The big news out of the Google camp yesterday is they have opened the doors for ad networks to bid on AdSense inventory.  By logging into your AdSense account and going to AdSense Setup -> Ad Review Center you can see a list of ad networks that are bidding on your inventory.  From there, you control which networks have access.   In the YieldBuild account, I can see seven ad networks.

I read through all the emails I received on this announcement and will give my take.

Why would Google do this? At the end of the day this is about data and making the decision about the ad that gets served which gives them the ability to insert themselves on impressions they think are valuable on more inventory.  They must feel that this will help the existing AdSense business and that the fees they can take from the ad networks will more than make up for lost AdSense revenues, or it will drive up bid prices for AdWords advertisers.

Will other big players play with Google? I think the large independent ad networks will try it out.  In our list of ad networks in the Google Exchange, we already see Specific Media – I’m not sure if everyone sees the same ad networks.  Others (I won’t call them out) that have resisted working with exchanges in the past because they believe it severely devalues their service will remain on the sideline unless they have no choice.  I’d expect Microsoft and Yahoo to compete with Google, either by continuing to operate independently, or by joining forces.  I’d put players like Fox and AOL on the fence.  Fox and AOL are both working on their own exchanges and RTB (real time bidding) platforms, but there are limited numbers of large publishers which makes maintaining and keeping them potentially expensive for the smaller standalone exchanges.  At the heart of success for smaller exchanges is liquidity.  Google certainly has a leg up on this and it can be potentially a killer for others trying to get traction without having a huge set of suppliers and demand.

How do the economics work? One of the questions that publishers have asked is, Should I turn Specific Media off since they have access to my inventory through Google?  At this point, it’s not clear how much each ad network is paying (can’t see it in AdSense reporting), and what percent Google is keeping from the ad networks (Google has never been transparent with publishers about the bid rate and the actual payout of AdSense).  Our advice to publishers is to keep running ad networks independently for now.  The program is just starting and hasn’t been ramped up.  Then, we’ll need to run tests by turning off ad networks and gauging overall fill rate and CPMs.

What does this mean for the future of ad networks? This is an interesting question to conjecture.  We have believed that the number of ad networks will continue to grow into the many thousands.  Super large ad networks will prefer to have direct relationships with publishers, but will go to exchanges for some inventory.  Medium and small ad networks will ultimately focus on selling ads and servicing advertisers over managing publishers.  Most of the inventory they sell will come through exchanges as long as they can get the targeting options they need for their niche.  However, especially small network growth may be slowed if the minimum fees on the exchanges are too expensive.  If that’s the case, I suspect a sub-market will emerge of platform providers that aggregate small networks to get them onto the exchanges with less fees.

How does this impact publishers? Depending on the segment of publisher you are in this means different things.  At the lowest level, if you are a niche AdSense only site, this will probably help your revenue over time.  If you are a medium- or large-sized publisher without a direct sales force, it has the potential to help, but it becomes increasingly worrisome for one entity to have full control over the value of your inventory if they do become the one-stop shop.  For medium-sized and large publishers that sell their own inventory, they will want to make sure that the exchange network is blind so they don’t run into channel conflict. I also suspect that when Google is at full scale with certified ad networks that publishers will hold back inventory in the hopes at preventing the field from becoming completely tilted in Google’s favor.  Similarly to SEMs, publishers want competition.

What does it mean for Ad Network Optimizers like YieldBuild?  For YieldBuild, we view it as a good thing that Google is creating more demand for AdSense inventory.  I have personally felt that this would be the trend for a few years and that we will ultimately end up with two or three major exchanges for remnant inventory, but it’s likely to take a few more years still before this is a reality.  My hope for the industry is that it remains competitive for distribution and there will be continued demand for optimization services, and consolidated reporting with analytics that publishers value.  This may lead to a reduction of ad networks that publishers need to manage, but there will be more than one player

Google AdWords chief economist, Hal Varian, says this about the same ad appearing in different positions in search results or in an ad location.

We have used a statistical model to account for these effects and found that, on average, there is very little variation in conversion rates by position for the same ad. For example, for pages where 11 ads are shown the conversion rate varies by less than 5% across positions. In other words, an ad that had a 1.0% conversion rate in the best position, would have about a 0.95% conversion rate in the worst position, on average. Ads above the search results have a conversion rate within ±2% of right-hand side positions.

As Publishers, our job is to prime the pump of the conversion funnel by sending clicks.  A well placed block of ads may have many more clicks than an ad tucked in the right hand bottom location of a page.  It’s good data to have that the clicks on these ads are likely to convert at the same rate or better as a block of ads in a low click through area.  If this holds true, publishers should see the revenue per click hold steady as they place ads in places with better click through rates since the amount AdSense pays out is based on the auction of the ads and the quality of the traffic (how well it converts).

This week, AdSense announced some improvements to their ability to match ads to content will be rolling out.  As they say, the proof is in the pudding.   Since Monday, we’ve seen a 15% increase in CPMs that has been consistent across a sampling of our publishers.

While it’s not uncommon for AdSense earnings to fluctuate, we hope that the correlation between this announcement and improved earnings is here to stay.

Last week, at SES San Jose (a popular convention for the SEO crowd), I participated on a panel called, “Don’t Call It a Comeback: Semantic Technology and Search.” Three of us gave presentations: Nova Spivack from Twine, Lane Soelberg representing Wolfram Alpha, and I spoke about some tests in semantic SEO that we ran on HubPages. Rounding out the panel were Othar Hansson from Google, Hope Hackett from Ask, Kevin Haas from Yahoo, and Mark Johnson from Bing, who also wrote a terrific recap of the panel on his blog. Dana Todd from Newsforce and SEMPO was the moderator.

Most of the discussion revolved around the impact of semantic knowledge aggregation would have on search engine results and the balance of search traffic. During Q&A at the end, though, Dana asked about the impact of semantic technology on advertising.

I offered my opinion that semantic ad targeting has been and will continue to evolve as a refinement of contextual advertising. Semantic technology’s strength is identifying what something really means, what the real meaning behind symbols and words. For example, a simple contextual match on a page about how to clear your browser cookies might serve up ads for Mrs Field’s. Semantic technology would notice the preponderance of tangentially-related terms on the page, such as browser, Web, program and the like, and probably result in an ad for Google Chrome instead.

Semantic technology should also sense the mood of a page, and know, for example, if serving up ads for Microsoft is appropriate on a site that could be potentially bashing them (not a good idea when most savvy Web users know contextual ads are often priced by click!).

Beyond text, the big opportunity is with display ads that, without proper and extensive tagging, usually are clumsy or impossible to contextually target. Making sense of metadata, tags and even copy and design elements within the creative grants ad networks the ability to make the most of their display inventory.

What technologies exist in this space? I already wrote about Peer39 and adpepper’s iSense last year. Here are a few companies that have developed semantic matching technologies in the online advertising space:

• Semantic Match (Peer39)
• iSense (ad pepper)
• Personifi (Collective Media)
• Apricot (4AdNetworks)
• ContextIn
• myLOBster Media Corpus (CID)

The field is being rapidly littered with failures, like Clikkit’s SemSense, Aduna, and Dapper’s MashupAds, so the technology is still in development and its full potential not yet achieved.

UPDATE:  We are glad to hear that Dapper’s MashupAds is alive and kicking … and has been renamed to Dapper Ads.

Rob Norman has a take on where advertisers should be reinvesting their recession dividend.

In the delivery business brand owners have received a recession dividend in reduced costs per thousand. The smartest ones will re-invest the delivery dividend in the assets and processes required to win in discovery.

For many companies, what seems like a cost savings in CPMs, it often chewed up in lower margins and reduced sales.  At the same time, ad rates have adjusted to performance levels that have a greater ROI in categories where supply continues to grow or where there has been attrition in advertisers.  This opportunity may be small on a market by market basis, but is significant as long as more inventory can be identified.

Developing a discovery strategy is the real heart of the emerging marketing practices of search and social media.  It involves asset creation, optimization and distribution and is, in a general sense, a far more atomized approach than advertising with a far higher failure rate.

I think the assertion of search and social media as the foundation to discovery is key and true, but the issues of scale and efficiency remains.  Identifying fragments of well performing inventory can certainly be largely automated and will deliver a disproportionate amount of value impression by impression, but at what cost.  From what we have seen, the efficiency play of  buying lots of impressions at a lower cost and running them like a shotgun blast picks off the valuable segment at a lower total cost of reach.

For advertisers to invest in more efficient buys through better identification of inventory and creative the results of the optimization function must change.  The cost of the mass buy must be less efficient than the targeted buy.  If advertisers see this coming.  Now is a good time to invest in the processes and technology, but if supply continues to outstip demand, I suspect we will continue to see depressed CPMs.  Until then, we hope the recession dividend will be reinvested in larger buys than removed from the market in its entirety.

I was curious how our CPM per minute on a site we own and operate called HubPages compares to TV.  I created a formula to calculate our revenue per 1000 visitors and divided that by the number of minutes spent on the site per visitor.  The calculation yields about $5.15 CPM for each visitor per minute.

I was curious how this compares to TV.  There are about 16 minutes of commercials per hour on TV, and most commercials are thirty seconds long.   That means one person sees about 32 commercials per hour.  I used an estimated CPM of $10.25 for TV.  If a person watches sixty minutes of TV, that’s an effective CPM of $328 per viewer.  If you divide that by sixty minutes, that’s $5.47 CPM per minute for a viewer.

By this analysis, HubPages has a CPM per minute 6% lower than broadcast TV. The next thing you know TV is going to be clamoring for online ad budgets!  I was a bit surprised to see the CPM per minute be so close, given the rough industry numbers are 20% of media consumption by time is online, but only 10% of the ad spend is.

HubPages is largely monetized by AdSense, which leads me to believe that search must be a much higher effective CPM per minute than TV (a relatively passive medium for transmitting advertising messaging).  Certain content sites that are effective at selling brand ads must be better monetized per minute than TV.  But there must be segments that are way underperforming.  From the data we see, social networking sites have much lower than average CPMs and much higher average visitor sessions, so they are underperforming, but social networking is only 10-15% of total time spent online.  Other categories like instant messaging must be underperforming as well.

What’s your CPM for visitors per minute?

YieldBuild will be exhibiting at, sponsoring, and attending a number of upcoming events. Please contact us if you’d like to set up an appointment to meet.

Affiliate Summit – New York City

August 10-11

Exhibiting: Merchant Mart Table T119

Paul Edmondson (CEO) – Fawntia Fowler (HubPages)

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Search Engine Strategies (SES) – San Jose

August 11-12

Exhibiting: Booth 516

Jason Menayan (YieldBuild) – Ryan Hupfer (HubPages)

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AdMonsters Publisher Forum US XXI – Portland

August 17-18

Sponsoring

Paul Edmondson (CEO)

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BlogWorld and New Media Expo – Las Vegas

October 15-17

Exhibiting: Booth 415

Jason Menayan (YieldBuild) – Ryan Hupfer (HubPages)