Context Becomes More Important in Flight to Quality

After content, context is now king. One of the reasons Facebook and Google advertising  have captured so much of the digital ad market is that they, especially Google, are able to target ads according to keywords. AdSense and Facebook use different methodologies, but they’re both known for their precise targeting. They have glaring weaknesses, however, especially as more and more digital advertising is video.

With video ads it is still a major problem is that so many ads run without context, even though they may be closely “targeted” to a demographic or a geography. They still run without context, because we don’t quite have the tools yet –nor the will– to provide video context totally programmatically.  Especially on YouTube there are many instances where we’re increasingly seeing pre-roll and mid-roll that has nothing to do with what the audience is actually wanting to see. This is not a plea for the old TV practices of selling sweetened cereal to youthful audiences, but a heads up to brands who care about “delighting” rather than alienating their customers.

A golden age is coming for contextual advertising, as a result of two things: 1) the realization on the part of brands that they’re threatened by Amazon and other services, and 2) the propensity of younger audiences to require corporations to reveal their values. To encourage brand loyalty, marketers will have to do what they should have been doing all along: buying travel ads on travel sites. sports ads on sports sites.

If you throw in the effects of GDPR, as a potential third motivator, we believe it is becoming increasingly important to brands to understand where their ads are appearing, as well as who the publications’s audience is. If I’m looking to fix my truck and I’m about to watch a video about suspension problems, I might be a millennial  in the midwest and white, but ads for sports, hot dogs, or video games are merely an interruption. Let me just watch how this guy replaces his front suspension so I can do the same thing to my truck.

What if I could see an ad for the right car parts,  for local mechanics, or even for new trucks? This is called contextual advertising, and back in the day when more ads were sold direct, as a media buyer I could be sure I was getting  that kind of context. As an advertiser, that would give me much greater potential ROI. It would also fix that feeling most consumers have that they’d just as soon skip the irrelevant ad as soon as possible.

We’re making an appeal to the digital ad industry to think before buying and selling ads programmatically without context. One of the reasons consumers no longer tolerate advertising its its lack of relevance to the moment they are in. And that doesn’t have to be the case. With all the tools we have at our disposal — artificial intelligence, mounds of first party data, and great programmatic services, there’s no reason why we can’t do better. Both publishers and consumers deserve that.

Luma Partners: The Match.com for Ad Tech

AdExchanger’s podcast last week had an interview with Luma Partners’ founder Terry Kawaja. You probably know a little about him  because of his famously crowded Lumascape slide, which features all the old-time ad tech companies that got a piece of the action between advertiser and publisher in the media buying business. You may notice that many of the companies on that slide are gone.  And their demise has probably enriched Kawaja,who seems preternaturally able to spot trends. In ad tech he was able to see a wave of consolidation coming in and ride it from the earliest days, as both a supporter of entrepreneurs who loves to advise them and position them for the best outcomes and a strategic advisor to larger companies threatened with disruption. He learned that these transactions work best when they’re a win-win for both sides when he worked on two other industry consolidations, radio and telecom, before going out on his own to found Luma.

Typically, investment bankers work in the background when they buy and sell companies, but Kawaja has not escaped a certain notoriety,  because he has advised on the majority of ad tech mergers and acquisitions, as the industry continues to mature and consolidate.  Terry personally has advised on the Oracle Moat acquisition, Singtel’s purchase of Turn, Criteo’s acquisition of HookLogic, Adobe’s of Demdex, Neustar’s swooping up Aggregate Knowledge, and Google buying both Admeld and Invite Media. Over half the 44 deals Luma completed were ones in which they asked the buyer what its major strategy was, given the trends in the market, and what capabilities it would need to accomplish that strategy. Then, drawing on expertise developed from talking to all the entrepreneurs in the space, Luma is able to match the startup to the enterprise strategy.

New industries always spawn many startups, most of which don’t make it. Of the ones who do, most are sold to provide an exit for the founders. Here in digital, because there were so many companies formed,  Terry knew the inevitable wave of consolidation would be longer.  And nobody else really wanted to advise media companies. The combination of massive fragmentation and high growth made most merger advisors run in the opposite direction.

There’s an old adage is that it’s better to be bought than sold, but the clients of Luma Partners are both bought and sold, because Kawaja does something more like  strategic matchmaking than simple mergers and acquisitions. He spends a lot of time with the buyers, not just the sellers, to figure out what they want to accomplish. Usually the sellers desire an exit to a stronger partner so they can continue to grow, whereas the buyers are looking to acquire a missing piece of an end-to-end offering. That’s certainly true of Oracle, which made most of its digital media acquisitions like MOAT and BlueKai because it was looking to transition all of its business to the cloud, and its existing database products were all on-premise. To rebuild all their legacy products would have cost Oracle a window of opportunity that it couldn’t afford to miss, so it acquired companies that were already digital.

In 2018, consolidation continues, albeit not as quickly.  One reason is that GDPR has created uncertainty, which gives people pause. But another is that the entire media and telco world is awash in deals — about 300 of them. That’s a tectonic plate shift that needs to be resolved before people return to thinking about what capabilities they need from the digital world.

Perhaps ominously, there are also fewer independent companies. But just you wait: the blockchain is coming.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What’s Left for Agencies?

Poor Cannes. This year the parties were way overshadowed by the no-longer-unspoken fear that the agencies we’re most familiar with now may not exist in the future. After all, what can their business models be if everything is automated and media buying has gone in-house?

A sign of that fear were the programming initiatives around artificial intelligence, which half the conference feels would save advertising and half felt would destroy it.

Another sign was Martin Sorrell’s new company.

London-listed S4 Capital, the new company, is being built on the shell of Denniston Capital and named for four generations of Sorrell’s family. Sorrell said he has raised about $67 million for the new venture, which plans to be an “international communication services business focused on growth.”  Sorrell noted he hoped “not to be frenemies” with Google, Facebook and Amazon and that S4 Captial will be structured differently than WPP, though he did not go into detail.

“We are starting at ground zero,” Sorrell said, promising “grand ambition” and end deals with the “highest companies.” S4 capital will be “more creative, more agile, less bureaucratic … I still get the feeling that that our industry is stuck in the past and we need to move into the future.”

Listening to Sorrell, you would think the days of the agency were over, since it will be displaced by his movement into the future. But he’s always been a big talker, and when he says communications services he’s just using code for agency. And that’s because he knows as well as anyone else what the core competency of an agency is.

It’s simple. Agencies have to return to being the brand strategists that connect the company to the consumer. They go back to being what they were in the Mad Men age, the people with the secret creative sauce.

This is a differentiator that is very difficult to destroy, although during the past two decades agencies have done everything possible to undermine their own value proposition, including putting themselves out there as data experts, arbitraging their clients’ media buys, and downright lying to their customers.

There’s a role for an agency trying to do the right thing, because inside companies, there is very little time or energy to undertake really memorable campaigns. However, Sir Martin, who presided over so many of those lies in his previous incarnation, may not be the person to lead it.

 

Advertising in the Post-Advertising Era

As usual, we’ve been thinking about advertising, and about its future.  To help us grapple with the days ahead, we’ve read two very interesting pieces this week. One  is from a book called Frenemies by longtime media journalist Ken Auletta who has written “Annals of Communication” for the New Yorker since 1992.  Auletta’s book is about the disruption of the ad business by all the new technologies that have affected it during the past two decades. His thesis is that advertising won’t go away, because it is necessary for consumers to get information about products and services, and subscriptions can’t reach all of the people who need to know. Auletta reminds us that both Clinton and Obama agree that consumers are strapped, having not gotten wage increases in over a decade.

Thus advertising, he contends, is still necessary to feed the free or nearly free content that we all want to see.

 In a non-state-dominated economy, advertising is the bridge between seller and buyer. It would seem an obvious statement, but I’ve found it bears repeating. And that bridge is teetering, jolted by consumers annoyed by intrusive ads yet dependent on them for “free” or subsidized media. In this sense, consumers are frenemies.

Because he begins from this premise, Auletta can spend most of his book talking about what’s happening to the agency business. He calls frenemies the brands who are taking their work in house, the consulting firms like Deloitte that now run their own digital agencies, tech firms that buy and sell media, and the usual competitors who now have to deal with each other because few brands have a single “agency of record” anymore. He can also focus on some of the colorful characters in today’s agency world like Martin Sorrell and Gary Vaynerchuk.

On the other hand, media marketing guy Andre Redelinghuys takes a far more pessimistic view of the future of advertising, because he believes the need for advertising is dependent on a need for distribution that can be met in ways not possible previously.

Terms like ‘Disneyflix’ and ‘Apple Prime’ essentially describe how the most powerful global brand owners are coming to terms with the new rules of engagement. This is not just another story of new versus old, it’s a fundamental shift in the natural order of consumerism. Brands have traditionally been prized, while distribution has been more commoditized. The ‘must have’ things held the power. But if the pipes into people’s lives have become more powerful than the products that go through them, then we’re in the beginning of a new era. and the change is just beginning.

In his view, “pipes” into the home, car or phone now have all the power, and consumers no longer value brands — they value convenience. Ordering household goods from Alexa is one of his big examples. as is using a Nespresso machine and ordering whatever pods fit the machine rather than choosing a coffee brand.

Brands have always fought for a place in consumers’ hearts, and then relied on their loyalty for repeat business. Pipes are structural relationships that don’t rely on such fickle factors. They are built on more vertically integrated distribution channels and behave more like utilities — a way into people’s homes and lives attached to an account.

Amazon is the ultimate pipe. Their entire value is that they bring things to you — the things can change as necessary: movies, pickles, sneakers. They own the interface, the invisible moving parts, and the household. They understand your preferences intimately and have become arbiters of choice in many homes.

I’d argue here that Amazon is also a brand, in the same way Facebook is a pipe, and that the “convenience” of pipes is constantly being weighed against the sacrifice of privacy we make for the convenience. Thus, Facebook lost some brand equity through Cambridge Analytica, and who knows what inevitable mishap can befall Amazon, whose personal assistant already send private conversations to one family’s contacts.

I’d also argue that while things have changed, we are still feeling our way around the post-advertising world.

Cannes Lions: Are They Even Relevant This Year?

This is the week of the Cannes Lions Awards, the Oscars for the ad industry. Early reports say it is a smaller, more serious awards festival this year, perhaps because it had become too overrun with tech companies to feel creative anymore, and perhaps because the advertising industry is too  engaged in navel gazing for clues about its own continued existence to spend $20,000 an executive to send the large delegations of previous years.

Sir Martin Sorrell will be there talking to author Ken Auletta as previously planned, although Sorrell has, we think, had a #metoo moment this year and has stepped down from GroupM.  Preliminary reports say there are also fewer branded  yachts, and especially fewer ad tech yachts.

Behind the scenes, outside Cannes the industry soldiers, on trying to solve its problems, which are multiple. Viewability was a problem we were supposed to have solved five years ago. Only at the same time we tried to attack that problem we were also worried about ad fraud, malware, and scale.  Nobody wants to believe that to prevent everything else we have to let go of scale. But we probably do. Remember three years ago at the IAB Leadership Summit when attendees were literally running between town halls on each of these multiple subjects?

None of these worries have gone away, and advertisers are losing patience with ad tech. Perhaps one of the reasons brands have pulled back on their participation in Cannes is that the combination of angry consumers, unviewed ads and the spectre of regulation has made advertising more of an infrastructure business than a creative business. Who cares what brand or agency made the best ad last year when that ad probably wasn’t viewed? There’s more important knitting to be minded.

Because advertisers have wised up about the cost to their bottom lines of unviewed ads, exchanges have had to change their business models to eat the cost of those ads. Their solution to this problem is to run campaigns on private exchanges guaranteeing viewability. But then what happens to scale?

These concerns appear to us to be the canaries in the coal mine. Far more important is the larger movement away from brands entirely. For example, the online merchant Brandless offers everything from dishes to popcorn at prices listed proudly as $3.00. The Brandless site talks about the “brand tax” consumers pay for name brand merchandise.

Brandless is only one of the seismic shifts happening to advertisers. Generic brands have steadily gained power. Another, larger threat is Amazon. At first, Amazon cooperated with brands, offering them Dash buttons and other methods that made it easier to re-order your favorite laundry soap. However, Dash buttons have given way to Amazon Basics, a competitor to Brandless that can be ordered from Alexa.

It’s too early to tell whether millennials, as they gain spending power, will develop any brand loyalty at all to consumer products. A study last year pointed out that 51% of them had no brand loyalty. When they do like brands, they tend to favor Apple and Nike, not Tide.

 

 

 

What Are Acceptable Ads?

Of all the industry initiatives around making the online ad industry more friendly to users, only Eyeo, the German company behind Ad Block Plus, has spent the last few years doing research on people who download ad blockers, especially their own. The rest of the industry organizations are basically guessing what users will tolerate based on what they’d like to promote. What Ad Block Plus found through a Google survey  conducted in January is that 18% of Americans use an ad blocker on the desktop, and so do 20% of Europeans. But 83% of those running an ad blocker would be happy to see ads that don’t interfere with their user experience.

It’s impossible to write about this too often, since it doesn’t ever seem to sink in, but the root of the ad blocking problem isn’t ads. It’s user experience, and most of the deterioration of UX is due to data collection and tracking. It’s mind boggling how many trackers are on most publisher sites, for everything from analytics to data collection. This tracking is what users hate. It steals their privacy, hijacks their user experience, and shows them only disrespect.

On the other hand, users also hate paying for content, especially young people who have grown up in a world where web content has largely been free. Although sites like the New York Times have grown their subscriber bases admirably, they jury is still out on whether sites like Bloomberg and Wired will garner enough subscribers to make their pay walls “pay.”

And the people who download ad blockers are generally young, well-educated, employed with higher than average incomes, and comfortable with completing their purchases online. In short, they’re a demographic many advertisers would want to reach.

AdBlock Plus has figured out a way to reach them: by respecting their preferences.

Face facts: compelling sites with quality content are not free to run. Advertising used to cover the cost of these sites until publishers lost the battle to protect their visitors’ experience to programmatic advertising. No one knew in advance this would happen.

But Ad Block Plus has now come up with suggested ad formats that do not destroy the user experience, and ad-blocking users have willingly consented to see them. 92% of their users have said they’ll participate in a program through an exchange that can make ad-blocking visitors available to premium brands under special circumstances.

Will this work? Well, for publishers it is tempting because it allows them to monetize their ad-blocking users. And agencies will probably salivate because the exchange gives them access to more than 150,000,000 new users in the most desirable demographic. EMarketer said that 41% of millennials used ad blockers in 2017. Being able to reach them with ads they’ve agreed to let through is quite desirable.

The key is going to be to keep to the rigid rules of Acceptable Ads, which emphasize position, transparency, and size. It’s a cop out to say that time will tell, but Ad Block Plus is only just out of its closed beta with the Acceptable Ads Exchange, so we can’t say much else yet.

 

 

 

 

 

 

Forget GDPR: Mobile Ad Spend Will Continue to Grow

As usual, the digital advertising world is about to change. Several factors have caused this next round, and only a minor one is GDPR, which proves to be something we can all get over by checking another bunch of boxes to say we accept cookies.

But companies have invested quite a big in getting ready for GDPR, and they’re not going to let that go to waste, so here are the ways advertising will change again:

1)Some publications are going to re-ignite direct sales, in the name of transparency and brand safety. Although programmatic will continue to grow, we’re already seeing the return of the I/O, which was a staple of the industry. To guard against misplaced advertising, I/Os specify context. This may seem very old school, but there’s benefit in having ads placed next to relevant content. Facebook and Google already know this.

2)Some players are experimenting with the block chain. There are at least three solutions that experiment with the blockchain. The first is the Brave browser and the Basic Attention Token (BAT) a way of paying content providers micropayments for traffic. No one is under the illusion that this will replace advertising, but it may co-exist nicely with fewer ads. There is also a startup called KindAds, a blockchain platform that wants to decentralize online advertising process by connecting advertisers directly to publishers to remove the intermediary service of ad networks.

And  there’s AdEx, which is attempting to boil the ocean.

AdEx is a blockchain-based ad exchange that seeks to minimize advertising fraud by providing a platform for advertisers to connect with publishers. AdEx also wants to solve the problems around lack of consumer consent, privacy concerns, and data misuse. For one, users get a dashboard where they can choose the kinds of ads they want to see, the firm uses blockchain technology to anonymize user data, it creates a data trail to verify clicks/views in ad campaigns

3)Industry groups are promoting transparency. IAB, the industry’s self-regulating body, has released a framework for acceptable ads, as has the Acceptable Ads Exchange initiative of Ad Block Plus, and several other trade associations. The goal of these efforts is to show consumers the industry can and will self-regulate.

In the meantime, we can be sure digital advertising growth will continue, because Mary Meeker has identified a $7B delta between the growth of time spent by consumers on mobile devices, up 29% since last year and growth of mobile ad spend, which is only up 26%.

 

Digiday Video Summit Reflects Industry Changes

The Digiday Video Summit took place the same week the standards of data privacy totally changed, and as a result it was a meeting of video publishing executives wondering what their next strategies would be and sponsors from the world of “monetization,” “advertising,” and “mobile targeting” who knew even less about the future trying to help them. It was truly a conference of the blind leading the blind, because there were precious few of the people who pay the bills — brands and agencies–in attendance. Those people are focused on the larger question of how they can use their customer data.

As a result, we heard several publishers say they are not going to launch in Europe until after GDPR shakes itself out. Others without a big business on the continent have decided to withdraw completely. In Europe, the Digiday Video Summit will be even more fraught, because it takes place there on June 5.

Whenever there’s change, there’s opportunity. We think the future lies in several different directions, some of which are being discussed at the Summit, others not so much:

Original content

There’s still a market for original video content, if it is good. Netflix and Hulu are testimony to that. And although they subsist on subscriptions rather than on advertising, Hulu at least is going to try allowing subscribers who don’t pay the ad-free premium to download their programs along with ads.

It’s interesting that no one has yet tried what Leo laPorte and Twit.tv have been doing for a decade now, which is  live TV content downloadable as podcasts, supported by advertising. Leo long ago decided that he was going to trade quality programming for scale, and like many podcasts he mostly does his own ad reads. Most podcasts are content to be audio only, and they go for a different audience than the video podcasts. We predict more niche video programming, which will find its own audience without much targeting, because the audience is already interested in the content. It seems so simple to run brand ads against specific video content, but we think the agencies and brands haven’t washed their hands of data dependence yet. It will happen. It will have to.

Branded Content

Branded content is a tricky one. If it’s really good, like Red Bull, it can foster deep engagement. But it’s important to have the right brand and a totally immersive experience. Many agencies have focused too much on data and metrics the past decade, at the expense of great creative.

Content Based on Videogames

Some of the speakers at the summit did talk about how video content could be generated from videogames and attract viewers who have been playing those games.

LCI

This is a new one, and so big that it already has its own acronym. It stands for Limited Commercial Interruptions, and it means fewer ads but higher ad prices. TruTV has been doing this since its rebrand in 2016, with great success. Its viewers spend more “tune time” and their revenues have gone up. Their audience is Millennials with incomes averaging $70,000 — a very desirable demographic.

Like every digital media conference we’ve ever attended, this one made ample use of the words “wild ride,” “rollercoaster,” and a one I had never heard before, “calamitous.” Nevertheless, the conference was pricey and the room was full. Things can’t be that bad.

 

Good Advertising Still Works

Joshua Topolsky, founder and CEO of “The Outline,” has decided to go against the prevailing trend of paywalls and subscriptions. Because many publications are afraid of what will happen to their advertising dollars as a result of GDPR and the trend toward ad blockers, they’ve all gone like sheep to the subscription model over the past year or so. But we’ve written before in these pages that there is an upper limit on the subscription model, which is bounded by the reader’s time and income. Even wealthy people do not want to spend all their money on subscriptions.

So Topolsky, who is also a co-founder of “The Verge” and previously worked at “Engadget” as editor, raised $5 million to launch an ad-supported site, but one that is very different than other publications in its space.  He wanted a site that people actually read, with ads that actually worked. It’s a little like Back to the Future. In exchange, he gave up an emphasis on scale. “To be big would be simple,” Topolsky told Peter Kafka on the Recode Media podcast, “it’s very easy to get traffic. I could write a bunch of Avengers Infinity War posts, and get all the traffic I want.”

His point is that most sites are optimized to go for clicks, so even a site like NorthJersey.com will have those Avengers stories, even though they have nothing to do with NorthJersey and attract the wrong traffic. Then advertisers on those sites are disappointed, because their ads don’t work. “Bad traffic is easy. “What is difficult is to get the right people to the right story. There’s a higher value to that.”

What happens when Topolsky goes to the advertising world and tells them “I don’t have big traffic, I have smart traffic” when the usual advertisers are looking for reach?

In his opinion, advertisers have realized that what has been sold to them as the magic solution –i.e. big audiences on Facebook and Google–bought programmatically, has now been exposed as less than ideal for a multitude of reasons. While there is still a scale play for people like Buzzfeed, “The Outline” strives to differentiate itself on engagement. As an example, Topolsky says his site gets more views on custom content than sites with four times the amount of traffic. He has also said in the past that his click through rates are 25% higher than the industry standard.

“Not every advertiser will advertise with us, but some good ones will. Smart brands who want to speak to audiences directly, like Cadillac and MacAllan like us.” The custom content gets seen and is engaged with partly because it is more visible (there are fewer ads) and because it’s smart. Also Topolsky targets his stories carefully to his audience, mostly urban, mostly Millennial, mostly well off.

MacAllan used “The Outline” to tell its brand story for a $300 a bottle scotch. There are only a few million people who will pay that much for a bottle of alcohol, and niche products work for niche sites.

“The Outline” has just closed an up round for its niche site, and that’s a signal that investors think things are going well. “What we’re doing is not normal for sure,” Topolsky admits.”But it’s working. People are interested in advertising with us. We’re the twelve seat cool restaurant, not the chain, and that’s the long term plan.”

Time to Re-Examine Google’s Ad Server?

After more than two years of saying very little about its preparations for GDPR, Google has now made several changes that reveal how things will change for the rest of the ecosystem. During a call with the IAB Europe GDPR Transparency and Consent Steering Committee, Google disclosed that it has a new tool in beta with some DFP and AdSense customers called Funding Choices.  Funding Choices limits the partners a publisher can share consent with to a dozen.

This is a similar consent tool to other Consent Management Platforms like Admiral and Sourcepoint. A full list of IAB-registered CMPs is here.

The Google consent interface greets site visitors with a request to use data to tailor advertising, with equally prominent “no” and “yes” buttons. If a reader declines to be tracked, he or she sees a notice saying the ads will be less relevant and asking to “agree” or go back to the previous page. According to a source, one research study on this type of opt-out mechanism led to opt-out rates of more than 70%.

Google’s and other consent-gathering solutions are basically a series of pop-up notifications that provide a mechanism for publishers to provide clear disclosure and consent in accordance with data regulations.

As a company that began its life as an ad server, we have been struggling to find out whether we play at all in this full-employment scheme for lawyers, since we do not hold data or sell it. The situation is made more fluid because publishers do not have to accept the Google solution, and large publishers like Axel Springer have developed their own CMP technology.

Another announcement made by Google last week seems to have made  multi-touch attribution attribution much more difficult, because as of May 25 google will no longer provide DoubleClick IDs for data from its had server and DSP, or Cookie IDs and IP addresses from its exchange.

According to Martin Kihn, Research Vice President for Gartner,

Without these IDs, exported DCM log files can’t be used to determine true reach and frequency or to build MTA models, which are by definition user-level. MTA is not the only way to measure the true impact of ads but is theoretically the most accurate and provides by far the most detailed results.

Of course marketers are scrambling. But didn’t everyone in the industry expect this? This, after all, is the objective of GDPR, to preserve the consumer’s privacy.  The consumer does not care about the accuracy of Multi Touch Attribution customer campaigns, and for Google especially there is no other alternative. Google doesn’t really have to care about its ad-serving business (DFP), which it acquired over a decade ago and which is responsible for a very small part of Google’s revenue.

And it’s not as though a company the size of Google can slip under the radar of the GDPR, because it has already been fined and I’m guessing that other than Facebook, Google’s going to be under the greatest scrutiny by GDPR enforcers.

Remember, not everybody has to use Google as an ad server.