JohnDeMayo.com: Internet Advertising Insight

Great Bid Strategy for Google Search Network

    RKG has a great post on the variance in conversion rates across Google and Yahoo's syndicated networks, and how there's one strategy that can be used at Google at least, to help de-average and bid a bit more appropriately then using a standard configuration.

     

    While you can't set separate bids for each source of traffic on their network individually (although you may well see this in the future), you can set a separate bid strategy for Google, and for all others grouped together.....

    "One set of campaigns is set to Google-only. A carbon-copy of those campaigns is set to Google + Syndication Network. The bids for the Google-only campaign are higher because the conversion rates are higher, hence on Google.com only the Google-only campaigns are in play. That means that the Google + Syndication partner campaigns actually only serve ads on the syndication network and the bids can be depressed en masse for that traffic."

    Eventually hopefully Google will let you bid separately for each site.  And maybe some day add even more variables into the data set that you can bid against.  One day search may even look like ad exchanges today, letting you place an bid on each individual impression.....imagine being able to bid more or less based upon someones search history, or on demographic data you may have stored on a user, or on purchase history info you may have on a user....this could get really complex at some point in the future, and really separate the serious math people from those that are kind of winging it.

    Anyways, make sure you check out RKG's full post, there's some great data that's well illustrated.

Thoughts on the Quinstreet S-1 / $250 mil IPO filing

    -Company seeks to raise $250 million.

    -Operating Income stayed basically flat in the $21-$26 million per year range for 4 fiscal years, 2005 - 2008, while Net Revenue grew more consistently.  Some of this margin compression is likely due to the companies efforts to diversify its business from the sales-side.

    -Success in sales-side diversifyication has been limited.  "Our top three clients accounted for 32% and 28% of our net revenue for the fiscal year 2009 and the first three months of fiscal year 2010, respectively."  "DeVry Inc., our largest client, accounted for approximately 19% and 13% of our net revenue for fiscal year 2009 and the first three months of fiscal year 2010."  This is despite many, many acquisitions to help in this effort.  Some concern here

    -Buy-side concentration is not disclosed in any detail.  I believe there is less risk relating to losing one or two important buy-side clients, and buy-side risk is more likely related to a general increase in media costs with an improved economy (and continued competition driving media costs up).  There is a possibility that the recent jump in Operating Income will evaporate once media prices return to more normal prices.

    -Operating Income jumped significantly to $34.7 million in 2009, but I believe this is more attributable to the economy then the companies execution.  Media prices dropped significantly, and the companies largest vertical (secondary education) is typically strong in a down market.

    -Company has given no guidance in regards to valuation, however for illustrative purposes at a $1 billion dollar valuation (again for purposes of illustration only), this would represent a multiple of 3.8 times their last fiscal year's revenue and 17.6 times their last fiscal year's adjusted EBITDA.

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    -Disclosure:  I do not now, nor how I ever, worked for or represented Quinstreet or their interests in any regard.  These thoughts are mine, not theirs.

    -Disclosure:  I was formerly a founding executive and early investor at Adchemy, which is considered by some to be a Quinstreet competitor.

Display Advertisers: De-average or perish, the ad exchanges are here

    Ad exchanges take ad impressions and let many potential buyers place a bid for said impressions.  The buyer who bids the most wins the impression.

    Right now, some ad exchange inventory (i.e. Right Media's Yahoo inventory) auctions off only non-guaranteed inventory.  So if you step up and pay rate card or near rate card prices, you are guaranteed that inventory.  If not, the inventory goes into an exchange, and the highest bidder gets it.

    Participants in this exchange for non-guaranteed inventory include not only real-time bidders, but networks and other companies that have more fixed-price type contracts with various advertisers.  One advertiser may be willing to pay $.75 CPM for an above-the-fold leaderboard on a top 1,000 sports site with a frequency cap of 2 per day.  So this is entered as a $.75 (or less) bid for every impression that fulfills the above requirements.

    As the market matures, though, you'll find that exchanges won't only include "non-guaranteed" impressions in their exchange marketplace, they will essentially include "guaranteed" campaigns in the exchange and just make sure they charge enough such that these advertisers win the auction enough of the time, essentially "guaranteeing" delivery.  Good forecasting and data will enable them to make set these market prices for "guaranteed" inventory.  If your rate card is $5/CPM and an ad exchange participant can pay $6/CPM for some impressions, why not sell it to the higher bidder (or raise the price as appropriate to the guaranteed buyer)?

    So where does this leave the unsophisticated buyer, buying on more traditional contract terms, in essentially a non-real-time, or pseudo-real-time through an intermediary basis?  You'll end up with impressions that meet your contract's criteria, but have very little value.  Depending upon what criteria you fail to specify (and you can never specify them all), you'll get high frequency users (with notoriously low CTRs), younger users (even if the exchange doesn't know their age, someone else will), placements that are below the fold and go un-noticed by users, and impressions from users whose value is less then average due solely to the fact that no other advertiser has found an attribute that would make them look valuable.  Even if there's no known attribute that makes an impression less then average valuable, the fact that there's no attribute that makes it more then average valuable (known by any participant bidding on the exchange) probably means it's worth little.

    In summary, if you buy display advertising, get sophisticated, and get sophisticated fast.  Understand exactly what user actions or conversions you associate value with and make sure you or a company on your behalf can correlate this value to every single data point that you or they or the data exchange has on a possible impressions.  Those who fail to de-average groups of inventory will be stuck buying the slop, and firms who properly value inventory across a huge number of dimensions (both declared and proprietary data dimensions) will benefit significantly in this change in the way advertising impressions are allocated to buyers.

    And just you wait until the search platforms let people real-time-bid on a much larger set of variables then are available to search advertisers today.  How many relevant mathematicians are on your team, that can handle machine-learning and statistical inference type problems, utilizing data from advanced data mining?

    Use ad exchanges to effectively de-average the value of impressions across a huge number of impression attributes (and bid appropriately), or get stuck with what no one else wants...and watch your ROI and volume get whiped out.

Adchemy raises $31 mil, partners with Accenture

      I'm most excited about Adchemy's recent news - they've gained a tremendous partner in Accenture, and raising money in this challenging environment really speaks volumes to what they've put together.

http://bits.blogs.nytimes.com/2009/10/20/accenture-tries-to-turn-ads-into-gold-with-adchemy/?em

Increase revenue by 43% by creating a product/price no one wants or buys

    I just finished reading Predictably Irrational by Dan Ariely.  It's an interesting book as a whole, but particularly interesting to marketers was right at the start of Chapter 1, where he discusses some various pricing options of the Economist, and how by adding a 3rd pricing option that no one picks, more people choose the higher price.  See below for the data the book presents:

Original pricing:

Economist.com Web Subscription:  $59  (68% choose this)
Print Subscription and Web Subscription:  $125  (32% choose this)

New pricing, driving a higher percentage of $125 subs:

Economist.com Web Subscription:  $59  (16% choose this)
_added Print Subscription:  $125  ( 0% choose this)
Print Subscription and Web Subscription:  $125  (84% choose this)

     Very interesting, by adding a pricing option that no one chose, the Economist raised its revenue per subscriber from $80.12 to $114.44.  The book is worth picking up, even if the later chapters are not as directly applicable for us marketers.

     If anyone has reading recommendations  with similar examples, please do share.

AOL eyes Advertise.com as "confusingly similar" to Advertising.com

     I've been reading with interest as apparently AOL has filed suit claiming advertise.com is confusing similar to Advertising.com.  It's of particular interest to me as I handled the negotiation and purchase of the Advertising.com domain name for them as an employee (we were called Teknosurf at the time and decided Advertising.com would be a good new name for the company.  Having ".com" in your companies name, and picking highly descriptive names was still a popular tactic at the time).  It was actually a fun, last-minute type negotiation where the seller needed to unload quickly, and my timing in contacting them worked out to be just about perfect.

    Taking a look at some of the details, it seems like AOL will have an uphill battle for a few reasons:

• The trademark's AOL seems to hold include the design, not just the name in typed form (see here, here, and here).  Trademark's including the design are particularly hard to enforce.  If it was a "word mark" I think they might have a shot.
• AOL primarily markets the Platform-A brand, under which Advertising.com is a division.

    I'm curious to see where this one goes, my knowledge of trademark and domain related legal topics is admittedly limited.

     You can read some other opinions on the topic below:

http://domainnamewire.com/2009/08/18/aol-sues-advertise-com-for-trademark-infringement/

http://www.domainnamenews.com/up-to-the-minute/aol-wreaks-havoc-advertising-domains/5801

http://www.techwall.org/internet/aol-wants-owns-all-advertising-domains/

the Value of Creating Value

    As I'm back evaluating new opportunities in the internet advertising space with my time freed up, I thought a great way to understand what companies may provide value in the future, might be to review some companies I've worked with in the past.

    I started my career on the internet in '97, creating large numbers of very simple web sites (jokes sites, chat room sites, and related), and making money placing advertising on them.  While I made some excellent money doing this, it didn't feel like this business was sustainable, defensible, or that i was creating enough value to make it viable long term.

    When the Ferber brothers from Advertising.com (then Teknosurf) approached me about coming to work with them and explained the vision, there was something I could really get behind, and feel good about in regards to the companies ability to create value.  The math and technology they proposed building to more efficiently match thousands of ads to tens of thousands of website placements created economic value, as well as enabled us to efficiently bear risk (thereby removing much of the risk from our advertiser and web publisher partners).  The creation of value in this manner ultimately lead to a succesful, profitable company that we sold to AOL in 2004 for $495 million.  And the fact that Advertising.com continued to be succesful long after the acquisition and was considered one of the best acquisitions of that period helps validate my belief that we really had created something with important, lasting value.

    After leaving Advertising.com in 2004, I was introduced to Murthy Nukala, who had a vision for creating a company we later decided to name Adchemy.  His vision was not all that dis-similar to the Ferber's in that we would be using math and technology to create economic value for advertisers, and lower the risk they needed to bear.  With Adchemy however, we built a platform that featured a much greater level of integration and optimization, for a smaller number of clients.  The strength and breadth of their set tools today is extremely impressive and is the reason they are one of the larger players in the education, mortgage, and insurance markets -- in addition to their bringing on 3rd party "tech licensing" type clients at an extremely impressive rate.  The recent downturn in the economy has further validated the value they create as they undergo a period of rapid growth while so many other companies in the space are contracting.

    I also had the opportunity to help Jim Barnett and the folks at Turn with their business model and set of targeting features a few years back.  While they had a strong lead on most companies in the space in reading the text of a web page and matching a relevant ad to the content of that page (their backgrounds were heavily rooted in search), we realized that the majority of the impressions earned more money being matched with an ad that was targeted via a different method.  By building a robust set of targeting options into the Turn platform and making the decision as to what type of targeting to use as a core part of their impression decisioning algorythm, they made some huge strides in increasing their eCPMs, and my guess continued execution on this initiative has played a large role in their rapid growth of late (per a recent press release, they are cited as the fastest growing ad network).

    I've also had the pleasure of helping a company focus on a very specific and narrow targeting feature (much the opposite of the Turn strategy) at Media 6 Degrees.  Here an extremely tight focus on a somewhat niche targeting technique (mapping individuals relatedness to one another) has enabled them to drive absolutely massive increases in the value or performance of certain impressions.  And with many ad networks and sites enabling them to only purchase the impressions that fit their requirements, the results have been tremendous.  How many other companies do you know that have case studies where they outperform all other vendors by 20x, or drive 30% of a clients conversions with only 6% of their budget?

    As I review my past experiences with companies in the internet ad space per the above, my decisions as to which companies I will prioritize in the future become easier to make and understand.  I hope to continue to help create and build companies that provide lasting value by making some type of marketplace or process more efficient -- that seems to be the common theme with the successful ventures of my past.

LeadsCon East Aug 17-18

     I'm most excited to have finally firmed up plans to attend LeadsCon in NYC in a few weeks.  I've been trying to get to Jay Weintraub's conferences and events but kept having scheduling conflicts....very excited the timing is going to work for me.

     If you are going and want to schedule some time to chat, let me know.

re's
John

The role of an arbitrager

Another great post from my friend Jay Weintraub here.  Excellent graphical representation here: 

Seeking CPA clients for VSEO

          The team here at USO Networks, the pioneers in video search optimization, are now taking a limited number of CPA clients for our Video Search product.  Clients must be offering a competitive offer (market reasonable CPA, landing page, tracking, etc.) and have a large amount of video content available and formatted for use.  We'll watermark and distrbute your videos, and only charge you CPA (assuming we do not need to spend time on video production).

   Please send me an email with the basics around your product, proposed CPA, landing page, and the video assets you have available if you are interested.  johnd@vandelayindustries.com.