Category Archives: Internet Advertising

Search for Shopping

I blogged previously that a surprising number of people started searches for product directly on Amazon and Google.

The corollary to that — to Jeff Bezos’s business anywhere mind — is to sell stuff against those searches.

Today, some data, showing that this is becoming a real business for Amazon.


In other words, worldwide revenue is about 25% higher:


This is apparently better revenue than Twitter, which suggests a decent market cap from the ad revenue for Amazon, given that ad revenue has a higher margin than retail.

Mobile Price War

As illustrated recently and dramatically in the Facebook S1, no one has quote figured out mobile advertising.  Google and Apple have been trying, and Facebook and Linkedin are about to enter.  Sometimes without good ideas to solve the actual problem, which in this case, is that there is no clear magic yet to make the advertising effective, the resort is to price-cutting.  Both Google and Apple have just cut prices on their mobile advertising inventory to spur usage of their mobile advertising platforms in advance of the Facebook launch.  Given both companies have been working on the issue for two years, this latest move is an indication that this problem still has the big boys stumped  As the FT notes:

However, with many brands still unsure how to tailor their messaging for the small screen, available ad slots in apps and on mobile websites are often left unsold. As supply outstrips demand, the rates which mobile platforms are able to charge for an ad still lags behind the desktop web, a contributory factor in Google’s earnings disappointment last month.

To counter these issues, Google and Apple, as well as some independent mobile ad networks, are lowering their prices to lure more first-time advertisers on to the platform, hoping the incentive will lift overall volumes. “These changes will definitely make prices more attractive in the short term,” said Thomas Schultz, international chief executive at Somo, a mobile marketing agency. “We’re seeing the two big players go head-to-head to try to disrupt the market and secure those budgets.”

Their efforts come as Facebook plans to unveil advertising on its mobile apps in the run-up to its initial public offering. In addition, LinkedIn’s chief executive, Jeff Weiner, said last week that the professional network plans to run some tests for some of its marketing services on mobile, where its page views have increased by 350 per cent in the last year.

Google: Being Boring!

So who exactly is filling Google’s ever growing vaults?

It seems that perhaps as much as half the magic that is Google can be distilled down to boring old insurance, loans, and mortgages.  These categories of keywords, if the analysis of Wordstream below is accurate, account for approximately 46% of Google’s ad revenue over the last four quarters, or a whopping $14.8 billion for these three categories alone.

As a caveat, I am not exactly sure what the percentages in the graphic below stand for (i.e., is it % of search volume), so it’s possible that this number overstates or perhaps understates the revenue from these three categories.  For one thing, it’s not clear how display advertising is accounted for.  In any event, whatever the number is, it appears both significant as a percentage of total revenue and absolute dollars.

As Willy Sutton said “Go where the money is.”  According to these numbers, Twitter, Facebook, and every other startup looking for an advertising-based business model for their own oceans of gold should be sending every free hand that they can find to knock on the doors of advertisers in the insurance, loans, and mortgages spaces.

Crushing It: Facebook Display Advertising

Impressive news for Facebook and display advertising overall.  Not only does Facebook have almost a third of the market for display ad impressions, data shows a major run-up in pricing for Facebook advertising on a year over year basis.  In the past year, the “cost per click” for a Facebook ad rose 74% in the US, UK, France, and Germany, while display advertising more generally rose 45%.  One factor in this run-up is that traditional advertisers are diverting more advertising spend from traditional to digital media.  This part of the Facebook equation (High market share of Ads + Strong Pricing for Each Individual Ad), putting aside other questions, is *winning* for upcoming Facebook Valuation.

Remember when display ads were worthless?  Facebook, like Google before it, is proving to be an Internet business model alchemist, turning Internet advertising from scrap to gold.

New Google Data on Display Ad Market Size

Last week, I posted about the wide variation in possible sizes of the display advertising market, and the potential for new tools like real-time bidding to be the driver for expanding the size of the pot.  Is display advertising a “Friday night with the boys card” game or World Series of Poker?  This is a huge issue for entrepreneurship, as the more money diverted to Internet advertising from other sources, the more opportunities there are, both for businesses directly related to advertising (think google) and those services that are made possible by advertising (think facebook).

Today, the FT reported a story where Neal Mohan, head of Google’s display advertising business, gives further evidence that the size of the display market is moving in the right direction, projecting a 8X increase in size, and revealing evidence of the growth of more effectively placed display ads:

““Our belief is that by Google’s participation we can grow the overall display advertising pie,” Mr Mohan told the Financial Times. “The fundamental problem we are trying to solve is how do we get from [being] a $24bn industry to a $200bn industry in a few short years.”

The digital display market could be worth even more than $200bn, as offline media such as television converges with internet technology, he added. Mr Mohan said the volume of ads traded on its DoubleClick exchange had tripled in the last year. “I have never seen a technology get adopted in this industry as fast as real-time bidding and I have seen dozens and dozens of technologies.””

Privacy, Real-Time Bidding and the Uncertain Market Size for Display Advertising

While I have posted estimates of the size of the display advertising market, those numbers are nothing more than a shot in the dark. The size of the market (like any market) is sensitive to both price and quantity. Moving forward, price and quantity of display advertising are variable to display advertising effectiveness. If it becomes more effective, prices for a display ad can go up multiple fold. Higher effectiveness also will draw in more advertising dollars from offline mediums.

A recent Economist article explores “real-time bidding,” a new model for selling display advertising. The article describes the response to a slump in display ad prices due to low click-through rates and general ineffectiveness in reaching the targeted audience for the ad. For example, an advertiser, seeking to reach young men for its product, buys ads on ESPN, but also ends up paying for the women who visit ESPN, not the advertiser’s targeted audience in this example. With real-time bidding, in the span of a heartbeat, an auction for the display ad takes place when a set of eyeballs visits a page. The auction leverages information collected about the visitor, utilizing “digital traces” about where the users has visited before. This allows the  middlemen auctioneers, who sell 60-80% of the ad inventory on a content site, to aim ads at more relevant eyeballs, using better user profiles, to reach better prospects such as those who have previously visited the advertiser. So, as an example, Zappos could pay to serve an ad to a reader of the New York Times, who has visited the Zappos website in the past, to tempt that user to go on a shoe-buying detour.

There are two things going on here: (1) the ability to buy ads on an impression by impression basis and (2) the ability to make that decision based on information about the user.

Google says “real-time bidding” also known as “retargeting” can raise click-through rates by a factor of five or ten.  There are a variety of effects.  The value and consequently the price of a display ad goes up as it delivers more value by bringing more potential customers. It potentially disrupts the value of ads on certain publishers (Facebook?) to the extent that one can reach the same customers by purchasing inventory on a cheaper publisher.  It also potentially moves more value to the middlemen auctioneer to the extent that the middlemen can build up better profiles about internet users.

This is a description from Google on the benefits of real-time bidding from a blog posting, announcing the acquisition of Invite Media last year:

“We’re big believers in the benefits and future of this type of display ad buying. But we’re all just at the beginning. It can, and will, be much bigger than it is today, which will benefit the entire ecosystem – advertisers and agencies who can run more effective campaigns, demand-side platforms who offer real-time bidding services to advertisers and agencies, publishers who will get higher prices and more competition for their ad space (while controlling what space they make available, and to whom), and users who will see more useful ads that load faster.”

All of these effects would seemingly increase the size of the display advertising market by orders of magnitude by increasing the value of a display ad and by drawing more advertising dollars in as internet advertising delivers bigger value. It will also redistribute those ad dollars in different way.

But, the big unknown is privacy law.  Depending on where the FTC and legislative bodies end up, the ability for the intermediaries to collect and use information about users (particularly to the extent even anonymous profiles can be de-anonymized) will determine how effective the targeting will become, and how big the market becomes.  Ultimately, there is a tradeoff between privacy and the size of the display advertising market.

Display Advertising: Scrapping Gold for Riches

I think that a market worth spending some time exploring to identify an opportunity is the display advertising market (and Internet advertising market generally). Earlier I had posted estimates from Google that display advertising was currently a $20-$25 billion market, headed to a $100 billion market size. This is the space in the huge region between advertisers and publishers. With a market size that big, there can be a variety of opportunities that come from hanging around, finding a game, and taking some shots in the shadows of Google or Facebook; the theory being that a gold boom creates all sorts of primary and subsidiary opportunities (including buying and melting jewelry and selling into the boom) . There are some firms that I have run across that are achieving incredible revenue growth that are otherwise under the radar and do not carry flash whether in founder or funding pedigree.  I will spend some effort in a series of posts trying to break down and understand the potential spaces in this advertising technology ecosystem.

For some overview, Comscore’s recent numbers show Facebook’s impressive lead in ads published in the US market.

Top 10 U.S. Online Display Ad* PublishersQ1 2011

Total U.S. – Home/Work/University Locations

Source: comScore Ad Metrix

Total Display Ad Impressions (MM) Share of Display Ad Impressions
Total Internet : Total Audience 1,110,448 100.0% 346,455 31.2%
Yahoo! Sites 112,511 10.1%
Microsoft Sites 53,592 4.8%
AOL, Inc. 33,454 3.0%
Google Sites 27,993 2.5%
Turner Digital 18,050 1.6%
Fox Interactive Media 11,697 1.1%
Glam Media 10,207 0.9%
CBS Interactive 9,208 0.8%
Viacom Digital 9,051 0.8%

Luma Partners has a widely distributed “Display Advertising Technology Landscape” slide that I have embedded below which divides up the advertising tech space into a number of segments:

Facebook Valuation: New Display Advertising Numbers

According to the WSJ today, Facebook EBITDA is on a $2 billion run rate for 2011, which if accurate, could mean that current valuation is not completely out of the ballpark.  Is Facebook like Google, in the sense that while various projects like Places, Messaging, etc. do not take off, those stumbles are hidden by a crushing tsunami of transferred advertising revenue.  Just like paid search hides Google’s other flaws, display advertising may be Facebook’s magic concealer and its killer business model.