Web X.0

Publishing - the only metric that matters

Publishers (and bloggers specifically) tend to measure their business on two parameters:

1. Page views
2. Ad revenues

These are fine metrics, but I believe that they are derivatives of a much more fundamental metric which, if ignored, could be devastating to a publisher's business. Lets call this metric the "Reader's Goodwill Pot".

Lets assume an imaginary pot into which imaginary goodwill points can be deposited, and from which imaginary goodwill points can be depleted. Sort of like a bank account for goodwill. Now, as a publisher/blogger, imagine you are running this kind of 'goodwill account' with your audience of readers.

When you post great content you are adding points into the pot. When you provide your reader with a great user experience you are adding points to this pot.

If you build a big enough goodwill pot, with a big enough audience, then you can dip into that pot occasionally, take some points away and put them in your pocket. That is also usually known as advertising.

As a publisher, with every pixel you put on your site (or ink on paper, or frame on screen, etc), with every piece of content you produce, with every ad you take on your site - this is the single most important metric you should obsess over. Am I putting goodwill points into my piggy bank, or am I taking some away?

Great publishers understand that the need to keep this balance is far more important than the need to track any of the other metrics - PV's and revenues, for example - in isolation.

As we hit a recession, I suspect many more bloggers and traditional publishers are going to ignore this metric and will try squeezing the lemon as much as possible by cutting on the content and the user experience, and at the same time trying to maximize the number of ads that interrupt the readers. Publishers ignoring the 'Reader's Goodwill Pot' will not survive, not because of the bad macro economy, but rather because they failed to understand the micro economy of publishing.   

{Image CC by: Nieve44/La Luz . Thanks!}

An alternative Plan B for Microsoft

Yahoo remind me of the famous saying about the Palestinians:

"They never miss an opportunity to miss an opportunity"

After playing a hand of cards they didn't have with Microsoft, they have now essentially committed harkiri by becoming a node within Google's business. Why would any advertiser now bid on Yahoo's platform? I can't find a single reason, and I doubt advertisers will either (not that they had many reasons before...). I agree with Michael Arrington - Yahoo totally screwed this up, and their search business is pretty much dead.

Now everyone seems obsessed with Microsoft's next acquisition target. I'd like to offer Ballmer my 2c on a potential alternative to the $50B acquisitions they're looking to make. It's called the 200% rev-share program.

But first, a little background:
Online advertising is a strange business. While the advertisers are the ones paying for everything, acquiring advertisers is a secondary concern for an ad network. A distant second. The #1 key to making an ad network work is the publisher side. Even though the publishers are being paid, it's much more difficult to win publishers than it is to win paying advertisers. The reason is pretty simple: Ad space is binary, while advertising budgets are not. A publisher has to make a binary decision on who gets to sell certain ad space. Whoever they choose becomes the de-facto exclusive "owner" of that ad space. Publishers cannot take risks on that kind of exclusive deal, and therefore they all choose the leader who has proven to monetize best - Google in the case of text/search ads.

Advertisers, even though they are the ones paying the bills, are much easier to obtain because their choice on how to distribute their budget is not binary by nature. They can put some money on Google, some on MSN, some on Quigo, etc. Advertisers will generally follow the distribution. He who has publisher real estate will eventually get the advertisers. The other direction is far from guaranteed (see Miva, LookSmart, etc, etc).

A much better plan B for spending those $50B is by seriously upping the rev-share paid out to publishers. And I'm not talking about upping it from 60/40 (about what Google pays out), to 70/30. My suggestion would be to go for a 200 / -100 rev-share with publishers. Take those $50B and use them subsidize the publisher earn-outs for the next couple of years. 

Publishers are dying to have an alternative to Google for monetization. The trouble is that no one has been able to naturally monetize better than Google. And that gap is widening by the minute. This game cannot be won in a dog chase.

The only way to get back into the game is by locking publisher distribution, and the only way to do that is by out-paying Google, even if that means doing it artificially via subsidizing the rev-share and not though higher yield.

Microsoft should offer a 200% rev-share to all publishers (and search sites, etc) for next couple of years until every publisher in the world is talking about how much better monetization is with MSN than it is with Google. When that happens, critical mass of distribution will occur, attracting massive advertising $$'s, allowing Microsoft to *slowly* throttle down the revenue split to under the 100% mark.

This isn't too crazy... If anything, I'd go for a 300% or 400% rev-share and completely nail this down. Google can obviously react to this and raise rev-share splits as well. But for Google this is the *only* revenue source and it would be awfully painful to turn that into a money loser. Microsot can still afford to do this while Windows and Office are still the cash cows that they are. In addition, some of these publisher subsidies will be offset by the improved monetization of MSN's own properties.

This is one of those unique moments where it can really be said that it's now or never.

Now that's not nice Google...

Google has apparently made a change to their ad placement formula. John Battelle has the details here:

"Under the new system, Google will change its eCPM calculation by using a CPC that is equal to, or less than, the advertiser’s max bid CPC. This change will result in increases to advertisers’ actual CPC paid when a CPC that is equal to or less than the advertiser’s max bid CPC generates an eCPM that exceeds the threshold eCPM required for north promotion...."

The language around this change is extremely washed out and even misleading, so the change sounds quite benign... But here's what's really going on...:

Google's auction system sorts ads by eCPM (or - effective cost per thousand ad impressions).  Yahoo's Panama and Quigo's AdSonar (disclosure: I'm founder of Quigo) do essentially the same.

These auction systems charge the advertiser 1c over the price needed to secure the highest possible placement (but of course, never over the advertiser's bid). This means that the advertiser can rest assured that the only thing affecting their actual cost-per-clicks are the real market forces - advertisers changing bids, other advertisers getting more clicks, etc.

What Google is now doing is sneaking secret reserve prices into their auction and artificially pushing advertiser bids up. Essentially this is rigging parts of the auction to Google's favor, without disclosing what the reserve prices are (I assume they are different per keyword).

This is a very slippery slope... there are a hundred hidden corners where artificial reserve prices can be snuck into the auction system and Google should be called out on shenanigans like this...

[UPDATE] - Google puts a great spin on this scheme, flipping it all into a wonderful improvement for the advertisers. Google advertisers, believe me - all this does is take more money from your pockets and puts it into Google's already overflowing pockets.

Time Inc switches to Quigo

Earlier today we (=Quigo) announced together with Time Inc a broad, exclusive, 3-year agreement to use Quigo's AdSonar for auction-based text link advertising on Time Inc websites. More coverage on this on the Quigo Blog. This deal is estimated to be worth north of $100M over the next 3 years.

This deal covers all of Time's leading online properties: Time.com, CNNMoney.com, People.com, EW.com, InStyle.com, SI.com, Golf.com, FanNation.com, SouthernLiving.com, SouthernAccents.com, Sunset.com, CottageLiving.com, CoastalLiving.com, CookingLight.com, MyRecipes.com and others in the future

If the publisher has the ability to attract advertisers directly, whether by having a great brand, and/or highly targeted audience, and/or a direct sales force (and Time Inc has all 3), it makes no sense to use a black-box solution like Google's AdSense for placement of ads. As I said a while back - that would be like a classy restaurant outsourcing it's kitchen to McDonalds... ;-)

There's definitely a trend going on here where more and more premium publishers are starting to understand this:
You can either take ads that were bidded to an ad network that has a blind mix of some good sites and lots of crappy ones (spammy/fraudulent/domain parked). In these blind networks, advertisers don’t really have the ability to choose which sites they’re on or optimize their bids for the quality of your traffic. Oh, and in the process of carrying ads from a blind ad network, you'll be handing your biggest asset - 100% of your advertiser relationships - over to that network.

Or - you can assume control of your advertising asset, sell to your advertisers at the premium you deserve, and own those advertiser relationships.

That's the unique angle Quigo brings to the table - the ability to capture the full value of a your brand and build a longer-lasting, strategic asset so that you get more than just a monthly rent check.

Most publishers are still under the influence of the Google koolaid. But the smarter ones are starting to realize that the bargain Google brings to the table benefits, well, mostly Google. It's great to see folks like Time Inc have the foresight to take back control of their advertiser relationships and become a leader in this space rather than become another node in the Google network.

Links:

• If you're an advertiser and would like to bid for placement on Time Inc properties, click here. Remember - this is now the only channel for placing CPC text ads on these websites.
• Full press release is here.
• More coverage over at ClicketyClack John Battelle's blog, BizReport, MediaPost, MediaWeek, Crain's, Direct Magazine and others.
  
• Brett Tabke of WebMasterWorld posted a video interview with Quigo's CEO - Mike Yavonditte.
• [UPDATE] Scott Karp at Publishing2.0 posted some excellent commentary on the bigger picture. Highly recommended. 

 

Is OpenAds a threat to ad networks?

OpenAds is getting a ton of coverage following their recent $5M funding announced this week. OpenAds is a very popular, free, open-source ad serving system.
A lot of people are debating whether this will mark the end of the online ad networks. A particularly good post on the subject was published by Scott Karp over at Publishing2.0 - "Can Online Publishers Take Back Control From Ad Networks?"

I think, obviously, that the answer is 'no'. If anything, publisher-side exchanges like this will be very complimentary to the existing ad networks.

I posted a comment on Scott's post. It came out long enough to merit a full blog post, so here it is for you:

Hey - I’m the co-founder of Quigo. Great post, Scott.

Ad networks normally take a 30-40% cut of the revenue and pass the bigger part to the publisher. The question is whether we deliver more value than we cut, and I believe the answer in most cases is *absolutely yes*.

Here are a few ways we add value that would be very difficult for any single publisher to do on their own:

1) Appeal to large advertisers and agencies - I agree 100% with what Zach Coelius said above - it’s usually very difficult for any single publisher to attract large advertisers and agencies. The ad network facilitates larger ad buys for those and all participating publishers benefit in a way they could never do on their own.

2) Yield optimization algorithms - On auction-based networks (like Quigo and Google), the highest bidded ad in most cases is *not* the ad that would yield the most $$’s for the publisher. To find the highest yielding ads you need to crunch a lot of data and test ads on a massive scale. 99% of the publishers in the world do not have the scale necessary to make yield optimization algorithms efficient. Without this network value, the publisher will be rotating low yielding ads and would effectively be leaving a lot of money on the table.

3) Account management & expertise - Remember that online advertising is very very different from traditional advertising. For one, it needs to perform well for the advertisers… Most publishers do not have the expertise in-house to help advertisers with setting up bidding, optimizing for ROI, managing their budgets, etc, etc. This is a huge component of what we bring to the table as a network.

4) Vibrant marketplace - One of the big values auction-based ad networks bring to the table is a vibrant bidding marketplace. For that, again, there is huge value in aggregating many advertisers bidding each other upwards. A single publisher would find it extremely difficult to attract even say 100 advertisers to bid each other up.

5) Etc, etc.

I’m rooting for OpenAds and I think they are a great solution for mid-tier, well-defined special interest niche sites, operated by highly technical folks. Those are sites that could benefit from hand-picking the few advertisers that would work best for them and their audience. Boing Boing or Slashdot are good examples. The ads on Boing Boing are perfect for their audience and no ad network would be able to pick better ones.

But for all other publishers I think the ad networks add a ton more value than they take off the table.

At Quigo we’re focused on getting our publishers the best of both worlds: The advantages the ad network brings to the table, combined with the advantages of selling to advertisers directly, under the publishers’ brands and owning those relationships with advertisers. This is very different from “black box” type ad networks like Google & Co which are the absolute opposite from a platform like OpenAds.

Thanks again for writing this interesting post.

Google, Quigo and ad transparency

A couple of months ago The New York Times published a story about Quigo (disclosure: a company I co-founded). A couple of highlights:

What Quigo offers is transparency and control in what can often be an opaque business: advertisers pay Yahoo and Google for contextual ad placement on a wide variety of Web pages, but get little say over where those ads run or even a list of sites where they do appear...

...In response to further questions about Quigo, though, Google said it was prepared to make changes to its AdSense service that mimicked Quigo’s approach, an unusual step for a company accustomed to mapping the terrain in every aspect of its business.

Looks like the NYT nailed it. Today Google started following Quigo's lead on becoming a more transparent network. More about this by John Battelle, Barry Schwartz, SEW, and Mashable.

From what I can tell, the Google implementation is more lip service than a real way for advertisers to buy placements on specific publishers. That is to be expected. AdSense would not be successful if it weren't fundamentally a blind network. Google takes a small number of loss leader sites like Ask.com and AOL on which it makes little or no money. Those are thrown into the blind mix to keep the overall blended-average quality of traffic reasonable. But Google makes its real AdSense money on the very long tail of crappy/fraudulent/parked-domain/self-clicking/link-farm/etc websites. Those are the sites that advertisers would never ever bid for if they had the choice. Those are also the sites that Google can take whatever % of the revenue they see fit (which I estimate at 50% at least) because they never tell long tail publishers how much they pay out.

That's where Google's true money pot is, and if they remove their network's opacity and truly allow advertisers to bid transparently for specific sites - all that revenue will go away.

This new report is definitely a welcome change for Google advertisers. Even lip service is a form of service, I guess... But don't hold your breath for any genuine effort from Google on making its network truly transparent as long as it makes so much money by having advertisers bid blindly on sites they'd never want to be placed on. For true transparency your only choice is still Quigo's AdSonar.

Seth gets it right, almost...

Seth Godin (a WebX.0 favorite!) responds to the NY Times piece on Quigo today with all fair points:

If you're running a pay per click ad designed to support a cost-per-acquisition strategy, (Google AdWords, et.al.) then does it matter where your ad runs?

Remember, the point of the ad is to get someone to click (that's what you're charged for...  the click) and then the goal of the site is to convert that click into permission and eventually a customer.

So, does it matter where the ad runs if it works?

From the marketer's perspective, I agree 100% with Seth on this point - if (and that's a huge IF... [1]) the campaign works, and the ROI is good, it's insignificant where the traffic came from. But while advertisers may not care where they get their clicks from them, they certainly do adjust their bids to account for the mix of high-quality clicks and spam/fraud/foreign/etc clicks.

What happens in essence, is that the premium publishers in this mix are getting lower bids than they should have, while the low quality traffic sites get higher bids than they would have had they sold to advertisers directly [2].

Now, while Quigo caters to both marketers and publishers, we view our platform primarily as a publisher solution. We offer it as a private label to publishers, and let them acquire and manage their advertisers through it. It's the publishers who we see benefiting most from the AdSonar solution, with marketers benefiting as a result of our insistence on catering only to the highest quality publishers in the country.

The TV network example is not applicable to our space... Unlike any advertising medium in the past, we don't (nor do our publishers) determine the pricing of the media sold. That is determined by the marketers, and therefore it generally reflects the value the marketers get from the media they're bidding for. The fact of the matter is, that marketers are willing to bid higher for a site with quality, US-based, non-fraudulent, non-spam, non-accidental-traffic traffic than they are willing to bid for that same site combined with 100,000 other lesser quality sites.

And that, publishers really care about.

 

[1] The Big Co's mix into their traffic a bunch of awful sources (misspelled domain names, spam blogs, etc, etc). They can get away with this to some extent because the junk traffic is mixed and diluted with the quality traffic on their network and search destinations...

[2] Google's SmartPricing does mitigate this issue a little, but it certainly does not come close to solving this issue. When junk sites are part of the mix, and they're getting paid something, someone is bearing that cost and that's the marketers...

YPN exodus?

According to PaidContent, two top execs at Yahoo's YPN are leaving the company:

Yahoo has confirmed that Bill Demas, SVP-Yahoo Publishing Network Group, is leaving at the end of November....
...Also confirmed by Yahoo—Will Johnson, VP and GM, YPN, is leaving as well.

I wonder if the recent Quigo-ESPN deal has anything to do with these departures?... Hmmm...

Anyhow - All you YPN'ers - if you're interested in joining the fastest growing text advertising network in the country, drop me an email with your resume at:
galai at quigo dot com

Speaking at WebmasterWorld PubCon 2006

I'll be speaking at WebmasterWorld's PubCon 2006 on November 15th in Vegas. Details on my panel here.

Drop me a note if you plan on being there!

Fox outfoxed by Google

According to TechCrunch, some executives at Fox are unpleasantly surprised by Google's acquisition of YouTube:

A source inside of Fox, which owns MySpace, tells us that they were surprised that Google was aggressively pursuing a deal with YouTube, given Google’s nearly $1 billion advertising relationship with MySpace. MySpace views YouTube as a competitor, and recent Hitwise data shows Myspace Video quickly catching up to YouTube.

The only surprise is that Fox is surprised by this.

Last month when the MySpace-Google deal was announced, I wrote this:

MySpace is essentially outsourcing its kitchen over to Google and becoming another node in its network. When that happens, MySpace will actually deliver *less* traffic to retailers, while feeding the Google beast and giving it an even bigger share of web traffic. Retailers looking at their log files will see the traffic coming from "Google AdSense", not from MySpace.

In this relationship, Google is the only one that walks away with the long term assets of advertiser base and deep expertise in monetizing traffic.

Google makes ~5x more money (bottom line) on each ad impression on a Google-owned page than it does on a 3rd party AdSense page. If the company wants to continue growing the way it has so far, they won't be doing it via deals like MySpace on which their margin is negotiated down to barely nothing. They will do this by building and acquiring their own media, which is 5x more valuable to them.

Deals like the MySpace-Google deal are pretty much a trojan horse for Google to build its direct advertiser relationships and monetization expertise on the shoulders of others. The real money will be made on the content that Google owns/will own. It's a loss-leader game.

Every time Google signs a mega-deal for powering a 3rd party media company, its almost guaranteed that they will shortly after get into that business themselves and become the biggest competitor around (with all the ad relationships). If they don't balance Google-owned media with 3rd-party ad syndication, they risk significantly diluting their overall profit margins because of that 5x factor. And that doesn't seem like something they're intent on doing.

IMHO - The best use of the Google money going into MySpace, AOL, Ask.com, etc is to build or acquire their own in-house ad capabilities and eventually phase out Google. Otherwise they are bound to lose the battle both on the ad front, as well as the content front.

I wrote a couple of related posts on this here and here, and probably a few other places I can't remember.

Full disclosure + a small plug: I am co-founder of Quigo. We offer media companies a solution comparable to AdSense, except that it is a private label. And we don't compete with our publishers on media. So feel free to consider all of the above to be 'interest driven objective commentary'... ;-)