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.

CPC, CPA, lead generation does not work

Idea
This is the idea that the old CPA and lead gen models are inadequate measures of performance and therefore their pricing needs to change.

Problem (s)

The problem here is knowing when a user clicks on an ad, and then buys a product, if it is as direct result of that ad.

What lies behind these issues is that click-through does not correlate to purchase.

It is worth a brief diversion to say a bit about why click-through does not correlate to purchase:

1) Clickers
Research shows that some users are just “clickers” and will click on anything. Clickers make performance marketing less accurate. Clickers are not stupid, they are your wife.  And they skew results.

2) Non clickers
Non-clickers make performance marketing less accurate:

“respondents said they were twice as likely to notice a web ad, not click on it, but visit the advertised site later (61 percent) as they were to click on an banner ad to reach a site (30 percent).”

DoubleClick Touchpoints survey, 2006

3) Click before purchase

The last click before a purchase is not the reason why that purchase was made.  Intuitively this makes sense: I am personally more likely to click on an ad for Dixons than I am for ABC Online electrics ltd. This is a result of 20 years of brand-building from Dixons.
The question then becomes: why should I pay a lead-gen fee or CPA to an affiliate if they have not done the work? This is the most potentially disruptive one to all those elegant business models that we are backing.

Solutions

How are people solving the above problems?

1) Clickers & non clickers

Agencies are trying to solve the problems posed by clickers but it’s not easy. One of the most compelling is that from Double Click who offer ”view-throughs”.  With View-throughs, lead generation / CPA is paid even if the browser buys within 30 days of viewing.  The problem is still far from solved.

2) Paying rewards based on effectiveness

If advertisers and their agencies are able to come up with one generic and widely accepted measure of effectiveness, then results can be paid.  This is a fascinating area and I have covered here  .

3) Media mix optimization
Due to the quantitative holes in performance marketing, some advertisers are seeking to attribute value to “total exposure” rather than pay for specific clicks: paying for exposure across the media mix.
NBC is trying out a metric called “total audience measure”, which tallies TV and online impressions: “you have to understand, every medium has a different effectiveness level”. Beth Comstock, president of NBC Universal Integrated Media

Opportunities for growth companies

The big issue for many start-ups with a revenue-model based on CPA or lead gen is the question of whether the last click before a purchase is the real reason for that purchase being made. I personally believe that the current system is the least-worst mechanism that we have and therefore PRICING WILL STAY THE SAME:  The downward pressure on CPAs that would come from recognition of additional brand building will be netted-off by the overall shift in spending from mass to performance marketing.

It doesn't concern me too much that the last click before a purchase is not the reason why that purchase was made.  Why?  Because a great web app will act as a "noise reduction agent" to cut through the advertising clutter. This is one of the compelling things about Moveme.com (Advent Portfolio company): there is a clear development towards reducing the noise and concentrating on signal strength from publishers.

Affiliate Networks themselves are seeing some questions from advertisers about the true effectiveness of affiliate network campaigns . I have previous posted on this.

All web properties; from small blogs, through growing media-networks (like glam.com) to massively trafficked ad-driven models like Dailymotion will have to continue building bigger and more comprehensive databases of their users: profiles, demographics, likes, dislikes.  Advertiser demand for this data will only grow.

I am also convinced that we’ve not seen enough from companies targeting specific influencers in key communities.  I’m excited about businesses helping advertisers go after influencers in specific niches or providing horizontal tools to go after influencers in multiple verticals.

Finally, the enormous shift away from mass marketing and into analyzing performance marketing and targeting will create fascinating opportunities for growth:
•    Managing customer data-bases
•    Analysing customer data
•    Automating the measurement and performance of advertising dollars on-line and offline

Will advertising really evolve from "big ideas" to individual conversations?

The idea
This is the idea that we are now immune to big branding ideas and advertising.  The theory goes that the perfect antidote is web-based and is called (dependent on who you are)

• conversational marketing
• engagement marketing
• targeted advertising

This was one of the key ideas from the research that we did.  I have a future piece on this topic. But I wanted to blog it now because with uncanny timing two of my favourite bloggers have coincidentally written about the same thing on the same day from different starting points.  (Far out and weird man).

V 

Nic Brisbourne thinks that big brand “ideas” won’t work in the age of the web because the general public can complain in blogs that drinking Pepsi won’t make them play like David Beckham.

Russell Davies (who works in the advertising industry) thinks targeted ads will never be that compelling, and there will still be a role for brand ideas from the “great communicators” in the ad industry.  His hypothesis of the “uncanny valley” is brilliant.   

These ideas make for fascinating ruminations and theoretical late night debates on what the future holds.  However, most of my readers seem to be entrepreneurs and therefore more interested in what these trends in the market can mean for them as pragmatic business creators.

I think there are some fascinating opportunities for start ups in these areas, though the jury is out on who “VC-backable” they are.  More in my forthcoming posts.