Reprinted from ADOTAS – Many moons ago, when the demand-side platform (DSP) was new and Invite Media was independent, I made some public predictions about display advertising. In the past year, LucidMedia has been executing diligently and dealing with the many twists and turns of our business. I thought it would be fun to revisit those predictions and rate them with 20/20 hindsight.

Before I get into the scoring, let me first review a few of the major industry developments since my predictions:

• Consolidation. The Invite Media acquisition was sadly not followed by a string of other overpriced DSP deals. This disappointed a number of bankers and all the DSPs.
• Self-Service DSP. This became a hot commodity briefly. There was plenty of chatter about “trading” similar to a stock exchange environment. Many media planners of old surely cast themselves as the new “mad men” of media.

We all know now that this is just silly. Soon, everyone realized that a slim markup on media is viable only if you have massive scale. The real value is provided by driving outcomes – i.e., layering valuable optimization services on top of the platform.

Data Management Platforms (DMPs). Data drives performance right?  So the reasoning goes like this – if we could value data appropriately, then publishers can be compensated properly for the “true” value of their audience, instead of getting diluted in an ocean of inventory. And so DMPs became the next hot thing for while.  BlueKai and Exelate raised even more money.

Are they still hot? Did the revenues follow? Anyone care to comment on this?  The established data players like Axciom kicked a lot of tires and eventually picked partners or charted their own path.

RTB Changed Supply Dynamics. Massive scale is now available via RTB on exchanges and supply side optimizers (SSP). These are new sales channels for publishers. These channels were and continue to induce bouts of teeth-gnashing and sackcloth-wearing for publishers as they try to figure out how to leverage them without diluting their value.

On the other hand, the traditional ad network has to deal with a new challenge to maintain their captive publisher base. As their publisher based flirted with SSPs and exchanges, networks saw no other option but to take a seat on the exchanges.  They built or partnered to acquire this ability to buy on exchanges. (Congratulations AppNexus – you read this trend well!)

Against that backdrop I thought it would be fun to revisit some of my predictions and throw some bouquets and brickbats at myself. I’ll score them on a scale of 1 to 5 where 1 = “Crack Pipe” and 5 = “Savant.” Just for fun, you may want to revisit your own predictions from last year and score them as well. I will have a glass of wine for all the savants. The crack addicts can join me for a pub crawl.

Prediction #1: Agencies won’t be able to absorb true self-service.

The Thesis: Running display campaigns requires a lot of expertise.  No self-serve DSP provides all of this expertise in a usable fashion for the typical media buyer. It will require human expertise to deliver the outcomes. Agencies do not have this talent and won’t be able to attract this talent.

How it played out: Almost all of the smaller agencies run campaigns with DSPs in “managed service” mode. The DSP typically gets a CPM rate.  Some of the larger holding companies have made significant investments in people to build up internal expertise.

They still use a third-party platform. They still profess independence from any one vendor. And they continue to use up business development cycles in “evaluations” of other DSPs. The media planning groups within these holding companies use the services of the “trading desks” services grudgingly, and continue to RFP externally.

The Score: 3.5. It is too early to call the trading desk experiment a success or a failure.  I would say my prediction is mixed for big agencies, and right on for small agencies!

Prediction #2: The DSP is the next ad network

The Thesis: Building on the predictions that (a) SaaS for agencies will not work out and (b) the change in supply-side dynamics due to exchanges will profoundly impact networks; true value will continue to be delivered by driving desired outcomes for customers. In other words, you make more money by running campaigns well.

This is what an ad network does. (I use the words “ad network” as a placeholder for a marketing services company that runs mainly display campaigns.) If DSPs have to  run campaigns to survive, and networks need the technology of DSP to continue to be relevant, then surely they are one and the same?

How it played out: Lets compare business models.

Demand-Side Platform

• Offers a “managed service” to run campaigns
• May offer a self service backed by managed service
• Pricing is typically CPM, CPC, or CPA
• Client base – agencies and direct advertisers
• Lots of noise about their awesome technology!

“Traditional” ad networks

• The run campaigns – i.e.  – offer a “managed service”
• They are trying to differentiate themselves by offering exclusive inventory
• They build or license technology to buy exchange inventory.
• Pricing is typically CPM, CPC or CPA
• Client base – agencies and direct advertisers

It walks like a duck and quacks like a duck.

So, it must be a duck right? Sort of, except that the duck with a DSP tattoo on its chest is a rocketship!
The common theme here is that both are in the business of delivering outcomes to their customers.  It is just that the inventory situation (supply side) has changed dramatically with exchanges and supply side optimizers.  The demand side has not changed all that much!

The Score – 4.5 Pretty much spot on.

What’s Next?

So what’s next for the evolving DSPs?  Emerging media is a likely wave to ride. Mobile, video, and social media perpetually sit somewhere on the slope of enlightenment. Social is probably the most exciting beach-head that DSPs are now wading into.

With DSP technology in-hand advertisers can quickly build a guaranteed fan base for new products, effectively engage and activate that audience, monetize it and then re-engage in a regular cycle. The DSP platforms with their massive reach and instant scale makes social media activation a solid bet.

Agree? Disagree? Have a visceral reaction? Let the fireworks begin.

Working with data partner eXelate, LucidMedia has been included in their Premier Media Partnership (PMP) program, making it easier for media buyers to purchase data along with their ad inventory in the LucidMedia demand-side platform. Our full on-platform data integration allows for our reporting, insights, brand safety and reach to be applied to the data eXelate provides through the platform.

You can get the full story from AdWeek.

LucidMedia announced two strategic personnel milestones last week which will take the company to the next level as a media platform. We hired Natalie Mazer as Vice President of Optimization to maximize the performance of the LucidMedia demand-side platform. We also announced that Paul Rostkowski, formerly Vice President of Sales, has been promoted to Chief Revenue Officer (CRO).

We sat down with them to discuss the future of both LucidMedia and the digital advertising landscape.

LucidMedia: What do you think is the biggest challenge facing the interactive advertising industry?

Natalie:  The fragmentation of audience across media has been challenging for agencies and their clients. Where once direct-from-publisher inventory was sufficient to achieve performance, web audiences have become increasingly diffuse, particularly with the advent of mobile and video advertising. It takes sophisticated technology to be able to reach the right users at the right time and at the right price.

Paul:  The privacy debate continues to be a hot issue for the digital advertising industry.  Media companies need to support our industry groups in their efforts to educate the public. LucidMedia was one of the first DSPs to offer a real-time network opt-out on our homepage.  We work closely with the industry groups like IAB, NAI and Privacy Choice to ensure we are employing the industry’s best practices when it comes to privacy.

LM:  What problem is LucidMedia solving today with its online advertising management platform?

Natalie:  In a competitive economic climate, advertisers are looking to improve efficiency. With universal frequency capping and a powerful optimization engine, the LucidMedia platform produces goal-driven results within budget.

Paul:  Brand safety is a major concern for brand advertisers. Agencies and advertisers come to us for protection that preemptively identifies unsafe impressions and ensures that ads appear only on pages with appropriate content.

LM: You’ve both been involved in start-ups for years. What is your number one tip for entrepreneurs in the technology sector?

Natalie:  Hire a team with complementary skills and the right attitude. It may be tempting to hire all super-stars, but that strategy is expensive and doesn’t guarantee the creation of a functional corporate culture.

Paul:  Focus on getting your product to market and getting revenue in the door when you’re first starting.  The more you have coming in, the better off you’ll be in the long-run.

LM:  Please discuss the recent partnerships LucidMedia has formed and what impact that has had on the business.

Natalie: Getting all the major data providers on-platform has been a huge step for LucidMedia. Our engineering team has been focused on these efforts for some time and now that’s up and running, the potential is enormous.

Paul:  On-platform video and mobile buying is the next frontier for display advertising.  It has been a real growth area for us and our partners, particularly [mobile advertising network] MobClix and [rich media pioneer] Oggi Finogi.

LM:  What is next in advertising business management? How do you see this evolving in the next two to three years?

Paul:  As the big exchanges and agency holding companies choose their partners, there will be another technical revolution. Right now everyone is focused on building out platforms, but soon the push will shift to integrating those solutions. That’s where a company like LucidMedia, with the combined expertise of eight technology-side experts, will excel.

Natalie:  I agree with Paul. White label solutions are becoming the norm. Platforms that exist with purchased technology, but that don’t have the back-end engineering support will experience difficulties when it comes to complex integrations.

LM:  What major trends do you see affecting LucidMedia the most recently?

Paul:  Agency trading desks have been adopting technology like crazy, trying to keep up with DSPs and all the data providers rolling out user interfaces. In some cases, it may be easier to acquire than to build.

Natalie:  There continues to be confusion surrounding RTB and what it means for online advertising.  Everyone bids in real-time now; it’s how the platform decides what to bid that’s the real differentiator.

Research back in 2006 by Microsoft Advertising (Atlas Solutions) called The Combined Impact of Search and Display Advertising: Why Advertisers Should Measure Across Channels by Esco Strong highlights an often forgotten performance rule in display advertising. That is, combining display advertising with your search campaigns provides a significant conversion rate lift over using search alone (http://www.atlassolutions.com/news_20060721.aspx). A 22% conversion lift in fact. Advertisers need to reach users across many different channels yet most metrics focus on each channel individually through their own optics and miss out on the proven “halo effect” of cross-channels synergies. This is because cross channel synergy was hard to measure until the advent of the unified buying platform.

The combined lift of using display advertising with search

There are a lot of reasons why these two mediums yield a synergistic effect. First, display has been proven as a strong way to drive brand awareness and recall and drive increased purchase intent. Display helps win users over who may still be sitting on the fence about converting after they search for after they are already interested in your brand. Display has also been shown to drive branded searches which is an early step in driving return as users pass through the sales funnel. Users usually visit your site by clicking on a display ad then they come back through search when they are ready to buy, sign up, download, register, or fill out your survey.

The same goes for video and mobile when it comes to cross-channel marketing online. Platforms that facilitate display combined with video and mobile drive an additional synergy as those very same users view a pre-roll ad on YouTube or catch an iPhone interstitial ad inside their favorite free app. This is one big reason that LucidMedia has worked so hard to unify display with mobile and video as well as leverage search data in our campaigns. Reach and frequency were always the original tenants of traditional marketing and they are translating perfectly to the digital realm.

We recently talked John Ebbert, the publisher and managing editor at AdExchanger.com, regarding our big funding news story.  Here are some of the most frequently asked questions.

Q: Please discuss your new round of funding and why you chose MMV.

A:  We had many options available to us in this round but MMV was the ideal funding partner at this stage in our execution plan and capitalization strategy.  MMV is truly dedicated to providing timely and effective growth capital to emerging technology companies like LucidMedia.  They are focused on the North American market and the amount of capital they typically provide ranges from $1.5M to $10.0M which was also a perfect fit for us.

Q: Where do you see the $4.5 million going?  Any critical needs such as “feet on the street”?

A:  We are applying the proceeds from this funding round to expand on our recently launched self-service platform (www.LucidMediaDSP.com) that gives agencies and advertisers more control and enables them to more efficiently manage their display advertising campaigns. The funds are being used to bring additional capabilities to market and to do so sooner so we can better capture the escalating DSP opportunity.  And since we own the full technology stack in our demand-side platform, with the additional funds we are launching new capabilities not as disparate products but as unified new features within our platform.  It allows us to be more nimble and responsive to our advertiser’s requirements.

Q: Are there too many demand-side platforms today and how will LucidMedia differentiate?

A:  There are not really all that many demand-side platforms out there.  Much of the static in the DSP space today is centered around attracting attention in the venture capital circles.  But when it comes to getting in front of an advertiser and demonstrating real capabilities in a real product that you can actually use to deliver value and efficiency, the number of DSPs can be counted on one hand (minus a few fingers).  There are too many companies calling themselves a demand-side platform though.  We have run hundreds of successful campaigns for the majority of Fortune 500 companies out there over the last 18 months that we have been operating as a DSP.  In that time we have proven that several capabilities are unique to what LucidMedia offers.  This includes our proprietary contextual and audience targeting, ability to police a true universal frequency cap (UFC), and real-time assessment (RTA) across all sources.  In addition, our DSP provides dynamic inventory allocation across RTB sources and even premium buys, true preemptive brand safety, and campaign optimization at the page-level.  We also offer custom integrations with all 3rd party data providers, real-time bid (RTB) inventory availability insights by channel, and a server-side cookie store for proprietary audience targeting.

Q:  Anything surprise you about the reported acquisition of Invite Media by Google this week?

A:  No surprises there.  Peter Kafka broke the Google-Invite news a month ago on All Things Digital.  The industry has been holding its collective breath waiting for the big roll up for a long time now.  In March Epic Advertising acquired Connexus Corporation including the Traffic Marketplace and now Google grabs Invite.  This is likely the start of a bigger consolidation in display media.  Our focus is still on executing against the truly exciting opportunities available to us today in the still emerging DSP space.  We believe there is a considerable amount of value to be had here and we are focused squarely on positioning our technology, products, and team as effectively as possible with agencies and advertisers.

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 announced that we have teamed up with Right Media and Yahoo! to contextualize the world’s largest ad exchange. This was no small achievement and has been in testing for scale, robustness and accuracy since May of 2008. But the effort has been well worth it and industry publications like MediaPost, Adotas and ClickZ are recognizing this as a significant milestone within the interactive advertising industry. Even more general media like CNET News and DMNews decided to cover the story. So how does one set out to improve on the world’s largest advertising exchange? And what does it take to integrate with a live exchange currently juggling 50,000 active traders with over 175,000 live creatives in circulation across 6 billion daily transactions? For us it took almost 10 years of active development, testing and versioning to bring our hosted contextual platform–called ClickSense–to fruition. And that was only after cutting our teeth with the likes of AOL Search through their Web Offers program and in some of the world’s largest pharmaceutical organizations, Government agencies, and even other large ad networks. And then there was the accuracy side of the equation that had to be rock solid before it would get the green light. Driving real eCPM lift (and maximum yield) for publishers and at the same time creating significant ROI lift for discerning advertisers means you have to provide real-time, almost instantaneous, categorization that is backed up by tangible proof. This then becomes the data providing mechanism that advertisers need to develop their optimization strategies and publishers need to expose their inventory in the most profitable manner. In the end we got it done and it is working far better than we had ever dreamed it might. So if you are already on the exchange or wondering how this all works, visit our new Right Media section and get started using our contextual targeting today.

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!

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 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, 25 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!