Advertiser interest in Facebook has grown rapidly over the past several
years. With more than half a billion users, it is the biggest
social networking hub in the world, making it one of the top digital
platforms on which to reach consumers.

Its self-serve advertising platform, however, has received mixed
reviews. Unlike, say Google AdWords, advertisers don’t necessarily have
‘intent‘ present with every click, and converting Facebook traffic has,
for many of them, been challenging.

The platform’s saving grace: it’s
generally pretty cheap. But that may be changing.

According to ad management platform provider Efficient Frontier, clicks on Facebook’s self-serve ads cost 40% more last quarter than they did in the previous quarter.

The reason for the rise? “As advertisers are understanding this medium, they are allocating budgets, and it’s becoming increasingly competitive. They are willing to pay a lot more to get to the consumer,” according to Efficient Frontier’s Siddharth Shah.

Needless to say, this is good news for Facebook, but is it good news for advertisers?

Naturally, costs were bound to rise as its profile became more prominent in the advertising space. More money being spent on Facebook advertising means greater competition for eyeballs, and this competition will usually lead to higher costs.

The big question: are advertisers spending more money because they’re seeing a return, or are they simply feeling more comfortable with Facebook? If recent reports are to be believed, it may have more to do with comfort than ROI.

That said, while Facebook’s self-serve ad platform may not be AdWords, there are plenty of advertisers struggling with AdWords ROI too. Lack of active campaign management and subpar tracking capabilities, for instance, cost less sophisticated advertisers lots of money.

The lessons that can be learned from them are applicable to Facebook, which means advertisers that have invested in implementing PPC best practices will probably be better positioned to reap the rewards on the social network as the costs, and stakes, get higher.

With movies from Netflix, games from ESPN, music from Last.fm, and status updates from
Twitter, Microsoft has evolved the Xbox 360 into a premium content
delivery device, not just a game console. Now, with its new Kinect
motion-controller system, the company has the means to turn the Xbox 360
into a hyper-targeted ad platform.

After all, Kinect can recognize
different users by their faces.

Microsoft can already deliver targeted ads through Xbox LIVE, the online subscription service that lets Xbox 360 owners play games together and access the extra content.

Dennis Durkin, the company’s corporate VP and chief operating and financial officer of the Interactive Entertainment Business (which houses Xbox 360 and Xbox LIVE), outlined the ultra-customized ad targeting scenario to attendees at the BMO Capital Markets Digital Entertainment Conference:

“Kinect brings a really interesting opportunity as it relates to that. Obviously with Kinect, it has facial recognition, so we can cater what content we present based on who you are.”

CNET’s Josh Lowensohn sums up the rest of Durkin’s presentation:

“[He] then offered up a situation where someone in a mixed household comes to use the system and gets a different set of Marketplace content presented to them, with different ads. The same technique could be used to serve up advertisements aimed at groups, when the Kinect could tell that you were in a room full of people, Durkin said.”

That’s the kind of addressable advertising opportunity that Google is trying to deliver with Google TV, and that the cable companies (in the US at least) can’t figure out how to deliver at scale.

If Microsoft does launch a Kinect-based ad platform, it would be just the latest upgrade to the roster of advertising options on Xbox LIVE. The company added enhanced display ad capabilities (through Microsoft’s proprietary rich media platform, Silverlight) last year, and even launched 1 vs. 100, a live game-show with commercial breaks. 

Of course there are the inevitable privacy concerns, but with Kinect looking like a best-seller this holiday season, it will be interesting to see how it adds to the Xbox’s potential as an ad platform. 

So let Google and Apple duke it out in their set-top box “battle” for the living room. Microsoft’s Xbox 360 is embedded in over 44 million living rooms worldwide (as of Nov 2010). If either company really wants to dominate, they’ll have to be ready for war.

Optimization and targeting. Segmentation and analytics. There are
countless tools that let digital marketers track the effectiveness of
their campaigns, and even tweak them on the fly for a better ROI. And yet, when it comes to accepting new ad formats and
strategies, there are still cries for “better metrics” and “more
accountability.”

What of creativity? Don’t ads need to be engaging and beautiful
enough to attract a click (if that’s the metric you’re going for) in the
first place?

The notion of crafting gorgeous digital campaigns seems to be an afterthought to the analytics – particularly when it comes to display. In an Adweek op-ed, comScore CMO Linda Abraham argues there are two key reasons that the industry hasn’t focused more on the creative: 

“Digital” brains don’t value creative like “analog” brains do

“This isn’t entirely surprising — after all, an industry that thinks in terms of the ’science’ of ones and zeroes does not have a natural inclination toward valuing the ‘art’ of the creative.”

Digital campaigns don’t attract big budgets, so the creative isn’t a priority

“Over the years, display ads have been treated mainly as commodities. Because these ‘pork bellies’ generated almost no click-throughs, advertisers and their agencies were reluctant to give the creative the time of day.”

So bland ads fail to inspire clicks, but there’s no thought given to the idea of making the ads more enticing in the first place. Then, adding insult to consumer injury, the industry chooses to make the ugly ads more intrusive, bigger and harder to ignore.

Is that the way to go? Remains to be seen. The Online Publishers Association (OPA) says its bigger, bolder ads have been a success, but many outspoken execs disagree or question whether the research is unbiased. Interestingly enough, Abraham suggests more data – attained through creative testing – is actually the solution to the “bad creative” problem:

“It’s no longer sufficient to simply acknowledge that creative may be important in online advertising — it’s time to demonstrate the value of our medium by turning online creative testing into a discipline.”

Of course, comScore has a creative optimization and consulting division that aimed at doing just that. But Abraham’s shameless plug aside, what do you think? Is creative testing the key to producing better ad creative, or should the industry focus on developing better experiences (like iAds, branded entertainment, advergames, etc.) overall?

Will 2010 be the best year ever for interactive advertising? If the numbers released today by the IAB in conjunction with PwC for he first half of the year are any indication, this year is one for the record books.

For the first half of the year, US internet ad revenues totalled $12.1B, the best recorded number ever for the period, reflecting 11.3% growth over the same period last year.

Q2 was even rosier when broken out. Revenues of $6.2B reflect the second-highest quarterly results ever, and a near 14% increase over Q2 2009.

Want still more good news? OK, here goes:

– Display grew 16%

– Paid search was up 12%

– Sponsorship revenue +32%

– Digital video up 31%

– Impression and hybrid ad pricing models up 4% and 6%, respectively.

– Q2 revenue of $6.2B is closing in on Nielsen’s extimates for cable and broadcast TV revenues for the period ($6.6B and $6B, respectively).

Sherrill Mane, the IAB’s SVP of industry services, was almost giddily optimistic. “Internet advertising growth is outpacing the rest of the media market,” she stated, “All the other media are growing at far slower rates. We’re definitely leading and outpacing the total market.”

Calling this year a “stellar first half,” She continued: “If you look at the data and display related formats…those are growing by leaps and bounds. An influx of brand dollars is moving this way.”

PwC Partner David Silverman was equally buoyant: “The underlying fundamental growth for the industry is still there.”

Twitter is nothing if not self-referential. So it should come as no surprise that the microblogging site’s redesign this week got Twitterers talking (2.4 million tweets on the topic to be exact). That’s what it was designed to do — get people talking and eventually, spending more time on the site.

Why? Because the company can use that increased engagement to attract advertisers.

It may be a relatively minor redesign, but more interactive features and multimedia data are all meant to encourage Twitter’s 160 million users to stick around longer on the company’s website.

According to The New York Times:

“[Twitter's co-founder Evan Williams] has said he was surprised that so many people use the service — 160
million — given how difficult its Web site is to navigate.

That large audience is appealing to advertisers, but the unappealing
Web site has not been a welcoming place for them. Twitter, which has
raised $160 million in venture capital,
has slowly started to run ads called Promoted Tweets that people see
when they search the site. Mr. Williams said the new site would improve
ads “because there’s going to be more real estate and more engagement.”

Increasing ad dollars are definitely becoming a priority for the once advertising adverse company. As COO Dick Costolo said of the redesign yesterday:

“It’s going to increase the value that people are getting out of
Twitter, so in less time you can get more information and value.”

Twitter is working with 16 media content partners — including
YouTube, Flickr, Twitpic and Ustream, to encorporate rich media
directly into the microblogging experience. As Patricio Robles pointed out earlier today, context is key:

“The new detail pane does more than display multimedia content. Twitter
is using it to display related tweets, mini profiles and maps. The pane
adds some much-needed context to 140 character tweets.”

Mainly, Twitter wants users to choose the new design of the company’s website over the multitude of third party apps that have been created around the service.

Due to the company’s slow uptake on developing new features, many third party companies have popped up offering extra features to Twitter users. Many users resultantly access Twitter through other sources.

This update is a play to get users coming directly to Twitter.com, and it will help Twitter in the game of catch up its been playing over the past few months. Currently, 78% of Twitter users come directly through Twitter.com. The second most popular avenue is Twitter’s own app (12%), which only launched a few months ago.

If viewers come directly to Twitter, the company can implement all sorts of advertising in and around organic tweets. According to AdAge, Twitter’s COO Dick Costolo plans to start showing the new site to advertisers as soon as possible. As he says:

“The benefit of the new interface is there’s much more opportunity for
users to explore. It’s an opportunity for users to engage
with the tweet and to see the ways others have engaged with the tweet.”

Users can now see who is retweeting them and track messages more easily. That’s a boon for marketers. As Costolo says:

“We had the ‘Toy Story ‘campaign and back with the old site, they had a
link in the tweet that took you to a trailer video for the movie that
was on another site. Now, the trailer is right
there and so are all the retweets and all the people who have commented
on the trailer.”

Part of the reason Twitter has been slow to add new features had to due with its overwhelming growth. Keeping up with user demand has occupied a lot of their time. But for the company to continue to grow, they’ll need to increase user engagement, and that most likely means making  the standalone product better than others that have grown up around it.

That’s the reason that third party developers have a right to be nervous — no matter how many times Twitter claims it isn’t out to destroy them. As Williams tried to do today:

“We made it clear to developers that it’s great for everyone if we make
it as good as possible, because that will create more successful
Twitter users.”

The digital advertising rebound may soon have an ace up its sleeve. Congress is on track to retract its ban on internet gambling. The taxes from such a move could send the government as much as $42 billion over the next 10 years. Digital publishers stand to gain a lot from those winnings as well.

Mainly the new legislation would reverse a ban on internet gambling that was passed in 2006, requiring credit card
companies to determine whether a customer’s transaction is with an
online gambling company. If it is, they are expected to reject it. The ban clearly hasn’t worked. For starters, the
regulations implementing the ban only took effect on June 1.

Online gambling is a huge industry. And one that runs deep with American internet users. But most of those companies are based offshore. This law would allow more companies to exist in the U.S. And tax them appropriately.

The new bill would apply mainly to online poker, which is rapidly growing, but other forms of
gambling — like bingo — would also be affected.

According to The New York Times:

“The vote suggests a willingness by Congress to look for unconventional
ways of plugging holes in the budget and comes as struggling states
have also been looking to extract revenue from the gambling industry,
which took a hit as consumers cut back on travel and entertainment
during the recession but continues to reap billions of dollars in annual profits.”

Opening the door to more online gambling businesses is likely to bring in revenue for many different entities. Gaming publishing group iGaming Business, recently released a
report estimating that the online casino industry is expected to
increase by around 80% by 2014. Rachel Church-Sanders, author of the
report, tells Betatastic (“your guide to online gambling”):

“Each online casino operator is looking
to participate in a sector becoming more socially acceptable,
benefiting from a liberalised regulatory structure in some markets, and
enjoying very substantial growth across many key demographics including
those that have been hard to reach through other types of gaming or
betting such as women.”

Of course, gaming sites already advertise online. But that market will grow as restrictions on the actual business happening on those sites lift.

Already, online advertising has benefitted from its low price point. Advertisers looking to save money have shifted their budgets into digital — which is still growing — as traditional ad markets have shriiveled.

Last week, AOL opened its display product to political ads, in response to looser restraints on those ads. And advertisers are also likely to receive more gambling ads if this bill goes into effect.

According to eMarketer, online advertising spend is on track to handle rapid growth, and hit $61.8 billion worldwide this year. The spend grew 2% to $55.2 billion in 2009. By 2014, it is expected to hit $96.8
billion worldwide, growing at an 11.9% annuallly. 

Allowing more advertising content online will help grow that pie. And if online gaming makes its way past Congress, all sorts of other entities are set to profit. Tax collectors and online publishers included.

Display advertising may be the red headed stepchild of digital advertising, but brands and marketers are bullish that it is poised to grow in the next few years.

According to the panelists at Fixing Advertising in New York this week, there’s a simple reason for that: display has failed to make much progress from the basic premises of traditional advertising.

The panelists were all posed a now familiar question: where are we in the evolution of online marketing?

According to John Aizen, COO of Dapper:

“We’ve
barely innovated in 16 years. The web has changed a lot, but display is
certainly in its earliest phases.”

Other speakers estimated that display has made some progress recently, even though there is a lot of room left for growth. As Ramsey McGrory,
Yahoo’s VP of advertising platforms, put it: “we’re in the gangly teenager phase.”

But Aizen says that display advertising isn’t pulling its weight:

“At the
end of the day, online advertising isn’t really part of our web
experience. At best we ignore it. From my perspective, fixing
advertising really means changing that.”

Display advertising certainly stands to improve the consumer experience. 16 years into the evolution of the internet, the advertising industry is struggling to recover from the recession and find its role going forward. And the majority of display advertising has not drastically improved on traditional media ads. Except for the fact that many large brands still prefer the former. Says Michael
Rubenstein, president of AppNexus:

“We thought we were going to fix advertising, we ruined it.”

However, digital has the benefit of being more easily tracked and providing brands with more information on their customers than ever before. The panelists agreed that data sharing will be a growth industry for online advertising in the near future. Says
Emily Scott, Director of Online Marketing at Kayak:

“At the end of the day, I want to be able to learn from a campaign, whether it’s successful or not.”

Brands and marketers are forever thirsting for data. According to Rubenstein:

“Once you start exposing a little bit of the data, it becomes a self-fulfilling prophecy. We’re never going to be at a place where everyone can fully understand all the data, but it helps.”

One thing that will likely be on the horizon for display advertising is consolidation. The complaint forever heard from brands is that display lacks scale. Whereas one large brand dominates (and organizes) most search ads online, the display market is littered with companies offering different optimization strategies and inventory. That is not likely to change. But perhaps not in the near future. Says Rubenstein:

“I think it’s going to get much more complicated before it gets less complicated.”

Looking at current earnings, the mobile ad market is wildly overvalued right now. Only $416 million was spent on mobile advertising in 2009. Meanwhile, Google recently paid $750 million for AdMob and Apple shelled out another $250 million for Quattro Wireless. What gives?

Well, Google and Apple made those investments based on how much they think the mobile market will be worth in the near future. But a lot of people think that mobile will never reach the potential that mobile optimists are predicting.

One of those people is Gilt Groupe’s chairman Kevin Ryan. Speaking at an event in New York this week, Ryan expressed skepticism that brands — and consumers — will flock to mobile advertising. The comments are interesting because his own company, which sells luxury items at steep discounts, is part of a mobile segment that is poised for massive mobile growth — digital commerce.

Ryan was the CEO of ad platform DoubleClick until 2005. He founded Gilt Groupe in 2007, and the company has gone on to become one of the fastest growing companies on the web, selling luxury items at discounts for a limited time online.  

At a conference held by financial-services firm Jefferies, Ryan had no kind words for mobile advertising. According to The Wall Street Journal, he said:

“Even today … there is almost no mobile advertising.”

That assessment holds water when you compare the mobile ad market to the rest of digital advertising pool. Mobile ads brought in only $416 million in 2009, compared with $22.4 billion in
overall online advertising, according to
eMarketer.

But with the advent of the iPhone and other smartphones, many brands and publishers are convinced that mobile advertising is poised to take off. Ryan disagrees: “The screen is just too small.”

So far, he’s right. Mobile marketers have been like a broken record for years, saying that each coming January will begin “The Year of Mobile.” And yet, it never comes to fruition. Even with the runaway success of the iPhone, mobile ads have not yet proven themselves.

For instance, eMarketer predicted that the mobile ad spend would reach $760 million last year. The actual number was over $300 million short of that bar. But there are technological shifts that point to a change coming soon. 

Ryan admitted that the iPad is the first mobile device he’s seen that could deliver compelling advertising to consumers. And mobile ad companies large and small are seeing a boost from the recent launch of Apple’s iAd platform. Michael Chang, CEO of mobile ad platform Greystripe tells BNet:

“We saw demand go up 100% [quarter over quarter] after the iAd announcement.”

Increased ad prices, of course, are not the same thing as increased interaction with those ads. But Greystripe says their ads get better click-through rates than online display ads, with conversions higher than 1%.

There’s also plenty of reason to believe that as consumers start using smartphones and mobile devices to access the internet, marketing and advertising will shift with them. But Ryan says “there’s no inherent reason why advertising has to drive everything.”

And his own company is proof of another trend in mobile. Consumers are increasingly going to mobile to make purchases. Gilt Groupe itself receives about 10% of its purchases from mobile devices.

According to a study out this week from research Coda Research
Consultancy, it’s mobile commerce, not mobile advertising, that is set to take off this year.

Coda forecasts that mobile ad spending will increase 37% annually in the next five years to hit $2.2 billion
by 2015. That’s pretty bullish, but the company is more impressed by mobile commerce, expecting that sector to grow at a 65% rate each year until 2015, when it will reach $24 billion, or 7.7% of all digital commerce revenue.

Of course, once consumers are in mobile, brands will follow. They may not arrive with banner ads in hand, but there will certainly be money spent on reaching consumers in the mobile marketplace.

Privacy issues have been the bane of behavioral targeters’ existence for awhile now. But how much impact have privacy advocates had on the industry? According to a new study from the Ponemon Institute, marketers now use behavioral targeting 75% less than they would like.

That should be enough to strike fear in the hearts of behavioral targeters. As if there weren’t already enough reason to be bearish on the future of BT.

Ponemon surveyed 90 companies and organizations for its study. Most have cut back their behavioral advertising. That is despite the fact that they estimate tracking users online leads to 50% more efficient ads — that generate more sales than conventional display purchases.

Larry
Ponemon, chairman of the privacy and security research group, tells The New York Times that marketers are avoiding BT ads because the sector is subject to an uncertain legal and regulatory environment:

“Privacy fears are definitely having an economic impact.”

Michael S. Zaneis, vice president for
public policy at the Interactive Advertising Bureau, thinks that can change:

“If you can diminish the privacy concerns, money will flow into online
behavioral advertising. It would be a
lift for the entire industry.”

But that’s easier said than done. Self-regulation efforts have stepped up, with new icons meant to inform consumers of where and how their personal information is being used by marketers. Meanwhile, the IAB has been working overtime to inform consumers about how BT ads work. And just yesterday I wrote about a new tool that lets consumers manage the BT ads they see online.

But unless consumers actually start paying attention, none of that matters. And it is incredibly hard for consumers to keep track of everything going on with their data online. Here’s how The Times puts it:

“The problem is what economists call “information asymmetry.” In simple
terms, on one side of the computer screen is grandma searching for
arthritis treatments or a birthday gift for a granddaughter, and on the
other side of the screen is a black-belt quant working for a
data-mining start-up. The consumer can’t be expected to understand —
and follow — all that happens with his or her data, and the
clickstreams can closely approximate personally identifiable
information.”

There have more than a few reasons to think that behavioral targeting won’t end up living up to its potential. Regulation is one way it could die — Congress could pass guidelines that make BT completely inefficient. Meanwhile, the growing tendency of consumers to openly share information online could make it obsolete as well. 

But the uphill battle of keeping the public informed about BT could be another. If consumers don’t understand what’s happening with their information — and maketers fear that will hinder their efforts to reach them — brands will continue to shy away from the practice.

Image: Dan Diemer