‘Pipe’ Dreams

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jeremyhlavacekeditedThe Sell-Sider” is a column written by the sell side of the digital media community.

Today's column is written by Jeremy Hlavacek, vice president for programmatic at The Weather Company.

It looks like a good year to be a VC or investment banker.

IPOs continue rolling out, and there is also a lot of healthy M&A activity in the tech and media space. I’m no financier, but I see one trend that stands out: The market loves fresh new scale, and nothing else matters. This trend is best illustrated by two recent deals: WhatsApp and the Washington Post.

Facebook bought WhatsApp for $19 billion, while WaPo went to Jeff Bezos for $250 million. These transactions valued WhatsApp at nearly 80 times the Washington Post. WhatsApp is a mobile messaging platform that was invented five years ago and currently has no revenue. The Washington Post, a renowned content and journalism company founded in 1877, generated $581.7 million in overall revenue in 2012.

What’s going on here, and what does it mean for publishers?

Right now the market is obsessed with reaching audiences at scale as cheaply as possible with little regard for context – this should sound familiar to the programmatic crowd. If you can stake claim to a large audience you are seen as a “pipe” to valuable monthly average users in a database somewhere.

If you own enough pipes, you basically own the users and can monetize them in one form or another by either serving ads through the pipes, or extracting data from the database and selling that to advertisers.

But is that all there is to it? Aggregate huge audiences and sell them?

If that’s the case, let me describe another network that should be very appealing.

  • This piece of technology reaches more than 99% of households and businesses in the United States, with similar global penetration.
  • Users engage with it multiple times a day in both their personal and professional lives
  • Users have no problem sharing valuable data and information via this technology about everything they do in their personal and professional lives.
  • All content in this network is completely user-generated, so the owner does not need to take on the high cost of producing quality content.
  • The technology has very strong “network effects” and, at this point, is mature enough that operation is inexpensive so the owner does not need to spend money acquiring new users
  • This network is always on. Everyone on the network has the ability to reach any other user at any time.
  • Today there is not a single ad served on this network, so it would be completely untapped territory for advertisers and marketers. No clutter, no wear out — a chance to speak straight to consumers. And imagine the new revenue for the owner of this network. Billions of users who have never been served an ad via this channel. It would be a bonanza!

Sounds great, right? Any guesses about the name of the network?

Answer: the landline telephone network.

All you need is some contextual voice technology (I’m sure the NSA could help) and you would instantly know what billions of people are talking about in real time. From there, you could insert messages from advertisers to delight consumers and help them solve problems.

Calling home to tell your family you’re going to be late for dinner? Why not insert an ad from Pizza Hut to get some food delivered straight to your house?

Boss says he needs to see you in his office in five minutes? Perhaps a quick message from a job search engine reminding you to start that new job search would make sense. Or maybe your local BMW dealer would add a quick message since the boss’s voice tone skewed positive, and the data shows you’re likely to get a big promotion.

The point here is that smart advertisers don’t just think about scale. They know there is a right time and place to speak to customers. They think about customer experiences and how that matches up with their brand. Content and context are important. Without that the world is simply a series of transactions where brands, consumers, agencies and publisher content don’t matter.

But anyone who has spent time working in marketing would reject that vision and remind us that emotional connections drive consumers to make purchases. That’s what drives great brand businesses.

So what does that mean for the programmatic world? Keep exchange integrity at the highest levels possible. Push transparency hard. Respect privacy. Cut down on fraud. Use technology and data to create amazing consumer experiences.

The ultimate goal isn’t just acquiring pipes and databases, but connecting brands and consumers so that both benefit.

Follow Jeremy Hlavacek (@jhlava) and AdExchanger (@adexchanger) on Twitter.

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