While the big news in the online world focuses on Google, Yahoo and Microsoft, a more profound revolution is taking place on the online social networks: The discussion about privacy is changing as users take control over their own online data. While they spread their Web presence, these users are not looking for privacy, but for recognition as individuals -- whether by friends or vendors. This will eventually change the whole world of advertising.
The current online-advertising model will become less effective, even as it gets increasingly sophisticated. New players are emerging to devalue the spaces that the ad giants are currently fighting over. Companies you've never heard of called NebuAd, Project Rialto, Phorm, Frontporch and Adzilla are pitching tools to Internet service providers that will enable them to track users and show them relevant ads. This approach (called behavioral targeting and already in service by ad networks that track users through so-called tracking cookies) undercuts traditional online publishers, who employ content to lure users and to sell adjacent ads. Now, the ISPs can sell advertisers direct access to the same users.
Take user number 12345, who was searching for cars yesterday, and show him a Porsche ad. It doesn't matter if he's on Yahoo or MySpace today -- he's the same number as yesterday. As an advertiser, would you prefer to reach someone reading a car review featured on Yahoo or someone who visited two car-dealer sites yesterday? His identity is still private: The ISP and behavioral-targeting networks don't know 12345's name and don't care. They just know what they think he wants.
This market will get more competitive, and users will be barraged by ads to which they will pay less and less attention. Call that public space, a world of billboards and cacophony. Even though the ads will be more "relevant" than ever, users will increasingly tune them out.
Now consider the new world of social networks. Facebook, unwittingly or on purpose, has been teaching people to manage their own data about themselves. Facebook's launch of the Beacon service -- which informs Facebook of members' activities (i.e., purchases) on other sites -- was a PR fiasco. But it still familiarized millions of users with the notion that they can control information about themselves online -- and determine to whom it is visible.
What might seem like a horribly complex and tedious task to their elders -- categorizing "friends," managing news feeds, handling intersecting communities of contacts -- feels natural to the Facebook users of today. They want more granularity of control, not less.
Each user determines who will get into his own garden, whether friends or vendors. Look at Dopplr (where I plan to become an investor), a site for travelers. I list my trips, and see how they intersect with my friends' itineraries. "Oh, we'll both be in London April 4? Let's get together!" Or, "Juan and Alice will be in town next Tuesday. Let's hold a dinner!" You can imagine or visit equivalent approaches for books (a hypothetical Amazon 2.0, new and more personalized), clothes (Glam.com and Stardoll.com), and even money management.
So what's the business model? I'll "friend" British Airways, which will say, "We see you're going to Moscow next month. Why not fly through London and we'll give you 10,000 extra miles?" I'm no longer in a bucket of frequent travelers, my privacy protected. I'm an individual with specific travel plans, which I intentionally make visible to preferred vendors. British Airways, of course, will pay Dopplr a handsome sponsorship fee to be eligible to be my "friend" (just as a Nike rep might pay to sponsor a basketball game and be part of the community). Someday NetJets may show up, offering to ferry me and my friends to a conference we'll be attending together.
I'm far more likely to respond to BA or NetJets within a trusted site, and for a specific offer, than I am to heed their ad while reading a newspaper article on the troubles in Russia. (As for Orbitz, my old standby: After five years, it still doesn't acknowledge my preferred airlines.)
The new model creates a more trusted environment for reaching high-value, frequent purchasers, whether of airline tickets, electronics, clothes or other items. Where does that leave the less-frequent purchasers? Probably looking to their friends rather than to advertising for advice. I'm an expert on travel; my friends may look to me for hotel choices. When I'm in the mood to buy a book or a new computer, I'll check out what my friends on Facebook are doing.
This does not mean that traditional online advertising will go away, just that it will become less effective. Value is being created in users' own walled gardens, which they will cultivate for themselves in real estate owned by the social networks. The new value creators are companies -- like Facebook and Dopplr -- that know how to build and support online communities.
Copyright 2008 Dow Jones & Company, Inc
By BRAD STONE | The New York Times | September 18, 2007
Members of the booming social network Web sites treat their individual profile pages as a creative canvas for personal expression.
The social networking companies see those pages as a lush target for advertisers — if only they could customize the ads. Although Internet companies have talked about specifically aiming their ads since the inception of the Web, so far advertising on social networks has been characterized by mass-marketed pitches for mortgages and online dating sites.
But MySpace, the Web’s largest social network and one of the most trafficked sites on the Internet, says that after experimenting with technology over the last six months it can tailor ads to the personal information that its 110 million active users leave on their profile pages.
Executives at Fox Interactive Media, the News Corporation unit that owns MySpace, will begin speaking about the results of that program this week. They say the tailoring technology has improved the likelihood that members will click on an ad by 80 percent on average.
“We are blessed with a phenomenal amount of information about the likes, dislikes and life’s passions of our users,” said Peter Levinsohn, president of Fox Interactive Media, who will talk about the program at an address to investors and analysts at a Merrill Lynch conference in Los Angeles on Tuesday. “We have an opportunity to provide advertisers with a completely new paradigm.”
MySpace’s rival, Facebook, also says it is experimenting with ad customization with the help of Microsoft, which signed with the up-and-coming social network last year to provide display ads on the service. To the consternation of privacy advocates, who say Internet users are unaware of such activity, the social networks regard these detail-stocked profile pages as a kind of “digital gold,” as one Fox executive put it last year.
The companies hope that customizing ads to their members’ stated enthusiasms will improve the effectiveness of the ads and recruit new advertisers who want to pitch their messages to refined slices of the online audience. Fox executives also hope the technology can help MySpace recapture some of the momentum and attention that has recently gone to Facebook.
Richard Greenfield, the managing director of Pali Research, predicts that MySpace’s fledgling program will help increase MySpace’s current revenue to $70 million a month from $40 million a month by next year.
“This is a critical evolution of the MySpace business model envisioned from the day News Corporation bought it,” Mr. Greenfield said.
A 100-employee team inside the Fox Interactive Media offices in Beverly Hills, Calif., called the “monetization technology group,” has designed computer algorithms to scour MySpace pages. In the first phase of the program, which the company calls “interest-based targeting,” the algorithms assigned members to one of 10 categories that represents their primary interest, like sports, fashion, finance, video games, autos and health.
The algorithms make their judgments partly on certain keywords in the profile. A member might be obvious by describing himself as a financial information enthusiast, for example. But more than likely the clues are more subtle. He might qualify for that category by listing Donald Trump as a hero, Fortune magazine as a favorite publication or “Wall Street” as a favorite movie.
The system also looks at the groups members belong to, who their friends are, their age and gender, and what ads they have responded to in the past. “Our targeting is a balance of what users say, what they do and what they say they do,” said Adam Bain, executive vice president for production and technology at Fox Interactive.
MySpace evidently does not completely trust the technology. Every two weeks, teams of “relevance testers” come to Fox Interactive’s offices to manually check member profiles against the categories they have been assigned to.
The company said that several national advertisers are trying out the service, though they declined to name them. Fox Interactive executives say that some kinds of ads benefited more than others. Clicks on tailored auto ads more than doubled and clicks on music ads jumped by 70 percent.
For the last two months, Fox Interactive has also experimented with the second phase of its targeting program, called “hyper targeting,” in which it further divides the 10 enthusiast categories into hundreds of subcategories. For example, sports fans are divided into subgroups like basketball, college football and skiing, while film enthusiasts are further classified by their interest in genres like comedies, dramas and independent films, and even particular actors and actresses.
For now, Fox’s advertising sales representatives are selling the new kinds of ad abilities. In November, according to Michael Barrett, Fox Interactive Media’s chief revenue officer, the company will set up an automated online system to allow smaller companies to aim at MySpace users with their ads without ever talking to a human being at Fox.
A punk band performing in Seattle, for example, could publicize a performance by looking up all the people on MySpace who live in that area who are punk fans.
MySpace also plans to give its advertisers information about what kind of people its ads have attracted. “We want them to leave knowing more about their audience then when they came into the door,” Arnie Gullov-Singh, vice president in the advertising technology group at Fox Interactive.
That is precisely the goal that worries some privacy advocates. They argue that users of social networks like MySpace and Facebook are not aware they are being monitored and that current ad-targeting is only the first step in what has become a huge arms race to collect revealing data on Internet users.
“People should be able to congregate online with their friends without thinking that big brother, whether it is Rupert Murdoch or Mark Zuckerberg, are stealthily peering in,” said Jeff Chester, executive director at the Center for Digital Democracy in Washington.
His organization will ask the Federal Trade Commission, during a planned hearing on Internet privacy in November, to investigate social networks for unfair and deceptive practices, he said.
MySpace and Facebook executives argue that they are harming no one. They say that they are using information their members make publicly available, and contrast their ad targeting with efforts by Yahoo, America Online and Microsoft, whose advertising technologies follow people around the Web and try to deduce what they are interested in based on what sites they are looking at.
Fox executives also say they are planning on letting users opt-out of the ad-targeting program on MySpace, though it means those members will see fewer relevant ads.
At least one MySpace member has no problems with the new technology. Mark Gong, a 26-year-old photojournalist from Washington, runs the 3,000-member Wanderlust group on MySpace and on his profile expresses an interest for foreign films like “Lost in Translation” and “The Spanish Apartment.” Not surprisingly, that has defined him as a prime target for travel ads on MySpace from companies like ShermansTravel.com, a travel deal site. “I’m not opposed to advertising,” Mr. Gong said. “They have got to make money.”
But he also says he hopes MySpace spends the extra cash on making the site more reliable and fending off the Facebook threat. He says many members of his group have flocked to Facebook in the last two months and that even he is logging into Facebook more often.
“Everybody I know is switching to Facebook,” he said. “MySpace has its work cut out for it.”
Copyright 2007 The New York Times Company
Social Site’s New Friends Are Athletes
By TIM ARANGO | The New York Times | March 26, 2008
Late last year, Pamela Firestone, the mother of Tony Parker, the San Antonio Spurs point guard, went rooting through her home in Paris and dug up a VHS tape of a 9-year-old Tony on a Parisian basketball court with his two brothers.
“O.K., let’s start,” the future N.B.A. star says in French. “It’s going to be the Chicago Bulls versus the San Antonio Spurs.”
In most families such artifacts are merely heirlooms, their value measured in memories. For the Hollywood talent agency Creative Artists Agency and the hedge fund Pequot Capital, these are assets to be exploited.
Photos and videos showing blue-chip athletes like Mr. Parker, LeBron James, Derek Jeter and Peyton Manning will be part of a new venture that C.A.A. and Pequot along with the Internet arm of Major League Baseball are expected to announce today.
The venture, WePlay.com, a social networking site for youth sports — something like Facebook for young athletes — is expected to start in mid-April. The site caters to youth athletes, parents and coaches — a vast audience. About 52 million children a year participate in organized sports leagues, according to the National Council of Youth Sports.
Young athletes will be able to set up a profile, post pictures, communicate with friends and share videos of games. Parents will be able to get practice schedules, coordinate car pools and find out which equipment to purchase. Coaches will be able to communicate with their players and parents, as well as learn about strategy and other skills.
“Two hundred forty million people in America are one degree of separation from youth sports,” said Steve Hansen, the chief executive of WePlay. “Youth sports is held together by e-mails, phone calls and clip boards. We want to change that.”
The videos of the athletes as children, as well as footage from recent shoots — a camera crew will join LeBron James at his high school gym in the coming weeks, for example — will surround the more traditional features of social media. The site will be mostly advertiser supported, initially in the form of sponsorships integrated in to the site, and later, banner ads.
Madison Avenue has long seen the value of aligning with sports teams, and over the years has been reaching further down the athletic food chain: first professional, then college, and more recently high school. Takkle, a social-networking site for high school athletes, is partially owned by Sports Illustrated. With WePlay, advertisers will have the chance to go even younger.
At the same time, WePlay can also be seen as an attempt on the part of the professional athletes to gain more control over how their images are used commercially — in other words, why let ESPN run video of their Little League games free, when they can do so and sell advertising alongside it?
The idea originated at C.A.A., which about 20 months ago began a sports division and whose agents have been trying to find ways beyond the traditional endorsement deal to increase an athlete’s earning potential, by starting companies in which the players can be owners.
“One of the reasons they chose to come here was so their clients could have these opportunities,” said David Rone, co-head of C.A.A. Sports, the division of the talent agency that represents athletes. “They can be the best agents they can be by exposing themselves to the rest of the disciplines we have at C.A.A..”
Other athletes involved in WePlay.com have been looking for their own relics of early stardom. In a spare bedroom at her home in New Orleans, Olivia Manning collected relics from her son Peyton’s days as a child quarterback to be copied and digitized by an employee from Major League Baseball Advanced Media.
Mr. James’s mother rustled up old photos and videos of her son from a storage area in her garage. And in New Jersey, Mr. Jeter’s mother found a video of her son playing Little League — a treasure whose value was diminished 10 minutes into the film because someone in the Jeter family taped over it with the movie “RoboCop.”
“This is really the quintessential execution of what we’d like to do on behalf of our clients,” Mr. Rone said. “All of them want to move beyond holding soda cans or holding a Big Mac in their hands.”
So for players like Mr. Jeter, who will make about $20 million this year playing shortstop for the Yankees, being a hired promotional gun is not enough. Mr. Jeter, who in addition to receiving equity in WePlay in exchange for his involvement also invested some of his own money (he will not say how much), began filming clips for the site in mid-December. Having equity, Mr. Jeter said in a telephone interview, is “very important, because you can really feel good about something if you help build it.”
The focus of the business also fits with Mr. Jeter’s own philanthropy. “What it boils down to is, it’s a really outstanding idea,” he said. “I have my own foundation, and we are trying to get kids to be active and play sports. Kids today spend too much time playing video games, and there’s a huge obesity problem in this country.”
Inside C.A.A., agents liken the venture to the sports version of the Web site FunnyOrDie.com, a partnership between C.A.A., the actor Will Ferrell and a Silicon Valley venture firm.
“These are assets — content — that our athletes control,” Mr. Rone said. “The content that all our athletes control is somewhat limited. We want to build businesses around that content. We hope we can help them properly monetize that content. Otherwise it’s just sitting on a shelf.”
The last time a group of famous athletes linked up on the Web, the result was a bust. In 1999, a group led by the Silicon Valley venture firm, Benchmark Capital, sunk $65 million in to MVP.com, an Internet venture involving John Elway, Michael Jordan and Wayne Gretzky.
“It was a big flameout,” said Mr. Hansen, an Internet veteran who was formerly chief operating officer of GeoCities, a Web-hosting firm. He said MVP.com did not work because an athlete’s name alone isn’t enough for success. “It can’t just be P.R.,” he said. “It can’t just be, give me Peyton’s name and likeness and that will be enough for my site.”
One advertiser that has already signed on is the trading card company Upper Deck, which will offer online trading games for youngsters and access to a digital trading card library.
“We believe very strongly in the deep integration of a small number of advertisers in a contextual way,” said Mr. Hansen.
The investment in WePlay so far is $4.5 million — much more modest than the investment in MVP.com — and the financial backers are already thinking about other niche-oriented social networking sites.
“There’s no reason to believe that the organizing principles that are applied here to sports can’t be applied elsewhere, such as to religious organizations,” said Rick Heitzmann, managing director at Pequot Ventures, the venture arm of Pequot Capital Management. “So you could go from WePlay to WePray.”
Copyright 2008 The New York Times Company
It wasn't long ago that the ad biz was ruled by black-clad creative types who could charm an old lady into dropping her last $10 on a jar of get-younger cream. But those days are over. Now, with digital media at the center of the action - Google, Facebook, Microsoft's blockbuster bid for Yahoo - it's all about numbers. And one bookish media buyer is king. His name is Irwin Gotlieb. But we might just as well call him the $59 billion man.
Last year the CEO of media-buying shop GroupM, a division of the ad conglomerate WPP Group (WPPGY), quietly directed more than 16% of the world's $364 billion in global ad expenditures. He not only understands media better than most; he has the power to sway the industry to his vision. And lately that vision entails old media taking lessons from the web. "Say you want to sell grapefruit," he says over an egg-white omelet at London's Four Seasons, where he keeps an extra set of clothes for regular visits. To move a lot of citrus in the traditional way, he explains, you'd buy a spot on "Grey's Anatomy" or run an ad in Vogue, making behavioral assumptions and inferences built on viewer demographics. But in the digital world, ad buyers don't need to assume anything; they have data to work with. Online marketers track actual behavior, so instead of buying a type of audience, they can buy a click, an inquiry, or even a sale. Every time consumers take such an action, it becomes part of their "clickstream," which follows them around the web. This information trail gives marketers an increasingly sophisticated idea about each of us, allowing them to craft an ever more tailored online experience.
But why stop there? What the business really needs is a venue with the reach of old media and the data trail of the web. In 2006, GroupM placed, tracked, and measured 200 billion online impressions, and that figure jumped enormously last year, according to the agency. That's a lot of behavioral data, and it made Gotlieb - who serves as the top field general to WPP Group CEO Martin Sorrell - think how useful it would be to spray that fire hose of information at non-web media. And so whatever you may think it will do to your privacy, our clickstreams are about to follow us to our TVs, enabling marketers to "send a different message to every set-top box," he says. "If you've got three TVs in your home, the teen gets one message, Mom gets a different one, and Dad gets a third."
Gotlieb isn't just envisioning this scenario; he's making it happen. He was the lead investor last fall in a $25 million funding round for Invidi Technologies, a tech startup based in Princeton, N.J., that can determine the age, gender, location, income, and ethnicity of television viewers and send targeted ads to different sets within the same house. The investment, he contends, will help position GroupM to improve ad targeting on any screen - TV, PDA, or computer. "While the technologies are fairly well developed to enable all this stuff, the business rules don't exist," he says. The next step is to hammer out deals with the networks, precisely the sort of work he's been doing for 38 years. "Our single biggest challenge as an industry is to find fair and equitable ways of getting the business arrangements in place."
Born in 1949 to a Russian mother and a Polish father, Gotlieb grew up in Japan. As a teen he came to New York for high school but dropped out and later took an entry-level media job at an ad agency. Before long he had commandeered a computer the size of a desk, taught himself to code, and written the software that ad buyers would use for the next 30 years to determine prices for TV ads, radio spots, billboards, etc.
It's this tech fluency that distinguishes Gotlieb from his peers. He views the world not as a wild-eyed art director or a typical bean-counting media buyer but as an exacting engineer. When he purchased a custom road bike, he swapped out alloy bolts for titanium so that the bike would go faster. When he and his wife, Elizabeth, built their 5,600-square-foot dream house in Briarcliff Manor, N.Y., a year after their only daughter, Dana, left for Harvard, Gotlieb did the wiring himself. "Liz and I were in Europe, and Dana called to see how to turn on the light over the kitchen sink," he recalls. "I turned it on for her through the phone."
He's also got a knack for strategy. For years, media buying was an important but mundane function within an agency. But two decades ago, while running the buying unit at New York agency DMB&B, Gotlieb realized that his division was being hampered by its association with the creative side. He could represent more clients without a conflict of interest. So he spun off the business. Eventually most media-buying outfits followed suit. In 1999, Sorrell lured Gotlieb to run MindShare, the largest of WPP's buying agencies. "I went looking for the strongest media person in America," Sorrell remembers. "He has a tremendous background in traditional media, but he's also a geek. He understands new technology in a very detailed fashion."
Once onboard, Gotlieb persuaded Sorrell to combine MindShare with WPP's other media-buying shops. More clients would mean more information and more power. "We didn't build scale for bragging rights," Gotlieb says. "We knew the value of data would only escalate."
That scale is the key to Gotlieb's influence today. Last spring, for example, he crafted a $1 million pact with NBC Universal (NBCU) that changed the age-old model of how TV ads are bought: The bigger the hit, the more you pay. With DVRs allowing people to skip commercials, Gotlieb decided that a show's popularity no longer mattered. He told NBC executives that he would pay based on who was watching the commercials. It was a controversial move, but again competitors adopted the new system. Rino Scanzoni, GroupM's chief investment officer, who negotiated the deal, credits his boss. "He was saying, 'Digital video recorders are being incorporated in set-top boxes. Television is going digital by 2009. What impact will that have on our business, now and in five years?' " says Scanzoni. "This is something we needed to do to get ahead and drive the change."
As the line between the web and TV blurs, viewers will have even more control over what they watch. Inevitably that'll mean watching fewer commercials, and Gotlieb knows it. So while spending money on increasingly dear (and often unwatched) spots in "Lost" and "The Office," he also wants to own the shows themselves to figure out new ways to infuse them with ads. That's why he started GroupM Entertainment, a throwback to the 1950s, when shows like The "Colgate Comedy Hour" dominated primetime, to create everything from rock concerts to TV series. In March, GroupM Entertainment produced "October Road," a series that aired after "Grey's Anatomy" and has been picked up for another year. (In exchange, ABC gave GroupM discounted ad slots to pass along to clients.) It also produced "Dr Pepper Band in a Bubble," an MTV reality show. The goal isn't to turn TV shows into run-on commercials. But having a hand in content creation gives GroupM a better idea of what types of shows will be hits - not to mention first dibs on prime ad buys. "The Digital Age requires advertisers not to interrupt content but to create it," says Peter Tortorici, a former president of CBS Entertainment. "Programming only works if people really enjoy it and keep coming back."
Needless to say, Gotlieb's not alone in trying to exploit all the changes happening in media and advertising. Part of Microsoft's (MSFT, Fortune 500) rationale for its $44.6 billion Yahoo (YHOO, Fortune 500) bid is to strengthen its online ad business. And then there's the other elephant in the room: Google (GOOG, Fortune 500). If Gotlieb's strategy is like renovating a rickety house of media, Google is trying to tear the old relic down. The search engine behemoth talks about partnerships even while launching products like GoogleTV Ads, an online auction system for selling cable ads. Who needs media buyers when you can secure commercial time the same way you buy banner ads?
Of course, GroupM and Google do work together. GroupM spent more than $300 million last year buying search ads from Google. But that just makes the relationship complicated at best. Google is dropping $3.1 billion to acquire DoubleClick, a pioneer in selling advertisers clickstream information. (In May, WPP spent $649 million to buy 24/7 Real Media, which collects web data in nearly the same way.) Google's heft can obviate Gotlieb's advantages. GroupM's clients pay in part for Gotlieb and Scanzoni to get the best deals and the sexiest ad placements. Such relationships become less important when technology makes the whole process transparent. So Gotlieb is wary. "Google can do something without regard for whether they can actually make money on it," he says. "That can be very destabilizing to the rest of the business."
Google's take? "I believe WPP coined the word 'frenemy,' " jokes ad president Tim Armstrong. "We've never seen WPP as a competitor."
Sorrell says he'll deal with the Google threat partly through further acquisitions. But Gotlieb won't say who, when, or how much. He's a market mover, and so he must choose his words carefully.
It's Friday afternoon at Gotlieb's favorite lunchtime spot, Sushiden, in midtown Manhattan. We're discussing all the flux in the industry, but he won't talk about Facebook's Beacon ad property because one ill-timed statement can cause a business to collapse. He nods to the sushi chef in front of us to make his point. An accomplished chef in his own right, Gotlieb has a fondness for quality knives. He looks on with admiration as our host strips a cucumber of its skin in one cylindrical cut. "In the wrong hands that knife would have butchered the cucumber," he says. "And it wouldn't be the fault of the knife."
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