MetaMuse

State of Online Advertising

Spent two days at AdTech in San Francisco this week, and formed an opinion on the current state of the online advertising market:

• The industry continues to explode and everyone is upbeat. Over 9,000 attendees and 500 exhibitors and every exhibitor I talked to said the show is going very well for them. One exhibitor (a co-reg network) told me that they see a 25% increase in their business every time they exhibit at AdTech. Of chief concern for industry mgmt is recruiting -- everyone is getting poached.
• Search is topping out. Demand for Google/Yahoo inventory has increased to the point where the price doesn't make sense for many advertisers. Furthermore, there's a lot of talk about click fraud, which combined with typical "black box" inventory (you don't know where your ad shows) results in advertiser budgets being sucked up in no time at all. MSN, AOL and Yahoo were NOT there, and Google make a paltry showing.
• As a result, advertisers are looking into new channels such as social networking, gaming, video, branded entertainment, etc.  But it's experimental still.
• Also as a result, SEO/SEM has become its own industry; figuring out how to advertise effectively in Search is that hard. So many companies selling optimization techniques and software ...
• Spyware/adware is going away (little presence there, and hidden at that).
• Contextual/behavioral is HUGE; everyone wants it but with the Search issues and diminishing spyware/adware inventory, where's it coming from? Lots of pent-up demand, it seems. Many ad networks are offering it, but their technology approach offers them shallow profiling compared to spyware/adware.
• Local advertising is really looking good now, I'm happy to say. Local advertisers are spending money across a broad spectrum of keywords, and publishers like me finally have a ready source of advertisers to tap into (via networks).
• The "marketplace" concept is gaining in popularity, which directly matches publishers with advertisers (rather than the black box approach of conventional networks). I think this is a good thing for the industry, but it needs to evolve to keywords.
• Finally, Mark Kvamme of Sequoia Capital thinks the online advertising market will be worth $35B in 2008, a BOLD prediction. He says 32% of people are reached by TV, to which 38% of ad dollars are allocated. The Web, meanwhile, reaches 32% of the population but captures a mere 5% of ad dollars.

Season Opener: Rattlesnake Lake

Opened up the season at Rattlesnake Lake early this morning to a mass of people, but fortunately way more fish than people. Trailed a chironomid after a Woolly Bugger and was catching 10-12" trout all morning -- couldn't even keep count, but I did keep 5 for dinner tonight! Hugh kept count, 59 fish landed and I'm sure he had twice that many strikes.

CEO Transparency

I've worked with a number of CEO's that *very* tightly control information that the Board receives, favoring the good news over the setbacks, and I don't like it. Which is why Josh's post at Redeye VC resonated with me so well. I was on the board of my last company, and as COO I knew EVERYTHING that was going on. However, this quickly became a liability for the CEO because we had a different view on the appropriate level of transparency, and this conflict eventually resulted in my departure from the company (along with another board member).

MySpace Bad at Advertising

Thanks to Mark Pincus for bringing this article, entitled "For MySpace, Making Friends Was Easy. Big Profit Is Tougher"  to my attention through his blog. Key takeaways:

• While currently the 2nd most trafficked site on the Internet now, MySpace is still trying to figure out how to monetize their user base beyond banner ads, and there is a bit of disagreement between the founders and the News Corp execs on how to do that. The risk of commercialization and profit is scaring off the audience or losing "its cool".
• MySpace is not profiling their users right now at all, and their ad inventory is priced at below "chat room" levels -- the article claims their banner rates are less than $.10 per thousand. The big ad networks (Google, Yahoo, etc.) don't value the inventory because there is no meaningful user context to target -- they're just socializing, there is no user profile, and the content is not "targetable".
• Will earn revenue of about $200M this year, off nearly 1B pageviews per day. At one banner per page, this basically means that MySpace's eCPM (effective rate earned per thousand ads) is about $.56, which is quite poor. At 121Media, I got our eCPM to be 8x that and we could have easily doubled it had we wanted to.
• This clearly represents a problem for all the social network Web sites that are counting on advertising for revenues. Others Online has a huge comparative advantage in that it's a desktop app built upon a contextual/behavioural platform, which gives it the revenue model strength of a spyware company (albeit with user value/consent). Just as spyware became the revenue model for so many freeware apps, OO will become the revenue model for so many starving community Web sites.

Wild Rattlesnake!

Took Hunter and Hannah camping on the Yakima River this weekend, and we had a great time. Highlight was seeing a rattlesnake on the way down from this hike at Umptanum. I got close and was warned with a rattle, then we all got a good look at it. So cool.

Oh, and fishing was nothing to write home about, due to water being high and murky.

CIE Business Plan Competition

I was a judge at the Business Plan Competition yesterday, put on by the Center for Innovation and Entrepreneurship (which is a University of Washington program I think?). What shocked me most was how many business plans there really represented simply owner-managed companies, and not necessarily investable businesses. While they might be good businesses, the growth prospects were small and the exits were unclear -- not something your average investor would be interested in.

Situation for Spyware Companies

The article title "Adware Industry on the Defensive" demonstrates the situation facing the spyware companies and the advertisers that support them. Key takeaways:

• Spyware/adware is roughly a $450M business, compared to contextual/search advertising which is roughly $20B. The former relates specifically to free software which shows advertising, but which employs deceitful distribution tactics and often times little to no evidence of its presence on a computer.
• The spyware business is eroding, but only because traditional spyware distribution opportunities (non-consensual installations, bundling, etc.) is eroding quickly, as is their advertiser support, due to litigation and governmental efforts. Advertiser demand is still high. That growing advertiser demand amidst the decreasing supply is increasing prices.
• "Goodware" products (adware done with actual user value, installed with consent from the user) are the holy grail to advertisers who are accustomed to very precise targeting and high click-through rates. (However, unlike Others Online, very few products couple a real value proposition with the *requirement* that the product views their Internet browsing and profiles them.)
• We've got a win-win approach to remaining user-friendly and respectful of users' spyware/privacy concerns. We already know the OO concept is very interesting to people and they use it. By addressing the users' privacy concerns (they control it 100%) AND providing them with an interesting unique product (that can profile people 20x better than Web sites), I believe Others Online has the market opportunity rivaling that of a Google or Yahoo.

P-p-p-p-puppy Power!

We're proud to announce a new member to our family. His name is Skye, he was born on Feb 1 2006, he's about 15-16 pounds, 10-12" at the shoulder, and is completely overwhelmed at being removed from his litter mates, and driven to our home. You can see a small video here (2.8MB).

Skye is a Goldendoodle. This breed name is quite wrong to me -- I think of either a strange sexual fetish or a new quilting/stitching method -- so I just tell people that it's a Golden Retriever and Standard Poodle mix (true of course). All the benefits of an intelligent and highly trainable hunting/family dog, with none of the smell or shedding -- that's the value prop.

We got him Monday and so far no accidents, no chewing incidents, and he's almost sleeping through the night. A sweet little guy, for sure. Isabelle (our cat) seems to be doing just fine too -- no retaliatory shits in the closets yet!