JohnDeMayo.com: Internet Advertising Insight

LeadsCon in Vegas Feb 23-24

     I will be attending LeadsCon in Las Vegas Feb 23-24, and will be staying in Vegas for a few days afterward.  If you are interested in setting up some time to chat with me, please drop me a line, my schedule is pretty clear right now.  I'm really looking forward to this one, a few of my old friends and co-workers I haven't seen in a while will be in attendance.

Quinstreet Valuation

~$800 million.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_mQ2s5tiC_c&pos=6

My estimate in November was $1 billion, not too far off.

My first patent granted

Back in 2000-2002 I authored / co-authored a number of patent applications, as an employee of Advertising.com.  It looks like one was finally granted.  United States Patent 7,617,121 - Apparatus and method for hyperlinking specific words in content to turn the words into advertisements.  I actually wrote the original javascript files to handle re-writing a html page to include the desired ads.....pretty funny as I don't consider myself to be technical, no programming background, I just learned what I needed to on the fly when I didn't have the required resources.

AOL to restrict Advertising.com's ability to sell premium ads

     Apparently AOL is going to start restricting Advertising.com's ability to sell its premium inventory.  It will be very interesting to see exactly what that will mean.  I don't think it will mean certain placements will never see clients booked by adcom reps, but more likely that they will not be able to guarantee delivery on certain placements (but they may still show up in the mix).  So likely they can't sell guaranteed delivery on a particular placement, but they can sell a performance campaign which ends up on that placement (just not declared beforehand).

     Given the large number of variables there are in advertising purchase orders, I'm curious to see the exact definition of what Advertising.com reps can and can not contract for....and what the loopholes are that the crafty reps and their analysts will find.

Shouk Media: Congrats to Jay Weintraub and Dave Wengal

     I just read that Dave Wengal has left Targus Info to join my old friend Jay Weintraub, helping connect and educate people in the industry, with their newly formed company Shouk Media.  Congrats to both of you.  Jay's spoken a bit to me about his vision for continuing to work on helping people learn about our industry, and connect appropriate people together for mutually benefitial relationships across a number of mediums (including and expanding on his work in conferences, and his writing on various blogs).  I couldn't be more excited on his continued execution on this vision, and his bringing in a partner with a fantastic reputation.  Let me know how I can help Mr. Jay :)

Modeling Admob and Millennial Media revenues and margin

    I read Cogblog's stab at modeling some of the mobile network's revenues, margin,overhead this morning.  Making a few modifications to their assumptions get us closer to reality.

    First, they assume revenues at $.50/CPM and publisher payouts of $.30/CPM for non-premium inventory.  In my experience the clearing rate for inventory is closer to $$1.00-1.25/CPM, as opposed to $.50/CPM.

    They also assume margins are 40% in the business, and that both companies have the same margins.  I suspect margins are slightly lower overall.  I also believe that Admob's margins are greater, because they have a larger number of smaller publishers.  Millennial Media's margins are likely lower as they represent a smaller number of bigger publishers that have more negotiating leverage.

    My numbers assume US traffic, so there could be a lot of play in these numbers based upon how well non-US countries monetize.  Also, these are clearing rates for "non-premium" inventory....I don't have any good guesses on the amount of inventory sold at premium rates (although the premium sell-through rate is likely much higher at Millennial).

Great Bid Strategy for Google Search Network

    RKG has a great post on the variance in conversion rates across Google and Yahoo's syndicated networks, and how there's one strategy that can be used at Google at least, to help de-average and bid a bit more appropriately then using a standard configuration.

     

    While you can't set separate bids for each source of traffic on their network individually (although you may well see this in the future), you can set a separate bid strategy for Google, and for all others grouped together.....

    "One set of campaigns is set to Google-only. A carbon-copy of those campaigns is set to Google + Syndication Network. The bids for the Google-only campaign are higher because the conversion rates are higher, hence on Google.com only the Google-only campaigns are in play. That means that the Google + Syndication partner campaigns actually only serve ads on the syndication network and the bids can be depressed en masse for that traffic."

    Eventually hopefully Google will let you bid separately for each site.  And maybe some day add even more variables into the data set that you can bid against.  One day search may even look like ad exchanges today, letting you place an bid on each individual impression.....imagine being able to bid more or less based upon someones search history, or on demographic data you may have stored on a user, or on purchase history info you may have on a user....this could get really complex at some point in the future, and really separate the serious math people from those that are kind of winging it.

    Anyways, make sure you check out RKG's full post, there's some great data that's well illustrated.

Thoughts on the Quinstreet S-1 / $250 mil IPO filing

    -Company seeks to raise $250 million.

    -Operating Income stayed basically flat in the $21-$26 million per year range for 4 fiscal years, 2005 - 2008, while Net Revenue grew more consistently.  Some of this margin compression is likely due to the companies efforts to diversify its business from the sales-side.

    -Success in sales-side diversifyication has been limited.  "Our top three clients accounted for 32% and 28% of our net revenue for the fiscal year 2009 and the first three months of fiscal year 2010, respectively."  "DeVry Inc., our largest client, accounted for approximately 19% and 13% of our net revenue for fiscal year 2009 and the first three months of fiscal year 2010."  This is despite many, many acquisitions to help in this effort.  Some concern here

    -Buy-side concentration is not disclosed in any detail.  I believe there is less risk relating to losing one or two important buy-side clients, and buy-side risk is more likely related to a general increase in media costs with an improved economy (and continued competition driving media costs up).  There is a possibility that the recent jump in Operating Income will evaporate once media prices return to more normal prices.

    -Operating Income jumped significantly to $34.7 million in 2009, but I believe this is more attributable to the economy then the companies execution.  Media prices dropped significantly, and the companies largest vertical (secondary education) is typically strong in a down market.

    -Company has given no guidance in regards to valuation, however for illustrative purposes at a $1 billion dollar valuation (again for purposes of illustration only), this would represent a multiple of 3.8 times their last fiscal year's revenue and 17.6 times their last fiscal year's adjusted EBITDA.

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    -Disclosure:  I do not now, nor how I ever, worked for or represented Quinstreet or their interests in any regard.  These thoughts are mine, not theirs.

    -Disclosure:  I was formerly a founding executive and early investor at Adchemy, which is considered by some to be a Quinstreet competitor.

Display Advertisers: De-average or perish, the ad exchanges are here

    Ad exchanges take ad impressions and let many potential buyers place a bid for said impressions.  The buyer who bids the most wins the impression.

    Right now, some ad exchange inventory (i.e. Right Media's Yahoo inventory) auctions off only non-guaranteed inventory.  So if you step up and pay rate card or near rate card prices, you are guaranteed that inventory.  If not, the inventory goes into an exchange, and the highest bidder gets it.

    Participants in this exchange for non-guaranteed inventory include not only real-time bidders, but networks and other companies that have more fixed-price type contracts with various advertisers.  One advertiser may be willing to pay $.75 CPM for an above-the-fold leaderboard on a top 1,000 sports site with a frequency cap of 2 per day.  So this is entered as a $.75 (or less) bid for every impression that fulfills the above requirements.

    As the market matures, though, you'll find that exchanges won't only include "non-guaranteed" impressions in their exchange marketplace, they will essentially include "guaranteed" campaigns in the exchange and just make sure they charge enough such that these advertisers win the auction enough of the time, essentially "guaranteeing" delivery.  Good forecasting and data will enable them to make set these market prices for "guaranteed" inventory.  If your rate card is $5/CPM and an ad exchange participant can pay $6/CPM for some impressions, why not sell it to the higher bidder (or raise the price as appropriate to the guaranteed buyer)?

    So where does this leave the unsophisticated buyer, buying on more traditional contract terms, in essentially a non-real-time, or pseudo-real-time through an intermediary basis?  You'll end up with impressions that meet your contract's criteria, but have very little value.  Depending upon what criteria you fail to specify (and you can never specify them all), you'll get high frequency users (with notoriously low CTRs), younger users (even if the exchange doesn't know their age, someone else will), placements that are below the fold and go un-noticed by users, and impressions from users whose value is less then average due solely to the fact that no other advertiser has found an attribute that would make them look valuable.  Even if there's no known attribute that makes an impression less then average valuable, the fact that there's no attribute that makes it more then average valuable (known by any participant bidding on the exchange) probably means it's worth little.

    In summary, if you buy display advertising, get sophisticated, and get sophisticated fast.  Understand exactly what user actions or conversions you associate value with and make sure you or a company on your behalf can correlate this value to every single data point that you or they or the data exchange has on a possible impressions.  Those who fail to de-average groups of inventory will be stuck buying the slop, and firms who properly value inventory across a huge number of dimensions (both declared and proprietary data dimensions) will benefit significantly in this change in the way advertising impressions are allocated to buyers.

    And just you wait until the search platforms let people real-time-bid on a much larger set of variables then are available to search advertisers today.  How many relevant mathematicians are on your team, that can handle machine-learning and statistical inference type problems, utilizing data from advanced data mining?

    Use ad exchanges to effectively de-average the value of impressions across a huge number of impression attributes (and bid appropriately), or get stuck with what no one else wants...and watch your ROI and volume get whiped out.

Adchemy raises $31 mil, partners with Accenture

      I'm most excited about Adchemy's recent news - they've gained a tremendous partner in Accenture, and raising money in this challenging environment really speaks volumes to what they've put together.

http://bits.blogs.nytimes.com/2009/10/20/accenture-tries-to-turn-ads-into-gold-with-adchemy/?em