BuzzMachine

Advertisers continue to pay more for less: TV’s upfront sales look to be up this year. They are no longer limited by the scarcity of broadcast yet they are too lazy or clueless to go put together the less expensive, more targeted, and more efficient alternatives in other media.

: LATER: The Times today says that some of this added revenue is coming from online packages and so good on them for that. But still, advertisers need to start thinking past the scarcity economy. They should want to: it will lower their prices and give them better targeting, less waste.

My friend Dave Morgan says the widget advertising is next. Snips:

Simply put, widgets are the most recent embodiment of highly distributable Web media. Widgets permit users to separate the content from the Web page, permitting users to implant them on all types of pages, from personalized portal home pages to blogs to personal pages on social sites like MySpace or Facebook. I believe that over the next three years, widgets will change online advertising as we know it today. . . .

Are widgets the next search? I don’t think so. However, I do think that the concept of highly portable, object-oriented content that is personally and virally distributed will redefine how we think about Web pages, and how advertisers think about using the Web to communicate and interact with consumers.

That’s part of what I was writing about in my post After the Page: the deconstruction of content as we know it now (pages, sites, URLs) through radical distribution (which will only explode the audience for good content — and that ads that, perhaps, will go with it). This is why the FaceBook platform matters (don’t worry, my Facebook obsession will pass soon — but not yet).

But there’s danger here: I fear a flood of bad widgets from emergency widget brainstorming meetings in media conference rooms across the land: ‘Let’s make widgets out of everything we make! Widgetize the world!’ The best widgets will also interact with the environment in which they find themselves and, simply, will be worth embedding.

: MORE: Thanks to this blogger, who remembered what I wrote better than I did, I rediscovered a related post I wrote two years ago: Feedthink meets Widgethink. Most content is a feed and feeds can fill many widgets and that adds up to a new architecture for pages and content.

I may be reading too much into this, but I take hope in a $5 million investment VCs made today in the company behind Openads, a free, open-source ad server. They already serve more than 20,000 publishers, 100,000 sites in 20-plus languages over 30-plus networks. If this becomes a platform for ad serving across the web, then I believe neat new things can happen — perhaps even the first steps toward the open-source ad network I’ve been pushing. I think this could become the basis of open competition with Google — not replacing Google but allowing publishers and advertisers to put together higher value ad hoc networks. Or maybe I’m just projecting.

I spoke last night with a founder and with one of the VCs, Index’s Saul Klein (disclosure: also an investor in Daylife, where I’m a founder). I don’t think the company man was willing to go quite as far as I was pushing — he’s quite wisely making it clear that he is working with existing networks and with Google, all of which can be served through Openads — but Saul did say that they reason they’re investing, along with Mangrove and O’Reilly Alphatech, is that they see big potential. Says their press release:

Openads allows publishers to have complete control of their advertising campaigns, offering sophisticated targeting, inventory optimization, rich media and inventory forecasting from a simple yet powerful interface.

I believe that if they create interoperable and open standards for ad measurement and serving in a broadly distributed platform and if various networks can plug in to a larger open network, then we have the beginnings of a transparent marketplace that will improve value for everyone. That’s why it’s important that Openads is free. Why not use it? And if everyone uses it, then imagine what can be built on top of that. Down the line, I see not only flexible networks but also new analytics.

So how will Openads make money if it’s free? Like other open-source companies, it will offer consulting on top of the service and software to help publishers and advertisers get more value. I see this as the WordPress model: The platform is open and that enables many companies to be built on top of it.

And if I’m not projecting too much onto Openads, then I think we see more building blocks in the new infrastructure of the web. Google is the infrastructure of search and information — and, for now, advertising. YouTube wants to be the platform for video and video ads. Facebook wants to be the social infrastructure. Openads could be the ad infrastructure. It’s all still loose — the Jell-O is yet warm — but we can start to see a structure forming.

Ladies and gentlemen, place your bets.

: A note on the current landscape: A reporter asked me what I thought about why big players are buying ad companies and I was working on this post, so I was halfway through looking at that myself. Here’s what I said:

An ever-growing proportion of advertising in all media will be sold and served via an electronic marketplaces and the question is, who will own it? Google owns the marketplace but not the serving of others’ ads; Doubleclick gives them that. Rightmedia expands Yahoo’s marketplace with other sites’ remnant inventory and Yahoo already has display sales. Microsoft needs to get into the game and aQuantive is a fit because, via Razorfish, it provides marketing enterprise services. Ad agencies are quaking as their roles — in both media and creative — can be usurped by new and both smaller and larger players, technology, and even consumers themselves, so WPP is hedging with 24/7. It is good that we have potential competition to the growing hegemony of Google.

But I told the reporter that I hope none of them owns the marketplace. That would be dangerous and expensive for both publishers and advertisers. Instead, I want to see an open-source and transparent marketplace with open and standard metrics, standard ad calls that can hook up with any network and any agency, and the easy means to set and negotiate prices (for all kinds of new values — not just pageviews), with or without auction functionality. Could Openads become that? I don’t know yet.

I’m late to this since my AdAge subscription lapsed, but Bob Garfield (of On the Media and Ad Age) has written an important followup to his seminal Chaos Scenario two years ago. In the original, he argued that advertisers saw the decline of old media but that new media weren’t ready for them (as we indeed are not — see my AdAge column on the topic) — and so the advertisers are left without the means to market. In Chaos Scenario 2.0, Garfield argues that marketers have new ways to do their business directly with customers that no longer require advertising. He warns of “the post-advertising age.”

This is fundamental and important. In media, we have long argued that a new medium does not replace the old one and that ad spending may shift around in new mixes but do not decrease. No more. Now marketers and customers can have their transactions and conversations directly. That is to say, we the customers can get the information we want about products straight from sellers and the more that happens, the less those sellers need to waste money on giving us messages we did not ask for and do not want (aka, advertising). The more that happens, the less money they will spend on ads. Total ad spending will, indeed, decline.

That horrible crashing sound you hear is a gravy train derailing.

Media — news and entertainment — have long been supported by advertising and by the faith that even though it may be a zero-sum game, at least there were billions of dollars of support there for the earning. And profitability for those who got those dollars was very high because of scarcity: scarce space, scarce time, and now scarce consumers. What if there is less? What happens in post-scarcity world? What happens to the media economy? What happens to us?

I’d say that depends on who the “us” is. If it’s big, expensive, monopolistic, overpriced media giants — TV networks, TV studios, radio companies, newspaper companies — they are guaranteed to shrink radically and rapidly. They are screwed. But if “us” is new, small guys who are not addicted to big production luxuries — for whom the definition of big enough is many, many times smaller — there is still plenty to go around — but only if, again, we have the infrastructure in place to make it make it easy for advertisers to support us. We little guys are stuck in Chaos 1.0; we’re not ready for the advertisers. The big guys are stuck in Chaos 2.0; they’re seeing advertisers find better alternatives. And if we’re all not careful, the pie will, in fact, shrink. That’s new.

Says Garfield:

It’s a world in which Canadian trees are left standing and broadcast towers aren’t. It’s a world in which consumer engagement occurs without consumer interruption, in which listening trumps dictating, in which the internet is a dollar store for movies and series, in which ad agencies are marginalized and Cannes is deserted in the third week of June. It is a world, to be specific, in which marketing — and even branding — are conducted without much reliance on the 30-second spot or glossy spread.

Because nobody is much interested in seeing them, and because soon they will be largely unnecessary. . . .

He recites a requiem litany in the media business since his first chaos piece: MTV, Time Inc laying off. . . CBS spun off from Viacom “lest the broadcast business impede growth and depress shareholder value” . . . broadcast networks shutting out their distribution partners to give us shows directly online. . . NBC giving up on the 8 p.m. hour to give us dreck . . . big, bad Clear Channel doesn’t take over the world but is taken over by private equity. . . Knight Ridder and Tribune melt like witches on water and McClatchy doesn’t turn out to be in Oz. . . DVRs will reach half of U.S. households in three years and once we’re all skipping ads, advertisers say they’ll skip TV. . . TV upfront is down. . . Coke and J&J pull out of upfront. . .

Yup, screwed.

But marketers aren’t crying, or shouldn’t be. He continues:

What is certain is that the Brave New World, when it emerges, will be far better for marketers than the old one. What is nearly as certain is that many existing ad agencies and some media agencies will be left behind. And the reason they will be left behind is their stubborn notion that they can somehow smoothly transition to a digital landscape.

He argues that TV has been kept afloat artificially:

But TV isn’t really in the program-distribution business. It’s in the audience-selling business, and there the economics of scarcity still stubbornly reign. Because no other medium offers the reach of TV, advertisers have continued to pay more and more per thousand viewers — which is why Mr. Moonves is commanding higher CPMs; the upfront market has not yet plummeted; and video advertising on the internet, according to eMarketer, will amount to a paltry $775 million in 2007. On TV, it is $65 billion.

But economics will have its due. The law of diminishing returns will eventually prevail. Those who have perennially spent more and more for less and less will finally say, “No more,” and take their money online — whether there is sufficient ad inventory or not. . .

Mass advertising flourished in the world of mass media. Not because it was part of God’s Natural Order but because the two were mutually sustaining. . . . So why assume that either must transition to the new model? Not only is it economically nonsensical, it squanders the very nature of the digital universe, the ability to speak with — not to, but with — the narrowest communities and individuals themselves.

And they will use new methods that have nothing to do with advertising: Word-of-mouth, social, or just direct contact with customers who want information and can now get it from the marketer or — see my favorite example, my Treo — from fellow customers.

Garfield cites the story of an OgilvyInteractive creative director who didn’t buy ads to give away 45,000 tockets for Six Flags’ 45th anniversary; he posted on Craigs List and after five hours, the tickets were taken. But who gets paid for that? Not even Craig.

Garfield predicts some of the means of death of old media and agencies. I’m not sure he’s right about them all. He heralds — as I’ve heard heralded for more than a decade now — that we’ll watch a TV show and click on a car to buy it. I don’t buy that. He argues that we’ll end up paying for more content, supporting it with our money instead of advertisers’. Not sure I buy that, either. But I do agree with this arguments that we don’t like ads, we do want information, and we are in control.

And what he’s really saying behind all that is that the fundamental economics of media are, if not imploding, deflating. That is a big deal and has implications we can’t yet imagine in media and marketing as well as in the proliferation of small media that can afford to live without big marketing — if it’s ready. Hang on. It’s going to be a bumpy ride. Downhill.

Below, David Johnson leaves a provocative comment on the impact of YouTube on local TV stations if and when political advertising migrates online:

there’s a big elephant in the room on viral video for politics. youtube could be for local broadcast what craigslist is for newspapers. most local broadcast stations desperately need political advertising to stay in the black. if the advertising pie doesn’t expand and dollars are shifted out of mainstream broadcast to online — as we’re seeing elsewhere already among major advertisers — this could have a serious impact on bottom lines at struggling affiliates.

Local affiliates are already facing a bleaker future than they’ll breath out loud because when the internet grows to become the dominant means of distribution, their value as distributors only shrinks. I hadn’t thought of political advertising as their Craigs List but I think he has a point. All political advertising won’t migrate online yet because the audience on broadcast is bigger and campaigns are inherently conservative. But there will be a point of no return.

(Crossposted from PrezVid)

The Telegraph reports that Google is on track to become the UK’s No. 1 company in advertising revenue.

The company’s UK advertising revenues jumped by 83pc in the past year, hitting $1.6bn (£821m) in 2006, according to a filing with the Securities and Exchange Commission.

It means that Google has now overtaken Channel 4, which earned £775m, and makes it the country’s second-biggest advertiser after ITV, which recorded £1.63bn worth of spending in 2006, but is expected to record a drop in revenues for 2006 when it files its latest figures on Wednesday.

The news is the latest sign of the rapid shift away from traditional forms of advertising to the internet and other more dynamic media.

And you thought Microsoft was scary.

Congratulations to Jason Calacanis and Michael Arrington — and the FTC — for saying on PayPerPost’s ass so that they now require disclosure.