Tuesday, October 30, 2007

Interactive Advertising, Innovation, and the American Dream

Today and tomorrow, the U.S. Federal Trade Commission is hosting a Town Hall entitled “Ehavioral Advertising: Tracking, Targeting, and Technology.” The FTC describes the event bringing together "consumer advocates, industry representatives, technology experts, and academics to address consumer protection issues raised by the practice of tracking consumers’ activities online to target advertising - or 'behavioral advertising.'" The Interactive Advertising Bureau sought and received permission to present our point-of-view about the centrality of interactive advertising to American competitiveness and to the diversity of voices available on the Web. The IAB will live blog from the hearings today and tomorrow at www.iab.net and www.randallrothenberg.com. What follows is the testimony I just delivered.

Good morning. On behalf of the Interactive Advertising Bureau, the trade association for advertising-supported interactive media in the United States, I thank the commission and its staff for the opportunity to participate in this important Town Hall discussion regarding online-behavioral advertising.

The IAB’s 350 member companies represent the present and the future of marketing and media in the United States. Among our members are the burgeoning new media brands that have entered American consciousness during the past decade, companies such as Google, Yahoo, AOL, MSN, and CNET. There are the major media companies that have made two-way communications a significant component of their offerings, from The New York Times to NBC Universal to Condé Nast to CNN. There are smaller, successful information companies serving market niches, such as Cars.com and WebMD. And there are platform specialists in areas such as digital video, online games, and social networking, with names like Brightcove, Wild Tangent, and Facebook.

Historians undoubtedly will look back on this period as the most dynamic and innovative in the history of American business. Central to this dynamism has been the promise of advertising support. A question before all of us today is: What is the best policy framework to maximize such innovation and competition, in order to produce the best products, services, and diversity for consumers?

Prudence and Self-Regulation

There is a clear answer, supported by copious evidence dating back at least to October 1994 – the date the Netscape Navigator Web browser was released, initiating the Interactive Era: The unprecedented proliferation of goods, services, and information diversity that characterize the Internet has been generated within a framework of industry self-regulation and market forces. It is incumbent on the business community to ensure that Interactive advertising, marketing, and data-use practices are responsible. At the same time, Government must be prudent in ensuring that no regulation is drawn that would curtail interactive advertising’s potential to continue to support this extraordinary pattern of innovation and consumer benefit.

Advertising is the economic foundation underlying the dynamism of the Interactive Era. With interactive media, it’s become a commonplace that marketing spend – one of the last redoubts of imprecision in American business – is becoming more accountable and more productive. This is possible because of the availability of mathematical and technological tools that enable the analysis of non-personally-identifiable data to detect patterns in peoples’ interests and consumption habits, and to allow the matching of advertisements to their needs. Other analytics tools allow for predictive modeling based on the responses to these well-targeted ads, enabling the development of even better-targeted ads. All of these advancements ultimately work to the benefit of consumers. They not only receive advertisements more relevant to and productive for them; they receive more and better free content and services online.

Because these advertising processes are largely automated, they are taking costs out of and improving the results from advertising. In addition, because the Internet allows the seamless aggregation of thousands of Web sites into online advertising networks, marketers can reach consumers in volumes that rival, even surpass, the audiences of broadcast television. Yet they can do this with a precision that no previous medium can match.

In such ways are interactive media contributing to the productivity revolution that is driving American competitiveness in the 21st Century. For such reasons, interactive advertising spend in the U.S. this year likely will reach $20 billion, according to research by the IAB and PriceWaterhouseCoopers. That is nearly one-third the amount marketers spend on television – and a sum reached a mere 13 years after this medium’s invention.

Fabric of Communities

This revolution is reaching deep into the fabric of communities across the nation. Today, all of us, quite literally, own a press – and much, much more. The Internet has torn down barriers to entry in both content creation and distribution. It is now possible for an individual to publish a national “magazine,” even program a global television network, with the applications that come built into his or her laptop computer. Never has speech been more open, available and varied. As of July 2006, some 12 million American adults – about 8% of the American population – were publishing their own blogs, which were being read by 57 million others, according to the Pew Internet & American Life Project.

If any of the commissioners or commission staff want a tutorial on how to create your own national media outlet, the IAB would be glad to provide it – if you’ll promise in return to join the IAB once you begin to sell advertising!

For you most assuredly can use advertising, and build a business on the Web based on little more than your brain, passion, and energy. According to Pew, 32 million American adults have used online classified ads for selling or buying, and 35 million American adults have participated in an online auction. eBay, the best known auction site, says more than 768,000 small businesses across the U.S. use this online marketplace as their primary or secondary marketing channel. More than 1.3 million people supplement their income by selling materials on eBay.

Millions of other people are making their livings creating and operating media venues that house well-targeted advertisements. The 24/7 Real Media online advertising network partners with 950+ websites in six countries. Tacoda numbers more than 4,000 websites in its online ad network, which reach 122 million unique visitors per month. Advertising.com, another online ad network composed of thousands of small sites, has more than 150 million unique visitors in the U.S. each month.

These sites are the Mom & Pop grocery stores of the World Wide Web: Just as the local retailer anchors a geographic community, so these sites anchor communities of interest that span towns, cities, states, even nations. They do this with their content – and they finance their content through advertising.

Tim Carter's Story

Let me give you one example of just how small and just how successful these businesses can be: Tim Carter, the proprietor of Askthebuilder.com. Tim is a 55-year-old man with a wife and three children who lives in Cincinnati, Ohio. Askthebuilder.com lives on the computer screens of anyone anywhere who is interested in building a house, renovating a kitchen, or re-doing a bathroom.

Tim’s Web site is deep and rich – unsurprising, because, until about 15 years ago, he’d spent his life as a contractor, actually doing the work he writes about. He was darn good at it, too: In 1993, Remodeling magazine named him one of the top 50 remodelers in the nation.

Then disaster struck, in the form of three clients from hell. He’d battled the scourge of lowball contractors, the wear and tear on his body, only to be stiffed by his customers. He told his wife, Kathy, that he’d reached his limit, and wanted out. She suggested he take a book idea he’d had about home repair and renovation, and turn it into a newspaper column.

Tim is an energetic fellow. In short order, he’d persuaded the Cincinnati Enquirer to run a column by him. Within nine months, he self-syndicated his column to 30 other newspapers around the country. He quickly discovered that writing wouldn’t make him rich – his average take was $8.00 per thousand-word column.

But even though there was a Christmas or two when they didn’t exchange gifts, and evenings when dinner was Japanese ramen-in-a-cup, Tim Carter didn’t give up. “I was convinced that long term, it would work,” he told me a few weeks ago. He knew he was touching people: Certain topics – on deck sealing, for example – would draw as many as 1,000 letters in a week.

In 1995, Tim saw the Internet for the first time. “Instantly,” he said, “I knew I was going to be a publisher.” He taught himself rudimentary HTML programming. No longer constrained by newspaper schedules, he began writing like the Dickens – Charles Dickens, to be exact. He started hanging out at a local computer users forum, and an entrepreneurs forum, seeking to become better as a Web publisher.

In 2004, a member of his entrepreneurs group told him about Google’s Adsense Network. Like the ad networks run by Yahoo, Microsoft, AOL, and many other companies, Adsense is a collection of websites on which Google places well-targeted advertising – like the ads that run on the right side of the Google search-results page, but in this case, placed contextually on sites themselves. As Google describes it, “Google AdSense matches ads to your site's content, and you earn money whenever your visitors click on them.”

The colleague who told Tim Carter about Adsense strongly suggested that Tim log onto Google and sign up. “With your content,” this fellow entrepreneur told him, “you could easily make $500 a day.” This certainly piqued Tim’s interest: In his best year as a builder, he’d earned $80,000.

But the fellow was wrong -- by half. When I met Tim Carter in late 2005, Askthebuilder.com was finishing its first year as part of an online advertising network. Tim was to make $350,000 that year.

Here’s how large Tim Carter’s editorial staff is: One person, himself. With that staff of one, Askthebuilder.com draws more than 31,000 unique visitors a day. Here’s how large Tim’s sales staff is: Zero. Managing that nonexistent sales staff is Tim’s chief financial officer: his wife, Kathy. Now that online video advertising is evolving from promise to reality, he has a video editor working for him a few hours a week. As his online advertising tools have progressed, the benefits have similarly accrued to the visitors on Tim’s site, as they now enjoy richer, more educational content.

Tim Carter is the American dream. But he is not alone. Hundreds of thousands, perhaps millions of others, are supporting themselves and their families – and, in turn, aiding a burgeoning entrepreneurial economy in the United States – using interactive advertising. They are creating niche media on which well-targeted advertisements serve as bridges between niche marketers and niche audiences.

The revenues from these ads, in turn, support benefits to American consumers that are without parallel in number, quality, and availability. According to numbers released by the companies themselves, Google, Yahoo, and MSN together provide 500 million email accountsfor free. The research firm comScore reports that more than 200 million Americans age 15 or older conduct search-engine searches each month – for free. Also each month, some 20 million people search the top three online job-listings sites – Monster, Hotjobs, and CareerBuilderfor free. Just one of those sites, Monster.com, has 41 million resumes posted on it by job-seekers – for free.

Yet, as we all know, these services aren’t really free. Most of them are premised on the ability of the digital publisher, giant incumbent media companies and individual entrepreneurs alike, to sell advertising – to link marketers and consumers in a relationship of mutual interest, mutual advantage, and mutual satisfaction.

For those who want to understand the future of the media, I have one piece of advice: Go to Askthebuilder.com and see what Tim Carter did with his brain, energy, and passion – and with a global marketplace and a set of automated advertising tools. This is not the interactive future. This is the interactive present.

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