Futuristic Play by Andrew Chen

Good moves for brand ad networks

This is a very smart move for Spot Runner: Spot Runner Gets Media Investment. For those of you that haven't heard of them, the company is a very interesting cross between online and offline advertising. Basically, they have an online interface where small to medium advertisers can create TV commercials on the cheap (think templates, stock video, voiceovers, etc.), and then they handle buying from local stations to drive down the cost.

They are part of a fascinating trend of leveraging online strenghts in aggregation and automation, and then applying them to offline channels. NextMedium is also in the same functional category, for product placement. DS-IQ is such a company for outdoor/digital signage, and dMarc is such a company for radio.

Anyway, since obviously TV is most brand focused (minus those 1-800 infomercial or Girls Gone Wild type commercials), it's clear that Spot Runner needs the support of a lot of brand advertisers to make their business viable. What's a better way of doing this than getting one of the world's largest brand agency conglomerates to buy a chunk of your company? Spot Runner is doing all the right things to build those deep, Midtown Manhattan relationships... other companies focused on brand advertising (in particular all those video ad networks) should watch them to learn a thing or two.

Nice interview

Link: QA with Moneyball author and sports economist.

Interesting interview with one of my favorite authors, Michael Lewis. (BTW, light on blogging these days since my MacBook Pro is out for repairs on the right fan)

Winners don't quit, and quitters don't win...

Link: YouTube: From Concept to Hyper-growth. (Text summary here)

There are a lot of interesting bits to the YouTube story, but this paragraph was my favorite:

Problem was, nobody used YouTube. Karim shows another video of the YouTube boys sitting around pondering their existence. Nobody’s going to watch this, they complain; “This is lame.” To try to attract viewers, the three figured the best thing would do would be to get hot chicks involved. So, Karim recounts, they posted an ad on Craigslist in Los Angeles promising attractive females $100 if they’d post 10 videos on YouTube. They got not a single reply.

I've been in exactly this mood with my friends, working on little side projects, and let me tell you - it sucks. It calls into question why you are doing what you're doing, and it makes you wonder if your fundamental assumptions are wrong. It's a dark moment of self-doubt. Honestly, it's even worse when you feel like you're leading a team, because the other guys are depending on you for vision and instruction, and it can be easy to feel like you've let them down.

But the important part to realize is that EVERY business goes through this stage. You always go through a step where, after a tremendous amount of hard work and inflated expectations, you watch your baby take its first couple steps. And almost consistently across the board, the first phrase is very rough. That initial traction comes from a very small group of people, the early adopters, who are the only ones who are willing to use your site without any references or recommendations.

Especially in a community site, where you need to solve a chicken-and-the-egg problem of users versus content, it's hard to get the flywheel turning.

And just as every startup goes through this stage, the way out is almost always the same - if you did your job in the concept formation, meaning that your target market has been identified and they actually like your product, then it just takes a lot of sweat to get the flywheel turning. You have to get into the channels where your users are, expose them to your shiny new product, and go from there.

A lot of that can seem like low-value work. Rather than coding or strategizing or building, instead you are doing the Internet equivalent of standing on a street corner handing out flyers. But this "feet on the street" step is what's necessary to get that initial traction. So spam those mailing lists, post in those forums, e-mail all those little blogs. Post your own content, lots of it. Get your friends to do the same. Otherwise, you won't ever get past the zero audience stage.

PS. It's hilarious to me that to find hot chicks (since of course, they don't know any personally), they decide to post something on Craigslist of all places :)

Big news: I'm moving to Silicon Valley

Many of you that know may might find this news completely unsurprising, but I am leaving for Silicon Valley at the end of the year!

It's both an exciting and bittersweet event for me - as a life-long Seattleite, I've grown to love the city and all the casual, low-key values it represents. Being local with all my friends and my family is an immensely rewarding thing. And on a professional level, I've been proud of our work at Revenue Science, where we've created a rapidly growing, dynamic, company. Only a couple years ago, we had a mere 2 media clients - now, we have dozens of top tier publishers like WSJ, ESPN, Washington Post, and a ad network that went from 0 to multi-billion impressions per month in just 1 year.

That said, I've always wanted to move to the Bay Area for the opportunities it represents, and for the like-minded people that I know there.

My last day at Revenue Science will be November 30th, at which point I'll have to discover and decide on my new gig. I'm looking to found a new company or potentially join a very early stage startup. Should be a lot of fun to figure out where I'll be in a year.

New metrics for social media sites?

Jordan, a fellow Seattle tech guy, asks: Any comments on this? The New Media Audience Measurement Business Model Conundrum.

Well, Jordan, the problem is - metrics like CPM and CPA aren't meant to measure how users "connect" with brands - they are simply economic metrics that capture media spend. Beyond CPM, there are other rich metrics that advertisers use, such as demographics, targeting, frequency, pageviews, etc., to measure the effectiveness of a brand sell.

You can see an example of ESPN's cross-channel media kit, and their research on audience metrics. Sometimes as part of this, people do brand studies like brand recall, message association, etc., with companies like Dynamic Logic or Insight Express.

Thinking that "brand connection" metrics can somehow revolutionize brand advertising points to a serious misunderstanding of the brand advertising industry. Much of brand advertising is NOT based on metrics. No single set of numbers can ever change advertising agencies' minds about where to buy media, without the human relationships to match.

This is really part of a long pattern of techies encountering different cultures and then assuming they can apply their own techniques to it. For a techies, the numbers are everything - they seem objective, and correct. Surely no one can argue with numbers, can they? So with things like brand advertising (and potentially  their love lives), techies want to boil things down to numbers, and argue from there. But that doesn't always work, and that's why many techies are single. (Turns out asking girls' their SAT scores doesn't always work)

For example, if a social network were able to show X brand engagement points for a financial audience, and X was larger than the metrics for a well-branded, established site like Wall Street Journal, a logical viewpoint might be that a social network would command a higher CPM. But really, that scenario will never, ever happen. Wall Street Journal will always command more dollars based on their reputation, and relationships, until new media companies are able to establish those. (And doing this involves buying lots of steak dinners, not showing people "metrics.")

As for as advertising goes, Web 2.0 is not special. Get over yourselves, guys. Media companies will figure out ways to incorporate social networks as some % of a multi-hundred million dollar advertising budget, and they will try and buy using common metrics across all their publishers. That's the way it works, and no amount of Ruby on Rails will fix this :)

In my opinion, Web 2.0 companies need to figure out how to speak the advertising language, and figure out how their websites support what advertisers are trying to do. Connect with the current flow of money, NOT make up new metrics that are hard to understand. That should be the goal.

Unclear definitions for click fraud

John Battelle comments on a recent click fraud article in WaPo: WaPo Does the Click Fraud Piece, I Scratch My Head....

I've been following the click fraud discussion for a while now, and it's a emotionally charged topic because advertisers feel like they're being cheated. One problem that's complicated the discussion is that people simply don't agree on the definition of click fraud - in fact, there's really a huge spectrum of different practices that would or would not be considered click fraud.

Here are a couple definitions of click fraud, from really clear to cloudy:

• Building a bot to click on your own ads automatically
• Clicking on your own ads to drive revenue
• Encouraging users to click on your ads
• Users double-clicking on ads
• Having a confusing user interface to drive fake clicks
• Accidental clicks from ads being too close to content
• Placing high-value ads on unrelated content in hope of clicks

I think most advertisers would consider most, if not all, of these practices click fraud. The fact is, each one of these bring in users who may be uninterested in the content behind the ad. These "unqualified" leads result in lower conversion rates, where advertisers end up footing the bill.

Publishers and ad networks, on the other hand, probably view everything after double clicks as fair game. Their definition of click fraud is much more technical in nature - as long as it's not someone consciously committing an act of fraud, from their perspective, nothing has happened.

The truth of all of this, however, is that advertisers don't want low converting ad spend. So if that's caused by a ad-clicking bot, or by clicks from confusing UI, it's all considered bad. In the long run, the only way to solve this is to implement the sort of "smart pricing" that Google does, to drive a more consistent cost-per-action. This means that, over time, ad networks will start to gravitate towards this CPA model since it gives more consistency for advertisers.

IDEO on urban design

One of the best articles on IDEO I've read in a long time: IDEO’s Urban Pre-Planning. Don't forget to click on the pretty pictures on the right side!

It impresses me greatly that an approach for experience design and innovation can be as generalizable as what IDEO has. Anyway, read the article to get more info.

Coin-flipping contest

Link: The Top Pickers vs. the Pack.

If you held a coin-flipping contest with thousands of people, and had them flip coins over and over again, eventually you'd find one or two folks who had a long string of heads. Then, if you were to ask them how they did it, they might even have cogent explanations on how or why they had become coin-flipping "experts." At the end of the day, their ability to flip coins would still be 50/50, like everyone else.

The funny thing is, the model for PicksPal and the companies discussed in that article come from simply SELLING the predictions. So like mutual fund companies that keep thousands of funds around just to publicize the occasional winners, their interests are not aligned with yours. They just want you to transact (and buy picks), not actually participate in the winnings themselves.

When you see these companies actually investing their own money into the results, then that'd be the first indicator that the company believed the results were any good.

Ironic article about math

Link: Confident students do worse in math; bad news for U.S.

It's always sad when journalists confuse correlation with causation, but even worse when they're writing a story about math and they get it wrong!

The article states that confidence about math and the actual ability to do math seem to be inversely correlated. Then it enters a conversation about how making kids enjoy math and acts like confidence has anything to do with the resulting mathematical (in)ability.

As anyone with a basic understanding of logic would understand, a correlation between the two doesn't mean that tweaking one will affect the other at all. It may be some third variable (oh, let's say, constant scholastic competiton) that is causing the two. If the competition is high, then that could lead to both high performance and low self-assessment. The next step in this study would be the measure some of the variables and then try to assess causation.

This reminds of a common observation that attractive people are often insecure about their looks. It is because they are insecure that they primp so much :)

Inventory glut in social media

Worth reading for any internet ad junkie: Yahoo! Q3 2006 Earnings Call Transcript.

I will talk about the inventory glut. It has definitely been a huge change. You can see from the page views of a lot of the social media sites that exist today. That is going to change the market dynamics. What we hope is that it is going to bring in whole new categories of advertisers who have been focused mostly on the search side to be able to bring them to the other side of the kinds of advertising that is capable.

An interesting point is what a "glut" really means, in this case. Obviously it has to do with supply of ad inventory outpacing demand, but what kind of supply and what kind of demand? Well, according to Yahoo's COO, the glut is being caused by the pageviews generated by social media sites.

But let's dig into this deeper: As far as direct response goes, there's no such thing as too much supply. For most direct response companies out there, they can precisely calculate the amount of money that is earned when a user visits their site and performs an action. Then they do the math to calculate, backwards, how much they can spend on an ad, in order to break even. As long as they satisfy that minimum, advertisers will spend as much money as they can get their hands on.

So ultimately, a glut implies one of the following scenarios:

1. Either, they don't know how to efficiently monetize remnant inventory well, using direct response techniques...
2. ... Or, they have so much inventory they can't get brand advertisers to absorb it all.

In scenario #1, that means Yahoo has a clear weakness in technology, manifesting itself as an inability to squeeze money from social media sites. Otherwise, if every Flickr pageview could monetize like a Search pageview, they wouldn't call it a glut - they would describe it as a huge opportunity. Obviously this doesn't bode well for a company that spent 1/3 of their Analyst Day this year focused on how to incorporate social software into search and a bunch of other products. It could be that Yahoo is helping create a huge number of low-value impressions that they don't know how to monetize.

As an aside, this problem of monetizing context-less inventory is a really big opportunity for advertising companies out there. Outside of the 5% of so of our day that's spent on search, the rest of those pageviews go to random internet browsing, communications media like e-mail, IM, etc., and other low-context activities. Obviously, any company that's able to figure out how to bring context into those areas, and help "irrigate" the Contextual Desert has a huge opportunity ahead of them. (I happen to work at a company which does such a thing, which is nice!)

The other scenario is just as dangerous for Yahoo. In scenario #2, Yahoo could be unable to sell brand advertising on their social media websites. As I've discussed before, advertisers like to buy brand media from properties that have, well, brand! And what is brand? It's about trust, transparency, and consumers' emotional connection with products and companies. For Yahoo to experience an oversupply of inventory there means that they aren't effective in convincing advertisers to trust their properties enough to soak up all those ad impressions. This means that until these trust issues are resolved, it may be that the social websites they have will NEVER be monetizable at high CPMs (over $5), but instead must focus on sub-$1 stuff. Obviously, this is another huge worry for a company who is betting so much of their future on social web applications.

Ultimately though, this really should sound a LOUD warning for Web 2.0 entrepreneurs that are building social sites. Please keep in mind that:

1. Do NOT assume you can attract eyeballs and the monetization strategy will just come together
2. Do NOT assume that MySpace's $900MM ad deal or YouTube's $1.6B acquisition means there is strong underlying revenue
3. And finally, do NOT assume that every pageview is equal, and that you can perform "chinese math" to calculate ad revenues

Ultimately, every startup out there must be very methodical in how they approach the overall market. Do you have a brand-oriented strategy, or a direct-response one? And once you pick, you have to align your personnel, resources, and product to capture dollars in each specific advertising market. If you ignore all of this, you will end up with a 1999 bubble company with eyeballs and no revenue - while this might work out for the defensive or disruptive acquisitions, you certainly will remove a lot of potential suitors of your company.