JayWeintraub.com - Internet Advertising Analysis and Commentary

Coke's Biggest Gift... Pepsi

There are certain things in life that move us. They drive us to act and express our opinions passionately. Some of those things make sense and can align for social good. Those who want to give their time helping the less fortunate, e.g. doctors without borders; or, when someone uncovers a harmful practice and dedicates time to making us all safer despite the costs. Then there are things that it probably doesn't make sense to feel passionate about. These things are easy to get upset about, like your sports team trading a player, a store no longer carrying an item you liked or raising the price of another, and so on. These matter, but they don't really impact our ability to get what we want and to live a healthy and productive life. Perhaps more importantly, focusing on them doesn't aid our overall growth, which could be why I certainly specialize in obsessing about this latter category of items. So, while some people figure out how crops can grow more efficiently in harsher cliamtes for less cost and at a lower carbon footprint, I sit obsessing over soda, literally, i.e. PepsiCo's decision to switch to a new logo.

Every Generation Refreshes The World
Here is one of the Pepsi commercials that played during the 2009 Super Bowl. It is arguably the most ambitious of their slots (with others focusing on specific products, such as Pepsi Max), as it used iconic imagery and to the chagrin of purist Bob Dylan fans, puts one of his legendary songs to a product. UPS has done this to a lesser extent with "Such Great Heights" by The Postal Service, but the irony of using a song by The Postal Service for a UPS commercial more than makes up for any association that now happens when hearing the song. As for the real postal service, the USPS doing that with Steve Miller's "Fly Like an Eagle," I'm not quite so forgiving. Or, again, chalk it up to hyper-sensitivity. 

The images used in the ad above don't make sense with the product. It's not about whether you can explain it. The point is that you don't even have to explain it. You get it. You like it. Look at Bud Light and Coke commercials. They tug at some emotion, all without getting the brain involved.

For the non-Pepsi aficionados, here are the pepsi logos over time.

Interestingly, and especially if we narrow the options to the modern era - say 1962 and beyond - I bet most people would actually like the look of the new logo better than many of the predecessors. And, the company uses the new logo in lieu of the letter "o" or zero in a wide running offline ad campaign in which the soda company's name doesn't even appear. Here is an amalgomation of several uses:
<print ad>

You will see these ads running everywhere from the subway to sporting events. The campaign and use of the logo led one designer to comment, "When I first saw this Pepsi ad in The New York Times I felt good about the direction the new Pepsi branding was taking. It felt fresh, fun, optimistic, uncomplicated. It was timely and seemed to be hitting the right cords."

Breathtaking 
Doing any amount of research into Pepsi's decision to "refresh everything," especially their logo, invariably points to a design study done by the Arnell Group, named "Breathtaking." Knowing nothing about design studies, it's hard for a direct response guy, by experience at least, to have a frame of reference by which to evaluate the 27 page document. One thing is clear, from the very first section it speaks in a language not often used at companies in the performance marketing space. You can see it now, a landing page mockup or email creative mockup under the heading, "BREAKING THE CODE FOR INNOVATION - From Convention to Innovation." The answer to the question not asked is that you will not see that, nor will you see the following in a performance oriented company - "BREATHTAKING is a strategy based on the evolution of 5000+ years of shared ideas in design philosophy creating an authentic Constitution of Design." 

Regarding the PDF, you could take a more direct approach and write what Fast Company author Aaron Perry Zuker wrote in "Pepsi Logo Design Brief: Branding Lunacy to the Max." He begins, "A leaked pdf outlines the thinking behind the controversial new Pepsi logo. It may be one of the most ridiculous things ever perpetrated by somebody calling himself a designer." He adds, "The presentation, by the Arnell Group (also responsible for the botched design of the Tropicana orange juice carton) contains visual representations of and comparisons with the following: the golden ratio, the Mona Lisa, the Parthenon, the Gutenberg Bible, the earth and its magnetic fields, and the solar system/universe. None of these things have anything to do with soda. Zucker writes, "Every page of this document is more ridiculous than the last ending with a pseudo-scientific explanation of how Pepsi's new branding identity will manifest it's own gravitational pull."  Perhaps then, the only thing truly Breathtaking about Breathtaking is its purported multi-muliti million dollar price tag.

Says firm namesake Peter Arnell in an Adage interview, though, "When I did the Pepsi logo, I told Pepsi that I wanted to go to Asia, to China and Japan, for a month and tuck myself away and just design it and study it and create it," and "There was a lot of research, a lot of consumer data points ... and dialogue that I had with the folks at Pepsi, consumers and retailers. We knew what we were doing." Look, I can diagram the chemical composition of manure and how it degrades to nourish the Earth, but that doesn't mean it don't stink. Explanation and rationalization are reactive forces. Emotion is proactive. I don't see any emotional connection in Breathtaking, outside of the feelings the word itself articulates, only intellectual fornication.

A Behavioral Economist Explains Branding
It's easy to join in with those who have mocked the Breathtaking study and its narcissistic grandeur and outworldly price tag in an era of discretion. The study, though, could still be a hoax, and its authenticity aside, plays no contributing role in the real issue. What initially bothered me the most is not so much the changes and reasoning behind the change as much trying to properly articulate the reason why the change is ineffective and thus, ultimately a waste of money. An answer to why this change will not succeed and/or cost way to much in order to potentially succeed, comes from an unlikely source, behavioral economist Dan Ariely, known among researchers for his groundbreaking work and now outside of academia for his best seller "Predictably Irrational." (If you haven't read the book, I can't stress the importance of doing so.) Because many lack the time to read and because copying passages from a book is not an effective use of time, we've found the next better thing - a transcript of an audio interview. This one was between Dan and Scott Schroeder, principal of rabble+rouser.

First a primer in the field of behavioral economics, as explained by Dan:

In standard economics people start by assuming that people are rational. And then you say, “OK, so what are the consequences of this assumption?”In behavioral economics, we don’t assume that people are rational, we actually observe people. And in some sense the standard economics view is more generous to people because it says people are rational and wonderful and so on. Behavioral economics perspective says people are mistaken. While behavioral economics is more morbid from the prospective of looking at human rationality, it’s also more hopeful, I think, in the sense that it tells you that you can build, actually, a better world. If we understand where people fall short, you can also think about how we improve things.

The Coke / Pepsi Challenge is a classic marketing experiment, confusing because each company has can get the results they want. But how? Here is Dan:

So Pepsi used the Pepsi challenge and they found that people liked Pepsi; and then Coke did the Coke challenge and they found that people liked Coke. Well, if you look deeper into that you’ll see that Pepsi was doing blind taste testing. So people took two white cups and tried them out and said I like the one on the right or I like the one on the left. When Coke did their tasting it was not blind—you could see which one was Coke and which was Pepsi. Could that be the difference? Well, it turns out it is. When people drink Coke and they know it’s Coke, they like Coke better. When they drink Coke and Pepsi and they don’t know which is which, they like Pepsi better.

As he says, that last part is the story of New Coke.

What happened with New Coke is a very nice story because Coke went ahead and did a really systematic study of all the different concentration on this brown formula with sugar and so on and they varied it systematically and they got a lot of people to try and taste all of these things and they found out the final winning equation, which was sweeter than the original Coke and, in fact, it was much closer to Pepsi than Coke. And then they put it in a Coke can and people hated it.

Branding as looked at in the world of behavioral economics excites me because it makes the world more observable, more like the world of direct response.

If It's Not The Taste, What Is It?
Unbeknownst to me and most people, scientists can test quite a few things these days, including brand preferences - not just what people like but why. Drawing from interview with Dan, which too is described in the book, he explains a modern day twist on the Coke/Pepsi challenge now that we understand the impact that knowing which one you're drinking has.

Dan says:

In the experiment that I’m going to describe to you next, the Coke Pepsi challenge was taken to new heights and new costs. So this was a study using an FMRI (Functional Magnetic Resonance Imaging) machine. Basically, what this machine does is this: as you’re lying in this FMRI, and as you see things and taste things and think, there are pictures taken of the blood flow in your brain that tells you which part of the brain is working and which part of the brain is not working. When you drink brown sugary stuff, the pleasure center of your brain gets activated—this is something called the nucleus accumbens—this is part of our emotional brain; it’s a part of the brain that we share with the rest of the animal kingdom. It’s a very primitive, ancient part of our existence. And it doesn’t really matter. You can’t tell the difference from Coke and Pepsi, at that level, as to how the brain reacts to pleasure of this liquid.

Most of the people in the sample declared to love Coke more than Pepsi. Now I’m sure that there are some people that do the opposite, but these people like Coke more than Pepsi and the frontal part of the brain, the place just above your eyes, was more activated when they drank Coke and knew it was Coke. The front part of the brain for these people reacted more for Coke than for Pepsi. Now this is a part of the brain that’s in charge of higher order association, hypothesis, higher cognition, metaphor association and so on. But interestingly enough, it has a dopamine receptor. Dopamine is one of the chemicals produced in the brain. It has a projection from the front part of the brain to the nucleus accumbens, to the pleasure center of the brain. And basically what was happening is that the higher order association actually created greater pleasure. Not because of the liquid but because of the association.

It’s clear that Coke, for this population that was tested, has an advantage that will be very hard for Pepsi to overcome. Because it’s one thing to control what’s in the drink, it’s another thing to control what’s in peoples mind. And if you’re saying that the final outcome is a
combination of what’s in people’s minds and what’s in the drink, you have a very hard barrier to pass that. Partially because it’s not a deliberately thoughtful process.

Put another way, this time from BrandingEye "I know it’s Pepsi because of the circle with the  red, white and blue brand colors but again, what is the brand message I’m supposed to get? In my opinion the new color fields within the circle don’t have any clear meaning or project any particular feeling." And, "We all know how tough it must be getting an iconic brand logo approved through the layers of corporate bureaucracy but still it’s a pity when you look at the new Pepsi logo thinking about the many millions spent on its rebranding and how little it speaks to you."

Fakevertisers Are Better Branders?
Performance marketing doesn't imply an inability to understand the power of brand or a similar inability to design in a way that evokes a connection to a product. Performance marketers lack the vocabulary and concepts used by brand experts, but they understand the psychological nature of the message and having a message cause action. In the case of Pepsi's new logo, would anyone at the company say that they don't want to new design and the campaigns they run to do anything but increase the quantity of their products consumed? Back to BrandingEye who felt a positive reaction to the logo and even the effect of the print ads, calling them "optimistic" and "hitting the right cords." The crux of the issue comes from his next statement, "Then I saw the packaging in a supermarket." That's what happened to me except I found nothing but dissonance in the entire process - from the TV spot, to the print campaign, to the in-store experience.

As we said above, "It's not about whether you can explain it. The point is that you don't even have to explain it." That's what fakevertisers get. They cheat in how they do it, like the person who starts the marathon on the last mile, but their short-cuts don't imply a compelling grasp of the fundamentals. Just look at this fakevertising site:

It's all about expectation setting. At the risk of abusing Ariely references, "The way you expect something to function, it will function this way." "...Our body is very, very active in the process of predicting the future and preparing for it. And if you think something will be better, it will be better. And if you think it will be worse, it will be worse."

Evolution and Advertising

I'd imagine some of our "think it will be better and it is" attitude this has something to do with our development over time. There is a field of study called Evolutionary Psychology, which "attempts to explain psychological traits as adaptations, that is, as the functional products of natural selection or sexual selection." Evolutionary psychologists "hypothesize, for example, that humans have inherited special mental capacities for acquiring language, making it nearly automatic, while inheriting no capacity specifically for reading and writing." They "see those behaviors and emotions that are nearly universal, such as fear of spiders and snakes, as more likely to reflect evolved adaptations." The layman definition might read something to the effect that we as people act in certain ways as a holdover to our more primal days. We act in certain ways that we don't understand and may not make intuitive sense today but have helped us survive for tens of thousands of years. So, while there isn't a discipline called Evolutionary Advertising, we could apply what we see with behavioral economics and evolutionary psychology to advise people not to go against the grain.

Pepsi has erred, because it tries to retrain us to think a certain way. Retraining works for new concepts that don’t have a pre-existing emotional connection. The classic example is Starubucks who trained to buy expensive coffee, but they didn't it from scratch, as opposed to being an existing brand with established and significant positive brand equity. It's why Duncan Donuts will win a blind taste but struggle to lure over Starbucks customers regardless of the taste. It can taste better but not be better in people’s minds. Thinking again to Pepsi, I would surmise they failed in the re-brand, because in addition to trying to retrain us, we can use the learnings from behavioral economics to explain why. Instead of using the frontal portion of our brain responsible from higher order association to increase our perception of the brands pleasure, they have activated another part of the brain that is creating dissonance and reducing the expected pleasure that comes from interacting with brand and the product.

Instead of spending millions on a new brand by finding an explanation for a question on one asked, in the future I wouldn’t be surprised to see some of that money go towards scientific testing. It’s one thing to ask people whether they like a new logo or for a company to come up with a story for the new logo that intellectually makes sense, but neither of them can provide concrete direction for how such designs will impact behavior. While not intuitive and in some ways antithetical to the notion of creativity, for those who can afford it, why not test design changes in a controlled setting, e.g. the FMRI? That way you can analyze not what only people say but how it truly makes them feel. One day such a discipline will probably exist and no longer be confined to the world of academia or those with significant spending power.

The Perfect Storm - Part 2

And The Story Continues
There was a link in the comments from from Part 1 of this post pointing to a brief blurb on TMZ where Barbara Walters tweets her disassociation with banners / sites using her likeness to promote Exilatrol and similar pills containing Resveratrol. As ad watchers know, she is not alone in being used on an and/or landing page. Almost any credible celebrity that has discussed Acai or Resveratrol has become an unwitting endorser on behalf of marketers looking to promote pills with those ingredients. The issue of course isn't a site showing the segment talking about the ingredient (assuming the clip exists online with permission in the first place). The issue is the association implied by the site that because this product contains the ingredient discussed, the product carries the endorsement of the on-screen personality

Coincidentally, and perhaps not surprisingly, when I visited the TMZ page containing the Barbara Walters mention, it had the following ad (not contextually driven) running in proximity:

Celebrities Get Cellulite
But How They Get Rid of It Will Shock You! Its Simple Try It For Free.
www.CelebrityReportsWeekly.com

Clicking on the ad, takes you to a landing page for a new type of fake news site, the fake celebrity gossip page. Considering the source, TMZ, it's not a bad idea and presumably more effective than the standard fake news page. Given the context of the page, i.e. celebrities complaining of being used in this fashion, you might think it bad for the bad, but we won't know.

 

The fake gossip site above is quite clever. The pictures of celebrities indicate who they might be from their captions and have that captured on camera look, but they don't show any faces. The "quick poll" on the bottom half of the page does show face, and it even returns results (real or not) to aid in the experience. Whether it infringes on copyrights by using pictures it doesn't have license to use is one thing, but compared to many of the flogs and other fake news sites, it has greater disclosures with "Advertisement" written on the top-left and above the pictures it says, "*This publication is an advertisement for Body Solution - Cellulite System and is not affiliated with any newspaper publication." On the bottom you will find the now more common, still confusing, still shared too late language, discussing how the site is not real, e.g., "THE STORY DEPICTED ON THIS SITE AND THE PERSON DEPICTED IN THE STORY ARE NOT REAL."

Perhaps fake celebrity sites are the new fake news site, because one of the sites I've been tracking has switched over its content from a standard fake news site to a fake celebrity site (albeit not quite as well done as the Celebrity Reporter above). Here is the new Detroit Tribune News:

 

I Convert Therefore I Am - Fakevertising
The question that ended Part 1 was why these sites - from fake blogs, fake news, to now fake celebrity sites - exist. What is it about the ad economy that has created the perfect storm for their proliferation.  While we could probably list 10 or more good reasons, the following comprise the ones that I find necessary for their for existence.

1. Depressed Prices
The rate of inventory continues to increase almost exponentially. At the same time, the growth in new advertisers that can perform at the lowest level necessary has not. Or, put less eloquently, there is a glut of inventory out there. Not only is there a glut of inventory, the yields on that inventory have dropped steadily since the onset of the credit crisis. We're in a situation not too dissimilar from the bursting of the tech bubble where sites once used to premium cpm's found themselves having to embrace companies they once scoffed - ad networks, performance-based advertisers, and a variety of others pushing unbranded products and services.

When bubbles burst, it isn't the premium sites and premium inventory which open up (although it certainly does to a degree), it was the middle tail - sites with the video-equivalent of advertiser safe, professionally produced content, that up until the collapse enjoyed sold-out status at favorable rates. That's where the majority of high value inventory comes from, as well as non-premium inventory on more premium sites, such as Email, News, Weather, and Horoscopes. The long-tail of sites - profile pages, low end game sites, humor, etc. has lots of impressions but outside of companies who have tailored their model for that inventory, e.g., Gamevance, don't move the needle for the broader set of run of network campaigns.

2. Unfair Economics
It's not as though no alternative advertisers exist. At present though, not enough of them can compete with the performance of the evolving online version of the advertorial. Phrased somewhat as an exaggeration, legitimate guys can't compete with cheaters. It's one thing for companies with a physical presence to try and compete with more nimble players, but when those nimble players also don't have to follow the same rules... you could be the heavy weight champion, but you probably won't win a fight where the other guy has a knife. 

The secret to the unfair economics come from two things - the deceptive nature of the pages which to inflated clicks on the offer and conversions, along with the common bundling of offers. Most success stories on the fake sites rely on the promotion of two products. And, each product carries an enormous bounty for a free trial - $30 to $40. The products themselves charge a high monthly fee, aren't the easiest to unsubscribe from and require fewer months to break even. It's stacking the deck in favor of those promoting deceptively.

3. Publisher Passivity/Ignorance/Control
This one was hard to word, but if you look at Google and certain parts of Facebook, it is clear that certain large sources of traffic have found a way to discourage the running of this style of offers. Do they still deliver some volume? Yes, but disproportionately less than they could if they didn't have restrictions. Other sources of traffic have not followed suit, either by choice, ignorance, lack of controls, or some combination of the above. In other words, there probably is someone at MSN who if they truly understood how the ads worked would not allow them to run on their properties. Then again, they might not because they like the economics, don't believe them to be an issue, and/or assume that anything running has passed proper legal hurdles.

There is a technical hurdle as well. Sites that run ad network tags do not know exactly what runs. I had hoped that one could create a sniffer that monitored all ads, but it doesn't look easy. As I learned, since most ad network tags use iframes, the hosting website can't access the frame; it's an issue of browser security that would do more harm than good if modified.

4. Lack of Self-Regulation / Inertia
At present, there aren't enough companies in the fakevertising food chain who are willing to take a stand against the current practices, or at the very least to define standards by which all must follow in order to receive payment. Then again, there isn't much desire to do so. The hard part comes from the lack of trust and a recurring trend in so many types of business - the race to the bottom. If someone takes a stand to be the clean leader, what do they get? Their has to be a big enough deterrent to make everybody want to fall in line, and as of yet, there isn't.

When Facebook took action against two third-party ad networks for displaying ads the company felt deceptive, other networks and app developers quickly toed the line. In that ecosystem, Facebook has the power to take away their business with a few strokes of a keyboard, but in the broader ecosystem, media is fragmented, and the threat of legal challenges not strong enough. Almost every player knows that some action will ultimately happen, but they will get hit whether they run it or not, and in the past, the most ultimatley profitable action has been to get while gettin' is good. You might pay a fine and have to change your ways, but you're better off having that pool of funds. Those gains then act like an internal VC fund to provide the company a runway for going more legitimate.

Where Does That Leave Us
The truly complex part of the problem comes from the size of the un-branded continuity program market and just how much it is helping certain companies hit their numbers, along with what happens were it to go away. In so many respects, the current fakevertising trend is the 2008-9 equivalent of the mortgage advertising boom from 2002-2006. The big difference of course is what it means to the consumer. With mortgage, filling out a form didn't have any direct cost. With fakevertising, they enter their credit card number. Mortgage ads weren't perfect, and those promoting them arguably contributed to something much greater of a problem, but they didn't do so knowingly or willingly. In other words, there is nothing inherently wrong with taking advantage of an opportunity, but there is something wrong in manipulating the market to take advantage of an opportunity.

We've already seen how things will play it. More and more media sources will crack down on the ads; it will happen slowly and in order of those who can afford to take a long-term stance or are forced to. Some of the key players will fade away for the same reasons - product companies shutting down because of investigation and cpa networks chosing to become more strict with respect to how they allow their arbitragers to run the offers. At the same time, media costs will rise as advertisers increase spends, new advertisers come on board, and inefficiencies decreased. Is it six months, one year, or longer? That's hard to say because this event is tied to a macro-event (credit crisis) but not tied to an event in the same way mortgage advertising was. No matter how long, we'll still have those who continue to push the boundary, just like we still have spam, but those playing in the ecosystem will move on until the next Perfect Storm.

The Perfect Storm - Part 1

Like several other ad watchers and pundits, I've been tracking with interest not just the flogs but variations on the theme establishing a trust bridge in order to entice users into free trials for unknown brands. The products promoted almost always fall into the healthy and beauty categories and focus on predominantly natural weight loss supplements derived from edible products, e.g. Acai, supplements created chemically but based on organic compounds, e.g. Resveratrol and nitric oxide, teeth whitening kits, and work from home programs.

The products themselves all seem to share the following:

1. Low cost to manufacture
2. Easy to ship
3. Indeterminate value (higher perceived value)
4. Perceived need to continue using them for maximum efficacy

The marketing methods almost always:

1. Try to tell a personal
2. Tell a believable story
3. Create a sense of authenticity
4. Leverage trusted media brands
5. Leverage celebrity likeness and at times directly imply endorsement
6. Big results for little effort

The above is especially true for what we might call Flog v2 - the Fake News Sites / Fake News Articles. Instead of telling a personal story using a fake person in a blog format, they tell the story from the point of view of a reporter or journalist. It doesn't have the same level of personal connection as the mom, but treating the above like a formula, they increase the level of authenticity to compensate. This banner left is an example of one running on display right now, and it has all the necessary ingredients and then some, looking very little like an ad and mixing media property metaphors at will - leveraging 60 minutes, Barbara Walters, Dr. Oz, and for the first time that I had seen, promoting not a blog but a news site - The Boston Tribune. As many reading know, no publication named The Boston Tribune exists, but it certainly sounds like a reasonable publication, and using the iconic imagery of the clock and other known brands only gives this "publication" and what they have to share with you more credence. People will click on a banner that says lose weight with NuAge Resveratrol, but not many. Mentioned before, this is an economics game, a classic performance marketing arbitrage example, and without certain effective returns (high clicks on ad, high clicks on landing page, and conversions) they cannot afford the media. Whether this arbitrage advertiser pays on CPM or not, they must still perform well enough to receive the incremental impressions on the inventory. In cases like this, they often lose sight of the message and focus on figuring out any way to hit the performance metrics necessary to receive high volume inventory.

 Clicking on the banner above takes you to the following landing page:

The Boston Tribune
 

This particular site is part news site part review site, listing the product at the bottom - a dead giveaway that the site is purely marketing and not informative. As the first news site I came across, I found it particularly clever and evil; yet, as it turns out two things that shouldn't come as any surprise did. 1) This site is no longer up at its old address, and 2) others have replaced it much more devious and misleading in nature.

Here is one -

News9News.
 

You will notice the pre-requisite video clip but also something completely new. It has weather on the side, a graphical header of random people but that you must infer are the news cast, even "ads" along the side. The entire site looks and feels like a page off the local news site. For all that is bad, they chose a relatively innocuous site name. The same cannot be said of the following.

Los Angeles Tribune News
 

This site, also no longer live, married the best of both worlds - the news looking site and a copyright infringing style of brand. Unfortunately, the name of the publication is a little small. Something corrected in future versions.

New York Finance News
 

They refined the template, shifted a few things around, and better leveraged the other media brands. Best of all, they realized that they now had the perfect mini-platform. Witness...

The Atlanta Tribune News
 

There is only so far that this template can go, so it only makes sense to have another. May I present...

New York Guardian News
 

Just different enough, but not by much. And why not one more for your viewing pleasure.

Miami Gazette News
 

From an ad guy's viewpoint, the pages and methods used provide their own fascination, but the more interesting question is what's going on to contribute to proliferation of such ads. Feel free to share your views. Part 2 will be on not the big waves caused by the perfect storm but the conditions that enable it.

Risk, Arbitrage, and The Root of (Much) Evil

A Step Back

Much of my writing ultimately focuses on online customer acquisition, The images in this post come from a portion of an hour long presentation I gave covering how a performance-minded marketer views the world of online advertising.

From the days of Colonize, Bonzi, and Treeloot's Punch the Monkey, their predecessors, LowerMyBills and Netblue, to today's large buyers of media on a performance-basis which include companies like Netflix and the flogs, there is a common theme underlying the behavior - risk.

In writing about the space and working in it, it is easy  to spend time discussing the models that people employ and not take a step back to analyze what about the marketplace makes it possible. 

In The Beginning

When online advertising first began, it was a much simpler time and paralleled how any new media channel evolves. Only a handful of sites and a handful of advertisers existed, i.e. an environment of high transparency where each player has a strong likelihood of knowing the other. This meant spending decisions and prospecting were much more straight forward. A handful of each looked something like this  -

 

Modern Day Complexity

It goes without saying that today's environment is not only complex but continues to grow in its complexity at an astonishing clip. Even in the performance space, it's remarkable to think of new the companies and new sources of inventory that earn millions of dollars but didn't exist in any appreciable way a year go.

The current complexity means incredible opaqueness and difficulty for those with ad inventory to connect with those spending money. It opens the door for a value-added middleman, the ad aggregators.

 

A discussion on ad aggregators could occupy (and probably will) its own post. There is a distinction in my mind between ad aggregators and brokers. Both act as a middle layer, but brokers offer less value. They have everything to lose by a more transparent world; whereas an true ad aggregator doesn't. They might prefer it or strive for it but their business doesn't go away because of it. 

Google is actually an ad aggregator in the online ad world. While they have owned and operated properties, with AdSense, they syndicate their AdWords advertisers onto countless third party properties. That means they also sit in between advertisers and other publishers. More commonly, though, we think of ad networks such as Advertising.com being aggregators, but the group encompasses all types, including the handful of companies that began as media buying for internal products only to expand and use their buying power for outside products.

Understanding Risk

Where things get interesting is that while advertisers and publishers want to connect - one has money, the other wants that money, there is some built in friction that must be overcome. That friction revolves around the risk that each takes based on how they pay / receive compensation. Today, advertisers can pay on three main metrics - views (CPM), clicks (CPC), actions (CPA) - and publishers can receive compensation along the same.

Below is graphic which I first saw used at Advertising.com. It is one of my favorites and despite the changes in the online advertising landscape since I first saw it in 2001, it remains as apt today as it was then. (Fort hose who saw my talk at Startonomics, this might look familiar).

For an advertiser, paying on a cost per thousand basis presents the greatest amount of risk.They know their ad was displayed but that's about it. Advanced targeting and other technologies help allay these concerns, but it still remains the highest level of risk. For a publisher, the exact opposite is true. Getting paid on a per impression basis represents the least amount of risk. They like it not because it's easy money, but it's something under their control. Anything else, means a greater reliance on the advertiser. Jumping to cost per action, it provides the greatest level of risk-reduction to an advertiser, because they know the user not only saw the ad and clicked on it but took something additional step, be it completing a form, a purchase, etc. Yet, for the common publisher, receiving payment for actions presents a daunting prospect, filled with lots of risk and trust. It's no wonder then that cost per click has emerged as a dominant format given that it puts an almost equal burden on both parties.

Arbitrage and The "Route" of Much Evil

The mismatch in risk means that not all parties will find contentment. It's not quite as bad as negotiating peace in the middle East, but sometimes, a publisher and an advertiser simply can't find common ground on which metric to pay or lacks the ability to bridge that gap profitably themselves. That opens the door to those who are willing to take risk and bride the gap between the two side. These risk specialists can scale for many reasons but also because even with the many ad aggregators, the web grows and evolves asynchronously, constantly opening up pockets of opportunity.

The Good: Legitimate companies Tree.com, Adchemy, Education Dynamics, CompareTutors, AllWebLeads, and many more. These companies do a better job than those they serve can. It's a true win-win when done right, because they also help connect users with companies that serve them, ones they wouldn't have necessarily known about on their own. Their credo, "Enabling businesses to connect with users more effectively than on their own."

The Bad:  Those willing to take risk can, thanks to complexity, operate a business based on trying to exploit the pockets of inventory not yet served well by ad aggregators. These are our classic arbitragers and the inventors of the flog and its antecedents. Their credo, "Ask not what the user can do for you, but how much the user can make you."

Good vs. Evil

Like the Force, aggregatos aren't inherently bad and arbitrages aren't either. It's how they decide to use their power that separates the good for the bad. While the two sides don't fight directly, they are at odds, because the tactics used by the bad guys threaten the repuation of the good guys. If anything, my experience has shown that the outside world, and this includes those with years of experience in the online, has a harder time distinguishing the good from the bad, and is more and more likely to assoiate performance marketing, aggregation, and arbitrage as solely bad. The bad guys might create some wonderful fodder (it's almost fun to see what they come up with next), but their lack of accountability and money at all cost attitude and the wider ramifications of that, i.e., an entire industry being locked out, is what keeps me up at night.

What Would Andrew Chen Do?

There was a point in time when I felt special, not that I don't now in many ways. But, with respect to the blogosphere I did. This was perhaps three and a half years ago, if not longer, when I first met Andrew Chen, in his days before blogging. He was the resident whiz kid (sorry to use that term but too true) at Revenue Science, an integral piece of the business having parachuted in from one of its venture investors. Any who have read Andrew pick up on his unique intelligence, wit, and amiability. I'm continually amazed at his blend of genuine thought leadership, strength of character, subtle self-promotion. His mix of business savvy, product mindset, and tech skills make him someone that any would want to back and/or create an opportunity to work with.

I particularly enjoyed a post of his, now almost two weeks old, titled, "I want more tools to reach my readers, not monetize them!" He writes something that really struck a chord. He writes, "I didn’t start this blog to make money Instead, I am writing it because I enjoy the process, it helps me structure my thoughts, and I often meet interesting people through my blog."

From what I can tell, bloggers fall into distinct archetypes - the prolific and the pensive, the analytical and the rambler, the focused and those who write about anything and everything, those looking for direct monetization and indirect, etc. (You can just imagine a chart that lists the attributes across the type and each blog as the row in the chart, showing the relative weighting of each by attribute.) I admire those who have managed to cross that chasm by writing prolifically, not always about topics of substance, and found a way to tie direct value to their blog. In the affiliate world, guys like ShoeMoney.com come to mind. I'd mention Fred Wilson, but that's just like someone singing the virtues of LeBron or Tiger.

My writing and this blog were an accident, but I owe so much to the act of writing and the people I've been fortnate enough to meet and feel no shortage of gratitude when hearing from someone that I've never met before that they found value in something I wrote. And, it probably comes as no surprise to know there are no shortage of topics that I have notes on but don't write. I perhaps place too great a hurdle on what deserves publication and your time. As a result, this blog tends to house my more flushed out thoughts (translation long articles) instead of some of the more real-time observations and discoveries. That's the format I've chosen for my personal brand.

There are so many topics - both real-time observations and those too specific to a given industry, that I've decided to start a new publication - LeadConfidential.com. While topically about online lead generation and the broader world of online customer acquisition, it really focuses on transparency - who are the companies in the space, what are the strategies they use, and how can those interested in online customer acquisition have a place that they can all their own. It is there where I will and have begun to post some of the more specific thoughts that are presumably too narrow for here. And, I think it makes a nice complement to the LeadsCon brand and its mission of serving the needs of those in online customer acquisition. Please check it out if you have the interest and feel free to write me with any ideas on what you might want to see / read or if you simply want your company covered.