An insider's view of Web advertising, from autos to remnant networks

Ian Lamont — Fri, 22 Aug 2008 09:40:08 -0700

Online advertising is one of the few bright spots in the Internet economy, with U.S. revenues expected to double over the next four years. Nevertheless, many of the trends in the online adverising industry remain obscure to buyers and publishers. For instance, what are the roles of ad networks, and why is remnant inventory so lucrative to some of them? Why are automotive ads relatively rare online, even while they dominate broadcast and cable television? To answer these and other questions, The Industry Standard turned to Zander Ford, an account executive for Internet Broadcasting and the co-founder of SF Web Pages. The following interview reflects Ford's personal views of the online advertising industry.

The Industry Standard: Can you describe the ad network that you sell for?

Ford: I sell for a "local media advertising network." We sell ad-space/inventory for local television, radio, and newspaper websites. Most of the content on these websites is news -- much of it local news -- though there is a significant portion that is entertainment-based, sports related, and [incorporating] other local considerations, like traffic, weather, et cetera. The ads are banners and/or video.

There are more than 450 websites in our network of local news sites. Approximately 50 million unique individuals (our "reach") view at least one of the sites in our network each month, often several times in a month. We stream upwards of 18 million videos every month on our websites.

The pain points we solve for the buyer include:

One bill (and request for proposal) instead of 50, 500, or 5,000 bills and RFPs.
Guaranteed high-quality inventory (available ad-space)
Reach local audiences with locally branded news sites, and/or buy across the nation and reach 99% of all US households.

TIS: Car advertising is ubiquitous on broadcast television, yet seems to be much rarer in Internet advertising. Why is that? Does this disparity present an opportunity for Internet ad networks and publishers?

Ford: The automotive vertical (advertising channel) has been one of the most significant "drivers" of online revenue. Similar to broadcast TV, most of the auto manufacturers' money is spent on "brand awareness." The most unique thing about Internet advertising is that an advertiser can "track" users actions more carefully -- such as if the user clicked on the advertisement, or signed up for that free trial. Google's pay-per-click (PPC) model, where advertisers only pay when their ad is clicked on, is the most widely known cost per action (CPA) example. It is "pay-for-performance."

The list you reference above is based on "performance media" buys, but, it's masked under a "Banner" of Awareness pricing.

I'd venture the equation used to generate the top 50 spenders looks something like this:

[# impressions a given advertiser bought on given website(s)] x [rate-card price(s) of the website(s) the ad appeared on].

Translated into English: if University ABC buys 100,000 advertising impressions on www.cool-hip-site.com at the price of $10 per thousand impressions (cost per thousand, CPM), then their total spend with www.cool-hip-site.com is $1,000 (100,000 impressions divided by 1,000 multiplied by $10 = $1000). Most premium publishers (Comscore top 100) typically sell ads on a CPM basis.

Here comes the fun part -- remnant inventory. If a publisher (website owner) can't sell all the advertising impressions generated in a given month by users looking at its Web pages, then ... they have to put something in those open ad-spaces, or the inventory goes to waste, and the publishers don't get paid for it. Most publishers would rather take 10 cents on the dollar for that space than have it go empty. However, some publishers want total advertising control -- to avoid offending users for example -- so they'll only publish ads from known brands.

All that to explain the absence of autos on the list above: CPA networks (also often called "blind networks) -- networks that only get paid when a user takes an action -- will often buy boatloads of inventory for 10 cents on the dollar (not always inventory from premium sites -- remember they get paid when a user takes an action -- so they're interested in clicks, purchases, and sign-ups -- they don't care where they came from). Sometimes they'll "tier-out" a network buy, saying "This is inventory on top-branded websites," or "this is a second-tier buy." Rarely do those remnant networks offer what is known as "transparency" in the industry. They won't tell the buyer what sites exactly their ads are appearing on, only that they're part of a large group of sites. This can lead to some potentially shady deals.

The other remnant opportunity is for brand awareness. If a publisher's ad sales force can't sell all their inventory, they'll have remnant inventory. Let's say they offer that up at 1/10th the cost. If a network can buy at 10 cents, and sell at 50 cents, they're going to make a 400% markup, and pocket that 40 cents.

TIS: The remnant networks are clearly helpful in terms of finding a market for unused inventory, but what are some of the drawbacks to publishers who use them?

Ford: Pros include an opportunity to buy premium inventory at fire-sale prices and either:

a) Sell it at half premium cost.

b) Buy a ton of it on a CPM basis and back it out to a CPA that still earns a margin.

Cons:

The amount of remnant inventory is not always known and changes (though it is predictable to some degree).
Impressions are not always guaranteed -- the marketer doesn't know for sure that their ad dollars are going to be spent on a given site at a given time -- that's important.

Publisher pros:

Fill gaps in inventory sales, still makes money on the eyeballs.

Publisher cons:

Potential for wild, obtrusive, or malicious ads.
Potential of undercutting sales team's efforts by selling inventory for too little.

TIS: How are the needs of East Coast and West Coast clients different?

Ford: This is indeed an interesting question. Let's first define "client." I sell to two types of clients (I'm in national sales, on the West Coast): One client is large corporation like the Fortune 1000. Another type is advertising/media-planning agencies, who, in effect are the advisors and budget-gate-keepers to most of the Fortune 1000 companies. So you can look at my ideal client as one with multiple stake-holders, or two with different buying patterns.

Agencies (and networks) on the West tend to be more performance based -- that is, they buy more inventory from CPA networks. Roughly 70% of all media spend online is in performance media. So, it's not surprising that performance media is selling strong, both on the west and east -- especially in an economic trough where marketing budgets really need to be accounted for.

West vs. East: The three-martini Madison Avenue media buys are still very common in New York City. They happen over here on the West Coast too, but in general, there are more technology companies on the West Coast. Silicon Valley is a prime example. And I believe tech companies tend to be more technical -- I'd venture even in their marketing tactics while small enough.

On the network buy side, CPA networks are optimizing their buys "on-the-fly," and they need fancy algorithms and programmers to build that trading technology -- a good pool of this kind of talent sits on the West Coast.

I think ad agencies and large companies on the West Coast all feel the nearest-neighbor effect of all that technology so close by -- so they're more likely to be in the performance-buying mindset. All that said, L.A. still has deep ties with brand buys -- how do you track if user x came to watch your movie? You can't. You can only track ticket sales at the movie house -- not specific users.

Ford also discusses online advertising on his blog, ExactAudience.com.

More news, commentary, and predictions from The Industry Standard:

An insider's view of Web advertising, from autos to remnant networks

Ian Lamont — Fri, 22 Aug 2008 09:40:08 -0700

The Industry Standard: Can you describe the ad network that you sell for?

The pain points we solve for the buyer include:

One bill (and request for proposal) instead of 50, 500, or 5,000 bills and RFPs.
Guaranteed high-quality inventory (available ad-space)
Reach local audiences with locally branded news sites, and/or buy across the nation and reach 99% of all US households.

The list you reference above is based on "performance media" buys, but, it's masked under a "Banner" of Awareness pricing.

I'd venture the equation used to generate the top 50 spenders looks something like this:

[# impressions a given advertiser bought on given website(s)] x [rate-card price(s) of the website(s) the ad appeared on].

TIS: The remnant networks are clearly helpful in terms of finding a market for unused inventory, but what are some of the drawbacks to publishers who use them?

Ford: Pros include an opportunity to buy premium inventory at fire-sale prices and either:

a) Sell it at half premium cost.

b) Buy a ton of it on a CPM basis and back it out to a CPA that still earns a margin.

Cons:

The amount of remnant inventory is not always known and changes (though it is predictable to some degree).
Impressions are not always guaranteed -- the marketer doesn't know for sure that their ad dollars are going to be spent on a given site at a given time -- that's important.

Publisher pros:

Fill gaps in inventory sales, still makes money on the eyeballs.

Publisher cons:

Potential for wild, obtrusive, or malicious ads.
Potential of undercutting sales team's efforts by selling inventory for too little.

TIS: How are the needs of East Coast and West Coast clients different?

Ford also discusses online advertising on his blog, ExactAudience.com.

More news, commentary, and predictions from The Industry Standard:

An insider's view of Web advertising, from autos to remnant networks

Ian Lamont — Fri, 22 Aug 2008 09:40:08 -0700

The Industry Standard: Can you describe the ad network that you sell for?

The pain points we solve for the buyer include:

One bill (and request for proposal) instead of 50, 500, or 5,000 bills and RFPs.
Guaranteed high-quality inventory (available ad-space)
Reach local audiences with locally branded news sites, and/or buy across the nation and reach 99% of all US households.

The list you reference above is based on "performance media" buys, but, it's masked under a "Banner" of Awareness pricing.

I'd venture the equation used to generate the top 50 spenders looks something like this:

[# impressions a given advertiser bought on given website(s)] x [rate-card price(s) of the website(s) the ad appeared on].

TIS: The remnant networks are clearly helpful in terms of finding a market for unused inventory, but what are some of the drawbacks to publishers who use them?

Ford: Pros include an opportunity to buy premium inventory at fire-sale prices and either:

a) Sell it at half premium cost.

b) Buy a ton of it on a CPM basis and back it out to a CPA that still earns a margin.

Cons:

The amount of remnant inventory is not always known and changes (though it is predictable to some degree).
Impressions are not always guaranteed -- the marketer doesn't know for sure that their ad dollars are going to be spent on a given site at a given time -- that's important.

Publisher pros:

Fill gaps in inventory sales, still makes money on the eyeballs.

Publisher cons:

Potential for wild, obtrusive, or malicious ads.
Potential of undercutting sales team's efforts by selling inventory for too little.

TIS: How are the needs of East Coast and West Coast clients different?

Ford also discusses online advertising on his blog, ExactAudience.com.

More news, commentary, and predictions from The Industry Standard: