Lies, Damned Lies...

Should Wikipedia accept advertising?

It’s that time of year again. The nights are drawing in, snow is starting to fall in the mountains, our minds turn to thoughts of turkey and Christmas pudding, and familiar faces appear: Santa, Len and Bruno, and of course, Jimmy Wales.

If you are a user of Wikipedia (which, if you’re a user of the Internet, you almost certainly are), you’ll likely be familiar with Jimmy Wales, the founder of Wikipedia and head of the Wikimedia Foundation, the non-profit which runs the site. Each year Jimmy personally fronts a campaign to raise funds to cover the cost of running Wikipedia, which this year will amount to around $29m.

The most visible part of this campaign is the giant banner featuring Jimmy Wales’s face which appears at the top of every Wikipedia article at this time of year. This year the banner has caused some hilarity as the position of the picture of Jimmy just above the article title has provided endless comic potential (as above), but every year it becomes increasingly wearisome to have Jimmy’s mug staring out at you for around three months. Would it not be easier for all concerned if Wikipedia just carried some advertising?

Jimmy has gone on record as saying that he doesn’t believe that Wikipedia should be funded by advertising, and I understand his position. To parse/interpret his concerns, I believe he’s worried about the following:

• Accepting advertising would compromise Wikipedia’s editorial independence from commercial interests
• Ads would interfere with the user experience of Wikipedia and be intrusive
• Wikipedia contributors would not want to contribute for free to Wikipedia if they knew it was accepting advertising

I’m biased, of course, since I work for Microsoft Advertising, but I believe that each of these concerns is manageable. Let’s take them one by one:

Concern 1: Ads would compromise Wikipedia’s independence

There are plenty of historical examples where a publication has been put in a difficult position when deciding what to publish because of relationships with large advertisers. Wikipedia certainly doesn’t want, for example, Nike complaining about the content of its Wikipedia entry. And the idea of Wikipedia starting to employ sales reps to hawk its inventory is a decidedly unedifying one.

But Wikipedia does not have to engage in direct sales, or even non-blind selling, to reach its financial goals with advertising. The site could make its inventory available on a blind ad network (or ideally multiple networks) so that it would be impossible for an advertiser to specifically buy ad space on Wikipedia. If an advertiser didn’t like their ads appearing on Wikipedia, most networks offer a site-specific opt out, but the overall impact of this to Wikipedia would be minimal – Wikipedia carries such a vast range of content that it has the most highly diversified content portfolio in the world – no single advertiser could exert any real leverage over it.

Concern 2: Ads would make Wikipedia suck

As has been noted elsewhere, there are plenty of horrible ads at large in the Internet – intrusive pop-ups, or horrible creative. It would certainly be a valid concern that Wikipedia would suddenly become loaded with distracting commercial messages. But according to the back-of-an-envelope calculations I’ve done, there is no need for Wikipedia to saturate itself with ads in order to pay the bills.

According to the excellent stats.wikimedia.org site, Wikipedia served almost exactly 15bn page views world-wide in October 2011 (around half of which were in English). Assuming no growth in that figure over 12 months, that’s around 180bn PVs per year. So to meet its funding requirements, Wikipedia would need to generate a $0.16 eCPM on those page views (assuming just one ad unit per page). That’s a pretty modest rate, especially on a site with as much rich content as Wikipedia. It would give the site a number of options in terms of ad placement strategy, such as:

• Place a very low-impact, small text ad on every page
• Place a somewhat larger/more impactful ad on a percentage of pages on a rotation, and leave other pages ad free
• Place ads on certain types of pages, leaving others always ad free (such as pages about people or companies, or pages in a particular language/geo)
• Deploy a mix of units across different types of page, or in rotation

This also assumes that Wikimedia needs to raise all its funds every year from advertising, which it may not need to – though once the site accepted advertising, it would definitely become more difficult (though perhaps not impossible) to raise donations.

To preserve the user experience, I would definitely recommend just running text ads, which could be placed relatively unobtrusively. Sites running text-based contextual ads (such as those from Google AdSense or Microsoft adCenter) can usually expect to get at least around $0.30 eCPM, so there would be some headroom.

I would also recommend that Wikipedia not run targeted ads – or at least, only work with networks that do not sell user data to third parties. It could cause significant backlash if it became felt that Wikipedia was effectively selling data about its users’ browsing habits to advertisers for a fast buck.

Concern 3: Ads would make contributors flee

I can speak to this concern less authoritatively, since I am not that familiar with the world of Wikipedia contribution, but so long as Wikimedia made it clear that it was remaining a non-profit organization, and continued to operate in a thrifty fashion to cover its costs, the initial outrage of Wikipedia contributors could be managed. After all, plenty of other open-source projects that rely on unpaid contributors do provide the foundations for commercial activities, Linux being the best example.

In any case, in its deliberations about balancing the needs of its contributors with its need to pay the bills, Wikimedia will need to face some hard questions: Will it always be able to cover its costs through donations? Does the current level of investment in infrastructure represent an acceptable level of risk for a site that serves so many users? Is it acceptable to rely on unpaid contributors indefinitely? If Wikipedia ran out of cash or went down altogether, the righteous indignation of its contributors may not count for very much.

Apart from advertising and donations, the only other way that Wikipedia could pay the bills would be by creating paid-for services – for example, a research service. But would the unpaid Wikipedia contributors really be happier with this outcome than with advertising? It would effectively amount to selling the content that they’d authored for free. At least with advertising, it’s the user that is the product, not the content. So long as Wikipedia can maintain editorial independence and retain a good user experience, advertising feels like the better option to me.

Does Display help Search? Or does Search help Display?

One of the topics that we didn’t get quite enough time to cover in detail in my face-off with Avinash Kaushik at last week’s eMetrics Summit (of which more in another post) was the thorny issue of conversion attribution. When I asked Avinash about it, he made the sensible point that trying to correctly “attribute” a conversion to a mix of the interactions that preceded it ends up being a very subjective process, and that adopting a more experimental approach – tweaking aspects of a campaign and seeing which tweaks result in higher conversion rates – is more sound.

I asked the question in part because conversion attribution is conspicuously absent from Google Analytics – a fact which raises an interesting question about whether it’s in Google’s interest to include a feature like this, since it may stand to lose more than it gains by doing so (since the effective ROI of search will almost certainly go down when other channels are mixed into an attribution model).

Our own Atlas Institute is quite vocal on this topic, and has published a number of white papers such as this one [PDF] about the consideration/conversion funnel, and this one [PDF], on which channels are winners and losers in the new world of Engagement Mapping (our term for multi-channel conversion attribution).

The Atlas Institute has also opined about how adding display to a search campaign can raise the effectiveness of that campaign by 22% compared to search alone – in other words, how display helps search to be better.

However, a recent study from iProspect throws some new light on this discussion. The study – a survey of 1,575 web consumers – attempted to discover how people respond to display advertising. And one of the most interesting findings from the study is that, whilst 31% of users claim to have clicked on a display ad in the last 6 months, almost as many – 27% – claimed that they responded to the ad by searching for that product or brand:

This raises the interesting idea that search can actually help display be better, by providing a response mechanism that differs from the traditional ad click behavior that we expect. Of course, this still doesn’t mean that search should get 100% of the credit for a conversion in this kind of scenario – in fact, it makes a stronger case for “view-through” attribution of display campaigns – something that ad networks (like, er, our own Microsoft Media Network) are keen to encourage people to do, to make performance-based campaigns look better.

All this really means that, of course, it’s not a case of display vs. search, but display and search (and a whole lot of other ways of reaching consumers). Whether you take the view that it’s your display campaign that helps your search to be more effective, or your search keywords that help your display campaign to drive more response, multi-channel online marketing – and the complexity that goes with measuring it – looks set for the big time. And by “big time”, I mean the army of small advertisers currently using systems like Google’s AdWords, or our own adCenter. So maybe we’ll see multi-channel conversion attribution in Google Analytics before long.

Self-serve outdoor advertising: Signposter

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)

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.

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:

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

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

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

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

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

Advertising on the BBC

As anyone who has spent any time in the UK will know, the BBC is a safe haven from that most grubby of industries, advertising. It's enshrined in the BBC's charter. But the BBC's ban on advertising only applies to the UK (where anyone who owns a TV has to pay a $300 licence fee every year, which funds the BBC). Here in the US, the BBC is free to licence its programmes to commercial stations, and also runs BBC America, which carries ads.

But now, following a recent site redesign, some pretty substantial ads can be seen on the BBC homepage itself - at least, if you're outside the UK:

The BBC is within its rights to do this, of course, but it does raise some interesting questions. The content on the BBC website is created using licence fee payers' money, a distortion of the UK news website market which has been controversial for as long as the site's existed (the excellent BBC News site competes with the likes of the Guardian, Times, Independent and so on in the UK).

With the traditional newspaper publishers (and commercial TV stations, to a lesser extent) starting to really feel the pinch of the Internet (with advertising budgets fleeing to Google and other places), sites like The Guardian's are making efforts to expand overseas in an attempt to tap into the US advertising market. So the BBC's entry into these markets has not been greeted with much enthusiasm.

As a Brit, I have a huge soft spot for the BBC; the licence fee has subsidized some great TV that wouldn't have otherwise been made; but I wonder how long its its funding mechanism can continue, as TV and online increasingly merge together, and national boundaries for content consumption are blurred. At the very least, it seems hypocritical to me that I am subsidizing the BBC through being served ads on the one hand, yet unable to watch any of the video content delivered through the iPlayer (the BBC's catch-up service) on the other, because I'm outside the UK.

The rise of navigational search

There's a very interesting post by Robin Goad over on the Hitwise blog about the change in distribution of search terms on search engines. As more and more people are searching online, two things are happening to the range of search terms, one intuitively obvious, the other somewhat counter-intuitive.

The obvious change is that the total number of different search terms used is going up. If you think of the distribution of search terms as a head/tail curve, this means that the tail is getting longer. The non-obvious change is that the number of terms that make up the top 5, 10 or 20% of all searches (i.e. the most popular terms, or the "head") is going down.

Robin's charts are a little tough to parse, so I've taken a crack at simplifying them a little. Firstly, the chart below shows the change in breadth of search terms in the top 5%, 10% and 20% of search traffic. I've normalized the vertical axis (2005 = 100) to highlight the proportional change. You can see that in the top 5% group, the overall number of search terms fallen by over 80%.

This implies that a few very popular search terms are really starting to dominate the traffic. Robin goes a stage further and separates out "navigational" search terms, to produce the following chart. Here the drop-off in diversity is even more marked (note that the buckets in the chart below are different to those in the one above), with an average drop-off of around 80% even up to the 10% point.

What do we mean by navigational search? Searches for sites by their own name; for example, people trying to find the British Airways site by searching on "British Airways".

What this data tells us is that these brand or navigational search terms are starting to crowd the top of the leaderboard for searches, with people using them as proxies for remembering the URL of the site itself.

The reason this is interesting to online marketers is that sites are increasingly having to pay attention to these search terms - and some sites are choosing to buy their own company name as paid search to ensure that visitors click through to their site when they search on their company name. Look again at the search results (linked above) for "British Airways". The first sponsored results is... an ad for British Airways, despite the fact that BA's site is first in the Organic results, just a couple of lines down.

Apart from the fact that having to do this is likely costing BA a fair amount of money (which they could instead be spending on me when I fly to London at the weekend), it's likely to skew BA's picture of how their online marketing mix is really working for them. A lot of users who have been researching online (especially for something like flights) will use a navigational search term to return to the site where they've decided to purchase. Because most analytics tools use a "last-click" attribution model for conversions, BA's reporting on marketing effectiveness is likely to overstate the relative importance of those keywords, when it may really have been other keywords (or other kinds of marketing altogether, such as e-mail) which drove the visitor to the site in the first place.

So what are brand owners to do in this situation? They don't want to drop their navigational search keyword campaigns because they'll lose clicks and business, but on the other hand, buying navigational terms seems like a bit of a tax for these kind of sites, and distorts the numbers. Part of the answer lies in the rules the search engines impose about bidding on other companies' brand names (though this has caused all sorts of misery with Live Search and adCenter), but the true answer lies in a smarter attribution model for the sites involved.

In addition, sites should group branded or navigational search into a separate bucket, and take conversions that are attributed to those terms with a pinch of salt. I would even recommend that these conversions be not included when calculating the overall ROI of paid search, and instead be thought of as part of the cost of more brand-focused marketing activities such as TV. What do you think?

Hulu hullabaloo

I've just received my invite into the Hulu private beta. For those of you who don't know what Hulu is, it's the joint venture between NBC Universal and News Corp to provide streaming episodes from the NBC and FOX networks (including the likes of The Office, Heroes, The Simpsons and so on) as well as clips and full-length movies on the Internet. NBC and NewsCorp would clealy like Hulu to become known as the "iTunes killer" (and possibly a Joost killer); Google, however, seems not that scared about the competition to YouTube, at least if its internal nickname for Hulu - "Clown Co" - is anything to go by.

Hulu is an interesting attempt by the networks involved to retain control of the distribution of their content (and hence 100% of the advertising take). So my principal interest in getting access to Hulu is to take a look at how they're monetizing the content - i.e. what ads are they showing, and how? They gotta pay for this thing somehow.

At least at the beta stage, the service seems very light on ads. The main player screen has only one small ad unit on it:

So most of the ad units are in-stream at this stage, it would seem. You're alerted at the beginning of a clip or episode that the episode "is brought to you with limited commercial interruption by...":

The ads themselves are (at present) 15-second slots. The dots on the progress bar (I think) show the ad positions - they also allow you to jump to a particular point in the episode. Here's an ad:

So far, the most striking thing about the ads is how terribly they're inserted into the video stream. They seem to come just a few seconds before  they should, cutting right into the dialog. I'm sure this is a teething problem, but it does raise the question of how well Hulu is going to monetize using this method, because if they're only going to go for single 15 or 30-second slots, they're going to need to insert quite a few per stream, and inserting them is going to be a challenge. Will it be automatic (in which case they'll surely cut across the dialog and spoil the viewer's experience)? Or will they employ people to place the ads manually (which is ok for the network content they're going to show, but not ok for the user-generated content they also claim they will make available).

At present, no other ad formats seem to be in place - no overlays, or contextual units alongside the video. I hope that Hulu is thinking about innovative ways to serve ads alongside this content, because otherwise they just won't make enough money off this service to make it worthwhile. And the need to compete with free(/illegal) fileshare sites just makes it more important to monetize cleverly. I guess maybe they're trying to attract a user base for the content at this stage, and then start to test monetization methods on them. That's probably how I'd do it.

Other thoughts on the service? Video streaming quality is good, but there's lots of jumping, and I couldn't view the video full-screen. The connection I was using whilst writing this was my corporate network, so that may be the reason. On the upside, the player itself is quite nice, with a nice feature to resume playing a clip where you left off, even if you navigate away from the clip and the site and return later. And there are some rudimentary social features, such as the ability to comment on/rate a clip.

Hulu also need to pay more attention to their beta invite process - they're currently accepting beta requests from people outside of the US, where the content can't be played. So they've got a lot of unnecessary griping going on in their comments, which they could easily have avoided.

So overall, a 6/10 for Hulu, from the perspective of someone in the ad industry. We'll see how it goes for them - they're certainly going to have a fight on their hands.

Welcome to the world of Microsoft APS

So, last Monday was a big day for me, and for a few thousand of my colleagues at Microsoft and aQuantive - we closed the aQuantive acquisition that we originally announced in May. Those of you who like to track every iteration of Microsoft's ever-changing organizational structure may already have read that we've created a new organization within the "Platform and Services Division" that is headed by Kevin Johnson, called the "Advertiser and Publisher Solutions Group" (or APS, as we acronym-heads are already calling it). APS will be headed by Brian McAndrews, former CEO of aQuantive and will provide ad buying and selling solutions for advertisers and publishers (hence the imaginative name).

So far, so "so what?" But actually the creation of APS is highly significant for Microsoft's online business - I'd go as far as to say it's the most significant development since the creation of MSN back in 1995 (or perhaps more accurately the creation of MSN.com in 1999, which heralded the start of Microsoft's foray into selling online advertising).

Why? Because up until now Microsoft's online business model has been as a "first-party" seller of ads.

Publish and be damned

MSN and Live.com are essentially just big publisher sites (or media networks, to use the fancy term), and the day-to-day business of making money from them has been a case of creating advertising opportunities (everything from banners on the MSN.com home page to ad spots within the MSN Messenger window) and selling this ad space to advertisers, either directly or through agencies or networks.

Sure, Microsoft is one of the most sophisticated media networks out there, with a full-fledged search engine and a whole suite of tools to sell, buy and place ads on our network, but we've always been limited (with some minor exceptions) to selling inventory from our own network. And how do you grow a first-party ad business? Well, you have to grow your audience, or you have to grow the amount they use your stuff (since the more often they come back to your site, the more times you can show them ads). We've been doing pretty well in both these areas, but big online portals are one of the more mature areas of the Internet, and the other guys have been providing some fairly robust competition in the area of search.

From first-party to third-party

So over the past year or so, we've been embarking on a different strategy; or, at least, a complementary one. We've been cutting deals with Facebook and Digg to serve ads onto their pages; we've been working on a contextual ad platform that will allow third-party publishers to monetize their content, and we've been acquiring companies like Massive (which sells ads inside video games) and adECN (an online ad exchange).

What all of these have in common is that they help us to sell ads on third-party sites, not just on our own sites. The aQuantive acquisition fits right into this strategy.

aQuantive's business is all third-party - they help advertisers to buy advertising, and they help publishers to sell ad space. The money's made in fees for providing those services. So they really understand this business, especially the third-party publisher part, where we have less experience.

Brian, meet Steve; Steve, Brian.

So the way to think about APS is as a third-party ad business within Microsoft. We already have a long list of advertiser clients, and a long list of publishers and ad networks (define), of whom one (albeit a really, really big one) is Steve Berkowitz's Online Services Business - that is, MSN and Live.com. With the creation of APS, Steve's charter just got simpler: his job is to generate the maximum revenue he can from the MSN and Live properties. He's running a media business.

Brian's job, on the other hand, is to buy and sell the most ads he can for the best price he can, by connecting various buyers and sellers of these ads. And to do this, he needs a great suite of products to help advertisers compose and upload ads, find the best places online to show those ads, decide on what price to pay, and understand how those ads are performing; whilst for publishers, we need products to help them make their ad inventory available to buy, decide on what price to charge, structure their inventory so they sell the most of it they can, and understand how their inventory is performing (i.e. how many ad clicks they're getting).

Plenty of technology, in other words, for a died-in-the-wool geek like me to sink his teeth into. And did you notice how measurement is present on both sides of the equation? Measurement (and its glamorous younger sister, optimization) is the bread and butter of the online ad business. So the next couple of years should be fun...

Yahoo launches SmartAds

Yahoo has put a funky name to their targeted ads service - SmartAds, and has added some extra juice. Yahoo's been strong in demographic and behavioral targeting for some time - they have a significant team working on it - but SmartAds is new for a couple of reasons:

• It allows targeted ad delivery based on in-session activity (i.e. what the user just clicked on)
• It allows ad creative to be dynamically composed based upon the targeting information available

At the moment the service is being tested by a couple of airlines in the travel sector. The idea is that if, for example, a male is browsing the Yahoo network looking at information about Vegas, a profile-specific ad will appear, say, offering flights to Vegas from his city for $99 (see this demo). The ad copy and the offer can be dynamically varied, essentially offering a very large number of creative variations for different audience segments.

Obviously, varying the creative dynamically requires that the variants be created by the advertiser (or their agency); and if offers are to be varied, then the advertiser's site will have to honor those offers, which also implies a degree of sophistication on the part of the advertiser. So it will be interesting to see how far down Yahoo's advertiser tail these kinds of capabilities penetrate. I can see dynamic composition of text ads being something that even smaller advertisers could handle. And perhaps Yahoo Stores will add functionality to carry through any custom offers to the advertiser's site.