Category Archives: 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.

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.

How to Play Nice With Technology Gatekeepers

(Originally published in ClickZ, July 2002) by Eric Picard

Back when Bluestreak was a rich media company, I could have written a doctoral thesis on working with tech gatekeepers. This was back in the heady days when publishers had a certain sense of superiority fueled by the artificial inflation of their valuations. We went to extreme lengths to develop rich media technology that didn’t impact user experience — to the point we nearly killed ourselves getting our initial software download down to 5.7k.

For the Web publisher, a technology gatekeeper manages the adoption of third-party ad technologies used by advertisers on the publisher’s site. These include ad servers, rich media, and analysis technology. The goal is to make sure third-party technologies won’t crash the Web site, make user experience suffer, or cause significant data discrepancies between the publisher and the third party.

It wasn’t only technology providers like Bluestreak that faced the gatekeeper issue. Media buyers and creative teams faced it as well. Nearly all the players in the industry were under the close scrutiny and influence of the technology gatekeepers.

They were the sheriffs of the Wild Web portals back in the gold rush. They carried the fastest six-shooters and had a posse of deputies to research, track, and nail the most miniscule bug in a technology. A license to run rich media on Yahoo or AOL was like having Wyatt Earp let you carry your guns into town because he deemed you a “good guy.”

Eventually, a time came when the sheriff was running the town. It was difficult to do any kind of business without making him happy first. When the gold rush dried up, the sheriff lost his posse. The town fathers turned the jail into a welcome center. Suddenly, everyone was allowed to carry his guns in town, even those who fired them into the air after 7 p.m.

Things have started to equalize. Once again, technology gatekeepers have budgets and teams. They are regaining the ability to say no to technologies they don’t approve of. That means it’s time to start learning about this breed of hombres so you can work with them easily (and without flinching when you’re asked to present your guns for inspection).

The technology gatekeeper as sheriff metaphor wasn’t chosen at random. There are a lot of parallels between the jobs and the psychological makeup of these roles.

Keeper of the Peace and Protector of Babies

The technology gatekeeper does her job with a clear conscience. She’s making the experience of visiting her Web site a safe one. She keeps unsavory technology that misbehaves from causing problems in the community. This could be a rogue Java applet, or a Flash file that causes older machines to freeze because they overwhelm the CPU.

Remember: Gatekeepers feel they act in the best interest of the people they represent. Approaching them in any way that puts them in conflict with that role is a bad idea.

Don’t try to sway them by offering a bribe, even an innocent offer of industry schwag or tickets to a trade show. This is a surefire way to get their hackles up. Any tech gatekeeper worth his salt would be insulted or worse by that kind of behavior.

Never try to strong-arm or go around them (to the mayor
— or VP of sales) to get your way. If the VP includes the gatekeeper in the meeting you’ve set up (which she’s likely to do), things will just get uncomfortable. A better approach is to start off on the right foot by having a meeting with all parties ahead of time. Then, move on to the gatekeeper as part of the process. This gets all the issues on the table, sets the everyone’s expectations (including the gatekeeper’s), and makes everyone happy.

The only way to win trust from technology gatekeepers is to be trustworthy. Demonstrate you will not screw them. Keep them from getting in trouble for letting you walk their streets. Build the relationship over time and make sure you don’t let them down.

In ad technology, it’s likely you’ll eventually have a problem. These are the moments when you can actually improve your relationship with the gatekeeper. By being open and honest and doing everything in your power to fix the problem and keep him in the loop, you’ll win his trust and respect.

They Don’t Make ‘Em Like They Used To

The biggest problem we’ll face now that power is returning to gatekeepers is the majority of them are inexperienced. Disney, Yahoo, AOL, and some other major players have kept those important and skilled people in their roles, but they’re the exceptions. Most gatekeepers moved back to the traditional world where jobs with real salaries still exist.

Many of today’s new gatekeepers aren’t experienced in being empowered to turn away revenue under almost any circumstances. They gained their experience in a world where they were left to clean up the mess made by a third party rather than keeping the mess from happening in the first place.

Now that gatekeepers have some say again as the pendulum approaches center, they need advice on how to use of this power. Here’s mine:

Let’s not return to the “good old days” of letting technical issues drive the publisher’s business decisions. I’m a technologist. I completely understand why testing is needed and what can happen when things explode. But many lucrative deals were lost by this industry because of technology gatekeepers’ excessive conservatism.

There was fear user backlash from intrusive technology or techniques would drive people away from the publisher’s free content. This wasn’t the case. Let’s learn from that. Be flexible. At the very least, run live tests with companies without taking weeks and weeks to do so.

In the end, we should all strive for the same thing: success. Ours in particular, the industry’s in general. Everyone needs to work together. The overriding goal of the gatekeeper should be to facilitate the process, not throw a monkey wrench into the works.

Advanced Ad-Serving Features, Part 2: Third-Party Ad Servers

(Originally published in ClickZ, November 2001) by Eric Picard

Last time, we discussed advanced features of site-side servers. Now let’s go deeper. This week, we’ll go into the even-more-advanced advanced features of third-party ad servers.

Third-party servers primarily serve the needs of advertisers and agencies. Sometimes they are called buy-side servers. They are part of the business infrastructure of these groups and must reliably and accurately deliver and report on ad serving and related user actions associated with the ads.

In addition to delivery and basic reporting, third-party servers provide unified comparative reporting for all publishers in a media buy, as well as many advanced features. From a feature standpoint, a third-party server is more complex than its site-side counterpart.

One thing to keep in mind: A third-party server is not able to “refuse” a call for an ad. If an ad tag is supplied from a third-party server to a site-side server and that ad is called, it must be served. Only a site-side server can schedule and deliver ad calls to users.

Beyond Banner Tracking

This is the big feature. Tracking beyond the banner enables the view of an ad session from impression to conversion (and beyond). This is a major reason a third-party server is a must for most advertisers. Some tracking types beyond the banner are:

  • Tracer tags. Tracer tags are single-pixel images placed on pages of the advertiser’s Web site so that activity on those pages can be correlated to the view or click of an ad. 
  • Post-click analysis. The user sees an ad and clicks on it. She arrives at a landing page on the advertiser’s Web site. She travels across three pages that have tracer tags on them. Each intersection of creative/tracer is credited to the advertiser’s reports. 
  • Post-impression (also called post-view) analysis. The user sees an ad but doesn’t click on it. That user (remembering the message) later travels to the advertiser’s Web site on his own. He moves across a number of pages with tracers on them. Each intersection of ad and tracer is correlated and credited to the advertiser’s reports. This analysis is a definitive branding measurement and is sometimes called a brand response report. Not all third-party servers collect post-impression data.

Reporting

  • Cross-publisher reports. A major reason to use a third-party server is that reports are covered across all publishers within a campaign. 
  • Comprehensive data sets. Since both post-view and post-click data must be recounted, reports must be unified and comprehensive.

Analytics

Some third-party servers offer advanced analytics capabilities. This is one of the fastest growing areas in the industry. Far more data is captured in an online ad campaign than in an offline one. Turning that data into actionable information isn’t simple. It takes days or weeks of human intervention and interpretation.

A powerful analytics package solves these problems by providing tools to get at actionable information more quickly. There are two basic types of tools to discuss:

  • Online analytical processing (OLAP) tool. This very powerful analytics tool enables the most control of data and reporting. Great power and flexibility comes at a great price, and few people are technical enough to use an OLAP tool to manipulate their data. In most agencies there are only a few, if any, people who can use these tools. It gets even sparser at the advertiser level. 
  • Wizard. To address problems with OLAP, some companies have started coming up with wizard-based interfaces for the most commonly asked questions. A good wizard-based interface can likely answer such questions as: Which publisher is the best media buy for my campaign goals based on the past six months of running ads across various publishers?

Optimization

Analytics deals with historical analysis to improve ongoing and future campaigns. Optimization deals with live campaigns that must be improved while still running. When done by hand (as is most often the case), only so much can be changed. Humans can optimize to a level of detail only so deep. This is best handled by technology, which provides much deeper analysis of data. Two types of optimization are:

  • Real time. Real-time optimization is the most powerful. Changes are made automatically to creative in rotation across placements based upon actual results read by the optimization tool. Real-time optimization requires real-time data to make changes. Few ad servers use a real-time reporting architecture, relying instead on 24-to-48-hour-delayed data. Real-time benefits include microtrend discovery (intraday changes in behavior within placements) and greater lift based on feedback loops. Additionally — if the system doesn’t make changes automatically, relying instead upon human approval or intervention — the lift is going to be lower. 
  • Recommendation. For situations where real-time data isn’t available, recommendation-based systems are the alternative. These systems read data when available and provide a list of recommendations to enable the customer to make changes. This inherently is a poorer performing model as changes are not happening quickly. Therefore, additional learning for the optimization tool is lost. The faster changes are made, the better the system gets at predicting performance. Still, this is a better method than hand optimization.

Targeting

  • Geographic targeting. Geotargeting is similar to site-side servers but somewhat less effective. You pay for the media regardless of whether you had an appropriate creative for the users an ad was served to. Wherever possible, try to geotarget at the publisher level. 
  • Profile-based targeting. As I detailed last time, ads can be targeted based on Web-surfing habits. Third-party ad servers have the same issues as site-side servers do. 
  • Session-specific targeting. Specifics include domain, browser type, and operating system. Again, this can be accomplished on the site side, usually to greater effect as the publisher only shows the ad (and bills you) when there is an appropriate fit. When served by a third party, you pay for the media even if it doesn’t fit your demographic.(Remember, there are plenty of other types of targeting I’m not covering here).

Trafficking Controls

Without a third-party server, trafficking ads to multiple publishers is a problem. It can be complex, with many points of failure. A good third-party server simplifies the process of trafficking campaigns and should provide valuable accounting methods for successful delivery and approval of your ads by the publisher.

Dynamic Ad Serving

Most publishers have a limit on the number of ads they will accept at one time. Usually this ranges from 5 to 10 creatives per week. Third-party servers use dynamic ad serving to rotate multiple creatives through one ad tag. This allows the advertiser/agency to traffic as many creatives associated with those tags as they want. This simplifies life for the advertiser and the publisher by cutting down significantly on the work done by both.

Conclusion

There are other ad server features not covered here. But this is a column, not a book! You should now be educated enough to talk to a salesperson without too much trepidation.

Next, I’ll write about a topic near and dear to my heart: how to work with tech companies for long-term success. It’s time to set a few things straight about this marketplace. Customers need to understand that while they are in a position to beat up their tech partners (notice I don’t call them vendors) on issues such as price, they should think twice. If there are any tech firms out there that would like to voice their thoughts on the topic, drop me a line.

Protecting yourself from exploding Ad Technology partners

(Originally published in ClickZ, June 2001) by Eric Picard

As you might have heard, AdForce closed its doors last week. CMGI shut it down after failing to find a buyer. What a strange world we’re living in. It makes you wonder whose balloon is going to pop next, doesn’t it? It wasn’t so long ago that these companies were awe inspiring to many of us in the industry. How quickly things change.

So what is an agency or advertiser to do? If you make decisions about or manage the relationships with your technology partners, maybe we can come up with some guidelines for you on how to judge a company’s stability. The world is a dangerous place right now, and getting caught unprepared if your ad-serving infrastructure suddenly goes up in smoke could really hurt.

Public Companies

Let’s start by looking at the public companies. Once, you could assume that if a company was public, it would most likely be around in a few months. Not any more. Being public actually works against most companies in our space these days.

A very well-known industry analyst once told me that any company with a stock price of under five dollars is focused only on appeasing the investors, not on doing business, and certainly not on innovating. At the time, he said he didn’t even pay attention to those companies. I have to wonder if he still operates on that principle. Today, companies in our space with stock near or above five dollars are like superheroes.

I just looked at the list of 43 stocks I’ve been tracking for the past three years. It’s made up of companies either active in online advertising or peripheral to it. I noticed that 34 are trading under five dollars or are no longer trading at all. Of those 34, 12 are trading under one dollar, and 17 of them are no longer actively trading. Some have stopped trading because of merger or acquisition, but most are just out of business.

So how do you make sure you’re safe?

  • Look at the makeup of your technology partner’s customers. And I don’t mean its “portfolio” — since this often contains customers no longer working with the company. I mean active customers.
  • Ask your contacts for active customer references. This might be a tough play, but at least you’ll be able to judge the stability of the company. If a company doesn’t have one customer willing to say something good about it, you might want to reconsider.
  • Find out how much operating capital the company has. DoubleClick is an example of a public company in our space with lots of operating capital. 24/7 Media is an example of one without any operating capital.
  • Make use of the fact that the company is public. Look closely at its public disclosures. Read quarterly reports. Read analyst reports. Judging which companies are in trouble is mostly a clear and commonsensical act.
  • Check if the company traded as an over-the-counter or bulletin board (OTC:BB) stock. If so, you should be especially wary, because the regulations about reporting here are much less clear. Since there is less regulation, companies trading as OTC:BB are often seen as stock scams at worst and as a little shady at best.

    The main change these days is that since many companies have been de-listed from the Nasdaq, as victims of the times, they have ended up on the OTC:BB. If the company is a real business, you should be able to tell pretty easily. One quick test is to verify that its “gallery” or case studies are real, not mocked up. Be direct and ask — even ask for real customers you can talk to if you feel uneasy.

    One of the first questions I ask a company is if it is public or private. If it’s a small company and it’s public, I immediately ask if it’s an OTC:BB.

Private Companies

Now that we’ve looked at public companies, we should review how to judge the stability of a private company. It’s not so different, but some of the information isn’t available publicly.

First, make sure that the general items are covered from above — and especially focus on customers. Since public companies are accountable for things that they say in public, they usually are relatively credible (minus the marketing spin). Private companies are not so tightly regulated, so make sure to do your due diligence.

Usually, private companies’ financial health is the hardest point to establish. And today, this is the most critical factor to review. There are, usually, some indicators:

  • Private companies generally start up through bootstrapping or venture financing. If it’s the latter, you’re in luck. It’s a huge win to get investment from a venture capital (VC) firm, and the general response is to issue a press release.
  • Review the company’s press releases, and try to figure out how much money it’s raised.
  • If it has been growing and hasn’t raised any money in the past six to eight months, your warning bells should go off. The only situation in which that shouldn’t worry you is if the company is bringing in lots of revenue. This is tough, given the market right now.
  • Next, you should figure out how much time it has to get profitable. Once you do (explained below), feel free to ask the company directly how it plans to achieve profitability. Again, you may not get an answer, but it doesn’t hurt to ask.
  • Get a general idea of the company’s burn rate by using the following guidelines:
    • How many employees does it have? Usually, the company will tell you.
    • Where does the company have offices, and how many people are in each?
    • What kind of capital expenditures might it have? If it’s an ad-serving company, how much is it spending on server farms?
  • This is closely held competitive data, so a company is unlikely to just hand it over, but you can make some educated guesses about these things:
    • Figure that a company with 30 employees is burning $150,000 a month for salaries (if it’s aggressive).
    • If the company is in New York, figure that it’s paying big-time rent (even with some of the new deals opening up). An office for 30 people will run roughly $35,000-45,000 a month, depending on location and other costs beyond rent.
    • That gives us close to $200,000 monthly without even getting to hardware or server infrastructure.
  • When you look at (a minimal) server infrastructure and costs for setting up and maintaining the business, we’re talking about $250,000 monthly, or about $3 million a year.
  • That gives a company of 30 about two years of life if it’s raised $6 million. You can work out the various scenarios for different sizes and funding.
  • I’m being quite conservative here, and this is based on a whole lot of assumptions. For instance, if the company happens to have offices in New York and San Francisco, you can imagine that the costs are a lot higher.
  • If the company is too large for the amount of funding it has, it will burn out fast. If it’s too small for the amount of business it has, you’re going to get horrible service.

So now you’re an expert in evaluating those companies you’re working with. Go out and look at them. There’s no time like the present.

IAB Rich Media Task Force: One sided?

(Originally published in ClickZ, April 2001) by Eric Picard

As many of you may have heard, the Internet Advertising Bureau (IAB) has undergone some interesting changes lately. First, it changed its name to the Interactive Advertising Bureau. Second, it changed its focus to support the publisher community specifically — to the exclusion of all other parties.

Additionally, the IAB has formed the Rich Media Task Force to set industry-wide standards for rich media. The team is large and composed of some of the luminaries and unsung heroes of rich media in the industry — like Bettina Fischmann from CNET, Gary Hebert from Disney Interactive Group, Nate Elliot from DoubleClick, and Chuck Gafvert from AOL. This is a pretty smart group of people and I have the greatest respect for them.

But since the IAB has excluded rich media technology companies from participating — which is sort of like forming a group focused on fine cuisine but not allowing any chefs to participate in the forum — I’m writing an open letter to the task force here. After all, its members are about to set industry guidelines that profoundly affect my ability to feed my family, and I’m a little concerned.

Luckily, Emerging Interest seems to be stepping up to the plate with support for the rich media technology providers — but I won’t steal Bill’s thunder.

An Open Letter to the IAB Rich Media Task Force

While I have the greatest respect for many of the individuals participating in the task force, I have some concerns about the kind of standards that publishers might come up with, given the history of the industry. It would be tragic to take a step backward from where the existing rich media technology providers have gained acceptance so far.

As I said before in an earlier ClickZ Advertising Technology column, publishers have been too protective of the user experience for too long. They’ve taken feedback from early adopters and used that feedback as guidelines for the way the Web should work. Early adopters are the loudest group of users; they’re notoriously fickle and hard to please — and publishers have bought off on this group as their audience.

The Web is now a mass medium, and the expectations of the masses differ from those of the early adopters. Marketers and creative teams working with agencies want more flexibility to get their message across and to elicit a direct response. Rich media producers can provide them with this need without alienating users.

If the IAB Rich Media Task Force is hoping to make a real difference, it is time to step up to the plate and knock the ball out of the park. Make a bold statement with these standards — don’t just agree to a set of minimum standards that are more prohibitive than the widely accepted rich media formats today. As an industry, we should be forging ahead, not lagging behind.

This group has a powerful opportunity. Advertisers have complained repeatedly about the restrictions of online advertising. Let’s take this chance to challenge and change that mindset.

Here are my general recommendations for all formats:

 

  • Make sure your guidelines are for interactive advertising. Don’t use television models to restrict these ads. It has much less to do with limiting the time an ad runs than capturing interactions with users. Restricting run times will actually frustrate and anger users who are interacting with an ad — and user interaction is the goal of the medium.
  • Remove loop limits. This is the most prohibitive and most outdated of all requirements that are widely accepted. The biggest concern about looping animations is that continuously looping animations are annoying. Perhaps they annoy the members of this forum as users — mainly made up of early adopters, like me — but you are not the target audience of your customers (the advertiser). And in most cases, neither are the very vocal early adopters who complain about continuous looping.
  • Allow audio upon mouseover of rich media ads. Unsolicited audio is generally prohibited, which I agree with in principle. BUT, if a user rolls over an ad, and a sound plays, that’s a different experience.
  • Don’t limit file size. The metrics used by publishers to allow or disallow content are not correct for the medium. File size is a relative thing when discussing rich media because most technologies have built-in mechanisms to address this issue. A more proper metric would be something like this: an initial file load of 15K, total file load per page of 50K — unless content streams.
  • Permit advanced technology. Flash can be built to stream in content. Audio and video are virtually always streaming. Enliven uses the built-in streaming of Director in its standard product and can make use of Flash streaming in its Flash products.
  • Sequential or polite loading. Bluestreak’s Java technology uses a sequential loading methodology with load priorities — never overloading the user’s connection with too much of a content dump. This doesn’t slow down the page load by competing with the page content. Unicastmakes use of the “polite download” of its interstitial technology, which loads content only when a user’s connection is free. The savvy technologists in this industry will continue to innovate new ways of getting more content to users without slowing down the connection.
  • Bandwidth detection. Reward technologies like bandwidth detection by loosening restrictions for those who employ it. Additionally, publishers should start enabling their ad servers with bandwidth-detection technology to alleviate some of these issues.

Respectfully,

Eric Picard

Rich Media: Time to pay the piper

(Originally published on ClickZ, February 2001) by Eric Picard

Editorial note: As announced last week, the Rich Media column has been renamed Advertising Technology to broaden its scope. Eric Picard and Jeremy Lockhorn will cover rich media, as well as technologies for ad serving, analytical tools, wireless, interactive TV, and other intersections of technology and advertising.

We’ve all watched with horror and fascination as some of the established leaders in the rich media industry have driven into the financial guardrail lining the information highway. From my perspective, it’s been an incredibly strange ride as companies I’ve sparred with have ended up in the rearview mirror.

So the question is: What happened? Why do we see companies like ePod shutting their doors andEnliven’s future in question? The real answer is the quiet little secret being kept in this industry. The biggest reason these companies are failing is probably… you.

Advertisers and agencies alike have done a lot of complaining about the poor performance of banner ads, and they’ve taken advantage of the soft market — demanding favors of rich media providers and pressuring them to accept lose-lose terms in order to win business. This has kept many rich media providers from gaining traction as businesses and, eventually, has driven them out of the marketplace.

I’ve had numerous conversations in the past year with people who consider themselves forward-thinking about online advertising, then turn around and “prove” that mindset by demanding free tests of technology and services. I’ve had people gleefully tell me, “It’s easy to get a free test of rich media, so why should we pay for it?” This is a dangerous cycle — one that’s hard to break, not only for the rich media provider, but also for the advertiser and agency. New players in the market are always going to offer some free tests to get some leverage. Established players can’t afford to fall into the trap of competing strictly on price.

Over the past six months, as some established providers got closer and closer to that guardrail, they responded to this pressure by giving away technology and services to win business. But as we’ve all seen, a deal can’t be a winner unless all parties win. And while it might be easier for a provider to swallow this practice when dealing with a large advertiser, it’s a trap that’s very difficult to exit. There may be some value to having a showpiece created for a top advertiser, but it isn’t so easy to move beyond that free test, even when you significantly surpass all of the client’s goals.

I’ll tell every advertiser and agency right now: It ain’t free — and it never will be. You’re going to pay one way or another, either with cash or with the time and energy it takes to learn how to work with a partner — and that’s time and energy wasted when this partner subsequently goes out of business. This is not good business, and it isn’t good for the online advertising industry.

And, frankly, you shouldn’t expect it to be free. Rich media has proven value that needs to be recognized by all the players involved. In times of tougher accountability, it’s beginning to be the only kind of campaign that makes sense at all. Of all the things in the world your company has to pay for, you should spend wisely on those that have proven effective at increasing ROI.

And let’s not forget that it’s taken incredible market pressure to force publishers into providing new rich media formats — and they’ve finally done this only as they neared desperation. Some publishers have been proactive — testing and accepting new technologies, working with rich media providers to make sure we’re compatible. While accepting a proven rich media technology in the banner space is a fairly safe bet, until recently there has been very little willingness to provide more innovative and higher-yielding formats.

The hurdles are understandable on the publisher side — irritating ad formats certainly can drive users to other venues. But there are many ways to balance higher returns without negatively impacting user experience. Usually the biggest roadblocks to providing more advertising value for advertisers are at the lower levels, where a junior person is strictly following the written policies of the publisher. It takes someone higher up to agree to go forward with anything out of the norm, but often the culture in these groups breeds a sense of superiority, making it difficult to reach the decision makers.

So publishers take note: Since your implementers are often not willing to step outside the boxes you’ve carefully laid out for them, put a process in place to enable these special deals. Reward your team for being proactive — sometimes very large potential deals go stagnant simply because the person in trafficking bounces back anything unusual. Listen carefully — not only to the advertisers but also to the rich media providers out there. Some of us have good ideas.

So there you have it — yet another lesson in traditional business that the Internet economy forgot or ignored. No deal works unless all involved can gain from it. Leaders on all sides of the industry need to start making command decisions and stepping up to the plate. Unless you invest in success, you and all of your partners are bound to fail.

The good news is that publishers are finally coming around and actively experimenting with rich media and alternate ad formats. Major advertisers who have — up until now — merely dabbled with online advertising are starting to get serious. There’s nothing that will motivate performance among the rich media providers like a major competitor failing in a public way. And there’s nothing to motivate advertisers and agencies to adopt technologies focused on ROI and accountability quite like cold, hard market reality.

Looks like a perfect setting for success.

Embracing the Promise of Interactive Advertising

(Originally published in ClickZ in January, 2000) by Eric Picard

The explosion of rich media advertising in 1999 was just that, and it forced many traditional advertising agencies to evaluate how they could offer this exciting, dynamic interactive medium to their clients. While some successfully made the leap to rich media, too often the alleged limitations of the technology – or simply a fear of it – prevented people from tapping into the wealth of experience they had accumulated through ad creation in broadcast and print, as well as in GIF banners.

When I taught photography classes in graduate school, I once had a student who felt she couldn’t comment on her classmates’ work because she wasn’t a “photographer.” This woman, a talented fabric designer, had a powerful sense of contrast and texture, and was certainly qualified to comment on just about any visual media.

But she ignored her extensive knowledge of design and all her proven design skills because she found herself on uncertain ground. I pointed this out to her, and over the length of the course, she ended up consistently giving other students extremely insightful commentary on their work.

Rich media advertising holds the great promise of increasing both click rates and conversion rates, but only if advertisers consider it as an evolution of advertising solutions, rather than an offering that exists in a void.

In the past year, the underlying technology has evolved and become an easy-to-use solution for creating attention-grabbing, interactive campaigns. The technology now enables advertisers to choose how, when and where to use the medium, depending on the objectives of the ad campaign.

However, the real success of rich media advertising rests squarely in the hands of the creative team that conceptualizes and creates the banners. Currently, very few agencies have figured out how to tap into the full power of rich media to use it for creative, effective ad campaigns.

Simply overlaying GIF-creation mentality is not enough. Creative departments need to approach this new medium with the same vitality and energy that they brought to traditional ad campaigns and standard banners. By doing so, these teams can quickly begin creating rich media campaigns.

Three things advertisers should keep in mind when working with rich media:

Draw on your experience, but don’t allow yourself to be shackled by it. Innovative and unexpected use of the technology is the most important aspect of building effective rich media. In the same way that you begin to ignore the “to do” notes you’ve plastered on your monitor, users stop clicking on ads that use certain “tricks” once the novelty and excitement wear off.

Therefore, you need to continually tweak an ad to keep it fresh and interesting. The most effective way to accomplish this is to tap into previous experiences and put a new twist on them. Do something unexpected. For example, if you’ve gotten great results with dark backgrounds and light text, keep on doing what works, but include a subtle (or not-so-subtle change) to grab the viewer’s attention. Maybe make the shadows move, or create some call to action that invites the viewer to interact with the ad.

Don’t rely on your competition to figure it out for you. Your competitor may have a successful ad campaign, but don’t simply copy what they’ve done. At the same time, don’t ignore their success. Push yourself to experiment with the medium and don’t limit your ideas because no one else has done it. Rich media is still in its infancy, and we will continue to see methods and practices prove themselves over time.

Keep an eye on the future. While so much of the click rate is dependent on great creative, our team at BlueStreak.com has been running experiments to learn methods of improving click rates that are non-specific to the messaging or creative. Basic issues like effective colors and messaging are already well-documented in varying studies of banners. But things that we are learning now will allow us to make automated improvements to any ad – regardless of creative content – in the near future.

In the end, a powerful combination of proven techniques, innovative approaches, scientific methods and new advances will determine what works best with rich media.

In the meantime, advertisers need to take advantage of the great new technologies being developed. If agencies with no rich media experience want to make the move to offering this medium, I would recommend the following: Remember everything you’ve learned creating broadcast, print and GIF banner campaigns. Bring to the new task all your vitality, creativity and well-honed skills. And fully embrace the possibilities of rich media.

A Not So Brave New World

(Published Originally in ClickZ, July 1999) by Eric Picard

There’s been a flurry of interest in rich media across the online advertising community in recent weeks. In fact, I’ve also been in close contact with some of the individuals at major portals, networks, and sites responsible for setting guidelines for the placement of rich media within their sites. But take a look, sometimes the web is a not-so-brave new world when it comes to rich media.

You can’t really blame the sites for their concern. We’ve all seen technologies foisted on us, claiming a revolutionary approach that will change the way we use the Internet. Frequently these approaches were “not quite ready for prime-time,” and that has made some sites gun-shy.

People in decision-making positions need to look at the problem from a clear vantage point. Techniques such as choosing an intelligent file loading order, keeping the code very tight, and where appropriate, using streaming media, can make big differences in the way these technologies work. Intelligent Java coding and server-side enhancements can go a long way toward speeding things up, too.

File Size

In rare cases, I’ve seen file size limits as low as 8k for banners. This seems a bit excessive. Even for a search engine, 12k is much more reasonable. There are two main reasons that sites impose file size limits: 1) user experience, and 2) impact on advertisement impressions being properly registered.

Most rich media companies are far more concerned with user experience than any individual site could imagine. For us, it’s everything. If users complain about us, then we might get the axe from the web sites. Every company uses its own methods to load more in less time, and mainly these invalidate the traditional method of applying file size limits to rich media. There isn’t a cookie-cutter model that we can all be fit into, but if the ad doesn’t load fast and wow the user, there’s not much point — for any of us.

The search engines have the biggest concerns over the effect of rich media on impression counting. If the ad loads more slowly than the content of the search page, the user may click on the first link before the ad impression registers. On most other kinds of sites, a low file size limit isn’t critical – a 15 or 20k traditional banner ad isn’t a big deal. But again, it’s not all driven by file size. There are many factors that go into the speed of loading an ad – rich media or not.

Streaming Media

If the technology is streaming (truly streaming), then file size doesn’t matter at all. There should be no limit for true streaming media. I say true streaming media because in the past, some technologies have claimed to be streaming but use the term vaguely. I would define “truly” streaming media as media that pre-loads enough data so that the entire download process doesn’t overload a slow Internet connection. The efficacy of streaming media should be assessed on a per-technology basis.

For true streaming media technology there is no reason to apply file size limits. In theory, it just doesn’t matter. Certainly it would be ludicrous to apply a file size limit to a live radio broadcast or video broadcast. How could this be quantified?

Expanding Banners

Then there’s the issue of the expanding banner. We at BlueStreak.com have our E*Banner technology that allows us to expand any ad to any size. Narrative has its Enliven technology that has an expansion component as well. I’m sure we’ll see other companies come up with expansion methods over time. How do sites set file size limits for a banner that expands — basically loading more content based on time and user interaction?

Like I said earlier, a 15 or 20k download is no big deal for most sites, even though the trend seems to be moving toward highly conservative smaller file size requirements. By breaking that file into two parts (in the case of our E*Banner, a small Java Applet and a similarly sized graphic), the user experience is impacted less, since the page load will not be negatively impacted by a longer wait.

Once the page itself has loaded, the site should not have any issues with extra data being loaded to improve the ad experience. It just doesn’t impact their site in any way, and it improves “stickiness” while the user explores this expanded ad experience.

That deals with the initial file size issue, but what about the expanded space? How should these file size issues address the expanded space? You really need to think of these expanding ads as miniature web sites. Expanding the ad is the equivalent of going to a new page in a browser. In order to have a fair comparison, let’s look at the front pages of some of the major web sites.

If I go to the first page of Disney.go.com, I get an HTML file that is 46k and graphics that total 57.9k. Just for a simple (the entry page, no less) web page, we’re looking at over 100k. The first page of Infoseek.com is 36k just for the HTML and about 10k for the graphics. Lycos is slimmer at 19.4k for HTML and 7.7k for graphics. MSNBC is 24k for the HTML, but 48k of graphics. AOL.com’s welcome page is 50.5k for HTML, and 19.1k for graphics.

None of these sizes are unreasonable for the expanded space of an expanding banner. It’s mainly an issue of bang-for-the-buck. Are 5 extra kilobytes worth an extra 0.5 percent click-through? What about a 5 percent improvement in conversion? That’s up to the advertiser and site to come to terms with.

The expanded page is loaded at the specific request of the user. If the user doesn’t want to wait, then they are able to move somewhere else. All expanding technologies are not going to work exactly the same way since every technology has a slightly different purpose–some focus on transactions, some of branding, some on games. But whatever the focus, the user experience is the only issue; that should be addressed by utilizing appropriate solutions to varying needs.

Bottom line: Advertisers will continue to request rich media solutions, and web sites will continue to feel the pressure of dollars pulling in that direction. Traditional banner ad requirements do not and cannot address rich media technologies. The companies developing these solutions employ numerous techniques to break beyond the banner that (in many cases) mitigate the needs for the stringent requirements placed on traditional banners.