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Social media and analytics counter online ad crisis December 3, 2012

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UBS Securities’ annual media investment conference gets underway today, and media buying agencies are lowering their ad spending forecasts. Even online advertising – that looks relatively healthy with projected double-digit growth – is facing a bit of an identity crisis. Content and media sites are struggling to accommodate the polarizing forces of programmatic ad-buying and so-called “native advertising.” While there’s no single solution to thriving in digital advertising, several social media-driven angles bear watching.

Brand-name online publishers have been uncomfortably coexisting with ad networks since the beginning of the internet, but what used to seem an efficient way of unloading remnant ad inventory now threatens premium slots sold for high CPMs. Early last month, Federated Media Publishing, itself a network of mostly tech blogs, cut back its sales force to shift emphasis to its automated display ad Lijit Network. And depending on your perspective, real-time bidding exchanges from Google, The Rubicon Project, and Facebook, are either the latest scourge driving down CPMs or, in Facebook’s case, a way to raise the value of its bargain-basement inventory. As we wrote, third-party big data audience analytics plus real-time bidding enable advertisers to buy targeted audiences across the web, without relying much on media companies.

Faced by network-driven programmatic buying, and former premium ad spots going unsold, companies like Federated, and even the New York Times, are responding via native advertising. Native advertising is the latest buzzphrase describing content marketing, sponsorships, and advertorials – marketing vehicles that blend in more naturally with content than banner ads, and that often take advantage of social media technologies.

Countering the crisis

Here’s how some companies are thriving amidst the digital advertising disruption:

  • Facebook’s sponsored stories – that blend users’ Facebook activities with marketing messages – are a prime example of native advertising. But that approach is most useful to content or retail sites with large volumes of users that do a lot of posting. Facebook and Twitter aren’t renting out that technology to other publishers, but it might be an opportunity for Amazon or Best Buy. Likewise Facebook’s exchange only uses its own inventory, notwithstanding the usual talk of a web-wide Facebook ad network. Its exchange is driving investment in marketing companies like Triggit, but it doesn’t help other sites. Facebook won’t even sell ads on Zynga anymore. But content sites should pay close attention to tracking and analytics techniques Facebook is trying out. Its View Tags are new, but potentially offer better attribution analysis, something other content publishers could emulate.
  • LinkedIn has been firing on all cylinders lately, but most of its revenue is tied one way or another to jobs and recruiting. In an effort to expand its advertising business, the company launched very limited access to a new Ad API. LinkedIn is positioning the API as a way for preferred partners to buy text or small image ads. The approach seems overly cautious in not letting its three designated marketing partners (Adobe, Bizo, Unified) do much creatively, although they can better track and integrate LinkedIn inventory with broader web campaigns.
  • Spiceworks is another B2B advertising business that is thriving. Spiceworks offers free, SaaS network management and help desk tools to IT professionals at small and medium-sized businesses. In doing so, it has built up a pretty targetable audience of 2 million highly engaged users that participate on message boards, reviews and ratings, and self-help systems. Advertisers like Dell and Rackspace can do the native advertising thing, and Spiceworks is an effective distribution channel for white papers and product info.
  • There are plenty of tactics to increase audience engagement on content and retail sites. Two that play off the data analysis theme come from Demandbase and Bloomreach. Demandbase enables site personalization based on its analysis of what company a site visitor is coming from. Companies like Cisco, Dell, and NetSuite do account-based targeting of ads and content. Bloomreach draws on web-wide analytics that drives content personalization, which, in turn, makes SEO more effective. Bloomreach’s platform is most effective for merchants with lots of products and content about them; customers include blue-chip retailers like Bluefly, Williams-Sonoma, and Nieman Marcus.

The countervailing forces of programmatic buying and native advertising will wrench online advertising back and forth for at least the next 24 months. To prosper, publishers and other content-oriented sites must emulate analytics and targeting tactics driven by sites with active user communities.

Running the online advertising numbers October 29, 2012

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Several big digital advertising companies reported their third-quarter results over the last week or two. Those reports reveal a few key trends: Google and Facebook are gaining share, mobile advertising is growing but still tiny and search-dominated, and slow progress in digital brand advertising means that television isn’t going away.

Google. Google’s ad revenue grew 16 percent to $10.9 billion. For once, its ad network sales grew faster (21 percent) than sales on its own sites (15 percent), although its own sites still make up two thirds of the total. That likely means that Google’s display ad network sales grew faster than search. While paid clicks were up 33 percent, the average cost per click was down 15 percent, which most observers blame on mobile search pricing. Google dropped broad hints, rather than clear guidance, about its overall mobile business, including Motorola, but it appears to be on the way to $2 billion/year in mobile search and advertising.

Facebook. Facebook’s ad sales grew faster than Google’s, showing a 36 percent improvement year over year to $1.09 billion. Facebook has a relatively small search business based on some revenue sharing with Microsoft, so it will probably maintain its number one spot in U.S. online display advertising this year. Some forecasters had been predicting that Google would take the lead, based on its ad network growth. Facebook revealed that it had over $150 million in mobile ad sales for the quarter. That figure is still only 14 percent of Facebook’s total, and much smaller than Google’s, but it relieved investors and might very well give Facebook second place in mobile ad revenue.

Yahoo. Yahoo’s display ad business was flat at $452 million. While search was up 11 percent to $414 million, that was due to guaranteed revenue from Yahoo’s search partner, Microsoft, rather than to organic growth.

Microsoft. Ad revenue from Bing, MSN, and Microsoft’s ad network business was up 15 percent to $655 million. Microsoft said search was up, but display ads down across the board.

The other big U.S. online advertising player, Aol, will report its earnings next week. Aol had over $335 million in ad revenue in the second quarter, with its ad network business growing twice as fast as sales on its own properties, and search (via Google) slightly down.

Key takeaways

Earlier this month, the Interactive Advertising Bureau released its 2012 first-half report, showing overall U.S. growth at 14 percent. That’s healthy compared to most traditional media categories, but slowing versus last year. According to the IAB, search still dominated, but mobile and digital video were each worth over $1 billion in first-half sales.

Search and free online classifieds decimated the newspaper business, but I would not expect online video and display advertising to gut the television industry anytime soon. TV is still best at delivering emotional messages to big audiences. The TV industry is likely to add targeting techniques learned online to multi-channel campaign selling sooner than online delivers mass-reach video. And much of the recent action in online advertising is in ad networks and real-time bidding. Those technologies better suit direct marketing, though they offer some efficiency in brand ad-buying.

Mobile advertising still feels like search right now, although Facebook is mixing some social flavoring with its direct-marketing mobile ads. Brand advertisers are still figuring out what to do with social media, whether it’s mobile or web-based. To-date, ads on social media have proven only modestly effective for direct marketing, and proponents believe branding is the true promise for the medium. Quite a bit of brand advertising spending depends on buyers measuring the efficiency of their buying, based on assumptions proven years ago on television. Testing for branding effectiveness achieved via TV and print is costly.

Social media could not only provide a vehicle for harnessing an audience’s social connections, but also a relatively cheaper way to test results by measuring interest and incorporating CRM data. Ad sellers who can put together programs for delivering and measuring that combination will make lots of money in years to come.

Facebook Q3 delivers, shows a hint of mobile October 24, 2012

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Facebook reported solid results for its third quarter. Its ad revenue growth outpaced Google’s, as I expected it would, and Facebook showed that it can make at least a little money off of its mobile users. The market (over)reacted favorably, just as it had over-expressed its concern.

Ad sales were up 36 percent year over year, to $1.09 billion. Mobile advertising represented 14 percent of the total. Some observers think Facebook might even be able to command higher ad pricing for mobile than for its web advertising. Facebook is now probably the number two seller of mobile advertising, after Google. All that shows, really, is how immature mobile advertising is, and how search-dominated it’s likely to be for the near future. Facebook’s real money comes from its website, and it still needs to work on proving to brand advertisers that social media is effective.

And although Facebook’s payments revenue grew year over year, it is down sequentially. Nearly all of that comes from Facebook’s cut of virtual goods sold by social games. Zynga, Facebook’s biggest source of payments, is between hits, and struggling a bit.

Yahoo Q3 still seems sluggish October 23, 2012

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Yahoo’s mediocre third quarter seems to have pleased Wall Street. Profits came from an asset sale, and its most important business – online display advertising – was flat at $452 million after paying out revenue-sharing (ex-TAC). Search was up 11 percent to $414 million, but only because Yahoo continues to get guaranteed revenue from Microsoft. Its search business is not growing organically, despite its “upside” potential.

Google’s quarter was “disappointing,” but it grew advertising (search and display) 15 percent on its own sites and 21 percent on partner sites. Google partners use both its search and display ad network, but that growth was probably driven by display. Yahoo’s woes come not from losing money but from stagnant growth. But critically, Google continues to gain share against Yahoo in display ad sales. Facebook is set to report its results later today, and will almost certainly gain share versus Yahoo, and probably against Google. Facebook may even be growing mobile ad sales.

So why did investors react so positively? They’re probably happy to see new CEO Marissa Mayer looking comfortably in charge, and saying she’s going to shift resources into mobile development. I dunno. Mobile advertising is barely getting started. I’d rather hear more about ad targeting, brand advertiser products, and what Yahoo intends to do about ad networks.

 

Do not track at your own risk October 15, 2012

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The headline of this story in Advertising Age reads: “Microsoft Takes Heat From Coke, P&G For ‘Do Not Track’ Browser.” Yet, several paragraphs into the piece:

Asked if the controversy would affect his advertising relationship with Microsoft, P&G Global Brand-Building Officer Marc Pritchard replied: “Nah.”

The Coke exec doesn’t exactly take Microsoft to the toolshed, either. I wouldn’t be surprised if Microsoft were hearing some grief from advertisers, even if they and publishers are using industry organizations like the ANA to express their discontent. A default Do Not Track setting does potentially throw off the mechanisms for ad targeting, especially from third-party networks and data providers.

Microsoft’s attempt to take the privacy high ground may ultimately alienate some advertisers, but the media seems to be blowing this story up a bit. After all, no one’s decided how the Do Not Track policies actually work yet.

Ah, so that’s why Twitter’s vision seems hazy October 9, 2012

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Jack Dorsey responded to the flattering New York Times profile of Twitter CEO Dick Costolo that sponsored questions like Mathew Ingram’s “Can you have a part time product visionary?” The answer, apparently, is no. Silicon Valley applauded when Dorsey, an original founder, returned 18 months ago to help set product – and strategy – direction for Twitter. But it seems he’s stopped doing that since January. Dorsey drops by on Tuesdays, much as he did prior to the comeback tour.

So feel free to blame this summer’s ecosystem-upsetting API policy changes on Costolo. Mathew points out that Twitter has separate product leads in charge of consumer products, advertising, and international. Does it really have an overall vision? Does it need one?

The answer to the second question is yes. Twitter is struggling a bit as it wrestles with its multiple roles in the social technology industry. Twitter is a media company – any organization that makes most of its revenue from advertising is, by definition. And while it is a supplier of APIs, those are used by third party developers more for their access to Twitter information than they are for access to core tech infrastructure services (the way Google’s, Facebook’s, and Microsoft’s APIs are used). That’s not necessarily a bad thing. Developers can get locked into those APIs, in a good way, just like they can with infrastructure. And Twitter may be able to build out its business in data licensing, though that doesn’t feel like its real focus.

No, that focus is on selling ads. I’m skeptical that Twitter’s ad sales are as big as eMarketer thinks they are, and Twitter’s really in no better position to sell mobile advertising than anyone else is. It’s a positive sign that Twitter is working with media companies who have richer ad inventories and bigger salesforces to sell them. But it lacks the agency and ad tech and services ecosystem of Facebook, the company that for all its grief is the real social media marketing power.

Making a billion Facebook users pay off October 8, 2012

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Is a billion users cool? As Facebook tries to convince the world that it is still an exciting growth business with appearances on the NBC “Today” show and a BusinessWeek cover story, CEO Mark Zuckerberg announced the social network had achieved that impressive milestone. Can Facebook do things with a billion users that it couldn’t do with half that number? Zuckerberg is dropping hints, but so far, they’re just hints.

Eighty plus percent of Facebook’s revenue comes from advertising, yet 80-plus percent of its billion users are from markets outside North America. Besides Japan and a few European countries, most regions don’t spend nearly as much on advertising per capita as the U.S. does. So, regardless of whether Facebook can solve its mobile problem, the company is “stuck” with 150-200 million users that it can monetize relatively easily via advertising.

I say “relatively easily” because Facebook is still living off advertising that, even though it is potentially highly targetable, currently commands only remnant-inventory style CPMs. That, or relatively low-priced cost-per-click prices from direct marketers. Facebook has been conservative in offering higher-value traditional formats like large units, takeovers, interstitials, or video. Instead, it has focused on incorporating users into the ads to make them truly social, and to tap into viral pass-along. That’s all very admirable, but it requires Facebook to prove the value of such marketing to conservative brand advertisers.

More clouds on the horizon

Meanwhile, some of those advertisers’ agencies are grumbling. Ignore the ageing story about General Motors cutting back its ad spending. Rather, pay attention to this post from an exec at WPP’s Team Detroit, one of Facebook defender Ford’s agencies, who appears miffed at Facebook’s news feed algorithm. Facebook regularly tinkers with its news feed to try to ensure users get relevant and engaging content. Some of its recent tweaks seem to cut back the amount of company page posts that get through. Critics interpret that as a way for Facebook to force companies to buy more ads to drive traffic to their pages, possibly resulting in an overall worse user experience.

That’s one interpretation, but it’s also likely that Facebook is more concerned with developing its relevancy targeting. That would pay off for ad-targeting – including targeting on a network off of Facebook’s own site – as well as content discovery, a key part of Facebook’s monetization strategy, if an indirect one. Content discovery and consumption is a user lock-in and habitual usage scheme that will pay off in whatever revenue model Facebook adopts.

Other options?

That kind of ranking also sounds a lot like search. Although Facebook is less prone to spam and “black hat” SEO-gaming than Google, it also keeps its EdgeRank algorithm’s sauce almost as secret as Google’s PageRank. Both companies have to work hard to balance first-screen results for clutter and user relevance that will ultimately pay off in sustainable revenues, rather than overpriced, easy scores. In a post about how it promotes apps to users, Facebook describes a ranking process approach that’s probably pretty similar to the one it uses for the news feed. Facebook’s apps recommendation engine uses demographics, friend connection data – including user ratings – and behavioral data (Likes, interactions) in selecting which apps it features to any individual. I’m still skeptical that Facebook will try to deliver general-purpose search results – that would require indexing the web and building out product information databases – but the approach will suit entertainment and content recommendations well.

Facebook has ambitions beyond advertising, apps promotion, and content discovery. Om Malik points out that Zuckerberg understands that Facebook is a core infrastructure technology provider – particularly for identity management and authentication services. Besides further user lock-in, Om speculates that those kinds of services could play out in a variety of transactions, social and commerce-oriented. And identity is relevant in any region, even where ad spending is light.

Amazon’s online advertising potential October 5, 2012

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I really wanted this Advertising Age story to deliver the goods: “Amazon Breaks Silence on Ambitions in Advertising…” Unfortunately, it seems that Amazon was its usual close-to-the vest self, even as it promoted its offerings – I hesitate to say “platform” – to an audience of advertisers and agencies. Why should anyone care? Because Amazon has the reach, the data, and the ad inventory to be a really important player in digital marketing, potentially disrupting companies like Google, Facebook, and the portals.

Ad Age says Amazon has “hundreds” of sales people and 92,000 square feet of New York office space. Amazon pumped Kindle, but also talked up its ad inventory on its owned-and-operated content site IMDB as well as its content/retail hybrids Soap.com and Diapers.com, and its own and Zappos retail sites.

In my experience of working with Amazon, it’s a numbers-driven company. So when it makes the decision to sell third-party ads on screen real estate it could be using for Amazon promotions, it knows what it is doing. Those ads are likely effective for advertisers, and profitable for Amazon. Unlike social media and portals that infer purchase intent from content behavior and self-expressed Likes, Amazon has tons of data on actual purchase and search behavior. Its targeting should be top-notch, for both brand-building and actual conversions. With Kindle and apps, Amazon has a mobile story that’s more robust than most content companies or ad networks.

Because Amazon is so secretive – even in its financial documents – it’s difficult to get a read on just how much ad spending it absorbs. But I wouldn’t be at all surprised if Amazon’s ad revenue were bigger than that of a company that gets a lot more attention as a media business: Twitter.

 

Expect minimal a payoff from Facebook Gifts October 1, 2012

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Last week, Facebook received gushing reviews as it began to roll out Gifts, a mobile and web program for giving gift cards and physical goods provided by over 100 merchant partners. Hold on, everyone. Gifts won’t “transform” Facebook, disrupt ecommerce, or solve the company’s mobile monetization issues, even if the announcement seems to have boosted Facebook’s stock price.

Why Gifts won’t be a big deal

According to a spring 2012 GigaOM Pro consumer survey, 64 percent of U.S. online adults are regular online buyers but only 19 percent purchase via social commerce services like daily deals. And consider that while 46 percent of social networkers say they use social networks for photos – Facebook’s most dominant app activity other than communications – only 7 percent do so to shop. So a back-of-the envelope revenue model based on the assumption that a third of Facebook users will make multiple $20 gift purchases yearly is unsupportable.

Several other factors indicate Gifts won’t make Facebook a fortune anytime soon:

  • Social network shopping. As Chris Dixon points out, it’s difficult to get users to change modes. Besides offline/online shifting, when a person is in a social communications mindset, and he associates his social network with that kind of activity, he’s not likely to do a lot of shopping. That’s particularly true for the kind of directed shopping that characterizes ecommerce. Internet commerce has been driven by search, research, comparison, and price transparency. Facebook storefronts are still struggling to flourish by harnessing friends’ communications and recommendations and exploiting that information and experience off-network in more familiar shopping environments.
  • Affiliate fees. If you’re the company that’s supplying the gift card, that can be a reasonably high-margin business. But Facebook will likely have to live off retail affiliate fees that typically hover in single digits. I’m skeptical that Facebook will be able to command its usual virtual goods 30 percent fee with companies like Starbucks. And Target’s Facebook gift card app only attracts 6,000 monthly users. In-feed promotion and viral pass-along will help Facebook attract users, and it could conceivably try something like a multilevel marketing program where users received “recruit a friend” benefits.
  • Mobile gifting. The roots of Facebook Gifts originate with Facebook’s May $80 million acquisition of Karma with its mobile gifting app for iOS and Android. Certainly Facebook can leverage information about birthdays, anniversaries, and other events to promote users to make gift purchases. But don’t gifts feel more like a researched shopping experience than an impulse buy? And doesn’t adding a smartphone into the equation make it even more “impulsive?” I’d dial down the buy rate in that revenue model another few notches.

Outlook

It’s wiser to think of Facebook Gifts as another way for the company to get credit card numbers into its payments system. Depending on actual purchase rates, Facebook might gain some data for the purpose of customer segmentation analysis and ad-targeting. Facebook’s real business is still advertising. That’s true for its mobile app as well, though mobile advertising is going to depend more on search and couponing than the branding-oriented campaigns that will ultimately pay off for social media.

However, occasional, impulse-based gifts won’t produce the volume of shopping interest data that Groupon collects, let alone an Amazon-scale treasure trove.

How Yahoo could re-boot search September 24, 2012

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Yahoo is scheduled to describe its latest turnaround strategy on Tuesday, and reportedly search is high on its priorities list. Search is the engine that drives online advertising, accounting for half of U.S. spending by most estimates, and twice as big ($15 billion) as the next category, banner ads ($7.6 billion). Big players in display ads like Yahoo and Facebook, both of which use Microsoft for core search technologies, tinker with their offerings to try to steal share from Google. So far they’ve had little success.

New CEO Marissa Mayer ran Google’s search business at one point, so she knows what works. How could Yahoo – whose Overture acquisition actually invented paid search before Google – return its search business to past glories? It could start by working on the following:

  • Microsoft. Yahoo’s decision to outsource search technology to Microsoft has never really paid off. The combination has not gained share versus Google. Microsoft is still paying Yahoo a guaranteed bonus because it can’t match Google’s revenue per search figures. The contract for that bonus ends next year. Yahoo will likely renegotiate the deal. Although Microsoft has seen tiny increases in its own search share, that’s mostly been at the expense of Yahoo. But it would miss Yahoo as a distribution partner; there simply aren’t that many places where big audiences do general-purpose searching. Yahoo could threaten to switch over to Google, though that might raise antitrust concerns.
  • Attribution. One reason for Yahoo to stick with Microsoft is the potential to use search to increase the value of the display ad businesses of both companies. Big agencies don’t need Yahoo to integrate their display and search campaigns, but they could use help in what the industry calls “attribution,” i.e., understanding the influence of and attributing the proper value to different ad units instead of just giving search all the credit as the “last click” before purchase. With the threat of privacy regulation looming over ad networks and third-party data collectors, the value of consumer behavioral data collected on one’s own site could increase dramatically. As portals with large audiences consuming a broad variety of content and communications, both Yahoo and Microsoft could gain some competitive advantage in attribution analysis and behavioral targeting over Google, that depends on an ad network of third-party sites.
  • Social search. Regular readers know I’m pretty skeptical of the impact of social media on the kind of directed shopping search that pays Google’s bills. Still, social signals are valuable inputs into search results, and Microsoft has done a better job presenting them to users than Google has. Yahoo has minimal social data, so sticking with Microsoft – that has data sharing arrangements with Facebook and Twitter – is its best chance of tapping into social search.

Yahoo is not in a great position to go after mobile search, though neither is it particularly disadvantaged. Google has caused some Wall Street concern that lower mobile search costs-per-click could drag down its overall average. But Yahoo and Microsoft don’t have much to lose. Unfortunately, Yahoo’s Axis search-browser hybrid gives a better demo on a tablet than on a phone. While it’s an interesting example of how a search user interface doesn’t have to be blue links, it’s not likely to have any significant impact on mobile search. Phone-based search may ultimately depend on voice input, and will certainly benefit from presenting coupons and offers among results.

No, Yahoo’s best chance at search is on bigger screens. Its prowess in selling glitzy display ads to brand advertisers remain one of its remaining assets. So connecting the dots for advertisers and agencies via attribution and behavioral and social inputs is Yahoo’s most promising search strategy option.

Question of the week

What else should Yahoo do to gain share in search?