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The online ad market is not immune to the overall advertising recession, and growth has slowed. Many online media companies and ad networks are counting on targeting to help lift CPMs.

But Julie Ruvolo reports from the Adweek conference last week that media buyers are still hesitant about highly targeted ad campaigns:

In the traditional media-buying paradigm, advertisers buy audiences by buying content. Coca-Cola sponsors American Idol, Nissan sponsors Heroes, and so forth. But social media, ad networks, and especially behavioral ad networks, are chipping away at the “content as a proxy” mentality and positing that ads can be as or more effective if they’re tied directly to people and not to content…

But for all the talk it’s garnering, media buyers remain hesitant about jumping on the addressability band-wagon for several reasons.

First, while agencies are opening up to a more data-centric approach, operational challenges abound. One of the key issues is that it’s easier to buy a national TV ad than to set up and constantly manage a million-word AdSense campaign, or develop video creative for hundreds of demographics instead of one broad demographic…

Further, advertisers are struggling with the sheer volume and sophistication of data available to them. As digital marketing agency Avenue A’s Andy Fisher said, “We’re drowning in data.” …

We can talk all day about how wonderful digital media is, how addressable and trackable and cheap the media is, but the reality is that there’s a decades-long and multi-billion-dollar symbiosis between the ad industry and the TV industry. It’s going to take more than superior product, logic and efficiency to supplant that relationship.

I think Ruvolo is right.

Online advertising has typically been sold in one of three ways:

1. Endemic advertising targeted against relevant content, typically commanding double digit CPMs. An example would be selling movie advertising against Flixster (a Lightspeed portfolio company).
2. Demographically targeted advertising, typically targeted against relevant content, typically commanding low single digit CPMs. An example would be selling a “women” demo against TMZ.
3. Broad reach inventory, typically commanding $1 or below CPMs. An example would be a selling Yahoo email inventory.

Advertisers are comfortable with buying advertising against content adjacencies.

There are four flavors of ad targeting popular today:

1. Geographic
2. Demographic
3. Contextual
4. Behavioral

Through demographic and behavioral targeting, online media companies are asking advertisers to follow the user instead of following the content:

But, online ads should follow users and communities, since users are the ones to decide what content they want to put where, says David Carlick, Managing Director at Vantage Point Venture Partners.

“[I] say no, now you [the advertiser] are sponsoring the consumer—not the content online, but what they want to do online. If they want to go on MySpace and look at half-naked drunk photos, who are you to say that’s not good for my brand? You need to go where the people are and sponsor what they do, and not attach yourself to the 5% of content that looks like TV.”

Or as Jeff Jarvis says:

That’s [buying content adjacencies] still treating us like a mass. That’s still about lazy advertisers who want to buy upfront and don’t want to converse with us as individuals or at least communities. We need advertisers’ money; that will be the primary support of online media. But we need to both retrain them and give them the infrastructure and data to enable them to market smarter and create meaningful relationships — and, in the process, support small instead of big.

In my experience, when the guys with the money [advertisers] want to do things one way, and the guys who want the money [media companies] want to do things another way, then it is usually the guys with the money who walk away happy.

Behavioral and demographic targeting to the user level will likely have success with direct response advertisers who can readily measure and potential lift in response rates. But brand advertisers will want to continue doing business the way they are used to doing business. Furthermore, an advertising recession is not going to be an easy time to “retrain” advertisers. Content adjacencies will likely be the way most brand advertising is sold for the next couple of years at least.

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An entrepreneur asked me recently if I was concerned about the impact the credit crunch will have on venture financing for startups. I responded:

For high quality companies, the short answer is no. The more nuanced answer is that

(i) The credit crunch will impact venture debt (already has) so people can’t count on that to extend their runway, so should raise a bit more than they would have done
(ii) If the economy indeed slips into recession (as a second order effect of the credit crunch), then this will impact sales growth for many startups, whether selling to enterprises or consumers. This will also impact timelines to profitability, and hence amount raised. It will also likely cause some angels and some venture firms (especially corporate venture firms and firms with a shorter time horizon) to become less active investors.

At Lightspeed as we take a long term view towards the companies we invest in. However, we are urging them to be conservative in their revenue projections and hence cash planning (both from amount raised and from cash burn perspective).

GigaOm weighs in on the venture debt issue in particular

Fewer, costlier loans. No way around it, money is getting more expensive. As long as banks are licking their wounded balance sheets, they won’t make loans that carry even a whiff of risk. This could raise borrowing costs and complicate growth for capital-intensive sectors, like telecom.

A more immediate problems lurks in short-term lending such as commercial paper. Interest rates in that part of the market have recently risen from 2 percent to 4.5 percent for riskier companies, according to Businessweek.

Fred Wilson has a similar perspective on the venture capital market:

All startups are going to have to batten down the hatches, get leaner, and work to get profitable, but the venture backed startups are going to get more time to get through this process than those that are not venture backed. Here’s why.

Venture capital firms are largely flush with capital from sources that are mostly rock solid. If you look back at the last market downturn, most venture capital firms did not lose their funding sources (we did at Flatiron but that’s a different story). If you are an entrepreneur that is backed by a well established venture capital firm, or ideally a syndicate of well established venture capital firms, then you have investors who have the capacity to support your business for at least 3-5 years (for most companies).

Venture capital firms will get more conservative and they will urge their portfolio companies to do everything Jason suggests (and more), but they will also be there with additional capital infusions when and if the companies are making good progress toward a growing profitable business.

If you go back and look at the 2000-2003 period (the nuclear winter in startup speak), you’ll see that venture firms continued to support most of their companies that were supportable. The companies that were clearly not working, or were burning too much money to be supportable in a down market, got shut down. But my observation of that time tells me that at least half and possibly as much as two/thirds of all venture backed companies that were funded pre-market bust got additional funding rounds done post bust.

So if you run or work in a startup company that is backed by well established venture capital firms, take a brief sigh of relief and then immediately get working on the “leaner, focused, profitable” mantra and drive toward those goals relentlessly.

If, on the other hand, you are just starting a company, or have angels backing you, or are backed by first time venture firms that are not funded by traditional sources, then I think you’ve got a bigger problem on your hands. It’s not an impossible problem to solve, but you have to start thinking about how you are going to get where you want to go without venture funding.

I say that because in down market cycles, it’s the seed and startup stage investing that dries up first. It happens every time. Seed/startup investing is most profitable early in a venture cycle and late stage investing is most profitable late in a venture cycle. It makes sense if you think of venture capital as a cyclical business and it is very cyclical. Early in a cycle you want to back young companies at bargain prices and enjoy the demand for those companies as the cycle takes hold. Late in a cycle you want to back established companies that need a “last round” to get to breakeven and you can get that at a bargain price compared to what others paid before you. I’ve been in the venture capital business since 1986 (that was a down cycle) and I’ve seen this happen at least three times, probably four times now.

There’s another important reason why seed and startup investing dries up in down cycles. Venture firms don’t need to spend as much time on their existing portfolio companies when things are going well. A rising market hides a lot of problems. But when things go south, they tend to become inwardly focused. I believe we are headed into a period where venture firms will spend more time on their existing portfolio and less time adding new names to it.

Plan appropriately

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Neilsen Mobile recently reported on US 2008 Q2 mobile phone usage. They find that the number of calls made per month averages 204 across all users but does not vary all that much with age between 13-54:

On the other hand, as stereotypes would suggest, teens drive by far the highest number of text messages per month. Although the average across all users is 357, there is very high variability:

When looking at the ratio of texts to calls, the difference is even more marked. Teens (13-17) text 7.5x more often than they call whereas seniors (65+) call 7x more often than they text:

As an aside, the overall ratio of texts to calls is about 1.75:1 and has been greater than 1:1 since q4 of 2007.

Which companies do readers see as making the most interesting use of SMS?

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Virtual Worlds News noted last week that:

PayByCash announced … that over 50% of its US transactions were coming from its Ultimate Game Card, a prepaid card that supports over 150 virtual worlds and games, like Club Penguin, Nexon America,

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Arctic Startup, quoting an article written in Finnish at Kauppelehti, the leading business magazine in Finland says:

The Helsinki based virtual goods operator Sulake saw a profitable first half in 2008. According to Kauppalehti, net profits were around

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Marketing Sherpa notes seven design elements to add to your banner ads to increase click through rates from 25-50%:

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Last year I noted how the “performance” aspects of social networks was moving more birthday wishes from private communication channels (e.g. email) to public ones (e.g. Facebook wall posts). This year, the trend is even more pronounced if my …

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At AGDC last week Bioware’s Damion Schubert spoke about end-game design in MMOs. Massively notes:

Endgame gameplay, elder gameplay, is a mandatory and compelling part of the genre’s equation. In fact, in Damion’s opinion complex elder gameplay exemplifies what makes

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Some interesting tidbits about both free to play and subscription MMOGs coming out of the talks at Austin GDC. Min Kim of Nexon says:

Not just a Korean thing:

“South Korea is still a big market for us,” Kim

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Many websites default to the 728×90 (leaderboard) ad size when designing their site. This is a reasonably good option as it has the second highest click through rate of the various standard ad units. But it is possible to do …

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