Tuesday, July 25, 2006

Spotrunner and the Virtual Advertiser

Spotrunner and Youtube

Spotrunner is an advertising platform for video-spots that are cheap and can be run on cabletv and video sites (Youtube, YahooVideo etc.). Its Adsense for video-ads.

The ad system is
- self-serve
- targetable by category, media-markets
- can choose prebuilt videos and customize them
- provides budgeting, reporting etc.

Spotrunner buys the airtime in local TV markets. The professionally produced ad costs about $500, compared to several thousand dollars otherwise. The airtime itself is extra, of course, and Spot Runner takes a commission. For example, to run 21 spots on The Weather Channel in silicon valley between 6-9am, it costs $42 ($2 per spotrun). The same number of spots on ESPN between 7pm-12midnight costs $1900. SMBs have clear visibility and can make informed choices.

By reducing the friction for a local business to get on TV, Waxman envisions the service opening new doors for small businesses that maybe never would have considered TV advertising before. Their mission is to use the Internet to put the power of TV in the hands of everyone.

Spotrunner along with narrow-casting abilities of Comcast's video-on-demand, Tivo or Youtube, can be used to target an video-ad at a specific person or a specific demographic.
Imagine - a guy could go to Spotrunner today and propose to his girlfriend (21 times !) on Weather Channel for just $542.

This is a real game-changing business ! It is founded by the founders of PeoplePC and Firefly.

The key value-creators are:

1. By making TV spots purchaseable online, they've converted the closed world of TV-ads into an open-market. Online-video will be great when it arrives, but they first have to own the TV-market. Local SMBs want TV ads, because their customers watch TV.

2. The biggest problem with TV ads is that SMBs do not have the skills, time and money to create TV ads. Production costs of TV ads is usually far more than the airtime cost. By templatizing TV-spot-creation using technology, they have made the cost affordable for SMBs.

The big advertisers are not Spotrunner's immediate customers - they are too concerned with brand image to accept templatized low-cost ads. SMBs (for whom price overrides branding concerns) are Spotrunner's target, and the customers of these local business watch TV more than Youtube..

The only issues I can see is that:

1. TV spot inventory is limited today, and that puts an upper bound on their market. Spotrunner cannot compete with the big media-buyers for the best airtime. Hence, Spotrunner will eventuall need online-video to take off. The potential route - Youtube users become channel-viewers, instead of video-viewers, and Spotrunner 10-second spots run in between videos. That could be a great business model for both.

2. Spotrunner's business model uses fixed rate-cards, instead of a bidding process. Local business advertisers are most comfortable with fixed rates and want to know what their money is going to get them (your ad is going to run on History Channel at time X). Bidded models where cost and ad runtimes are unknown is disconcerting to them. Hence I am not surprised by Spotrunner's pricing model. But fixed rate-cards do lead to an inefficient market - overpricing at the less-desirable segments, and under-pricing at the more-desirable segments.

3. Value to be extracted - For advertisers, the value is that they can run an ad at much lower cost than before. For TV channels, they have more buyers, so they can charge more, and sell TV times that were unsold before.

So, who loses ? The ad-producers - advertising agencies, creative directors, TV-marketers and advertising salespeople - all of whom create friction and costs in the process of getting a spot from the business to the TV screen. Also, to a slight degree, viewers lose - they get templatized ads, rather than more creative ads.

Regarding quality of the ads, it is clear that Spotrunner's templatized ads have excellent production quality, but lack orginality and brand specificity (e.g. tonality and color themes of the brand).But does this necessarily have to be the case ?

Can we actually create BETTER ads more efficiently online ?  Can the creative process be automated or outsourced or leverage the community (or all of the above) for better ads ?

Maybe we can create a huge repository of ads - with ideas, messages, images,
and videos - and provide tools that allow creatives to be brought together into an
ad in better ways than what an individual creative director can do by themselves.

Can we create a virtual creative director ?

Along the same line of thought, are there automated tools for creating the best
Adwords marketing text ?

Friday, July 21, 2006

Where's my twin ?

Where's My Virtual Twin ?

Consider a user A. Say I know everything about A - i.e. I know all the situations (s) that A has faced and what choices A made in each situation (links clicked, job applied, items bought, etc. ). This past behaviour of A can be called - P(a,s). Say I have similar information about a large set (N) of users. The set of users is Un and their past behaviour is modeled as a matrix P(n,s).

Now, can I use this past information P to predict A's behaviour in a new situation x ?

This requires a function f, such that F(a,x) = f ( P )

The existence of such a function, assumes :
(1) that user's behaviours are correlated - see Arrow's Impossibity Theorem and Social Choice theory.
(2) that a LOT about user A is known - i.e. the user A's row in matrix P is well populate and that a lot is known about situation s. Many other users have faced situation s, so the column s in P is also well populated.
(3) that f is practically computable.

How big does N need to be and how densely does the P matrix needs to be populated to make good predictions ?

The online portals, search-engines and purchase sites already know a lot about P. How much P does they really keep, analyse and use ? Does any one of them already have a useful subsection of P ? If not, can they share the parts of P that they each know without revealing identities ? Is P valuable enough to drive consolidation in the industry ?

If there is such a computable function f (and there may well not be), it leads to interesting possibilities.

1. You have a virtual twin. Your twin can predict what choices you will make in each situation. It might even tell you how you are going to feel if you click on a particular news story.

2. You can model macro-behaviours - If you can model everybody's behaviour and their reactions to each other's behaviour, then you can predict what the best marketing strategy should be for a given situation or what the reaction of the population will be to a given story.

Monday, July 17, 2006

ComparisonEngines.com » Blog Archive » Shopping.com, Shopzilla, and NexTag BEWARE of Google Checkout

ComparisonEngines.com : CSE's - BEWARE of Google Checkout:

The complex online-traffic arbitrage game

To get traffic, online merchants pay listing fees to the CSEs and per-click fees for higher rankings.

Comparison Shopping Engine's (CSEs) pay Google for SEO traffic, then must convert that traffic to clicks to their merchants.

Large merchants also bid on Adwords, so they also drive up the advertising costs for the CSEs.

CSE's are also run Adsense ads, so they also get paid by Google (or rather its advertisers - usually, the same merchants).

To put this in context, follow the money :
1. Merchants have an ad budget.
2. This money goes to a) Adwords b) CSE c) Adsense
3. The CSE money also goes to Adwords.

Thus merchants are paying money to the agents, to compete
against themselves and drive up their advertising costs. At the moment, with current CPC rates, this is still better than paying for print/TV advertising. However, eventually, at some CPC rate, the economics will self-stabilize (at a macro-level).

Charlene Li's Blog: Google Checkout Supports Its Core Search Business

Charlene Li's Blog: Google Checkout Supports Its Core Search Business

GCheckout gives merchants
1. easier checkout, so more conversions
2. more trust - can compete with more trusted online merchants
3. discount on ads
4. icon on adwords ads, drives more CTR, so higher ranking
5. cheaper transaction fee than paypal and visa

For small online merchants, its a no-brainer. They will ALL offer it. Whether consumers will adopt it or not, is the open issue. At the very least, by nailing the merchants, Google Checkout has a much better chance for success than previous attempts like PayDirect etc.