Tumblelog by Soup.io
Newer posts are loading.
You are at the newest post.
Click here to check if anything new just came in.

April 04 2013

10:32

Game Changer? Inside BuzzFeed's Native Ad Network

After quietly piloting the concept for months, BuzzFeed officially launched its own native ad network this March. The mechanics of the network are bizarre, yet intriguing: Participating publishers allow BuzzFeed to serve story previews on their sites which, when clicked, bring visitors to sponsored stories on BuzzFeed.com. The network, whose ads resemble real story teases, is brash and a bit risky, but it may just help publishers circumvent the abuses of today's established, banner reliant, ad network ecosystem.

onlineadsevolved_seriesimage_sm.jpg

The current ad network model, or indirect sales model, is a mess. It functions based on an oversupply of simple display ads and is rife with inefficiencies, opening the door for middlemen to reap profits while devaluing publisher inventory. BuzzFeed's native ad network, along with others in a similar mold, has the potential to minimize these drawbacks by giving publishers a simple, safe way to make money through indirect sales channels.

How We Got Here

The ad networks we know today came about as a result of the poor economics of the banner ad. A little history: In the early days of Internet publishing, the banner ad seemed to make sense. Just as many publishers began figuring out the Internet by taking content produced for print and slapping it on the web, they took the standard print ad format -- selling advertisers designated space on a page -- and brought it online too. Instead of selling these ads by the inch though (a measurement suitable for edition-based print publishing), digital ads were sold by the impression, or view, a better fit for the unceasing nature of online media.

mediumrectangle.png

Over time, the acceptance and standardization of the banner ad brought a number of side effects along with it, the most important being an incentive for publishers to pack their pages with as many banners as possible. For publishers, the decision was easy: The more banner ads they placed on a page, the more money they stood to make. So instead of running a more manageable (and more user-friendly) three or four banner ads, publishers cluttered their pages with 10, 15 or even 20 of them.

Placing ads on a page was only half the equation though; publishers still needed to sell them. As they soon found out, selling premium, above-the-fold ads was a lot easier than getting advertisers to pony up for the glut of below-the-fold, low-quality inventory. A significant percentage of ads thus went unsold, and into the void stepped ad networks. Even at a heavy discount, publishers figured, it was better to get some money from remnant inventory via ad networks as opposed to making nothing. This would prove to be a poor calculation.

The Dark Side of Ad Networks
Display.jpg

Rather than question the logic of creating more inventory than it was possible to sell, publishers stuck with the model, growing their audiences along with their inventory and watching the original ad networks evolve into a multibillion-dollar tech industry fed largely on remnant inventory. Soon, publishers found themselves exposed to more drawbacks than they perhaps initially bargained for, and the original premise of making more money with more ads came into question.

As it grew, the indirect ecosystem not only enabled advertisers to buy publisher inventory at cheaper prices, devaluing even premium inventory, it also allowed them to buy premium publisher audiences on non-premium sites, thanks to the third-party cookie. The Atlantic's Alexis Madrigal zoomed in on this problem in a long piece about the tough economics of the online publishing industry.

"Advertisers didn't have to buy The Atlantic," he wrote. "They could buy ads on networks that had dropped a cookie on people visiting The Atlantic. They could snatch our audience right out from underneath us." The indirect system, in other words, commoditized his audience, leaving his impressions as valuable, in some ways, as those on third-rate sites.

Recognizing these and other abuses as endemic to the system, publishers today are starting to fight back. Many are trying to limit their dependency on banner ads either by cutting them out of their business completely or by constricting supply. David Payne, the chief digital officer at Gannett who oversaw a major USA Today redesign which dramatically reduced the site's supply of banners, put it this way when I spoke with him for an article for Digiday: "I think we've all proven over the last 12 years that the strategy we've been following -- to create a lot of inventory and then sell it at 95 percent off to these middlemen every day -- is not a long-term strategy."

Publishers have started looking for alternative forms of revenue to fill the gap and, so far, the hottest alternative is the native ad. Everyone from The Atlantic, to Tumblr, to the Washington Post, to Twitter is giving it a try and BuzzFeed, perhaps the extreme example, is all in. It sells only native ads, no banners.

BuzzFeed Susceptible to the Same Problems?

Which brings us to BuzzFeed's ad network. At this early point, it seems like the network should indeed be free of many of the abuses listed above. Its simple nature, for example, ensures that most of the value won't be siphoned out by a group of tech middlemen and will be largely shared by BuzzFeed, participating publishers and minimally, the ad server. Participating in the network, furthermore, should not devalue publishers' existing inventory since it will not provide advertisers access to the same inventory at cheaper prices.

BuzzFeed also claims its networks steers clear of third-party cookies, the audience-snatching culprit that The Atlantic's Madrigal railed against.

"We believe the ultimate targeting is real human-to-human sharing, digital word of mouth, so we don't do third-party cookie targeting," BuzzFeed advertising executive Eric Harris told me via email. "We're not collecting individually identifiable data and will not sell any data."

The approach should help participating publishers breathe a bit easier -- and they may just want to consider demanding the same from any network they engage with, not just BuzzFeed's.

"It's cleaner; it's more straight up," said Fark.com CEO Drew Curtis of BuzzFeed's network. His site, which is one of the partners participating in the launch, embeds BuzzFeed sponsored story previews on its home page, marking them as sponsored. "I just like the fact that there's no screwing around," Curtis explained in a phone interview, "It's exactly what it appears to be, no more no less." Rates from BuzzFeed's ad network, he added, are significantly higher from other indirect channels. "Advertisers," he said, "are willing to pay for less bulls#*t."

Of course, one question participating publishers might ask themselves is why they are helping BuzzFeed profit from sponsored posts instead of selling them on their own sites. The answer might worry BuzzFeed -- at least until it can get its traffic up to the point of advertiser demand -- but if publishers decide to go that route and withdraw from the network, they may be able to pull themselves away from the bad economics that brought them into the network game in the first place.

Alex Kantrowitz covers the digital marketing side of politics for Forbes.com and PBS MediaShift. His writing has previously appeared in Fortune and the New York Times' Local Blog. Follow Alex on Twitter at @Kantrowitz.

This is a summary. Visit our site for the full post ».

March 29 2011

14:00

The Geico Gecko meets The AOL Way: Are display advertisers too obsessed with click-through rates?

Late last year, AOL announced it would be revamping its ad platform, shrinking the number of ads it serves and expanding the sizes of those ads. In some cases the ad units would be four times larger than they were before. The move was seen by many as AOL’s attempt to address the abysmally-low click-through rates on display advertising, and senior executives admitted that they would see an immediate drop in revenue as a result of it; their hope was that in the long run advertisers would flock to the new platform and pay higher rates for these more successful ads.

According to several studies, click-through rates — the number of people who actually click on an ad — run well below 1 percent on most sites, and each year these rates get lower and lower. Some industry analysts have said this is a result of “banner blindness,” the idea that we inadvertently train our eyes to ignore certain parts of a web page, including sidebar and banner ads.

Depending on which side of the aisle you are on, these metrics are either a blessing or a curse. On the one hand, the Internet allows us to measure ad success like never before. In the past, advertising agencies would have to employ arcane formulas using Nielsen or circulation numbers to guess how many eyeballs saw a 30-second spot on television or a full-page ad in The New York Times. Now, we can open up Google Analytics or click-tracking software to determine exactly how many users engaged with an ad. We can even in some cases determine conversion rates, measuring not only how many people clicked on an ad, but also how many actually purchased a product after making the click. These metrics are a welcome relief to the client who famously said, “I know I am wasting half my advertising budget; I just don’t know which half.”

But many publishers and advertising agencies have expressed frustration that their industry is beholden to such confined measurement. By focusing so much on direct response, they argue, advertisers are missing out on the larger branding opportunities afforded by creative advertising. The Geico Gecko is not successful because he inspires people to jump up from their couches and purchase car insurance; he’s successful because when a person decides months later to shop around for car insurance, his image springs to mind.

Earlier this month, a company called MediaMind released a comprehensive study on the performance of financial services display ads. MediaMind specializes in hosting ads and collecting a variety of performance metrics for advertisers. If Goldman Sachs wanted to advertise on NYTimes.com, for example, MediaMind would host the ad on its own servers and give the NYT a link to pull the ad onto its site. The company would then measure how many times the ad is loaded, how many people click on it, and even how many hover their mouse over the ad without clicking — what MediaMind refers to as “dwell.”

For this particular study, MediaMind analyzed 28 billion ad impressions and terabytes of data to determine what kinds of financial service ads — whether for banks, credit cards, or insurance companies — performed best. The average click-through rate on such ads is .09 percent, with an even lower post-click conversion rate of .03 percent. Perhaps more encouragingly, though, the “dwell” rate for these ads was 4.26 percent, meaning that nearly one in every 20 users hovered his or her mouse over an ad — an indication, MediaMind said, that the ad carried influence even if it didn’t lead to a click. The study claimed financial service ads had an overall conversion rate higher than their click-through conversion rate — .16 percent vs .03 percent — because some of the users who didn’t actually click on the ad still visited the advertiser later. One of the biggest takeaways from the study was that a user’s engagement with an ad sharply falls after the first time he has seen it, meaning that if he sees an ad on NYTimes.com and then later on WashingtonPost.com, he’s much less likely to click on the Post’s ad than a reader who is seeing it there for the first time.

To understand the click-through rate dilemma many advertisers face, one merely has to dive into MediaMind’s findings about which kinds of ads perform best: The highest click-through rates were for credit cards, while the lowest were for car and home-owners’ insurance. Ariel Geifman, MediaMind’s principal research analyst, explained to me in a phone interview that the credit card ads perform better because many people are almost always willing to try a new credit card with a better rate. But why did the insurance ads perform so poorly? “We think it’s because users only need a policy once a year, so you only need to get people at the point when they’re thinking about it — which is really hard,” Geifman said. “Unlike credit cards, users are not actively shopping for better insurance offers all the time, only once a year. You have to tempt them with an offer exactly at that point in order to get them to consider it.”

Display advertising, in other words, is lacking a Geico Gecko strategy.

Geifman told me that despite pushes for advertisers to take a much more “holistic” view, they’re still measuring their success on click-through and conversion metrics. “People try to focus more on the tangible rather than the intangible metrics,” he said. “In the furture, display advertising is going to be a lot more focused on branding.”

But will it? John Battelle, founder of Federated Media and a board member of the Interactive Advertising Bureau, has spent a lot of time contemplating this question. Federated Media is an ad network that provides advertising for hundreds of publishers, seeing more than a billion ad impressions a month. (I’ve written for some outlets that use FM advertising.) “No matter what, we have to live in a world where the question, ‘Does the consumer click on my ad?’ is the fundamental and only consistent signal in display advertising that is universally understood,” Battelle said in a phone conversation. “That impulse has a lot of implications. When people optimize click-through rates, it changes all sorts of decisions that can inevitablly lead down a path towards, in essence, the direct-response approach to advertising. Which is to say, if you optimize your creative — your media buy, your placement, everything — to this one signal, and you tell your agencies and your publishing partners that’s what’s most important, you’re going to get behaviors that drive clicks. And that sort of ignores a very large percentage of the value of advertising, which has to do with changing the perception, awareness, and potentially other important signals of value in the ecosystem. Unfortunately, it’s something we’ve had to live with because it’s the only standard that’s easily measured.”

To show the short-sightedness of such metrics, Battelle cited a comScore study that found in 2009 that 4 percent of Internet users drive a whopping 67 percent of all advertising clicks. Do we really want to target our ads, he asked rhetorically, to such a small user base — the online equivalent to those who respond to late-night infomercials?

Though the display advertising industry has been slow to battle this trend, it has taken steps to ameliorate it. Part of the problem, as the recent AOL ad revamp indicated, is that display ads are small. It’s very difficult to replicate the full-page ad of a print newspaper or magazine, and there’s only so much you can convey in a tiny box on a website’s sidebar. In 2009, Federated Media launched a product called an Ad STAMP that allows an advertiser to purchase multiple ad slots and effectively take over an entire page. The same year, Daily Kos hosted a “skin” advertising platform for a then-upcoming Frontline program called “Obama’s War.” The skin wrapped around all the Kos content, effectively bombarding the reader with the brand (while not intruding on the actual blog posts). BlogAds, a North Carolina-based ad network that serves ads to Daily Kos and hundreds of other blogs, has also experimented with including social content from sites like Twitter directly into the ads themselves.

In an interview last year, I asked BlogAds founder Henry Copeland which industries should rely less on click-through rates and more on long-term brand influence. He pointed to the entertainment industry as one example. “For instance, with TV shows or with a movie, very few people buy the ticket online,” he said. “So the real measure is you spent X amount in advertising and then you put this many seats in movie theaters.”

In the AOL Way, leaked to the Business Insider last year, the company indicated that an individual blog post needs about 7,000 pageviews to generate a profitable amount of advertising revenue. With the average cost per piece of content pegged at $84 and a target of an average gross margin of 50 percent, that puts AOL’s CPM at $18. In other words, it hopes to generate $18 for every thousand pageviews it generates. At a .09 percent click-through rate, we’re looking at about $18 per click. Given that you can get much better rates on advertising platforms like Google Adwords and Facebook’s targeted display advertising, it isn’t hard to see why a publisher would want to steer an advertiser’s focus away from raw clicks alone.

“You don’t build brands by optimizing for clicks,” Battelle told me. “There needs to be other measurments as to whether your audience is aware of and gaining value from the messaging you’re doing on these sites through display advertising.”

Of course, some would accuse these publishers of trying to put the new clothes back on the emperor. But as AOL shifts further away from its declining subscription revenue and more toward an ad-based model, it’s not surprising that it wants to convince advertisers that there is, in fact, value in a banner and sidebar ad. How much value is there will determine whether Tim Armstrong’s quest to build a content-based company will result in success or dismal failure.

Portrait of the Geico Gecko by Thomas23 used under a Creative Commons license.

Older posts are this way If this message doesn't go away, click anywhere on the page to continue loading posts.
Could not load more posts
Maybe Soup is currently being updated? I'll try again automatically in a few seconds...
Just a second, loading more posts...
You've reached the end.

Don't be the product, buy the product!

Schweinderl