Following the Money Into BT
Behavioral Insider: What share of overall online ad spending will be BT?
Wolk: Based on our discussions with a lot of the industry players, we were more optimistic [than some estimates] about how fast the market could grow. We thought it could reach about 12 percent of total online ad spend over the next five years, up from about 8 percent of ad spend today.
BI: You also argue that BT is a real game changer, that it affects various places in the ad value chain.
Wolk: That's the value add we could bring as analysts from the financial community. We took a look at the impact BT might have on content sites, commerce sites, social networking sites and niche content sites as well as the major players in the ad market today. From a content perspective, we thought that this should really help publishers monetize more of their inventory.
We thought that competition among agencies to help publishers monetize could also help sites with high-quality audiences start to command more of a premium. They should start to see CPMs rise. We also noted as evidence of this, the recent Google deal with MySpace and other transaction that are occurring for sites that have a lot of personal information that could be very instrumental to BT. We could see publishers benefit from more aggressive revenue sharing deals. Not only would the prices go up, but their revenue cut with ad networks might improve. They should have the better networks, and the better sites with higher quality traffic should have more negotiating power than they had before.
BI: In this sense we are moving into an economy where user data really is at a premium and anyone who has it will exact a higher price at various points in the value chain.
Wolk: Exactly. We also thought the advent of BT could really change the nature of search competition. It might set a new benchmark in monetization. Our research shows Google probably generates two times the revenue per query of the Yahoo Overture network because of its better targeting technology. I think with the introduction of BT it opens the landscape to more competition among multiple advertising networks to set the new bar for monetization. And we think that because of that, Google is significantly working to generate more behavioral data to improve their targeting. And I think that is one of the main reasons you see Google sign so many strategic partnerships: toolbar deals with Dell or Adobe or a deal with Intuit, with MySpace. We think they are looking to generate significant amounts of behavioral data.
BI: Do you think that BT is going to be a catalyst for ad spending growth or simply invite a rearranging of the budgets? Does it grow the pie or just re-allocate it?
Wolk: We believe this could spur greater spending. And the reason is that you're able to really show demonstrable return to the advertiser that could be more compelling. Right now, while ad penetration in the U.S. online is about 5 percent to 6 percent, it is really skewed to search still and certain industries. I think with BT we might be able to get more spending by other industries and others who are still in the trial stage.
BI: What sort of partnerships and consolidation do you see occurring in BT space, perhaps to make the approach more scalable by consolidating or making compatible the existing BT networks?
Wolk: I think initially you will see more partnerships among the major sites with high quality data and the ad networks that want to do the targeting. So you have seen eBay sign deals with Google and yahoo. You've seen Google sign a deal with MySpace. I wouldn't be surprised to see other major Internet sites like classmates and Amazon think about how best to use their data, and do more than they are already doing.
BI: What is your read on the state of ad agencies themselves in taking this up?
Wolk: I think much like branded advertising online, it is in its early stages--but we are seeing very strong momentum,.
BI: Are there any key challenges to growth?
Wolk: I think the key challenge is concern over privacy, making sure the data you use and the way you use it is beneficial to the consumer, so the consumer feels good about what the advertiser is doing.