Microsoft's New Plan Same As The Old Plan

Microsoft's proposed bid for Yahoo was its fastest way to gain the scale necessary to compete against Google for online advertising dollars. Even before pulling the Yahoo offer, the company he had begun laying the groundwork for a strategy to compete with Google in online advertising. Microsoft CEO Steve Ballmer is convinced that online advertising is crucial to its future. So much so that he sees online advertising making up as much as 25% of the company’s business within a few years. Google generates approximately US$ 22 billion versus Microsoft's US$ 3.3 billion from online advertising.

Consumers and businesses increasingly are switching from desktop software like Microsoft's to free online services that do the same things. "We are absolutely committed to be the leading player in that endeavor," Ballmer told employees at a recent gathering.

Google dominates the market, taking in 77% of the revenues from search advertising where as Microsoft has 5% of U.S. search revenue, according to search marketing firm Efficient Frontier.
Acquiring Yahoo would not have given Microsoft the revenue nor the search market share it is seeking for, as Yahoo's strength is in display advertising not search advertising.

Microsoft Seven Times Bigger Than Google In Display Ads
Microsoft's share of the display advertising market is already about 7 times larger than Google's. Although the display market is smaller than search, it's expected to grow faster over the next few years because of a surge in video ads. Market research firm IDC figures that by 2012 the display market will double, to $15.1 billion; revenue from search will reach $17.6 billion.

Microsoft makes money in the display business in two ways. It sells ads on its own popular web sites, such as MSN and Hotmail, and it acts as a broker by placing ads on other companies' web sites and then splitting the revenue with them much like Google's Adsense Program. Smaller web sites use Microsoft because they don't have a salesforce to call on advertisers and ad agencies. And even large players like media giant Viacom have found that letting Microsoft sell some of the space on sites like Comedy Central and MTV can lead to higher revenues. "They can achieve better monetization than we can on our own," says Viacom CEO Phillipe Dauman.

It's All About Display
Microsoft's new pitch is that, in display advertising, the company has the most sophisticated technology of any company. It can help advertisers precisely target display ads and assess the value of ads even when web surfers don't click on them. Microsoft is also making the case that search advertising, Google's gold mine, is overrated. Soon the company, it plans to introduce new ad technology that it says will demonstrate that to advertisers. "We're going to win with this strategy," said Keith Lorizio, Microsoft's advertising manager. More>

Image Source: Forbes

Google Files Patent For Targeted Video Advertising

Google has filed a patent application for "Targeted Video Advertising" with the USPTO, for "a computer-implemented method of providing targeted video promotional material".

The process being patented includes transmitting a promotional item for display on a video terminal, monitoring a viewer's interactions with particular advertisements, such as skipping advertisements and presenting advertisements determined to be similar to those that the user has watched and less like those the user has skipped. The "Targeted Video Advertising" patent application suggests it may go into set-top boxes.

The patent also covers the following user behavior patterns:

1) "Users may be allowed to skip particular commercials, but required to watch or accept a set number of commercials in order to watch a program. The required number may be, for example, a set integer, such as 11 commercials."

2) "The system…may also require the user to fully watch at least four promotions before the program will continue."

3) "The profile includes some demographic information of the user, such as income, age, and gender. This information may be obtained when the user registers for the video service."

4) "A commercial with the interactive format is an advertisement that requires user interaction to be completed (e.g., a survey)."

Facebook Application "Values" From Adnomics

Although one should maintain a healthy skepticism of the values given to many of the companies listed in Adnomics extensive review of Facebook applications, the site offers great insight into the Facebook development landscape as it shows how many users and how many installs for thousands of applications.

Top of the pile is Slide.com, the most successful widget builder for Facebook that started as a photo application with enormous exposure across Facebook. Slide has already enjoyed investment of about $75 million and a spectacular market valuation of over half a billion dollars, actually far more than the $322 million valuation given to them by Adnomics which appears based more on metrics than market forces.

Newspapers: On The Digital Ropes

Newspapers are in trouble, and things keep getting worse. With circulation dropping and currently at the same level as 1946 (!), papers sold per capita are at a fraction of former levels. The death spiral could become fairly dramatic since newspapers have a lot of fixed costs and many are already losing money. Unlike internet enterprises, papers cannot easily scale back expenses as advertising revenues flow online. This will likely lead to continued consolidation of local papers and probably will become a death knell for many others.

Newsosaur has a nice summary post and Henry Blodget at Silicon Alley Insider has a good mini-analysis of the potential advertising revenue shakeout.

Online Ad Network Adify Sold For $300 Million

Adify, the white-label online ad network, has been acquired by Cox Enterprises, for about $300 million reports paidContent.org.

Adify is a self-service ad network for web sites interested in developing their own ad network. The service allows a publisher to negotiate ad rates, and to reject an advertiser if wanted, with Adify taking in about 20 percent of the revenues in. Clients include Guardian, Forbes.com, NBC WeatherPlus, Martha Stewart Living Omnimedia and others.

Adify had raised a total of $27 million in funding and made about $7 million in revenues in 2007.

Internet Trends 2008

Morgan Stanley has made available their Internet Trends report for 2008. The 72 page report covers:
1) Usage Patterns
2) Social Networking
3) Widgetization
4) Measureability
5) Monetization
6) Facebook Apps
7) Online Ad Spend
8) Online Video
9) Mobile Outlook
10) Emerging Trends
11) Recession Impact

Click to view report on Internet Trends

CPMs For Facebook Applications

Inside Facebook has pulled together an excellent post noting the claimed CPMs by several Facebook developers for their Facebook Applications.

Here are the numbers:

$0.60 CPM with Social Media

$1.50 CPM with VideoEgg

$0.27 CPM with Cubics, down from $0.43 earlier this month

$0.40 CPM with Cubics

$4.78 eCPM with Social Media
[? This is so out of line with the others I think great skepticism is called for here]

$0.50 CPM each with AdSense, FB Exchange, Social Media, and RockYou (and by combining 2 units on a page is making $1.00 CPM)

$0.125 CPM with Lookery ($0.25 with 2 ads above the fold)

$0.10 CPM with Cubics, down from $0.43

$0.04 CPM with AdSense

Note especially that last very sad Adsense CPM of $0.04 That's four cents per *thousand* impressions, hardly something you'd want to write home to your angel funders about. Clearly few if anybody has found the recipe for great monetization of the social networking experience - that is unless you count the amazing ability of companies like Facebook and Ning to garner investment capital based on huge company valuations.

Another issue that is not yet well resolved is the simply enormous discrepancy between these sad CPMs and those that are charged to many advertisers. It's still common to see advertising rates of $30 CPM and even more for highly targeted websites. Clearly advertisers see a lot more value in targeting than simple numbers, and based on the limited data to date it does appear that social network advertising is conspicuously inferior to other forms of ads.

Yet are the targeted website CPMs of over 500 times what most of these Facebook developers are seeing sustainable for the long term?

Buzzlogic Acquires Social Web Startup Activeweave

The Valley is indeed a small place. On Sunday I was at Brian Solis's party where the who's who or the glitteratti of tech converged. I was speaking with Jean Sini, co-founder of Activeweave and as I started to ask him indepth questions about this company he became silent. I finally asked him "What would the exit strategy for Activeweave look like?", he responded "I am not even thinking about". Oddly enough I received an email from him yesterday and the next thing I know is that Activeweave is being acquired by BuzzLogic which is a social media software company.

Trusting Your ISP With Your Clicks

Cyber Security sleuths Dan Kaminsky and Jason Larsen have found significant security vulnerabilities in some affiliations that large ISPs have with ad serving companies. The Washington Post reports on their recent findings:

ISPs like Earthlink, Qwest and Verizon have outsourced at least portions of
their ad-serving technology to BareFruit, a London-based company that
specializes in helping ISPs monetize wayward Web searches. The trouble is that
until late this week, BareFruit's ad servers were vulnerable to what Kaminsky
called a "trivial to find and exploit" vulnerability that would make it simple
for fraudsters to trick users of those ISPs into visiting malicious Web sites
that appear to be located at trusted sites.

More broadly this security issue raises questions about whether thoses with access to our online informaiton and online activity details are protecting us responsibly enough. The US Government, Google, Yahoo, MSN and others collect extensive details about search activity, email content, and more. Even the issue of who owns your data is not resolved to any reasonable degree. The value of this data increases as data mining and advertising targeting techniques improve so the online community is well advised to clarify many of these data ownership and data stewardship issues immediately, because the Pandora's box of personal information opens wider every day.

ad:tech SF To Focus on Digital Marketing

ad:tech is set to roll into town April 15-17. The conference will feature the heavy hitter in the digital ad industry and Digg's Kevin Rose is set to deliver one of the keynotes. This year's conference will focus on four core areas;

1) Performance Marketing
2) Emerging Platforms
3) Media and Branding
4) Exchange Series

I found the itinerary builder very interesting. It is a simple interface that incorporates AJAX that allows conference attendees to customize their itinerary, save it to their account and print it as well.

The conference will also feature an awards show recognizing the top 25 web properties in the various digital marketing categories. The awards show is sold out but you can still get an expo pass here.

Yahoo And AOL Talk Merger

Yahoo and AOL are in discussions to combine their web operations reports the WSJ. The move is aimed at thwarting Microsoft's bid to acquire Yahoo.

The terms being discussed between AOL would fold into Yahoo and make a cash investment in return for about 20% of the combined entity. The deal which does not include AOL's dial-up access business values AOL at about $10 billion. Yahoo would use the AOL cash investment and put up additional funds to buy back several billion dollars worth of its own stock at a price somewhere in the middle of the range between $30 and $40 a share reports the WSJ.

Yahoo To Test Google Ads

Yahoo said it plans to carry search advertising from Google as part of a test that could lead to a broader partnership reports the WSJ. The two-week trial, which will be limited to U.S. traffic and no more than 3% of Yahoo's Web search queries, is designed for the two sides to evaluate the revenue potential of a broader search ad outsourcing arrangement. Yahoo already had been in negotiations to outsource its Web-search advertising in Europe to Google since last year, say people familiar with the matter.

Citigroup Global Markets analyst Mark Mahaney estimates that Yahoo could boost its cash flow more than 25% annually by outsourcing all its search advertising to Google. Some investors have called for Yahoo to abandon its own search advertising system as a quick way to boost its revenue. Analysts predict that outsourcing its search ads to Google would boost Yahoo's cash flow, since Google's system generates significantly more revenue for each search query than Yahoo does. Under such an arrangement, Yahoo would likely garner a majority of the revenue and Google keep the rest as a commission.

In a press release, Yahoo said "the testing does not necessarily mean that Yahoo will join the AdSense for Search program or that any further commercial relationship with Google will result. " Yahoo CEO Jerry Yang has previously said "We believe having a principal position in both search and display advertising is critical to creating...long-term shareholder value".

Online Retail Sales To Rise in 2008

In spite of the slowing economy, online retail sales is expected to rise 16.6% in 2008 to $204B in line with 2007 growth rate according to Forrester Research. Nearly all retail categories are expected to be beneficiaries but the biggest online beneficiaries are apparel which is expected to rise by $3.9 billion, or 17%, computers up $3.2 billion, or 15%, and autos up $2.5 billion, or 15%. Of course, although e-tailing is gaining in popularity, it still accounts for less than 5% of the overall retail market in the U.S. And, they are not necessarily new stores but sale transfers from bricks-and-mortar stores.

Forrester expects that retailers will focus their online marketing dollars in paid search and email where efficacy can be more easily tracked. The Forrester report estimates that the "average online retailer spends $300,000 annually to send 77 emails a year to each customer. That works out to an average cost of $7 per order". Search engine marketing costs about $0.50 per click which is about $8.47 per click in revenue.

On the consumer side, this is being attrubuted to the convenience of online shopping and high gas prices. For companies, the overall slowing economy is forcing companies to cutback and streamline their ad spend.

The Offline Impact Of Online Advertising

Web advertising stimulates off-line sales and in most cases, online campaigns increase sales more at advertisers’ retail cash registers than on their websites, according to a report by comScore.

The data was gathered by observing the behaviors and purchase patterns of over two million people that had installed comScore's tracking software on their PCs. The conclusion was that online advertising influences consumers' behavior

A study conducted for a retailer with more than $15 billion in annual revenues (most from their store) revealed that U.S. sales increased by 40% online and by 50% off-line among people exposed to an online search ads and display-ads.

The study also found that people tend to respond "with their wallets" more to search ads than to display ads. Search ads are text advertising that appear on search engines based on a search query and only appear after a user has searched for that term. They are generally more costly per impression than are display ads. The study concludes that using both types of ads in one campaign increases sales more than the two, added together, do in separate campaigns.

Google Adsense Competitor Hires Yahoo VP

OpenX, the open-source ad server startup, has hired Tim Cadogan, Yahoo's senior vice president for search marketing as its CEO reports AllThingsD. OpenX gives web publishers an alternative to Google Adsense to monetize the traffic on their web site.

“With open-source software, there is a lot of potential for business disruption and to open up the market,” You have not really seen open-source models really applied to the ad space until now…but there is a big business in giving publishers a really robust offering and a platform where they can also share what they build.”

Search Engines Must Delete Data Within Six Months

A European Commission advisory body on data protection has said that search engines should delete data held about their users within six months reports the BBC.

The proposed rule specifieds that "Search engine providers must delete or irreversibly anonymise personal data once they no longer serve the specified and legitimate purpose they were collected for."

Google and Yahoo anonymise user data after 18 months and MSN does the same after 13 months. The body said search companies were not "clear enough" on their data protection policy and the recommendation is likely to be accepted by the European Commission and could possibly lead to a clash with search companies. The recommendation could have broader implications such as getting user consent before serving them personalized advertisements.

Peter Fleischer, Google's global privacy counsel, said in a statement: "Google takes privacy incredibly seriously; protecting our users' privacy is at the heart of all our products. It is the reason we were the first company to commit to anonymising our search logs, and also why we dramatically shortened our preference cookie lifetime."

Search engines presently collect and store information every search query such as search term, IP address, browser type, time, and number of clicks. The search engines say this information it required to better serve the user. The advisory body said search engine providers had "insufficiently explained" why they were storing and processing personal data to their users and that personal data of users should not be stored or processed "beyond providing search results". The report also said search engines did not need to gather additional personal data, beyond the IP address of a machine being used, in order to deliver basic search results and advertisements.

The advisory body said, "Search engine providers mention many different purposes for the processing, it is not clear to what extent data are reprocessed for another purpose that is incompatible with the purpose for which they were originally collected". Thus search engines should not use personally identifiable data to improve their services or for accountancy purposes. Nor should personal data stored for security purposes be used to improve services and if search engines enriched personal data about users from third parties they could be breaking the law unless customers had given explicit consent. It said users should have the right to access, inspect and correct all the personal data about themselves held by search engines, including their profiles and search history.

The report issued a set of obligations to search engines firms, including:

• Search engines should get informed consent from users if they correlate personal data across different services, such as desktop search
• Search engine providers must delete or anonymise (in an irreversible and efficient way) personal data once they are no longer necessary for the purpose for which they were collected
• Personal data should not be held by search engines for longer than six months
• In case search engine providers retain personal data longer than six months, they must demonstrate comprehensively that it is strictly necessary for the service
• It is not necessary to collect additional personal data from individual users in order to be able to perform the service of delivering search results and advertisements
• If search engine providers use cookies, their lifetime should be no longer than demonstrably necessary
• Search engine providers must give users clear and intelligible information about their identity and location and about the data they intend to collect store or transmit, as well as the purpose for which they are collected

Google To Sell Performics Search Marketing

Google announced plans to sell Performics, DoublClick's search marketing division, that helps marketers place ads on search engines.“It is clear to us that we do not want to be in the search engine marketing business. At Google, maintaining objectivity in both search and advertising is paramount to our mission and core to the trust we ask from our users.” wrote Tom Phillips, Director of DoubleClick Integration on the official Google blog.

Rajiv Parikh, CEO of Position2, a full service search marketing company said that the Performics sale was a good move on Google's part as it removes a significant competitive roadblock many in the industry had to compete with.

Ellen Siminoff, Chairwoman of Efficient Frontier, a search marketing software vendor said, "Google’s job is to get paid as much as possible for the ads that appear on its pages. If you are a search marketing agency, your goal is to get the most for your customers’ money.”

No Giggle At Google As Layoffs Begin

Google's newest employees learned on April fool's day that they would no longer have a job. The employess today were assured that it was not a joke but real. Vanity Fair reports that "DoubleClickers’ heads are rolling left and right. Hopefully, Google’s generous severance package—two months pay with an additional two months if you sign a non-compete agreement—will keep them from jumping out the window. Google’s suggestion? Take two months vacation and don’t even think about it. Or start looking now."

It is rumored that the entire DoubleClick finance department will be let go. DoubleClick’s U.S. workforce of about 1,500 will be reduced by 300. In a statement, the company said: “Since our acquisition of DoubleClick closed on March 11, we have been working to match and align DoubleClick employees in the U.S. with our organizational plan for the business. As with many mergers, this review has resulted in a reduction in headcount at the acquired company.”

Video Search Engine Blinkx Launches Web TV

Video search engine Blinkx is launching its own Internet TV service called BBTV. Viewers will be able to surf the web within full-screen video, as well as jump around using keyword search for specific dialog. This is was something Blinkx Founder & CTO, Suranga Chandratillake has hinted to me way back at one of the WebGuild events.

According to Blinkx the service harnesses their core speech recognition video transcription technology to offer searchability and clickable subtitles that point to web pages. This allows advertisements to be targeted to certain keywords in BBTV, similar to the text ad overlay used in video by their AdHoc ad network.

The service runs on a peer-to-peer network has signed up indie films from Dogwoof Pictures, Gateway Films and Playboy Networks.

Yahoo Launches Womens Web Site "Shine"

Yahoo has launched a web site called Shine targeted at women between ages 25 and 54. The site brings together content from other smaller sections of Yahoo, with original content and syndication deals with the likes of Conde Nast, Hearst, Rodale, Time Inc and others. The content will be focused in nine specific categories: Fashion & Beauty, Food, Healthy Living, Work & Money, Love and Relationships, Parenting, At Home, Entertainment & Culture, and Astrology.

Yahoo reports 40 million women come to the their web site each month and Shine presents an opportunity to serve targeted content that is of interest to women and presents a lucrative opportunity for advertisers looking to connect with women.

Shine competes with site like of iVillage, Glam Media and Sugar Publishing among others.

Chinese Social Network Printing Money

While US social networks are waiting on advertisers to shifting their ad spending their way. Tencent, a Chinese internet portal which operates QQ.com is not banking on advertising. The company reported revenues of $523 million and an operating profit of $224 million. About 60% of the revenue came from services like games, virtual currency called QQ coin (which is fake currency paid for with real money), an additional 21% came from mobile services like ringtones and only 13% came from online advertising. QQ.com is reported to have over 300 million active accounts. Yes you heard that right. That is 8 times the size of Facebook or the same size as the US population.

Facebook on the other hand posted revenues of $150 million in revenue for 2007. The company has raised over $400 million and there is growing nervousness over its valuation and its ability to monetize its user base. Bebo, which was purchased by AOL for $850 million had revenues of just $5 million. MySpace purchased by News Corp. for $560 million is projected to haul in $1 billion this year.

Who's Spending On Social Networks?

US online social network ad spending is predicted to near $1.6 billion this year according to a survey by eMarketer. The figure includes all forms of advertising appearing on social network sites, including branded campaigns as well as search, video, local advertising and ads delivered via ad networks. According to the survey 29% planned to spend over $2 million, 11% planned to spend between $1 - $2 million, 26% planned to spend up to $1 million and 34% planned to spend less than $300,000.

Breakdown of Online Social Network Planned Marketing Spend by Marketers and Marketing Agencies - March 2008

Spending Amount               Percentage
$2,000,000 and over              29%
$1,000,000 - $2,000,000          11%
$300,000 - $999,999              26%
$300,000 and less                34%

"At those amounts, social network spending may still be categorized as experimental for many marketers. As in many other developing advertising markets, much of the spending on social networks is driven by leading-edge marketers who are willing to take risks," said Debra Aho Williamson, senior analyst at eMarketer.

Politics - Viral Video Style

Earlier this week Daya Baran discussed the amazing difference in the online advertising strategies of the Clinton and Obama campaigns, with Obama spending one million dollars on Google advertising in February, Clinton a paltry $67,000

Today, Brian Stelter at the New York Times is noting another example of how "tuned in" the Obama campaign appears to be to social media. In the this article Stelter follows the success of a video posted online of an Obama speech that got marginal mainstream coverage, but was a huge online success as it was passed along, linked to, and viewed by millions of mostly young voters. He makes this important observation about the impact of social media:

In one sense, this social filter is simply a technological version of the oldest tool in politics: word of mouth.

Although the internet has always been more about people than about technology, the new simplicity and ubiquity of social networking tools is allowing everybody to participate where in the fairly recent past only a relative handful of the technologically adept or adventurous dared to actively engage with others online. This flood of new online socializers has led to the launch of hundreds of companies - many of which are likely to fail, but some of which have already brought untold riches to the creators.

Obama's campaign immediately recognized and leveraged the power of the new media where it is not clear yet that the Clinton campaign really understands this social networking aspect of the political landscape. Perhaps Clinton thinks that because the demographic match is not as tight as with Obama's younger crowd their marketing money is better spent offline, but this decision to ignore the legions of voters who socialize online may come at a very high cost.

Google Advertising: A Leap Year Problem Is Just The Beginning

Comscore will soon release their report of Google advertising activity for February and Silicon Alley Insider says they already have the numbers that show Google with 515 million US paid clicks in February, up 3% year over year. Unfortunately for Google a gain of only 3% is not very impressive on the surface and is also somewhat misleading because we had 29 days in February this year, which means that ad clicks at Google were flat on a year to year comparison.

The market did not take this click report very well, and Google has fallen over 3% in after hours trading, though tomorrow's trades will tell the full tale of how this information will be incorporated into Google's share price which will open at about $444 tomorrow due to the after hours trading corrections to the close today at $458. This is not as low as the $412 Google has traded at recently but well off Google's 52 week high of $747.

Lacking from these reports however are the revenues obtained from these clicks. Better optimization can yield higher revenues from the same number of clicks, and major changes recently were implemented by Google, effectively elimating many ads that Google felt did not meet their new "quality scores" which reflected higher advertising standards. Thus it is possible that this new approach could actually lead to a "better than expected" revenue outcome for Q1 without more clicks. That said, if the advertising market as a whole is flattening out, Google will be very hard pressed to continue their amazing revenue growth. It is not clear if the current stock price on GOOG fully reflects the pessimism many analysts have expressed about online advertising in the next few years.

Barack Spends $1 Million On Google

Barack Obama's campaign spent $1 million on Google for the month of February 2008 versus $67,000 for Hillary Clinton, according to filings with the Federal Election Commission.

Barack's also outspent Clinton on social networking sites and other web properties. Barack spent more on new media than Clinton who spent heavily on old media. Barack raised $45 million online in February versus $30 million for Clinton. Here is a break down of their media related expenditure for 2008 up to today from the best available public sources.

Spending Category        Barack Obama       Hillary Clinton
Google                     $1,000,000               $67,000
Yahoo Web Ads                 $99,341                $9,186
Yahoo Search Ads              $58,000                    $0
Facebook                       $4,900                    $0
Web Consultants               $93,162                    $0
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