My old friend Seth Goldstein just announced his new company, ROOT Markets. If first met Seth in Silicon Alley back in 96. He was running an interactive agency called SiteSpecific. While other folks were building web pages he was doing advertising campaigns. He was the cover story for the first issue of Silicon Alley Reporter in October of 1996.
Seth’s a brilliant guy, no doubt. He has often explained my various businesses successes and failures to me in very complex terms. I would respond “oh… umm… I was just trying to sell ads.”
Entrepreneurs are funny in that they can be incredibly simplistic or incredibly complex, Seth being the later and me being the former.
Seth’s company, as best I can figure it out, is going to create a marketplace (he calls it an exchange) between useres, publishers, and marketers (aka advertisers). The idea would be to create an exchange for leads based on what you do on the Internet (which you would track and give up to advertisers–why? I’m not sure).
As Fred would say I’ve seen this movie before. My left-coast pal Matt Coffin just sold his company Lowermybill.com to Expedia for $400M+. His business was to generate targeted leads.
Now, Matt collected leads and sold them to folks, he didn’t create a marketplace (at least not to the best of my knowledge). Matt’s in the procurement business, seems like Seth wants to create the trading floor for folks like Matt–how meta of him.
AttentionTrust.org, a non-profit that Seth started, lets you record your click-stream (a fancy word for what websites you visit). You can then expose that click-stream to his company’s program “Root Vaults.” My assumption is that he will then sell people’s data to advertisers provided users allow that. You could with AttentionTrust give your attention data to a bunch of different folks. Perhaps you could give it to Amazon and have them offer you 20 products at a 5% discount in exchange for giving them some insights into your behavior.
So, my guess is that Seth could enable daily readers of Engadget, Slashdot, and Gizmodo to give advertisers their page history and get targeted offers. Hmmm… why don’t we just do this ourselves? Why do we need Root? Oh wait, Root is doing this with users and making closing the loop for the two parties–which is what we do for a living. Hmmmm…
Ironically, another couple of companies including Tacoda are doing this same thing, but through the publishers. With Tacoda Engadget or Autoblog could sell our users to another publisher in exchange for 20% of the fee that publishers received for those ads. So, if you visited Autoblog and then went to the New York Times sports section Tacoda’s software would know you had been to Autoblog and serve you up a car ad for a higher CPM then the normal sports ad. We’re planning on testing Tacoda, but I’m not sold on it 100%.
Looking at these two models is interesting. In one the users in charge, in the other the publisher.
Now, where Seth is “optimistic” (my way of saying probably wrong) is how he things publisher will embrace the idea of moving to a cost per lead model.
“Publishers will be happy to hedge out their inventory, limit earnings volatility, and focus entirely on creating value-added programming; rather than spending their time speculating whether CPMs are going up or down.”
Perhaps the low-end publishers will think this way, but those of us with quality products are not moving to this model unless is crushes the CPM model.
Google is busting their butts trying to make the CPC model beat the CPM model and it’s not working for niche publishers like us. We can simply make more money–at least right now–selling direct ads for $6 to $15 CPMs rather than making a .50 to $4 eCPM (effective CPM) based on the cost per click model Google has been so much success with.
In fact, Google has started selling CPM based ads because they know the CPC model can only carry you so far. Seth is pulling out all the stops and going for the leads.
What I really hate about the CPC and CPL models is that when you embrace them you’re saying that there is no value to the impression. That looking at an advertiser is worth nothing. I’ll never except that as a publisher. No one clicks on a billboard or magazine ad and people pay a lot of money for those.
By that logic CPM advertising will be the only way for publishers to get full value for their inventory. These days advertisers look at CPM advertising and typically blend the costs on both a CPA (cost per action) and CPM basis.
For example, if you bought 1M impressions on Engadget for a $10 CPM for $10,000 you might say to yourself, ok we sold 10 laptops for a profit of $500 each. That $5,000 paid for half the buy. The other $5,000 paid for the other 999,990 impressions with the other 500,000 consumers.
In the model CPC and the CPL model the publisher typically gets screwed for the marketing value. That’s why publishers put this stuff on the 2nd tier inventory (i.e. below the fold, which means lower than 700 pixel on the page). Folks like Google tell publishers to not worry about the CPM value because if they get enough clicks it will blend out to the came as the CPM rate. However, five years have tought everyone that CPC trails CPM by 50%. How far will CPL trail CPM? 25%, 75%? It wont be greater I can tell you that.
Also, only certain advertisers care about leads. No everyone is Amazon, a mortgage broker, or a car dealer looking to pay $10 to $50 for a lead. A beer company with a new brew or a studio promoting a movie isn’t looking to close a transaction on the spot. Nope, they just want you think about their beer or movie the next time you’re at the grocery store or multiplex.
I know advertisers will want to be involved in this kind of marketplace because it takes away a ton of their risk. Us publishers, well, we’re gonna be the hard nut for Seth and his team to crack.
You see, us publishers are in the business of selling our reader’s attention. If the users sell their attention to the advertisers direct with the help of ROOT we lose revenue and we can’t provide free content (which is what users really want).
Call me paranoid, but if a service like this were to work and advertisers went to Root Markets instead of to the advertising department at Weblogs, Inc. to get their needs filled (i.e. leads) we would have a big problem. Root Markets and their users sell their data direct to the marketer and where does that leave the publisher?
After a couple of years the publishers will have educated all their users to sell their attention data and where will that leave publishers? There simple wont be any more leads to get if everyone is signed up with Root/AttentionTrust. If this happen in a big way publishers would have to move back to charging for content again, and users don’t want that.
Also, if Root Markets was able to sell users attention data direct to markets so they could market direct to customers what happens to Google Adsense? Will markets want to pay on a CPC basis or will they want to look at my behavior on the web and buy only the folks who have visited three of these 20 sites in the past week? The later sounds better to me.
Taking on Google and Publishers might not be what Seth says in his description of the service, but that’s what I’m hearing.
This is certainly gonna be interesting–which Seth has always been.
- Fred has some thoughts as well: http://avc.blogs.com/a_vc/2005/11/a
- Seth answers in the comments
- Matt Coffin of LowerMyBills answers in the comments
- More feedback: http://www.participo.com/archives/business/calacanis_weigh.php