David And Googliath

by , Feb 19, 2008, 7:45 AM
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You may never have heard the name Scott Switzer but he may be David to Google's Goliath. His eight-month-old company is the only open source ad server facilitator of scale. This week he will rebrand it from the OpenAds name it has been operating under to OpenX, as part of an expansion intended to give clients more interactive heft. Switzer says his "five-year laundry list" includes initiatives to help publishers grab a bigger portion of text, video and mobile online advertising dollars, partly by aggregating them into like-minded Web communities.

OpenX believes it can help "long tail" niche publishers more than double their 20% take of advertising spending over the next five years, and immediately quadruple the revenues they generate on their own simply by rotating through different ad networks.

It also can become an important helpmate to small and mid-sized publishers seeking more customized search and mobile advertising in the event of a protracted recession, says Switzer, the company's founder and chief technology officer. The global mobile advertising market is expected to top $11 billion by 2011, outpacing the rate of traditional online advertising growth as users become more engaged, according to Lehman Brothers Internet analyst Douglas Anmuth.

The London-based company was jumpstarted by an initial $5 million venture capital investment led by Index Ventures last June and a more recent $15.5 million round of funding led by Accel Partners. OpenX was born into a virtual explosion of ad networks and ad exchanges, and the move by portals and social networking sites to open their platforms to third-party developers in search of an innovative competitive edge.

OpenX's open source applications (free to download from its Web site) allow publishers freedom to control their ads and interface with multiple ad networks. OpenX makes its revenues from publisher consulting fees and a percent of advertiser and ad networks dollars spent. As a facilitator, OpenX generally receives singe to low double digit percentage commissions, compared to the booming number of ad networks that command 20% to 80% of the advertising buys.

Switzer's timing couldn't seem better. Just consider some of the developments that transpired in the last week alone:

* Comcast said it would contribute up to $70 million to join other cable operators developing an industry ad platform dubbed Project Canoe, which would enable advertisers to buy targeted national spot cable ads that leverage the addressability of their digital set-top data streams.

* The New York Times Co., Hearst, Gannett and Tribune launched QuadrantOne, a one-stop advertising portal that can place ads in the online editions of 120 local newspaper Web sites in 27 markets reaching an estimated 50 million monthly unique visitors. The buys, which exclude flagship newspaper sites such as The New York Times and USA Today, can target users by demographics, content type and online behavior.

* InterActiveCorp.'s CitySearch will share its local content and pay-per-performance ad network with AOL.

* News Corp. is preparing to launch an online network to sell advertising across all News and Fox media properties including MySpace.

Many of the new ad networks focus on vertical markets such as Time Warner's new MomLogic and IGA's in-video game ad network.

Institutions from Forbes.com to entrepreneurs like John Battelle's Federated Media now offer 60/40 splits to bloggers seeking ad support.

Players as diverse as Facebook, Martha Stewart and ZoomInfo also have entered the fray.

These ad networks are an attempt to aggregate the Web's fragmented traffic, and connect publishers and advertisers seeking to reach the same target consumers. In the process, they gather and mine personal user data in the name of marketing - the privacy limits for which are about to be tested.

The glut of independent ad networks, likely to thin, is targeting the big players: Google's AdSense and DoubleClick, Yahoo's Blue Lithium, Microsoft's aQuantive, and WPP's 24/7 Real Media.

The scramble for ad dollars ultimately may result in development of improved standardized metrics, predicts OpenX's Switzer.

"The way online advertising is bought and sold will migrate from immersions, clicks and conversions to better ways to sell based on levels of engagement and reach," he says.

For now, he says OpenX's turnkey ad management is distinguished from the pack by its open sources user-friendly software, tools and support that is a work in progress.

"The OpenX Ad Server is an application like an online bank account. Publishers use it for arguably the most important part of their job - making revenue," he said. The collective force of OpenX's 30,000 smaller niche publishers (with more than 200 billion monthly impressions) supported by the right advertisers and ad networks, can make a dent in Google's stranglehold on the online advertising business.

Envisions Switzer, "We want OpenX to become the one of three calls an agency or advertiser makes when it they want to spend money."

Google's market share declined slightly on slower fourth quarter domestic online ad sales growth for the first time in two years. It is under siege by big and small players alike, especially Microsoft, which is preparing to launch next-generation ad concepts driven by its recent acquisition of aQuantive and its proposed takeover of Yahoo.

The always innovative Google recently began testing visual ads in some of its search results. Still, Google's Achilles' heel may be the one-third of its revenue that is out of its control, coming from advertising delivered on other web sites, according to Sean Ammirati on ReadWrite Web blog.

OpenX's most potent competitive weapon in a Google dominated online ad world is "the collaborative growth" of its open source structure.

"The more open we can be, the faster we can grow, and there are so many levels of being open that we're all just beginning to explore," he boasts.

Switzer says it is an added plus that OpenX is a work in progress that responds to and is continually shaped ideas from its viral client base.

"We are building OpenX - the site and the product - for the community. We are very dependent on feedback, both good and bad. Developing in a vacuum will result in a product that nobody wants," he says.

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