Paul Needham's Blog

Helping publishers sell their ad space

Step by step we are opening up our network, creating new connections between advertisers and the bloggers/publishers they are supporting.

Today we announced the new Publisher Profile Page, which publishers and bloggers can customize to better present their advertising opportunities.

The Publisher Profile Page is what advertisers see when they click on the "Advertise Here" link below the BidClix ads.  It includes the blog/website name, description, URL and the price that blogger/publisher wants to charge for their ad space.

Here are some examples of what publishers have  done already: Tickle, Homes.com, Paltalk.com

Publishers list their ad space in the marketplace, describing their advertising opportunities, and naming their own price. Then Advertisers can target their ads directly to specific websites.

I'm very interested to hear your ideas for how we can go further, how we can do a better job of connecting great advertisers with great content.

Not a Leak. Just a lot of Hissing.

Nicholas Carr (in "Is the ad bubble leaking?") correctly observes that auctions, when run well, drive up prices such that buyers' margins get squeezed.

Clearly that's one reason for Google's spectacular profit margins: they've successfully extracted value from the buyers (advertisers) by causing them to outbid each other in a scramble for access to their inventory. The value hasn't disappeared: it has just shifted from buyers to sellers.

And, as we've seen, prices for keywords have indeed climbed to such levels that many advertisers are starting to pause. The game is getting too rich for them. Many will drop out, or just stop raising their bid prices.

He writes:

"For any given ad, the per-click price will hit an economic ceiling, and advertisers will then stop bidding the price higher. The ability of advertisers to precisely measure the value of a click makes search ads attractive. But it also ensures that, in the end, the price will come to rest at a rational level."

And John Battelle voices similar concerns in his post on FTD.

"Search marketing may be on its way toward a slowdown, if not a plateau."

But I think it's a mistake to conclude that self-serve, bid-for-placement advertising models must also be approaching a peak or plateau. There's something else going on here. 

True, prices will come to rest at some "rational" level for any given advertiser. But, what's a rational price for one advertiser is different than what's a rational price for another. That is, new advertisers, and better, more efficient advertisers will continue to emerge and drive prices up.  Indeed, some advertisers have been grumbling about getting outbid since the dawn of bid-for-placement models.

In 2006, as the mix of advertisers continues to change, we can expect to hear more grumbling and hissing.

Moreover rational price for any given advertiser changes over time, as that business is forced to examine its own cost structure, better understand its customers, improve its targeting, optimization, merchandising, etc.  As an advertiser makes those improvements, it's able to justify paying higher prices.

What's magical about first generation advertising marketplaces (like Google's) is that they force advertisers to become more efficient, smarter. That's a good thing.

The next generation of advertising marketplaces need to go a step further and better engage publishers, providing feedback so they do what they can to improve the quality and quantity of what they provide into the mix: customers.

That's going to be a major driver of growth in online advertising, and self-serve advertising in particular.

See also: Technorati Profile

Towards an Open Advertising Marketplace in 2006

It's exciting to see that others share our conviction that it's time for a truly transparent and open advertising marketplace. Pat McCarthy of Conversion Rater gives it a mention in his shortlist of predictions for 2006.

Meanwhile, others think that "Google's going down", partly because they haven't been as open or transparent as many think they should be. AdSense publishers are left guessing at what share of the gross revenue Google elects to sprinkle upon them. And the black-box approach to selecting which ads will appear is so, well, Web 1.0.

More productively, Frank Wilson of A VC has some ideas about what an advertising marketplace ought to look like and aspires to make it happen in 2006.

And yet there are some real challenges that need to be tackled, not the least of which is moral hazard. Which is to say, the marketplace needs to be structured in a way that rewards good behavior and punishes bad.

When we launched BidClix back in April 2001, we operated as a blind network. Advertisers targeted their ads to specific channels but were not able to see the individual websites that comprised each channel. Most ad networks still work this way today. But what happens in this context? Advertisers set their prices based on the average quality of traffic in a channel. The best quality publishers, those which have above average quality, are under compensated. And the worst quality publishers, with below average quality, are over compensated. Good behavior is punished, bad behavior is rewarded. Over time, the best publishers leave and the worst ones stay on. Blind advertising networks thus trend downward.

We think we nailed that problem when we launched site-specific bidding. Now advertisers can target their ads to specific websites, and sections within those sites. Good behavior is rewarded, bad behavior is punished. That's the way it ought to be.

But we're not done yet. We're on the road to openness and we know we've got a long way to go. We want to give publishers much more control over which ads will appear on their sites. We respect their judgment, and we think they can do a better job than any old black-box can do on its own.  And we want to open up the marketplace to multiple parties who can add value, not just advertisers and publishers. And we believe that trust forms the basis of any good relationship; it can be earned or it can be squandered.

I'd love to hear your thoughts on how we can realize our vision. What does "advertising marketplace" mean to you? What examples of marketplaces do you think represent good models for us? What kinds of transparency do you think are most important? What needs do you have as an advertiser, a publisher, or some other party in the value chain, that are not being met by existing ad networks?

Tags: advertising marketplace, online advertising, adsense, predictions

The Devil's in the Details

An excellent post by Ari Paparo, co-founder of Blink.com, an early social bookmarking site - minus the "social".

Ari opens up in a confessional tone:

Now a little part of me is cringing as I write this. Having founded a bookmarking company in 1999 with pretty much the exact same vision as the new crop of services, I’ve got to feel, well, a little stupid. (or angry, or depressed, or whatever). Maybe writing about it will make me feel better and maybe even help me make a point or two about product development.

Ari goes on to identify a handful of reasons why he thinks Blink failed where del.icio.us has succeeded. The biggest reason seems to have been their decision to use folders and categories instead of tags. That decision had dire implications for other aspects of the product. They painted themselves into a corner.

In summary, he writes:

Some simple innovations like using tags instead of folders, making public the default, building better discovery features, etc made the difference between being an also-ran and a hot acquisition target.

When social bookmarking really works, it's because it's because it is equal parts "social" and "bookmarking". Blink ended up being too much of the latter and not enough of the former. Ditto for Backflip.

A big thank you to Ari for these insights.

Tags: tagging del.icio.us technology

a too big digg?

As Forbes reports, the uber-cool techie news site digg.com, is really taking off. If you're unfamiliar with it, check it out. There is plenty of chatter about digg.com in the blogosphere.

Will digg survive its popularity, or be a victim of its own success? digg users are asking themselves this very question, as the community undergoes some growing pains. Indeed, Yahoo!'s new darling, del.icio.us was down this morning, some suspect due to its very popularity.

digg need not remain the exclusive domain of the techno elite. digg's innovative social system for finding and sorting useful information (news in particular) can and should be extended to a broader audience. After all, there are "elite" in every domain of knowledge and digg's system of inviting users to submit, and more importantly, rate incoming content is an idea that transports nicely.

digg's users are their own editors - and most agree that the wisdom of the crowd is working pretty well.

Yet digg seems pretty narrowly focused on its current community - not a bad thing. It may be difficult for them to move into very many other content areas. So, if digg won't put all the world's newspaper editors out of work, who will?

Judging from the comments on digg.com, some people are quite concerned that the community will be co-opted. And rightly so. Marketers are always dreaming up new ways to inject themselves into otherwise authentic communication.

Tags: digg technorati tagging del.icio.us Media technology Marketing Advertising

Shareholder Democracy

One of the defining features of a capitalist economy is the separation of ownership from management.

Shareholders (who are generally considered to be the "owners") invest their money (capital) into firms and hire managers to run the businesses. As investors in a company we rely therefore on our representatives, the Board of Directors, to keep a close eye on a company's management and ensure that they run the business in our interests and not their own.

This is the primary role of a Board of Directors: to oversee the management of a company on behalf of its shareholders.

When the Board of Directors fails in its fiduciary duty, heads should roll. Sure, key managers often get the boot, if not prison terms. Yet too often the members of the Board of Directors escape unscathed, despite what are sometimes gross and egregious failures in oversight. Sometimes, they actually stay on the Board. Other times, they get invited to sit on more Boards.

These are the "Teflon Directors", some of whom are exposed today in a great article by Forbes with assistance from Jackie Cook of the Corporate Library.

The roots of this problem lie within our system of director elections, which is deeply flawed. You might be surprised to learn, for example, that the familiar principle of majority rule very rarely applies in elections to the Board of Directors. Under current standards, Directors can be elected with just a single vote (and the candidate him/herself could cast that "deciding" vote.) Moreover, there is typically no mechanism to vote against a candidate. There are rarely more candidates than there are seats, so the seats are completely uncontested. If you think this sounds a bit like Soviet-style elections, you'd be right.

Yet there is a growing movement to revitalize shareholder democracy, to give it teeth. It's something every democracy-loving capitalist ought to support.

Surging Demand

The Wall Street Journal reports that demand is exceeding supply at top portals and premium web publishers. There's a fair amount of buzz among bloggers as well. According to the WSJ:

The surging demand is allowing big rate increases at the largest portals, the prime beneficiaries of the growth. Yahoo said last month that prices increased by "double digits" in the third quarter from a year earlier, while AOL says prices for some ad units have increased as much as 20% since January.

That's pretty consistent with what we've been seeing as well. Advertisers are clamoring to access the audiences that publishers have worked so hard to develop. Now these publishers are looking seriously at ways to maximize their revenue in this new context of rising demand.

So how can website publishers, large and small, ensure that their boat rises with the tide?

One approach is to auction off their inventory to the highest bidder. Our ActiveMarket technology is aimed directly at larger publishers, streamlining the bidding process and aggregating demand to ensure that the publisher gets the best possible price. And our BidClix advertising marketplace is a turnkey solution for smaller websites and bloggers to list their advertising opportunities publicly, tap into an existing pool of demand, and then let advertisers compete in real time. Smaller publishers might also consider Quigo, AdBrite, ContextWeb and Google AdSense but none of those  are true auctions where the publisher can set a reservation price and take advantage of the magic of competitive bidding.

Another approach, for the largest of publishers, is to get scientific about setting their rate card prices, analyzing demand and supply over time and using that data to increase their bargaining position vis-a-vis their advertisers. Rapt Inc.'s Price Director is being used by Yahoo and iVillage in this way.

In many cases, markets do a pretty damn good job of setting prices (and in other cases they really don't). I believe that online advertising is one of those areas where markets work very well: buyers and sellers are best served when they can make their own decisions, fully informed.

Technorati tags: Computers and Internet, Online Advertising, Auction, AdSense

Full Control. Full Disclosure.

By way of preamble, allow me to articulate our vision for the BidClix advertising marketplace. We aspire to create an open platform where advertisers, website publishers and bloggers meet to buy and sell interactive advertising.

We are creating a place where website publishers and bloggers contribute great content; where advertisers contribute valuable and compelling offers; and where consumers express themselves and satisfy their needs and wants. Most importantly, we aim to create space for all these folks to interact.

Traditional advertising networks, Google AdSense included, often try to keep apart advertisers and content publishers. They try to obscure information, enforce secrecy through gag orders, and often resist disclosing even the most basic terms of contract. 

Our purpose is to bring these parties together, to facilitate multiple, mutually beneficial relationships. For us, it’s about making connections.

To that end, we have taken one more important step. Today we introduced a new tool that gives website publishers and bloggers more control over which ads appear on their websites.

It’s simply called the "Review Ads" tool, but it’s far more powerful than its humble moniker.

Get this: Publishers and bloggers can now select the ads they want to run on their sites. They can approve some ads for one section of their site, and other ads for another section of their site. Moreover, publishers and bloggers can see how much they earn per click for each individual ad.

Full control. Full disclosure. It’s a new age of openness. We get it and we hope you do too.

Core Value: Integrity

By integrity we mean a personal inner sense of wholeness, deriving from honesty and rightness of character. 

Integrity is a deeply personal value, so how does it guide our business practices? In a business context, integrity is about being honest about what we’re doing, and doing what we say.

In our relationships with each other, with our clients, with the public we should be honest and respectful.

Last year I read about two, shall we say, entrepreneurial young men who gained licenses to operate a number of public pay phones. As licensees they would be able to choose where to install the pay phones and they would earn some percentage of every quarter that people spend when making their calls. Moreover, licensees also earn a small fee – 10 cents/call - each time someone dials an 800 number from one of their phones. If these two men could identify the best locations to install these pay phones, they could earn a handsome profit from these payphones. It seemed to be all about finding the perfect location. 

However, these two fellows soon discovered that it wasn’t so easy to make a living off of a handful of pay phones scattered around the city. As more and more people were using cell phones, these payphones were collecting more dust than quarters.

Frustrated, they determined to rob the telephone company. They brought all of their pay phones back to their apartment and clustered them out around their home office. I think there were 20-40 phones crammed into this place.  Then they proceeded to connect each phone to a small network of computers. The computers were programmed to make outbound calls from the payphones. But, not just any calls: 1-800 calls. The computers cycled through a long list of 1-800 numbers, dialing various companies across the country, calling everyone from American Express to 1-800 Got Junk, to 1-800 Flowers, to 1-800 Contacts, to 1-800 Go FedEx.  Each time they made a call to an 800 number they earned 10 cents.

Their scheme worked. Over the next few months their computers made, literally, millions of calls and they earned nearly $1 million in fees from the telephone company.

There’s innovation, but there is not integrity.

It didn’t take long for them to get caught. The telephone company discovered that they were dialing for dollars and called the police. Last I heard, the two were trying to defend themselves in court.

Now, it turns out that while they were prosecuting their evil plan, they discovered that the telephone company was actually not paying them for all of the calls that they had made to 1800 numbers. Their computers had kept perfect logs of each and every call, marked with a time and date stamp. They discovered that the telephone company was systematically underpaying their licensees. A licensee really has no idea how many people make 1-800 calls from their pay phones, and it appears that the telephone company was only paying for about 50% of the calls that are actually being placed.  Now there is a class action lawsuit against the telephone company for systematically stealing small amounts from a very large number of licensees. 

What’s interesting is that the telephone company had been doing this for years before getting caught. The two guys got caught in a matter of months. Why the difference? The two guys stole a large amount from one company. The telephone company stole very small amounts from a very large number of people. That’s why they didn’t get caught sooner.

Unfortunately, many businesses earn a margin by weaseling small amounts from a very large number of clients. 

In our industry, click fraud is an issue of great importance. People write programs that simulate clicks on ads, charging advertisers for useless clicks. The issue is just now starting to boil over. In the past couple weeks there have been more than 45 news stories that deal with click fraud. When we started the business back in April 2001 we observed that some pay-per-click search engines were riddled with click fraud. Many are still doing it today. They are either actively doing it themselves, or allowing it in their network and not doing all they can to stomp it out.

We have always taken a very proactive stance on click fraud. We have a number of filters in place to protect our advertisers from bogus clicks. I think we have been rewarded for holding firm on the issue of click fraud: our average CPC is higher than most other bid-for-placement networks. Yet, the fraudsters keep trying. And we need to keep ahead of them.  Not just because it’s good for business, but because it’s good.

That’s just one example of an area of our business where integrity provides a guide to action. 

To paraphrase Henry Ford: "Integrity means doing the right thing, even when no one is looking."

Core Value: Inspiration

According to Wiktionary, the open source, open content dictionary, Inspiration is the act or power of exercising an elevating or stimulating influence upon the intellect or emotions.

Through the conduct of our business and through our business and personal relationships we aim to inspire.

An inspirational work environment is intellectually stimulating, challenging. It contributes to personal and career development. We want to inspire each other.

We also want to inspire our clients and business associates. By producing a great product that serves real needs and solves real problems in some new and innovative way, by acting with integrity, we can inspire others to do great things. In fact, we have even inspired some companies to copy us outright!

We have inspired in other ways too. Each year we have lent some support to a development organization called NetAid. In addition to some financial contributions, we sent out emails to our advertisers and publishers, challenging them to join NetAid in their mission to eradicate world poverty. Our efforts have been quite successful: we inspired others to visit the site and learn about their work. Some may have volunteered. Some may have helped spread the word. It’s difficult to measure the full effect of our small effort, but we do know that others were inspired to donate over $10,000.

Through the power of inspiration, we can make others’ lives better, we can help our clients become more successful in their businesses, we can excite and stimulate new ways for people to achieve their goals.

Core Value: Innovation

Innovation is the introduction of new ideas, goods, services, and practices. It’s not just about new technology. It’s about new ways of doing things: new methods, new processes, new ways of connecting the dots. There are opportunities for innovation in everything we do: in customer service, in sales, in business development, in operations, in product development. In all of these, innovation is welcome.

Innovation is included here as a core value not simply because innovation can produce economic reward, though it can. Innovation is, for us, a core value because there is something about innovation that quickens the heart. Innovation makes things better, and that’s a good thing.

We believe that innovation is intrinsically valuable, and that’s why it’s here as a core value.

Innovation is exhilarating. Innovation ignites a spark, it raises your blood pressure. When it arrives, it keeps you awake. If innovation were a drink, it would be fizzy and it would be caffeinated.

However, innovation doesn’t just appear fully formed, as rabbit from a hat. It doesn’t arrive unannounced, unexpected, uninvited. Innovation isn’t wished for - it’s pursued, it’s hunted.

Innovation grows from the conviction that there is always a better way. That what you have, though good, just isn’t good enough - isn’t fast enough, isn’t accurate enough, isn’t elegant enough, isn’t efficient enough, isn’t clear enough.

Problems invite innovation. The problem might start small, as an annoying little itch. You can ignore the itch, and it may seem to go away. But, the more you think about it, the more interested you become in the problem and its resolution. It’s not that the problem becomes bigger, it’s that your interest in it grows. You meditate on it. The problem transforms into an interesting puzzle, a challenge, a seeming conundrum. Some say it cannot be solved, but you think it can.

This is when innovation is near.

Discovering and Articulating our Core Values

Core values are always present. Whether you know it or not, they are operating in the background helping you make decisions. They inform and guide. They are the foundation upon which lives and businesses are built.

Yet too often we take them for granted, fail to notice them. And that’s dangerous because they can wither and fade, become irrelevant.

Or worse! Over time they can transform into values that, given due consideration, you would not have chosen.

It was, therefore, with some mix of anxiety and excitement that I took the advice of a friend and colleague to explore and articulate the core values of our business, BidClix.

The co-founder of BidClix and I set to work. We brainstormed, naval gazed, scribbled and scratched out. We discovered that there are in fact many values that guide our business practices, how we transact with our clients, our suppliers, and employees. The difficult thing, we found, was trying to identify a small handful of truly core values – the most important ones.

By happy coincidence, our core values turned out to be a triplet of alliteration: Innovation, Inspiration and Integrity.

These are the core values that we will live by. We’re going to hold ourselves accountable to them and we invite you to do so too. Yeah, sometimes it’s going to hurt, but we can take it.