Tag Archives: ad networks

Quick hits: Target, ad networks and the Super Bowl

I’ve been remiss in posting on some fascinating things that have taken place in the digital media industry over the past month. Fortunately, the two major reasons there has been a delay are because of closing an investment that we announced early this week and because of my total engrossment in the transformation of my New York Giants from playoff afterthoughts to Super Bowl Champions (which I’ll comment on below). I’ll do better going forward (I hope). Without further ado…..

Target and customer dialogue: Last month, Amy Jussel of ShapingYouth.org published a blog post in which she shared an opinion about a recent Target billboard advertisement. She also called Target several times, to which Target responded in an email by saying that “Target does not participate with non-traditional media outlets.” Now whether you agree with Amy’s perspective or not, I think we can agree that corporations are doomed if their response to feedback from customers, in any form, is to dismiss it outright. If Amy had written a letter or sent an email, would Target have responded similarly? My guess is only if the customer service representative wanted to lose his or her job. The impact of customer service on word-of-mouth, brand perception and profits can’t be overestimated, particularly in a digital world where switching costs are negligible and customer acquisition costs can be sky high. Emerging companies like Satisfaction and Bazaarvoice (a Battery portfolio company) are focusing on the dialogue between and amongst brands and their customers to create new commerce and service opportunities. Leveraging consumers’ increasingly visible and explicit perception of brands and products in this way is just beginning. In addition, we’ve already seen that the empowering of consumers via digital media can save television shows and change company policy. Undoubtedly, we will eventually see an online consumer uprising that results in a tumbling stock price and executive job losses. The companies that fail to take advantage of the availability of consumer data and to engage in an open dialogue with customers do so at their own peril.

OnMediaNYC and ad networks: I had the pleasure of speaking at the OnMediaNYC conference at the end of January. One of the major things that struck me coming out of the conference is the incredible challenge that advertisers and agencies face in sifting through all of the various media outlets and ad networks now vying for their ad dollars. And that is exactly why scale matters so much. With multi-million dollar budgets to deploy and limited human and research resources, advertisers and agencies can only purchase media in so many places. And the simple rule of thumb is to pay attention to the outlets that can provide them with the most reach. Until there are better research, buying and analytical tools (if you know of any, send them my way!) for them, advertisers and agencies will only spend time with the largest publishers and networks. The challenge then for the publishers and networks is to achieve the scale necessary to rise above the noise and get the attention of potential buyers. Too many of the ad networks that I saw at OnMediaNYC focused on nifty targeting technologies and whiz bang ad formats. Very few talked about how they intend to achieve the scale necessary to have advertisers and agencies even spend time learning about their approaches. There are well over 300 ad networks in the market today, but I expect that there will be far fewer that achieve the scale needed to survive over the long term.

New York Giants, Super Bowl Champions, and teams: As a life-long Giants fan, I was fortunate to attend not only one of the great games in Super Bowl history, but also a game that ended in an unbelievable victory by my favorite team. There are lessons for business to be drawn from many parts of life, but as I left the stadium that night I was struck by a particular message. It sounds flowery and obvious, but it’s worth reminding ourselves that a team of individuals committed to each other and to a common goal always have a fighting chance, even in the face of naysayers and accepted theory. As venture capitalists, we tend to place a great deal of emphasis on the teams with which we partner. The Giants’ Super Bowl victory reminded me that there is a reason that we seek traits like focus, persistence and commitment in our entrepreneurs and that we strive to give them the same in return. In our business, often times market opportunities are not obvious to outsiders or simple to address. But a determined team that believes in its abilities can sometimes achieve outstanding results, even while those on the outside criticize its ideas and approaches. Just ask the Giants.

 

Super Bowl XLII

Building vertical ad networks to survive

Vertical ad networks have become all the rage over the past few months. The acquisition of Jumpstart Automotive, the pending financing round for Glam Media and the launch of network after network on the Adify platform have all contributed to rampant investment activity in the vertical ad network market. Within the past two weeks, there have been announcements for new vertical ad networks from Martha Stewart Living Omnimedia (home and lifestyle), Reader’s Digest (food) and BiggerBoat.com (entertainment). But the announcement that signaled the peak of the vertical ad network bubble for me came yesterday from NBC and P&G. If Pets.com was the peak of the e-commerce bubble, does a pets-focused vertical ad network signal the peak of the vertical ad network bubble?      

 

Historically, vertical ad networks have succeeded against traditional, broad ad networks because they aggregated a defined, highly desirable audience that could be purchased by advertisers through a single source. The focus of the networks allowed them to truly understand the audiences of their publishers and generate higher CPMs. Advertisers were provided with ease of administration and creative guidance for developing highly engaging ads. All of this worked well for the ad networks when there was a single one in each of a few high value verticals and when the only alternatives for publishers were either incurring direct selling costs or turning to a broad ad network. But the recent proliferation of vertical ad networks, and various ad networks in general, may have changed the dynamics of the business for the worse.

 

When it comes to changing ad networks, the switching costs for publishers have always been close to zero. In a market in which publishers have many ad networks to choose from, the ad inventory simply goes to the network that delivers the highest effective CPM (or provides the highest revenue guarantee). Furthermore, because ad networks don’t control the inventory that they sell, what is there today could be gone tomorrow. When a publisher reaches a certain volume of page views and unique visitors, it’s typically more economical for the publisher to begin selling ads directly. Over time, the ad network is allocated a smaller, less attractive portion of the publisher’s inventory. Further, advertisers look to buy media at scale. Publisher and inventory churn makes it increasingly difficult for a network to build and maintain the critical mass needed to attract campaign dollars from advertisers. In my view, it’s difficult for ad networks to build defensible, sustainable businesses if they don’t address these issues and do more than just aggregate audiences.   

 

I think that there are several potential strategies for creating a lasting, high-value vertical ad network: proprietary distribution, proprietary targeting, a portfolio of products and exceptional service. Proprietary distribution means either owning a significant portion of the network’s inventory or having exclusive access to it for a lengthy period of time. Google is so successful financially because much of its ad inventory, and hence revenue, is generated by Google.com and because advertisers can’t go anywhere else to buy that prized inventory. Proprietary targeting provides advertisers with a unique ability to select specific members or groups within the target audience for receipt of their ad content. When this targeting proves effective, advertisers are willing to pay significantly higher CPMs, which in turn generates more value for publishers. Advertising.com was acquired by AOL because it had developed a novel methodology for identifying which site visitors would be most receptive to the message of a particular advertiser. A portfolio of products allows a network to deepen the relationships with publishers. Publishers are then faced with having to forego value beyond monetization when considering whether to switch to another network. Web analytics, ad serving, content syndication and site search are all examples of services that publishers need, that they value and that could be provided by networks. Lastly, and potentially most importantly, exceptional service matters greatly in what is inherently a people-driven business. Decisions in the advertising business are often made based on established relationships, personalities and perceived commitment. No ad network can survive over the long term without dedicating itself to putting the customer, whether advertiser or publisher, first.

 

In today’s market, it isn’t enough to attempt to aggregate an attractive audience when your competitors are competing heavily for scale and dollars. My guess is that the majority of vertical ad networks that have launched in the past 12 months will fall by the wayside within the next 18 months because they haven’t established any true, sustainable differentiation. What are your best guesses for which companies will be the Pets.com, eToys and Webvan of the ad network category?