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Think Big. Move Fast.

I’ve seen a few startups recently that are relying on launching a new form of advertising as their business model. These can include product placements, sponsorships of various flavors, new forms of local advertising, interactive out-of-home advertising, and lots of variations of mobile advertising. This is a hard business. If successful, it can be very, very successful (e.g. Overture/Google with sponsored links in search) but entrepreneurs often underestimate how long it will take for revenues to ramp.

To understand how new forms of advertising get adopted, you need to understand how advertising is bought today. In most instances, ad agencies control the ad budgets for the largest advertisers in the world. Within those ad agencies, one of the functions is media buying. A media buyer’s role is to optimize reach (and sometimes quality of audience) for their client across all possible advertising channels. The problem with new forms of advertising is that they are often not represented in the media buyers’ spreadsheets and models. And if it’s not in the model, it doesn’t get allocated any ad spend.

Startups sometimes get traction with a new form of advertising because there are always some forward thinking advertiers who are willing to experiment. This early traction is often a customized program negotiated with an advertiser that is friendly with the startup through personal relationships. However, crossing over from a “business development” focused model (where each new deal is custom crafted) to an “ad sales” focused model (where standardized products are sold off of a rate card) is the key to massive scalability of revenues. To do this you need to get into the media buying model; you need to sell a standardized product.

For internet companies, that usually means that you need to get the IAB (Internet Advertising Bureau) to issue a new “Standard” ad unit, in much the same way that the IAB issued its first set of “voluntary guidelines” that set up 8 standard banner ad units in 1996, a massive reduction from the over 150 ad sizes that were in use at the time. This standardization greatly eases logistical complexity for both advertiers and media companies.

The process of creating a new standard can be quite a lengthy one. It usually involves a coalition of both media companies and advertisers coming together and negotiating the key elements of the standard. The composition of the IAB board is usually dominated by larger online media companies and it can be hard for a startup to have much influence on this decision making process. It can often be easier to align youself with the interests of a larger media company and let them carry the water up the hill, rather than trying to do it independantly as a startup. If you’re Dogster, you’ll have less success pushing a new standard for “sponsored profiles” than MySpace/FIM or AIMpages/AOL. So making sure that your sponsored profiles packages contain the same elements as those of the big guys will make your life easier as they take this new ad unit through the standardization process

The alternative approach is to make sure that your new form of advertising so closely parallels an existing standard ad unit that it can be considered within the existing bucket. 30 second online video ads (same format as TV),online leads (similar to phone leads) and new variations of CPC advertising (similar to search) have all been “close enough” to an existing ad unit that they have been able to tap existing ad budgets and grow quickly.

In either case, when building business plans on the assumption of the adoption of new ad units, make sure you give yourself enough time in your plans for the market to be created before it can grow to scale.

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  • http://elapsedtime.blogspot.com hunter walk

    another piece of advice I’ve seen — once you’ve got the small trial deals in place to provide the case study, aggregate all your traffic into significant sized bundles. If there’s a particularly vertical/demo you want to sell, focus your product efforts on building around that one first in order to get to scale.

    The large advertisers/media buying agencies predominantly aren’t interested in cutting small checks.

  • John D

    “new forms of local advertising”… I assume that’s not with local merchants since they do most ad buys in-house. Do you see new lead generation models in the local space (click to call, online coupons, other) having difficulty gaining traction? If not, do you see YP companies embracing pay for performance as a competitive hedge even though its less attractive than their fixed fee model?

  • http://lsvp.wordpress.com jeremyliew

    John D,

    You’re right that small business local merchants do their buying inhouse. But it can be hard to reach them and educate them about new forms of advertising too – they are busy people! If you can fit it into a form of advertising that they are familiar with (its coupons – just online etc) then it is an easier sale – same principle but slightly different reasons. In general, local is hard due to cost of sales – if you can find a low cost (ie automated) method of sales then you have a much better chance, but then you need to have a simple value proposition and mental model for your product, and that often means paralleling an existing standard ad unit.

  • http://newspeedwayboogie.blogspot.com Weissman

    There’s also more of an “outsourced” approach for publishers. There are a host of interesting start ups trying to make this process better, and help publishers monetize their traffic, perhaps helping to alleviate these challenges you list above. These include the myriad ad networks. AdBrite, for example.

    But does that approach fully maximize the value of traffic. I dont know, but there are also more interesting new companies that take another approach looking at things from a different angle. The Right Media exchange is one relying on more transparency in the market. Lotame is another utlizing advanced analytics. There are more too.

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  • http://www.wermercialsrus.com Oliver Naujok

    New Advertising Product Webmercials an interesting for of internet advertising for the small budget. http://www.webmercialsrus.com/samples/prelaunch/preview.html
    Site to be launched very soon

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  • http://www.peepeeface.com Brian Fogel

    Heres an idea… Mens bathroom advertising with custom urinal cake holders.

    http://www.peepeeface.com

  • billy001

    This is the nice information. I also want to suggest one online advertising network to you – Hooqy.com.

    It pays 10% of referred advertisers’ expenditure and 5% of referred publishers’ earnings. Publishers have full default campaign management to manage their unsold space. Monthly payments by check or Paypal with $50 payout.

    http://publisher.hooqy.com/publishers_account.php?ref=3

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  • Josh

    I have figured out the solution to make wireless advertising work and be accepted. I have a design for a cell phone that has multiple advertising platforms. The ads are delivered effectively to satisfy the advertiser yet will not bother the cellular client. This will enable people to never have to pay for wireless airtime again, no monthly fees, while allowing them to use their phone, text message and surf the web when they want for free.

    I hope that you can see the value of this. This is an industry where several companies are investing millions and I have figured out methods that can make this a reality. Companies are now starting to come out with phones that have advertising platforms although they do not have what I have. I need to do something with this soon because eventually someone will figure out my methods. I have to be careful of what I say about my concept because I do not have anything pattented. I have something that is of significant value and probably has a realistic income of 50 to 100 million a month(low estimate) and at the same time will eliminate monthly phone bills for people.

    This will give advertisers multiple new ways to get their targeted messages to cell phone users without annoying the clients. This creates a whole new platform for advertisers that will far exceed other media. Airtime fees are continuing to decrease while giving the cellular clients more. How long until airtime is free? This is a forward thinking, outside the box concept. Some companies have spent millions pursuing technology in this sector but I have the answer. Can you help me with this or point me in the direction of someone who can?

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  • Kevin L

    Josh, nice idea, but all the majors have not only thought of this, they’ve actively blocked it as it is not in their interests. If you hooked up with a small, aggressive and hungry national mobile provider competitor to the big oligopolies in your country, you might find one willing to try launching a parallel ad-supported mobile provider, but it would require getting to a very forward thinking CEO very quickly.

    Interesting that you think you’ve got a working cross-platform delivery model for mobile ads as, in pitching AT&T with a different concept, we found that every single mobile phone maker, and every version of their OS, required a uniquely written version of the mobile phone app. It’s not simple — yet. (No cross-platform standards which, as noted above, are essential to getting the ball rolling.)

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  • http://www.yougottacall.com Tim Tracey

    Jeremy,

    Social media has the potential to turn traditional advertising upside down and inside out.

    Instead of paying for media placement with little ability to measure results, businesses can be connected to qualified prospects through their network of customers, neighbors and friends.

    Instead of paying in advance for advertising with no guaranteed results, businesses now have the opportunity to directly reward their network for word-of-mouth referrals after they have resulted in revenues.

    The revenue model for this new advertising is intrinsic to its virality. In other words, the more consumers and businesses use it, the more it grows and the more they benefit from it.

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