Once Facebook opened up its marketing platform to developers and the widget was born as a cheap marketing and branding tool, entrepreneurial endeavors became accessible to all 6th grade level programmers . Then came the Apple iPhone and its gazillion applications.  The Facebook and Apple platforms enable anyone to create social applications which allow users to interact with their friends or a particular business. With many deep integration points, platform applications are effective ways for a business to leverage the social graph in ways unimagined until now. This bold move turned Facebook, and possibly the iPhone, into primary ‘storefront’ applications for business’s, allowing small companies to create a dynamic online presence for their customers. 

So when Microsoft threw out $240 million for a 1.6% stake, thereby valuing Facebook at $15 billion back in ’07, it was one of Bill Gates’ shrewdest investments, even though it took a while for the so-called experts to in fact ‘get it’. Not only did this keep Facebook out of the hands of Google, but more importantly, had Google swallowed up Facebook, it would have changed the dynamics of competition between Microsoft and Google so heavily in favor of Google that it could have forced Microsoft to accept defeat in search engine marketing sometime down the road.  

Earlier that year, when Google swallowed up DoubleClick for $3.1 billion in April, it also got a superb deal mainly because of the way Google has been able to integrate DoubleClick into its’ Adsense and Adwords platforms. Absolutely seamless, very easy to use, and a category killer for domain name parking. Why go through an intermediary to park your domain when you can go straight to the source and make more money? Most domains don’t even look parked these days. For example:  www.CureThis.com is a full web site parked by a company called DevHub! However, when Google parks a site, there are no bells and whistles, it’s quite obvious the site is parked. For example, take a look at www.ShopBestMortgage.com or www.FlashVirtual.com.  Both of these sites are parked with Google. However, even with the very simple look, many studies have shown that simplicity like that creates the greatest return. It’s just a matter of getting the site indexed and showing up on searches.  Even my nickname is parked at www.MarketWizard.us with an entirely different template. About five years ago, domain parking was for the uneducated masses trying to get lucky. Now it’s becoming a strategic asset.

In May of 2007, Microsoft’s $6 billion purchase of aQuantive for a massive 85% premium, and Yahoo’s “me too” buy of Right Media for $680 million, were both in response to Google’s acquisition of DoubleClick. It’s quite true those acquired by the latter two giants were players engaged in BT (Behavioral Targeting) since at least 2004, however, the marriage of a search platform with the largest banner ad serving network for publishers has blurred the line between service provider and competitor. The major online players appear to be declaring a head on war with the old school Madison Avenue companies, although WPP of London appears to be with the curve following their acquisition of 24/7 RealMedia in May of 2007, which seems to have worked out quite profitably for them, especially for clients that want a “one stop shop”. As the next evolution of the internet gets underway, the concept of “Long tail theory” is all of a sudden a part of every ad executive’s vocabulary.

Now entering the fold is Apple’s iPhone and iPad, both of  which have access to Apple’s “App Store” where they can download thousands of applications which makes the concept of behavioral tracking even more granular, even though this concept has not yet grabbed the attention of the blogosphere or the press.  With the app store, Apple can track, at a very granular level, the way their customers behave, without even having a web presence.

The iPad alone is a major game changer and will allow computing at a level never before imagined. The response to the iPh0ne and iPad is Google’s Android open source platform, which has been catching on quite rapidly, although in term of the number of app’s available for Android relative to Apple’s iPhone is pathetic. It’s like David and Goliath in this match, and Google is David.

Google’s advantage lies in their dominant market share of search traffic. By tracking the user through his or her I.P. address, Google is cataloging and mining a mammoth database of user behavior. DoubleClick on the other hand tracks the user by placing a cookie on their computer. Combine the two and you have a full profile of most internet users at an individualized, highly granular level. Anonymous or not, that’s highly valuable information. And it put Google in a position of incredible advantage.  I hope they maintain their “Don’t do evil” mantra.

Google will always have to walk a tight line, similar to bumps in the road eBay faced as it was on its way of becoming the largest original user generated content (UGC) site. When eBay would make a management decision at the executive level, the repercussions in the event their user base disapproved were almost immediate. Google is walking this same line, and I believe the boys at Google headquarters are smart enough to realize that as long as they continue to innovate and provide useful services at zero cost to the consumer, they will retain their user base.

Recently, for example, I found a “Transliteration” tool in Google Labs, where I look quite often for really cool toys in pre-Beta or just toys that will never see the light of day via an actual release. The transliteration tool is beyond cool. It allows me to type in English, and transliterates it into one of many languages from which you can choose, so that when the reader reads the message, they are reading it in their native alphabet but they are sounding out the English word.  It’s just like foreigners communicating via email in their home tongue but using the English alphabet by sounding out the words. Except Google has reversed this. So a user can type “Hello my name is Bob” in Persian, or Hindu, and it will type it out in that language but when read will sound like “Hello my name is Bob”.

It’s these kinds of innovations that keeps Google miles ahead of the competition, while also watching the competition for any fatal mistakes, which hasn’t happened yet with Apple and its iPhone. Moreover, the launch of Android as an open source system whereas iPhone is closed could be an area to keep an eye on. Who will win this war? Apple fought this once before against IBM/Microsoft and lost. But this time, it has the advantage. They are way ahead on user saturation and their product is cool in many aspects. But I digress…

For now, if a user visits any major site on the Internet where DoubleClick is serving ads, and the user got there using Google search, or any search engine for that matter, even Microsoft’s Bing, Google knows where the user came from, when the user was on other particular sites, where the user went after leaving the site and what the user bought.  This allows them to serve an ad at a later time customized for that user based on this data. Google is certainly at an important juncture and must find ways to continue growing revenues. This means that Google and all of the other major online players must expand beyond text-based search. Hence, the iPhone and Android.

Web communities such as LinkedIn, MySpace and Facebook (and dozens of others popping up everywhere) have brought like-minded people together all over the world into hyper-niche verticals that continually optimize themselves through rapid evolution. From the advertiser’s (or Politician’s) perspective, each new social networking platform becomes a doorway to whatever psychographic and/or demographic being sought. All the old fuss about “monetizing the social network” is being addressed by technology delivering user specific ads to web site visitors customized for that visitor, whereas the next visitor or a visitor at the same time to the same page for that matter, is seeing an entirely different advertisement.

This new “socialization” of the web brings together multiple niche communities with similar interests. Even though I have a Facebook profile and spend time on the site, it doesn’t necessarily mean that I also like the same things as my other Facebook friends. “New” media marketing is all about serving highly relevant ads to every single user on the site.  I can’t figure out why ALL of the ads I get on my Facebook are for half naked single women desperate to meet guys. It makes no sense but I like the pictures. 

Advertisers no longer monopolize a specific time zone or TV network. At any given time, if there are 100,000 unique visitors on a web site, and 10,000 of them are on the same page within that site, one could in theory serve 10,000 different ads from unique advertisers at the exact same time, all of them customized based on the users “web print”.

Although behavioral targeting has thrived by allowing marketers to offer ads customized based on the web surfer’s age, gender, location and online activities, in the immediate future not only will those variables be considered, but also the items the user may have been shopping for recently.

For example, imagine you have searched for a specific bottle of wine from a shopping web site in the past couple of weeks, and were now on your favorite news site reading an article about foreign affairs. At the end of your article, you might see an ad from a wine merchant for that exact same bottle of wine “on sale”. Now that’s helpful to the advertiser and the consumer.  It is RELEVANT and that’s the point. We’re a nation of consumerist pigs. But the net-net means the advertising network is tracking every single web user, although anonymously of course, in a way that continually allows them to “guide” users to products that meet their real time interests. The convenience factor lies in that last term, “real time interests”. But so does the “creep” factor for some, or “Big Brother is watching”.

Back to our example, say you visited the site but chose not to purchase anything. Tomorrow when you log into your Gmail account to check your email, you may find a digital coupon created just for you by a competing merchant offering the same product at a 10% discount. This is “long tail” marketing at its finest. And hey, you just saved 10%.  It’s a win-win.

The combination of statistical text analysis and clustering methodologies with semantic analysis procedures creates an outcome that can be different each time depending on multiple variations of subjects, keywords, and the unique relationships between them. In other words, each users screen becomes a dynamic megapixel billboard.

The natural evolution of this technology will be based on smarter and smarter algorithms that will be able to predict the potential buying habits of a shopper based on their behavior during certain days, seasons, local weather, and just about any data point you can imagine, including the performance of stocks they looked up recently on their favorite finance site and their interactions with their friends on other social networking sites.  Contextual advertising is for those of us that have learned to subconsciously tune out banner ads when viewing a site.

In the future, when this technology eventually merges with the television, or when the television doubles as your computer, then the really cool, highly targeted stuff begins to happen. Imagine Tony Soprano sitting in front of his white Cadillac while doing peyote in the desert during the shows closing episode drinking a can of coke (which he was by the way). That can of diet Coke is there for brand awareness and probably cost Coca-Cola several million dollars.

With advanced B.T. combined with contextual advertising, online advertisers could swap out the diet coke for a can of Budweiser, or a bottle of water, or even a carton of orange juice depending on what that viewer buys when they go grocery shopping, which Church web site they may have visited, or nutritional supplements they have purchased.  What’s a can of diet Coke worth to a viewer that hates soda? NOTHING! But how about a viewer that always buys Fiji Water? Instead of a diet Coke in Tony’s hand, there’s a bottle of Fiji water for that viewer. Bingo. Customized branding at the individual level. Now how amazing is that for advertisers? Not a dollar wasted. You only pay for what is displayed, or “served”. Nothing else.

Although this is not yet possible for video, if you tune out the banner ads when reading up on a geopolitical situation that you’ve been following recently, the words within the articles become active hyperlinks to products and items you are interested in. As an avid reader, I am thrilled when reading a very interesting article on the web which is embedded with hyperlinks to books being recommended by Amazon. It doesn’t bother me to read the word as a hyperlink and I can read through or hover my mouse over the link to see what the book is. It’s my choice. Furthermore, some words may hyperlink for me while other words will hyperlink for other readers based entirely on that reader’s interest. This is the maximum level of efficiency an advertiser can achieve when targeting a consumer but for the publisher’s of the world, this is absolute heaven.

Publishing is all about creating quality content that people will want to read, thus giving the publisher advertising inventory to sell to merchants interested in that audience. By turning every word in their content into a potential ad slot, publishers can benefit from having knowledge of real-time market prices for certain keywords and can tune their sites to favor certain keywords over others. This is made possible by the anonymous auction systems being used for clearing ad inventory.

The economic opportunity is staggering. Total ad dollars spent via online platforms are still in the single digits, and as the pie shifts in favor of the web thanks to social networks and other UGC sites, the market opportunity for smart players is significant. Think of the recent quarrel between Google and China. China’s total ad spending on line for all of 2009 was $1 billion. That’s really pathetic for the nation  with the largest population in the world and merely a drop in the bucket; hence the stratospheric rise of Baidu (BIDU), the Chinese Google. This is a politically motivated move by the Chinese Government to make sure one of their own wins this market and not an American company that can ultimately track the web use of every Chinese on the Internet, censorship or not.

The world of consumer marketing is about to experience what Andy Grove, the former Chief of Intel termed, a “Strategic Inflection Point” . The fight between old and new basically comes down to the difference between a major consumer brand such as Gillette, Honda, or Budweiser spending $50,000,000 on a television commercial campaign during the Super Bowl, versus spending 10% of that amount on the web to achieve significant conversion rates from eyeballs to sales.

The days of “branding” by shot-gunning a company’s name in front of the consumer are being challenged by the wonderful opportunity to market directly to the person actually looking for a product on the web from the company they want it from, at the exact moment they are searching. Yes a bit Orwellian, but once we get beyond the “novelty” effect, we will realize that this is another downward pressure point on inflation as it encourages competition and achieves efficiencies that will allow merchants to lower their prices for consumer goods in general.

Although opponents are banging the privacy drum based on discrimination, this movement away from carpet bombing the consumer to laser guided bombing should improve the quality of the Internet for everyone. Right now, the total amount of spam sites all over the internet are overwhelming even the smartest search algorithms. Criminal elements in Eastern Europe and Asia continually find ways to beat the anti-spam efforts of the search giants.

When people accuse Google of not caring about click fraud, they are being naïve and overly simplistic. If users stop trusting Google to provide relevant information, they will search elsewhere. It’s very easy to change your default search engine. The shift to performance based marketing based on anonymous behavioral profiling of web users will put upward pressure on keyword costs in a way that will filter out the spam sites most likely auto generated in a few minutes.

This also benefits Internet marketing companies by streamlining the process of dealing with the ad networks and giving them access to quantitative data for analytic purposes. Google Analytics is an incredibly powerful tool for tracking and measuring a sites’ user base. And best of all, it’s FREE.

Keep an eye on the next wave of acquisitions by the major players. ValueClick (VCLK), one of the few remaining independent behemoths focused on “Cost-Per-Action”, is likely to go next for a price in the single digit billions.  As the Yahoo and Microsoft search partnership evolves, Google will be keeping a close eye on their share of the search market. If it starts to drop, you’ll see a big move by Google to raise the stakes. RevenueScience and Tacoda (now owned by AOL) will be eyed by Madison Avenue firms circling their wagons and looking for bolt-on acquisitions as a chance to survive another wave of Creative Destruction. To Joseph Schumpeter, this type of Creative Destruction must be a blast to watch from above.

And as for the privacy concerns, in 2006 the ChoiceStream Personalization Survey polled consumers asking them if they would be willing to let websites track their clicks and purchases. There was a 34% increase from 2005. If we are going to see the ads, they may as well be highly relevant and actually save me money and make my life better. I just don’t want to see them use this data to link a pattern of behavior, such as cross-campaign learning, to infer private information such as a person’s health. On the other hand, if I don’t have a cat then I don’t want to see ads for cat food.

I know many of you are Prop. Traders, whether equities or swaps or paper, or whatever. It doesn’t matter. The forum is to exchange ideas and share trades and various perspectives from highly qualified and advanced traders around the world (including myself, of course).  It goes without saying that if your LinkedIn Profile indicates you are a recruiter, or unrelated to content of the group, your request to join will sadly but most assuredly be declined.

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