(Reprinted from ADOTAS) 2010 is already shaping up to be the year of real-time bidding (RTB) technologies and demand-side platforms (DSP). The availability of real-time bid access into the major ad exchanges is converging with an industry-wide preference for agency-administered ad-buying and ad-trafficking platforms.

The traditional ad network model achieved many things but has yet to deliver on the promise of truly cost-effective scale. The rules of engagement changed when downward-spiraling CPM prices forced publishers grudgingly onto the emerging exchanges to improve their yield and back-fill diminishing ad revenues. The networks had to follow their publishers and a new aggregated sourcing model emerged.

Real-time bidding is the hot feature this year and a staple of the effective DSP. Now the combined capabilities of RTB-enabled DSPs built on the exchange model are replacing traditional ad networks with a new buy-side network paradigm that is more nimble, more economical and more in touch with advertiser goals.

Control is subsequently moving closer to the advertiser, intermediation is being reduced and prices are arriving at a true market-driven equilibrium. Not only do advertisers have more control over targeting, performance and safety, but buying has become more centralized and access to inventory become more streamlined.

It is no secret that LucidMedia has one of the most robust contextual targeting engines in the marketplace, but what we have achieved in the DSP space over the last year has not been widely publicized. Late in 2008 we began engaging all of the large aggregators to co-develop RTB solutions. Next we developed an advanced, proprietary ad server to give us one of the most nimble systems available for trafficking campaigns.

We also built a unified inventory management system that could dispense with the complexity of hard-wiring campaigns to inventory sources. We included an automated optimization engine that can evaluate thousands of campaign facets in real-time, project performance trends, and govern campaign targeting based on advertiser goals.

In January 2009 we deployed the platform internally, effectively making it the industry’s  first production RTB-enabled demand-side platform. Named ADvisor DSP, LucidMedia has since executed hundreds of successful campaigns on the platform and is currently processing up to 45 billion impressions each month. This pioneering experience makes us uniquely qualified to access the necessary features of a successful RTB-enabled DSP initiative.

There are certain universal features that agencies need for any successful DSP initiative. All buy-side platforms must offer multisource RTB integration and scale, an advanced ad server, page-level contextual analysis for targeting and brand-safe filtering, audience profiling for retargeting, universal frequency capping, detailed performance roll-up reporting with discrepancy management and reconciliation, flexible and intelligent bidding strategies, the ability to leverage third-party targeting data and a managed service deployment approach.

Advanced Ad Server: A good DSP starts with an advanced ad server. Core ad serving capabilities like frequency capping, day parting and targeting are minimum requirements. The savvy agency should also look for full-featured holistic campaign management features like cross-aggregator universal frequency capping, pre- and post- impression auditing, preemptive brand-safe filtering, page-level impression verification and hyper-segmented targeting based on content, demographics, behaviors, site, location, and time of day. Discrepancy management and reconciliation are also critical aspects of the built-in ad server.

Integrated RTB: Properly integrated real-time bidding is not standardized or modularized. There is still a great deal of heavy lifting development needed to bring on each inventory source, scale and balance the volume, and bid effectively. A good DSP needs to have these problems already solved.

Intelligent Bidding: Smart bidding strategies are also critical to an agency’s bottom line. The DSP model promises that agencies can claim a larger slice of the ad spend dollar, moving it further and further away from the networks. But without intelligent and flexible bidding, that slice can be lost. Look for detailed graphing of bid price and win ratios and the tools to quickly adjust bidding per source. Look for RTB solutions efficient enough to drive bid costs below the $0.001 threshold.

Retargeting: Another aspect of the successful DSP is the ability to roll up audience and link users to performance for retargeting purposes. Reaching the right audience with the right message at the right time is a core tenet of advertising and although this applies to all mediums, display always reaches its users through a proxy device.

The right platform goes beyond simply rolling up interpolated audience facets and instead segments users into actionable profiles using third party data based on their propensity toward a desired action.

Managed Services: The concept of an agency-side buying and management platform relies heavily on managed services at the inception of any in-house DSP program. The current transitional period is favoring the managed service approach to demand-side platforms as agencies step into the traditional ad network role. Managed services allow the transition and knowledge transfer to happen in the most effective manner.

Optimization: Automated optimization is a differentiator for the demand-side platforms. Historically optimization was the mystical secret sauce of the more technical ad networks but it has become a required attribute of the full-featured DSP. Look for optimization that can juggle thousands of campaign targeting facets, project outcomes, and model performance scenarios prior to launch.

Inventory Sources: Sources and scalability are key factors for every agency to consider. The right platform needs to plug into all the large repositories as well as the more niche aggregators plus the all supply-side optimizers. This kind unprecedented impression potential, scale and broad reach are requirements for large direct response campaigns, major corporate branding promotions and scaled niche segments of very specific demographic traits.

These are the major features as well as ad network staples like brand-safe filtering, transparent reporting down to the page level and flexible targeting to content, demographics, and behaviors that an agency should look for when selecting a DSP.

The right demand-side platform allows agencies to easily audit the networks and exchanges on their media plans, efficiently acquire page-level contextually and demographically targeted inventory, ensure brand safety across all sources and most importantly enforce a universal frequency cap. The new breed of DSP with integrated RTB gives agencies pre-impression filtering, post-impression auditing, and allows agencies to cherry-pick the most effective impressions in real time and then feed their campaigns with an optimization engine that automatically maximizes return on spend.

This is reprinted from “Data-Driven Thinking”, a column on AdExchanger written by members of the media community and containing fresh ideas on the digital revolution in media.

Demand Side Platforms (DSP) are hot! I can tell by the huge agency interest, and even more eager venture capitalists anxious to get in on the latest craze. Traditional ad networks and newfangled technology platforms are declaring themselves to be DSPs. Others who did much of the evangelical spadework for DSPs appear to be stung by the sudden rush. There is now an attempt to define a “true DSP”. At this stage, a “true DSP” as defined by a list of features serves little purpose and is as much a disservice to the industry, as it is disconnected from reality. In fact, many of the current DSP competitors–those with the most significant solutions already in-market–are successfully violating that definition of a “true DSP” to the benefit of their agencies partners.

The truth is that a “fully self-service DSP” would be far too disruptive to most agencies at this early stage. There are far too many levers, knobs and buttons in a DSP robust enough to deliver the optimum cross-section of pacing, performance, and price for an agency to take on today. They range from mundane tasks like dealing with objectionable impressions and buys from non real-time sources to more arcane optimization tasks, RTB source integration, bidding strategies, discrepancy management, and post-campaign reconciliation.

As my own company has learned by providing DSP services to agencies over the past year, agencies are still not appropriately staffed to be full-fledged buy-side networks yet. Media buyers are already over worked and stretched to the limits and are looking for a DSP to do more with less. That means automating many tasks but also off-loading just as many (if not more). A managed service that facilitates knowledge transfer and leads to a semi- self-service approach is far more realistic today. The reality of the situation is simply not that black and white! At the end of the day what an agency really wants is to know what works for their clients and how to repeat those outcomes in the future. At least that’s been our takeaway. They want the data behind the performance, the audience segments that engage with their message effectively, and the easy-to-pull levers that will let them do it again on the next campaign. They want no more and no less.

It is also important to recognize that many of the most important DSP offerings are coming from the networks where the technology has matured and has been thoroughly field tested. Indeed, my company falls into this category. The networks already have the relationships and business models in place to support the early adopters. Real-time bidding is an excellent example of this necessity. To get multi-source RTB going at scale going takes a significant amount of relationship building and technical heavy lifting and many of the networks have already invested heavily in this. Discounting the network players with a single stroke, and leaving it all up to the agencies, is doing the industry a massive disservice.

There are many other aspects of a “true DSP” that were missing from the recent list as well. Our experience has been that no DSP should leave home without staples like universal frequency capping across exchanges and publishers, objectionable content filtering for brand safety, some sort of automated optimization for CTR, CPA, or eCPC and the ability to plug in others, an advanced and robust ad server capable of propagating campaign changes in minutes, seamless targeting of audiences with native and 3rd party data, and granular content targeting independent of site or section.

Only time and buyer requirements will define the “true DSP” and decide if networks and DSPs can truly coexist. The industry needs time to shake it all. The sector is too young to define the full product category or for one player to define it completely. I will conclude with a heretical prognostication–the next generation of ad network will be a hybrid DSP solution with a service layer.

LucidMedia just announced the availability of ADvisor DSP, our mature demand-side platform designed to help interactive agencies transition into buy-side networks. The solution was deployed internally in January of 2009 effectively making it the industry’s first production RTB-enabled demand-side platform. We have since processed more than 100B impressions and delivered hundreds of successful campaigns with the platform. Here’s a permalink to the big news.

Don’t miss the 2010 OnMedia NYC event from AlwaysOn this February 1 through 3 where LucidMedia’s founder Ajay Sravanapudi will be presenting in the CEO Showcase. Look for LucidMedia in Ballroom 2 at 11:00 AM. You can get more information from the OnMedia event website.

U.S. relief organizations are urgently appealing for emergency assistance to aid the victims of the devastating earthquake that struck Caribbean nation of Haiti recently. The quake, which registered 7.0 on the Richter scale, triggered a tsunami warning for neighboring countries situated in the Caribbean Sea. The earthquake was centered about 14 miles west of the capital city, Port-au-Prince and the news has been reporting wide spread devastation. Funds are urgently needed to provide safe water, temporary shelter systems, essential medical supplies etc. Haiti is the poorest country in the western hemisphere and has a population of 9.6 million inhabitants, of which more than half are under 21 years old. U.S. relief organizations like UNICEF have been working for years in Haiti developing long term solutions to current problems caused by poverty and lack of basic health care, education and sanitation services. The country has been suffering from long-term political strife and a severely depressed economy as well. In recent years the effects of the global food crisis and particularly strong hurricane seasons have left the country dangerously vulnerable and this catastrophe is only serving to exacerbate the already critical situation for the people of Haiti, especially women and children. LucidMedia is actively participating in raising relief funds for this emergency. To donate to the ongoing emergency relief efforts in Haiti and the Caribbean region, please visit www.unicefusa.org/haitiquake or call 1-800-4UNICEF.

The new TNS Media Intelligence Report is out and Adotas has jumped on it with their Display Advertising Shows Signs of Life e-newsletter today. The reports indicates that for the first quarter of 2009, the total measured advertising expenditures they track dropped 14.2% versus a year ago, down to $30.18B. This follows a 9.2 percent decline in Q4 2008 as the advertising recession accelerated in the new year. While that may not seem like good news, consider they indicate that internet display-specific advertising spend is actually up 8.2% over the same time period last year which I believe is better than expected considering all the frozen budgets, wait and see attitudes, and narrowed lines of sight. Although it is lower than the original double-digit growth predicted last year, it is still growth–and very healthy growth at that. Wipe away all the historical (and semi-hysterical) predictions of double digit growth ad infinitum and look at 8.2% growth on its own–among a sea of declining numbers–and you have a very clear sign. So why is display standing out like a shining star pointing the way ahead in our rocky sector of space? A lot of the growth they are reporting is being driven by the new free market exchange models that are moving onto the plateau of productivity and at the same time relegating the old ad network models to the trough of disillusionment. From this emergence, not only is publisher yield inching back upwards, advertisers are finally smelling the real meat of return on their spend. That alone has been happening for almost a year now and is not the whole story behind this successful metric. The promise of data has recently begun to materialize through all kinds of platforms with their new insights and relevant analytics. It is this confluence of forces, the emergence of the exchange model and the promise of data being realized through the platforms that is drawing advertisers to invest in display at a healthy clip. And when the exchange playing field congeals a bit further, and at the same time a few of the platform players begin to dominate inside the agencies, we will see a whole new display advertising sector. Gone will be banners and CPMs and premium and remnant. We will have a truly value priced free market exchange of media in real time that rewards the publisher and empowers the advertiser. We’ll have less layers and less middlemen and less latency. We’ll have more return, more clarity, more accountability, and real transparency. If one thing is certain, it will be nothing like the display business of last year.

The article How About a Little Revolution in Display Advertising by Martin Betoni is a good, hard look at how display dollars break out of the total ad spending in 2008 according to the latest IAB annual report. Of the $187 billion spent on advertising in 2008, $24 billion were online dollars of which only 17%, or roughly $5 billion, went to display ads. In other words just 3% of the total ad spend in 2008 went to display. His point is that the banner has not progressed much and I find it hard to disagree. All the best optimization in the world is still completely reliant on the creative to engage the user. This is why I think technology around the creative, things like our new AdMatch capability which provide a dynamic creative directly from the advertiser’s database of products or services and matches them in real-time to the highest performing content, have the greatest opportunity to increase the display share of ad spend and tip the scales away from search or even draw dollars away from the larger pool of traditional media. A campaign is only as good as it’s creatives and as Martin points out we are still basically working with the same 728 pixel by 90 pixel rectangle from 1994 to get the job done.

We recently did a Q&A with AdExchanger.com about LucidMedia and our work with the Ad Exchange community.

Q: What trends are you seeing in online display advertising?

A: Trend #1 is performance.  All the trends we are seeing are towards performance-based advertising and increasing return to “do more with less”.  Advertisers are looking for new ways to increase their return with a flat budget but all the same growth pressure.  They are turning more and more to direct response, CPC, and CPA solutions to move the media risks as far away as possible and guarantee the backend performance.  Apparently our fully transparent platform with multiple optimization facets really resonates with clients in this tough new economy.

Trend #2 is exchanges.  We are seeing a dramatic shift from networks to exchanges.  The exchange model has matured at the same time the network model has had its reputation tarnished.  The real-time bidding and open, transparent nature of the free market exchange model has finally distilled to the top as the solution of choice when efficiency and return become as important as reach and scale.

Q: Is it fair to say that LucidMedia is the contextual solution for Right Media Exchange?

A:  Yes and no.  Yes, we are a contextual engine on Yahoo’s Right Media Exchange but that is not our core business, it’s just one of the many irons we have in the fire these days.  And our work on RMX is a two way street.  We provide contextualization services to publishers and advertisers there but we can also purchase media there.  We have many of these types of media arrangements because it is how we provide the scale, efficiency and performance that are so appealing to our advertisers.  It took years to do but we are now able to pass those benefits on to our advertisers and our agency partners.  That is a key to the current rapid growth and momentum I mentioned in the first question.

Q: Any plans to work with Yahoo!’s APT Platform?

A: We are watching APT closely, as many are, because it holds a great deal of potential scale.  Obviously we’d like to continue our close and positive relationship with Yahoo and Right Media and integrate with APT when it is fully operational.

Q: Can you take us through the process of how LucidMedia’s deal with Right Media works from a technological perspective?  For example, tell us how it all works for a single ad impression on a publisher’s site.

A:  Right Media has established 63 standard categories that correspond to a 4 digit contextual flag.  RMX publishers have to deploy new ad tags and then advertisers can target their inventory more effectively.  LucidMedia’s ad tags are distributed to RMX publishers instead of YieldManager tags.  Then, during ad call, the LucidMedia tag analyzes the context of the page in real-time to determine the most appropriate categories.  We then augment the YieldManager tag with additional Query String Codes that represent the most appropriate Right Media Exchange categories.  All advertisers have to do is use Right Media’s Query String Targeting capability when they setup a campaign in YieldManager and they can access the highly targeted contextual inventory right away.  Your readers can go online to find out more about it too.

Q: Can Lucid Media’s ClickSense technology contextualize social media other than, say, the “social media” category?

A:  Sure.  Our technology does not care about self-declared categories.  Rather we deal with exactly what the content is about and categorize it accordingly.  Our solution scrapes the page in real-time to determine precisely what each inventory page is all about.  What we find is that the majority of content is improperly categorized at a high level.  We find social media can be all over the map category-wise.  Technology, Arts and Entertainment, Automotive, Sports, Pets, Family and Parenting, Health, and so on.  So we tag media at the page level for what it is about and not what it is supposed to be about.  And our performance proves out the approach.  We’ve worked with advertisers who have studied this and their findings are always the same: that context is a true predictor of intent.

Q: How is the contextual engine for LucidMedia different than the competitors such as AdSense, Contextweb, Kontera and others?

A:  Although we all have a contextual solution in common, our focus is on providing a broad platform that encompasses a range of advertiser and agency services beyond just running media.  In fact, clients can actually utilize our platform as a compliment to some of the other contextual providers.  In terms of technology, our approach is a bit different as well.  At the core of our platform is a patented semantic solution that includes advertising industry-focused taxonomies which let us target content at a very granular level.

Q: In the future, can you see a network providing the essential services that an advertiser requires and, thereby, disintermediating media agencies?

A:  I think that is unlikely to happen.  For example, our focus is on providing a media management platform to agencies that allows them to outperform their competitors and pass on new levels of efficiency, transparency, and safety to their advertising clients.  So we are not trying to act like an agency, we’re trying to put tools in their hands that make us a crucial part of the value chain.  We feel our position between the agencies (and the advertisers) and the networks (and publishers) is the best place to do business.  This allows us to act as a media buying platform for the exchanges–and even the other networks out there–and provide our data as the new currency of performance.  It’s a very exciting place to be right now!

Q: How is LucidMedia ensuring brand safety?  And, how does LucidMedia provide access to the Long Tail?

A:  Brand safety is rising in importance these days.  Our Verified Inventory Platform (VIP) leverages our deep contextual technology to find the right content to meet the ever-tightening advertiser performance goals.  But we can also block content in the same way when they indicate something is inappropriate for their brand.  Because we evaluate the true meaning of each page for categorization, we get the by-product of knowing exactly what topics are on each page.  We have compiled an extensive list inappropriate topics that we call our Objectionable Content Filters.  With these filters enabled we can make sure that their brand won’t appear on pages about hate or pornography or even things like natural disasters or war.  And these are all customizable by the advertiser because what is inappropriate to one may be desirable content to another.

As for accessing the Long Tail for our advertisers, we deployed the concept of Media Classes within our platform to take advantage of the Long Tail.  We not only categorize the page content accurately, we also categorize the type of source it is found on like news sites, social networks, blogs, enthusiast forums, gaming sites, wikis and webmail portals.  We also categorize the sometimes undesirable media classes like peer-to-peer file sharing sites so advertisers can not only target specific media classes, they can also filter against certain classes of media if they want.  This opens all kinds of doors for our advertisers.

Q:  In your opinion, what will be some of the key drivers which will allow ad exchanges to progress from a remnant-only to a premium and remnant model?

A:  The key drivers will be their openness, a clear value proposition to the publishers, and their ability to support real-time bidding.  The exchange platforms have to be easily extensible so everyone can play.  And we’ll need the publisher side optimizers to keep advancing as well.  They play a key roll that the exchanges are not filling today and they exert a great deal of pull on the publishers drawing them to the exchange model.  I expect to see a lot of interesting changes in the next few years and LucidMedia plans to be right in the middle of it all adding value to the agencies and advertisers.

Have you noticed lately that everyone in this ad network business says they offer great, transparent, handpicked inventory?  Everyone calls it Premium.  But in the end it winds up being self-certification and adding no real value beyond perceived value.  And now LucidMedia has launched a Verified Inventory program.  We are saying our inventory is safe for brands and that we can accurately target 14,000 specific content categories. You can find out more about brand protection in this Adotas article called A Display Advertising Safety Net. So how is this any different from all the other networks out there?  The difference is in the how, not the what or the why.  The what (verifying inventory) and the why (for brand safety) is the same across the board.  Every network says their media is checked for brand safety.  And everyone has the same reason.  Get more big advertiser spend.  That’s the common what and why in the industry.  It’s the how that is unique to this new program.  We launched this program not because we do it like everyone else, we have this program because we do it differently.  To be specific, we use the most robust and patented form of natural language processing at the pre-impression page level to better determine true meaning.  But how is that different?  Most networks spot check a top level domain list as their way of making their inventory brand safe.  You begin to see the degrees of brand protection available to advertisers and the intricate subtleties that make it confusing.  There’s a huge difference in the degree of safety provided between the two methods.  And every other network usually says they categorize for accurate relevance matching of ads to content because everyone knows that engagement and relevance are directly related.  But what most other networks really do is ask the publisher to self-certify their inventory and then they push it out in those same self-certified categories.  But we look at the words and phrases on the page in real-time and tag it with a far more accurate and granular category before we serve it.  Everyone has the same what and why but it’s the varying degrees of how that makes our program different.  But we go so much further too.  We even filter out pages with objectionable concepts as defined by our clients.  We also categorize our inventory into 14 different classes of media to filter against or target to a specific type of pages like a blogs, news sites, enthusiast site, or shopping sites.  So the story here is not that we are doing the same thing, the real story is in the lengths we go to verify our inventory versus what everyone else does.  They are two very different stories.  And that is why we created the Verified Program, because we do it differently and with a much higher degree of quality.

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.