rubicon q409 market report

8/14/2019 Rubicon Q409 Market Report

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2009 ONLINE ADVERTISING MARKET REPORT

Q4: EMERGING TRENDS & OUTLOOK

the rubicon project

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To download this and other Rubicon Project market intelligenceplease visitrubiconproject.com/market-intelligence


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Table of Contents

State of the Market .............................................................................................................1 - 5Key Takeaways ................................................................................................................... 5 - 6Premium Publishers: Optimizing Inventory Value .................................................... 6 - 11Demand Side: The Year Ahead ..................................................................................... 11 - 15The Tipping Point for Mobile, Video and Maybe, Regulation ........................... 16 - 21Thoughts for the Future ....................................................................................................... 21About the Rubicon Project ................................................................................................ 22Footnote Index .............................................................................................................. 23 - 25


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State of the Market

Money, money, money. If there was an overarching theme for the fourth quarter of2009 in the online advertising market, it was money. E-tailers were consumed withthe task of trying to get consumers to spend more money online. Advertisers werefiguring out where and how to spend their dollars most effectively over the courseof the coming year. And media buyers were scrambling to spend the budgetsurplus a.k.a. scatter campaigns clients had been accruing since the start ofthe year.

Holiday Spending

In terms of e-commerce, Q409 turned out slightly better than analysts andforecasters expected. Between November 1st and December 31st, online shoppersspent $29.1 billion, according to comScore.1 Thats up 4 percent vs. 2008. CyberMonday sales were up 5 percent, and the industry came close to its first nearbillion-dollar day, with spending on December 15th topping $913 million.

Meanwhile, big retail brands like Kmart diverted dollars typically spent on TV,print and radio ads to the web. Mark Snyder, Kmarts CMO, told Adweek that thecompanys online holiday budget had increased exponentially at the expense

of print circulars.2

Kmart spent the money on custom sponsorships of onlinecommunities like Yahoo Shine instead to better reach shoppers that love to findand share information, Snyder said.

A survey from the National Retail Foundation (NRF) and BIGresearch found thatnearly half (47 percent) of retailers said they would increase their use of socialmedia for the holidays, because it was more cost-effective than traditionaladvertising.3 Of course, there was OfficeMaxs requisite Elf Yourself pitch,but Best Buy and Kohls also launched games, giveaways and cartoons acrossFacebook, Twitter and various niche blogs.4

While this spending shift might seem worrisome to some premium pubs fearinga loss of these new dollars to the portals, the results we saw in Q4 told a verydifferent story.

1 Source: comScore, January 20102 Source: Adweek, November 20093 Source: NRF, October 20094 Source: MarketingVox, November 2009


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The Rubicon 20 Index Increases by 34 Percent

The surplus budget signals that marketers were being extremely cautious UBSresearch analyst Michael Morris called their budget cuts overzealous5 in early2009. That means there was room for them to spend in a way that went aboveand beyond typical holiday seasonality. And did they, as the Rubicon 20 Indexdemonstrates.

The Rubicon 20 Index is our proprietary market performance metric thattracks CPM prices and revenue across 20 of the Webs top publishers (excludingportals.) An examination of CPMs showed Q4 was up 34 percent vs. Q3. Some ofthe increase was seasonal as its normal for retail advertisers, in particular, to

earmark higher budgets in order to lure holiday shoppers but a general increasein optimism around growth across the US economy seems to have sent pricesupward above and beyond seasonal expectations.

A confluence of factors impacted prices and CPMs in the fourth quarter, includingbut not limited to the usual spend aimed at spurring consumer holiday spending,said Kara Weber, the Rubicon Projects VP of Marketing. Audience targeted buyswere a key driver of increased CPMs in the quarter; these buys, rates for whichran four times those paid for more standard content and site targeted buys,pushed revenue north for many premium sites. In addition, major news events,especially around celebrity activities, drove consumers online in record numbers,

and advertisers followed.

5 Source: MediaBuyerPlanner, October 2009


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Investments and AcquisitionsVCs and strategic investors also had some unspent money to burn by Q4, as theyfunneled $143 million into 13 companies in the ad networks, exchanges and onlinetargeting sector.6 First, a look at the ad networks and exchanges, where totalinvestments reached $69 million:

Most buzzworthy was publisher and ad network Complex Media, which spun offfrom parent company, Marc Ecko Enterprises, with $12.8 million in funding fromAustin Ventures and Accel Partners.7 Geotargeting ad network 1020 Placecastraised $5 million from Quatrex Capital,8 and RocketFuel, the ad network aimed at

luring in premium brands, also raised $2.8 million.9 But a look at the numbersover time reveals that investor interest in pure-play, volume-driven ad networks

6 Source: Petsky Prunier, January 20107 Source: paidContent, December 20098 Source: gigaOm, November 20099 Source: paidContent, December 2009


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has waned. The total dollar amount invested in ad nets in Q4 was down nearly 57

percent from Q3, and down by half vs. Q408.

So where is the money headed? Toward online targeting and optimization, whereinvestors spent $74 million in Q4. Notable recipients included data-driven ad andcontent targeter, Adchemy, which raised $31 million from a group of investorsincluding tech consulting firm, Accenture.10 Behavioral targeter AudienceSciencealso raised $20 million from Mohr, Davidow Ventures, Mayfield Fund, and others.11Investments into targeting and optimization companies a nascent category more than doubled vs. Q3.

The Year that Was, and Where Were Headed

Though a number of media agency forecasts and financial analyst notespurported that the market had finally bottomed out by mid-Q3, it became clear inQ4 that the online publishing landscape would look very different in 2010 than itdid in 2009.

Take the four major business publications (print and online) as an example: CondeNasts Portfolio, Time Inc.s Fortune, Forbes and BusinessWeek. Conde Nast shutdown Portfolio in May; it sold Portfolio.com to American City Business Journals afew months later, but the site currently exists as a shell of its former self.12

Bloomberg acquired BusinessWeek in October, in a deal worth just $5.9 millionafter taxes.13 The company then laid off roughly 100 staffers including high-profile columnists and editors like Jon Fine, Steve Wildstrom and Lauren Young.14Bloomberg also pulled the plug on bi-weekly sibling Smallbiz, in favor of drivingtraffic to the Small Business Channel on Businessweek.com.15

Later that month, Forbes shut down its L.A. and London bureaus, and laid off atleast 50 staff.16 Then, in November, an undisclosed number of Fortune staffers(including the entire staff of AmEx-owned Fortune Small Business17) were let go

10 Source: The New York Times, October 200911 Source: AudienceScience, October 200912 Source: New York Observer, May 200913 Source: MediaMemo, October 200914 Source: TalkingBizNews, November 200915 Source: PR Newswire, December 200916 Source: Gawker, October 200917 Source: Fishbowl NYC, November 2009


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as part of Time, Inc.s round of around 500 layoffs. Other cutbacks included the

Washington Post (which closed its bureaus in L.A., New York and Chicago18) andthe Associated Press.19

Meanwhile, big deals like Comcasts proposed acquisition of NBCU for $30 billion,20Googles $750 million play for mobile ad network AdMob21 and AOLs declarationof independence from Time Warner were further signs of a very different mediaenvironment in 2010, one where technology and digital properties would play alarger role than ever.

The Comcast/NBCU deal exemplifies the push toward more cross-platform mediaservices and securing paying content subscribers. Imagine the addressable ad-

targeting capabilities Comcast could have once NBCUs full roster of on- andoffline content is part of its portfolio. The Google/AdMob deal shines a hugespotlight on mobile advertising and the growing variety of mobile inventory.Others will be watching AOL post spin-off to see whether a company can be asuccessful premium content publisher and operate multiple ad networks at thesame time.

In this report, we focus on some of the impacts of these trends as they pertainto both publishers and their demand partners (ad networks, data exchanges andeven bidding platforms from media agencies).

Key Takeaways

Premium Publishers: Optimizing Inventory Value

Display is poised to rebound big in 2010, but for publishers to fully capture thatspend, theyll need to shift from thinking about their sites purely in terms ofinventory, and focus more on selling audience. Expect a renewed interest increating pricing controls either through the use of tech platforms, or throughforming publisher coalitions as a means to ensure that publishers have theability to offer advertisers the scale and relevant audience segments needed in

todays marketplace.

18 Source: Washington Post, November 200919 Source: The Business Insider, November 200920 Source: paidContent, December 200921 Source: AdMob, November 2009


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Demand Side: The Year Ahead

Meanwhile, increased demand from advertisers for high-quality audiences andclearly defined results means that ad networks, exchanges and other demandpartners need tech solutions and clearly-defined operating standards to maketheir margins while keeping publishers and advertisers happy. Innovation on thedemand side, however, will drive further fragmentation for publishers trying tocapture the dollars spent through these platforms.

The Tipping Point for Mobile, Video and Possible Regulation

Dare we say it? 2010 may finally be the year that mobile advertising revenues live

up to the hype. But with an influx of inventory in a variety of forms WAP banners,in-app ads, etc. and a variety of mobile and video networks, how can publishersand advertisers avoid the same ad quality and channel conflict issues they initiallyfaced with online ad networks? Meanwhile, will the continued increase in onlinevideo viewership translate into meaningful revenue for publishers? And how willthe marketplace as a whole grapple with revenue-generation if the FTC lays downregulation for targeting?

Premium Publishers: Optimizing Inventory Value

Many media and financial agency forecasts pegged 2009 as the first year thatinteractive ad spending actually declined vs. previous years. Some, like Cowen,said display spending in certain verticals would be down by nearly 20 percent, 22and in his latest Nothing but Net forecast, J.P. Morgan analyst Imran Khancalculated the overall decline at 5 percent.

But in the same report, Khan predicted that display would rebound in 2010 tothe tune of a 10.5 percent surge in spending, fueled by a 5 percent rise in CPMs.The secret? The dollars will only flow if publishers increase the value of theirinventory by making drastic changes including creating more attention-grabbingads, utilizing data-based targeting, and limiting their use of ad networks.23

The efforts by publisher trade groups like the Online Publishers Association (OPA)to develop ads that are harder to ignore have been well documented.24 So havethe efforts of some publishers to cut back on their use of ad networks.

22 Source: paidContent, October 200923 Source: Mediaweek, December 200924 Source: MediaPost, June 2009


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But not every publisher wants to run ads that force viewers to watch a video, orotherwise hold them captive before they can even access a sites content. Norcan a majority of publishers afford to completely cut ad networks and othersales channel partners out of the picture, as theyll ultimately be left with unsoldinventory be it international, secondary premium, or otherwise premiuminventory thats inadequately packaged. Savvy premium publishers who utilizethird parties, with the proper controls in place, have seen the most success andthis will continue to be the case in 2010.

We do agree with Khans assertion that publishers should take more proactivesteps to extract more pricing control over their current inventory. Based on

feedback from premium publishers we work with, there are three primarystrategies likely to be deployed as they work to regain pricing control in 2010:

Identifying, packaging and selling audience more effectively

Segmenting inventory and evolving digital pricing strategies

Aggregating inventory, premium networks, and collaboration

Getting Smarter About Identifying, Packaging and Selling Audience

2010 is the year advertisers and marketers will finally be able to leveragetargeting technology to reach specific audiences online.

Today, the vast majority of display ad campaigns, even those that are targetedusing behavioral or demographic data, are bought on a keyword or content-basis.In the past, a luxury resort would say, I want to reach affluent travelers, and endup buying inventory on a low-end travel site, or even on another, unrelated sitebecause they cookied someone on Expedia.com, said Raj Chauhan, the RubiconProjects VP of Demand Development. What they really want is to be able totarget someone that has already purchased a Louis Vuitton luggage set, beenverified by Experian, or some other third-party service, to gain tangible proof of

that purchase intent, and then get validation that the user has actually seen thead at the end of the process.

Currently, the online consumer data marketplace is still untamed with multipledata providers offering their own audience-qualifying criteria and disparate typesof tracking and targeting technology, with varying degrees of accuracy. Thisfragmentation poses problems for both advertisers that want to place audience-based buys, and publishers that want to capitalize on the value of their audiencesegments.


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Most publishers are not in a position to compete in the audience game with

networks or portals at least on their own because of a lack of knowledge aboutthe way audience data is being collected, bought and sold, said JT Batson, theRubicon Projects EVP of Revenue and Global Development. Theres also a hugeamount of turnover in the sales and sales operations departments, making itchallenging for companies to make the investment and change thats needed.

Still, its clear that publishers want to sell on an audience basis. Audience-basedselling and packaging is critical for large sites to really leverage the reach thatwe offer, said Kyoo Kim, VP of sales at MSNBC Digital Network. Id argue thatour 25-49 year-old big decision makers are more tech-savvy and have higherpropensity to interact with online ads than the same profile on TV or print. So its

critical for us to squeeze the value out of that.

This higher yield for audience-based buys isnt just a theory. In Q4, we saw asizeable return of brand dollars and increased interest in retargeting, remarketingand audience-targeted buys, all at significantly higher rates than standard sitebuys. CPMs for audience-targeted campaigns in the REVV Marketplace wereon average 4X higher than typical content-based site buys, and contributedsignificantly to an overall increase in digital ad revenue spend at the end of theyear.

More than 10 percent of the ad spend flowing through the REVV Marketplace

was devoted to audience-targeted buys in Q4, Chauhan said. Thats up from 6percent in Q3, and I think well see that grow to 20 or even 25 percent by mid-yearas more premium publishers get more familiar with their data and audience, andin turn get better at packaging and setting rates accordingly for their inventory.

But packaging audience shouldnt be treated only as a standalone solution.The premium publishers who will be most successful in 2010 will apply aholistic viewpoint of building a complete packaging process that includes anunderstanding of coupling audience inventory alongside quality content.

Premium Publishers Focus on Price Integrity

According to US-based Forrester, 59% of US advertisers plan to increasetheir digital budgets at the expense of offline executions. As a result, onlinemarketing spend will hit $55 billion in 2014. Supporting this statistic were themany announcements in 2009 from major brand advertisers who are planning adecrease in traditional ad spend and an increase in online. Most notable on thisfront in Q4 was Pepsis announcement to forego airtime during the Super Bowl


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and apply those dollars online instead to the tune of around $20 million dollars.

As brands reconsider their in-house marketing strategies and related spend, theyare putting more stock in the value of properly segmented and targeted onlinead inventory. As audience buys and the accompanying Q4 rates demonstrate,advertisers dont mind paying for value.

Easing advertisers and demand partners resistance to paying higher CPMs forunsold inventory means changing attitudes about the perceived worth of unsoldinventory. In 2009, we saw many premium publishers and their sales channelpartners look at this segment of inventory in a new light, as industry leaderslobbied that the intrinsic value of unsold ad space was worth much more than the

going rates.

Jim Spanfeller opined in PaidContent mid-year that when all is said and done,there really is no remnant inventory on the web, just as there is little to no realremnant inventory elsewhere. We should price online inventory similarly to howwe price offline units. To think otherwise is to tragically slow the growth of theindustry.25

Patrick Mersigner, Senior Director of Interactive at CreativeLoafing.com, notedthat one common problem in setting pricing is that publishers base ad rates onthe cost associated with producing it, not the value it brings to advertisers.

Premium publishers have a significant opportunity to increase revenue throughmore informed pricing. Most publishers have not had the luxury of devoting thenecessary time and resources to identify their customers and assign new value totheir site inventory. But what may have been perceived as a nice-to-have is nowcertainly a must-do.

We saw pricing integrity emerge as one of the most discussed topics at eventsthis past year when premium publishers finally moved away from treatingimpressions as a value-add and acknowledged that coming up with CPMsin a vacuum is a failed model. Understanding pricing and how this evolving

marketplace is going to work is crucial to their long-term revenue growth, saidRob Beeler, VP Content and Media for AdMonsters, a professional associationdedicated to online advertising operations and technology.

The natural thought is to sell more to more people but thats not optimization.

25 Source: PaidContent, August 2009


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extend its own audience of young men complete with internal pricing and ad

quality controls -- and grow it into a business that was strong enough to warrant aspin-off from Marc Ecko Enterprises, its parent company.

But not every publisher has the technology, financial resources or dedicated,educated team in place to be able to make the publisher-as-network modelsustainable. For publishers seeking the benefits of increased audience withoutthe commitment, audience representation and extension partners includingindependent rep firms and companies like the Rubicon Project are a more viableoption.

Some publishers are launching coalitions with the aim of offering scale to

advertisers. The most high-profile example in Q4 was the digital publishing jointventure created by Time, Inc., Cond Nast, Meredith, Hearst and News Corp.28 thatsome are calling the Hulu for magazines.

The Fair Syndication Consortium, a group of over 1,000 publishers backed bycontent tracking and targeting platform Attributor, formed in Q3. Their goal is tohelp publishers stay in business in the midst of increased content aggregationby brokering deals with ad networks to track each publishers content, thenautomatically split the ad revenues between the parent site and the aggregatoror syndication partner.29 AdBrite is the first network that has signed on as aparticipant.

Clearly, publishers are thinking about alliances in a big way, said RaleighHarbour, the Rubicon Projects VP of Business Development. Collectively, theyveinvested hundreds of millions of dollars in content to attract people and theinventory prices theyre seeing, with the margins theyre getting, arent sufficientenough to sustain that.

Demand Side: The Year Ahead

Two years ago this month, we issued our first Online Advertising Market Report,

which focused on the fractured ad network landscape. At that time, and eversince, there has been a nearly non-stop flow of predictions that many networkswould drop out of the overly-crowded market with reasons ranging frompublishers flocking to exchanges to the pork bellies manifestos of 2008. And

28 Source: MediaMemo, December 200929 Source: paidContent, July 2009


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while some companies have shut down, it hasnt happened en masse. Instead

weve watched the industry evolve toward a more holistic demand marketplace,with a variety of inventory buyers ad networks, exchanges, media agencies and,more recently, even data-targeting and aggregation services competing for agiven impression at any time, and a landscape where publishers better understandad networks, exchanges, and other demand partners as efficient sales channels.

New research conducted by the Rubicon Project at the end of 2009 and start of2010 across a number of demand partners elicited strong opinions on key shifts inthe market in the year ahead.

Agencies Start Their Learning Curve

One of the benefits of the big media agencies bidding platforms is that in theory,the platforms will help solve some of the issues around content-verificationand ad-tracking in-house. Thats in addition to helping the agencies operatemore efficiently by running campaigns based on audience from the onset (thuseliminating waste) and getting the best inventory at the lowest price possible.Still, with the exception of WPPs B3 built off of the platform formerly known as24/7 Real Media most of the agency platforms are still in their infancy.

Among other challenges is a lack of in-house expertise. Quite a few of the

platforms are using third-party licensed technologies but the teams are stillfiguring out how to manage them, said the Rubicon Projects Raj Chauhan.Some ad networks we spoke with expressed precursory concern over beingdisintermediated from advertisers by agency exchanges by being forced to gothrough their platforms; other networks didnt view agency exchanges as asignificant obstacle, citing an overall lack of technology know-how, data, volume,and quality controls that advertisers and publishers need.

Philip Smolin, General Manager of Platform Solutions at Turn said, 2010 willbe a transformational year for agencies. Leading edge media buyers can nowuse sophisticated Demand Side Platforms (DSPs) like Turn to plug directly into

sell side optimizers such as the Rubicon Project and target individual users andimpressions. The end result is a dramatically improved understanding of theadvertisers optimal audience, the ability to maximize reach against that audience,and an order of magnitude improvement in media buying efficiency. The agencieswho embrace these new technologies and media strategies on behalf of theiradvertisers will be the big winners.


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Ad Network Trends

How the ad network market will evolve, and in some cases shake out, broughtseveral consistent responses. Among the top:

Vertical ad networks will flourish: Maureen Little, VP of Business Development atTurn also sees a lot of growth ahead for vertical ad networks. Vertical and data-driven networks will live on for a pretty long time, especially those with exclusiveuser data and high-end publishers. But the vanilla or standard networks aregoing to be shaken out.

Networks Need to Innovate or Partner with Innovators: Every demand-side

channel we spoke with stressed the importance for networks to innovate anddifferentiate. Jaan Janes, CEO of Pulse 360 said, This is not a static marketplaceand the networks that grow and thrive will be the ones that deliver the most valuefor advertisers, publishers and consumers.

Eric Franchi, SVP, Business Development, Undertone Networks commented,Networks have consistently brought innovation to a space where it has beenlacking behavioral targeting, re-targeting, optimization, frequency capping,audience segmentation and other products and techniques that are consideredmandatory today are all network innovations. That said, undifferentiatednetworks will find 2010 challenging as agencies continue investigating ways to

bring these tools in house.

An executive at one top tier network questioned the sustainability of smallernetworks that arent able to apply the same budget and resources to developingproprietary solutions or investing in third-party technologies like verificationand data. These hundreds of networks that are just buying on exchanges donthave granular data on the site level. I dont see how they can compete. They cancontract with data providers but it doesnt give them enough of a differentiatorlike big networks.

Ben Abbatiello, Senior Director, Business Development at interCLICK commented,

The industry has clearly shifted toward an audience based buying model.Right now demand partners are doing some interesting work with inventoryaggregation, which is being simplified by companies like Rubicon. Whats missinghowever is a coherent data strategy beyond a couple guys using excel, as well asthe operational skill set required to execute such a strategy with any scale. Adnetworks like interCLICK have been focused on technological and operationalinnovation for the past 5+ years and the results show. Thats tough to competewith.


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Demand for Audience Targeting is Growing: All the demand partnersacknowledged that the request for audience-based buys from advertisers hasgrown. Its become a valuable aspect of the media plan and definitely part of theoverall model, said interCLICKs Abbatiello.

Added Chauhan, Our network partners are telling us that more of the agencyRFPs they get have some kind of demographic or audience-targeted componentlayered into them. It will be challenging for the networks that cant offer that togrow.

There is also a need for networks to support rich media requests, especially as ad

agency creatives become better versed in creating for the digital and interactiveenvironments. Requests for media execution are becoming much more prevalent.Were seeing more and more advertisers spending incremental dollars ondynamic messaging and interactive banners, which can make delivery a bit moreof a challenge from an operational standpoint. To thrive in this next phase ofthe market, networks have to be able to support creative, data, and inventorycompetency, added Abbatiello.

Transparency in Reporting: As Rob Beeler, VP of Content and Media atAdMonsters relayed, Many networks are trying to differentiate themselves fromone another by being more transparent about the kind of advertising theyre

bringing to publishers. Theyre enacting stricter advertising guidelines and movingaway from the blind-sell and arbitraging models.

Maureen Little, VP of Business Development at Turn agrees and sees an evenbigger shift ahead around transparency. It used to be networks couldnt securequality premium publisher inventory without running a blind site list but I thinkthat model is going to flip on its head, and turn into publishers not being able tosecure a quality brand advertiser without being transparent.

Before, advertisers were satisfied with the reporting delivered by the ad networksor exchanges but now they want more transparency into where the ad ran

and what kind of response it received. Simultaneously, publishers are puttingmore stringent pricing controls in place, meaning they are willing to offer thattransparency but at a price. We are seeing a move to greater transparency onboth sides of the coin, which should lead to more efficiency in the marketplace.

Publishers are less concerned about getting rid of the poorly designed, flashy,shaky ads, because good optimization platforms catch them, and reputable adnetworks wont run them, the Rubicon Projects JT Batson said. Theyre pushing


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for more transparency as it pertains to who is running which ad on their site, and

how much they paid for it.

Content Verification

On the flip side, advertisers are also pushing for control and transparency. Theystill have concerns about accurate impression-count reporting and campaigntracking and want control over where and when an ad appears and relatedperformance.

Content adjacency and delivery-verification efforts will be huge in 2010, said

Andrea Kerr Redniss, Managing Director and SVP at Publicis Optimedia. Its beenan agency concern for some time, and now were seeing companies crop up toaddress the issue.

The emergence of content-verification companies, like AdSafe and DoubleVerify,are actually forcing ad networks to prove what theyve always maintained - thattheyre providing the right inventory to buyers and not running campaigns onsites that fall outside those listed on RFPs, Chauhan said. We recently partneredwith AdSafe to leverage its multi-layer technology in order to give our customersand sales channel partners a platform that provides reach and performancewithout compromising their advertisers brands.

One partner commented that agencies feel networks should pick up the costsassociated with content-verification. Expect to see networks start to bake theseservices into everyones fees as an offering within network quality controls. Wewill also see ad networks taking more proactive measures to support industrystandards. For example, as of the end of Q4, Pulse 360 became the first adnetwork outside of Google, Yahoo and Microsoft to pass a third-party audit of theIABs new Click Measurement Guidelines, first launched in May.

There is a definite sense of urgency, and a general industry agreement, to createa broad marketplace and associated technologies that offer advertisers and

publishers deep visibility into audience, pricing and performance.


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The Tipping Point for Mobile, Video and Maybe,

Regulation

A Mobile Ad Inventory Explosion

It seems that market analysts, press, and ad industry pundits of all kinds havebeen touting every year since 2007 as the breakout year for mobile advertising.But Googles acquisition of mobile ad network AdMob at the end of 2009 not tomention Apples follow-up with the purchase of rival Quattro Wireless this month30 has ensured that more advertisers, publishers and ad technology providers will

be focused on mobile advertising in 2010.

Some quick facts about the mobile ad market from a recent survey of 100 adagencies:31

Mobile spending is expected to increase in 2010: most agency respondents (31percent) said they expect to invest between $100K and $249K

In 2009, the majority of agency respondents said they spent less than $100K onmobile campaigns

80 percent of all mobile campaigns that ran in 2009 utilized a mobile ad networkof some kind; most buyers place campaigns with one network

Less than 9 percent of agencies purchased mobile inventory directly frompublishers

A majority (52 percent) of agencies used geo-targeted campaigns; age-basedtargeting was the next most-popular (39 percent), followed by gender or

behavioral targeting (both at 28 percent)

Theres been a lot of hype around mobile before, but I think well see some good,legitimate dollars flowing into mobile campaigns this year. This shift in dollars isbeing accelerated by consumer adoption of smarter wireless devices, RaleighHarbour of the Rubicon Project said. Its simple supply and demand. As morepeople (the supply) look at websites, apps, and content on their phones, more

advertisers will want to run campaigns there. Judging from the survey responses,a majority of those campaigns will be trafficked across mobile ad networks.

Mobile ad networks like Mojiva, Quattro Wireless, Millennial Media and JumpTap

30 Source: Quattro Wireless, January 201031 Source: FierceWireless, November 2009


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have emerged for the same reasons that online ad networks evolved: most

publishers cant sell the bulk of their mobile ad inventory on their own eitherbecause of a lack of sales experience, resources, or both. But mobile ad networksalso help advertisers deal with fragmentation unique to the mobile marketplacedue to the wide variety of handsets, delivery formats, ad sizes, etc. they oftenhave handset-recognition technology built in, as well as geo- and demographictargeting capabilities that simplify the entire process.

One of the trends we think will start to influence the overall online ad marketplacethis year is the integration of mobile ad inventory by non-mobile ad networks.Advertisers are starting to include mobile in many of their large digital RFPs,Harbour said. And traditional networks that can offer one-stop shopping for

online and mobile campaigns will become increasingly valuable. In response,traditional online display networks are beginning to incorporate mobile inventoryinto their core media buying process.

Advertisers are starting to include mobile in every digital RFP, Harbour said.And traditional networks that can offer one-stop shopping for online and mobilecampaigns will become increasingly valuable.

All About the Apps

The popularity of the iPhone, with its desktop-like mobile Web experience, hasflooded the market with the next big thing in mobile: third-party apps. Fromvideo games and streaming video from media brands like MLB and the NCAA,to workplace productivity tools, there truly is an app for everything. The appexplosion has also created a slew of new mobile ad inventory complete with acrop of app-based ad networks in the market.

Advertisers have the option of buying WAP inventory from a publisher like NBCor the Washington Post, and for the publishers who build their own applications,these same advertisers can now buy space in a brand safe, high engagementenvironment, Harbour said. And while thats a trend that will continue to grow,

there are questions emerging about the diverse inventory of current in-appinventory.

For advertisers, the rise of app-based ad networks raises the potential issue ofbrand protection, since currently many of the ad-based apps are social mediatools and video games. A brand might not choose to run its campaign on a user-generated photo sharing website such as TweetPhoto or TwitPic, but a blind buyfrom an in-app ad network could result in its banner showing up in either app and


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next to an explicit or otherwise unfavorable photo. For publishers that create apps,

theres the question of the quality of the ad campaigns coming in from the in-appnetworks, as well as the pricing.

For the most part, publisher and advertiser concerns about ad quality, brandprotection and channel conflict are being addressed with greater efficiencyin the online ad network marketplace and, of course, with services like ours,Harbour said. This is in early stages for the mobile ad space. There is room forimprovement on those fronts with both mobile Web and in-app formats, and Ithink that will be a big priority this year for the industry and for us. Thoughtleaders in the space will be able to leverage the learning from the online displayworld and apply that to mobile to address these issues head on.

Video Usage Soars, but What About Monetization?

Much like mobile Web usage, online video usage continues to rise. Research fromNielsen Online found that people in the U.S. were watching an average of over 3hours (195 minutes) of video per month,32 and with the availability of easy-to-useplatforms like UStream and VodPod, publishers are increasingly incorporatingvideo content to their sites.

But with video content comes video ad inventory, which, for the most part, outside

of premium brands like Hulu and CBS TV.com, is still being under-monetized. Takethe fates of the independent online video production studios as an example.

In 2009, 60Frames and Mania TV shut down completely, while EQAL, the studiobehind the breakout YouTube series lonelygirl15, all but gave up on its hopesof creating original content without getting advertiser buy-in first.33 Thesewere well-funded startups that had quality content, with solid syndication anddistribution strategies in place. All that was missing was the ad revenue.

Marketers are talking about video campaigns, but the actual spending hasnttaken off to the degree that some people expected, said Harbour. There are

still concerns about running ads on un-controlled UGC environments, or evenunproven Web series, vs. safe, original branded content and theres still far moresupply in UGC video inventory than in demand.

There is also the perception that online video inventory regardless of how

32 Source: Nielsen, October 200933 Source: paidContent, July 2009


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popular is still far less valuable than TV inventory. Again, there are exceptions.

Hulu, for example, has been able to garner higher rates for online episodes ofshows like The Simpsons34 than on TV. And while those rates are promising, mostpublishers dont have the same resources that a huge joint venture like Huludoes to hire and train a sales force focused specifically on video monetization.Thus, many publishers work with video ad networks to get some value for theiraudiences.

Positive Trends

But while the online video ad market is still under-monetized, there are a few

trends that agencies, in particular, are expecting to help bring more brand dollarsinto the market.

Standardization of metrics and measurement surrounding online video, for moreaccurate comparisons to TV metrics

New ad formats (beyond pre-, post- and mid-roll) that add more value for

advertisers

We will continue to see incremental dollars shift from TV to online video butwith better metrics and ad formats, I think the rate of that shift will increase,said Andrea Kerr Redniss. I also think well see more publishers push for paidsubscription models, which will reduce some of the available inventory, andpossibly drive up CPMs.

An emerging trend some video-focused ad network partners are starting to seeis the concept of video branded content to connect with audience. Theres thisshift happening from competing for dollars to competing for attention. Gamingcompanies to movie studios to established consumer product companies arelooking for more creative ways to capture that attention. Were seeing the modelevolve from advertising in videos to using video content as advertising, said DanGreenberg, CEO of Sharethrough, a video distribution network for branded onlinevideo content.

Greenberg continued, traditionally, brands like AT&T and Verizon compete witheach other for consumer dollars. Online, brands are realizing that they arenow competing for consumer attention with all sorts of other entertainment

34 Source: Bloomberg, June 2009


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on the Web. The future of Web video for brands is not about captive audiences

and forced engagement like TV. Rather, success hinges on creating authentic,entertaining content that builds audiences and captures consumer attention.Were going to continue to see brands aiming to reach consumers in this way,which will open up additional revenue opportunities for Premium Web and videopublishers beyond the standard pre-roll model.

Keeping an Eye on Regulation

But many publishers (and demand partners) are keeping an eye on an even biggerissue than monetizing online video potential Federal regulation over behavioral

targeting and consumer privacy.

In June, Congress held a hearing on Behavioral Advertising: Industry Practicesand Consumers Expectations,35 and though no legislation came as a result, thethreat of it loomed over the rest of 2009. And that risk isnt going to go awaythis year. Per OMMA Magazines Survival Guide 2010.36

Congress is expected to consider a proposal for new legislation regarding onlinebehavioral targeting and privacy. Whether such a measure passes or not, themere introduction of a bill could drive change. When a draft comes out, if itsdone well, it will set a bar, says Jules Polonetsky, co-chair and director of the

think tank Future of Privacy Forum.

The draft bill is expected to encourage Web companies to give users access totheir online profiles, as do companies like Google and BlueKai. Of course, themeaning of access remains in play. It could simply require companies to allowpeople to view the broad interest categories associated with their Web-surfingactivity, or could mean allowing people to see that information coupled with a listof sites visited. Or the measure could require companies to give users controlover their profiles.

Other implications of new legislation could be a forced move to letting consumers

opt-in to being cookied and targeted, as opposed to having them opt-out asit stands now. While industry groups like the Network Advertising Initiative(NAI) have recently made it much easier for consumers to manage their opt-out preferences and to understand how they are being targeted, Congress

35 Source: Congress, June 200936 Source: OMMA Magazine, December 2009


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examination has made it clear that the self-regulation thus far hasnt been

sufficient.

Prospective regulation of online behavioral advertising will continue to be akey challenge in 2010. With significant scrutiny and likely proposals from bothCongress and the Federal Trade Commission, it will be more important thanever for the industry as a whole to deliver an effective self-regulatory response,focusing on enhancements to consumer transparency and choice, said CharlesCurran, Executive Director of NAI.

Added Craig Roah, the Rubicon Projects COO, I think theres a feeling on somelevels that theres a need for regulation. Behavioral targeting and targeting in

general is a bit like the Wild West almost like e-mail marketing a few years ago.CAN-SPAM was necessary to help clean that industry up, and with targeting, thereare some advertisers that want clearly defined rules to follow.

Roah continues, On that same note, the industry needs to continue educatingthe market and consumers on this very topic in order to find a solution that willbenefit the growth and innovation of the online advertising industry.

Thoughts for the Future

Proliferation of demand platforms

The end of 2009 saw a great deal of chatter and excitement around the conceptof DSPs. Were carefully watching this trend and believe theres potentiallysignificant value to the marketplace from these platforms, especially if premiumpublishers are well protected from risk and empowered to benefit from thisdevelopment.

As it stands now, DSPs represent another burst of innovation on behalf ofadvertisers to help them achieve marketing goals at the lowest possible cost. Inthe year ahead well see a boom in these types of platforms, which will lead to

overwhelming choices for advertiser, causing further fragmentation of dollars andsources. We see strong similarities between this and the ad network gold rushthat started several years ago.

2010 is starting with great momentum, backed by recent strong successes fordigital display advertising and innovation on both the supply and demand sides ofthe equation. Our expectation is that this will be a landmark year for digital media and were excited to be a part of this revolution as it unfolds.


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About the Rubicon Project

Headquartered in Los Angeles, the Rubicon Project launched in 2007 with amission to automate the $65 billion global online advertising industry. Thecompanys Yield Management Optimization platform, REVV for Publishers, isengineered to accelerate revenue for premium Web publishers. Backed by $42million in funding from Clearstone Venture Partners, Mayfield Fund, IDG Venturesand GE/NBC Universals Peacock Equity Fund, the Rubicon Project serves premiumpublishers like NBC Universal, Gannett and CareerBuilder; optimizing more than45 billion ads each month and reaching 500 million unique Internet users. Rankedsecond in overall Internet reach by Quantcast, the Rubicon Project also helpsad sales channels around the world gain access to precise audience-segmented

inventory, at broad scale.

the Rubicon Project [HQ]1925 S. Bundy DriveLos Angeles, CA 90025Phone: 310.207.0272Fax: 310.207.0528

the Rubicon Project [New York]

106 Seventh AvenueNew York, NY 10011Phone: 212.243.2759Fax: 310.207.0528

the Rubicon Project [London]

48 Charlotte StreetLondon W1 2NSPhone: 44.20.3170.5615Fax: 44.20.3170.6330

the Rubicon Project [Sydney]58 Ronald AvenueGreenwich NSW 2065AustraliaPhone: 61.400.006297


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Footnote Index

1. comScore - comScore Reports $29.1 Billion in U.S. Retail E-Commerce Spendingfor Full November-December Holiday Season, Up 4 Percent vs. Year Ago - http://comscore.com/Press_Events/Press_Releases/2010/1/comScore_Reports_29.1_Billion_in_U.S._Retail_E-Commerce_Spending_for_Full_November-December_Holiday_Season_Up_4_Percent_vs._Year_Ago

2. Adweek No Miracles on 34th Street -- http://www.adweek.com/aw/content_display/news/media/e3i4cb8ab67c89c15aaa659c69fd36f3d16?pn=1

3. The NRF Online Retailers to Emphasize Free Shipping, Social Media this HolidaySeason http://www.nrf.org/modules.php?name=News&op=viewlive&sp_id=808

4. MarketingVox SocNet Experiments Bode Well for Holiday Season - http://www.marketingvox.com/socnet-experiments-bode-well-for-holiday-season-045438/

5. MediaBuyerPlanner Analysts Confident Advertising Will Rise to Pre-RecessionLevels - http://www.mediabuyerplanner.com/entry/45710/analysts-confident-advertising-will-rise-to-pre-recession-levels/

6. Petsky Prunier Deal Notes (Q409) - http://petskyprunier.com/index.php?/deal-notes/

7. paidContent Updated: Marc Eckos Complex Media Gets $12.8 Million, Spins OffInto Standalone Company http://paidcontent.org/article/419-marc-eckos-complex-media-adds-12.8-million-in-funding/

8. GigaOm 1020 Placecast Pins $5M for Mobile Geo-targted Marketing http://gigaom.com/2009/11/18/1020-placecast-pins-5m-for-mobile-geo-targeted-marketing/

9. paidContent RocketFuel Raises $2.85 Million For Ad Network http://paidcontent.org/article/419-rocket-fuel-raises-2.85-million-for-ad-network/

10. NYT Bits Accenture Tries to Turn Ads Into Gold with Adchemy - http://bits.blogs.nytimes.com/2009/10/20/accenture-tries-to-turn-ads-into-gold-with-adchemy/

11. AudienceScience - AudienceScience Secures $20M in Venture Funding FromExisting Investors to Fuel Domestic and International Growth- http://www.audiencescience.com/press_room/press_releases/2009/20091020.asp

12. The New York Observer Portfolio.com to Get Lazarus Treatment - http://www.

observer.com/2009/media/portfoliocom-get-lazarus-treatment13. MediaMemo - BusinessWeeks Fire Sale Nets McGraw Hill $5.9 Million, or $15,000

Per Staffer http://mediamemo.allthingsd.com/20091026/businessweeks-fire-sale-nets-mcgraw-hill-5-9-million/

14. Talking Biz News Layoffs begin at BusinessWeek - http://weblogs.jomc.unc.edu/talkingbiznews/?p=11890

15. PR Newswire Bloomberg BusinessWeek Ceases Publication of SmallBiz http://www.prnewswire.com/news-releases/bloomberg-businessweek-ceases-publication-of-smallbiz-78529897.html


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16. Gawker Forbes Layoffs Are Here, and Theyre Brutal - http://gawker.

com/5391948/forbes-layoffs-are-here-and-theyre-brutal17. First on FBNY: Time Inc. Shutters Custom Pub Fortune Small Business. http://www.

mediabistro.com/fishbowlny/the_revolving_door/first_on_fbny_time_inc_shutters_custom_pub_fortune_small_business_142197.asp

18. The Washington Post Washington Post shutters last U.S. bureaus - http://www.washingtonpost.com/wp-dyn/content/article/2009/11/24/AR2009112403014.html?referrer=facebook

19. The Business Insider AP Layoff Update: Damage Continues - http://www.businessinsider.com/ap-layoff-update-damage-around-the-world-2009-11

20. The Life and Times of AdMob - http://blog.admob.com/2009/11/09/google-to-acquire-admob/

21. paidContent - Cowen Maintains 5 Percent Online Ad Decline For U.S.; Carat RevisesGlobal Online Ad Spend Down http://paidcontent.org/article/419-cowen-maintains-5-percent-online-ad-decline-for-u.s.-carat-revises-glob/

22. Mediaweek - Analyst: Online Display Ads Set to Surge - http://www.mediaweek.com/mw/content_display/news/digital-downloads/metrics/e3ia2c2f303f03d144b4a1e3c5361e637db?pn=1

23. MediaPost 37 Sites Ready To Implement OPAs Bigger, Badder Ad Formats- http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=108864

24. paidContent CBS Cuts Ties To Outside Ad Networks For Display, Launches ItsOwn http://paidcontent.org/article/419-cbs-interactive-to-cut-ties-to-outside-ad-networks-launch-its-own/

25. PaidContent Publishers Are Killing Web Advertisings Potential With MisguidedPricing - http://paidcontent.org/article/419-cbs-interactive-to-cut-ties-to-outside-ad-networks-launch-its-own/

26. AdAge CBS Interactive Dumps Ad Networks - http://adage.com/digital/article?article_id=141054

27. Mediapost - Complex Media Adds Seven Partner Sites - http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=98950

28. MediaMemo - Nows the Time, Finally: Publishers Announce Their Hulu forMagazines. Next Up: Building It - http://mediamemo.allthingsd.com/20091208/

nows-the-time-finally-publishers-announce-their-hulu-for-magazines-next-up-building-it/

29. Fair Syndication Consortium A First Step -http://www.fairsyndication.org/blog/2009/content_syndication_and_management_guidelines/

30. Quattro Wireless Happy New Year from Quattro Wireless - http://www.quattrowireless.com/mobile_insight/blog/happy_new_year_from_quattro_wireless

31. Fierce Wireless The State Of the Industry: Mobile Advertising - http://www.fiercewireless.com/press-releases/state-industry-mobile-advertising


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32. Nielsen Wire - Time Spent Viewing Video Online Up 25% per Viewer - http://blog.

nielsen.com/nielsenwire/online_mobile/time-spent-viewing-video-online-up-25-per-viewer/

33. paidContent - Studios-Backed Web Video Efforts Stalled For Now; Whos Left?http://paidcontent.org/article/419-studios-backed-web-video-efforts-stalled-for-now-whos-left/09/october/nielsen_announces

34. Bloomberg.com - Loyal Simpsons Fans Fetch Higher Ad Rates on Web (Update1)-http://www.bloomberg.com/apps/news?pid=20601204&sid=atKGiQOMco.Y

35. Energy and Commerce Subcommittee Hearing on Behavioral Advertising:Industry Practices and Consumers Expectations Congressional hearing http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1674:energy-and-commerce-subcommittee-hearing-on-behavioral-advertising-industry-

practices-and-consumers-expectations&catid=122:media-advisories&Itemid=5536. OMMA Magazine 2010 Survival Guide: Regulators - http://www.mediapost.com/

publications/index.cfm?fa=Articles.showArticle&art_aid=118218

rubicon q409 market report

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