Monday, March 5, 2007

The Emergence of Online Ad Exchanges

A recent report by RBC Capital Markets Corp. says the emergence of advertising exchanges is inevitable, and that the success of a handful of exchanges should benefit publishers and could pressure the margins of existing ad networks, the largest of which is VCLK. Last month, Yahoo purchased a 20% stake in RightMedia, a New York-based advertising exchange, at a cost of around $45 million, valuing the company at $225 mio. RightMedia has roots as a CPM-based advertising network similar to those run by ValueClick, 24/7 RealMedia, AOL's, and dozens of private companies including Tribal Fusion, Casale Media, and Vendare. However, RightMedia’s business model has certain differentiating factors. RightMedia is an open exchange for buyers and sellers of ads, and not a closed network. The company realized that there were several limitations to the closed ad network business model in 2004 and moved to create an open marketplace. There are currently 127 members of the exchange, including Yahoo, Fox Interactive, and LookSmart. Several small to midsize ad networks have become members of the exchange, enabling those networks to deploy advertiser budgets across inventory in their own network or access inventory from other exchange members. The combined network now has access to inventory from over 13,000 publishers. RightMedia charges a fee of 7-10% for the exchange, which includes campaign management tools and ad-serving. This is well below the fees charged by the traditional ad networks. Generally, there could actually be two or three intermediaries taking a cut of an ad budget, so the fee charged by RightMedia may be additive. RightMedia's benefit to advertisers is the centralization and consolidation of a massively fragmented ad market. For publishers, the exchange offers higher yield. Publishers experience 40%-50% yield improvement on non-premium inventory with RightMedia. However, those advertisers who were able to snap up cheap advertising inventory before and turn it into leads/sales should now face more competition for that inventory and will likely have to pay more for media, pressuring margins. The largest ad networks do not currently participate in the RightMedia exchange. DoubleClick is currently forming a similar network and stands to benefit from its relationships with thousands of publishers, for which it already serves ads. Behavioral targeting companies like Revenue Science are also using the exchange to retarget consumers who have been tagged with a specific tendency or likelihood (an in-market car buyer for example).
There are currently 127 network, advertiser and publisher members with seats on the Right Media Exchange, including Yahoo!, Fox Interactive Media and LookSmart. Exchange members represent over 6,000 buyers and 13,000 sellers. More than 175,000 creatives are currently active in the Exchange. The exchange reported that over 566 billion ad impressions were traded during the last six months of 2006.
Thanks RBC Capital Markets Corp. February 2007

Friday, March 2, 2007

Vertical Search

Search Engine is a software program that searches documents for specified keywords and returns a list of documents where the keyword was found. Although search engines actually comprise a general class of programs, the term is often used to describe specific systems like AltaVista and Yahoo Search, which enable users to search for documents on the Web and in usenet groups. Typically, a search engine works by sending out a “spider” to fetch as many documents as possible. Another program called an “indexer” then reads these documents and creates an index based on words contained in each document. Each search engine uses a proprietary algorithm to create its indices so that, ideally, only meaningful results are returned for each query. For instance, Google matches searches based on keyword use and popularity of the site indexed. SearchChannel’s algorithmic base works off the number of times a keyword appears in a given indexed Web page. An Internet directory organizes Internet sites by subject, and it is usually maintained by humans instead of software. The searcher looks at sites organized in a series of categories and menus. Subject directories are usually much smaller than search engines’ databases, since the sites are viewed by human eyes instead of by spiders.

Local Search, as exemplified by Google Local, is all about geographic or place-based relevance. Newspapers, regional magazines and entrepreneurs (e.g., are all after this defined search opportunity. Topical Search is about consumer niches like travel, golf, hobbies and other enthusiast segments. Two examples include and Vertical or B-to-B Industry Search will clearly be a lucrative market segment. The data strongly supports that business people are particularly apt to engage the Web as a research tool and will need deeper, more relevant information to do their jobs. The term “vertical search” has different meanings to different audiences.

Search is still evolving as new technologies and innovative entrepreneurs create exciting new opportunities. For example, while Yahoo!, Google and the like will continue to dominate the scene and, in aggregate, comprise the bulk of the online consumer’s share of mind and media consumption, a myriad of vertical search engines are emerging to address the particular informational and research needs of niche audiences and professions. Vertical search refers to search engines designed to return results from very narrow or specific information or business sectors. Forrester Research, Jupiter Media, Marketing Sherpa and Outsell Inc. have identified a new tier in search dubbed “specialized” or “vertical” search. In 2005, $7.4 billion was spent on search engine marketing, 16% of which was b-to-b. More than 40% of the average marketer’s budget is devoted to search. Nearly 38% of Yahoo’s advertisers are defined as b-to-b. More than 50% of Google’s target advertisers are b-to-b. Nearly 64% of search engine users search for business information first. So the case for more specialized search engines is certainly validated. It can be further justified simply by listening to the search user. Data from Jupiter Research, gathered through a survey of professionals who use general search engines, affirms the need for deeper, more specific, more relevant search results. Combined with the fact that major search engines have cataloged only 10% to 20% of the Web (various estimates exist), there is no doubt that specialists can carve out a relevant business to address niche audiences’ particular search needs.

According to Outsell, Vertical Search Delivers What Big Search Engines Miss, and many professionals have learned that, as powerful as general search is, it fails for many business-to-business uses. Failure results in productivity losses, problems finding critical content and unmet information needs. Outsell estimates that the total revenue generated from b-to-b vertical search applications stepping in to fill these gaps is growing at a rate of 15%, and will reach $1.0 billion by 2009. The portion of time spent by corporate Internet users gathering information so that it could be analyzed and used has risen from 44% in 2001 to 52% in 2004 and 55% in 2005. These numbers describe a 4.3% loss of work hours in 2004 compared with 2001, hours consumed in the non-productive activity of gathering information. The loss in 2005 compared with 2001 is 6.2%. To put this in context, because total US GDP growth runs close to 3.5% per year, a worker productivity loss of 4.3% in one year would more than wipe out the country’s GDP growth. One component of this new loss of time is the average Internet search failure rate of 31.9%.

As powerful an engine of growth as online search has been, it still has weaknesses that create a gap that vertical search addresses. According to Outsell, information users report a 31.9% failure rate on their use of Internet search engines. To highlight the greatest opportunities to fill the gaps caused by these search failures, Outsell ranked 35 vertical industries by descending search failure rate and divided the industries into quartiles of need for more successful vertical search results. The top quartile for search failure includes key industries such as Advertising and Public Relations, Computers and Software, Electronics and Semiconductors, and Telecommunications. Users were asked what information they would like to get that they currently can’t find or don’t have access to. As research from Jupiter and others has confirmed, the typical business search user finds it a challenge to secure deeply relevant results. A professional like a dentist using the keyword “ceramics,” a common material used by dentists in their work, will experience that Google has served up millions of results, and most of the first few pages revolve around enthusiast hobbies like pottery. Obviously this is not a terribly useful search result for the dentist. Further, even if that dentist refines his or her search, typing in “dentists and ceramics,” for example, the results are still far too numerous and unwieldy to constitute a truly useful search result. Instead, this dentist can perform the same search on, a well-regarded media company Web site. Advanstar Dental Media has a variety of newsletters, magazine trade shows and now the default search engine in the dental industry. Here, the dentist searches using the keyword “ceramics” and finds a more finite, manageable and relevant yield. The results are also placed into modules such as editorial archives and external links from the Web at large.

All current b-to-b solutions for vertical search serve business professionals. Search results are drawn from content related to a specific industry segment or profession to maximize the relevancy. The search provider sets the specific target content or lets the user select the specific environment from multiple choices. The search provider applies vertical subject matter expertise to avoid irrelevance or ambiguity. The provider identifies sources and presents only meaningful content where key words or topics have multiple meanings and only some of those are relevant. The content can be from proprietary sources, from the open Web, from sponsors and advertisers, from other users, and any combination of these sources. The solution can be an alternate means of accessing structured database content, such as a business directory, that may also be accessed by a taxonomy or outline. The solution adds value for the user when the structure provides comparisons and relationships among the content.

Vertical search engine could act as a destination or “portal”, where the search engine is a site that one might visit or bookmark for future use. Examples include or Often, media companies that own these destination sites optimize them and buy keywords on Google to drive their audiences to visit. Vertical search can act as a complementary Web site application, which entails embedding a search engine box on an existing, already trafficked site. The media company that owns it sees the vertical search engine as a tool that provides additional utility to the existing site. One example is Certscope, which can be found at Parametric search is more prevalent in engineering and other product-specific, information intensive, procurement-driven industries. Often, the vertical search experience allows for face-to-face product and manufacturer comparison.

Unlike the mass market and general search engine CPC model, individual niches are experimenting with a broad array of programs such as CPC (Cost per Click), which is the most common format and was popularized by Google. An advertiser pays only for each time that a user clicks on its ad. In actuality, the advertiser receives “free” awareness if the ad is not clicked, and lively discussions are taking place to quantify the value of “preclick” impressions. The ugly flip side to CPC is the very real issue of click fraud. About 10% to 20% of all clicks are fraudulent in nature. New companies like Adbrite have found success with flat-fee formats rather than click-through methods. CPM/CPI/CPV (Cost Per Thousand, Cost Per Impression or Cost Per View) models are the standardized, traditional method of online advertising and is emerging as an option in vertical search environments. Flat Fee/Fixed Fee seems to be the most popular early ad model for most of the vertical search engines. Often it is not just a keyword that is bought, but a comprehensive package, including a bucket of keywords, listings in product areas, affiliate network membership and search engine optimization services. This trend is likely to continue as the vertical world builds its user base, and as marketers learn the craft of vertical search marketing. Many vertical search engines sell their advertising programs through an engaged professional sales force. However, a good number are inserting a commerce-based system whereby marketers can buy, monitor and revise their ad campaigns themselves simply by entering their credit card information through a self-service, password-protected interface. Paid Inclusion is the practice of inserting advertorials (“editorial-like” ads) or more traditional advertisements into the actual organic search results. Yahoo uses this type of program, and “enhanced listings” are now popping up in vertical search engines. Some companies go so far as to charge marketers to index their Web sites. Paid Listing is the most accepted format, and the one that Google is known for. Ads appear on top of or beside organic listings, and they are clearly identified as sponsored links. Recently, Google surprised many with a new brand banner program, allowing marketers to buy on keyword prompt and in the top ad position.

It is crucial to understand the nuances of content indexed by search engines, because there are distinct types of content with different perceived values to the user. Content can be divided into three arenas: Editorial Archives, Product guides and External Web Content. Editorial Archives are called internal search, and is the most common content found on publisher search engines. Internal search can include white papers, conference content and even blogs. Typically, archived content goes back one to three years at most, since internal publishers are still tackling technology issues to bring vast legacy content libraries into a digital and indexable format. When they succeed, their efforts will add tremendous value to the user experience. Product Guides are comprehensive directories of an industry’s suppliers. Few publishers have moved this content into a search engine, and it remains in directory format. Those who do move their content into a search engine are likely have a competitive advantage in the marketplace, both with users and advertisers. Product guides can also house white papers, videobased product demos and abstracts. External Web Content is the hardest part of vertical search. It is the core technology that allows Google and Yahoo to flourish, and it is something that very few have mastered in the vertical world. Companies such as GlobalSpec and SearchChannel have developed indexing and spidering techniques to catalog relevant content in a given market and to house it in a distinct search engine. Often this process is guided by the resident publisher’s editorial team, which has deep domain expertise on what content matters to its constituency and where on the Web that content lives. No search engine is truly complete without “external Web content.”

Vertical Search Engines:

Thanks SearchChannel 2005