Epic Media Group

Thank you!

– Michael Sprouse, Chief Marketing Officer

• Industry Consolidation – This has begun to happen. Across the pond, LBI and BigMouthMedia combined. In the U.S., Epic Advertising and Connexus merged along with a few other small digital marketing services companies who were acquired recently. Google purchased Invite Media. In addition, there was a flurry of activity in the mobile marketing space–more on that below.
• Flight to “Performance” and Campaign Measurability – As predicted, the gap between revenues coming from performance-based pricing and CPM-based pricing widened. By the end of 2009 and into 2010, the IAB reported that 59% of revenues came from performance-based, versus 37% from CPM (up from a 58%/38% split the first half of 2009).
• Social Media – Not much needs to be said about the rise and popularity of social media, and the intense interest by advertisers in social media solutions. Social media is a very hot topic right now, largely because of huge levels of participation. Our company’s activity in the space with the acquisition of Social Suitcase underscores the importance we think this industry merits. Application development and custom, branded solutions have gained a lot of steam and are top of mind for developers and marketers alike.
• Mobile – While mobile advertising hasn’t dramatically taken a larger piece of the advertising pie in a short span of 6 months, our earlier predictions about activity in the space were correct. In other words, most of the major interactive titans have placed significant bets, setting the foundation for mobile growth in the near future. Of course, the two major acquisitions from the first half of the year were Apple/Quattro and Google/AdMob signaling a bullish mentality in Mobile.

What do we expect the focus of the second half of this year to be? It’s simple.

I gave some insight on this topic in Forbes recently. The most vivid image to me from the early stages of this year was a slide showcasing the immensely cluttered online ad ecosystem given during an IAB presentation. For any given campaign, there might be 2, 3, 6 or 10 different intermediaries providing various types of value in the chain. Some of this clutter manifests itself in industry consolidation, but it also manifests itself in new business opportunities, namely the rise of the Demand-Side Platform (DSP).

The overarching theme in all this is making things simpler, clearer and more transparent for those in the online marketing space. It is clear that the opportunity exists to simplify the ad stack for both advertisers and publishers. Adobe/Omniture’s VP Strategy and Business Development John Mellor recently stated “there’s so much cool technology and so many things we could do, it’s just too damn hard. There needs to be some investment focused on making things simpler for the advertiser and the publisher.”

Simplification is a theme that underscores what a successful, true demand side platform is or should be. It was said: “At its core, a DSP is software for transparent automated media buying across multiple sources using unified targeting, data, optimization and reporting.” In other words, a DSP should allow buyers to have complete control through a web-based interface – it should be a customizable, fully functional one-stop shop. Many companies even if they are not considered true DSP’s, they do offer DSP-like capabilities and have already begun bringing those to market. Offering a full-service solution was some of the positive effects of our company’s merger, for instance.

Advertisers or agencies don’t want to have to use dozens of platforms to manage media buys. Remember the old days of a one-to-one, advertiser-publisher relationship? Publishers and marketers want greater transparency, targeting and accountability. Publishers want higher margins. I believe that in the months ahead, much ground will be covered in this world and it will be interesting to watch what is achieved by year’s end. As always, being a leader or active participant in the interactive marketing industry is never dull.

Mike Sprouse, CMO – Epic Media Group

A lot of people pinpoint Facebook as the be-all and end-all of social media, with good reason based on its hundreds of millions of users. Or Twitter. But the entire genre actually far exceeds Facebook and Twitter and includes branded applications, blogs, review sites, Wikis, virtual worlds, file-sharing sites, and yes, social networks. For advertisers, the promise of social media has always been clear: potential to reach large masses of people efficiently. Advertisers want to be in front of their audience at all times. Where is their audience? They are increasingly utilizing social media channels.

The challenge for advertisers, however, is that it is not as simple to monetize or demonstrate ROI via social media as it is to using traditional Search marketing, as one example. There is not one cookie-cutter marketing solution for social media. Not all consumers that utilize social media want to be marketed to or have a credit card ready at a moment’s notice. Most forms of social media are free, which contributes a great deal to the appeal for users, and it would be short-sighted to base a social media advertising strategy solely on a traditional direct-response model.

Through Epic Media Group’s tmpSocial brand, we know a thing or two about effective social media campaigns. Our theory is that social media will play a large part in people’s lives well into the future. Even with some of the recent press about Facebook’s privacy issues, the foundational elements of what makes social media appealing are here to stay. The potential objective for brands and advertisers is to be involved in an active dialogue with its constituents and to build relationships. We have a simple moniker for what we provide our clients: “Reach. Target. Engage.” That last word is as important as the first. In order to run truly effective campaigns via social media, advertisers and brands must actively engage with prospective consumers.

At Epic Media Group, via our tmpSocial business, we are always trying to think of new ways to accomplish our client’s goals. A few examples of our successful offerings that weren’t even around a few years ago include: The Offer Window, the first in-game offer management platform; cost-per-view video capabilities with robust market research potential; branded applications; turnkey lead generation sweepstakes; Twitter syndication services; effective behavioral targeting; and in-game sponsored virtual goods. Across all of these capabilities and offerings, it is important to have heightened analytics and we believe Epic is second to none in that department. As the paradigm shift occurs, the major difference between old media and new media is brands used to “lease and pitch” their audience– today they have the opportunity to “buy and engage” their audience. We see the value proposition to advertisers here as off the charts.

If you’re not thinking about social media strategy in ways that are different than traditional advertising tactics, that is a mistake. Our philosophy is that social media is redefining the face of the world through how we give and receive information and consumers interact with brands. We believe that social media needs its own systems, strategies and people to build successful monetization solutions that benefit everyone: consumers, advertisers and application developers alike. Stay tuned!

Art Shaw, CEO, Epic Media Group

For any major player in the online ad stack, safety, anti-fraud, data protection, brand protection, and compliance with all laws is essential. Now, as the industry has progressed and become more complex with greater risks, it is crucial for companies to take on greater responsibility.  Given the dollars that are being driven online from offline or traditional marketing, advertisers, publishers and ad intermediaries who have been aware and assessing these compliance-related issues for years are now ahead of the curve. The stakes are high, too. The IAB recently reported record Q1 2010 Internet ad revenues, a full 7.5% increase from 2009.

As my colleague E.J. Hilbert wrote, “Online advertising, once thought of as a fad or scheme, has morphed into a necessity for any company engaged in marketing their products and/or services. Because of this innate requirement for the success of product marketing, it can often become clouded and tarnished with very real scams within the online advertising realm.” I find this statement to be very true and it goes beyond pointing towards how we envision the relationship between advertiser, publisher and intermediaries, and well into the future and foundation with how these relationships are built.

Strong relationships of any type typically have one common characteristic, trust. For advertisers and agencies to trust the companies in the industry with their ad budgets, there needs to be assurance and evidence that all proper controls are in place from those who touch a particular campaign. As important as budget and dollars spent are to the equation, a brand’s reputation is considered by many to be a company’s biggest asset or biggest liability. A strong brand brings immeasurable goodwill to an organization; a weak or tarnished brand can do irreparable damage to the bottom line. For companies or agencies who are fortunate enough to compete and win online ad budgets, having proper controls necessary to ensure brand protection and anti-abuse tactics are a necessity.

Years ago, when companies like Online Intelligence were new to the game,  most ad intermediaries and agencies didn’t even have in-house legal teams or employees to watch what was running across their networks. Back then, the majority of companies acted recklessly, but in the recent past as the online ad medium has grown to be a major part of a marketer’s budget and plan, there has been a laser-like focus across the biggest players in the industry, not just a handful. Late in 2009, I was part of the team that helped form ADNEC (Ad Network Education Consortium), a group which is intensely focused on talking about these types of compliance and legal issues as an industry, and sharing best practices and challenges not just currently but with an eye towards the future.

The crux of why trust and security is important in online advertising is about long-term health and sustainability versus having the industry stagnate and not progress. It is ad industry professionals’ responsibility to educate advertisers and agencies, and display to the ad ecosystem the importance of trust in cooperating with an organization’s most prized assets. There are some companies who have implemented online advertising security and compliance measures that scratch the surface of what constitutes strong controls, while others are far ahead of the game; regardless, there is still continuous work to be done moving forward by everyone.

David Graff, General Counsel, Epic Media Group

We like to call companies which reside between advertiser and publisher “Ad Intermediaries.” There really isn’t an exact comparison to ad intermediaries offline; typically, although not always, there is a fairly direct relationship between an advertiser or their agency and publishers or the distribution source. In one of our posts on this blog two weeks ago by Lynn D’Alessandro, she outlined what an ad buy typically looks like in the offline world – which is infinitely simpler than what happens online – and discussed the different pricing models online.

As an advertiser, it can be daunting looking online at a map of the ecosystem. Prior to an advertiser getting their ads to publishers, it is possible for them to encounter any of the following types of ad intermediaries: Digital agencies; Media Buying Platforms; Ad Servers; DSP’s, or Demand Side Platforms; Ad Exchanges; Creative Optimizers; Data Suppliers; Data Optimizers; Horizontal/Branded Ad Networks (i.e. Traffic Marketplace); Vertical Ad Networks; Performance-based Networks (i.e. Epic); Mobile Networks; Yield Optimizers – just to name a few. Going through any number of these ad intermediaries potentially happens before an ad campaign even gets to the distribution stage via an online publisher. Once it does, the process repeats itself based on data about the campaign with advertiser and publisher alike wanting to take steps to quickly optimize ad spend based on how the campaign is performing.

Confusing, right? Wouldn’t it be better if intermediaries could have broader expertise and offer advertisers more or less a one-step process? I will get to that answer.

Before I go into why the ecosystem has evolved this complex way, it is important to understand where this is all rooted. Even going back to the early days of online marketing, the promise of the Internet for an advertiser compared to advertising in offline media was better campaign data, targeting, measurability, speed to market and scale/efficiency. These same virtues still apply today. Advertisers can know who their ads are reaching with more certainty, and know more about how specific ad types and creative executions are performing all with an advanced ability to target and reach a very specific audience more efficiently and on a much greater scale.

This is exactly why there are so many intermediaries, and why the marketplace has been able to sustain so many up to this point. Technology has given rise to a staggering number of companies who provide value as ad intermediaries and in the case of networks, tremendous reach and scale that can not be achieved in a one-on-one, advertiser-publisher relationship.

What does this do to the economics of an online ad campaign? Intuitively, it makes them vastly more complex. Each intermediary takes away margin as payment for the value they provide. The Catch-22 for advertisers and publishers is that many intermediaries provide important value and boost the effectiveness of a campaign, and so to cut them out would likely make campaigns less effective and less competitive.

So, what gives? In my opinion, a few things will happen in the industry in the near future: 1) lower-performing and/or weaker ad intermediaries might perform dramatically worse or go out of business based on margin or competitive pressure; 2) strong, small intermediaries will be bought or merge together in some fashion by larger companies; 3) larger, broader intermediaries who have similar size, scale and value will combine to form significant market players with a vast array of services (as we think our recent merger has accomplished).

As a leading ad network, and important part of the online advertising chain, we watch the ever-changing industry closely. There are three major misconceptions typically thrown out about ad networks and most types of ad intermediaries: 1) that they “cheapen” or dilute the value of online advertising which means 2) that advertisers would always be wise to work directly with publishers and prefer doing so and 3) that intermediaries somehow detract from brand-building initiatives. Many times, media outlets mistakenly cite shallow or vague statistics from sources who don’t understand the value ad intermediaries serve, which paints parts of the industry with the wrong brush. Our data leads us to believe – and know – that each of these assertions is misguided.

In terms of diluting the value of advertising, I can only speak for what we see on a daily basis and cite factual information from a lot of our happy branded advertisers thrilled to pay for greater reach, better targeting, and a platform-agnostic approach to digital advertising that keeps the audience and brand as the focus of their campaigns. In situations where the advertisers’ goals are not accomplished by a direct advertiser-publisher relationship – and those situations are becoming more common – ad intermediaries offer additional resources. Intermediaries have spent years and millions of dollars building technology, increasing their networks’ size and reach, and investing in brand protection and compliance measures to provide a positive brand-building environment which offers a greater ROI than one publisher could provide on its own.

As an aside, the one-to-one relationship does in fact work in traditional media –which is because there are a relatively finite number of distribution choices for an advertiser. Logistically, media buying departments can manage a few dozen publishers or distribution sources effectively. When you’re working with millions of websites, it is much more difficult for marketing departments and media planners to manage.

About 18 months ago, many advertising experts thought the online advertising ecosystem would implode. I even wrote an article in Adotas about the topic. Even now, I still do not believe a major “shakeout” will happen anytime soon. Some consolidation? Yes. A seismic shift in the landscape in 2010? No. Buying or merging companies is difficult for any number of reasons even if there are seemingly too many entities with their hands in the pie. While we do expect there to be continuing changes in the landscape, changes will be evolutionary and not revolutionary in nature for the coming months for one simple reason– as long as ad intermediaries provide tangible value, a wide range of services and distribution types, and boost the health of the ecosystem as a whole, they will remain and prosper.

The objective for many companies in the online marketing funnel is to now look at the complexity of the ad stack and offer ways to simplify it. How do you do it? I think it was best summed up by Don Mathis when he recently described what our major merger signifies by saying, “Delivering successful digital advertising campaigns requires scale, technology and execution. Integrating our company’s technology architectures will provide the combined company with an unparalleled demand-side ad platform capability. Moreover, we will be the leading private player of scale in the sector, and that matters: scale is reach and scale begets data. And data begets relevance for the advertisers’ campaigns.”

In short, the trend we are most likely to see is companies in the sector trying to simplify online marketing, and the one-to-many relationships that exist now for their advertising clients, by singularly offering them a wider array of advertising and targeting options, distribution across multiple platforms or devices, and technology.

Michael Sprouse – Chief Marketing Officer

Cost Per Action (CPA): Initially, this pricing model was seen as the truest form of online direct response advertising. CPA was the also the closest comparison to direct mail, and therefore attractive to the large number of DR-focused advertisers on the web.  CPA provides little financial risk to advertisers as they only pay the publisher, network or exchange for a quantifiable action (usually in the form of a sale, subscription, download or activation.) It goes one step further than advertisers simply paying for a click from an ad to their own website; it means that advertisers pay only an agreed-upon dollar amount if a qualified sale occurs on their site. Historically, CPA is closely related to Cost Per Lead (CPL) in which advertisers pay for a specific type of lead and Revenue Share, in which advertisers pay a percentage of the sale (rather than fixed dollar amount) generated on their site stemming from an ad or campaign.

Cost Per Click (CPC): This pricing model gained its popularity through search engine marketing, which Google can attribute some of its success to as a large number of advertisers ran CPC campaigns. In this equation, advertisers simply pay for a click to their website from an ad. If the advertiser is using a CPC basis as the objective to obtain sales or conversions from that click, the advertisers are taking the risk that their site will convert the visitor into a paid customer. This is a valuable pricing model if the advertiser’s website has strong conversion ability and the advertiser’s primary goal is to boost traffic to their site.

The economic models detailed above have been broadly categorized as “Performance-based Marketing”. According to the IAB/PwC, performance-based marketing made up 59% of all online ad revenues in 2009, up from 57% in 2008. The other predominant pricing model is:

Cost Per Thousand Impressions (CPM): This pricing model has been closely compared to the models used in offline media as advertisers pay for their ads to run and be viewable to the user a certain number of times. Each time an ad appears on a web page, it constitutes an impression. Advertisers, typically branded advertisers, pay for the ability to show their ads to a site’s audience yielding broad exposure, audience reach and other brand-building benefits. Exact CPM rates can fluctuate based on the publisher’s site, specific placement on a site, target audience and other factors.

Perhaps the biggest takeaway we have related to these pricing models is that for years now they have been viewed as operating in silos or independent of each other.  Advertisers or industry pundits would have claimed, and to some extent still do, that CPA had no ability to provide any branding value or that CPM had no aspects of “performance” or targeting inherent in it at all.

We disagree. We believe that each major pricing model resides on a virtual continuum. More and more, CPM or brand-based advertisers welcome the ability to access additional data about their campaigns and customers so they can optimize spending better. Likewise, some well-known branded advertisers run campaigns on a CPA basis. There isn’t a better or worse; it really depends on the goals and objectives of the advertiser. The best network partners are able to create and provide any type of campaign on any distribution platform like display, search, social media, video or mobile. This is one of the major benefits of our recent merger for instance and where we think online advertising needs to move towards. MediaPost summarizes our thoughts fairly well in a recent article. Digital marketing can’t be done in silos, or measured in silos; in fact, in the future the best ad intermediaries should be able to provide brand awareness, brand extension, action, CRM and loyalty in digital campaigns.

Lynn D’Alessandro

Senior Vice President, Sales – Traffic Marketplace