Benjamin Kuo’s Blog

Well, that’s a relief. Microsoft apparently is dropping its vomit ad, after lots of customers complained. For those who have so far been spared having to watch what has been billed the worst technology ad ever, be thankful. (For the squeamish, it involved a wife.. ummm, vomiting, repeatedly, and graphically, all over a husband after looking at what he had on his laptop. Don’t watch it before/after breakfast/lunch/dinner.)

I don’t know about you, but either Gmail thinks I can read a lot more Hindi (?) (see embedded ad below) than I thought I could, or someone has some strange ad targeting parameters:

ps. I’m clearly NOT at zero inbox.

On the “when will the recession hit the Internet front”: today, Westlake Village-based ValueClick announced it was reducing second quarter estimates due to a drop in Internet advertising — specifically, lackluster growth in display advertising and a steep dropoff in lead generation advertising. Despite what seems like boom times in technology today, it’s pretty clear that subprime mortgage loans, record setting foreclosure levels, runs on the bank, gas prices and (maybe the most impactful on the technology pros out there) the closure of Starbucks stores everywhere — that the economy is not in a happy place. The question is: how far and wide will dropping CPMs and lackluster retail activity hit online businesses?

Paidcontent is reporting that OpenX, provider of a popular open source advertising serving software product, is moving its headquarters to Los Angeles. OpenX is backed by Index Ventures and Accel. The addition of OpenX bolsters the growing ranks of Internet advertising firms located in the Los Angeles and surrounding areas: among other online advertising related firms in the region are ad networks Yahoo Search Marketing (formerly Overture), Specific Media, ValueClick, AdECN (now owned by Microsoft), not to mention Spot Runner, Gorilla Nation, Rubicon Project, Interpolls, Greenlight Wireless, NextMedium, Panache, ReachLocal, WebVisible, and a slew of other local companies involved in some way with the online advertising industry.

Here’s a great summary of why mainstream media is having so many problems, from an article today in the San Francisco Chronicle:

Mainstream media as a whole, the report found, isn’t losing its audience. It just doesn’t know how to get its new online customers – or anyone else who is reading what they’re producing through online aggregators – to pay.

Actually, in my opinion, it’s also getting all of those offline advertisers (everything from “Bob’s Pet Shop” to Walmart) to spend on online advertising. Unfortunately (for mainstream media) the technical know-how and acceptance of online advertising as a way to drum up customers is dismal. I’m constantly amazed at what kind of rates local businesses are willing to pay for not-so-effective, local paper ads; but, how little they will pay for online, if they’ll even put ads there.  Anyone who doubts this should call up their local newspaper and ask for rates for a single full page or half page ad, and then compare those rates and reach with placing a banner ad or Google Adwords advertising. The problem is, rates for online advertising are way, way, way cheaper and usually performance (PPC) driven. For some businesses, you can get away with spending what you normally might for a week’s worth of local newspaper advertising to cover you for a year. That’s a lot of lost revenue to mainstream media.

There’s been a lot of banter recently here, at conferences, blogs, and in my personal conversations with people about the effect of an overall slowdown (if there is one) on Internet advertising.

The problem is, there are several, very different, and powerful forces bearing down on the Internet advertising market, which make it hard to say what — at least, in the short term — will happen with ad rates.

The biggest, and I personally believe the most powerful, is one that a lot of people ignore in the short term, but which over the last few years has driven the internet advertising market most strongly. That force is the shift of traditional advertising dollars (think branding campaigns and Superbowl commercials), as a percentage, towards Internet advertising.  This is part of what is driving the huge profits and building companies in the Internet advertising market, which is traditional advertisers starting to pay attention to this “new thing called the Internet” and dipping their toes into branding ads here and there. My belief is this is only at the very, very beginning, if you compare the vastly greater sums being spent on other media like television and even the maligned newspaper industry. Anyone who does any kind of advertising placement can tell you, you can buy Internet ads at pennies on the dollar versus what you’d pay for an ad in your local small town newspaper. This shift is happening, and is not going to stop because of any kind of economic environment.

The second force, which has also been driving Internet advertising, is the entree of a different class of advertiser. These are the small businesses, web sites, and others who would not be purchasing traditional ads on television, newspapers, or radio–but have done so fairly regularly on the Internet. These are the bread and butter of Google — the advertisers who are only spending a small amount every month, but are able to because of the low cost of getting a few impressions. I think of this as the “eBay” effect — because there’s a marketplace available, a new market has been created which previously didn’t exist. Based on the kinds of ads I see popping up on Google, these are the folks that have been driving the bulk of Google’s ad revenues.

Finally, there’s the (short term) force of any spending pullback by advertisers due to a soft economy. This can be quite significant: witness the giant pullback in spending on technology magazine ad pages during the Dot Com bust. It also will most likely result in lowered CPM for online publishers, as competition for inventory drops and there’s a lot more available ad space than willing buyers. However, if there is a recession, Internet advertising is a way to get a lot more bank for your buck — it’s much cheaper (and more measurable) to buy up Internet advertising space to sell your products.

So, if you try to measure the shift of ads to the Internet, the democratization of advertisers being driven by Google, and economic effects, I’m really not sure what you get.  The fundamental question is, what’s the overall direction the Internet advertising market will take, given these the opposing forces? In the short term, it’s pretty darn muddy, and may even be bloody as the cost structure being supporting by high CPM rates on sites gets decimated by a drop in CPMs–it may even be fatal for some web sites. But, in the long term, I think it’s clear — more Internet advertising, and most likely better CPMs as all those traditional advertising dollars see a better ROI and reach in Internet properties.  As a long term play, I think it still looks pretty good.

comScore just released their Top 50 web rankings for November, and several Southern California companies made the rankings. Among the top sites, Fox Interactive Media (including MySpace.com) was number 5; at number 22, was Gorilla Nation; Shopzilla–undoubtedly boosted by the holiday shopping season–was at number 26; Yellowpages.com — out of Pasadena — was number 29; Disney Online, at number 30; United Online was number 40; and ARTISTdirect at 46.

Also among the rankings was the top 50 advertising networks. A quick scan of the list shows a number of Southern California companies ranking highly in this sector: ValueClick is ranked number 6 on the list; MySpace at 28; Gorilla Nation at 29; AdDynamix at 35; and Business.com at 38.