Advertising Online, Reactionary with Insight

About Me

ari@arikaufman.com (Ari Kaufman) — 2011-12-18T05:50:10Z

Ari Kaufman is an accomplished start-up, turn-around and early-stage growth company leader. As a founder of Zacks.com he pioneered the online advertising industry with the explosive growth of the first fully ad-supported web site in 1996. In 2000 he drove World Investor Link to IPO on the London Stock Exchange as Chief Strategy Officer. He later founded interactive lead-gen advertising firm ThinkAcquisition and sold it in 2003. In 2005 he joined forces with the new founders of the restart of MatchLogic and introduced first-party display ad-serving to the industry. Following MatchLogic he served as General Manager for LookSmart where he managed the CPC text ad network and platform that processed over $250M in revenue including ASK.com and other major ad networks. As the President of LocationInsight, Ari is now driving the vision for leveraging technology to optimize locations and capture local search market share for many of the world's most recognized brands. LocationInsight applies technology and process automation to local search marketing for advertisers and agencies with many physical locations. His focus and leadership is committed to the growing the company and emerging as the source of location-based solutions that drive local online organic search traffic and expand web site and mobile usage for online advertisers with many physical locations.

Is the Social Graph larger than life or just larger than Google?

ari@arikaufman.com (Ari Kaufman) — 2010-06-15T14:21:00Z

What does Facebook’s social graph really mean? Single sign-on through a Facebook login, anywhere you go online, means simple access for the user and access to likeminded associated content with networked friends. It means no longer having to keep track of multiple usernames and passwords but rather having a single login that is web-wide. It means having a single web-wallet for processing transactions. For the user it is all about simplifying the web. Whew – it’s about time.

To Facebook it means control over the single most coveted thing that any advertiser – or publisher that hosts advertising could seek…identity. For years we have talked about PII (personal identifiable information) and the separation of church and state in online advertising. Advertisers are not allowed to have click-stream data that ties to PII. But when users agree to adopt Facebook Connect they are agreeing to let Facebook serve as the single sign-on solution for all of their accesses to all of the web sites that they visit (which participate in Facebook Connect). Facebook Connect blurs the line of PII and separation of church and state. If Facebook already knows who you are and tracks the click stream data on Facebook – and now you credential them to do the same web-wide – they have been handed the holy grail. Facebook now has access to everything you do on the web while knowing who you are and how to target you based on your demographic, psychographic and behavioral tendencies.

So what is Open Graph? Well if Facebook kept all of this wonderful knowledge for themselves people would be screaming just like they do big brother at Google. But Facebook is making the information available to all of the Facebook Connect partners so that all publishers who participate can access the profile characteristics of a user and adapt their content targeting according to that user’s profile in real time. Facebook will make the entire web more relevant to user while making advertising more relevant at the same time.

Today, Facebook is responsible for 52% of the traffic online. More than Google. Google is the largest search engine, but Facebook is the biggest site. With Open Graph, Facebook will claim orders of magnitude with regard to reach as they will now manage to touch their 420 M users web-wide and not just on Facebook.

So is Facebook Connect a good thing? It will make our experience better in many ways. Single sign on will be positive. Facebook wallets will make purchasing easier. Content and advertising targeting that has heightened relevance is always better if not overly intrusive. So if we get over the stigma of PII infiltration and the rhetoric, it all serves us well. But when you think about Facebook being so much bigger, stronger and more influential over the web than Google is today you have to get a short sharp chill down your back.

The Mobile Video Ad Serving Frontier

ari@arikaufman.com (Ari Kaufman) — 2009-11-17T23:33:00Z

Mobile advertising technologies are swimming in an incredibly fragmented space right now in terms of streaming content and integrating paid advertising. Mobile is the wild-wild west of online advertising right now. It is the final frontier of video, which is arguably out there today already.

While we scramble to figure out which cell phone we want to carry – the iphone or something that comes close to it – people with content are racing to figure out how to get it to you while making a buck doing it. We know it comes down to either a subscription model or an advertising model, and the latter is the most likely path.

Hulu is proving that free online video content can be successfully integrated with pre-roll and mid-stream video advertisements provided that they are short, limited and engaging. The successfully growth in popularity of Hulu is a testament for what is possible on mobile phones with video. So the race is on.

Ready to watch an episode of House on your iphone? Willing to watch an ad to? Willing to click on something that the ad has to offer if it is relevant, opens a new window and doesn’t make you lose your place or connection to the episode? Then you have your potentially successful mobile video ad serving model.

Branding campaigns and direct response will both flourish on this medium. Think click-to-purchase or, even better, click-to-call campaigns right in the middle of that Fringe or Grey’s Anatomy finale. Sounds like an interruption? What if the offer is for a buy-one-get-one large pepperoni pizza from your local domino’s, promising delivery in under 30 minutes – before the show ends? You might just click-to-call….

So who are the players?

Rhythm New Media seems to be the leader so far. They have taken the application plus API model. They boast 60 content providers and offer an ad network model whereby they are also selling the advertising across their publisher’s distribution. There is a lot of capital behind this revving engine but they don’t seem to be getting exclusivity from the big distribution sources. It may be more representative of what will look like the multiple ad networks coexisting approach.

Transpera is the runner-up, taking the end-to-end mobile ad server model. Their solution is streaming the content with fully-stitched advertisements embedded within. Their distribution is application agnostic, requiring minimal integration and they conduct a complete ad sales effort similar to Rhythm. They are securing exclusive relationships with the major distribution sources and have a high sell-thru on their ad network model.

Kiptronic – now Limelight – is integrated with a traditional online ad server model, DART. They are approaching the market from the lowest-common-denominator perspective insomuch that if a content provider already has full integration with DART, work with the system that is in place. This may or may not prove to be clunky in the end. Too soon to tell.

Internationally, and you can’t ignore it, there are several players. Remember that the international mobile platforms far exceed the US capabilities insomuch that China is using broadband HD video now and Japan is doing scan-debit from mobile. German-based Adtech’s Helios IQ has launched an end-to-end mobile ad server in Europe and in South Africa that has parity to integrate with Platform A in the future (Adtech is the original technology purchased by AOL).

But wait, and of course, Google has entered the landscape with a meager $750 million purchase of AdMob. So now the race is on. Admob is a slightly different spin on the approach to the other’s named above, however, when you look at Google’s current mobile strategy you can assume several of the following things:

1. The AdSense and Doubleclick top-100s will become open opportunities for AdMob

2. AdMob will eventually be fully integration with DFP and DFA

3. There will eventually be check-box execution on AdMob network for AdSense advertisers

At the same time, you can also imagine that there will be a huge anti-Goliath mentality amongst major publishers for at least a honeymoon period of time – allowing the aforementioned players an opportunity to get their feet in the door and give it their best shot. Time will tell over the long run of course. But in the end there is one dominant display ad server with the most number of integrated video ad server APIs. We’ll see what happens in mobile.

Three cheers for the new frontier!

Direct Response is upon us. Live with it and ‘Fill a Need’

ari@arikaufman.com (Ari Kaufman) — 2009-07-15T20:44:00Z

So how hard has the recession hit online advertising? The growth of the industry has grinded to a crawl in comparison to almost every consecutive year going back to 1996. Some say 3%, some say 6% and some even say 0%. But not all sectors match this trend. Search is projected to push a 15% growth in 2009. In general, affiliate and lead-gen spending is also expected to continue to grow at a similar pace. Yes, the recession is impacting spend levels this year, but it is how advertisers are spending their dollars that is really what has changed.

Advertisers are changing the paradigm of online advertising as we know it. Direct response is leading the trend as the pony to bet on. If you can’t track the impression, you had better be able to measure the click and the conversion. Even better, pay for only the revenue you generate - or as close to the conversion as possible.

Impressions yield clicks, yielding leads and then conversions. We all know the drill. The advertiser wants to pay for someone that is further along in the pipeline and the publisher wants to charge for someone that is at the beginning. But with the advertiser roping in their level of spend, and shifting dollars towards direct response opportunities, publishers are feeling the squeeze more than ever before.

Remnant inventory volume has grown from 30% to 70% over the last four years on many mainstream sites, and the number of ad networks clearing the inventory has ballooned to over 450. The incestuous relationships between the multiple ad networks and ultimately the exchanges [insert RightMedia] means that the clearing of remnant inventory is going through repetitive cycles. The smart advertisers can get targeted inventory for pennies on the dollar, provided that they are willing to work with flexibility and without guarantees of fill or placement. An advertiser can get CNN through an ad network for example, but may not get all of the inventory or all of the positions they want. But they will get it for much, much less. Furthermore, they may be able to get it on a CPC or even CPA basis which all ties nicely back to their desire to be in the direct response mode.

Direct response is our new buzz word ladies and gentlemen. It is what all of the agencies are now saying to their advertisers. The concept of the internet being a 1:1 communication mechanism is not new – it’s just that now advertisers are demanding that they buy advertising under the guise of that model. If you’re goal is to sell product, you want to pay for sales, leads, or traffic. Branding through online advertising has fallen way off – demonstrated by the flat-line of display ad spend growth this year.

So back to publishers. What do they do? The advertisers are circumventing them by going through the resellers to get what they want while the publishers get to continue to claim that “we don’t sell CPC.” In the meantime, publishers collect decreasing CPM dollars from the networks in exchange for their remnant space while the networks optimize and resell under CPM, CPC and CPA – satisfying a growing advertiser base.

If the publishers were to deploy multiple pricing model optimization technologies similar to the ad networks, they too could maximize these opportunities, cut out the middlemen and recognize that there are BIG revenue opportunities in multiple pricing models. Furthermore, they stop the sucking sound coming from their client base and take advantage of the inflow of new spenders in the industry. Not all advertisers want to buy on a CPC or CPA basis. It does not always pay. But a willingness to work with advertisers and meet the direct response bug would open up the door to a huge base of advertisers that have already walked away or who are slowly backing off.

The right technology that will enable a publisher to work with multiple pricing models and even with multiple networks to create optimization layers, will mean “yes I can work with you Mr. Advertiser.” Optimization of inventory is the key play here. Innovation through technology will enable the publishers to re-emerge and service the NEED that is present in the market. See a need, fill a need. Publishers that address the advertiser that wants to buy direct response, or at least the option to buy direct response will satisfy their existing customers and grow their customer base. That will result in increased sell-through and overall growth in revenue.

“If I sell CPC, who will buy my CPM. I won’t sell CPC or CPA and cannibalize my CPM business.”

Who would? If I were suggesting to ‘throw out the baby with the bath water’ I would be writing about fool’s gold. But I’m not. I am writing about capturing lost revenue. Sometimes sales people don’t have the ability to conduct business development and conceptualize how to sell one thing in order to sell another. If you want to sell CPM inventory, back up to what you really want. It’s the revenue per thousand/RPM. Use that pricing to figure out the approximate performance of an existing client and determine the CPC they would need to pay. Then go back to them and offer them a hybrid deal.

- If you know an advertiser is willing to spend $50K; and you know that $50K on 1M impressions at a $50 CPM has been yielding 75K clicks, then you know they are paying $1.5 click.

- So that advertiser should be willing to buy more media, perhaps an unlimited amount of additional media at some CPC below $1.5.

- If you, as the publisher: 1) maintain the right to control what inventory is provided, (2) control what volume will be provided (meaning no guarantee) and (3) have access to performance reporting in real-time, then you can maximize the utilization of your remnant space back to the RPM.

At a bare minimum - as a publisher - you have now introduced direct response to advertisers that may not otherwise be willing to increase their level of spend. Additionally, you have gained access to their performance metrics so now you can see what their conversions (and their metrics), which means you can determine what the net CPC is by combining the two models.

“What happens when the advertiser comes back next month and tells me they only want CPC advertising, no more CPM, or nothing at all.”

Good question and a likely to be an issue. Managing to the RPM is the primary objective. And shared risk is what has to be put on the table for the advertiser. For the first time your advertiser is looking at the opportunity to buy the premium inventory through a direct response model. “Woohoo!” she is thinking. But you have the benefit of knowing they are comfortable paying $1.5 CPC and that with your new hybrid model you may have brought them even slightly lower than that. Furthermore, you managed to increase their $50K spend to $75K per month.

Now what? The advertiser wants CPC only, so share the risk. Consider a CPC only relationship, with an extended term (like three months instead of one) and a minimum guarantee of $100K. Obligate the advertiser to spend more over a prolonged period of time, and mutually invest both of you to work together to continue to optimize the performance. Nobody gets lazy and the direct response relationship will get off on a really good start.

With this approach, a publisher is able to roll out a CPC pricing model on select inventory to select advertisers under a controlled process. From there you can determine how to approach new advertisers that you either lost or couldn’t get because of your CPM-only policy.

Copyright Advertising Online, Reactionary with Insight 2011, All Rights Reserved.

Out with the old and in with the new – Generational Tools of SEM Bid Management

ari@arikaufman.com (Ari Kaufman) — 2009-04-22T00:46:00Z

For the last five months I have entrenched myself in the realm of SEM management, specifically from the standpoint of the faculties that marketers use to manage SEM campaigns. While it is expected to find many small SEM shops, small agencies and direct advertisers using extensive Microsoft Excel worksheets and complicated manual workflow to manage their SEM, it has been shocking to see how many larger online spenders (+/- $1 M per month) are also operating on a manual basis. There are still many firms that have integrated some technology into their workflow and then a fewer number of agencies that have built proprietary workflow that includes some level of technology. But the overall impression that I have gleaned from my experience thus far is that (1) SEM advertisers and agencies are either afraid to break from their manual processes, trading inefficiency that is known for potential significant efficiency that is associated with change and the unknown; and (2) the impression of the technologies that are available in the market do not necessarily meet the necessary requirements of an SEM. The latter of these two observations stems from poor experiences with one or more vendors in the space.

While the latter statement has some validity to it under certain circumstances, it is also biased based on a lack of understanding for the generational development of SEM bid optimization and campaign management tools. Additionally, the polarized paradigm in the market that separates three kinds of companies makes it difficult for SEMs to distinguish true solutions. What I mean is that there seems to be three kinds of companies in the space:

The first is the technology that really works and addresses the market need, but nobody knows about it because of poor sales and marketing ability.

The second is the technology that really works, but is irrelevant because it doesn't meet any addressable need.

And the third is the technology that is sold really well but is really a collective set of vaporware or manual tasks behind the scenes.

Overall my impression is that the really good technologies haven’t been brought to market well and the ones that have been brought to market well aren’t the good technologies.

To further my understanding of the space, I have managed to secure demonstrations of several of the players. And I have shared conversations with customers of quite a few of these different service providers. The summation of the solution space being segmented by generational technology was first shared with me through a conversation that was had with a large agency. The description was that there are three generations of SEM tools. The 1st generation was the acquired technologies like GoToast (acquired by Atlas, now Acquantive). These technologies were integrated with the display ad servers in order to give the ad servers the ability to offer search tracking and measurement. Pricing is based on a CPC basis, per click not per thousand.

The 2nd generation SEM technologies came out from Omniture and Webtrends – the analytics companies that looked to integrated SEM bid management so that direct response could further drive site-side analytics. The extent of bid management was new and highly advanced for the time and the pricing model is closely tied to the analytics platform; so if you are using the analytics, the bid management tool is attractive.

The 3rd generation SEM technologies have come to the scene over the last year or so and represent the most advanced level of tactical automation, through rules-based management of campaigns. Providers like Marin, Kenshoo, SearchForce and Clickables challenge the 2nd generation tools for SEMs that do not use the analytics tools with far more advanced features and aggressive pricing based on a percent of spend.

The polarity of the tools described above has become apparent to me through my association with SearchForce, which was preceded by a fair amount of due diligence.

Marin Software is the leader in the space. They have great sales and marketing and the product has come a long way since its inception 18 months ago and client satisfaction seems to be moderate to good. Some of the common complaints include a differentiation between sales and deliverables. This speaks to the vaporware comments made above. Marin seems to have a difficult time on-boarding clients and campaigns within a reasonable period of time. During the sales cycle, tests of small campaigns with 10,000 to 15,000 keywords load fast and demonstrate an easy process. But when actual campaigns are loaded post contract signing, campaigns with millions of keywords, the time to on-board is days or even a week or longer. This is not a single occurrence but a commonality voiced by many current and past customers. Customer service has a solid reputation, but pricing incorporates utilization of services and support. Pricing is tiered based on spend, allowing for even the smallest SEM to come onboard. But then prioritization of services is allocated to the larger spenders. Training is simplistic, leaving the customer to ramp on their own or through call-ins for support, which is not unreasonably withheld.

Kenshoo is certainly the provider of the best eye-candy. Their tool has the least integration capabilities in terms of the major engines and bi-directional synchronization. But they are working on it and will catch up fast. They are an Israeli-based company with a small footprint in San Francisco so most of the tech support and assistance is provided from abroad. Certainly the ability to influence product roadmap is less significant than with Marin and SearchForce from the perspective of a larger SEM.

SearchForce has impressed me with the most advanced technology. Not through my biased association with the company. But because of the many meetings and demonstrations that I have sat through with prospective customers – customers that are not using a tool and customers of Marin and Kenshoo. The consistent message is that nobody seems to deliver on all of the promises. Nobody seems to have true strategic campaign management that is dynamic. Nobody has streamlined on-boarding. Nobody seems to have multiple conversion tracking capabilities beyond their own pixel. Nobody seems to have the ability to deliver a high level of service to create a partnership that streamlines knowledge exchange and promotes true campaign performance improvement. I can go on. But all of these points are met by SearchForce.

So what is the problem with SearchForce? They don’t market well or promote themselves through an aggressive sales program. They have chosen not to engage with small SEMs because they want to offer a very high-touch level of service that will only return value to the company with SEMs that justify ROI with a spend level that is significant. But that’s not wrong. Partnerships are absent in this industry. Sharing cross-customer knowledge of SEM practices that leverage powerful technology embraces relationships to boost campaign performance and accelerate operating efficiency. So my challenge is to figure out the right balance of creating a sales energy that will increase a market penetration for this company while marrying the company to this level of service that is uniquely different and extremely valuable. The feature differentiators are proof-positive to a customer and the fact that one platform actually delivers on the pitch over another are all just refreshing. But a zero-percent attrition rate on customers is a result of a partner mentality and not a customer service mentality. The goal is not to be the biggest kid on the block with the most revenue but rather the most advanced technology with the deepest relationships leveraged by the most advanced SEMs.

At the risk of letting this post swing from objective to totally subjective, I will rope it back in. I am impressed by all of the technologies out there. Most of all I am impressed by the rapid growth of this space. Everyone needs to find a way to do what they do better, cheaper and faster. Bid Optimization and Automation tools accomplish this. Some of these 3rd generation technologies boast a 5:1 reduction in workflow – reducing 5 hrs of SEM work into an hour. And some of them can actually do it. The improvement in productivity translates into operating efficiency but also opens the door for more business and more time to become more strategic about the business an SEM is managing. These tools also deliver the ability to improve campaign performance. Depending on he algorithm – and they are truly different from one tool to the next – there is the potential to truly improve campaign performance.

Copyright Advertising Online, Reactionary with Insight 2011, All Rights Reserved.

Google Dumps Yahoo – Finally

ari@arikaufman.com (Ari Kaufman) — 2008-11-05T22:02:00Z

Google has finally recognized that this deal was never going to come true. And the opportunity-line for Yahoo has been severed. A Microsoft offer is not going to be at a premium, it’s going to be a lifeline. Ultimately, two companies that have a proven history of being horrible at integrating acquisitions should not merge. Yahoo and AOL coming together would represent the largest distraction in the industry, giving Google more time and opportunity to grow even faster and more furiously than before. Over the next 6 months, Yahoo and AOL will lose more market share to Google while they figure things out. What alternatives exist? Would IAC and ASK.com consider selling its ASL network to Microsoft? What if Microsoft and Yahoo don’t do a deal ever? What if Microsoft simply approaches Yahoo with the same deal that Google approached them with. Just run Microsoft ads on Yahoo. Now there’s an alliance only purgatory could create!

Google has finally recognized that this deal was never going to come true. And the opportunity-line for Yahoo has been severed. Now what? Enter Balmer. 3-2-1, how many days will pass before we read of an offer for $15, maybe $20 a share at most. Trading at $13 a share today, the day after Obama was elected President of the United States. You would think that the election results would have driven the market up, but job-loss numbers are pushing a 400pt drop instead. A Microsoft offer is not going to be at a premium, it’s going to be a lifeline. If Yahoo tries to hold out and go for the AOL deal, they will delay Balmer and probably allow their stock to drop further over the next 6 months and yield an even lower offer as a result if AOL fails to come through.

Ultimately, two companies that have a proven history of being horrible at integrating acquisitions should not merge. Yahoo and AOL coming together would represent the largest distraction in the industry, giving Google more time and opportunity to grow even faster and more furiously than before. Over the next 6 months, Yahoo and AOL will lose more market share to Google while they figure things out. Yahoo will get so buried in the post-deal work that Google will have the opportunity to rapidly steal customers and demonstrate to publishers that their superior ad base warrants additional exclusive access to their inventory.

Microsoft will have to strive for acquisition wherever they can find it if they are going to compete, really compete, in the game. They can go after the combined Yahoo and AOL – which will be at a premium over the original Yahoo offer – or they can look to roll-up the remaining 10% of the industry covered by the tier-2 networks. If Yahoo and AOL merge, and Microsoft subsequently buys just the search business that would leave Yahoo and AOL out of that game and fledgling. Microsoft would have picked up 20+pts of the market and would have to figure out how to integrate together and manage two degrading networks that are losing to Google at the same time.

What alternatives exist? Would IAC and ASK.com consider selling its ASL network? Doubtful. But it does have several thousand advertisers and several thousand distribution partners. What about LookSmart, MIVA, Industry Brains and Seevast? That’s a lot of work for Microsoft to do, but it’s a consolidation that needs to happen at some point. Google gobbles market share, and they are taking it from Microsoft. Not from the tier-2 networks. Not yet. I’ve written about this before. Microsoft either buys Yahoo now, or buys just the Search business from Yahoo-AOL. Or they turn their heads and gobble up a few of the tier-2s while Yahoo-AOL get organized and degrade in value and beg for Balmer to buy them later.

Here is another totally interesting question. What if Microsoft and Yahoo don’t do a deal ever? What if Microsoft simply approaches Yahoo with the same deal that Google approached them with. That deal is indicative of the fact that Yahoo wants out of search. DOJ would probably approve the two smaller players coming together against Google. If Microsoft wants to stay in the game, let them just do the deal with Yahoo to acquire the inventory and run their ads on it. Screw the M&A. Run Microsoft ads on Yahoo. There’s an alliance only purgatory could create!

Copyright Advertising Online, Reactionary with Insight 2011, All Rights Reserved.

Yahoo-Microsoft Deal Inevitable?

ari@arikaufman.com (Ari Kaufman) — 2008-10-27T22:08:00Z

Is the Yahoo-Microsoft Deal Inevitable? Ballmer said a deal between Microsoft and Yahoo! Inc. may still make economic sense for shareholders of both companies. No need to review the already well-known history of this story. Why is Microsoft waiting? First, there is the Yahoo-AOL deal. Second, is the DOJ investigation into the Google-Yahoo advertising deal. Is this the end of an era? “Do you Yahoo?” has been replaced with “Google-it.” The DOJ has conducted literally tons of interviews these conversations have undoubtedly gone deeper than just the deal. Finally, the DOJ has a solid understanding about why Google has a monopolistic path.

For Microsoft to compete in search they have to do something disruptive. Buying Yahoo! only buys time. The question is not will Microsoft buy Yahoo!. The real question is what will Microsoft do after they buy Yahoo!. Buying time is not much of a plan. Microsoft will still be playing a losing gain.

Steve Ballmer said a deal between Microsoft and Yahoo! Inc. may still make economic sense for shareholders of both companies. This not-so slip of the tongue at the Gartner conference in Orlando on October 16th of course sent Yahoo shares up during another one of the daily rapid cycling behaviors of the daily market performance.

Since the beginning of the year, Microsoft has been looking at Yahoo! No need to review the already well-known history of this story - the first bid of $47.5 Billion and the second bid of $33 Billion. Today, Yahoo! Has a Market Cap value of $16.5 Billion and if Microsoft were to re-engage in talks with Yahoo! they would most likely no longer bother looking at the totality of the company but rather a subset of just the search business.

Why is Microsoft waiting - if they are waiting at all?

First, there is the Yahoo-AOL deal. AOL reports earnings on November 5th. So if there is any information to be revealed it may come out during that call. Second, is the DOJ investigation into the Google-Yahoo advertising deal. Microsoft has no choice but to wait and see how these two situations play-out based on how Yahoo! has responded to previous buy-out attempts.

Carl Icahn’s appointment to the Yahoo! board was originally thought to be a stimulus to making a sale happen, but that has not been the case thus far. Instead, the leadership remains in place and the core strategies remain largely unchanged. Quarter-end results were received negatively last week and the company continues to erode in front of our eyes while a 10% RIF further indicates the downward spiral of this former tech-darling giant.

Is this the end of an era? “Do you Yahoo?” has been replaced with “Google-it.” Yahoo has historically demonstrated a poor acquisition strategy, falling short on implementation. They have grown and stalemated their text advertising business, returning to a display advertising strategy rife with technology glitches in a market where advertisers are placing heavy bets on direct response rather than CPM.

What does all of this mean? The writing is on the wall – in big, bold, block letters. Yahoo! has no clue what they’re doing any more. Balmer will strike when the timing is right, if at all. When will that be? After DOJ finishes demonstrating that they have a mighty strong case.

The DOJ has conducted tons of interviews on this deal and these conversations have undoubtedly gone deeper than just the deal. While the DOJ may be focused on the potential of Google gaining an 80% stake in the search market, they are also having significant light shed on the ever-changing algorithm that forces everyone to change their technologies on an ongoing basis. They are learning about the occurrence of price inflation on popular keywords which has been taking place even as advertisers decrease spend – indicative of unnatural pricing pressure within the auction. They are learning about the industry-wide pressure being placed on distribution partners in terms of their sources of traffic – such as the arbitrage business - and the squeeze that is occurring with regard to Google no long paying for what they arbitrarily deem to be “suspect” traffic. The DOJ is learning about exclusivity requirements placed on publishers that require only Google ads on pages, blocking other sources of ads from competing on the page.

These are just examples of the domination business practices, which are commonly known within the industry and that are being brought to light for the DOJ. I don’t think that any of these issues will come up now, with regard to the Google-Yahoo! deal, but the DOJ is getting heavily educated. Which is about time! What it does all mean is that the next time someone raises a red flag, which may be sooner than later, the DOJ will have a solid understanding about why there are issues and what the complaints reference. And most important this exercise will position the DOJ well going forward with the right mindset for HOPEFULLY preventing the monopolistic avenue that Google is traveling.

So will Microsoft buy Yahoo? Maybe. Is it worth that much to Microsoft? At the end of the day, Microsoft’s core business is the Office platform. Not the operating system. A huge portion of their revenues have been from Office for a long time. Other LOBs add to that stream including advertising, search, XBOX and Vista, but Office carries the ball. But Microsoft continues to declare that they want to compete in the Search realm but as the #3 player they have to do something disruptive to stay in the game long term.

Buying Yahoo! only buys time. It buys a degrading market share – both Yahoo! and Microsoft are losing share every month to Google. They can look beyond Yahoo! and consider buying additional share from the remaining 10% that is not controlled by the big three engines, but all of that only buys more time from the inevitable trend. ASK has some recognizable share – but 95% of their search ad revenues come from Google as well.

So I don’t think the question is so much will Microsoft buy Yahoo!. I think the real question is what will Microsoft do after they buy Yahoo!. Here are the most current share positions as provided by Comscore:

Google  62.9%
Yahoo  20.2%
AOL  4.1%
Microsoft 8.5%
Ask  4.3%

If Microsoft buys Yahoo! they will have 30% market share. But again, that number will erode over time. If Yahoo buys AOL, that only lifts Yahoo by 4% - not much of a gain. Microsoft could still look to buy the combined Yahoo!-AOL search business – however unlikely – bringing them to 34%. ASK combined into the equation would bring it to 38%. But of course that will never happen. ASK is tied up with Google and I can guarantee you that there is a clause that says IAC can’t sell ASK to anyone without Google’s approval. You can bank on that one.

So again, what does Microsoft plan to do after they buy Yahoo! to stop the erosion. Buying time is not much of a plan. Unless there is some plan to go after the jugular that pinpoints the rapid growth of Google’s climb to dominance Microsoft will still be playing a losing gain.

Let’s get some conversations going on this one.

Tech-Crunch Layoffs – Is it a Financial Crisis or a Clean-Up Opportunity, or Both?

ari@arikaufman.com (Ari Kaufman) — 2008-10-22T22:24:00Z

So the economy took a nose-dive this past month. Yahoo’s stock is down more than 35% in the last 30 days, Google is down 16% and ebay is down 34%. The Online Media sector is taking a beating for sure. Yahoo! is laying-off 1,500 people and eBay already laid-off 1,500. But how many of the companies doing lay-offs are financially strapped or in trouble? At this point, any company can announce a 'me-too' lay-off without having to provide much explanation.  A lay-off now would actually be perceived as an indication of good fiscal management! So for many companies this is a great opportunity to ‘cut the fat’ and get away with it. But look closely and you will see that while some companies are eliminating positions, they will be creating new ones elsewhere in the company. Out with the old and in with the new. RIFS are fundamental.

The economy took a nose-dive this past month. Yahoo’s stock is down more than 35% in the last 30 days, Google is down 16% and ebay is down 34%. The Online Media sector is taking a beating for sure. Advertisers are cutting budgets and channeling the remainder of their spend where they can specifically measure results.   There is no question that the ride has gotten bumpy and will likely get worse before it gets better.

So Yahoo! is laying-off 1,500 people. EBay already laid-off 1,500. Now Wikia is laying off 30% of their team after Pandora laid-off 14% of theirs.   The image I am providing is the Tech Layoff Scorecard from CNET. You can find it at http://news.cnet.com/8301-1001_3-10069195-92.html. This chart illustrates some of the recent lay-offs that have been reported across the industry and it is updated daily:

Company	Date	How Many
SanDisk	10/22/2008	TBA
ManiaTV	10/22/2008	20 of 70
iMeem	10/22/2008	25% of 80
Mahalo	10/22/2008	10%
HP	10/22/2008	24600 over three years
Yahoo	10/21/2008	10% of ~14,300
Ticketmaster	10/21/2008	35%
Comcast	10/21/2008	300
Softchoice	10/20/2008	6.5% of 958
Veoh	10/20/2008	0
Wikia	10/20/2008	3
Autotrader	10/20/2008	69
Texas Instruments	10/20/2008	possibly 300
Sprint	10/17/2008	ongoing
Jaxtr	10/17/2008	13
Zivity	10/17/2008	33%
Zillow	10/17/2008	25%
SearchMe	10/17/2008	20%
Heavy	10/17/2008	14%
Lenovo	10/17/2008	50 in Morrisville, N.C.
MPC Computers	10/17/2008	200
Hi5	10/16/2008	10-15%
Sirius XM	10/16/2008	50
Pandora	10/16/2008	20
Adbrite	10/16/2008	40%
Tesla Motors	10/15/2008	Detroit office
SkyRider	10/15/2008	All
Appcelerator	10/15/2008	6
Jive Software	10/14/2008	33%
Redfin	10/14/2008	20%
Seesmic	10/10/2008	7
Lulu	10/9/2008	24
Micron	10/9/2008	15%
eBay	10/6/2008	1000
Gawker Media	10/3/2008	14%

VCs and PE firms are handing down the word to their portfolios: ‘tighten your belts boys, and stretch your funding for the next three years.’ The wells aren’t dry, but the likelihood of exits in this sector with this market just got pushed out. It’s definitely time to shine the spotlight on venture-backed tech companies, that promised high-value returns, who still haven’t figured out how to make money. VCs and PEs take this time to reassess their portfolios. They’re already invested pretty heavily in the space so now it’s a matter of suring up those investments. How strong are the existing management teams in place? Are we going to rescind the next traunch? Should we make some structural changes at the leadership levels? One thing is for sure … VCs are getting active with their companies.

Is this the next bubble-burst? Not necessarily. We all know that the economy is in a recession. How many of the companies doing lay-offs are financially strapped or in trouble? Some of them are as we can see or estimate. Some of them, like Yahoo and eBay need to scale-back just to maintain shareholder value or keep profitability at expected levels. Other smaller venture-backed companies need to scale back costs until they can get their revenues up to support the business.

But when big companies RIF (reduction in force) it also opens the door across the industry. At this point, any company can announce a me-too lay-off without having to provide much explanation. In fact, at this point in time, a RIF will likely be perceived as an indication of good fiscal management in response to economic uncertainty, inflation in our sector and the forecasts of decreased spend from advertisers. So for many companies this is a great opportunity to ‘cut the fat’ and get away with it.

RIF opportunities come in cycles. When big companies do a layoff – like Yahoo did a year ago – other companies follow suit so they can move under the radar of the headliner. Do all of these companies need to RIF? Nope. In fact, look closely and you will see that while some of these companies are eliminating positions under the guise of good fiscal management, they will be creating new ones elsewhere in the company. The East Coast Sales Director will be replaced by the National Business Development Manager. The Global Market Strategy Director will be replaced by the Corporate Product Marketing Director. These changes don’t necessarily happen at the same time. Smart companies let 90 days pass between the two moves. This allows the RIF to happen in one quarter, and the opportunity to report the impact, before going into the next quarter when the re-expansion occurs. Out with the old and in with the new.

So with the current lay-offs in the industry, what does that mean for companies that want to grow – great hiring opportunities? Yes and no. RIFS don’t usually flush the good people, they flush they expendable people while the good people get retention bonuses or extra stock options. The market will get flooded with mediocrity and one man’s fool will look like another man’s gold. I am not saying that there won’t be any good candidates put out to pasture, but hiring managers will have to do a lot of interviewing to find them. Tactically, the opportunity to hire is to go at the companies that just did layoffs and try to hire the retained people while they feel unglued. Good recruiters know this already.

But in the end RIFS are fundamental operating procedures – and opportunistic initiatives that are taken when the elephants are under the microscope. Don’t let 400 point daily swings in the Dow and RIFs make you think that the bubble is coming. Think a quarter or two out. There are some very good technologies out there, game changers. There are a lot of dollars invested in some real businesses and accomplished teams. Advertisers need to make money and need now more than ever to invest in marketing and sales to do it. It’s bumpy now, and will stay this way for a while. But look carefully through the dust being kicked-up and see the movers and shakers that are in motion beyond the RIFS. It’s probably not a ‘pop’ you’re hearing but plans for more growth.

Copyright Advertising Online, Reactionary with Insight 2011, All Rights Reserved.

Advertiser Control Over Ad Spend and The Swinging Pendulum

ari@arikaufman.com (Ari Kaufman) — 2008-10-21T21:28:00Z

There is big pendulum swinging over who controls spend in Online Media. The economy has taken a swinging nose-dive and everyone is looking for signs of fall-out. One thing that is for certain, Advertisers are aggressively taking back control over their spend. There will be budget cuts of 15% of more across the board in Q4. The place where those cuts are starting is anyplace where an ROI can’t directly be derived. If a publisher can’t prove a return they will lose the spend. Response-based advertising is probably the most insulated area of the industry. This means a push from CPM towards CPC and CPA, even for display. Advertisers will be driving the pricing models and publishers will have to buckle in order to sell inventory. With less money to spend, more pressure to perform, hundreds of publishers and networks competing for the reduced dollars at hand…advantage advertisers.

Here is the story...

My good friend, Jonathan Ewert says that every four years there is a great big pendulum that swings in our industry. On the end of that ball is the influence factor over who controls the dollars in Online Media.

In the late 90s it was clearly the advertisers who had the control. As they began to test the new medium and brought dollars to the internet in increasing amounts, advertisers tested all kinds of mechanisms that the publisher could come up with. But it was the advertiser that dictated what measured performance, what the price they would pay and what services they expected in terms of campaign management and reporting.

Then the pendulum swung in the other direct – towards the publisher – as online media shifted from "new media" to internet advertising. “Standards and policies" were written. Publishers started driving pricing; and ad server utilization, campaign management provisions and acceptable reporting became organized and structured according to what Publishers were willing to provide. Advertisers had to start working with what was available, throwing more resources and time at managing the diversity that clients were demanding which made the process of managing internet advertising increasingly more expensive.

Competition for inventory rose steadily once again following the recoil of the bust and price inflation followed. The explosion of ad networks broadened advertisers' options and the result was a drastic overload on resource requirements to manage just a single campaign.

While all of this was going on, Search outpaced display as advertisers began to recognize the value of response-based advertising and Google's climb to the top of Everest was off to the races.

Fast-forward to the beginning of 2008 and you had topped-off CPMs, somewhere between 200 and 400 ad networks (depending on who is counting) and Google controlling 60+ % of the addressable Query stream on the Internet – 90% collectively controlled by Google, Yahoo and MSN.

Throughout the first-half of 2008, prices hit all time highs in search as traffic growth online slowed and competition for popular keywords rose. CPMs for targeted quality display inventory trumped the last four years and publishers began to push to reclaim inventory from the networks that had been previously aggregating and watering down their value.

Then the big ball started to swing. With the advertiser no longer able to increase spend in search without compromising ROI and publishers reclaiming display inventory in order to elevate CPMs, something had to change. Additional factors at play, aggravating the situation, was the continued consolidation of search (think Google’s increasing share of the Market – the Yahoo deal, Google running on ASK, etc.), the intense-resource demand on advertisers associated with managing disparate data sources, and publishers trying to push CPMs while a massive number of networks commoditize eyeballs. All of this equates to the advertisers almost hitting a breaking point.

Then the economy took a swinging nose-dive and everyone started to run around asking themselves what is the fall-out result for online advertising. Is this the next bust? Here come the layoffs. How many VC-backed companies are going to go under which have promised huge returns with no revenues to prove it? One thing that is for certain, Advertisers are aggressively taking back control over their spend.

You can figure there will be 15% cuts in budgets across the board in Q4. At least that is what some of the larger advertisers are talking about and that is what some of the networks are already hearing. The place where those cuts are starting is anyplace where an ROI can’t directly be derived. Lookout publishers – if you can’t prove a return you’re going to lose spend.

Response-based advertising is probably the most insulated area of the industry over the next 2 to 4 quarters given our economic environment. Advertisers have to advertise to keep generating business, but branding online is going to suffer. This means a push from CPM towards CPC and CPA, even for display. Advertisers will be driving the pricing models and publishers will have to buckle in order to sell inventory.

Furthermore, diversification of spend across less expensive, higher-returning publishers and networks will also draw attention. This means that advertisers who have hit the asymptote of their returns on Google or the major display ad networks – when spending a dollar no longer returns $1.50 but now returns $1.25 – will start to look elsewhere to maintain their margins. With smaller budgets to spend, ROI pressure will become intense. We may even begin to see performance-based commissions between advertisers and agencies as competition for control over the spend increases between agencies. Certainly this will be a likely case in the SEM arena.

So the pendulum, which started to swing in the beginning of Q2, went full tilt when the market dove. Advertisers now hold the cards and publishers and networks that recognize the truth will step up and work with them to maximize the value of their relationships given the pressures present in the economy.

With less money to spend, more pressure to perform, hundreds of publishers and networks competing for the reduced dollars at hand…advantage advertisers.

DoubleClick Launches Online Marketplace

ari@arikaufman.com (Ari Kaufman) — 2007-04-11T16:46:00Z

As reported in iMedia Connection on April 4^th, “Buyers and sellers of online display advertising will have a new forum for making deals; at least that is the premise behind DoubleClick’s latest proprietary product, DoubleClick Advertising Exchange.”

A mediated exchanged between buyers and sellers for the exchange of advertising inventory is not a new concept. Right Media is the best example of a well-executed version of this concept. I commented on Right Media several weeks back in Disintermediating Ad Exchanges, Publisher Ad Auctions. The argument back then was that in an ad exchange environment like a Right Media, where buyer and seller are brought together anonymously under an auction based environment, there is no relationship developed or fostered in the buy process. My proposal hypothetical question in that article was, what if you could eliminate the middle-man of the exchange and put buyer and seller together.

That article generated a response from Right Media. Bennett Zucker contacted me for a little education conversation. Subsequently, I wrote a follow-up comment acknowledging the value proposition of Right Media.

Some of the things that I learned my research into RM and other exchange models is that publishers are migrating away from the traditional networks because they are getting better rates through the exchanges. Inside sources have shared with me that Advertising.com, Tribal, Burst and other popular networks have all seen a measured decrease in publisher inventory while that same inventory has reportedly shown up on RM.

So now DoubleClick is going to enter the exchange game. Think back a while and recall that DC was one of the original networks. Of course I don’t believe there is a single person remaining at DC who was involved in that operation, but the heritage is there – and maybe some of the legacy technology. Regardless, they’ve built the exchange technology. They have the publishers with DFP and they have the advertisers with DFA. Put them together and link the two systems and you have a broad network of exchange. Get out of the way and you potentially have a model that will rival Google’s cake-and-eat-it-too mode of AdSense and Adwords.

DC has some challenges ahead of them. I don’t know the nuances of how well they are going to tie together DFP and DFA, but as hosted solutions they can upgrade and link the two and the users will see the collaborative efforts. If publishers start pushing inventory into the system and advertisers start looking into the system to buy, you have a strong value proposition for both sides of the transaction. Under this model, neither buyer nor seller needs to go to a different system like a Right Media to transact.

Under the DoubleClick exchange, it is largely publisher inventory that is at stake, whereas with Right Media is mostly network inventory. So will advertisers who use DART start to look at the exchange for publisher inventory – or will publishers first begin to test the DC exchange in addition to “offshoring” inventory to networks and auctions? Time will tell and the testing model of DC will be a good approach so the top-success-oriented players demonstrate the desired results. But this is one to watch closely as it could be game-changing.

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