Mike On Ads

IAB released some more stats this past week, and it looks like performance spending is growing quickly. In 2005 performance based ads were 41% of online display dollar, and this year it’s 47%. (Also note 2005 it was 5.1 billion and 2006 7.9 billion). Huge growth!

Read the article on MediaPost here .

Check it out — www.newyorktime.net.

Ok, so what’s the deal here? There’s clearly no website here, all I see are ads that are related to the New York Times. Well, what you’ve accidentally stumbled upon is a page managed by the new and highly lucrative Domainer industry. Domainers are companies that acquire massive numbers of domains, create pages filled with ads, and then rake in the cash. According to this CNN article the domain ‘Candy.com’ rakes in almost $300 per day in advertising revenue. In a year that means by simply placing ads on this page, someone can make almost $110,000! Crazy right?

Now here’s the best part. When I went to newyorktime.net, the second ad on the page was for the real New York Times. Check out the URLs we hit when we click:

So first off, notice that the ad is being run through Google. Ok, so Google likes the Domainer space. Next we hit ‘ad.doubleclick.net’, Doubleclick’s adserver. This implies that the advertiser paying for this click I just performed is using their own adserver. Next, we go to ‘homedelivery.nytimes.com’ and I see an offer page for getting the real New York Times delivered to my house. The really interesting piece here is that chances are that the New York Times is paying for this click as part of their Home Delivery ad campaign. Chances are that the majority of visitors to ‘newyorktime.com’ actually meant to go to the ‘newyorktimes.com’, and the actual New York Times is now paying to redirect users to where they intended to go.

Considering you can buy a domain for $8.95, that’s not a bad deal right? So, is this a scam or a valid business model? Lets look at it from two different perspectives, the advertisers paying for the ads and the people looking to buy domains.

The Advertiser: So you might say, “Why does the New York Times have to pay to send users that mistyped a domain to go to the real site?” You’re right, that kinda sucks, but then again, why didn’t the New York Times buy all potential spellings of their domain? Even so, now consider the case where the New York Times advertises on www.thenews.com, another parked domain. In this case, the user is clearly looking for a news bit didn’t actually mistype the domain. If you owned a news site, wouldn’t you want to bring this user to your property? Exactly! Parked domains provide some of the most targeted and highly relevant users in the world, and advertisers are willing to pay big bucks to show you ads.

The Domain Buyer: Here is where I think more debate comes in. For the average Joe, it is now practically impossible to get any sort of normal .com domain name. All of the good ones have simply been taken. But on the other hand, these Domainers do bring a certain efficiency to the market. It’s hard to argue that the true value of ‘candy.com’ is $8.95 when you can make $300 a day in advertising profit! Creating domain marketplaces creates efficiency. The domain names that people will type in themselves because they are that good will cost in a lot of money whereas ‘mikeonads.com’ was still freely available a month ago =). So, if prices only go up how is this good for the buyer? Well — because key domains become available. If Candy.com were $8.95, some mom & pop shop in Kansas City will buy it for their little kid’s candy stand. The thing is, of the thousands of people who go to Candy.com every day, very few of them will live in Kansas City. On the other hand, a large candy producing corporation wants to help it’s brand with a short domain name and can also better monetize the thousands of visitors that will naturally come to Candy.com every day. So yes, there’s no more ‘free lunch’ when purchasing a domain, but if you get funded for a legitimate business, you no longer have to worry that you’ll have to settle for ‘thebestcandymakerintheworld.com’. Instead, if you think it’s valuable enough purchase a domain like ‘Candy.com’ from it’s owner, or domains like ‘Candycenter.com’ from Domain Marketplace companies like BuyDomains.

The one thing that I would like to see is a centralized marketplace for domains. Currently there are too many methods, just try doing a Google search for ‘Domain Marketplace’.

More posts to come on this topic. There are definitely some questionable topics here — search rankings via fake content, etc. etc. which need to be discussed. But at the core — the true value domainers bring to the internet industry is efficient pricing of domain names. And hey, if you could make a free $100k/yr just because you own Candy.com, wouldn’t you?

So you own a small site, you have about 5000 page views a day, and you start thinking to yourself, “Hey, it’d be awesome if I could make some money off of my great website.” So you start shopping around for advertisers and quickly get the sense that all small sites work primarily with google. Now why would this be? There are four key ways in which advertisers can monetize your inventory:

1. Branded Display — e.g. Ad.com, Niche-networks
2. Contextual — e.g. Google Adsense, Yahoo, Quigo
3. Behavioral — e.g. Tribal Fusion, Tacoda
4. Performance Display — e.g. Fastclick/Valueclick, CPA Empire

Before I delve into these into more detail, everyone has to understand something: advertising is all about reaching relevant eyeballs. Whatever the method used, the end goal is the same — if I’m selling sexy shoes, I want people to buy sexy shoes. I can go about this a couple ways but at the end of the day, I’m going to compare the amount of money I spent on advertising and the amount of profit I made from the sexy shoes that I sold. The smaller and the easier it is to purchase my good, the more likely I am going to be focused on ROI & performance. If I’m Netflix selling $4.99 subscriptions, it’s easy to track who signed up from where as I will have tens of thousands of people signing up per month. On the other hand, it’s difficult for Ford to track ad campaign performance… it’s hard to prove you bought a new Ford F150 because you saw an ad for it on automotive.com.

Ok… so eyeballs it is… lets look at the four methods above now:

Brand: If your site is good enough to be on the brand wagon you’re in luck. Branded advertisers have high standards on the inventory they will run on. The demand that it is relevant to their campaigns (e.g. Ford will want to run only on Auto sites) and they are willing to pay a premium to get there. Campaigns are generally CPM with little or no concern for performance. The problem here is that unless a site’s users are extremely desireable it’s hard for a site with low volume to get onto a branded site list. Ford wants to sell cars — to do this they want to find car buyers and associate the ‘Ford’ brand with their target audience. They might run campaigns for a new sexy sportscar on gaming sites and ads for more fuel efficient sedans on the New York Times travel section (who knows?).

Contextual: Thanks to Google this has become the big mama of online advertising. Contextual engines scrape your pages content and choose advertisers that match the content. Got a site about shoes, expect to see shoe advertisements. Now, going back to the eyeball idea, if I’m selling shoes, I want people interested in shoes. If you have a site that reviews the latest and sexiest shoes, then I will want my ad on there. On the other hand, if you have a personal blog and are complaining about how the shoe salesman smelled bad at the mall today, I probably don’t want my ad on your page. Contextual rocks on relevant page content and sucks on most Web 2.0 sites. When was the last time you saw a relevant text ad on Myspace.com?

Behavioral: Unlike Brand and Contextual, this is the first type of ad where we don’t care much at all about the page-content. We have an idea of what the users eyeballs are like and want to show him ads that he is going to enjoy the most. If you’re not famiiar with behavioral networks, read my post here. The biggest challenge here is for a site to get INTO the behavioral network. Even though for the purposes of serving one ad they don’t care what your site content is like, they will most surely want to use your site and your users to expand their reach & user information databases. Tribal Fusion, for example, requires 2k uniques per day, “professional site design” and a “highly active user-base”.

Performance Banners: Ok, so I saved my favorite (and perhaps worst for a small site) for last. Performance based advertising means that somebody is tracking clicks and/or conversions (actions) on their campaign and either only paying out on an actual “action” or adjusting bids on different sites according to the performance. Don’t be fooled by networks that pay you on a ‘CPM’, unless the ads they are showing are brand advertisements, somebody somewhere is tracking ROI & performance, and it’s impacting the CPM you’re getting paid. So why doesn’t this work for small sites you may ask? Well, long story short… small sites suck. Ok, it’s a bit of an exaggeration, small sites suck for performance would be a more accurate statement.

Lets go back to eyeballs. Your site has eyeballs, and I’m going to pay you everytime one of your eyeballs buys a pair of sexy shoes. Lets say the shoes cost $30, my production cost is $0.50 (yay for sweat shops!) so I’m willing to pay you $14.50 for every person from your site that buys one of my pairs of sexy shoes. Now there is one other advertiser in the network I’m working with he is selling sports gear (hats and stuff) and is willing to pay $10.00 to the publisher for every purchase.

Now, when a users comes to your site, which ad should the network show? Lets say your site is brand new to the network. Well, this network has no contextual technology to tell me what the site is about and he also doesn’t have a behavioral engine, so what can the network do? The only thing he can, test his campaigns on the site and learn what the performance is like.

Ok, for the next 5000 impressions (1k unique users?) the network randomly chooses between the sexy shoes and the sports paraphernalia. Now what… what do you think the chances are that somebody actually bought a pair of shoes or a hat? On the average site, I would imagine, right around 5-10%. Think about it, if the average CPM on your site is around ~$0.50, and this offer were to be competitive, you shouldn’t be expecting a single conversion until you’ve run at least 30,000 impressions. For better statistical accuracy on the performance of this campaign on one site, think more like 300,000 impressions. Starting to see why small sites suck? The amount of volume necessary to ‘optimize’ the average campaign is simply too much for the measly 5k impressions a day. Imagine if the network had 500 campaigns. How can learning be done on 500 campaigns with just 5000 impressions a day?

Of course there are various techniques to limit the amount of learning that needs to be done, but the fact remains that significant volume must be sent to an performance advertiser before one can get a good idea of the actual performance.

So, what should the small site guy do? Think about your eyeballs & page content. Is your content very relevant to the eyeballs? Then go contextual. Do you have particularly valuable eyeballs? Go for behavioral or brand. None of the above? Try performance based networks, but don’t expect good CPMs until you get high enough volume for some sort of learning to be done.

Next up? Not sure, probably some thoughts on learning techniques, merging behavioral and performance, and other ideas…