Turn VP: Ad Network Shakeout “Inevitable”

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manyadnetworks_small.jpgADOTAS EXCLUSIVE – Turn bills itself as the world’s first Smart Market for online advertising. Turn’s VP of product and marketing, Philip Smolin, talks to Adotas about the future of ad networks, the economy and what Turn is taking on next.

ADOTAS: Turn was founded by the CEO of Alta Vista, what advantage has that given the company from the beginning?

PHILIP SMOLIN: Turn is an advanced technology company, and much of our core machine learning platform leverages lessons learned from consumer search. Specifically, the Alta Vista team experimented with new ways to blend dramatically more variables together to improve search results. When Turn was founded, this concept of ‘blend ALL the variables’ was a guiding principle. It may sound obvious enough, but in reality it was an entirely new way to frame the question of how to optimize ad serving.

Here’s an example: Some media buyers still think of contextual and behavioral targeting as separate ‘silos’ – you choose one or the other, but you don’t use both at the same time. And in fact most advertising platforms don’t enable you to combine them even if you want to. But in reality both are very powerful predictors of advertising performance – you get better results when you combine the power of the two. And that’s what Turn does. We blend an incredibly broad array of variables together to automatically target advertising, optimizing to the advertiser’s measurable performance objective. Some of the data we use is traditional like website, page context, and user behaviors, but some of it is non-traditional…like the visual design of a graphical ad and the text of the landing page the user sees after the click.

ADOTAS: Ad Networks have been multiplying like rabbits. In your opinion, what is the future of ad networks?

PHILIP SMOLIN: This is a hypercompetitive industry, and the days when traditional ad networks can build a business off of inefficient advertiser spend are over. Over the next two years there’s going to be a lot of disintermediation and consolidation within the network space. The bottom line is…if you’re not adding significant value to the ecosystem you won’t survive. This shakeout was inevitable, but the current economic downturn is going to expedite the process.

Who’s going to survive? The platforms with unique technology or differentiated solutions that make advertising more effective – they’re going to thrive. Behavioral will be a key component because of its effectiveness in display advertising. Some of the larger-scale vertical networks will also survive, but they’ll need to do more than just rep ad inventory, for example – provide syndicated content, otherwise Google and the other major players will squeeze them out.

ADOTAS: Who are your clients?

PHILIP SMOLIN: Turn works with top agencies like Universal McCann, Agency.com, Razorfish, and others for their branded response and direct response campaigns. We focus on advertisers who have a post-click measure of success, whether its brand engagement or more traditional DR objectives like product sales or lead generation, yet are still brand sensitive and concerned about inventory quality.

On the publisher side Turn works with the larger, name brand publishers to place their non-guaranteed inventory into Turn’s marketplace. We don’t aggregate smaller, long-tail publishers. This was a business model choice we made in order to ensure brand-sensitive advertisers are only displayed on sites they’re comfortable with, which requires a combination of technology and business model safety nets.

ADOTAS: Do you think that the competitive pricing set by Google and Microsoft will force the smaller businesses to bottom out?

PHILIP SMOLIN: Absolutely, it’s a prime factor that will cause many of the technology vendors and networks which are really just sales rep’ing firms to be disintermediated out or forced to consolidate. Microsoft knows they’re in a fight with Google and will do everything possible to gain market share. Remember when Google bought Urchin and then gave it away for free as Google Analytics? Look for the same thing to happen with both the DoubleClick DFA/DFP and Microsoft’s Atlas products, as both companies compete aggressively. All of these commoditized services are going to be given away for free, because the real goal is locking in clients and getting access to the data. When you collect large scale data you can make smart decisions based on that data, and then charge a percentage of the spend or uplift.

ADOTAS: How has Artificial Intelligence helped you beat the competition?

PHILIP SMOLIN: We prefer to use the term ‘machine learning’ instead of A.I. because it better reflects what the technology does without invoking a lot of SciFi imagery. What it has enabled us to do is take advertising performance optimization to a level that wasn’t previously possible. Today, we’re evaluating over ninety different variables in real time for every ad impression served. Ninety! And two years from now that number will be in the hundreds. I’ve been building ad serving platforms since 1997, and it just amazes me some of the things our engineers have been able to accomplish via this technology. It enables a level of analysis and optimization that simply can’t be achieved manually.

ADOTAS: Turn is not necessarily an advocate for the “inefficient” CPC and CPM models. What is a better solution than these methods?

PHILIP SMOLIN: It’s important to select the right pricing model for the advertiser’s objective. If the goal is a guarantee of message distribution CPM is the right approach. If the goal is generating clicks then CPC is appropriate. But for most advertisers clicks are just a proxy for a more meaningful measure of performance, and so you automatically think CPA. But while CPA gives you a guarantee of ROI, it doesn’t provide any guarantee of budget utilization. This is a really important point, because most media buyers actually have two objectives: achieving a CPA goal while also utilizing the entire available budget. For these buyers we’ve found that a hybrid pricing model called ‘dynamic CPM’ is far and away the most effective approach.

dCPM works by combining an average CPM bid with the advertiser’s CPA goal. The ‘dynamic’ part comes in at time of ad impression. The system automatically raises or lowers the CPM bid price based on the impression’s predicted value in achieving the CPA goal. The end result is the system can be much more aggressive in finding the best performing impressions for the advertiser. It’s a bit confusing so imagine the following scenario: the advertiser has a $25 eCPA goal for driving consumers to use a product configuration widget on their site. With fixed CPA pricing, the advertiser would get a $25 CPA but might only generate 10 actions and use 5% of the campaign budget. With dCPM pricing, the advertiser might get a $26 eCPA, but generate 180 actions (and use 95% of the budget). By relaxing the CPA requirement to be a CPA goal, the advertiser is ultimately much more successful.

ADOTAS: What is your philosophy behind behavioral targeting?

PHILIP SMOLIN: Behavioral targeting is an incredibly strong predictor of advertising performance. But the reality is that not all behavioral impressions are created equal. Because of this advertisers have been getting the short end of the stick for a long time now…with vendors requiring them to pay the same fixed CPM for every user and impression in a BT segment.

Our approach or I guess you could say our philosophy, is based on the idea that not all impressions are created equal. Not only do we evaluate anonymous user behaviors, but we also look at the recency of the behavior and its relevance to the advertiser’s message. Based on the advertiser’s CPA goal, we then adjust the advertiser’s bid price to match the actual value of each impression. We’ve found it’s a more effective approach to behavioral targeting and have seen incredible adoption from clients in the short time since we launched it last month.

ADOTAS: How do you allow publishers advertisers to control the context in which their ads are seen?

PHILIP SMOLIN: Controlling context is usually important to advertisers for two reasons: performance optimization and brand safety. For performance the vast majority of Turn’s advertisers use our automatic targeting technology. For brand safety Turn uses a combination of technology and business model safety nets. On the technology side we validate multiple things at the time of ad impression, including what is the website generating the ad call and whether it’s being displayed above-the-fold. On the business model side we only accept inventory from larger, name brand publishers. If the advertiser has certain websites they don’t want to be displayed on for brand conflict or media buy overlap issues, we can easily exclude them.

ADOTAS: You say buying and selling ads in bulk is a bad idea. How do bulk impressions degrade the value for the buyer and seller?

PHILIP SMOLIN: Buying ‘bulk’ means the advertiser is paying the same price for every impression, regardless of its value. This effectively commoditizes the inventory because it treats every impression as being identical and interchangeable. When in reality, every impression has a unique value that is different for every advertiser. A better solution is smart marketplaces like Turn, which determines the unique value of each impression for every eligible advertiser in real time. The end result is advertisers get better effective CPA performance, the publisher generates more revenue from the same inventory, and the consumers get a more relevant advertising experience. It’s win-win-win.

ADOTAS: Do you see your growth continuing in the way it has in the past in this economic environment?

PHILIP SMOLIN: Turn is fortunate in that the down economy actually plays to our strength in performance-based advertising. With that said, no one knows exactly what is going to happen with the economy and what the full impact on online advertising will be. Certainly we’re seeing advertiser budgets start to contract, but it’s also been paired with a flight to performance. So while the size of the pie has been getting smaller, our slice of the pie has been getting bigger. For the past 6 plus months we’ve been experiencing 20% growth month-over-month. I can’t say our growth is going to continue at that rate, but given what our technology has been able to do for our existing advertisers, we are feeling very confident.

1 COMMENT

  1. this was certainly a great read, expected from someone as experienced as Philip …

    I have a question Philip: Now that a lot of Ad Networks are choosing social networks as a big opportunity, can they beat the traditional publisher networks? how will this shape up in the future?

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