Jonathan Mendez's Blog

The Web is Not an Ad Supported Medium

The web is the greatest marketing channel ever created but there is incredible irony in that. It was not created as a marketing channel. In fact, understanding that fact and even leveraging it is one of the best strategies you can undertake in online marketing.

Seth Godin said it best two years ago and I’ve included his quote in numerous presentations since. It is that important to understand: 

“This is the first mass marketing medium ever that isn't supported by ads. If a newspaper, a radio station or a TV station doesn't please advertisers, it disappears. It exists to make you (the marketer) happy. That's the reason the medium (and its rules) exist. To please the advertisers. But the Net is different. It wasn't invented by business people, and it doesn't exist to help your company make money.”

The recent debate about privacy is propagating the idea to consumers and the FTC that the Web needs third-party cookie tracking to survive. Frankly, I think it is demagoguery.

“Internet consumers have gotten used to free, vibrant content, yet content creators, have been hurt” - eXelate CEO Meir Zohar in AdExchanger 

“As long as enough people value targeted advertising in return for free content, the whole system will continue to work.” - BlueKai CEO OmarTawakol in AdAge 

Appealing to the value of content in the privacy battle is a losing proposition. Part of the reason Display is in this mess is that the content itself has become commoditized. A stronger more appealing argument would be around the value of the ads. Jarvis Coffin has the best take on that however, even he alludes to the “brand destruction” that can be caused by targeting. Advertising people I’ve spoken with have mentioned Advertiser concern about having their brand be seen as tracking consumers. The bottom line is expressing the value of banner ads is really hard when 99% of the time people are not clicking them.

The free content argument is also a bit disingenuous since the rise of audience based targeting is all about buying the lowest cost media possible. How does this make sense with an argument about advertiser supported content? Ad exchanges are hardly a bastion of  “vibrant” content.

Search is free to use and doing splendid as an advertiser supported medium. Email, also free, is doing quite fine thank you as well. As far as Display, Site level direct deals with the top publishers still account for 75% of the ad spend (JEGI IAB 2/10).

The challenge that needs to be embraced is making targeted advertising as helpful, useful and valuable as the underlying content. Get that to happen the issues of privacy disappear. Personally, I don’t believe that level of relevance is possible with third party cookie data but whatever happens have no fear. The web will survive and prosper with or without whatever ad targeting technologies exist at the time. My own included.

Unlocking the True Value of Digital with User Flows

From 2003-2005 I spent a lot of time observing people of all ages and walks of life use the web across many different sites and verticals. I watched their facial expressions and body language as they surfed. I watched their mouse movements and the locations of their clicks.  I asked them to put their brains on speakerphone and listened to what they had to say – and noticed what they didn’t say. The sessions were videotaped and I spent countless hours watching them over and over again dissecting every action in an effort to understand the way people control and navigate this medium.

What I learned:

1. Web behavior is determined by goals not who the people are
2. Every click has a goal associated with it
3. Success means anticipating and messaging to these goals, moving the person forward and creating a flow
4. People have “tunnel vision” when they are moving forward in a flow

The last piece is incredibly important. What is tunnel vision*?

• People don’t think of the online experience the same way web professionals spend their time thinking about them
• People focus on completing their goal and little else
• If elements of relevance are not in the context of focus they are likely invisible
• People pay attention to detail only when they have found what they are looking for -- even then it is only detail related to what they want to see

Tunnel vision in the flow is why 62% of people still cannot distinguish between Paid and Organic Search results. Tunnel vision in the flow is why no one clicks on banner ads. Tunnel vision in the flow is the reason online marketing can be so powerful when you design ads, pages and campaigns with the customer goals in mind, not your business goals.

Nothing has changed in web user behavior the past 5 years to adjust these findings. In fact, everything that has happened since continues to validate them. The continued effectiveness of Email, the dominant rise of Search, the fall of display CPM and the death of Behavioral Targeting 1.0 (of course the dream doesn’t die so we’re rehashing BT again and I’ve made my feelings about that known here).

Taking a step back, this all makes a ton of sense. The web is the first medium where people can easily navigate discovery and recovery paths for information and commerce. Applications like eCommerce, Search and Email are flow enablers and that is what gives them so much value. In fact, almost all of the value in the web is created and captured within the flow of people’s goalstreams.

In stark contrast to the flow creation and capture channels mentioned above, many publishers have looked at the world one impression at a time with the central node of their Information Architecture being the homepage. The rise of Search fractured this idea and the rise of Social compounded it.  There is a real threat this singular and generic thinking will continue to hold back publishers and display advertising because their manufactured content hierarchies do not correspond to the reality of how people consume the medium.

Even now with the unbundling of impressions and data little advancement is taking place in publisher environments understanding online flows. If display is ever going to “tell a story” as advertisers want, it is going to need more than one realtime bid on one page view to do it. What is required is a sequence of clicks and associated messages relevant to the goal that move intelligently downstream in parallel to the flow being created by the user.

This idea is no different than the Query> Ad>Landing Page>Call to Action flows that are enabled by Search. I find great irony and satisfaction in the fact that Search and the flows created off it are the most effective story telling medium in online advertising. Maybe then, it should be no wonder why it is the most successful.

Another great channel when it comes to creating flow is mobile applications. Apps are all about the flow mechanics and the optimization of goal paths. It’s no surprise people have been so taken by apps with this basis in multi-step experiential strategy and design. Apple’s next great frontier as they move into Advertising is predicated on the matching of relevant multi-touch messaging and every publisher I know is already jealous of the CPMs they command. And don’t think for a second flows can’t be cross platform. In fact they already are.

Everyday, each of us creates numerous flows. With our blinders on, each click of every flow we self-segment on our path towards goal fulfillment. For too long digital advertising and marketing (Search Marketers guilty as anyone) have looked through these paths, isolating each digital step. If we are truly going to advance as a medium we must first be able to recognize and capture these flows and then help people by anticipating their goals and making goal fulfillment easy. I have no doubt that the sum of each and every web experience and user flow is greater than the value of its parts.

* Credit for these definitions belong to my friends at Creative Good.

Top-Down vs. Bottom-Up Segmentation in the Age of Data Objects

 Almost everyday of the past 12 years I’ve looked at web analytic data. It’s never been a completely satisfying experience. Log files don’t paint a vivid picture and javascript’s palette of data points is often a mess. At the end of the day, it is all “just numbers.” It doesn’t tell me what to do. It doesn’t do it for me. It doesn’t let me shape it as I want to.

Reports are the output of modern web analytics. Sites are layered with tags on top of the page and tables are created for the data to sit and be compiled. There have been recent advances in reporting itself, namely solutions like Chartbeat (one of the great startup names) that provide realtime data streams. This leapfrogs data delivery over the hours of latency that exists in the site analytics space. But even realtime analytic data is still just a report, only a little more interesting by being timely. The Achilles heel of all site analytics continues to be the ability to mashup datasets from the report tables, an essential first step for segmentation and thus actionable analytics. Not only is this useful for look backs but it also delivers the flexibility needed to create new measurement tables.

Whether it was intentional or not Site Optimization tools emerged a few years ago and began to fill this gap. While they were used to optimize website performance they were marketed as Testing tools. Who could argue for the need to test? Their liftoff was an exciting time in the market. Initially these tools paid great attention to the content targeting aspect of the product, the object. This was done not to the neglect of the product but to the simplicity of early versioning.  More and more though it became clear that segmentation was what would really exponentially improve the application of the technology.

The past few years Web analytic tools have evolved to some degree and added more robust segmentation ability (AdWords being the ultimate segmentation creation and reporting tool). As everyone involved in optimizing the web in one way or another knows, it is the keystone to success. I do believe however that success for these solutions are still limited by the underlying data collection and warehousing methods that ultimately affect their ability to make the analytics actionable.

To be more specific, as in other applications, there is limited flexibility in data collection approaches and tables requiring a top-down approach to creating data sets that form the building blocks of intelligent segment creation. Top-down is the classic breaking down of systems to look at the sub systems compositional structure. It informed software engineering until the rise of object-oriented programming in the mid 90’s. For the most part it is the way web analytics works today.

Like the exciting rise of the OOP paradigms that now power the web, at Yieldbot we are really exciting about new bottom-up approaches to data set and segmentation creation possible using these same paradigms. We believe data needs to be as flexible and realtime as the web itself.  There is great power in the ability to take data, make it a sub-system of the platform and enable it to be shaped based on the goals of campaign. Just as the semantic web has opened up metadata with bottom-up RDF and microformats we will see a new wave of analytics will bring the same mashup ability to data. We’re already doing it.

As if that’s not enough incentive for bottom-up data approaches, as more and more data inputs/outputs are API generated (another area current web analytic solutions are lagging) the ability to take bottom-up approaches become even more mission critical. The best example of this is Display advertising. The speed to power new markets using APIs driven data are beyond showing the potential, they are generating returns for the DSPs, Exchanges and RTB using it.

Interestingly, unlike the data sharing advances in media buying, the analytics of advertising is spreadsheet wasteland with scarce little BI. One wonders how this situation exists when it is marketers and advertisers that need segmentation most of all. Segmentation breeds efficiency. Segmentation delivers relevance. Segmentation elicits emotion. Segmentation and twin sister matching sit in the middle of all that’s relevant in digital. Over the next few years it will increasingly become the difference of success or failure. Who’s matching you? And now the new question, how are they doing it? Bottoms up!

 

Search’s Long Tail Rising

 

“When they kick out your front door, how you gonna come?

With your hands on your head, or on the trigger of your gun?”

Last week Google confirmed changes to their natural Search algorithm.  In short, by giving more weight to site authority in the algo, long tail Search traffic should begin to rise for the top 1000 publishers. The majority of new customer and visitor acquisition takes place in the long tail so this update might make as large a financial impact as anything since the Florida update in November 2003.

Google also announced (maybe not so) coincidentally last week a list of the 1000 publishers in the DoubleClick Ad Planner. What was most interesting to me was that in a foretelling bit of metrics, publishers on the list are being ranked by UV (unique visitors) and not PV (page views). The shift in thinking as Search becomes Display is important for pubs to understand. The value of the media is in the visitor, not the page they are viewing. 

Ultimately, as all media becomes performance media value will be determined by how well the interests and intent - Search keywords being the best proxy for this - are matched with relevant ads and offers.  In response to this the past 24 months have seen a rise in publisher business models leveraging long tail natural Search traffic from Google namely Demand Media, AOL and now Yahoo with their purchase of Associated Content.

But there is an interesting publisher/advertiser symbiosis in play here. Google strategy in case you’ve missed it the past 5 years is to build an intent marketplace where they are the lone market maker -- something they’ve done with incredibly brilliance (helped by the ineptness of Yahoo and Microsoft). By dominating Search ads (and soon Display) as well as publisher monetization through AdSense, Google keeps the true value of the media opaque while creating a market that keeps their partners “happy enough” but is optimized for Google’s 10-Q.

Publishers have few other intent driven monetization options. Gripes about Google often belie the fact that 85% [PDF here] of Google outbound traffic is directed from natural Search. Besides the institutional cost of good SEO practices the cost to publishers for this mountain of intent laden traffic is $0.00. Not a penny for what is undisputedly the most valuable assets in online media – a search referrer! With Google embarking to deliver more of this manna for pubs this should be the opportunity of a lifetime for them. It is not. At least, not yet.

As someone who helped pioneer dynamic messaging and content targeting from Search I’ve watched little technical innovation happen to target these valuable natural search referrers over the past two years – critical years as Google’s own fortifications around Search monetization continue to get stronger. Is Demand’s model the best we’ve come up with to leverage Search? Is thinking about SEO in article headlines a revolutionary tactic? Is retargeting someone who landed from a query that innovative? Are contextual and in-text ads truly relevant? Outside of Quigo (in 2004!) nobody has built any tech that truly helps the publisher make money from Search’s free traffic except Google. So now publishers are helpless except to watch Google give the gift of increased Search traffic back to itself while pubs keep hitting the AdSense pipe.

The good news is it is far from game over. Huge advances in APIs, analytics, data and semantic technology the past few years bring with them great opportunity. Search is MASSIVE and contrary to people that want to write it off Google’s natural Search volume is only rising (up roughly 10 billion queries YoY (comScore)) and even better for targeting the user queries are getting more defined. New channels like YouTube, Twitter, Facebook and a rise in Mobile queries will continue to drive incrementally more intent laden traffic across the web to publishers. Search has plenty of legs and it’s not just publishers than can stand to benefit.

The long tail of Search is likely the most valuable marketing channel ever created. The dynamic nature of the web allows publishers and advertisers to roll it up so it can be leveraged it at scale but Publishers need tools to catch the money literally bouncing off their site and out of their hands back to Google. They need an endcap that allows them to both understand the value of the traffic and capture it by deliver relevance to it. These problems are some of the problems we're working on at Yieldbot and if you are a publisher interested in monetizing natural Search traffic I’d love to hear from you. Never has the opportunity been greater or more important.

Online Advertising is Not an Intent Generation Channel

Chris Dixon posted yesterday about Facebook and the ad channel they are trying to create with the Like buttons. He thinks they are building for top of the funnel Brand advertisers. The day of the big FB “Like” announcement I tweeted that Facebook was going to use these buttons to go head-to-head with Google on direct-advertising. It will be interesting to see how this plays out but in light of Chris raising the subject I wanted to expand on my thoughts around the opportunity.

Branding and impression do not matter anymore online. These concepts were long ago destroyed -- first by Search (free impressions) and then by Social Media (shared & trusted dissection of brand promises). Online advertising is the greatest demand-capture channel that will ever be known to man but it is simply not an intent generation channel. Demand-gen advertisers are better off sticking to TV where the CPMs are comparable and where demand capture can flow down into more measurable cost effective capture channels (as evidenced by the fact that the top Google trends on any given day are typcially TV related).

What works great on the web is Marketing – identifying and fulfilling needs. Search has always been overlooked for top of funnel influence in need identity. Search is present at each stage of user consideration. Yahoo had a seminal study about this about 4 years ago exposing the search funnel from brand awareness through the consideration stages down to purchase for women’s jeans. So Search is probably worth way more than it’s already returning – but you will not see comScore reporting on this.

Chris mentioned in his post that Google doesn't disclose revenue share with pubs which is true. However, what Google has disclosed about AdSense counters his claim that they keep the vast majority of the profits. In Q1 2010 Google paid out $1.45B to publishers on revenues of $1.65B. It’s also interesting to understand the dynamic of Search driving AdSense impression that results in the creation of MFA (made for AdSense) sites. So even with Google’s bevy of advertisers and giant publisher footprint the channel size appears to be $6-8B. I can’t see FB being able to match the low margins or the impression amplifier. Even if they can, this is still a far cry away from the $27B company Google is today.

Chris also mentions Amazon in his post. It’s relevant to recall that a fundamental driver of Amazon early growth was their affiliate network - that was most ostensibly a display ad unit. There is plenty of intent on the web that isn’t being harvested, especially on publisher sites. If Facebook is going to really become a threat to Google their only play is demand capture. Every day it spends focusing efforts on demand-gen is just another day Google get’s stronger. 

Display Advertising's New Wave

This week I was supposed to be in Amsterdam giving a presentation at Sanoma Uitegevers MediaParade event. As luck would have it a volcano erupted and forced me to cancel the trip. Below is the presentation I was really excited to give. It's 45 minute talk, history lesson, state of the union and crystal ball about display advertising. The slides don't do it justice but hopefully at the least you'll be intrigued.

Display Advertising's New Wave

View more presentations from jonathanmendez.

The Market Value of Supply Side Data

AdExchanger had a nice post from TRAFFIQ’s Scott Portugal about publishers using a Value-per-Customer metric for site visitors. As longtime readers know, I’ve been advocating publishers take this approach and measure site performance on revenue per visitor for years - most recently here.

I especially liked this part of Scott’s post:

“users interaction with a site leaves even more valuable breadcrumbs that should be used to target that user. An example data set for an online content provider will likely include: average time on site, average pages consumed, bookmarked landing page, links shared, number of comments left, path of visitation throughout the site....and that's before we get into ads clicked, registration data (which will likely include basic demography), ads viewed per session, etc.”

I’m not sure I agree with Scott on the value of those specific metrics to advertisers, but certainly I agree with segmenting and targeting based on site actions and events and then understanding the revenue derived from those segments at the visitor level in order to valuate each visitor, page and action.

For smart advertisers using DSPs (Demand Side Platforms) this is already happening. The “value-per” or “cost-per” idea has emerged to be the dominant growth force on the demand side. Unbundling of impressions is the backbone of RTB (Real-time-bidding). Instead of buying a block of inventory through a network or exchange that is not well matched to an ad message, impressions can be more efficiently targeted and purchased via cookie matching. 

This is a once a decade opportunity for publishers to take advantage of. It might be their last. Advertisers would love publishers to be able to directly deliver matching data (it originates from publishers already but is collected by third-parties). Believe me, advertisers are not married to demand side data collection and use. Advertisers are agnostic to where they get data. Their concerns are related to efficient spends and ad performance. Both will be markedly improved with more robust publisher data and segmentation.

Data Crunch: Supply vs Demand

The one advantage demand side valuation and data tools have is scale.  As my friend and web analytics luminary Judah Phillips tweeted to me yesterday “cost-per” metrics are more effective business measures than gross tonnage.”  Scale is required for platforms but platforms are best dumb. As I alluded to above and in this post demand side data is never going to be better at matching than supply side because it removes context and timing (not to mention privacy issues).

Advertisers excitement about RTB is putting market pressure on the supply side to valuate visitors and content. For years CPM has at best been arbitrarily determined and at worst determined in an opaque manner by third parties -- precisely because publishers have had no idea about the value of sites or pages. How crazy is it that the advertisers know more about the value of the publisher audience than the publishers themselves? This is not a good business position to hold in an auction-based environment. Really understanding the value – better than advertisers – is required (case in point, Google).

It’s incredibly obvious that all publisher visitors are not worth the same nor is a three-tiered system valuation even close to reality. Why is a search referrer typically classified as remnant? A visitor with intent in the middle of goal flow is surely one of the most valuable visitors to a site. The idea of premium, secondary and remnant is flawed and holding back publishers. These classifications are sure to vaporize over the next few years as we truly begin to value the visitor.

Without this value-per data how can pubs knowledgably set-up bid floors? Are they really going to allow a third-party with their own self-interest to do this for them?

When publishers can valuate on “cost-per” the exchanges and RTB will be their best friend and the market will determine the upside value of their audience based on performance. Sites with great performance will see CPMs beyond what they could imagine. Proof is backing in successful Search campaigns to CPM (of course Google does this for you). As I’ve mentioned numerous times a successful CPA campaign can routinely be in the $50-$100 CPM range. This is because of relevance and matching – efficient impressions. Unbundled impressions.

Display doesn’t yet have the search like ability for a keyword to unbundle a publisher's impressions in realtime but I can tell you that it's getting very, very close and we're insanely focused on this at Yieldbot. Having this level of understanding allows publishers to take control over the monetization efforts of their site. Publishers that don't will bleed to death, stabbing their belly with their own ignorance.

Dynamic Segmentation (La Nouvelle Vague)

I’ve always loved segmentation. One of the keys to the success of my first web business and the number one reason we survived the dotcom bubble was that we segmented our email list like crazy. Every supplement purchased qualified you for a segment. We knew the categories you were interested in and what products within those categories. We also knew what days worked best to send the emails to in each segment. Weight loss was sent on Mondays, bodybuilding on Fridays. This built an insanely successful email program despite the fact I knew nothing about online marketing back then. Relevantly segmenting, testing and targeted emails just made business sense -- and the web made it easy.

But Email is generally a static environment. The rest of the web is not. In the 12 years since that first segmentation strategy I have learned quite a bit about segmentation. One of the most important things I learned about is the dynamic nature of segments.

Segments are malleable. They can be shaped based on any number of factors and those shapes can change based on look-back or realtime. They can also have sub-segments -- literally segments of segments. As every Search marketer knows the success of segmentation is finding the optimal blend variables from which to form your segment. Most targeting success is predicated on how well you can do this. How well you can do this is based on the data you are using to support making your decisions. This is the gravitational force of segmentation optimization.

In my experience many SEMs fail because it is incredibly difficult to deal with all the segment variables in a dynamic data environment and a dynamic marketplace. It’s harder still when your success is only measured against your own metrics and not the metrics of others. I’ve never been a fan of benchmarks (most people use these to create “good enough” goals) but hey, at least it’s something to measure against.

That brings us to my current segmentation obsession, Display.

The emerging display ecosystem is being built on the back of data from any number of sources and like Search this data is being used to create segments. In fact, Display is opening up data and pricing in a way Search never did and never will. With that comes a giant market risk. Sometimes I think the whole “display new wave” is a crazy idea but like Jean-Paul Belmond in Goddard’s Breathless there is no turning back. The current environment was killing display and when you ain’t got nothing you got nothin’ to lose.

How does it feel? The entire remarketing / cookie market is based on segmentation as a proxy for audience buying. Display now uses words like targeting, addressable, personal, one-to-one and realtime. All these are based on one very simple idea - creating a segment to target more relevant advertising against. Still, collecting data is actually a very small part of ensuring success. Optimizing segments is where dreams are found and lost.

As hard as the opaque market of Search is, it is self-contained. In many respects that makes optimization easier than in Display. In my opinion (and there will be more than a few start-ups that disagree with me) truly optimizing segments (to the point of diminishing returns) across an ad exchange or a network is a Google level problem. Much easier is looking at segmentation at another self-contained environment  - the site. This is one key reason why our analytics focus at Yieldbot begins with the site data and our targeting focus ends at the site visitor.

Make no mistake, brand or performance, there will continue to be less and less media spend on irrelevance and a more and more spending on relevance. Segments are created for the simple purpose of delivering relevance. Every web business, be it advertising or publishing, needs to have more than data. The dynamic nature of the web requires systems that can both optimize and make actionable the data in ways as dynamic as the web itself. Welcome to the new wave.

Launch Interviews on Yieldbot

 

I realize that not everyone follows me or yieldbot on twitter so I wanted to post links here to recent interviews I've done surrounding the launch of yieldbot.

AdExchanger

ExchangeWire 

Hope you enjoy. I tried to go into great detail on our vision and execution.

Publishers interested in getting into the yieldbot beta please contact us from the yieldbot homepage.

Bounce Rates & Publisher Monetization from Search

Bounce rate from natural search is a problem that has plagued publishers for a long time. It’s one of the problems we’re working on solving at Yieldbot.

Many pubs spend a great amount of time and effort working on SEO to increase site visitors. The fruit of this labor is increased traffic to pages relevant to the intent of the visitor (as best Google can infer). On the face of it, this traffic would seem to be highly valuable. However, from my experience bounce rates (defined as the percentage of visitors that click off the site after landing on the page from Search) are typically between 70-90%. This is an extraordinarily high number when you consider that the most famous algorithm in the world has undertaken this keyword-content matching. As a result, tons of intent driven traffic ends-up as remnant inventory and is poorly monetized.

Taking the perspective of the visitor (as all good optimization should do) we are presented with two possible outcomes to optimize against:

1)   The visitor completes her goal of information recovery or discovery on the landing page.

2)   The visitor does not complete her goal and continues searching.

Either case is ripe for optimization.

In the first scenario after the goal is completed visitors are typically open to receiving new messaging. Here it’s possible to start a new goal path. This is the brief no-intent window. This window can be highly valuable especially if it has some contextual relevance to the goal that was just accomplished. A typical example is an offer for a rental car after the visitor has booked a hotel room.

In the second scenario the query was most likely not specific enough to deliver a relevant results page (or result) that matched one of the three visitor goals (primary, secondary, latent). This presents the opportunity for ad matching to deliver alternate goal paths that could be more relevant than the underlying content. Since it is intent driven traffic, success here should have a high transactional value if we can solve the matching problem. To see how this might be possible one only has to look at the search engine result page (SERP) itself where often times the ads are more relevant than the content (result set). We all at one time have done a search and clicked on an ad.

Still, nearly all publisher landing pages from SEO are dead ends or Google boomerangs. Partly because publishers have not thought of these internal pages as landing pages or treated them the way eCommerce sites do.  It is possible to match display ads and offers on landing closer the goals of the visitor than the underlying content. But as we seen with search, the only way to do this is by having the ad matching and delivery system woven into the experience. That’s what we’ve built.