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(Originally published in iMediaConnection, June 2009) by Eric Picard

Online advertising is going through a vast series of changes right now, and the measure of its future success is going to be set by the decisions made over the next few years. I honestly believe that if we (the folks driving this industry) make the right decisions, we will change the face of advertising and, through those changes, have a huge and significant impact on the economy.

I may be too passionate on the subject, but I believe that our economy is driven in large part by advertising. I see an ad impression as no less than the opportunity to convince a person of the value or relevance of a product or service. And I believe that the ability of a marketer to extend the value proposition of a company out into the world and have that turn into a new relationship with a customer (or to renew a relationship with an existing customer) is an important and beautiful thing.

Of course, many ads that arrive in those locations of opportunity are poorly designed, badly executed, and hold nothing like integrity close to their mission. But that’s a topic for a more philosophical discussion. Today we’re going to talk about the problems that exist in our space, and I’ll do my part to suggest some ways to fix them.

Problem 1

Lack of brand advertiser value

I’m almost certain to get some flak for this topic area. It seems to be an indictment of direct response (DR) advertising, and an endorsement of brand advertising from a philosophical standpoint. So let me address this issue immediately.

I believe that both DR and brand methodologies have immense value. I also believe that advertisers should use DR methodologies in order to drive the consumer from the middle to the end of the purchase funnel with gusto and relish. However, I also happen to believe that advertising should be sold to the right advertiser for the right purpose based specifically on the goal they are trying to achieve, and based on the effectiveness of the methodology for where the consumer exists within the purchase funnel at the moment of ad exposure.

But in online advertising, we’ve focused an immense amount on the requirements of DR, and much less so on brand advertising. This wasn’t so much a mistake, as either an over (or under) focus issue (depending on your perspective). With so much of the revenue coming from paid search in our industry, and the huge focus we’ve had on remnant inventory and contextual, we have lost out on the upper-left quadrant of the chart below, which really would enable us to monetize the audience that exists at the broad opening of the purchase funnel.

In a perfect world, we’d have the ability to be intentional about how we approach potential and existing customers, with the strong opportunity to move the customer through the purchase funnel and to bring them back for more purchases. In this ideal world, the ability to reach desired target audiences with powerful brand messages to increase awareness and drive consideration and purchase intent is a critical requirement.

But rather than thoughtful and appropriate focus on building high-scale, high-throughput, highly automated brand advertising mechanisms, we end up with seemingly never-ending discussions about cost-per-acquisition (CPA) pricing and performance-based metrics. While this is very important stuff for DR advertisers — and maximizing the way we handle about half the current ad dollars spent online is a smart thing — we’ve neglected the brand advertisers. Focus in this area has trended toward so-called “branded entertainment,” fairly custom ad experiences like page takeovers, and some rich media advertising.

What are some of the things that brand advertisers care about when they look to buy ad space? They care about creating brand awareness, getting consumers to form positive opinions of their brands, and driving the customer’s intentions toward a purchase. They typically buy advertising based on their ability to reach a targeted audience that is more likely to purchase their products or services. And publishers should be excited about selling ads to brand advertisers because they buy ad space — not clicks, not conversions. They buy impressions. They care primarily about reach — they want to get a message in front of a consumer.

I placed this item first in my list, because much of my commentary for the other three items should take this starting point into account — none more so than my next item dealing with ineffective creative formats.

Problem 2

Ineffective creative formats

In March, I wrote an article called, “Why online creative stinks so badly.” In that article, I spoke about standard format sizes that are too small and the lack of interactivity that exists in most ads online.

Let’s dig into this just a bit more today. The problem, as I continue to see it, is that we don’t provide the advertiser with a palette that enables the creation of a truly emotional experience. Part of this ties back to the size of the ad. When the current ad formats were standardized in 2002, the average screen resolution was still 800 x 600 pixels. Average screen resolution today is much larger — although I haven’t gotten definitive sources, a safe bet is something like 1280 pixels wide, with a variety of heights due to the proliferation of widescreen ads.

The hallmark online display ad unit is the 300 x 250. This is the unit that most advertisers have adopted as their preference. It generally elicits the highest cost per thousand ads (CPM) and is preferred by brand advertisers as a format in which they can get a decent message across. But as we’ve seen screen sizes (and therefore screen resolutions) grow over the past five years, this has effectively shrunk the pixel size of the ads proportionately downward.

Standard ratio screen resolutions with 300 x 250 ad:

As you can see above, when the average resolution was 800 x 600, a 300 x 250 pixel ad unit was pretty large (from a percentage of screen coverage point of view). But as average screen resolution has pushed upward, the relative size of the ad unit has diminished significantly. In my March article, I suggested that one way we could improve the value of online creative formats for advertisers is simply to increase the size of the standard display unit — effectively double the dimensions of the 300 x 250 banner to 600 x 500 pixels. If we did this, we’d be looking at something like below:

Problem 2, cont.

Ultimately, this focus we’ve had as an industry on static creative formats is probably one of the ways we should try to fix this problem. By moving away from a fixed pixel dimension and moving to scalable ad formats, we could resolve many of the problems here.

This has been something many people have discussed over the years, but they always seem to get hung up on issues related to image quality and layout controls in a scalable scenario. But this isn’t something I worry about too much, as this can be solved by technology.

Ultimately, we need to evolve to a world where creative assets can be rendered at the proper resolution to display high-quality images, video, and text, while providing pixel-level control to advertisers in order to ensure that brand guidelines and creative output are tolerable to discriminating designers. At this point, designers frequently tell me that this isn’t possible, and developers tell me that building such a solution would be very hard. And while it is a hard objective to achieve, it’s completely attainable. Live Technology is one company that is already well on its way to solving this problem, but others are working on it as well.

Despite all my admonitions above about ensuring that we give brand advertisers the love and focus they need and deserve, we should also keep in mind that the DR folks need some attention here as well. When an ad is created with a super strong brand message that drives immense emotional impact way up the purchase funnel at brand awareness and brand consideration, smart advertisers and their agencies will use interactivity to enable a consumer to continue moving down the funnel right from that singular brand impression.

Imagine a world where a powerful emotional message delivered on behalf of an advertiser enabled the consumer to immediately drill deeper and learn more — right within the same ad unit, without leaving the page they are on.

Giving the consumer control — letting them explore, learn more about the product or service, watch a video, drill deeply into the product specs, or request a follow-up or an RFI — would be incredibly smart. It would extend the presence of a brand out beyond its website and take advantage of existing media spend. Yes — the creative budget would need to be higher, but that’s typically a smaller part of the overall budget to begin with. And combining the brand and DR media budgets and driving for impact is ultimately one of the great unmet challenges about which we’ve been claiming victory online for years already.

Problem 3

Sales and operational inefficiency

I wrote an article in May titled “How we screwed up online advertising.” In this article, I discussed a lot of important issues related to sales and operational inefficiency. Mostly I was talking about the premium online display world, but this problem is not limited just to hand-sold display inventory at the big publishers (although that segment of the market is the easiest to poke holes in).

We’ve promised granular control of media buys with immense amounts of optimization and accountability possible. But we designed the systems early in the life of the industry and locked the granular controls down in such a way that limits us to small media buys for small budgets. As we’ve tried to scale beyond this, it’s become clear that we need to focus on throughput and operational scale rather than granularity of control.

So let’s dig into the types of sales and operational inefficiencies that exist in this market, and we’ll break it down into a few different chunks:

Premium online display: media agencies. Media agencies have huge problems to overcome in the coming few years. Their margins have been compressed and negotiated into shambles. They are compensated mostly for the work they do, which is increasingly more tactical, and less for the value that they provide, which is significant.

This is an industry segment that significantly underinvested in its IT infrastructure at a time when other industries became very automated. And even the outside tools that media agencies bring in-house to help solve their other problems are antiquated and don’t interoperate with each other. Meanwhile the media marketplace has exploded into massive fragmentation — meaning that buyers need to do a lot more work just to execute on their campaigns.

Despite the widely held belief that traditional media is unaccountable and highly inefficient, I’ve heard from numerous large brand advertisers that online display is 8-10 times less efficient than traditional media from an advertiser’s perspective. This is because in traditional media, the up-front planning and buying costs are much lower — and there is no further work done once the campaign is delivered to the publisher until after it ends. In online display, more than two-thirds of the work takes place after the campaign is trafficked. And that’s just on the buy side.

Premium online display: publishers. While the agencies have been struggling with media fragmentation, the sales forces at the publishers have been running into problems because of it as well. Online premium media buyers are expected to engage with about twice as many publishers as their traditional media counterparts — but are expected to do so without the maturity of planning tools and resources that exist in that world. This leads to requests for proposals (RFPs) delivered to publishers that expect the salesperson to do most of the work done by a media buyer in traditional media.

Additionally, since we have such a strong split between brand and DR buys in premium display — the salespeople have a hard time nailing down their pitch — it’s hard to satisfy two customer sets that have radically different success metrics.

And finally, there is an operations nightmare that exists in premium display that is unlike anything seen in traditional media. I discussed above that two-thirds of the work on the buy side takes place once a campaign is trafficked to the publisher. Corresponding to this is an immense amount of ad operations work that is typically done to ensure that campaigns deliver properly on the sell side. This involves manually working around all the foibles of any of the existing publisher-facing ad servers, essentially understanding the quirks so that manual overrides can outsmart the controls in the system and ensure customer satisfaction.

Problem 3, cont.

Paid search and contextual: buyers. Much like we discussed above, paid search has focused on granular control to the exclusion of throughput. Since we’ve chosen an incredibly granular unit — the keyword — as the currency of paid search systems, we are forced to deal with the consequences of this granularity. Here’s a scenario that will drive this home:

Imagine yourself to be a mail-order flower retailer that tried to drive most of your sales through paid search and contextual ads. You could go out and buy every keyword related to flowers that you could imagine — every type of flower, every color of flower, every region you service combined with keywords for flowers, etc. Eventually you could easily end up with hundreds of thousands of keywords to manage.

This is essentially untenable to do manually, meaning that you’d need to go through an SEM agency to manage in a more automated fashion. And even with an automated system designed to optimize bidding on your selected keywords against a CPA, its highly likely that you’ll have missed many opportunities to reach a potential customer via paid search because you either missed the keyword they chose or because you missed showing them an ad due to competition — and couldn’t reach them on their next query.

Imagine a search advertising experience where you could express your goals (sell flowers to people who are likely to purchase them), where all the relevant keywords, as well as activities that flower buyers historically performed, were mapped against ad opportunities. And the right ads were generated automatically based on what products you had to offer, in such a way that was targeted to what that specific person was most likely to be interested in.

Paid search and contextual: sellers. Google has approached ads in search engine results pages (SERPs) in its own way, but that doesn’t mean it’s the only way — or even the best way. And despite the fact that Google was able to apply the demand it had pent up in its paid search marketplace against aggregated web page inventory — and use contextual targeting to do so — that doesn’t mean that those pages are necessarily monetized best by text ads.

There is no question about the value of reaching consumers with ads right at the moment that they raise their hands to identify themselves as potential customers. But there’s no reason that the ad you show them needs to be a block of text. And there’s no reason that the creative (as we discussed above) can’t be interactive and support multiple objectives right within the SERP.

While contextual targeting is quite a powerful way to ensure that an ad is reaching a relevant audience, so are most other methods of targeting — from geographically identifying someone as a local prospect, to recognizing an existing customer and showing them an ad that entices them to upgrade a product or service, to recognizing a prospect’s location within the purchase funnel and showing them an ad that moves them toward a purchase.

The idea that automated sales needs to be a real-time auction, or relegated to small (tail) advertisers and publishers — or that brand advertisers shouldn’t be focused on anything but paid clicks — is incredibly flawed. Advertisers that spend hundreds of millions or even billions of dollars annually on advertising are not going to flow large chunks of that budget into granularly managed keyword buys, or even into granularly managed, manually optimized impression buys on hundreds or thousands of publishers.

This all leads to…

Problem 4

Weak economics

According to eMarketer, U.S. average CPMs by media type in 2008 were as follows:

Source: eMarketer, “How Much Ads Cost,” April 23, 2009

It’s generally understood that while people are spending about 30 percent of their media consumption time online, only about 10 percent of media budgets are dedicated to online. We know that paid search has great CPMs on average — but relatively low volume. But why are we seeing such low CPMs on the online display inventory? Is it simply a case of low CPMs being driven by too much supply?

The chart below is cobbled together from several disparate data sources, but uses them to show one simple concept: that from an impression volume perspective, most media types are in the same “order of magnitude.” Paid search has significantly lower volumes.

So given the CPMs we see above, and the fact that online display has a pretty high number of available impressions, we can imagine that there is a problem of supply and demand at work. But it’s not so much higher that we can only ascribe basic economics. This tells me that the other issues I’ve been describing are part of the problem.

If we can provide brand advertisers with creative formats that enable them to evoke an emotional response, if we can automate the sales and operations processes such that it’s easy to spend money online, and if we can provide significant value to brand advertisers as well as DR advertisers, we should see the CPM go up significantly in online display.

And this brings us to the conclusion — the whole point of this article. Advertisers are spending money to advertise in order to sell enough products or services at a profit to survive and thrive. If their products or services are high quality and valuable, they’ll succeed — but only if enough potential customers know that their products or services exist, and if they can become educated enough to understand what the value is. Publishers are creating their own set of products in the form of some type of content that they hope consumers will ingest. They also are advertisers, selling the value of their content to the consumer. And in order for them to make enough money to create more valuable content to attract consumers, they need to be able to profit off of the advertising that they sell.

Right now the world is living on somewhat inverted principles. Much of the advertising being sold is not profitable enough to cover the production costs of the content that “hosts” it at any significant profit margin. This means that the vehicles that carry the ads — the content — are at risk of disappearing. And this means that the means for a company to put its message of value in front of a potential customer is eroding. This is a death spiral — one that can’t continue. So let’s fix it, eh?

(Originally published in iMediaConnection, April 2009) by Eric Picard

Advertisers deeply understand the way that existing and potential customers evaluate a purchase of a product or service. This process is typically described as the “purchase funnel,” and is a relatively standard way for advertisers to think about approaching their advertising spending against prospective customers. Typically advertisers try to  find ways to reach prospects with a message that caters specifically to where that person sits within the purchase funnel.

There are numerous purchase funnel definitions out there. To keep things simple, let’s deal with a very basic version:

Awareness > Consideration > Preference > Purchase

Here are a few basic issues to consider when thinking about the purchase funnel verses the advertising inventory that exists in the world. At the opening of the funnel, starting with awareness, there is a vast amount of advertising inventory available, and at a relatively low cost per thousand (CPM) ad impressions. At the end of the funnel, ending with purchase, there is a small amount of ad inventory, and the cost of that inventory is quite high on a CPM basis.

Advertisers also apply two macro methodologies to their advertising spending habits across the entire purchase funnel. They either use direct response approaches to buying ads, or brand approaches to buying ads. To keep it simple, let’s just say that DR advertisers measure to a cost-per-acquisition (a purchase) during the life of the campaign. And let’s call the brand bucket as measuring key performance indicators (KPIs) that are tied to the location and movement of the potential customer through the purchase funnel. This includes elements like brand awareness, brand consideration, brand preference, and some more direct response-like measures like purchase intent.

Large advertisers that spend hundreds of millions, if not billions of dollars annually are also very good at measuring their ROI. You might imagine that if a small percentage of a large budget is spent on measuring advertising effectiveness, they can get pretty comfortable with their return. I’ve heard some consumer products goods companies boast of being able to predict ROI to within a few decimal points of percentage.

While all advertisers will admit that their advertising spend is somewhat inefficient (meaning they don’t exactly know which spend drove which lift), they don’t often talk publicly about their ability to predict results — as this is highly valuable competitive data. And yet the myth seems to persist that advertisers simply throw spaghetti against the wall and expect half of it to stick — and therefore are somehow “wasteful” or “unscientific” in their approach to advertising.

The real discussion to have is around how they allocate that spend. Less than 10 percent of all ad dollars spent are allocated to advertising online, and the split between paid search and display ads is pretty even at the aggregate level. Within the display advertising bucket, only a small amount of the total spend is allocated to direct response buying, most dollars are spent on branding.

The above diagram represents inventory as mapped against the purchase funnel (all impressions that exist across all online media could be fit within this triangle) showing the breakdown of buying methodologies (brand and DR) and the relative price paid for the inventory by the advertiser. Note that in the online space, the pointy-end of the funnel is basically paid search advertising. And everything to the left of the vertical dotted line is display advertising, with half of the inventory going to brand advertisers, and half going to DR advertisers.

But note that a proportionally small amount of revenue actually goes against DR spending on display ads. This pool of inventory — DR display spend — is made up of inventory sold through contextual networks, display ad networks, and ad exchanges today. The red ball (below) shows revenue from premium brand advertisers — primarily hand-sold by a human sales force. Over time I predict that we’ll see the amount of inventory allocated against DR buyers change as we remove friction from the purchase process by automating the purchase process.

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While as a category, paid search will always be high revenue generation per impression (for the search engines), the overall number of impressions that exist are segmented into very small pools of inventory. Each small pool (denoted by a single keyword) tends to be relevant only to a small number of advertisers — meaning that per advertiser there just isn’t any way to buy very many impressions (even if you’re paying on a cost-per-click).

Keep in mind that while the paid search space boasts more than a half-million advertisers, the display space (across online display and even offline media such as television and print) really is made up of only about 3,000 to 5,000 brands that perform large-scale buys. There is an important take-away from that point. There is not enough inventory in paid search for it to be a large percentage of any one advertiser’s budget overall (spreading the entire 4 percent of all spending — see below — across hundreds of thousands of advertisers versus online display spreading spend across 3,000 to 5,000 advertisers).

US Ad Spending across media — 2008

Source: eMarketer (Barclays Capital March 12, 2009) and Eric Picard analysis
*Excludes the Direct Mail and ‘Miscellaneous’ categories

Paid search simply doesn’t have enough viable inventory in any given category to enable any significant advertiser (large spender) to move large portions of their budget to paid search. Take an advertiser who spends $1 billion in the U.S. each year. One could assume that they follow the breakdown that I’m showing as the average in the chart above. However, it is highly unlikely that they are allocating even the 4 percent listed for paid search on this chart out of their total budget. There is simply not enough inventory for them to spend the money on.

People who do not understand advertising in general but do understand the paid search space frequently talk about how all ad dollars will move to paid search over time, “since it is so effective.” When you measure your results against CPA during the life of the campaign, very few people will argue against the value of paid search. But when you look at the entire ad spend of a big-budget advertiser, and you look at the myriad KPIs that they use to measure the success of that advertising spend across brand and direct response, it is highly unlikely that paid search will be incredibly important to any one of those advertisers (beyond some retailers ith massive numbers of products they could buy against in an automated fashion, like eBay and Amazon).

Ultimately, paid search matters far more to the search engines than it does to any one advertiser. After all, before you buy a product you have to be aware that it exists, you have to consider whether you need it, you have to weigh your purchase of that product against all the various manufacturers, and then you have to decide where to go and buy it. Paid search certainly can help sell a product if you catch someone further down the purchase funnel, but it takes other methods to get them to that point.

(Originally published in ClickZ, January 2008) by Eric Picard

Earlier this month, JPMorgan analyst Imran Khan released a fascinating report called “Nothing But Net.” It’s a very insightful piece of analysis overall, but in one area Khan makes a similar mistake to one I keep hearing from numerous analysts. They seem to believe that all traditional media budgets will get eaten by digital media in the next few years. This doesn’t seem like a bad assumption. It sounds logical, after all.

But it’s completely wrong.

The report talks about dollars moving from local newspapers to online display advertising. It concludes that the trend will continue forward with ad dollars from local advertisers moving online because of diminishing distribution.

Another report I read from another analyst this year suggests that radio dollars will move to search.

Both of these conclusions are wrong. They miss motivational factors. Advertisers buy ads in a specific media because they believe it will give them something specific in return. And media tend not to be completely interchangeable. The idea that an advertiser who’s been spending money on radio will shift the budget to search is ludicrous; the goals and effects of running ads (let alone the methodologies) are completely different. And the idea that a local business will shift spending from a local newspaper to online display is similarly flawed.

I’m fairly certain the numbers used by J.P. Morgan’s analysts include classified ad revenue. Classifieds have been decimated in local ad spend, but display ads in local newspapers are probably just as strong as they have ever been, despite shrinking circulation. This is mainly because there are no alternatives for local businesses, including local affiliates of national brands (e.g., local auto dealers, quick-service restaurant franchises, national retailer locations, etc.), to reach their local audiences. Much of this has to do with creative production and the lack of online inventory that can be targeted locally.

National advertisers that buy in newspapers may well reallocate newspaper dollars to other media. But I’m betting the local spenders won’t. They really don’t have too many alternatives. They don’t have any way to build banner ads, and they’re unlikely to be able to get enough inventory in search to meet their needs. I see no evidence that local advertisers are moving dollars online — only the decline mentioned in the report, which I believe represents only classifieds and some national ad spend moving elsewhere.

There isn’t enough local inventory online to support shifting dollars. There’s really no mechanism for a small local advertiser to buy from the majors.

Imagine this scenario: You’re a local auto dealer with $5,000 to spend annually, and you call Yahoo, MSN, and AOL. You request geotargeted inventory that will match the newspaper circulation numbers of some local designated marketing area (DMA). You won’t get a phone call or e-mail returned. There isn’t a sales force today set up to go after the local market at any of the majors online, so the salespeople you’re trying to engage with are the same ones handling national budgets that are significantly larger. If you were a salesperson on commission, whose call would you return: Ford’s national ad agency media buyer or the dealership ad manager at Sweeney’s Ford in Greenfield, MA?

Local newspaper ad spend on display ads is very unlikely to move online for the next few years. The reason is similar to why television didn’t drop for some time despite shrinking audiences. There just isn’t an alternative to reach the target audience that a small local business, even a local affiliate of a national brand, can take advantage of.

And newspapers are the only channel local advertisers can quickly and inexpensively switch out creative on a weekly or biweekly basis. This is very important to a local business with product inventory that it needs to move but differs week to week. Most newspapers will handle creative production and keep insertion orders open for the entire year for their local customers, which further facilitates this.

Local search has mainly solidified around mapping, which is great at taking advantage of people searching for a product in a local area but not for driving awareness of a sale or trying to create demand. And without a sales force and creative production resources to serve the local markets, it’s highly unlikely that much of the local inventory available within the online space will ever get sold to local businesses. The infrastructure is really set up for supporting national advertisers with localized creative.

(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.

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.

(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.