Marketing in Action: Q & A with Seth Godin

If you’re in any way involved in marketing – online or off-line – chances are that you’ve read at least one of marketing guru Seth Godin’s best-selling books. He is the author of 10 books, including “Meatball Sundae,” “All Marketers Are Liars,” “Purple Cow,” “Permission Marketing” and “small is the new big.” Armed with a degree in philosophy and computer science from Tufts University, he began his career as brand manager for Spinnaker Software in Cambridge, Mass. Godin is also founder and CEO of Yoyodyne, an interactive direct marketing company, which was acquired by Yahoo in 1998. More recently, he founded Squidoo, a recommendation website, in 2005. Revenue’s Editor-in-Chief, Lisa Picarille, talked with the author, blogger and in-demand speaker about his unique views on marketing.

Lisa Picarille: How would you characterize the current state of online marketing?

Seth Godin: It works! It’s always worked, but now it really does. And, at the same time, off-line marketing is not working. We regularly see the results marketers are getting with big campaigns fail to meet expectations. At the same time, the power of social media continues to expand.

LP: What are the most important components of successful online marketing?

SG: Making something people want (choose) to talk about. They have power, not you. Also, delivering anticipated, personal and relevant messages to those that want to get them. And finally, treating people with respect.

LP: Can you give some examples of companies (and/or people) that are getting it right, and why?

SG: Talk about the importance of social media in online marketing – it’s becoming increasingly clear that messages that spread from person to person are far more powerful than those that come straight from a company. So, social media is powerful, but not if it’s manipulated. Then it fails.

LP: Are there aspects of social media that work for online marketers more effectively than others (Facebook, Twitter, blogs, vlogs, etc.)?

SG: Social media doesn’t work for marketers. Social media exists for the users. Sometimes there’s a positive side effect for a marketer who makes something worth talking about.

LP: You often post multiple blog entries each day; where does all your inspiration/topic matter come from?

SG: I look for things that are broken and then talk about them!

LP: If you were to give advice to someone that is just starting out in online marketing, what would you tell them to do as a first step?

SG: Start a blog. It’ll make you humble. And a better writer.

LP: Your book “small is the new big” is a huge success. But do the “Big Guys” really get it? It must be a whole new concept for many companies to grasp that success doesn’t directly correlate to size. That goes against everything they were taught.

SG: Yes it does. That’s where the meatball sundae comes in. This is a new time, a new era and a new industrial revolution. Not everyone will play by those rules, but that’s okay, because those that do will thrive.

LP: I’m curious what role you think customer service plays in marketing, and are online marketers leveraging that facet to their advantage?

SG: Customer service is part of the product now. So, amazing service (e.g., Amazon) is a valid replacement for advertising.

LP: What role do you think mobile marketing will play in the future of online marketing?

SG: Mobile marketing demands permission. You can’t do it as a spammer.

LP: What are the three trends that online marketers should have on their radar for 2008?

SG: Make great stuff. Get rid of the factory. Measure.

LP: What are the top challenges and hurdles that marketers are facing right now?

SG: This whole thing about “prove it,” and show “ROI” is totally bogus. There’s no ROI on TV or other traditional media. Why do I have to prove that the measured thing is better than the unmeasured?

LP: I keep wondering if marketers will become the new “celebrity chefs.” Do you see a time when marketers will be garnering more PR, praise and adulation than CEOs?

SG: I see a time (now) when the great marketers are the CEOs. Like Steve Jobs of Apple and Howard Schultz [chairman and CEO of Starbucks] and Sir Richard Branson of Virgin Corp.

LP: Is there an industry, vertical or niche that is poised to benefit more than others from the evolution of online marketing?

SG: The only people who won’t want to play in this space are those that make commodities, because it makes it more brutal. The neat opportunity is that almost anything can stop being a commodity (bottled water, micro steel mills, etc.)

LP: What is your vision of online marketing five years from now?

SG: When online is everywhere, all the time, it’s all online marketing.

Eastern Promises

Japan’s had it hard. After nearly a decade of stock market doldrums and an economy on the brink of disaster – just as the rest of Asia struggled too – Japan bounced back. Growth happened. Its economy is still a tad slow, but there are many industries looking way up. Online marketing is one of them.

Of Japan’s 130 million people, about 88 million are online. That’s about 68 percent of the population, according to Internet World Stats (Asia), compared with 210 million of the U.S.’s 300 million and 137 million of China’s 1.4 billion residents. Japan’s may seem like small numbers, but the momentum of online marketing and the ever-growing popularity of affiliate marketing in Japan make it a region everyone’s talking about.

Blogging, for example, in Japan is a popular way of getting products in front of the masses. Technorati Japan says that more than 85 percent of Japan’s bloggers write about companies and their products – and that over half of these bloggers have been contacted by companies to extol their wares. Japan’s Ministry of Internal Affairs and Communications says that bloggers totaled about 8 million in that country, making for an in-blog ad market of about $60 million last year.

Expansion on the Way

In the 1990s, the Japanese did not use credit cards much for online purchases, as bank transfers and postal transfers made e-commerce slow and a waiting game. But by 1999, a tech-hungry culture emerged and online spending came with it. Pay-per-performance business models were not far behind.

A leader in this space is online retailer Rakuten and its affiliates – managed through LinkShare Japan, a U.S.-led affiliate company acquired by Rakuten in 2005. Rakuten is the leader in online shopping destinations in Japan, so their penetration made them a default major player. In fact, Rakuten plans to be in about 27 more markets by 2012, according to Atsushi Kunishige, a vice president at Rakuten. He says they will use LinkShare, for example, as a way to "expand our business into the international market. We want to open a full-fledged Internet mall [abroad]."

Rakuten’s 20,000-plus online stores and merchants did about $66 million in operating profit in the second quarter of 2007. With the company traded publicly on the Japanese stock market, that’s a market capitalization of more than $5 billion.

LinkShare Japan has about 68 percent of the top-selling merchants in Japan and is the leader in customer satisfaction, according to a survey by Japan’s Affiliate Marketing Association. Atsuko Umemura, director, corporate planning, of LinkShare Japan, says that their focus on per-sales kinds of merchants has helped make them a leader. "Affiliate marketing has proven to have the best ROI for us," she says.

Late Bloomers

While the U.S. affiliate industry can trace its beginnings to the mid-1990s, the first affiliate providers in Japan didn’t start up until 1999. The U.S. market has had a few years to evolve and grow, whereas the Japanese affiliate space is still considered a "juvenile." There are more than 80 affiliate networks in Japan that cover both Web and mobile platforms. Some of the more high-profile affiliate networks include Adways, Access Trade, LinkShare Japan, Fan Communications (A8), TrafficGate, ValueCommerce and Zanox Japan.

Anthony Torres, president of affiliate marketing program management company MetaFlo Marketing, which is based in Japan, points out that the key difference between the U.S. market and the Japanese market is that the "Japanese affiliate networks can service only Japanese sites. U.S. networks such as Commission Junction operate worldwide due to English being the most popular language for Web content. So, no matter how large the Japanese affiliate industry gets, it will never be as big as the English-speaking networks," Torres says.

He also notes that Japan is still behind the curve in tracking technology and commission sophistication. For example, U.S. advertisers have more choices in how they reward affiliates. Generally, U.S. affiliate networks allow merchants to pay affiliates based on subscription status of digital content and, of course, future sales even if buyer clicks go directly to a merchant store. The U.S. networks also have more payout choices. A small CPA, plus a larger percentage of future sales generated by the lead is a method that hasn’t made it to Japanese network platforms.

Torres notes that the cost of acquisition of a typical online customer is high in Japan. "When you add in customer service and all of the accumulated costs in the sale cycle, you are left with a lower margin per sale," he says. Merchants in Japan are just not used to paying high commissions or lifetime commissions on a customer, he adds. "As the industry matures here and the ability to attract online buyers becomes more challenging, we may see online merchants less reluctant to try more aggressive commission terms." Unique to the Japanese market seems to be the cross-investment of media sites and affiliate networks. In order to increase media coverage, many networks invest in or make their own in-house media sites.

Considered the real pioneer in Japanese affiliate marketing is ValueCommerce (Yahoo Japan took a sizable stake in the company in 2005), started by a New Zealander named Tim Williams. ValueCommerce has more than 50,000 websites and blogs in its network, with about 2,000 advertisers. The company has about $43 million in annual revenue and trades on the Tokyo Stock Exchange. Goldman Sachs veteran Brian Nelson is now CEO, having come on in 2000 as COO. Nelson says that "we focused on our strengths, continued to hire great people, and launched new products and services that kept new customers, especially large brand name customers, coming in to work with us."

Consolidation is Coming

Nelson says that a large product database for shopping and their Web 2.0 applications have kept them in the No. 1 spot. It also doesn’t hurt that there is some consolidation going on in the Japan online marketing space now. "I have been telling people in the market for a long time that consolidation is coming " and it is in full swing now," Nelson says. LinkShare’s Umemura says, "It is a very saturated market right now. There is not enough room for everyone to survive."

Online marketing observers in Japan note that there are just too many networks trying to service the same advertisers. With about 1.3 million affiliates registered with the major networks and the majority of transactions driven by a group of search affiliates and "incentive media sites," there are not enough "quality" affiliates to take on all the offers out there. This means the networks are starting to look at new channels for ads.

One of those new channels is mobile, a platform that has performed very well for Japan. Because the Japanese adopted 3G standards fairly early, more than three-quarters of all cell phones in Japan have smooth Internet access. This means delivery of interactive content and ads to about 86 million cell phones (compared with 31 million in the U.S.). There are more than 48 mobile affiliate networks in Japan, with names such as Moba8, Pocket Affiliate and Smart-C. In 2005, the Japanese spent more than $3.8 billion on purchases over cell phones – 57 percent over the previous year. In addition, the CPA-based mobile affiliate provider model does much better in Japan than in the U.S., where CPC or CPM models prevail. It’s been said the culture in Japan plays a role in this since there are so many more commuters in Japan – leaving more travel time for the Japanese to experiment with their cell phones.

And with greater mobile traffic comes the opportunity to serve more Internet phone search advertising. Local search engines like Goo, Nifty and BigGlobe get a share of those eyeballs, but the leaders are Yahoo Japan (with about 63 percent of searches), Google Japan at 23 percent and about 14 percent left to split between MSN and the regional engines. Yahoo Japan is also the biggest local player in Internet auctions, Web email, mobile content and broadband.

Search Challenges

Japanese online marketing agency and search specialist Sozon sees challenges in the search marketing arena. One area in SEO that is unique to Japan culturally speaking, says Andy Radovic, VP of strategy and planning at Sozon, "is its variety in language used. Essentially, there are four methods of writing – kanji, the character system borrowed from China; hiragana, a more simplified form of kanji; katakana, the Japanese expression for foreign words; and romaji, which is the alphabet," he says. "Depending on what you intend to communicate, you may use just one or a combination of these. This greatly impacts the keyword planning stage of your SEO program. Another major difference is Japan’s reliance on Yahoo as the search engine of choice."

Radovic notes that Japanese-run companies are the leaders in services and customized solutions. "There are very few successful, market-leading international companies in the online space," he says. The international companies that operate in Japan tend to do so with a local partner. The exceptions, he says, are technology- dependent products, where some U.S. companies are in the lead, such as in search (Google) and bid management and Web analytics tools (like Omniture). "Some of the Japanese homegrown companies in the mobile, travel and insurance space are getting more sophisticated in their online marketing programs and are tracking to off-line sales," he says.

Scott Neville, COO of Sozon, says that, creatively speaking, ad messages need to really know their audience. "International ad concepts simply will not work most of the time," he says. "Text is definitely king here. More information is better and creative is often very busy with multiple propositions." He says you will need to provide as much detail as possible in your campaigns – that Japanese users will definitely read your privacy policy. He says that text email is the standard and somewhat limiting in terms of email marketing campaigns that may rely on HTML. Flash and graphic-centric sites tend not to work that well at either an advertising or a site-campaign level. He says that Flash campaigns "are not really supported by major portals for media buying and tend to be not that well received." Also, comparison campaigns are not generally used in Japan and "culturally not respectable to run."

While online ad agencies in the U.S. are slowly starting to synergize their off-line traditional ways and the brave new web of interactive display advertising, the Japanese banner ad companies are not doing too well. Two online ad agency leaders, Cyber Communications and D.A. Consortium, actually had negative growth in recent years.

The Network View

Aside from the few U.S. companies acquired or now run by Japanese companies, there are few pure U.S. players in this market and there are not likely to be more anytime soon. Observers note that U.S. networks just don’t have the Japanese-language support. While LinkShare and ValueCommerce have a bilingual platform interface, they are the only two out of dozens. One of the U.S. networks to gain a measurable foothold in Japan is DTI. They host affiliate programs for Japanese adult sites, but since most networks in Japan won’t handle porn ads, DTI has found its niche in this area. Some experts point out that one opportunity for U.S. companies would be to acquire small- to medium-sized networks and re-brand. LinkShare’s Umemura says that in Japan, U.S. companies could have come in at an earlier stage, but that "starting now from scratch would be pretty difficult whether you are a U.S. or European company. There are some smaller U.S. networks that do quite well here."

In terms of what hasn’t been popular in Japan’s affiliate programs are third-party management vendors. Currently, only a handful of the affiliate networks have management services, mainly because they are pushing their own media. However, experts say, tool and service vendors could eventually find a market in Japan. Keywords tools such as Wordtracker, recruiting tools such as Syntryx Executive Solutions and competitive keyword research tools such as the makers of KeyCompete could enter the market fairly easily.

Perhaps the best indicator that the online marketing landscape in Japan is maturing is the formation in May of 2006 of the Japan Affiliate Service Kyokai, an association that started to draw up guidelines, educate the public and monitor ethical behavior in online marketing. The six major networks in Japan founded the association when they felt that "shady affiliates" were starting to encroach on the growth of the business.

A learning curve, however, still applies. Sozon’s Radovic says that "everyone is struggling with how to market in a Web 2.0 environment. The Japanese blog and peer consumer trust are major drivers of consumer purchase. So this is an ongoing challenge." And solutions to the challenge will certainly add up to a better marketing landscape.

Ad-Supported Nation

There’s no doubt that popular websites such as video clip destination Metacafe continue to be strong players because visitors know that when they come back again and again, they can be treated to fresh content to inform them and tickle their funny bone. They can play the short clips over and over again and send the links to friends without having to pay for visiting the site. Every page of Metacafe has a small, unobtrusive ad that helps support the site financially.

This is nothing new. In a world where Google’s Ad- Sense text ads can be added to any kind of website, the idea of monetizing any and every site on the Internet is a foregone conclusion. What media companies have come to realize is that in the fragile Web environment, your popular digital destination today can be a retread tomorrow if the revenue streams become too thin. Metacafe has to compete with the 800-pound gorilla YouTube, as well as Revver, LiveLeak.com, Dailymotion and a variety of other free video sites.

When AdSense can only do so much in terms of monetization, the notion of seeing, hearing or downloading an advertisement to view free content is gaining incredible momentum. Once afraid of ad backlash before they had even thought of trading ads for content, media companies, artists and even software developers are jumping on the ad-supported bandwagon. So many different kinds of online media and marketing efforts are dipping an ad-supported toe in the water, that it begs the question: Will everything eventually be ad-supported?

The Ad Landscape

In 2007, marketers spent more than they ever had on TV, radio, print, outdoor, movie theater and Internet ads – $175 billion, according to ZenithOptimedia. That number is up 5 percent from 2005. If you add direct mail and other direct-response-type ads into the mix, that’s $269 billion. Also in 2007, companies spent $13 billion on Internet classified, search and display ads, and that is expected to double to $26 billion by 2011.

“In mass media history and as media fragments, the ad model will continue to be popular for eons,” says Jack Smith, senior vice president of strategy at 24/7 Real Media. “Consumers really like free content – they will pay for HBO, but mostly they like free stuff. Bigger media is always ready to play. There’s plenty of supply right now, and demand will have to catch up.” 24/7 Real Media recently integrated its search marketing efforts with Baidu.com, China’s most popular search engine. It specializes in targeted Web advertising globally, with a strong mobile capability.

Smith says that as emerging countries keep seeing an increase in Web users, there will be ad-supported Web services opportunities, especially in places like China, where PCs are not pervasive in the home. Microsoft has made a bid to enter that game by introducing two ad-supported Web services – its popular Windows Live and Office Live. The applications and surrounding services are available from the Web, without having to download the applications themselves.

Microsoft’s plan has both free and paid versions of Windows Live and Office Live with ad-supported basic services. The company then tries to sell add-on services. The ads are served up through its recently developed AdCenter advertising system. Some experts speculate that a completely ad-supported Windows-based operating system that would live on the Web and not on your computer is not that far off from becoming a reality.

In the ad-supported software category, it’s been argued that the first wholesale successes were email-based programs – such as Hotmail and Gmail – that used ads to completely cover the cost of the free, Web-based programs where none of the information, email files or address books are housed on your computer. In the world of systems management, even, there are companies such as Spiceworks, which is a free, ad-supported network monitoring software for network management for small businesses.

“But small businesses should read the fine print,” says Jay Hallberg, co-founder and vice president of marketing at Spiceworks. “The free use of the application is usually a hook to get people to buy,” adding that these are usually “sales gimmicks” and not truly free applications.

Big companies are also experimenting with ads for content. AT&T is testing its “1-800-YellowPages” service in Bakersfield, Calif., Oklahoma City and Columbus, Ohio. It provides free directory assistance for callers who listen to short audio ads. The ads are targeted by the category of the number being asked for. Its technology provider Apptera will do the targeting and ad serving.

In the video category, viewers have already said they will definitely watch an ad to get to the good stuff. A recent survey by the Associated Press and AOL said that 71 percent prefer to watch an ad for free video. Only 23 percent said they would pay a fee for ad-free video. Currently though, demand for ad-supported video has not provided enough inventory. “As we get more and more people finding video through AOL, we’ll create more inventory through that process,” VP of AOL Video, Fred McIntyre, said to ClickZ News. YouTube is still testing small ad bricks that scroll or pop up over the lower portion of the video window.

Ad Overload?

Worrisome to some big media marketers is that the barrier to creating and posting ad-supported Web content is so low, the ensuing glut will bring down online ad rates and spoil profit margins, leading to the demise of struggling Web ventures. “Free media is a good thing,” offers Dave Morgan, chairman of target marketing firm TACODA Systems. “With off-line media, distribution is expensive – think papers and trucks and postal costs. ” It was a nice model for the media companies, but not for the consumers. Web and Internet distribution of ad-supported publishing means much more free content and more diversity of content for many more people. That is good, not bad.”

Music companies and ventures that offer digital music and ringtones have discovered the benefit of ad-supported freebies. MySpace, for example, as it starts to lose market share, is pushing its music-sharing deals and shifting to free, ad-supported downloads in conjunction with more than a few major recording labels.

Other major music companies that launched ad-supported streaming music recently include Sony BMG, Warner Music Group and EMI. All three use San Francisco’s imeem as their streaming service, which plans to share revenue with the labels. “The music industry needs big ideas because small incremental improvements won’t change anything. For example, nobody has tried some of the crazy revenue shares we are trying on imeem,” says Dalton Caldwell, founder and CEO of imeem.

File-sharing companies that traffic in a good deal of music are trying to monetize their networks by running ad-supported versions. Atlanta company Intent Mediaworks says that 60 percent of its users are willing to endure pop-up ads. Intent Mediaworks has technology that adds advertising to streaming music on file-sharing programs. Other companies such as Qtrax and Nettwerk also aid in the streaming of ad-supported music downloads.

Some critical opinions doubt the ad-supported model will pay for website operations, let alone see profits. “I have yet to see the model that makes me feel good they’ll get enough money out of advertising. The question is, can they get enough mass to lower the royalty?” says David Card, a senior analyst at JupiterResearch. Allan Klepfisz, CEO of Qtrax, says the challenge is to “demonstrate that ad-supported peer-to-peer is lucrative enough that everyone is going to be happy. The real issue for the industry is that right now there are all these people paying nothing for music.”

The artists themselves are getting in the game, not to be left out of the loop by their labels. RCRD LBL, a network of ad-supported online labels, deals in independent bands unaffiliated with the big record labels. Their downloaded MP3s and streaming music both carry ads. Like David Bowie before him, who was early in his use of interactivity and the Web in the ’90s, rock star Peter Gabriel recently launched We7, a free ad-supported music download service. Ads are sent to users based on demographic information they provide on the site that allows for better targeting by advertisers. The ads are heard at the beginning of songs and albums.

Ads on the Move

Mobile marketers are also showing a huge attraction to an ad-supported model. Avot Media launched its mV mobile video service that promises better video quality in conjunction with viewing an ad. Rhythm NewMedia cut a deal with Vodafone in Spain to send ad-supported video to its more than 4 million handset subscribers. Interspot has an SMS service that will provide free text messaging. The text messages come with ads that can be geo-targeted. Mobile coupons will also be offered as part of the service. Start-up Blyk will offer free calling in European countries by listening to ads first. Though Finland-based, the service will start in Britain and spread out to other European countries from there.

CBS television said it will launch a high-speed wireless network in midtown Manhattan that can be connected to by cell phones, laptops and other personal devices by going through the CBS ad-supported landing page. The program also allows voice over the Internet (VoIP) calls. The ad-supported page will include content such as breaking local news and national news. Broadband hotspot platform AnchorFree is just one of the wireless providers that are offering free broadband connections by viewing an ad.

Not to be excluded, the world of gaming upgrades to a mobile platform through Hovr, which is an ad-supported free mobile gaming community. Through the service, consumer websites, mobile portals and carriers can offer users hundreds of free mobile games. The games can be wrapped around a specific brand and still carry Hovr’s ads.

MySpace isn’t going to be left out of the mobile surge either. It has launched a free, ad-supported cell-phone-ready version as its parent, News Corp., rolls out mobile versions of FoxSports.com, gaming site IGN, AskMen and local TV affiliates – most in ad-supported environments.

Instead of being annoyed by the flood of advertising rising from the ad-supported mobile programs, people are proving to have an open mind. “If you ask mobile users if they want ads on phones, 78 percent will say, ‘Not really.’ But if the ad comes with something for free, the survey result flips the other way,” says Brian Suthoff, senior director of business development at Third Screen Media.

Also in gaming, video gaming network G4 is testing video ads in their games. The video ads are delivered by YuMe Networks, specializing in IP-based video ads. YuMe executives have said that the company expects to do more business as user-targeted video ads employed by sites such as BitTorrent sign more “deals with publishers that want to experiment with ad-supported downloads.”

Even in the off-line world, seeing an ad can lead to your daily coffee fix. A company in Japan markets an ad-supported coffee vending machine. If the buyer watches a 30-second ad, he gets a free cup of joe. The cup it comes in has an ad as well.

24/7 Real Media’s Smith believes “we will better understand the consumer with more ad-supported companies.” He says the “gold standard is seeing the measurement that comes in that environment. We will value it more.”

As the final piece of evidence that the ad-supported model may indeed be ubiquitous, Freeload Press has made a deal to send out ad-supported electronic textbooks to students at 38 universities. Perhaps the age of the highlighter pen is truly over.

Shine a Light

It’s been seven years since interactive agency Razorfish embarrassed itself on national television. When reporter Mike Wallace of CBS’ "60 Minutes" asked the agency’s co-founders what the company does, the answer was none too clear.

Jeff Dachis, co-founder of Razorfish, said to Wallace, "We’ve asked our clients to recontextualize their business." Asked for clarification, he added, "We’ve recontextualized what it is to be a services business." Wallace didn’t understand the answer. "We radically transform businesses to invent and reinvent them," Dachis explained.

Even though Dachis couldn’t seem to come up with an answer to satisfy Wallace, earlier in the program Dachis said of interactive agencies: "This is absolutely real; this is a revolution; we’re packing rifles; and this is going to be something that’s going to change the course of the way the world is functioning."

On that point he seemed to be right.

Razorfish, now known as Avenue A/Razorfish, owned by aQuantive, survived the ensuing dot-com crash and is currently ranked among the top 10 interactive agencies. Avenue A/Razorfish has even flourished, counting a roster of clients that includes Best Buy, Coors, Starwood, Wal-Mart and Weight Watchers. The company has reinvented itself from a Web design firm into a metrics- and response-focused house.

The majority of the top 10 interactive agencies in the U.S. have taken that mantra to heart, spinning out digital firms from their more traditional agency parents and combining Web design with a myriad of client services and metrics-based programs.

While this focus on the end-to-end as well as the most creative solution has indeed changed the way the digital agency functions, there are still lingering questions about who all this change is good for. The two tiers of interactive agencies – the digital arms spun out of traditional Madison Avenue powerhouses and the independent firms that got purely into digital about 10 years ago – are doing fairly well. Still, one faction points to the other a slacking in the forward-thinking bright ideas that will increase innovation and profits in the next phase of Internet advertising, mainly the social Web and search.

"Marketing on the whole still favors the traditional agencies," said Mark Kingdon, CEO of independent agency Organic. "But interactive is coming into its own. How do we work together, is the question." Organic emerged in 1993 as one of the first digital agencies and weathered the dot-com crash to thrive as an agency that specializes in deep customer profiling.

Big vs. Boutique

Organic may call itself an independent, but it is actually owned by giant Omnicom Group, which also owns Agency.com, Tribal DDB and Tequila in the interactive field. WPP owns Grey’s digital marketing arm and Ogilvy Interactive. Interpublic owns MRM Worldwide, R/GA and DraftFCB. The top 10 digital firms earn between $92 million and $235 million annually, according to AdAge. Avenue A/Razorfish leads the interactive pack with revenue of about $235 million in 2006. Omnicom is currently the holding company with the most revenue from its advertising units- about $11.4 billion worldwide in 2006. That’s about $6.2 billion in the U.S. It has also done well on Wall Street. In February of this year, its stock hit $106.90 per share, about 50 cents short of its all-time high in December of 1999.

While Organic is considered a smaller player, with revenue of about $102 million in 2006, Kingdon says that "marketing is under enormous pressure right now." He says that "people want to create a war between traditional and interactive agencies. "War may be a strong word, but the perception is that while independent digital agencies get all the "fun" work, bigger houses spun out of the traditional agency environments are still coming to terms with how to handle search marketing and the impact of social media. Spun-out digital agencies say they are best equipped to scale and meet all the client’s needs, be they digital or older media.

"Traditional agencies started to niche themselves," says Rohit Bhargava, vice president, interactive marketing at Ogilvy Public Relations Worldwide. "They broke themselves into search and email marketing, etc. Now you have social media agencies. But the traditional agency is in real trouble now. With word of mouth, search and social media all coming from interactive agencies, traditional agencies don’t do that well, yet. "

Interactive agencies that came from the ranks of traditional agencies haven’t been hurting. DraftFCB, for example, earns about $95 million a year, and is the fairly recent marriage of FCBi and Draft Digital. FCBi was an outgrowth of traditional agency Foote, Cone & Belding. DraftFCB’s mantra is to stay response-driven but with the added value of more and better data. "In the past decade, the terrain went from silly money to accountability," says Brad Kay, executive vice president, executive director, digital, at DraftFCB. He says that the team has become younger and younger to help stay on top of innovation in thought and technology. The shop also has an elaborate intranet where employees can post "cool" stuff they encounter on the Web. This helps the "stay fresh or die" attitude, Kay says.

The small boutique shops may get a lot of adventurous creative work, but that’s how it was in the purely traditional agency universe in the days before digital. The two-man firms always got the regional business where your ad could feature grandmas in tattoos or precocious babies driving Harleys. "Sure," Kay adds, "some business goes to the boutiques and we’ll just have to get used to it." He says to help win new business they need to take on more people – something they do to stay abreast of innovation and the "hip factor."

The benefit to bigger traditional agencies is their deep pockets. To build a digital house from scratch seems to be a thing of the past. Buying a digital firm is easier. WPP Group has put Schematic, 24/7 RealMedia and Blast Radius in its corral. Publicis back in January doled out $1.3 billion for Digitas and also bought Web agency Business Interactif to bolster its presence in France, Japan and China. Omnicom, as mentioned, owns Agency.com, Tribal DDB and Organic, and continues to grow existing digital assets by taking a 50 percent stake in EVB, based in San Francisco.

Even among some of the independent shops, there is consolidation of the players. The big advertising parent companies now own a mix of big and small digital firms. Omnicom, Interpublic and Publicis, to name a few, own big earners who began as offshoots of traditional agencies and smaller companies that started as two guys with a little Web coding experience. "You don’t need to streamline everything across an agency anymore," says Ogilvy’s Bhargava. "We’re going to use JWT for billing and Ogilvy for PR because it is the same parent company."

Trevor Kaufman, CEO of Schematic, has said that in a case where Schematic is bought by WPP, the intent is to "help change the DNA of the operating company and make them inherently more digital." He says in the case of his company, "it’s a way of leveraging specialized skills over the entire network. It has been successful because, in the end, it is providing better, more integrated solutions for clients."

The CMO Factor

Chief marketing officers may need some convincing. A recent study done by Sapient said that more than 50 percent of chief marketing officers believe that the traditional, large advertising agency is not prepared to meet their online marketing needs. It said that one in 10 CMOs expected to align with traditional agencies for their online marketing, stating that traditional advertising firms have a hard time thinking beyond traditional print and TV media models.

A report by Forrester done in February 2007 said that "agencies struggle to help clients capitalize on emerging channels and technologies. In the meantime, marketers are diffusing agency power by turning to a portfolio of players in search of specialized expertise. As marketers select new agency partners, they must revise their evaluation criteria to build an integrated marketing team."

And a March 2007 study by the Chief Marketing Officer Council said that 54 percent of marketers surveyed stated they plan to quit one of their agencies this year. The study summed up by saying that "marketing is undergoing substantial changes due to a mandate for CMOs to improve the relevance, accountability and performance of their organizations."

A brand may know what they want but have a hard time finding it. "Most interactive agencies have a hard time getting human resources together," offers Robert Tochterman, interactive brand manager for Ralston Purina. "Some agencies don’t know who’s going to be on an account until the work begins. You’re really buying into the confidence of the people at a director level." Tochterman looks for a team that "has rigorous methods for measuring the impact of a campaign, keeping an eye on return on investment. That’s the kind of discipline we’re looking for. Most agencies don’t talk about that. It’s comforting when they do."

Getting in the Network Game

Some big agencies are attempting to streamline their synergy by creating their own networks. The Omnicom Group, for example, announced it is erecting a "digital creative network" to be called Redurban. The aim is to globalize marketing and creative in an Amsterdam-headquartered endeavor out of recently acquired Redurban agency of the Netherlands. Euro RSCG, owned by Havas, also recently announced that its 4D digital arm would be moving into its New York office, with "integration" as its intent. Publicis, headquartered in France, has taken three of its agencies to create what it calls a "central services operation" named The InsightFactory. Leo Burnett, Starcom MediaVest Group and Digitas will contribute labor and technology to The Insight Factory, making a full-service mix of their media, digital and creative services.

This news comes after Omnicom’s push to integrate TBWA/Worldwide agency and Agency.com failed. TBWA was put in charge of Agency.com in 2005 and they just never made it work, according to news reports. In addition, Agency.com’s Dallas office announced it would close down completely, putting half of its small staff on the streets. Agency.com founder Chan Suh returned to the company in April as chief executive after CEO David Eastman held the top spot for less than a year.

Organic CEO Kingdon still maintains that there are some things the bigger digital companies can’t do that they do – what he calls a "client contact strategy." He says the client wants to know not the "what" of defining the traditional brand but the "how" of the digital approach. "Interactive agencies can handle the pace of innovation," he says, "but digital is always changing, so pure digital agencies know no differently. They were there when HTML first came along and when there was no money and they learned to thrive through Flash and Ajax and all that."

A case in point is the vanishing campaign microsite – websites built around a specific product. When Coca-Cola recently launched a new character for its Sprite drink, it did not launch a microsite, but set up the character on Facebook, complete with videos, music and discussion pages on the profile. Microsites are now seen as the "old model," shifting instead to where younger audiences gather – Facebook, MySpace, widgets and mobile applications. Adam Lavelle, chief strategy officer at iCrossing, points out that campaign sites tied to short-term promotions or products consistently rank low on search engines. "I don’t understand how, long term, a site builds brand equity," he says, "and with search, I don’t see that having long-term visibility."

The quandary for some brands, then, is do they sign up with a hot new interactive agency or do they stick with their shop of record? Ogilvy’s Bhargava believes the "top 10 are taking low-hanging fruit," with the bigger clients getting "a lot of follow-on business from other unit business. It is not cold calling. It is qualified leads." Lavelle says there is no monopoly on the best ideas, a sentiment that seems clear from the success of some independent interactive agencies. He says the "most important thing for marketers to think about is, ‘as I move more money from traditional into digital, does this agency have the capabilities that I want? Are there types of activities online, in mobile devices or other things I could be doing?’"

"You’re in trouble if you’re just building websites," says Bhargava. "We don’t want any one type of thinker," adds DraftFCB’s Kay. "The channel changes on a minute-by-minute basis. "We want to compete with the pure-play and the behemoth."

And Razorfish’s Dachis? Has he recovered from his embarrassment on national TV? After the dot-com crash nearly killed Razorfish, he left the company and formed Bond Art and Science, a consultancy that he says is not in the ad business even though reports seem to indicate it covers at least some of the same ground as Razorfish. Evan Orensten, a partner at Bond, says the company does "experience design," which sounds like an interactive agency.

They Can Hear Us Now: Q & A with Laura Marriott

The president of the Mobile Marketing Association says that ads on mobile devices will only get better, more widespread and easier to create and measure.

Laura Marriott is president of the Mobile Marketing Association (MMA) and spearheads efforts to get mobile marketing adopted worldwide. The MMA is a global nonprofit trade association with more than 500 members in 42 countries. It works toward removing obstacles to market development; establishing standards and best practices to sustain growth in mobile marketing; and being an evangelist for the mobile channel. Marriott was previously director of marketing for Intrado, and the director of business development at Cyneta Networks and Cell-Loc Inc./Times- Three Inc. Senior Editor Eric Reyes asked her some pertinent questions about where mobile marketing is going.

ERIC REYES: What is the history of the MMA? When and why was it formed?

LAURA MARIOT: The Mobile Marketing Association was initially formed in 2000 as the Wireless Advertising Association (WAA), a New York-based nonprofit trade association. In 2003, the WAA and the Wireless Marketing Association (WMA), based in Europe, joined to form the Mobile Marketing Association. At that time, the MMA had only 10 member companies, which included companies like m-Qube, Mobliss, The Weather Channel, Carat Fusion and Vindigo. The chairman in Europe at that time was Cyriac Roeding, who is our current global chairman, and in the United States, Jim Manis. The MMA remained around 10 to 20 member companies until 2005. At the same time, mobile marketing, in the United States, began to take off – we had interoperability among the carriers, a short code system for ease of consumer experience and a supportable revenue model. The MMA also established four national chapters in Europe in 2003 to 2005 – Austria, Spain, the U.K. and France.

The key differentiator for the MMA is that we have representation from across the mobile ecosystem – working in a collaborative, trusted manner to educate the marketplace and build guidelines and best practices for the mobile marketing industry. Members include handset manufacturers, wireless operators, technology enablers, aggregators, media companies, brands, agencies, market research companies as well as any organization focused on marketing via the mobile channel.

ER: Last year was supposed to be the year mobile marketing hit critical mass. This year, mobile marketing still seems to be finding its way. What are some of the indicators that mobile marketing is continuing to gain traction?

LM: Absolutely right! The number of campaigns that we see launching has grown into the tens of thousands worldwide. Indicators in the United States include: short codes listed on traditional and digital media as an integrated element of the overall campaign. For example, on billboards, magazines, television, etc.; membership in the MMA doubling year-over-year since 2005; the number of award submissions in the MMA award program growing from just over 100 last year to more than 260 in the 2007 program; brands and agencies establishing mobile divisions and hiring mobile specialists within their organizations; mobile has become a line item in the advertising budgets of many very large brands; mobile is being integrated into not only the verticals that want to be in front of the consumer all of the time, i.e., financial services, travel, entertainment, CPG, QSR and automotive, but we are now seeing mobile move even into durable goods and other segments; the growth of text messaging in the United States, increasing from 7 billion a month in 2005 to over 30 billion a month in June 2007; and an increase in number of short codes – the 5- to 6-digit number which helps to facilitate ease of interaction between brand and consumer – issued on behalf of the CSCA has climbed to over 2,600 in 2007.

ER: What has mobile marketing enabled marketers to do better?

LM: Mobile marketing has enabled the brands to develop a conversation of engagement with their consumer – a dialogue about their products and services and a means to effectively measure and evaluate this dialogue. Mobile also enables brands to target their consumers, anytime and anywhere, through their most personal device: their mobile phone. Consumers are in the driver’s seat on encouraging and defining the interactions with their brand – wherever and whenever.

ER: Some say the real gold mine in mobile is m-commerce (to make purchases directly from your mobile device). What is the MMA doing to enable this ability?

LM: The MMA has established a mobile commerce committee that is working on guidelines for digital and physical goods transactions, mobile couponing/ticketing as well as other issues having an impact on the ecosystem. The goal is to always ensure a positive and consistent experience for the consumer.

ER: What do you do to help brands enter into and perfect their mobile marketing initiatives and campaigns?

LM: Education. The key so far has been helping to educate the brands on the role of mobile in their marketing initiatives – and how to integrate a mobile call to action into the overall integrated marketing campaign. The MMA publishes a broad set of mobile case studies, white papers, glossaries and so on, to help to educate on how to use the channel most effectively and to learn from the experiences of other brands that have tried before them. The MMA also runs Mobile Marketing Forums at www.mobilemarketingforum.com, which is our key event series to educate and evangelize on the mobile channel. These are held in every region around the world, four or five times a year and have become the premier event for mobile marketing.

ER: What do you do to help mobile marketers establish better customer metrics in their mobile efforts?

LM: The MMA has launched a measurement initiative, in June 2007, to define the metrics in a consistent manner for the industry. Measurement will be one of the key issues facing our industry in 2008. The MMA and the GSM Association are working together to ensure consistent measurement and metrics solutions for the industry.

ER: Does the MMA help establish best practices for mobile marketers? What are some of those practices initiated by the MMA?

LM: Yes; this is the foundation for the MMA – and we have been leading in the development of cross-carrier mobile content guidelines and best practices as well as mobile advertising guidelines since 2005. Current best practices/guidelines include: consumer best practices for cross-carrier mobile content services; mobile advertising for mobile Web; and mobile advertising for downloadables. The MMA has also published a number of best practices documents which include mobile couponing, mobile search, mobile promotions and sweepstakes, and so on.

ER: What does the MMA do to help streamline mobile search? Do you suggest standards?

LM: To date, the MMA has not suggested standards for mobile search; however, we have published two thought leadership pieces which include an introduction to mobile search and mobile search use cases, which outline the best practices and options for offering and evaluating a mobile search solution. These are published through the MMA mobile search committee and include the participation of leaders across the mobile ecosystem and our membership.

ER: Do you track innovations in mobile marketing strategies and mobile technology? How is that knowledge integrated into the mission of the MMA?

LM: Yes; the MMA is at the forefront of defining and participating in the initiatives which are helping to shape our industry – and works with our members to ensure we continue to self-regulate industry developments and stay in front of the trends. The MMA is an action-oriented association designed to clear obstacles to market development, to establish standards and best practices for sustainable growth, and to evangelize the mobile channel for use by brands and third-party content providers. The MMA has helped to guide the development of a sustainable ecosystem to ensure consumer privacy and protection is assured.

ER: What does the MMA do to fight mobile spam?

LM: Unsolicited messages, overall, are prohibited according to the MMA guidelines. The MMA guidelines ensure that mobile is always an opt-in experience for the consumer. This means no push-based campaigns – all consumer pull. The MMA also defines rules which prohibit the selling of third-party lists, so that the mobile channel does not experience the issues that we have seen in other digital media types. Our consumer best practices have become the base set of rules for messaging, mobile Web and IVR transactions in the United States, and have been integrated into wireless carrier contractual agreements so that all vendors in the ecosystem adhere to these guidelines. The industry has also launched a monitoring initiative which tests each short code campaign to ensure compliance against the consumer best practices guidelines.

ER: Is it difficult to convince brands of mobile marketing’s viability?

LM: Historically, there has been a belief that mobile is complicated. We encourage brands to first define their strategic objectives for their campaign and then determine which mobile solution will work best to achieve their goals. Once a brand starts their first initiative and sees the results, they generally continue to deepen their experiences with the mobile channel. Success rates in mobile have often been more significant than those you see in other media. The numbers speak for themselves.

ER: Are interactive agencies prepared to scale for mobile campaigns? If not, what do they need to do?

LM: Yes; 2007 saw a significant shift in how agencies are handling mobile. Many agencies have spun out digital divisions, i.e., AKQA Mobile, while others have ramped expertise internally by establishing mobile groups or mobile experts. In the early days, mobile was treated as a portion of the interactive business; for mobile to truly take off, it needs to be treated as its own business and own line item. Mobile is not the Internet. There are five very distinct media types within mobile, which include voice, downloadables, mobile Web, video/television and messaging. Mobile expertise is essential to ensure the media types are integrated effectively into a cross-media initiative. The other trend has been the development of a large number of mobile agencies in that companies are specializing in mobile creative and campaign development. These agencies are having a significant number of successes worldwide. A proof point of that success was Omnicom’s purchase of mobile agency, ipsh!, in 2006.

ER: Is there a difference in best practices standards between the U.S. and the rest of the world? Is there a push to get the whole world to practice the same standards?

LM: Yes; every market has its own regulatory and legal considerations which need to be considered. The goal of the MMA is to develop global guidelines, where possible, regional guidelines where necessary and local as required. A global brand is looking for ease of market entry when they are launching a program, and consistency is key. Many campaigns today already cross regional and local boundaries, so a consistent set of guidelines is ideal. Perhaps the best example is the mobile Web advertising guidelines which have been launched by the MMA. There is consistency in formats and creative across NA and EMEA – and the hope is to bring the APAC guidelines to the same formats by early 2008. The MMA has also published a global code of conduct which protects the consumer’s experience, privacy and protection being paramount.

ER: How is a successful mobile marketing campaign measured?

LM: Today success is generally measured by interactions, but these have varied according to operator and vendor. The MMA has a measurement committee working to define a consistent set of ad currencies, reporting criteria and cross-media effectiveness measurement in order to gain the best insight into mobile.

ER: How is the consumer being enticed to view mobile marketing?

LM: Mobile has become an integrated element of traditional and digital campaigns today. Mobile promotions and sweepstakes have been driving interactions with the consumer particularly through participation TV programs like “Deal or No Deal” or “American Idol.” Providing the consumer with exclusive information, coupons, opportunity to win, etc., have all helped to drive the interactions between brand and device. And, the consumer is receptive.

ER: Do marketers need new models to gain mobile marketing success? How does the MMA help to discover these new models?

LM: Initially, brands were repurposing content from other media for mobile, and while this does work, creative made for mobile content and solutions is key to long-term success. MMA research has shown that consumers are most interested in interactions that deliver information exclusively to them on their device, information that they cannot get through any other channel. The MMA helps brands by sharing case studies of what has worked successfully in markets around the world.

ER: What does the MMA do to help streamline the total mobile Web experience?

LM: Education is key. Reach is currently an issue with the mobile Web, so educating brands and consumers on how to use their mobile device will be critical to long-term success. Operators play a key role in encouraging mobile Web adoption by providing attractive data packages and compelling content to help encourage consumer adoption.

Power Plays

By their brief descriptions – “online auction website” and “Internet searching and online advertising company” – it does not sound like eBay and Google are rivals for the same business. But behind the boilerplate company descriptions, many experts claim that as these giants seek to grow even larger, they are going after the same types of acquisitions, which is exacerbating tensions that already exist between them.

In June, Google planned to throw a “Freedom Party” in Boston for users of Google Checkout. The event, which was to protest the exclusion of its Checkout service from the list of accepted payment providers on eBay’s sites, was to coincide with eBay Live, a conference for users of eBay.

Irked by the timing and the name, eBay pulled all of its U.S. ads for a week from Google. Later eBay reinstated “limited” ads on Google but reallocated ad dollars to Google rivals Yahoo, AOL and MSN, a move that industry watchers say served as a proof point of the simmering tensions between the two Internet powerhouses.

To date, eBay has been one of the biggest buyers of keyword ads on Google AdWords – financial analysts estimate eBay has spent just shy of $25 million per quarter on it. It is believed that eBay has been Google’s single largest advertiser, responsible for nearly 5 percent of Google’s revenue. Despite pulling its ads, eBay claimed that its traffic actually went up that week – inferring that the ads were meaningless to their business. eBay Power Seller Skip McGrath says eBay’s decision “woke a lot of people up” – causing those who spend money on AdWords to rethink their spending – in fact, he moved his spending from Google to Yahoo PPC, Miva and Seven Search after disappointing results.

Greg Sterling, founder of Sterling Market Intelligence, notes that tensions between Google and eBay existed before June. He says that eBay has long considered Google to be a rival – more so Google considering eBay to be a rival. In fact, a popular sentiment among experts is “eBay needs Google more than Google needs eBay,” Sterling says.

Matt Hulett, CEO of MPire, an online meta-shopping service, points out that eBay is a marketplace without a search engine – making it dependent on Google. It is estimated that 15 to 20 percent of traffic generated for eBay starts at Google and that 60 to 70 percent of online shoppers start at search engines. Marketing Pilgrim founder Andy Beal notes there are few companies that can say, “If I don’t get any traffic from Google, it won’t matter.” Beal agrees that eBay, like most other companies, needs Google for revenue and users.

That seems confirmed by Google’s second-quarter earnings report showing that the pulling of eBay’s ads did not hurt Google’s business. Beal says that the amount of revenue from eBay is pocket change to Google – it’s the perception of losing eBay that could potentially damage Google’s brand, he says. “It’s more a fear of a domino effect. The last thing that Google wants is for other large companies to think there is life beyond Google.”

Rising Tensions

Scott Wingo, CEO of ChannelAdvisor, explains that Google and eBay’s relationship can’t be described in black-and-white terms – Google and eBay have areas of competition and areas of partnership (e.g., Google powers links for eBay in non-U.S. countries). He says it is new to both parties and they are feeling it out but that it has created a complex relationship that goes beyond “friend or foe.”

With its clear lead in the search market, Google is focused on determining which high-margin online business to try next. As Google looks for new areas of monetization, it has gone into some very similar businesses as eBay.

Some say this is intentional – Google wants to beat eBay specifically in its core areas. Others believe it was inevitable that Google and eBay bump into each other as each expands its empire. “When two 800- pound gorillas are in the same cage, they eventually are going to step on the same banana,” Kevin Ryan, vice president of global content at Search Engine Strategies and Search Engine Watch, says about the companies going into overlapping/competing areas.

Google Checkout vs. PayPal

One such area of contention is online payments. eBay owns PayPal, which generated a fourth of the company’s revenue in 2006. PayPal has become more important to eBay as auction sales growth has slowed. Second-quarter revenue for PayPal grew 34 percent to $454 million. It shows little sign of slowing down.

In June 2006, Google introduced the alternative payment system Checkout. eBay President and CEO Meg Whitman claims she is not worried about Checkout’s ability to make serious inroads, and says that eBay does not offer the use of Checkout because it is an unproven service. According to a J.P. Morgan Securities survey of 1,000 consumers in January, 44 percent of PayPal users reported “Good” or “Very Good” service experiences; only 19 percent of Google Checkout users said the same.

But most everyone agrees that Google has the strategy, talent and programming needed to catch up to eBay. Google has attracted users to Checkout by offering cash incentives and it is very visible at many high-traffic online retailers such as Buy.com. Checkout is putting its icons next to their paid listings and Ryan says that, “Studies show there is increased click activity ” that’s a big advantage over PayPal.”

Google has done a good job of seducing top retailers by offering margin incentives so that it’s cheaper to deploy, according to MPire’s Hulett. A study by Internet Retailer shows that 26 of the top 200 online merchants, or 13 percent, now accept Google Checkout, as of June. But in terms of users, PayPal is by far the leader in the space.

However, PayPal has others also vying for its top spot. In early August, Amazon.com opened its payment system, called Amazon Flexible Payment System – to other websites – a move that pits it squarely against PayPal. Market analyst Scott Devitt of Stifel Nicolaus wrote in a note published August 6 that he anticipates alternative payments to be one of the most active areas in the online retail sector for the next several years.

“In the long term, we believe that the card companies and certain categories in the traditional retail channel have the most to fear about the activities by technology-driven online innovation,” Devitt wrote.

Shopping Spree

Another area where Google could steal eBay’s thunder is its comparison shopping offering, Google Products, which was previously named Froogle. Sterling says that last year Google took down Froogle on its home page in favor of video but predicts that once Google starts promoting Products, it will be a top shopping site.

According to David Rodnitzky, vice president of advertising at Mercantila, for those selling products online, it doesn’t make sense not to use Google Products because it is offered for free, as opposed to CPC pricing for eBay’s Shopping.com. Google monetizes Products through AdSense, and (ironically) Shopping.com generates some of its revenue through Ad- Words, he says. “With this in place, Google can give Products away forever and cause Shopping.com’s margins to compress as a result,” Rodnitzky notes.

SES’ Ryan agrees that Google Products can make a run at eBay’s Shopping.com because shoppers do a tremendous amount of research. When users shop for electronics, for example, they go from comparison engine to brand site to dozens of product pages across many sites.

Going Off-line

Another potentially big battleground for Google and eBay is the arena of off-line advertising, where both companies have made moves in the past year. Google offers radio ad inventory to advertisers using its AdSense platform, and in April struck a deal with Clear Channel to sell ads across its 675 stations. In June, eBay began auctioning radio spots – providing advertisers the ability to buy unsold radio inventory from 2,300 radio stations in the top 300 media markets.

In April, Google got into TV advertising by announcing it will sell ads for the 125 national satellite channels on the Dish Network of EchoStar Communications through Spot- Runner. In March, eBay launched its media auction system designed to allow buyers of national TV ad time to bid for slots via the Internet.

The motivations behind Google and eBay’s move into off-line advertising efforts are very different. eBay may ultimately be trying to persuade its huge base of online sellers to promote their goods off-line – like on the radio. ChannelAdvisor’s Wingo says that eBay’s foray was put together to try and auction off TV ad time by large advertisers – the buyers would be Toyota, Wal-Mart and Microsoft and the sellers would be the networks such as ABC, NBC and CBS.

On the other hand, Marketing Pilgrim’s Beal says Google is diversifying into off-line channels as additional ways to serve small companies. By streamlining the off-line advertising model, Google enables small companies to tap in to radio, print and TV with the same efficiency and ease as signing up to advertise with AdWords.

Wingo predicts that because eBay has a team of only two or three people doing some experimentation and Google is spending hundreds of millions on their initiatives – Google will likely win this battle. But Mercantila’s Rodnitzky says it will be quite some time before we see an impact.

Skype vs. GrandCentral

Telecom is ripe for another turf battle between the powerhouses. In July, Google acquired GrandCentral Communications (for $50 million), which allows users to combine all of their phone numbers and voice mail into a single number. There is buzz that Google could build the unified communications and call-handling functionality of GrandCentral into Google Talk, its computer application for VOIP and instant messaging.

If Google successfully integrates these features with both its Gmail and Google Apps and offers them for free, Skype will be unable to compete, according to Rodnitzky. He also notes that this tact by Google could be a very effective way to reduce eBay’s ability to monetize Skype, which the company purchased for $2.5 billion in late 2005.

Lately Google has been making headlines because company officials say Google wants to spend billions to build a new, open network that would loosen the grip telecom operations have over how consumers use their cell phones. To do so, Google plans to extend its tools, which include email and video, to the rapidly expanding mobile phone market.

Acquisition Fever

Wingo says that with the exception of Skype, eBay has focused on acquisitions that enhance their core offerings. For example, eBay recently bought StubHub.com, which expands its marketplace of ticket sales. And eBay also just acquired StumbleUpon, which gives users a way to bypass search engines – it’s an alternate means of finding information online. Rodnitzky says this could be a very smart move considering Google has won the search engine war.

Speculations about eBay’s next purchase run the gamut – some say eBay could acquire advertising network ValueClick so it can compete as an ad network. Others speculate that eBay may buy a video site and compete with YouTube.

MPire’s Hulett says it could be likely that eBay forms deeper partnerships with Google’s direct search rivals – such as Yahoo. Wingo agrees that long term, it makes a lot of sense for eBay and Yahoo to merge to form a supersized entity that provides balance to Google’s rapid ascension.

And Marketing Pilgrim’s Beal speculates that Google is going to acquire companies that will achieve its goal of dominating as many advertising channels as possible. ChannelAdvisor’s Wingo agrees and notes that, “If you look at their acquisitions from that point of view, they make a lot of sense.” Google also wants to serve small to medium-sized businesses and has made acquisitions in those areas to help it do that.

Google made nine major acquisitions in 2006, and as of July had already acquired 11 companies in 2007. So far they have been comfortable paying large sums to explore uncharted territory, but some people point to YouTube when they talk about an acquisition that has yet to turn a profit. Still, most experts say it’s almost impossible to figure out the next company that Google will buy – anything from a software developer to a network to a hosting company.

The one thing that most industry observers agree on is that the turf wars between Google and eBay are only going to get more heated as each jockey for the powerhouse position online.

The Desire to Acquire

The new geography features auction-based ad exchanges and conglomerated companies with divisions that buy, sell and distribute ads: something that would have been unthinkable a decade ago.

The emergence of these new entities with intertwined relationships has the potential to streamline the media marketplace and drive costs down and return on investment up. Consolidation will likely enable the biggest players to increase their market share while also growing the demand for independent agencies and networks that operate outside of their reach.

Fast and Furious

To recap: In a shorter span than is required to complete the NHL playoffs, Google gobbled up DoubleClick, Yahoo lassoed RightMedia, Microsoft acquired aQuantive, WPP Group won 24/7 Real Media and AOL absorbed Ad:Tech AG.

LinkShare, a subsidiary of Internet services company Rakuten, purchased lead generation company Traffic Strategies in June. Rival Commission Junction is owned by potential acquisition target ValueClick, and Performics is a property of Google’s DoubleClick.

The acquisition frenzy has made tracking industry relationships as challenging as keeping up with the latest Hollywood romances and legal tangles. For the first time the largest media companies own ad networks and/or agencies, one of the largest agencies owns a network, plus countless smaller players also work on both the buy and sell side. (To untangle the web, see page 49 of the July/August 2007 issue.)

Consolidation, shakeout, maturation of the market: Whatever you want to call it, investment banker John Doyle of Peachtree Media Advisors says there are precedents in TV and print industries for large media companies doing a “land grab” to acquire related businesses. “It’s like getting a bigger bucket to stand under a waterfall,” he says. Advertisers are expected to greatly increase their online spend during the next few years, so it is not surprising that the top media companies attempt to expand their reach by buying companies offering related services, he says. Doyle expects the consolidation to continue as it adds value for buyers, and more midsize companies will likely want to increase their heft by scooping up smaller competitors. However, after the biggest deals are done, the largest players are unlikely to buy smaller shops, as it “won’t move the needle” in increasing their market share, according to Doyle.

Questions of Perception

The distinction between interactive/ creative agencies, advertising networks and media companies began to dissolve through smaller acquisitions during the past few years, but now the potential for conflicts of interest are as clear as they are abundant. That agencies, ad networks and publishers are owned by a single organization has many in the industry uncomfortable. “Most of the rules of online advertising are broken …” says Russ Mann, CEO of search marketing company SEMDirector.

By comparison, how would investors feel if one entity ran the stock market and owned an analyst firm and a brokerage? Not too comfortable, most agree. Not surprisingly, in May, the Federal Trade Commission began an antitrust investigation of Google’s purchase of DoubleClick to identify aspects of the deal that could limit competition.

Publishers might be reticent to partner with companies owned by a competitor, according to Dana Ghavami, CEO of CheckM8, which sells software to manage rich media campaigns. For example, ad networks could prioritize placement based on the needs of their corporate family of publishers. “My worry – if I am a media company such as Viacom or Fox [which have used DoubleClick’s ad network] – is who is looking after my interest?” says Ghavami.

Interactive agencies with ties to networks and media companies have the most at risk as they are likely to undergo the most scrutiny to remove any doubts that they are putting clients first. Trusting agencies to buy “in-house” is akin to “asking students to grade their own tests,” according to John Ardis, vice president of corporate strategy at ad network ValueClick.

Advertisers looking to optimize the return on investment from their media buys will want assurances that purchasing decisions aren’t compromised by a need to unload excess inventory from a sister company, CheckM8’s Ghavami says. That’s not a comfortable discussion for those sitting on either side of the table. These “umbrella” companies will have to institute internal safeguards to prevent the possibility or even the appearance that their actions are being influenced by other divisions of the company.

Advertisers may be unwilling to place their confidential and sacrosanct data about campaign performance in the hands of companies with divisions that are their direct competitors. For example, a liquor company might hesitate before signing on with a network that is part of the same company as an agency that represents a competing brand (see BT story on page 52 of the July/August 2007 issue).

Similarly, a media giant may not want its top advertisers’ performance data to be in the hands of a competing company. “Everyone has seen what Google is capable of when they have too much control – they start setting the rules,” says Ghavami. Giving the enemy the intelligence used to form your battle plan isn’t a strategy for success.

The Upside of Acquisitions

While organizations that span multiple aspects of advertising increase concerns about conflicts of interest, they should be able to increase efficiency and lower the cost of buying and selling. In theory, agencies would be able to buy from sister networks without the need for the sometimes lengthy approval process that slows insertion orders. Also, ad networks and their subsidiaries could combine campaign performance data with real-time analytics from their publisher properties with an ease and granularity not possible today.

“Microsoft [as one example] would be able to create bundled solutions that are more cost-effective and provide more value at the same price,” says Dema Zlotin, vice president of strategic services at SEMDirector. Advertisers would save time by working with one-stop shops and could better adjust campaigns by getting real-time site-by-site performance to complement their networkwide data.

Agencies, however, may have to rethink their fee structure if the purchase is made from elsewhere within the company. Charging a hefty commission when buying from its own network and properties won’t fly with some advertisers. Agencies that are part of other entities will have to work harder now to prove that their intellectual capital is worth paying the premium, according to ValueClick’s Ardis.

Greg Stuart, the former CEO of the Internet Advertising Bureau and co-author of the book, What Sticks, says online advertising was ripe for change. The buying and selling of interactive ads is costly and inefficient, according to Stuart, and consolidation and greater transparency will benefit advertisers. “Shame on the industry for letting it go for so long,” he says. “I am appalled at some of the things that go on,” says Stuart, stating that the failure rate (47 percent) of ad campaigns reflects poor performance by agencies.

While data sharing between organizations can simplify more “routine” buys, advertisers will continue to work with agencies for more complex purchases. The potential for conflict of interest could prove a boon to independent agencies. Some advertisers might be inclined to work with smaller but experienced shops whose allegiance can’t be questioned.

Though purchases through a single company might be more efficient, advertisers happy with an agency could go with networks from competitors, according to SEMDirector’s Mann. “Online is still best-of-breed world,” he says, adding that the various divisions of a one-stop shop might not be the best choice individually.

Rise of the Ad Exchanges

In this consolidated online environment, advertising exchanges that use auction bidding to sell ads and directly connect advertisers and publishers will see increased interest because of their transparency. Exchanges enable advertisers (either companies or networks working on their behalf) to bid for type of ad and the demographic that they would like to reach. Publishers set a minimum price for accepting the ads, and the exchange automatically matches buyer and seller.

Ad exchanges recently changing hands include Right Media, which was acquired by Yahoo, which previously owned 20 percent of the company, and an exchange being developed by DoubleClick that will become part of Google. Microsoft is said to be developing its own exchange, and independent exchanges include AdECN; Turn, Inc.; and ContextWeb.

Bill Urschel, the CEO of AdECN, says exchanges are differentiated from advertising networks because of the auction pricing, the transparency, and because the exchanges guarantee payment to the publishers. “[Exchanges] are taken from the stock exchange model,” says Urschel. AdECN’s exchange has signed up 28 ad networks since it launched in March of this year.

This transparency will attract publishers concerned about intertwined relationships since the services are (at least in theory) neutral to the source of the ad. While publishers and advertisers who compete with Google, Yahoo, etc., may not want to hire their agencies or networks, the exchanges can provide access to their sites.

Because of the negotiations involved in securing media buys, many large publishers such as The New York Times and The Washington Post often have 20 percent of their ad inventory unsold, according to CheckM8’s Ghavami. “Remnant inventory will be marketplace-driven,” he says.

Once they gain experience in using an exchange, some publishers and advertisers may bypass the ad networks and trade directly through the exchanges themselves. Ghavami estimates that 70 percent or more of major publishers’ inventories could be sold directly by exchanges. Ad exchanges will most directly compete with remnant networks such as Blue Lithium and Traffic Marketplace.

Exchanges may accelerate the shakeout of the weaker advertising networks, but they are unlikely to dominate the larger networks. Exchanges make sense for large publishers who have considerable unsold inventory, but publishers are likely to continue to get their highest CPMs through traditional sales channels.

Just as online stock trading didn’t cause brokerages to become extinct, the automated selling advertising is unlikely to replace networks. “There is a sliver of people who will be comfortable with the auction model, so auctions will have a place,” says ValueClick’s Ardis, whose company does not participate in an ad exchange, “but they won’t set the industry on its ear.”

The New Landscape

The current wave of industry consolidation will likely continue, enabling larger companies to become more powerful while at the same time providing opportunity for third-party auditing companies.

Google, Microsoft, Yahoo and Time Warner and their affiliated companies will have their hands in each step of the marketing chain, enabling them to increase the revenue generated from each client. The potential promise for advertisers is that these companies will be able to better target customers and increase by matching demographic and target data with real-time campaign analytics.

“The move away from AdSense to networks that are better at interpreting content” and matching it with advertisers makes sense, according to author Stuart. Advertisers would have greater control in distributing content to their target audience, such as being able to launch a campaign that is instantly delivered to a specific demographic (e.g., males between 18 and 35).

Though many of the sizable agencies and networks have been swallowed, the consolidation will likely continue. Networks such as ValueClick and smaller competitors could also be acquired. But analytics firms such as Visual Sciences (formerly WebSideStory) and Omniture are likely to be at the top of the media moguls’ shopping lists because of the additional insight they provide in maximizing revenue, according to Stuart.

Media companies are also likely to continue acquiring search and mobile properties (such as the recent acquisitions of Third Screen Media by AOL and ScreenTonic by Microsoft) during this continued consolidation, according to AdECN’s Urschel.

Advertisers and publishers may pressure multiservice companies to allow third-party auditing and oversight to ensure that ad buying, selling and placement are all completed without prejudice. Independent auditing firms could verify transactions between related organizations, or advertisers could request that purchases be made from outside networks and publishers. Industry groups will likely establish voluntarily privacy rules or codes of conduct to limit potential conflicts.

Exactly how companies will adapt with new services and systems to increase the efficiency of online advertising is uncertain today. But we can be sure that now that the rules have been changed, there is no going back.

John Gartner is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift and is the Editor of Matter-mag.com.

Getting a Reputation

If you didn’t see it, you probably read about Snickers’ Super Bowl advertisement, “The Kiss,” which featured two men unintentionally kissing after they were both eating the same Snickers bar. Immediately after the Super Bowl, much of the feedback in the blogosphere was that the ad was funny. But the next day two gay civil rights organizations denounced the ad as homophobic. The blogosphere reacted again, much of it negative about Snickers. By that evening Snickers pulled the ad and took down its website. The day after that, Snickers issued a statement expressing that they did not intend to offend anyone. For the remainder of the week, much of the mainstream media coverage was negative for Snickers and there was much debate back and forth on the Internet.

For weeks, the conversation raged online, which affected search engine result pages (SERPs). Meanwhile the press, including The New York Times and USA Today, picked over Snickers’ bad judgment and missteps. More than two months after that commercial aired at the Super Bowl, four out of the top 10 listings for the search term “Snickers” in Google’s SERPs were about “The Kiss” and three of them were negative.

“The Kiss” is the latest high-profile illustration of the long-term repercussions online conversations have on a brand’s reputation. The content of what is written on the Web not only affects the people who read it, it affects the rankings on the search engines and what the media chooses to cover.

The advent of consumer-generated media (CGM) has transformed the concept of brand management. Nowadays it is possible for a consumer to never encounter information created or endorsed by a company, but instead to rely completely on CGM for recommendations and insights. The bottom line, explains Rob Key, CEO of Converseon, is that “you no longer own your brand – your customers do.”

CGM includes community scoring programs like eBay, feedback rating systems like Yelp, opinion sites like Epinions, social networks like MySpace sites, and blogs. Blogs range from the very influential and highly trafficked, like TechCrunch and Jeff Jarvis’ BuzzMachine, to millions of average blogs that in the aggregate can reach tens of millions of readers.

When a company does something considered egregious, such as produce an offensive commercial or provide bad customer service, bloggers often react harshly and create a far-reaching buzz called a blog swarm, which can cause damage to a company’s reputation. In 2006, there were blog swarms that had serious long-term consequences for companies including Dell (dubbed “Dell Hell”), which started when Jarvis complained about Dell’s customer service on his blog, and another surrounding AOL, which began when a subscriber posted his phone conversation with a rude AOL representative to his blog.

Key explains that because blogs are spidered well (due to their large amount of refreshed content and inbound links) they can rank higher than other sites, including corporate sites. In the past, a brand could control the placement of their site with tags and by the way it designed the site’s pages. But Jim Nail, chief marketing and strategy officer of market influence analytics company Cymfony, says that currently corporate sites are getting outranked by consumer-generated sites “and frequently those are the ones that are negative.”

However, it’s not just the first or second listing on SERPs that brands should be worried about. Holly Preuss, principal of Granular Solutions, an online customer acquisitions services company, says companies should be managing the top 10 and particularly the top five because “above the fold is crucial.” Key agrees. He says it’s similar to how companies must manage their brand on the shelf in the supermarket: Companies must manage their top listings – “their shelf space” – to maximize their brands’ positioning.

Brands have to make their top listings a priority. An April 2006 study conducted by iProspect found that when users perform a search, 62 percent of them click on a result within the first page of results, and a full 90 percent of users click on a result within the first three pages.

Andy Beal, creator of the site Marketing Pilgrim, says sometimes companies find a negative post and think, “it’s only one blogger; it won’t have a long-term impact.” But then a blog swarm begins and the negative buzz ranks high in the SERPs. Then the issue reaches a whole new audience as mainstream journalists increasingly use search engines to research new story ideas.

Because consumers rely heavily on the Web as an authoritative source of information, managing a brand’s online reputation has become a top priority for companies. Strategy consultant Amanda Watlington says the participatory environment of Web 2.0 requires companies to monitor and measure their public perception so they are able to take necessary actions to preserve brand equity and maintain a brand’s personality. This necessity has spurred the development of new strategies, tactics and tools.

Monitoring Tools

Agencies like Converseon and Nielsen BuzzMetrics have tools for monitoring social networks, blogs and communities. They measure the volume of buzz, track the source and gauge the emotions of a comment – whether positive, negative or sarcastic.

But monitoring systems don’t need to be expensive or complicated. Granular Solution’s Preuss recommends that companies “think like a customer” and Google themselves. Companies can create RSS feeds based on keyword searches and narrow down the results to a specific domain with tracking systems like Technorati and Feedster. Sites like BlogInfluence.net and SocialMeter. com provide a snapshot of the credibility of any blogger by showing the audience-reach and popularity for the entered blog URL.

New tools are popping up all the time. Pronet Advertising launched Serph, a tool to find what is being said on social media websites. Do The Right Thing is a community that rates companies positively or negatively. Its goal is to hold big businesses accountable.

Once You Monitor, Then What?

Converseon’s Key says that once companies mine the conversation for detractors, they can separate them into two groups. Some are “reasonable” – they have a bad impression or a company had a bad experience with a company, such as poor customer service. And some are “determined,” such as the site StarbucksSucks.com, which feels Starbucks is ruining independent companies.

Catherine Seda, Internet marketing expert and author of the book How to Win Sales & Influence Spiders, says there is nothing a company can do about determined detractors, so companies should focus on the reasonable ones. There are a variety of ways to do this.

Companies need to reach out to bloggers. The sooner they react, the better it is to prevent potential longterm damage, says Marketing Pilgrim’s Beal. Preuss adds that when there is a complaint about customer service, the company needs to fix the problem and then engage the customer immediately by responding to that post.

Noah Elkin, vice president of communications at interactive agency iCrossing, says his company offers “proactive customer engagement” for their clients by responding to posts with helpful information, such as a link to a technical support page. Elkin stresses that they always indicate they are representatives for a company – “the No. 1 rule is to be honest about who you are; then you can participate in the discussion.”

An option for promoting a company’s brand online is to pay bloggers to evangelize it through a service such as ReviewMe. PayPerPost.com offers this service, but is requiring writers to include a small graphical button that denotes that a post is being sponsored. One of the tenets of Word of Mouth Marketing Association’s (WOMMA) code of ethics is that bloggers must disclose for whom they are blogging. To help craft disclosures, affiliates can seek advice at DisclosurePolicy.org, which was created and funded by PayPerPost.

Some experts recommend monitoring the buzz instead of trying to manage it. Cymfony’s Nail explains that there is no controlling what people say and the best you can hope for is to have your side of the story told. He says that “The Kiss” exemplifies this. It created an ebb and flow on the Web of people that started out attacking the ad and then started defending Snickers. Due to that, Nail says Snickers did not need to issue a statement.

For matters that require a timely response, some experts recommend using paid search (pay-per-click links). Preuss says that on the plus side, PPC links can show up in a couple of hours and they let the public know the company is aware of the situation. The downside, says Seda, is that people who might not have been aware of the problem will likely find out about it.

Some experts say that paid search is underused. For example, searching on the term “Wal-Mart sucks” yields negative results for the first 10 listings. Cymfony’s Nail says it is “foolish” that Wal-Mart does not have any paid links to sites where it could tout Wal-Mart’s economic benefits.

“For a company to protect its brand, they should be buying those words,” Nail says. But Marketing Pilgrim’s Beal warns that paid search “is a Band-Aid” and does not replace reaching out to bloggers directly.

An affiliate could mine blog buzz through a monitoring tool such as Relevant Noise’s pingMe notification system – so when someone posts about a product that an affiliate sells, the affiliate could buy relevant keywords.

One tactic for dealing with negative buzz, such as a product recall, is to issue a press release that addresses the concerns. Press release distribution companies such as PRWeb send releases to journalists’ email boxes and optimize press releases, which helps to increase the rankings in news engines such as Google News as well as in the general search results. When a press release ranks high in a search engine, it is one more spot a company’s competition or a negative listing won’t get.

Knock Out the Negative

Issuing a press release is one way that company information can gain a top search engine ranking, and when this happens, negative sites move lower and get moved off the page. Converseon’s Key describes this as pushing detractors off the “visibility cliff.” There are other ways to try to do this.

Post to top-ranking sites: Postings to sites such as Wikipedia or Squidoo can help a brand or affiliate push negative results down and get more exposure. When an affiliate posts to advice sites like LifeTips.com, it allows them to be seen as an industry expert on the things they are attempting to market. Granular Solution’s Preuss says if an affiliate blogs about cars and posts affiliate links on their site in a CPL deal with automakers and has rev shares with accessory retailers, then they could post on LifeTips.com a top 10 tip list for shopping for a new SUV.

Create a blog: Another tool for creating a positive listing and monitoring a brand is to create a blog, which can humanize a company and present its side of the story. If the comments are enabled, companies can get in touch with their most passionate visitors.

Optimize your site and create multiple domains: Author and IBM search expert Mike Moran explains that search results never contain more than two listings from any one domain, so brands should make sure their pages are optimized for the legitimate two listings (#1 and #2 are ideal). If the company has multiple domains (i.e., for subsidiaries) a brand can ethically optimize those sites for the company’s target keywords. Many companies have mini-sites, for which each has its own URL; for example, Starbucks has one for music, one for locations and one for its online store.

Use affiliate programs: Affiliate programs are a way that brands can get additional positive listings on SERPs. But affiliates pose risks because they can threaten the control of a brand. Watlington says brands have to make sure that affiliates, who are custodians of their brand, are in step because “companies spend a lot of money creating a brand and if an affiliate does something like use outdated creative, the brand is then altered.”

If a merchant does decide to have an affiliate program, it’s imperative for a merchant to monitor affiliates and make sure they are compliant with a program’s terms and conditions. For this reason, Converseon’s Key recommends that merchants start with tightly managed and honed programs.

The Merchant Mind-set

Merchants will need to decide if they are going to allow their affiliates to bid on their trademark terms, which tend to convert very well. Benefits include having offers for different types of users on the SERPs, keeping competitors off the SERPs and keeping competitors’ affiliates off the SERPs. 77Blue’s David Lewis says that merchants need to evaluate what is right for their brand and find trusted partners who will work with them to protect their brands through trademark bidding.

Many merchants are so wary of affiliates bidding on their trademarks that they completely forbid it for all affiliates. Super-affiliate Colin McDougall recalls an instance when an affiliate manager admitted that McDougall’s bidding had made a huge difference for their sales but still would not make an exception to the company policy – it was the “if we let you do it, then we would have to let everybody do it” mind-set.

This mind-set might be changing, however. A 2007 Marketing Sherpa study reports that merchants have become more lenient with the use of their trademarks in keyword campaigns. In fact, 29 percent of merchants say they allow bidding on use of their trademarks and 36 percent say they place some limitations on trademark bids.

Companies no longer have an option about whether they should participate in online communications. These conversations are going to take place regardless if the company is involved or not. For this reason, reputation management has become one of the most talked-about topics among merchant and affiliates. Just this spring, Neo@Ogilvy, Ogilvy Group’s digital and direct media unit, acquired GSI Consulting Group, which specializes in brand reputation. TNS, a provider of strategic advertising intelligence, acquired Cymfony.

The good news is that there are tools to monitor buzz and ways to push negative conversations from the eyes of the masses. Creating a blog, optimizing a company’s website, buying PPC, issuing quality press releases, contributing to high-traffic forums and becoming a part of the conversation on user-generated content sites are all methods whereby an online reputation can be managed.

Presidential Performance

Obama’s got one. So does Hillary. As does McCain. John Edwards has a good one. Rudy Giuliani, Mitt Romney and Bill Richardson also each have one.

It will come as no surprise that all the major 2008 presidential candidates have websites this election cycle. While they are not all of the same quality and some have way more bells and whistles, the sites carry news, video clips and the all-important areas for donations. What is surprising is how well the candidates have harnessed the power of the Internet and what tracking data can do to help their victory. And while the candidates gear up for an astonishingly early election season, it also means marketers and affiliate marketers can take advantage of the interest in this political period to further their cause or add a few ducats to their sales. But challenges still lay ahead.

The Internet as a political platform is not new – just look at the various blogs that have sprouted up since the 2004 presidential election, not to mention the various other new conduits for candidate conversation such as podcasts, user-generated video and cell phone text messaging. Remember that Howard Dean was the first – then virtually unknown – candidate to blog in 2003. This season candidates have more ways to get their talking points out.

Performance marketing network Performics in fact, recently completed a survey that said 42 percent of Americans will seek more information on the 2008 elections from the Internet.

“Campaigns have embraced Internet strategies to stay competitive,” Alexis Rice, project director of CampaignsOnline.org, says. Not only campaigns, but also mass-audience destinations have launched political areas such as MySpace.com’s Impact Channel, where users can drag candidate ads onto their own MySpace pages.

A Burst Media survey found that more than 20 percent of likely voters have actually already gone to a presidential candidate’s website. Of those, one-quarter have clicked on a candidate or advocacy group’s online advertisement. The study also found that use of the Internet to understand the positions of candidates outpaces all other forms of media. A quarter of likely voters said that going online was the best method to learn about the issues, which beat out TV (21 percent), newspapers (17 percent), radio (7 percent), magazines (4.4 percent) and other paper material (3.3 percent).

Back in 2000, before the dot-com bust, pundits and publications made fun of most candidates’ websites, singling out their old information, lack of transaction abilities and their stupefy-ingly bland sense of Web design. Today, just like outdated ASCII art or “site of the day” home pages, political sites have seriously evolved. Now the candidates and the third-party companies that help their digital campaigns are more than savvy; they are refreshingly cutting-edge and Web 2.0 in their approach.

The amount of money being spent and raised online for the elections is also evolving – albeit a little more slowly. Although PQ Media predicts the online campaign ad spend will top $40 million this cycle – up from $29 million in 2004 – it is still dwarfed by the $2 billion to be spent on TV ads alone. And while 38 percent of registered voters received telephone calls from campaigns in 2006’s midterm election push, only 15 percent got email from the candidates, according to Pew Research Center. Advocacy website MoveOn.org raised upward of $28 million in 2006 – the majority of that through online donations. The Center for Responsive Politics measured more than $100 million in online fund-raising by election day. Still it seems a drop in the bucket compared with the $2.6 billion in total 2006 fund-raising.

It may not be huge, but the revenue stream from online is worth tapping into. Candidates for House and Senate seats in 2006 were pleasantly surprised by how much they raised via the Internet. Democrat Joe Sestak earned a House seat in part from the nearly $900,000 he received in Internet donations; $88,000 of that from a single email blast. Democratic advocacy group Act- Blue touts the fact – in big numbers on its home page – that it has received $19,918,240 (at press time) through online donations since 2004. Not to be undersold, the John Kerry campaign in 2004 claimed it owed $80 million of its campaign funds to donations made via the Internet.

While no candidate is likely to refuse money from Internet donations, the biggest realization the Republican and Democratic parties have made – the Democrats more so because they were so challenged by muddled messages in 2004 – is that data is king. Since around 2001, the Democrats, after being demoralized by their defeat, have become conscious of the fact that the GOP simply had better voter data.

One result is that the 2008 democratic candidates have sleeker websites. Another is the Democratic National Committee hired Plus Three, a “progressive” digital marketing firm to build out a database of voters.

The data that Plus Three is going after is basically the most detailed demographics it can get by law; most urgently, email addresses, phone numbers, income and birth dates. Plus Three and the Republican counterpart – Voter Vault – together hold information on more than 165 million folks in their respective hard drives. The most coveted are email addresses because, as Plus Three states, it can mount email campaigns for a fraction of the cost of phone campaigns or TV and print advertising.

Fast Fund-raising

With the data at the ready, campaigns can send email blasts as news happens. Following on the heels of John Edwards’ morning announcement that his wife’s cancer had returned, an email went out that afternoon with a personalized message to all who had registered at Edwards’ website. He was the first presidential candidate to join Twitter (the mini-blog social network) and the first to announce his candidacy online by way of YouTube. On his website, Edwards has all the tech bells and whistles – with profiles on social sites 43Things.com, Bebo.com, blip.tv, Capital Hill Broadcasting Network, Care2. com, Collective.com, Essembly, del.icio.us, Facebook, Flickr, gather.com, hi5, LiveJournal. com, Metacafe, MySpace.com, Ning. com, PartyBuilder.com, Revver, TagWorld, vSocial, Xanga.com, Yahoo360 and YouTube. Edwards also has a Store button on the home page where T-shirts, buttons, mugs and stickers get their showing. Additionally there is a download area for podcasts and RSS feeds.

The week after Edwards broke the news about his wife, ActBlue reported the Edwards campaign received $540,000 through online donations. However, fellow democrat Hillary Clinton raised more than $1 million in online donations the week after her husband, former President Clinton, asked for contributions at the end of February.

The intersection of this highly charged political election and widespread technological advancements is something that marketers can also take advantage of.

CEO of search engine Powerset, Barney Pell, points out three examples of opportunities for online marketers: “First, a bookseller could create a special section on their site that organizes books according to political topics, issues and personalities,” he says. “Second, a company specializing in clean and environmentally friendly products could create a website focused on these issues,” adding that they could then track what the candidates have said or how they voted and then link the issues back to the company’s products. “Third,” he says, “companies could take a stand on issues or back candidates from social media properties. This level of authenticity, while risky, can connect with target audiences in a whole new way.”

Not to be discounted, search marketers can grab ballot-fever by the handle and utilize the “mind-set” of the voter. “Search marketing is a fantastically underutilized area for political candidates to demonstrate their qualifications beyond the status quo,” says Todd D. Malicoat, a search consultant who runs the site Stuntdubl.com. “When someone does a search for a candidate’s name they are volunteering their attention versus the normal approach of a candidate interrupting a voter for their attention.” He says that the information found through search can “actually sway a voter’s opinion” because they are infinitely more receptive to the information. He adds “the difficult opportunity for search marketers is mostly in finding a way to market themselves to the candidates by demonstrating how valuable these services could be to a candidate’s campaign.”

Whatever a marketer’s commitment to showcase political topics or products, Gary Marcoccia, Marketing Director of affiliate network AvantLink, suggests choosing something you’re passionate about. “This makes it easy to maintain and add content on a regular basis,” he says. “Publishers should shoot for 20 to 30 posts a month and think hard about including keywords in the headline and a couple of times in the post itself.” He says, for example, on an eco-friendly blog, a publisher could write a post on how to save energy in the home, categorize it appropriately and then send the traffic on to a merchant that sells low-energy light bulbs.

The other changing face of campaigning in the digital age is commerce versus community building. Hillary Clinton’s site has a good number of videos with her message on her site, as does Barack Obama’s site. But McCain, Mitt Romney, Clinton and Richardson have no online stores.

What the major candidates lack in storefronts, they gain in grassroots efforts online. Democratic-leaning Party- Builder.com lays claim to 10,000 virtual volunteers since September of last year and its Republican counterpart MyGOP says it has “thousands” of online volunteers as well. The Edwards campaign has its OneCorps, a virtual volunteer network that plans and executes grassroots Edwards house parties and serves as a platform for launching other campaign actions. Gone are the days when simply having a website was enough. “The organizational aspect is transformative,” says David Plouffe, a political consultant. When Maryland candidate for comptroller Peter Franchot emphasized his presence on MySpace and Facebook, his campaign got 80 percent of its volunteers from there.

When Maryland candidate for comptroller Peter Franchot emphasized his presence on MySpace and Facebook, his campaign got 80 percent of its volunteers from there.

In a month his volunteers – most of them obtained through online efforts – made 15,000 calls and distributed 50,000 campaign flyers. Franchot did win. Online experts have called this effect the “new virtual playing field.”

Online Voter Army

The site has pulled in 10,000 volunteers since September 2006. The Republican National Committee’s counterpart, MyGOP.com, also claims “thousands of people” and shows Web pages chartering each individual volunteer’s fund-raising progress. When Democrat Ned Lamont ran for Connecticut Senate he set up a space on his website where supporters could type in personal endorsements or “virtual postcards” and send them from the site. He got 25,000 visitors to do this. He beat incumbent Sen. Joe Lieberman.

Another lesson that campaigns still need to learn is the power of performance marketing. As noted, online stores on candidate sites – at least at this stage of the election cycle – carry inconsistent content. More importantly, the stores are mostly populated by products sold by third-party companies, which are either mom-and-pops or come from the direct marketing world.

John Edwards’ store, for example, is run by The Progressive Store, which is owned by Keith Shirey in the Los Angeles area. Shirey, a former janitor who touts the fact that his political buttons were banned on eBay, also sells stickers for Obama, Gore, Kucinich and Clinton. However, he doesn’t offer links to his store like Tigereye Design does. Tigereye sells Obama, Clinton, Richardson, Kucinich and Edwards campaign products and offers cut-and-paste link code for anyone to put a store link on their site.

Data Determination

As mentioned, the Republicans had made great and precise use of data before the 2000 election. Their Voter Vault database is drawn from voter registration and from other public and private records. What shakes out is a potential for the database to have hundreds of pieces of demographic information on every single voter, such as what cars they drive, what churches they go to, what magazines they subscribe to, what political organizations they give money to and even whether they hunt or fish. The data is run through a computer model and a prediction is made about how they are likely to vote. These folks can then be targeted with very specific messages, be that via letter, phone call, email, TV or other collateral. This form of “microtargeting” essentially won the GOP the White House in 2000, pundits say.

Democratic online efforts are motivated by trying to match what the GOP has built. Democratic online volunteer campaigns are aimed at amassing a virtual army of advocate foot soldiers. Voters with personal websites and affiliates can take advantage of the political season by linking to the candidates’ stores; however, there is no commission. If education and awareness are important to the affiliate, a candidate store section would not be out of place on a site selling retail goods or a site or blog that is opinion-based. If an affiliate runs a travel site or coupons, the links might be out of place. Certainly MySpace and other user-generated social sites are an ideal place for store links. One could even link to the candidates’ donation pages where visitors can pledge funds from the bare minimum to the maximum allowed by federal law. Throwing in a few well-chosen keywords at the new areas of a website could increase traffic overall and may generate a sale or two.

“Studies in the retail sector, where users who are served ads get a cookie placed on their machine ” provide a glimpse into how effective online ads can be in planting ideas in peoples’ heads that shape future behavior,” said political blogger and executive director of the Internet Advocacy Center in Washington, D.C., Alan Rosenblatt. Colin Delany of political blog e.politics.com notes, however, that “what the Internet excels at is relationship-seeking and relationship-building,” meaning those who seek out a candidate or sign up for a candidate’s RSS feed are probably already followers of that campaign. But once a potential supporter is in the door, so to speak, the campaign can leverage email and viral messages to help solidify support and donations. The next big step is to track them and target them as well as the online marketing sector has with analytics and what the Republicans did so well with microtargeting.

The multimedia aspects of a candidate’s site have proven popular and engaging. Burst Media reports that 50.7 percent of likely voters stated they would watch a video clip on a candidate website that features him or her talking about the issues. That number held for all age groups, including 55 and older. A quarter of voters said that they would hear a podcast by a candidate outlining his or her platform. Podcast listeners in the 18- to 34-year-old category scored far higher on that question than other age groups.

Right now, the bigger blogs such as RedState or Daily Kos may pull in a wider audience demographically on the Web but are still small numbers compared with the reach of a single campaign email blast. And with a solitary email, Rosenblatt notes a campaign can reach a whole array of donors who give small amounts – $25 to $50 – who wouldn’t otherwise give off-line. As one campaign finance expert noted, “It’s the only way you get a million people to each give you $10 on the same day.”

Guiding Lightly: Q & A with Anne Holland

Anne Holland is the president of MarketingSherpa, which aims to help marketers advance by sharing real-world marketing data and hard-won lessons. The Rhode Island-based company publishes a wide range of metrics guides, buyer’s guides and how-to reports, as well as a 500+ case study library. Prior to founding MarketingSherpa in 2000, Holland spent 20 years in publishing. She also served as the head of marketing for Phillips Business Media – a $100 million publishing company where she helped launch one of the world’s first profitable subscription sites in 1995 – and the trade publications Interactive Marketing News in 1994 and min’s New Media in 1995. Started in Holland’s spare bedroom, MarketingSherpa was recently acquired by marketing research firm MEC Labs out of Atlantic Beach, Florida. Revenue Senior Editor Eric Reyes asked Holland about her company’s role in moving marketing forward and what lies ahead for the performance marketing space.

Eric Reyes: What was the genesis of the MarketingSherpa idea? How did you perceive the need?

Anne Holland: Before I led MarketingSherpa I was a marketer myself, so I had a pretty good gut-level understanding of what marketers needed that wasn’t being provided by research firms or publications. However, that doesn’t mean I trusted my gut! Instead I toured the U.S. and U.K. for about six months, asking marketers themselves what information they really needed to do their jobs more easily and/or with better results. The final company – MarketingSherpa – was built directly from those suggestions. Turns out our target audience wanted lots of case studies, benchmark data, creative samples and how-to instruction at a practical yet advanced level. So that’s what we provide. We still tour regularly as well as surveying and talking directly with customers weekly to keep on track.

ER: Can you outline your inventory of content – how much is available and how has it grown?

AH: There’s a lot! Basically it breaks down into three areas – all of which are created by research and reporting teams in-house here (we don’t accept contributed content).

  • Case studies and how-to articles – based on hour-long interviews with actual marketers. We delve into what worked, what didn’t, what the data was and include creative samples. We’ve got a library of thousands of these, searchable by tactic and by company/brand name. They’re all exclusive.
  • Benchmark guides, buyer’s guides and tactical handbooks – based on research into what’s working for real-life marketers. We survey tens of thousands of marketers every year, and profile hundreds of consultants and vendors. These 200- plus-page reports come in PDF for instant question answering, and we also ship a printed-and-bound copy to every customer for easy reference.
  • Summits – every year we hold three big summits for marketers: in New York, San Francisco, Boston and a fourth city (next year it’s Miami). The topics include email marketing, selling subscriptions to Internet content and B-to-B demand generation. Naturally our summits feature loads of peer-presented case studies and new data.

ER: Now that MarketingSherpa has been acquired, what will change for you and the company?

AH: Pretty much since day one, there have always been a lot of people who wanted to buy us out or invest in us. I held out for seven years because I wanted our growth to be driven by our readers’ needs, not some board of investors. Every six months I take a few days to step back and review the progress and future of the company. When I did that this past June, I realized it had gotten too big for me to handle alone anymore. It’s a common fate for an entrepreneurial- driven company. You grow it as big as you can and then you hit the ceiling of your own desires and abilities. I wasn’t born to administer this fast-growing multi-million-dollar organization. I was born to research, write and keep in touch with the needs of the readership.

So that’s when I started looking for a new corporate parent for Sherpa. The goal was to find someone who would understand and appreciate our readers and our mission, plus appreciate the great team of employees and researchers we’ve built – not just someone who would wave a bunch of cash at me. By finding the right buyer, in effect I was hiring Sherpa’s new boss. Several organizations were in the running – after carefully interviewing several of them, I chose MEC Labs based on fit.

They are a research firm that partners with folks such as The New York Times to conduct experiments on live campaigns to discover what works (and what doesn’t) in marketing. We are a research firm that partners with our 237,000 readers via surveys and studies to discover what works in marketing. Culturally the fit works too. We are all fairly intense, hardworking people who also like the ocean. Their headquarters are on the beach in Florida. Our headquarters are about a block from the beach in Rhode Island.

MarketingSherpa won’t change much – aside from continuing to grow and serve our readership even better. We’ll just have even stronger corporate leadership to allow us to reach bigger goals and do some pretty amazing research projects. On the personal side, I’ll still be here. Only instead of being stuck in meetings with accounting, HR and IT, I’ll get to focus all my time on the things I really love – research, writing and the art of marketing. And, maybe a little more time to walk on the beach.

ER: What are some of the most important goals you have for MarketingSherpa next in the 12 to 15 months?

AH: Keep her on a steady, focused course. It’s easy to get overwhelmed with expansion opportunities, or to let success go to your head so you do crazy things, launch big new ideas that don’t hold to your core business. I’m an idea person, so it’s probably toughest for me. But our big idea is No New Ideas.

Aside from that, you’ll see several launches that have been enormously researched and several years in the making, the biggest of which is our upcoming membership site launch. At the base, it simply means instead of paying $5 to $9 per article every time you want to read something, you can pay one flat annual fee. Convenience is a wonderful thing. There are also some new features – but the dev team will shoot me if I talk too soon. Watch for December-January and you’ll begin to see.

ER: Are there industry segments that MarketingSherpa is not currently focusing on but would love to get into, and why?

AH: We set our course for a very specific marketplace from day one, and it’s a darned big one that will take us many more years to serve completely. Our chosen marketplace is marketing professionals (including advertising, PR and online) in corporate America at the manager to VP level. That’s about 140,000 marketers. We also serve the consultants, agencies and vendors who serve marketers. That’s about 10,000 folks. So it’s a total market of 150,000.

ER: How much effort is dedicated to the affiliate marketing space by MarketingSherpa ? And the performance marketing space? And do you see that changing in the future?

AH: We cover affiliate and performance marketing from the point of view of the merchant or brand-side marketer. That’s who our reader is. Although many affiliates also read us, they aren’t our target audience. So, for example, the affiliate marketing team at eBay reads Sherpa, but most of their affiliates probably don’t ” and that’s fine with us.

Our coverage in the spaces is decided by the input of our readers – they tell us what they want us to focus our research on and that’s where we go. I personally would like to cover affiliate marketing a bit more than we do, but for many of the merchant-side marketers, it’s just not all that critical to their jobs.

Often an e-commerce or lead generation site will have one marketer who is responsible both for affiliate and also managing SEM. That’s crazy – too much work for anyone to do well. But that’s the way it is. We try to educate marketers via our annual Affiliate Marketing Special (now in its fourth year) every January and other studies such as our Ecommerce Benchmark Guide. Many, however, many, especially in consumer software marketing online, are not there heavily yet, if at all.

ER: What are the next two or three things you think will turn Internet marketing on its ear?

AH: Frankly, I don’t see much changing over the long haul with the exception of a lot more mobile activity in the U.S. (at long, long last) and of course video, video, video. I’m sure what we’re going to see next is a lot of “shovelware” video [sticking your TV ad online], badly measured corporate podcasts and way too many text-voting entertainment campaigns.

If mainstream off-line marketers – the giant retail chains and consumer packaged goods firms – could easily measure Internet activity against their off-line sales, then you would see the world change. The biggies still spend single digits online. Bear in mind, all of SEM spending for this year is less than everything spent on promotional products such as embossed pens and T-shirts given out as marcom. We who research Internet quite a bit tend to forget how incredibly small the spend still is compared with other vehicles.

In the meantime, the real focus that every marketer should be spending their time and money on is not what’s new, but rather, how to make the old stuff work better. Our data show that if you just improve the copywriting on your site a tiny bit, your conversions leap up. Copywriting! That’s as old-fashioned a tactic as you can get. True success is about testing the basics.

ER: You do a lot of public speaking gigs and you also conduct many of the interviews for case studies. Is there one facet of your job you prefer, and why?

AH: My job has really evolved as the company has grown over the past seven years. Research is now run by our research director Stefan Tornquist and his team, while editorial is run by editorial director Tad Clarke and his team. We also have teams running summits and memberships. These days I’m doing less research and writing myself and far more leadership. So I get to attend departmental meetings and guide the company as a whole. I miss the old days when I was chief cook and bottle washer ” but now we have so much more capacity to serve our customers’ needs. So that’s a delightful thing.

Now my favorite things are speaking about new research studies (it’s so fun to say, “Hey, here’s info marketers are yearning to know – let’s go get it!”); speaking at shows, especially when I get to meet readers who have ideas about research studies or stories we should cover (many of our best case studies come from me meeting folks on the road); and once a week personally conducting a marketer-side interview for a story I or one of our reporting staff might write.

ER: During many of your talks you give real-life Internet shopping examples of good and bad things that you’ve encountered. How many of those incidents spark research on that topic?

AH: Actually events often spark our research because attendees will ask great questions… . Those questions drive the research. I’m way, way, way too close to the research we’ve done and the marketing world to know what marketers really want to know.

When you’ve studied something intensively for years, you’re the wrong person to come up with new ideas for studies. You’ll end up in esoteric or newfangled places that your audience couldn’t care less about. One of our biggest stories – in terms of readership and reader feedback – last year was research we’d done in partnership with CNET’s B-to-B Network on what white paper titles got downloaded the most. I thought it would be [just] an OK article, but my God, it hit a huge nerve: floods of thank-you email letters from our readers in the B-to-B space.

So, you have to let your readers tell you what’s hot and what’s not. Don’t ask your editor or newsletter writer. I’m shocked that so few email newsletters do reader surveys asking about content. They all need to.

ER: What are some of the benchmarks for maintaining the quality of MarketingSherpa research and other content?

AH: We never publish data that doesn’t have enough evidence behind it to be statistically reliable. That drives me nuts about other studies (including the DMAs). They’ll survey 10 people and then call it a “study” and make a big stink about findings. We don’t publish charts if the data has to be sliced “too thin” to get a number.

We know that many readers are using us for their budgeting, forecasting and to sell their marketing plan to their CEO. We don’t want to feed them misinformation or slanted data and mess that up.

Unlike most of our competitors, we do not publish third-party content. We don’t solicit editorial from vendors or consultants or anyone else. Our editorial is researched and created in-house. That’s a lot more expensive, but it’s worth it.

On the research benchmark side, we do create partnered studies with some folks where we survey the marketplace or examine results stats we could not do alone. We also gather best-of research from some third-party sources to fill in holes and provide perspective. But we’re not like eMarketer where 100 percent of the data is compiled from other people (they do zero primary research). With us, it’s about 20 percent.

That combination of our data plus partnered studies plus best-of-third-party data is a killer combo. You get everything in one place. It’s all about convenience.

Sometimes people question our data – for example, recently several SEO experts questioned whether our data on the industry slowdown was based in reality because, from their personal perspective, business was booming. Thing is, we had data out the wazoo – data from more than 3,000 client-side marketers, from 104 top SEO firms and from third-party studies. We had more data than anyone on the planet on search marketing. From our perspective, the industry was slowing like crazy and I was able to defend that very easily.

ER: MarketingSherpa covers so many areas of online marketing. Do you consider yourself an expert in any one area of marketing?

AH: I suppose my main personal areas of expertise would be e-commerce, lead generation landing pages and email marketing. I’ve personally been involved with research we’ve conducted in all three and met many, many of the marketers themselves in these fields. I’ve also been heavily involved in our SEM research and coverage over the years, but I think SEM is something that you really cannot be expert in unless you’ve rolled up your sleeves and you do it every day yourself. I don’t. Few of the press covering SEM have.

ER: What is the next logical evolution beyond paid online content?

AH: I am so psyched about buying TV episodes online! In a past job, I was the marketer for a paid subscription [print] newsletter called Interactive Video News. Back then in the early ’90s we were all talking about 500 channels and pay-per-view cable where you’d be able to view anything on demand. Well I have on demand at home on my cable now, but it’s a very clunky interface. However, our research director Stefan Tornquist brags he doesn’t own a TV at all ” he just buys and downloads anything he wants to watch from the Internet.

Mainstream TV networks are now cross-promoting new shows by running them on cable for a few episodes to get the word out. Broadcast TV is, in effect, now just a marketing vehicle for content that’s paid for with some ads. I buy the TV episodes directly by episode online now. Love it to death. That plus buying music song by song for iPods, and the huge long tail of that, is very exciting. Media consumption is changing hugely in the way purchasing changed in the past five years due to search engines for research and ecommerce.