By Chris NolterWhile Cox Communications Inc. is selling its wireless spectrum licenses to Verizon Wireless, the Atlanta cable and media group is putting money into a different segment of the wireless industry.The company is set to close an investment later this month in InSite Wireless Group LLC, an Alexandria, Va., tower company with backing from Catalyst Investors.Cox will contribute cash and about 150 wireless towers to the venture. The deal will boost the wireless infrastructure company's portfolio to more than 600 towers and position InSite to pursue bigger acquisitions.Wireless tower operators have consolidated along with other sectors of telecommunications. In addition to the large, public tower companies, private outfits backed by investors such as Paul Allen and George Soros are active in the field. And a group of small and mid-sized operators may be targets for companies like InSite.Catalyst invested more than $20 million in InSite, making it one of the firm's largest investments.Chris Shipman, a co-founder of New York-based Catalyst, said InSite will be the fourth-largest pure-play non-public tower company following the deal. The company would be the seventh largest counting the public operators and the ninth largest including the telecom providers that own tower portfolios.InSite operates towers and distributed antenna systems, an alternative to conventional infrastructure in areas where traditional coverage is limited. The company's management sold Mountain Union Telecom LLC to Crown Castle International Corp. in 2006 for about $300 million.Cox initially planned to operate an in-house wireless company but terminated the venture. It then tried to run a virtual wireless carrier with Sprint Nextel Corp. but ended that project as well.The company said in December it would sell spectrum licenses to Verizon Wireless for $315 million.Tower operators have been active dealmakers recently. Nonetheless, the industry remains more fragmented than the wireless services market.The big three public companies, which measure their portfolios in tens of thousands of sites, are American Tower Corp., SBA Communications Corp. and Crown Castle.Privately held Global Tower Partners owns or manages 15,000 sites in the U.S. and overseas. The Boca Raton, Fla., company is backed by Macquarie Group, which recently sold Mobilitie LLC to SBA for $1.1 billion.TowerCo Inc., of Cary, N.C., owns or leases more than 3,2000 towers. The company's investors include Soros Strategic Partners, Paul Allen's Vulcan Capital and Altpoint Capital Partners.Soros and SBA also have funds in alternate infrastructure provider ExteNet Systems Inc. Other investors in the Lisle, Ill., company include Centennial Ventures, Sevin Rosen Funds, Columbia Capital and Centerpoint Ventures and Palomar Ventures. ExteNet deploys distributed antenna systems in places like hospitals, sports stadiums and other locations where conventional tower service may be lacking.Diamond Communications LLC has more than 600 towers. The Short Hills, N.J., operator is a portfolio company of Och-Ziff Capital Management Group LLC.While prominent firms have invested in towers, mom-and-pops still exist.Gerald Granovsky of Moody's Investors Service said that the smaller end of the spectrum includes "prospectors and wildcatters" who might build a tower and eventually pull together a portfolio of 10 or so sites. The next level of operator might have 50 to 100 towers.There are fewer companies, he said, in the 200 to 500 range, a size that is ripe for a sale to a larger company.Though the Big 3 tower operators may have deeper relationships with the carriers and better sales teams, Granovsky said, the smaller companies can make "a pretty decent return" even if they don't sell.Returns depend "on where the towers are and on the operator's ability to increase tenancy to 2.5 or 3 per tower," he said.An anchor tenant might cover the fixed costs of a tower. A second tenant starts providing a return, he said, and a third is "a home run."Catalyst partner Todd Clapp said that InSite has expanded by acquiring smaller operators, by building towers on its own and through organic growth of customer leases.The company has frequently targeted "under the radar" tower operators, with one to 15 towers. "They had been very successful at buying small groups," he said. "Those are attractive because often you can get them at prices that are lower than the larger groups."The Cox transaction would enable InSite to target larger companies. It would also improve InSite's cost of capital, an area where the large public tower companies have an advantage. "This will allow us to close that gap," Clapp said.
Tech stock market getting a bit fizzy, if not downright bubbly
Tech stock market getting a bit fizzy, if not downright bubbly
Lee Celano / Reuters
Flagging a bubble? A flag announcing the imminent IPO of Facebook flies next to the American flag outside the offices of J.P. Morgan in New York City on May 4, 2012.By Bill BriggsThe imminent initial public offering of Facebook, which could value the social networking company at $96 billion, renews a question that has been on the minds of some analysts for a year or more: Are we in the midst of a new technology stock bubble?“Definitely not,” contends Jeff Dachis, a pioneer of the original Internet boom as co-founder of Razorfish in 1995.“Yes, many elements point to a second bubble,” counters Mike Seiman, CEO of CPX Interactive, a digital advertising company, who sees similarities to the dot-com bubble that popped in 2000.Some entrepreneurs see something in between -- call it tiny bubbles.“I'd describe the landscape as carbonated water," said Eric Christopher, CEO of Local Business Rockstar, a digital marketing agency in Phoenix, Ariz.Billions of venture-capital bucks still are “just sitting there,” Christopher said. He cited a lack of quality companies in the market and added that to many investors, “technology is exciting, but very temporary and risky.”Facebook's stunning $1 billion purchase of Instagram last month was seen as evidence of the bubble mentality by some, but not by Christopher.“With Instagram, people think Facebook bought a product or a 13-employee company. Wrong. Facebook bought access to a network of 35 million users. Control the network, and you create cash flow by selling access to it," Christopher said.He also said the market is getting fizzy with the hype around daily deal companies like Groupon and Living Social. Some of the fizz is gone from Groupon, which sold shares at $20 in an IPO last year and now is trading at under $10."There's going to be some fizz, but it won't overflow the bottle," Christopher said.Facebook's IPO, which could come in days, will be far larger than Groupon's, which was already big at $700 million.Investors could pony up as much as $13.6 billion for Facebook shares, according to regulatory filings, far outstripping the tech record of $1.67 billion raised by Google raised in its 2004 IPO.Ken Sena, analyst at Evercore Partners and Paul Sloan, executive editor at CNET, discusses whether the actual Facebook IPO will live up to the hype of its roadshow.During the dot-com bubble of 1995 through early 2000, tech stocks soared on the apparent belief that any business starting with “e-“ or ending in “.com” would almost assuredly turn fat profits someday. Old-school metrics such as price-to-earnings ratios suddenly seemed out of step as venture capitalists pumped money into a blur of unproven Internet startups. They fueled an environment of unbridled gambles on infamous outfits like Webvan, an online grocer that reached a peak value of $1.2 billion on paper in November 1999 but was bankrupt by 2001.Facebook’s $1 billion cash-and-stock deal for Instagram – which develops photo-sharing applications – doesn’t remind Dachis of the wild-West-type web boom of the '90s, when he co-founded Razorfish, a digital ad agency, out of a one-bedroom apartment in New York.“This is one private company sale to another private company," he said, referring to Instagram."Other publicly traded comps are not over-inflated by any reasonable measure,” said Dachis, now CEO of the Dachis Group, a social software and solutions firm in Austin, Texas.“No, we aren’t seeing a second dot-com bubble,” agreed Shama Kabini, CEO of The Marketing Zen Group, a Dallas-based social media marketing and digital PR firm.He said Facebook's big purchase, just weeks ahead of the IPO, reflects the emergence of mobile and social, and the aging of Web survivors like Yahoo and AOL.“There is definitely a changing of the guard,” said Seiman, of CPX Interactive. “The idea of a 'one-stop solution' (for information) has been replaced by many 'no-stop solutions.’”And with that, a second dot-com surge may be percolating, Seiman said.“The industry laid low for a while. But in the last five years, the sleeping giant has arisen,” Seiman said via e-mail. “And rather than exercising caution garnered from lessons learned, it has become buoyed by the rejuvenating effects of downing untold gallons of its own Kool-Aid. I'm looking at you, Facebook.”But he said analysts and entrepreneurs are finally learning that reach, or potential reach, doesn’t necessarily equal revenue.“Just because everyone ‘likes’ it doesn’t mean it’s worth a lot of money," he said.That same theory – along with Facebook’s ability to “place inflated market caps on other firms, such as Instagram” – leads marketing consultant Steven Mason to similarly project the dawn of a second dot-com heyday.“Yes, this is bubble part two – or social media bubble No. 1. This is really all about the brand of social media,” said Mason, editor of the “Official Internet Dictionary: A Comprehensive Reference for Professionals.”Mason is struck, he said, not so much by Facebook’s nearly 1 billion confirmed users but by the far smaller percentage “who barely participate at all.”"Facebook isn't buying Instagram the brand; they're buying proof that Facebook can do whatever it wants to – a message that everyone else should get out of Facebook's way," Mason said. “Whenever that kind of insouciant chest-pounding occurs, a bubble must be somewhere in the vicinity.”
Fear and Speculation Drove Facebook's Instagram Buy
By Dave Copeland
Third in a five-part series.Sometime in August, Facebook will top 1 billion users. Every few months, Twitter floats a press release that it has added another 100 million users. In quarterly earnings calls during the past year, Google has had to sheepishly admit that it its Google+ social network isn't growing as fast as hoped. Pinterest is the hottest new social network, in large part because it reached 10 million users faster than any of its predecessors.Building a social media empire is all about building numbers. Those numbers, however, don't always have dollar signs in front of them."I do think there is a ton of speculation," said Dean M. Wright, founder of the social data and research company BrandMixer LLC, noting last year's Groupon initial public offering and this year's likely Facebook IPO. "This speculation is driven largely by investors being enamored by the numerology of social media: Facebook has 850 million users! Over 50% of Tweets come from mobile and 300 million people in the U.S. have a mobile! Every minute there are 2,000 check-ins on Foursquare!"But in an email, Wright says investors may want to consider one more equation in their calculations: "Fear + Speculation = Bubble."That fear, Wright said, prompted Facebook to spend $1 billion on Instagram, a company with no revenue and no discernible monetization strategy. What Facebook bought were the other numbers, the numbers that project Instagram hitting 100 million users by the end of the year."I think what we are seeing in the social media landscape today is fear more than speculation," Wright said. "Fear of being replaced by the next new thing - not necessarily the next best thing."The "fear" half of the equation is tucked away on the left coast in Silicon Valley. But the "speculation" end of the equation will be largely driven 3,000 miles away, on Wall Street. Just how big the bubble gets will be determined by how much money investors spend in chasing hot IPOs."Having started my company in the shadow of the 1999 tech-bubble crash, I can definitely see parallels evolving between the 'go-fever' that pushed an industry over the cliff and what we are witnessing today," said Mike Seiman, CEO of digital advertising company CPX Interactive. "The problem comes as a result of the combination of a fear of being left behind in the fast-paced evolving world of social models and the fear of a still anemic economy, which makes investors hot for a quick turn around on their investments."Seiman says he believes Facebook's purchase of Instagram was impulsive, and that Facebook likely overpaid for the app maker. But, ultimately, Facebook feared it would not be able to show Wall Street investors that it had a mobile strategy based on its existing product, so that fear drove the company's wild speculation.Seiman, as we previously reported, does not necessarily think the acquisition is a fatal flaw."If Facebook has one advantage that could possibly make its own 'go-fever' a little less destructive, it is unique in its ability to bring unparalleled scalability to the table of its acquisitions," Seiman said. "No one doubts that it likely overpaid for Instagram in what seems to be an impulsive move, but if anyone can use scale to elevate a potential contender into the next Facebook... perhaps it is Facebook."Image courtesy of Shutterstock.
Free Wireless Broadband for the Masses
By Rachel Metz
(Featuring comments from Catalyst Investors' Brian Rich)A startup backed by a Skype cofounder plans to offer "freemium" broadband—supported by ads and social features.
When you think of basic human rights, access to wireless broadband Internet probably isn't at the top of the list. But a new company backed by a Skype cofounder disagrees, and plans to bring free mobile broadband to the U.S. later this year under the slogan "The Internet is a right, not a privilege."Called FreedomPop, the service will give users roughly a gigabyte of free high-speed mobile Internet access per month on Clearwire's WiMAX network and forthcoming LTE network. It will offer other low-cost prepaid plans that provide access to more data.FreedomPop vice president of marketing Tony Miller gave few specific details about the company's offerings and how it plans to make money—and won't yet name executives or founders—but says he expects the service to roll out in the U.S. sometime between July and September and to eventually branch out to other countries as well.FreedomPop's arrival coincides with the rapid rise in smart-phone users and rollout of 4G networks as wireless carriers try to keep up with the growing demand for mobile data. The company is not the only one that sees an opportunity to launch a free 4G service: NetZero recently rolled out its own free and low-cost plans. But while NetZero offers 200 megabytes of free wireless data per month, FreedomPop will offer about five times that amount—more than most data users currently consume in a month."In our minds, the access piece is already a commodity we're looking to further commoditize, in the same way Skype did with voice," Miller says.Miller says the company's founders are friends with Skype cofounder Niklas Zennstrom, who has long wanted to work on a startup related to free Internet access. Zennstrom is a backer and an advisor, Miller says, but he is not an active manager at the company.Miller says that, similar to Skype, FreedomPop will follow a "freemium" model where users receive some aspects of the service for free and must pay for more. After users surpass their monthly allotment, they will be charged a fee for going over that allotment (Miller says the overage charges will be "cheap"—probably about a penny per megabyte, though maybe a bit lower for prepaid customers—since FreedomPop wants to encourage use).Without getting specific, Miller adds that users will be able to earn more data usage through some social features built into the service, and share some of their allotted data with other users.Miller says FreedomPop will offer three mobile broadband devices at first. There will be a USB dongle for laptops, a Wi-Fi hotspot device that can connect up to 20 devices to the Web, and an iPhone case that will allow the smart phone to circumvent the user's wireless carrier and can also charge the phone and act as a hotspot for up to eight additional devices.Users won't pay for the devices, but they will have to fork over a refundable deposit fee. Miller says this is meant to discourage abuse, such as people reselling a hotspot or iPhone case on eBay. While the devices will be sold primarily online, Miller says, they may be available at some brick-and-mortar stores as well.FreedomPop will also sell prepaid wireless data plans that Miller says will be priced "significantly lower" than existing prepaid and contract plans on the market. Prices vary, but AT&T charges $50 per month for a two-year contract that gives users five gigabytes of data for use with a USB modem or mobile hotspot, while smart phone plans include a three-gigabyte option that costs $30 per month. On the prepaid side, the company's GoPhone service offers 500 megabytes of phone data for $25.Miller says FreedomPop expects most of its revenue will actually come from services it will offer on top of the Internet access. He won't say what these will be, exactly, but says that a security offering such as virtual private networking won't be one of them—it didn't do well in an early test. He says the company is also looking into some sort of advertising opportunities, which could be another revenue source.Brian Rich, a partner at venture capital firm Catalyst Investors, which has invested in Clearwire, says FreedomPop is a clever idea, as it's taking advantage of the capacity offered by Clearwire's network, which is less constrained that the networks of AT&T and Verizon Wireless. He wonders if FreedomPop will be able to make enough money off reselling Clearwire's service to make its efforts worthwhile.Neil Shah, an analyst with Strategy Analytics, feels similarly, saying FreedomPop will also need to forge deals with other mobile broadband partners because Clearwire's range is still limited. The service currently reaches more than 130 million people in over 70 U.S. cities. FreedomPop also has a deal with LightSquared, which has been planning a nationwide wholesale LTE network, but the U.S. Federal Communications Commission recently revoked LightSquared's permit. Miller says FreedomPop is working on another U.S.-based deal, though.Shah also cautions that as people get more used to using data on their cell phones, FreedomPop will have to give away even more to lure users to its service. "Eventually, one gigabyte won't be enough," he says.
Brian Rich on Growth Equity Investing
Semantic Intelligence Hits Video Advertising
By Jennifer Zaino
Semantic ad targeting and brand protection is diving deeper into the online video category. That’s one result of a new deal for React2Media to represent ad pepper media’s display products and services, iSense, SiteScreen and the real-time bidding platform adEXplorer, in the U.S.iSense is based on Crystal’s Sense Engine semantic analysis technology for supporting content targeting of display advertising, while SiteScreen keeps ads away from objectionable content. Check out this article and this one for more details on how the semantic targeting and protection suites work, and this one for information on the adEXplorer platform that will be integrated into Act2, React2Media’s video ad network. adEXplorer incorporates the precise page-level targeting and brand safety filtering of the iSense and SiteScreen technologies.
Many web sites today, including YouTube and Yahoo Network, operate on the pre-roll model, where embedded video players run an ad in advance of the video that users are waiting to see. React2Media takes the tack that web sites need not have embedded video players, so “you don’t have to be married to the small amount of web sites that have one,” says COO Jordan Galbraith. Its technology also allows, while the video ad plays in the banner, for an expandable companion ad running on the side with more details.With the ad pepper relationship, “now we can offer ads in a banner across any web site in the world and can match content on the page with the content of our advertising,” in real-time, he says. “We’re one of the first to target page level content to video ads.” That level of dynamism is a switch from manual site-specific media buy approaches.Video is becoming a very interesting online advertising vehicle for clients because it’s familiar to them from their experience in the television world, according to Galbraith. There’s not the same learning curve as with display or email advertising. “These agencies understand video already. And now they get the semantics and brand protection, and for a significantly cheaper CPM (cost per mille) than high-end web sites selling pre-roll,” he says. There, limited inventory equals hefty competition. React2Media expanded its service to do video ads in traditional IAB ad sizes because every web site carries those ad units, reducing CPM costs.And, adds React2Media CEO Alex Shaller, they get those advantages plus analytics, such as seeing user engagement with the video – when they stopped it, or when they went on to the web site for further information, for instance.eMarketer this week noted that that U.S. online display ad spending will grow 24.1 percent in 2012 to $15.4 billion. This estimate includes banners, rich media, sponsorships and video purchased across publisher sites, networks, exchanges, DSPs, social networks and mobile. While the video is a differentiator in this deal, Shaller says that one shouldn’t ignore that the semantic technology has “proven to be extremely effective in page banner campaigns for a wide array of clients that have the ability to optimize by specific categories.”The new relationship also means that the ad pepper technology will now be sold by a sales force double its original size, and gain about a 30 to 40 percent increase in business development resources, so overall its approach to the U.S. market will be much stronger. Both Shaller and Galbraith previously were with ad pepper, launching its U.S. offices here in 2006 and iSense in 2007. Say Galbaith, “we’re bringing the family back together.”
Why Ad Nets Are a Good Deal for Publishers
By Mike SeimanThe rallying cry of the fragmented buying world goes something like this: We’ll link buyers and sellers directly and cut out the middleman. Along the way, more margin will go to publishers. Sounds good, if only it were true.First, a bit of history. When ad networks began in the late 1990s, the business model was a 60/40 revenue split. Publishers retained 60 percent of the price they charged for inventory, and ad networks received 40 percent to do everything from inventory analysis and categorization to bulk optimization and sales. The outcry soon came that ad networks were taking too much of the pie for what was perceived to be only a distribution role.Media traditionalists were quick to compare this new digital landscape to the offline world they had always known and point out that typical agency media fees were closer to 15 percent than to 40 percent. But agencies and other media buyers needed to bring little more to the table than long-term relationships when selling TV, radio and outdoor, while ad networks were charged with developing and employing technologies that integrated data, monitored and optimized ad placement in real time and increased the speed and scale by which inventory could be sold.That’s when new players surfaced sporting an alphabet soup of acronyms. These companies could position themselves against the ad network by touting that they took far less margin — 10-20 percent rather than 40 percent. Yet there are so many of these players taking a piece that the benefits they tout are illusory.A campaign may be pushed through an agency (taking 10 percent) using an in-house trading desk (taking 10 percent) to plug into a DSP (taking 15 percent), with a couple of other tech players (data, ad verification, analytics) layered on (another 20 percent). An irony of the new structure is that a DSP will often still rely on an ad network to deliver real scalability for long-tail inventory, which further reduces the publisher’s margin. Finally, the publisher is likely using an SSP to handle yield issues which were originally being handled by ad networks. In the end, a publisher that charges a $2 CPM for its inventory may now receive 60 cents to 80 cents, where it would have realized $1.20 in the original 60/40 model. That doesn’t sound like such a great deal.Suddenly, it seems the industry may have been penny wise, pound foolish in its original criticism of ad networks. With publishers regularly seeing 30-40 percent of the original spend, the likelihood is that they wouldn’t mind going back to a less fragmented market and retaining 60 percent margin to have a one-stop partner that integrates all of the pieces of the campaign and looks out for advertisers and publishers.The moral is be careful what you wish for. Thankfully, DSPs (on the advertiser side) and SSPs (on the publisher side) are now making moves to cross the divide and offer services usually reserved to the other. Data companies are being swallowed up by agency trading desks, and there is a concerted effort to move back to the core concept of serving both advertisers and publishers. And ad networks, reports of their death much exaggerated, are seeing resurgence in attention and desirability, especially from frustrated publishers.The more things change, the more they stay the same. We can only hope that the next time the pieces get moved around the board, we keep an eye on efficiency and resist change simply for the sake of change.
CPX Bundles Together Social Advertising Services
By Brian LaRueDigital advertising company CPX Interactive has rolled out a new suite of social media ad strategies, as the company announced late yesterday. It’s not an entirely new set of services, but the difference now is that CPX has bundled those services together in a way that ideally allows advertisers to assess and make sense of the role of social media in their campaigns.CPX executive vice president of marketing David Shay broke down the bundle into its four component parts during a phone call this afternoon. First, there’s the ability to incorporate social functions into display ads placed anywhere across CPX’s network or marketplace — that’s the call to a business’s social media site, rather than one from within its social media presence. There should be, said Shay, “some social call-out in the ads. You can have, right in your ad, a ‘like’ button or a ‘follow’ button — some kind of social functionality.” By bringing consumers into the conversation happening on social media that way, Shay said there’s a chance to “make real-time comments part of the campaign itself.” Second is a dedicated social media vertical in the CPX network, which presents the opportunity to place display ads specifically across over 200 social media site. “We’ve always had the opportunity to carve out verticals,” he said.The challenge in placing display ads in social media, though, is that they often don’t perform in the way an advertiser might hope, and they tend to have limitations in design and interactivity. That brings us to the third part: the opportunity to serve adds in apps and games, where there’s greater flexibility than, say, the right-hand column on your Facebook home page. This can work for “any social network that has apps and games,” Shay explained. In an app, he said, “their inventory is just another publisher,” and selling in-app or in-game ads creates the creators of those apps and games to “sell ads within their environment.”The fourth part is the “cost per fan” metric. “We buy inventory in a highly scalable way,” Shay explained. So, when the company went about deciding how to help advertisers pull in more social media followers and fans, it decided to create a metric analogous to what’s accepted in other places on the web. “We’ll give you a cost-per-something-else model, instead of making you pay for something extra,” Shay said. The advertiser can select keywords to target the right potential customers and, he said, “if you give us flexibility on the copy we can optimize it on the fly” within social networks, “just like display.” A statement from CPX said it was capable of giving a campaign a CPF (cost per fan) of $2, but Shay said, “Truth is, it ends up being lower than that.”According to Shay and releases from the company, CPX has had success so far in its social advertising efforts. Shay cited a major food brand: “They came to us, and they had a Facebook fan page strategy. They wanted 60,000 fans in two months, and they hit [that number] in two weeks.” The same brand also drove “250,000 fans to a couple of their branded pages,” Shay said.The aforementioned CPX statement is a more detailed PDF CPX has posted about its social advertising features, as well as some best practices for social marketing and advertising.
Cloud hosting company Codero expanding into Central Texas
By Lori HawkinsA Kansas-based cloud hosting services company has hired an Austin technology executive as CEO and is planning an expansion in Central Texas.Codero Hosting said new CEO Emil Sayegh will be based in Austin, where the company will open an office that will handle sales, marketing and product development.Sayegh, 45, previously led and expanded cloud computing and hosting businesses in Austin for California-based Hewlett-Packard Co. and San Antonio-based Rackspace Hosting Inc."The high-tech talent in Austin is incredible, and that is why Codero wants to be here," Sayegh said. "The talent pool at UT, Rackspace, Dell and the cloud computing and hosting corridor between Austin and San Antonio is excellent. People also want to move to Austin. It's never been a hard sell for me in bringing anyone here."The company's Austin office will open in the next six months, starting with 12 employees and growing from there, Sayegh said.Sayegh was most recently the Austin-based vice president of cloud services for Hewlett-Packard and grew the company's Austin-based cloud division to 100 people.Before that, he was vice president and general manager of Rackspace's cloud computing division and helped open the company's Austin office, which now employs several hundred people."Emil is a high-energy strategic thinker and a goal-focused leader from the heart of the hosting and cloud computing industry," said Tyler Newton, Codero board chairman.Founded in 2009, Lenexa, Kan.-based Codero is backed by New York private equity firm Catalyst Partners. It has 50 employees and operates data centers in Chicago and Phoenix. It is planning a third data center in Virginia.The company provides hosting services to several thousand companies worldwide, ranging from small businesses to large financial services firms.Sayegh replaces Johathan Ewert, who will remain on the board.
The new targeting strategy you should know
By Jonathan Slavin & Ray KingmanReplacing the dinosaur in the cockpitCan a major construct of an industry that is only 15 years old be considered a dinosaur? It may seem counter intuitive, but in an industry where the landscape is as quickly evolving as online advertising, the answer is yes. The fact that we are relying almost solely on the same cookie-based targeting strategies that were born at the dawn of the industry is like allowing a Tyrannosaurus to pilot a jet plane.From the beginning, cookie-based behavioral targeting attempted to leverage the strengths of the online world while downplaying its limitations. But, this online targeting relic has begun to show its age, and while the expectations of online marketers have evolved, the strategies for targeting online audiences largely have not. Now more than ever before, there is a desire for a new targeting paradigm that delivers on the promise of pinpoint focus and scalable reach. Our complex and powerful jet plane of an industry deserves a pilot with more finesse than a prehistoric carnivore.IP audience targeting is an online targeting strategy that brings the strength, accuracy, and flexibility of offline direct-mail campaigns into the online era by mapping IP address ranges to real-world addresses and leverages the publically available information known about those addresses. Continuing the analogy, partnerships between old-school, offline data-crunching tech companies and online distribution engines are now replacing the Tyrannosaurus in the cockpit with skilled and stealthy Air Force academy graduates.Limitations of the cookieWith the advent of the Netscape Navigator browser in 1997, cookies introduced the ability to personalize the web-surfing experience based on perceived personal interests. When placed on a user's browser, these anonymous markers could later be tracked and reviewed by websites the user visited so that the website would "know" information about the user and "interact" appropriately.Today, identifying a prospect audience for an online display campaign still largely depends on cookies. At its best, however, the scale and accuracy of cookie-based targeting pales in comparison to its old-school analog cousin, direct mail.It is surprising that marketers accustomed to hitting every household in a geographic area with direct mail and filtering those targeted geos by all manner of publically available information (home values, auto ownership, voter registration information), have been so complacent in accepting the limitations of a cookie-based system.While offline targeting opens up the entire universe of street addresses as a starting target pool, cookie-based targeting is limited to users that have a "live" cookie on their browser.Forrester Research recently surveyed data service providers and the largest search and ad networks and estimated that "active" cookie coverage at any given time was approximately 34 percent of the online population: ComScore Media Metrix, Inc. estimated 40 percent and JupiterResearch estimated 38 percent. At a high level, this means that from the online population of 200 million people in the U.S., it is likely that no more than 75 to 80 million people are active at any given time.In the offline world, customer transaction data is coupled with hundreds of verified demographic attributes to statistically define what the likely buyer looks like. The data is used to build a predictive model and score the entire prospect population. Likely buyers are prioritized and unlikely buyers are suppressed. This is the standard process used for targeting by most professional marketing departments and service providers -- except in the online advertising world.In the online world, algorithmic optimization takes the place of predictive models because there is far less data to work with. Targeting methodologies in the online world are driven by site traffic and click-through-rates because personally identifiable demographic information is either unavailable or too generalized to be useful. In the end, however, online targeting has only been able to make predictions of users' interests based on websites they have visited and not truly based upon "facts" known about the users.IP audience targeting basicsRising to save the industry from its own complacency is a new kind of targeting strategy that both eschews cookies and marries the offline consumer data world with the algorithm-friendly world of digital advertising. Based on predictive modeling and extensive offline data, IP audience targeting is a way to score and target 100 percent of the available internet traffic without compromising privacy.IP audience targeting starts by segmenting every IP address in the U.S. into its basic user type: home, business, government, education, or wireless. There are more than 1.5 million identifiable home zones and approximately 5 million business zones in the U.S. Each home zone is approximately 77 times more precise than a zip code, with an average of 145 people in each zone. The geographic footprint of each IP zone is defined by the predictive modeling and varies in size; however, a zone could accurately be described as "neighborhoods" of similar socio-economic households.Using publically available offline data and genetic-modeling technology to map IP address ranges to real-world addresses makes it possible to segment any IP audience zone into geo-demographic clusters, which can be appended with more than 750 distinct variables for each household. These publically available data variables include affluence, social status, life stage, political affiliation, interests, auto and home ownership, as well as propensities to acquire hundreds of products and services. Business zones can be targeted by variables including business type, revenue, number of employees, location, and SIC and NAISC codes, so that the B2B marketer can target by industry. Appropriate IP audience zones can then be isolated online as IP ranges and then targeted as part of a standard online display campaign.Robust predictive models that run analogous to offline direct mail strategies can now be a regular part of online campaign planning and execution.A new carnivore on the blockIn the end, it may well be an exaggeration to predict the death of the cookie. Its existence goes a long way in defining the internet experience that we have come to know, and nothing written here should be interpreted as a call for its total demise. The point is simply that the industry has been slow to look beyond the cookie for new targeting technologies that can either be coupled with cookie-based campaigns or, in many cases, can supply greater granularity and ROI -- and IP audience targeting presents a real opportunity to rethink reliance on an industry dinosaur. To complete (and perhaps scuttle) the analogy introduced earlier, cookie-based targeting may well escape the doomed fate of the Tyrannosaurus, but one thing is certain: It is no longer the only carnivore on the block.Jonathan Slavin is CRO of CPX Interactive. Ray Kingman is CEO of Semcasting.