As Tracking Proliferates, Web Publishers Are Left Out
NEW YORK (AdAge.com) -- Who's the most valuable surfer on the web? For the auto advertisers, there are few more valuable than a visitor to Edmunds.com. For the next three months, he or she is considered an "in-market car buyer" and will be stalked by a host of ad networks, portals, brokers and other digital middlemen who cut their slice of the advertising pie.
Edmunds created a valuable asset -- in this case, an "in-market car buyer" -- but like most web publishers, they don't participate in the mini-economy that flourishes after visitors leave. What's worse, a host of ad networks will sell that "in-market car buyer" to advertisers at a fraction of the rate, thereby increasing ad inventory while driving down ad rates for Edmonds, KBB.com and other sites like it.
The same is true for publishers across the web that spend considerable dollars to create desirable editorial environments for web readers and advertisers only to have that value diluted by those packaging and re-selling the datastream left in their wake.
A parallel ad universe
Publishers have long viewed this parallel advertising industry of networks and targeting firms with unease, much as they had to learn to compete with portals aggregating their content. But you didn't hear a lot of criticism when the pie was growing at a double-digit rate. But publishers are facing their leanest year since 2001.
The latest estimate from Barclays Capital is putting online display-ad growth at 4% in 2009, meaning the pie is essentially staying the same but with more venture-backed networks than ever competing for available budgets. Rumors abound about ad networks, portals and Google poaching audiences and dollars. Even agency holding companies such as WPP and Havas are buying up online ad inventory and repackaging it using behavioral data to target ad dollars.
"The notion of selling somebody an ad based on a click away from a site vs. the engagement one feels on a content site -- ESPN or elsewhere -- undervalues or commodifies the experience that advertising is trying to achieve," said ESPN President-Sales Ed Erhardt. "My sense is this kind of sales proposition is dangerous for advertisers and for agencies and ultimately for the media companies spending billions on content."
As the bottom fell out of the online display ad market this past year, executives at ESPN, Turner Entertainment, Forbes.com, Martha Stewart Living and the Weather Channel have all made a public show of "not working" anymore with ad networks. "Value is being extracted by third parties, so we made the decision to stop working with third-party ad networks," said Walker Jacobs, Turner's senior VP-new media sales.
Whose customer is it?
But the real issue is, Who created the customer and who owns the data generated by a visit or a sale? "Data is key; everybody wants to own it, everybody wants to use it. It's not just ad networks -- its portals, publishers and holding companies," said Mike Cassidy, CEO of Undertone Networks. "The question to be answered is who owns the data, if anybody."
In the offline world, publishers market their own subscriber lists. But online that data is harvested by a host of third parties such as Google's DoubleClick, Microsoft's Atlas and vast ad networks such as Platform A's Advertising.com. "People are stealing from the media companies who have lost control of their data," said Operative CEO Mike Leo. "It doesn't make sense to me that the people creating these valuable audiences aren't getting paid for it."
Here's how it works: A publisher decides to allow an ad network to sell some of its inventory. That network places a cookie on the publisher's site. Now, when a user leaves that site, and goes somewhere else, the network can track that user. If that user is worth $10 CPM (meaning the cost to reach a thousand viewers) on a site such as Edmunds.com, the network can buy low-value inventory for, say, a 40-cent CPM on MySpace and re-sell it to an auto manufacturer when the onetime Edmunds' visitor arrives on the social-networking site.
"Edmunds declared that person a valuable customer and for a brief moment in time gets to create value from that," said former DoubleClick executive and now FreeWheel CEO Doug Knopper. "Then it goes away and Yahoo gets to monetize that customer."
There's nothing new about behavioral targeting or ad networks. But now a bigger number of players are locked in a battle for a static, or in some cases shrinking, slice of the online ad pie. Even one of the fathers of behavioral targeting, former Tacoda Systems founder and now Tennis Co. chairman Dave Morgan, concedes it hasn't been a boon for publishers.
"Are publishers finding it difficult to continue to grow their business with highly scaled ad networks in the mix? The answer is yes," he said. "If you are the third, fourth or fifth destination site in your category, you will have a tough time getting advertisers to give you a premium, but that's just the way media works."
How the problem started
Publishers brought the problem on themselves in at least three ways: first in deciding several years ago that their "remnant" ad inventory didn't have much value and deciding to sell it through networks in the first place; second, giving up their data for free to myriad networks and behavioral targeting outfits; and third, trying to compete with networks on scale, rather than on selling and investing in a unique editorial environments for users and advertisers.
"In other words, publishers got away from selling the unique environment of their brand and into the tonnage game, but they didn't have a lot of scale or a lot of sophisticated technology to deliver it on the scale of the networks," Mr. Morgan said.
As marketing dollars tighten, online publishers' greatest asset is their branded environments, which, they argue, have intrinsically more value for an advertiser than anything a portal or a network could provide. That's the reason the Online Publisher's Association commissioned a study in August that show branded sites deliver better brand awareness and purchase intent.
"People either believe in context or they don't," said Sarah Chubb, president of CondeNet. "Is it the person or the behavior or the context? We think the most powerful thing is the relationship we have with the consumer."
But while that argument might work for some, it won't be enough for some sectors. Take news, for example, where the biggest news sites, CNN.com, MSNBC and NYTimes.com, have to compete with portals that create no news content of their own, such as Yahoo News, AOL News, Google News and even Huffington Post and the Drudge Report.
Is a "business decision maker" targeted on the New York Times' website more valuable than a user of Yahoo News? Maybe. But it's also true that the ability to target a "business decision maker" -- or even a regular reader of the Times -- on Yahoo will subtract available ad revenue from the Times.
Edmunds.com sales director Bradley Spannbauer said the site makes an effort to protect its data by not working with ad networks and attempts to make sure advertisers aren't re-selling the data or using it to target users off Edmunds.com.
"There is a value to those users and if you let an ad network or other retargeting source share that data you are giving away money and it doesn't make sense," he said.