Saturday, May 31, 2008

Lazard Shareholders Meet in Bermuda – Q&A!

Lazard held its shareholders meeting in Bermuda, and the event was hosted by Scott Hoffman - Lazard, Ltd - General Counsel. Other representatives from Lazard included legendary Bruce Wasserstein, Chairman and Chief Executive; Steve Golub, Vice Chairman; Mike Castellano, Chief Financial Officer.

Unidentified Audience Member
My name is [Robin Burson], and I live in New York City. My mother is a resident at Atria Riverdale, an assisted living facility in the Bronx that is part of the national Atria Senior Living chain. As you all well know, Atria is controlled by an affiliate of Lazard. I'm here today to ask you all to take some responsibility for what is happening at Atria, and to listen to the voices demanding change.
In my situation I have had such a hard time getting Atria to do what my 88-year-old mother needs. The facility management is unresponsive, and too often it seems that they're focused only on making money. The costs for these services are incredibly high, and I think Atria is exploiting a vulnerable population. For thousands of Atria residents, these are the final years of hard-working, decent lives, and it is appalling that they are suffering neglect, danger, short-changing and disrespect.
My mother didn't want me to come here. She was afraid. She was afraid for me to come here. She's afraid of retaliation from the administration of Atria. Unfortunately, it's clear that very little of the money you make from the care -- I use that term lightly -- of the elderly goes to the front-line employees at Atria's facilities who are the ones who provide the care to elderly residents.
Most of these workers earn poverty wages, and they cannot afford the health insurance you offer; they cannot send their children to see a doctor. Many of them lack the training and skills they need to guarantee that the elderly get the quality care that they're paying for.
The facilities are too short-staffed for even basic safety. Many of the residents suffer from disorientation and dementia, and wander the halls unsupervised. I know that Atria has had many problems with care failures and resident exploitation in several states. In Riverdale, there is sloppy administration of medication, leading to serious errors, and there are frequent food shortages. They run out. People cannot get food that is on the menu. My mother moved into Atria in 1999 and asked immediately about why there was no backup generator.

Scott Hoffman - Lazard, Ltd - General Counsel
Madam, I'm sorry. The meeting procedures are very clear. You need to limit the questions to two minutes, and you're past two minutes. Are you winding up your question?

Unidentified Audience Member
I am winding up my question, yes. I am asking you all to honor a commitment to community, to decency, and to ethics. Lazard is on record denying any responsibility for Atria, but the executives and directors in this room right now bear responsibility for what is happening at Atria. And you have the power -- you all have the power – to act decently and humanely, and to improve the lives of thousands, tens of thousands of elderly in the last years of their lives, and of decent workers who are just asking for a living wage and a right to unionize. Thank you.

Scott Hoffman - Lazard, Ltd - General Counsel
It's supposed to be a question-and-answer period, and if you'll allow me to answer that. We thank you, first, ma'am, for travelling down here to Bermuda, and we appreciate any concerns that our shareholders have. This company does not control the company that owns Atria. This is a meeting of Lazard Ltd, a publicly registered ompany in Bermuda. Lazard Ltd does not control Atria. I really appreciate your concerns, and to the extent we can do anything to facilitate your communication with the people who control Atria, we are happy to do so. I'll meet with you after the meeting to get your contact information, if that would be helpful. I would ask to the extent the rest of you have questions that are germane to this public company, we welcome them. But if they are speeches about a company that we don't control, I'm going to have to call you out of order. Thank you. Next question, please.

Unidentified Audience Member
Good morning. I'm living in New York. Atria Assisted Living in Great Neck, Long Island.

Scott Hoffman - Lazard, Ltd - General Counsel
Sir, is this going to be a question that is germane to the public company, or is it going to be about Atria? I just want to get to the question about the public company.

Unidentified Audience Member
We tried to form a union with our co-workers. The Atria facility, they fired me because I tried to work with a union. So they don't care about how [I'm feeling]. We tried to work the best in Atria, but they don't care. The [managers], they don't care how well I am working or how

Scott Hoffman - Lazard, Ltd - General Counsel
Sir, I'm very sorry that you've lost your job, truly. But I need, out of respect for the other shareholders of the Company that are here and that are on the telephone, to get to the business of this company, not to the business of Atria. Thank you.

Unidentified Audience Member
My name is [Daniel May], and I work with the Service Employees International Union and the Campaign to Improve Assisted Living. We are very concerned about Lazard's consistent denial of its corporate social responsibility to taxpayers, and refusal to pay its fair share. While average Americans worry about the economy, jobs and their homes, Lazard head Bruce Wasserstein earned 41 million in 2007, a staggering 25% of Lazard Ltd's entire profit his total net worth to over 2 billion.
To compare that to a man like (inaudible), who traveled 600 miles from New York City to be here, who works for the Lazard-affiliated portfolio company, that's just the beginning of the story. Lazard has used questionable means to avoid or reduce corporate income tax liability. Some of these tax avoidance measures have recently come under congressional scrutiny. At the time Lazard went public in 2005, it established an extremely complex ownership structure to reduce its taxes and limit its liability to shareholders. This structure, coupled with its offshore incorporation in Bermuda, is apparently intended to permit Lazard to be taxed as a partnership, making its effective tax rate substantially lower than most, if not all, of its peers in the investment and brokerage industry.
Since Lazard Ltd has elected to be treated as a partnership for US federal income tax purposes, the Firm does not pay any US federal income tax except on net income derived from or "effectively connected" to its US-based subsidiaries. Exemption from corporate taxation and executive compensation at this level is just outrageous, especially when our country's economy is struggling. Lazard plays a [leading] role in driving the vast income inequality that challenges our democracy, our economy, and our [civic health]. Rather than avoiding public responsibility, we urge Lazard to uphold a higher standard of corporate stewardship.

Scott Hoffman - Lazard, Ltd - General Counsel
I won't respond to the factual inaccuracies which were replete in your question, just to let the people know that they were distortions, and we pay tax in the United States. We pay exactly, if not more, what we're supposed to pay.

Unidentified Audience Member
Thank you. Good morning. I work for the Service Employees International Union and the Campaign to Improve Assisted Living as well. I'm here today because, like others who have spoken, I am concerned that Lazard may be failing in its responsibility to its shareholders and other stakeholders. Last year, as was stated, Bruce Wasserstein, your Chairman and CEO, took home $41 million in salary and bonuses. This payout was blasted in the press, and offended even those who normally don't blush at such things. But his 2007 payout didn't compare to the new contract that your board gave to Mr. Wasserstein at the same time, estimated by the press to be nearly $100 million.
And finally, the vote you've taken today to improve the new incentive compensation plan takes you even further down the road of unadulterated greed. This compensation plan for Lazard employees is at a level beyond comprehension to an average Atria employee, for example. By our calculations, the measure would limit executive compensation to almost $90 million a year, which is a token toothless gesture.
Such corporate largesse wouldn't be as big of a problem if Lazard were doing very well. But unfortunately, Lazard's share price has fallen by 30% since last year's shareholder meeting. By contrast, the S&P during that same period lost only 8% of its value. Unfortunately, shareholders can do little about this, because, as you know, Lazard seems to have gone out of its way to disenfranchise its shareholders.
Furthermore, the fact that you're having this meeting here today in Bermuda, out of reach of most of your shareholders, as evidenced by the attendance in this room, speaks volumes to the value you have for their concerns.
As your meeting agenda today included a vote on a new incentive compensation plan, we ask your chairman to explain to shareholders how your board plans to address potential risks posed by Lazard's widely-criticized executive compensation practices before implementing such a plan. It's our sincere hope that Lazard can move on to develop real value, long-term value, for its shareholders, rather than being a popular poster child for corporate excess.

Scott Hoffman - Lazard, Ltd - General Counsel
Thank you for your question. I'm glad you asked that question, actually. Let me just aggregate it, because you've raised three or four points within the question. First of all, with regard to our performance, if you look at our performance since the IPO until now, we've outperformed not only the S&P 500 index, 60% to 28%, we've vastly outperformed the S&P financial index, which are our peers, by 60% we're up; they're up 4%.
Similarly, just to take the time period that you referenced from the last annual meeting to now. We're down about 30%. The S&P financial index, which is the only relevant index, as opposed to industrial companies and companies that make widgets, that index is down 26%. So that's vastly in line. Would we like to do better? Of course we'd always like to do better.
The second question you talked about, you asserted, about Mr. Wasserstein's pay. Mr. Wasserstein, first of all, doesn't set his own pay. We have an independent compensation committee, people who have no affiliation with this company. With the help of outside consultants from one of the preeminent compensation consultants in the world, and one of the preeminent law firms in the world, they together determine what Mr. Wasserstein's pay should be because of the contributions he's made to this company since its inception. And independently, they looked at the parameters that you are required to look at from the SEC rules that lay out in exhaustive detail, which is set forth on pages 18 through 32 of our proxy, in our compensation discussion and analysis. And Mr. Wasserstein's pay fell well within those parameters, frankly.
With regard to the incentive plan that was voted on today, this is a business about people. The only thing that we have is our people. And that employee incentive plan is not just -- not for Mr. Wasserstein, that employee incentive plan is for our approximately 2500 employees, to incentivize them, to retain them, to attract new people that are just as talented as they are, in order to retain them, and also to give value to our shareholders.
I thank you for coming. I thank you for your questions. If there are no further questions, we'll adjourn the meeting. Thank you very much for attending our meeting.

Friday, May 30, 2008

Spread Betting

Spread betting is any of various types of wagering on the outcome of an event, where the pay-off is based on the accuracy of the wager, rather than a simple "win or lose" outcome, which is known as money-line betting. A spread is a range of outcomes, and the bet is whether the outcome will be above or below the spread. Spread betting has been a major growth market in the UK in recent years, and the industry is regulated by the Financial Services Authority (FSA).

The concept of spread betting was launched in 1974 by IG Index so that investors could punt on the gold price without all the expense of buying bullion at a time of penal exchange controls. Popular spread bets were originally based upon performances of the Financial Times, Dow Jones Index and other financial barometers. The purpose was to hedge investment positions and the betting was largely confined to those in the financial community. City Index joined the market in 1983 and several others such as Financial Spreads, Cantor Index and Spreadex opened shop during the dotcom boom.

The spread betting industry is now a multi-million pound industry and there are more than 400,000 spread betting account holders in the UK, and firms multiplying simultaneously. According to research by TradIndex, 90% of spread betters are male, half live in south-east England, and they have an average income of £50,000.

There are now over 20 spread betting providers in the UK, and fierce competition has driven spreads down. A decade ago, the spread on a benchmark index such as the FTSE 100 index was around 10 points. Today it has fallen to around two. Consolidation rumours are constant, but most believe that the market is growing sufficiently to support this number of providers. The most popular include Capital Spreads, IG Index, Financial Spreads, City Index, CMC Markets and Cantor Index.

According to a report by Professor Chris Brady and Dr Richard Ramyar of Cass Business School, the number of people in the UK with a spread betting account could more than double from its current level of 400,000 to one million by 2011. The financial betting industry is poised to grow at a CAGR of 26.33% between 2005 and 2010. To achieve this, the industry has to extend its appeal to a more mass market audience by going beyond their existing client base of white affluent males under 45 years old to embrace women, ethnic minorities, older people and international markets. To sustain the industry’s current rate of expansion of between 20 – 26% per annum, the report claims that it must focus more on educating consumers on the role spread betting has, as a serious investment tool that can become part of a balanced portfolio.

However, the industry suffers from the stigma associated with betting when in actual spread betting closely resembles trading. Unless the industry overcomes this perception issue, its numerous attractions such as providing consumers with tax-free profits and the ability to hedge against falling markets, or even benefit from them, will remain largely overlooked. Trading in derivatives goes as far back as 3,800 years ago to help Babylonian farmers sell grain.

The spread betting industry faces a considerable educational task to convince the public, the regulators and legislators that all forms of trading are essentially the same type of activity. The only difference is the level of risk – which can range from post office savings at one end to betting on the proverbial two flies at the other end. For the industry to expand, it must work harder at segmenting and targeting the public because being first to market is no longer sufficient.

Female customers currently account for around 10% of the total number of spread betting investors. In online poker, 45% of participants are thought to be women. Research suggests that women do about 40% more research than men on every trade. The report’s authors believe that in order to generate more significant growth, spread betting firms must develop a more female-friendly profile and review their male oriented marketing approach.

The report states that in order to move into a mass market, spread betting companies need to focus on brand building and on educating consumers. Like the stock broking industry, spread betting firms will need to focus on the value added services offered to clients, such as full service trader support. The report also speculates that a move into the mass market may see spread-betting firms looking to establish upmarket bricks and mortar outlets, similar to a traditional bookmaker, and even online betting exchanges.

At the same time, the industry must remain vigilant to the threat of new regulations being imposed by British or EU regulators that could restrict spread betting to high net worth or professional investors and thus prevent any attempt to launch into the mass market.

Monday, May 26, 2008

Visa and Google – two (in)credible leaders

This is an exercise that I undertook purely to satiate and stimulate my grey cells. Visa Inc (NYSE: V) successfully concluded a mammoth $10 billion IPO, which attracted everyone’s attention; and your’s truly is no exception. Like Google (NASDAQ:GOOG), Visa is a stock that every portfolio investor would want to own. However, the comparison doesn’t end here. In fact, the two have a lot more in common than I had original thought. Both Visa and Google are the current undisputed leaders in their respective industries. While Visa has well over 50% of total volume and value share of global electronic payments market; Google has roughly 50% share of the global online advertising market. Both the companies command an absolute leadership position – Mastercard, the number two behind Visa is less than half Visa’s size; while Yahoo the number two online destination is less than one third of Google’s size.

The global payments industry is undergoing a secular shift from paper−based payments, such as cash and checks, to card−based and other electronic payments. Similarly, the global advertising industry is undergoing a major shift from traditional media, such as Radio, Newspapers, Magazines and TV, to internet and other new media. While Visa’s real competition is cash and checks, which combined represent 57% of the total global payment volume of $20 trillion; Google is trying to compete with traditional ad budgets, which represent over 90% of total global advertising of $700 billion.

Both Visa and Google are thriving on increased consumer adoption, and both are intensely consumer-focused companies. They leverage strong brands to grow their respective businesses – both are number one brands in their respective industries. From a technology stand point, Visa global payments processing platform is extremely scalable due to a centralized architecture. Similarly, Google search platform has a central architecture and is powered by the same algorithm engine globally. The combination of brand leadership and technology edge has enabled the companies to embark on rapid globalization initiative relatively seamlessly. Organizationally, both the companies are functionally aligned at a global level; however, their respective regional operations are integrated to facilitate better regional coordination and management. The result is both companies earn a large share of their revenues outside the US. Roughly 50% of Visa’s volume and about 35% of its revenue is from outside the US. In the recently concluded quarter, Google declared that it earned more than 50% of revenues outside the US.

While Google has always been an active acquirer; Visa Inc CEO, Joe Saunders, indicated in a recent analyst conference that Visa’s focus is on looking at acquisitions that will provide technology that will enable to bring some of Visa’s strategic initiatives to market more quickly or to enhance them. Clearly, this indicates an increased appetite for acquiring companies in the future.

Undisputed market leadership; favourable secular shift in their respective industries; and large international operations have made Visa and Google relatively shock-proof in the event of a recession or an economic slowdown. Further, both the companies are continuously innovating to develop and launch cutting-edge products.

However, there could be a potential area where Visa and Google may end up competing with each other. Google Checkout competes directly with PayPal in online payment solutions. Visa commands a 47% market share in online transactions, compared with 3-4% for PayPal. Yet, in one of the recent analyst meetings, Visa CEO Joe Saunders expressed that the company considers PayPal as a competitor. Further, Visa is aggressively expanding not only in online transactions but also in the mobile transactions space. With its participation in the recent US wireless spectrum auction, and project Android, Google has made its intentions clear about mobile. Only time will tell as to if, when, and how, the two giants may end up competing with each other. Watch this space!

Wednesday, May 21, 2008

What can we infer from the Ad Price Index?

The first ever initiative to build an index to measure online advertising price movements is the PubMatic AdPrice Index It is a broad-based measure of ad network pricing information based on anonymous data from over 3,000 publishers who work with PubMatic for ad network and ad layout optimization services.

The PubMatic AdPrice Index revealed surprising weakness in monetization for the vast majority of Web sites. Large Web sites fared the worst while small Web sites managed to maintain their monetization rates. eCPMs for large Web sites (more than 100 million page views per month) dropped dramatically by 52% from 38 cents in March to 18 cents in April. Medium Web sites (1 million to 100 million page views per month) were nearly flat, with monetization dropping from 34 cents in March to 33 cents in April. Small Web sites actually managed to improve their monetization, increasing from $1.18 in March to $1.29 in April.

PubMatic pricing data reflects net publisher monetization via ad networks and excludes ad networks' share of ad spends as well as inventory sold directly by publishers to ad agencies or advertisers. PubMatic computes the aggregate Index through data for all web sites using weighting of 65% large Web sites, 20% medium Web sites, and 15% small websites based on an estimate of overall tra­ffic in the online publishing market. The pricing data reflects the pricing of text and banner inventory sold to ad networks only, and does not include inventory sold directly to advertisers. The data reflects net publisher monetization, not gross advertising spend or the money paid by the advertiser to an ad network

According to the index, average monetization dropped by 23%, from 49 cents in March to 38 cents in April. Among the verticals, Social Networking led the plunge with monetization dropping 47%, from 37 cents in March to 19 cents in April, below January lows of 22 cents. Entertainment monetization dropped 17%, from 40 cents in March to 33 cents in April. Gaming and Sports were down marginally (4% and 5%, respectively). Technology remained relatively flat at 83 cents in April vs. 82 cents in March, but is still below January highs of 92 cents. In April 2008, 77% of Small Web sites garnered net publisher eCPMs from ad networks of under $1.00, compared with 95% of Medium Web sites and 100% of large web sites. Across all Web sites, the range of eCPMs was $0.002 to $18.45.

There is a view among industry experts that these price movements may be possibly indicating weakness in display advertising led by general economic slowdown. Mixed results from the likes of Yahoo and Time Warner indicate that online publishers may be getting less money for the ad space they sell. More and more advertisers are opting for automated targeting and delivery through cheaper advertising networks instead of buying directly from expensive publishers. Sanford C. Bernstein & Company analyst Jeffrey Lindsay opines that recession fears might actually be a boost to some media companies, such as those depending on automated advertising systems like search. In a moderate or even quite severe downturn, online advertising actually improves, because people switch their advertising budgets out of traditional advertising formats - TV, radio and print - and move more online because it's got higher performance, it's cheaper and it's more measurable, feels Lindsay.

So Why Are CPMs Declining? According to Gerry Bavaro, the high CPMs commanded by large "premium inventory" sites equate to what ad sales teams can convince marketers to pay. This is one reason why premium sites such as Forbes and ESPN have in-sourced their sales accusing performance ad networks and ad exchanges of "commoditizing" their premium inventory. However, advertisers are increasingly moving towards a network and exchange route with more inventory, and we are rapidly moving towards a world where advertisers and publishers will meet at the CPM that they each will agree on. We will see a market where the price of media is not arbitrarily set by anyone, but is set by the market. Search engines are driving this trend, and as the "big three" ramp up development of bid platforms for more of this media, we will continue to see online advertising become a commodity whose prices will continue to be driven down by buyers and networks. The trend looks unstoppable.

Why Is Social Media Suffering? When we piece the Pubmatic numbers with another report by eMarketer, which has revised projected growth for social media advertising from 163% growth in 2007 to just 55% this year, we may being to question whether social media is truly an advertiser-friendly medium? This is especially so given the task-oriented, profile-fiddling mindset of users operating there. Or, should there be an alternate approach to monetize social media? Gerry Bavaro feels that the primary strategy for social media should be empowering customers to act as brand/product ambassadors using the media of branded tools (widgets, branded profile pages, blogs, etc.) that foster dialogue, awareness, and sharing (viral activity). This may mean – more customized and integrated media solutions to enhance interactivity and enrich the brand experience such as sweepstakes, online quizzes, interactive game shows etc.

Bottom line – publishers must go down the performance and measurability route – and this trend is being accelerated by the broader economic situation. Search may still end up taking a larger share, because, in the current situation, even the best performance networks/exchanges with their scale and targeting capability, do not possess the buyer interface of a Google – self-serve, no-frills, one-stop experience. Last thing – there are already proven case studies on how one can successfully run ‘Brand’ campaigns on search. In addition, marketers are also discovering the immense value of PPC campaigns by using the data and analytics to influence their offline campaigns.

According to PubMatic Co-founder and General Manager Rajeev Goel - top publishers are adopting three key strategies to overcome the current pricing situation: 1. Increased diversification, by working with more than one adnetwork to maximise pricing opportunities 2. Increased segmentation of content and categories to appeal to specific marketer focus 3. Globalization to expand beyond regional shores and earn international revenue (Google just declared that more than 50% of its revenue in the most recent quarter came from its international operations).

Tuesday, May 20, 2008

Valuengine Inc

ValuEngine Inc (VE) is a stock valuation and forecasting service founded by Ivy League finance academics. VE utilizes the most advanced quantitative techniques and analysis available. The research team continues to develop, test, and improve the VE Stock Valuation Models and econometric models for forecasting stock price movement. In recent years, VE has expanded its research program to include portfolio construction and tracking products. Primary products are the website for individual investors and ValuEngine Institutional (VEI), a software package for equity fund managers and other financial professionals. The executive team includes Paul Henneman - President,CEO; Dr. Zhiwu Chen- Founder; Dr. Chiayu Chang – Founder; Dr. Yongjian Zhan - V.P. of Research and Development; Eric Stokes - Senior Editor; and Don Mitchell - Chairman, Advisory Board.

The company was founded in 1995, Transformed into ValuEngine in 1999, and Restructured in early 2001 to include both retail and institutional product lines. The company claims that it has proven models for performance, timeliness, and broad coverage of over 4,500 stocks. Its backend is robust and automated to facilitate speedy development and implementation. The company owns industry leading databases, research, and back testing processes. Probably the only research house that has an Ivy League affiliation.

ValuEngine employs many proprietary models, which were adapted from most innovative concepts in financial theory generated from academia and Wall Street practice. Each of the ValuEngine models represents the state-of-the-art in valuation, forecasting and advisory technologies. The model variables include three fundamental input variables: past one year EPS, expected one year forward EPS, and 30-year bond yield. Eleven parameters include 8 firm-specific parameters and 3 interest rate parameters.

The ValuEngine Stock Valuation Model was derived from recent research and findings of both ivy-league academics and wallstreet professionals. ValuEngine's model is more sophisticated than traditional valuation models and outperforms its peers by employing a three-factor approach to stock valuation. These fundamental variables such as a company's trailing 12-month Earnings-Per-Share (EPS), the analyst consensus estimate of the company's forecasted 12-month EPS, and the 30 year Treasury yield are all combined and used to create a more accurate reflection of a company's fair value. Armed with these framework features, the ValuEngine Stock Valuation Model then paints a detailed picture of a company's fair value, which is represented by ValuEngine's "model price."

Valuengine’s international coverage includes current daily coverage of over 700 ADR’s (foreign companies trading on US markets). Markets include Asia, Europe, South America, Middle East, Canada. In addition, coverage of 2000+ stocks that trade on Tokyo markets. Total coverage includes Asia: 203; Europe: 245; South America: 68; Middle East/Africa: 45; North America ex USA: 158

Products include: ValuEngine's flagship website -; Individual Stock Reports -; ValuEngine View Newsletter -; and VEInstitutional software -

Full access requires premium membership, and clientele include 45,000+ individual investors; Hedge fund managers, financial advisors, institutions, and professional money managers; UBS Warburg and Deustche Bank: ValuEngine supplies research as part of the SEC settlement with 12 of the largest investment banks.

Sunday, May 18, 2008

Try Category Targeting in Europe – It’s not funny

We all have our moments in life, sometimes driven by personal situations at home, while sometimes driven by situations at work. I’m going through the latter – and my approach to getting back in shape actually begins at the drawing board. Since the time I entered the digital media world, I have rarely looked at it from a media planners’ perspective. As a matter of fact, most of the available research is overwhelmingly skewed towards the sell side – the side that is so heavily fragmented that its really a nightmare being a media planner in today’s online world. Exception being search – the ease-of-use and simplicity that the medium brings, particularly Google, to online media planners

Let us look at what’s on offer in Europe for a media planner exploring content categories to target and run a campaign. I began looking at the comscore numbers by category to figure out how to allocate my budget.

The UK automotive category is quite well-spread among the internet population – reaching 45% of UK internet audience. However – within the space, my only chance of reaching any meaningful scale is via the leader of the pack, Trader Media Group. However, even if I buy the slots on all of their welcome pages, my campaign will reach only 17% of UK auto category population. Behind the leader is the trade group – Automobile Association Ltd. – with a reach of 12%, but with engagement levels so low that it would be futile buying the site. Within the top 10 are the car majors – who have audiences that are either incredibly loyal or are soon to be one. Is there any point for me to run a competitive campaign on these sites? – is this possible? – OK – let’s move on. I’m already beginning to get frustrated. Same story in France – although the automotive category reaches 34% of internet population, the top site Caradisiac reaches only 30% of online automotive enthusiasts. In Germany, the story is slightly better – auto category reaches 32% of online population, but the combined reach of top two, and AutoScout24 is a massive 70% of online auto enthusiasts.

At this point, I became very intrigued, and wanted to research another hot sector from a buy-side perspective – Money and Finance. In the UK, this category reaches about 80% of internet audience. However, within the top 10, which is where the category is concentrated, my only chance of running a successful campaign is with a reach of only 25% of UK Money and Finance category; and Reed Business Information and BBC, which have a combined reach of 12%. Wow! – I thought – isn’t this a text boon scenario of ‘Fragmentation’. In France, this category reaches about 56% of online audience, but I have no chance of running into any sort of success here, because I couldn’t find a single, consumer web destination, with any reasonable reach. Disaster, isn’t it? In Germany, the Money and Finance category reaches about 50% of online audience, and the leader, Sparkassen-Finanzgruppe reaches about 30% of this category. I felt relieved.

But to be honest – the entire experience has been truly frustrating, and I begin to think – if I should follow my friend Pete, who makes his job so simple – buy buying only Google keywords – for both Brand and Performance campaigns. It’s so easy, and value for money – so measurable etc. Surely, this strategy has its limitations, but atleast Pete can enjoy quality time with his family and indulge in his favourite pastime – Golf.

As I reflect back on this experience – I begin to wonder – where are the big portals? I would have thought that they will be there, somewhere, near the top. But this was not to be – I was wrong in my assumption. Of course, the marketing collateral coming out of these big portals may tell a different story – but that’s what they are meant to be – to be marketing collaterals, where apples are compared with oranges, and presented in the backdrop of a ‘Harry Potter’ or a ‘Jurassic Park’ in the hope that the buy-side will eventually buy the argument. Not anymore – as the buy-side community increasingly gets frustrated with the campaign ineffectiveness associated with a fragmented space, and as the search space gets increasingly smart and efficient, we will see an exodus – unseen and unparalleled before. This phenomena may already be occurring, albeit latently.

So – what’s the alternative? Is this the end of the road? Is there any chance that this situation can be corrected? – I don’t know – but I will keep working on my drawing board, and I will keep blogging on these, and many other issues, and hopefully, find a plausible solution. In the mean time – let me share another story – the story of David, who runs fencing and gardening company in local Chiswick area. His marketing campaign is self managed, and his only medium is a local weekly newspaper called The Chiswick, which also has an online edition! David buys an advert for £30, which is delivered in the weekly print edition, and also on the Chiswick’s website. David’s charges range from about £200 to £500 a visit – depending on the type and intensity of work. But, by adopting this marketing technique, David has managed to attract atleast 10 new leads a week, and the conversion rate is pretty high, given the specific nature of the job and the location. Meanwhile, The Chiswick is a completely ad-supported business, and is quite profitable. This is what is otherwise known as local media – and the money spent on them – local advertising, which is estimated to be about 1/3rd of total advertising (yes - 34% of total). Less than 10% of online spend is on local advertising. Google does offer an alternative to the Chiswick, with its simple buying interface, no-frills service and by providing ability to run low-budget campaigns. David is also trying Google, and claims to have received reasonable conversions. The challenge here for Google is competing with the Chiswisk's smart distribution. The Chiswick is delivered free in the mail box, which is non-intrusive. The content is locally relevant and quite engaging. For someone who spends less than 2% of media time consuming magazines, i end up reading the Chiswick, everyweek. You just have to flip the pages, unlike the internet, where one needs a connection and needs to be online to search on Google.

Am I suggesting a solution? No – but im only articulating the existence of an eco-system, where self-sufficient and sustainable ad-supported media business models are thriving, purely due to local demand. If I were to put this ‘local’ example in the context of my above category media planning experience – I’m sure there is a way for publishers to cater to the category needs of media planners who are seeking to target specific content categories with reach. The Chiswick is owned by Gannett, but the parent has been careful in retaining the Chiswick brand, which has managed to resonate so well with its loyal audience, for so long. This could be one of the ways forward for big portals. Watch this space!

Thursday, May 8, 2008

Chief Strategy Officer

Here’s a summary of a seminal work on high-performance organization design by Accenture consulting team - Tim Breene, Paul F. Nunes and Walt Shill – who argue that by creating a senior leadership team, under a Chief Strategy Officer, organizations can accelerate their objective of realizing the true benefits of strategy.

More and more companies are competing on organization design by configuring the C-suite in new and powerful ways. Organizations are increasingly adding a strategist, often called a chief strategy officer, or CSO, to their top ranks. The Chief Strategy Officer’s main responsibility is to ensure that execution flows from strategic planning.

Why do companies need a Chief Strategy Officer?
Complex organizational structures, rapid globalization, new regulations and the struggle to innovate, among other challenges, have obviated the need for the typical CEO to be on top of all parts of the business. Further, the nature of strategy itself has changed during the past decade, with strategy development becoming a continuous process, and successful execution therefore depending more than ever on rapid and effective decision making. Lastly, centralized control of execution often breaks down when maverick line executives define strategy according to their own plans and interests. This is where Chief Strategy Officer’s can come in handy. The CSO often confronts companywide issues that were once the sole responsibility of the chief executive.

Kimberly-Clark Chief Strategy Officer, Robert Black, whose previous jobs include chief operating officer of Sammons Enterprises (a conglomerate with more than $27 billion in assets) and president of international operations at Steelcase, the global office-furniture company, explains his role this way: “Over the course of a week, I’m spending time on consumer innovation, business process outsourcing, financial structure, product supply chain, international expansion, communications, acquisitions. Most people in today’s functionally oriented career paths don’t have the experience to address so many diverse challenges at once.”

Ideally, a Chief Strategy Officer should come with a string of high-profile positions, in a variety of companies and in a wide range of industries, organizational cultures and geographic locations. This experience and unique positioning at the top also enables the CSO to offer perspectives and ask questions that other senior executives can’t or won’t. Because the Chief Strategy Officer is willing to discuss subjects no one else wants to touch, important but buried issues no longer serve as barriers to agreement and action. At the same time, the Chief Strategy Officer must also ensure that the top ranks maintain the right market focus so that strategic initiatives don’t stall and business opportunities, a key to market position, don’t get lost. Chief Strategy Officer's actively resolve strategic questions that overwhelmed business-unit heads just don’t have time to deal with. Chief Strategy Officer's build world-class strategy development and execution capabilities within the company. In fact, many strategy chiefs are helping their companies compete on organization design by creating departments specifically for that purpose, hiring people with strong strategy-related skills and competencies (in business development, competitive analysis and M&A, for example). In the long term, the role of top strategy executive can become an effective succession-planning tool. People take on the chief strategy role because they want to run the business sooner or later.

For the Chief Strategy Officer, the most critical ingredient for success is probably a strong relationship with the CEO. Chief strategy officers are often given broad authority to tackle companywide challenges and seize new business opportunities, so there must be a strong sense of trust between the Chief Strategy Officer and the chief executive. A long professional and personal history between them isn’t absolutely necessary, but it helps.

Traits in a Chief Strategy Officer
1. A master of multitasking – Accenture survey suggests that Chief Strategy Officer's are responsible for an average of 10 major business functions and activ- ities, as diverse and demanding as M&A, competitive analysis and market research, and long-range planning. They must be capable of quickly switching between environments and activities
2. A jack-of-all-trades - most strategy executives reported that they had significant line management and functional experience in such areas as technology management, marketing and operations. Less than one-fifth had spent the bulk of their pre-Chief Strategy Officer careers on strategic planning
3. A star player - Most Chief Strategy Officer's achieved impressive business results earlier in their careers and view the strategy role as a launching pad, not a landing pad
4. A doer, not just a thinker - Although Chief Strategy Officer's split their time almost evenly between strategy development and execution, their bias must be toward the latter
5. The guardian of horizon two - Senior teams generally have a good handle on short- and longterm issues. The medium term, that period from one to four years out, can go underattended, however. Chief Strategy Officer's must focus the organization’s attention on horizon two, the critical period for strategy execution
6. An influencer, not a dictator - Strategy chiefs don’t succeed by pulling rank. They sway others with their deep industry knowledge, their organizational connections and their ability to communicate effectively
7. Comfortable with ambiguity - All executives today must exhibit this trait, but it’s especially true for Chief Strategy Officers, whose actions typically won’t pay off for years. The role tends to evolve rapidly and requires an extraordinary ability to embrace an uncertain future
8. Objective - Given their wide remit, chief strategy officers can’t play favorites. Openly partisan CSOs, or those who let emotions or the strength of other personalities cloud their vision, are sure to fail
Thanks Tim Breene, Paul F. Nunes and Walt Shill, Accenture Consulting, 2008

Monday, May 5, 2008

Free Press – at what cost?

This indeed is a thought provoking piece by Craig Moffett. Given the backdrop, or rather, the harsh reality faced by the journalism industry, the literature does make us stop and reflect on the disruptive impact of internet on the fourth estate and demomcracy.

Consider the downsizing in the news paper industry including the likes of The New York Times, The Seattle Times, The Daily Herald, the Philadelphia Inquirer, the San Jose Mercury News, the Fort Worth Star Telegram, and a host of others. According to the American Society of Newspaper Editors, full time news staffs in the U.S. dropped by 2,400, the largest decrease in 30 years. Year 2008 could probably be worse.

USA Today owner Gannett reported an 8% decline in total revenues in the most recent quarter (including both newspapers and broadcasting), marking its fifth consecutive quarter of declining revenues. Gannett's newspaper advertising revenues were down 11% in the U.S. The problem is not just with advertising, which can plausibly be claimed to be cyclical, but with circulation, and the very value proposition of the newspaper itself. The Atlanta Journal Constitution has seen its circulation drop by 8.5% over the past twelve months (through the end of March). The Star Tribune in Minneapolis saw circulation decline by 6.7%. The 90 year old Capital Times of Madison, Wisconsin published its last newspaper.

As circulation has declined, once proud regional papers have been reduced to human interest wrappers around reportage that is increasingly outsourced to the AP and Reuters. Since 1990, a quarter of all newspaper jobs in the U.S. have been lost. And it's not just in the US. France's Le Monde was not published for one daily edition, since the workers were on strike to protest the elimination of 130 jobs. Most of them were journalists. In the UK, revenue from Gannett's regional papers were down 7% from last year. the demise of printed classifieds to likes of eBay,, and Craigslist has unquestionably played a part, but there seems to be a broader, and more disturbing, pattern here.

CBS is exiting the news gathering business altogether, outsourcing its news gathering operations to CNN. What we are witnessing is not the demise of newspapers… it is the demise of journalism itself. The culprit for this inexorable decline is not a decline in our interest in news, although there is plenty of evidence of that sad trend, too. Instead, it is our unwillingness to pay for it.

Put simply, the economic model of news gathering – of maintaining costly overseas correspondents and news bureaus, of investigative journalists – is being eviscerated. And it is being eviscerated by the Internet. The Internet is effectively setting the new benchmark price for news. And that price is… "free."

Our need for news is being fed by Internet searches, one-line news "alerts," Wiki-sites, and special interest emails… and we don't actually pay for any of them. The notion of a "free press" was supposed to stand for something grander than this. To be sure, the serious democratic business of reporting the news has gotten a remarkable boost from the Internet. The potent combination of cell phone cameras and instant connectivity has effectively deputized millions of "vigilante journalists," each ready to report news as it happens anywhere in the world. And by posting it online instantaneously, for all to see, the all-important watchdog role of a free press has blossomed spectacularly in places like China, willfully forcing change in a way that would make our own founding fathers proud. But vigilante journalism serves only up to a point. We are rapidly replacing investigative journalism with news. For their part, the news organizations are all racing to the Web. If you can't beat 'em, join 'em, the thinking goes, and incremental revenues are, well, incremental.

But as with so very many other digital businesses, the news organizations are very publicly sowing the seeds of their own demise. The notion that the enormous cost of real news gathering might be supported by the ad load of display advertising, or by the revenue share from having a Google search box , or by a fifteen-second video is not adding up to lost revenues. The dollars and cents of traditional news distribution are being replaced with pennies of incremental advertising, and no amount of savings from avoided paper costs from electronic rather than physical distribution can offset the losses.

It's not just newspapers suffering this fate. Ratings of TV news are at all-time lows. By the time people get home from work, they have already consumed their news – Free – emails, blogs etc. A high-cost business model like journalism can't compete with "free." And so we settle for, simply, less news. Or at least less journalism.

According to, the US supports just 25 full-time journalists embedded in Iraq. That's just one twentieth the number from thirty years ago in Vietnam. There isn't that level of reportage on the war because it is not affordable.

Five years into the video-over-the-Internet revolution, we have learned two things. First; consumers won't pay for content on the web, so it will have to be ad supported. And second; it won't be ad supported.

In the cable TV network world, half of all revenues come from affiliate (carriage) fees paid by the Comcasts and DirecTVs of the world. The other half comes from advertising. But in the TV world, a typical half hour show supports an ad load of about 8 minutes. On the web, early evidence suggests that consumers will tune out if they are forced to watch more than 30 seconds or so of advertising up front, and maybe another 90 seconds of advertising over the next thirty minutes., for example, which has already been lionized by many as the future of TV, serves two minutes of advertising for every 22 minutes of programming (i.e. the programming duration of a typical half hour show from television). Assuming identical CPMs for web video and TV, and after accounting for lost affiliate fees, a 30 minute program on the web with two minutes of advertising yields approximately 1/8th as much revenue per viewer. Are content producers prepared to reduce production costs…by 88%?

Desperate not to be left behind, all of America's news outlets are bravely embracing the web, putting their best content on the web (for free, of course) in a game effort to generate "traffic." At the same time, the Sports section, the Business section, the Metro section… all are being replaced with individualized à la carte stories (clips) on the web. Each news dip is customized to suit our interests. And each consumes our attention (think ad loads) for a shorter and shorter period of time. Production budgets – editorial staffs – are necessarily being downsized and Fast.

However, enrollment in graduate journalism schools has actually increased over the past decade. Unfortunately, there are fewer and fewer jobs waiting for them when they graduate. Fewer jobs in journalism means a less attractive career. A less attractive career means that fewer and fewer of the best and brightest will enter the profession. Worse, a generation of readers will be trained to expect little or nothing of real merit from the news. The culture of "free" on the Internet has already brought low the music industry. But the music industry – or even the TV industry – can be easily dismissed; it's "just" entertainment after all, and selling bundled "albums" was inarguably an antiquated business model, anyway (wasn't it?). The threat to journalism – the Fourth Estate – is something different, however, and it is something profound. A free press that is sufficiently well-capitalized to fulfill its role as the watchdog is at the very heart of democracy.

The technologists behind the news bots and clipping services charge that change is good, and that business models must evolve. Fair enough. But it's hard to view this perspective without some cynicism. Piracy and the devaluation of intellectual property have become so commonplace in the tech community that these very notions have been elevated and recast from something base (stealing) to now something aspirational and high-minded (preserving and protecting "freedom" and "democracy"). But behind all the rhetoric – from all sides – is a simple truth understandable to almost everyone. Generally speaking, "free" is bad for business. And so the press, that pillar of democracy, crumbles. The job cuts are accelerating.
Many thanks to Craig Moffett, May 2008

MBA for the 21st Century

The traditional two-year MBA curriculum, grounded in the functional disciplines — marketing, accounting, finance and so on — has been in existence since it was pioneered in the United States in the late 1950s. According to Joel M Podolny, Dean and William S Beinecke Professor of Management, Yale School of Management, today, the world of business education — which has historically been very resistant to large-scale change — is on the verge of transformation, a transformation that is as significant for the business education industry as the many industry changes that have taken place as a result of technological advances in the wake of the rise of the Internet. While the final contour of this transformation is still an open question, the fact of the transformation is remarkable in and of itself. Professor Podolny recounts two events that he attended, which further illustrate the significance of this fundamental shift. One was an international symposium of business school deans and senior faculty hosted at the Yale School of Management campus; there were 20 institutions (including three from India) from 13 different countries around the world — all of them were struggling with the relevance of the MBA to 21st century organisations. The second was a conference on the future of the MBA hosted at the Harvard Business School, again with deans and senior faculty from around the world well represented.

At both conferences, contends Professor Podolny, it was clear that some schools are already transforming, while others are still planning their next steps. Almost without exception, however, all see that the world of business education is changing — and indeed, it must change — in fundamental ways. There are two fundamental drivers behind the demand for changes in business education and MBA curricula. The first is that the world of management has changed tremendously from the 1950s. Then, a typical manager could spend his or her entire career within a single function — say, marketing or finance — of a large bureaucratic organisation. There was thus a strong alignment between these careers and MBA curricula that were siloed by related disciplines. But organisations have become increasingly flat, and the leaders of modern enterprises competing in the global economy are looking for managers who are capable of leading and managing across the boundaries of function, geography, and sometimes even organisation, industry, and sector. Professor Podolny illustrates an example when he visited Bangalore in late 2007, and toured the technology unit of Target India. It was striking the degree to which Target India employees were expected to understand the mindset of North American customers, and not simply rely on a marketing unit in North America to provide that key information.

The second driver, as per Professor Podolny, is that today’s students learn in a way wholly different from the way students learned in the 1950s or even in the 1980s. The Internet, the 24-hour news cycle, the popularity of social networking, and almost instantaneous ‘on-demand’ access to knowledge have all contributed to a significant shift in the mindset and the learning process for the 20-somethings now entering our MBA programmes. No longer linear, but instead lateral, in their thought processes, they seem to think in hyperlinks, assembling information from multiple simultaneous inputs. In the 1990s, scholars and teachers interpreted this lateral mindset as a kind of intellectual laziness, but now, they are increasingly of the view that the students of today are actually quite focused and energetic. They are willing to devote considerable effort to wade through vast amounts of material from disparate sources; they may even work harder than students of a few decades ago. They just don’t want to focus on any one piece of material (say a 50-page article or a 20-page case) for a considerable period of time.

So, both MBA customers (the corporations that hire MBAs) and MBA clients (the students who pursue MBAs) are primed for programmes that develop and refine lateral thinking and co-ordination capabilities. But many traditional, functionally defined business school curricula get in the way of this reality. New methodologies and new approaches to MBA pedagogy that more accurately reflect the demands of the contemporary work environment and the realities of the current MBA student population are urgently needed, argues Professor Podolny.

Many schools are developing such new tools and techniques, but one example of such a new approach is a reinterpretation of the traditional business school case format developed over the last year at the Yale School of Management. This new format, which is informally called, the “raw case,” is delivered online to make use of the multimedia capabilities of the Internet, and presents a complex (and often real-world, in almost real-time) business situation. The raw case conveys material through a variety of perspectives and data streams that can include original source documents such as 10-K filings and analyst reports, news media reports (print and broadcast), faculty-authored notes and background readings, scholarly articles, interview videos or transcripts with the parties involved, as well as other multimedia tools, such as Google maps. Raw cases consist of hundreds, even thousands, of “pages” of data. So, in addition to the lateral synthesis of many disparate piece of information, part of the student’s assignment is determining the most effective allocation of time and attention in order to answer the assigned question or perform the required analysis.

This innovative new teaching tool, the “raw case”, is distinguish from more traditional “cooked” business cases that deliver a particular business problem, and all the data required to analyse and solve that problem (usually from the perspective of a single discipline such as marketing or finance) in a self-contained document that is typically 10 to 20 pages long. This is not to suggest that “cooked” cases are not still useful teaching tools: for almost a century, the traditional business school case has provided countless MBA students with key insights and approaches to analysing and solving specific business problems in a convenient and well-defined format. Nevertheless, Professor Podolny says, that many business problems today are neither convenient nor well-defined. While the traditional business school case will continue to be a stalwart of the MBA curriculum, there is room — and necessity — for this new “raw case” format to help develop the lateral thinking skills and essential habits of mind — both the analytic discipline and the synthetic creativity — essential for today’s successful business leaders.

Whatever new approaches to curriculum or pedagogy are adopted, they will only succeed to the degree that they address the changed realities of 21st century organisations and 21st century learning. But regardless of what innovations take hold, it is clear that in order to maintain its relevance and to achieve its highest aims, the MBA education of this century will be — must be — very different from the MBA education of the last century.
Thanks Joel M Podolny, Dean and William S Beinecke Professor of Management, Yale School of Management, May 2008

Saturday, May 3, 2008

Vertical Ad Networks

A vertical ad network is typically a collection of content sites that are focused around a particular topic such as finance, parenting, sports, or autos, offering advertisers the ability to reach contextually and demographically similar audiences in a more efficient way than on a site-by-site basis. Vertical ad networks can offer publishers much higher CPMs based on the premium advertisers are likely to pay for the quality of content and added inventory to the network. Doug Anmuth, internet analyst at Lehman contends that as online advertising budgets rise and more brand-oriented campaigns migrate to the web, there is likely to be a growing need for higher-value, premium ad inventory, particularly for traditional brands which have greater sensitivity about the placement and context in which their ads appeal.According to Doug, bundling of publishers in order to leverage sales infrastructure costs is not a new concept and has occurred in other media, including radio and print, long before the Internet. However, the limitless nature of the Internet (unlimited sites, low barrier to entry with blogs, and minimal start-up costs) only amplifies the need for more efficient solutions for advertisers and media buyers. Further, as online advertising budgets rise and more brand-oriented campaigns migrate to the web, there is likely to be a growing need for higher-value, premium ad inventory, particularly for traditional brands which have greater sensitivity about the placement and context in which their ads appeal. According to Avenue A I Razorfish’s 2007 Digital Outlook Report, vertical sites accounted for 39% of total media spend in 2007, up 20 bps Y/Y, and aside from search spend, was the fastest growing category in terms of media billings, growing 43% in 2007 compared to 14% in 2006. This compares to 36% growth across all billing categories. The relative out-performance of verticals was largely at the expense of portals, where media billings fell 500 bps to 19%. While most of the vertical billings Avenue A I Razorfish reported were likely placed directly on verticals and not through vertical ad networks, the continued strength and growth in vertical advertising likely exemplifies the continued shift in advertisers’ preferences to purchase inventory around the audience rather than primarily guaranteed impressions.This targetability and transparency is leading to higher average CPMs, with some of the larger vertical ad networks achieving average CPMs in the $10-12 range. While the value of hyper-targeting an audience seems apparent, historically, small-medium publishers focusing on a specific vertical likely lacked a sufficient audience size, overall scale, and investment needed to maximize the monetization of their content. With the emergence of ad networks like and Google’s AdSense, web sites which were mainly in the tail were able to monetize their content. As these sites grew in audience and scale, they likely reached a monetization ceiling, setting the stage for vertical ad networks to emerge.Different from traditional ad networks which are generally content agnostic with little (if any) O&O inventory and focus mainly on providing maximum reach across the Internet, vertical ad networks are typically built by publishers that directly operate sites that have achieved scale in terms of users, and also expand their ad network inventory across similar content sites. By focusing on a content niche, these networks can achieve audiences that advertisers desire and in a particular vertical that would otherwise be difficult to achieve. Some of the advantages vertical ad networks provide for advertisers include an efficient way to reach a highly-segmented and targeted audience. Whereas an advertiser could seek out individual golf, auto, or health sites on which to advertise, it is likely that few individual sites would have the available impressions needed to satisfy the reach goals of a major advertising campaign. For example, while there is no shortage of parenting sites on the web, most would have difficulty providing a large enough audience to satisfy the reach goals of a major national brand such as Pampers or Gerber. If a publisher is associated with a vertical ad network, it could potentially deliver the desired audience and reach that an individual niche-oriented site could rarely provide. In fact, this ‘problem’ is one of the key solutions Yahoo! looks to offer publishers with its announced Advertising Management Platform (AMP!) by offering the ability for publishers to fulfill audience and impression demands from advertisers. The current fragmentation of the Web has increased the availability of inventory online, but it has also created challenges for advertisers, agencies, and publishers alike as they seek to coordinate across different metrics and standards.For publishers, participating in a vertical ad network offers a way to outsource the infrastructure and staff needed to support the various components of online ad sales including sales, sales support, ad-serving and management, reporting, and billing while achieving higher effective CPMs than through more general ad networks. For example, the average effective CPM publishers generate through run of site ad networks is likely less than $1, vertical ad networks can offer publishers much higher CPMs based on the premium advertisers will pay for the overall quality of content and added inventory to the network in general. While some bigger name-brand publishers, including ESPN, have recently shown a preference to handle all ad sales in-house, eschewing the value of putting their inventory in a network, for small to mid-sized publishers who lack the resources, audience, and brand-name to build a large audience and manage direct relationships with advertisers, the value of a vertical ad network is more apparent.Vertical ad network, Bankrate, iVillage, Glam Media,
Martha Stewart Living Omnimedia’s Martha’s Circle, Kaboose , Quadrant One (newspaper consortium including Tribune, Gannett, others), Revolution Health, CondeNet (blogs on fashion and technology), and Nickelodeon’s Parent Connect network. Doug quotes that while there is a revenue share component when expanding a network, the average split to content sites across vertical ad networks is likely below 50%, although some publishers could also receive guaranteed CPMs.What about major portals?While the major portals—Yahoo!, MSN, and AOL—have largely cornered the market on mass reach as they offer content across most verticals and are generally ranked within the top 5 sites per content category within comScore, their recent focus has been on expanding their monetization engines. This approach is largely consistent with their large scale in terms of audience and page views both across their O&O and their networks. One example of the solutions being built by the major portals could be delivering ads targeting specific users across content verticals. For example, if an automotive company is looking to reach “auto enthusiasts” and “people shopping for new cars,” the major portals would serve those individuals it believes are shopping for cars across various environments, including while that user is checking e-mail, reading a news article, or spending time on a social networking site. This is a form of behavioral marketing, in which the ad is served to the user rather than affixed to a particular page of content, and can be offered by most major Internet companies, particularly through Yahoo!’s SmartAds and its acquisition of BlueLithium, and AOL’s acquisition of TACODA. The portals would argue that it is the advertiser reaching the potential consumer that matters more than the context in which the user is reached (i.e. on specific content verticals). This form of advertising will increasingly gain adoption, and the larger Internets will have to eventually strike a balance between this type of laser-like behavioral targeting and the concerns an advertiser may have around the particular setting in which their ad appears.However, the investments of 2007 are likely to provide a basis for the major Internets to offer better targetability, customization, and scale, including the technology needed should they launch vertical ad networks. And the major portals are shifting their approach to verticals by bundling properties and launching new sites and networks targeted to specific demographics. Yahoo!’s newly released Shine site caters to women, and AOL’s recent launch of the AOL Technology Network couples some of its technology blogs such as Engadget, Switched, and TAUW (The Unofficial Apple Weblog), each of which could be used as starting points for larger vertical ad networks targeting women and technology enthusiasts. Ultimately Yahoo!’s AMP! platform is likely to include access to specific verticals as it focusing on providing publishers access to impressions across the web. Additionally, Google’s DoubleClick could be working on a similar vertical ad network solution. However, for the portals to be successful, it is important to view the expansion into vertical nets as premium content in order to benefit from the relatively high CPMs compared to current run of site ad networks.While ad networks, both mass-reach and vertical, are serving an important role in the online advertising value chain, there are many major publishers who have articulated dissatisfaction with the network model and have actively removed inventory from networks. Most recently, ESPN has stated that it would no longer work with advertising networks as it believes ad networks diminish the value of its content, while the WashingtonPost.Newsweek Interactive recently closed its ad network, Blogroll, as many advertisers could find cheaper inventory elsewhere. While mass each ad networks are effective in monetizing unsold inventory for publishers, participation in ad networks in general could: 1) dilute and diminish the differentiated nature of the publishers’ brand; 2) put downward pressure on CPMs based on the seemingly endless supply of inventory within a network; 3) minimize the relationships with the main advertisers; and 4) produce lower page yields when outsourcing sales to a network as opposed to inhouse or a vertical solution.Conversely, vertical ad networks seek to position themselves as an efficient way to achieve high-quality audiences in controlled contextual settings, while also providing an audience that meets advertisers’ reach goals. Vertical ad networks have emerged as advertisers are increasingly demanding more relevant and for lack of a better word, safer, environments to run their ads. And while many general ad networks do offer audience targeting tools which can likely accomplish many of the same goals as a vertical network, these networks can often suffer from the “low-hanging fruit” stigma given the early dependence on direct-response ads and use of remnant, low-cost inventory. The use of vertical networks will only grow as consumer packaged goods, pharma, food and beverage, and in general, more brand-sensitive advertisers increasingly turn to the Internet to reach their target audiences. As vertical ad nets expand their publisher reach, there is a risk to the operator that rising TAC rates could impact overall margin expansion. Currently, the average revenue split across vertical ad networks is less than 50%, with higher quality sites and those sites that give the vertical network more control over the inventory potentially receiving guaranteed CPMs. Although vertical networks sell the entire network’s inventory to advertisers, as traffic to O&O properties grow, it should mitigate the impact rising TAC rates could have on overall margins.InfrastructureAs the concept of vertical ad networks continues to gain adoption, several companies have emerged that provide the infrastructure and technology to power a vertical ad network by providing “white label” network management solutions. These “white label” solutions make it easier for a leading category publisher, such as Forbes in finance, or Martha Stewart in home and living, to launch a vertical ad network without significantly investing in technology. They also enable the main publishers to focus on the advertising relationships without having to build and maintain the technology to handle the ad-serving, yield management, and the analytic tools. Forbes and Martha’s Circle are using Adify’s vertical ad network solution for their vertical networks. Adify specializes in creating white-label ad networks and powers an estimated 90 vertical niche-oriented ad networks. Other providers of vertical network solutions include Collective Media, and DoubleClick could also be working on a similar solution as an extension to its DFP product line, while some of the larger vertical ad networks, such as Glam Media, also offer to provide the infrastructure for 3rd parties to build their own networks upon.
Thanks Doug Anmuth, April 2008