Targeting is rapidly overtaking inventory quality among ad networks as the one aspect that their value hinges on and the one that truly differentiates them. So much so that targeting has become the new “killer app” of ad networks. According to the E-consultancy 2007 Online Ad Network Buyers Guide, targeting was only 1 percentage point behind inventory quality as the single most important differentiator. That was 2007. Since then inventory quality has normalized with every network offering all the same top quality branded sites. Think comScore 200 and you’ll have the right picture. But the ground war around targeting has raged on. Now the single most important factor left that has not been commoditized and can still differentiate the countless ad networks is their targeting. Inventory quality is still an important factor when evaluating ad networks but it has become more like a commodity. Just a check box to be filled. Great inventory? Got it. Everyone has great sites now, or has potential access to great sites which is becoming the same thing, and can whip up a spectacular site list with all the right logos in all the right places. You’ll see that comScore now calls this “potential reach” and everyone’s got potential reach. But targeting? Good, precise, accurate, performance-driving targeting takes technology which is actually hard to come by among the ad networks. Most ad networks are made up of people and relationships and that’s how they scale. Add more great sites and add more great sales people and the revenue model scales accordingly. So what’s the best targeting solution out there? What kinds of targeting will provide the most performance boost for your campaigns? That of course hinges on what your key performance indicators are going to be. Is it clicks, acquisitions, brand awareness or a combination or something else entirely? In many ways contextual targeting has a leg up on the other forms and here’s why. The behavioral crowd almost always has a contextual component driving their segmentation so contextual tends to be one of the most mature technologies out there. Semantic relevance engines have been around since the early days of Knowledge Management and go back way before the first AT&T banner was sold by Doug Weaver on Wired.com in ‘94. And contextual side steps the ugly privacy issues as it derives its relevance from the page content as the ad is being served and does not need to ask probing questions or save little bits of sensitive data behind the scenes. But most importantly, contextual targeting has frequently shown to offer both more click lift and more brand recall than any other targeting solution. A recent Marketing Sherpa study found that contextual targeting was preferred over behavioral by advertisers for the higher return on ad spend it provided. But the best approaches are the new hybrid solutions that combine the strength of both contextual for relevance and behavioral for audience segmentation. So when you are out there shopping for an ad network and everyone is pitching great sites and real transparency at the best price, stop and ask about targeting. Don’t be afraid to ask about technology either. Most likely you will find little behind that curtain besides some basic self declared channels, a little re-targeting after the fact, and a high level report for reconciliation at the end of the month. Take the time to ask for proof and see where that leads you. Can they offer proof as to why they targeted a certain impression with a specific ad? If not then there is probably little technology back there.  And if every answer seems to come back around to great sites, then I’d keep shopping.

A recent study released by the IAB from Bain & Company titled Digital Pricing Research has ignited a virtual flurry of newsworthy commentary from prominent publications like iMedia and MediaPost about the place—and need—of networks in the advertising value chain. Declining prices, channel conflict, and devalued brands are the mantra of the network bashing fervor. It wasn’t so long ago that the pundits were predicting the end of the ad network model as we know it. The latest headliner from Adotas called Can 314 Ad Networks Really Thrive is an especially insightful look at the ongoing ad network saga.  The reality is that we’re just getting started.  Look at the statistics from the eMarketer study that said more than 90% of advertisers surveyed plan to use ad networks on their media plans and 75% said they planned to increase their spend to networks.  And look at what factors differentiate the plethora of ad networks according to the agency study; you might be surprised to find that price is dead last.  The major differentiators they cited were quality of inventory (28%), targeting (27%), and transparency (11%) then service, optimization, reporting, reach and finally price.  It’s true, there are a lot of ad networks out there, and there’s a good reason too.  Niche audiences and strategic reach.  And it’s not always one or the other either; it’s frequently both at the same time.  Advertisers need massive reach to get their message across and hit their key performance indicators.  It’s just a numbers game at the end of the day.  And not only do they need the big numbers, they also need to diversify and specialize and focus depending on what they’re selling or who they’re branding to.  One day they may need laser like focus on a specific audience segment and the next they may need numbers on a Biblical scale.  Usually they need both at the same time: the “massive niche” if there is such a thing.  Actually, there is!  That’s where we come in.  Our “super-clustered” network brings both audience breadth and contextual depth for performance and branding campaigns delivering focused reach all in one campaign.  And until there are more of these hybrid networks out there that are big enough to satisfy the advertiser’s thirst for reach and at the same time give them the finely tuned depth they require for performance, we will have a plethora of specialized networks serving the market.  And it’s not just the advertisers driving the explosion of ad networks either; it’s also the publishers. On any given day the average publisher has less than a 50% fill rate. Sure they have their own sales force out there beating the bushes for ad dollars but content is exploding all around them at a logarithmic rate and there is no way they can sell it all. Frequently they don’t even know exactly what they have to sell. Sure the high quality impressions get sold first, and for a premium price, but that’s the tip of the iceberg and there’s always the massive remnant pool of impressions hanging around unsold. So they have to farm it out to the networks and the number of networks grows again. That’s where the channel conflict that everyone tattoos ad networks with comes from but it’s self inflicted and on purpose. Channel conflict only happens when things are selling. Call it too much selling if you want. Maximum yield trumps any sales force’s headache any day of the week. And maximize they do. Just look at PubMatic’s brilliantly elegant default optimization service. Their ad network optimization automates the reselling of unused inventory back to the network enabling publishers to instantly redirect to the highest paying impression every time allowing them to approach an almost theoretical 100% fill rate. What a wonderful world advertisers and publishers are living in today all care of the ad network explosion. In fact, without the hundreds of ad networks out there delivering the reach, segmenting the audiences, and backfilling the impressions, we wouldn’t have nearly as robust an advertising industry as we enjoy today. The networks might have started out as a necessary evil but they are far from that now. They have matured into the strategic reach partner of any successful advertiser or publisher out there, and they are working–hard.

I just got back from the MediaPost OMMA Publish New York event and must report on one very significant outcome.  There was an outstanding panel discussion called Publishers and Ad Networks: Can This Marriage Be Saved which I was fortunate enough to attend.  The talk was on the value and life expectancy of the ad network model moderated by the very direct but never dull Wenda Harris Millard, President of Martha Stewart Living Omnimedia and author of the now infamous “pork bellies” quote.  On the panel was the similarly outspoken and sometimes abrasive Jim Spanfeller, President and CEO of Forbes.com most recently in the spotlight for his preemptive eulogy for ad networks.  Forget the dripping irony that Wenda sits on the board of an ad network and Jim recently launched his own ad network, these two are regularly in the news with pessimistic views of the ad network’s value to interactive advertising and big brands going online today.  The round table discussion also included Jarvis Coffin, Co-founder and CEO of Burst Media who was incredibly refreshing and sensible, and Matthew Boyd, SVP at ValueClick Media, who together defended the ad network point of view exceedingly well.   It quickly became apparent that ad networks have a solid and necessary place in the value chain within display advertising as Jarvis and Matt, along with Ed Montes, EVP at Havas Digital, talked through the evolution of the ad network and the necessary reach, optimization and aggregation role they fill today.  We saw that the original “horizontal” network model has undergone a Darwinian evolution using things like vertical-ization, contextual technology and behavioral targeting to reach point where they are not just “sopping up” the remnant inventory, but rather adding new and unforeseen value to the big brands that need to be online with their messaging.  I could not resist the Q&A period at the end to put the question to Wenda as directly as possible in hopes of some final punctuation to the argument that has raged in the industry for weeks.  But she took the question with great aplomb and very candidly responded that—based on what was said on the panel—ad networks are more “pearls than pork bellies” to brand value and display advertising.  So I think we can now finally put this issue to bed and get on with driving the industry forward.  Thanks have to go to MediaPost and OMMA for the great venue and the “chutzpa” to host the topic and get the names up on stage.  It was a very satisfying event.

I was talking the other day with a colleague, Paul Rostkowski our new Vice President of Sales, and he came up with a term that I thought was very relevant to what we are doing here at LucidMedia. We were discussing what makes LucidMedia uniquely different in the crowded marketplace of ad networks and how we are passionately focused on the advertiser and their agencies. This is almost a 180 degree departure from the norm where the focus has historically been on the publisher and connecting them to advertisers. In that norm, however, real transparency is a pipe-dream that is never realized because the publisher network must be protected at all costs. As we were talking he casually said we are an “un-network.” The idea being that we are doing the opposite of the norm by empowering the advertisers and, unlike the blind networks, we provide transparency down to the page in the name of improved performance. I thought the idea had real legs and the more I thought about it, the more I wanted to take it to the next level. You see, traditional blind ad networks are a community of publishers and advertisers yet LucidMedia is an ecosystem of inventory aggregators built on the most robust contextual targeting engine in the business. You can look at it as almost a meta-network or a network of networks because we tie together and leverage a vast pool of ad networks, ad exchanges, vertical networks, publisher networks, and publisher optimizers. Basically we’re cutting a “channelized” swath of relevant, high performing super clusters of inventory across all the aggregated pools of inventory out there. It’s the right inventory anytime, anywhere, any way as long as it works. This is similar to the exchanges model as it’s an ecosystem of advertisers, publishers, ad networks, and advertising technology providers all happily steeping together in a free market broth. So maybe we’re a “nexchange” (pronounced nex-CHANGE); literally a network of exchanges. Isn’t that a meta-network? I like this term, nexchange, not only because it describes us in a single word but also because it is highly likely that our model will be replicated by other companies when the ad network and exchange space reaches equilibrium and has nowhere else to evolve. That day certainly has not yet arrived, as prophesied by Spanfeller in recent comments, especially with the recent explosion of publisher and vertical ad networks like quadrantOne, Healthline, and WPP. The supply of networks and exchanges will grow until they satisfy the existing demand and although they have created a sea of inventory and unprecedented reach, the demand does not seem to be satisfied yet. Advertising has always had an insatiable appetite for an audience and online display advertising, especially with its great ROI and measurable performance in an uncertain bearish economy, shows no signs of slowing. Maybe it is trite to coin a cute little phrase like nexchange for what we are doing but you watch, you will see more and more media companies taking this next logical step (if they can). More and more organizations will start cooking with the fresh ingredients of inventory across multiple networks and seasoning it with their own performance enhancing flavors. A dash of behavioral here, a sprinkling of contextual there, a smidgen of optimization, two cups of targeting, and a stick of demographic—and presto, a nexchange is born! Just remember who invented the succulent confection before you when it comes time to write the media plan or issue the RFP. When you need reach, an engaged audience, and a clean well-lit relevant ad space, at least you’ll know where to find the master chef in this Hell’s Kitchen. Dinner’s served!

Forbes.com President and CEO Jim Spanfeller recently delivered a preemptive eulogy for ad networks at Needham & Company’s Third Annual Internet and Digital Media Conference. In doing so he has stoked the already searing flames ignited by Martha Stewart Living Omnimedia Media President Wenda Harris Millard and her infamous “pork bellies” quote that algorithm-driven ad networks are devaluing premium brand advertising. Forget the dripping irony that Forbes themselves have recently announced an ad network of their own, albeit a “slightly different” model, when you peel back the spinning layers of this onion the death certificate seems to be lacking any sort of authoritative signature. Everyone seems happy to relegate remnant inventory to the networks and exchanges, as though it were the red-headed stepchild of the display advertising world, but their panties sure get in a wad quickly when it comes to premium advertising going through the same algorithm-driven systems. You need look no further than Forbes own healthy revenue growth, even in a recession economy, to see that the current trends are working and improving on both remnant and premium inventory for the publisher and for the advertiser. Spanfeller prophesied that the ascendancy of online ad networks is probably at its peak as advertisers and publishers struggle to monetize the growing supply of inventory created by social media exploding online. He better be ready to embrace Google’s new Friend Connect social widget! He bravely predicted that the role of ad networks and ad exchanges will diminish over time as publishers take back more control over how their own media is monetized. Yes publisher want and need editorial control but the data seems to indicate that publishers gravitate to what maximizes yield and not what maximizes control. The question is really whether or not algorithm-driven media buying will have a negative long term impact on media buying. I have to give props to Tameka Kee over at MediaPost and my colleague Paul Levine, Vice President of Marketing over at AdBrite, who countered recently with a great deal of pertinent data which seems to prove the doom sayers are missing the mark with their dark prophesies. The roots of this debate spring from the early wild-wild-west days of the ad networks. Back in the early formative years of the ad network’s puberty it was almost an “anything for revenue” attitude and the trust got broken. Just look at how Spanfeller describes how the Forbes ad network is different from us unwashed masses. He depicts his solution as a “clean, well lit place” for monetizing the rapidly expanding long tail. How is that different from the new breed of algorithm-driven ad marketplaces out there? Take a look at the Certified Ad Space within the Rubicon Project. With the stellar reputation of the Rubicon folks, their approach seems like a cleaner and even better lit ad space. Or take a look at how LucidMedia provides brand safety through the most rigorous contextual scrubbing solution on the market creating a guaranteed Ad Safe Environment for premium brand advertisers. And yes, they all are in part algorithm-driven solutions. But these are good for the premium brand advertisers (and good for the publishers) and are not devaluing the brands they serve. Actually the opposite seems to be happening as these brand safe zones buoy up premium CPM rates wherever they occur. What the Spanfellers and Millards of the world are really saying is not that this is bad for the premium brands; they are actually signaling that the new breed of competition is an unwanted threat to their profit margins. The amount of angst created by the wonderful new breed of algorithm-driven advertising spaces on ad networks and exchanges like AdBrite, PubMatic, Rubicon and LucidMedia is a very clear indication of how positive these solutions are for brands going online. If they were truly bad then the Spanfellers and Millards would not care and subsequently draw this kind of attention to them because it would not be threatening their margins. I say that while the ad networks and exchanges must evolve to survive and continue flourishing—Levine’s comment about reach versus engagement for example—they are working just fine and are here to stay for the foreseeable future.

MediaPost recently wrote about Marketing Sherpa’s inaugural 2008 Online Advertising Handbook which showed that less than half of their advertisers use online display ads for branding purposes. I was happy to see that advertisers rated the ability to use behavioral and contextual targeting as an important aspect to ROI measurements though. InsightExpress reported that targeting was a key driver in effectiveness and advised advertisers that the context in which an ad is served is just as important as the ad itself. It comes as no surprise to me that context is important and targeting impacts effectiveness and ultimately ROI. What we need now is to take this a step further and understand which types of targeting work best. This is important because I have noticed that vendors in this arena tend to muddy the waters around targeting and in the end confuse the advertiser and their agencies. So I thought I would shed a little light on the difference between behavioral and contextual mentioned in the study. There seems to exist an almost unnecessary tension between the two different methods of targeting in the marketplace. I say unnecessary because when you compare the two, it is important to note that behavioral is to some degree dependent upon a contextual element; it is in part “contextual over time”, but advertisers still see it more as a black-and-white, one-or-the-other, which-one-do-I-choose situation. So it is worth investigating further. And to make matters worse I realized from this year’s Ad:Tech in San Francisco that many networks are claiming to do a mix of both but in reality they do very little contextual. No wonder there is confusion in the marketplace. Just take a look at two quotes from the industry press over the last few years. “The CPM of behavioral targeting was 24 percent less than the contextual placement, yet it delivered 50.3 percent more imminent purchasers … Therefore the CPM against imminent buyers was 50.6 percent of the CPM of contextual targeting. Behavioral targeting was twice as cost effective.” This is from a case study in TACODA’s Behavioral vs. Contextual targeting research done in 2006. Now here is another more recent quote that seems to almost contradict their findings. “The last two placements showed about a 19% lift in brand recall over the former, proving that when it comes to online ads, contextual targeting can have an effect. According to Marketing Sherpa data, 40.5% of marketers said contextual targeting delivers good return on investment; behavioral targeting was not far behind at 36.7%.” This is from Jonathan Lemonnier in Advertising Age early 2008. Ok, so is behavioral twice as cost effective as contextual or is contextual more effective? How are advertisers supposed to sort this out? To find the reality you have to compare how the TACODA case study was executed with the actual data in the research paper. If you look at the actual data in the TACODA study cited in the impressive first quote, the actual results are far less remarkable. The study is measuring the right KPI, cost effectiveness based on purchases, but the data in the study does not necessarily support the claim that behavioral was twice as cost effective. The case study assumes a certain CPM paid for both behavioral and contextual impressions and that is where the case study separates from the research data. If you look at just the research paper and don’t take into account the current market value of behavioral and contextual impressions, the subjective part of the claim, the empirical data seems to say that contextual targeting outperforms behavioral especially under a frequency cap!

(Number of looks at an ad)

(Seconds spent looking at an ad)

These images are from the actual study. Researchers measured the number of times the subjects looked at each ad on each page (looks, the first chart) and measured aggregate time spent looking at each ad on each page (seconds, the second chart). In the two charts you notice that contextual targeting outperforms behavioral until you add frequency. Only then does behavioral overtake contextual. In fact, on first exposure, contextual well outperforms behavioral for initial looks and ends up with almost similar look results at the second exposure. The story is even better when you look at seconds spent looking at a particular ad. Contextual well outperforms behavioral in seconds spent looking at an ad on the first through third exposure and it is only as you approach the fourth exposure, which is one reason why we frequency cap, where behavioral clearly begins to outperform contextual. Behavioral definitely has it merits. But this study, used to support a behavioral approach, shows why contextual targeting yields the highest returns for brand campaigns (as in the more recent Advertising Age quote). Contextual ads get eyeballs faster and they keep them looking longer especially under a frequency cap of four. In fact, brand advertisers should consider a frequency cap of three in light of this study. This is why big brand advertisers are doing so well on the LucidMedia Network and why they continue to be a strong focus for us. Contextual gets eyeballs faster and keeps attention longer in today’s world of hyper-short attention spans and overcrowded messages. The moral of the TACODA study should be; “Just don’t over pay for your contextual impressions.” Luckily for advertisers and agencies we are making the deepest contextual solution one of the most economical forms of targeting.

Rob Hof over at Business Week recently wrote about AdBrite and the launch of their new Open Targeting Exchange (OTX) in his Tech Beat column. The concept is an elegant solution to the challenge of high performance targeting for display advertising and we are excited to be AdBrite’s launch partner. AdBrite is “The Internet’s Ad Marketplace” so it is fitting that they are first to take what Rob calls “a sort of eBay for ad targeting technologies” to market. Here’s the idea, AdBrite is aggregating and integrating multiple external display ad targeting technologies under one sort of free market system that advertisers and publishers can use to target their ads more effectively. When a pageview is called on an AdBrite publisher’s site, OTX calls out at all the potential targeting technologies in real-time to determine the most effective advertisement for the given property, user profile, and location. This fosters competition among all the targeting technology providers creating what our President and CEO Ajay Sravanapudi called a “Darwinian environment” where the fittest will survive and over time prosper. Publishers benefit from increased yield and advertisers get a better ROI. The proverbial win-win scenario. We were more than happy to throw our ClickSense® platform into OTX’s Darwinian savanna of 508M impressions a day and 60,000 publisher sites to sink or swim since it has already proven more than capable of handling some of the largest web properties for years now. But at the end of the day it is the user who gets an overall better experience with a more relevant ad and that is good for everyone in this business. We’ve let the lion out so keep an eye on AdBrite’s OTX in the near future.

I was reading Mike On Ads’ multi-part series on Ad Exchanges and I got to wondering what forces came together to create the current ad exchange phenomenon? There’s no denying the emerging ad exchanges are replacing the old yield management solutions out there. They are aggregating the supply to drive new market efficiencies and a new level of transparency in the non-premium marketplace. One of the early factors motivating this was the proliferation of ad networks which have been growing at a staggering rate. ThinkEquity Partners recently reported that there were over 300 ad networks in 2007 which means the number doubled in less than two years. They went on to report that the non-premium market will grow at 28% annually from $2.2B today to $7.6B in 2011 so it’s no wonder the number and the types of ad networks exploded. Vertical, contextual, behavioral, demographic, re-targeting, geographic, site specific, there is no shortage of ad networks out there now. Because of this explosion the mantra of the crowded, long-tail, remnant world of non-premium advertising has become differentiate or die. Why? Because there was (and still is) pressure from all sides to stand out. Pressure from eroding gross margins, strain from publisher recruitment, competition over inventory, negative stigmas about duplication and a lack of transparency, and a fast and furious industry roll-up. The growing revenue base and customer demand needed another solution and the ad exchange was the logical evolutionary path. Ad exchanges are streamlining the process with a whole new level of efficiency that the ad networks tried to deliver but lost along the way. The ad exchange is basically an ad server ecosystem through which advertisers, publishers and networks all manage their advertising business. They do this together and in an open, platform agnostic way that allows market dynamics to work their magic. So now the ad networks are feeling pressure from the exchanges too driving an ever increasing need to differentiate themselves. Think Right Media and the DoubleClick Advertising Exchange as examples. Advertisers and agencies rely on ad networks for the efficiency, reach, and optimization they bring to the table and are willing to give up some editorial control for it. But ad networks tried to control the whole process through proprietary means. This opened the door for exchanges to step in because they simplified and unified the trafficking process on an open platform that was transparent to the process. And there we have it, transparency is the final piece to the puzzle that unlocked the exchange phenomenon. Transparency takes the duplication out and removes the waste. We’ve all heard the timeless advertising adage “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Well transparency addresses that problem. So the ad networks out there will continue to differentiate themselves if they want to survive. The winners will be the exchange-friendly networks who can deliver the same transparency that enabled the exchange phenomenon in the first place.

Dave Morgan, TACODA’s founder and Executive Vice President of Global Advertising Strategy for AOL, just hit the nail on the head with his blog commentary on the stigma surrounding ad networks. He points out that the ad network brought a pork bellies commodity attitude to online advertising in the lean, post-bubble days when any revenue was good revenue. He goes on to point out that this is changing and bravely outlines a few solid reasons why. What drove this home for me was his conclusion that networks are going to have to continue to deliver solid value, with high-quality ads and rates, to begin to offer something that publishers will never be able to deliver on their own because of their focus on the content. He highlights the need for networks to deliver effectiveness over efficiency. Bravo. This is really the crux of the situation and a very real opportunity for ad networks to step up to the plate. And this is exactly where LucidMedia is strongest, in bringing increased effectiveness—and the proof report down to the impression-level to prove it—instead of just new efficiencies through scale, technology and focus. We saw this void back in 2004 when we launched ClickSense, our robust contextual engine, and have recently applied it to lifting the effectiveness of our customer’s campaigns in the LucidMedia Network. This new effectiveness is inherent in our deep categorization which puts publisher’s content into our 13,000+ industry categories to allow for far more granular targeting than has ever been available in the past. When publishers can sell their inventory with 6 levels of categorization to pinpoint the meaning of their content there is a very real lift in conversions. This assumes all the underpinnings are in place like engaging creatives and streamlined landing pages but when it all comes together there is a tangible return. Hopefully other ad networks will do the same and bring real increases in effectiveness to the table in the future and begin to erase the negative connotations around the ad networks.

Google recently announced a new service that Web publishers can use to manage their online ad sales and serve up ads to consumers. This news is extra interesting now that Google has DoubleClick/DART legally in their stable. I am waiting to see how much transparency they will be turning over to the advertisers and how much overlapping functionality they will have with their other technology acquisitions. I bet they parade this out with much fanfare as a beginner solution with plenty of easy links to upgrade and the upgrade solution is DART. It really comes down to how “advertiser-centric” you can be when you are talking about ad serving. What this industry doesn’t need is just another ad network. What this industry does need is to lose the opacity that has plagued it since the earliest days. Advertisers need brand safety today and brand safety depends on transparency. You can only rest assured that your brand is being represented properly in the Wild-Wild-West that is online advertising when you know where every single impression is going. Not to mention detailed categorization. If anyone can provide the industry with useful contextualization it’s Google but I doubt they will. I want to see some proof reports showing how well they target and every impression URL from this new offering before I make the call whether or not this is a good thing for our industry.