The coffee shops of Mayfair

Venture Capital into Ad technology reaches $580mn in 2008

I have got some research done for a speech at today's Ad:Tech conference to look at Global Investment into the online ad / technolgogy Category: I knew it was large but not trending to one billion dollars a year!  What's even more interesting is that this is only the disclosed data, and some of the deals that I know would push the total higher still.

Interesting to see that Europe accounted for $258mn of this which is 45% of the total. This is remarkable because European VC typically only accounts for around 20% of the USA on an industry-wide basis.  This just shows the strength of the European market for Advertising models.

Rather predictably, Ad-Networks was the largest sub sector by volume and value: partially explained by the sector being a little "mature " for VCs now and the best plays will have obvious scale.

Our recent investment round into European local advertising player Qype was announced too late to qualify as first half investment.  But Qype has a very innovative business model and is far more than just a UGC review site. There's been a lot of blog chat about Qype and I want to put forward our view in a forthcoming post.

I was also particularly interested to see five investments into companies who are measuring advertising effectiveness.  The great thing about the web is that it allows brands to quantitatively judge the success of campaigns.  We at Advent believe there is an exciting opportunity emerging for Advertisers to find out which half of their ad-budgets are being wasted.  We are very interested to see European companies tracking, measuring, analyzing, and quantifying online advertising effectiveness.

We're also excited to see companies who are helping brands develop new forms of advertising, especially online short form content, but more about that in further announcements...

Here is the powerpoint.

Ad Tech Paul Fisher

View SlideShare presentation or Upload your own. (tags: industry advertising)

Below is a list of the businesses and the amounts. If I have time (something my post rate will show I don't have lots of)  I'll add a little more "colour" to the list.

Ad Exchange   
AdJug             
AdGent 007      
ContextWeb     
TargetSpot      
   
Ad measurement                       
Digital Revolution Technology      
Vizu                                              
VoloMedia                                   
XPlusOne                                      
Integrated Media Measurement    

Ad network                
AdScale                            
Adconion
Mochi Media   
IGA   
Broadband Enterprises    
Demand media        
DirectoryM                  
Giant Realm               
Gigya                         
Graspr                         
Jivox                         
RockYou                    
SaysMe                         
Tremor Media           
Undertone Networks      

Ad technology         
Invidi Technologies   
Ads Clicks                  
Videoplaza                 
Keybroker                  
Coull                         
OpenAds                   
AdMeld                      
Click Forensics             
iBloks                         
Invision                      
Jobster                      
Kiptronic                      
MediaBank                   
MediaBoost                  
V Links                         

Agency                           
Uniteam Communication   
Bruce Dunlop & Associates   
i-level                               

Local Ads           
Local Labs           
Local Marketers  
WebVisible         

Mobile ads            
AD.IQ                  
Blyk                       
Acuity Mobile       
Ad Infuse               
mSnap                   
Ringleader Digital   
Smaato                  

Out of home advertising   
Ocean                              
Hanger Network                 
JobDig                               
SeeSaw Networks              

(Advent Ventures conducted the research using data from RealDeals and proprietary research.)

On Qype, The Southampton Echo, a dodgy swimming pool (or Regional newspapers, business models and Qype)

I make a conscious effort to never write adverts for portfolio companies, but bear with me on this one.

A few weeks ago I wrote a long review on Qype* for a swimming pool in Southampton (read it here and in news paper form here ).  I was so delighted with the review (and so angered by the crappy swimming pool) that I decided to cut and paste the review into a letter to the editor of the local rag, the Southampton Evening Echo. 

I am stunned to say that last week it was published as the star letter on the highest circulation day for the paper (ah me, I have finally hit the big time).  

Why am I telling you this? 

Because it’s a perfect illustration of how traditional business models are under attack by something they can’t defend.  Look at the quite stunning evidence here  and here.

The Daily Echo loved the Qype product so much they (unwittingly) reproduced a review straight from its pages.

Qype has loads of great content. My review was a rambling monologue against local government masquerading as a swimming pool review, but Qype is packed full of really well written, relevant and trusted content.  Stuff that regional press love.   The Southampton Echo loved it so much they took it lock stock onto their old fashioned news paper.

Just imagine how much US regional press would love to have ads from craigslist.

Just imagine how much Yell.com would love to cultivate a community of users as loyal or innovative as Qype or some of its competitors.

This begs one of the most annoying questions from VCs: “if this is such a threat to local news papers**, why aren’t they just doing it themselves?

And there’s the answer right there.  They could.  But they don’t.  And that’s why there’ll always be great opportunities for smart entrepreneurs.

One other reason for wanting to write about Qype is it’s an excuse. For not writing here much recently. For me, Qype is the new blogging.  I am stunned (and slightly embarrassed) that I derive so much self satisfaction from spouting off opinions on things from croissants at The Wolseley to the local plumber.  But writing reviews has got me hooked.

*Qype is a portfolio company of Advent Ventures.
**of course you can interchange this with MySQL & Oracle, Bebo & AOL, BT & Skype etc. etc.

Display ads and CPM are broken

This is the idea that the CPM model is an inadequate measures of performance and therefore their pricing needs to change.

Problem (s)

1) CPM.  We still don't know that when a user sees a display-ad if she is more likely to buy that product. We can run focus groups, we can measure clicks, we can run surveys.  But we don't have any directly correlated and measurability.   This is one of the reasons why I am sure we will see a proportional drop-off in display ads (recession or no recession).

2) Forget consumers, advertise to influencers. 
It is not really display that influences buyers at all.  It is key community influencers. 

Solutions

How are people solving the above problems?

1) Targeting 
When you’re concerned about the veracity of your performance metrics, the obvious way to get around them is to advertise only to be people who you know want to buy.

A range of methods exist:
•    Targeting certain online behavior like Blue Lithium.
•    Targeting specific geographies like Yahoo Smart Ads
•    Targeting specific interest groups
•    Targeting certain communities only at certain times “timing”. E.g. look at Freeads.co.uk weekdays 11.30 – 2pm; it will be dominated by McDonalds ads.

2) Influencing the influencers

Good customers cannot be identified soley by their purchases (see Leveraging user generated content from forrester ).

Some advertisers are beginning to believe that it doesn’t matter if you’re CPMs are wrong, so long as you’re targeting the right people. 

“Now it’s about activating people of influence. They will then promote your brand continually because it protects and extends their personal reputation. People activate based on uniqueness of information, trust and credibility of source. CNET claims to be zeroing in on the 50% of advertising that does work.”

Neil Ashe, CEO CNET . See also "Understanding Influence and Making it Work for You,".

CNET claims to get higher CPM not because their audience are High Net Worth Individuals (like FT.com & Economist does) but because their audience is chock full of influencers.

Forrester have gone one step further by claiming that metrics will focus on the acquisition of  evangelists rather than purchasers.  They predict that a completely new metric will emerge called the cost per acquired advocate (CPPA).

3) WOM agencies

A few specialist word of mouth agencies are emerging specifically to target the influencers.  They are telling brands to allocate their cash to specific users and attempting to knock the bottom out of the CPM market.

Conclusions

There seems to be lots of suspicion today over online performance metrics. A number of developments are trying to solve this including media mix optimization and new targeting techniques.

The concept of effectiveness is core to bridging the online offline shift but arriving at a single measure of effectiveness is a big challenge for the industry.

The commonality for all advertisers is that they want all want a reduction in risk. They want to get better bang for their buck.  They know the web is changing things but it’s still too early to know how and exactly what they should do.

When will be able to use cpa for buying cars?

How do we solve the offline purchase problem?

The Adtech conference a couple of weeks ago was pervaded by two smells. One was the sniff of a slowly decaying traditional advertising world, the other was the smell of adolescent exuberance from a bunch of precocious but brilliant teenagers.

Because of this the conference was brilliant.

What has stuck with me is the cleavage between traditional advertising and new generation performance marketing.

The problem with traditional advertising is that performance metrics are woolly. That’s not to say it doesn’t work.  We still see TV adverts for soap powder because of course there is a correlation between offline ad spend and revenue.

What the traditional admen didn't want to address was what will happen when web offers the same reach as tv. They seemed to retort that ideas like a monkey playing the drums will save offline advertising. I am not so sure.

At one level this is an online offline debate, but on another level this is product centric.

You can sell some products, like cameras online, and so using performance metrics like cpas is easy.

But what sort of performance ads can you use if you're Cadburys or Pringles?

How can you prove an online ad makes more people buy chocolate? Its hard.

Its not just FMCG. For example, what about cars? You can have an incredibly compelling piece of advertising that makes someone more likely to buy a BMW.
But they are going to buy it in a dealer.

Why should it matter that offline ads are hard to measure?

When you can’t measure the effectivness of an ad it should worry admen. Advertisers can get measurement elsewhere. They will go elsewhere.

It also worries small publisher sites; what if you have created a niche car blog with the perfect environment to persuade people to buy cars? You can't currently get the 5% lead-gen fee. But by god that’d be nice.

As an investor I am fascinated by this broken piece of the chain. How do you solve the problem? Vouchers? More sophisticated lead gen intermediaries?

I'm looking forward to entrepreneurs telling me.