Think about it: How different is the world we live in today than the last time we gathered here in Coronado two years ago? How much has it changed since we got together six months ago in Florida? Some innovations have been with us for a few years; some for a few months; some are just coming into play now.
As everyone knows, domestic online advertising continues to show great momentum, with a 20+% CAGR expected over the next few years Certain important trends are emerging that impact where and how display revenue is earned. This makes me confident over the long haul that this is a very healthy sector, and as you will see, we are participating in every inventory category. Let’s turn to the next slide and drill down on one of the important online trends we’re seeing.
Audiences are fragmenting across the web Although their pageviews are still very substantial and essentially flat over the last year, between the proliferation of more and more websites and the growth of social networks and the blogosphere, portals no longer command the audience share they once did. You can see on this slide the differential between the portals and the social networking sites, which grew dramatically, mySpace 48% and Facebook, 145%. Also, the chart on the right shows the dramatic increase in websites – especially over the last year – to over 135 million. What this means to the online advertising landscape is that now instead of being concentrated among the portals, inventory is being distributed more broadly across the web. What’s interesting is that branded online advertising buying is actually doing the opposite of the audience. It’s actually consolidating through agencies and around ad networks. We’ll talk more about this later, but first let’s look at the types of inventory available to online advertisers today.
As you can see online advertising growth is at the same time diversifying as new capabilities and platforms create more types of inventory. We participate in all of these inventory categories, but we’re most focused on display, video, mobile, contextual and behavioral advertising. Another key trend is increasing advertiser focus on ROI and performance-based advertising growth, they are more price sensitive and more “data-driven” Within this trend there is an increased focus on improved audience targeting to improve the value of inventory and improve ROI For example, behavioral targeting enables more specific ad-serving based on an individual’s prior browsing or purchasing behavior. Now let’s look at the next slide to see how advertiser demand is shifting within some of these categories.
Advertiser demand is moving from traditional cpm-based display to the performance networks. The reason for this trend is simple, and something that I’m very familiar with. An ad agency has two ways to earn its keep with its clients. The first is to provide compelling creative that advances the brands and products of their clients. In other words, to come up with good ideas and special ways to execute them. The second is to provide demonstrable yield. And this is where the true performance networks are really beginning to fulfill a advertiser needs This is the natural outcome of both more branded advertising dollars coming online and the increased fragmentation of consumer usage. And the result is an increase in the reliance on third party networks to achieve the reach for advertisers that portals traditionally provided. The network has become the most efficient way to reach more fragmented audience It’s also why major industry players are building out their advertising platforms and capabilities to provide an at-scale, full-service monetization platform for both their own inventory and their network inventory Let’s move to the next slide and look at how our third-party performance network advertising.com stacks up against its competition.
As you can see here, Advertising.com’s web display network reaches more domestic users than any other online property, more than Yahoo, the Time Warner sites, Google and other networks Ad.com’s network includes over 6,000 websites in the US and Europe Now, let’s look at the next slide to see how within Platform A, we’re trying to extend AOL and ad.com’s leadership position
Curt Viebranz at J.D. Power and Associates Automotive Internet Roundtable
Online advertising: Past, Present and Future Curt Viebranz President, Platform A AOL, LLC
Things continue to look very complicated… Flash Broadband Video Social Networks Uber Networks Web 2.0 Tools Behavioral Targeting Smart Ads Reach and Frequency Control Rollover Interaction Ad Exchanges Contextual Targeting Tools Time Based Measurement
U.S. online advertising <ul><li>Growth momentum is expected to continue </li></ul>Est. CAGR = 21% Both Display and Search revenue are expected to continue to grow in line with the overall online advertising industry growth rate Source: eMarketer, 8/07 ($BB)
The rise of the ad network <ul><li>The past </li></ul><ul><li>Mass audiences centered on basic utilities – mail, IM, search </li></ul><ul><li>Portals leveraged these audiences into vertical categories </li></ul><ul><li>Advertisers spent most of their money with portals </li></ul><ul><li>The present </li></ul><ul><li>Social networks, blogs, users generated content </li></ul><ul><li>Audience fragmentation </li></ul><ul><li>Advertisers becoming less dependent on portals to meet their broad reach marketing objectives </li></ul>
Online audience is fragmenting Source: ComScore, July ’07 U.S. Page View Growth for Selected Sites July ’06 – July ’07 Total Websites Across All Domains August ’95 – September ’07
Online advertising is diversifying <ul><li>Traditional advertiser shift to more ROI, performance-based focus </li></ul><ul><li>Major players rapidly building out advertising platform and capabilities to provide at-scale, full-service monetization platform </li></ul>Estimated Revenue CAGR 2007 – 2010 Sources: Jupiter, Oppenheimer, eMarketer: 6/07 ’ 07E Spend: $21.7B $8.9B $8.5B $2.0B $0.8B $0.9B $0.6B
Display advertising demand is shifting to networks <ul><li>Efficiency </li></ul><ul><li>Transparency </li></ul><ul><li>Scale </li></ul><ul><li>Targeting capabilities:data </li></ul><ul><li>High return (Measurable ROI) </li></ul>
Online advertising network reach <ul><li>Emergence of third-party networks as most efficient way to reach fragmented audiences </li></ul>Source: comScore Media Metrix, July 2007 Advertising.com’s web display network reaches more users than any other online property 66.1% 66.3% 71.6% 72.8% 73.3% 88.2% Fox Interactive 1 1 9 M M 1 28 M M 131 M M 131 M M 1 58 M M Specific Media Blue Lithium Tribal Fusion Google Ad Network Valueclick MSN-Microsoft Time Warner Google Sites Yahoo! Sites 1 1 9 M M 45.1% 65.6% 68.7% 68.8% 74.1% 88.2% 1 1 8 M M 123 M M 123 M M 133 M M 1 58 M M 81 M M
Marketing allocation by intent: A new intellectual model? Underlying Audience Delivery Targeted Frequency Activation Current Shape of All Ad Spending HIGH PROFIT LOW COMPLEXITY LOW PROFIT HIGH COMPLEXITY Vast share of all audience dollars to TV and cable; very little online representation here Cable, magazines, selected programming, online radio Onling, in-store DR TV, Coupons, Promotion,
But the shape of online spending by intent is quite different Underlying Audience Delivery Targeted Frequency Underlying Audience Delivery Targeted Frequency Current Shape of All Ad Spending Activation Current Shape of Internet Ad Spending Activation HIGH PROFIT LOW COMPLEXITY LOW PROFIT HIGH COMPLEXITY
Activation will remain a vital and compelling strength of Web advertising Underlying Audience Delivery Targeted Frequency Activation <ul><li>A share – perhaps a majority – of Web spending will remain focused on activation </li></ul><ul><li>But activation is not nearly all we can do </li></ul><ul><li>Besides, it remains a complex, low-profit area for most publishers </li></ul>
But shouldn’t the Web earn a larger share of targeted frequency dollars? <ul><li>Are the current channels for ‘reinforcing the message with the right consumer’ really doing all that good of a job? </li></ul><ul><li>Should we not consider a strategic shift of dollars to the Web for this job? </li></ul>Underlying Audience Delivery Targeted Frequency Activation
Theoretical Curve As Noted in ESOMAR Conference Papers: Source: FORCE Modeling, Paul Dyson, Millward Brown Intelliquest * OTS Opportunity to see advertisement based on GRP levels. Ad Awareness Where the TV plan turns from muscle to fat? 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 +1.8 +25 % Awareness Number of times ad. seen +3.2 +1 # of ad exposures* x Incremental reach plateaus: excess frequency to those already saturated
Evidence suggests that targeted online frequency gets cheaper over time Source: IAB XMOS study
The future <ul><li>What agencies and advertisers will want… </li></ul><ul><li>An integrated solution </li></ul><ul><li>Massive scale and reach </li></ul><ul><li>Reaching large but targeted segments </li></ul><ul><li>Transparency </li></ul><ul><li>Easy and efficient way to buy advertising: self-service tools and analytics </li></ul>
Developing a best-in-class monetization platform
Online advertising: Past, Present and Future Curt Viebranz President, Platform A AOL, LLC