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 ?

3 Comments:

Anonymous BizJoe said...

I agree with you for the most part. I have dissected the Spotrunner business model by reading the fine print on their web site and compared it to a larger semi-automated discount ad agency called Cheap-TV-Spots.com. I found that Spotrunner is only disruptive as far as the cosmetics of its user interface, but it is not disruptive qualitatively, nor is there any real savings or value for the potential target low-budget client as you correctly guessed. In fact, the automated Spotrunner airings may cost substantially more than the semi-automated Cheap-TV-Spots.com system. It appears that Spotrunner offers an upgraded ad comparable to Cheap-TV-Spots standard custom ad, but at a price nearly five times the Cheap TV Spots rate. Spotrunner does not appear to allow national airings (because of licensing restrictions), and it does not allow a web version of the commercial to be freely distributed by the client. Cheap TV Spots, by contrast, provides both local and national airings, and allows the client to freely distribute a web version via e-mail, social video networks, and other web postings. The most disturbing thing about Spotrunner is that the client is forced to keep purchasing their more expensive air time or Spotrunner will re-sell their ad to the client's competitor in the same market. So much for branding. Again, by comparison, the Cheap TV Spots system delivers local and national service with maximum flexibility at a cost (including air time) which is less than the hobbled Spotrunner system. Cheap TV Spots also does not insist on long term contracts for air time. The Spotrunner advantage is that it appears easier than talking to a live person (if you want to talk to a live person, it will cost extra). I suppose this could work for a client afraid to interact. But, a client afraid to interact with a live person is destined to fail in business, and there goes the golden goose. Maybe this is why there's been talk in Silicon Valley about CheapTVSpots.com acquiring Spotrunner. Cheap TV Spots actually has the better system, but to the uninitiated, Spotrunner looks like it has the slicker system. Cheap TV Spots is the best choice for web-based ads because they have the intellectual property advantage and can air or distribute anywhere. A CheapTVSpots.com / Spotrunner hybrid model is truly disruptive and the real acquisition for Google, Yahoo, or even social networks like YouTube, VEOH, MySpace or the new Microsoft system. Ask.com could be another beneficiary. AOL seems a little too slow to take advantage of these things, although they are getting a bit more into TV. Not that this hybrid will shake Madison Avenue to its foundations, but it will cause more than a few local cable and local broadcast producers to shutter their doors.

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