Online Advertising Consolidation

Jeff Jarvis notes that Google controls 40% of online advertising, and that their share of online advertising is growing faster than online advertising as a whole. In a world where online services are increasingly monetized by ad revenue – this concentrates incredible power in Google’s ad serving algorithms.

It’s not hard to understand why they are growing at such a clip – first the search market is tightly tied to the transactional ad spending – and that’s still growing rapidly as merchants discover the power of on-line ad to drive people to their site/store. Google is also one of the few companies that make buying ads or listing inventory easy – allowing both sides to scale in relation to each other. Finally contextual placement means assures the clicks that reinforce every party involved.

Some authors see the transactional ad market as a tiny sliver of the potential online ad market – noting that traditional media especially TV still collects the lion’s share of ad revenue and it is mostly brand (value / awareness) advertising. In fact it was only this summer that internet advertising surpassed radio – the media that came closest to transactional advertising for an age where in-store activity drove transactions. And radio in the smallest of the ad media – a third smaller than local TV and less than half the size of newspaper’s ad share.

ad-share-by-media-type.JPG

Magazines – another media form that offers advertisers content that can be relevant to their ads – is more than 2 times as large as internet advertising – while national TV is more than 4 times as large – and national + local TV is almost 6 times bigger. Taken together the entire internet has just 7.8% of all advertising spend – and Google ‘just’ 3.1% of the overall market.

ad share

 (Note both Tables from http://www.tns-mi.com/news/09112007.htm)

 Jarvis is right, “We need new networks that identify and create new marketplaces for new value — greater value than the coincidence of words on a page, which Google sells. “ This should be the domain of ad networks – but if my recent experience is an example they are not stepping up to the plate.

Ad Networks and traditional media have an opportunity to act as an interface between Agencies, who develop and place brand advertising for national customers, and small web or multi-platform publishers. This will be increasingly important as consumers shift their media attention from traditional media to web driven media. As Google learned the value is in the relationship between the advertiser and the content publisher – and that’s more difficult to automate for brand advertising because the content of the entire site becomes important.

The problem is that Ad Networks and traditional media have not automated enough of the qualification process for web publishers – so site traffic has to be substantial before they can afford to describe a sites market to advertisers or target ads specifically enough to that the revenue from them is better that is available from Google.

That has to change if Google’s online dominance is to be challanged.

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A Day of Silence

Internet Radio goes silent today to protest large retroactive increases in royalty fees.

Sounds like a sleeper of an issue made worse by a campaign that doesn’t make sense!  It shouldn’t be. This is an important issue that at its heart looks like a battle royal over the business models and revenue that will effect the options of what you can hear and where you can hear it. Think of it a Root kit for internet content distribution. And just like that record company ‘innovation’ this isn’t what it seems and may crash the system.

In my mind it’s a strategy put forward by the record industry and swallowed whole by the copyright board that reaffirms the record industry as the primary controller of audio content and distribution. Like a root kit it hides something ugly – its anti-competitive heart in the dreary language of copyright and the motherhood of payments to cheated artists.

The past 10 years has seen dramatic changes in the music industry. And it’s not just distribution and formats – its production and promotion as well. Artists no longer need the record industry to make records or connect with their audience – they can do it directly. While low cost studios make production cheaper its Internet radio that makes building an audience possible. Don’t believe me – read the pages and pages of testimonials for small artists who depend on Internet radio for their livelihood.

What does that raft of new artist do to the record industry? First they are outside its revenue reach. Not only do these artists not pay for services they also fragment the audience so that those artist that do use them make less money for the industry. It’s competition of the most brutal kind – thousands of small artists with one thing in common – Internet radio as the means of promotion.

And here’s where there’s a stroke of genius. By playing the industries favorite card – the cheated artist they can use regulation to play one group of artist (theirs) against another (the independents). If they can eliminate the promotion channel of the latter they create a stranglehold on all artists and channels.

What would it take to do that? Increase royalty rates 300 – 1200%, well above terrestrial and satellite radio and the whole internet radio industry is hobbled. Make those fees retroactive – so business planning is not possible – and you bankrupt 90 of the online stations the first day the regulations come into effect. (For more see here)  Suddenly having a record deal becomes more important for every artist – which is great if you’re a record company.

Instead of a day of silence we need to use the  medium – while it still exists – to show the power of media to connect broadcast to internet based discussion and community building. From there we need to develop and coordinate a strategy that looks beyond the reversal of this regulation to a level playing field for businesses large and small. We need to lay the ground work for a new type of public policy discussion.

Want to get involved? The Save Internet Radio site is a great place to start – Click here to begin your action.  Don’t be silent – speak up.

Behaviorally Targeted Ads

Jeremy Liew has a number of great posts on behavioral targeted ads

First some background. Liew points out the number of sites people visit has grown dramatically in the past 5 years, at the same time the top 10 domains are getting an increasing proportion of total internet page views.

On the surface this suggests that many sites are losing the revenue battle if their business model is based page view volume alone. It’s not so simple though. Many of these new sites target small niches and moreover sell ad space as part of an ad network capable of targeting specific user interest (and behaviors) across a number of sites. 

Essentially they do what networks have always done – aggregate audience. And the outcome is the same for advertisers – it’s easy to place ads across multiple channels (websites) – except now they are not buying a location or demographic but users with specific interests. As Leiw says:

“This is, in a sense, a “hack” to true contextual targeting, but it has the advantage of being simple to understand and hence simple to sell to advertisers.”

What’s interesting is that the value of page views on these behavioral sites is worth significantly more than on general sites, or even those that sell aggregated characteristics of their audience (ie demographics). For an example of how much more download Liew’s presentation at this years’ Web 2.0 Expo.

What’s interesting is that this type of targeting delivers. Pepsi saw a 3x increase in ad clicks as a result of their behavioral campaign.  It’s no wonder that with that type of results that behavioral targeting is set for growth.

behavioral-targeting.gif

In his latest post Liew teases out how value flows between the various components of the network – which certainly provides food for thought if you’re thinking of launching a site (or sites) and want to capture the most value.

What interest me is how social media components (referral, recommendation etc) can increase the value even more – linking placement and discussion together.

Long Tails and Media Attention

Lex Miron of CIBC has produced an extremely interesting, analysis of the role of the Long Tail in today’s interactive media universe (Part 1 & Part 2). What he was trying to determine whether investment value is greater in the most popular sites or in the mass of less popular sites which he defines as the long tail.

Using Nielsen/NetRatings data to deduce time spent on each site he ranks them developing a power law function.  To determine value he uses time on a site as an analog for advertising value – and uses this to determine the overall value of the long tail vs the top 100. The study covers the period between Jan 06 and 07. 

The results are quite predictable, the top ten sites accounted for 76% of all the time on media sites while the top 100 sites accounted for 91% of the time. What is also interesting is that except for YouTube the top ten sites were the same at the beginning of the study period and at the end. During the study period the number of sites Neilson tracked grew by18% while and the overall time on these sites grew by 16% – with most of the growth in time on site occurring in the tail.

Some of the conclusions have more to do with Nielsen’s data set than the tail its self (see Chris Andersons comments the study here) – though the general conclusion is that sites in the tail have a less tenuous hold on their audience that those in the head as can be expected (more about this later). That said the tail is where the best investment opportunities lie.

What’s frustrating about the study is that it leaves so much unknown that would be useful both from an investing perspective – and to understand how the top sites are so sticky.

For instance is the time on top sites driven by high profile content or diversity and breadth of content? As well how much is time is driven by social media features like commenting, sharing and mash-ups and how much is content consumption alone.

In this regard it will be interesting to see how features such asYouTube’s TestTube  (Active Sharing, Audio Swap and Streams 2.0) affect time on site as all require users to commit significant amounts of time to gain the value from these services.

Two little quibbles. 

First the concept of Long Tail has to do with the value in the diversity of content not necessarily the ranking outlets for it. Much of what troubles media is a result of the drop in attention they get because people seek diversity elsewhere – not because there are more media outlets (ie it is the interest in diverse content that makes the sites viable). 

Second is that in defining the long tail in terms of time people spend on specific media outlets, instead of focusing on the diversity of content and the role of content vs interaction in that we miss an opportunity of understand the factors that contribute to high profile sites.

That said this is an important first step in understanding the opportunity and value available in interactive media.