During the few years I was running CrankyAds, an advertising management tool for bloggers, I spent quite a bit of time researching the online advertising space.

One of my primary goals for this research was to find a way to deal with two issues –

1. Banner advertising sucks, and…
2. There has to be a better way of doing online advertising

I wasn’t the only person grappling with these issues. There are countless companies who have a different spin on how to do online advertising.

My goal was to come up with a point of differentiation for our company. I wanted to do something new in the advertising space, preferably something different enough that it could barely even be called advertising.

One of the main reasons I wanted to find this point of differentiation was an obvious business justification — it could lead to a widely successful, ground-breaking business — but I also wanted it for a more personal reason.

I wanted a business I could feel wholly proud of. A business I came up with that vastly improved on how something was done, eliminating an aspect of an industry that people, including myself, have complained about.

The Money Is In Advertising

As the CrankyAds startup story went, we never were able to implement and test the features that may or may have not lead to a new, better model of online advertising, or at least a profitable business. After three years, we decided to close it down.

However, during this time I did get an insight into where online advertising is going. I have to say, it’s an industry I still think no one has come up with a perfect solution yet, but wow, there is a HUGE amount of money up for grabs when you have the current best solution (Google being the current winner, but I believe Facebook is potentially in ascendancy).

Although most people will say they do not like advertising, the internet is very much financially driven by it. Often the sites we love, including blogs, news, entertainment and most content sites, YouTube, and pretty much anything that is “free” online, only operate because advertising is responsible for paying the bills.

Even if the site does not directly sell ads, often the parent company survives because of ads on other assets in their portfolio, and then uses that income to keep the content sites going.

Let’s not forget that a huge proportion of e-commerce sales are driven by advertising spend. Without advertising to drive customers, a good chunk of the trillions of US dollars spent online would not have happened.

For many companies big and small, “marketing” is still advertising. They rely considerably on the ability of other companies to come up with better ways for them to find their target customers using innovative advertising methods.

How The Internet Has Evolved Advertising

Before the internet, advertising channels were relatively narrow and there were not the best mechanisms for quantifying results. TV, radio and print commanded the lion-share of attention, but contained a finite amount of content and could not easily correlate ad spend directly to purchasing decisions (direct mail and telemarketing are notable exceptions, but did not reach nearly as many people as the big three channels of the time).

With the advent of the internet the tracking issue was mostly solved. A person clicking an ad can be tracked all the way forward to a purchase, and subsequent purchases, being made.

The problem of narrow finite channels on TV, radio and print, switched to a problem of an overwhelming amount of dynamic channels on the internet. However, since technology eventually grew to support a whole range of tracking tools, the “too much” problem was never going to last long. Instead, it represented an opportunity to reach an incredible amount of people using affordable methods, which any person with internet access could leverage.

If you can track the data, a large channel will become divided up into smaller channels. This reduces cost and increases performance of advertising because an advertiser can conduct a granular campaign, reaching a small amount of highly qualified people. Until we had the breadth and scope of the internet, with concepts like the Long Tail, we could not reach enough people to make this level of specific targeting possible.

This division process is analogous to how a new market will eventually be carved up into many smaller markets as competition forces specialisation (read Blue Ocean Strategy for more).

The great thing for end consumers about this change is that there should, theoretically, be less shotgun advertising. The shotgun approach is broadcasting your campaign to a mass general audience, which might help brand building and hit a few of the right target customers, but often annoys a whole lot of the wrong targets.

Anyone who has watched TV in the previous century will know what I am talking about. Unless you are a woman looking after her household, chances are you were annoyed by the countless ads for kitchen appliances, bathroom cleaning products, feminine hygiene products, and the list goes on. The ad break really is time for a break, so you can escape the annoying advertisements.

Now with digital media and the ability to hone your targeting, it becomes more like shooting fish in a barrel, and the fish made the choice to be there in the first place.

You should see more ads for things you care about because you are paying attention to a very specific channel of content, and the publishers know exactly who you are…or at least they are getting closer to it. More on this in a moment.

Google And Contextual Advertising

The internet didn’t make a giant leap forward in ad targeting until Google came along.

Before Google, to target an audience meant putting your banner on a website about a certain subject. That’s a form of category targeting, but it’s not really that much better than putting a print ad in a magazine. It’s a very broad match, better than a general broadcast, but not narrow enough to eliminate latency and improve performance.

Google came up with the idea of contextual targeting, zeroing in on the target all the way down to the words on a single page, and the words used in a search query to find something.

Although Google is primarily known for it’s innovation in search technology, they deserve just as much credit for what they came up with to monetize all the traffic they attracted.

Google’s AdWords platform, and the sister program AdSense, took advertising from a broad display format, to a micro-niche, keyword relevant, Pay Per Click, performance-centric ad format.

…and boy were they ever rewarded for it!

Google makes a majority of its income from advertising, driven largely by its Pay Per Click network AdWords. It’s a little dated, but for an interesting breakdown of what kind of industries are spending all this money on Google advertising, take a look at this fantastic infographic breaking down where Google made their money ($37.9 Billion in total revenue that year).

Is Advertising Getting Better?

As I wrote, I’m not a fan of the banner ad. To be honest I am not a fan of the Pay Per Click ad either, even if it is more relevant.

I don’t think anyone is a fan of something that is perceived as an advertisement. That in a nutshell is the problem that the advertising industry needs to solve.

If the targeting is getting better, then the theory goes that the ad is getting better. You shouldn’t be as annoyed by something that is relevant to the reason why you are on the website you are visiting.

What you may not realise is there are all kinds of innovations going on right now that are helping advertisers to better target their ads. Here are a select few of them I came across while doing my CrankyAds industry research.

Real Time Buying (RTB)

RTB are networks where advertisers can dynamically run their campaigns across multiple ad platforms, using different mediums and targeting various demographics, paying through a bidding system that occurs in real time.

This is how one RTB network, OpenX (which incidentally used to be a good old fashioned banner management tool), explains how it works –

When users visit a website, the ad exchange conducts auctions between multiple buyers for impressions on that site. The buyers bid for those impressions based on the value of the users (behavioural and demographic data), the context in which the ads are shown (e.g. the subject matter of the website) and the types of ad unit (dimensions, scope for rich media). This whole auction process takes place in milliseconds, which is why the process is referred to as “real-time.”

OpenX Real Time Bidding

Confusing right?

As with most things, as you get more control over variables, the learning curve on how to use the system increases. With great power comes more time learning how to use it.

What I have noticed is as a result of RTB networks, there is a lot of consolidation going on. Because RTB makes ad buying more efficient, budgets are being diverted to them, thus ad platforms are joining RTB networks to deliver their inventory, rather than work directly with publishers.

Retargeting

Retargeting is huge right now, and I bet you have seen it in action.

Did you notice when you go to a certain website, in the days and weeks after you start seeing banners for that website appear on all the other websites you visit?

That’s retargeting in action.

The idea is that it takes multiple visits or exposures to an offer before you buy and retargeting gives advertisers a way to keep reminding you to come back. This works really well to combat shopping cart abandonment, a major issue for e-commerce. You know if a person has reached the shopping cart but didn’t buy, they were close to completing a purchase. Retargeting can be effective at bringing them back to finish the order.

My experience as a “victim” of retargeting has sometimes led to complete saturation of a certain ad campaign. I see the banners everywhere, which doesn’t serve to bring me back to the site, but instead makes me feel negatively about that company due to overexposure. Even if you love a product, you don’t want to see their ad over and over and over again.

I do think retargeting can be done well if you get the balance, timing, specificity and ad-mix right.

Facebook does it well because they mix in a variety of ads with the retargeting, so you never see only the one campaign across the entire site (saturation).

For example, I have a not-so-secret desire to purchase an old Porsche like the one Hank Moody drives in Californication.

I have spent the odd night searching on CarSales.com.au, Australia’s largest online classifieds site for cars, looking for my Hank-replica Porsche.

Shortly after whenever I go to Facebook and other sites that run re-targeting campaigns, which includes the big guys like YouTube and sites running Google AdSense ads (in other words – everywhere!), I see little boxes and pictures of Porches, which when clicked take me directly to the cars for sale on CarSales.com.au.

The re-targeting is very specific – it shows me the specific cars for sale that I was looking at, including a picture of the Porsche and the price tag.

That’s some pretty good targeting. Although I know they are ads, they are so focused on something I am interested in and only just recently looked at, I am much more compelled to click (even if on some level I resent the fact that I being manipulated like that – perhaps I know too much about retargeting – and now you do too!).

Combining things like Real Time Buying across vast networks and platforms, with retargeted campaigns, and you start seeing ads based on what you do online on almost every website you visit.

Laser-Focused Behavioural And Demographic Targeting

Google came up with contextual matching, using the words on the page and what you type into a search engine to match the best ads for you. Now Facebook has taken targeting to a whole other level. It is no longer just keywords, but the entire social graph of behaviours and associations that can be used to better target advertising to you.

If you have ever played around with the Facebook advertising system you know how many incredibly specific variables you can drill down your campaigns to target.

You get demographics such as age, sex, marital status, income, employment history, geographic location… and the list goes on, not to mention social variables such as what pages you like, who you are friends with, what people you follow and what elements on Facebook you interact with.

What’s extra special about this data is not only can advertisers target who you are and what you like, they can use your social behaviours to determine how to target advertising.

For example, if you recently moved to a new city, a postal company can hit you with an ad for a mail redirection service. If you just got engaged, a cake company can you hit with wedding cake ads. If you shared a music video about a certain DJ, that DJ can target you with ads when they are coming to play a gig in your town (and they know where you live too!).

No other platform online knows as much about you as Facebook does. That gives it a lot of power to offer tools for laser targeted advertising, that are only going to get better and better.

I am not an investment advisor, but I really think now is a good time to start looking to invest in Facebook. It might be like investing in Google just after they released their AdWords platform. We all know what happened after that.

The Facebook Ad Network

It’s a forgone conclusion that Facebook will take its ad platform outside of the Facebook eco-system. This means Facebook will allow their ads to appear on external pages to Facebook.

To put it simply, we will soon have a Facebook Publisher Ad Network, very much like Google’s AdSense program.

Think about that for a moment.

All that data about you that Facebook has will be used to power the ads on millions of websites.

The may lead to a battle between contextual and social graph based advertising, with Google and Facebook fighting for the rights to place ads on your blog or website.

Which will you choose? The network that pays you the most money and delivers the best ads for your audience will win (hopefully that is the same thing from one network).

I feel Facebook has an advantage here because social graphing is a better tool than word context when it comes to targeting.

Words are powerful, but somewhat one-dimensional when looked at without knowing something about the human who used them. Facebook knows things about you and watches what you do, which gives them an incredible amount of context. Google no doubt realises this, hence they are trying so hard to track your behaviours, and not just the keywords you use.

Facebook is a closed eco-system. No other company has the social data they do, hence only their advertising network will be able to utilise that data, unless they choose to share it with others.

The potential for targeting specific groups of people via Facebook advertising has only recently opened up to the public. I can’t even imagine how far it will go when more companies start to realise what they can do as an advertiser, and Facebook has more inventory to sell as it rolls out a publisher network like AdSense.

When Advertising Is Not Advertising

Despite all these incredible advances in online advertising, from contextual ads, to RTB networks, retargeting, and advertising that uses the social graph to find the right customers, there is still one flaw I see.

All of these things still display advertising as advertising.

We know the ads on Facebook’s sidebar are ads. We know that Facebook timeline ads are ads because they are titled “sponsored”. Google highlights which links in their search results are sponsored, and we are pretty familiar with their little text ad boxes when we see them on websites via the AdSense network.

Banners are of course clearly ads. YouTube pre-rolls are the same as old fashioned TV ads. Twitter has sponsored tweets.

As I was brainstorming how CrankyAds could revolutionise the online advertising industry I kept going back to the fundamental flaw in advertising…

People know it is advertising.

Any time something is perceived as an ad, it immediately reduces in value. People do not go to websites with the motivation to watch ads. We don’t use Facebook to see ads. We don’t watch YouTube videos, or read blogs, or follow people on Twitter for the ads.

Advertising is broken because it does not align with the core motivation behind why a person is taking an action.

The company that can make advertising not advertising is going to have something very special on their hands.

Advertising As Content

As I considered this problem more I thought what has come closest to delivering a non-ad advertisement.

Magazines are often chock-full of ads, and I dare say they are some of the best, most widely engaged with ads around.

I have been known to read GQ magazine, which must contain at least 50% advertising for products related to men, including watches, suits, cars and cologne. Given GQ is exactly about these things and the ads are highly visual in a highly visual format (the print magazine), that’s some pretty good targeting.

However, if GQ went 100% advertising and word got out that this was the case, I suspect their circulation numbers would plummet.

We still demand some kind of content to justify our purchase, even if the ad count is high.

Then I thought about sponsored blog posts, especially those where the blogger does not disclose that the article is being paid for.

In this case the reader is not likely aware that they are reading an ad, but of course the blogger risks serious damage to their credibility if they do not disclose when they are being paid to produce content.

That’s the same reason why Facebook and Twitter will always tell you when there content is paid for by using the words “sponsored”. Radio and TV advertising does something similar when a show is “brought to you by” a certain product or company.

Credibility remains intact with disclosure. Users accept the fact that to enjoy a service for free the cost is being exposed to ads.

Product placement has worked well in the past when it comes to movies or TV shows. This might be the only example I can think of when placing a paid-for ad within content doesn’t need to be widely disclosed.

Perhaps right there is a possible answer.

Finding a way to place paid-for content within the same context of non-paid for content in a way that does not require you to disclose it, nor risk your credibility as a content producer if you do not, is a possible way to make advertising not be advertising (or at least perceived as).

How can this happen? The advertisement has to become content.

Take for example what Alborz Fallah recently told me about some of the content ad campaigns they have running on CarAdvice.com.au, his car blog news and reviews website.

Car Advice has been running advertising for car companies that appear like a “portal page” for a certain car. The page includes reviews, pictures, videos – it’s like an all-in-one entry point for information about a car. You can see an example for the Hyundai i40.

This works because the advertisement is content. It includes reviews that Car Advice publishes anyway as part of its standard editorial practices (not advertisements), and the extra multi-media just makes the Car Advice site that much more valuable.

This type of content heavy ad is proving widely popular, but it is sold as part of a package that includes more typical advertising like banner campaigns, which you will see running across the Hyundai example page.

While users might not specifically know what an advertiser is paying for, it’s very clear that this website is paid to promote a certain car, even if they are doing so anyway as part of their editorial process.The lines between content and advertisement certainly are blurry.

This seems to work when…

1. Advertising is content-dense (the new advertorial?)
2. The publisher has the resources to produce significant content pieces, including multi-media
3. There are advertisers willing to pay a premium for this ad format

The tricky part as a publisher is keeping obvious bias out of content so you don’t lose your credibility. When you have companies paying you to produce content, if it becomes clear that your content is always skewed favourably towards certain products, then your audience is going to lose trust in what you say.

It’s a fine balance, and a problem that every media outlet, journalist, high profile personality – and bloggers – have had to deal with for years.

I think one of the best ways for advertising to not be perceived as advertising, is by using collaborations between the advertiser, publisher and audience.

Competitions are a great example of this, especially when the competition involves some kind of audience participation.

Asking people to submit something creative to win prizes, or vote for a winner, or hunt for something or compete against each other – in other words, some kind of “gamification” that involves an advertisers campaign – is a great way to make advertising less about raw in your face promotion, and more about integration. Plus of course the publisher gets a revenue source and the advertiser reaches new people.

These are not new ideas. The advertising industry has for years has been trying to figure out ways to smash through perceptions and grab attention without alienating trust. The internet just happens to be a new medium, one with some incredibly powerful tools that can be used to reach a truly global audience.

What’s Next?

I will continue to watch what companies like Facebook are doing to see where advertising goes, especially as the social graph has more and more of an impact.

Despite all the potential for innovation using in-content advertising and gamification, most companies, especially small businesses, still prefer the path of least resistance. This means platforms like AdWords and Facebook Ads, which only require an advertiser learn how to use a platform, will command the lion-share of ad budgets. It’s just easier.

No doubt the next evolution, from contextual, to social graph, to something else, is just around the corner. I don’t know what that is, but I can’t wait to find out.

Yaro Starak
Advertising