Tim Vanderhook co-founded ad network SpecificMEDIA in July 1999, at 18 years of age. Vanderhook is largely responsible for pioneering the pop under ad unit in 2001, as the dot com fallout started to take place. Then, as the internet ad industry evolved and the pop under ad unit lost its luster, Vanderhook changed SpecificMEDIA's focus to creating advanced targeting technologies that support all forms of standard IAB ad units across its network.
Editor's Note: Many of our sponsors are also thought leaders in the industry -- and they deftly separate their thought leadership from their duties to promote their individual business. At the time of this interview's publication, SpecificMEDIA is the sponsor for the ad networks section of iMedia Connection. It is important to point out two things: first, iMedia Communications does not sell article space, ever; second, we have been eager to do an interview with Tim Vanderhook for some time.
Brad Berens: 2005 seemed like a banner year for Ad Networks -- with a new ad network seeming to appear on the landscape every few days. Why do you think this happened in 2005? And what do you predict for ad networks in 2006?
Tim Vanderhook: I have a two part answer.
Part One: In 2005, there was an explosion of new companies in the ad network space, an explosion that, I feel, was due to a few contributing factors. First, the investment community gave a lot of interest to this type of business model, which naturally attracts entrepreneurs to create new businesses. Second, advertisers and agencies are looking for ways to reach specific audiences with large scale, and that can only be found in a few places online, primarily with the big portals and ad networks. Lastly, publishers are always looking for partners that can help them monetize their ad inventory.
The above factors caused a lot of new ad networks to appear and has shown that anyone can rent a third party ad server, place a remnant media buy on a few sites and slap themselves with an ad network label; however, this doesn't make them any different than the next guy. In order to succeed as an ad network, you must be able to differentiate yourself from the rest of the pack.
Part Two: Predictions are always tough to do, but here it goes.
Marketers will continue to focus on using ad networks that offer Behavioral, Contextual and/or Demographic targeting technology. The top ad networks (those that have a truly differentiated product offering) will start to leave the others in the dust by means of their advanced targeting technologies. Advertisers and agencies will continue to be educated on who the "real" ad networks are and naturally gravitate to them. The true benefit that the ad network brings to the marketplace is the targeting technology they have created; those that have it will rise to the top, those that don't will have a tough road ahead.
We will see a top ad network acquired by a major media company in 2006. The top ad networks utilize advance targeting technologies that process large volumes of data, which allows them to segment users and deliver relevant ads. This type of technology and expertise could enormously benefit a major media company in creating higher value ad inventory that one could "plug-and-play" into their online properties. The success of the Advertising.com acquisition by AOL was an early indicator of the tremendous synergies in combining an ad network with advanced targeting technologies and the existing reach of a major media company. In addition, we have already seen both MSN and Yahoo!'s interest in utilizing behavioral data across their network properties.
Berens: Let's stick with that second prediction for a second. By "major media company" I take it that you aren't just talking about major online media companies, right? Do you think that, for one hypothetical example, having acquired MySpace (itself a different kind of network) and IGN, that News Corp. might be eyeing an ad network?
Vanderhook: I'm really referring to media companies in general, whether online or traditional. Obviously I cannot say for sure but I think it could be highly likely that News Corp. is eyeing an ad network to purchase. They have all of the pieces of the puzzle except for the one in the middle that connects the dots. They now have a tremendous reach online, which equates to a huge amount of inventory that they need to sell, but they lack the ability to segment and target that audience with relevant ads. They could easily be a possible suitor for a behavioral ad network that has existing relationships with advertisers and agencies and that is already utilizing behavioral data to segment users online. We know that News Corp. wants to compete with the likes of AOL, Google, Yahoo! and MSN; now that they have the reach and content they could use a behavioral ad network to tie it all together… just like AOL did with Advertising.com.
Berens: You talked about differentiating factors among different networks, and this is something that we've been following closely here at iMedia for a while. Without it being too much of a commercial for SpecificMEDIA, what are the three factors that you recommend advertisers think about when trying to choose an ad network?
Vanderhook: Advertisers can ask simple questions that can help them identify the ad networks that really have a unique selling proposition.
The first question to ask should concern the quality of media that the network represents. If you are going to place a media buy with one of these companies, you need assurances that the network represents sites that you are comfortable being associated with.
Second, find out the quality of the technology and ask them what ad serving technology they use. By asking this question you can identify the ad networks who offer real targeting technologies that are unique versus the ad networks that contract out this important piece of their offering. In short, if they use a third party ad server, what unique value do they offer?
If you're comfortable with their responses to the above questions, ask them a third question that speaks to their quality of data. For example, if an ad network touts behavioral targeting and says they can reach "In-Market Auto Shoppers," ask them how they define their "Auto Shopper" behavioral segment. Are they users that visited Kelley Blue Book's website in the last 21 days or is it a user who visited a Tripod member's page for Nissan 350Z enthusiasts six months ago?
I have been in numerous meetings with agencies and advertisers that fail to ask me the simple question, "How do you do that?" Ask that question, and you'll get insights into the quality of data and the rules surrounding the use of the data.
Berens: Earlier, I described MySpace as a kind of network -- and it certainly has a tremendous amount of inventory. When I think about networks, I think about publisher networks like MySpace and Gawker on the one hand -- distinct from portals because the content ranges across many domains -- and ad networks like Advertising.com and SpecificMEDIA on the other hand. Is that a fair distinction? I worry that the differences between portals, publisher networks and ad networks can get blurry for all but the insiders.
Vanderhook: I would say that you are right on with the way you just categorized them. The term network takes on multiple meanings and absolutely gets blurred when you have outsiders looking in. Then again, I think a lot of companies selling ad space blur the lines on purpose thinking that they can garner more dollars by being ambiguous with what they offer. That's exactly why it's important to ask the question "how" when they tell you they can do one thing or another.
Berens: In 2001, after the bubble popped, SpecificMEDIA had a big success with the ubiquitous X10 Wireless Technology pop-under campaign. The SpecificMedia company history document that you sent me characterizes this campaign in an interesting way: "Although the campaign became a nuisance to online users, it was the first successful pay for performance marketing campaign online." In the five years since X10, how has your understanding of what consumers will and will not tolerate from interactive advertising evolved? Are pops (ups and unders) dead forever? Is this a harbinger of the future of interruptive advertising in general? And, if so, how do ad networks fit into this non-interruptive universe.
Vanderhook: In my opinion, consumers are willing to tolerate a lot more than most of us would think. If they feel that they are getting something, like access to free content, in exchange for their patience then they are usually very tolerant.
When the pop under ad unit went mainstream back in late 2000 and early 2001, it seemed to be tolerated fairly well, and I say this because I had access to the statistics we were seeing. On average the CTR was about five percent, with some sites pushing over 13 percent. What these numbers showed me was that consumers didn't necessarily detest the ad unit itself, they detested the amount of times they saw that unit in a given day. As publishers needed more cash, they opened up the frequency caps from a one per 24 hour period to as much as one per user session. We saw consumer attitudes start to change, and the rates at which they clicked through via the pop unders started to drop dramatically.
The problems started happening even further with the proliferation of adware companies such as Claria, 180 Solutions, Direct Revenue, Hotbar and a multitude of other companies where users were exposed to 15 pops per day from each adware company (and those are conservative estimates) and one during each session of the publisher website they visited, giving the average user north of 20 pops per day. All that being said, the ad unit works, but it only works when the exposure to users is capped conservatively.
The reality of a pop revenue stream today (and in the future) is 85 percent evaporated for web publishers, but pops will continue to maintain as the primary driver for the adware companies until they figure out a supplemental ad unit/business model that drives similar amounts of revenue into their organizations.
Now we are seeing fundamental changes inside the adware companies' business models, like Claria's BehaviorLink Network and Direct Revenue's new Behavioral Targeting Network, shifting away from an effective ad unit to offering effective targeting -- as they have the ability to see that their targeting is really the advantage they offer, not necessarily pops.
A typical consumer expects to receive advertisements just about everywhere they go in life, and the internet is no different, so I don't think the right question is what they will tolerate but what they will respond to. This is where the ad network model fits in so nicely because we have the unique ability, via behavioral targeting, to target a user with a known interest in a category and control the frequency and timing of a given advertiser to that user no matter what content they are consuming, which ticks the interaction rates up.
There are numerous questions that still need to be answered in this area -- such as, what is the correct frequency for a given product or given category? But I believe certain ad networks are on the right track by shifting their focus to targeting users showing behaviors, sequential messaging of the product offering, and aggressive frequency capping to eliminate waste for the advertiser.
All this versus just simply targeting content categories.
This model helps increase the yield publishers receive for inventory across the board and helps advertisers achieve a true efficiency with regards to reach and frequency of their message to "In-Market" consumers.
As the networks start to sharpen their targeting tools, the need for more obtrusive advertising will start to wane. This is because of the relevance of ads surrounding the content they are consuming leading to an increase in user interaction with the advertiser.
Berens: Last question -- you were 18 years old when you co-founded SpecificMEDIA with your brother, and that was in 1999, which presumably makes you 25 or 26 today. Do you think your age gives you a different perspective on the internet and on interactive advertising than most of your peers in the business world? And, if so, what is that perspective?
Vanderhook: I'll be 25 years old in a month or so. I would say that my age plays a factor to the extent that I was quite naive when I started this company. I jumped into this business almost seven years ago -- not knowing what CPM, CPC, an IO, a PO, CTR or any of the other ridiculous acronyms that we all love to use and confuse others with were -- and really looked at the business as trying to solve a problem that advertisers were telling me they were experiencing. (I know what you're asking yourself and the answer is no, they did not know how old I was -- no one ever asked!)
My views on the industry were different than my peers in the beginning because I solely understood the concept of direct marketing, without a clue as to how to build a perception in consumers' minds that we call a brand.
My experience in internet advertising dates to almost the beginning of its creation, and my dealings have been with some of the most successful online campaigns like X10, LowerMyBills, Orbitz and Expedia. I feel like I know advertising as a whole with a deep knowledge of the internet as a medium. I think where many of my peers go wrong is they focus their efforts in trying to imitate what was done in print or television versus innovating the advertising industry altogether, because they lack the understanding and experience of how the internet works from a technical and social perspective.
The internet technically gives us the ability to apply top level mathematics where we use algorithms, predictive models, matrixes, and others to see into the future of how consumers will react, whereas, traditional media doesn't afford us that same opportunity. The internet also socially gives us the ability to track and monitor increases or decreases of consumer responses to advertisements -- about as one to one as we're going to get.
The true winners in this space are those who get away from the good old brand awareness survey and use mathematics that accurately predict instead of react to consumer responses.
Brad Berens is executive editor for iMedia Communications.