KnowVertical Blog

Living In the Network Age

Sitting in on the Upstream Sellers Forum in New York, the topic at hand is the role that Networks play in the online world today.  The session was moderated by Doug Weaver, who actually is a very good moderator and justifies his very high salary.

The panel was made up of some of the top thinkers in the online network space.  The panelists included: Russ Fradin (CEO Adify), Anand Subramanian (CEO ContextWeb), Bill Wise (GM Right Media), Bill Matthews (Tacoda).

The panel started out talking about a very complex chart around what Ad Networks do and where they sit in the market.  This graphic was displaying all the components of the Ad Network space.   The chart included:

- Rep Model
- Arbitrage
- Exchange
- Enterprise
- Vertical Ad Networks
- Ad Creation

Digging into this chart it was clear immediately that there is a distinct difference between the Ad Networks (Glam, Martha’s Circle, and FM Publishing) and the Exchanges (Right Media, ADSDAQ).  The main point of differentiation was really around the primary objective of each.

What the panel explained was that exchanges are more of a platform that does not take on risk and doesn’t really own the sales effort or responsibilities associated with actually monetizing the inventory.  A network is responsible for selling and ensuring the inventory is sold to the right advertiser and at the appropriate rate and is looking out for the best interests of the publishers that are a part of their network.

So digging into some of the details, ad exchanges allow the market to define value and focus on management of supply and demand.   If you look at many of the exchanges out there they really are technology and methodology focused models, and it is really a black or white model, with very little grey area.   The inventory is much more commoditized within exchange, though there are protections, the trend it to devalue the differences across the publishers within the exchange. 

Now Vertical Ad Networks are really focused on the grey areas, with a primary objective of quality and value for the publisher community.   It is about finding the right audience for the advertiser and provides them the flexibility and controls to create a complex marketing plan online.  Vertical Ad Networks are focused on ensuring the sites that are a part of the network grow and retain their uniqueness and quality and value. 

So that is the difference, the exchange is a lot like Google and Right Media where the volume can help drive down prices for advertisers and squeeze pennies out of CPMs and ensure the buyer is buying the lowest rate and getting the most out of their dollar.  The vertical ad network provides an open and transparent approach for professional marketers to use their experience and knowledge to build and execute their marketing campaigns.

Digging deeper into the ad network and exchange business the discussion flowed towards the elephant in the room, which is around the big Double-C, Channel Conflict!  The room is filled with over 100 of the top online publishers and influential interactive players.  Almost everyone in the room was clearly worried about channel conflict, price degradation, brand control, and so on and so on.

What role does the (remnant) Ad Network play in the pricing squeeze and/or really creating a channel conflict issue?  Though most of the panel agreed that the market had changed and the remnant sales teams are less shady and are more willing to protect the sites they run on, the advertisers are not stupid and use open data sources to find out where the ads will end-up. 

The challenge posed from the panel to the audience was ‘will you take the next step if you are so worried and close these channels, at least for your high value inventory?’  Russ told the audience that they needed to take a close look at what the real important drivers of their business are and make some hard choices.

Finally, the panel spent a lot of time talking about the future of networks.  There were plenty of questions of where the trends were headed and if the future was 1000’s of networks?   The answer was that there already were 1000’s of networks and that is not what the big brand publishers should worry about, and the real worry was becoming obsolete.  The real future of almost every publisher in this room is becoming obsolete online because of fragmentation. 

The whole panel jumped in to explain, what we already know very well, which is the big sites are not growing anywhere as close as the growth in the category.  Every site on the web is not growing anywhere close to the overall growth of the sites in their category, because of fragmentation. 

There was a big discussion about the fact that Ford Motors this year spent $100MM of their online budget with an ad network.  People were amazed and upset that ad networks were getting such big spend from the big brand players. Why were the networks stealing our revenue said one publisher under his breath.  A lot of people were worried about channel conflict, losing budgets, fragmentation, loss of audience, and even

The panel talked about how the publishers in this room have to start taking control of their own destiny.  They have to leverage their assets today, such as brand, content, and sales resources to start to aggregate your own network of high quality sites.  It is critical now, so that you are prepared for the inevitable, which is the trend of fragmentation and the big publishers not bringing value to advertisers at enough scale any longer.

It was clear in the room that most of the people believe that building your own vertical ad network is the real solution to all these problems that are coming hard and fast at them everyday. 

Finally, the panel reinforced to all the publishers in the room that they needed to take a close look at the alternate sales channels they are leveraging today, while also taking over their own destiny within their category.

To finish it up, Todd Teresi from Yahoo! said the best thing of the day.  ‘You all need to stop complaining about all your problems you have control over.  You can control the channel conflict.  You can control the loss of revenue to ad networks.  You can control the fragmentation.  It is all solved by building your own vertical ad network and you better move fast!’

Creating a Vertical Media Community...

We talk a lot about the financial aspects of a vertical network, but don't dive much into the other drivers for publishers to join and engage in the community of sites.   The main drivers for sites to join a vertical media network today is really built on three things, Money, Fame, & Power.

The first driver and probably primary for the majority of sites that join a vertical network, is money.   Money means high CPM buys from good quality endemic and brand advertisers.   Many of the sites in a vertical network may be making good money already though Google AdSense, but there is still an opportunity to extend and grow their revenue through a top tier national sales team selling their site to Fortune 500 advertisers online.

The second driver is fame.  Fame is really important to the network ecosystem, as it is not only a great way to establish and build your brand for the network, but it also provides for a real hook or sticky application for the sites to stay as active members of your community.  Fame really means the association or prestige of being associated with something better and/or more important.   

Some tactical examples of fame show up in everything from displaying a badge on the site with the network logo, all the way to syndicating video or content in a bisynchronous manner.  What this means is you are out providing access to very high quality content and widgets, but in a controlled manner that is only available to your member sites.   Providing tools, widgets, content, etc... to these sites as a premium to their site is seen by most publishers as a significant benefit of being associated with your brand.   

The simplest version of fame is to provide a badge to your member sites.  A Web badge is a small image used on websites to promote web standards, products used in the creation of a web page or product, or to indicate a specific content license that is applied to the content or design of a website. The "Powered By X Vertical Ad Network" on your website is an example of a web badge.

A common-usage standard for web badges are 88x31 pixel and 80x15 pixel (also known as Antipixel[citation needed]) images typically in GIF or PNG image format composed of a small graphic to the left with text on the right typically using the Silkscreen font. Web badges may however come in any size or configuration.

Standard dimensions:

• 36x13
• 80x15
• 88x31
• 110x32
• 120x60
• 120x90
• 125x50
• 180x60

The badge should be worn by all sites on at least their home page, if not elsewhere.   The badge serves a couple of purposes, the first being the fame and prestige of being in the network.  The second is so advertisers feel comfortable that the sites are high quality and vetted because they are wearing your logo and brand.  The tertiary benefit is the lift in traffic and/or Page Ranking. 

The badges many times have direct links from the site to your main site, which then provides more linking power to your main portal.   Remember the SEO benefit must be implemented correctly and should be as clear and direct linked as possible, given the way most search engines work.

Most badges fit into standard formats on the sidebar, most fall into 120x90 or 120x60.  You can do many other sizes, but these are the standards. A few examples of badges that fit best practices can be seen in current networks and across service and brand websites.

- Aral Balkan Brand Badge

- Aral Balkan Brand Badge 
- Know H2O Badges
- Website Designers List Badge

Though the fame bucket can be broad, a few good examples of fame can be seen across the web today through tools and/or widgets:

- Divine Caroline provides pregnancy tracker tools, podcast directories, rss feeds, and content widgets to sites.
- WMC local news provides weather and news widgets to sites. 
- DeSmog Blog provides a tracking widget for the global carbon footprint.
- Last.FM provides a music quilt widget for associated sites.
- WeShow provides a TV programming video widget 
- Epicurious Recipes Widget  

These are just a few ideas that might be helpful as you think about what types of widgets you want to develop, support and deploy to your network of sites.  The most important thing to remember as it relates to content syndication and widgets is the fact that in the network world the distribution is limited to your member sites.  Unlike viral widgets like ClearSpring, where the majority of the widgets sit on MySpace an FaceBook, these widgets only show-up on the sites in your network that you have approved and/or accepted into the network.

The final benefit, or value driver, is power.  What power really means is traffic.  Sites all see traffic as power, as traffic really provides longer term value to the sites through more visitors, more readers, more subscribers, thus more revenue and more opportunities.   There are a handful of methods that work to increase the power driver for your network sites, but the best is through repurposing their content on your own website/property or providing a feed of the RSS feeds across the network.

There are a handful of networks that are combining the Fame and Power, but pushing out widgets that include cross content from other sites in the network, thus driving more traffic.

A few live examples of these include, but are not limited to:

• Tech Dispenser Widget
• Blogroll Business Widget
• WPNI Blogroll Travel RSS Widget.
• Washington Post Overall Widget  

Additionally, providing an active list of sites and links to these sites is another great benefit for members of the network to potentially reach additional audiences.

Washington Post Directory - http://www.washingtonpost.com/wp-adv/blogroll/directory.htm
Martha Stewart Directory of Links - http://www.marthastewart.com/most-popular?lnc=c479cf380e1dd010VgnVCM1000005b09a00aRCRD&rsc=navigationcorporate_Homepage_Homepage

Overall, there are plenty of best practices that you can be using to build out and engage with your publisher community.  Going into this relationship with more than just the money in mind is the first step to ensuring a long term, durable network asset.

Third Year is a Charm...

The business model is solid.  The CPM's are high.  The sites are great quality.  What does the revenue look like?  It is hard to say for sure how much topline revenue these vertical ad networks really drive, but a deep dive into some of the more established networks shows some good signs.  So to find what the opportunity might be we needed to use some public data and triangulate around total value.  The goal of this exercise was two fold, first to try and better understand how big these networks actually were; but secondly, how well our growth rate predictions fit the vertical ad network model.

To get a good sense of how vertical ad network revenues grow the best proxy is looking at the actual sales from these vertical ad networks.  We built a model that includes the growth trajectory for some of the top vertical ad networks in the market today by using public data from the top audience measurement firms.

To build this analysis I took the traffic and total active site count data for Glam, FM Publishing, and JumpStart networks, these networks have much more publicly available data on the composition of their network, than others.   The next step was to run reports in Media Metrix, Compete, Quantcast, and a few others on the total impressions served for each network, and contributing site.  I triangulated the 3-4 data sources to come up with average impressions count and total unduplicated UV’s for each network.   Of course if possible I relied more on comScore or NetRatings vs the others.

Now, the problem with these numbers is really driven off the fact that impressions alone don’t really tell you much more than how big the potential network is.  The page views or impressions metrics within all the audience measurement services give an estimate of scale, but don’t really tell you anything about sell-through rates or CPM’s.  There are plenty of rumors going around that the sell-through rates on Glam and FM Publishing are low, that is probably true if you measure sell-through as a percentage of all inventory.  But if you calculate the sell-through against the high quality (above the fold, homepage, premium content) channels/pages, then the sell-through on these networks is much higher.

So, to make this more complicated, we dropped the impression growth rates into a time aligned curve  built off of over 100 networks from the beginning of time (okay, since 2000).  This historical growth rate then drove the sell-through rate across these networks; we were making the assumption at this point that these networks will sell their inventory at the rate of the historical trends across the other networks.  We already have their site and reach growth rates, so all we needed was the total impressions on top of the estimate of sell-through.

Using this model, the actual impressions on the network is a proxy for the available inventory to sell.  In the case of FM Publishing and JumpStart, this actually is an accurate assumption because of the way their networks actually operate.  Glam is a slightly different animal and there is a potential within the Glam estimates that their total revenues in 2008 and 2009 might be slightly over stated.  The only reason we don’t think this is a big issue is because Glam is still growing their network, which we are not taking into account in the network, and Glam also has a very good remnant deal with Google, which would then support the higher sell-through across their networks, albeit at a slightly lower eCPM.

Finally, to align and calculate the actual revenue, we used the average CPM’s that our market intelligence tells us is the appropriate rate for the categories these networks are selling into.  The CPM estimate was built based on taking the category CPM’s and then looking at the composition of these networks by the categories they are representing.  Additionally, we have the actual reported/public CPM’s from each of these networks and can make some assumptions on discounting based on rate-card and volume estimates.

The final outcome of this analysis shows a pretty solid growth rate across these three vertical ad networks.   The estimated revenues for 2007 were: Glam  $21MM; JumpStart $59MM; FM Publishing $24MM.  What is the over under on these numbers?  Who knows, but the data seems to be in the range of acceptable error.

The growth rates across these networks ranged from 100% growth to 700% growth.  This growth is not just a function of the model, but really a function of the size of the network and where the network actually is in the model.  Because Glam continues to recruit sites on a monthly basis, their sell-through rate is actually lower because the composition of their network is expanding as they sell more.  JumpStart is actually counter to this as they have a limited set of sites they are working with, at least until they start to recruit more sites, and they are somewhat bound to a doubling of revenue year over year.

These numbers seem very reasonable and if you compare to publicly available data the numbers are within the range of error. 

We believe these networks, in their 3-4th year of operations are going to enjoy significant growth in total revenue, but also higher CPMs and bigger budgets within their category.

Remember these are estimates and the public data that was used to validate this data is probably subject at best.  Please use this analysis with a grain of salt.

Quote of the Month

“Advertisers have two challenges; first, they need to find vehicles that are appropriate to their task and, second, find an efficient way to transact with them. For brand advertisers (who typically define success by lift in metrics like awareness, message association, brand favorability, purchase intent), finding blogs that have real equity with their readerships is first and foremost.

Second, and frankly more challenging, is finding a way to transact with these people. There are challenges to validating audience on small sites given the current market for ad research, finding professional counterparts at these publishers with which to engage and frankly getting enough scale (reach) to make it worth their time, agency transaction costs being what they are.”

– Christopher Batty, VP Sales, Gawker Media

Quality Goes Beyond Publishers...

Check out this recent posting that takes a funny look at online display advertising.   The posting is  called 'If Banner Ads Were Forced To Be Truthful...' and highlights some of the many banner ads you have probably seen if you visited most of the high traffic, lower quality sites out there.  Though this is an amusing look at banner advertising, it is actually a reminder that the perception of the term Ad Networks and Banner Ads has a negative connotation because of the proliferation of these types of ads.

Vertical Ad Networks are focused on quality and moving away from the high volume traffic and lower quality mass audiences, and looking for more precision providing a safe avenue for tv brand dollars to flow online.   It is important as you build out your vertical advertising network, or what you should call your vertical publisher community or media network, that you consider quality throughout the process.

Of course the websites and blogs that associates with your brand and sign on for multi-year agreements have to be the premium content within your category.  Of course you want to ensure you are establishing a strong publisher relationship with the top of the pyramid of the long tail sites.  It is common sense that you will spend the majority of your time engaging with your member sites and vetting the thousands of potential affiliates to narrow down to the elite few.

But don't forget the other side of the coin.  Quality has to continue through your business and present itself in the marketer and brand relationships you establish.  It is easy to go out and strike a deal with LowerMyBills.com or Classmates.com and ensure a .50 CPM.  It is simple to strike a quick backend deal with ValueClick or Burst to get into some of the low CPM, high volume buys.  But remember that not only are the sites representing your brand, but more importantly are the advertisers that you are bringing to the table going to represent you and your network.

Banner ads and ad networks have a bad connotation in the market.   It is up to the Vertical Media Networks to fix this and continue to facilitate the growth of high dollar and premium marketing campaigns online.   It is fine to laugh at these funny examples of really bad ad creative, but it is also a good wake-up call to remember to stay away from the drudges of online and focus on where you can bring real value to the table.

Leave the bottom dwelling to the experts, you know who you are!