Making Advertising Work On The Other (Non-Search) Part Of The Web

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MAKING DISPLAY ADS RELEVANT

Just about everyone knows advertising on the Web, outside of search, isn’t living up to expectations. Advertisers and publishers buy and sell inventory of display ads for CPMs (cost per thousand impressions) well below the offline equivalents in magazines, newspapers, and tv. Part of the reason is that outside of search, the Web hasn’t found its equivalent of the 30 second spot or the two page spread (an insight courtesy of John Batelle). But a major part of the reason is that Web sites can’t consistently serve up relevant and engaging ads to an audience that’s no longer captive. So how do we substitute relevance for the more traditional reach to increase ad prices?

For years users have left “breadcrumbs” about their interests across the Web. Now there are increasingly sophisticated ways to connect that information into rich profiles, much of it by user choice, while still respecting privacy concerns. The consolidation and massive reach of ad networks in the hands of Google, Yahoo, and Microsoft likely means that most of the economic rewards of this shift will continue to accrue to these companies. Even if the traditional media giants accelerate their migration to the Web, they are likely too late. They won’t be able to match the reach of the tech giants’ online ad networks and their trove of online personal profiles.

SOCIAL MEDIA AND THE NEW SUPPLY OF ADVERTISING INVENTORY

We are in the midst of an explosive growth in online ad inventory balanced precariously against relatively inelastic demand. Online time and attention is a rough proxy for demand: it is growing, but nowhere near as fast as the sprawling real estate of social media (user-generated content). Mass media, whether traditional offline brands such as The New York Times or CNN or their online equivalents, the original portals such as Yahoo, Microsoft, and AOL, is relatively supply-constrained. Much of their editorial content is professionally created. As a result, there is a relatively limited amount of ad inventory to sell on those editorial pages. More recently, social media (also known as participatory media or conversational media) has hijacked the Web’s growth. These include social networks, blogs, and emerging micro-content / conversational sites such as Slashdot or those powered by the likes of Ning and Wetpaint. While this growth isn’t news to anyone, collectively we haven’t solved the problem of how to monetize this long-tail content. The implications are that only the largest or most targetable publishers / sites can monetize their ad inventory.

THE INDIVIDUAL PIECES OF RICH PERSONAL PROFILES

Meanwhile, the data for creating highly relevant and richly targeted ads is right under our noses. This data starts with the increasingly rich personal and professional profiles that collectively add up to a new online identity, typically anchored today in social networks. And no, we’re not talking about anything like Beacon, where Facebook broadcast users’ commercial activity to their friends.  FriendFeed, which aggregates and shares activity on a variety of sites, makes a much better example.  In the future, this might look like the following:

  1. In addition to your social network profile, there’s your circle of friends, family, and professional connections from your social networks. As Charlene Li of Forrester suggests, these are likely to melt into the fabric of the Web and become as interoperable as email today.
  2. Your likes and dislikes in particular product and service categories as well as your influence among your friends and the broader online community is captured in your reviews and their community ratings on sites like Amazon, RottenTomatoes for movies, and Yelp for restaurants.
  3. There are the impactful articles you’ve read and rated for sites like Digg.
  4. Most of us have long since migrated our bookmarks of favorite pages to sites such as delicious.
  5. Most of us also have a regular list of publications or Web sites we track regularly with an RSS reader.
  6. The younger part of the demographic spectrum might track their musical interests on iLike or Last.fm.
  7. Your photos of friends, family, and places you’ve been are tagged on sites such as Flickr
  8. Your favorite movies or a wishlist of those you want to see are on your Netflix queue.
  9. Your favorite restaurants are captured in the reservations you made on OpenTable.
  10. A long list of items you want to buy might wind up on your Amazon wish list.

Stitching together social media into rich personal profiles

STITCHING TOGETHER RICH PROFILES INTO RELEVANT INFORMATION

With all this personal data accumulating, we now have the technology to stitch it together, mostly with the user’s permission, into a profile that permits ads to be served up based on relevance.

  1. Behavioral targeting ad network technology collects updates about user activity on member Web sites. Some have raised privacy concerns about these but most strip off any user-identifiable attributes and typically just track computers.
  2. Then there is the emerging single sign-on that works across Web sites (also known as federated identity). The OpenID standard includes Google, Microsoft, Yahoo, IBM, and Verisign.
  3. Just recently we’ve seen a new type of social network, FriendFeed being the first example, that aggregates and shares with friends your activities and interests on a wide range of sites (like the ones listed in the paragraph above). This is where privacy concerns can be most easily addressed. Users choose which sites they want to share. At the user’s option, these shared interests could be picked up by the behavioral targeting ad networks.
  4. Finally, the overwhelming reach of the major operators, Google, Yahoo, Microsoft, AOL, Facebook, and MySpace, solves the problem of behavioral targeting not having enough data points.  The New York Times quantified the difference between these major sites and traditional media operators. Yahoo, for example, has 811 data collection points on its own sites for each user every month. That number rises by 1,700 if it counted all its partner sites where its network powers the ads. The Times, by contrast, only collected 45 items per month for each user.

MONETIZING RELEVANCE INSTEAD OF REACH

Google, mostly borrowing from Overture, made search ads relevant and created a business model based on direct response. Now, all the pieces are falling into place for a similar transition in display ads. Instead of competing on reach or audience size, Web sites will be able to place ads based on their relevance to the visitor. That might even be enough to change the pricing model from CPM to CPC (cost per click) or even CPA (cost per action – such as conversion). This crucial change, from reach to relevance, should allow Web sites representing much of the huge long tail of social media to monetize their content. However, it does look like Google, Yahoo, and Microsoft will continue to collect most of the information about user behavior and will collect most of the profits. It’s their ad networks whose tentacles have the greatest reach in collecting users’ breadcrumbs.

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One Response to “Making Advertising Work On The Other (Non-Search) Part Of The Web”

  1. Does Facebook’s Foreign Growth Matter? - GigaOM Says:

    […] real big dollars, our friends at Facebook (and MySpace) have problems. Experts believe that the answer is in better relevance in display advertising – still the dominant form of advertising on the social […]

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