Catalyst Investors Blog

MediaMath CEO Joe Zawadski on Fox Business

February 21st, 2012

CEO Joe Zawadski of Catalyst portfolio company MediaMath talks up his technology on the Fox Business network…

We have liftoff!

October 25th, 2011

Catalyst portfolio company Xplornet is celebrating a successful satellite launch from beautiful Kazakhstan. Canadians will now receive fast, affordable, reliable broadband internet throughout their country, including in rural areas. The satellite was launched by ViaSat.

Video of the launch (with commentary) below:




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				Tags: viasat xplornet satellite
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				Understanding IT Outsourcing and Web Hosting
				October 18th, 2011 

				
					By Tyler Newton
Cloud computing.
Managed hosting.
Managed services.
These may be the most widely used and abused terms in the IT outsourcing universe. All different types of companies use these terms to give their otherwise mundane products some “with it” panache. The purpose of this post is to break apart the IT outsourcing landscape for potential customers and investors. I’ll admit to not being technical myself, so I may not get this all correct, but I have been hanging around the industry long enough to have picked up some of the lingo. I invite comments and suggestions to improve on this methodology.
First of all, what is “cloud computing”? Most simply, cloud computing is any form of computing that runs in a virtualized, multi-tenant environment. Many people abuse this term to refer to any computing that is done over the internet, even if it is not multi-tenant.
So when it comes to outsourced IT, there are two dimensions to categorization: cloud vs. traditional, and which layer of computing infrastructure is being outsourced. The following chart breaks out the options:
Click image to enlarge

At the far left are the infrastructure layer options: co-location (”colo”), dedicated hosting, hybrid hosting, and cloud-based infrastructure-as-a-service (”IaaS”). This layer encompasses the data center, network and bandwidth, computer hardware, the server operating system and other basic infrastructure programs.

Colo - Co-location is the most basic hosted IT service. Customers rent cabinets in a colo facility or “data center” to physically hold the customers’ own hardware. The customer is effectively buying space, power and bandwidth. Colo customers are typically enterprises or large internet companies that have enough scale to justify sending their own techs to service the equipment and buying their own hardware. (The need for this is probably over-estimated.) The customers that truly need colo are those for whom the IT configuration is a competitive advantage, so they decide to outsource just the data center function. Many colo companies refer to their service as managed hosting because they provide “smart hands”, or the ability to reboot your equipment as long as its during regular business hours. Another trend is to offer “private clouds” which means offering some advice for customers to set up a multi-tenant architecture in their cabinets. Such services can be called “managed services”, but they are not “managed hosting”. Colo is a good solid business with long term customer contracts and strong operating leverage. The leading colo provider is Equinix, but others include Digital Realty Trust, ViaWest and Latisys (a Catalyst portfolio company).
Dedicated hosting - Also called “unmanaged dedicated hosting”, in its basic form this service provides “ping, power and pipe”, aka access to a powered server with bandwidth. Dedicated hosting companies do tend to provide customer service, so the hosting is not completely “unmanaged”. There is a fine line between dedicated and managed hosting. In our model, providing the hardware and the operating system is the basis of dedicated hosting, but I would also include storage and backup, load balancing, basic hosted databases and a third-party content distribution network as part of the infrastructure layer and therefore dedicated hosting. Selling these services together with multi-server packages to larger enterprises doesn’t necessarily make it “managed hosting”, and just because your customers are using their own virtualization on these servers doesn’t make it “private cloud”. Unless you are helping people install and maintain programs, and unless you are selling private cloud as a pre-packaged product, you are selling dedicated hosting. It may be high-end dedicated hosting, but it’s dedicated hosting. Dedicated hosting is a pretty good deal for tech-savvy customers, particularly those that have a pretty consistent baseline of computing and bandwidth needs. Successful dedicated hosting companies are focused on capital and operating efficiency while seeking competitive differentiation in a somewhat commoditized space. Softlayer is a leading dedicated hosting company, as is Codero (a Catalyst portfolio company), Singlehop, iWeb and LiquidWeb.
Hybrid hosting - Hybrid hosting is what we call the type of hosting that straddles the line between dedicated hosting and cloud IaaS. The base product is a virtualized environment on a dedicated server. This can include virtual private servers or dedicated servers in an “operational container” (what iWeb calls “smart servers”). Adding the virtualization layer enables computing images to be easily moved from a dedicated or virtual server into a true cloud environment. Fully-evolved hybrid hosting would provide the steady resources of dedicated hosting with the ability to burst into a cloud, which would provide tech-savvy hosting customers with truly flexible computing resources. The dedicated hosting companies are the natural participants in this market, although managed hosting company Rackspace also has an offering.
Infrastructure-as-a-Service - IaaS is a new term to describe the cloud equivalent of dedicated hosting. This is probably the purest form of cloud computing, having previously been known as “utility computing” and “grid computing” before hitting marketing gold with “cloud”. The poster child for IaaS is Amazon’s S3 and EC2 “public cloud” product, with storage and computing resources sold on a variable, per-usage or hourly basis. Basically, IaaS encompasses the dedicated hosting product set provided on a virtualized, multi-tenant basis, allowing for resources to scale from a fraction of a server to multiple servers. Given how the products are priced, cloud IaaS products are particularly appropriate for those tech-savvy customers that have variable computing needs, whether small or large scale. Amazon is the 800-pound gorilla in the IaaS space, but there are other options like GoGrid, Joyent and Rackspace.

The next layer up the stack is the platform layer. This can mean helping install programs and scripts, providing development environments, or providing a packaged set of basic applications like hosted Exchange or ecommerce packages. Such services either come with strong customer support (managed hosting), or a strong users forum (platform-as-a-service or “PaaS”).

Managed hosting - So now I’m going to try to define “managed hosting”. Managed hosting takes a dedicated hosting product set and wraps it in hands-on customer support for installing and managing basic software applications and scripts. Managed hosting is for less-tech-savvy enterprises that want guidance around how to set up an internet presence. Managed hosting does not include managing enterprise software applications that are purely internal (this is “application hosting”), although it can include hosted Exchange. More tech-savvy customers that want to run or develop software programs themselves, but want help and guidance around setting up their infrastructure layer, would also be candidates for managed hosting. The poster child for managed hosting is Rackspace, but other companies include LayeredTech, Neospire and Hosting.com. Another example of managed hosting for tech-savvy customers is OpSource (recently acquired by Dimension Data), which provides a specialized outsourced infrastructure for software developers to offer hosted applications.
Platform-as-a-Service - PaaS is similar to the concept of managed hosting in that it provides a pre-packaged online environment on which to install or develop enterprise software applications. The big difference is that PaaS is based on a cloud infrastructure while managed hosting is typically on a traditional IT infrastructure. Another major difference is that PaaS is almost exclusively for tech-savvy customers that want to write software without having to manage their own hosting infrastructure, while managed hosting is usually geared to less technical customers. Examples of PaaS providers are Microsoft’s Azure, which provides a DotNet environment for developers to create products that mesh with Microsoft business applications; Google’s AppEngine, which is similar to Azure but tied to Google Apps; and perhaps most famously, Salesforce.com’s Force.com, which enables specialized applications to be developed on top of Salesforce’s CRM platform. While managed hosting companies usually are supporting less-technical customers with human-based technical support, PaaS companies provide little technical support but instead support their customers with user forums and developers’ conferences (e.g. Salesforce’s DreamForce).

The next layer up is the application layer. This includes the provision of enterprise software applications over the internet. There are two versions of companies operating at this layer, application hosting providers and software-as-a-service (”SaaS”) providers.

Application hosting - Application hosting, where a customer outsources the physical hosting and support of an enterprise software product on traditional infrastructure, is a good option for mid-sized business that don’t want to employ their own team of specialized IT professionals. Application hosters achieve scale by spreading the high costs of network engineers, database administrators, linux engineers, etc. over multiple customers. They also efficiently bring to bear for their customers specialized knowledge of and experience with certain software product stacks like SAP. The poster child for application hosting is IBM, which wraps application hosting within their service and infrastructure layer product suite. Application hosters are usually not the software providers themselves, but third-party partners of traditional enterprise software companies.
Software-as-a-Service - SaaS providers host and support multi-tenant, proprietary enterprise software. This is the largest segment of “cloud computing”. Well-known SaaS providers include Salesforce.com (CRM), Netsuite (ERP), SuccessFactors (HR), Constant Contact (CRM) and Concur (HR). There are also vertically-oriented SaaS companies like OpenTable (restaurants), AthenaHealth (health care) and Catalyst portfolio companies MindBody Online (health and wellness) and Catalyst Repository Systems (legal).

The next and final layer is the process layer. This involves outsourcing entire business processes like call centers, human resources, payroll or logistics. There are basically two flavors, Business Process Outsourcing (”BPO”) and Business Process as a Service (”BPaaS”).

Business Process Outsourcing - BPO involves the use of technology but with a large human component. For example, Global Response provides outsourced call centers, Xerox provides outsourced document management, Insperity (formerly Administaff) provides outsourced human resources functionality. Companies like Accenture provide outsourced IT personnel for software integration. There are many India-based BPO companies as well.
Business Process as a Service - BPaaS is a relatively new term that basically is a BPO service that leans more on technology, particularly cloud technology, than on people.  I think of ADP (Automatic Data Processing) as an example of BPaaS. It is a technology-heavy way for a customer to outsource its entire payroll function, conducted with relatively little human intervention.

So there you have it, all in one place. As an aside, Catalyst is looking to make growth investments in companies up and down this product stack, so please feel free to reach out to us if you are looking for a capital partner. Also, as I said above, I would love to discuss the accuracy of these categories with those that have suggestions for improvement. We are always looking to learn more.


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				Tags: cloud computing, colo, dedicated hosting, iaas, managed hosting, PaaS, SaaS
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				Xplornet Anticipating Launch of ViaSat-1 Satellite in October
				July 26th, 2011 

				
					By Chris Shipman
ViaSat-1 construction is complete and the satellite is now scheduled to launch from the Baikonur Cosmodrome in Kazakhstan in September October.  ViaSat-1 will provide next generation high throughput broadband services to customers in virtually any location in the United States (through Wild Blue) and Canada (through Catalyst portfolio company, Xplornet).  ViaSat-1 will be the highest capacity satellite in the world, and will transform the economics of providing true high-speed broadband services to unserved North American consumers and businesses.  Given that 2.3MM households in Canada are currently unserved by wired broadband, Xplornet is looking forward to a successful launch.

[Update]
Launch Rescheduled. ViaSat Inc. (NASDAQ: VSAT) has announced that the launch of the ViaSat-1 high-capacity satellite, previously set for the end of September, is now scheduled for October 18th. The delay is due to the launch failure of the Russian Federal Mission with the Express AM4 communication satellite that occurred on August 18.









 
 
  


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				Tags: braodband, Catalyst Investors, viasat, xplorenet
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				Standing Up to the Marketing Bullies
				June 2nd, 2011 

				
					By Susan Bihler & Tyler Newton

We’ve all heard of the bullies picking on the little kids at school. The bullies tend to have more power, more physical presence and often more popularity. It’s tough to compete when you’re small. Small companies face the same issues in the corporate world when trying to market online.  In this case, however, the bullies are the much larger competitors with bulging marketing budgets who gang up with the big agencies and media companies to push the small and medium-sized businesses  off the marketing playground. To effectively compete online, marketing departments need SEO specialists, search marketing specialists, social media specialists, bloggers, market researchers and lead database managers. For a small company, it is not realistic to hire employees that specialize in all of these areas, even though their larger competitors do.
Ways to fight back.  Just as the internet has created more marketing channels, it has also created more efficient ways to outsource marketing functions. Why have a jack-of-all trades marketing generalist running pay-per-click advertising when you could hire an outside specialist like Meltwater or Jumpfly to do it for you? Now SME’s can turn to marketing services and software providers that offer the breadth of tools once only available to large enterprises. In addition, software-as-a-service companies providing marketing automation can enable a company to efficiently manage its lead funnel to warm and convert potential customers. All of a sudden, the 97-pound weakling can become Charles Atlas.

Investment Focus. Catalyst is looking to invest ($5 - $15 million) in marketing automation or marketing services companies with $5 to $50 million of revenue, a strong management team and scalable proprietary technology and analytics. We would also consider backing a platform company well-positioned for an industry roll-up.  We remain interested in companies that are essential to the success of their clients, not those that generate the majority of their value through media arbitrage. 

 
Ecosystem Overview:
The chart below highlights the marketing automation and services ecosystem in blue, with the complementary CRM and web analytics products in green.  All together these form the outsourced sales and marketing technology landscape.

 
Marketing Services
A sophisticated marketing operation needs to (1) acquire leads, (2) “warm” or “nurture” leads, and (3) conduct market research. Thankfully, there is now a whole crop of companies to help small businesses perform these functions without hiring a large marketing team.
Search engine marketing and landing pages are key techniques to acquire leads. There are companies like the ones mentioned above that help small businesses conduct sophisticated SEM campaigns. Clearly, the big kahuna in SEM is Google AdWords. Additionally, it is important to combine SEM with web analytics products like Webtrends or Omniture to track the performance of your website.
Lead Generation companies offer to cut out all the SEM middlemen and just send you qualified (or not-so-qualified) leads. QuinStreet, Bankrate and Commission Junction are examples of large lead generation providers.  Please refer to our Online Lead Generation research report dated March 31, 2010 for more detail on the lead generation landscape. 
Display advertising is a form of advertising that “warms” potential leads by building brand and product awareness. Display advertising can also be used to directly acquire leads in a performance marketing context, or to “nurture” leads by re-targeting those that have previously been to your site. The display advertising market is very complex with various middlemen between advertisers and publishers such as DSP’s, SSPs, Ad Networks and Ad exchanges. (Please refer to our Real Time Bidding market blog post for our evaluation of the display advertising technology landscape.)  
Email marketing is a cost effective way to both acquire and nurture leads and mobile marketing allows you to reach potential customers wherever they are.  When used in conjunction with marketing automation, these marketing tactics can be personalized without the cost and time expense of a sales person. SilverPop , Exact Target and Constant Contact are examples of companies that provide email marketing tools to improve campaign results. BLI Messaging enables marketers to integrate email and mobile marketing onto one platform.
Social Media and blogging are becoming progressively more important to small businesses as a way to attract and nurture potential and existing customers. Examples of companies that help clients optimize and manage their online content include Postling, HubSpot, Squarespace, Six Apart, and TweetDeck.  
Events, trade shows and webinars are also great ways to acquire leads and build brand awareness. Companies like Cvent and e-touches offer event management services, allowing event organizers to manage event schedules and meetings and to collect attendee information, which can be used for lead generation purposes. On24 and others can make it easy to host webinars.
Customer feedback companies provide an easy way to reach out to customers for feedback and to promote customer retention. As SMB’s grow and acquire customers, it’s important to listen to your customers as a bad customer service reputation can be very damaging. Systino, an automated survey system reaches out to customers to track service quality and customer satisfaction and companies like SurveyMonkey and Allegiance are focused on customer retention and loyalty. 
Market research companies such as Gartner and Forrester provide clients with detailed and objective analyses of their industry, competitors, products and/or services.  Many research firms will partner with marketers to produce whitepapers, webinars and content for trade shows and other events. 
Marketing Automation SaaS
Marketing automation software provides the ability to efficiently manage and move quality leads through a sales pipeline.  Marketing automation identifies, qualifies and warms prospects in an automated fashion, warming and qualifying leads without the intervention of costly salespeople. If a lead downloads a white paper, marketing automation will automatically alert the sales staff of that activity, determine an appropriate score for that lead and follow up with a pre-designed email or mobile marketing messages.  If the lead opens and clicks on the email, the lead scores higher. The higher the lead score, the more the lead becomes ready to be handed over to a sales associate. Marketing automation software manages the marketing lead funnel like Salesforce.com manages to the sales funnel.
Eloqua and Marketo are the leading marketing automation providers. Pardot is a good option for smaller business.
Market Environment/Consolidation
The current marketing automation and services landscape is very fragmented. We expect the marketing services industry to consolidate, reducing the amount of outsourced vendors to a smaller number of “one-stop-shops”. There have been several cross-channel marketing services deals like email marketing provider Silverpop acquiring the marketing automation platform Vtrenz and the email provider ExactTarget acquiring the social media services company CoTweet. In addition to internal consolidation, outside/adjacent market consolidation should also be expected as advertising agencies, internet and media companies, B2B publishing companies and leading “front office” software-as-a-service firms could all be consolidators of various pieces of the marketing automation and services ecosystem. An example of this type of acquisition is the recent purchase of lead contact database Jigsaw by Salesforce.com.
Conclusion

Outsourced marketing automation companies are making available to small business the types of functions that were once the exclusive provenance the marketing departments of large enterprises. In addition, the internet creates new and more efficient ways to interact with potential and existing customers. Not only is there a revolution in marketing efficiency in general, now small business have the opportunity to enter the marketing ring and stand toe-to-toe with their larger competitors. Who doesn’t like an underdog story?



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				Technology Killed the Video Star
				May 6th, 2011 

				
					By Tyler Newton
The following article was originally published at Media Post’s Online Video Insider blog.


It is no secret that the internet has deeply damaged traditional media when they have directly competed. In the case of music and newspaper classifieds, the internet provided a superior way to consume content. In the case of radio, listenership held up but advertisers abandoned radio for the internet. In the case of magazines, the internet has cannibalized both readership and advertisers. Traditional broadcast and cable video advertising, on the other hand, has not been significantly harmed by the internet and remains the most valuable form of large-scale advertising. That may soon change, as the emerging technology of real time bidding has put video at risk of suffering the same fate as other forms of traditional media.
 
Performance Marketing Dominates Display
 
To date, much of the strength in internet advertising has been in performance marketing such as search advertising and lead generation.  Performance marketing provides a tangible return on investment, the ability to purchase at scale and in the case of search marketing, a dynamic pricing regime. These benefits explain why search is the largest form of online advertising. Of course most of the time consumers spend on the internet is spent consuming content, not searching on Google. Yet the “display” ad inventory associated with online content only accounts for 38% of the $26 billion online advertising market, while search accounts for 46%. Display is under-monetized because it lacks the combined strengths of search marketing mentioned above.
 
Some display advertising is sold the old-fashioned way, with ad salesmen pitching inventory based on the demographics of the audience that can be inferred from the type of content on their website. The problem is that very few websites actually produce the scale of inventory to make this model work. Generally, the only way to buy display ad inventory in bulk is through ad networks. Ad networks provide advertisers with very little visibility into the underlying inventory, and are thus generally used by “spray and pray” lead generation players in large categories such as online education and mortgage finance.
 
The Real Time Bidding Revolution
 
The real time bidding (“RTB”) ecosystem has emerged to solve for some of the shortcomings of display advertising relative to search advertising. The move to RTB is being driven largely by the ad agencies, which verifies the value that RTB brings to advertisers. It provides a platform to purchase display inventory at scale and with dynamic pricing. By directly accessing the targeted audience, brand advertisers get less demographic “leakage” and performance marketers get higher click-through rates. RTB should result in better sell-through rates and higher prices for banner and rich media advertisements. 
 
Where RTB could be truly revolutionary, however, is in the world of video advertising. Currently, advertising on television is the most valuable form of advertising, given its superior medium and large reach. This is the case despite the large amount of demographic leakage that comes from merely inferring who is watching what shows at what times. If advertisers can target ads to specific demographics and the ads can be purchased at scale via a variable pricing model, advertisers should find the RTB model superior to traditional television advertising forcing the television industry to change or to be left behind like radio.
 
The art and glamour of producing and selling television advertising will become the science of buying and selling demographics. The art of producing video content to attract a large audience will shift to the science of producing content to attract the right audience against which to sell advertising at the right prices. For all we know, television becomes one giant Demand Media, focused on attracting viewers for shorter periods of time based on certain specific topics rather than conforming to the traditional half hour and hour time slots. It’s hard to predict the precise effect on television economics, but it’s easy to predict that the effect will be profound. Expect yet another victory of online technology over traditional media.
 


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				Tags: ad tech, media post, online video, rtb
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				Real Time Bidding and the Rise of Mid-tail Content
				February 14th, 2011 

				
					The Effect of Real Time Bidding on Media Producers
By Tyler Newton and Susan Bihler
The following is the second of a two-post series on the Real Time Bidding (“RTB”) technology ecosystem and how it is revolutionizing online display advertising. It describes the effect of RTB on online media companies and how we expect the RTB sector to evolve, including how Google is well-positioned to dominate the space and how RTB will crush the profit margin of a wide swath of cable channels and television programming. The first post can be found here.
Will Technology Kill the Media Star (Again)?
Since the dawn of the internet age, there have been many scuffles where technology companies or internet-specific companies have directly challenged an entrenched traditional media powerhouse. Given the many competitive advantages held by traditional media companies, an objective observer may have assumed that the traditional media player could use its longstanding advantages to fend off the upstart technology challenger. Of course we all know that it hasn’t played out that way. Time and again, the technology companies have stormed the media castle and breached the walls. Newspaper classified ads, recorded music, general interest magazines, niche magazines, direct mail, yellow pages and other local advertising…they have all had their business models upended dramatically by the internet.
One of the last great strongholds of traditional media is the classic brand advertisement, in magazines, newspapers or on television. The traditional providers of brand ad inventory have maintained their dominance over the internet because economies of scale still hold sway over the purchasing decisions of brand advertisers. Brand advertisers don’t want their ads next to questionable internet content, while smaller, quality content sites don’t have the scale to hire ad salesmen and get the attention of large brand advertisers.
There are two possible solutions for smaller publishers. Either the publishers can band together to create scale (the Ads 2.5 / vertical ad network model), or technology can be used to automate the selling process, separating the production of content from the selling of advertising (the Ads 3.0 / real time bidding model). 
The Rise of the Mid-tail Publisher
By now, nearly everyone is familiar with the concept of the head/ long tail model as popularized by Chris Anderson of Wired Magazine. In an exponential distribution plotting audience vs. rank of internet site by popularity, you get a curve differentiated by the “Head”, which consists of the most popular sites like Facebook, Yahoo, AOL, and MSN and the “Long Tail”. We would argue that there are really three segments to the curve: (1) the Head, consisting of sites with 15 million or more unique visitors; (2) the Long Tail consisting of sites with less than 1 million unique visitors and (3) the Mid Tail, sites with enough traffic to be considered professional (> 1 million unique), but too small to enjoy all of the scale benefits of those sites in the Head of the curve.


In the Ads 1.0/ Web 1.0 model, the action was in organizing the Head of the curve, re-creating the traditional media and retail model of the offline world. The battle was to create “portals” in the mold of Yahoo!, AOL or MSN; “category killer” sites like CNET, WebMD, Monster.com; or retail powerhouses like Amazon.com and eBay.
In the Ads 2.0/ Web 2.0 model, the action was in organizing the Long Tail. Google was the great winner during this period, receiving most of the value from AdWords promoting small and mid-size businesses and from AdSense, serving ads on the sites of small publishers. The YouTube acquisition is an extension of this strategy, serving as the platform for finding and monetizing Long Tail videos. Ad networks picked up remnant display ads throughout the curve and lead generation companies used these ads and Google’s paid and natural search functions to acquire traffic and convert them to leads for businesses.
Our belief is that the next battleground is for the value chain created around Mid-tail publishers. Mid-tail publishers have for the most part been forced to monetize themselves like Long Tail publishers with ad networks or lead gen efforts. For Mid-tail publishers to maximize their revenue potential, they need to attract higher-CPM brand advertising (as opposed to lower-CPM ad network-based performance advertising). 
The effect on content publishers. Brand advertisers want to purchase at scale, so individual, small-scale content producers are still at the mercy of the scale provider, whether it comes in the form of a vertical ad network or the real time bidding ecosystem. Somewhere between a quarter and a half of the ad revenue will flow to the publisher under these models (or less, according to Tolman Geffs of Jordan, Edmiston). There is an opportunity for the larger sites to consolidate their categories via a combination of ad network and straight acquisition (witness AOL’s new content-based strategy). Otherwise, the RTB technology players are likely to dominate the value chain.
The effect on the RTB ecosystem. Right now there are lots of players in the RTB ecosystem. Given the history of technology markets, there is no reason to expect this to last. Through a combination of ad servers and ad exchanges, the big three of Google, Yahoo! and MSN are all encroaching on the RTB landscape. Google appears to be the most well-positioned with its combination of the DoubleClick ad server and ad exchange and the DSP Invite Media.
The Google blueprint. One way to envision the evolution of the RTB landscape would be to compare it to the search marketing landscape. In search, Google controls the transaction platform (the search engine and AdWords), provides an ad network that can be installed on a publisher’s site (AdSense) and offers a simple analytics tool for free. Sophisticated marketers buy separate analytics tools to manage and analyze their Google ad spend, however. Under this model, Google, Yahoo and/or MSN would consolidate a transaction platform consisting of an ad exchange, an ad server and/or an SSP/yield optimization tool for publishers. Google may offer Invite Media as a free DSP for smaller marketers the same way it offers Google Analytics/ Urchin today, while two or three major DSPs would exist for larger marketers and ad agencies to manage and analyze their display ad spend, serving in the role of Adobe/Omniture, IBM/Coremetrics and Webtrends. Data providers and exchanges could end up under the DSP/analytics tent (witness Adobe’s acquisition of Demdex), or as a part of the RTB platform.
Conclusion – More Media Upheaval
The emergence of an efficient online display ad market will have profound effects on media of all kinds. It will continue to erode the profitability of the mid-scale print market, which will see the last vestige of its oligopoly power vanish. An RTB-driven online video display ad market could also start chipping away at the profitability of cable and non-prime time television advertising as marketers choose highly targeted online advertising over more bluntly targeted traditional video advertising. Such a shift could mark the beginning of the end for weaker cable channels, accelerating the move to over-the-top and on-demand services over the classic cable bundle. Expect major competitive responses by the cable MSOs, whether they offer targeted advertising services themselves or pursue more content acquisitions to protect their market power. 
The emergence of real time bidding is but one more step on the road to shifting power from the media moguls of yesterday to the technology moguls of today and tomorrow.


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				Real Time Bidding 101
				February 7th, 2011 

				
					By Tyler Newton and Susan Bihler
Display advertising is a form of brand advertising that “warms” potential leads by building brand and product awareness. The online display ad market consists of banner ads, rich media, and video, and is usually measured by the number of views or impressions. Online brand advertising has historically lacked the audience targeting and dynamic pricing found in online performance marketing like search engine marketing and online lead generation. For this reason, pricing for the vast majority of display advertising inventory has been very low. As performance marketing has matured and become more efficient, marketers have begun to re-focus on online brand advertising. A more sophisticated ecosystem for buying brand advertising called Real Time Bidding (“RTB”) has been created to tie demographic targeting and dynamic pricing together for publishers and advertisers.
The following is the first in a two-part series about RTB and its impact on the advertising market. The first post will walk through the evolution of the online display ad market within the context of the larger online advertising landscape. It will then describe the RTB ecosystem and some of the players involved. The second post will discuss the implications of RTB on the online advertising market, including why Google is well-positioned to dominate the display ad market and how RTB will crush the profit margin of a wide swath of cable channels and television programming.
The Evolution of Display Advertising


Display advertising is internet lingo for what used to be known simply as advertising. As recently as thirty years ago, the only advertising outlets with any scale were three broadcast television networks and mass market magazines like Sports Illustrated and Time. For most companies, the target demographic was people age 18-49…not exactly a niche.
In the 1980s and 1990s, cable television and niche magazines started to break the audience into narrower demographics. MTV targeted young adults, Nickelodeon and the Disney Channel targeted kids, Field and Stream targeted hunters and fly fishermen, etc. Advertisers still knew that there was a ton of “leakage” with non-target demographics. As department store merchant John Wanamaker famously said, “Half my advertising is wasted; I just don’t know which half.”
The Internet Accelerates Advertising Innovation
Ads 1.0 – The Dot Com Era

When the internet arrived, advertising in the form of “banner ads” was sold the same way as traditional advertising. Highly-paid ad salesmen would pitch big ad agencies on buying banner ads on the big websites, most of which organized themselves like an online version of a newspaper or magazine. The “portals” like AOL, Yahoo! and MSN and big “category killer” sites like WebMD and CNET were the only properties with sufficient scale to profitably sell advertising inventory to traditional advertisers.
Ads 2.0 – Performance Marketing Era

After the dot-com crash cratered the banner ad business, a new kind of internet advertising stormed onto the scene: search advertising. Search marketing was very attractive to marketers for two big reasons. First, Google searches reveal buyer intent; they are actually searching to buy, or at least research, a specific product. In addition, web analytics tools could reveal the actual conversion rate on “click-throughs” from search marketing ads or from natural search results. All of a sudden, advertisers had hard ROI figures with which to make marketing investment decisions. Search engine marketing (“SEM”), search engine optimization (“SEO”) and their close relative online lead generation (“OLG”) created a revolution in performance marketing and made Google the most profitable company on the Internet.
Display ad inventory on the internet is almost unlimited. Only a very small number of websites have sufficient scale to support a professional ad sales team, and only a small portion of even those sites’ inventory was saleable at premium prices. Advertising networks create scale for advertisers by aggregating huge amounts of non-premium display ad inventory and reselling them in bundles. Ad networks benefitted from selling bulk, and generally don’t have the technology or the inclination to discern the quality of the content next to which ads are placed. The lack of visibility or control has made traditional brand advertisers reluctant to use ad networks. Thus ad networks are generally a vehicle for lead generation companies that use creative display ads to draw clicks from surfers looking for mortgages, student loans and the like. 
Ads 2.5 – Display Ad Innovation

As search and lead generation came to dominate online advertising, advertising innovators began wondering if there was a way to efficiently sell display ads to the brand advertisers that would be willing to pay higher CPMs than ad networks. Several ad networks focused on a particular targeting technology (i.e. behavioral, geographic, contextual, etc.) were launched. Vertical ad networks like Glam Media aggregated content that targeted certain demographics, not unlike how cable channels segmented the marketplace. Ad exchanges were launched to create the dynamic pricing environment that existed in search marketing.
Ads 3.0 – Real Time Bidding and the “Audience Revolution”: The revenge of brand marketing

As performance marketing has matured and become more efficient, marketers have begun to re-focus on online brand advertising. While the display ad innovations of Ads 2.5 were helpful, what was still missing were the platforms that could tie the targeting and dynamic pricing (like what is found with SEO) together for publishers and advertisers. A more sophisticated ecosystem for buying brand advertising was needed. That ecosystem is called Real Time Bidding. 
The idea behind the RTB ecosystem is to bring the science of search marketing and lead generation to the display ad business. Advertisers need neutrally-provided targeting data (data providers) and exchanges on which they can buy inventory at scale (ad exchanges). Publishers need the ability to manage their inventory and aggregate themselves with other publishers (sell side platforms). Advertisers also need media buying platforms to aggregate campaign performance and inventory pricing data (demand side platforms). The RTB ecosystem allows advertisers and publishers to buy and sell demographics similar to how stocks trade. Technology enables advertisers to shift from indirectly buying audiences by buying media to directly buying the audience themselves. As the display advertising market becomes more transparent and efficient, pricing for display advertising should improve. As a result of these innovations the display ad market is now growing faster than the search market.
The new display ad marketplace looks like this:

The Players

Publishers – On the left side of the chart are content publishers – anyone on the internet with advertising inventory to sell, including banner ads, rich media, ads tied to online video and mobile advertising.


Intermediaries – In the middle of the chart are the intermediaries. Intermediaries bundle inventory from various publishers to provide scale for ad purchasers. The best intermediaries use technology to add value to the inventory beyond bundling.


Ad Purchasers – Brand advertisers either purchase advertising directly or through digital ad agencies or other online marketing outsourcers. The major purchasers of remnant advertising tend to be performance marketers like lead generation companies.

Ad Ecosystems

Premium – (Shown in green above) The best advertising inventory is called premium inventory. Such inventory consists of banners and rich media spots in the top and upper right areas of the most popular pages (i.e. the front page of WebMD, the front page of Yahoo! Autos, etc.) as well as video ads attached to popular video content. Such ads are sold the old fashioned way: by highly-paid ad salesmen selling directly to big enterprises and advertising agencies at CPMs of $10 or more. Premium ads represent approximately 10% of all display advertisements.


Remnant – (Shown in orange above) Before the emergence of Real Time Bidding (“RTB”) all inventory that wasn’t premium inventory was considered remnant, or run-of-network, inventory. It wasn’t efficient to sell such inventory directly so advertising networks were created to bundle up remnant inventory to sell to advertisers. Because major brand advertisers were wary of having their brands placed randomly around the internet next to who-knows-what content, remnant advertising was generally sold to lead generation companies and ecommerce marketers looking to arbitrage ad inventory into clicks/leads. Remnant inventory, the remaining 90% of display advertising, was generally sold at CPMs of less than $2.


Real Time Bidding – (Shown in blue above) The bifurcated market between premium and remnant advertising created a vast supply of undervalued online ad inventory existing on quality content sites that lacked the scale to sell to brand advertisers directly. The only way to achieve the scale was to create on automated system that could replicate the efficient and ROI-driven system that existed with search advertising on Google and Yahoo!’s Overture.

Real Time Bidding 

Data Providers – If the goal of RTB is to enable advertisers to purchase demographics at scale, then both sellers and buyers need a neutral party to provide data about the underlying demographic and behavioral information data about individual consumers. Data providers install cookies across thousands of websites and use consumer surfing information. This surfing information can be used to determine the demographics, interest and recent shopping habits of users. Privacy is a paramount concern, so data providers must limit what they provide to general information and not personal information. Leading data providers include BlueKai, eXelate, and Quantcast and Peer39.


Sell Side Platforms (“SSPs”) – SSPs provide publishers with technology to manage and sell their ad inventory. The leading SSPs are AdMeld, PubMatic and Rubicon Project. Also adjacent to the SSP space are ad servers like Google’s DoubleClick and Microsoft’s Atlas.


Demand Side Platforms (“DSPs”) – DSPs provide a platform for ad purchasers to evaluate trends in the display ad market and to assess the performance of various marketing campaigns. Leading DSPs include MediaMath, [x+1], DataXU and Google’s Invite Media.


Ad Exchanges – Ad exchanges have provided a neutral marketplace for publishers (via SSPs or ad networks) to sell inventory to ad purchasers (via DSPs). Leading ad exchanges include Google’s DoubleClick Ad Exchange, Yahoo!’s RightMedia, and ContextWeb.

The RTB marketplace is still relatively new, but it appears that advertisers and publishers are beginning to realize the benefits of automated ad platforms. Google executives at an IAB Mixx event said real-time transactions on its DoubleClick Ad Exchange more than tripled in the past year, and predicted that at least 50% of all targeted online display advertising will be bought through real-time platforms by 2015. More traction will likely occur throughout 2011, most likely sold as a compliment to direct sales and/or ad network inventory. 



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				Tags: ad exchanges, display advertising, rtb
 Posted in Media and Online Media |   2 Comments »
			

		
			
				Codero CEO talks about the future of cloud infrastructure hosting
				January 4th, 2011 

				
					Codero CEO Jonathan Ewert is interviewed by WebHostReportCards.com about the future of infrastructure hosting, including cloud vs. hybrid, serving enterprise’s hosting needs and managing customers’ costs.


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				Tags: cloud computing, codero, iaas, jonathan ewert
 Posted in SaaS - Cloud - M2M |   No Comments »
			

		
		
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