I Convert Therefore I Am – Fakevertising

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contagious1.jpgADOTAS — With the continuous evolution of the online advertorial from the fake blog to fake news site and fake celebrity magazine, these fakevertising sites show no signs of slowing down.

The bad news for many companies in our space, especially those that have gotten used to record month after record month, is the proverb, all good things must come to an end. We can’t quite predict when, but we can provide our view on why they have been able to flourish as they have. These are the factors that have nourished the sites and fostered their proliferation. While we could probably list 10 or more good reasons, the following comprise the ones that we find necessary for their for existence.

1. Depressed Prices

The rate of inventory continues to increase almost exponentially. At the same time, the growth in new advertisers that can perform at the lowest level necessary has not. Or, put less eloquently, there is a glut of inventory out there. Not only is there a glut of inventory, the yields on that inventory have dropped steadily since the onset of the credit crisis. We’re in a situation not too dissimilar from the bursting of the tech bubble where sites once used to premium cpm’s found themselves having to embrace companies they once scoffed – ad networks, performance-based advertisers, and a variety of others pushing unbranded products and services.

The rate of inventory continues to increase almost exponentially. At the same time, the growth in new advertisers that can perform at the lowest level necessary has not. Or, put less eloquently, there is a glut of inventory out there. Not only is there a glut of inventory, the yields on that inventory have dropped steadily since the onset of the credit crisis. We’re in a situation not too dissimilar from the bursting of the tech bubble where sites once used to premium cpm’s found themselves having to embrace companies they once scoffed – ad networks, performance-based advertisers, and a variety of others pushing unbranded products and services.

When bubbles burst, it isn’t the premium sites and premium inventory which open up (although it certainly does to a degree), it was the middle tail – sites with the video-equivalent of advertiser safe, professionally produced content, that up until the collapse enjoyed sold-out status at favorable rates. That’s where the majority of high value inventory comes from, as well as non-premium inventory on more premium sites, such as Email, News, Weather, and Horoscopes. The long-tail of sites – profile pages, low end game sites, humor, etc. has lots of impressions but outside of companies who have tailored their model for that inventory, e.g., Gamevance, don’t move the needle for the broader set of run of network campaigns.

2. Unfair Economics

It’s not as though no alternative advertisers exist. At present though, not enough of them can compete with the performance of the evolving online version of the advertorial. Phrased somewhat as an exaggeration, legitimate guys can’t compete with cheaters. It’s one thing for companies with a physical presence to try and compete with more nimble players, but when those nimble players also don’t have to follow the same rules… you could be the heavy weight champion, but you probably won’t win a fight where the other guy has a knife.

The secret to the unfair economics comes from two things – the deceptive nature of the pages which equates to inflated clicks on the offer and conversions, along with the common bundling of offers. Most success stories on the fake sites rely on the promotion of two products. And, each product carries an enormous bounty for a free trial – $30 to $40. The products themselves charge a high monthly fee, aren’t the easiest to unsubscribe from and require fewer months to break even. It’s stacking the deck in favor of those promoting deceptively.

3. Publisher Passivity/Ignorance/Control

This one was hard to word, but if you look at Google and certain parts of Facebook, it is clear that certain large sources of traffic have found a way to discourage the running of this style of offers. Do they still deliver some volume? Yes, but disproportionately less than they could if they didn’t have restrictions. Other sources of traffic have not followed suit, either by choice, ignorance, lack of controls, or some combination of the above. In other words, there probably is someone at MSN who if they truly understood how the ads worked would not allow them to run on their properties. Then again, they might not because they like the economics, don’t believe them to be an issue, and/or assume that anything running has passed proper legal hurdles.

This one was hard to word, but if you look at Google and certain parts of Facebook, it is clear that certain large sources of traffic have found a way to discourage the running of this style of offers. Do they still deliver some volume? Yes, but disproportionately less than they could if they didn’t have restrictions. Other sources of traffic have not followed suit, either by choice, ignorance, lack of controls, or some combination of the above. In other words, there probably is someone at MSN who if they truly understood how the ads worked would not allow them to run on their properties. Then again, they might not because they like the economics, don’t believe them to be an issue, and/or assume that anything running has passed proper legal hurdles.

There is a technical hurdle as well. Sites that run ad network tags do not know exactly what runs. I had hoped that one could create a sniffer that monitored all ads, but it doesn’t look easy. As I learned, since most ad network tags use iframes, the hosting website can’t access the frame; it’s an issue of browser security that would do more harm than good if modified.

4. Lack of Self-Regulation / Inertia

At present, there aren’t enough companies in the fakevertising food chain who are willing to take a stand against the current practices, or at the very least to define standards by which all must follow in order to receive payment. Then again, there isn’t much desire to do so. The hard part comes from the lack of trust and a recurring trend in so many types of business – the race to the bottom. If someone takes a stand to be the clean leader, what do they get? Their has to be a big enough deterrent to make everybody want to fall in line, and as of yet, there isn’t.

At present, there aren’t enough companies in the fakevertising food chain who are willing to take a stand against the current practices, or at the very least to define standards by which all must follow in order to receive payment. Then again, there isn’t much desire to do so. The hard part comes from the lack of trust and a recurring trend in so many types of business – the race to the bottom. If someone takes a stand to be the clean leader, what do they get? Their has to be a big enough deterrent to make everybody want to fall in line, and as of yet, there isn’t.

When Facebook took action against two third-party ad networks for displaying ads the company felt deceptive, other networks and app developers quickly toed the line. In that ecosystem, Facebook has the power to take away their business with a few strokes of a keyboard, but in the broader ecosystem, media is fragmented, and the threat of legal challenges not strong enough. Almost every player knows that some action will ultimately happen, but they will get hit whether they run it or not, and in the past, the most ultimately profitable action has been to get it while the gettin’ is good. You might pay a fine and have to change your ways, but you’re better off having that pool of funds. Those gains then act like an internal VC fund to provide the company a runway for going more legitimate.

Where Does That Leave Us

The truly complex part of the problem comes from the size of the un-branded continuity program market and just how much it is helping certain companies hit their numbers, along with what happens were it to go away. In so many respects, the current fakevertising trend is the 2008-9 equivalent of the mortgage advertising boom from 2002-2006. The big difference of course is what it means to the consumer. With mortgage, filling out a form didn’t have any direct cost. With fakevertising, they enter their credit card number. Mortgage ads weren’t perfect, and those promoting them arguably contributed to something much greater of a problem, but they didn’t do so knowingly or willingly. In other words, there is nothing inherently wrong with taking advantage of an opportunity, but there is something wrong in manipulating the market to take advantage of an opportunity.

The truly complex part of the problem comes from the size of the un-branded continuity program market and just how much it is helping certain companies hit their numbers, along with what happens were it to go away. In so many respects, the current fakevertising trend is the 2008-9 equivalent of the mortgage advertising boom from 2002-2006. The big difference of course is what it means to the consumer. With mortgage, filling out a form didn’t have any direct cost. With fakevertising, they enter their credit card number. Mortgage ads weren’t perfect, and those promoting them arguably contributed to something much greater of a problem, but they didn’t do so knowingly or willingly. In other words, there is nothing inherently wrong with taking advantage of an opportunity, but there is something wrong in manipulating the market to take advantage of an opportunity.

We’ve already seen how things will play it. More and more media sources will crack down on the ads; it will happen slowly and in order of those who can afford to take a long-term stance or are forced to. Some of the key players will fade away for the same reasons – product companies shutting down because of investigation and cpa networks choosing to become more strict with respect to how they allow their arbitragers to run the offers.

At the same time, media costs will rise as advertisers increase spends, new advertisers come on board, and inefficiencies decreased. Is it six months, one year, or longer? That’s hard to say because this event is tied to a macro-event (credit crisis) but not tied to an event in the same way mortgage advertising was. No matter how long, we’ll still have those who continue to push the boundary, just like we still have spam, but those playing in the ecosystem will move on until the next Perfect Storm.

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