Real estate giant has decided to drop television advertising, and move its spend online. Why?

• TV’s ability to drive up brand recognition is no longer needed; the firm already enjoys 97-99% name recognition
• In 2008, lead generation via online increased 237%
• Cost per lead fell 62%

The fact that the real estate market has tanked has probably made the decision a bit easier. Performance-based marketing can leverage the brand equity it built during the boom years and let it ride out the downturn.

Interestingly, Century 21 was the first real estate franchise to advertise on television back in the 1970s.

As any publisher knows, CPMs can move up and down.  While they are increasing, publishers are content, but when they go down, it can be very unsettling for publishers.  Today, there are few deals available for publishers at guaranteed rates while the overall online ad market is seeing some strong headwinds that are severely impacting CPMs.  In this post, we are going to provide some insight to why publishers may be seeing giant swings in CPMs and what they can do about it.

It’s hard to listen to the financial news without hearing the term liquidity.  There are two definitions of liquidity.  The first one refers to the ability of turning an asset into cash.  The other type of liquidity is defined by how much an asset can be bought or sold in a market without moving the price.  The more active buyers and sellers are in the market, the more liquidity, which helps keep prices stable.  If anyone buyer or seller leaves or enters the market, the price should remain stable in a liquid market.  Right now, I think the overall ad market is experiencing a liquidity crisis.  Advertisers are leaving the market in droves, destabilizing prices.  Once a decent campaign ends, there aren’t enough buyers ready to fill the inventory as it opens up.  The growing gap between active campaigns is causing the fluctuations in price.  In the current advertising market, larger ad networks with better liquidity will offer publishers more consistent payouts, while small ad networks are more likely to have large fluctuations in pricing with spotty buys.

What can publishers do?

First, publishers should consider establishing relationships with large horizontal ad networks like Google AdSense and Advertising.com.

Second, publishers should look at the fill rates of their smaller or specialty ad networks and consider decreasing the amount of inventory they are allocating to them while at the same time tightening up the frequency caps to one to two impressions per 24 hours.

Third, publishers should examine their international traffic and make sure that they have ad networks capable of filling the inventory.

We also recommend using prudent judgment when it comes to adding ad networks to your overall mix.  It’s unlikely that adding many additional ad networks will help stabilize earnings if publishers are already filling their inventory with reasonably frequency-capped runs.  Instead, it can add to the complexity of managing inventory and have an overall negative impact on earnings.

Behavioral targeting has taken a lot of heat from consumers, privacy advocates, and even the government, for an industry-wide lack of transparency about how data is stored and shared. NebuAd and Phorm have been the most high-profile targets, but there’s been a growing sense that legislation might rein in the industry unless it demonstrates that it knows how to behave.

Four industry associations that have an interest in seeing online behavioral targeting stay clean, the American Association of Advertising Agencies (AAAA), the Association of National Advertisers (ANA), the Direct Marketing Association (DMA), and the Interactive Advertising Bureau (IAB) have banded together to preemptively head off accusations of laxity and negligence with new standards for privacy that behavioral targeting firms must abide by.

The timing is probably wise, given that the incoming Democratic President Obama and strong Democratic majorities in both houses of Congress are shaping up to be relatively regulation-friendly. The industry got a warning from the FTC a little over a year ago.

Gloom and doom tends to dominate online ad market projections these days. JP Morgan and Barclays Capital analysts posted dismal growth prospects at the beginning of the year. eMarketer, the industry cheerleader, continued to downgrade its projections for 2009 through the latter part of last year. Chatter in the blogosphere would only seem to delight if you were given to schadenfreude.

With such a grim outlook, it’s nice to hear optimistic projections contrary to ever-plunging growth figures. Here are two I saw the past couple of days:

Small business owners plan to maintain (60%) or increase (26%) ad spend in 2009; most optimistic about online

Though 97% of U.S. small-business owners have some degree of concern about today’s dismal economy, 26% plan to spend more on advertising – especially online and direct – and another 60% plan to spend about the same as in 2008, according to a report from Ad-ology Research.

The “Ad-ology Small Business Marketing Outlook” survey found that though 25% of owners of small businesses with less than 100 employees are fearful about the current economic situation and 58% are concerned, they are also cautiously optimistic, writes Marketing Charts. Some 83% expect 2009 sales to be up or about the same as 2008.

In terms of 2009 spending on various media types, more than half of small business advertisers plan to spend the same or more on the following: Online advertising (69%), Yellow Pages (54%), newspapers (51%), and direct mail (51%).

At the other end of the size spectrum, Mike Peralta of AOL’s Platform-A was optimistic about the spending prospects among CPG clients, even though some verticals, like auto & retail, are most certainly down.

E-Commerce Times: Do you think the online advertising industry can survive this recession? It’s getting ugly out there.

Mike Peralta: Yes it is. Online advertising, though, is performing relatively well, although not all of the categories are up. Retail, for instance, is down; so are autos. But what is happening, and why I am bullish as we go into 2009, is that there are a number of categories and clients out there that have been underrepresented online.

For instance, consumer packaged goods companies have spent between 3 percent and 4 percent of their overall ad budgets online. That trails by a third general ad spending online. As the economy gets tougher, a lot of folks will look online as a way to run a more effective campaign.

ECT: So you see a boost in CPGs’ online spending in 2009?

Peralta: Absolutely.

The Online Publishers Association (OPA) released the results of a study today as a followup to another study (full PDF) published six months ago that found ads performed better (higher impact on brand favorability and purchase intent) on branded content sites than on portals (content aggregators) and other types of Websites. The study used data from Dynamic Logic’s MarketNorms database.

The recent study took a look at 47 different performance metrics  on original-content sites vs portals, social networks and other types of sites, and found that despite the recent economic downturn, advertising on the former continues to outperform the rest. Original content sites generally have a strong advantage at attracting traffic because of their unique product offerings, but, it seems, advertisers benefit from the association.

Here are a few data points, comparing original-content sites with other site types:

• aided brand awareness: original-content +38%, ad networks -19%, over the past six months
• brand favorability: original-content +27%, ad networks and portals showed double-digit percentage declines over the same time period. This was particularly the case for younger (18-34) and more affluent ($75k+) Web audiences.

Why? We can speculate that higher-quality sites demand more respect, however subconscious, among Web viewers, and brands associated with them are more likely to enjoy a halo effect, enjoying an implicit endorsement from the sites. This might provide some comfort to original-content publishers smarting from seeing value bleed to portals and aggregators through behavioral targeting.

Silicon Valley Insider’s Michael Learmonth, writing for Advertising Age, contends that top online content producers, destination sites that identify Web users with a vertical buying intent in particular, are losing advertising value to parasitic behavioral advertising networks. The content producers, such as Edmunds.com or NYTimes.com, do the heavy lifting of providing value that brings users to their sites. Behavioral advertising networks on these sites, usually running on remnant inventory, capture user data and seek to monetize them based on their established profiles on lower-quality sites that the same user might visit later.

For example, a visitor to WebMD.com might read an article about mesothelioma, establishing that visitor as a possible asbestos-victim litigant, the clicks on advertisements for which pay top-dollar among lawyers trawling the Intertubes for potential clients. However, instead of clicking on an ad on WebMD, the visitor might end up clicking on a mesothelioma ad on a low-CPM social network a few days later. The social network enjoys a great RPC (revenue per click) without having done any of the valuable content building that profiled the visitor in the first place.

The heart of this issue is the value of user data that high-quality content networks are effectively giving away for free to the behavioral advertising networks that they work with to monetize their remnant inventory.

Increasingly, large publishers are choosing to stop contracting with third-party ad networks because they find visitor data more valuable when it is exchanged directly with their advertisers (and because they have greater control over ad creatives and scheduling). But smaller publishers without the scale to build their own advertiser relationships or even demand premium pricing might have gotten the short end of the stick, despite delivering a unique value proposition in carving out a niche to advertisers.

What’s next? As publishers using behavioral ad networks begin to understand that the value of their content is often recouped beyond their sites, they might begin to demand some of that dispersed value back. Privacy issues abound with user data ownership and transferability, and tracing an advertising click to its “true source” is a sticky proposition. But difficulties like these will have to be surmounted in order for behavioral targeting ad networks to continue to get buy-in from valuable publishers. The alternative might be worse: much like larger publishers like ESPN have done, smaller but targeted publishers might drop behavioral targeting networks altogether.

This post is broken up into two parts:

• What are contextual ads? (with examples of good and bad matching)
• Contextual ad networks

What are contextual ads?

Contextual ads are online ads that include code that enables the ad network to spider the page’s content, determine its topic from a preponderance of the keywords and meta data, and serve up ads relevant to the page’s topic. Or, more simply, contextual ads are ads that match the page’s topic.

So, if a page is about treating a cold naturally, the contextual ads are likely to include links to alternative cold remedies and the like. There are varying degrees of sophistication, but most match ads well enough to content so that click-through rates are far superior to demographic- or geo-targeted advertising solutions.

How does it work? When a publisher places a contextual ad tag on a page and publishes it, the code instructs a bot that indexes the page and determines the topic of its content. That information is passed to the ad server, which selects an ad to display in that spot that provides the best contextual match, against any other requirements (size, site restriction, frequency/budget caps, etc).

Here’s an example from HubPages:

The contextual ad matches wrinkle cream ads to the article on natural face creams, because, presumably, people interested in reading an article on natural face creams are more likely than the average Internet user to respond to that sort of ad.

Contextual ads are not always text-based; banner ads, as long as they’re properly tagged in order to categorize the creative, can be matched contextually. Google AdSense is one contextual ad network that does provide contextual matching for display (image) ads.

Contextual matching does not always work perfectly. As demonstrated in these cringe-worthy examples posted on Mashable, sometimes a simple term match doesn’t do the trick:

It’s easy to imagine other, more innocuous but equally ineffective matches (ads for Mrs. Field’s showing up on a page on how to clear your browser cookies). Two contextual advertising firms (Proximic and Peer39) have come up with methods that purportedly minimizes the likelihood of these kinds of semantic/lexical mismatches.

Contextual Advertising Networks

The contextual ad network space is dominated by Google’s AdSense,  the publisher’s earning solution side of its advertiser solution, Google AdWords (which also places ads on Google’s SERPs).

Here is a list of contextual advertising networks:

• Google AdSense
• Yahoo Publisher Network (YPN)
• Microsoft PubCenter (AdCenter Publisher)
• Chitika
• Kontera
• Quigo
• Vibrant Media
• LookSmart
• Peer39
• Proximic
• Ask.com Sponsored Listings (ASL)
• Ad-in-Motion
• LucidMedia (upcoming)

I guest-blogged at Adotas and posted an article (the bespectacled dog is me, I swear! thanks, Edward!) on the good and the bad with the state of online advertising. An excerpt:

Data and projections from the IAB, Morgan Stanley’s Mary Meeker, Jupiter Media, and eMarketer, among others, suggest that online advertising, having enjoyed reliably robust growth rates over the past 6 years, will see them shrink to zilch–optimistically–in 2009.

But behind the negligible overall growth figure lies two contrasting figures: continued growth in contextual/search advertising, and a slump in display. Looking at the previous online ad market slump, as well as the nature of today’s more complex market, provides indications on why this mixed picture stands, and when and how we can expect growth to resume.

Looking at the implosion of the online ad market in 2001, and its subsequent lengthy recovery is only partially instructive. The reality is that a number of factors make the state of today’s online advertising market different enough this time around to give credence to optimism. Search and contextual advertising exist now.

In contrast to the heady days at the turn of the millennium, the online ad market is much more complex today. Traffic patterns, strongly influenced by search, have changed, as has targeting sophistication. Contextual and search advertising is now a more than $10 billion business in the U.S. alone. Contextual- and behavioral-targeting technologies didn’t exist during Web 1.0; they are making more out of advertising dollars today.

Read the entire article at Adotas »

A VC writes an interesting analysis of a comScore whitepaper on the performance of display/rich-media ads relative to search/contextual ads. The analysis and perspective are primarily from the advertiser’s perspective, but I’ll add my $0.02 on what it means for publishers at the end of this post.

The study coming against the backdrop of falling (click-through) performance of display ads: static image ads fell to an aggregate CTR of only 0.2% in 2006 (0.1% in 2008), while dynamic rich-media variants have fared only marginally better, at 1%. Besides, 2/3 of those exposed to display ads never click on ads, while 16% accounted for 80% of clicks (I wrote on another study of natural-born clickers early this year). The study then wonders if the impact of display ads should take into account more than simple clicks.

Naturally, it does, by using CPM as its pricing model, but there has been an assumption among advertisers and marketers that clicks are what they’re paying for. The study points to some data that underscore the benefit of display ads in a mixed-media online campaign:

• display ads have much higher reach among Internet users: 81% seeing only a display ad in comScore’s study vs 8% seeing only a search/contextual ad
• display ad exposure lifted site traffic (+46%) and brand searches (+38%) over the first four weeks of exposure to an ad
• display ads improved sales, with a 27% lift to online sales and 17% improvement to offline

It’s been commonly understood that while CPC-priced search/contextual ads target conversion and action, CPM-priced display advertising targets awareness and branding. These figures reiterate the tangible (if delayed) benefit in investing in brand/campaign exposure to customers in earlier stages of the buying cycle.

A second part of the study examines the benefit to advertisers to using both search/contextual and display advertising as part of their online ad campaigns. Clearly, a synergistic relationship was noted in the combined-media campaign vs a campaign relying on either search/contextual or display alone. Search/contextual + display outperformed search or display only in terms of:

• visitors making a purchase at the advertiser’s site, providing a +173% lift compared to +42% using display alone and +121% using search/contextual alone
• spend per visitor, with a +124% lift, vs +27% for display only, and +76% for search/contextual by itself

This data is interesting in that in measures a clear, measurable transaction, and the benefit to using both forms of online advertising to improve conversion.

Interesting stuff, but what does this mean to publishers? Display and search/contextual advertising should not be considered a zero-sum proposition by publishers any more than it should by advertisers. Whether it’s because a combination targets different visitor format preferences, or that it targets a broader range of the buying cycle, image and text can work well in concert with each other. As the value gets demonstrated to advertisers and agencies, we should expect that spend in one format should grow alongside the other, not at its expense.

Online ad network Burst Media has released the results of a survey of over 4,000 Web visitors on their response to “ad clutter.” Here are the main takeaways:

• Ad-cluttered sites make visitors more likely to leave (30% immediately leave what they believe to be ad-cluttered sites) and less likely to pay attention to ads (75.5% of respondents)
• More than two ad units are tolerated by 47.4% of respondents; 27.3% will only tolerate one ad unit per page, and 25.3% will tolerate two ad units per page
• 52.4% of respondents said that an ad’s presence on a cluttered site reflects badly on the advertiser;
• There are some gender and age differences. Women are 17% more likely than men to abandon a site they feel is cluttered with ads, while 55+ visitors were 35% more likely than those in the 18-24 age set to do the same. Women were also 17% more likely than men to think ad clutter reflects badly on advertisers.

Results like these seem to underscore the benefit of blending ads, and making sure ads are congruent with your site design. And, as our own data shows, maximizing the number of ads does not necessarily maximize revenue for the page. Cluttering up a site with ads is a double whammy: it makes visitors both less likely to click on ads, and less likely to ever visit the site again.