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IPTV: A Future Just Around the Corner?

Fawn Fitter
IPTV: A Future Just Around the Corner? Fawn Fitter

Imagine a world where a single network carries phone calls, internet traffic and television. Where viewers can click through a commercial to call the advertiser for more information or make a purchase on the spot. Where a single back-end database stores data about what a user has recently browsed for, which shows what they've watched and whom they've called. Where you can use that database to sell ad space across individual computer screens, TV sets and mobile phones for the last word in targeted messaging.

Internet Protocol Television (IPTV) -- television delivered via a fully converged broadband network -- will strive to make this marketing nirvana possible. And according to participants at Network Ventures 2006, a Dow Jones VentureWire event held February 8 and 9 in San Jose, California, it's already on its way. 

Although the two-day conference focused on opportunities for technology start-ups to find success in emerging networking markets, the ramifications for the interactive marketing industry are clear. True convergence, with its potential for creating a single, fully searchable ecosystem of information about consumers' interests, needs and habits, is about to change advertising forever.

"The potential to make media purchases by zip code across television, internet and mobile phones is just two years away," said Russell Zack, chief operating officer of Cauldron Systems, which makes software that allows service providers to track and control their customers' network use more precisely. "The fully addressable home will be a huge marketing opportunity."

Some participants questioned whether consumers will be as quick to adopt IPTV in the U.S. -- where cable and satellite are well-established -- as they will in Asia and Europe. However, according to analyst Michael Howard of Infonetics Research, the technology is already taking off. By the end of this year, 1.2 million people in the U.S. will subscribe to IPTV. Within three years, 54 million people worldwide will have IPTV, 13 million of them in North America, he predicted; by 2015, it will be ubiquitous.

The potential market for IPTV is in the hundreds of millions-- every broadband subscriber and every mobile phone owner in the world. Cable providers, with their package deals that include broadcast television, video on demand and high-speed internet access via cable modem, are closer to achieving IPTV than telephone companies. As a result, the telcos are under enormous pressure to roll it out to keep their customers from being poached by cable, particularly once voice-over-IP technology becomes practical on a wide scale. AT&T and Verizon are already testing IPTV in small markets, and customers are adopting it in great enough numbers to justify further expansion, said Peter Barrett, CTO and general manager of engineering for Microsoft's TV division, in the conference-opening keynote discussion.

There are still barriers to successful wide deployment of IPTV, said Howard. High-definition video requires far more bandwidth than voice or data, and current networks lack the capacity to carry multiple video streams without quality issues. "If everyone turns on the same program at once, it fails," he said. However, new video compression codecs have emerged that provide higher quality video at lower network speeds, which will let service providers get more mileage out of existing infrastructure even as they race to upgrade from copper to fiber.

Barrett said he believes IPTV's value proposition over satellite and cable will be search. By combining robust search technologies with digital video recording, video on demand, channel guides and other navigational tools, users will be able to select among a potentially limitless number of channels and create fully customized programming. For example, IPTV will allow users to find out what movies their neighbors recommend, search for programs that are especially popular among other people who read the same blogs they do or see what the people on their IM buddy lists are watching.

Consumers will experience that as a fun and convenient feature set, adding value to the familiar television-watching experience. Marketers, though, will be able to use search data to target specific users in ways never before possible: putting ads next to or within content, customizing ads based on the programming viewers seek out and creating new demographic segments based on a combination of viewing and searching behavior.

"There's no question, it will come," said Shawn Carolan, managing director of Menlo Ventures, a venture capital firm that's investing heavily in digital media. Noting that Google generates a 25 percent clickthrough rate from the ads it serves to its Gmail users based on keywords in their emails, he asserted, "Well-targeted advertising becomes content." Given the choice between paying a premium to avoid ads or watching an ad to keep the cost of content lower, he added, "Wouldn't you want a tailored ad?"

Barrett put it more succinctly, "Search [on television] will change ads. It will be an entirely new way for advertising to work."

Additional resources:

Request your invitation to Breakthrough '06, iMedia's new Summit about emerging marketing platforms in video, games and mobile, March 26 to 28, 2006.

Fawn Fitter is a freelance journalist whose work has appeared in magazines ranging from Marie Claire to Knowledge Management. She is also the co-author of "Working in the Dark: Keeping Your Job While Dealing With Depression." Read her full bio.

3) Create a level playing field. While it sounds obvious, the test has to be a fair one. That means all parties get pixels placed on the same pages at the same time. They all get the same creative concepts in the same sizes. They receive the same budgets, goals, and targeting instructions. Use a neutral third party, ideally an ad server like DART or Atlas, to judge performance. A non-level playing field essentially negates the test, and in our experience, this happens not due to anyone trying to stack the deck, but rather due to simple oversight. For example, DSP pixels were received at different times and placed in different batches in the client's tech queue, resulting in DSP No.1's pixels going up two weeks sooner than DSP No. 2, leading to unfair opportunity for DSP No.1 to build its cookie pool earlier.

The most debated decision here is whether to run the DSPs sequentially or concurrently, and there are pros and cons to each approach. Sequential testing means DSPs don't compete in their bidding, but it poses significant drawbacks, namely much longer time to complete and apples-to-oranges results. Running DSPs at different times involves not just product-specific seasonality, but even worse, the high-time variability in the underlying display landscape (i.e., new exchanges, publishers moving inventory into and out of exchanges, variation in clearing prices, etc.). Concurrent tests are faster to complete and generate apples-to-apples results. The most common concern here is the notion of competing bids leading to cannibalization. In our experience, competitive bidding affects the overall performance level, but not the ranking. In other words, the DSP with broadest scale and best optimization will put up the best results during the test, and once the competing DSP is turned off, the results will simply get even better. For a realistic example, assume a $50 CPA goal in a concurrent test, where DSP No. 1 comes in at $45 CPA, and DSP No. 2 at $80 CPA. Without bid competition, their CPAs would have been at $38 and $70 respectively, but either way, DSP No. 1 is the clear winner.

Also keep in mind that this is not like search where everyone knows more or less what several thousand keywords work best in advance. Here it's up to the DSP algorithms (if they even truly have one) to determine which of the billions of daily impressions work best based on dozens if not hundreds of variables. In practice, we've found that many DSPs don't even know what to be bidding on, except for retargeting, so actual bid competition is limited.

4) Deploy enough budget to move the needle. Anyone who has been in the display game for a few years can make $25,000 work against almost any goal. The more budget you allocate, the more separation you see in DSP performance, because it's harder and harder to make that marginal dollar, or $100,000, perform at goal. We've seen numerous tests come back inconclusive because the test didn't deploy enough spend. Every DSP came back in more or less the same range, and the client was no more informed than before the test. By contrast, we've seen tests for large advertisers where DSPs were asked to spend $500,000 or $1 million, and in these tests you immediately see the separation. There's nowhere to hide. A large budget is like a magnifying glass, and the ability to pace and perform at those levels becomes immediately apparent. The nice part is, you don't even have to spend the entire budget. In such cases, the results are often called well before the official end date because the loser's inability to meet the daily performance or pacing requirements becomes evident in the first few weeks.

5) Start simple. While a good DSP can and should be used to do a myriad of innovative, game-changing, and complex things, the test itself can be as simple as placing pixels, generating ad tags, and setting up a log-in in the DSP systems. We've seen some folks create elaborate test structures, which do sometimes lead to better back-end reads, but more often create noise, execution error, and poor performance. We believe simple tests are the best. After all, if the simple stuff doesn't work, neither will the complex stuff later on. The partner with the strongest fundamentals is usually the one on which you want to build more elaborate capabilities.

6) Evaluate the winner against clear criteria. Final evaluation of a DSP usually incorporates numerous strategic criteria, the most common of which are the following:

  • Performance -- Were campaign goals consistently met or exceeded?

  • Scale -- At what volumes was that performance generated?

  • Insight -- Is there clear understanding of the drivers behind performance (media, audiences, etc.)?

  • Transparency -- Do you know the underlying supply, data, and economics?

  • Workflow -- How easy was it, and did it fit well with the current business?

  • Service -- How experienced and knowledgeable was the team? Were they responsive? Can you see them as a strategic partner

  • Flexibility -- Can the platform be adapted/customized to your unique needs (first-party data passing, proprietary metrics, integration of direct/premium buys, customizable features via APIs, etc.)

Two other little tidbits to keep in mind. First, notice the reaction of the DSP when a bake-off is proposed. They've all been in lots of bake-offs before and they know where they ended up. They should be jumping at the chance to be in yours. If not, or if they start to backpedal, why is that? Second, watch for little things that happen during the test. If pixels went down, who noticed first? If an exchange or publisher doesn't approve the creative, who notifies you first? These little things often speak to superior underlying infrastructure and processes.

So enough with the vapor and the PowerPoint. Put DSPs to the test. And when you find a winner, tell a friend. With every DSP bake-off, the ecosystem gets smarter and the vapor gets thinner. Maybe soon, all the press won't be generated by DSPs and DSP wannabe's making claims of what they can do, but by agencies and advertisers innovating new strategies and announcing ground-breaking results that just happen to be powered by real DSP technology behind the scenes.
Wouldn't that be nice? Happy testing!

Ari Buchalter, PhDis chief operating officer for MediaMath.

On Twitter? Follow iMedia Connection at @iMediaTweet.


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