July 9-10, 2013
San Francisco, CA

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Facebook announced today that the company now has one million active advertisers — companies or organizations that have advertised on the social network at least once in the last 28 days.

The company attributed that feat to small businesses, saying that this milestone is due in large part “to the small businesses growing their businesses online and in their local communities via Facebook.”

Apparently, small business does get social.

Facebook’s director of small business, Dan Levy, thanked those businesses:

I know business owners like these invest their hard earned money and time into running their companies. So today, on behalf of everyone at Facebook, I want to say thank you to them and to the over one million businesses like them who are active advertisers. You have chosen Facebook as a partner to grow your business. We appreciate the chance to work with you, and we celebrate your success.

Two months ago Facebook announced that there were two billion connections between local businesses and people in the site’s social graph, and in an average week, local business pages get more than 645 million views and 13 million comments. The company did not release new data on those points, but the up-to-date numbers are doubtless higher today.

With Facebook building ever-stronger connections between local businesses and their customers online — and an ever-growing wallet share of local advertising budgets — local search and recommendation engines such as Yelp and OpenTable and the tradition Internet Yellow Pages are potentially getting cut out of their traditional stomping grounds.

Facebook’s local ambitions are also challenging Google Local and Google Places, both of which collect data on local businesses and drive local advertising on Google, Google, Maps, and more for the search and advertising giant.

Photo credit: Andrea Costa Creative via photopin cc

Perhaps almost nothing.

According to Lenovo’s search marketing manager for Europe, the Middle East, and Africa, geo-targeted tweets are so powerful that they can drive better engagement and better sales than search. In a new Twitter case study published today, Andy Murray gave advertising on Twitter a ringing endorsement.

“The real-time quality of Twitter is brilliant. It lets you tap into exactly what your audience cares about most. There’s also real potential to drive action and have a strong sales impact with something like a fantastic offer or a giveaway. Twitter campaigns are also much more flexible. They allow you to make creative or strategic changes that you can’t with more traditional ad buys. Plus, geo-targeted Twitter Ads are powerful and can outperform search.”

That’s a big deal.

For Twitter, which is likely planning an IPO later this year, advertising and revenue is incredibly important. Already this year, Twitter has released a keyword targeting product, published an Ads API for major distribution partners, opened Twitter ads to all U.S. businesses, negotiated a $200 million ad deal with Starcom, and is rumored to be launching an automated ad exchange.

But the big kahuna in online advertising is, of course, Google.

Google pulled in $50 billion in revenue last year mostly due to ads, and — of course – controls the majority of organic search. Precisely because it controls both organic search and how a vast quantity of all online advertising interfaces with that organic search, Google has a great deal of power in the online ad space. Not to mention the best data about how organic search triggers clicks and ultimately sales — the so-called and much-coveted “intent graph” that social networks such as Twitter and Facebook have struggled to compete with.

But Lenovo’s use of both Promoted Accounts to get more followers and Promoted Tweets to get more visibility resulted in $27,000 in direct revenue, an almost 700 percent increase in brand mentions, and 2,576 new followers, Twitter says, over the course of several weeks. All of which added up to Lenovo’s Murray saying that Twitter ads can outperform search.

If that’s the case — and if Twitter can help businesses around the world replicate Lenovo’s experience — Twitter has a massive cash cow on its hands.

Initially, Promoted Accounts and Promoted Tweets didn’t come cheap. While the starting price used to be as much as $10,000 a month for promoted accounts, the price has come down as low as $1 per new follower. Similarly, Promoted Tweets started out without many controls on who they were promoted to, and initially required minimum spends of $15,000, but have since come much farther down, in some cases to pennies per tweet, and in most cases to dollars.

That means that prices are very competitive with Google Adwords prices, which can easily be $1-$10 in competitive categories … and that’s even before you take into account the potential long-term and viral impacts of new followers, retweets, and favorited tweets.

And that means that Twitter may really have something that can challenge Google’s ad supremacy.

Image credit: Twitter icons

According to an AdAge report, Twitter has already talked to at least one brand about selling ads on the exchange as well as several current Facebook Exchange partners (resellers for Facebook ads) about becoming Twitter Exchange partners as well.

This would be yet another major advertising product for Twitter, which has been innovating furiously on ads in 2013.

Retargeting can be an extremely lucrative advertising avenue for social networks, because it uses completely different — and nonsocial — dynamics to place ads in front of users. While traditional ads on Twitter and Facebook Marketplace enable individual ad buyers to target people based on social and demographic factors, that kind of social intent data is a much weaker indicator of purchase interest than search intent data.

Instead, retargeting helps advertisers access purchase intent data because it draws on browsing history, which can reveal search intent. That kind of history and intent is a much stronger indicator of your desire to buy a new car in the next month, for example, than you liking BMW on Facebook.

Which is, of course, the reason Google pulled in $50 billion in ad revenue last year, and Facebook made a fraction of that.

Twitter has already automated ad-buying via its Ads API product that social media management and ad agency partners such as Adobe, SHIFT, Hootsuite, and TBG are promoting. But a lot of Twitter ads are still self-service buying of Promoted Tweets and Promoted Accounts, even for $200 million accounts like Starcom MediaVest.

An exchange, however, would automate ad-buying even further based on retargeting-delivered intent factors, and, depending on which partners Twitter selected, open up Twitter ads more fully to the massive programmatic ad-buying universe, which is currently worth $3.5 billion to $4 billion and will soon be  perhaps an annual $20 billion segment of the online ad industry.

Especially if Twitter did something Facebook doesn’t: Enable advertisers to mix Twitter demographic targeting data — or the social network’s new keyword targeting capabilities — with retargeted data to enable one of the most sought-after goals of online advertising … the combination of search intent and social intent.

Now that could be interesting.

Image credit: Money bird/M.K. Dickenson; User icons by Thomas Hawk/Flickr

Today, not that much has changed.

After debuting close to $40 and cratering to just under $18 in August, the stock has somewhat stabilized in the $25 region, down 30 percent from its opening-day high. And along the way, the story emerged of how Facebook tried to hide some of the mobile risk inherent in its business and how the company panicked and botched its IPO by using vague positive language in its public prospectus and, apparently, specific negative information about slowing revenue growth to institutional investors privately.

Not to mention the $100 million paid to banks to stabilize the stock — on top of $176 million in IPO fees — for efforts that ultimately failed. And technical glitches that cost the NASDAQ $62 million in compensatory fees.

All of which negatively affected the overall IPO market.

That all said, however, Facebook has seemingly nicely recovered from the disaster — at least from a business fundamentals perspective. Revenue growth was strong in its latest quarterly earnings release, with the company booking $1.46 billion in revenue for Q1 2013, compared to about $1 billion a year ago. More importantly, mobile was significantly up, accounting for 30 percent of ad revenues, and Facebook singlehandedly accounted for 6.5 percent of all online ad dollars spent in the U.S.

Not exactly Google numbers, but pretty good nevertheless.

And the company has massively beefed up its advertising options. It’s now posting retargeted ads right in the news feed, once sacrosanct territory. And in a move aimed directly at advertising giant Google, Facebook has launched a self-serve tool that allows advertisers to target its users based on what they actually buy and want to buy offline … which is a significant move to targeting the intent graph that Google hits so well by virtue of being a search engine, but Facebook has often missed since its visitors are on the site to meet and greet people. In addition, as soon as July, Facebook will be rolling out 15-second video ads in the news feed, a product that it will be charging major brands millions of dollars for.

All of which is having an effect.

The consensus recommendation for Facebook is currently a buy, with a price target of $34. Most analysts are in the Strong Buy category, with few or none in the dreaded Underperform or Sell slots. And in the past four weeks, analysts have revised their earnings estimates upward by a factor of 6 to 1.

So there’s a lot of positive in Facebook’s future, and there’s a ton of potential. But it’s still challenging when analysts compare Facebook stock with other internet high-fliers like LinkedIn or Yelp, which rose 148 percent and 48 percent in their first years, respectively.

But at least it’s better than Groupon and Zynga, both down around 75-80 percent.

And, I would argue, while there are a ton of challenges and many very significant competitors — primarily Google — the future for Facebook is bright.

Even if the public start was a stubbed toe.

July 9-10, 2013
San Francisco, CA

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Facebook’s coming video ads will be disruptive, interrupt people, and run the risk of Facebook becoming the very social network it supplanted, according to at least one online advertising executive.

“Facebook won the MySpace battle because of better and more immediate interaction with people,” Eric Covino says. “The more they get away from that, the bigger the concern.”

Covino is the founder and CEO of CreativeSignals, an online marketing firm that buys Facebook ads, among other things. And he’s not impressed with the new of the impending autoplaying video ads that Facebook is rumored to be adding in the next few months.

Source: John Koetsier

Facebook’s clean, uncluttered new News Feed.

As soon as July, according to some reports, Facebook will be rolling out 15-second video ads right in your news feed. You’ll only see one video ad from one company a day, but the positioning right in your news feed — and the fact that they may be autoplay ads– makes it a risky move. That’s very different than Facebook’s existing video ad proposition, as Wired notes, which is on brands’ own product pages.

The rationale, however, is the pot of goal at the end of the digital rainbow.

“They’re looking to push out millions of dollars of ads,” Covino sayw. “The price per spot is definitely north of a million.”

The challenge, for Covino, boils down to user experience. MySpace bit the dust because of a horrible user experience cluttered with ads. Facebook, which just added retargeted ads in the middle of your news feed, initially had just one ad per page. The social network moved to four in 2011, then to six, and has tested up to 10.

The pressure, especially now that Facebook is a publicly-traded company, is to increase revenue. And there’s also pressure from advertisers, who want new and better ways of splashing their messages in front of social media users.

“With both Facebook and Twitter, you have these tremendously large user groups with advertisers salivating over them,” Covino told me. “I’m worried about the user experience … they keep interrupting people.”

Facebook, of course, is not unaware of these problems, and they test almost everything they do with small groups of Facebook users before migrating the changes slowly to others. So if there is a significant user backlash, Facebook will know, and it will be able to course-correct.

Source: Jolie O'Dell/VentureBeat

Mark Zuckerberg announcing the updated News Feed

The question, however, is whether the tension between cash and user experience will be resolved in a way that solves both problems.

Covino’s not so sure.

“The core problem of all this is that you have to overcome the psychology of what your users think your service is,” he says.

In other words, people come to Facebook to connect with friends, not necessarily with brands. That is probably largely true, but people are also connecting strongly with companies on Facebook — especially local community businesses. In fact, Facebook trumpeted just a month ago that its users have made more than two billion connections to local businesses, view their Facebook pages 645 million times a week, and comment on them 13 million times a week.

And Facebook fans have never been more valuable to brands — BMW fans are worth $1,613, Starbucks fans $177, and Coke fans are worth $70 to their respective brands.

The core question, to Covino, is how long they’ll stay that way.

“All these things are great, and they sound great, but can that money overcome psychology?” he wonders. “I’m extremely skeptical.”

July 9-10, 2013
San Francisco, CA

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If you are one of the many people horrified about the privacy-invading nature of the tracking cookie, here’s some solace: It may not have long to live.

“I think it will take five years to kill it,” said Paul Cimino, vice president at ad marketplace Brilig. “At that point, it’ll be like birds chirping and flowers blooming because we’ll find some kind of value proposition that allows consumers to trust us and opt into personalization. I term it, tailor don’t target,” Cimino told AdExchanger.

While you may not be quite sure what an ad tracking cookie is, you’ve probably seen its effects anytime you’ve noticed, say, the same jeans ad popping up on multiple sites. In that situation an ad network placed a tracking cookie in your web browser, which allowed them figure out which sites you went to and how long you stayed there. Then they served you ads.

Yes, it’s a bit scary.

Perhaps surprisingly, Cimino agrees. “At my former company, my peers were the people who created cookies. We didn’t create them for this. It’s a very weak computing mechanism. It’s flawed, invasive, it’s got privacy issues, it’s going to go,” he said.

Let’s just hope whatever mechanism replaces the tracking cookie will care a bit more about our online privacy.

Enterprise cloud software titan Salesforce has launched a new social advertising management app called Social.com that will become the third offering in Salesforce’s Marketing Cloud.

Salesforce has used the past few months to emphasize that it now wants to help businesses become “customer companies” and spark a “trust revolution.” To do this, it wants people to use its Marketing Cloud to better connect with customers. Marketing Cloud is already used by 55 businesses in the Fortune 100 and includes Radian6 and Buddy Media, two companies previously acquired by Salesforce. Now Social.com will be the third puff in this cloud of products.

“We think social is one of the most transformed ways to market,” Gordon Evans, VP of product marketing for Marketing Cloud, told VentureBeat. “The audience has moved online … and it’s an incredible targeting opportunity.”

Social.com’s roots lie in Brighter Option, a company Buddy Media acquired back in Feb. 2012. When Buddy Media was acquired by Salesforce in August 2012, Brighter Option and its team came along with the deal.

Brighter Option offered social ad management software to make it easier for businesses to create, monitor, and measure Twitter, Facebook, and other social ads. So Salesforce has taken Brighter Option’s core features, revamped the package with Buddy Media and Radian6 integration, and changed the name to something with an easy-to-remember URL. Salesforce has done app revamps similar to this previously with Do.com, which used to be Manymoon and Desk.com, which used to be Assistly.

The main features Social.com includes are:

• Create and optimize social ad campaigns
• Connect brands with agencies for better ad results
• Define goals and the app will optimize accordingly
• Adjust ad spend automatically
• Connect Radian6 social listening to create relevant campaigns
• Connect Salesforce CRM customer data to target and optimize social ads
• Simple self-service application

Salesforce insists that Social.com works best when your company also uses Radian6 and Buddy Media because the apps are integrated. Basically, Radian6′s social listening and Buddy Media’s social posting abilities give you more insight and control over campaigns.

“There is so much advantage to using them together and integrated with Salesforce data,” Evans said. “They’re all great products alone but it becomes a powerhouse when used together.”

Some of the top advertising companies in the world are already using Social.com, including OmicomGroup, WPP Group, Mindshare, Mediacom, and Razorfish.

July 9-10, 2013
San Francisco, CA

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This is guest post by Francisco Diaz-Mitoma Jr., the CEO of VIRURL.

During the past few months, digital ad companies have been forced to take a hard look in the mirror. Reports from several security companies have pegged that online advertising click fraud is costing advertisers more than $6 million per month. And that’s on the low side when you compare it to other reports that Google’s bot traffic consumes over $1 billion per year.

Click fraud has been around since the beginning

Wherever there is an opportunity to make money, bad actors and click fraudsters are bound to appear. The problem is so big and costs the economy so much that click fraud is actually a felony offense in the United States.

It’s been around a long while.

In 2004, a computer software engineer developed click-fraud software and tried extorting Google unless they paid $150,000, according to the indictment.

In 2009, Facebook — which mostly generates revenues from online advertising — admitted in 2009 that malicious fraudulent clicks had affected their network.

A recent study conducted by London-based Spider.io dismantled a botnet of over 120,000 machines dubbed “The Chameleon.” The botnet would try to mimic human traffic by creating rollovers on banner ads and in some cases click on the banner ads. The botnet is estimated to have cost advertisers (many of them Fortune 100 companies) more than $6 million a month.

Click fraud is an issue that continuously drains the advertising economy and rewards malicious black-hat scammers. There is no single solution to stopping click fraud but there are multiple ways to protect advertising dollars from being wasted.

Time to take action

The surge in startups around marketing metrics helps to alleviate some of the click-fraud problems online. If you are spending more than a few hundred dollars on any advertising platform each month, it could be a wise investment to hire a freelancer or company to help you through the process.

There are two main strategies to battle click spam and click fraud:

1. Technical: Crosscheck server logs and IP information with known blacklists, proxy lists, and spam lists. For example, Project Honey Pot helps coordinate efforts between domain owners to flag potentially malicious IPs. Again, this is not ironclad protection but may prove beneficial.

2. Analytical: Use your analytics and monitor your success metrics closely. Look at patterns with the traffic to assess whether it is human traffic. Do not obsess over click-through rates. Instead, rank your paid advertising channels by return on investment and then prioritize your spending based on that list. If the traffic peaks and your conversion rates do not hold up, it would be a good idea to cut that paid advertising channel off.

Startups like Kissmetrics, Chartbeat, and Kontagent are paving the way for a better understanding on what your traffic is doing once it reaches a webpage. Services like these help you cut your losses faster from a fraudulent traffic source by allowing you to monitor particular events generated from you traffic. Not only do these services catch bad traffic, but they also help you better understand which paid advertising channels are working best for you.

Better understanding your traffic, monitoring peaks and performance, and tapping into existing blacklists are good safeguards to prevent a massive hemorrhage from your advertising budget.

Brands, agencies, and ad networks must stand together

Click-fraud bots have a severe effect on the economics of online advertising. As CPM numbers are driven up by click bots, the real click becomes more expensive. Even if click bots are tailored to click through on ads, the actual spending customer becomes more expensive to acquire.

Problems with click fraud at major sites points to an industry-wide problem that needs immediate attention. The online advertising industry needs to continue to work together and collaborate on a shared database of perpetrators.

This hard look in the mirror is creating startups and an entire industry around click fraud, better marketing metrics, and real-time behavioral monitoring. This concerted effort will pour millions back into the advertising industry, making advertising more efficient and creating more advertisers willing to open up their wallet.

In the end, it is not only an advertising industry issue. Combating click fraud helps anyone who consumes content online. More real clicks on advertisements will also recalibrate traditional banner ads — making them more efficient and less annoying.

Francisco Diaz-Mitoma Jr. is the co-founder and CEO of VIRURL. VIRURL is a paid content distribution platform with over 115,000 influencers and publishers. VIRURL helps small and large content creators find the right audience.

Silhouetted image of someone typing on laptop via maradonna 8888/Shutterstock

Yup, real ads, not social ads. Retargeted ads: ads from vendors who have noticed where you surf and what you search for, and are presenting ads for products that, based on those actions, they think you might want.

“The owned, earned, and paid media sides of Facebook are coming together really quickly,” says Rob Leathern, CEO of digital ad agency and Facebook API partner Optimal. “This is a great opportunity to reach people within the news feed.”

The new ads aren’t promoted posts, and they’re not native ads. Nor are they ads based on what you’ve liked, posted about, or done on Facebook. Rather, they’re ads straight from marketers who are targeting you based on your browsing interests.

Facebook previously allowed ads like this on the right side of the Facebook page, but this is their first foray into the news feed. There’s a good reason why:

“Allowing advertisers to reach people in News Feed is important because people spend more time in News Feed than any other part of Facebook,” Facebook posted today.

Leathern agrees, saying that it’s great news for marketers. ”We see much better performance of News Feed ads. They get a lot more user attention,” he told me today. “Certainly they come at a higher price point.”

That’s fairly simple, of course: Advertisers want their ads where the people are.

So how will Facebook users react to this new form of advertising? Mobile Facebook users have already told me they’re less than impressed with the amount of advertising that has been showing up in Facebook apps relatively recently.

Facebook knows this, of course, so other ads will be toned down:

“Introducing Facebook Exchange in Desktop News Feed will not change the number of ads people see in their News Feeds,” Facebook added.

This is an important step in monetization for Facebook and an important step in its battle for ad dollars with Google. Social has not monetized as well as search, simply because social is about friends and communication, while search is about active intent. But by adding retargeted ads to the main news feed, Facebook gets intent “for free” essentially and is therefore theoretically able to monetize people’s attention in a social environment for products they might have been looking for in an individual environment 15 minutes earlier.

Another reason it’s a big step is that the new ad units will not necessarily link to brand pages on Facebook; they can link to landing pages outside of Facebook, something that ads in the news feed have never done before.

“It’s a clear signal that Facebook wants a very dynamic ad ecosystem,” Leathern says, adding that Facebook will inevitably fine-tune and tweak this particular ad unit for both advertisers’ and users’ benefit. “If there’s one thing Facebook does really well, it’s test and iterate products.”

The initial test includes ads and participation from TellApart, MediaMath, and Nanigans. Interestingly, retargeting leader AdRoll is not on the list.

In addition to its own tools, Facebook has tapped four digital marketing companies as official partners brands can work through: Datalogix, Epsilon, Axciom, and BlueKai. Facebook marketers can already segment audiences by demographics and specific likes and interests, like cooking or gardening:

Source: Facebook

Current Facebook targeting options

The new capabilities will be much more powerful.

First of all, Facebook will work with the four digital marketing partners or resellers to create custom fine-grained targeting categories like “soda drinkers” or “people who browsed for a specific make/model on my website.”

The first example is interesting because it’s a meta-characterization: Facebook is moving beyond the simple “X liked Coke” to the meaning of that like — and using more nuanced clues based on what Facebookers have posted and shared on the site to build that characterization. The second example shows that Facebook is getting more personally involved in offering retargeting tools for Facebook ads directly to advertisers, or at least through a list of preferred vendors.

The second thing that Facebook is doing via BlueKai and the other partners is providing the ability for advertisers who have built up significant demographic and intent data for targeted consumers to use that data in Facebook ad campaigns, which theoretically means they can find their potential clients quicker … and cheaper.

Much cheaper, according to Facebook. And much better.

The social network touts an example of a Hong Kong-based game developer, Kingnet, that reduced its cost-per-install by 40 percent via custom audiences. And a car dealership in Chicago had a 24x ROI on its ad spend by building a campaign that combined existing audience, an additional custom audience, and Facebook offers.

Privacy, of course, is always a question when it comes to Facebook and ads — particularly so when you bring retargeting and advanced audience segmentation into the picture, which is what this announcement does.

But Facebook says that “this process is specifically designed so that we don’t share private information about individuals with marketers,” and that people will still have the same control over ads they see on Facebook as they currently do.

photo credit: Bjørn Giesenbauer via photopin cc

July 9-10, 2013
San Francisco, CA

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Google’s Offer Extensions, which pair ads in search result pages with Groupon-like deals and special discounts, is set to roll out to all advertisers by the end of February, according to an ad industry insider.

The new offers capability has been in limited release for some time. With it, advertisers can add a coupon-like discount offer to their AdWords ads, either for immediate redemption online or for printing and in-store use, and it’s now on track to roll out to all advertisers, according to Larry Kim, the CEO of search marketing company WordStream.

Source: WordStream

Example: the Google Offers Extension ad product

He’s excited about the new opportunity for advertisers.

“It’s a way better deal than Groupon, who requires 50-90 percent discounted pricing, then takes 50 percent of that for themselves,” he wrote me in an email. “Also, advertisers can track this. Local businesses can connect the dots between online marketing and in-store purchases … not possible before!”

One thing that’s not so certain but would be absolutely huge: integration with Google Maps, which would enable Google to deliver incredibly targeted, relevant, and immediately actionable advertising right to your mobile device.

“Local Deals + Google Maps = perfect match!” Kim said.

As Kim writes in a blog post on the subject, Google famously attempted to buy Groupon for $6 billion a few years ago, when Groupon was still in its ascendancy and could, seemingly, do no wrong. Now, of course, the company is not quite as hot, sporting a market value of just $3.8 billion.

Offer Extensions, well integrated into Google’s vast array of mapping, email, web search, and other properties, cannot be a good thing for the Chicago deals company. But they will be a good thing for advertisers, says Kim:

“Coupons mean more eyeballs and attention for advertisers. Even if users see your deal, save it for later, and forget about it, they’ve still interacted with your business and brand more than they might have if you didn’t put out an ad offer.”

I asked Google for a comment, and a representative said essentially that the company has been testing Offer Extensions, among other AdWords extensions, since 2010, and that advertisers using enhanced campaigns (AdWords campaigns that include information like maps, phone numbers, or more product info) now also have access to offers.

photo credit: mark knol via photopin cc

July 9-10, 2013
San Francisco, CA

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If you’re a small or medium-sized business spending less than a thousand dollars a month on Google’s AdWords, congratulations. You helped Google collect a record $50 billion in revenue in 2012.

The only problem?

You wasted a good chunk of that $50 billion on advertising that didn’t convert, didn’t show ROI, and wasn’t intelligently conceived. Ideagility founder and CMO Rahm McDaniel wants to change that.

“Our typical customer sees their overall spend decrease by double digits,” he told me. “And their conversion rates increase by double digits.”

Source: Ideagility

Conversion rates

The big boys, companies like WalMart and PC Mall and Amazon, spend millions of dollars on Google AdWords. So they have whole teams of brainiac advertisers constantly tweaking campaigns, editing ads, A/B testings copy, and generally doing everything you don’t have time to do. Which is why pay-per-click management software like Ideagility’s AgileBid makes sense: it makes the software do the work for you.

“Big companies tend to view little companies as small, stupid versions of themselves,” Ideagility’s CEO Ron McDaniel says. “Google has built this amazing advertising platform … but the learning curve of Adwords is too high for most business that do $1000/month on Adwords to be worth their time.”

Managing a PPC campaign is labor-intensive. You set up multiple ads, choose keywords that you’re targeting, and then iterate daily via multivariate testing to optimize three key metrics: click-through rate, conversion rate, and return on investment. Some keywords are worth more, because they convert at a higher rate and convert into higher-paying customers. Some keywords stimulate huge click-through, but poor conversion. Failing to optimize means failing to win: paying Google too much for advertising that does not efficiently accomplish your objectives.

So McDaniel, who built the software for AgileBid for his own use initially, created software to optimize AdWords spending regularly, repeatedly … forever.

“If you can make a 10 percent improvement on your bid process every day — which is what humans don’t do well — then that’s where the largest returns come from,” he told me.

Here’s how it works.

After initial set-up, AgileBid is constantly active moving dollars out of areas of negative returns, into areas of positive returns. Most of the keywords that you’re able to think of when setting up a campaign are the exact same keywords your competitors thought of, so they’re expensive, may not convert well, and don’t have great ROI. AgileBid is constantly looking for new, related keywords, and unexplored opportunities.

AgileBid spends about 20 percent of your budget on that testing. The hidden gold it uncovers in out-of-the-way keywords and ads is what drops your spend and boosts your conversion rates by double digits. That means if you’re spending $1000/month, you could reduce your ad budgets to $800 and still get better results.

Source: Ideagility

Ideagility dashboard

AgileBid isn’t for everyone, McDaniel is quick to clarify. Other PPC automation tools such as WordStream, Kenshoo, Marin, and Acquisio offer more features and more customizability. But that’s just the opposite of what AgileBid was intended to do.

“We’re like a 4-hour work week tool,” McDaniel says. “The problem isn’t that people don’t have enough features … what our customers have told us they don’t have time to mess with that stuff. So we give our clients a look at what’s happening, but not a lot of knobs and dials to turn.”

The results are impressive.

McDaniel says that the big AdWords spenders like Amazon, PC Mall, Overstock.com, Costco, and Macy’s average about 2 to 3.5 percent conversion rates. (That’s pretty good — I’ve personally managed PPC campaigns, and a single percent is generally considered par for the course.) AgileBid’s customers — typically small businesses without huge, well-known brands — convert at an astonishing 3.37 percent.

In other words, better than NeimanMarcus, Overstock.com, PC Mall, and Costco, and almost as good as Amazon.com and Macys.

In other words, impressive.

photo credit: faith goble via photopin cc

DataXu pulled in $27 million in funding today, proving that investors continue to see potential in the massively complicated world of ad-tech.

The Boston-based startup was founded by a group of MIT scientists who wrote the combinatorial language for NASA’s Mars mission. To commercialize the tech, the scientists brought in executives with digital media and consumer electronics expertise, who saw a huge opportunity in helping marketers to target their advertising.

DataXu started its life as a platform to help that helped marketers place their ads in real time ad exchanges — the company would take a cut of any media they bought. The company has found it can make more money by licensing software, which lets ad buyers make their own decisions.

The company provided a case-study to demonstrate how it worked with Adobe to use online display advertising to drive sales. DataXu claims its approach yielded a 60 percent increase in online sales with a 36 percent reduction in media costs.

The round of funding was led by Thomvest Ventures with participation from existing investors Atlas Venture, Flybridge Capital Partners and Menlo Ventures. DataXu has now raised $65 million.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Do you run a business? If so, Google wants to help make web marketing and sales work for you.

Google’s announced a new series of “Learn with Google” webinars for digital marketing this morning, focused on helping small, media, and large businesses grow with digital branding, social media, multiscreen marketing, and, yes, online advertising.

That is, after all, how the search giant makes its money.

The topics range from the basic — How to use Google+ and make social work for you — to a little more expert-level, with webinars on video remarketing and dynamic retargeting technologies. Other topics include Google Analytics, mobile advertising, video ads on YouTube, and Google Adwords.

Of course, despite the fact that 30 billion ads run daily on Google sites and networks, earning the company $100 million a day, there is just a little bit more to digital advertising than Google.com. Facebook ads and Twitter promoted tweets are just two examples of important digital marketing options you won’t learn about via a Google webinar.

Nevertheless, the search and mobile giant is putting together a very good lineup of introductory courses. Here are the courses, with dates, all of which will be available at Learn with Google’s webinar site.

Build Awareness

02/12 [Multiscreen] Brand Building in a Multiscreen World
02/20 [YouTube] How to Build your Business with YouTube Video Ads
03/05 [Social] How to Use Google+ and Make Social Work for You
03/12 [Mobile] Understanding Mobile Ads Across Marketing Objectives
03/27 [Wildfire by Google] The Call for Converged Media

Drive Sales

01/29 [Analytics] Google Tag Manager: Technical Implementation *today*
02/07 [Search] Your Shelf Space on Google: Get Started with Google Shopping
02/26 [YouTube] From Awareness to Sales: Making the Most of Video Remarketing
02/27 [Search] What’s New and Next in AdWords
03/06 [Display] Biggest Loser: Digital Ad Spend Edition
03/13 [Mobile] The Full Value of Mobile
03/20 [Display] Getting Started with Dynamic Remarketing

photo credit: World of Good via photopin cc

In other words, ad retargeting of Facebook users based on pages they’ve visited elsewhere on the web.

I spoke to RadiumOne chief executive Gurbaksh Chahal about the announcement. He’s excited about the integration, because it allows his company, which previously targeted only the open web, to now target the 20 percent of the web’s page views that happen behind Facebook’s closed doors.

And he’s excited because now he’ll be able to offer much higher-performing ads to his clients.

“The problem with Facebook,” he said, “even though everyone thinks they have so much data on you and they’re the next Google … is that recency is a big factor.”

In other words, Facebook has an immense amount of inferred data — you like Led Zeppelin, boats, and skiing — that you’ve provided to the social network at one time or another. But the web continues to evolve and change … and so do people. Particularly when they’re at decision points on purchases.

That’s, of course, the rationale for the creation of Facebook Exchange, which enables advertisers to combine Facebook demographics with web real-time data. And that’s where RadiumOne shines, according to Chahal, saying that RadiumOne has its own data access, including previously visited pages, comments, links, and reviews, and already reaches 700 million unique web surfers a month, with 25 billion ad impressions every single day.

Integrating with Facebook isn’t just a major product opportunity. It’s also a seal of approval.

“Facebook has been very careful in picking people who will add value to the Exchange,” Chahal said. “There’s like 400 ad networks who are all just arbitraging, but Facebook is being very selective, only adding about 20-25 partners.”

This gives RadiumOne new opportunities with its clients, who already either are, or want to be working with Facebook.

“It’s pretty clear when you have a billion users on your platform you become a must-buy,” he said. “And if you’re buying on Facebook already, we can help you use the Facebook Exchange and become much more effective.”

Programmatic buying — automated bidding and purchasing — will be a $2 billion business this year, sharply up from $700 million last year. Over the next several years, Chahal says, it will grow to $7 or $8 billion.

photo credit: CoreyHarris via photopin cc

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Thirteen million times a day, someone, somewhere, clicks a Google ad and becomes someone’s customer.

An angel may not get its wings, but somewhere, a click sells a product, downloads a white paper, or takes some personal information. In short, some exchange of value takes place — at huge, mind-boggling scale.

Larry Kim of the web marketing firm WordStream analyzed a huge divot of Google data — which I published in infographic form earlier today. WordStream offers a free Adwords Performance Grader, which gave it access, Kim told me, to about 1 percent of Google’s revenue over the past quarter.

And the data that comes out is fascinating.

Source: WordStream

The shopping industry does a lot of ad shopping

For instance, the finance industry places 617 million ads on Google.com and 5.32 billion ads on Google’s ad network each and every day, generating 28 million clicks at the highest average cost per click of any industry: over $3 on google.com, and over $1 for ads in the network. Top five advertisers in finance include names like State Farm, Geico, and Quicken Loans.

The second most prolific industry buying Google ads is travel, where brands like Expedia, Hotels.com, and Kayak place 2.5 billion ads a day to generate over 20 million clicks at an average price of just under $0.30, and complete 360,000 sales a day.

“Different advertisers define conversions differently,” Kim told me today, so those sales include not just actual flight, rental car, and hotel bookings but also any leads generated via an ad.

But the highest conversion rates belong to the education industry, which enjoys almost three times the conversion rate of travel companies. Education advertisers such as the University of Phoenix, DeVry, and Kaplan University convert at a red-hot 6.27 percent.

30 billion ads served … a day

All those millions of click and hundreds of thousands of conversions come out of probably the biggest advertising engine in the history of the world. Between ads on its own site and ads on its network, Google delivers an astounding 29.8 billion ad impressions every single day. That’s mind-boggling.

The good news for advertisers is that Kim’s data shows that average cost-per-click has come down significantly, which is part of the reason why Google lost almost $20 billion in market value in a single morning last week. Advertisers are now paying between 16 percent and 18 percent less for clicks than they did just four months ago.

Source: WordStream

The finance industry spends a lot of green with Google

“I think that’s fantastic news,” Kim says.” “It’s not only cost-per-click going down, but also that the inventory of ad impressions is going up substantialy … it means you can get more customers for less money.”

That sounds bad for Google. But not really, he told me.

“It’s actually really good news for Google, too … even though Wall Street cheers when the cost-per-click goes up and Google gets more money from advertisers … that’s not sustainable. By increasing the available impressions and clicks and lowering the costs, more advertisers will see more value from online advertising and that will be beneficial for Google in the long run.”

One caveat: While Kim is pretty confident in the data, saying that by analyzing 1 percent of Google’s revenue he’s checking a far higher percentage than Gallup, for instance, would poll for an election preview, it’s not Google data.

So it’s possible that WordStream’s data is off. With such a large sample, however — over a billion dollars in annualized revenue — it’s not likely that it is very far wrong.

photo credit: captcreate via photopin cc

Ad tech startup AdRoll has released the results of its first foray into selling retargeted ads on Facebook’s ad exchange — and what might come as a shock to no one, the results look great.

As we’ve noted previously, AdRoll has helped make display advertising more relevant to people browsing the web on desktops and laptops. Using cookies stored in your browser, the service’s retargeting platform makes it possible for you to see products or services you’ve previously viewed on other sites. It also offers data and analytics to its customers so they can make better ad decisions.

But with AdRoll’s entry as an alpha company on Facebook’s Exchange for display ads, its prospects are even better. The company’s dynamic ad product, LiquidAds, lets people see the same ad they saw before. Now this happens on Facebook as well. AdRoll’s retargeting on Facebook works by pairing a browser cookie from Facebook and a cookie from an advertiser’s site to match that customer’s interests.

The initial results from alpha testing? AdRoll President Adam Berke told me that AdRoll’s dynamic ads on Facebook have an eye-popping 102 percent higher click-through rate than traditional Facebook Exchange ads.

“This solves two problems: One, the ads are personalized and therefore do better,” Berke said. “Two, it solves an inventory problem. You have to use your ads wisely and dynamic ads keep it fresh.”

AdRoll’s first customers seem happy with the results. “We were thrilled to try LiquidAds on FBX as we’ve had great initial success on the platform,” Michael Macintyre, the director of online marketing at Indochino, said in statement. “We’ve seen even greater click-through rates using this technology and, as a result, our overall cost-per-click on FBX campaigns has decreased.”

Being successful on the Facebook Exchange requires a strong foundation in technology. It only takes milliseconds for Facebook’s Exchange to communicate with companies wanting to bid and place ads. AdRoll said it plans to buy server space physically near Facebook to improve its transaction speeds.

San Francisco-based AdRoll has raised around $20 million in funding, with backing from Peter Thiel, Max Levchin, and others. AdRoll was named the fastest growing advertising company by Inc. in August.

According to Reuters, Facebook has proposed a new settlement in the sponsored stories class action lawsuit. One hundred and twenty-five million Facebook members, apparently, have been used in various ads created by companies based on those users’ interactions with their products or brands.

The only problem, of course, is that people had no say in what they essentially started pitching to their friends.

Source: Amazon

The infamous personal lubricant

The lawsuit has hung around much longer than Facebook would have liked. It was first reported to be settled in May, then in June when Facebook agreed to add opt-out controls. In each case, however, the settlement was conditional upon judicial approval.

Judge Richard Seeborg rejected the first $10 million settlement for being too low and for not providing funds for the actual Facebook users who were the injured parties.

The initial $10 million offer from Facebook was to go to charity after lawyer’s fees. But the new settlement sets aside $10 million for lawyers right off the bat, which is fairly revealing about what is most likely really driving this lawsuit. The rest of the money would go into a capped fund for affected users, who would be able to apply for a $10 payment individually.

No word yet on whether Seeborg will think $20 million — two solitary pennies for each affected Facebook user — will be enough, but the potential damages could theoretically have been in the billions. For example, if all 125 million affected people applied for the $10 payment, and if the total was uncapped, damages would run as high as $1.25 billion.

I asked Facebook for a comment, and the company issued a statement simply saying: ”We believe the revised settlement is fair, reasonable, and adequate and responds to the issues raised previously by the court.”

Facebook sponsored stories have proved to be highly successful, with much higher click-through rates than other Facebook ads.

They also, however, have the potential to be extremely expensive for the world’s leading social network if Seeborg rejects this offer as well.

photo credit: HikingArtist.com via photopin cc

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

TV and online audience analytics firm Nielsen has acquired ad tech startup Vizu, a move that will help the company optimize online ad effectiveness and cross-platform measurement.

The terms of the deal were not disclosed. However, unlike many acquisition agreements, Vizu’s technology will be integrated immediately into Nielsen’s offerings. Vizu’s Brand Effect suite will make it possible for Nielsen to give out real-time reports of online ad performance that is “broken out by media plan participant, frequency of ad exposure, advertising execution, and targeting strategy.” All of those are key to marketing online in the age of social media and real-time engagement.

“We are committed to providing a complete understanding of a brand’s end-to-end advertising campaign impact,” said Steve Hasker, president of global media products and ad solutions for Nielsen, in a statement. “Vizu has developed a best-in-class solution for measuring and optimizing brand advertising effectiveness online, which offers a powerful complement to Nielsen’s cross-platform solutions for the advertising industry.”

Prior to Neilsen’s buy, San Francisco-based Vizu had raised $10.7 million from investors including Draper Fisher Jurvetson, iNovia Capital, Greycroft Partners, Ron Conway, and Esther Dyson.

Photo credit: Angela Waye/Shutterstock

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

FastPay, a startup that’s all about the Benjamins, has just wrapped a $25 million round to keep the money flowing (and the lights on) around the Internet.

What FastPay does is interesting: It provides cashflow for online startups that rely on advertising money from big brands, most of which have very long payment cycles.

When you’re a lean, mean, hungry startup waiting a few months to get your first big check from Nike or Procter & Gamble, having funds when you need them is key — especially if you’re bootstrapped. Since most brands take around two months to pay their online advertising invoices, FastPay steps in with credit lines up to $5 million for a range of online businesses, including web-based publishers, digital creative studios, and ad-tech businesses.

FastPay typically lends its customers between $100,000 and $3 million, and the majority of its requests for loans are fulfilled within 24 hours.

“FastPay has been a lifesaver for us, literally,” said David Segura, CEO and founder of Giant Media, in a release this morning. “We feel very fortunate to have a partner that understands our business and is willing to underwrite and accelerate our growth.”

Today’s $25 million funding was provided by Wells Fargo Capital Finance and a subordinated debt and equity investment from SF Capital Group (don’t be fooled by the name; this firm is based in New York City). As part of the deal, SF Capital Group President Neil Wolfson and Howard Capital Management Managing Partner Jason Kaplan will join the FastPay board of directors.

FastPay is based in Los Angeles, Calif., and was founded in 2009. The company raised a previous $5 million funding round in February 2011, bringing its total raised to $30 million.

Turns out GM might have been on to something. New research from marketing agency Greenlight shows 44 percent of Facebook’s users say that they will “never” click on sponsored posts or display ads on Facebook.

UPDATE: Facebook sets $38 share price for largest tech IPO in U.S. history.

General Motors caused a stir on Tuesday when it leaked that the company would stop running ads on Facebook due to them not being effective. GM will drop $10 million worth of ads, but it still plans to spend $30 million on marketing through Facebook. That story was poor timing for Facebook, which will have its record-breaking IPO this Friday.

For its 2011-2012 Search & Social Survey, Greenlight surveyed 500 people, including students, medical staff, accountants, lawyers, and others, to gain insight about their behavior on Facebook and their sentiments toward the company. On top of finding out 44 percent would never click on display ads, 31 percent of respondents said they “rarely” click display ads, 13 percent said they don’t use Facebook, 10 percent said they “often” clicked ads, and 3 percent said they “regularly” clicked Facebook’s sponsored posts.

Also notable is that 30 percent of those surveyed said they “strongly distrust” Facebook with their personal data, which somewhat lines up with the CNBC polling earlier this week, in which 59 percent of people said they distrust Facebook on user data.

“With over 30% of respondents saying they ‘strongly distrust’ Facebook with their personal data, Facebook’s advertising program has an upward struggle,” Hannah Kimuyu, director of paid media at Greenlight, said in a statement. “Facebook’s advertising program allows brands to connect with more than 800 million potential customers, through targeting their age, gender, location, and interests — in other words, personal data.”

One plus side to Greenlight’s report is that the users who did click on Facebook ads found “the targeting effective and engaging,” Kimuyu noted. Perhaps that’s a sign that people will be less wary of Facebook ads over time.

Photo illustration: Sean Ludwig/VentureBeat

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Facebook’s log-out page will soon be transformed into premium digital billboard space ripe for messages from advertisers. The ads, should history repeat itself, will flop with Facebook members, but buyers will snatch them up anyway.

“This is a fairly traditional play in the ad world,” Mindjet head of marketing Jascha Kaykas-Wolff told VentureBeat. “It’s a natural progression for them … it’s clearly a huge amount of inventory, and I don’t think people are going to turn [the ads] down, but it’s not a silver bullet by any stretch of the imagination.”

Facebook announced log-out page ads Wednesday as part of its souped-up Premium ad offering. The units, arriving in April, are a brand new, optional fourth placement for buyers, and are designed to complement the other three placements: Page posts, right-hand side ads on the homepage, and ads in the News Feed.

With 37 million people logging out of Facebook each day, the company believes advertisers will want to reach this massive audience.

The log-out page ad is quite the opposite of novel. Yahoo, Microsoft, and others have more than toyed with such placements, offering their advertisers a way to present those exiting their sites with an enormous ad unit too big to ignore. But consumers do tend to ignore them.

Yahoo, which ran the ads for several years, initially positioned them as higher CPM units, but later deeply discounted them due to poor performance, Kaykas-Wolff told VentureBeat. The ads were eventually discontinued.

Kaykas-Wolff spent more than four years as a business development manager for Yahoo in the late 1990s and early 2000s, and he would often put together ad packages for prospective buyers. “They were, historically, capturing a lower CPM, because it’s not really an interaction point that’s meaningful,” he said.

Kaykas-Wolff likened the log-out ads to the targeted coupons consumers receive with their credit card statements. “They’re not really going to elicit you to go purchase more stuff … it’s not the right environment,” he said. “If I’m logging out of Facebook, leaving Facebook … I’m logging out. Could somebody capture my attention and bring me back in? Maybe, but it’s not going to be the first thing that’s on my mind.”

Facebook is likely aware that the log-out page ads won’t dramatically increase engagement for its advertisers or bring back droves of members ready to depart, so why bother?

“There’s definitely a desire for Facebook to look a little bit more and feel a little bit more like what we’ve understood as buyers in the ad space,” Kaykas-Wolff explained.

So, the addition is all about appearances — and getting buyers to buy more, of course.

“This ad unit … is a lot more consistent with other networks that you have the ability to buy into,” he said. “This is another indication that Facebook is a larger network and that it does have different types of inventory that, as a buyer, you can think about in concert with buying on CBSi, Yahoo, or MSN.”

The ads, he said, are a wholly uninteresting addition to the experience. “They’re just another piece of inventory.”

But as uninteresting as these ads may be, and here’s the key, they will attract buyers — including MindJet. “Would I buy it as part of an overall program? I wouldn’t have an issue with that. It’s just another part of Facebook’s network,” Kaykas-Wolff said.

Zuckerberg's desk

Facebook’s newest advertising product, expected to be unveiled on Feb. 29, leaked to the web yesterday. The ads themselves would appear to be a natural evolution of the company’s primary money-making business, but perhaps there’s more to these new sponsored stories than meets the eye.

The introduction of upgraded ad formats, according to one prominent financial analyst, is a last-ditch effort on Facebook’s part to meet advertising revenue budget goals for the first quarter of the year.

“We’ve confirmed with sources close to the company that Facebook is indeed behind its projections for ad revenue for the first quarter,” financial data company PrivCo CEO Sam Hamadeh told VentureBeat. “It certainly doesn’t look good for Facebook frankly.”

VentureBeat cannot independently confirm Hamadeh’s statements on the sluggish performance of Facebook’s ad business.

Documents leaked Wednesday (included below) reveal that Facebook plans to introduce an “Upgraded Premium Ads” product that will replace its existing “Classic Premium Ads.” Facebook marketing materials suggest that the new ad formats — there are six in total — will increase an advertiser’s engagement rates by as much as 40 percent.

“These documents, coupled with other rapidly rolled out changes that boosted the pervasiveness and intrusiveness of Facebook ads…are evidence that the company is struggling to meet its financial projections as its IPO looms imminently,” a PrivCo blog post dissecting the new ad formats concluded today. “Facebook is clearly choosing to increase its ad intrusiveness and frequency to pad its numbers short-term in preparation for its IPO and first quarter results post-IPO trading, at the cost of user experience and long-term growth.”

“These are the types of actions ad-supported companies save for a Rainy Day,” Hamadeh added. “It should be a red flag for investors that Facebook apparently considers that Rainy Day to be now.”

Facebook’s advertising business is a risky one. VentureBeat previously spoke with Peter Adriaens, a professor of entrepreneurship at the University of Michigan’s Zell Lurie Institute for Entrepreneurial Studies, who argued that the social network should have identified low click-through rates on ads as a risk in its S-1 filing with the SEC.

A report published Thursday by market research firm eMarketer projected that the social network would bring in $5.06 billion in ad revenue in 2012. The figure represents a 60 percent jump from the $3.1 billion it made from ads in 2011, but, according to eMarketer, also suggests a significant drop-off in ad revenue growth rates.

Facebook did not immediately respond to a request for comment.

Photo credit: Mark Zuckerberg/Facebook

Facebook is set for a record-shattering initial public offering and, according to a new report, it will bring in more than $5 billion in advertising revenue this year. But Facebook’s financial future may not be as bright as the eye-popping figure would at first suggest.

2011 was a banner year for Facebook in terms of advertising revenue. The social network saw 68.2 percent growth and took home $3.1 billion in ad revenue for year. In 2012, market research firm eMarketer predicts that Facebook’s ad revenue will balloon to $5.06 billion, but the figure represents just 60 percent growth over 2011 and points to a downward spiral in growth rates.

Ad revenue growth will be nearly sliced in half by 2013 and inching closer to zero by 2014, eMarketer estimates. Facebook will make $6.72 billion from ad revenue in 2013 (32.8 percent growth over 2012) and $7.64 billion in 2014 (13.7 percent growth over 2013), the firm predicts.

The dramatic decline in growth rates means that Facebook will need to radically grow its payments business to please future shareholders and continue to post strong annual revenue gains.

In 2011, just $557 million of Facebook’s revenue came from payments, and eMarketer pegged the company’s ad business as generating 85 percent of total revenue. The payments figure is, however, up fivefold over the previous year and suggests that the alternative money-maker could eventually grow to be a big and important business for Facebook.

And while Facebook’s ad revenue growth seems to have peaked, one other thing to consider is that the company is taking an even larger chunk of the overall online ad revenue market with each passing year. Facebook will account for 6.5 percent of online ad revenue in the U.S. in 2012, according to eMarketer, and will increase its share to 7.1 percent by 2013.

For years, Google and Facebook have been waging trench warfare for big-brand ad budgets. Billions of dollars are at up for grabs, and since this money constitutes the bulk of revenue for both companies, the stakes are incredibly high.

Twitter, which just last week launched a self-service ad platform, is a relative newcomer to the online-ads battle. The company was slow to even identify advertising as its main revenue source, having previously toyed with the idea of building its business on analytics or enterprise products.

Twitter first announced its ad suite in April 2010, but in August of the same year, it was evident that the suite was still very much in an experimental stage. In fact, promotional tweets didn’t start rolling out in users’ timelines until just six months ago.

Twitter is projected to reach $1 billion in annual revenue by 2016, a long four years from now. Meanwhile, longtime ad-heavyweight Facebook revealed in its recent S-1 IPO filing that it had made nearly $4 billion in 2011 alone, mostly from display ads.

But even Facebook’s ad revenue, definitely the figure to beat in display ads, is still peanuts compared to Google’s earnings from online advertising. The search giant, which gets the bulk of its money from search ads, posted $10 billion in revenue for the most recent financial quarter alone, and around 95 percent of that came from its online ad empire.

With numbers like that, it seems that advertisers still don’t see Twitter as anything more than an interesting experiment or a PR tool, at best.

“I don’t think Twitter is in competition — yet,” said eMarketer analyst Debra Williamson in a call with VentureBeat today. “It’s so much smaller in terms of the number of users. I see agencies primarily using Facebook and experimenting with Twitter as an adjunct.”

Williamson said that while Twitter’s suite of Promoted Tweets, Promoted Accounts, and Promoted Trends make for happy users and well-rounded campaigns, it’s hard to get the average media buyer on board, simply because the products aren’t typical display ads. “Those [products] don’t fall into the neat buckets that advertisers are used to… You have to actually think about a campaign, you can’t just buy a bunch of ads.”

Twitter’s announcement last week of a self-serve media-buying platform, however, has made it a lot easier for a wide range of businesses — even small and medium-sized businesses (SMBs) — to work with Twitter, regardless of budget size. “That makes it really easy for smaller companies to take that risk,” said Williamson. In the past, some of Twitter’s bigger ad products could cost around $120,000 per day — a huge price for a product without proven return on investment, while other products were priced on a per-engagement basis.

With the new self-serve ads, Twitter is reaching out to a larger audience of smaller businesses, some of whom certainly have incentive to turn to Twitter over Facebook for advertising.

“[SMBs] have to look at where their audience is,” said Williamson. “If you’ve already got a wide presence on Facebook, you want to buy ads to reach those people’s friends. On Twitter, you might want to reach people… based on what region of the country they’re in or whether they follow an account that’s similar to yours. It offers the potential to reach a wider audience.”

But while these small and mid-size businesses will help Twitter grow its overall advertiser base, Williamson reminds us that their advertising budgets are a jar pull of pennies compared to the war chests that brands like Coca Cola or Virgin have available to lavish on Twitter and other social networks.

“Twitter’s revenue is going to need to come from the big advertisers, with a smaller base from small and mid-size advertisers. But [SMBs] are not what’s going to make Twitter ultimately successful,” said Williamson.

And for those all-important big brands, a human-scale audience is what counts. “As much as we talk about targeting, major advertisers want to reach a mass audience; that’s why they put ads on the Super Bowl,” Williamson contended. “And Twitter is still not that. They have wide popular awareness, but it doesn’t have the kind of usage statistics that would make it a mass audience.”

One thing in Twitter’s favor is, ironically, the slow and deliberate approach it’s taken to introducing promotional content into its system. Always with a cautious eye on its end users, the company has taken care to keep Promoted Tweets and Trends in line with the tweets and trends users generate, themselves. As the Promoted suite was expanding, Twitter CEO Dick Costolo told us, “[Users] should be seeing the kind of content [they are] already interested in… We’ve been super cautious about that; we didn’t want to sacrifice user experience.”

Williamson concludes that analysts and advertisers alike see this approach as “impressive.” She told us that by testing new products and only launching them when they’re ready, “Twitter has been able to hold back and make sure that what it rolls out doesn’t irritate its users and still works for marketers.”

As Twitter continues its slow and steady climb to significant revenue, Google remains the dominant player in online advertising, mainly due to the breadth of its portfolio, which includes video ads on YouTube, mobile ads from acquisition AdMob, banner ads from DoubleClick (also a Google property), and a proprietary ad network.

The idea of an Open Graph-based Facebook ad network, Williamson said, “has come up every year, and Facebook consistently denies that this is something they’re thinking about. If they were to launch an ad network, it would be really compelling, because Facebook has relationships with so many websites through Open Graph. But until they roll it out, it’s all speculation.”

Facebook mobile ads, she continued, are “more sure thing. The rumors are pretty strong that FB is going to talk about mobile advertising at their big event next week in New York.”

But 2012 is still a battleground for all three of these companies, and Williamson said all three will continue to struggle, with smaller players consistently ramping up, throughout 2013.

Yelp’s advertiser agreement

Yelp charges merchants who buy advertising for impressions, much like Yellow Pages companies. Like cell phone agreements, there is a minimum term with a hefty early termination fee. And like Aol, the service continues indefinitely.

The local-reviews company is on the road to an initial public offering; the IPO is scheduled to price on or about March 1, 2012. Yelp is in its quiet period and did not respond to a request for comment on this story.

Here’s my analysis of the key points in the merchant agreement. I am not a lawyer, but I’ve negotiated many agreements in my product management and business development roles.

No impact on Yelp’s organic results. Although a common perception among merchants is that Yelp runs an extortion racket, Yelp makes it very clear in its advertiser agreement that buying advertising doesn’t affect its organic listings or order of reviews:

The Site allows consumers to post reviews about businesses like Client’s. The Site employs automated software to help it showcase the most relevant and reliable reviews while suppressing others. Client’s purchase of Yelp Ads will not influence the automated software, or otherwise allow or enable Client, directly or indirectly, to remove, alter or reorder the reviews on the Site.

I haven’t been able to find any credible evidence of Yelp salespeople claiming that buying advertising would improve a business’s ranking or delete bad reviews.

The only quibble I have with this section is that it’s not in all caps like other important sections of the agreement. It’s in Yelp’s best long-term interests to be clear as possible about this.

No guarantee of the quality of impressions. Yelp doesn’t promise anything about where your ads will run:

YELP SPECIFICALLY DISCLAIMS ALL WARRANTIES AND GUARANTEES REGARDING (I) THE PERFORMANCE, QUALITY AND RESULTS FOR THE SERVICE, (II) CLICK RATES, CONVERSIONS OR OTHER PERFORMANCE OR RESULTS FOR THE SERVICE, (III) THE ACCURACY OF THE INFORMATION THAT YELP PROVIDES IN CONNECTION WITH THE SITE OR YELP ADS (E.G. REACH, SIZE OF AUDIENCE, DEMOGRAPHICS OR OTHER PURPORTED CHARACTERISTICS OF AUDIENCE), (IV) YELP’S ABILITY TO TARGET ADS TO OR IN CONNECTION WITH SPECIFIC USERS, TYPES OF USERS, USER QUERIES, OR OTHER USER BEHAVIORS, (V) THE ADJACENCY OR PLACEMENT LOCATION OF YELP ADS, AND (VI) AN AD IMPRESSION’S QUALITY, TIMING OR THE NUMBER OF AD IMPRESSIONS DELIVERED.

Even with a Yellow Pages buy, you know what category you’ll run in and in what city your ad will appear. Based on this agreement, if you’re a plumber in Chicago, Yelp could run your ad for someone looking for a dentist in Seattle.

I haven’t seen anything that egregious in practice, but I’ve seen plenty of impressions that are completely useless and not worth buying.

Automatic renewal. It’s the “forget about it” business model. After the initial term, the Yelp advertising renews on a month-to-month basis. Because of the sizable termination fee, merchants are unlikely to cancel shortly after the agreement begins. (When they are most attuned to how ineffective Yelp advertising is.) By the time renewal rolls around, the cost will be built into the cost of running the business and forgotten about. Yelp can terminate the agreement whenever it wants.

Changes to the product. “As it develops new advertising features, Yelp may from time to time replace any of the foregoing features with features of substantially similar value.” Yelp can change the product you bought — after you bought it and during the contract term. Even in cell phone agreements, if there is a material change, that gives you the option to terminate your agreement without penalty.

Indemnification. Like Groupon, Yelp requires the small business to indemnify it in certain scenarios. This is ridiculous.

Such terms are common among large companies. Let’s say Apple is licensing software from Acme Corp. Apple would want to protect itself in case Acme was violating someone else’s patents. Acme would cover any liability and lawyer’s fees related to intellectual property claims on its software.

But when the power relationships are so skewed, it doesn’t make sense. In practice, I don’t expect this clause to ever come into play in the types of relationships Yelp has with local advertisers. But it’s another sign of how skewed the agreement is. Small businesses buy products and services more like consumers than big corporations; it’s likely that very few of them will even read the agreement.

Overall, the agreement reinforces my view that Yelp is running on an old-line business model as advertising is rapidly moving toward having accountability and being sold based on performance.

To be fair, it’s extremely unlikely that running an ad on Yelp will bankrupt your business or cost you tens of thousands (which can happen with Groupon or LivingSocial). But it’s also not going to help it.

The only scenario I could think of where I would recommend Yelp advertising at its current rates is if it were running an extortion racket.

Rocky Agrawal is an analyst focused on the intersection of local, social, and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.

Small print image via ShutterStock

That word could be coming out of the mouths of small-business owners when they hear how much the online reviews site is overcharging them for advertising. At a time when much online advertising is being sold for 60 cents per thousand impressions (CPMs), Yelp is charging some local advertisers $600 per 1,000 impressions.

That’s not a typo. Yelp is charging small businesses 1,000-times the standard online CPM rates for local ads that appear on Yelp. Even when compared to its own ads for national advertisers, the company is charging a 100x premium.

This is the type of ad a national advertiser would buy:

According to a source who has purchased this type of ad on Yelp, the rate is about $6 per CPM. This ad unit works like most online ads: when someone clicks on it they are taken directly to the advertiser’s site or a specialized landing page.

Now consider the types of local Yelp ads that small businesses buy:

In this scenario, the ad goes to the advertiser’s Yelp review page. That’s a page where users are free to leave any kind of review for the business, including ones that trash it. That ad runs about a $600 CPM. Yelp is currently in its quiet period while it is preparing for its initial public offering and did not comment for this story.

According to a rate card forwarded by a business solicited by Yelp, this is what the company is charging. Note that these are general rates for Yelp, not specific CPMs for the advertisers shown:

$300/mo – includes 500 targeted ads per month
$540/mo – includes 1200 targeted ads per month
$825/mo – includes 2100 targeted ads per month
$1100/mo – includes 3000 targeted ads per month

It’s common for more targeted inventory, such as the type that Yelp provides, to command higher CPMs. But triple-digit CPMs are extremely unusual. (Yelp’s rates vary based on category and demand.)

At the high end, it’s a $600 CPM. At the low end, that’s a still eye-popping $367 CPM — more than 10-times the rate of a Super Bowl ad.

To make matters worse, Yelp requires a 12-month commitment for these rates. (The representative offered this business higher rates for a six-month commitment. Yelp also offers 3-month agreements.) Even if Yelp doesn’t deliver your business a single customer, you’re on the hook for $3,600.

For comparison, Facebook only requires that you set your budget to $1 a day and does not have a commitment. A business could try it for a week, see if it performs and then decide.

Even as Groupon’s toughest critic, I can list scenarios in which it makes sense to run a Groupon. I cannot think of any scenarios where I would advise businesses to advertise on Yelp at these rates.

For online advertising, I strongly recommend against commitments and impression-based advertising. For a restaurant, a service like GrubHub makes more sense. You only pay if someone uses the service to order and there’s no commitment. Such services typically charge restaurants 10-20 percent of the value of orders they send.

Despite ostensibly being an Internet company, Yelp’s business model is closer to that of yellow pages companies: sell a questionable value proposition to many who don’t understand what they’re buying. While it may work in the short term, as the stocks of yellow pages companies show, it’s not a long term proposition. SuperMedia is down 92 percent since it debuted. Dex One is down 94 percent.

Combined, those companies have a valuation of $145 million. Yelp is reportly seeking to raise $100 million at a valuation of $1 billion to $2 billion. (Not that I would advise investing in SuperMedia or Dex One.)

Yelp’s rates for national advertisers aren’t way out of line. Unfortunately for Yelp, local advertisers account for 70 percent of its revenue.

In its latest S-1, Yelp reported strong revenue growth that earnings increased 74.5 percent year over year and 11.7 percent from the previous quarter.

But given the flaws in Yelp’s core business model, it won’t be long before investors and advertisers are leaving one-star reviews.

To see my recent discussion on Yelp’s IPO outlook with Bloomberg, check out the following video.

Rocky Agrawal is an analyst focused on the intersection of local, social, and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.

Money burning image via ShutterStock

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Source: https://www.facebook.com/zuck

Zuckerberg's desk

In its IPO filing Wednesday, Facebook identified mobile’s limited revenue potential, competition from other social networks, and the potential loss of advertisers as factors that could seriously harm its business. But was the social networking company, which relied on advertising for 85 percent of its revenue in 2011, forthcoming enough about the real risks associated with its primary money-maker?

“The issue of click-through rate was not mentioned as a risk in the S-1,” said Peter Adriaens, a professor of entrepreneurship at the University of Michigan’s Zell Lurie Institute for Entrepreneurial Studies. That omission stood out for the Internet IPO expert because research suggests that the percentage of Facebook users who actually click on ads is quite low, and that means advertising dollars could eventually drop.

Facebook does not publish its average click-through rate (CTR), but independent analysis from Webtrends on more than 11,000 Facebook campaigns showed that the average CTR for Facebook ads in 2010 was 0.051 percent, which is about half the industry standard CTR of 0.1 percent. The rate, according to the Webtrends report, dropped from 0.063 percent in 2009, which points to a downward trend.

“Even though [Facebook] talked about … the fact that it has about 40 percent of all the online banner ads, that the cost per advertising paid to the company has gone up by 18 percent,” said Adriaens, “it didn’t take it all the way through to the next step and that is the click-through rate.”

Advertisers bid for ads on Facebook and are willing to pay a high premium because of the company’s targeting capabilities, Adriaens said. “The question then is,” he opined, “are advertisers going to continue to be willing to pay this premium to put ads on Facebook if the Facebook users don’t actually click on these ads?”

Facebook, for its part, partially alluded to this potential risk in the S-1, but didn’t do so in a way that provided full transparency to would-be investors, Adriaens argued.

Advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives.

In Adriaens’ opinion, Facebook is leaving key pieces of information about the future health of its advertising business off the table by not mentioning CTR and its change over time.

Mindjet CMO Jascha Kaykas-Wolff disagrees. “Facebook doesn’t need to disclose this information,” he said.

Because of Facebook’s rich targeting options, and an advertiser’s ability to know that a campaign was seen by the exact audience intended, Kaykas-Wolff said that his company is willing to spend more on Facebook ads than it would elsewhere, sometimes bidding as much as $1 for CPC (cost per click) campaigns. “Facebook is one of the cornerstones of our media mix for the remainder of the year,” he added.

The CTR is immaterial to Wolff’s primary objective, which is to place ads in front of specific audiences and get validation that people saw the ads. For now, Mindjet is happy with “likes” and shares on the sponsored ads it runs. “We’re not trying to drive click-throughs, we’re trying to drive activity,” he said.

Having previously worked at Involver with brands on the platform side of Facebook’s business, Kaykas-Wolff strongly believes that he’s not alone in his bullish stance on the appeal of Facebook ads. More mid-market companies will test the waters and increase their Facebook ad spend in the years ahead, he predicted. Plus, he has full confidence that the social network has plenty left up its sleeve and will release even better targeting options and more types of ad units in the months and years ahead.

Of course, that logic presumes that Facebook will be able to continue to collect a slew of data on its members for targeting purposes, which is no longer a given in countries in the European Union.

“[Facebook] talked about the risk of privacy laws … but what was not mentioned is that the European Union issued a list of 35 requirements related to privacy that Facebook is going to have to adhere to,” Adriaens pointed out. “[Facebook] can’t automatically collect the data that it might be collecting in North America … so what I see going forward is this challenge … of having to deal with very fragmented privacy laws. Those privacy laws are directly going to affect the value of Facebook’s data to its advertisers.”

Photo credit: Mark Zuckerberg/Facebook

Yahoo

The numbers aren’t very surprising as Yahoo continues to lose ground in online advertising to Google and Facebook. The company’s search engine also recently dropped in popularity to third, behind Bing and search-leader Google. The company’s revenues have declined consecutively over the past three years, including the 24 percent drop for third quarter 2011.

Meanwhile, the overall U.S. online advertising market grew 23.5 percent to $9.2 billion in Q4 2011 compared to last year, according to eMarketer. The analyst firm also estimates that Yahoo’s share of overall U.S. online ad market revenues declined to 11 percent last year, down from 13.3 percent in 2010.

Over the past year, the company has also had its share of management turbulence. In September, Yahoo’s board of directors fired CEO Carol Bartz after she failed to push the company forward. Earlier this month, the board named former PayPal President Scott Thompson as the new CEO — a move that investors hope will help stabilize the company and give it some much needed direction. And last week, Yahoo founder Jerry Yang announced his resignation from the board.

“We need better execution and better monetization of user engagement,” Thompson said during the quarterly earnings call. “In 2012 we will be aligning resources behind key areas of focus to enable us to move aggressively in market and grow our business, bringing innovative new products and experiences to both our users and advertisers.”

Thompson said the company needs to prioritize its efforts in not only in the areas of media consumption and advertising, but also the company’s collection data, which he calls one of the company’s “single-most underrated, under appreciated, and underused assets.”

For the first quarter of 2012, the company expects revenue (excluding traffic acquisition costs) to range between $1,025 million and $1,105 million.

Here are some of the highlights from the earnings release:

• Revenue excluding traffic acquisition costs was $1,169 million, down 3 percent from the fourth quarter in 2010, which was $1,205 million.
• GAAP Revenue was $1,324 million, down 13 percent from $1,525 million in Q4 of 2010.
• Income from operations was $242 million, up 10 percent from $220 million compared to the same quarter last year.
• Net earnings were $296 million, down five percent from $312 million in Q4 2010.
• Net earnings per diluted share stayed flat at .24 cents compared to Q4 2010.
• Display revenue excluding traffic acquisition costs was $546 million, a 4 percent decrease compared to $567 million for the fourth quarter of 2010.
• GAAP display revenue was $612 million, a 4 percent decrease compared to $635 million for the fourth quarter of 2010.
• Search revenue excluding traffic acquisition costs was $376 million, a 3 percent decrease compared to $388 million for the fourth quarter of 2010.
• GAAP search revenue was $465 million, a 27 percent decrease compared to $640 million for the fourth quarter of 2010.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Fashion-focused media company StyleCaster will launch a proprietary ad platform in mid-January that will challenge Condé Nast, Glam Media and third-party ad networks, the company revealed today.

The new ad platform, dubbed Style as a Service, is a joint venture between StyleCaster and ad space monitoring and brokering service MediaMath and seeks to help fashion, beauty and consumer brands with ad advice and placement. MediaMath gives access to the inventory of publishers like Rodale and the New York Times, while StyleCaster uses its knowledge of branding to act as an advisor for where to place the ads.

“With Style as a Service, brands no longer have to sacrifice scale for highly-integrated, strategic media buys,” David Goldberg, president and co-founder of StyleCaster, told VentureBeat via e-mail. “We can give them both, using MediaMath as the pipeline to inventory across any publishing platform and property layered with proprietary user data for rich targeting.”

StyleCaster has done alpha testing on Style as a Service throughout 2011 with various fashion and beauty brands. One campaign StyleCaster likes to point to that shows off its expertise is the Diet Coke “Stay Extraordinary” campaign. The company also has worked with H&M on branded editorial content for the 2011 holiday season.

At present, StyleCaster.com and its sister site, BeautyHigh.com, attract more than 2 million unique visitors per month. Style as a Service will use user data from the StyleCaster network to find out which publishing properties will be most effective for the brand’s target audience.

“What makes SaaS unique is that we utilize our proprietary data to determine what inventory is most valuable to our brand partners and project which marketing assets spark more consumer engagement, all within an environment that is 100% brand safe,” Goldberg said.

The Style as a Service platform will compete with Condé Nast’s newly launched private ad exchange, which is powered by Google’s Admeld. Goldberg said StyleCaster’s solution is superior because it offers user data to better inform where ads should be placed.

New York-based StyleCaster was founded in 2009 and has raised a total of $5.5 million in funding. Its latest funding round came from the likes of Zynga chief mobile officer David Ko and former MySpace CEO Owen Van Natta.