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Accountability Matters August 28, 2006

In my continuing discussion of the new e-Media Exchange–the auction-based ad-buying exchange driven by blue-chip advertisers with technology from e-Bay–I’d like to talk about why the push for auction-based advertising is, at its root, a push for accountability. I think it’s important for me to explain this point because I’ve used it as something of a presumption in my discussion of auction media up until now.

To explain the issue, let’s start at the real focal point of the accountability problem, and of the Exchange: the ad-buying process. Currently, traditional ad buys are the result of discussions between advertisers’ media buyers and network salespeople. Pricing, packages, and details are all hammered out on a case-by-case basis. That sounds OK, but it’s frustrating for advertisers, since every deal is both personalized and shielded from the view of similar deals in the marketplace. That combination means it’s hard for an advertiser to get a sense of a going rate for an ad unit–if you don’t know how much anyone else has paid for a similar unit, it’s hard to know if you’ve paid a reasonable price.

Yet another problem, in the words of Home Depot Senior Vice President of Marketing Roger Adams (in a Wall Street Journal interview last week), is growing advertiser concern over the trend of “increasing rates for media and decreasing audience delivery.” Translation: between eyeball dispersion away from TV and towards new media, on the one hand, and TiVo on the other, traditional ad viewership seems to be shrinking–but the networks are still charging more.

I would argue that these problems are related. Since networks ad buys don’t have standardized pricing, it’s hard to know how much you ought to be paying–and it’s even harder to know if you’re paying too much. If you don’t know if you’re paying too much–if there’s no clear sense of an ad’s precise value–then there’s less incentive for the networks to present a case as to why their pricing reflects what an ad is truly worth. That’s a serious lack of accountability.

The reverse is also true. Transparent, precise pricing means that everyone in the market knows what kind of deal they’re getting. If everyone knows exactly how much they’ll have to pay, networks are forced to explain how they came up with that price. That creates an incentive to provide better information to advertisers about network traffic in general, giving advertisers a better grip on the real value of their network buys. Since auctions create precise pricing that the whole market is aware of, auctions force the auctioneers to provide that kinds of broad information. In the case of auction-based advertising, the auctioneers are the networks.

Google and Yahoo’s free keyword-list development tools illustrate the point nicely, albeit somewhat anecdotally. Yahoo’s Keyword Selector Tool provides keyword suggestions for search marketers; it also serves as an index of how many searchers have queried thousands of unique terms each month. If you’re developing a keyword list, those numbers can be a powerful for your arsenal. Google’s Keyword Sandbox, on the other hand, also suggests useful terms–but it doesn’t offer precise numbers on monthly keyword queries.

This distinction is important because Yahoo operates through a nearly pure auction: the more you’re willing to pay, the higher your ad gets ranked (more or less). But Google strays from the pure auction model, determining ad rank by a black-box algorithm combining bid price with other factors, like click-through rate. And it’s the engine with the purer auction that provides better traffic data.

It’s also interesting to note that, as Yahoo plans to shifts towards a black-box hybrid auction similar to Google’s, its Keyword Selector Tool has suddenly became much harder to find. Try to locate it by typing inventory.overture.com into your browser–until recently, that URL would automatically redirect to the actual Keyword Selector URL,; now it gets rerouted to this Yahoo Search Marketing landing page. All of this might be coincidence, of course, but I do think it’s illustrative nonetheless.

Now, I’m not arguing that Yahoo and Google black boxes will set them up for advertiser rebellion–search is still the most accountable game in town. Plus, in contrast with TV ads, the eyeballs are moving toward the engines–not away from it. Instead, I’m arguing that auctions create an inherent incentive for networks to be accountable, that advertisers understand this point, and that it’s this very point that’s driving the new e-Media Exchange. It’s also the reason why, as advertising evolves, auction-based media will only become more entrenched.

Why You Can Auction a TV Spot, Part 2 August 21, 2006

Last week, I began my rebuttal to the traditional networks’ argument against the e-Media Exchange. The e-Media Exchange, again, is a new auction-based exchange for selling traditional ad spots, in which the networks compete with one another for advertisers’ spend. That competition, advertisers feel, will force the networks to be more competitively priced and competitively accountable–two features which, many advertisers feel, the current upfront system lacks.
The networks’ argument against the exchange goes like this. Auctions work great for commodities: things like cattle, Pez dispensers, or maybe a keyword or two. But traditional networks, the networks argue, don’t deal in commodities. They deal in custom-tailored ad packages, putting together a unique cluster of ad spots, product placements and the like for each and every advertiser. And since you can’t auction a custom-tailored product, you can’t auction a traditional network buy.
Last week, I pointed out that there’s a difference between a wholly customized product and a Chinese menu. Media packages are the latter; and anyone who’s seen a search campaign can tell you that you most definitely can auction off the individual ad units that make up a Chinese menu. If you can auction hundreds of thousands of keywords to make a search campaign, you can auction off any other kind of grouping of ad units in the same way.
This week, let’s assume, for the moment, that traditional network packages are completely non-auctionable. I’d like to use that premise to point to the far deeper flaw in the networks’ point of view: given their logic, the networks are much better off being wrong than they are being right.
Remember that it’s the most-valued advertisers–a blue-chip group including the likes of Wal-Mart, Toyota and HP–that want the e-Media Exchange to go forward. They’re the ones who see an ad-buy exchange as the best solution to perceived network accountability problems. In response to that need, the networks have gone much further than saying that they won’t go along; they’ve said that they can’t go along, because an inability to participate in auctions is part of the networks’ business model.
Now also keep in mind that the drive for advertising accountability didn’t develop from nowhere. It grew out of experience with other, highly accountable channels–like search, other forms of online marketing, and direct mail. And so lingering in the back of advertisers’ minds is the knowledge that, if traditional networks won’t deliver on accountability, there are plenty of other channels that will. And if the traditional networks aren’t capable of delivering that accountability, then advertisers will give up on trying to change the networks’ mind on the Exchange (something which, according to the networks’ viewpoint, they can’t do)–and they’ll start seeking out alternatives instead. If I were in traditional network sales, that would worry me.
Maybe the networks see the situation differently. Perhaps they feel secure in the position that everybody still needs to be in TV and magazines, no matter how they’re buying, because TV and magazines are where the eyeballs are. And there’s certainly a realistic basis for that sense of security: I, for one, don’t see Toyota halting all television spots anytime soon.
But while I can’t see a near-future in which Toyota halts TV spots, I can see a future in which Toyota spends much less on TV than it has up until now. Search, display ads, e-mail, and viral branding along the likes of Burger King’s Subservient Chicken could do an awful lot of the job that’s been reserved, until recently, for TV and magazines–with a far higher degree of accountability. And as accountability becomes increasingly important to advertisers–as CMOs starts to work still more closely with CFOs–that kind of spend migration will become only more attractive.
Indeed, that kind of spend migration is happening already. I’ve personally witnessed a major client or two shift ad spend from traditional venues into expanded search; I’m sure that parallel new-media CEOs have seen the same kind of thing, and that traditional networks have begun to feel it.
That’s exactly why the networks really don’t want to be right when they say that, due to the nature of their business, they’ll never be able to sell ads through an auction. By making that kind of admission, they’re bound to drive advertiser spend away.
But in the end, the networks really don’t have so much to worry about. Because, as I pointed out last week, their argument is wrong–fortunately for them.

Why You Can Auction a TV Spot (Part 1) August 14, 2006

Last week I discussed the new e-Media Exchange, an automated ad auction exchange, created by a blue-chip group of advertisers with technology managed by eBay. The Exchange will sell cable and broadcast TV, radio, and print ads through automated auction; the advertisers see auctions ad buys as more accountable than the current, human-managed upfront. The advertiser list includes Toyota, Wal-Mart, Microsoft, Hewlett-Packard, and Home Depot. The Exchange will certainly go down as a major landmark in advertising history. The TV networks, meanwhile, are not happy.
An article in last week’s Wall Street Journal nicely covered the networks’ displeasure. Members of the TV world put forth a number of arguments why they think the system won’t work; over the next few weeks, I’d like to dissect those arguments to explain why I disagree. This week, I’d like to focus on just one point that the networks made: since networks don’t just sell individual ad slots–rather, they sell media packages that are customized to the advertiser–the auction model doesn’t work for them.
The networks’ argument goes something as follows. Traditional network placements aren’t just about TV spots. They also include “product placement, mobile extensions, sponsorships, and branded vignettes;” and so each advertiser isn’t just buying a TV placement, but a custom-tailored media package. In the words of Bill Abbott, senior vice president of ad sales for Hallmark Channel, network media isn’t a commodity “in which you can package everything together and put a price tag on it.” Since each advertiser is buying a custom-tailored package, it doesn’t make sense to sell it by auction.
To understand why that thinking is wrong, you need to realize that the same argument could be made about search. Search marketing, after all, isn’t just a system of purchasing keywords. It’s a system of purchasing many different keywords, across many different engines, and many different kinds of engines and networks. Each advertiser must decide which unique combination of keywords, engines, and syndication and contextual networks will bring the most value, out of all the possible advertising choices.
Meanwhile, each search campaign needs to custom-tailor that unique combination, because every campaign will react to the same ad buy differently. Some businesses, for instance, will fare better on shopping engines than others; some businesses will fare better in contextual networks than others; and some will perform better in Google than in Yahoo, or vice versa. In terms of the package itself, that’s easily as complex as a traditional network buy–if not more so, as advertisers must fashion a single campaign out of thousands upon thousands of possibilities. Even within an individual engine–which, to be fair, is a far closer analogy to an individual TV network–advertisers still need to create their custom-tailored package. They need to combine the right mix of branded keywords, generic keywords, low-hanging and high-hanging fruit terms; primary engine and/or syndication and contextual partners–the list could go on, and the possible packages an advertiser could buy within an engine are nearly endless.
And so, at least in terms of customized packaging, there’s a strong similarity between search engines and traditional ad networks. And yet, search engines sell ads through real-time auctions, while traditional network packages sell through human-managed upfronts.
Why? Because the search engines took the opposite solution to the same problem. While traditional networks have said, “We’re selling you a package, you can’t auction off a package,” the search engines have decided to sell each individual component of that package–the keyword–one item at a time. And while you can’t auction a custom-tailored package, you most certainly can auction off the itemized components that make up that package.
Of course, the TV networks could do the same thing. If the concept of bundled offerings is what’s standing in the way of their embracing the e-Media Exchange, they could certainly unbundle their offerings. And given the success of search, and the creation of the e-Media Exchange itself, it’s fair to say that the advertisers would want them to. And yet the networks don’t seem to want to take that step.
Over the next few weeks, I’ll discuss further why that might be, and why it’s in everyone’s best interest–the advertisers’ and the networks’ alike–for the networks to embrace the e-Media Exchange, rather than pushing back against it.

MSN + eBay + XM = Advertising 2010 August 7, 2006

Last Friday’s Wall Street Journal discussed the new e-Media Exchange, an automated ad auction exchange created by disgruntled blue-chip advertisers, with technology managed by eBay. The advertisers, which include Toyota, Wal-Mart, Microsoft, Hewlett-Packard, and Home Depot, have decided to move away from unaccountable, non-transparent, human-controlled networks, creating, instead, an exchange that sells cable and broadcast TV, radio, and print ads through automated auctions. Automated auctions are more accountable because 1) in any auction, the market–and not the networks–set pricing; and 2) because technology allows for better metrics, and better metrics let advertisers know that they’re getting their money’s worth.

Meanwhile, also last week, Google sealed a deal to offer radio advertising through XM Satellite Radio. (Google has already purchased major radio advertising software vendor dMarc, earlier this year.) Put together, the XM deal and the Exchange demonstrate why auction-based advertising will be the new norm by 2010. To see why, you need to start with a small detour through MSN adCenter.

AdCenter, MSN Search’s advertising network, serves up ads based on highly granular demographic information, including a searcher’s geography, socioeconomics, gender, and the time of day or week of the search (dayparting). For those who know how to leverage that data, adCenter offers targeting capabilities that once lay beyond advertisers’ wildest dreams. Whereas keywords let you respond to a searcher’s intent, deeper demographics show you whose intent you’re responding to–helping you send the right message, to precisely the right person (the holy grail of all advertising). AdCenter works because Microsoft has a treasure-trove of demographic information, collected through subscriber services like Hotmail. (Full disclosure: my own firm, Did-it, worked with Microsoft to help develop adCenter.)

The new auction-based media are positioned to take the adCenter model, and push the concept beyond the online world, into the offline one. Both XM Radio and cable TV operate through subscriber bases; so they’ve got the capability to leverage their user data to deliver more relevant ads. Meanwhile, through relationships with the auto manufacturers that install XM Radios, XM is able to know the type of car it’s delivering ads to (which translates into socioeconomic metrics); and it can apply GPS tracking to know where a listener is positioned–which is key information for providing locally-targeted ads.

From this perspective, it may not be a coincidence that Microsoft and Toyota (which installs XM radio in its cars) are both key forces behind the formation of the e-Media Exchange: both know, firsthand, what’s to be gained from knowing your audience. It also may not be a coincidence that, while e-Media Exchange’s site offers a wide range of traditional media options, the service’s PR seems to be talking primarily about its cable TV offerings–cable being a resource with very rich data about its subscribers.

For now, e-Media Exchange advertisers seem to be turning to auction-based media only on a smaller scale. Home Depot’s senior vice president of marketing, Roger Adams, predicted a “two-tier upfront”–with remnant inventory like after-hours TV going up for live auction; and prime time continuing to be handled by human-run networks. The reasoning, explains Adams, is that prime-time slots include tricky buys like product placement; the implication being that product placement is too complicated a proposition to leave to mere auction-management technology.
Whether that thinking is a) truly reflective of advertisers’ thinking, b) a way to appease ad networks with which advertisers still need to do business, or c) simply code for “let’s try this out and see what happens”-is entirely a matter of conjecture.

Regardless, it’s faulty logic: the trickier your advertising problems are, the better accountability and more sophisticated analytics you need. And advertising is getting trickier all the time, while accountability is increasingly becoming the mantra of upper management. Sooner or later, advertisers will publicly acknowledge this, and adopt auction-based media buys full-force. I’m betting that it will be sooner rather than later.