New Ads In New Places

I wrote this piece originally for Matt Marshall's Venturebeat.  You can read it directly there or just continue below.

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New Ads In New Places

There was a great discussion on video ads earlier on Venturebeat. The discussion surfaces two questions that are facing all online services. If the ad industry is to grow from $16B to $30B in 5 years, what will the new kinds of ads be and where are the new places to put them?

Surely, it won’t be more of the same; our eyes are already beginning to ignore the ‘ad gutter’ no matter how relevant the search engines are trying to make them. So what will they be? VCs are seeing three new emerging categories of online ads, one of which could become the lion’s share of all of online advertising.

1. Online ads that look like content
Pre-roll and post-roll ads inserted in a video stream are in this category but long term success is still questionable. You don’t click on pre-roll ads because you are waiting to watch the video, and you don’t click on post-roll ads because you rarely watch a video all the way to the end. The bigger end game is product placement. When you view an image on Flickr, there is no reason why the background cannot be altered to show an ad relevant to your demographics. That’s making an ad look like content. There are technologies that will place ads right inside user generated images and video. It can be done in a number of ways. Your image or video editing tool can help you place ads at the time of content creation.

Alternatively, ads can be inserted after content is created. A piece of software scans an image of video to find appropriate places to insert ads. As a result, a man wearing Adidas shoes, could all of a sudden be replaced by Nike shoes in an image. This method is more challenging because one can’t rely on the creator to make the right judgment on where to put the ad. The algorithm has to be smart enough to figure it out, but there are teams in Silicon Valley tackling this task as well.

2. Online ads that are content
Some ads can be content that people look for. It’s done every day. Those ads are called coupons. When somebody does a local search for pizza in Menlo Park, Applewood can put an ad in the ad section, or put a coupon right next to their address. Either way, it’s an ad to bring in a customer and may cost the store the same. However, there are empirical results showing that coupons are clicked on 10x more frequently than text ads, because they are considered content. It is no surprise that Google did a deal with Valpak to enable local coupons.

Another example of ads that are content is the products of companies like Winster. They are very simple casual games where people buy credits to play to win movie tickets, and promotional products. The game is little more than a gimmick to show you an ad. It’s a customer acquisition tool like a coupon, but people see it as content.

3. Online ads that are offline ads
Now this depends on your point of view. If you are a heavy 2^nd Life user, spending 40 hours a week, that’s more than 2 full days a week (adjusting for sleep) in the virtual world, by now you probably think a billboard ad in the game is an offline ad. The trend I am talking about is in-game advertising. This is another area where we will see a lot of innovation, because the amount of advertising that could be shown in a virtual world is far bigger than the potential for text ads. After all, for each person in the US, advertisers spend $2000/yr across all media, TV, magazines, direct mail etc. If 2/7^th of this total were spent ‘in game’ the total would amount to more than all of the online advertising business today.

Conclusion: The first two categories will yield interesting companies, who discover new and effective ways to show ads. There is clearly room for innovation there and that is enough to get VCs excited and companies funded, but it is in the third category that the most money will be made. It’s simply a much bigger market. I would highly recommend entrepreneurs to find ways for their services and technologies to capture a piece of this emerging market before Google and Yahoo do. It must surely be on their radars.

Comments

[Charles]

This is a great article, Baris!

I love the comparison of time spent "in-world" vs. other media, for me it really clarifies the opportunities of in-game ad placement. Before, I always thought of game ad placement as a pure virtual "real-estate" calculation.

Best,
Charles

[baris]

Charles,
I am happy you liked it. There is more on the topic here, in an earlier post.

http://baris.typepad.com/venture_capitalist/2006/06/avatar_based_ma.html

Enjoy,

[Tomer Alpert]

I found you from a published article. We have developed a video creation platform for products, ads in a sense but sold at a price point that we can sell to the retailers.

We're currently focused on the automotive market. We have 7 resellers and are now powering over 1500 dealerships. We have 1 signed deal with a Portal and have 1 in the wings with a OEM.

This is something the ad community has never seen before, this month we'll create over 100,000 product videos. Our platform is crating the new "standard ad". From pictures and text to full motion audio/video at a price that no one wants to compete with... so far :)

I contacted you b/c I thought you might be interested in learning about what we're doing. Its not a mass market ad, but a point-of-sale ad.

Let me know if this is in-line with your interests. - cheers

[Tomer Alpert]

http://www.automart.com/vehicledetail/adid-43001767/2001/volkswagen/beetle/Nashville/TN/show-video

[Mike Hogan]

Baris, I forgot to mention my trademark on the phrase "ad gutter" :). Nice post.

[Dusty Wright]

We looked backwards at the old TV/Radio models to think forward for our smart culture site CultureCatch.com. We created an NPR meets 50s Network vibe for our sponsors. We want single sponsors for our podcasts/vidcasts. My partner Richard Burns created a template that we can drop visuals/audio into that doesn't offend our users. Rather seemless and cool.

By the way, we've been hired by MacWorld Expo 2007 to run their Podcasters Market in SF Jan. 8-12th.

We should talk to you about participating in a panel. My friend Steve Starr at Revver is joing us, our agent Jonathan Trumper, plus many other podcasters you'll know. Maybe we can convince Fred Davis, too.

Will you be in Ontario, CA in few weeks for the Podcasting pow wow?

You can reach me via skype: puffdusty.

peace,

dw