@andrewchen

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Creating value in the online ad market

A couple weeks ago, I wrote a bunch of notes on the Internet advertising market. Specifically, it seemed like there were 4 major categories for creating value on the web:

1) Make existing high-value inventory even more valuable

Rich media, video ads, and “profile” targeting fall into this bucket, since it mostly has to do with brand advertising. As we discussed, there’s a flight to quality for branding, since advertisers are just dipping their toes in online right now. These “known good” publishers are typically very entrenched, have invested millions of dollars into NYC relationships, and generally have ties into old media. Although there are some plays here to help advertiser buy reach more effectively, it’s maybe that we’ve hit diminishing returns already.

2) Make existing low-value inventory more valuable

More likely, advertiser spend will go towards “gray area” inventory that turns to good inventory through some magical process.

Just as you mentioned the “media gap” between Internet and Internet ad spend, there are many areas of the web that gets lots of attention from users but don’t monetize well. The “usage gap” maybe? Included in these are casual games (Pogo, Miniclip, etc.), blogs (LiveJournal, Xanga, etc), social networks, media-sharing sites (Photobucket, YouTube, etc.). There are lots of ideas tactically on how this could work, which we can talk about at a future conversation.

If a company can help monetize some of these categories, it would be akin to Google/Overture figuring out how to monetize search better. (Which used to be a poorly monetizing category, http://bnoopy.typepad.com/bnoopy/2005/03/index.html)

Revenue Science generally falls in this category, BTW…

3) Create ad impressions where none currently exist

This may be intertwined with the above (2) point, but obviously for a long time, search engines just had very few ads, but now there are lots of text ads. So what are other areas which are creating a lot of pageviews, but not ad impressions? Ads integrated into flash applications like casual games? In-game ads like Massive? Watermarked ads in photo-hosting sites? 15-second frontend clips shown before YouTube ads? Product placement in blog entries? Social networking profile widgets? Audio ads before Skype calls?

Obviously another way to go about this, rather than being an intermediary, is to actually collect the content yourself and then create an ad network on top of this. Google did this, and YouTube seems to be doing the same.

4) Use the Internet to revolutionize off-line media

And finally, obviously companies like SpotRunner, dMarc, NextMedium, etc., are using the Internet’s strengths in aggregating constituents and automating processes to create transactions in TV, radio, and movies, respectively. Pay-per-call is another big area here, as well. This area is not a 100% online pure-play, but obviously could be quite interesting since it taps into huge, established budgets, and could force old-media to evolve rather than be up-ended completely.

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