Display 2.0: Dead or Alive ?

In earlier posts I wrote about how the next wave of innovation in On-Line Advertising will be around improving ad effectiveness, what I call, the Display 3.0 wave. In response to that post(http://ashugarg.spaces.live.com/blog/cns!F19091A9C9230F9C!178.entry), I got several questions/comments about the Display 2.0 wave (largely focused on improving market effectiveness) – these questions focused on whether I was implying that the Display 2.0 wave was over and how I would reconcile my comments against the fact that so many large established media companies (e.g. Forbes) are setting up ad networks and the recent wave of yield optimization companies like Rubicon Projects.

Top line, while I think that the Display 2.0 wave still has legs, the easy pickings are gone and the opportunities to build new venture backed start-ups are limited going forward. Let me address both questions in some detail:

Traditional media companies are setting up on-line ad networks: In recent months, Conde Nast, Martha Stewart, Forbes and several other traditional media companies are setting up ad networks to aggregate and re-sell inventory from blogs and niche sites. In the short term, this is probably a viable strategy. The traditional media sites have advertiser relationships, large expensive sales forces and still enjoy a brand premium. They can leverage these assets to capture arbitrage opportunities. Over time, these opportunities will disappear as advertisers become more comfortable with buying audiences via larger more automated networks, and realize that they are paying a brand premium to Forbes (as an example) with minimal value add. The question is how long can these traditional media houses ride this gravy train ? Despite being a passionate advocate of automated media buying, the cynic in me thinks that this train has a long way to go. After all, which media buyer would be fired for buying Forbes, even if what they are really buying is “400 financial blogs” over which Forbes exerts no editorial control ? The IT folks will remember the old adage, “no one got fired for buying IBM”
What does the recent wave of Yield Optimization Players like Rubicon Projects and Pubmatic mean for the Display 3.0 thesis ? Both companies provide publishers with free yield management and optimization services and thereby improve market efficiency, ostensibly a Display 2.0 idea. But the big idea here is different – they also collect all the click stream data (for all users across their publisher network) and therefore best positioned to improve targeting and therefore advertising effectiveness. In fact, given that they give away the yield management capabilities in return for unfettered use of the data, one could argue that is actually their core business. Therefore, IMHO, these are both really the first generation of Display 3.0 companies. In fact, the biggest validation for this thesis (and for the market opportunity for both companies) is that Google recently launched its free Ad Manager (see this article for more details http://seekingalpha.com/article/68652-google-ad-manager-it-s-bigger-than-it-looks) which provides the same service in return for similar data and for “first chair”. Off-course, that does raise the question about having to compete with Google ? But then, would publishers want to provide Google with access to all their data ?
Bottom line, Display 2.0 is not dead – in fact, ad exchanges like Right Media are just getting off the ground. Its just that if you are looking to start something new, you are probably better off jumping on the Display 3.0 bandwagon! What do you think ?

About Ashu

General Partner with Foundation Capital. Areas of interest range from digital media, mobile and internet infrastructure to all things related to India. Currently on the board of TreeHouse, Aspire, Conviva, Agni and TubeMogul.
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