Re-engaging & Interesting Podcast with Hal Varian

Wow, it’s been quite a while since I last posted here.  I’m going to try to re-engage and post more frequently going forward.

In the meantime, I recommend giving this podcast with Hal Varian a listen.  Hal Varian is the Chief Economist at Google and is basically the master of the Google ad auction.  He’s also a professor of Economics at UC Berkeley and author of a number of books.

Quick sidenote… I highly recommend his book Information Rules – a great account of how the businesses behind new technological innovations are ultimately governed by fundamental principles of economics.  Cool view on the tech industry through the lens of economics.

Max Levchin on Social Ad Revenues

Max Levchin recently wrote an interesting post titled “On social ad revenues“, which evaluates different approaches to social application development and the prospects for monetizing these applications. This post is essentially outlining the different approaches of Slide and RockYou, and explaining why he thinks (you guessed it) Slide’s approach is superior. He basically likens RockYou’s approach to that of a social ad network, and concludes that “the more your business looks like that of an ad network (augmented or not by the current sex appeal of being “social”), the less ultimately valuable it is.” He positions Slide on the other end of this spectrum, implicitly stating that their focus is on depth of engagement and creating what he calls an “inner-brand” (read: “e.g. ‘I go to Facebook when I want to SuperPoke people when I want to be clever,’ to toot my own horn”).

I won’t pretend to know the answer here, but in principal I have to agree with Max about the inherent challenges that the “proprietary apps augmented by partner apps” approach presents – you have no control of engagement on partners’ apps. Social app developers are in the business of creating social media programming, and leaving some of the creation of that programming to others is inherently a risky proposition. But to be fair, if companies like RockYou are discerning in their selection of who they let into their partner network and trust that these partners have and will continue to create engaging apps, in theory they can create a hybrid of proprietary and network apps that collectively have greater reach than could their own apps by themselves. The potential risk is that the “inner-brand” of your proprietary programming is undermined, but the potential reward is that your partners can create vertically focussed programming that is better for these verticals than the programming that you could create on your own – again increasing reach. With so few ad dollars being spent on this type of content today, the hybrid approach and the reach it brings does have its benefits, but what that will do to eCPMs as this industry matures is the (at least hopefully) billion dollar question… You can see where Slide and RockYou are putting their chips, and you have to love the competitive energy between these two.

AdMob Presentation on Mobile Ad Market

AdMob delivered a presentation on the mobile ad market at the Agency Summit in Austin last week (provided via iMedia). The deck provides some pretty interesting insights into the state of the (non-SMS) mobile advertising market. It is still early days, but some of the data they present highlights that the rise of smartphones is starting to have a real impact on mobile internet use. A few interesting data points:

• 40M unique mobile internet users in the US in Feb ‘08 (Nielson Mobile) – out of 87M who subscribe to mobile internet
• 23M US mobile subs with unlimited data plans in Jan ‘08 – a 35% increase from Jan ‘07 (m:metrics)
• This is still a small % of the 250M total wireless subs in the US, but the growth should only increase as device and network upgrades continue

To be fair, this is clearly a marketing piece for AdMob and some of the numbers presented have to be taken with a large grain of salt… For instance, the data provided on all of the trials only present %s and not the absolute numbers. This is likely because the absolute numbers for these campaigns are still quite small and in the experimental bucket for brands and agencies.

So while the mobile ad market is quite nascent, it is interesting to note how the carriers are approaching the market today. Last week at Reuters Technology, Media and Telecom Summit a group of carrier and advertising executives discussed the mobile ad market (Reuters article). They consistently described the market as too early to warrant significant time or attention. They note that ad inventory is limited and also fragmented between the carriers; so running significant ad campaigns within one carrier’s network is difficult to do with any scale. This is the point that I found to be particularly interesting, as it is reminiscent of how the online advertising market played out – eventually leaving the service providers completely out of the ad ecosystem. While there are obvious differences between the two markets, it does highlight how large public companies’ focus on short term profits inhibits their ability to innovate – generally leaving them vulnerable to the powers of creative destruction, rather than a driver of it!

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comScore’s April Media Metrix – Google #1 for First Time Ever

According to comScore’s April Media Metrix report, for the first time ever Google sites were the most trafficked on the web. According to Jack Flanagan, the EVP of comScore’s Media Metrix, “April was a very active month. Google took the top property position, thanks to continued search growth and rapid growth at YouTube.” This move displaces Yahoo as the long time leader in traffic. Is it just me or is there something prophetic about these numbers hitting the wire right after MSFT walked away from Yahoo and left the co to the devices of activist Carl Icahn? Feels insult to injury…

Anyway, a few other interesting data points in the report:

• Job sites surged as college students graduate and worries about the economy lead people to explore their options
• Turn (an NVP portfolio company) surged 10 spots to #32 in the Ad Focus ranking – now reaching 32% of the internet population – after first entering the top 50 in Jan ‘08
• Television sites showed large increases in traffic as new episodes aired, and the networks continue to focus on their web presence (note: CBS’s announced acquisition of CNet is for this same purpose)

Ad Rates: Declining Everywhere but the Long-Tail…

PubMatic’s AdPrice Index report showed some interesting (and gloomy) trends on the state of web monetization. Overall, their aggregate index for web monetization was down 23% from March to April. The report highlights the continued declines in eCPMs across all segments of the web. That is, except for one… “Small web sites” (what PubMatic terms sites with less < 1M pg views / mo) was the only segment to increase eCPMs from March to April (up ~9%). Whether or not this trend is a result of the rise in vertical ad networks and third party monetization solutions is unclear, but it certainly highlights the opportunity to win advertisers’ check-books by delivering a clearly segmented demographic (and selling your inventory doesn’t hurt either).

Other interesting facts… Verticals – Social networks were the hardest hit, dropping 47% m-o-m. Technology sites faired the best, holding relatively flat m-o-m, but were still ~10% down from January highs. Segments – not surprisingly, large web sites (>100M pg views) were the hardest hit segment, dropping 52% m-o-m.

Adify Acquired by Cox Communications for $300M

Adify, the self-service / white-label online ad network, has been sold to Cox Communications for $300M (according to a story by PaidContent).  Adify had apparently been out raising another round of funding recently, so it is not surprising that strategics entered into the process and that acquisition offers were part of the discussion.  But I am a bit surprised by both the ticket price ($300M!) and the acquiror.   Adify had raised a total of $27M (plus $4M – debt) over two rounds from Venrock, USVP, and Peacock(GE/NBC’s investment fund), so the investors made a nice return on the deal.

Adify’s platform enables other publishers / companies develop their own ad network – allowing publishers and advertisers to interact directly.  This provides media portals like Martha Stewart Living Omnimedia to create their own ad network and negotiate the ad rates and T&Cs directly with their advertisers.  This approach is another way to address the challenge of monetizing today’s increasingly fragmented online audience, and is an alternative to the vertical ad networks that we are seeing more and more of these days (Glam Media, Federated Media, Sportgenic, Giant Realm, Travel Ad Network, etc).  Both approaches are attempting to serve targeted ads to mid to long tail domains by amassing publisher ad inventory across numerous sites that attract a particular demographic or type of consumer.

While it does make sense for a cable company to get into this publisher centric ad network business, it was surprising to see Cox because Cox has very little online presence.  That said, it will be very interesting to watch what Cox does with the business, specifically as it relates to the recently announced Project Canoe – the national cable ad network…