisers hire an agency because they provide a service that’s very complex to manage in-house. Most companies have a very strong relationship with their agency, so much so that when a CMO or marketing VP switches companies, she typically brings “her” agency along with her.

When an emerging media company approaches a marketer, it’s typically given a meeting. It’s usually sexy stuff, after all. But after the meeting, the marketer invariably tells the company the next step is to meet with his agency.

How much do you want to bet an agency account director or media director who gets a call from a zealous sales rep at an emerging media tech company is happy and excited to work with them — after they find out they’ve been gone around? Agencies feel it’s their job to present new opportunities to the advertiser. They tend to be angered about situations in which they’re not able to do this.

At the same time, agencies are notorious for their slowness to respond to emerging media. I can’t tell you how many times I’ve arrived at an agency for a three-person meeting to show off a hot new technology and 50 people show up. Despite this, you wait months for the first test, then months more before a second test is run. In cases where I’ve seen tech companies count on agencies alone to bring their product to the market, the ramp time is very, very long.

So what to do? Go around agencies and you alienate them. Rely on agencies alone and you have a long ramp time. My goodness — the answer’s so simple, I’m almost embarrassed to tell you.

Advertising.

If you’re an advertising technology startup and you’re debuting a hot new technology that’s supposed to be very effective, you may want to consider doing some trade marketing. Oh, and some PR, too.

Almost all ad technology startups fail to spend any money on advertising at all within their own trade journals. You may also want to do some PR work and perhaps sponsor a (professional-looking) booth at some trade shows.

And you may want to consider hiring a team of agency relations people who speak an agency’s language. Frankly, you’re in serious trouble if you don’t.

Format Differentiation Is Not a Winning Strategy

Let’s look at the rich media ad space for a moment. Every online rich media company started with its own unique ad format. Bluestreak had the expanding ad and video ads. Unicast had the Superstitial, a branded interstitial. Eyeblaster had the floating ad. The Comet Cursor had a customizable cursor.

Are any of those formats still unique to the companies they began with (if they even survived)? Nope. Every single category soon had three other companies offering the same thing. Now that rich media advertising has matured, every one of the companies still standing offers virtually identical ad formats as their competitors. All of them spent years of fruitless labor getting every publisher to accept their unique implementations of a new format.

The same will happen to any company in every new category that tries to differentiate itself by having “such a cool ad format, everyone will want to use it.” The formats may be cool, but unless an advertiser can buy a significant amount of inventory you won’t get any traction.

So it’s another chicken-and-egg problem. How do you achieve adoption across publishers (giving you inventory an agency can buy), while getting agencies to use your company’s stuff? And if you can’t differentiate on format, what should you differentiate on?

Counting Methodology Is Not a Point of Differentiation

Methods of counting impressions in emerging media aren’t a place to compete. Organizations do this work; talk to the Interactive Advertising Bureau (IAB) and the Media Rating Council (MRC). Get involved with your competitors, and don’t believe the way you count an impression is how you can buck the trends.

This will be played out very soon in video-game advertising. Every company in this space counts impressions differently. That doesn’t work, and the IAB and MRC will likely get involved to help sort it out.

Honor the Ecosystem and Honest-to-Goodness Business Sense

Stop trying to disintermediate everyone. If you must fight, pick someone you can beat. Find critical alignment by determining where your value proposition aligns with companies you must work with. If you’re going to battle a category player, learn where the rest of the ecosystem is in turmoil. Solve that problem. Be the pain reliever.

If you require your technology to be adopted across enough publishers to provide access to a critical inventory mass, the publisher has to sell your ads, or at least some of them. If agencies are the ones buying your ads, you may want to make it easy for them. PointRoll did a great job of this by making its ads available from major publishers at no additional costs. There was also a perfect market condition that allowed this to happen. Essentially, the publishers offering this deal held rate cards on their ads at a time when no agency paid anything close to the rate card.

But there are always angles to play.

Businesses succeed not because they have a gimmick or extremely cool technology that doesn’t solve a real business problem. They succeed because they offer real value. Some tips for building that value:

  • Find the market’s pain points and build solutions to address them. Don’t assume the pain point is the ad format. That’s a hook, not a winning strategy.
  • Look carefully at the ecosystem you work in. Map it out and determine where the power lies. If you can find a point in the value chain that’s ripe for disruption, test your theory. But be sure you can compete with the one you hope to disintermediate.
  • Build a very strong client services team. If you don’t provide good customer service and technical support, you may as well forget it. Acquisitions typically have more to do with customer relationships than technology, or at least equal importance.
  • Work with competitors in these emerging categories. Your real competition is the absence of your business model in the marketplace. Without one or two strong competitors to help share the burden of building a new market, you’re in more trouble than you realize. Embrace your competitors, and keep them close. They’re more with you than against you.
Mar 03 2012
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Ad Technology, Predictions

Stretching Out: Technology and Advertising in 2010

(Originally published in December 2005) by Eric Picard

Every so often I write a column that looks forward a few years to predict the future. I’m taking another stab at it this year.

Rear Window

First, let’s look back on my 2000 five-year predictions and see how I did:

  • Unlimited long distance will be free in the next five years.

    Phone companies are continually expanding their programs for single-rate long distance coverage, but VOIP (define) really captured this prediction and ran with it. With telco-modeled firms such as Vonage; and free communications tools, such as Skype, MSN Messenger, AIM, and Yahoo Messenger; free voice communications are enjoyed by millions of people every day.

  • Cable operators will integrate PVRs (define) into digital cable boxes. Pausing TV (and skipping commercials) will be the norm.

    Not only are DVRs (define) integrated into cable boxes, the whole notion of on-demand TV viewing really took off this year. We now have a plethora of choices when it comes to TV content and how we’ll consume it, and an immense amount of control.

  • Rich media advertising will become the norm online, if only because iTV audiences aren’t going to respond to animated GIFs. Even without iTV, it will happen in the next five years.

    It did happen without iTV, which is only just now starting to explode. Rich media (depending on your definition) is certainly the norm now. Most ads are Flash-based, which is a minimum bar for using the term “rich media.” But for any kind of compelling brand advertising, rich media is the standard.

  • Some technology advance is going to radically change the way the Web works and affects our daily lives, and it will be completely unexpected. This could happen any time, but certainly within five years.

    I realize this one was vague, and it’s certainly a truism (one I’ll include in every list of predictions going forward!). Following, just four unexpected technologies that radically changed the way the Web works to the extent that they affect our daily lives:

    • IM. It was around back then but has really taken off in the past five years.
    • Peer-to-peer file sharing. From Napster to BitTorrent, the world will never be the same again.
    • Mapping. We all thought MapQuest was so cool, but Virtual Earth and Google Earth changed the game completely.
    • Search. Google was barely known in 2000.

Front Window

Here are four new predictions for the next five years:

  • Free Wi-Fi networks will eclipse digital cellular networks in coverage, sparking a revolution in free calling over IP-based networks. Portable digital information consumption devices will also explode.
  • Most TV content will be consumed over the Internet by download, and on demand over very high speed broadband networks. The TV networks will do just fine, and most content will be consumed for free with advertising, just as it is today.
  • Advertising will be much more relevant and effective due to appropriately implemented targeting and filtering technologies that will anonymously identify people across all media. Ultimately (maybe more than five years out), this type of targeting will extend across all forms of advertising, even what today is considered offline.
  • Some technology advance will radically change the way the world works, and it will be completely unexpected. This could happen any time, but certainly within five years.

I’ll even go so far as to guess at some of the technologies that may drive these changes. A huge area of expansion is printable technology.

OLED (define) technology is one of my favorite new areas for speculation. Essentially, the current crop of OLED technology makes flat-panel displays much cheaper because the display is literally printed onto a sheet of glass or plastic by industrial inkjet printers. A big plus is the display is flexible, so a foldable or rollable display is finally possible. But that’s just the beginning.

Last month, Siemens announced a new type of video display that can be printed on paper or cardboard. It’s so inexpensive, it will be used in books, magazines, packaging, tickets, and so on. Interestingly, it will utilize already available printable batteries. This makes the whole process very easy to produce — and very cheap.

Get ready for video everywhere, literally. Video ads will show up on cereal boxes, food wrappers, and all sorts of packaging. Also expect clothing, wallpaper, bedding, even paint to have video capabilities. This will lead to a revolution in information display, mapping, directions, and (of course) entertainment.

Let’s not forget RFID (define) tags and other tracking technologies, such as two-dimensional bar codes. These tools will change forever the way we interact with the world. In the next five years, the rules of engagement around these technologies will start to become established.

Mar 03 2012
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Startups

Art of the Start: Taking Advantage of Rising Tides

(Originally published in ClickZ, October 2005) by Eric Picard

With the resurgence of the online ad space and loads of companies starting up, it feels like the ’90s again. Never mind that 9 out of 10 startups fail. Those rare successes always lure people back with the promise of rewards and excitement.

I know. I’ve been there. After starting three different companies, I understand the drive to build something. I understand why people do it; the 80-hour weeks, the late nights on the computer while your spouse sleeps upstairs, the edge-of-your-seat, hanging-by-your-fingernails adrenalin rush of a startup. For many, it’s a compulsion, sometimes an unhealthy one.

Today, a lesson in startups. This isn’t meant to discourage anyone. Rather, it’s just a small dose of reality for those of you getting ready to start something.

  • Be passionate about what you’re going to do. There will be days when you look in the mirror and you don’t recognize the person you see and have no idea what you’ve gotten yourself into. You must be absolutely passionate and resolute about what you’re doing. Without that scrappiness, you won’t make it through those moments.
  • Build an outstanding team. Find someone you respect and trust and who’s just as good as you are. You want someone who has your back. Don’t trust lightly. Run lean and hungry. Only take in A-list players, because four or five A-list players can do the work of 10 C-list players. And those A-list players will be less productive with a couple C-list players around than they’d be without any “help” at all.
  • Scrounge, scrape, do it all on your own. It’s the best thing you can do. But if you don’t have much money and your plans will take lots of resources, be wary of where you get the money. You want A-list investors, just like you want A-list employees. Investors should back you up. Don’t take 20 small investments from your uncle’s golf buddies, your cousin the doctor, or anyone who is going to eat your time. If the investment is big (to the person giving it), he’ll need to be managed. Would you rather have $1 million from an A-list professional investor, or 10 $100,000 investments from people who can’t really afford it?
  • If you need it, only take smart money. Make sure your investors can help in ways beyond financial. I learned a lot from one of our investors. He spent all day in a strategy session with the management team. He brought us to his house for board meetings. He pushed and pulled every time we met. He wasn’t an MBA management consultant. He’d been CEO of several companies. One he took public. He sold them all for a lot of money. He offered real value. I’ve seldom seen (or heard about) this kind of value, even from decent venture capitalists. Only the best ones provide that kind of value. Hold out for them.
  • Be smart with money once you get it. You don’t need offices in three cities. You don’t need swank digs. You don’t need to impress anyone with anything other than your performance and service. Most people I’ve dealt with respect a scrappy startup in horrible office conditions far more than a slick one with lots of high-priced executives. You don’t need high-priced executives with connections and big company experience. Rarely does corporate senior management experience translate to a startup. You want scrappy, savvy, streetwise business people who get the job done. There’s plenty of time later (like after a few years) to bring in the pedigrees, people who will help you get to the next level… and a successful exit.
  • Process makes perfect. Though you don’t need the pedigrees to run the business, you do need some good mentors. You want real business people. You want professionals you’re proud to work with. And you need at least one lynchpin person who will set up business rules that get your operations humming. When you find that person, hire her. Beg if you must, but get her into the company. That person will make your A-list people a cohesive fighting machine. Whether that person is the office manager, head of operations, COO, president, or CEO, you need her.
  • Your customers need you. And you need them! Business is simple: find out what people need, listen to what they tell you, and deliver what they ask for. Answer the phone when they call. Always return their calls if you miss them. When you screw up, admit it and apologize. Don’t blame the account manager or the QA team. Accept responsibility; tell your customers what you’ll do to address the problem, and provide at least three reasons it won’t happen again. Don’t make the same mistake twice.
  • Take great care of your team. Don’t make promises you don’t know if you can keep. Don’t tell people what they want to hear, and don’t ask them to do things you wouldn’t do. Don’t lie to your team. Get to know them as people, care about them, treat them with respect. Cry when you lay them off. Take good care of the team you have left. Don’t sugarcoat things to keep employees from finding other jobs. If they have personal responsibilities your company puts at risk, help them find other jobs, help them transition out. Dig into your business and personal connections, and recommend the heck out of them.
  • When you hire a loser, fire him quickly. Don’t be a wuss about it; you’ll anger your team, you’ll be frustrated, and, frankly, you’ll do nothing helpful for the person you hired. Give him a few weeks to try to find his niche. But if he clearly isn’t working out, transition him out quickly.

    This goes for the receptionist up to the CEO you hired at the investors’ recommendation. If you have the power, use of it. In a company of fewer than 100 people, the person in charge should know every person in the company and at least a few things about her. The CEO should walk in and greet everyone by name. Beware the leader who doesn’t do this; he’s damaged goods.

  • When it hits the fan, either put on a raincoat or turn off the fan. This isn’t for the faint of heart, and you’ve got to work with a never-give-up attitude. But if you finally get to the point where you can’t make payroll and you don’t have any way out, do the right thing for your team: shut off the lights. Many have been there, and it’s among the worst things you’ll ever do. But you never know what will rise from the ashes. If you’re really lucky, it will be the startup that really takes off.
Mar 03 2012
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Ad Ecosystem

Interpreting the IAB Measurement Guidelines

(Originally published in ClickZ, February 2005) by Eric Picard

On November 15, 2004, the Interactive Advertising Bureau (IAB), American Association of Advertising Agencies (AAAA), Media Rating Council (MRC), Association of National Advertisers (ANA), World Federation of Advertisers (WFA), and numerous other industry organizations released new global measurement standards for online advertising. I was part of the Measurement Guidelines Task Forcethat established these standards, so I have a unique perspective on them.

There’s been a lot of misunderstanding around the measurement guidelines. Let’s start with the official name: “Interactive Audience Measurement and Advertising Campaign Reporting and Audit Guidelines.” It’s a mouthful, but it’s important to understand what the document aims to accomplish.

The document sets standards for audience measurement in online ad campaigns and for ad campaign reporting. It also establishes auditing guidelines for how various vendors and publishers should be audited, both to ensure everyone is doing things properly and to reduce discrepancies between publishers and third parties.

This all started because of Adam Gerber, who at the time chaired the AAAA’s Interactive Marketing & New Media Committee. Gerber was trying to resolve one of the industry’s biggest issues: constant discrepancies between publishers and third-party ad servers. This problem leads to significant work on all sides and has a huge affect on internal accounting processes because of the procurement guidelines most major advertisers are required to follow.

One of the first things this document tackles is the oft-disputed definition of an ad impression. It’s amazing it took so many years to establish the definition of our currency, but it’s now accomplished. Next, the document establishes the appropriate methods of counting impressions for publishers and third-party ad servers and a few related things, such as caching and robot and spider filtering.

The measurement guidelines require third-party ad servers and publishers to be audited. It defines the audit process. The guidelines also recommend which set of numbers to use if one party isn’t audited: if the third party is audited and the publisher isn’t, the third-party numbers should be used for billing. If both sides are audited, the publisher numbers should be used. This second point is left to final negotiation between the publisher and the agency/advertiser. Larger advertisers will likely have more negotiating power than smaller ones.

The guidelines seek to lower systemic discrepancies below 10 percent. They try to explicitly determine whose number is used for billing, and under what circumstances an investigation is warranted. If everyone goes through the excruciating auditing process the MRC is putting together, you can trust all the numbers will be as good as we (as an industry) can get them.

Complying with these standards will be expensive. Big publishers won’t have a problem as they’re already audited. This is just another layer of refinement to existing audits. But for startups that aren’t currently audited, this will be costly.

The good news is the auditing guidelines are comprehensive. When the publisher and third party follow the proper methodologies and are audited, discrepancies should be minimal. The exceptions, the outliers, are really at issue.

If the guidelines are followed, impression discrepancies between the publisher and third-party server should be under 10 percent. If an outlier event occurs (discrepancies higher than 10 percent), both parties should investigate. It’s highly unlikely either party would refuse, as this is a standard practice.

The outcome should be for contracts between publishers and advertisers to define which set of numbers to use for billing, so discrepancies shouldn’t hold up billing. But for extreme examples, say higher than 25 percent, this may require discussion. I’ve heard of discrepancies as high as 60 percent, which obviously should be considered extreme.

Perhaps the contractual language should require that in the case of discrepancies greater than 20 percent, the higher set of numbers will be used. Typically, true discrepancies lead to the “wrong” party having lower numbers, so this would be safe. I’ve seen legitimate cases as high as 20 percent, caused simply by Internet latency.

There are systemic problems and exceptions. The guidelines are designed to reduce these. You should see average discrepancies well under 10 percent once all parties comply. If there are specific problems with implementation or if someone has a network problem during a campaign (this happens across the board more often than people realize), those issues should be relatively easy for most publishers and third parties to sort out between themselves.

Mar 03 2012
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Ad Ecosystem, Predictions

Media’s Believe-It-or-Not Future

(Originally published in ClickZ, October 2004) by Eric Picard

TV and radio serve up content in a linear broadcast format. It’s dished out in time slices according to schedules that make sense to broadcasters and the marketers who buy their ad space.

The change coming to media is so radical, many colleagues I speak with within the industry would rather not engage in the discussion at all: All media are going digital. Media will be nonlinear in the next few decades. Look at what’s happening with DVRs (define), such as TiVo. The latest estimates are that DVRs will control 80 percent of the market within five years, as cable and satellite companies begin distributing them. All a DVR does is strip linear content out of a broadcast and make it nonlinear. Why continue viewing linear broadcasts when you can simply download content as you want it?

Giving consumers control is a key driver in new technology adoption. DVRs are popular (and will be adopted) because they offer consumers much more control of their television viewing experience. Consumers can time-shift TV to watch a show when it’s convenient for them. They can skip ads just as they do in magazines, stopping to watch only those that interest them.

Look what Maven is up to with branded broadband video, if you don’t believe me. Pretty cool stuff. It’s on the cutting edge of this new market, and watching the beginnings of revolutions is always good.

Radio is where “delinearization” will happen next. Satellite radio providers XM and SIRIUS are making decent headway into changing traditional radio. Yet their model is more of the same, with an emphasis on “more.” Yes, more choice and better (wider) selections of various genres. But it’s still linear.

Those of us who’ve used Web-based radio solutions know the writing’s on the wall for current models. (I’m listening to Real’s Rhapsody service on a nearly-free trial as I write, and I’ve kicked the others’ tires as well.) Once you can queue up your own selection of music and listen to it all day long, there’s no reason to buy an album. New developments such as iPodder from former MTV VJ and Think New Ideas cofounder Adam Curry let consumers dive into the blogosphere and download music playlists directly to an iPod or other digital music devices.

Microsoft’s recent release of local radio that mimics major markets’ radio playlists is an astute move on its part, and only a tiny piece of its overall plans for the media’s future. Redmond is stretching toward the future in ways that remind me of the shifts it took after Bill Gate’s all-night Web surfing sessions drove it toward incorporating the Web into the OS.

The Windows Mobile site gives a bit of a view into where it sees things heading: Windows MediaPlayer 10 Mobile, Windows XP Media Center, and the new Portable Media Center interact seamlessly, allowing the consumer to manipulate digital content in unprecedented ways.

Sure, today these solutions are aimed at technology hogs like me. But Microsoft’s media device strategy is broad, well-planned, and in early execution phase. The revolution is hardly over yet. What happens when wireless blankets the world?

Wireless will change media once Wi-Fi (define) coverage is as large as cellular network coverage.WiMAX is the first step in this direction. Intel can’t talk enough about it.

WiMAX is essentially wide-area broadband Wi-Fi. Intel’s plans include building wireless into cheap-enough chips on such a scale that almost everything will connect wirelessly to the Internet in a few years.

What happens when radio and TV signals are sent via wireless IP instead of the current analog and digital broadcast signals? Once that happens, control over how, when, and where media are used and consumed falls squarely into the hands of — the consumer.

I rest my case.

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