Pattern Recognition, by Ian Sigalow


Advertising Innovation

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Advertising Innovation


Google does many smart things.  One of the things I like in particular is that rather than just promote the advertiser that pays the most, Google also factors in the click through rate of the ad when they rank search campaigns.  This means that if your advertising copy is good, and you are targeting the right keywords, you end up paying much less than your competitors for traffic.

This has never existed in other forms of advertising.  Imagine if a television channel went to an advertiser and said, “Your advertisement is so obnoxious that it is causing people to change the channel.  That hurts our Nielsen ratings and it costs us revenue from advertisers later in the broadcast.  Going forward we are going to charge you three times as much to advertise here.”  That doesn’t happen.  Yet many of us can point to a TV advertisement that was so bad it had this effect.

Over the next five years this conversation is going to be more mainstream.  And this is happening in large part thanks to online video.

Online video is unique.  Unlike standard web content, most online video has a pre-roll advertisement in front of it.  This means that if the viewer clicks away during the ad, then the content is never watched.  Unlike TV content, the advertiser only pays if their ads are seen, so if a user quits watching in the beginning the content company doesn’t get paid for ads later in the show.

The next generation of video ad servers now support multiple ads in a single break.  This doesn’t sound hard, but imagine trying to forecast the number of ad impressions each month.  Here are some of the questions that you need to solve before you can do multiple pre-roll ads:

1.) If I put three ads in front of each video, how does that impact the number of overall videos watched?

2.) Do some ads cause people to quit the video more than other ads?

3.) What happens if I change the order of the ads I am running?

4.) How many times can I show a single person the same ad before they leave my site?

5.) What is the right price for the first ad in a block, versus the second and third ad?

6.) How does that price change depending on the ad creative?

These questions are all required for a publisher to optimize revenue and yield over time.

In the end this is going to create a new paradigm in advertising that is based on accountability.  For the first time there is going to be hard data on which creative agencies produce the best advertising.  This won’t be honored by a Clio trophy, but it will be directly measured in their client’s media costs.  There will also be a lot more emphasis on media planners.  Figuring out the right audience to run creative against is a tough job, and smart media buyers will need to understand a lot of math to run these calculations.  Just like in search, mistakes will have a lasting impact on their clients ability to get good pricing in the market.


Ian Sigalow

Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.

  • user

    AUTHOR EvanXtremeno

    Posted on 12:11 pm March 11, 2012.

    this is all so true. it is the way things are going with video and advertising. things are getting integrated tighter with audience to accepatance of advertisement. did you check out shark tank? genius.

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