A Wise Search & Online Marketing Insider Tells All…

A lot is being written about online media not being sold like “pork bellies”, or as a commodity. Those people are missing the point of the importance of syndication in today’s market. Publishers may not opt to send remnant inventory to ad networks, but rather BECOME ad networks themselves. Martha is doing it. Forbes is doing it. Viacom already does it.

Mike Shields of MediaWeek wrote a decent article summarizing this. While I think he missed my main point, the article is a good read….

ESPN Turns Off Ad Nets to Protect Brand, Content

The site recently cut ties with Specific Media and several other unnamed ad networks, and is taking the bold stand that ad selling that relies heavily on arbitrage and algorithms is not for them.

Mike Shields

Top Web publishers are planning a revolt. Even as more prominent sites experiment with selling remnant inventory through online ad networks, and in some cases ad exchanges, ESPN.com is saying thanks, but no thanks.

The site recently cut ties with Specific Media and several other unnamed ad networks, and is taking the bold stand that ad selling that relies heavily on arbitrage and algorithms is not for them.

“We’re heading down a path where it no longer suits our business needs to work with ad networks,” said Eric Johnson executive vp, multimedia sales, ESPN Customer Marketing and Sales. Sources say that ESPN would like to rally support from other publishers behind this move, and ultimately tamp down ad networks’ growth. Turner’s digital ad sales wing is rumored to be considering a similar move, though officials said no decisions are imminent.

“Turner, like a lot of media companies, is currently reviewing all of its media practices, and ad networks are certainly a part of that process,” said Walker Jacobs, senior vp of Turner Entertainment New Media Ad Sales.

ESPN’s decision crystallizes a philosophical debate in the online ad sales industry that has intensified since the Interactive Advertising Bureau’s annual meeting last month, when during a keynote address Martha Stewart Living Omnimedia media president Wenda Harris Millard gave her now famous warning against selling Web inventory like “pork bellies.”

Two sides have formed—those who want to protect traditional, direct selling of premium content brands, and the math-loving crowd which favors automation and data. The math lovers make the traditional sellers nervous.

“There is a genuine concern about commoditization of brand inventory by some of the networks,” said Millard in an interview. She’s concerned that such a debate is happening so early in the Web’s development as a business. “We haven’t even established the value of our medium, and all of a sudden it’s about price. That is very bothersome to people who are brand stewards.”

Of course, there’s a reason that online ad networks, which rose to prominence in the late ’90s by aggregating inventory across thousands of smaller Web sites, are playing a bigger role in Web publishing. Most large sites are swimming in avails they can’t sell. Insiders estimate that 20 percent to as much as 70 percent of inventory can go unsold at a given time. Thus, ad networks offer a monetization alternative.

And in recent years, to differentiate themselves, more of these companies have been touting themselves as ‘premium” ad networks, talking up their associations with the ESPNs of the world when they meet with ad agencies. “Nobody comes into a meeting and says, ‘I’ve got a bunch of lousy sites,’” said Mike Cassidy, CEO of Undertone Networks.

That doesn’t sit well with some publishers, like ESPN, who see networks as profiting on their brand investments and their user data, while also threatening their own marketer relationships. Many just think using networks devalues the power of content.

Several publishers, in conversations with Mediaweek, privately applauded ESPN, and hoped that others would follow suit. But applause doesn’t necessarily translate to action.

“I don’t see it happening,” said John Battelle founder/chairman/CEO Federated Media, a company that represents numerous blogs. “I suppose certain premium brands could say, ‘I’m above the fray. Our inventory is all very valuable.’ With that there are some problems.”

Central among those problems is that in this accountability-driven quarter-by-quarter business climate, it’s hard for any publisher to walk away from revenue, even if it’s not huge.

“Not all inventory is created equal,” said, Peter Naylor, senior vp, digital media sales, NBC Universal. For example, Naylor said iVillage’s Horoscope section generates a lot of traffic, but doesn’t attract many endemic advertisers. Thus, he turns to networks.

According to Pam Horan, president of the Online Publishers Association, most publishers do just that.

For example, MTV Networks recently inked a deal with Microsoft to let the software giant sell its remnant inventory. Nada Stirratt, executive vp, MTV Networks Digital Media (herself a former top sales exec at ad net giant Advertising.com) said that ad networks “absolutely have a place for high frequency, low value impressions.” Plus, she likes tapping into Microsoft’s tech expertise, and is comfortable with the numerous safeguards the deal offers.

Even Tina Sharkey, chairman, BabyCenter.com (and a former AOL exec) who gave a well-received presentation of the value of branded sites relationships with their readers at the IAB meeting, defended the network model. “Ad networks play a vital role in the online advertising ecosystem.”

So can ESPN change the model? “It won’t have the desired impact,” said Adam Kasper, senior vp, director of digital media Media Contacts—unless the top ten or so Web sites followed suit.

The networks themselves don’t seem worried. Tim Vanderhook, co-founder of Specific Media, said he hopes that his company would end up working with ESPN again in the future, and doesn’t believe that big name publishers can afford to ignore networks. down the road.
“Specific Media’s publishing partners come and go in the network throughout the year as we constantly assess the cost and performance of their ad inventory for our advertisers,” he said.
“If several, or even all, big name publishers stopped working with us, it would hurt the publishers themselves more than us…The online advertising business is all about targeting and publishers can’t do it on their own because they don’t have enough data.”

Kasper, and many others, believe that data will be essential to online advertising’s future.
“They’re [ESPN] essentially fighting technology. That’s a hard thing to do.”

But ESPN and other publishers may opt to invest in their own ad targeting technology. In the meantime, they’ve got the option of trying ad exchanges, which promise more control.
“We think of the exchange as a solution to all of these discussions,” said Bill Wise, general manger, global exchange, Yahoo – which acquired the exchange company Right Media last year.

Wise emphasized that since exchange companies don’t purport to be ad sellers, but rather provide a selling platform, they are safer than ad networks. “You take a big risk in letting other people represent your brand,” he said.

As for commodization fears, Wise quipped, “Well, gold is a commodity.”

1. Ad Networks need to go deep to strive. Ad Networks need to offer true differentiation and add unique value. I predict the untargeted or performance-based ad networks lose ground to the portals who are building their own ad networks, and to vertical ad networks and data/ behavioral ad networks who are building a defensible deep expertise.

2. Local & SMB market get to critical mass for a handful of players and the search engines pay attention to them. Its about time…

3. Video continues to not have a standard ad unit, but continues to take huge mindshare within brand departments, ad agencies, brand publishers and portals… and amongst the press, who loves to talk about the broadcast dollars shifting.

4. Mobile explodes. Similar to the social networks in 2007, huge amounts of venture capital will pour into this market without a material focus on established revenue streams.

5. Ad Exchanges go mainstream…!!!

More to come in Part II…

Fun days here at Right Media… I have been incredibly impressed with Yahoo!s strategic vision and commitment to the exchange model through the process. I think this will be a great marriage. More importantly, it makes the competition with GoogleClick that much more exciting!

Official Press Release: Yahoo! Announces Agreement to Acquire Right Media, Largest Emerging Online Advertising Exchange

New York Times: Yahoo to Buy Ad Company in Bid to Compete With Google

Some excerpts from the above New York Times article, by MIGUEL HELFT:

- “The acquisition, to us, is a key step toward executing our long-term vision to build the leading advertising and publisher ecosystem both on and off the Yahoo network,” Terry S. Semel, Yahoo’s chief executive, said in an interview. The deal is to be announced today and is expected to close in three months.

- Right Media, a four-year-old company, runs an exchange in which advertisers and publishers buy and sell online ad placements in real time through an auction system. DoubleClick, which specializes in serving ads on Web sites, announced recently that it would develop a similar type of exchange. Online publishers are increasingly turning to exchanges like these to sell ad space on their sites.

- “What we look forward to do as an owner is put more inventory into that pot to help create a more vibrant exchange and create better pricing for everyone,” Mr. Semel said.

- Yahoo said that after the acquisition it would increase its participation in the exchange as both a buyer and seller of ads. The company said it planned eventually to sell all the nonpremium ad space on Yahoo through the exchange, a move executives said would enhance revenue.

- Google and Yahoo each dominate one segment of the online advertising market. Google is best at selling text ads that appear alongside search results and on other Web sites. Yahoo, which has lagged Google in search, is a leader in selling graphical ads, mostly on its own sites.

- By buying Right Media, analysts have said, Yahoo would accelerate its own efforts to sell and broker ads on other sites. Those efforts began taking shape recently, after Yahoo reached agreements to sell ads on eBay and on some 264 newspaper Web sites.

(Note: For the math impaired, $680 million for the remaining 80% that Yahoo! didn’t yet own is equal to an $850 million in total valuation…)

It has been rumored that Microsoft bid right around the rumored $2 billion for DoubleClick. So the question remains, “Why did Google pay $3.1 billion?”. I have some thoughts; some serious, some just for giggles:

1. With AdWords, “max bid” represents the most an advertiser is willing to pay for a click for a particular keyword or group of keywords. The ACTUAL price the marketer pays is one penny more than the next highest bidder (on an effective CPM basis, which takes into account CTR/ quality score). Meaning, a marketer can bid $50 a click, but may only end up paying $0.50 for the click if that’s what it takes to win the auction. My theory is that Google thought the $3.1 billion was its MAX BID, and insiders say the Google executives were astonished when they didn’t win the auction for $2,000,000.01!!!!!!!!!!!!!!!!

2. This one is serious… PATENTS! While DoubleClick may claim to be the “central nervous system” to online advertising in their new marketing campaign, they really were the pioneers of online advertising the 90’s, and have really, really, really valuable patents that Google just couldn’t afford Microsoft to get their hands on. After all, they need to protect their 149 BILLION MARKET CAP… an extra billion to ensure it is seemingly a decent insurance policy. Thanks to an awesome write-up at SEO by the Sea below are a list of the patents DoubleClick has.

3. Last, the ability for Google to publicly beat Microsoft yet again was worth a little premium. Dr. Eric Schmidt spent decades at Novell and Sun getting beat up by Microsoft… Time for some pay-back from the Google CEO, who now also sits on the Apple board of directors.

WIPO Patents Assigned to Doubleclick

1. Method and System for Sharing Anonymous User Information
(WO 2002/035314)

Published May 2, 2002
Doubleclick, Inc.

A method and system for sharing online user information in an anonymous manner. The system associates an identifier (100) with anonymized information of the user, and sends the anonymized user information to a receiving party (130). In one embodiment, the system receives a temporary id with personally identifiable information from a Web site, uses the personally identifiable information as a key to obtain the anonymized information from a data source, and sends the temporary id with the anonymized information to the receiving party. the receiving party uses the temporary id, previously received by the Web site, as a key to obtain the anonymized information of the user. In another embodiment, the system receives a temporary id from a Web sit…

2. Automated Online Sweepstakes System and Method
(WO 2001/059656)

Published August 16, 2001
Doubleclick, Inc.

An automated process of conducting an online sweepstakes and marketing to sweepstakes entrants. The software system enables a non-technical individual (e.g., sweepstakes manager, marketer, etc.) to create a sweepstakes entry form that is integrated with back-end data processing systems (figure 2, item 210). The entry form and entry form processing system are kept consistent with sweepstakes rules chosen by the non-technical individual and automatically generated by the system. The system enforces compliance with applicable laws with integrated tools to pick winners, to determine eligibility and to collect winner affidavits. A back-end database is integrated directly with a sweepstakes entry form. Online tools permit a marketer to view entra…

3. Network for Distribution of Re-targeted Advertising
(WO 2000/008802)

Published February 17, 2000
Doubleclick, Inc.

A computer system for automatic replacement of advertisements includes an advertising server for selecting an advertisement based on criteria related to the individual viewer. In particular, advertisements are selected for a given user, based on the past behavior of that specific given user. Advertiser web sites on the network are configured to anonymously report back user activity such as visit dates, purchases, specific product pages visited and the like. Alternative reporting embodiments include email, file transfer protocol and spotlight tags. User activity lists are processed to select candidates for re-targeting. Candidates for re-targeted advertisements are identified based on their own individual past activity, and stored in a list …

4. Method and Apparatus for Automatic Placement of Advertising
(WO 1998/058334)

Published December 23, 1998
Doubleclick, Inc.

A computer system for automatic replacement of direct advertisements in scarce media includes an advertising server for selecting a direct advertisement based on certain criteria. Transaction results of the direct advertisement placement are reported back to the advertising server, and an associated accounting system. In one embodiment, the direct advertiser’s server reports transactions back to the advertising server by email. In a second embodiment, a direct proxy server brokers the user’s session (or interaction) with the direct advertiser’s server, including transaction processing and the direct proxy server reports the results of transactions back to the advertising server and its associated accounting system. A direct proxy provides a…

5. System and method for analyzing website activity
Invented by Jonathan Marc Heller, James Christopher Kim, Dwight Allen Merriman, Andrew Joel Erlichson, Benjamin Chien-wen Lee
Assigned to Doubleclick, Inc.
United States Patent 7,085,682
Granted August 1, 2006
Filed: September 18, 2002

Abstract

A method and system for analyzing website activity. According to an example embodiment, the system receives event-level data representing visitor session activity on a client website; attributes characteristic information of the event-level data associated with each visitor’s session to at least one of a plurality of visitor segments, stores results of the attributed information aggregated according to visitor segment prior to a client-requested analysis of the event-level data, and provides online reports based on the resultant data in response to a client-requested analysis of the event-level data.

6. Method and apparatus for automatic placement of advertising
Invented by Dwight A. Merriman and Kevin O’Connor
Assigned to Doubleclick, Inc.
United States Patent 7,039,599
Granted May 2, 2006
Filed: June 15, 1998

Abstract

A computer system for automatic replacement of direct advertisements in scarce media includes an advertising server for selecting a direct advertisement based on certain criteria. Transaction results of the direct advertisement placement are reported back to the advertising server, and an associated accounting system. In one embodiment, the direct advertiser’s server reports transactions back to the advertising server by email. In a second embodiment, a direct proxy server brokers the user’s session (or interaction) with the direct advertiser’s server, including transaction processing and the direct proxy server reports the results of transactions back to the advertising server and its associated accounting system. A direct proxy provides an independent audit of transactions at a remote direct advertiser’s web site. The feedback of the results of direct advertisement transactions provides an efficient utilization of direct advertising space by way of an automated computer system with a predictive model for selection and distribution of direct advertising.

7. Method of delivery, targeting, and measuring advertising over networks
Invented by Dwight Allen Merriman and Kevin Joseph O’Connor
US Patent Application 20050038702
Published February 17, 2005
Filed: September 10, 2004

(There are 5 versions of this patent application on file at the USPTO)

Abstract

Methods and apparatuses for targeting the delivery of advertisements over a network such as the Internet are disclosed. Statistics are compiled on individual users and networks and the use of the advertisements is tracked to permit targeting of the advertisements of individual users. In response to requests from affiliated sites, an advertising server transmits to people accessing the page of a site an appropriate one of the advertisement based upon profiling of users and networks.

8. Network for distribution of re-targeted advertising
Invented by Dwight A. Merriman and Kevin J. O’Connor
US Patent Application 20020082923
Published June 27, 2002
Filed: February 26, 2002

Abstract

A computer system for automatic replacement of advertisements includes an advertising server for selecting an advertisement based on criteria related to the individual viewer. In particular, advertisements are selected for a given user, based on the past behavior of that specific given user. Advertiser web sites on the network are configured to anonymously report back user activity such as visit dates, purchases, specific product pages visited and the like. Alternative reporting embodiments include email, file transfer protocol and spotlight tags. User activity lists are processed to select candidates for re-targeting. Candidates for re-targeted advertisements are identified based on their own individual past activity, and stored in a list of candidate user ID’s. When a candidate on the re-targeted list is identified at any network affiliate web site, a re-targeted advertisement is delivered to the candidate user.

The eBay Media Marketplace (”EMM”) has received much hype the past bunch of months. According to a MediaPost article, this past Thursday that hype came to a screeching halt when the Cable television Advertising Bureau–which holds the keys to launching the broadcast auction system–said the EMM was a permanent no-go. The trade group’s opposition was based on two points:
1. The eBay functionality was flawed, and
2. The system wasn’t in step with the new age of media buying, where the focus is on complex multi-touch point deals, not peddling and purchasing spots.

CAB head Sean Cunningham said his members reviewed a pilot of the system for some weeks. They found that its infrastructure fell short in making the intricacies of end-to-end buying and selling better. Cunningham said it was “evidence of someone developing a system in eBay that, despite the best counsel of top buyers in the business, was just not getting the scope of this business in terms of both current and future practice.”

So this raises a few questions…
1. With all the hype over DoubleClick’s entry into the “Ad Nasdaq” world, will anybody be able to move this marketplace concept up market?
2. Was broadcast simply not ready for their ecosystem to be turned upside down and embrace auction-based media?
3. Is premium inventory, regardless of channel, simply too personal and relationships and media buying too complex to make the evolutionary switch away from upfronts and personal negotiations?
4. Is an auction platform built simply for spot-market, remnant, or turn-key/ non-creative ad inventory?

For the eBay Media Marketplace to make it, I believe the market first needs to figure out a solution for a Premium Online Ad Exchange. For that to happen, it has to be driven by a Media company with a huge online presence, powered by a technology which embraces auctions but respects the old-school inventory forecasting and expectations on campaign delivery. All eyes have to be on Microsoft, Google, and Yahoo! before they go onto eBay…

Last Wednesday, megapublisher Meredith Corporation (publisher of Better Homes and Gardens, Family Circle, and Parents, to name a few holdings) purchased interactive agencies Genex and New Media Strategies. It was an incredible deal for Meredith, as it brings advertising accounts like Honda, Unilever, Citigroup, ABC, Coca Cola, Ford, Sony, and AT&T under Meredith’s roof, and most likely onto Meredith’s magazine pages. It’s also a move that would have been utterly unthinkable ten years ago.

The Wall Street Journal’s Emily Steel puts it this way: “There used to be a clear division between media outlets… which sold ad time or space and ad agencies, which designed and placed the ads on behalf of marketers. One reason [for the division]: the potential for conflicts of interest if an ad agency owned by a media company was seen to be unfairly directing ads to its sibling media outfits.” But times are changing. Steel goes on to cite other examples of the new pubvertisers, including Conde Nast and Wenner Media, both of which have created in-house ad divisions; Gannett Media, which now owns interactive shop PointRoll; and Google, which has “expanded aggressively into ad sales.”

I think it’s Steel’s last example–Google, or, more broadly, the whole world of search–that’s the key catalyst in the pubvertising trend. That’s because search has placed a whole new level of analytics and transparency into the publishing world; and it’s this analytics-based transparency that makes pubvertising possible.

Why? Because advertisers would mistrust pubvertising in environments in which there’s little recourse for evaluating the agency’s suggestions. It’s only when good analytics can show advertisers when they’re being lied to, when they’re being led astray–and when they’re being offered sound advice–that makes it safe to take advice from a source that may have a conflicting interest. Analytics create transparency, which creates trust, which is the crucial element for pubvertising to get off the ground.

And it’s the search engines that are leading the way in both providing and leveraging this kind of transparency. From free keyword tools to human sales reps, search engines are kings in advising advertisers how to manage keyword spend. But while they’re pushing keywords, the engines also provide clear data on how those keywords actually perform. That transparency makes customers feel secure both listening to the engines’ advice on buying keywords, while purchasing those keywords directly from the engines themselves.

Of course, it’s obviously in publishers’ interest to have ad agencies in-house, because having an in-house ad agency places advertisers within immediate reach. Publishers know this, which is why pubvertising is a trend that will only grow. And to allow that trend to grow, publishers of all kinds will look to offer better analytics and transparency to make that pubvertising possible. I’m not just talking about the MSNs, Yahoos, and Googles of the world entering into an arms race to create better targeting and analytics. I’m talking about even the lowest-tech of ad formats getting into the game, as was the case when print classifieds joined forces with Google late last year.

This has serious ramifications for the future of the ad agency. As publishers look to beef up their analytics and transparency so they can get into advertising, ad agencies will have to beef up their analytics capabilities to get closer to the publishers they’ll need to work with–or be purchased by–to survive. That’s exactly what happened in the world of search, in which a transparent, analytics-heavy publisher model (the engine) gave rise to a new kind of transparent, analytics-heavy ad agency (the SEM firm).

And so as pubvertising shifts from yesterday’s impossibility to tomorrow’s new standard, look to a huge surge in the analytics-based publisher, the analytics-based ad firm, and clients who expect analytics-based transparency from both. Meanwhile, Madison Avenue firms who can’t keep up–because they can’t get up to speed with their data–will face a real uphill battle in the new ad world that looks more like the search world every day.

LAST WEEK, MERRILL LYNCH ANALYST Justin Post revived a suggestion that he had first brought up in June: Microsoft, Post argued, ought to buy Yahoo. Post pointed to reasons why Yahoo might be worth more than its current so-so earnings suggest; he also observed that a Yahoo purchase would let Microsoft gain serious search revenue, even before MSN AdCenter gets up to speed in growing its advertiser base. Obviously, the proposed Microhoo would be a threat to Google. Part of the reason is the major share of search that the new entity would gobble up. According to comScore numbers released in May, MSN and Yahoo hold a combined 41% of all search traffic, which is just shy of Google’s 43%. But the threat from Microhoo would only partially come from search. The real threat to Google would be in Microhoo’s ability to adapt to a continuously-converging media world–a world that MSN and Yahoo are ready for, but that Google still might not be as ready for as it needs to be. All of this goes back to each business’s core focus. For Google, everything is search; Yahoo and MSN, by contrast, work in many channels at once and look to integrate them. And because MSN and Yahoo are already thinking about integration now, they’ll be far better prepared when integration really get underway.

You can see that philosophical divergence in the way each entity picks up search traffic. Google’s name is synonymous with search, and it’s the search engine itself that drives the bulk of Google’s search traffic base. Yahoo also gets plenty of direct-to-search visitors; but an awful lot of Yahoo search traffic arrives off of search bars on Yahoo’s enormous publisher network. The same is true for MSN and its publisher network-and MSN searchers even arrive via help buttons on Microsoft software. Google is popular for search in its own right; Yahoo and MSN Search owe much of their popularity to the way each business draws users from its enormous, diverse universe of user interfaces.

The different philosophies also come out in how each business applies search thinking to non-search channels. To take one example, consider search-influenced solutions for content/publisher sites. Google’s big accomplishment here is AdSense, which syndicates actual search ads onto content pages. Yahoo’s Publisher Network isn’t so different from AdSense; but Yahoo has also bought into the Right Media Exchange–which will let the Yahoo publisher network sell display ads by auction, just as Yahoo already does for search ads. Meanwhile, MSN’s publisher network is beginning to offer targeting on a level that’s clearly inspired by the thinking behind AdCenter, MSN’s super-targeted search platform.

These are very different approaches to how search might help publishers and content sites. Google’s AdSense effectively recreates the world in the image of search. MSN and Yahoo, by contrast, truly integrate very different models, combining elements of text-based search advertising with image-based publisher advertising to make something new.

Which approach–Google’s search-centric approach or MSN/Yahoo’s integrative one–is better? A snapshot of today’s online market would give a resounding win to Google, which pulls in roughly 25% of all online ad revenue, the vast majority of which comes from search. Google’s win is strengthened by Yahoo’s poor Q3 performance, especially given the fact that analysts agree that it’s Yahoo publisher network, not its search network, that’s giving Yahoo trouble.

But a present-day snapshot is misleading. That’s because the information world of today is siloed in a way that tomorrow’s world won’t be. Full-length TV content that lives online, and iTunes for your cell phone, are just the beginning of the new convergence–and as channels continue to converge, the ability to work in many universes at once will be increasingly critical. Which is why the multichannel model, and not the search-only model, might just be the long-term winner.

There’s even some indication that the tide’s already turning. That indication comes from online video, which is effectively the merger of the Internet and TV. Just two days after the YouTube acquisition, an Oct. 11 Businessweek article ranked Google Video as the fifth-most popular video destination on the Web–with MSN Video as No. 4, and Yahoo Video at No. 1. Online video is the merger of different media models, and it’s the integrators, not the dominators in search, who took the lead.

Of course, Google may have solved its video problems by purchasing YouTube. But if Google’s video problems come from too narrow a focus on search, then one needs to wonder how many billion-dollar fixes Google can buy just to stay on top as the landscape shifts. Which is why if Google can’t develop a more convergence-minded view of the world, it could face real trouble from a new Microhoo that’s convergence-minded enough, and large enough, to win in Web 3.0.

A few weeks back, I discussed Yahoo’s disappointing earnings release, and suggested that the solution to Yahoo’s troubles lies in a better integration of its approaches to search within its media arm. Yahoo, after all, is the #2 search engine and the #1 portal; combining the successful components of each would leave Yahoo a nearly unstoppable force in Internet media. And last week, with its 20% purchase of Right Media, Yahoo took a major first step towards making that integration a reality.  

As I said already, Yahoo has the second-largest search engine; that engine is funded almost entirely by auction-based advertising. Yahoo is also the Internet’s largest portal, and therefore one of the world’s largest publisher networks. But until now, the two sides of the business lived very different lives: the successful search side monetizes through auction-based advertising, while the publisher side has monetized through far more traditional models for network buys. With its purchase of Right Media, Yahoo can now bring its publisher monetization in line with its search business for all of Yahoo’s remnant space—and that’s key to effective yield management to complement online brand buys. That’s so because Right Media’s primary offering, the Right Media Exchange, enables publishers to offer auction-based purchases of display ad inventory. Yahoo plans to apply the Right Media Exchange technology to sell Yahoo’s own remnant graphical display inventory—within its own publisher network—in an auction.

That’s good news for Yahoo, because advertisers are steadily seeking more opportunities for auction-based advertising beyond search. The auction model means increased transparency; and, because each unit goes for a unique price, it fosters an environment that allows for better metrics. A promising—if anecdotal—sign that auction media may be particularly useful for Yahoo is Lexus’s quickness to join the e-Media Exchange, an online auction marketplace for traditional ad spots, that was initiated by advertisers disgruntled with the non-transparency of traditional ad networks. Yahoo blamed its below Q3 expectations on troubles from the automotive sector; perhaps auction-based display ads can help Yahoo woo Lexus and its fellow automotive advertisers back into the fold in a more material way.

But the value of the Right Media investment is more than just a way to fix the Yahoo portal’s monetization model. It’s an opportunity for Yahoo to capitalize on its strengths and come into its own in the online world, and out from beneath Google’s long shadow. And it manages to do all this while delivering a wonderful strategic counter to GoogTube, which will undeniably expand Google’s reach well beyond search, and far into content.

After all, despite Yahoo’s Q3 disappointment, Yahoo’s publisher side is still both enormous and hugely popular. Google is the #1 search engine; but Yahoo is the #1 online destination overall—due largely to the popularity of its publisher network. Yahoo clearly knows something about the world of online visuals, as well, whether you’re talking about the display ads and image and video content it offers on its portal; Yahoo video search, which predates Google Video by roughly two years; or its farsighted purchase of photosharing site Flickr, which Yahoo bought when YouTube was only a few weeks old. Yahoo clearly understands the worlds of content and online graphical display, and the investment in Right Media and the placement of the auction media model within the Yahoo portal means that Yahoo can now unlock a huge potential that it’s been sitting on for a long time, and truly begin to monetize its greatest strengths. By making that move on the heels of GoogTube, Yahoo has been able to show the world that Yahoo is still the leader in media in the content/publisher model; and that now it’s able to monetize—and help advertisers monetize—in a way that Google currently isn’t able to.

That’s a lot to offer—with or without GoogTube in the picture. And that’s why I predict a new online world order, coming soon. Yahoo, funded by the monetization through auction-based display ads and its large display network, will be able to solidify its lead in both content and graphical ads. It will become for content and graphical display what Google is for search and text links. How crucial will this change be in online history? Mike Walrath, CEO of Right Media, said it perfectly in an e-mail he sent me while I was working on this article; so I’ll leave the final word to him:

“Search has been the center of attention in our industry over the last few years.  It’s a huge piece of the online marketing puzzle, but it’s not the entire puzzle; and Google is still behind when it comes to display and branded advertising.  Yahoo and others have a substantial lead, and that’s going to be important as it becomes clearer that what’s happening isn’t a competition for dominance in search, but all of interactive advertising.”

LAST WEEK ALLURENT, A rich media provider for e-commerce, came out with a study finding that 83 percent of Web users would purchase more online, if online retailers just “added more interactive and interesting ways to display and purchase products.” In other words, it’s not enough to just drive customers to your site. If you want them to buy, you have to give customers the right experience once they’ve arrived, and to continue providing that excellent experience all the way to the point of conversion. And in a separate news item last week, a Harris Interactive study, conducted for mobile marketing firm Enpocket, found that 78 percent of mobile users would be “happy to receive” targeted mobile advertising. Sixty-four percent of those interested in targeted ads, the study continues, would volunteer personal information to enable that targeting.

Now put the two points together, and you come to a very powerful picture of today’s new-media customer. These are people who are seeking the perfect, perfectly targeted marketing; and the perfect, perfectly targeted customer experience. And they want to achieve those things from beginning to end of the buy-cycle.

That’s great news for search, because search is uniquely positioned to fulfill the demands of new-media customers. Search, after all, has unparalleled targeting, and it enables you to make use of that targeting at a very wide array of touchpoints. Keywords tell you a customer’s intent. Higher-level analytics tell you where your searchers are located, the time of day your best search prospects are out there, the browsers they’re using, and a lot more. And because of that level of targeting, you can know which keywords to buy, when to deliver ads, what ads to deliver, and what landing page experiences you need to create for each customer. Meanwhile, behavioral retargeting lets you use search data to pinpoint your best customers, and to follow them across the Internet with targeted display ads–which means that search targeting can make your multichannel efforts more powerful, too.

Given that search enables such a powerful end-to-end customer experience–the very kind of experience that customers want–I’m left with a very basic question about a common decision in marketing departments. My question is this: Why, I’d like to know, are so many marketers fixated on keyword bid management?

I’m referring to the wide array of search methodologies, ranging from the very simple to the complex, that view search as a process of building the right keywords list, and then managing bids on those keywords to meet a budget. That’s certainly an absolutely crucial part of winning in search, but it doesn’t provide the targeting and touchpoint management that, as I’ve already argued, is also absolutely crucial to winning.

To be fair, some marketers are fixated on keyword bid management because it’s all that they can only afford, because it’s what the simpler search management tools and less sophisticated search management agencies have to offer. But that doesn’t explain why many otherwise savvy marketers from blue-chip organizations are stuck on keyword bid management, too.

For those otherwise-savvy marketers, my only explanation is that they’re either unaware of the full array of what search has to offer; or that they don’t realize the degree to which customers are seeking far more than just a well-positioned search ad. And because of that lack of awareness, they’re stuck in a search methodology that’s years behind the times. And so some very major organizations are leaving a lot on the table in search.

That’s a huge potential loss for those organizations, and a gain for their competitors. Meanwhile, the customers have clearly spoken; and the behind-the-times marketers will have to start listening to customers more carefully, and targeting to customers more carefully, if they’re to pull ahead.

One conclusion I’ve reached on the click fraud problem–the dark side of online advertising,” as last week’s Business Week aptly dubbed it–is that the key to fighting click fraud lies in knowing how to target your customers.

I say this because click fraud is really just a subset of a much larger problem: the problem of the non-converting searcher. And whether non-converting searchers are malicious  click-frauders, or innocent searchers who’ve just decided that your site’s not relevant, they all wreak the same havoc: they leave you with a click cost, but offer you nothing in return. And the first step to avoiding non-converting searchers is to know who your best prospects are, and to target only to those best prospects.

After all, if you target only to conversion-likely searchers, then the searchers who aren’t likely to convert–for whatever reason–will inevitably get weeded out.

I’ll give you an example. Let’s say you’ve found that your best conversions come from the Northeastern U.S., between 12 and 2 p.m. on weekdays. Now let’s say that at 3 a.m. on a Sunday, someone from Nepal searches on your keyword. Based on your target-customer profile, you’ll know that the Nepali searcher isn’t a likely prospect, and so you won’t advertise to him.

Is that Nepali searcher a would-be click frauder, hired as part of a “click farm” to damage your campaign? Or is he an innocent searcher who just happens to lie outside of your target customer group? It’s impossible for you to know. And what’s more, it doesn’t matter. Either way, it’s unlikely that he would convert for you; and by not advertising to him, you’ve prevented any damage he might have caused.

Of course, the example of the Nepali searcher is a fairly obvious case. And while many poor prospects are just as easily noticeable as that one is, many other cases are a lot more ambiguous. Searchers from one zip code might be great prospects, while poor prospects live just one zip code over; a Yahoo searcher might behave very differently from a Google searcher; and a Mozilla Firefox user might convert differently than an Internet Explorer user would. In other words, there are a lot of parameters that can go into identifying your target customer; and because of that, it often takes very subtle analytics to flesh out who your poor prospects are, and who will convert best.

Which is to say that if you want to avoid click fraud, you need a search firm with the analytics capability to pinpoint your best customers.

And it’s useful to keep in mind that, if you do become a click-fraud victim and seek a refund from the engines, you’ll need that same analytics capability to prove your case. “Proving your case” means explaining to the engines why a given searcher is so erratic, that it’s reasonable to assume that something’s afoul. And the better picture you have of your standard searcher, the easier it will be to make the case that your suspected click-frauder is outside of the norm. Again, your ability to profile your searchers is key to doing that, and your ability to profile is only as good as your analytics are.

Of course, profiling isn’t the only defense against click fraud, and it isn’t even the only one that matters. You need a system that acts quickly enough to respond to new click-frauders that appear out of the blue. You need proactive campaign management that’s vigilant for any problems, and that knows how to present a solid case to the engines. You need strategists and technology who are smart enough to weigh all the factors–to know when not to deliver an ad at all, and when to keep an ad up but just lower your bid; and who can tell the difference between a click fraud problem and a landing page problem that looks like a click fraud problem to an unskilled analyst.

If all of this sounds complicated to you, that’s because it is. Which is why my other piece of advice is this: if you want to avoid click fraud, your best bet is working with the smartest people. Which is good advice for any issue in search marketing that you might face.