(Editor’s note: We asked venture capitalist Baris Kardogan to tell us where he sees the most opportunity in the online ad industry, and he concludes that its somewhere other than the usual online video sites — YouTube, Grouper, MySpace, etc — most people talk about today.)
There was a great discussion on video ads earlier on Venturebeat. The discussion surfaces two questions that are facing all online services. If the ad industry is to grow from $16B to $30B in 5 years, what will the new kinds of ads be and where are the new places to put them?
Surely, it won’t be more of the same; our eyes are already beginning to ignore the ‘ad gutter’ no matter how relevant the search engines are trying to make them. So what will they be? VCs are seeing three new emerging categories of online ads, one of which could become the lion’s share of all of online advertising.
1. Online ads that look like content
Pre-roll and post-roll ads inserted in a video stream are in this category but long term success is still questionable. You don’t click on pre-roll ads because you are waiting to watch the video, and you don’t click on post-roll ads because you rarely watch a video all the way to the end. The bigger end game is product placement. When you view an image on Flickr, there is no reason why the background cannot be altered to show an ad relevant to your demographics. That’s making an ad look like content. There are technologies that will place ads right inside user generated images and video. It can be done in a number of ways. Your image or video editing tool can help you place ads at the time of content creation.
Alternatively, ads can be inserted after content is created. A piece of software scans an image of video to find appropriate places to insert ads. As a result, a man wearing Adidas shoes, could all of a sudden be replaced by Nike shoes in an image. This method is more challenging because one can’t rely on the creator to make the right judgment on where to put the ad. The algorithm has to be smart enough to figure it out, but there are teams in Silicon Valley tackling this task as well.
2. Online ads that are content
Some ads can be content that people look for. It’s done every day. Those ads are called coupons. When somebody does a local search for pizza in Menlo Park, Applewood can put an ad in the ad section, or put a coupon right next to their address. Either way, it’s an ad to bring in a customer and may cost the store the same. However, there are empirical results showing that coupons are clicked on 10x more frequently than text ads, because they are considered content. It is no surprise that Google did a deal with Valpak to enable local coupons.
Another example of ads that are content is the products of companies like Winster. They are very simple casual games where people buy credits to play to win movie tickets, and promotional products. The game is little more than a gimmick to show you an ad. It’s a customer acquisition tool like a coupon, but people see it as content.
3. Online ads that are offline ads
Now this depends on your point of view. If you are a heavy 2nd Life user, spending 40 hours a week, that’s more than 2 full days a week (adjusting for sleep) in the virtual world, by now you probably think a billboard ad in the game is an offline ad. The trend I am talking about is in-game advertising. This is another area where we will see a lot of innovation, because the amount of advertising that could be shown in a virtual world is far bigger than the potential for text ads. After all, for each person in the US, advertisers spend $2000/yr across all media, TV, magazines, direct mail etc. If 2/7th of this total were spent ‘in game’ the total would amount to more than all of the online advertising business today.
Conclusion: The first two categories will yield interesting companies, who discover new and effective ways to show ads. There is clearly room for innovation there and that is enough to get VCs excited and companies funded, but it is in the third category that the most money will be made. It’s simply a much bigger market. I would highly recommend entrepreneurs to find ways for their services and technologies to capture a piece of this emerging market before Google and Yahoo do. It must surely be on their radars.
14 Comments
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Kedar said:
Second area is pretty much search and requires again, urge to search for pizza. I think better we serve, as daily need basis, incorporate ad into those activities, that could be killer model. e.g. I buy groceries from local Safeway or something. To change my habit, use something to provide me something which will attract me towards other store. Or better, Safeway more business in any case, that is ad served on my habit without feeling me bombarded.
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Nathan Sassover said:
Baris,
We are now testing in-program placement of videos in addition to the pre-roll type of spots we also have from brand advertisersYou may already be aware of our Internet TV platform, http://www.WorldNetCast.com and featured channels, http://www.BloggerTV.com , our branded local online search venue, http://www.YellowPagesTV.com (in Beta) and emerging mobile platform, http://www.NetMobileTV.com -see overview below:
WorldNetCast’s focus is location-based TV with over 300 channels on air at present in all major metros worldwide. PR/media placement and marketing communications groups have already integrated our Internet broadcast network into their client’s strategic marketing and branding initiatives.
Current advertisers include American Express, Ford Motor Co., US Postal Service, Sotheby’s Intl Realty, ReMax Realty, Holiday Inn, the FoodNetwork cable channel, and an array of financial/medical/healthcare groups.Our OmniviewQuickload feature enables uploads of all video formats as well as Geographic targeted broadcasting of video programming, PR/branding and advertising to local / regional / national and international locations by specific city/state names–all of this by simply utilizing our BroadcastCenter console online at
An updated WorldNetCast Overview is enclosed. We look forward to your comments and input.
Regards,
Nathan Sassover
CEO
WorldNetCast.com
9301 Wilshire Blvd., Ste. 300
Beverly Hills CA 90210
310 205 8900 - main
310 276 9903 - fax
info@WorldNetCast.comWorldNetCast–The Internet Broadcast Network
Overview
September 2006
WorldNetCast is a next generation internet broadcast network based on a geocentric online TV strategy which integrates a branded TV network ranging from metro broadcast portals to micro targeted communities.WorldNetCast provides a true multi-hundred channel location-based Internet broadcast network with local/regional branded channels globally and deliverable to all mobile platforms..In summary, WorldNetCast replicates the local affiliate dynamics of broadcast TV as it originated in the 1950s, except utilizing location-based proper names instead of local call letters. (For example, CaliforniaTV.org, SouthernCaliforniaTV.com, LANewsTV.com, LALocalTV.com, LosAngelesNewsTV.com rather than KNBC-Channel4 LosAngeles.) With over 300 B2B and B2C channels, in the top 50 DMAs, scaling to over 1100 channels by year end, with full availability to mobile platforms, this is the next iteration of the video-enabled Net as we see it. WorldNetCast enables a much more dynamic presence for municipal/state/pan-regional news,information, entertainment and social networking
WorldNetCast provides the distribution infrastructure, content aggregation within online TV channels and comprising ad units ranging from 30 seconds to 30 minute documercial/advertorials. Utilizing our Omniview platform for high impact TV streaming–no waiting-no software downloads, WorldNetCast also links to municipal/state/regional economic development agencies, Chambers of Commerce, convention & visitor bureaus and tourism groups to cross promote these channels. Additionally, we have aligned with DRTV/ PR and marketing groups paying us for placement of their content to reach specific demographic zones within our highly targetable network, ranging from metro regions to clustered zip codes by specific communites.
The following is a small cross section of the network: (Click on BreakingNews to view initial content.)
http://www.SouthernCaliforniaTV.com
http://www.IcelandBusinessTV.com
http://www.ParisBusinessTV.com
BreakingNews: We have also recently added our Health&Wellness Channel Group which includes:
http://www.MaleAging.com
http://www.FemaleAging.com
http://www.DepressionCures.com
http://www.ArthritisReduction.com
http://www.SleepandInsomnia.com
http://www.GeneralWellBeing.com -
Clint Chao said:
Nice summary by Baris.
I think there will be a great opportunity for companies to create destination sites where advertisers can be integrated as part of the content (something we look for at Formative Ventures), to the point if you asked people “What do you think of the ads on this page?”, their reply might be “What ads?”
Next gen online ads, just like many offline ones, should provide subjective quality elements to allow consumers to make a choice. Imagine an online ad for a local restaurant where the daily specials, online review or integrated coupons are merely part of the ad - the consumer benefits by perusing the ad and can make a choice to become a customer, and the advertiser wins these customers by being creative and informative. Let’s get these ads to prompt action by the consumers.
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Eric Lamond said:
New media / same challenge. How to get advertising noticed, engage the viewer/consumer and move them to the desired action. Same problem: How to move above the clutter and get past the conumers’ ‘Tivo mentality’ of bypassing ads everywhere. Ads as content or integrated into content has great potential. Solve the challenge and the payoff, especially in the virtual world, will be enormous.
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TomBomb.com said:
All customers want is love–they will tolerate the indiginity of eyeballnapping as long as they feel it is done with respect. Product placements done without affection will be a turn off.
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Wayne Ma said:
Do digital magazines have a role in these new online advertising models?
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Maizal Munif said:
The Escape Pollution Project attempts to capture online advertising dollars by bringing offline local advertising to an online global audience in a unique way.
“For Escape Pollution, the motivation aims towards protecting the environment and promoting the local cities as tourist destinations. The benefit to advertisers of brand recognition (environmentally friendly) is more prominent on the Escape Pollution site. The project also promotes the Ford Escape Hybrid and Hybrid vehicles in general.”
Full Interview: http://www.marketingshift.com/2006/5/interview-escape-pollution-creator.cfm
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Baris Karadogan said:
Clint,
Couldn’t agree with you more.Wayne,
Of course digital magazines. Especially if they can somehow be integrated into virtual worlds. -
Julia French said:
Will mobile phones become another way for advertisers to reach you? With Europe ahead in mobile technology, will the US now focuses on Mobile. Giving yet another venue for ads to reach the youth demographic?
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Jo,SanKu said:
“Ads as very personalized information or content” will bring another revolution in online advertisement. Search Engines as key information channels will be ultimate winners. They could position as anything when Ads is something far beyond current Ads.
There might be people who would subscribe to Ads because of their value. -
ronald pruett said:
Good story. Am curious about the lack of mention regarding RSS. Any comment?
Thanks -
Baris Karadogan said:
RSS is a great tool that one can imagine playing a role in all three kinds of ads, one of which could be subscribing to in game events. Sounds like you have something in mind already, could you elaborate?
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2 Trackbacks
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Digital Destiny » Blog Archive » Returning to the Bad Old Days of Advertising Created Content: Time Warner’s Studio 2.0 said:
[...] The so-called tattered “wall†separating editorial content and advertising will soon be totally obliterated. So eager/desperate for ad dollars, a vast array of websites, TV networks, and others on the broadband highway are willing to do anything to please marketers. Financially powerful brands are using their clout—and online access–to create a web of channels and other content designed to promote products. It’s going to be an ad, ad, ad, ad world. [...]
12:24 pm
SharpeTangent » Ask the Expert said:
[...] Yesterday venturebeat.com asked an “expert†to opine on the future of online advertising. Who is that expert? Venture Capitalist Baris Kardogan. His impressive bio is light on marketing and heavy on electrical engineering, but I was willing to spend a few minutes to get an alternative view. [...]