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Some perspective on the CDD's recent complaint to the FTC

Yesterday I received a very interesting and amusing set of slides from Bennet Kelley, Internet Law Center, which he labeled as quick facts regarding the recent complaint sent to the Federal Trade Commission (FTC) from Jeff Chester and the Center for Digital Democracy (CDD), urging the FTC to investigate the threat to online consumer privacy within the real-time data-targeting auction and exchange marketplace.

Quick Facts Re: CDD's FTC Complaint

NAI Research Study Validates Effectiveness of AudienceTargeted Advertising

The Network Advertising Initiative (NAI) released a study today called "The Value of Behavioral Targeting" -- derived from explicit data from 12 ad networks, including nine of the top 15 ad networks by total unique visitors according to comScore's December 2009 rankings. These ad networks shared their average CPM rates and conversion rates for run-of-network, behaviorally targeted and basic retargeted advertising. Click the image below to view a larger image ....

They reach 3 important conclusions:

• average CPM for behaviorally targeted advertising is just over twice the average CPM for run of network (RON) advertising.
• behaviorally targeted advertising converts better -- more than twice the rate for RON advertising.
• since ad networks get their inventory from Web content and services providers, this makes BT an important source of revenue for publishers as well as ad networks.

Not sure I'd fully agree with that last point -- it's depends entirely on how ad networks are working with publishers. Most of these ad networks are buying as cheaply as they can still, through auction-based ad exchanges and such where they benefit from the fact that supply is greater than demand. This results in an imbalance in the online advertising marketplace, where publishers are actually at a disadvantage. The publishers working with the Rubicon Project though are in fact seeing higher CPMs as a result of audience targeting.

See the full study here.

Restoring Balance to the Online Advertising Market

The evolution of the online advertising ecosystem has put the publisher at a disadvantage, and unless they do something about it the balance in the marketplace will continue to strongly favor the buy-side (agencies, advertisers, DSPs, etc.), publishers’ inventory will continue to be commoditized, and their CPMs and revenues will increasingly erode.

There are a few key evolutionary components on the buy side contributing to all this:

• Increased focus on audience – inventory is now valued NOT on content/context alone. The value of each impression is now based on the audience value (what is known about each user) as well as the placement value (site, section, size, context, content, session queue, etc.).
• Increased use of auction-based pricing – the supply of online advertising inventory is greater than the demand for inventory, which means that an auction-based pricing mechanism (particularly 2nd price auctions) is certain to yield the lowest price. This makes auction-based ad exchanges more advantageous to buyers than sellers. Compounding this problem is the fact that every auction-based exchange enables buyers to bring their own data, and essentially bid for high-value users/impressions at commodity prices even further below market value. In financial exchanges this is called “insider trading” and there are laws against it!
• Heavy investment in data – agencies and ad networks have been investing heavily in audience data, being the largest customers/consumers of the 3rd party data provider market. They know more about publishers’ audiences than publishers. But it’s not only audience data they’re collecting, they are also harvesting click-stream data, conversion data, and pricing data which, combined with demand-side platforms (DSPs) and auction-based exchanges, allows them to leverage a virtuous cycle of improvement.
• Development of demand-side platforms and RTB – demand-side platforms (DSPs) allow agencies to leverage sophisticated algorithms and data to scale AND optimize their buys across exchanges and other marketplaces, essentially treating all inventory as one commoditized pool and allowing them to cherry-pick the impressions that work best for them while ensuring the lowest price. Real-time bidding adds real-time decision-making (theoretically) to the process, not only putting agencies in the position to optimize faster but also to collect valuable click-stream data and pricing intelligence on their users.

The net net is that the buy-side, over the last year and clearly in its current evolutionary path, is in a position to know exactly the audience they need to reach, then buy that audience at rates significantly below market, simultaneously selling at a higher price. This is arbitrage, and arbitrage is bad for publishers -- arbitrage protection should be an important component to every publisher’s online advertising strategy. But most importantly, this puts the buy-side at an advantage in the marketplace, to the detriment of publishers.

So how can balance be restored?

First of all, publishers need to keep their inventory out of the exchanges – the arbitrage marketplaces – until/unless they have the right tools to minimally help them:

• Manage their sales channels tightly, with effective controls to make sure their revenue sources aren’t cutting off their direct sales opportunities,
• Safeguard their audience data , preventing data leakage and not letting revenue sources build their data war chest without publisher approval and remuneration, and
• Protect against arbitrage, by not providing demand partners access to high-value users unless they pay accordingly.

Second of all, publishers need to reconsider their vendors and tools – they could start by making sure these people are focused on them and not the buy-side! When you really take a look at the online advertising tools publishers have available to them, those vendors are not helping the publishers combat these issues. Certainly not the content management systems. Nor the Web analytics companies. The logical choice is the ad server – but the ad servers of today have not evolved to keep pace with the evolution on the demand-side. That’s why my company recently made a bold statement that the “ad server is dead”. Perhaps it’s even more bold to say that by not evolving, the ad server is killing publishers, and even exacerbating the problems in the space (for instance, by making the ad exchange a feature of the ad server).

I’ve been asked “so what’s revolutionary about the Rubicon Project” (the company I work for). Well, we’re working hard to bring balance back to the market place, by restoring power to the publishers with tools that allow them to federate, sell more effectively and fight commoditization, arbitrage, malware, etc. That’s what makes this a revolution, not an evolution – the evolution is what’s causing publishers to suffer today. We are fundamentally changing the power of the publisher in the marketplace, by offering a publisher platform that helps them fight the current evolutionary direction of the market.

Online Publishers: Fire Your Ad Sales Team, or Google – You Can’t Have Both

This is a wake-up call for online publishers – if you work with Google in any capacity, just go ahead and fire your ad sales team – your team is selling against Google and guess who’s winning? You might as well just bend over and give Google 100% control over your inventory and revenue generation. If however you want to support your ad sales team, and not put the fate of your business in Google’s hands, then fire Google … immediately and completely. You can’t have both.

I was just looking at Google's new DoubleClick Ad Planner – which provides end-to-end planning, buying, serving and measurement of display ads across the Web. The stated mission of DoubleClick Ad Planner is to provide the deepest, most accurate insight into online audiences possible, helping display advertisers select the best sites for their media plans, and buy those placements through the Google Content Network and Ad Exchange.

So here's the problem. If you’re a publisher with any ad inventory available to Google, then that advertiser or agency you’re trying to close now at a $10 CPM rate can access your inventory for less through Google – and you’ll get some unknown % of that (recall that Google does not disclose their take). Even if you’re working with Google on a “blind” basis, Google is helping advertisers and agencies reach your audience – all they need to do is type in your site and Google will provide them with a media plan to reach that same audience, based on a “Comp Index”. Google knows more about your audience than you do, and is using that knowledge to sell against you.

And the worst part is that it’s you the online publisher that continues to feed the Google beast, and put yourself at a disadvantage in the marketplace! You optimize your content for their index, place their numerous tracking tags (AdSense, Analytics, AdManager, DoubleClick, FriendConnect, YouTube, etc.) over 88.4% of the Web, and grant Google 100% of the information rights. This has allowed them to build a massive set of data on your site and your audience, and use it to fuel their direct sales efforts.  Not only are you NOT being remunerated for all this valuable audience data you're giving to them, NONE of it is available to you for your own direct sales efforts!

If you’re working with Google today, you’ve helped to improve their position in the market to the detriment of your own. So either fire your direct sales team and suckle at the teet of Google … or fire Google, join the REVVolution, and give your direct sales team the support they deserve. But you can't do both.

Power to the publishers.

New Challenges for Web Publishers, Reminiscent of Adware/Spyware Market 5 Years Ago

The market for 3rd party audience data continues to grow, but I'm seeing evidence of illicit activities that are somewhat reminiscent of the adware/spyware activities of 2003-2005. It's disconcerting, because the 3rd party data market has developed the right way so far -- for ALL parties involved, and especially for publishers. But we are now at a point where a few bad apples could spoil the whole bunch, and are causing new challenges for premium publishers.

In the last two weeks, I've been in San Francisco and New York, taking part in 3 different online advertising conferences, and meeting with top 3rd party data companies (such as eXelate, BlueKai, AlmondNet, TargusInfo, Rapleaf, etc.), ad networks, and publishers. A few observations ...

First, I'm starting to see more evidence of illicit data collection from publishers. Just as we saw advertising-based applications illicitly installed on consumer's computers 5 years ago, collecting consumer browsing behavior (without knowledge of the publisher or consumer), valuable audience data is being taken from premium publishers and used by 3rd parties without the knowledge nor the remuneration of the publisher. It's being done via ad tags, which if not properly reviewed/screened, may contain Web beacons that pass audience data to ad networks, advertisers and 3rd party data partners for re-targeting, re-use, etc.

As a result, premium publishers need to be on the lookout for unscrupulous ad networks and advertisers that bring short-term revenue lift but then leave with valuable audience data. And as the market for data expands and $ start to really flow, 3rd party data partners will need to be extra careful to control their data sources/channels. When publishers see these 3rd party Web beacons showing up on their pages via ad tags, it casts a negative light on otherwise reputable data companies -- not the advertiser or ad network who passed the data to the data company in exchange for payment.

Secondly, I noticed some 3rd party data providers are offering an API into their data store. Basically, it's a small snippet of JavaScript that, when placed in the ad tag, pings the data service for any user-specific information which is then appended to the ad server request. This is a fine model and service for publishers when they are using it on their pages, but publishers need to look out for 3rd party ad tags that contain these API calls -- every request out to a 3rd party from their site represents potential "audience data leakage".

Lastly, I was discouraged to hear that some unscrupulous advertisers are buying cheap run-of-network inventory via ad exchanges and running the NAI "opt-out" scripts within ad tags. Just as 5 years ago when spyware companies were detecting/uninstalling competing applications as an offensive maneuver, seems now we're seeing companies attempting to reduce the targetable population for their competition, increase their data acquisition costs, etc.

In the online advertising market where "audience" has emerged as king, safeguarding audience data is quickly becoming a core challenge/risk for premium publishers. This makes it doubly important for publishers to control their sales channels, work with trusted partners only, and leverage technology approaches to ad quality -- all hard things to do for publishers already burdened with increasing ad sales and operations challenges. Yet another reason why premium publishers will increasingly turn to sell-side technology platforms like REVV for Publishers. And for those publishers that don't, they not only risk their own brand and core data assets, they also impede the proper development of the market as a whole.

What is the definition of "Audience"?

So much talk this year in the online advertising market about "audience" -- audience insight, audience-centric planning and buying, audience targeting, audience optimization, etc.

But what is "audience"?

Of course there are multiple definitions, but in the context of online advertising I define it as a "self-selected group of people sharing similar attributes". It's not content. It's not context. It's about people, their self-identified attributes, and their attention. Can we agree?

Ads More Effective on Social Networks than Portals

According to this article and eBay Advertising's 2nd survey of European shoppers, 60% of consumers are most receptive to targeted display advertising when they are on an e-commerce site, compared to 5% on portals and 7% on social networks.

I take this to mean that e-commerce sites are 12x more effective for targeted display ads than portals (and therefore the eCPM cost of portal advertising has to be 1/12th in order for the ROI to be the same), whereas they're 8.5x more effective than social nets.

More shocking is their conclusion that targeted display ads on social networks are 40% more effective than portals!

How Data is Revolutionizing Advertising

I'm serving on an interesting panel October 29th in NY to discuss how targeting data is revolutionizing the concept of “audience buying” and fueling better performance for advertisers. Really good set of panelists with representatives from ad networks, exchanges, advertisers and optimizers! See below (click for larger version).

Sponsored by eXelate and moderated by Forrester Research.

Others Online Acquired by the Rubicon Project

On September 15, 2009, the Rubicon Project announced the acquisition of Others Online, a company I founded in 2006, the 3rd company I've founded, and the 4th startup I've built up.

Others Online was founded on the vision of advertisers being able to reach people, not pages. When I had looked at the revenue growth of Internet advertising revenues from 1997-2007, I noticed two clear growth trends. The first growth trend, from 1997 through 2000 (v1.0), was primarily fueled by content targeting -- Web sites and content were the proxy by which advertisers reached people.

The second growth trend, starting in roughly 2002 (v2.0) was primarily fueled by keyword targeting -- search and context keywords were the proxy by which advertisers reached people.

My belief, and the bet we made with Others Online, was that the evolution of the Web would result in a third growth trend (v3.0) -- the ability for advertisers to reach specific audiences directly, thereby supplanting the use of proxies. Indeed, the industry is seeing tremendous growth in the area of audience targeting. However, the ability to correctly identify specific audiences is dependent on two things:

1. Lots of audience attention data, representing what we're devoting our precious attention span to online.
2. Technology to aggregate, process, score and summarize the audience attention data.

Audience attention data is everywhere. Every online media company has a fragment of attention data, and we've seen a number of companies form in the data space, each offering valuable data for sale to advertisers. Not just "behavioral" data either -- contextual, demographic, purchase intent, location, search keywords, etc. But that's the problem; no one has a complete picture, merely fragments. The true market growth opportunity can't be realized unless/until there's an aggregation point for audience data, coupled with media inventory, and the mechanism by which advertisements can be targeted based on the multiple facets that define us as people, at scale.

Others Online built a powerful technology platform to aggregate, process, score and summarize audience attention data, with services that helped publishers better understand, segment and target audiences. In our discussions with the Rubicon Project, we quickly realized the power of combining their global reach and scale (45B monthly impressions to 500M users, across 30K Web sites) with our technology to not only provide incremental value to everyone connected to the Rubicon Project platform, but also to fuel the next growth trend in audience-targeted online advertising.

As with all announcements though, there are bound to be misconceptions. Though future press releases will certainly add clarification, I thought I'd at least try to dispel a few potential misconceptions upfront!

• This acquisition does NOT make the Rubicon Project a "data exchange". We do not resell publisher or 3rd party data, nor will we. We provide a platform through which 3rd party data providers are developing an incremental distribution and sales channel.
• The Rubicon Project (still) does NOT sell media directly to advertisers. We remain 100% focused on providing value to premium Web publishers, helping them make more money, protect their brand and save time.

The Others Online team couldn't be more excited to be a part of the Rubicon Project. But mostly, we look forward to adding value to their publisher partners and in doing so, hopefully realize the market opportunity at hand.

Current State of Web Privacy, Data Collection, and Information Sharing

Very interesting research report at KnowPrivacy.org on the current state of web privacy, data collection, and information sharing. The project was to compare users' expectations of privacy online and the data collection practices of web sites, identify specific practices that may be harmful or deceptive and attract the attention of government regulators, and to produce recommendations for policymakers.

The key takeaways for me were:

• Users are concerned about data collection online (duh!), want greater control over their personal information, yet lack the awareness or initiative to do anything about it. (I found it interesting that the report seemed to focus on personally-identifiable information (PII) and not distinguish that from non-PII.)
• Web bugs/beacons are ubiquitous.  All of the top 50 websites contained at least one web bug at some point in a one month time period. Some had as many as 100.
• Google is the dominant player in the tracking market; it operates the top three trackers and four of the top 10. Among the top 100 websites this project focused on, Google Analytics appeared on 81 of them. When combined with the other trackers it operates (AdSense, DoubleClick, FriendConnect, etc.), Google was on 92 of the top 100 websites and 348,059 of 393,829 distinct domains reviewed -- that's 88.4% reach across the Web!!
• Most of the top 50 websites collect information about users and use it for customized advertising.

Other various data points and comments I noted:

• The number of user complaints made to the various organizations is extremely low relative to the number of Internet users. The FTC had only 6,713 for five years (in the General Privacy category), the PRC had 2,202 for the same period and the COPP had 1,152. TRUSTe had 7,041 that it categorized as privacy related. The largest numbers of complaints at all four of the institutions we received data from were concerned with public displays of personally-identifiable information.
• Only 23 of the top 50 affirmatively stated that users could have access to some portion of the information the website had collected about them. The remaining 27 policies lacked mention of access or their statements about access were unclear. None of them explicitly offered users the ability to view or delete click stream data.
• The Network Advertising Initiative (NAI) currently has an opt-out mechanism that requires users to download a cookie, which will let direct advertisers know not to install any third-party tracking cookies on the user‘s computer. This method of opt-out is unacceptable. First, it only governs members of the NAI; tracking companies that are not members will still be able to use cookies and web bugs to collect data about users. Second, users that delete cookies on their machine may delete the NAI cookie inadvertently and open up their machine to third-party tracking again.
• Only 27 of the top 100 Web sites provided a P3P policy, and only a subset of those were valid according to the P3P standard.

The final recommendations as a result of the research?

• Regulation by which both websites and third-party trackers must allow users to see all the data that has been collected about them, not just user-provided information. Additionally, users should also be allowed to see with whom their data has been shared.
• That companies request permission from users before sharing data about them with any outside party, regardless of affiliation.
• Privacy policies should be readable for average users.
• Users be given clear and proper notice as to whom the data will be passed, regardless of affiliation or method of sharing.
• That the practice of third-party tracking be made more transparent.
• That the FTC create an opt-in standard for enhancement -- the practice of buying information about users from outside sources.
• That all browser developers provide a Ghostery-like function in their browsers that alerts users to the presence of third-party trackers.