Better targeting equals higher ad rates - Lots of startups and VCs are pinning their hopes on this simple premise. It seems obvious, but there is very little evidence to support it. So what is wrong?
- Is the ad serving technology not able to take advantage of all this new "attention data" to better target the ads?
- Are advertisers not willing to pay higher CPM rates for the better targeting?
- Has ad targeting been tried with all this "attention data" and the results are not much better?
- Is there just too much ad inventory which is depressing prices?
- Are we just too early in the game to get good results?
Cnet writer Stefanie Olsen has a good story on what VCs think will be the next big things. Not surprisingly, they think ad targeting will be huge. Here are a few nuggets from Stefanie's story;
"The first wave of Internet investing dealt with commercializing the Web, helping companies like Amazon.com and eBay get on their way. The second wave has been about helping people socialize and connect through sites like Flickr, YouTube, and Facebook. The third, venture capitalists say, will be about making sense of all the data people create around the Web, and then searching for patterns in the data to improve the delivery of personalized content, search results, or advertising."
"Everyone talks about all the data that's being created and how valuable it is, but the way you make it available is by doing something actionable with it," said Rob Hayes, partner at First Round Capital."
"Social networks and social media sites have created so much new ad inventory on the Web, but they have yet to make significant money from it."
"We are really fascinated with data and the ability to use it to increase effective (cost per thousand) for ads. There's this explosion of inventory, but people haven't figured out how to monetize it yet--data will be the difference," said Fouad ElNaggar, a principal at Redpoint Ventures."
I have seen so many companies, literally hundreds, that are building social, fun, aggregators, filters, recommendations, communities, and services that all boil down to one thing...building profiles from implicit data and explicit actions to better target advertising. It is the biggest "head fake" in business history. All these widgets and services appear to be fun consumer toys, but underneath they are advertising driven data collectors.
It seems obvious that if you can collect demographic data from users when they register for a service, and then collect preferences, rankings, click stream data, social network connections, etc, that you should be able to use this data to better target advertising. It will happen...but there is no evidence of it yet.
Low CPM Rates - Social Network content sites get the lowest CPM rates, an average of $0.27, but sometimes as low as $0.02. Gaming sites are the highest. Several months ago I talked to a Facebook App developer who told me his app is generating 300 million page views per month. Wow! Then I asked what kind of CPM (Cost Per Thousand) ad rates he was getting. He shrugged and said somewhere between $0.02 and $0.05 per thousand. That pencils out to between $6K and $15K of advertising revenue per month for those 300 million page views.
Last night at Mashable's SummerMash in Boston, I talked to the founders of a new startup called Wiggio which is building a collaboration tool for college students. When I asked about their business model they said "highly targeted ads based on user demographics". I asked them if they had checked with the major ad networks to see what kind of CPM rates they could expect. "Well,...uh...no." I suggested that they should spend some time researching this out before going too much further.
In October I will be hosting a forum at MIT on advertising networks and the future of online advertising. We are recruiting some of the brightest minds in the advertising world to speak at the forum. I hope to dig deeper into some of these issues to better understand the problems.
What do you think? Why aren't we seeing higher ad rates? Is the targeting technology not working? Or, are web surfers just not responding to the ads?