Real-Time Advertising
I attended the excellent AdMeld RTB (real time bidding) conference today. The conference focused on the rapid movement of online ad inventory to real time bidding platforms.
For some time now I’ve been concerned that the glut of advertising inventory available on the web would drive the value of most of that massive long tail of impressions towards $0.
While there is certainly a degradation of value taking place given hugely increased supply, user data is fundamentally improving this problem by providing the ability to target at the user level (vs. impression) and thereby significantly increasing value.
The online ‘non-search’ ad space is (finally) starting to look more and more like an efficient market, where almost every piece of inventory has value to some advertiser because of the specific user it touches, the data on that user and how/when/where it touches that user.
The equation —> Real time inventory + Data = Value.
The key remaining question however is price — what is each impression worth at the end of the day?
Current real-time exchange impression value is certainly depressed versus artificial rate card CPMs, but largely higher than traditional run of network/remnant rates. Eventually though, this exchange inventory will likely increase in value as more and more useful data is appended.
How much more value? And what does the composition of this market look like when it all shakes out? Too early to tell definitively.
What’s clear though is that RTB is the future of online direct marketing beyond search.
A representative from eBay said today at the conference that real-time exchanges currently provide the best ROI of any platform across the board for them, and they are increasingly moving dollars to RTB from search. This may be somewhat of a function of the artificially low-priced available inventory, but it is still incredible given where the market is starting from.
Branding dollars are increasingly moving to these platforms as well, as buyers continue to push for buying all types of media through this more efficient methodology. To combat this, many publishers are now adding pricing floors for ‘premium’ inventory moving through exchanges to create scarcity value. This feels like it will work for very unique inventory and audiences. Although I’m not sure how sustainable it is for how much inventory over time. It will certainly be interesting to watch and likely have massive impact on publisher top-lines.
What is clear is that a lot more inventory is heading to RTB platforms. The shift from search will drive prices up for this display inventory, and prices will stabilize at some point much higher than today but perhaps less than historically achieved through direct sales. And certainly advertising dollars will be more efficiently distributed across the web vs. concentrated in a few sites.
This is a fascinating market just beginning to unfold in front of us. I’m curious to hear your thoughts and perspectives.
Niche Media’s Unlikely Savior: Offline
I’ve been thinking a lot lately about the real and virtual worlds — where they intersect, where they depart, how they are the same, how they are different.
As we spend more and more time (and money) in the virtual world, elements of the ‘real world’ seem to actually increase in importance. While authentic real life experiences and interactions can be augmented significantly, they cannot be completely replaced.
For this reason, the live event business continues to thrive as many traditional media businesses struggle to survive.
Live sporting events are an immediately obvious example — anyone who’s been watching the NBA playoffs knows how powerful they are. The only part of the music business that makes money today are concerts. See Irving Azoff’s comments at D7 yesterday. Speaking of which, conferences such as D are a big business. Nothing can ultimately replace that live interaction.
Of course the current recession has a negative impact on the live event business as well. But it’s woes are temporal rather than the systemic ones of traditional media.
Niche media brands will increasingly struggle if they are solely reliant on selling banner ads against limited online inventory. While these brands will begin and end their engagment with the customer on the web, and they must be really smart about how they leverage the broader social web to do so, they will distinguish themselves from the evergrowing pack of competitors for consumer attention by actually touching their consumer in tangible ways.
A perfect example of this is an email I received yesterday from New York Magazine, 
advertising a unique culinary experience they are offering their devout readers. They have done a great job engaging a very targeted, high value audience, both on and offline, and driving meaningful revenue opportunities beyond the advertising they sell on their site.
This is only going to get more widespread and more targeted, audience by audience.
I recently spoke at an event with Scott Heiferman, and I couldn’t help but marvel at what Meetup is tapping into in this regard. What began as a community organizing tool, may actually turn into one of the most engaging platforms for advertisers to reach authentic *live* communites. Is there anything better for Pampers branding efforts than sponsoring 5000 simultaneous mommy Meetups across the country complete with free diapers?
The niche media businesses that tap into these authentic connections and experiences will survive. Those that don’t and rely on traditional publishing and banner ads will have a very hard time doing so.
Is The Long Tail Too Long?
Martin Peers made an important and often ignored point in his piece on online advertising in yesterday’s WSJ. Weakness in the online ad market, specifically display advertising, is not simply a current demand issue. Rather, we have a fundamental oversupply problem in the market that is only going to get worse.
As web publishing continues to be democratized, the same happens to web ad inventory. And there’s simply not enough brand advertising dollars to satisfy the level of online inventory continuing to grow by the second. So prices get hammered across the board and smaller sites are simply left out in the cold.
Contrary to Chris Anderson’s hypothesis, The Long Tail is simply too long to be that valuable.
So how do we make money given this reality?
On the brand advertising side, it’s all about scale. The larger a *relevant* audience you can deliver an advertiser, the more meaningful you are to them. There are a number of sophisticated ways that have emerged to improve user targeting and thereby relevance of audience delivery. But in the end it must be done at scale to matter to advertisers. It’s as simple as that.
More important to the future of revenue generation on the web is our ability to tap directly into consumer’s wallets. Many have been talking about digital goods for some time, but it’s emergence is becoming ever more clear to me. As we spend more time online, more of our discretionary spend will follow; the more we live online, the more digital goods will look like regular goods.
We are just at the beginning of this migration. Most of the winners are yet to emerge. But businesses that tap into this inevitable trend early will have a meaningful advantage in the coming digital economy. They will build their retail brands on prime real estate before others have an opportunity to do so. We’re certainly thinking about this a lot across a number of Spark portfolio companies.
