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…

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…

You probably already know the facts by now, but I’ll give them to you anyway…

To promote its late-night show Aqua Teen Hunger Force, Cartoon Network  placed light-up signs of one of the show’s characters in surprising but noticeable spots throughout several US cities. Boston was one of those cities.

In Boston, terrorism-suspicious passersby saw the signs placed in sensitive areas—like bridges and overpasses—and called the police. Cartoon Networks, which is owned by Turner Broadcasting, neglected to mention to the police that they had put the signs up. Mayhem ensued.

Bomb squads came out. A major highway and a portion of the Charles River were closed off. The two men who placed the signs were arrested. And now the city of Boston is calling for heads to roll at Turner, and for Turner to foot the $750,000 bill for the day’s antiterror precautions.

Something like this was bound to happen, as the public has long been on tense relations with outdoor marketing. Mini Cooper’s supertargeted opt-in billboard campaign, which displays birthday wishes and other extremely targeted greetings to Mini drivers, has been criticized by driver safety groups as a distraction. An LA billboard for shoe inserts was removed over complaints around its tagline, “Shoe-icide is not the answer!” In San Francisco, a “Got Milk” outdoor display was yanked after groups took issue with the smell (it smelled like cookies).

Outdoor advertising is a lightning rod, for the very same reason that it’s so powerful. Outdoor and out-of-home advertising weave themselves, literally, into your life’s landscape. They’re with you when you look out from your car window, when you’re waiting for the bus, or when you’re in the elevator. They integrate brands into your life.

But injecting yourself in people’s lives is bound to rub some people the wrong way. Somebody’s bound to think your joke isn’t funny, that you’re creating a nuisance (which you very well might be), or that you’re engaged in a bomb plot. And there lies the conundrum of outdoor.

For those of us in search, there’s a cautionary lesson in this. Like outdoor, search is also built around injecting your brand into the ebb and flow of real life—as, at this point in the 21^st Century, search has become one of life’s basic tasks. Until now, we search marketers have avoided the unpredictability that’s haunted outdoor advertisers, because our control over keywords lists gives us immense control over who sees our ad, and how.

And we still have that control. But at the same time, times are changing. Search is becoming more deeply integrated into other types of media, and different types of media are diverging in more directions every day. Keyword lists just aren’t the only factor involved in dealing with who sees a campaign. Suddenly, we all need to consider the unique problems of search traffic off of MySpace—or even, as David Berkowitz points out, from Second Life. And as contextual advertising evolves into search-based retargeting, part of every search campaign will involve display advertising on publisher sites.

Which means that, as search gets more sophisticated, search is weaving itself into many people’s lives in many different ways than it ever has. It’s becoming less like old-fashioned search, and closer, in some ways, to outdoor advertising.

As that transition happens, we’ll see a real turning point in the search industry. Those of us who are as good at understanding who’s looking at an ad, and how to relate to that viewer—by making one landing page for searchers off of MySpace, and a different one for searchers off of Yahoo! Financial, for instance—will continue to thrive as we always have.

But those of us who can’t relate to the newly-diverse search audience will face the same challenges faced by the outdoor industry in terms of dealing with the viewer they couldn’t have foreseen. And being in the online industry is going to make those shortcomings even harder to surmount, since clients are willing to forgive outdoor agencies for a lack of precision, but expect a lot more precision from online firms.

If you’re in the first group of search marketers, then you’re probably in a good place right now. If you’re in the second group, then you might want to really rethink your approach.

For last week’s pronouncement that shook the new media world — but didn’t particularly surprise it — look to MySpace co-founder Tom Anderson. MySpace, Anderson informed German mag Der Spiegel, has “replaced MTV.”

The point is debatable. Between its acquisition of 10-million visitor RateMyProfessors.com and a rumored investment in social networking site TagWorld, MTV is clearly gunning for a return to empire. But at least for now, it does look as if the world’s sixth most popular site has stolen the lead from the suddenly presidentless MTV.

But the MTV versus MySpace competition is a bit more complex than just the old replaced by the new. That’s because MySpace isn’t as much the usurper of MTV, as it’s an evolution of MTV’s basic concept: a horizontal channel in which glamorous stars, the common folk, and the channel itself are all on surprisingly equal footing. And, like MTV, MySpace is a channel that’s built on reaching out to a youth generation who’s the first to have really grown up with a new medium. So MySpace hasn’t replaced MTV, as much as MTV has evolved into MySpace. And none of this evolution would have been possible without search.

Let’s start with MTV. MTV was first built around the ’80s generation, the first generation to really grow up with television — and even color television — as a given in the home. Their baby- boomer parents also grew up with TV, but the boomers often weren’t born into a TV household.

MTV also introduced horizontal media in 1992, when “The Real World” spawned reality TV a full 8 years before “Survivor.” And “The Real World” entirely changed the rules of how television works. Now, instead of a medium in which lofty stars appear on the screen while couch potatoes watch them, MTV’s invention of reality creates a model in which the stars and the mere mortals occupy the same space. MTV showed us how media can become horizontal. MySpace isn’t so different. MySpace is also built on capturing, and capitalizing on, the first generation of youth who’s grown up with new media — in this case, the Internet and mobile. In Anderson’s own words to Der Spiegel: “If you are 23 now, you probably started using the AOL Instant Messenger ten years ago. It’s totally natural for you to talk to your friends that way. A few years after that you started text messaging. I think the MySpace generation is these people who just have this experience. It’s perfectly natural.”

MySpace is also a truly horizontal medium, with everybody vying for the same attention: Madonna, Jamie Foxx, and the Honda Element all have to go head to head with your 12-year-old cousin to get noticed.

And so, again, while MySpace may have replaced MTV, it’s also just an evolution of the MTV model, brought online. Both MTV and MySpace gained success by providing young people with the opportunity to just be themselves, while understanding that technology had made young people “just being themselves” into something fundamentally different than it had ever been before. And they both did that while creating a new kind of horizontal channel.

It was search that allowed the MTV-MySpace evolution to happen. As New York Times columnist Thomas Friedman points out, search is the Web’s great flattening force: by offering a single window through which to jump to the Web’s billions of disconnected pages, search pulls the entire Internet together.

Instead of developing a relationship with just one site at a time — in the way that viewers watch one TV channel at a time — search turns the Internet into a single, unified Web. That puts all Web pages on equal footing, all Web pages at the mercy of the user, and all Web pages in direct competition with one another. (A similar point could be made about the effect of remote controls on TV, but search gives way more user control than remotes do, across billions of pages rather than just dozens of channels.) Search made the Web horizontal, and that horizontality enabled MySpace to use the Web to take MTV’s horizontality to a whole new plane.

This means a tremendous amount for those of us in search. If search is a driving force behind the new horizontality, then those of us in SEM — the first industry to make business sense of a horizontal universe — can drive unique value in the new horizontal world.

That’s also a challenge. As communications evolve — and search, and elements of search, become just one piece of a much larger media picture — SEM needs to turn its insights into ideas that can provide value, regardless of the directions that media take. And if we can’t make that happen, it won’t just be MTV that’s facing replacement.
* * *

(For a bit more on the future of search and social media, have a look at my recent interview with MarketWatch.

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.

On the heels of AT&T’s acquisition of BellSouth, the newly-ginormous AT&T announced last week that it would enter into mobile advertising. If all goes well, advertisers will purchase their first mobile ads through AT&T later this year; AT&T hopes to make several billion dollars in ad revenue (through sales of mobile, online, and TV spots) annually through 2012.

I, for one, think it could be a great idea for AT&T to serve as a mobile ad network. But if it wants to succeed, AT&T should start thinking about Wikiasari.

Wikiasari is an upstart search engine (still in development) from the people who brought you Wikipedia, the wildly-popular user-generated encyclopedia. Like Wikipedia, Wikiasari will rely almost entirely on its community–this time, to determine search results. (The initial sorting and ranking will be done by technology, but humans will determine the end product). Wikiasari, a culmination of sorts in user-generated content, is a real watershed in the history of media.

There are two ways that user-generated content has changed everything. First, it’s flipped the traditional platform/content dynamic on its head: in traditional media, content is king and platforms play a supporting role; in user-generated content, it’s not always clear which one is the star. Newspaper readers focus a lot more on the news than on the paper; moviegoers pay more attention to the movie than to the screen; but it’s the YouTube and MySpace interface–and not the bevy of amateur-produced clips of dancing beavers and shoddy personal pages–that really shine in the user-generated media.
A second change user-generated media has brought is a shift in the nature of the communications conversation. In the traditional world, mass-communication high priests (Hollywood, the press, Martha Stewart) talk to (or at) the media consumer. In consumer-generated media, users engage in a community-wide conversation, and the high priests are largely left out. “The one thing that I feel like I know how to do is build communities,” Jimmy Wales, co-founder of Wikia (Wikipedia and Wikiasari’s parent company), told Noam Cohen of The New York Times. “I mean people who know each other, who have discussions.”

User-generated content, in other words, is making the media world a lot less like the traditional mass media, and a lot more like the telephone–a medium for enabling consumer-generated conversation, in which the business ignores content entirely and instead focuses on building platforms that make peer content-sharing (i.e., phone calls) function a lot better.

Wikiasari is a major moment in this consumer-generated evolution. Consumer-generated search, even more than a consumer-generated encyclopedia, marks a shift towards consumers’ looking to a community for answers about their questions and needs, rather than looking to an all-knowing, ready-made information source. If Wikiasari takes off (and if it doesn’t, another wiki-based search engine surely will), it will mark a point at which the bulk of shared ideas comes from information-seekers turning towards their colleagues, rather than information being decreed from on high.

It would be well for AT&T to consider all this as it jumps into mobile advertising–at a time when mobile advertising is clearly failing to live up to its hype, and search is about to catapult consumer-generated media light years ahead. The two developments, after all, aren’t entirely disconnected. Users want their media to act like telephones; it’s clearly bothering them that mobile advertisers–who introduce unrequested, industry-produced content onto mobile screens–are trying to make telephones into the old media that everybody’s ditching. No wonder there’s a backlash, with 79% of online consumers bothered by the concept of mobile ads.

That’s not to say that mobile advertising has no future. For one thing, mobile ads can leverage the phone as a communication device, rather than trying to subvert it. That was the secret behind last summer’s “Snakes on a Plane” mobile campaign, in which mobile users sent friends a personalized message from an automated Samuel L. Jackson, demanding that the recipient see the action flick ASAP. The campaign clearly got the point that mobile is about peer communication–and 1.5 million “Snakes” calls were forwarded in the campaign’s first week.

A second way for AT&T to leverage mobile media is to provide phones that better enable the communication that the user-generated world craves. This could be as basic as improving mobile filesharing capabilities, or as sophisticated as helping two drivers in two different vehicles find one another via GPS. The bottom line is that the new-information consumers don’t just want to receive information; they want to communicate. And AT&T, which now owns Cingular and stands above a vastly huge telecom empire, is in a perfect position to offer that kind of capability.

If it’s thinking of going further into mobile content before the end of this year, AT&T should think seriously about the meaning of user-generated content now. And if it’s stuck for answers? I’d suggest it start its search at Wikiasari.

For SEMs and online advertisers, 2006 was a bubble bath. The tone was set at the end of 2005, when Google paid $1 billion for a 5% stake in AOL. That put AOL’s total value at $20 billion, or $1,000 per subscriber. Later this year, Google paid $1.65 billion in its well-publicized acquisition of YouTube, a company with sixty-five employees, no profit model, and a bevy of illegally copied material (complete with litigious owners waiting in the wings). But perhaps the biggest of them all, the granddaddy of all bubbles, is Google’s stock price itself, which at press time was hovering at a 57.85 P/E ratio. Indeed, analysts are also finally starting to catch on to Google’s hugely overvalued stock. Into this mess splashed an acquisition that finally made business sense: the Publicis Groupe’s plan to buy Digitas.

True, Publicis did offer Digitas shareholders a 25% premium over the closing price when the deal was announced, but this reflects actual upside, rather than perceived upside. As search marketers we’ve seen firsthand for years how advertisers have shifted their spend from offline into search and other online media. As the general public has spent more time consuming media online, advertisers have realized that the accountability of an online campaign greatly surpasses that of a traditional campaign. Overall advertising is growing at 4-5% per year, while digital advertising is growing at 30%. That statistic alone justifies the 25% premium that Publicis paid for Digitas.

The next step for advertisers is applying the highly touted accountability of online media to their offline campaigns. This requires the keen analytics and robust technology typically found in digital agencies, and notably absent from traditional agencies. These capabilities include measuring spikes in search behavior and traffic in response to TV, print, and outdoor ads. An agency that specializes in all media, both online and off, will be able to execute on initiatives like boosting bids on keywords mentioned in TV commercials, and building microsites as landing pages where consumers can easily read more info and purchase the product they saw on TV. This integration poses another huge advantage for Publicis’ clients, as they will not have to coordinate between two separate agencies. These factors further justify the 25% premium.

It’s always risky to speculate on the future, but there are certain outcomes that almost certainly will occur in some form or other. “Convergence” has been a hot buzzword in the industry, the idea being that users will take control of their TVs in the same way that they’ve taken control of online content. This, in theory will enable advertisers to target video ads behaviorally, demographically, and by keyword. But this theory presumes that TV will still be the only device used to consume video. In reality, perhaps “divergence” is a better word, because media will be consumed not just on TV, but on computers, mobile phones, mobile e-mail devices, MP3 players, and in cars.

Keeping track of and optimizing each ad’s performance, across a diverse user base with a diverse media-consumption device base, all while deploying targeting options and other optimization techniques, will require an even more advanced technology and even sharper analytics. A digital advertising firm is far better positioned to deliver these assets to clients than an offline media firm. This is perhaps the most insightful element of Publicis’s move, and even further justifies that extra 25%.

Much has been made of Digitas’ client relationships having real value, but in reality, the Publicis Groupe and the other offline advertising giants don’t need to buy client relationships. They’ve had clients’ trust for years. What they need are the technology and analytics to deliver a full suite of advertising options to all of their clients, with greater accountability and the ability to scale as technology advances. That’s the real value that Digitas brings to the table.

Holding companies should not be focused on buying aQuantive or paying a premium for client relationships. Rather, they need to focus on acquiring smaller, privately held companies that have built leading-edge technology platforms, embraced a culture where the statistician is just as important as the creative director, and with whom they can bring their pre-existing customers to the digital upsell.

What a refreshing note to the end of 2006. Just when we all thought the bubbles were rising over the rim of the tub, here’s a move that will allow all parties to soak in real, not imagined, value.

THE FACTS:

·        The digital advertising world, including search marketing, has brought a more detailed financial view of making media accountable to marketing departments.  Companies are embracing this.

·        Overall advertising is growing 4-5% in the US next year, digital advertising is growing over 30% annually (some have it as high as 50%)… Digital marketing is stealing share.

·        Clients are increasingly looking to integrate digital & offline advertising campaigns, and measure the interaction effects

·        Publicis recognized the ongoing shift of dollars towards digital marketing, and like all leaders… shot their arrow ahead of the target.

THE MARKET RESPONSE/ AFTER-THOUGHTS:

·        The Publicis acquisition will NOT fuel an onslaught of copycat acquisitions

·        Other online advertising companies don’t measure up in terms of Digitas’ long-term relationships with large clients and synergies with a major traditional advertising group

·        Everyone has been focused on aQuantive when they comment on the above, which seemingly makes sense since they are now the sole publicly-traded digital advertising agency.

MY OPINIONS:

·        There is a reason why aQuantive is trading at a 43.9 P/E, where as the traditional ad agencies hover between 16 and 29 multiples.  That reason is two-fold: their technology foundation and their focus on digital advertising.

·        The focus on “Digitas’ long-term relationships with large clients and synergies with a major traditional advertising group” as an acquisition synergy for other acquisitions in the space is off.   A sound and scalable technology foundation is imperative to managing digital marketing and search marketing campaigns profitably.   The handful of major agency holding companies own the worldwide advertising spend and all the customer relationships.  They don’t need to buy customer relationships… they have them and the trust of them.  They need the digital assets to capitalize on the shift in spend.

·        My opinion:  the holding companies should not be focused on acquiring aQuantive or paying a premium for customer relationships, they need to be focused on acquiring smaller, privately-held companies that have build leading-edge technology platforms, have embraced a culture where the statistician is just as important as the creative director, and whom the large holding companies can bring their pre-existing customers to the digital upsell. 

November ‘06 will go down as the month the search giants got serious about newspaper plays. Google has unveiled plans to enter ad management for newspaper classifieds across 50 papers; last week, Yahoo countered by entering strategic partnerships–starting with collaboration on job classifieds, but set to expand into Yahoo help with newspapers’ maps and search presences–for 176 newspapers’ online divisions.

When you think about it, the Yahoo move seems surprising. Newspaper moves make sense for Google, which has long expressed plans for expanding into traditional media; and which, besides, goes for over $500 a share and has money to burn on new initiatives. But Yahoo’s poor Q3 performance, probable eminent downsizing, and “Peanut Butter Manifesto” that looks to streamline Yahoo’s activities, rather than expand them, makes a sudden shift into newspapers seems odd. It’s especially odd in light of the tough times that newspapers currently face, making Yahoo’s move into newspapers a change of course right into an ailing industry.

So my question for this week is: What does a troubled Yahoo see in a beleaguered newspaper business? The answer to that question, of course, lies in local advertising.

It’s not surprising that Yahoo would feel itself lagging in local. From its roots, Yahoo has been a leader in the general online world, from search to e-mail to online content. But leadership in general online services is very different from leadership in the local markets. Consider search: while Google nearly doubles Yahoo’s share of overall search (Google has roughly 50% of all searches, to Yahoo’s 25%), Google leads Yahoo by only a slim lead in share of local searches  (according to an e-Marketer study from earlier this year, Google holds about 29.8% of all local searches to Yahoo’s 29.2%).

That general search/local search split makes a good deal of sense, as broader channels operate in nearly opposite ways from local media. Most of the Internet–including search–is used to bring a wide, unknown world a little bit closer to you. That includes finding the Web site you don’t know about through search; it also includes letting you e-mail a friend you can’t speak to because you’re not in front of her. Services for the general Web focus on building better, smarter communication pathways to make a big world smaller.

Local advertising is something entirely different. Local channels focus on enhancing audiences’ participation in a corner of the world that’s already, quite literally, very close to home. Local media isn’t about making a big world small; it’s about entrenching people’s relationships with a world that already is very small. And so while winning in most Internet services relies on excelling at bridge-building across different locations and types of information, winning in local channels relies on becoming an extension of your particular locale. Google’s a powerhouse in global information-bridging, allowing it to take the lead in general search; but it’s Yahoo, which offers rich local information on its portal, that becomes a portion of users’ local experience, thereby reaping the rewards in share of online searches.

Yahoo understands this. And it also seems to understand that, at the end of the day, it’s newspapers that have the infrastructure to make themselves a part of the local scene in a way that globally-focused online players–including Yahoo itself–simply can’t. Newspapers have what Dean Singleton, CEO of MediaNews Group (which is partnering with Yahoo), refers to as “a huge sales force involving thousands of sales professionals”; they also have lots of local reporters creating enormous amounts of online locally-focused content. By tapping into those thousands of ad salespeople, Yahoo is able to capture local advertising markets it’s not built to capture on its own; meanwhile, by helping with the search presence of newspapers’ online content, it’s able to enhance the local results on Yahoo search (where that local content is now more likely to appear), without needing to create its own small army of local beat reporters.

In other words, Yahoo understands that it’s got two choices for expanding its local reach. It can either deliver more of its own local offerings–which will mean defying the Peanut Butter Manifesto by building a workforce to create more local content–or it can outsource its local workforce to the local experts (the newspapers), while doing what it does best as a global online service: serving as the network that takes information from the world’s many locations, and delivers that information to its users. By opting for the second choice, Yahoo’s managing to expand its local reach, while working less. Which is why Yahoo’s move into newspapers may look like it’s taking on more; but it’s actually a way to become more efficient by honing in on its core competencies. Far from being a dangerous expansion, that’s smart business.