Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

WidgetBucks: Fixing Online Advertising - A $9bn Opportunity

Posted by Tom Foremski - March 23, 2009

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[Matt Hulett- CEO of WidgetBucks]

Online advertising is becoming less and less effective. Eric Clemons has some ideas on why this is happening, and there are many startups trying to fix the problem.

And it is a very significant problem because it affects the business model for nearly all types of online publishers. If online advertising continues to fall in its effectiveness then there will less and less revenue support for content creators, such as newspapers and magazines.

WidgetBucks, based in Seattle is one of those companies that are working on making Internet advertising more effective. It offers clients an advertising "container" or widget, that provides better contextual delivery of adverts, and a much richer user experience, which results in more effective advertising.

This part of its business has already been extraordinarily effective, helping publishers gain higher revenues than through advertising networks such as Google AdSense, etc.

"What we do is we optimize the ad networks so that they deliver ads that are more relevant to the site, and that can make a big difference for advertisers and the publishers," says Matt Hulett, CEO.

The company is also working on making the content of its advertising "containers" more interesting and it is experimenting with combining ads with online games and other types of media that engages Internet users. "Engagement" is the term du jour these days as advertisers seek new formats that will work better than current ones.

"It wasn't too long ago that people were pleased if 1 per cent of their ads got a click through, these days they are pleased if it is 0.1 per cent," says Mr Hulett.

The widget approach to advertising means that WidgetBucks has an open window on the publisher's site and it can carry out A/B testing to optimize advertising delivery based on a large number of variables. It can then apply those lessons across other sites.

"For example, on a consumer gadget site, we track what works and what doesn't and then we can feed the right types of ads onto all similar sites. That increases the effectiveness of the ads and the advertiser makes more sales, and the publisher gets more ads -- everybody benefits."

Publishers love the service and there are about 26,000 publishers now using WidgetBucks.

A $9 billion opportunity . . .

But there is more, much more to be done, says Mr Hulett. The company is testing out a new service that addresses a massive $9 billion optimization opportunity.

"About 30 per cent of online ads are not viewed because readers don't scroll down the page. Last year PricewaterhouseCoopers estimated that advertisers are paying about $9 billion for adverts that are not seen," says Mr Hulett.

WidgetBucks will release details in the second quarter on a new service that lets advertisers eliminate payment for unseen ads.

But won't that hurt many online publishers such as newspapers? They'll be receiving billions of dollars less at a time when they are struggling to increase revenues.

Mr Hulett says publishers will benefit because they will be able to charge more for the better performing ad positions. "And you can also eliminate cluttering up the page with lots of adverts, it'll be better for readers."

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Foremski's Take:

There is a well known maxim in the advertising business that 50 per cent of all advertising spending is wasted -- but you can't tell which 50 per cent.

In online advertising you can use an arsenal of analytics technologies that will tell you which 50 per cent is being wasted. And as more and more advertising moves online, the potential cost savings for advertisers are enormous.

That's why there is a tremendous amount of VC money, about $500 million by some estimates, being invested in startups such as WidgetBucks, that are focused on developing advertising optimization technologies. This will result in advertisers having ever finer control over the ad format, timing, and targeting of their adverts. This will increase the effectiveness of online advertising and reduce costs.

However, I don't buy the argument that publishers will benefit to the same degree as advertisers. The cost savings have to come out of someone's pocket. For example, eliminating $9 billion in payments for unseen ads won't help publishers -- unless they move to a format where they only publish pages that are the size of one display screen. Even if that were to happen, there would still be plenty of ways of optimizing ads and saving money.

The transition to online publishing means advertisers no longer have to pay for ineffective advertising. And that's why we now have a media industry going through a tremendously disruptive period.

It was the 50 per cent of the "wasted" advertising spend that was supporting the media industry: newspapers, magazines, TV, radio, etc. It was helping to under-write the creation of content and support millions of jobs: journalists, editors, photographers, camera operators, delivery truck drivers, printers, producers, camera operators, administrators, etc.

Better optimization of advertising will save billions of dollars for advertisers but it will mean even less money for online publishers, and for journalism as a whole.

Without good journalism our society will be more vulnerable to disinformation and it will lessen its ability to make good decisions on very important subjects such as the economy, global warming, healthcare, education, foreign policy. Software engineers have a saying: garbage in, garbage out.   

I believe we will eventually find a way to pay for quality journalism but we will have to go through a very troubling transition. That's not the fault of companies such as WidgetBucks, it's just the way things are, this is what the Internet enables.

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Please see:

Latest News From WidgetBucks

WidgetBucks Blog:

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