MIT Enterprise Forum presents a talk about the next wave of innovative online and offline advertising, the current state of advertising and the future of the industry. Industry veterans Jeff Green, Founder and CEO of the Trade Desk, Lisa Riolo, Co-Founder of Impact Radius and Frank Gerstenberger, VP of Product Management at Audience Science will present their latest ventures and discuss ideas and opinions that help their companies, and the Central Coast, lead the way in the advertising industry.

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Synopsis of Video Transcript:

Bob Johnson: I’m one of the 20 volunteer directors of the Central Coast MIT Enterprise Forum. We’ve been doing this here in Santa Barbara for now 26 years. So I’m gonna take advantage of the fact that this is a lot of new people here tonight just to mention a couple things.

MIT’s mission has been to bring technology into practical use for the benefit of mankind. A lot of that means putting it to work in a commercial sense.

In a recent report done a couple years ago, the Kauffman Foundation came up with some very interesting statistics. There are about 110,000 living alums, and they have founded almost 26,000 companies that are currently active and still independent. By independent, I mean a company like Digital Equipment or Apollo Computer doesn’t count because they were acquired. So they’re no longer in the statistics.

But these 26,000 companies employ 3.3 million people and generate revenue in excess of $2 trillion. If you took it altogether, it’s the 11th largest economy of the world. So that’s MIT’s commitment to entrepreneurialism and what it can do.

Now as I mentioned, we’ve been here for 26 years. Since that time, though, Software.com, Expert City, QAD, Indigo, SONOS, just to name a few, have proved that that’s wrong. In fact, in recent years, companies like ValueClick, Fastclick, DoubleClick, Commission Junction, RightScale, Eucalyptus have found VC support. Now I’d like to introduce Kyle Ashby, who is our event chair and our moderator and who put together this evening’s program.

Kyle Ashby: So we’re gonna start first with Jeff Green. Jeff is considered one of the pioneers of the ad exchange. He’s started a number of companies, founded a CPA network called eBound Strategies. It was named top-10 new company of the year by AdBumb in the past and was acquired by Nami Media in 2003.

He founded and built AdECN, an ad exchange network, that launched in 2006 in the UK and 2007 in the US here. It was then sold to Microsoft. Jeff acted as the COO and led strategy and business development, both before it was sold and after. He left that company in 2009 and just now started a company called The Trade Desk. So Jeff is gonna come up and present a little bit about The Trade Desk and a little bit about his side of the advertising and affiliate marketing and online space. So Jeff?

Jeff Green: Thank you, Kyle. Thanks to MIT and thank you for all of you coming out tonight. It’s a pleasure to have a few minutes to share with you about The Trade Desk and what we do. So you may recall that Invite highlighted the mad men and women of Central Coast, California. I’m gonna borrow from that. I’m a huge fan of “Mad Men.” So I’m gonna make a few references to that. Hopefully some of you have at least seen a little bit of it.

Don Draper, who’s the main character, is a creative genius, can put together campaigns and wow people, always seems to pull the rabbit out of the hat. It’s our belief that data is now the new creative. By using data, you can actually do things to actually prove the results, instead of just selling a story, which is the way advertising has typically been pitched in the past.

All right. So let me share with you a couple numbers. 40% of the average American’s media time is spent online. That’s a tremendous amount of media time spent online. In fact, if you look at people under the age of 30, that number is above 50%. They’re actually having a really difficult time measuring for people under the age of 18, because they are persistently connected. So it’s really difficult to determine when they are actually consuming media and when they’re just connected and being who they are.

So this year, online advertising will become a $30 billion industry. Online advertising, according to pretty much any analyst on Wall Street, is expected to double over the next five years. So it’s a massively growing industry. There are about 20 of you in this room that actually care about these numbers at all. The rest of you don’t care at all. That goes for the people that are watching after the fact too. So there may not actually be 20 of you that care at all. About 10% of advertising dollars are spent on online media.

I started my career as a media buyer, and I was constantly learning the number of ways that you can lose your shirt, buying media. Basically what we decided was the best way for inventory to be priced is to use a model just like the stock market. So you have buyers and sellers. You run an auction, and you price it.

Well, after we sold this exchange to Microsoft, we actually said, “What if we could operate at an even more granular level, where we could auction off every single impression, one by one?” So rather than buying them in bundles, like, let’s say, CDOs, where nobody actually knows what’s in those things, you actually were to sell them, one by one.

That’s what we did, and that’s what we utilize today at The Trade Desk. It’s actually become the fastest-growing way that inventory is sold in online advertising. It’s estimated that last year, 5% of inventory was sold that way. This year, 15%. It’s the hottest sector in online advertising, in terms of where venture capital is going and things like that. So let me explain the way that it works.

Don Draper says to Peggy Olson, “I hate to break it to you, but there is no big lie. There is no system. The universe is indifferent.” When it comes to data, we actually think there is a system, and Congress and consumers are not indifferent.

So one of the things that we do is we’ve actually created an initiative to reach out to consumers, to help them manage their own privacy, so that they can control exactly how their data is being used and what level of transparency, or expose and create transparency, so that they, again, can manage that.

We think, in the end, the entire ecosystem is better for this because consumers will have better control over what ads and what data is being used. We’ll be able to serve more relevant ads. So they’ll actually have a better experience. The marketers are actually getting it.

Male: I’m curious to know how you deal with waning credibility issue. If I’m inundated with ads throughout my day, how do I know that I really want to click on this one ever?

There are just way too many ads that you don’t even recognize. In order for us to have a better dialogue and for you to have a better experience and feel better about those brands and click on them, I actually think we have to reduce the number of ads. Actually performance suggests that as well. Economics suggest it. Everything points to we have to do that, because there’s way more supply than there is demand.

So next up is Todd Crawford. He’s cofounder of Impact Radius, a company here in Santa Barbara, a veteran of the online industry, online advertising industry, served as VP of sales in business development for a company called oneNetworkDirect. It’s also one of the contributing founders to Commission Junction, who’s still here, locally. In 2007, won the affiliate marketing legend award at the Affiliate Summit Conference, pinnacle awards. Recently co-founded Impact Radius, and he’s here to talk a little bit about the company and then stick around for the panel. So Todd Crawford.

Todd Crawford: Hey, everybody. It’s good to be here. I was curious just how many people are familiar with the affiliate marketing or performance advertising business model. I was betting on 50%. I think that’s about 50%. So the concept is, with display advertising, you’re paying to get in front of people with the eyeballs. You’re paying on the impression. With performance-based advertising, you’re really paying to get that consumer to do something that the advertiser finds desirable. So if I sell widgets, I want you to come to my website and buy lots of widgets. If I want to get information to market back to you for a mortgage or something, then I would want to pay for some information.

So this is typically called CPA, cost per action, affiliate marketing, performance advertising, performance marketing. So that’s kind of the space that I come from, and it’s kind of what helped with the genesis of creating Impact Radius.

So what we built with Impact Radius, I’ll get that kind of out of the way first, is a performance advertising platform. So it’s not an exchange. It’s not a network. It’s a technology platform, and it’s designed to help the three entities in the advertising world, the agencies, the advertisers, and the distribution side. We call them media partners. In affiliate marketing, they’re often called affiliates or publishers.

But to let all these companies come together on our platform and be able to create a campaign that can cross multiple channels. So they can advertise on the Internet, through email, in television, radio, print, or mobile. So we have the ability to allow the advertiser to manage those campaigns and track the results. So advertisers spent, in 2009, about $40 billion online. The actual percentage of that that was performance-based was 59%. In Q4, it was all the way up to 60%.

But for some strange reason, the IAD includes Google in that. Other than Google, I don’t know anybody that thinks buying clicks is performance advertising, but somehow they’re in there. So you really take 7 billion out of there, and this is US spending, so about $7 billion in US revenue through Google. So now you’re looking at $15 or $16 billion.

But when you look at offline spend, it’s still huge. People are having conversations. I had one today while we were waiting to get started. The young kids are not going to television, print, and radio to get information. They’re plugged in. Everybody is worried about what’s the future of offline, but it still dwarves. It’s 85% of all advertiser spend. So it’s a huge amount.

But the interesting thing is the performance side of that is miniscule. It’s less than 3%. When we started looking at this, the thing that struck me is, back in 1998, when we started Commission Junction, and affiliate marketing was starting to . . . Actually it wasn’t starting to get known. It was a really difficult conversation. You would talk to people over and over about doing this.

I can’t tell you how many CEOs I had to explain, “You will only pay for your advertising after someone goes to your site and does what you want them to do, like buys something in your shopping cart.” Literally you’d have to say that three times before someone understood it, and then they thought it was the best idea they ever heard of, So how, in less than 12 years, does it go from 3% to 5%, to 60% of advertiser spend? The key is data. People can optimize that. Everybody’s backing out. If you’re buying advertising from me, I’m backing it out to an effective CPM, no matter how you pay me for it. If you’re paying me for advertising, you’re probably backing it out to an effective cost per sale or order or lead.

So the reason that it was able to move is because of these affiliate networks that gave the distribution side a choice. They could look at these offers. They could pick them. Anyway, Frank Gerstenberger, from AudienceScience, is the next member of the panel and speaker.

Frank has over 20 years’ experience in marketing and product management, in the technology industries, online marketing, Internet software, and mobile and wireless. He has held the executive management positions at Commission Junction, Intel, Zercom, and a company called Quarter Deck. He’s a graduate of UCLA and also has an MBA from Anderson at UCLA. He now serves as vice president of privacy and standards at AudienceScience. So Frank Gerstenberger.

Frank Gerstenberger: Hi, everybody. Thanks. Earlier, Jeff talked a little bit about one of the new things in online advertising, which is real-time bidding. Right? The ability for an advertiser to determine, in real time, whether or not they want to buy an impression, send a message to a consumer, and what they’re willing to bid on it. Okay. That’s a pretty amazing innovation. It offers a huge opportunity for advertisers and also for publishers, everybody in the ecosystem.

So let’s talk about the ecosystem a little bit. I’m gonna have a slightly different take on it. This is what the online advertising ecosystem used to look like. It was pretty simple. You had advertisers and agencies, and they worked with either publishers or ad networks. Many times, it would go direct to a publisher and do an advertising buy. Why? Well, maybe I’m a consumer brand, and I’m used to buying in the Wall Street Journal print edition, or I’m used to buying in Time Magazine. I know that the readers of those properties are targets for my product. So they go target on those websites. Great fit. Right?

I’m not worried about brand safety because I know the content in those pages is good. So I’m gonna go buy there. That works really well. One of the challenges being any one of those website may only reach maybe five, 10, 20 million unique users. So how do you get more reach? You have to go, and you have to do deals with more and more publishers.

The other key thing that evolved was ad networks. Basically what ad networks did was they aggregated inventory from lots of different sites. So sometimes it was big publishers, sometimes smaller publishers. The benefit for the advertiser is they could go to one or multiple ad networks, and they could reach almost the entire Internet audience, maybe 130 million people. So it gave them an ability to get scale in their advertising.

The other key thing was there was a lot of innovation with ad networks. You had ad networks that would specialize. Some would specialize on performance. So if you were an advertiser that maybe had operated a retail site, you could go work with a performance network, and they would really focus on hitting certain metrics for you, making sure that every sale cost you $15 or less, making sure that your ROI objectives were achieved.

So over the years, that was the ecosystem. It worked pretty well. But as things do in the technology space, especially the Internet, things innovate. Things change. So this is what our ecosystem looks like today. Okay. Who’s seen this slide before? Not that many. That’s good. Usually we go to a conference, and we show this, and everybody’s like, “Yeah, I’ve seen this 100 times.”

This is from an investment banking firm, GCA Savvian. This basically is the display advertising ecosystem today, and there are many, many players. You have advertisers on the left and publishers on the right. The good news is the reason there’s so many players is because all these little problems would crop up. Right? Once an advertiser goes from maybe buying direct from an advertiser to a publisher, they start to do other things. You have all these little problems come up, and new players come into play.

So we started in 1999, and we started as an analytics company. In terms of analytics, who’s heard of Google Analytics or Omniture or Core Metrics? Right? That’s how we started out. We were in that business. So we have a long history of collecting large amounts of data and trying to make that data manageable and useful for customers.

In 2003, we moved into the audience targeting space, specifically with a product for publishers. So we had a technology platform that we could take two large publishers, people like the Wall Street Journal, New York Times, Edmunds, KBB, sites like that, that let them build audiences that they could then sell to advertisers.

In 2006, we moved into the media space, and we launched what we called our audience marketplace. That’s the same time that the Santa Barbara office of AudienceScience was founded. What’s interesting about that is those two things coincided. AudienceScience decided they wanted to get into the media business.

There was a nice pool of talent in Santa Barbara that had expertise in that business. So we were able to leverage the success of companies like Fastclick and ValueClick and Commission Junction. We were able to leverage the people and resources from those companies, bring those people onboard, and be able to build a media business. So just an interesting anecdote of how we leveraged the Santa Barbara technology base to take a data company into the media space.

In 2008, we launched our technology platform for advertisers. We’ll talk about that a little more. Then this year, we have recently acquired two companies, one Consortium Media, which gives us some additional assets for marketing to the Hispanic marketplace. We just acquired a company called Wonderloo, which was based in Germany, was the leader in German behavioral targeting and behavioral targeting in Europe. Really they’re gonna help us further establish our business in Europe. At the same time, we’ll bring in some of their technology over here for use in the states.

That all ended up with our audience gateway being the leading data management platform. It’s used by over 100 large premium publishers and advertisers worldwide. If you look at what advertisers are doing today, today, 50% of advertisers are doing audience targeting. A few years ago, that was around 20%. So it’s been growing rapidly. Another 20% are projected to be doing it soon. So this is the real sweet spot. When you look at display advertising over the next couple years, more and more of those dollars are gonna be moving towards people, targeting based on audiences, and it’s gonna tie in really well with what Jeff talked about with real-time bidding. Those two things to hand-in-hand and are gonna drive that growth.

Female Attendee: In your 180 segments, I would almost assume that none would be consumers that have certain charitable, giving patterns, but that’s an interesting area for me because I see most nonprofit organizations not being able to afford advertising, because they can’t really target, and it’s not cost-effective. Can you build a series of attributes from the kind of data you have, that might satisfy some of those requirements for charities being able to match with potential donors?

Frank: We certainly could sit down with a charity and just try and understand who do they . . . what are the attributes of people that tend to give to charities, and build that audience. That’s absolutely something that we do and would be in our wheelhouse, so to speak.

On the advertising side, in terms of . . . They don’t have funds for that. If you build a good audience, the return on investment could actually be pretty well. Right? Not so much. Not so much. Obviously we see a lot of stuff at election time, but haven’t seen it on the charitable piece. No.

Male: I’d be interested to know how and maybe when in your early development cycle you landed your first customers. Was it before product release? Was it after product release? What was that experience like? These are the guys that pay you, not your customer’s customer, but the guys that are paying you. How did that come about in your companies?

Male Attendee: For us, it was . . . I guess we started charging our customers once we went into our public beta at the beginning of the year. So we had some customers using the technology in the quarter previous, just to kind of pressure-check all the pipes and things like that when we weren’t charging them. Then we started charging our clients. So in the first quarter.

Male: I would say, for us, almost all of our initial clients have been people that we’ve worked with in the past and past companies. So in most cases, they were all waiting for us to get product. So as soon as our product released, we just launched with the friends and family that we already had.

Male: That was before my time, but I will speak, actually. So I was there when we launched our ad network. Yeah, once the product was ready, we had customers right away.

Male: Yes. Since this is the election season, and elections tend to take advantage of any new technology and services, I’m just curious as to how the current election cycle is going to be improved or, in any way, different, due to these kind of innovations, even just from the last two years or four years ago.

I think, makes it easier for us to target people according to their behaviors and interests that they’ve exhibited online. As you get to learn more about people researching specific candidates or showing behaviors that denote that they’re on the fence, I think you’ll see presidential candidates or candidates of any kind getting more focused and getting their message in front of them. So I think digital media is gonna play a very interesting role in really every major election, as far as I can see ahead.

Male: A couple things. In the last election, audience targeting, although not new, was still not as mainstream as it is today. So we saw lots of interest in 2008, but a lot of candidates tended to shy away, simply because audience targeting was new, and they were a little uncomfortable with it.

Male: Well, I think, too, the success of the presidential election . . . A lot of things stood out. People realized that there are some pretty forward, aggressive kind of marketing campaigns that you can get away with, that aren’t that expensive, social media being one of them.

Female Attendee: I’ll ask a little easier question. How about in the next three years? Can you guys talk a little bit more, not necessarily with your companies, specifically, but media as a whole, about the convergence of offline and online, what you think might happen?

Male: I think there’s gonna be more crossover with what you can do with a customer. It really depends on the advertiser, what their goals are. If they’re not physical stores, then that comes off the table. So to me, I think once people really can feel like they can control that . . . I’ll tell you right now. If I run a branded advertiser on a performance basis, on websites, and they run a bunch of cool commercials or just commercials, they don’t have to be cool, you will see more sales go through the web. What happened? Oh, these TV spots are running.

So they all affect each other, and that’s kind of the holy grail. Which of my dollars are well-spent? And how did I really make that happen? Can I replicate it? Can I keep doing it? What worked? What should I cut out? The attribution model is the huge other buzzword now. What channel? What spend could I cut out and still get 96% of the result, but save 24%? Something like that. That’s where I see it heading.

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