Silicon Valley Watcher - at the intersection of technology and media

Mathew Ingram has done a nice job summarizing this weekend's tempest in a tea cup among Jason Calacanis, Mike Arrington, and Fred Wilson, the East Coast VC, over web site traffic metrics provided by Comscore.

Mr Calacanis is upset Comscore wants to charge thousands of dollars to provide accurate web site traffic reports, while acknowledging that their free version is inaccurate.

He says it's a form of blackmail because media buyers buy advertising according to Comscore's traffic rating -- if Comscore under reports your traffic because you won't pay for their more accurate premium service -- you lose money. He has a point.

[Mathew Ingram: Calacanis Takes on comScore -- and Fred Wilson -]

Foremski's Take: The arguments over site metrics is quite educational. I found out about the many different traffic counting methodologies, and the tricks that sites use to inflate their numbers.

But the heated debate over how to measure traffic, is, ultimately, a red herring. It's not the traffic that matters it's the advertising conversions.

Today, may advertisers still buy media based on a site's traffic but that's not the trend. Advertisers are increasingly able to measure their conversation rate -- and that becomes the number they measure.

That's the number that means something regardless of how total traffic is counted.

It doesn't matter if Comscore says your site's traffic is twice as large as it did before -- if your advertisers can't convert that traffic to sales then your site might as well have no traffic at all.

Media companies are in a tough spot...

Advertisers have so many ways to optimize their media buys. They are becoming more and more efficient at placing ads in the right places at the right times and getting the best price for those ads.

Media companies don't have that same leverage.

That's why advertising will become a less important revenue stream for most media brands.

Baked beans...

The future media business model will be what I call a 'Heinz 57' model: many multiple revenue streams.

Some of it will be advertising, some of it will be paywalls, sponsorships, virtual currencies, lead generation, events, and more...

It will be tough to manage all those revenue streams but that's what will sort out the competitors from each other. Publishers won't be able to lunch out with key customers -- they'll have to stay at their desk managing many relationships, and many sources of revenues, in real-time. Their job is going to get a lot harder.

That's why all this tussle over site traffic metrics is so silly.

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Please see:

Gawker Media Focuses On Uniques As Key Metric

Adify: Everything Is Hunky Dory In Online Advertising

MediaWatch: Nick Denton - The Micropublishing Dream Is Dead

Adify, the ad network management firm, released its latest quarterly report and found that food CPMs are up 91% in Q3 compared with Q2 and that brand advertising is showing continued recovery from lows early this year.

The report states:

- Food CPMs are up 91% from the previous quarter, nearly doubling the category's Q2 2009 average CPM of $3.63 to $6.94 in Q3 2009.

- Entertainment CPMs grew 8% between Q2 2009 and Q3 2009, representing the fourth consecutive quarter where CPMs in this vertical have risen.

- Real Estate CPMs ($7.62 in Q3 2009) are up 17% from Q2, a continuous increase since the vertical climbed 100% from Q4 2008 to Q2 2009. This finding matches US census data which shows a steady increase in new houses sold since March 2009.

- The automotive and healthy living and lifestyle verticals still command high average CPMs, despite their contractions from the previous quarter. Fluctuation in the automotive CPMs ($12.47 in Q3 2009) may be a result of the Cash for Clunkers program aligned with general turmoil over the US auto market this year. Cash for Clunkers effectively shortened the sales cycle for buying a car, focusing advertisers on search keywords rather than display branding campaigns to reach their target audience.

Results are based on ad campaigns on 16,900 websites.

The full report can be downloaded here: http://www.adify.com/assets/AVG/AVG-Q3/AVG-Q3.pdf

Cheap display ads on social network sites have attracted large brands such as AT&T, Experian, Sprint and Microsoft, reports comScore.

The online measuring company estimated that in July, 2009, 20 per cent of all display ads appeared on social network sites with 80 per cent of those on MySpace and FaceBook.

The attraction is low cost says Jeff Hackett, comScore senior vice president.

"Social networking sites now account for one out of every five ads people view online. Because the top social media sites can deliver high reach and frequency against target segments at a low cost, it appears that some advertisers are eager to use social networking sites as a new advertising delivery vehicle."

More details here: Social Networking Sites Account for More than 20 Percent of All U.S. Online Display Ad Impressions, According to comScore Ad Metrix - comScore, Inc

Foremski's Take: comScore doesn't provide any historical data to determine trend lines.

The reason that ad inventory on social networks is lower cost is because the ads are less effective. However, if advertisers can figure out how to raise the response rate there is an excellent arbitrage opportunity waiting to be exploited.

Jim Spanfeller, the outgoing president and CEO of Forbes.com wrote an interesting article about the mistake online publishers make when they price their online ad inventory in an article titled "Publishers Are Killing Web Advertising's Potential With Misguided Pricing" on Paidcontent.com.

...we now know that 16% of web users generate 80% of clicks and that this 16% represents the lower income and education segments of the total user base. Do we really want to be held accountable as an industry by metrics generated by the lowest common denominator and a minority of users to boot? I can't think of too many successful models using these types of metrics.

So this is why online advertising models don't work (for publishers!).

He also doesn't like the use of Internet advertising for demand fulfillment.

These metrics drive the conversation and the core objectives of online advertising away from demand creation (which is basically the definition of advertising) to demand fulfillment or, put another way, direct response. There is nothing wrong with direct response; every other medium has it, and the industry drives huge value for both marketers and media. But direct response is not advertising--it is something different.

It is by allowing such practices that publishers have "vastly reduced their pricing power. They are training the buying community to fixate on the wrong metrics, and for very little near-term return."

Foremski's Take: Good luck on retraining advertisers to go back in time to using advertising for demand creation. That's a model that isn't very trackable -- which is good if you are a publisher.

That's the advantage to advertisers that Internet advertising is trackable, and that it can be used for demand fulfillment. Advertisers always knew half their spend was being wasted now they know which half is being wasted. Why would they go back to a less efficient model?! It's not going to happen.

Forbes has no choice but to play by the rules of online advertising. Even if it persuades a few other publishers to follow its best practices it is not enough. They are all hostage to the practices of their competitors. Why should advertisers pay more, and accept a worse ROI when they don't have to?

Mr Spanfeller does a good job in explaining the dynamics of the online ad industry and its effect on publishers but he hasn't a ghost of a chance of bolting the barn door - the chickens have flown the coop (mashup metaphor #97).

comScore and dunnhumbyUSA today released the results of studies showing online advertising is as effective as TV advertising in building retail sales of consumer packaged goods.

Over the course of twelve weeks, online ad campaigns with an average reach of 40 percent of their target segment successfully grew retail sales of the advertised brands by an average of 9 percent. This compares to an average lift of 8 percent for TV advertising as measured by Information Resources, Inc. (IRI)

The study looked at advertising campaigns for product categories that included: "cereal, cookie mixes, pizza, juice drinks, snack bars, pasta, tea, deodorants and toothpaste."

Foremski's Take: This is bad news for TV advertising because Internet advertising is so much less expensive, and it is slightly more effective as shown in this study (9 per cent versus 8 per cent lift.)

What the study doesn't appear to show is how much online advertising was done, and the formats of the advertising.

This will mean a lot more advertising heading from TV to online advertising because of the ability to track the ads, and also to save large amounts of money. This will accelerate the revenue decline at TV stations.

More information here: http://bit.ly/34dQxU

Pubmatic, which helps publishers monetize their ad inventory, reported that online ad pricing jumped 15 per cent in June compared with May and has grown 35 per cent since January 2009.

However, online ad prices are still below their year ago levels.

PubMatic data is based on 6,000 websites, 85 per cent are in the US.

Rajeev Goel, PubMatic Co-Founder and CEO said,"There is more hope that Fall online ad spending may reach near-normal levels."

Mr Goel told SVW:

"There are two fundamental trends driving this rise in pricing. On the supply side, we have seen a drop in the number of web services that rely on advertising revenue as their business models, as this model has fallen out of favor. Even some traditional businesses such as newspapers have been shrinking with respect to online presence."

"On the demand side, recent reports from Outsell and Forrester highlighted that even though total ad spending (traditional and online) has dropped due to the recession, online advertising is growing in terms of both market share and total spend. This includes display as well as search."

"In the last 1-2 years, we have seen a tremendous amount of innovation in the ecosystem around the 2nd channel (unsold ad inventory). Media exchanges, data exchanges, deep targeting ad networks, ad network optimizers, etc. have been growing in number and scale. As a result, inefficiency in the market is being eliminated and there is more and more data used for ad targeting. This is increasing pricing in the space."

A detailed report on ad pricing trends will be published Octoner 8th in New York at its Annual Ad Revenue Conference.