@andrewchen

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What’s the #1 opportunity in online advertising?

Here’s a quick hint:

That’s right, it’s monetizing user-generated content.

When people ask me about the big trends in online advertising, and what I think of X ad startup or Y ad startup, I always ask what piece of the page they are trying to monetize. Ultimately, you can break up a blog, or a MySpace page, all into a couple distinct parts:

  • First, there’s the ad units – these are the formal ad units everyone’s familiar with
  • Then you have widgets and sidebar elements
  • And finally, you have content areas – like blogs, pictures, etc. that constitute "the news"
  • Perhaps you’ll have some specialized parts, like the "Friends" area or other page elements

At the end of the day, each part of the page has value that can be extracted. Let me say that first of all, the formal ad units are incredibly hard to monetize and get to scale, as a startup. That’s because they are 2-sided markets of publishers and advertisers, and if you don’t perform well one day, your impressions will go to Google to Advertising.com or BlueLithium instead.

Furthermore, the technology involved in optimizing these ad units is at least several years into development. What you think might work naively may not, and you bet Google, ValueClick, and 20 other ad networks are trying very hard with more data, more inventory, and more advertisers than you.

What about the other page elements?
When I see ideas like Britepic, that’s when I get excited. Perhaps the integration has to be easier, and 20 other improvements have to be made, but fundamentally they are creating new ad units where none existed before. Another interesting proposition is monetizing widgets, which I wrote about previously. It has it’s pluses and minuses. I’m also looking to see if there’ll be more social networking-specific monetization tactics, such as an expansion on the BuddyLube concept. And of course, you have people that are trying to monetize in-content, such as PayPerPost.

I think it’s pretty clear, given all of these options, that given the right transparency and automated marketplace, that you’ll see several new "types" of ad units emerge as the types of inventory also changes.

Verticalizing is another option
Another interesting way to create a new ad network is in verticalizing against a new set of ad inventory that’d coming online. For example, given the proliferation of file upload sites, you should analyze how they are monetizing the inventory and see where you could do better. Currently, the status quo is to make you wait for the download, stare at some ads, and hopefully you’ll click through. But what if you tried to match "download offers" with what people were downloading? If they were downloading a game demo, you give them more game demos. If they’re downloading a movie, you give them players/utilities and more entertainment. Because getting people to download things is so hard, there are plenty of folks out there willing to pay out on a Per Download basis.

Another are to look at is the proliferation of casual games, or celebrity gossip blogs, or sports blogs, or any number of growing ad inventory that isn’t currently addressed by a "one-size-fits-all" approach to monetization. If you were able to verticalize into an area that’s growing and may become a dominant part of the Internet, then you are setting yourself up for a big business.

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