Future of Online Advertising Looks Like Video, Mobile…and Microsoft
Last night, we heard from a distinguished panel of executives on the opportunities in online advertising, at a TechFlash event in Seattle. The panel comprised some of the top names in the online ad world:
—Aaron Finn, founder and chairman of AdReady
—Brian McAndrews, former CEO of aQuantive, managing director at Madrona Venture Group
—Jeff Lanctot, managing director of advertiser and publisher solutions at Microsoft
—Charlie Tillinghast, president of MSNBC.com
Just a quick recap here. So what does the future hold? Where are the opportunities for startups, investors, advertisers, and publishers?
It’s clear things have changed a lot in the online-ad world since the heyday of three or four years ago. “It’s very challenging to have a business that’s based just on advertising,” McAndrews said. “For pure consumer Internet businesses, most ought to be thinking about multiple revenue streams.” To this end, he mentioned virtual goods—which I took to mean things like online currencies, electronic cards, and gifts (which are some options that Seattle-based BuddyTV has said it is looking at, for instance).
Finn pointed out that the term “ad-supported” means a lot of different things now. He cited Bellevue, WA-based BlueKai as a startup taking an interesting approach in the exchange of data between advertisers and publishers; it helps websites sell data on their consumers’ demographics or buying behavior to companies that wish to use the information to target their advertising more efficiently.
McAndrews said there are still opportunities in ad infrastructure as well—the technology of ad serving, “demand-side” platforms to help advertisers find places to pitch their wares, and “sell-side” platforms that might help media companies show off what they have to offer. Startups should think about products that are “bolt-ons to the bigger players, like DoubleClick [Google] or Atlas [Microsoft]. But to go head to head with them isn’t smart.” He also said there must be opportunities in working with consumers who are willing to pay hundreds of dollars a month in cable, Internet, and phone bills.
As for the rest of the panel discussion, I can’t be comprehensive. There was a lot of good information for people entrenched in the online advertising and publishing worlds. But here are my high-level takeaways on what the opportunities are out there:
In the news world, Tillinghast said 20 percent of MSNBC’s ad revenue comes from video content, and it sounds like it’s growing fast. “Professional video seems to be a real strong point, and a defensible one,” he said.
“In video, content still is king,” McAndrews said. That’s opposed to online text articles, where it’s difficult to get even loyal readers to pay a cent. In entertainment, Hulu has done pretty well with 30-second ads. As McAndrews pointed out, that’s largely because there’s only one “Family Guy” (one of my favorite shows) and one Super Bowl (one of my favorite shows when the Patriots are playing). YouTube has been farther behind because of the short duration of its clips and their user-generated nature, which means they’re less polished and less predictable.
More generally, it remains difficult to make money from user generated content—unless you have the traffic of a Cheezburger Network, say—because advertisers don’t know what they’re getting placed next to (it might be objectionable text, photos, or video). But Tillinghast said, “Advertisers are increasingly comfortable with user generated content” in certain situations. The key, he said, is you “can’t let the community get too large, or the quality of comments will degrade.”
People have been talking about mobile advertising for years, and it might be starting to take off now. Tillinghast said that later this week MSNBC will roll out the ability to “incorporate a standard desktop ad into a mobile experience.” This isn’t a new thing, but it lets advertisers and publishers use the same ad inventory across different devices. “We haven’t even begun to see what we’re going to see in mobile,” he said.
“There are still barriers to advertising on the mobile phone,” McAndrews said. The Internet on PCs is a well-connected technology with unified standards, he said, but distribution of ads on different devices like the Apple iPad and mobile phones is much more difficult. (For example, the iPad won’t allow Flash applications, and some wireless carriers block Web cookies.) “The advertiser wants to buy across all these devices, but some of these new distribution channels are blocking that,” he said.
As for “hyperlocal” ads, Tillinghast said, “The trick is selling. You either have an online self-serve system or you have someone knocking on doors. I see a huge opportunity for someone to put together a local sales force…the incumbents are TV, radio, newspapers. Maybe it’s not even a technological opportunity, but a business opportunity.”
Yes, Microsoft. Lanctot defended his Redmond, WA, employer as a major player in online ads, though it’s business is still relatively small—even after the $6 billion-plus acquisition of aQuantive in 2007. The bottom line is, Microsoft is big enough to catch up eventually.
“We’ve been willing to invest for a long time. Parts of our business are not profitable, but that’s OK for now. Bing has been a big win for us. We have seen growth for nine consecutive months and are growing more quickly than Google and Yahoo,” Lanctot said. “Atlas [technology from aQuantive] gave us a boost—we feel like the pieces are coming together. We don’t have technologies in silos, but have a cohesive approach for our customers.”