Brad Berens: So, it was September when you guys announced that you were acquiring Fastclick. How has it been going?
David Yovanno: Fast and furious! Within six short months we completely integrated the Fastclick business with the ValueClick Media business. This is key for us and our clients. It has yielded more economies of scale and efficiencies internally, but more importantly, it has increased opportunities for more scale and performance for both our advertiser and publisher clients. At the same time, we have also expanded our lead generation offerings through the use of the technology from our Webclients division.
We can now really make a strong statement about a tier one position in display advertising, as well as lead generation.
For a point of reference, our closest competitors would be Advertising.com with regard to display advertising, and Q Interactive with regard to lead generation. I believe we are a unique company providing both services with such significant scale. We are right along side companies like Yahoo! with regard to our reach and advertising volume; but, doing it in a slightly different way. We are an independent ad network that has essentially established representation partnerships with the rest of the internet -- if you will -- beyond just the top few hundred sites online, to offer advertisers a tremendous complement to reach tens of millions of additional unique people that they cannot access working just with a portal or the most popular top vertical content sites.
Differentiating among ad networks
Berens: Let's take a detour away from ValueClick Media for a minute and talk about the renaissance of ad networks that has been going on. After the dotcom bubble popped, I think that ad networks got a bad name to a lot of people, so much so that many of them, when they are pitching us stories, or trying to find out more about iMedia, refer to themselves as rep firms. They go to elaborate lengths to avoid the two words "ad" and "networks" put together.
Berens: And, I am wondering, a) why you think that happened in the first place; and b) why you think that there seems to be such an extraordinary renaissance in the ad network space, right now?
Yovanno: I think the entire online ad industry got a bad name after the dotcom bubble popped, not just ad networks. The ad network renaissance you mention has happened because some believe there are relatively low barriers to entry… for anyone who wants to get into the business of buying and selling online ad inventory. The difference to me is what value is created for the advertisers and publishers in this process. There's some confusion about what a true ad network is. So, it might be helpful, Brad, just to talk about the different models that I see out there that aren't quite ad networks, but can be perceived to be.
Berens: I would like that.
Yovanno: There are what I would consider your traditional rep firms, like Winstar Interactive or what was Phase2Media. These firms are strictly outsourced sales companies that are going to sell on behalf of a publisher. A distinction for this model is that rep firms, typically, do not have their own technology. They typically use the publisher's technology, the publisher's brand, sometime their existing collateral, et cetera, and operate as their sales and marketing arm.
Their margins are typically lower than other network models, comparable to what a company's typical sales and marketing costs are as a percentage of revenue. And they are usually selling on behalf of the sites they represent, including calling a prospect and stating that they are calling from "XYZ website."
A second model I identify sometimes gives the ad network model a bad name, and are most often referred to as a broker-- a business that primarily only trades inventory. They are buying low and selling high without adding much value in the middle, including technology.
Most brokers are not completely upfront or transparent in terms of where campaigns run. Or, they may promise one thing and deliver another. I think there is a collection of these types of companies out there that are generating revenue in the five million to 10 million dollars range a year. When you see 20 networks show up at ad:tech, you can be sure a number of them aren't much more than what I would consider a broker.
The third common network model I identify is an arbitrage model. This is what I see DRIVEpm, and Advertising.com doing, where they purchase inventory on a fixed rate basis. This model primarily targets the top sites on the internet for buying efficiency. They negotiate the lowest possible price and attempt to yield as much value as possible from it. Much of the inventory is remnant inventory from portals and other high traffic areas of the top sites.
An example would be bidding on the MSN "Performance Plus" inventory or the Yahoo "Tier Two" sections which typically include lower value free email, blogs, community sections, et cetera, and then, very simply arbitraging. They also typically sell cost-per-action based programs to their advertisers, use their own optimization technology, data and expertise to seek the most value on the upside for what they can earn from the acquired inventory.
And then, the final model I see is most similar to our model, which is what I would consider a true ad network model, where publishers agree to have all or a portion of their inventory represented as part of a marketplace. We set agreements with our publishers to represent their inventory and pay them a fixed revenue share of what we are able to sell the inventory for.
Besides ValueClick Media, Tribal Fusion and Burst are the more popular ad networks who operate this model. Rather than attempting to buy inventory at the lowest price possible, our relationship with publishers is different in that we provide the many ad serving and ad management tools publishers demand to earn the most from their available ad impressions, and they also benefit on the upside the better we are at selling their inventory. It puts the right incentives in place for quality content, site disclosure, performance, et cetera, and also fosters a long-term, stable relationship.
Berens: What is the difference for the advertiser between your kind of model (the ValueClick Media model, Tribal Fusion, Burst) and the other models that you are talking about? What is the impact, in your mind?
Yovanno: Advertisers are after two things primarily: 1) scale and 2) performance. So, regardless of what type of ad network you are, just know that most advertisers are looking for both performance and scale.
When I look at the differences, I would say the arbitrage model vendors typically cannot disclose the sites that are within their network because there is almost always channel conflict with the top sites on the internet. These top sites have very established sales teams and a brand in their own right that they don't want undermined by an arbitrage ad network's sales efforts. So, that is typically one limitation with the arbitrage model.
However, advertisers that are working with arbitrage networks are typically more focused on performance than transparency. This is the same case with brokers: you are going to find limited disclosure about where a campaign runs.
On the other hand, with a representation firm, you absolutely get full disclosure. The advertiser knows exactly where things are running. So, I do not really see a difference between Winstar and working with an individual site. To me, it is the same thing. It is the same to call Zagat.com or Winstar.
Berens: Although, it will save you time because, you know, you only have to call Winstar once.
Yovanno: Correct, but there is not a huge selection within the Winstar network, if you will. So, when I talk about performance and scale, the big difference is about who has critical mass? Who has got that collection of unique users; lots of sites to choose from; good technology in which to manage a campaign, whether it is brand or direct marketing results that they are after, who brings the most scale and performance?
The trade-off is fewer sites to chose from, a smaller marketplace of unique users, sophisticated optimization technology to manage direct response or brand metrics, et cetera.
Most brand-conscious advertisers today are looking for a degree of transparency. It is not good enough anymore to say, "I am an established company, trust me, you won't run on poor inventory." You have got to show them where their campaigns run. So, I would expect that over time the broker model and the arbitrage model will either have to adapt to this requirement or not fare well. Of course, a representation firm will; however, they will almost always lack the ability to manage a large spend because of the trade-offs mentioned earlier regarding scale.
So, with all these models available, it really comes down to what the advertiser's objective is. If I am a brand-conscious marketer, the content my brand is associated with is important to me. I am either going to work with an individual site, or a firm that represents a few individual sites, and I am going to put together a sponsorship deal, integrated content advertising or some other pure branding execution. If I am that same brand-conscious advertiser, and I am after scale and performance I am going to work with a reputable ad network as well as a major portal who offer transparency. ValueClick Media has the expertise and the critical mass needed for scaling a campaign as well as quality publishers and technology to provide the transparency that is required today.
Berens: And, you disclose which sites your people are on…
Yovanno: We do. Not all clients require it, but, we absolutely do.
Berens: Let's get back to the topic on hand, which is how your capabilities are increasing. You have talked about the two different things that the two companies bring to the table. And, it also sounds like just the sheer amount of inventory…
Yovanno: Definitely. Let me talk about the benefits specifically. The biggest benefit is the result of the expanded marketplace that now exists. With an expanded marketplace there is a certain dynamic that happens when you achieve an accelerated critical mass. You have got incredible ROI and scale for the advertiser. For publishers, you provide higher effective CPMs, better quality campaigns, higher filler rates and the opportunity for bigger paychecks. All of these reasons start to escalate to a point where, you are the only company that advertisers and publishers are working with, from an ad network standpoint.
These are the things that, in my opinion, led to the separation of tiers between Google and Yahoo from everyone else in the search space. When you saw Google, for example, get hundreds of thousands of advertisers in their marketplace, it became a very wide selection of search results available through their AdSense product. Who else can compete with the breadth, depth and effective CPCs that they offer in search? And, we are seeing that exact same dynamic happening in our business, to where the marketplace has expanded to such a level that smaller networks are just brokering campaigns-- they are not adding the value that we are adding, and they will continue to find it difficult to compete.
Our technology has evolved to the point where it is good at predicting the best ad to serve a user on a particular site. This brings value to all constituents, including the user. For lead generation, we've advanced our ability to capture custom data and have upgraded our data quality processing. We are developing ways to leverage all the data that we maintain as a single company in order to optimize and serve ads in a more targeted and efficient way. We are in a unique leadership position of offering advertisers the scale and performance that they demand, as well as the disclosure and transparency in sites that they are looking for.
And for publishers, again it is that consistent, quality, high yielding fill for their inventory. The fundamental dynamics of an expanded marketplace we've created for both display advertising and lead generation is the largest impact and benefit to our clients regarding our integration.
Also, in terms of the people and the approach that we are taking, we have really made a strong investment in the service component of our business. So, we essentially have a two-to-one ratio, approaching one-to-one right now, of sales to account managers. Which means, once an advertiser joins us, they are guaranteed dedicated service from our team to work on all the variations of creative and optimization and placement, and campaign set-up, and all those services that leverage all of the years and years of experience that exist within just the people component of our business to make it work, to basically obtain the objectives, and exceed the objectives that they have set out to accomplish with us.
So, I would say, those two things are really the biggest impact to our client to bringing these two organizations together.
Berens: Well, that is very clearly said. As we wrap up, I am going ask one more question, then I am going to leave the door open to you, because I am sure there is something that I should have asked you that I have not. But, one of my pet questions, right now is … that I recently … let me start with the statement, I recently had the great pleasure of meeting with some people at Anheuser-Busch about marketing and how to aggressively move into interactive marketing; and, one of the most interesting things about marketing beer (this does not have anything to do with Budweiser, in particular-- any beer) is the audience composition requirements.
Berens: They are very limited. They can only market when the audience composition is 70 percent, or more, 21 and older.
Berens: And, one of the ways that they can achieve that, it seems to me, is via a registered user base at something like a Yahoo. But, it sounds to me, from the things you are talking about, that the more technologically oriented ad networks can also deliver that kind of targeting. So, I wanted to know…
Yovanno: Absolutely. This situation is pretty regular for us, actually. Just to give you an example of a site in our network -- Lavalife -- is a popular dating site. We have executed campaigns with alcohol advertisers who had the exact same requirements. The audience composition has to be above a certain percent of a certain age. And, they do register their users. Lavalife is an exclusively represented site on our network, so we do have options for specific sites within our network that have registered users within a specific type of audience composition.
We also rely on comScore reporting for audience measurement of demographics. All of our channels and sites are measured by their service and we leverage that in targeting a campaign to these types of requirements.
Also, within our lead generation component we are able to qualify and ask users who are registering for highly customized responses, such as their date of birth. And, if they qualify, it is after that point in the registration process where we would present an ad like Anheuser-Busch to them. We do the exact same thing for tobacco advertisers, where they have got restrictions against who they would present an ad to and, it is through the registration qualifications that we are very selective about qualifying up front who the user is before we present an ad to them. With the scalability we have in our lead generation solutions, we are pretty unique in terms of being able to handle a client in the alcohol trade.
Berens: Excellent. Very interesting. And, it means that when I was suggesting to the Anheuser-Busch people that ad networks were one place that they could go with this, that I might have been right! So, let me ask you to come up with the last question-- the thing that I should have asked you, that I did not ask you. It sounds like perhaps I have not paid enough attention to your lead generation capabilities. But, what is the question that I have missed? And then, answer it, please.
Yovanno: One question that I would like to address is what's next for our business.
One major initiative is to leverage all the data that we maintain to get us in a position where we know more about non-PII user behavior in terms of how we serve ads. Think of it as a shift from primarily content-specific targeting to more user-based targeting, or user-level targeting. The more popular term is behavioral targeting or behavioral marketing.
There are several opportunities for us across the ValueClick organization to move this initiative forward. Commission Junction, for example, is the affiliate marketing and managed search marketing division of ValueClick, and, through the use of their technology, they are tracking billions of dollars in purchase transactions a year. Most of the major retail online storefronts use our technology to manage their affiliate programs. This includes Barnes & Noble, Brookstone, et cetera.
So, you have got all those billions of dollars in purchase transactions, and then you have got all the shopping cart behavior that happens that does not always translate into dollars. That is a huge asset within the company in terms of data.
With the lead generation that we do, we are managing millions of registered users per month with full registration data related to the ads that they have responded to. We reach approximately two-thirds of all U.S. unique users in our display network, each month. So, there is critical mass for browsing behavior as well. We are one of the few companies without a user-side application sitting on your desktop that touches so many data points on a user.
Getting to a much deeper level of user targeting for us is a big deal. And, I think that we are in a unique position to actually pull that off just based on the data we have access to. A lot of people talk about targeting, but few have the actual assets to do that with any kind of detail and with any kind of scale.
Berens: And, what about personally identifying information? The various privacy concerns?
Yovanno: We've obviously learned from all of the companies that have made mistakes in that area and we take user privacy very seriously. I mentioned earlier that we want know more about non-PII user behavior in terms of how we serve ads. We are sensitive to privacy issues and we take every precaution to be compliant in these areas.
Berens: That is wonderful. And, this has been a terrific talk.
Berens: Let's take a brief detour and follow that for a moment, because certainly our CEO, Rick Parkhill, has been tracking this as a phenomenon-- what we here at iMedia call "the Human Capital Problem."
Berens: Why do you think that is?
Yovanno: In many ways this is still the "Wild, Wild West." The barriers to entry at a certain level are still low and it seems like anyone who knows about this business and has worked in it for a few years could potential hang out a shingle and make five million dollars a year in gross revenue if they really focused on it. However, I think this year especially we are starting to see the barriers to entry getting higher.
But, there is money to be made on the internet. There just is. Besides the risk of employees doing their own thing, there is a lot of money being raised by a number of different online business models that is being used to recruit good people. Our industry is still relatively new and as a result, demand for good talent is outpacing the supply.
Yovanno: There are four needs that I hammer home almost daily with my management team with regard to this issue, to make sure we our doing our job to assess and address with each employee. I associate them with Maslow's Hierarchy of needs, (and I know that you are a scholarly person, so you might appreciate this):
The first need that has to be addressed is economic: making sure that we are paying our team what they should be earning in terms of what is competitive, but what is also a win/win. It is not cheap to live in Santa Barbara or New York, and because of the "Wild, Wild, West" and the shortage of "supply" described earlier, it almost forces a company to revisit compensation often to keep a team engaged.
The second need that must be addressed is the social/emotional connection that you have between the leadership and the individuals on the team, as well as the interaction amongst the team members. A social environment has to be created where people can interact and have fun, and enjoy just being at the company. So, you have got to pay attention to a lot of the little things that make the office an enjoyable place to work where you want to come in to work everyday.
The third need that has to be addressed is the psychological need. People need to be engaged in work that is challenging to them, and that they feel that they are growing professionally. You have to paint a pretty quick career path for a lot of professionals in the online industry, because they see other people escalating rapidly and expect the same opportunity. This is a unique situation to our industry. On the engineering or product sides, they need to be working on challenging projects in order to really be satisfied. They have to be 100 percent tied to the business, and understand where the business is going, what tools we are trying to give publishers to be competitive in our space, and let them run with a lot of things, let them be creative and find answers to problems and be more engaged as a result.
The last and fourth need that must be addressed is "spiritual." I'm not referring to religion in this case, but rather the need for an employee to understand and buy-in to the vision of the company-- where we are headed and what we are setting out to accomplish. For us it's about leveraging the various assets across the company in an innovative way to drive superior scale and performance for our clients, and assuming our position as a tier one partner for online advertisers and publishers. It's really about getting your organization to buy into the bigger picture, and be fired up and engaged that we are moving in this direction. So, that is just more of an aside in terms of how a company like ours has to be competitive on all four of those fronts to keep an edge on the "Human Capital" issue you've identified.
Berens: It sounds like ValueClick is a nice place to work.
Yovanno: We are certainly committed to working on it. I don't think you are going to find a lot of successful companies in our position operating differently, whether they know it or not. When I'm out on client calls, I've noticed lunch being brought in every day. And when the lunch arrives, everyone comes up to the front of the office to pick up their hot lunch, and they have created a social component to the workday. If you are not doing those types of things, you are not competitive in the online space. It is a younger, hipper generation, and you have to appeal to that to keep people happy and engaged, and feeling good about what we do.
Berens: Let's talk a little bit more about what the merger is bringing to the table in terms of capabilities.
Berens: How is ValueClick Media now better than ValueClick Media before?
Yovanno: Today, we're a clear leader with greater scale and breadth. The Fastclick and Webclients acquisitions make us a leader in both ad networks and lead generation. We successfully integrated the Fastclick business with ValueClick Media at the end of March. At the same time, we have adopted the technology platform from our sister division, Webclients, to enhance our lead generation capabilities.
And, it is worth mentioning what ValueClick saw as assets within Fastclick.
First, there was the network of sites that they had put together over the last three or four years. They were a market leader in terms of really appealing to the small to midsize online publisher. They gave them all of the tools they needed to manage their display ad inventory, assistance in redirecting to other partners, total transparency in terms of what campaigns are performing on their site, and which are not, as well as all the controls needed to manage the most yield from their advertising partners. Collectively this was a huge asset that we saw. They really had the most mindshare and market share with publishers on the internet, period.
What they were lacking, by comparison, were a lot of the type of advertisers that ValueClick Media traditionally managed. ValueClick Media was a more established organization in terms of penetrating Fortune 500 companies. We have a substantial number of quality, national brand advertisers on our network. On the Fastclick network -- before our integration -- there was a larger proportion of direct response marketers. So, bringing the two together was just a tremendous complement.
The other asset that we saw was their technology. They have great optimization tools, UIs and controls for both advertisers and publishers, et cetera.
And then: their people. We saw a very passionate and experienced team that we felt we could really partner with to take a leadership position in this market. In fact, a number of the people who were at Fastclick actually helped start ValueClick. Our two headquarters are in close proximity to each other. Our "new" Santa Barbara office is about 40 minutes up 101.
Berens: You guys are in Thousand Oaks?
Yovanno: We are in Westlake Village, (California) a few minutes south of Thousand Oaks. The Fastclick team had a strong culture around account management and retaining business, and it was just a great complement all around. In today's market, it is so difficult to recruit such good people who really know the space. Coming together just made the most sense. Instead of fighting for the same piece of business, we are now focused on "how do we take the industry to the next level with our model and resources?"
We are more focused on innovation than ever before. I think we tripled our team overnight. We have dedicated development resources, account management resources and a much stronger management team. Across the board it is just a much stronger, healthier, experienced team. If you look at the tenure of the team right now, especially our management staff, most have been in the online space for five or six years. We have a pretty amazing collection of people.
Berens: This is fascinating. Let's dig down into the brand marketing/direct marketing distinction on the ad network side. People think of ad networks as a great place for direct response. Lately, we have been hearing about lots of different channels that people will not initially think of as appropriate branding channels. Search, for example, as a branding platform was something we heard about. I do not know if you saw Ron Belanger's presentation at the last Brand Summit, where I know we both were…
Yovanno: Yes I did.
Berens: Let's talk a little bit about what ad networks can do for brands.
Yovanno: Sure. We just published an article related to this specific topic, and it is based on the presentation that I presented at the iMedia Brand Summit in January. Again this discussion needs to be framed based on the objectives of the advertiser. So, when we talk about "brand related objectives," what we are typically talking about is driving lift in metrics such as: awareness, purchase intent, message association and brand favorability-- all of those things that are measurable through the ad effectiveness research studies that Dynamic Logic or Insight Express offer.
That may be a primary objective for a lot of our brand-marketing clients, but there is still almost always a secondary objective for leads and sales. I do not think I have ever worked with a client that is just only measuring those brand metrics.
Berens: Why shouldn't there be?
Yovanno: Exactly, but, for those that have a primary objective to drive lift in these metrics, it is pretty simple. In fact, we employ a lot of our direct marketing techniques, the skills that we developed with our direct marketing clients over the years. We apply these same principles to our brand marketing clients. For example, if we determine up front that the key metric that we are driving is intent to purchase, then we set the campaign up in a way across our network to measure that. We are able to see what creative and what placements within our network drove the highest response within that brand metric. And, we are able to optimize the campaign in that direction.
So, to answer your question more specifically on the point of critical optimization, which is a pretty popular buzzword in direct marketing, and definitely applies to brand metrics, you find ad networks that have the critical mass, the technology and the skill to manage ROI in that way… it is a great vehicle for that.
The other thing that I point at is just the complementary reach that is available with ad networks. The most common media plan that I promote to clients is for them to work with a major portal like Yahoo, work with a top vertical site that matches your audience like ESPN or iVillage, and then leave the rest of the internet to an ad network like ValueClick Media. We specifically are unique in that none of our inventory comes from any of the major portals or top vertical sites today. So, we manage in a sense what the essence of the internet is really about, and that is fragmented sources of content and reach. We have a tremendous group of quality sites within the network. And, we are able to offer unduplicated reach to tens of millions of users that can't efficiently be reached anywhere else. That is a strong argument for using a true ad network.
Another big one for brand clients is just the limitation that exists within things like rich media executions, because of the heavy frequency capping. For instance, you cannot do a large, rich media campaign on the front page of Yahoo. They are very sensitive to turning away their users, especially on the home page, so there is a frequency cap of one, let's say, in the case of a take-over ad on the home page of a site.
There is a lot of buzz around behavioral targeting; and, the results are there. The challenge seems to be having enough data available to actually track enough behavior for it to be meaningful and then have a marketplace available to you to efficiently retarget users. So, when you talk about knowing more about the user, and who you are reaching with your message, if you are working with a single site on a behavioral program there is just not a whole lot of scale available.
When you consider the marketplace of the data that a network can pull together -- like browsing behavior, search behavior, shopping and purchase behavior and other ad-response behavior -- there is just a greater opportunity for data when you consider the number of sites, impressions served, unique users, et cetera. A network is pretty much the only model where you will find any kind of scalability with a behavioral execution.
Furthermore, targeting aspects like, "time of day," or "geography," those things have a lot of limitations in terms of how much inventory is available from any one site, or even on a portal. And again, because an ad network typically pulls together more sites and more users, you are going to find more scalability for those targeting options.
Is There an Inventory Crisis?
Berens: You have mentioned "inventory" in several interesting ways in the last few minutes. One of the questions that we have been asking, and getting a lot of different perspectives from a lot of different people on, is whether or not there is an inventory crisis. Lots of people, particularly automotive marketers, think there is. I would suspect that you would not think that there is, but maybe I am wrong.
Yovanno: I agree there is a crunch with what is considered "good" inventory. There always has been. That is why true ad network models providing valuable information on what is known about the user opens up more inventory. There is a lot of run-of-network inventory that exists on the internet and there are a lot of impressions that are going unused. But, we are in a unique position in terms of the data that we have available, and the way that we compile it to know something about the non-personally identifiable behaviors of the user, making more of our inventory more valuable because we know something about the user's behavior that other companies do not. And we haven't even begun talking about what data ValueClick, as an enterprise, has available.
Berens: We are getting there.
Yovanno: So, we can save that for later. The bottom line is-- there is a ton of inventory that is not being used on the internet because it really is being treated as run-of-network. Not a whole lot of people are in the market for the ads that are showing up on free email accounts, for example.