Advertising – UtilitesDB

Hooking Search Talent

“As search marketers, we are the insiders. We are supposed to know and understand search in all of its dimensions. We are moving into uncharted territory. It is not territory that I am excited to explore, but I will go there nonetheless,” writes Amanda Watlington of SearchForProfit.com.

Despite her status as an expert on blogs, RSS and search marketing, Watlington is still trying to put a finger on what may be coming down the pike for search this year. Her pondering may sound a bit gloomy – because in many ways, things have never been better for search.

According to GroupM, search will make up about 65 to 70 percent of the measured online advertising in 2008. That’s up from 50 percent in 2005. Also consider that search budgets within brands have become bigger; search marketing professionals now easily have three to five years’ experience handling search initiatives; and most excursions on the Web start at a search engine.

Yet there are really no guidelines on what search-related skills a search team must have in order to propel a company forward – not written down in the company manual anyway. “Knowing” search and running a search team for your company are entirely two different things. Knowing how to budget for search and staying abreast of search innovations is something few teach.

A recent survey by the Search Engine Marketing Professional Organization (SEMPO) stated that in-house search managers are now handling budgets on average of $200,000. However, up to 40 percent of those managers are shepherding that money with three years or less of professional search experience. About 26 percent have five years of experience or more.

Keeping Up With Search

The uncharted territory is the constantly changing nature of the search game. Many search veterans will say that learning search is an ever-changing discipline, fraught with a learning curve that never straightens out. They say that to hire a search manager or search team means upper management must look beyond the experience they have on paper and judge a pro by their passion and innate intelligence.

It’s paying off for some. SEMPO says that about 49 percent of SEM professionals earn $50,000 or less. About 43 percent earn between $50,000 and $100,000 per year. Only about 4 percent of those with five to seven years of experience make more than $200,000 per year. “It’s a respectable career path. I know I wasn’t making 70 or 100 thousand dollars a year when I was three years out of college,” Rob Crigler, co-chair of SEMPO’s in-house committee told SearchEngineWatch.com.

“I equate it to sports – the people who don’t sleep and work really hard get ahead. As a numbers-based job, they attract the hard workers,” says Wil Reynolds of Philadelphia- based SEER Interactive, a search engine optimization company. He says that the tools – software and Web-based analytics and helpers in choosing keywords – are all pretty good now. The ones who rise to the top are the ones with a kind of “street smarts.”

There are some recent attempts to educate the search-interested. Google recently launched a program called Google Online Marketing Challenge, which partners with marketing college professors to teach Google’s popular Ad- Words. Students take a $200 budget and apply it to a PPC campaign for a client. Students then manage the AdWords campaigns including coming up with a pre-campaign plan, manage the ongoing campaign and evaluate post-campaign numbers. The students select keywords, write ads and keep tabs on their clicks. Google then judges the work on up to 30 different criteria and offers an actual prize – a week at Google’s headquarters.

SEMPO also offers distance learning courses in search marketing. Students are introduced to the “foundations” of search marketing; advanced how-tos on SEO; and PPC training. The courses are offered online and can include interaction with “SEM professionals” and grading by SEMPO volunteers. SEER also offers some SEO online video tutorials on its site covering keywords, competitive tools, link building and best practices.

SEM expert Todd Malicoat at stuntdubl.com helps organize an SEO class and an online marketing training class using online courses, podcasts and some PowerPoint. However, he points out that there is really no regulation within the industry and that anyone can build a website and say, “I do search,” and have it be technically true. He notes that the search community has an active base, and learning from these people would be different from the trial-and-error training someone may get when they do it alone.

Reynolds says this kind of education is out there for people to use, “so tenure isn’t important.” What people should really have, he says, is marketing acumen. “If you want to be second place, you go to search training,” he says. “The same materials are available anywhere. But the people who rise are the people that take the basic info and go to the top.”

Matt Spiegel, CEO and founder of Resolution Media, an SEO and PPC consulting firm, says that those with higher educations in marketing have received “little exposure to this new marketing world. The vast majority of recent graduates in advertising and marketing have had little course work specific to online advertising – much less search.” He says to not assume institutions of higher learning will adapt quickly. “Instead, we need to look within the industry for help.”

Rand Fishkin, CEO of Seattle-based SEOmoz, a search marketing consulting company, says that three years’ experience is “quite a bit and is good given the industry.” He says that if he were to interview a search pro for a job, he’d simply ask the candidate to explain how Google works. “How does Google do its rankings and what makes a difference; and how did you pick up these things?” The analogy he draws is with medicine: A doctor should be able to tell you how the nervous system works off the top of her head.

Spiegel says there is a talent shortage. He says to work for his company you do not need a shopping list of skills. “You have to invest in people in this business,” he says. If you are new to the industry, he adds, and learning from the ground up – you get about 18 months to learn nuts and bolts. “When we hire, if they come from another agency, I expect that within 90 days they will be up and running – that you will know enough about search to manage a client list but you may have to learn keyword placement, etc.” He says he has hired one-person shop owners. He looks for attitude as well as skills and a need to “thrive on uncertainty and realize they are at the beginning of an industry.”

Evolving Search Skills

Among the skills that SEER Interactive’s Reynolds looks for is the ability to problem-solve. “Do you like to solve puzzles; things that stimulate and test the mind?” he says. “I would follow that skill with a lack of fear. There are tools are out there to do short-term tests. But are you not afraid to fail? I continue to see more come into the space, but that doesn’t mean they are all going to be good. Anyone with a Net connection and phone can be a search firm tomorrow. That glut can lead to substandard talent.”

Since search seems to be one of those areas that is changing and improving all the time, a search pro needs to stay locked in step with the new. Mike Grehan, CEO of Searchvisible, experts at organic and paid search headquartered in the U.K., has said that it’s getting harder to keep good organic search results on the first page. “What used to work in the good old SEO days won’t cut it in the future.” He notes that while search engines themselves are innovating all the time, search engine optimization is not – meta tags, alt tags, some social media and header tags are still the rage but are seeing their results wear thin.

Constant adaptation is a valuable watchword held by Danielle Leitch, executive vice president of client strategy at MoreVisibility, a search, design and interactive marketing company. She has said that she sees “adaptation of the industry as a whole shifting from just acronyms – SEO, CPC, SEM – to ‘interactive marketing.’ As a result, I believe agencies will become more full service than they had been – which could lead to mergers or partnerships in that area too.”

As the changing landscape continues to shift, SEOmoz’s Fishkin actually sees a constant in search professionals’ qualifications. “To me, the most desirable are those people who started a site in 1998 and have learned from doing. I am always impressed with those guys. They are rare guys.” The other breed of search marketers are those who may have a background working at another agency doing search or with a portfolio of sites they have launched. They may have been a junior marketer on this or that team and they did a search campaign and now they say, “I’m lost.” Now, companies have to spend six to 12 months training this person. He adds that MBAs may spend too much time projecting and doing nothing. “In search, we have to do.” In the end, you can only lose revenue for a few weeks and still correct it and change, he says.

Spiegel says too many companies may hire one person to head up search and leave it at that. “If I were running a company and had to hire one person, I wouldn’t want to put all my eggs in one person. I would hire an agency,” he says.

Searching for Education

Fishkin has put together a primer for those looking for search pros. He states that recruiting might be the hardest part of the work. While portals on the Web offer loads of candidates, the passionate ones are usually found in the Web places where the “young, Web-savvy and tech-obsessed” hang out. In addition to their skill set, you and your company will want to ask how long you will need this pro for; what are the primary priorities for them; and do you want this person or team to grow with the company?

When building the team or fitting the search person into the structure of your company, you need to measure the scale of your search efforts – is your company large enough that you will need more than one person or team? Measure what kind of ROI you want for each segment if you choose to break up the search division into many platforms. And as you carve up search areas and responsibilities, you will still need a person to oversee the divisions.

For training, he recommends letting team members build their own BlogSpot or Yahoo360 sites and experiment with trying to rank them. He likes to give them two to four weeks to “read, learn and get involved.”

SEER’s Reynolds uses himself as an example of the kind of search pro he’d admire. “I loved the game,” he says, “so that’s why I know it well. In the beginning, I loved computers and marketing but also had the cajones to knock on doors.” He says when he got started in search it was a constantly changing and highly competitive field with no rules written. Still is. “Three-year tenure is about all you need – now I have eight.”

MoreVisibility’s Leitch has stated that in the coming year the focus should be on colleges and universities injecting “real world” classes into their business classes. “Those that we will hire in the future need to have solid fundamentals in interactive marketing and search ” regardless of your role in a company or field of interest.”

Fracas over Facebook and Trepidation with Twitter

Since Facebook was featured on the cover of Newsweek magazine less than a year ago, it’s been called everything from the social platform that would revolutionize marketing forever, to an overblown and overhyped experiment.

Industry watchers say the truth lies somewhere in the middle. Although Facebook certainly offers marketers global reach, desirable demographics and powerful “endorsed by your social graph” capabilities, its recent attempts to transform online advertising have either fallen flat or failed completely.

Facebook’s increasingly worldwide audience is one of its most valuable assets. Its rapid international growth is especially remarkable because the majority of countries – including Turkey and Israel – experiencing speedy expansion do not speak English as their primary language.

More than half of Facebook users are not enrolled in college. The fastest-growing demographic is the over- 25-years-old group. In fact, comScore Media Metrix found that more than 41 percent of all Facebook visitors are 35 years or older.

Facebook has long been considered the social network of choice over MySpace.com for those with higher educations, but recently it overtook MySpace in terms of daily page views and reach, according to Alexa. The boost has been enough to make Facebook the sixth-most-viewed website in the world. Hitwise finds that U.S. traffic to Facebook increased 80 percent from November 2006 to November 2007. However, traffic to MySpace was almost five times greater than to Facebook in November.

Speculating on the valuation of Facebook was an industry pastime this summer until Microsoft bought a 1.6 percent stake in it for $240 million in October, giving Facebook an estimated value of $15 billion.

Critics wonder if Facebook is worth what Microsoft paid for it. Many say there is no way to justify the value unless Facebook can grow into something much more than its current iteration.

But with estimates that spending by advertisers on social networking could almost triple to more than $3.5 billion globally by 2011, it’s not surprising that companies like Microsoft don’t want to miss out on the marketing opportunities.

Many Marketing Methods

Advertisers and marketers have plenty of options when it comes to Facebook. One is “Insight,” which is collected marketing data of social demographics and psychographics that Facebook provides to advertisers in an aggregated, anonymous way.

Another feature is “Pages,” which is the capability of businesses to host pages on Facebook for various brands, products and services. Brands have long attempted to build their own profile pages, with little success of getting past Facebook’s identity moderators.

Advertisers can buy “Ads” that can be targeted based on member profile data such as location, interests and activity. They simply write an ad, decide where they want to drive traffic, choose a target audience and purchase them on a CPC or CPM basis.

“Social Ads” are another option; they pair targeted ads with related actions from a user’s friends – allowing Facebook members to sign up as “fans” of an advertiser and then have their names and profile photos displayed alongside the marketer’s ads on their friends’ Facebook pages.

Online marketing consultant Sam Harrelson says he ran two Social Ad campaigns and spent approximately $500 in all. The return was about $15. He’s disappointed and doesn’t think what Facebook has rolled out so far will ever work or sustain any sort of revenue for advertisers or marketers.

Scott Aikin, president of shopping site Mallicious.com, says that Social Ads are very similar to “Flyers,” Facebook’s original form of ads, which was discontinued in December. The biggest change is that ads now show up in the news feed when attached to a relevant social story, as opposed to only in the left-hand ad space. The news feed, which lets people know what their friends are doing on Facebook and in the real world, is the first page Facebook users see when they log on to the site – making it a key place for ads.

Affiliate Scott Jangro used Flyers to target college-aged women for his Virtual Costume Party app, and says that although the application got tons of page views, they were not highly converting. He thinks it’s possible that Facebook did some analysis on Flyers and slowed down the ones that didn’t have a high CTR, but that’s “just a theory based on that one data point.”

But Aikin says he managed a substantial amount of traffic to his Social Shopping Mall application through Flyers and by advertising on third-party apps. He says that the prices are a little high for the value, but thinks this may change as Facebook brings in more adults.

Accurate Audience

Some think that Facebook’s advertising opportunities are revolutionary. Adware, malware expert and longtime affiliate marketing pundit Wayne Porter wrote a blog on Revenews.com saying that for the first time, advertisers are able to see the interests listed on 50 million Facebook user profiles. “This is groundbreaking if you are a beer marketer, because there are not many places besides Facebook where the average young man writes ‘I like to drink beer’ next to his name.”

Affiliate marketer Carsten Cumbrowski says he believes ad campaigns could be effective for smaller-budget items like ringtones and cell phones because the Facebook crowd skews younger. In general, Cumbrowski thinks Facebook, like most other social networks, “is very limited in terms of the type of ads that work well.”

Others doubt that Facebook is the next advertising gold mine because users don’t have their wallets out on social networks. They are there to socialize. And some think advertisers would have better luck targeting users when they are searching on news or search sites – because it shows intention.

Beaten-Down Beacon

Causing much of a hullabaloo in the news is “Beacon.” It enables the tracking of user activity across a network of external participating sites and then reports that back to Facebook. Activities could appear in the form of “endorsements” (e.g., Harry just bought a book on Amazon), that appear in a Facebook RSS feed area. Facebook said the model was intended to turn millions of Facebook users into a “word-of-mouth promotion” service.

However, in late November, Facebook decided to alter its Beacon feature after attacks from privacy groups and MoveOn.org demanded Facebook stop broadcasting users’ purchases without their consent. The Beacon feature is no longer active for any transaction unless the user clicks “OK” – making it an opt-in, not an opt-out, system.

Consultant Harrelson says Beacon was a horrible idea. “It reminds me of the toolbar apps from 2002.” He believes there were too many concerns over privacy, data ownership and Facebook’s long-term sustainability as a platform “to cause much skirt hiking.”

Another Facebook feature, “Groups,” allows users to organize around a cause or common interest. Groups have several levels of controls associated with them and can be public, private or invite-only, and they can also be hidden from the group directory. Owners can email notifications and communications to all group members.

Jamie Birch, director of affiliate relations for Converseon, a digital Web 2.0 communications agency, says they are looking into having their own group because it would provide an additional venue to communicate with affiliates and educate them on Converseon’s programs.

Facebook Applications

Out of all of Facebook’s offerings, it is the ability to develop applications that is most enticing to affiliates. Launched in May, Facebook Platform allows developers to build third-party applications within Facebook’s user interface. It took off like wildfire because it gives marketers a cheap and effective means of promoting their website to the growing Facebook audience.

As of mid-December 2007, there are more than 10,000 applications, and the most popular apps include Top- Friends, FunWall and iLike when ranked by most engaging as opposed to number of users.

iLike, a music-sharing social network, allows users to list favorite songs and bands on their profiles. It makes money by facilitating purchases of music through iTunes and Amazon. During its first nine months on the Web, iLike attracted 3.5 million users, but on Facebook it added 5 million in just 60 days – proving to advertisers that people are interested in what their friends like.

But the viral success of iLike is not the norm. The dynamic of Facebook’s application marketing has changed because the marketplace has become saturated. Users frequently uninstall applications, and the release of each new application means more applications must fight for attention.

Michael Allen, president of ShoppingBargains. com, a source of coupon codes, released his application for Facebook at the end of September 2007. He says he wishes he had launched it a month earlier during the zenith of user installation and when developers could market their app to an unlimited amount of people. In late August, Facebook changed policies and limited marketing to only 20 people per day.

Allen is hoping to expose Shopping Bargains to new users through Facebook. He wanted to make its deals customizable and easily shareable among friends within trusted social circles instead of forcing people to leave that warm environment.

Mallicious’ Aikin developed the Social Shopping Mall app, which allows users to save coupons they find on Facebook to his site. He explains that if a visitor uses a $5 coupon for ShoeMall through his app on Facebook, Aikin gets 100 percent of that affiliate commission.

Aikin claims he’s glad to have developed an app because it was an interesting learning experience and gave him a better understanding of how to monetize social networks.

Users can find Aikin’s app on Facebook in a variety of ways: through ads, via the application directory, in a Facebook search, on profile boxes, using news feed stories, and on ads on apps that are available through third-party advertising networks. But Aikin warns that even with all the marketing tools available, “the success of your app comes down to the value you provide.”

Jangro, the affiliate who developed the Virtual Costume Party app, had a less favorable experience. He launched his app in October and would “not deem it as successful,” suspecting that current users of Facebook are “not in the buying mind-set.” Jangro thinks that if shopping is not fun or useful enough to gain traction on Facebook, “it doesn’t seem advisable for affiliates.”

Still, Jangro says there is an opportunity on Facebook to build brand, and recommends those who are thinking about developing an app should first focus on one that is entertaining and engaging and then worry about how to monetize it. He thinks if an application name is interesting enough, it could garner adds from curious friends who learn about it on the news feed page.

President of SubmitAWebsite.com Joe Griffin points out there are a plethora of opportunities for advertisers. If a marketer of iPhone accessories wants to reach people on Facebook, he could leverage iPhone Groups, check out the fans of the iPhone Page or advertise based on users’ demographic information or listed interests such as “gadgets, technology, Mac users.”

But many advertisers shy away from social networks because there are reports that they can’t trust what users say in their profiles – they fear people lie about their age or interests.

Consultant Harrelson says he likes Facebook as a social network but doesn’t think it’s a good fit for marketing in its current stage of evolution: “” at this point, we’re still too closely linked to off-line models and metrics that break down when you try to translate them to the social networking world.”

Twitter

Another much-buzzed-about application is Twitter, a free social networking and microblogging service that allows users to send text-based posts of up to 140 characters to the Twitter website via short message service, instant messaging, email or an application such as Twitterfic.

Converseon’s Birch says people feel three ways about Twitter: “You like it, you don’t understand it or you can’t stand it.” Regardless, Twitter has been one of the fastest-growing apps in the history of the Internet since it launched in the spring of 2007.

Marketers such as Birch like Twitter because it offers a new way to share information. It is an additional medium for communicating with his affiliates in the way that they want to be reached.

Affiliates vary in how they get their information: Some like phone calls, some want email once a year, some prefer RSS and some want information as frequently as it comes out. Twitter messages can be received a variety of ways: on Internet- capable devices, the Web IM, and phone – which makes it a flexible solution.

Affiliate managers want to offer affiliates the most up-to-date information in the way that is most convenient for them. The more affiliates know about what is going on with a program, the more they can tailor their marketing, and the more they are able to convert their traffic into sales, according to Birch.

So if an affiliate manager receives a new coupon or hot product from a merchant, they can send a tweet to those who are following the account. For example, Birch could Twitter about a promotion for a specific product – with the message that the first person to sell it gets a 12 percent commission. Birch says that he has incentivized people to use Twitter by offering deals available only through it.

Early Adopters

Another advantage of Twitter is that it is useful for reaching early adopters. Birch says they sent out the Twitter invitation to approximately 100 top affiliates in their 11 affiliate programs and about 40 to 50 affiliates are following it.

Some think Twitter is an excellent tool for reaching affluent, well-educated early adopters and influencers, but not the general public. Brands, such as Carnival Cruises and The Wall Street Journal, are experimenting with it but they only have followers in the double digits – more successful experiments have attracted numbers in the thousands, but nothing significant.

Twitter is appealing to marketers because it and other “presence platforms” are an immediate way for people to communicate their thoughts and ideas. Marketers can leverage it by selling to the user directly or by seeing major trends in the millions of daily public posts.

Harrelson says that as a marketing device, Twitter is great for building brand. “It can be a direct-response-type tool (TwitterLit.com comes to mind), but as a platform it’s much better for getting your name/identity/view/message out there.” Harrelson has been using Twitter since November 2006 and says it has been the source for more network connections than any other activity he’s been involved in, including conferences, email or Facebook. Jangro says Twitter is a good promotional tool for individuals but thinks there needs to be a good amount of people reading the updates. “If you can’t get the users, the marketing value is nothing.” For this reason alone, Twitter may not be on the top of the list when it comes to ways that brands can communicate.

Regardless of which social networking platform online marketers opt to leverage, most industry watchers agree that we are just starting to see the marketing possibilities.

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.

Going for the Gold

If asked to identify the characteristics of an ideal product to market, most would likely put at the top of the list broad appeal, the ability to evoke strong emotion, a venerable brand – and something very, very, sexy.

If this sounds a lot like the Olympic Games, then it’s easy to understand why TV advertisers line up from Beijing to Burbank with large checks in hand to get a piece of the action.

Capitalizing on the Olympic hype online isn’t nearly as competitive as buying TV spots, but not because of a lack of interest. Restrictive and complex licensing rules and requirements have kept many marketers on the sidelines. However, by marketing around the athletes and the teams instead of the Games themselves, online marketers still have a shot at bringing home some gold.

With nearly 3,000 years of history, the Olympic Games have an unparalleled tradition in sports. The images of the athletes ascending the podium clasping their medals while listening to national anthems evoke strong emotions. Sinewy athletes who push themselves to unparalleled physical achievements are the embodiment of sexy.

No wonder that every two years corporate sponsors spend billions around marketing the games, the national teams and the athletes themselves. The Beijing Olympics will bring more than $900 million in additional advertising to China in 2008, and $3 billion to the global market, according to media company ZenithOptimedia.

“We estimate that the last Olympics added about $2.5 billion to the world ad market, so [Beijing] will add about 20 percent more,” says Jonathan Barnard, the head of publications for ZenithOptimedia.

Millions of Chinese residents are also getting Internet access for the first time. In the first half of 2007, 39 million residents of China began logging on, a nearly 32 percent increase over the previous year, according to the People’s Daily Online. Marketing firm GroupM predicts that because of the Olympics, China will surpass the United States as the leading contributor to the worldwide growth in advertising in 2008.

Because the 2008 games will take place in China – a land of intrigue to Westerners and a land with a booming economy due to a new appreciation for capitalism – Beijing will translate into gold like no previous Olympics. The opportunity is also greater for this Olympiad because of the games being held in one of the world’s most populous cities (15 million people). Top-tier sponsors such as Coca-Cola and McDonald’s – who pay $50 million or more every four years to be associated with the winter and summer Olympics – are hoping for greater participation in the opening of the Chinese market to international companies.

“Athens and Sydney [the locations of the prior two summer Olympic Games] were in small markets,” says Ed Hula, editor of Olympic marketing site Around the Rings. “This is the largest market with the biggest potential,” … and companies see “more potential to use the Olympics to boost their market in China,” he says.

Since Beijing is relatively unknown to the rest of the world, the Games offers a chance to connect the region to a new audience and bring cultures together, according to Carter Westfall, vice president of consulting firm Helios Partners, which has worked with cities applying to host the Olympic Games. “Every city has a story to tell,” says Westfall. Similar to Berlin during World War II, “seeing the athletes competing inside Beijing is a unique opportunity given the current political climate,” he says. Westfall says that because of the location, nontraditional Olympic sponsors such as Australian energy company BHP Billiton, which is building a dam in China, are participating.

Beijing also presents a greater opportunity than the last Olympics, not only because of the size of the country, but also because of the changes in Internet technology and marketing vehicles. The new opportunity is “hard to quantify because there have been so many advances, such as blogs, virtual reality and social networking,” notes Westfall. During the last Olympics, websites such as SecondLife, YouTube and MySpace either didn’t exist or were not useful online marketing tools. While top sponsors will continue to spend millions on TV, “the online component is the way for sports marketers to differentiate themselves,” he says.

Jimmy Vee, a marketing consultant and co-author of the book Gravitational Marketing, recommends using athletes prominently in online marketing campaigns. Advertising on enthusiast blogs, athlete’s MySpace pages and posting training videos on YouTube are inexpensive marketing methods, Vee says. “Consumers don’t connect with companies, they connect with people,” he notes.

Getting Out of the Blocks

Early 2008 is the perfect time to begin marketing around the Olympics. Most initiatives surrounding Olympic marketing begin between three to six months before the games. Around the Rings’ Hula saw very little marketing activity off-line outside of China during his travels around the globe in 2007 and also noticed few online campaigns.

Top-level Olympic sponsors including Samsung, GE and AT&T began their marketing efforts online and off-line in early- to mid- 2007, but they have yet to start their sprint to the finish. Samsung used an online promotion to recruit torch bearers for the Olympic relay through an exclusive arrangement with the BOCOG (Beijing Organizing Committee for the Olympic Games). GE launched a micro website with videos detailing its involvement in building power, lighting and water systems in Beijing.

The small pool of Olympic licensees with campaigns active in the fall of 2007 includes Jet Set Sports, which has exclusive rights to sell Olympic hospitality packages to Beijing, and merchandising companies XP Apparel and Roots.com.

For merchants, getting the governing Olympic Committee to approve merchandising deals can be a marathon of negotiations. James Connell, the director of e-commerce and new media for Roots.com, says merchandising Olympic apparel “… is complicated because you have people with competing interest in what the products look like and how it should be worn.” The retailer, which is based in Toronto, obtained a merchandising license from the USOC (United States Olympic Committee) instead of the IOC (International Olympic Committee) and can therefore only sell apparel online to consumers within the U.S., Connell says. Recruiting for new affiliates to sell products around the Beijing Olympics will begin in early 2008, according to Connell. Consumer promotions won’t start until about 100 days before the games begin, he notes.

Roots.com is partnering with existing sports sites, and Connell recommends that publishers add content about individual athletes’ performances and their lives to increase traffic. The company does not have marketing agreements with any USA Olympic teams or athletes currently, so they can’t sell USA Gymnastics bags, for example. In the past, the company has signed marketing agreements with individual athletes such as skater Apolo Ohno.

AT&T, a sponsor of the USOC, began its marketing activities in the summer of 2006, according to Mary O’Connor, the director of Olympic marketing for The Marketing Arm, which represents the company. In addition to the marketing programs with the USOC, AT&T also indirectly markets around the Beijing Olympics by supporting two USA Teams.

Though marketers who partner with USA Teams cannot use the Olympic Rings or Beijing logos, they gain an association with teams and sports that have fans that match the attractive Olympic demographic. AT&T’s “Blue Room” website tracks the year-round exploits of the USA Diving and Gymnastics teams. The site provides results of pre-Olympic competitions and behind-the-scenes videos of the participants in training to engage the audience with the personalities, O’Connor says. The website will encourage fans of gymnastics to start talking about Team USA’s prospects for success in early 2008, in hopes that “the passion can come around Beijing,” according to O’Connor.

Amateur sports enthusiasts “have no mainstream outlet for their sports” and are hungry for content, according to Matthew Pace, a partner and chairman of the sports business at the law firm of Duval & Stachenfeld. Pace, who previously worked on Olympic marketing for General Motors at agency Eventworks, says marketing to a fan base can create an affinity. For example, if an automotive company sponsors the USA Swim Team and the fan also likes that sport or team, then he or she is more likely to buy from the company, Pace says.

Pace says sports enthusiast blogs and news sites that cover but are not affiliated with sponsored teams are a great place for “ambush marketing.” For example, automotive competitors can market to the same audience of sports fans on other sites to attempt to win over consumers.

Marketing in conjunction with USA Teams and enthusiasts sites provides access to a desirable demographic without having to pay premium Olympic sponsor dollars, according to Robert Prazmark, executive vice president of sales and marketing at the Wasserman Media Group. Prazmark, whose company markets for the USA Gymnastics, Swimming, and Track and Field teams, says that the USA Teams and their fan sites in aggregate create a larger marketing opportunity than the Games themselves.

While the Olympic TV audience has dwindled, interest in swimming and gymnastics clubs is growing, Prazmark says. An individual webcast may only draw tens of thousands of viewers, but collectively, online coverage of a team’s activities and competitions can surpass the viewers of Olympic events, he says. Prazmark notes that USA Team fans offer a desirable demographic because of higher relative incomes. “The audience is larger and deeper than a more generic Olympic audience,” he says.

So just like the journey of the Olympic athletes – persistence, preparation and training are required for marketers to take home gold.

UPDATE:

Media services company ZenithOptimedia released its forecasts for advertising expenditures in the U.S. It projects a banner year for Internet ad spend including a good year in 2008 for TV ad spend because of the Olympics – but predicts ad spend down overall.

Some of its projections include:

U.S. ad market has been downgraded to 2.5 percent growth in 2007 from the previous estimate of 3.3 percent – mostly because of the credit and housing market slump
The Olympics will lift TV’s share of the global ad market to a record 38.2 percent in 2008
Online video and local search will make for a 30 percent growth in Internet ad expenditures in 2007 – that’s nine times faster than the rest of the ad market
Between 2006 and 2009, Internet ad spend will grow 85 percent and raise its market share from 6.1 to 9.5 percent
It projects 29.9 percent growth this year in Internet ad spend – that’s up from 28.6 percent from its last forecast a quarter ago, and 85 percent growth between 2006 and 2009 (up from the previous forecast of 82 percent)
Internet advertising is expected to account for 9.5 percent of all expenditure in 2009, up from 9.4 percent last quarter

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.

Look Out!

Last night you read on your local newspaper’s website about how gas prices could reach $4 a gallon this summer, so you went to a car site to check out some reviews about hybrid vehicles and then visited an automaker site to learn about the car prices. This morning when you checked your email, you saw two ads for hybrid cars.

Did you think – wow, this relevant ad sure is handy or, yikes, Big Brother is watching my every move?

This question is at the crux of an issue that has ignited privacy advocates, who fear that recent acquisitions in the online advertising space will make profiles of consumers more complete and enable behavioral targeting (BT) to become more extensive.

In April, Google announced plans to purchase DoubleClick, an ad-serving service and owner of affiliate marketing network Performics. Following on Google’s heels, Yahoo announced it would complete its purchase of RightMedia, which operates an exchange for trading digital media. Then in May, Microsoft said it would buy aQuantive, which operates a variety of online advertising businesses, and the marketing services company WPP announced its intention to buy ad network 24/7 Real Media (see cover story page 44).

These deals, which vastly increase the amount of knowledge that Google, Microsoft and Yahoo have about their users’ behaviors, validate the speculation that widespread BT is just around the corner.

BT is not new. Microsoft added BT to its AdCenter in 2006, AOL has been using BT technology from Revenue Science, and Yahoo has its own proprietary BT solution. Ad networks have thousands of website clients, and segment the audiences into categories such as car buyers and health food buyers, based on anonymous user activity.

Privacy advocates are concerned that the recent acquisitions will enable Google, Yahoo and Microsoft to construct a full profile of a user’s online behavior, from their initial search all the way through to the time they close their browser. Advertisers that want to discriminate among customers could use these records of user behavior improperly.

Google and DoubleClick

Most of the hullabaloo about privacy concerns is focused on the DoubleClick acquisition because Google, which tracks user search queries and history via user IP addresses, has the lion’s share of the search market. Meanwhile, DoubleClick, which tracks users via cookies associated with graphical ads it serves, has a similar advantage in ad trafficking.

Mark Ward, software engineer for RevCube, a provider for multichannel online ad campaigns, explains that before the acquisition, Google’s behavioral data essentially stopped when the user left the search result page. “Now, if a user stays on major sites [assuming DoubleClick is on the site the user browses] and uses Google to search, it’s conceivable that Google/DC would know what page the user was on, when the user was on it, where the user was coming from, etc., for every page the user ever browses.

In the past, Google, whose famous mantra is “don’t be evil,” has indicated that it would not track its users’ behavior to develop powerful targeting capabilities for display ads because it doesn’t want to snoop on its users. But some believe Google will embrace BT because they are under pressure to find revenues beyond text-based search ads; others say Google bought DoubleClick so they can compete in the display game; and others say it was simply to prevent Microsoft from buying DoubleClick (and still others say it was a combination of several factors).

Google has denied claims of any intent to do wrong. At Google’s annual stockholder meeting in May, Google co-founder Larry Page said, “Our actions over the next 10 years will make it clear we’re not the same kind of companies as you are worried about.” And CEO Eric Schmidt added that the company has “made a commitment not to track user data.” Some point out that if Google wanted to focus on BT, they would have bought Revenue Science or Tacoda, which specialize in it.

But Jeff Chester, executive director of the Center for Digital Democracy (CDD) in Washington, D.C., says that, “Google’s entire business is about personal data acquisition and use.” As it increasingly provides an array of third-party [rich media and interactive] ads, especially for major advertisers [which it is seeking], it will use our data in sophisticated ways to market to us. Google – no matter how high-minded its mission – is ultimately a digital marketing company.”

Publisher of AffiliateFortuneCookies.com Sam Harrelson agrees that Google is already doing BT in an oblique way that ascertains the end user’s browsing habits, click choices and attention data. He says programs such as GMail and Google Reader are giving Google a great deal of quantifiable data on individual (or generic) user habits and how those users browse. “The addition of DoubleClick’s data only solidifies that ability to measure beyond the click or the impression,” says Harrelson.

Privacy advocates are not the only ones considering the profound impact the DoubleClick acquisition will have on the industry as a whole. Chester says that in addition to threats to privacy, “GoogleClick” will become the most powerful media company online, able to handpick the winners and losers of e-commerce. “Instead of robust competition, we will have dot-consolidation.”

RevCube’s Ward agrees and says that the DoubleClick acquisition should make people nervous because Google could become a monopoly that can do every part of online marketing.

The DoubleClick acquisition would give Google a network of publishers and advertisers that provides a vast amount of visitor behavior data to use to target ads across its network. This makes other ad networks worried because Google would be their direct competitor.

Some believe that the DoubleClick acquisition would reduce competition by giving Google 80 percent of the marketing for serving ads to third-party Web publishers.

Harrelson says that ad networks need to continually adapt to the marketplace and not become obsolete in their business model or place in the food chain. “If ad networks are not fastidious in their outlook, this could very well happen as Google, Microsoft and Yahoo continue to chip away at the once-separate performance marketing space.” Ali Mirian, product manager of publisher solutions at 24/7 Real Media, says there are publishers who consider Google to be a major threat to their advertising business – the data that they would run through the DoubleClick system would now be in the hands of Google.

Another disadvantage for affiliates and search marketers is the potential of increased cost per click (CPC). Affiliate Colin McDougall speculates that if Google acquires a lot of information about visitor behavior from initial search through to the shopping cart checkout, it could have an impact on CPC. “Rather than the competition setting the price in the open market bidding system that currently exists [i.e., AdWords], the base bidding price algorithm might get tied more to conversion rates than what the marketplace is bidding.” Harrelson points out that a benefit for affiliates will be a streamlined and automated process for dealing with agencies. He explains that affiliate marketing works best when the ease-of-use factor is higher than the time commitment factor. He sees the DoubleClick acquisition and others opening up the playing field of “affiliate marketing” to many more nontraditional affiliates in the social media and blogging spheres.

Consumer Pros and Cons

Critics say that consumers should be concerned that more complete user profiles will mean that relatively anonymous usage data could be leveraged to link a pattern of behavior to a consumer’s identity and that cross-campaign learning could be used to infer private information, such as sensitive health data.

CDD’s Chester says consumers’ privacy will be further at risk because Google will be in the position to track the majority of consumer actions online including through cell phones. “Such data mining will enable Google to have unprecedented insights into consumer behaviors and expenditures.”

As a result of a complaint filed in April to the FTC by privacy groups including the CDD, the FTC created a special task force and opened a preliminary antitrust investigation at the end of May. Chester says, “The building pressure will result in some policy change ” BT is inevitable – but policy safeguards will be a part of it in some area.”

But not all consumers are worried about giving up their privacy. According to the results of a ChoiceStream Personalization Survey conducted in 2006, the number of consumers willing to allow websites to track their clicks and purchases increased 34 percent from the previous year.

However, the results show no significant decline in the number of consumers concerned about the security of their personal data online, with 62 percent expressing concern in 2006 versus 63 percent in 2005.

“Consumers are starting to become more open to the idea of giving up some privacy in return for a more customized search experience,” says Marketing Pilgrim’s Andy Beal.

However, there must be a tipping point on the curve where the average consumer will start to feel as if their privacy is being disproportionately traded for personalization, “but we are nowhere close to that yet … even with platforms such as Google’s Web History,” AffiliateFortuneCookies’ Harrelson says.

Of course many online marketers are quick to point out that consumers benefit most from an increase in BT. Kevin Lee, executive chairman and cofounder of Did-it.com, a search and auction media agency, says that as targeting improves there will be less untargeted advertising and more advertising that is truly relevant to the consumer, be it text links, banners or video.

And many believe that Google will use the “if you are going to see ads, they might as well be relevant” approach because the customer-centric message complements Google’s brand.

The Ick Factor

But even if consumers do want more relevant ads, it doesn’t mean that they won’t find it disconcerting if the same ad for an MP3 player follows them from site to site. The creepy factor could risk consumer trust – which would tarnish a brand’s reputation – and therefore be a substantial risk for merchants.

Because a privacy incident could damage everyone in the advertising food chain, publishers, ad networks and advertisers are going to have to be clear to consumers that their privacy concerns are absolutely valid and that steps are taken to build safeguards into their systems. Lee says that a controversy could ensue if an ad network doesn’t adequately disclose that ads are being targeted behaviorally.

Ad networks insist they only collect anonymous data, which then is aggregated and analyzed to segment the user into one or more Internet archetypes, such as “car shopper” or “dog lover.” And ad networks are explicit in explaining what data is collected and how it is used and that they give users the option of opting out.

DoubleClick and aQuantive say they give users the ability to opt out of having data collected about them, though privacy experts argue that few people know they have that option.

In an effort to come up with a solution, the NAI, which is a cooperative of online marketing, analytics, advertising and email companies, developed the site at NetworkAdvertising.org. It is a centralized tool that allows users to verify which ad networks have placed a cookie on their hard drive and then users can submit opt-out requests for each network they prefer not to be targeted by.

It’s possible that government regulation could halt BT, at least temporarily. If that doesn’t happen, Marketing Pilgrim’s Beal says that BT implementation will likely be slow and steady to avoid any missteps that could impact the trust built up by the search engines.

Some experts believe there will be a fundamental shift from contextual targeting to BT. Revenue Science’s Basem Nayfeh says behavioral targeting changes the discussion from whether an advertisement is relevant to the content to whether an advertisement is relevant to the person reading the content.

ValueClick, an online advertising behemoth rumored to be an acquisition target, is advocating the adoption of 3D-BT, which would deliver a personalized message across multiple channels. John Ardis, vice president of corporate strategy at ValueClick, explains that 3D-BT is needed because current BT focuses only on display advertising so targets are sent messages that are relevant in display, but appear depersonalized and generic in email and on the marketer’s website.

Regardless of privacy issues and government intervention, there is too much money to be made by targeting consumer’s habits for BT not to evolve – even if those involved need to tread very carefully.

The Mobile Marketing Monster

Tony Phillip will tell you the exact moment he knew that mobile marketing and advertising – predominantly via cell phones – had crossed over into the mainstream.

It was when American Idol, the extremely popular TV singing contest, allowed viewers to vote for their favorite singer via text message – and more than 50 million did in 2005 versus 21 million in 2004, according to the CTIA – The Wireless Association. Also in 2004, 46 percent of text messaging votes for a new pop star sent in was from wireless subscribers using text messaging for the first time, CTIA figures state.

Less than a year before, UpSNAP had a deal with ABC to allow text-message voting during the Academy Awards. It was basically a disaster, according to UpSNAP CEO Phillip, who notes, “If viewers didn’t have text messaging, they weren’t going to use it.”

What a difference a year makes. There is little doubt that mobile marketing – that including text-message ads displayed with a mobile search or via opt-in, coupons sent via cell phone, video and display ads interwoven with downloads or streaming from cell phones or other handheld device connected to the Internet – has arrived.

More major brands, agencies and start-up companies are putting their energy and dollars into exclusive campaigns and technologies aimed at mobile marketing, and for some it is already big, big business.

As people in the U.S. become more reliant on their cell phones, mobile services such as mobile search and Web surfing will become commonplace. Consider the following facts according to The Pew Internet & American Life Project:

52 percent of adults have their cell phones turned on 24/7.
30 percent of adults say they want to Web-surf from their cell phones.
47 percent say that mobile maps and driving directions are a must on the next phones they plan to purchase.

MOBILE IS GLOBAL

Mobile marketing adoption is shooting through the roof. Worldwide mobile ad spending is expected to top $870 million by the end of this year, according to Informa Telecoms & Media. Meanwhile, The Shosteck Group predicts mobile marketing will be worth $10 billion in the U.S. by 2010.

Furthermore, 43 percent of U.S. marketers are using or about to use mobile marketing in the next 12 months, according to Forrester Research. And nearly 90 percent of major brands plan to market to mobile phones by 2008, according to a survey by Airwide Solutions.

“It’s happening faster than anyone expected,” Laura Marriott, executive director of the Mobile Marketing Association (MMA), says. “2006 is certainly a year that more and more brands are getting involved but so much more can happen. Response rates from mobile are very high. There’s great engagement from the consumer.”

That sounds like a giant wellspring ready to gush, but the U.S. is not even in the lead here. Most of Europe is slightly ahead in the adoption of text messaging because of the availability of cheaper cell phones. In March, mobile phone users in Britain sent more text messages than they ever had before – 3.19 billion or about 103 million per day. That’s a region with only about 60 million people in it.

In Japan, NTT DoCoMo recently pulled in $2.5 billion in the first quarter of 2006 in non-voice revenue. About 35 billion text messages are sent each month in China, where about 426 million people have cell phones – that’s like giving one and a half phones to every person in the U.S.

Pay per text has also taken hold in the U.K., where users can request a text message of a phone number when calling directory assistance or have directory assistance send the number automatically. Phone numbers and special-offer text ads are sent when directory assistance is asked for a keyword such as “travel.”

“[Mobile marketing] can be a big cash cow for any company,” Holger Kamin, country manager USA for Germany-based Zanox, a multichannel commerce provider, says.

The ease with which so much of the world outside the U.S. has embraced handsets to communicate in ways other than phone calls means the choice for advertisers is simply how to reach out to them. Of cell phone functions available, the surprising choice for marketers so far has been the simple text message.

“We always go back to what the consumer knows,” says Marriott of the MMA, “and what is already available in handsets.” She says text messaging has made a pretty natural rise to the top, but also wants to make sure “we don’t get ahead of ourselves in technology.”

While Americans may own 200 million cell phones, marketers wonder if all these people are using even the simple functions on their phones. While 75 percent of U.S. teens (age 15 to 17) own a cell phone, according to eMarketer, only 36 percent ever send or receive a text message. These conflicting statistics are what may be holding back the really big advertisers from designing campaigns for mobile en masse.

It was only two years ago the CTIA – The Wireless Association introduced cell phone short codes, which are 5-digit numbers that text-messagers use to send their message instead of a standard 10- digit phone number. The short codes were designed to help marketers reach out to brand customers via mobile phones. Anheuser-Busch, Dove soap and Daimler-Chrysler are just a few of the major brands that ran successful short code campaigns to get customer feedback via cell phones.

CAMPAIGNS TO GO

That will not stop the innumerable mobile ad companies from vying for your attention.

MobileLime CEO Bob Wesley, for example, thinks of it as developing a one-to-one relationship. “This is all viral now,” he says. So far MobileLime has used radio ads to get opt-ins and serve coupons to cell phones. It is not only paving the way for m-commerce (paying for an item through your cell phone), but gathers rich data for the advertisers, such as if recipients opened the coupon, when they did, what they used it for and for how much, Wesley says.

Currently, some companies such as Bango enable payment via mobile phones through a deal with PayPal, but the selling merchant must sign up for Bango’s service to allow the capability. Other companies such as JumpTap aim at launching a mobile search index to challenge Google. Carriers join the search index and online auction platform and serve it to their customers.

Of course, in the online world, coupons are big business and they are not being left behind in the mobile arena. Mobile coupons are making great inroads to the electronic platform because of the “sheer inefficiency of paper coupons,” says Peter Sealey, CEO of consulting firm The Sausalito Group. He says with redemption rates for paper coupons at only 3 percent, advertisers realize they save more cash going electronic. The marketer pays only when someone prints a coupon, eliminating distribution costs. “Marketers after the 2000 dot-com crash said, ‘Thank God that’s over,'” Sealy says. “We can go back to TV and radio.” Now, mainstream marketers are embracing the full bloom of mobile marketing again, he adds.

Sealey predicts that within five years, the paper coupon will be as good as dead. Search giant Google recently said it would start to offer local coupons in conjunction with using Google Maps. Online coupons in general have already taken hold with as much as 50 percent of online coupons being redeemed, according to some estimates. Companies such as CoolSaving, Coupons, Inc. and Zixxo do well marketing coupons over the Internet. Sealey says as more marketers accept electronic devices as a viable vehicle, the better adoption rates will get.

Some mainstream advertisers and companies are already rolling out robust campaigns to cell phones. Strawberry music stores on the East Coast are text-messaging promotions and deals to mobile handset users who sign up to receive alerts and geographic-based special deals. While Strawberry has relatively few stores in its network, Starbucks with thousands of locations has run a scavenger-hunt-style loyalty promotion where cell phone users signed up to get questions via text messages, the solving of which could send five chosen players on a vacation to Costa Rica.

Recently named No. 2 carmaker Toyota spent $10 million on a mobile campaign targeting Hispanic cell phone owners to watch funny hidden camera clips on their phones featuring the 2007 Camry. And Google is undertaking significant testing for its own mobile ads on its mobile search results and to launch a version of AdWords for mobile. Google is testing the search ad in the U.S., the U.K. and Germany.

Popular eateries McDonald’s and Subway are also getting their feet wet by offering some promotions via mobile phones. Even Net vet AOL has had its Mobile Search Services up since December 2005 with search, a shopping comparison module and a Yellow Pages feature.

MOBILE ON TARGET

Firms with mobile technology know-how are not the only ones seeking to cash in on mobile marketing. AirG, for example, sets up social networks on its platform and has found great success in sending mobile promotions to its base of users. They worked five years to get 5 million users and in the last eight months that has bounded up to 10 million. AirG’s display ads and ad-sponsored games for handsets capture detailed demographics and consistently get a more than 28 percent response rate. Receiving the ads can be turned off and on at will and are all opt-in.

Along the way, AirG discovered they had a significant Hispanic demographic, so they customize certain promotions to target only those groups. Frederick Ghahramani, AirG co-founder, says he can find the Latino males in New York City who are single and send only them an appropriate promotion or coupon electronically.

“What’s been lacking isn’t the enthusiasm [for mobile marketing],” he says, “but the ability to target the active base of customers.” They share personal information with each other and find like-minded people. AirG brings relevant targeting to the table, he says, noting, “The industry has had the ambition but now is waking up.”

There is nearly universal agreement that the key element for the continued success of mobile marketing is targeting. Third Screen, the largest U.S. mobile ad network, got the jump on everyone when it started four years ago and has only recently said that targeting mobile ads has finally reached a kind of maturity. The company has stated that the next achievements in mobile marketing will be privacy standards for all carriers, predicting more detailed demographics from broad information and more and better mobile ads based on real-time location of the handset user.

With the popularity of buying and downloading ringtones and entering online auctions via cell, companies like Ad Mob want to make sure you can reach users based on their region, platform, device capabilities and even manufacturer. If you want ads to reach only Nokia users on MIDP 2.0 devices in Europe, AdMob, who also has polyphonic ringtone support, states they can do that. Of the many companies that now have a mobile marketing component, better targeting is their crown jewel, the company claims.

Some companies have come up with original ways to engage people via cell phones. Vibes Media has its Text-2- Screen that invites concert-goers to text to the Jumbotron screens at stadium-sized pop concerts. The text they send to the screen is displayed on the branded screens with messages such as “Get ready 2 rock!” and “Happy birthday, Sarah J.” Irvine, Calif., company go2 recently launched go2 SpeedPoll, which conducts surveys sent via cell phone that ask about attitudes toward certain brands – with results viewable in real time.

MOBILE PERFORMANCE

Affiliate marketing powerhouse LinkShare won’t be left behind. President of LinkShare Steve Denton says its parent company Rakuten of Japan is having considerable success with mobile commerce. He says that at LinkShare Japan, a significant percentage of affiliate purchases are coming from mobile commerce.

“Our customers live and work and play in a world without boundaries,” Denton says, “and we must find ways to exchange with our customers, and then we need a platform for that; then mobilize.”

Japanese m-commerce is exemplified by someone shopping in a mall who finds a cool jacket, takes a picture of the UPC code on the tag, sends that to a browser and makes the purchase via cell. In addition, that customer can mobile email the code and a picture of the jacket to as many friends as he or she thinks would also like to buy it.

Denton says he has no doubt that “affiliates could plug this into their business models very quickly. But the infrastructure is not there yet.” He adds that publishers have great house lists but are not using text or cell phone numbers from their customers. “Cell phone numbers will be more valuable than email addresses in five years,” he says, adding that LinkShare in the U.S. will have some key additions to mobile in the near future.

But even as the adoption numbers keep steadily rising, there are still some gray clouds out there. For example, for a country with so much Internet usage, only 16 percent of U.S. mobile phone subscribers use their Web-enabled phones for the Internet. Some ad networks only work with certain brands of cell phones and even companies that say their platforms work across all brands and telecom networks can’t guarantee that the service will work for consumers consistently.

While marketers are very eager to reap the financial benefits mobile promises, some critics have said that not enough is being done to erect coherent marketing strategies. In the rush to go mobile, some companies are grabbing whatever firms are offering and not building their own goals, figuring out how to follow the metrics, putting up privacy standards or discovering a solid plan to get people to opt in. “Some companies are so decentralized,” says Zanox’s Kamin, “that they don’t even know they have [offices] in Europe.”

Other critics say a patchwork of partnerships keeps true standards from emerging. In the realm of mobile search, a giant like Google can go out on its own with few partnerships because most go to Google anyway, but other search companies (Yahoo, MSN and others) must become allies with a carrier to get the best traffic. These kinds of deals can shut out some cell phone owners from getting the right information when they want it. There are also bandwidth inconsistencies as there are with general cell phone reception depending on location and interference. SEO firm Oneupweb has noted that the myriad of technical issues with mobile commerce and advertising will smooth out for the next generation of mobile surfers and searchers because the interfaces will gradually become less technical. It will be like operating your TiVo or your iPod.

“Unlike a year ago – the early days,” says Phillip of UpSNAP, “search [via mobile] didn’t make a lot of sense, but now they will do what is relevant to their mobile lifestyle – comparison shopping, for example, before you get into your car.”

Marketers are also just beginning to realize that the mobile lifestyle cuts across socioeconomic barriers. Most people in the U.S. – even some of the most poor – have a cell phone. With 200 million handsets out there and growing, the young and old and rich and poor and racially diverse pretty much covers everyone who can participate in mobile marketing.

Video Ad Explosion

In early August, Foster’s Beer announced two changes. First, they’ll no longer try to be “Australian for Beer” and, second, they’re moving all their television ad spending online.

Although the decision only affects a $5 million ad budget, it’s a bellwether: Companies are flocking to online video ads as the way to reach customers.

Recent reports claim advertisers will spend $74 billion to buy airtime on TV in the U.S. for 2006. The online ad spend is set to reach $26 billion or 9% of the total US market.

“This [online video ads] could very well become the dominant form of online advertising … probably within the next 18 to 24 months,” says Bob Hanna, senior vice president of sales at Burst Media, which offers a network of publishers for advertisers.

A recent local online advertising report by market researcher Borrell Associates expects local video advertising to become a trackable category in 2007. And the biggest online ad opportunities currently revolve around real estate and automotive. Combined, these two categories comprise slightly more than one-third of all local online advertising, which is expected to grow 31.6 percent to a $7.7 billion category in 2007.

For its new online video ad push, Foster’s Beer is on Heavy.com, the online video site geared toward young males. Prior to Heavy content, which ranges from videos of scantily clad young women to spoofs on America’s Funniest Home Videos, you can find video ads for candy, beer and cars. But the edgier and more risque videos run without pre-roll ads.

Online Is Not TV

Heavy’s motto, “Because TV Sucks,” is instructive. For five years, it has been said that online content is constitutionally different from television: Advertisers will have to change their approach to creating video ads. A panel of online advertising, media and Web executives at the OMMA conference in New York in September agreed the most effective online video ads should be 15 seconds in length or less. The panel also promoted the idea of creating spots specifically for the Internet and digital media rather than repurposing existing television advertisements. That way the ads can be developed to enable consumers to click through to gain additional product information.

Advertisers may also have to be more open about where these ads end up as demand increases.

McKinsey Quarterly, an online business journal from consultant group McKinsey & Co., recently determined that in 2005, 80 percent of online video ad inventory was being used.

“The maximum supply of video ads is currently about $600 million a year – far less than future demand, which we expect to reach $1.4 billion to $3.2 billion in 2007,” the article “A Reality Check for Online Advertising” states.

Still, Randy Kilgore, chief revenue officer for Tremor Network, says, “The juggernaut called online video advertising is here to stay.”

And content providers are rising to the challenge. In August, Google, Viacom and YouTube made announcements about video advertising solutions. Two months later, Google purchased the less-than-two-year-old YouTube for a whopping $1.65 billion.

YouTube, which shows about 100 million videos daily, won’t disclose its advertising fees for visible ad spots. Google, at the end of June, also started testing an advertising model that features some video ads in a sponsored section. Google would also not disclose the fee for those video ads.

Not only are publishers opening up space, but technology solutions are also increasing; for example, Burst Media is now facilitating streaming video within banner ads, and Klipmart, a video ad solution heralded for interesting innovations in video ads for movies, was acquired by DoubleClick in June. DoubleClick is also the parent company of affiliate network Performics. EyeWonder and e-line Technologies are also in the space.

Despite television screens getting larger and flatter, viewers are enticed by the flexibility of on-demand viewing that the Internet enables.

One source for online video placement is on television network sites. Fox is streaming more than 40 episodes of prime-time shows online, with Toyota as the sole sponsor, and other networks are following suit.

That’s because most Internet users have watched online video; 25 percent watch regularly, at least once a week. Users regularly see online video ads and, according to the Online Publishers Association, 44 percent have taken some action after viewing an online video ad. Much of this reach comes during times when people wouldn’t normally be watching TV, given online video’s growing domination of the day-part audience.

And broadening the marketing window into daytime hours can be put to profound use. Thursday-night TV is no longer the last, best opportunity to influence consumers going into the weekend – that title is now held by the Internet on Friday mornings and afternoons.

Within these online shows, pre-roll, mid-roll and post-roll advertising is offered: just like on television. For instance, Heavy.com runs a static ad for Virgin Mobile for five seconds before one of their “Behind The Music That Sucks” shorts. There are also longer, more elaborate ads for Nike and Coors with production quality that is indistinguishable from television ads – and these ads are arguably as good as the content they precede.

Viewers are sometimes unable to fast-forward through “pre-roll” ads. Mid-roll ads crop up in the middle of a video. This format of advertisement would not be practical in a video short but makes sense in a streamed TV show. And, because content is limited, some companies offer ads at the end of videos – post-roll.

New Opportunities

One benefit of streaming prime-time shows and live sporting events is ad opportunities go to marketers who would traditionally advertise with these shows as well as new advertisers who could not afford network television ads. But online video, except in cases like Fox’s shows or news shows like Evening News with Katie Couric (which is being streamed online), doesn’t look like television and should not be treated like television by advertisers.

The bread and butter of sites like AtomFilms, Heavy and Yahoo Video is short video. Most video online is less than five minutes long, and advertisers can’t run one-minute commercials they’ve shot for television.

Companies who have a difficult time understanding that are “trying to apply an old media solution to new media,” says Forrester senior analyst Brian Haven. “In the long run, that’s just not going to be a very successful way to approach online advertising.”

DoubleClick’s vice president of rich media, Ari Paparo, notes that for online video ads, less is more. “You aren’t going to be able to repurpose TV ads – a 30-second ad doesn’t work online. Fifteen seconds is the maximum for a single ad unit.” Paparo suggests a new model: a short preroll spot of three seconds and then the content, then a long post-roll spot. He also believes interactive video ads show real promise, where you can telescope when it’s over to find out more – like for a high-involvement product like a car.

But companies who have strong-roots advertising on television, direct marketing companies, may have other challenges. Edith Bellinghausen, vice president of new media of Razor & Tie, an entertainment company that includes a record label and direct marketing operations, is watching where online video advertising is going but says the company is not ready to rush in.

Razor & Tie will try online video marketing soon “because we have to, but we’ll never move away from TV altogether.” The placement of their spots depends on the product; their children’s music CDs might, for instance, be advertised on Nickelodeon. The documentary Biggie and Tupac was advertised on MTV and VH1, among other cable stations. But sometimes a television campaign is more cost-effective and focused when it’s run on local cable stations.

Potentially, online video advertising could work in a similar way, for focused campaigns for companies with lower marketing budgets.

Bellinghausen notes that YouTube already has videos posted by parents at shows for Razor & Tie’s Club KIDZ BOP. But when considering their children’s CD products, she points out another question facing advertisers who are looking to jump on the user-generated content bandwagon: Are advertisers protected from ad placement next to undesirable content?

“We’re intensely focused on them not ending up somewhere they don’t want to be,” insists Tacoda’s CEO Curt Viebranz. Tacoda sells ad networks based on behavioral segments and YouTube is now in their network. But Viebranz notes, “If you begin to drill down into YouTube’s site, we’re not there. We’re where you enter the site.” Because advertisers are sensitive to being placed near questionable content, Tacoda errs on the side of caution by placing ads near the home page, rather than in the murky underbelly of YouTube’s offerings.

The anarchic nature of user-generated video sites means that brands will have to deal with some uncertainty about placement. “Brands have to think a little more openly about what they’re associated with,” urges Haven. He also believes that online video advertising will cause a philosophical shift in marketers’ approaches: “What YouTube is really doing is issuing a challenge to marketers. You’re not going to just put an ad up on our site, you’re going to have to participate in our community and you’re going to have to be creative about how you do this.”

The shift will force marketers to think more like content providers and will ultimately result in more entertaining creative. The interactive, participatory aspect of the Internet was long held as the reason that television-like ads would not work online. But consumer-generated sites have enabled the ultimate level of participation: consumer-generated ads.

Get Users Involved

While the Coca-Cola/Mentos viral ad on Revver is a great example of a user-generated video that was eventually purchased by Mentos and accepted into their advertising arsenal, companies can go one step further thanks to CurrentTV. CurrentTV, the Al Gore-backed San Francisco-based company that allows users to submit content online for possible broadcast on television, also offers consumers the opportunity to create ads for L’Oreal, Sony Electronics and Toyota.

The first ad to be accepted for television was created by a 16- year-old and sanctioned by Sony. Viewers can rate the ads, which are posted on the site after being thoroughly screened. If the ad makes it to the network, the creator gets $1,000 and is given a licensing agreement. And if the ad makes it to cable or satellite television, the viewer makes $5,000 – for network television it goes up to $10,000.

CurrentTV’s president of sales and marketing, Anne Zehren, says it seems counterintuitive that major brands are the ones participating in this experiment. “At first, people thought the larger brands would have the most resistance because they’d have to give up control as brand guardians. But their marketing departments are now brand hosts; they’re craving innovation and the smart ones want to take a risk, as long as it’s not a free-for-all.” Zehren emphasizes CurrentTV’s commitment to making quality content, with greater control than one finds on other user-produced video sites.

Of course, users have been creating (unsolicited) video ads for companies and posting them on YouTube but most have yet to be formally embraced by the marketing departments of those companies. At the same time, it is certain that brands participating on YouTube’s brand channels will host their own contests to create video ads now that YouTube has announced the creation of brand channels as a way to monetize the site. Initially, sites like YouTube attracted movie advertisements – streaming trailers on such sites makes sense.

And short-content format is ideal for music videos: Warner Bros. has announced that they will promote Paris Hilton’s music debut on YouTube. But YouTube also seems to be a draw for small businesses, companies that would never have the budget for a television campaign.

Several months ago, Allison Margolin, an attractive, young, Beverly Hills-based criminal defense attorney, posted a video advertising her services on YouTube which voiced her disagreement with marijuana laws. The question is, how many people watched the ad before a Los Angeles Times article about her in August mentioned it?

Viral video is also a big deal. Lured by the prospect of reaching millions of consumers without also spending millions of dollars for television airtime or space in print media, companies have shifted more ad dollars to the Net. Video viral marketing has expanded from a negligible piece of the advertising pie to a $100 million to $150 million industry, researchers estimate.

“We’ve recently engaged top talent to help us build viral videos for brand awareness during the off-season, produce training videos to help our online partners to sell our product and to create product videos that sell the features and benefits of TaxBrain. All of these videos are intended primarily for online consumption,” Todd Taylor, manager of business development for TaxBrain, says.

Measuring Up

Right now one can only guess how many people are watching online, especially compared with the number of customers reached with television ads. There are two unresolved issues: online video advertising’s reach and the ability to track it.

“What’s missing right now is what is the return on investment and all the technology surrounding this. How are we sure it’s been placed contextually?” asks Forrester’s Haven.

But Tremor’s Kilgore, the former vice president for Dow Jones Online, disagrees and says, “Audience accountability is a significant advantage for marketers when they consider online video advertising.”

He claims that advertisers can count actual viewers of video when they are actively watching – not getting up for a snack. The other advantages are the ability to track completion rates and geographic data, frequency and targeting based on historical behavior and optimization of spots based on real-time effectiveness – where there’s no need to wait for the focus group. Also, with companion units, online video advertising can offer immediate user interaction. Advertisers can choose geotargeting, demo targeting, behavioral targeting, day-parting, etc.

Hotspotting

Five years ago, there was speculation that hotspotting would be the way to monetize online video advertisements. That is, brands would partner with content creators for product placement in online videos. Viewers could click on items on a counter or an actor’s sweater and be whisked off to a site to purchase it. Hotspotting is finally here, but not widely adopted yet. But if a viewer were watching some cartoons online, would he really click on the Coors ad to get a six-pack of beer delivered to his house? Hotspotting only works for particular products.

Hotspotting did make sense, however, to French clothing company Shai. Their online porn video ads have caused a minor sensation, but not necessarily more customers. Viewers can click on the clothes the actors are wearing as part of an interactive catalog. Before they take them off, that is.

With improved measurement capabilities, big brands jumping on the bandwagon and cheaper costs, video and video advertising are becoming a staple of doing business.

DIANE ANDERSON is a senior editor at Yoga Journal. She previously worked for the Industry Standard, Brandweek, HotWired and Wired News. She lives in San Francisco.

KATHI BLACK is a professor of philosophy (ethics) at The University of San Francisco. She was previously an online entertainment reporter and senior researcher at the Industry Standard.

Big Brands Believe

TV commercials and print ads aren’t dead yet. Major brands still believe in traditional media. After all, a blockbuster commercial with a catchy jingle can positively boost brand equity. No one cares to dispute the power of a well-placed Madison Avenue ad. But nowadays, marketing teams are increasingly feeling pressure to account for the dollars they spend; they need to show the hard results for money in a real way.

No wonder many marketers are starting to expand their ideas about what constitutes the best-spend blend. While dollars spent on old-fashioned media can positively impact brand image, many major marketers are frustrated by the paucity of accountability in that arena.

Enter the Internet. A decade ago, it was a way to blast banners and burn through a huge amount of cash. Now with access to high-speed connections the norm, and rich-media taken for granted, marketers believe more and more that the low cost, high measurement and constant tweakability make the Internet a magic formula for marketing.

The growth of online ads isn’t showing signs of slowing down and traditional commercial markets are feeling the loss. For example, the up-front market, the time period during which TV networks show their fall lineups and try to sell ad space, is losing its luster. This year the Walt Disney Co. network did well during the up-front, selling $2.3 billion in airtime, a $200 million increase over last year. But the final network TV up-front haul came out to only $9.05 billion, compared with $9.1 billion last year.

“This year the interesting thing is it isn’t just about TV anymore; there are a lot of other places to be worked into these TV buying deals,” says Stacey Shepatin, senior vice president and director of national broadcast at agency Hill Holiday in Boston.

She points out that CBS put the NCAA games on the Web and drew a huge audience. “Content is on the Web, on iTunes and on cell phones. Clients want to be able to reach consumers wherever they are getting their content and for some clients, mobile phone and the Internet make more sense than network TV.” Shepatin says the networks will be aware of this shift and work out up-front packages to please marketers.

AD SPEND UP

Beyond anecdotal evidence of the trend, data backs up the new reality. While many industry observers like to speculate, few have actually pinned down hard numbers. But Universal McCann’s forecaster, Bob Coen, recently revised his estimates for overall U.S. ad spend downward. However, he’s bullish on Internet ad spending and has revised those particular estimates upward. Coen now forecasts that Internet ad spend (excluding search) will amount to $9.705 billion this year, which is a 25 percent increase over 2005.

In December, Coen predicted that online advertising spending would total $8.7 billion in 2006, or an increase of 10 percent over 2004. But in the first quarter of this year online advertising spend increased more than 19 percent from the first quarter of 2005, according to Coen. To give you an idea of the contrast, he now predicts that overall ad spending will increase to $286.4 billion in 2006, a 5.6 percent increase from 2005. In December, he had forecast 5.8 percent growth. The Internet numbers are enough to leave even skeptics believing that this online ad thing has real momentum.

Other numbers also prove the point. The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers announced that Internet advertising revenues reached a new record of $3.9 billion for the first quarter of 2006. The 2006 first quarter revenues represent a 38 percent increase over the first quarter 2005 at $2.8 billion and a 6 percent increase over the fourth quarter of 2005 total at $3.6 billion.

Some types of companies are quicker to catch on than others. Not surprisingly, high tech companies are among the first to get hip to trending their ad spends toward the online universe. Yahoo’s chief marketing officer Cammie Dunaway agrees that a commitment to “performance- based marketing,” like the Internet, is more effective than just doing branding on network TV alone. Yahoo has also ventured into getting its brand seen in off-line environments, with a Sheraton hotel deal in which Yahoo sponsors the wi-fi lobby Internet connections. Yahoo plans to continue its much-lauded street marketing stunts but will also continue to refine its online and search efforts.

“I really believe in interactive. Soho Square [New York] is our overall agency that pulls in WPP partners,” Dunaway says. Yahoo did a lot of promotion for its music product and in addition to buying TV spots on the broadcast of the Grammy’s and throwing parties in Miami, it did a lot of online work.

“We had great online creative as well; you could throw Green Day’s equipment with your cursor – we had a fun, engaging online element. OgilvyOne [also in New York] handles online, and ours is very extensive. We do so many online campaigns! Great branding makes your search work harder. In 2006, our marketing will be a blend. We’re do search engine marketing as well as branding – ad campaigns, buzz marketing and partnerships like Sheraton,” Dunaway adds.

Those looking to reach a youth demographic, including large brand advertisers, are spending billions online. Sprite was an early blog advertiser and trailblazed IM ads featuring a hip-hop cartoon personality known as Miles Thirst.

John Vail, director of the interactive marketing group for Pepsi-Cola North America, says the company isn’t as much about clickthroughs. To gauge effectiveness, the soda giant is participating in an experiment run by Yahoo and market research company ACNielsen that tracks the online behavior and offline purchases of about 36,000 U.S. families. PepsiCo Inc. doubled its online display advertising spend in 2005, allocating just 2 percent of its total U.S. spending. But Americans spend close to 20 percent of their time online, so there is a gap.

Advertisers aren’t really taking advantage of the fact that a fifth of our time is spent online. So there’s a great opportunity for even more expansion.

PRINT IS NO LONGER THE KEY

But at least one advertiser has woken up to the reality of the way consumers are currently choosing to view media. Absolut vodka, known for its iconic print ads, is at the cutting edge. It has radically altered its marketing strategy away from print to the Internet. The company says it changed directions because consumers’ tastes were changing and many competitors were entering the marketing.

“Online plays a more important role than print. Print is not the key media anymore,” according to Patric Blixt, communications manager for new media at Absolut in Stockholm. “Our consumer is more focused on the Internet and mobile communication so we’re shifting also. We’re evolving the iconic advertising, making it more inclusive and modern with the same wit and creativity we used in our off-line advertising.”

While Absolut won’t abandon print, outdoor and TV advertising, those media will take a back seat to the Web. “Even if the print media budgets remain larger, the print is now much more seen as the first window into the Absolut world, driving interested users to the whole brand experience online,” Blixt says.

Absolut will increase its online spend to about 20 percent of its media budget. This would account for about an $8 million outlay in the U.S. as the brand spends upwards of $40 million annually.

And Absolut is probably smart to target consumers online. But marketers of electronics would be wise to follow suit. More than 50 percent of Americans were ready to upgrade their home electronics this summer, according to research from Pioneer and Roper. Before they hit the stores, however, 90.2 percent of them went online for product research.

A survey from the Pew Internet & American Life Project finds that 45 percent of American Internet users have turned to the Web for help with a purchase in the past two years and that 57 percent considered the Internet “the most important source of information,” so many marketers know the Internet is a smart place to be.

Automakers are another group that is riding the wave of the sea change. Ford Motor also dropped its magazine ad allotment from 23.5 percent to 21 percent last year but increased its spending on the Internet to 3.5 percent from 3 percent, according to AdAge.com. The company’s overall ad budget remains flat. General Motors also plans to spend 20 percent of its marketing budgets online this year. Automakers, like Audi and Lexus for example, have been quick to champion emerging media and buy advertising on blogs and podcasts.

TECH TALK

You’d think that technology companies would be at the forefront of parlaying their expertise into taking advantage of the way media is developing. While guerrilla marketing and sponsorships are becoming more popular with tech companies, Internet ad buys are also a big part of their focus. Microsoft is also keen to take advantage of online ads. This year it will spend a hefty $500 million to promote its new “People-Ready” message. However, the long-awaited release of its new operating system (“Longhorn” which was later renamed “Vista”) isn’t slated until 2007, and a new version of Office might not see corporate offices for some time. The company hasn’t announced when it will air ads for either product. But vice president Mich Matthews says Microsoft will spend a nice chunk of its “People-Ready” budget across more ROIeffective media, namely the Internet.

Google has begun selling advertiser image ads, which are displayed on its publisher partner sites. And according to Sheryl Sandberg, vice president of global online sales and operations for Google, the search giant recently introduced a “click to play” advertising service that lets brand advertisers pay fees when visitors click to play video ads, which are often construed as brand ads.

Ad options in the online universe will continue to grow. The variety of newfangled online ads is proliferating. Blog spending increased in 2005, with over $16 million reportedly spent. Podcast advertising earned more than $3 million last year and is forecast to grow, with a projected 2010 revenue of more than $300 million, per research from PQ Media in Stamford, Conn. Companies such as EarthLink, for one, are experimenting with ads on Internet video blogs. And mainstream household names like Whirlpool are testing the waters of podcastlandia.

Meanwhile, traditional media is far from dead. Instead, it is adapting. TV is beginning to mimic the Internet. Not only is it becoming a more on-demand media format (along with TiVO), but it’s also shaping up to be more measurable, too. Several media buyers, such as Zenith and Starcom, have signed on to receive Nielsen’s minute-by-minute ratings data, which will show exactly what viewers are watching. They’ll be able to find out which commercial breaks viewers actually watch. Some agencies are expected to also negotiate prices based on where a commercial falls within a program, or within a commercial break.

eMarketer data shows that large projected increases amount to 24.4 percent in online ad spend, compared with much smaller growth (4.2 percent) for all media.

Things have changed since the late ’90s as advertisers have become more comfortable with the Internet as an advertising medium. It was very easy for them to pull dollars from the Web or ignore it completely, but you just can’t do that today.

During the previous boom, “traditional advertisers hadn’t yet embraced the medium, so growth slowed,” says Denise Garcia, an analyst at WR Hambrecht + Co. “That’s not going to happen again because Procter & Gamble, large auto manufacturers and other companies have said they are decreasing spending on traditional media, like television, in favor of online media.”

Despite frequent reports of its demise, TV advertising is far from dead. JWT, in fact, has bought up all the front-page ads on the news blog site HuffingtonPost.com for one week, inviting users to view, comment on and share some of the agency’s best TV ads. The ads invite users to view JWT commercials for clients such as Ford, HSBC and JetBlue. After clicking, visitors are taken to a separate section where they can see nine different JWT spots, leave comments and forward the link to a friend. Jonah Peretti, a partner at HuffingtonPost.com, said the effort is a joint experiment to see if social media sites are fertile ground for TV ad messages to enjoy a viral effect: “If you make excellent advertising, good content and put it in an environment [where] it can be shared, you can learn a lot about how to improve what you’re doing.”

DIANE ANDERSON is a senior editor at Yoga Journal. She previously worked for the Industry Standard, Brandweek, HotWired and Wired News. She lives in San Francisco.

Fair Game

In-game advertising offers geotargeting of a captive and highly lucrative audience.

National advertisers looking to reach mass audiences have had few choices online. The highly fragmented Web lacks properties that can match the millions of viewers who routinely view network TV.

However, online gaming (not to be confused with online gambling) sites are now accruing the millions of eyeballs that advertisers such as Ford, Procter & Gamble and Coca-Cola salivate over. Game publishers can offer interactivity and target marketing that is not possible through broadcast channels, and advertisers are now redirecting portions of their ad spends from broadcast to video games.

In-game advertising provides access to a rapidly growing audience of gamers of all ages that spend the equivalent of two workdays per week (often in three- to five-hour bursts) dealing, driving and detonating through consoles, PCs and Internet-only games. During December 2005, more than 27 million people visited game site MiniClip.com, which features casual games (trivia, cards), shooters and role-playing games, according to comScore Media Metrix.

Unlike content or search sites where visitors routinely look at a few pages before moving on, game sites often retain a visitor for as long as it takes to watch a miniseries, enabling advertisers to repeatedly pitch their brands to consumers. According to Nielsen//NetRatings, people playing games on the Electronic Arts site spent more than four hours and ten minutes per session on average during February 2006. In 2005, the ratings service gave further legitimacy to video game advertising by beginning to measure its audience reach.

Delivering a Focused Audience

Ads delivered to video games (via PCs or connected consoles such as the Xbox) will have greater retention because unlike TV viewers, game players tend not to multitask, according to Nicholas Longano, president of new media at online gaming company Massive, Inc. Players who are being chased through the galaxy by aliens or are racing their fellow avatars to capture booty aren’t likely to be simultaneously talking on their cell phones or surfing the Web.

Unlike television ads that viewers with digital video recorders are increasingly skipping over, gaming ads are always seen, according to Longano. “Advertising in video games is TiVo-proof,” he says. Longano says the ads that are displayed on Massive’s network of 137 games are guaranteed to be onscreen for a minimum of 10 seconds. The company’s network features ads from “65 blue chip” advertisers, he says, and features games from Acclaim Entertainment, Ubisoft, and Vivendi Universal Games.

In May, Microsoft acquired Massive, and said that it would integrate Massive’s technology into its adCenter advertising platform.

Advertisers go where the people are, and the masses playing games online are an attractive audience to pitch. While the dominant demographic of gamers is the desirable 18- to 34-year-old male audience, the wide variety of games are attracting a diverse membership, according to Alexis Madrigal, a research analyst with DFC Intelligence.

Action games tend to attract younger male players while casual playing of puzzle, card and word games have made females over 30 the fastest-growing segment of the online gaming world. Casual game sites are also increasing the titles aimed at mature adults and children.

Game enthusiasts are also more likely to interact with what they see online than the average Web surfer, according to Alex Kakoyiannis, managing partner of consulting firm Navigame. “Gamers are a participatory group … the whole game experience is based on interaction and participation, [so they exhibit a] different behavior.”

Revenue from advertisements delivered online to video games is expected to rise from $192 million in 2005 to $248 million this year, according to Madrigal, who says ads in offline games were not included in his calculations. The majority of ad dollars are spent on casual games and PC-based titles played online, according to Madrigal, as the more sophisticated console games have yet to fully exploit connected game play.

Ads at Every Turn

Unlike commercial television that displays ads after several minutes of programming, game sites can almost continually interject ads before, during and after gaming. In-game ads are woven within the game to appear natural to the environment, showing up on virtual billboards, posters and video screens on the online world. Navigame’s Kakoyiannis says the ads have to be contextually relevant to the game and the audience. “You shouldn’t see a product targeted to women in a shooter,” he says.

For example, Tycoon City from Atari features an ad for Toys”R”Us in downtown Manhattan, where the company has a real-life presence. Similarly, Take-Two Interactive Software’s Major League Baseball 2K6 will feature rotating ads behind the backstop and on the facades, just as they appear in the real ballparks.

Jonathan Epstein, a member of the board of directors of Double Fusion, which develops technologies for online advertisers, says in-game ads are tracked to verify their delivery. Data is collected to show how many times and for how long within a game session an impression (for example an ad in the form of a virtual billboard) is served.

Epstein says it’s also important that the ad-serving system prevents competing products (such as Coke and Pepsi) from being advertised within close proximity or time frame within a game. The typical CPM for in-game ads is between $20 and $25 for one-dimensional ads, and from $40 to $50 for three-dimensional ads, according to Epstein.

In-game advertising does not disrupt game play and limits interactivity to before and after a game, says Epstein, who has collaborated with publishers including Midway Games and Crave Entertainment. For example, clickable video ads called “level-stitials” can run after a level of a game is completed, or static ads can be placed on exit screens or leaderboards at the conclusion of a game, he says.

The various formats and locations for displaying ads provide vast inventories. With an average of 20 to 30 ads displayed per game-hour, according to Epstein, games that average 90 million hours of game play per month could potentially display 2 billion ads per month. Most game companies have their own formats for ads, but there is an interest in developing sizes compatible with the standards set by the Interactive Advertising Bureau.

Product placement within games is becoming a popular method for game developers to offset some of the development cost. For example, makers of racing games will partner with an auto manufacturer to make their vehicles the default car. However, sometimes (as with the rhetorical question about the chicken and the egg), it is difficult for gamers to determine whether game development proceeds product placement, or whether the prominent display of well-known brands is the genesis of the game itself.

Another example of a product being placed within games includes Ubisoft’s upcoming title CSI: 3 Dimensions of Murder, which will feature credit card company Visa’s fraud-monitoring system to track down the bad guys.

“Advergaming” is the term given to games that are developed specifically to showcase a product, and where the advertiser subsidizes the development cost. Atom Entertainment created Hemi Highway to showcase the Dodge Charger, and the company recently launched the Shockwave.com Game Studios division to focus on advergame development.

Advergaming finances the creation of casual arcade-style games where the graphics and story are not as sophisticated as console games, but the often-humorous game play can nonetheless become addictive. “Building a custom game is a minimum of a $200,000 investment,” Lee Uniacke, vice president of sales for Atom Entertainment, says.

Atom Entertainment’s advergaming group links advertisers with game developers who create titles around a product. “It forces them to be creative within a structure, and this enables their true creativity to come out,” says Uniacke, of the game development process.

Uniacke says the amount of revenue the company is generating from advertising has tripled this year over last, thanks in part to the Shockwave In-Game Network (SIGN), which launched in November. SIGN games includes five titles such as Circuit Racer and H2Overdose that display in-game advertisements and require a minimum of a $30,000 spend from advertisers, according to Uniacke.

Online gaming sites generally require users to register to play, giving publishers the ability to target ads to specific demographics. Shockwave.com’s ad-serving system can control ad campaigns so that they only appear before 13- to 21-year-old males, and the company also can geotarget campaigns to specific regions, according to Uniacke.

Uniacke says advertisers can test-market campaigns online and get instant data on their effectiveness before rolling out a national campaign through broadcast. “Instead of spending four months on a campaign, you can get feedback within a day,” he says, adding that the cost is analogous to an $8 CPM.

Displaying ads around the games (on login screens and on the borders of online games) can also be lucrative for publishers. For example, casual game site Pogo.com served nearly 950 million ads during February 2006, according to Nielsen//NetRatings.

Gaming company WildTangent offers advertiser sponsorships of casual games such as Polar Bowler and Tornado Jockey, according to Bill Clifford, general manager of advertising platforms. Sponsors receive a 15- or 30-second pregame video advertisement, Clifford says.

To get developers interested in creating games that feature advertising, WildTangent shares the ad revenue with the game’s creators, says Clifford. Typically developers would get paid when a consumer chooses to pay to download a game, but receive no compensation when gamers play the free trial version online. WildTangent’s program can increase the developer’s compensation “by 10 times over what they were receiving,” he says.

Earlier this year WildTangent announced a program where gamers can earn virtual incentives by watching ads. The companies’ virtual “WildCoins” can be used to purchase additional game play time with the company’s pay-for games, or they can be redeemed within games for health points or weapons.

WildTangent is extending the virtual booty offering offline, as consumers who purchase real goods from partners including Coca-Cola will receive WildCoins coupons that can be used online, according to Clifford.

Ads Cut Game Costs

Many online casual games and massively multiplayer online (MMO) games are financed by subscription fees, but in-gaming advertising is likely to supplement or even replace this revenue stream.

Worldwide online game subscription revenue grew 43 percent to $1.84 billion in 2005 and could reach $6.8 billion by 2011; according to video-gaming market research firm DFC Intelligence. Once games reach more than a million registered users, publishers could lower the subscription fees or make the games free by attracting national advertisers.

Popular MMOs Shadowbane and Anarchy Online now offer free levels of the game that are ad-supported. DFC Intelligence’s Alexis Madrigal says games such as Runescape 4, which currently has 4 million subscribers who each pay $5 a month, could increase reach and revenue if advertising were integrated. “You could squeeze $5 worth of advertising out of each user easily,” says Madrigal.

However, fantasy role-playing games located in alien worlds or occurring during the days of yore aren’t natural locations for conventional ads. Madrigal also warns that publishers that display online ads through console or PC games risk alienating their audience. “If you are paying $50 for a game and then $15 a month for a subscription, the tolerance for ads is pretty low,” he says.

The increase in broadband adoption and console games that can be played online will grow the virtual communities of game enthusiasts who log in for hours at a time. As long as the ads are prevented from overwhelming game play, game companies will continue to capture advertising dollars from broadcast.

JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, AlterNet.org and in MIT’s TechnologyReview.com.