Here’s what’s been percolating in the news over the past week:

• Overall growth dismal: IDC is predicting the first contraction in online ad spend in Q1 since 2001, and negligible growth for the year overall. Q1 is expected to be -5%, Q2 even worse, with a slow recovery starting mid-year.
• Local ad spend will continue to shift online: Traditional local ad spend (TV, radio, direct mail, etc.) will continue its inexorable decline, according to BIA’s Kelsey Group, while growth in local online spend will not offset an overall drop through 2013. Local digital advertising is predicted to grow from $14 billion in ‘08 to $32 billion in ‘13.
• Consumers pay attention to online ads at night: Lightspeed Research and IAB say research demonstrates that online consumers are receptive to ads in the evening, with younger visitors growing in their engagement as the day went on, while older visitors maximizing their interest in the p.m. hours before and after dinner.

The Interactive Advertising Bureau, of which YieldBuild is a member, held its annual leadership meeting earlier this week in Orlando, and I had the pleasure of attending. The tagline this year, Brands Battle Back, reflected the sentiment that agencies and publishers must fight back against the commoditization of their services to their clients, the importance of which is underscored by the dismal macroeconomic and overall industry climate.

You got the sense that the organizers picked up on some tensions between creative agencies, interactive publishers, and ad networks, as the boundaries between what each offers becomes blurrier. At the same time, the degree to which creative talent and brand understanding—agencies’ domain—and the growing influence of analytics and performance-based metrics are at odds with each other depended on who was on stage.

Recurrent themes:

• Creative is the key… Keynote speaker Wenda Harris Millard (Martha Stewart Living Omnimedia’s president & chair of the IAB board) put the onus on marketers to tap into their creative talent to reinvent the forms of engagement necessary to invigorate digital advertising. A press release was released as well announcing the formation of an advisory board that will inject “emotional” and “culturally significant” creative talent into premium online advertising. In a debate on the final day, Jean-Philippe Maheu, Chief Digital Officer, Ogilvy & Mather Worldwide, stated that agencies have and will continue to attract the best creative talent, securing their value for high-end clients.
• …but technology is critical as well. IDG’s Bob Carrigan stressed that traditional media advertising has to evolve to today’s technological reality or risk extinction. David Payne from ShortTail Media said that metrics must change to represent the value media is providing to advertisers. Terence Kawaja from GCA Savvian said that the metrics that are meaningful to marketers and publishers aren’t yet the same (marketers care about the sale, while publishers care about the size of the audience), but that presents an opportunity to create a common language. Google’s president of display advertising David Rosenblatt said that his company’s success derives from its commitment to operational efficiency and producing measurable results.
• Reducing friction. The IAB released plans to simplify the process by which ad orders are placed, tracked, and reconciled, and set up task forces to eventually set standards regarding data ownership and contracting between publishers and agencies. This is obviously an effort to reduce the complexity and time associated with moving campaigns forward simply and quickly, something successful ad networks have been doing for a few years.

One odd session featured people from the NYTimes.com team touting a 38% increase in visitors through a better digital experience. The entire time I was wondering exactly when NYTimes.com made its content free (about a year and a half ago). Let’s be honest—the NY Times has always been a newsmaker and their first-run news and exclusive feature and opinion content makes them excellent linkbait.

Right now, long-term (10 years) inflation is forecasted at less than 0.3%.  As long as inflation is very low and inventory growth continues to outpace advertisers’ budgets allocated to online advertising, then rates will decrease for CPM-priced ads.  Publishers need to create content acquisition models that will work with the current monetization available from ad networks.

Anecdotal evidence suggests that pure CPM-based buys across ad networks have decreased in favor of performance-based models (CPC and CPA, primarily).  For certain publishers this has caused a dramatic drop in the performance of their remnant inventory since the offers are much more heavily weighted to performance-based deals now (the CPM portion has dried up).

Our suggestion is to work on creating traffic that responds to performance-based ads (topical content that draws natural search traffic) and to cut costs if you are dependent on CPM ads.

Paul wrote a couple of weeks ago about how some ad networks are taking on some of the creative development services of ad agencies as they look to expand the level of campaign engagement they offer their clients. With the announcement a couple of days ago of Sportgenic Torque, a product whereby clients of this active sports-oriented vertical ad network can also buy in other media (including TV, events and print), we see that cross-media campaign management can be another way by which well-positioned vertical ad networks can tread into agencies’ turf.

In some ways, a small vertical ad network with heretofore limited reach into online only might be a surprising place for advertisers to turn to when broadening campaigns into different offline channels. Advertisers turn to agencies not only for their creative development expertise and access to media distribution, but also for their ability to coordinate complex campaigns. Online campaign management has been a relative weakness, the establishment of ad network arms like Publicis’s VivaKi notwithstanding.

So what’s the potential appeal of allowing an ad network manage all of your campaigns? It’s possible that publishers understand that, aside from the dismal growth we’re seeing now as a consequence of the downturn, online advertising will continue to be a larger piece of their ad spend in the coming years. Also, ad networks’ soup-to-nuts performance tracking can instill confidence in an ad network’s alignment with advertiser priorities as they look at media with more nebulous value to the top-line; advertisers can expect the same level of attention to ROI across their campaign. Finally,  an ad network might be the first entry point for smaller advertisers whose first foray into advertising began online, but have since sought to grow beyond. One could argue this is Google’s strategy in expanding into radio and (its now defunct) print.

Does this present a threat to the big agencies? Probably not. It remains to be seen how many of the vertical ad networks will manage through the ad market crunch. But if they do come out thriving, and follow a similar approach to Sportgenic, then the “death by 1000 cuts” might change the agency landscape substantially.

From our stable of publishers, the sites that have been hit the hardest in the economic crunch are sites with high visitor return rates that consume many pages per session.  They are down as much as 50% usually from the display ad (CPM) networks.  Sites in this category include social networks, blogs, rich media sites (photo galleries and video sites) and forums.

Sites that tend to get the majority of their traffic from natural search (like our HubPages.com and other content sites), CPC rates are down about 8%.  We think this category of site is doing better during the crunch since the monetization model was always more performance-oriented, and traffic less reliant on a smaller base of routine visitors who might only have a passing interest in the site’s advertising.

My account management team and I have spent a lot of time talking to publishers large and small, and this is what they are telling us what they want from ad networks.

Smaller Publishers

First and foremost, smaller publishers want more money, the current crunch notwithstanding. Second, they are tired of getting treated like second-class citizens by certain exclusive ad networks.  Just because they have less traffic doesn’t mean it’s not valuable traffic.  Third, they want to be paid on time, within 30 days–a lot of ad networks have lousy payment reliability.  Finally, they want transparency, especially when it comes to AdSense. Publishers have long thought their margin was being squeezed when Google needed to improve its numbers.

Large Publishers

Large publishers want better-quality ads.  They are trying to build a brand and are concerned about the flashy, poor-quality ads that reflect poorly on their site.  They’ll even take less money to get good brands with high-quality ads.  Staff and resources are getting tighter and they are quite frustrated with the fluctuations and the calls from ad networks to respond to their requests for impressions.  They want consistency and guaranteed CPMs.

This kicks off a series of blog posts sharing what we’ve been hearing from publishers and ad networks that we talk to. We often hear conflicting information, but everyone once in a while, the messages line up.

The word on the street is that publishers are reducing the number of ad networks they are running.  The main reason: they’re concerned about getting paid on time and have more trust in long-standing, well-known ad networks.  Reason number two is that they are finding the complexity of managing ad networks grows with each additional ad network.  While it’s easy to try new ad networks, the performance of many has fallen way off and it makes less sense to use more ad networks when the performance is more-or-less the same as using fewer (at least from the perspective from your average publisher who is managing all of this on his/her own).

The trend is definitely moving to less is more (when it comes to ad networks) for publishers.

Darren Rowse, of ProBlogger fame, guest-blogged at the Inside AdSense blog today with Six ways to experiment with AdSense and grow your earnings, and, speaking from years of intense experience, had a lot of useful advice for budding AdSense-monetizing publishers to make the most of their AdSense placements.

His key advice: test (experiment), track, repeat. As his post makes clear, there is no magic formula that works most of the time. Each site, page and placement can vary a bit, which makes certain rules of thumb moot. This is exactly why YieldBuild works as well as it does to optimize publishers’ AdSense: it tests, tracks and repeats. (Thousands of times!)

Let’s run down Darren’s list of 6 ways to experiment:

1. Ad Position:
   Darren says... Check out the Google heatmap. Ads near/alongside, or at the end of content, can do well, but experiment.
   YieldBuild adds…
   If you’re using YieldBuild, places YieldBuild zones wherever you think an ad could do well. YieldBuild will determine which zones actually perform best (we do the experimentation for you), and will collapse any zone that isn’t filled with ads.
   If not using YieldBuild, I’d add that you should take a look at placing ads embedded in content, near navigational elements or near pictures where the eye is drawn towards (but not so close as to mislead a site visitor into thinking the ad must be clicked on for navigating the site). More pointers here.
2. Number of ads
   Darren says… add ads, but be careful of putting in too many. Longer pages can carry more ads without bothering yoru visitors.
   YieldBuild adds… true about the number of ads; more isn’t necessarily better. YieldBuild automatically determines that sweet spot (it often serves up fewer than the maximum ads, just because fewer performs better). If you aren’t using YieldBuild, I suggest starting conservatively, with a few ad spots on the page, and then slowly ramping up the number of ads, carefully monitoring CTR, revenue, and traffic feedback. Like Darren said, each page has its own “tipping point,” but you won’t know what that is until you test it.
3. Ad Design
   Darren says… try blended or subtle backgrounds, and use the AdSense ad rotator to fight “ad blindness”.
   YieldBuild adds… If you have to go with a rule-of-thumb, go with blended (the same background color for your ad as the page you’re embedding it in) and/or slight variations of the background color. This is what our own testing has demonstrated. However, as that test shows, sometimes a completely different variant can significantly outperform the blended or subtle variant.
4. Ad Sizes
   Darren says… experiment, but bigger isn’t necessarily better. The most popular standard ad sizes will generally outperform more esoteric ones.
   YieldBuild adds… Darren is spot on about both the most popular ad sizes (FYI- they are 728×90, 160×600, and 300×250) and bigger isn’t necessarily better. YieldBuild, naturally, experiments automatically for each site and serves those ad sizes that perform best. Without the benefit of YieldBuild, I’d recommend sticking with the 3 most popular sizes, placing the leaderboard (728×90) at the top or bottom, the skyscraper (160×600) in your navigation column, and embedding the medium rectangle (300×250) within your content. That last one is likely to do best.
5. Ad Formats
   Darren says… his experience suggests text and image work better than text alone, but you must test.
   YieldBuild adds… you really, really can’t know without testing. YieldBuild tests for the best format automatically, but otherwise, try from among text, link units, image and video formats and see which performs best. Sorry – no rule-of-thumb here. We’ve seen too many examples of sites that run against Darren’s advice, where text ads really do perform best, to agree with him with respect to this.
6. Which Content Converts?
   Darren says… the marriage of AdSense and Google Analytics gives you great insight into which pages are monetizing. Use that to determine your content and promotion strategies, and to help decide from among formats.
   YieldBuild adds… we couldn’t agree more, although YieldBuild will take care of the format guesswork automatically. AdSense actually has a tab for Analytics, and by setting up goals, you can drill down by different campaigns or traffic sources and determine what sort of traffic is earning you the money.

Internet publishing giant IAC sounded a dismal tone in yesterday’s earnings call, when chief Barry Diller shared the following about IAC’s properties’ online ad revenue picture:

• CPC (think AdSense and the like) took a 8-12% hit.
• CPM (display) projected to drop 50% in the month

Both of these figures are considerably less rosy than the general market projections made by eMarketer just a few months ago, but given the size and breadth of IAC’s online holdings, it’s not unreasonable to expect their figures as a bellwether for the entire market. HubPages, which primarily monetizes via CPC, has taken a very similar hit, as well, over the past month or so.

Paul Edmondson, YieldBuild CEO, and Xavier Vespa, from HyveUp.tv, had a chat this past Friday about online ad optimization. Here’s Xavier’s accompanying entry, and here’s the video:

Thanks, Xavier!