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June 30, 2008

AdSense becomes a content delivery network

family_guy_stewie_2 In a move that I predicted on this blog 18 months ago (ok, really I just called out that a colleague had predicted it, but I shall take my prognostication credits where I can), Google has announced that it's going to be using the AdSense network to distribute new episodes (I suppose you could use that terrible neologism, webisodes) of a web-only cartoon from Seth McFarlane (he of Family Guy fame), called "Seth McFarlane's Cavalcade of Cartoon Comedy".

The new program gives a different spin to the Google Content Network, the name that Google has used up until now to describe the AdSense ad network. Monetization will come from in-stream ads, but also from customized animated ads for brands themselves, presumably infused with MacFarlane's trademark dark/smutty humor.

The New York Times (a member of the Google Content Network) gushes about the new development, describing it as a "a bold step into the distribution business, one that, if successful, will surely send shock waves through the entertainment business". But it has a point - by turning AdSense units into real content (albeit content that is designed to generate clicks), Google is in one sense going into competition with its own AdSense content partners - the thousands of websites which host Google ads, and make money from clicks on those ads.

Any publisher who runs ads on their site has to navigate the fine line between making the site's content successful (which will draw users back in future, and keep them clicking around the site), and making the site's ads successful (which pay the bills, but carry users away from the site). This balance is challenging enough when the ads are obviously ads, but when the ad units start to carry compelling content from people like Seth MacFarlane, it could detract from the site's own content. The short-term payoff for the publisher might be elevated click revenue from these webisodes (perhaps we should call them "adisodes"?), but the long-term effect may be decreased engagement with the site's own content, and dissatisfaction from advertisers that the publisher is working with. Only time will tell.

[By the way, my favorite Family Guy character is Stewie, of course. Is there any other choice?]

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June 20, 2008

Online Advertising Business 101, Part II - How does adserving actually work?

Welcome to the second part of my Online Advertising 101 series. One of the things that I've discovered people fail to appreciate about online advertising is how much goes on behind the scenes in order to bring you an innocuous-looking banner ad. Whilst this is a relatively technical topic to cover in a series which is supposed to deliver insights about how the industry works as a whole, I think it's instructive to consider it because the technical jiggery-pokery that goes on gives rise to many of the issues that define the industry (for example, security and behavioral targeting). So here goes.

 

Back in the olden days...

Once upon a time, when the online advertising industry was in its infancy (all of about 11 years ago), if you wanted to place an ad on a website, you had to call the publisher personally and broker your own deal, and then send the publisher the ad you wanted them to place on their site. The publisher would, essentially, include the ad as part of their site design (example), and, once it was live, users requesting the page(s) where the ad was referenced would see the ad, like any other graphic item on the page:

image

I've shown this basic scenario as four interactions, because the user first requests the page the ad is on, and then the HTML in the page tells the user's browser to fetch the ad, which is also on the publisher's web server.

 

Enter the publisher ad server

It didn't take long for publishers to tire of this arrangement - it meant that whenever the publisher wanted to change an ad, they had to make a change to their live website, which was time consuming and risky. So publishers started to put their ads onto a separate server - the publisher ad server - which would act as a repository for the ads.

image

Over time, publisher ad servers have evolved into sophisticated beasts, providing a wide range of functionality that helps the publisher manage and predict their ad inventory, handle billing to advertisers, and target ads.

But the most fundamental value that an ad server brings for a publisher is the ability to rotate multiple ads through a single ad unit (that is, a slot on a page for an ad). So if a publisher has 100,000 impressions on their home page a day, and they have a banner ad at the top of that page, they can sell 25,000 impressions to each of four advertisers, load the ads into the ad server, and let the ad server do the work of ensuring that each advertiser's ad is shown the right number of times.

Examples of publisher ad servers are DoubleClick's DART for Publishers (DFP), Atlas AdManager, 24/7 RealMedia's OpenAdstream, Yahoo's AMP and Google AdManager. Plus, there are a lot of small players who offer simpler systems which really just handle ad rotation, for small publishers.

In days of yore, all four ads in the above example would be loaded onto the publisher ad server (in fact, this is still the case for premium advertising on very popular sites like MSN.com, partly to enable advertising that is very highly customized for the target site). But this arrangement quickly proved inefficient for advertisers, who would have to send their ads to each publisher they wanted to advertise with; and would then have to re-send those ads when they changed, etc.

In the above model, the advertiser also lacks the ability to track the performance of their ads across multiple publishers, and is completely dependent on the publisher for data on how many times their ads were served (which still remains the primary way of calculating the price of a campaign); and they have no means of changing the delivery rules for a campaign (for example, by increasing the frequency of one ad creative, whilst decreasing another), except by calling the publishers and asking them individually.

 

Enter the advertiser (third-party) ad server

Advertiser ad servers are often referred to as third-party ad servers because the advertiser's ad server is a 'third party' to the ad transaction (the publisher ad server being the 'first party'). I'm going to refer to this server as the advertiser ad server in this post to save you the trouble of trying to remember who is the first and third party in this world.

When the advertiser ad server enters the picture, the ad request is not fulfilled directly by the publisher's ad server. Instead, the publisher ad server responds to the ad request with a redirect, telling the browser to fetch the content it's asked for somewhere else - in this case, the advertiser's ad server.

image

Note in the above diagram that I've removed the original call to the publisher's website; take that as a given. So the publisher ad server receives the ad request, and passes it on to the advertiser ad server.

Advertiser ad servers have also become very sophisticated over the years, but in the context of ad delivery, they perform just a couple of major functions:

  • They manage which actual ad for a given campaign is delivered when an ad is asked for, implementing rules like frequency capping, ad rotation, and targeting
  • They help with managing the actual ad creatives (the GIFs of Flash files) which constitute the ads themselves
  • They track ad delivery across all the sites that are involved in a particular campaign, measuring the number of times ads were served, the number of times they were clicked, and (through instrumentation of the advertiser's site) the number of conversions generated by those clicks.

The benefit to using their own ad server to an advertiser is that they only have to upload their creative to one place, and they can plan and execute a campaign across multiple publishers easily (at least in theory - in practice, it's not that simple, but we'll come back to that point later).

The third-party advertiser ad server market is dominated by a couple of players: Microsoft/Atlas (with Media Console) and Google/DoubleClick (with DART for Advertisers, or DFA). But there is a host of smaller providers, particularly specializing in Rich Media (interactive Flash and Video) ad serving, which also play this role in the ad serving process. And there are a number of ad servers which are really front-ends for ad networks. But I'll cover both of these cases in a future post.

Ironically, one of the things that ad servers tend not to do these days is actually serve the ad - this grunt-work task is usually farmed out to a Content Delivery Network (CDN), such as Akamai, which maintains thousands of servers across the Internet to serve ads (and other content) on behalf of other people, as quickly as possible.So when a CDN is involved, the advertiser ad server simply returns yet another redirect, telling the browser where the content really (really, really) is.

image
 

Sheesh! Why so complicated?

You might still be wondering why there is all this complexity just to serve a single ad. Well, the answer comes when you think about the above pictures when you have a hundred advertisers, and a hundred publishers. The publisher and advertiser ad servers enable the one-to-many relationship that publishers and advertisers need to maintain. Or, put another way:

  • The publisher's ad server helps the publisher manage their inventory across many advertisers
  • The advertiser's ad server helps the advertiser manage their media buying across many publishers

I'm afraid to say, however, that the picture I've painted above represents a fairly simplistic view of the mechanics of ad serving. The picture becomes more complicated when you include ad networks, rich media, tracking & targeting, or ad exchanges in the mix. But you've probably read enough for today, so I'll pick up these topics in subsequent installments.

Feel free to add your comments/questions in the comments box.

Online Advertising Business 101 - Index of all posts

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June 19, 2008

Self-serve outdoor advertising: Signposter

image Outdoor advertising has not exactly been at the cutting edge of innovation in recent years, at least not in terms of broadening access to smaller advertisers. Whilst radio, TV and print advertising has been becoming easier to get into on a limited budget, getting your ad on a 96-sheet on the Cromwell Road has been rather harder.

So I was cheered to learn of a new service in the UK called Signposter which aims to make buying outdoor advertising as easy as buying paid search. Signposter's audience is small businesses who want to runs ad close to where they're based. The Signposter site has a nice little campaign planning tool (using some of our technology, pleasingly), allowing you to find outdoor units of various sizes (bus-sides, telephone boxes, and billboards), and then book space on them. I was quoted a price for a 48-sheet billboard in London of about £800 for a week ($1,600), but the price gets much more competitive for a two or three-week run (because, of course, a big chunk of the price is printing and sticking the poster up onto the billboard).

The other side of the site is an ad creation utility, allowing you to create an ad from a series of templates. I was rather disappointed by this tool, I must say - it's pretty clunky and slow, and seems to offer an unnecessarily limited range of customization options (for example, you can't upload your own artwork for a poster, except for a logo). Compared to amazing tools like Picnik, it seems primitive.

It may be that some of the restrictions are due to the agreements reached between Signposter and the billboard owners not to show offensive content; restricting the choices around images means that ads don't have to be manually approved before they're published (though people can still put in offensive copy).

The image at the top of this post represents my efforts to create an ad, with a cushion-obsessed retail client in mind. Not bad, eh? I could well imagine small retailers using a service like this to stand out from the crowd around Christmas-time.It will be interesting to see how the company fares as Christmas approaches - they're rolling the service out across the UK at the moment (they're in Newcastle, Birmingham and Portsmouth right now). Their success, apart from recruiting advertisers, will come from striking deals with the media owners themselves, and creating a kind of remnant inventory for outdoor advertising.

In the longer term, it will be interesting to see how digital billboards will affect Signposter's business model - there's a danger that someone like Google (or us) will come along and extend an existing ad buying system with digital billboards (or even non-digital ones). I wish them luck.

(Via Steve)

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June 11, 2008

Is Google (or Microsoft) making you stupid?

There's a very interesting article in The Atlantic from Nicholas Carr in which he argues that the information delivery model of the web (and, in particular, the search engine model) is robbing us of our ability to read and digest information, and consequently affecting the very way we think. Whether this turns out to be a good or a bad thing for the human race remains to be seen (unfortunately, there's little chance of us being able to perform an A/B test on a segment of the population), but one paragraph of Nick's article (which, yes, I did read in its entirety, all the while looking at the clock on my computer thinking that I should be getting on with something else), stood out for me (my highlights):

The idea that our minds should operate as high-speed data-processing machines is not only built into the workings of the Internet, it is the network’s reigning business model as well. The faster we surf across the Web—the more links we click and pages we view—the more opportunities Google and other companies gain to collect information about us and to feed us advertisements. Most of the proprietors of the commercial Internet have a financial stake in collecting the crumbs of data we leave behind as we flit from link to link—the more crumbs, the better. The last thing these companies want is to encourage leisurely reading or slow, concentrated thought. It’s in their economic interest to drive us to distraction.

Unfortunately, I feel Mr Carr may have a point here, though as the methods for measuring behavior evolve (for example, by being able to factor in things like time spent looking at a page, rather than just clicks), this incentive may change (online publishers of long-form video, for example, absolutely want the user to sit in front of the same page for 20 minutes). But I don't have time to analyze it further - my inbox is filling up.

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June 03, 2008

Try out Silverlight Streaming, earn money

silverlight_logo_mix You may have heard of Silverlight, our Rich Internet Applications framework - and if you haven't, you're sure to hear more about it this summer, as it'll be used on the NBC site to stream Olympics videos. But you don't have to be NBC to take advantage of Silverlight video streaming - or know anything about Silverlight development.

Our friends over on the Windows Live Dev team have had a hosted Silverlight Streaming service up and running for a little while now. You can upload your own videos (in pretty much any format) and we'll transcode them into streaming format and give you a nice little snippet of HTML that you can include on your own website to embed your streamed video whereever you like. And the quality is waaaaay better than those other guys - even if the content might be of questionable quality.

Why I'm telling you about it now is that we're about to start a trial program where we insert ads into the video stream as overlays, and cut you in on the revenues. All you have to do is add a few keywords each time you upload a video and we'll insert some relevant (and appropriate) advertising into the stream (see an example here - scroll down the page a little). So if you've been struggling to monetize your video content with something like AdSense, now's your chance.

Sign up for Silverlight Streaming itself by clicking here - and if you want to sign up for the ads trial, click here. I'm afraid this trial is only open to US residents with a US Social Security number or tax ID right now; if you don't have one of these, we can't pay you, unfortunately.

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June 02, 2008

Online Advertising Business 101, Part I - The Online Advertising Value Chain

When you spend as much time as I do examining the workings of the online ad industry, it's easy to forget that, to many people, it really is pretty opaque. Not only is it characterized by some of the most complex and scalable technology in the world, but it also has its own, pretty unique, economic model to boot.

I've lost track of the number of times I've been asked by people, even super-smart colleagues from within Microsoft, "so, how does the online ad industry actually work?" So I thought I would attempt to provide a bit of a primer through the medium of this blog. Who knows, maybe someone will read it and offer me a book deal ;-)

In this first installment, I'm going to take a look at what I call the online advertising value chain:

image

This is a simplistic view of the industry, but it does enable us to understand where the key players sit; on the demand side of the value chain, there are advertisers, and their agencies; and on the supply side, publishers, and ad networks (and/or ad exchanges).

 

What's the product?

Before I get onto the content of the boxes in the above diagram, though, we should be clear about what's in the arrows; that is, what's traded in this market? What's the actual product, here?

The answer is advertising inventory. There are no very good definitions of advertising inventory out their on the Internet (Dave Chaffey offers one of the better ones), so I offer my own definition:

Advertising inventory is the supply of opportunities to display advertising in a particular medium.

Most people would use the term "ad impression" instead of "opportunity to display" - the reason I haven't is because I don't like to offer a definition of a term which contains another term that you may need to go and look up. The most common definition of ad impression is this:

An ad impression is a single viewing of a single ad by a single individual.

(Another reason I didn't use it is because it fails to capture the increasing complexity in ad inventory as online advertising evolves. For example, if you're serving video ads, and the user watched half of your 30-second pre-roll ad, was that an ad impression?)

In our value chain above, it's the Publishers who are the creators of advertising inventory. By building websites or software apps or video games or e-mails which are seen by lots of people, and inserting ads into these environments, publishers create a constant stream of ad inventory which, of course, they are looking to sell to advertisers. Agencies and Networks merely help the process along.

Online ad inventory is a very interesting type of good (to use the economics term). It has an incredibly short shelf life (measured in milliseconds as a page loads), but its supply is only indirectly under the control of publishers; external factors (such as a very newsworthy event) can dramatically impact the amount of inventory that a publisher has to offer. As a result, inventory prediction is a major task for publishers; I'll be returning to this topic in a future installment.

Calculating ad inventory

Another useful way of understanding ad inventory is to look at a simple example of how it's calculated. Imagine a pretty straightforward website (this blog, for example), showing pretty simple ads, with no fancy auto-refresh stuff going on (i.e. once a page is loaded, the ads don't change, so for each page impression, you get one batch of ads). How much ad inventory is created?

The answer to this is dependent on two variables - the number of page impressions on the site, and the average number of ads per page. So, for example, if my blog generated a million page impressions per month (I wish), and had an average of 5 ads per page, then the total ad inventory (if you're just using a simple ad impression model) is 5 x 1m = 5m ad impressions per month.

 

The Players

Now that we understand what's being traded, let's take a brief look at the major players in the value chain, and then I'll let you get back to whatever it was you were doing before you started reading this post.

 

The Publisher

02_first_book We've already covered this guy. He's the one with the site, or the game, or the mobile portal, who is creating ad inventory and wants to sell it to advertisers to provide income for his business. Publishers are interested in maximizing revenues, but also at minimizing risk - they hate to have unsold inventory (that is, ad space with no ads in it) so they employ a number of tactics to ensure that at least something gets shown in an ad unit that they can get a little money for.

Larger publishers have their own sales teams who maintain direct relationships with advertisers and their agencies, cutting deals for big blocks of advertising inventory over expensive lunches in chic Greenwich Village restaurants. But this model only works for big publishers selling to big advertisers. Small publishers can't afford to maintain their own sales force, and even if they did, they'd never get through the doors of Ford, or CapitalOne, because they don't have enough inventory to be of interest on their own account. So these guys sell their ad inventory through Ad Networks.

One other kind of publisher it's worth calling out here is the search engine - i.e. Google, Yahoo and Microsoft. These search engines are the creators of huge amounts of ad inventory that is sold directly to advertisers and agencies, as well as running significant ad networks (see below).

 

The Ad Network

salesman Ad Networks are essentially outsourced sales houses for publisher inventory. An ad network strikes deals with lots of publishers for their inventory and then aggregates this inventory and sells it on to advertisers and agencies. There are over 300 ad networks in existence today - a breathtakingly large number which is sure to fall soon.

An ad network's value proposition to publishers is that it can sell inventory that the publisher can't sell itself - either because the publisher is small (and so doesn't have its own sales force), or, in the case of larger publishers, the inventory is of too low-value to merit direct selling. This kind of inventory is called remnant inventory.

The network's value to an advertiser is that the advertiser can appear on lots of sites across the Internet (potentially thousands) without having to establish direct relationships with those publishers individually.

At bottom, the Ad Network business model is to buy inventory cheaply and sell it on at a higher price. There are a variety of ways of doing this, some of which I've covered before. One of the most promising is to add value to the ad inventory by adding targeting data (so that the impression can be sold for a higher price). I'll cover this in a future installment.

Networks come in all shapes and sizes. There are 'premium' networks which work with remnant inventory for large publishers; there are vertical networks which focus on a particular industry or technology (such as video); and, at the bottom end, there are contextual networks which provide an auction-based marketplace for selling keyword-based ads on small sites. You may have heard of the #1 network in this space - it's called Google AdSense.

 

The Advertiser

coke_ad_1 Advertisers also come in all shapes and sizes, of course. The big name advertisers - the folk we've all heard of - will have significant internal marketing departments, and will also likely retain the services of an agency to help them manage their marketing. Their marketing objectives will likely be a mix of brand marketing (raising general awareness) and direct response marketing (getting someone to actually buy something online now).

Smaller online advertisers are almost always focused on direct-response - getting someone to click and buy, or possibly call up. By and large, these folk can't afford to retain an agency to do their marketing for them, so they tend to go straight to certain ad networks or publishers to buy their ads. Again, the #1 in this space is our friend Google, with AdWords (the advertiser-facing side of the AdSense network).

Advertisers are motivated by getting the best ROI on their ad investment; but amongst larger advertisers some other curious motivations creep in, like wanting to make sure that a committed ad budget for a quarter actually gets spent (so that budget isn't cut the following quarter). This drives the behavior of ad agencies, to an extent.

 

The Agency

1 Last but by no means least, the media agency is an essential intermediary in the advertising value chain. Ad agencies usually do one of two things (or both, such as is the case with our own Avenue A|Razorfish): they create ads (anything from designing an animated banner to filming a 30-second TV ad) - known as the creative business - and they buy the media (i.e. the ad inventory) to display the ads (known as the media business). Whilst the creative side is cooler, the part of ad agencies that is relevant here is the media business.

A media agency, then, is one that buys media on behalf of its advertiser client. The advertiser typically says "I have x million dollars this quarter for online, and this campaign I want to run. Buy me the best media to reach my target audience". It's then the media agency's job to plan a media buy that will deliver the best return for the advertiser.

At the small-business end of the spectrum, the 'media agency' morphs into small SEM (Search Engine Marketing) shops who are good at buying Google AdWords, and maybe have some SEO (Search Engine Optimization) skills to boot to boost a company's natural search rankings.

Media agencies' motivation is driven by getting as much media under their control as possible, since they're paid (particularly at the high-end) with a cut (usually something like 15%) of the advertiser's media budget. They also don't want to under-spend on the budget they've been given, as this can annoy their client (see above).

Media buying is a manual, labor-intensive process right now, and one I'll come back to. Improvements to technology will mean that agencies (especially larger ones) will have to do some pretty fancy footwork to continue to add value for their advertiser clients.

 

That's it for now. in future installments, I shall be looking at the key players in a bit more detail, and looking at some of the interesting economics which underpin the industry. In the meantime, if you have a comment, or something you'd like me to cover, leave a comment.

[Update 6/3/08: A little more info on Ad Networks added]

Online Advertising Business 101 - Index of all posts

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