Congratulations to the RightMedia team on the acquisition including our friend and former coworker (twice), Greg Yardley. Clearly Doubleclick’s acquisition helped make this happen now and added more than a few ticks to the price — but RM is a good asset, seems to have some scale and Yahoo’s previous investment in them was always going to make this a likely possible outcome.

So of course no surprise Google is expanding their CPA advertising options and some are saying this spells the end for Valueclick’s CJ business. I did have a few thoughts on the matter, however, and it relates to one of Google’s strengths and one of their weaknesses, and should be interesting to see how it plays out in CPA.

There’s lots of obvious stuff like: for direct response advertisers CPM is easy - the risk burden is squarely on the shoulders of the advertisers who have to be confident about the fit of their product with the audience… BUT, more relevant to Google is how much “running room” they give a CPA campaign to test and see if it’s going to hit a decent eCPM, and to optimize different types of ads alongside one another.

This will severely limit the range of CPAs available– think of it this way: if I want to put together a real CPA campaign where I pay only every time a person closes a mortgage, for example, and I may be willing to pay $2000 for this as a mortgage lender, say. The problem is, how much inventory do I let a publisher run before I say it’s not going to happen? Are there intermediate metrics I’d look at? Would I look at comparable product response or history data? What if there is none? If I’ve effectively run fair-market-value $600 of advertising, and I’ve got lots of clicks, should I keep going…. should I stop at $800 or $1000 of inventory? Or do I run it all the way till I’ve literally spent $2000 worth of inventory, at which point I’m either breakeven or -$2000 in the hole!

Here’s where Google’s strengths in leveraging all that campaign data across thousands of advertisers will come in, which is also a weakness in that they probably won’t tell you how/why they will make the decisions they will (how about a “risk meter” that lets you determine how aggressive you want to be?), and then the strength they have in a diverse mix of B2B and B2C advertisers that will somewhat be limited in the CPA world because of issues like this. I see a lot of very interesting interplays between risk, incentivization by third parties, transparency/opacity and Google will have to face all of these and face the inevitable criticism for doing things one way or the other.

I really agree with some of what Jeetil Patel at Deutsche Bank is saying about the Yahoo! shake up:

Yahoo!’s Lagging Technology: We believe Yahoo!’s myopic focus on protecting its margins has come at the expense of technology investments, as evidenced by 2 consecutive quarters of R&D spending declines (on par with Amazon). In contrast, its competitors continue to aggressively spend on R&D/product innovation as a means of user growth whereas Yahoo! has relied upon media/ads.

In working with Yahoo! on the display ad and search ad side for a number of years, I can definitely say that their client-facing inventory and media management technology is very weak and lagging the market. Even the internal tools their sales and media delivery folks use to interface with clients appear by extension to be clumsy and difficult to use. Like DB, (price target is $24.00 as of this morning’s note) I see the stock falling a little further before it improves. It has really been beaten down, and on a relative basis it’s quite amazing that GOOG is $149bb and YHOO is $36.6bb market cap, but I’m still not seeing the clear way out of the woods they are in just yet…

Usual disclaimers and note: I don’t have any position in Yahoo! stock as of this writing, nor of Google.

I haven’t seen much discussion of this yet, but Yahoo! is now selling a new type of placement that is going to be popular with lead generation companies who are some of its initial test clients. It’s still in “beta”-esque mode but has been offered to big lead generation clients like the education and mortgage guys who can generate a lot of clicks out of this just as they do with homepage placements. Instead of the Yahoo! mail promotions typically at the end of emails, they’re now inserting ads (it appears that it is only happening for people who are NOT on the new Mail beta).

The other thing that’s interesting about this is that it obviously expands the reach of Yahoo! advertising for advertisers from simply Yahoo! users to encompass non-Yahoo! users as well. Obviously for marketers, this is not a targeted vehicle and is really much more about mass reach and it will probably be priced and used as such.

Turn recently launched their hybrid bidded-CPA marketplace/advertising network. I signed up for an “agency account” - and I like their interface so far, very attractive-looking and easy to use compared to a lot of ad-network and affiliate-type systems out there (I won’t mention the names of the biggest offenders just now but you know who you are!).

I’ve yet to get my campaigns live, but am working on getting them up and setup so far has been pretty simple. Implementing tracking pixels is always a pain in the you-know-what, though Turn has a nice little testing console that makes it a lot easier to confirm that the right signal is showing up. Now of course, the real special (secret, as these things usually are) sauce will be the contextual matching and optimization algorithms that determine when and how often my ads are going to turn up. I’m planning to play around with this a bit but would love to hear from people who are testing it out and getting some early results, good or bad.

Despite all the Google-YouTube brouhaha, I’m not convinced we’ve reached the online video tipping point yet. This despite the large number of video-content related sites popping up everywhere, of the addition of “video ads” to ad networks like Google’s adsense, of the flood of digital video content everywhere. Also, we should think about the fact that a lot of the YouTube-esque video content is itself static and non-interactive, basically the equivalent of the Lumiere brothers’ train with a bunch of comments wrapped around it.

Overall the majority of content online is still static, text-based and non-interactive. I recall the client discussions when we were plotting the growth path of broadband access at Jupiter (1999 or so) circled around getting people to realize a major behavior-changing piece about broadband was not the obvious higher bandwidth but really the persistence thereof, no need to dial up thus fewer barriers to jumping online and doing quick tasks. So coming back to my point — it’s all great to have video content up there — but the key is going to the interactivity and context. And I think we’re a long way (and by that I probably mean 2-3 years?) from the inevitable major shifts to a more interactive, real time, immersive web. But it’s coming…

Greg references the Right Media funding announcement (Yahoo! earnings call notes) and talks about their “open and transparent” media marketplace. Though I believe they are doing some really great stuff, It’s not exactly open and transparent… yet.

Here’s the Yahoo! (Semel) quote from the earnings call about the investment:

First, in response to the changing mix of available inventory, we announced today that Yahoo! acquired a 20% stake in Right Media, the largest emerging online advertising exchange for buying and selling ad inventory.

Yahoo! will also join the Right Media exchange and offers advertisers the ability to bid on Yahoo!’s non-premium inventory through the open marketplace. This relationship gives Yahoo! an opportunity to lead and influence the development of this new and innovative marketplace. It makes it easier for marketers to purchase Yahoo! inventory and has the potential to increase yield on non-premium inventory.

Right Media’s exchange right now is more of a time-saving cross-publisher, cross-network automatic bidding and adserving tool (which is already providing plenty of value for a lot of firms out there given where many of them are) - but it is still a ways away from a fully transparent advertising platform. Their current RM model is, however, opaque enough to get the networks and publishers to participate with them. I’ll be really interested to see how Yahoo! works with them since Yahoo’s inventory is not exactly priced in the most transparent or “user friendly” way typically!

But the game here is (seemingly, tell me if I’m wrong) ultimately disintermediation of the many ad networks that don’t add much value other than aggregating a bunch of sites and managing payment risk. Setting aside those players that do have unique targeting capabilities (there’s a lot to discuss on the hows and wheres of this), it’s about allowing a more open forum for price discovery and performance tracking and enhancement; basically right now a mashup of Google’s site-targeting system with Right Media’s exchange platform with an extra three scoops of transparency would be something pretty awesome.

Then layer on top the advanced targeting, cross-publisher optimization etc. etc. and you start to get something VERY VERY interesting and powerful. For Yahoo! this makes perfect sense this is right now their potential answer to Google expanding the site-targeting program (rants and raves I have about this will also appear elsewhere some other time on this blog), and the minority position gives it more breathing room to prove out the model and hopefully, make other publishers happy with how the system works vs. potentially stifling them with the idea that it’s all about Yahoo! But it also opens a few other doors…

As Gary points out referencing the online advertising story in the WSJ this week, premium inventory shortages create more need for technology innovation in optimization and targeting.

It’s about making the other 98% of inventory work better, that’s the big ask.

A lot of the practices going on out there are still surprisingly unsophisticated. Simple behavioral targeting solutions (e.g. Yahoo!’s Fusion Targeting) have been around for a while - and have sometimes been constrained by overly-simplistic models (if user X visits Y part of the site, put them in Y bucket for 2 weeks). On the other end, some supposedly more complex optimization solutions turn out to be augmented by human hands, eyes and ears (no names, but think “adware”). I do, however, feel hopeful we are on the doorstep of a lot of new investment and new technologies to help make online advertising as effective and powerful as we know it should be. Not to mention, less annoying…

I have spent the last three days in New York, at ad:tech NYC 2005 and it has been a mob scene. Article with some comments from the 8,300-plus attendees included what is obvious from wandering the exhibit floor is that it’s “still very direct-marketing focused”. Yes, of course it is: not only has that been the most persistently successful way to think about online advertising but it has also over the past two years in particular generated amazing amounts of cold, hard cash for many of the companies exhibiting at the show. All manner of ad- and affiliate networks, lead-gen, affiliate and tracking technologies and so on were heavily represented.

Many of these companies like Azoogle, Adteractive and Quinstreet are now in the $100 million+ revenue range, and if financial buyers hadn’t started to look at this space more closely yet they certainly are now. Especially when you consider that many of these businesses are a bit too sketchy to make an IPO a high-probability exit. Yesterday, LeadClick Media announced it was selling 75% for $150mm to First Advantage and First American. Obviously they hope to realize some cross-selling synergies probably by combining these leads with additional data about the people submitting them. Kind of interesting - ‘back door behavioral targeting’ using (mostly) offline data as it were instead of the more online-only approach of some existing behavioral targeting companies on the ‘net.

So overall ad:tech has been productive for me and most of the people I chatted with, and the real-money buzz around the industry is also certainly something to be excited about.

John De Mayo’s blog has some observations about the economics of online lead generation, for the mortgage category in particular. For obvious reasons, I will not say whether or not he is in the ballpark, however but if he is, it indicates that this is a lucrative category and based on the number of (especially) LowerMyBills advertisements for mortgages I’m sure you’re seeing out there, not to mention their recent purchase, it had better be!

After receiving another in the endless series of Vonage VOIP advertisements, I did a little searching and stumbled across this post from Bill Burnham about (Vonage CEO) Jeffrey Citron’s high-customer-acquisition cost ways. You may recall he built Datek up, since acquired by Ameritrade. An 18-month breakeven payback for any service is crazy, let alone VOIP in a Skype world.

Motley Fool opinion piece about “the death of affiliate marketing” and perhaps graphical advertising in general. I disagree - and pointing to Doubleclick is a false example since they are a commodity player in the marketplace. What’s holding graphical advertising back is a lack of sophistication (where are the physics PhD’s?) and imagination, and the lack of a true market-maker for online advertising (non-search). Buying and selling graphical ads is still very inefficient and cumbersome; and analyzing and optimizing media buys is in turn made more difficult in the process. Google’s success is owed just as much to the ability they’ve created for firms or individuals to make very small media buys due to their self-service interface. Add to this the fact that bad ads essentially go away (most of the time anyway) on Google and you have a formula for success that could perhaps (but has not yet been) be replicated in the broader graphical-advertising marketplace. We’ll see.

This is one of the widest-ranging, most notable quote pieces I’ve seen in some time about the spyware issue. On the LA Times (think you have to register) website.

I would say, not quite yet — but there is lots of “easy money” that has been made online in the last year or two thanks to some aggressive downloads and a few redirects. Bambi Francisco has a nice story summarizing some of the potential fall-out among publicly traded ‘net firms that could result from an onslaught against spyware and adware companies.

I’m not sure if I buy that 20% of online advertising is being served up by spyware companies ~ I’d want to look a little more closely at that data ~ but it still is an amazing number even if it’s a fifth of that. In addition, CNET who has long offered applications bundled with some of these wares of questionable value is saying it is now banning adware from download.com. I’ve written before about the ridiculous stats where the top 5 downloads would interchange between adware-supported and adware-removing programs.

In their earnings call, eBay’s CFO mentioned that they will be devoting more resources to supporting affiliate marketing. Somewhat of a throwaway comment, but interesting - there are several eBay affiliates who buy completely random keywords in the eBay name on Google. When someone clicks on these advertisements (and perhaps fair to assume that they’re slightly more likely to click on these that they are just organically to visit eBay since it is a well-known online brand) the affiliate that set them up gets credit for the user going to eBay subsequently. I’d be very interested to run an analysis to find out if these users are really incremental to eBay or if they would have come anyway without eBay needing to compensate them. Incrementality of customers is hard to measure from the marketer’s perspective; I just wonder how much of this affiliate activity is really adding value to the consumer especially and eBay as well, or whether it’s all just a really weak form of CPC arbitrage…

Looks like the Fastclick IPO is officially broken, trading around 10.71 at the time I write this. Not a big surprise, unfortunately — the online advertising network model is one that is primarily built upon popunder advertisements. AdvertisementBanners.com (SpecificPop) was a pioneer here and more recently there have been several quite-successful (from a revenue perspective) businesses built upon this. But the big question is, is there anything in these companies beyond the pops reliance (well documented at internetstockblog in their filings as risk factors)? For some of the networks I’ve looked at, pops work quite well and most other things don’t work too well. Unless behavioral advertising can sew together all of the pieces of consumer intent and website inventory in a smart way (and that’s a long hard road), companies like FSTC will have an uphill battle justifying any kind of meaningful valuation. Just my 2 cents.

TravelZoo finally falls back closer to where it should be. Still really overvalued though (213 trailing PE), of course.

I thought this story was amusing, D Squared Solutions will stop using pop up ads out of messenger to advertise their ad blocking software. *sigh*

VibrantMedia has a new-ish product called IntelliTXT that puts advertising onto a page by double-underlining it in green. Some watchers critical of what they call “Thiefware” like Gator, WhenU and eZula’s TopText (a somewhat similar concept) seem to prefer IntelliTXT’s approach. The idea is that the publisher signs up for it, and it goes through and scans a page of content and matches certain key words within the page with advertising opportunities. It then recasts the page with those phrases double-underlined in green. When the user mouses over, it shows a blurb for the ad and when you click obviously it would take you to the relevant Web location.

This is a positive step forward within the evolving contextual advertising marketplace. There are the obvious problems with writers being tempted to write keyword-laced stories to generate maningi money (maningi= a lot) but this is the same issue that needs to be policed in traditional publications where xyz advertisers are told about “a special feature on xyz” but obviously not whether any of the xyz companies will be negatively portrayed in said special feature. I’m interested to see how this develops.