You might have remembered that mid-last year Google announced that it would allow 3rd-party networks to serve ads through its platform. What this meant, in practice, was that Google offloaded a lot of Doubleclick inventory onto its AdSense publisher base. We noticed a large uptick of AdSense ad spots on the top 100,000 Websites suddenly serving Doubleclick ads in the second half of November 2008—the number of AdSense ad units serving up Doubleclick inventory more than quadrupled.

What a tighter AdSense-Doubleclick integration also allows is display/rich-media formats innovated by the latter to be displayed across AdSense’s vast publisher inventory. Google has just announced on its official AdSense blog that it will begin to show expandable ads, naturally, as third-party ads that publishers must set their accounts to allow.

In the post, they make it clear that while visitors can provide easily-demonstrable engagement with the ad by choosing to expand it, publishers are only paid if a visitor clicks on the ad to taking it to the landing page. No word if Google if remunerated by its advertisers by the same metric.

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.

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.

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!

ClickForensics, a click fraud auditing company, has released a report that says click fraud rates, the percentage of clicks on CPC ads resulting from fraudulent activity (either from publishers earning money from the ads, or from competitors trying to drain a company’s ad budget), has inched upward: 17.1% in Q4 2008, from 16.6% for the same quarter in 2007.

But wait—doesn’t Google already filter out bad clicks?  Google already has a three-pronged approach to identify and weed out clicks from dubious sources (click farms, botnets, competitors), and reflect the corrected traffic quality in the form of Google’s “smart pricing”. However, ClickForensics claims in its FAQ that Google only filters out 2-3% of clicks (substantially lower than what ClickForensics is claiming is fraudulent, but Google disputes their numbers), and Google itself integrated ClickForensics’ FACTr fraud documentation & reporting service in October 2008.

The deal recognizes that even a data giant like Google can’t always stay ahead of the fraudsters, and gathering useful data from auditing services and, likely, its competitors is a good idea. At the same time, the fact that CPC ad networks earn revenue from even fraudulent activity sets up a moral hazard that outside auditing and cooperation with their competitors can head off.

What’s causing the increase? ClickForensics says its the result of more ad dollars flowing into CPC, more competition among CPC advertisers, and the weak economy giving rise to click farms and other money-making scams. The solution? Information sharing among those affected. Most ad networks’ payment cycles are long enough to deter fly-by-night scammers, but since reporting is real-time and advertisers are charged on a much shorter cycle, more aggressive proactive fraud detection is a worthy goal to make.

We have just launched a suite of performance analytics to our YieldBuild publishers, which will give site owners impressive insight into the traffic and monetization patterns that are bringing in the money. Take a look at these 5 sample screenshots  (click on each to see a full-size version launch in a new window):

Although the tides are working against them, vertical ad networks continue to multiply. More sophisticated targeting offered by larger, general media sellers, constricting and consolidating ad spend on branding, and an overcrowded market might dishearten some hopefuls, but there are a couple of entrants I’ve read about this past few weeks that continue to sally forth to seek their fortunes.

• MTV’s Adify-like cluster of vertical ad networks, grouped under the moniker Tribes, launched a vertical ad network, Comedy Tribe, anchored by Viacom-owned ComedyCentral.com, but including the popular JibJab.com site (remember the 2004 election-year flash video?) among its cadre of comedy-oriented properties. Tribes was launched this past September with a parenting-oriented vertical ad network. The Comedy Tribe will compete with the National Lampoon Humor Network and Connected Ventures (CollegeHumor, Today’s Big Thing) to reach the 18-34 male demographic valued by advertisers.
• Also launched yesterday was Inflection Point Media, a vertical ad network targeted towards SMBs, hopes to capture some of the $5.3 billion online B2B advertising projected by eMarketer for 2009. Leveraging its pool of properties that attract 32 million monthly visitors, claims to have behavioral targeting technology that identifies potential prospects and serves relevant ads/offers to those most receptive to them. Because its hub is a collection of 60 business newspapers, IPM will compete against BusinessWeek and Business.com.

Two more are boasting growth and expansion in a purportedly tough market:

• SportSyndicator, an Adify-supported sports vertical ad network, recently opened an office here in San Francisco to support the 10 million US-based sports enthusiasts it reaches across 100+ sites. Climbing.com and BigLines.com are among its publishers, and North Face and Oakley are among its advertisers. It competes with Sportgenic, Yardbarker, CBS College Sports Media and SI.com
• Niche Gay Ad Network pulled away from its competitors (LogoOnline, PlanetOut/Gay.com and Regent Online) to surpass 1 million monthly uniques on properties exceeding 4 million uniques in December. The network partners with 73 smaller gay-oriented sites and blogs.

The success of vertical ad networks going forward will be their ability to fend off the big guys, who’ve gotten better at allowing advertisers to nail down a specific audience profile through which they can target spending. One of the chief challenges is building scale; most leverage one large publisher or a cluster of related publishers to deliver consistent volume. It remains to be seen, though, if ad agencies’ entries into the ad network space threatens to squeeze them out of play. It’s not hard to imagine agencies buying or even building their own vertical ad networks in order to retain the margin, while relying on something like AdSense to make up for any inventory shortfalls.