Written by SAY Media’s Troy Young on the future of online advertising. Brand APIs, Conversation Management Platforms, and Content Delivery Engines.
Posts in category New Media
Goals of Ad Tech: Relevancy and Integration
I’m glad that I live in a world with advertising. It funds almost all media I consume with the exception of music and movies. There is no way that we would be able to afford to consume such an array of content on the internet and television without the support of advertising. Further, advertising connects businesses with the public thereby making the economy go round.
However, advertising has a lot of enemies. People insult it all the time. “I hate this commercial,” “This pop up is so annoying,” and “This site looks so trashy with all of these belly fat and teeth whitening banners.” These are all valid concerns that advertising technology hopes to appease by delivering a higher degree of (1) ad relevancy and (2) ad/content integration.
Relevancy
Hulu.com has developed a great method of seeking greater relevancy:
By allowing the viewer to decide whether or not the ad is relevant is a surprisingly innovative way of accomplishing relevancy. A lot of ad tech tries to target ads to consumers by algorithmically predicting their interests and behaviors. But people are fickle and unpredictable, and maybe Hulu is onto something with this simple and elegant model. And it politely requests the viewer to think twice about the ad and interact with it which seems like a much more valuable ad space than an ad on television.
Further, new types of media like Twitter and Facebook open a lot of possibilities for superior ad relevancy. Never before have people been revealing so much information about themselves “publicly,” which–in theory at least–dramatically increases the odds of advertisers delivering consumers relevant advertising.
Integration
A pop up would be an example of an ad with terrible content integration. A few emerging advertising technologies which I believe accomplish a greater degree of ad/content integration include Vibrant and Image Space Media.
Vibrant (and a few other companies) serves in text advertising:
When you scroll over a word of interest, an ad will pop up relevant to that word. I agree that this can be a little annoying if you aren’t expecting it. But now that I am used to seeing these ads around the web, I only scroll over terms that interest me. Like Hulu’s model, I think this is a pretty elegant way of allowing the reader to choose the type of ads he or she would like to see.
Image Space Media has a similar technology that it applies to images:
When you scroll over an image of interest, you will see an ad relevant to the image. I think this is awesome technology because it doesn’t cover up any text and because images seem like they would draw greater interest than text. The only problem with this technology is that it seems to cause pages to load slower (most online display advertising does this to some degree).
In Conclusion
Much of ad spend on traditional media goes to waste. Most commercials we see on TV are totally irrelevant to us. And oftentimes we change the channel when commercials come on because they have terrible integration with content. Greater degrees of relevancy and ad/content integration means a better experience for media consumers. What it means for the advertising industry is more valuable advertising space. With annual US ad spend of at least $100 Billion, we are talking about a huge opportunity for advertising technologists.
Facebook Valuation
A few days ago, it was reported that Goldman Sachs invested $450 million in Facebook at a $50 billion valuation. That figure is so big that it’s difficult to get my mind around it’s meaning, especially for a private, venture funded company. But it’s obviously a big bet by the most respected financial firm in the world.
But what bet are they making?
The only way I see Facebook making money is on advertising. To me, Facebook is just like a TV channel or any online publication. I use Facebook to consume media. What is different, obviously, is that the media is about my friends rather than famous people or broad culture. But like most media, my life wouldn’t change significantly without Facebook–just like it wouldn’t change without ESPN, CNN, or the Discovery Channel.
Can Facebook deliver more targeted advertising than TV (or even Google) with all of the info it has about connections, preferences, and influence? This is a pretty cool idea. But more and more sophisticated ad targeting algorithms seems like a diminishing margin game. People seem to be too irrational and unpredictable to ever completely conform to a mathematical equation. Is this game diminishing before FB is worth several multiples of $50 billion though? I don’t know.
Per Crunchbase, Facebook has 500 million users. Let’s say each of these users views 5 pages per day on Facebook. When I 
just loaded my homepage, I found 4 ads (screenshot at right), that don’t seem too relevant to my interests. But let’s assume Facebook has great advertisers and their targeting abilities will improve dramatically in the near future which will include “Likes” by friends and anything else you can imagine. And let’s say that Facebook gets the highest CPMs I can imagine for these ads: $2.00 each. Thus, my very rough valuation of Facebook follows:
(500 million users x 5 pageviews/day x 365 days x 4 ads/page x $2.00 CPM)/1000=$7.3 billion annual revenues.
If Facebook has 1000 employees (per Crunchbase), and they each make a very generous $1 million/year ($1 billion total) and other operating expenses/overhead are another $1 billion, that leaves $5.3 billion left for “profit.” Taking this number over 5 years and assuming Facebook’s growth will continue, the $50 billion valuation seems about right. But this is obviously very hypothetical, and I haven’t done enough research to support the figures in the calculation. The average of 5 pageviews per day may be high, and the CPMs are likely pretty high at this point too. Those are the main two variables in this equation that have the potential to make a big difference.
The other variable that has an impact on this valuation is innovation. What else can Facebook do? Could they be a more closed off, social version of Google? Will we consume all of our content including music, movies, and news through something like Facebook?
What do you think? Is Facebook worth $50 billion? What ways do you see us using Facebook in the future? Thanks for reading and any insight you can provide!
Display Ad Tech Landscape
The above graphic from Terence Kawaja at Luma Partners represents the vast universe of players in the display advertising market. In one way or another, every company in this image is vying for a piece of the current $60 Billion annual ad spend, and trying to bring more online.
I’m not sure how many logos are on the slide, but I’m pretty sure that it’s too many. Many of the smaller, less focused companies are being propped up by ambitious and idealistic venture money. And many of the best small companies will likely soon be gobbled up by the bigger names on the chart.
It’s clear that the industry needs a number of players between the advertiser and the media. These players most definitely include creatives and ad serving technology. These players might also include media buying companies, aggregators, optimizers, and many of the other buzz words you see grouping these logos above. These players probably don’t include companies without a technical advantage, advertiser relationship, or publisher relationship. In other words, the players on the left are the creatives and agencies–they have the strongest advertiser relationships. The players on the right do the ad serving themselves and they have the strongest publisher relationships. Everyone else in the middle is fighting to produce superior technology to scale and get a piece of the ad spend flowing from left to right. It’s a really interesting graphic and it will be even more interesting to see it as the months go by.
Thanks for reading.
Behavioral Versus Social Targeting
Media6Degrees CEO Tom Phillips explains the difference between behavioral targeting and social targeting in online advertising. Really interesting perspective from one of the industry leaders.
The video loads very slowly for some reason, so it may be easier to pause it for a while before viewing in full.
Ad Tech and Emerging Media
The world’s advertising inventory was relatively finite and quantifiable 20 years ago. By adding up all the billboards, radio and TV time, magazine, and newspaper space, you could figure out how much advertising space was out there in the world. This created a relatively efficient and fair market for advertising. The price of a billboard is set at X because X many people drive by in any given hour.
But emerging media has totally changed the game. Internet traffic is far more variable than real world traffic and available ad inventory ebs and flows with internet traffic volumes. This formula makes the pricing of ad space as much of a trading game as the market for gold futures. And now ads have eyes of their own. Online advertising today actually goes beyond pairing itself with relevant content; it has the ability to differentiate itself to each consumer of content with behavioral targeting technologies. Technology now exists that will allow Nike to show a 25 year old female a different ad than a 60 year old male on the same website. No other advertising medium has such a level of targeting ability. In theory, this makes online media much more valuable advertising real estate.
But online ad spend is still only 15% of total US advertising spend despite these new technologies and the fact that more and more time is being spent consuming media online. The vast majority of ad spend is still on radio and television. Privacy concerns and advertising transparency weigh on the switch to online. But the switch is inevitable. As traditional media loses its stranglehold on people’s attention, online ad revenues are bound to catch up too.
Two things will capture this new money: superior content and superior technology. These are the things that I am really excited to discuss at Mediapop. How can ads be integrated with content without being too intrusive? Which content monetizes better than other content? How does that ad spend and content creation relate to our culture? How does emerging technology allow for new methods of producing content? How can a business model fit it? Just a few things that come to mind that I want to discuss. Thanks for reading.