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 a 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.

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.

It’s hard to believe it has only been three months since we launched our new ad network. What a difference a quarter can make! Today we announced two strategic hires that are central to the execution of our ad network business model. Not only did we announce Paul Rostkowski will be joining as our VP Sales, but also that Abderrezak Kamel would be returning to LucidMedia as our CTO. Together they are a great indication of the remarkable adoption rate of ClickSense as the contextual advertising engine of choice for the display ad industry. We are almost struggling to keep up with the overwhelming demand for our contextualization. Not only are we currently powering AOL’s Web Offers strategy, we are rapidly expanding our work with some of the great brands in the ad exchange community to provide contextual targeting services. This puts us in a unique position to offer our deepest granular targeting capabilities—31 channels and 14,000 micro-segments—directly to advertisers and their agencies. And this is where Paul comes in. His depth of knowledge and breadth of ad agency contacts will help us emerge as the premier ad network; the one with exceptional lift potential, hand-on customer service, and deep technology. To take that powerful technology platform, already a strength of ours, to the next level we jumped on the chance to bring Abderrezak Kamel back to LucidMedia where he will continue his groundbreaking work on our ClickSense® engine. And what a great story that is by itself. We first joined forces with Abderrezak back in 2002 when LucidMedia, then Entrieva, acquired Semio Corporation. As the Chief Architect at Semio, he was the brains behind the brilliantly elegant Semio algorithm (with multiple patents) that won rave reviews at almost every major pharmaceutical company and federal agency. Since then he continued to do cutting edge work at Autonomy until his momentous return “home”. We already know from our customers that we are in a class by ourselves. One of our largest customers picked us from over 17 other competitors because we ranked #1 in technology, customer service, and innovation. With the return of Abderrezak to the fold, expect to see more groundbreaking innovations to get the most from your media dollar. With the addition to Paul to the team, we are now putting the “media” in the LucidMedia name. Now the fun really begins!

Shira Ovide wrote an interesting piece in the Wall Street Journal’s On Technology section about self-service display advertising. I agree that the display side of the business needs to get easier for it to move to the next level but there is one thing in this article with which I am struggling. I am having trouble with them equating search-based text ads to display advertising because while self-service may work for direct response advertising (DR), they are forgetting brand advertising in this equation. In branding, display is inherently tied to the creatives and that does not lend itself to a self-service model. I know I disagreed with Spanfeller and Millard in the past, and I still do, but I’ll get to that in a moment. Shira’s analogy is like saying branding on the small screen would grow if it had a self service portal because Google did it with AdWords. That never happened in five decades and trillions of dollars went under that bridge. How could the average advertiser create an engaging 30 second video spot? Not on YouTube. Yes, a guy like Dunn who was mentioned in the article, can use Facebook to upload a photograph of his great pants and take clickers to his e-commerce portal page. He’ll likely hit an acceptable performance-based metric as in their example but the big brand crowd will not have the same luxury. It is different with search and text because search has the key words provided up front for some minimal relevance and almost anyone with a QWERTY keyboard can produce a decent performing monochromatic text ad in 30 minutes. They can even spit out a decent thumbnail image when pressed. But the performance, and subsequent return, of brand advertising hinges on many factors including the engagement of the creative and, when there is a call to action, the quality of the conversion process (as well as the context in which they are served). The best brands in the world go unnoticed with terrible creatives and the best creatives in the world fail miserably with non-intuitive landing pages. Basically I am saying that engagement and emotion don’t lend themselves to a self-service model like AdWords. And I’m not talking about Punch The Monkey here, I’m talking about creating real brand affinity, brand recall and purchase intent online with display. This gets us back to what Spanfeller and Millard were recently pontificating. While I still disagree with their prophesy that the ad networks are a dying breed and are devaluing the brands they serve, I agree wholeheartedly with them regarding the need for the human creative element in the process. This is why we have the great agencies we do. Maybe if there was a simple and free global library of real-time customizable rich media creatives in all IAB standard ad spot sizes using text-to-speech technology to create automated professional voice-overs then the big brands would dip more than the current toe-in-the-water online but we are a long way from that happening. It never happened with TV and now the big and little screen ads are evolving into even more protected methods like paid placements and integrated endorsements moving further away from a self-service potential. I think self-service is highly applicable to DR but I don’t think it’s the magic elixir that will pull more big brand dollars online. To do that you need context but I’ve already beaten that drum enough for now.

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.

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.

Rohit Bhargava recently wrote an interesting blog piece about online advertising. He ponders what it would be like if there was a site like Priceline for online advertising (he calls it Adline for fun)? He asks what it would be like if you could enter your flight dates, the demographic details of who you are trying to reach, the type of placement, and the maximum CPM you are willing to pay. Placements would need to be rated on some sort of neutral system so you would not be overpaying for obscured inside page placements, as well as by relative visibility of the site, but the idea is that I could decide to do a five star ad unit on a five star site and set my own CPM. The site could choose to accept or decline my offer. I liked this free-market Ebay-esque approach to online ads. But one of the great Achilles Heel’s of online advertising has always been transparency; this notion that ad networks have historically been opaque to the advertiser basically requiring advertisers and agencies to take them on their word that their ads are out there working. A new bidding system like this would work if every impression was audit-able, if every dollar spent was on the table for scrutiny. Only then would people trust the system enough to put their ad spend on the line.