Finding Other Members

The central idea behind these updates is that Google wants to make it easier for users on a site to connect and get to know each other. The new "Interests" section on Friend Connect is the hub for most of these new features. This is a poll with very specific questions that will appear when they join the site.

In Google's example, a site owner who runs a site about guitars could ask members what kind of guitar they play, what their favorite amplifier is, or if they consider themselves experts or beginners. All the data that users enter here becomes a part of their public profiles on GFC-enabled sites. This allows users to find other members with similar interests and a new private messaging feature allows them to get in touch with each other. This also gives site owners a better overview of what the interests of their visitors are.

Newsletters and Recommendations

This new poll is the central new feature as other new tools like the newsletters and personalized recommendations are linked to the answers. Site owners, for example, can now send opt-in newsletters to a very specific group of their members - advanced Fender Stratocaster-playing Beatles fans, for example.

The answers in this poll also influence the kind of content recommendations that a user sees in the new Friend Connect content recommendation gadget. Even users who aren't members of the site will profit from this as the gadget will display recommendations based on the aggregate data Google has collected from all of the site's members.

In addition to all of these new tools, site owners can also use the new GFC export tools and APIs to link all of this data to third-party tools.

Link to AdSense

Site owners can now choose to link some of the ads on their sites directly to answers that users have made public in the 'Interests' section. Site owners can link existing ads on their sites to these or create new ones right from the AdSense section of their Friend Connect accounts. This allows Google to display more personally relevant ads that match the interests of a site's users.

The new Twitter links, however, are a whole new story. If an Amazon Associates member takes the time to re-write the text into their own words, there's virtually no way to know by looking at the post that the Twitter update is actually an ad.

Is Amazon Spamming Twitter?

In the past, several legitimate companies have diluted the Twitter stream with promotions and contests encouraging Twitter users to "tweet to win" so to speak, by pasting in some sort of marketing message into the "What are you doing?" box or by appending a promotional hashtag to their everyday messages. But unlike these company-run Twitter promotions, there's not a hashtag to use or any specific wording that has to be tweeted in order to participate in the Amazon Affiliate program. All anyone has to do is tweet links along with the message of their choosing.

Because Amazon's marketplace is extensive in terms of the products it sells, there's a wide variety of things which can be promoted. No matter what a Twitterer's particular interest is: music, politics, technology, etc., there's bound to be hundreds of things that could be mentioned in their Twitter stream without the posts appearing to be an ad. In fact, there's a good possibility that they would have been talking about these products anyway throughout the course of the day...they just couldn't have made any money off of them until now.

Hidden Advertisements

The problem with this sort of "hidden" advertising, though, is exactly that: it's hidden. This is the internet's version of "product placement" - subtle advertising in plain sight yet never clearly identified as such. Was your favorite TV star using a Macbook? Was he drinking a Coke? Already commonplace in Hollywood, these almost subliminal advertising messages permeate our consciousness every time we turn on the TV. Now that same sort of hidden ad will soon show up in the Twitter streams of your favorite tweeters.

Soon they'll start promoting a great book they just read, a DVD they liked, or one of a million other things pulled out of Amazon's vast inventory. None of it will sound out of place given the types of informal conversations that take place on Twitter every day. You won't even know that they're advertising to you until you click through on the link and find yourself on an Amazon.com webpage - and even then, you may not be sure. Was that a referral or were they genuinely just linking to the Amazon website to be helpful?

Will the FTC Step In?

Another question this raises, at least here in the U.S., is whether or not the FTC will get involved. Having recently taken steps to make sure that bloggers were properly disclosing freebies or payments received by companies whose products were being reviewed on their sites, one has to wonder if they'll now be tempted to monitor the undisclosed advertising that's about to explode on Twitter.

Amazon could have avoided the potential threat of government involvement (not to mention the accusations that they're "spamming Twitter") by generating their links using their own proprietary URL-shortening system, something like amzn.com or amz.com for example. That would clearly identify the tweets' purpose. But instead, they opted to make their links with the URL shortener bit.ly, the one that Twitter itself uses by default. This makes the Amazon links indistinguishable at a glance from any other shortened link posted to Twitter. There's no way to tell if a tweet is an ad unless the Twitter user left Amazon's auto-generated text in place. Of course, no one is going to use that text except the laziest of Twitter spammers - people you're probably already avoiding.

Tell Amazon What You Think with #AMZNSOT

Today, many Twitter users are coming out against this new type of Twitter-fueled advertising, registering their complaints via tweets marked with the #AMZNSOT hashtag, the official tag used to give Amazon feedback about the system. These users are already branding this new effort "spam," saying things like: "Amazon now gives you cash for spamming on Twitter? Oh, swell," as Twitter user TwitBin says. "Does this just mean more Twitter spam as people try to make money?" asks NickHerbert. But there are just as many Twitter users saying nice things about the new system too, calling it "cool," "awesome," "sweet," and even claiming it "rocks."

You can give Amazon your two cents as well by updating Twitter with your thoughts and including the #AMZNSOT hashtag along with your message.

Whether you think the new Amazon Twitter integration is good or bad, there's no doubt that it will be a major game changer for Twitter. As it blurs the lines between conversation and ads, people seem to think that Amazon has either created something of genius or has ruined Twitter as we know it. Few seem to be undecided when it comes to their feelings about this issue. The question is now: which side will end up being in the majority?

From an article on AdAge, which reported on Brand in Hand's news in detail, the reason that the women were not engaging with the mobile advertisements came down to how they actually used their phones. The research showed that women, "especially so-called super-moms, are task-oriented and tend to use their smartphones to help them get things done."

In other words, these busy iPhone users didn't have time to goof off by clicking (or rather, tapping) through on a mobile ad. Ads were seen only as distractions that would take them away from the particular task at hand.

For advertisers trying to market to this particular demographic, the new findings will have an impact on what type of mobile campaigns will be run in the future. And given that only 18% of women age 18-49 have a smartphone today, according to Nielsen, smartphone advertisements just won't deliver the numbers that advertisers need. At least for now.

A Better Alternative to Mobile Ads?

Although the AdAge article didn't go into any detail about how marketers could engage smartphone-owning women in different ways, we think that there's at least one company that may have figured it out. Instead of offering distracting mobile banner ads that get in the way of the task that needs to be done, food and beverage giant Kraft introduced their own iPhone app instead.

This branded effort, dubbed "iFood Assistant" (iTunes link), is a recipe app that helps users plan meals. This fits in perfectly with how Brand in Hand claim women use their smartphones - they launch apps designed for a particular purpose. Yet this time, while doing so, the women (and men, too, we suppose) are also engaging with the brand itself because the recipes featured in the iFood Assistant app include Kraft food products of course.

This app is so successful that Kraft is even able to successfully charge for it, something that rarely works for branded apps. But Kraft's app sells - and sells well - priced at 99 cents in the iTunes App Store. They even hit their 3-year download goal in a matter of weeks, said Ed Kaczmarek, Kraft Foods director of innovation. 

While at the moment, Kraft's iPhone application appears to be the exception and not the rule when it comes to creative marketing efforts, it's a great example of how mobile marketing could and perhaps should be done, especially if you want to engage busy, task-oriented women.

Currently, as far as we can tell, the only market where Google already offers these ads is Japan, where logos for companies like 7-Eleven and McDonald's appear on the maps. Kit Eaton from Fast Company wonders if the new ads will be contextual and generated based on user input. Judging from the ads that appear on the maps in Japan, these logos will appear on the map, no matter what the user is looking for. At least on the maps in Japan, these logos are very small and don't get in the user's way - though they definitely add more clutter.

Microsoft's Bing Maps already offers a slightly more sophisticated advertising package where certain sponsored listings are highlighted with a business' logo when a user performs a relevant search.

Just yesterday, Google also launched a new layout for the Place Pages on Google Maps that shows details about a business such as opening hours, images, and reviews.

According to new figures from Nielsen, the amount of time spent surfing social networking and blogging sites had tripled since last year, suggesting "a wholesale change in the way the Internet is used," says Jon Gibs, VP of media and agency insights at the company's online division.

Advertisers Taking Notice

While for consumers, hitting up Facebook for a daily dose of socializing is just par for the course nowadays, this change in consumer behavior has had dramatic impact on the online advertising industry. Where before, advertisers were somewhat wary of social media properties, they're now spending more than ever for prominent spots on social networking sites. Even as companies decreased their overall ad expenditures, they increased their spend on top social networks and blogs - up 119% from last year. ($108 million in August 2009 up from $49 million in August 2008). And when broken down by category, the increases are even more dramatic. The entertainment industry, for example, has increased spending by 812% year-over-year on social network sites and the travel industry increased spending by 364%.

When it comes to which sites advertisers choose, there's no doubt that Facebook is currently the king. Ten out of thirteen industries analyzed by Nielsen listed Facebook as advertisers' number one choice when ranked by display ad impressions. The only industries where MySpace still ruled were Entertainment, Financial Services, and Hardware & Electronics.

Those findings seem to mostly support what a study from earlier this year said about MySpace's demographics. Namely, MySpace users are more focused on entertainment than those on other networks and have the lowest average income (hence the need for financial services). However, it's LinkedIn users who are the most interested in gadgets said the study, so the Hardware and Electronic ad spend on MySpace is a bit surprising. We suppose that's simply because the number of MySpace users dwarfs that of LinkedIn. Well that, and the fact that these days "Entertainment" means TVs, game consoles, and other techie gadgets.

For a full look at the dollars spent by category, check out Nielsen's full report.

Dartmouth computer science professor and forensic imaging specialist Hany Farid is convinced that photo manipulation isn't just a 20th century phenomenon as employed in a Polish Microsoft ad last month, but rather something that has existed since at least the 1860's. He cites an image of Lincoln as being a composite of the President and of another politician's body.

Says Farid in a recent issue of the IEEE Spectrum, "Even as experts continue to develop techniques for exposing photographic frauds, new techniques for creating better and harder-to-detect fakes are also evolving. As in the battle against spam and computer viruses, it seems inevitable that the arms race between the forger and the forensic analyst will continue to escalate, with no clear victor."

Farid points to abnormalities in quantization (or image compression) and multiple points of light as telltale signs of image tampering. As services like Picnik and Fotoflexer continue to power the editing features in common photo sharing sites like Flickr, Photobucket and Picasa, it will be interesting to see how many forgeries are actually detected should the law pass.

Photo Credit: Art Comments (Lead Image), Hany Farid's "Photo Tampering Through History" (Inset)

The company has shown a number of user-generated successes including CNN.com's iReport, Netflix's Instant Viewing Player and TED's Encyclopedia of Life and Pangea Day film festival.

However, just as agencies are shifting from print and broadcast campaigns to digital advertising, is it possible that amateur dynamos are preparing to hijack the industry? Last week ReadWriteWeb covered Digg's new ad program - a program where advertisements can be voted up or voted down by the community. As advertising shifts to this new mixed-content model, where are companies more likely to see success - with content from world-class advertisers or trusted community members? As always, especially with the current market, agencies will have to work tirelessly to justify their retainers.

While augmented reality has its uses -- although many of them just involve oohing and aahing at nifty apps -- this trend is already in danger of being over-hyped, even though it has barely gotten off the ground.

We've been fascinated by augmented reality for some time now, especially after we got wind of a new mobile application built for Google's Android platform called Layar. The app, an augmented reality browser, "layers" sets of data on top of your mobile phone's viewfinder as you point the camera at the city around you.

Once our interest was piqued, we began imagining what future apps could be built using this platform, thinking up everything from people search to place data.

Only days later, another mobile AR app made the news: TwittARound, an app which shows you nearby tweets. Designed for the newest iPhone hardware - the iPhone 3GS - it taps into the phone's GPS and compass to determine your physical location. It then floats the avatars of nearby Twitter users across the screen. You can click these icons to see those users' tweets.

Then there is AugmentedID, a facial recognition technology using algorithms, from Polar Rose, a startup that delivers photo-tagging tools for Flickr. With this application, you can hold your phone up to a person's face and see their online profile, contact info, social networking links, and any other information they've chosen to share.

At the moment, though, mobile applications such as these are being primarily designed for Google's Android platform, as its open nature allows developers to access the phone's hardware and the video feed. However, we're on the verge of seeing an explosion of AR apps thanks to the soon-to-launch update for the iPhone OS. The next version, due in September, is widely expected to provide an official means of accessing the necessary controls to make AR apps possible through a new Application Programming Interface (API). Already, apps like acrossair's "Nearest Tube," a train finder for the London underground, are poised to go live as soon as Apple is ready.

AR Discovered by Marketers. Let the Hype Begin!

Don't look now, but marketers have discovered augmented reality and have started to incorporate it into their advertising campaigns. This can only mean one thing: we're about to be inundated with pitches and products touting AR products...not to mention AR ads.

Perhaps we should have clued in to this coming deluge when we saw how Mattel was pitching their next-gen action figures for the comic book-inspired "Avatar" movie. (Hold the included 3D tag up to a webcam and the toys come to life on your computer screen!)

Now we're seeing big box electronics retailer Best Buy incorporate augmented reality into their printed ads. Their recent augmented Sunday circular featured a 3D image of a Toshiba notebook computer. (Hold the ad up to a webcam and the laptop comes to life!)

Only days later, we're getting emails from Kia Motors -- yes, the car manufacturer -- about the company's new "augmented reality Facebook application." Using the computer's webcam, the players of Kia's "Go Hamster Go!" game control the action using their facial expressions. (Is that really augmented reality, though, or is it just neat?)

There's also news about a company called Metaio, creators of a mobile AR platform that lets people leave and view notes and 3D animations in places using their phones. And since Metaio is known for working on marketing campaigns like the AR Lego packaging, there's little doubt that they could soon start including ads on the new platform.

Time to Dial Down the Hype?

We think marketers need to carefully consider whether AR will truly benefit their clients before blindly hopping on the AR bandwagon. Case in point: Best Buy said their AR ads exceeded expectations, with more than double the number of users than they had planned trying them out. But that number was only 6500 out of a Sunday ad circulation of 43 million. Out of those 6500, 12% actually clicked through to other Best Buy websites, a number the company touts as "fairly decent." Although the company plans to do more AR campaigns in future, they're also of a size to be able to engage their customers in a variety of ways on a number of platforms. Smaller companies may not have the luxury to do the same.

And we are not the only ones thinking that AR is about to hit its full hype potential. Gartner shows that in their latest report, "Hype Cycle for Emerging Technologies, 2009," AR is steadily climbing towards the "Peak of Inflated Expectations."

The problem with over-hyping this technology prior to it really taking off is that it could become diluted and meaningless before we even have a chance to explore the potentially world-changing applications it could help create. (And no, we don't mean these AR exotic dancers.) But don't get us wrong: for a while (possibly a long while), we're going to be completely enamored of each and every AR-infused application that passes us by. However, there will come a time when AR, like every over-hyped buzzword that came before it, will be overused, its meaning skewed and stretched to encompass anything vaguely interactive, whether it's truly AR or not.

Let us instead heed the words of Robert Rice, CEO of Neogence Enterprises and Chairman of the AR Consortium, which he shared in a recent interview with Tish Shute:

"Don't be misguided by the gimmicky marketing applications now. Look ahead, and pay attention to what the visionaries are talking about right now... AR has long-term implications for smart cities, green tech, education, entertainment, and global industry. This is serious business, but it has to be done right."

Says Maser to the community, "The success of this system depends on your participation and feedback, as it will help advertisers to create the best possible experience for the Digg community. Our goal with Digg Ads is to encourage advertisers to create content as compelling as organic Digg stories, and to give you more control over which ads you see on Digg.

It will be interesting to see which advertisers attempt to game the system by digging their own ads, and how fast these ads will be buried. The official June announcement of the Digg ad program received more than 400 comments within the community, and surprisingly many of them are very positive. While critics argue that the ads will simply be buried and advertisers will stop paying for placement, others called this "marketing democracy." A few commenters pointed to the fact that they already use Adblock - a Firefox extension that allows users to filter out advertising content. Nevertheless, others chastise Adblock users for not supporting the community they enjoy. In a community as opinionated as Digg's, it will be interesting to see how the first users react to this new play for revenue.

Surprisingly, despite Google's success in online and web advertising, one of the company's key ad vehicles is the billboard. The company has reserved 4 billboards in major US cities and will run a new Google App-related message each day for a month. The campaign is expected to celebrate the benefits of Gmail spam protection, filters, high storage limits, email threads, Google chat, Google Docs and of course, what the company has always done well, search.

In an effort to rally advocates, the company has set up a Google Apps "Spread the Word" site where enthusiasts download marketing collateral and promote Google Apps within the workplace. The site slogan is, "Join the movement. Spread the word. Go Google." The page is meant to help employees convince their IT administrators to switch to Google Apps, but I can't help thinking this campaign could potentially backfire.

While Google Apps and Firefox share a common enemy in Microsoft, the project targets are completely different. Firefox enthusiasts advocate on behalf of the company directly to their friends and family. Meanwhile Google Apps enthusiasts are asked to influence the very people who are already more qualified to make IT-related infrastructural decisions. In other words, if you've ever seen a non-technical employee tell an IT administrator how to do his/her job, the outcome probably wasn't pretty. Nevertheless, because Google's services are extremely user-friendly, some great enterprise and business-level endorsements might better influence a workplace service transition. One testimonial from Vivek Kundra is particularly glowing.

Currently serving as the United States Chief Information Officer, Kundra is responsible for the country's e-government and information technology. In 2008, as the CTO of the District of Columbia, he endorsed Google Apps as a cost-effective, scalable and easy-to-use collaboration platform. He deployed the service across the district's 86 agencies to help its police officers, fire fighters and public servants. Using a number of Google applications including Google Earth, maps, documents and email, Kundra has been celebrated for bringing efficiency and cloud-based infrastructure to the District of Columbia. His work earned him a spot as a key advisor on President Obama's transition committee on technology issues and from there he was appointed the federal CIO.

Dina Kaplan, COO and one of blip.tv's original co-founders, started this morning's press event by noting that the company has been quiet over the past year because they had been working on closing a number of deals and doing the necessary QA work in order to launch the associated new features. Thanks to all the new partnerships announced, including those with YouTube, Vimeo, Roku, and NBC, content creators can send their videos straight to these new sites and services - and even to set-top boxes that allow viewers to watch the content on the big screen TV in their living room. Already, the company distributes to iTunes, AOL Video, MSN Video, Blinkx, Facebook, Twitter, Sony Bravia televisions with Bravia Internet Video Link, TiVo, Verizon FiOS Video On Demand, iPhones and the Internet Archive.

The Roku box, best known for its ability to stream Netflix movies to your television set, currently provides access to over 50,000 TV shows and movies, but according to Jim Funk, VP of Business Development, the company wanted to offer more content to their users - something that will now be possible thanks to blip.tv. With the new SDK designed for Roku's open platform, content creators will be able to launch their own channel on the Roku player. The update that provides this functionality will arrive this fall.

Blip.tv also announced an expanded relationship with the makers of another well-known set-top box - that being the TiVo. Now, content creators will be able to publish their shows directly to the TiVo DVR from their content dashboards.

The video service will help show creators make a splash on broadcast television, too, at least in New York City by way of a new partnership with WNBC, NBC's flagship station. A new show called NY Nonstop will syndicate 5,000 to 10,000 of blip.tv's top shows on a channel dedicated to information and lifestyle.

Perhaps the biggest news, though, out of all the partnerships announced today, is blip.tv's new distribution deal with YouTube. Show creators will be able to send shows directly to this major video portal directly from their blip.tv account. Blip.tv will also be able to serve its own advertisements within the YouTube player itself, providing a revenue share for the content creators.

Other partnerships announced include deals with TubeMogul and FreeWheel, for analytics and advertising, respectively. TubeMogul is providing the audience and engagement data to content creators via the revamped dashboard. They're even able to track the "unofficial" views of unauthorized uploads. FreeWheel will provide optional advertising opportunities for blip.tv users across all of the service's distribution network.

Blip.tv's New Dashboard

Along with the numerous partnership deals, blip.tv also announced their revamped dashboard where content owners upload, manage, and track their videos. Some of the new features - like the "upload to YouTube" option - were added to facilitate interaction with the new distribution partners, while others - like the ability to reorganize episodes - are just great upgrades to the service.

The main screen of the new dashboard features an easy-to-use interface where creators can quickly see the number of views and revenue earned for all their media. It also offers an "activity stream" which displays a list of everything happening with the content, like when a video gets a comment on YouTube, for example.

The process of uploading videos to blip.tv is now easier, too, with a simplified feature that lets you just browse for a video on your computer then send it to the service where it's uploaded in the background while you move on and fill in additional metadata about the video.

Content creators can also better organize their episode list now, thanks to new features that let you re-order shows via drag-and-drop. As soon as you make the change in blip.tv to the order, other lists on the web - such as those on iTunes or in RSS feeds - will update as well. Videos can be batch-edited as well, allowing creators to quickly send multiple videos to YouTube, for example, or any other service they choose.

On the dashboard's analytics page, blip.tv users can track views and revenues on a chart, even adjusting the timeframe that displays via a provided drop-down box. Other information includes an engagement summary (how long people watch the video), referrer list, browsers used, episode details, and more are also shown on this page.

All the changes to the blip.tv dashboard should be live as of today.

The patent application lays claim to the methods and software "in which an indication of a telephone call being placed from a calling number is received, and a determination is made of an audio advertisement to play based on the calling number."

Essentially this looks like an expansion of the pre-existing Audio AdWords. While Google closed down its broadcast radio ad program in February, the company continues to work with advertisers on online streaming audio and radio sites. Basically Google already has a slew of pre-produced audio ads sitting in its ad serving engine. Depending on the fit of the advertiser, it may be a no-brainer for companies to throw Google Voice into their mix of marketing efforts.

If this project takes shape, the really interesting part will come a month later when advertisers are billed. With streaming audio ads, companies get a relative amount of assurance that the audience is listening to the entire ad, including the call-to-action. While audience members can always mute advertising or pull out their headphones, a site's main audio content often will not play without the obligatory intro advertisement.

Telephone ads are different. Three days after going on a date, haven't you ever been a little too eager to pick up the phone? You know nobody's advertising to cutie pie. Meanwhile, on other days it's tough to even find the phone. Many callers would have to listen to at least two 30 second advertisements before hitting the voicemail box. After the first month of the program it would be extremely interesting to see how many partial ads will be served, the cost difference between a first place and second placement ad, and even how the company deals with multiple-language advertising.

Thanks to Staska for the tip!

As the Wall Street Journal points out, though, it is also important to note that eMarketer predicted a 10.2% growth in ad spending for 2009 in December 2008. For the upcoming years, eMarketer predicts that the market will rebound and it predicts a 13.2% increase in ad spending in 2010. However, given how far off eMarketer's prediction for 2009 was, we will just take this projection with a grain of salt.

More Bad News for MySpace

Overall, this is obviously even more bad news for MySpace, which is already struggling to just keep its current user base from moving to other services. Even as the MySpace team tries to improve the service and streamline its business, it faces an extremely tough challenger in Facebook, which also has a lot of momentum behind it right now.

These first ads probably aren't going to bring in enough cash to fuel a micro-app acquisition spree by Twitter, but this is the first clear public indication of one way the company is bringing in revenue. It's funny - the ads have been live for about a week now and no one but a few small, alert blogs has written about them. (Seth Simonds in particular caught a really interesting international angle on the story.) It was big news three months ago and we believe it's still important.

Perhaps these sources of revenue will help Twitter remain a viable company long enough for all kinds of questions about this brand new medium to be explored.

Dave Winer argued this Spring that people want to know how Twitter is going to make money because they might not like it. He told a story about learning while in college that Domino's Pizza used profits to fight Planned Parenthood. With all the time, energy and content people are investing in Twitter - many want to know how the company will monetize so they can decide whether it's an organization they want to continue investing in.

And so it has begun. There are ads on Twitter. What do you think?

Disclosure: Federated Media is also the ad network for ReadWriteWeb.

You can find ReadWriteWeb on Twitter, as well as the entire RWW Team: Marshall Kirkpatrick, Bernard Lunn, Alex Iskold, Sarah Perez, Frederic Lardinois, Doug Coleman, Jolie O'Dell, Dana Oshiro , Lidija Davis and Steven Walling.

But cracks are appearing in AdSense. AdSense is 30% of Google's revenue, so this matters. Any weakness in AdSense is important for Google's investors as well as advertisers, publishers, users, and entrepreneurs.

AdSense was a runaway success because it met the needs of online publishers, advertisers, and users all at once:

• Publishers could get revenue simply by pasting a widget on their website.
• Advertisers could extend their performance-based search-driven advertising, which they already knew and liked, across the Web.
• Users began to see ads that actually made sense in the context of what they were reading, and many of the ads came from smaller advertisers whose products and services would not have otherwise reached them.

But each of these constituents is starting to see problems with AdSense. Let's start with publishers.

Publishers

BtoB Magazine published an article on June 5th titled "Declining revenue has publishers rethinking Google AdSense." It quotes many B2B publishers who echo the conclusion that revenue from AdSense is no longer meaningful to them, that it does not "move the needle." This is less a reflection of AdSense's decline than the fact that traditional publishers have gotten smarter about how to sell advertising online. They have had to. Print is in decline, and the Internet is their only hope. Getting some "spare change" from AdSense may have been okay in the past, but they need a lot more now. Plenty of good alternatives exist on other advertising networks, and publishers are getting a lot smarter, too, about selling directly to their consumers.

Who cares about traditional B2B publishers that are migrating online, you say? What about those big native-online publishers? Well, Facebook just hired the guy who masterminded AdSense, but don't expect too see AdSense ads there. Rupert Murdoch wouldn't like to be thrown scraps of revenue for MySpace with a partner that makes all the rules. And one couldn't imagine Twitter pasting AdSense ads on its network. What large online publisher could get a meaningful amount of its revenue from AdSense?

Back in around 2006, all you needed to do to get VC funding was build a website that got user traction. "What about revenue?" they'd ask. "AdSense," you'd say. "Okay, then, here's the term sheet." Anybody try that with a VC lately?

Ah, so it's all about the long tail, right? Yes, a lone blogger has few other options. Everything else takes too much effort. They are not making a living from it, so they are satisfied with "spare change." Many of the alternatives to AdSense seem rather scammy, along the lines of, "Make a lot of money working from home." Google is well respected as a brand, and everyone knows what they'll be getting from AdSense. Don't they?

Actually, most people don't know one very important part of the deal: the percentage of the revenue that the publisher gets. You can parse the data from Google's financial filings in aggregate. But knowing its percentage in aggregate does not matter to a publisher. Google may be giving a great deal to a large publisher with clout. What do you, the little guy, get? You may know how much Google is paying you for the clicks that you generate, but do you know how much the advertisers are paying for those clicks? If you get $100, did advertisers have to pay Google $200? Did you get 50%? Was it only 10%? Maybe Google sold the clicks you generated for $1,000, and you got 10% of it? How would that feel?

To Google and its investors (more about them later) this ability to simply turn a lever and get a bigger percentage of revenue is marvelous. Who would not want that kind of pricing power? But to your average publisher, it seems to violate one of the most basic rules of business: knowing the terms of the deal, knowing who gets what.

The long tail is also where the problem of click fraud is most serious. To protect it, Google will (quite rightly) sue publishers who scam the system. But now publishers are suing back, and winning. This is ugly stuff.

In another murky corner of the Internet are "made for AdSense" sites that scrape other publishers to generate ad clicks. This is also considered click fraud.

So, the long tail looks rather like fishing in a murky bottom, full of nasty catches, and hardly a bright future for a great company like Google.

Advertisers

Hang on. Get real, you say. None of this matters because Google sells more advertising than any other company, and that's all that matters, right? Publishers, big and small, will take whatever Google gives them because Google has advertisers locked up.

Yes, that is true in search. Neither Yahoo nor Microsoft, nor any of the myriad of search startups, has made a dent in search advertising. AdWords reigns supreme.

Not so fast, though. First, some perspective. Traditional brand-based advertising is still bigger than search advertising, which is why Google bought DoubleClick. But the current excitement and creativity is centered on social media advertising, and Google is not a player in that game (yet). So, search is only one part of the ad market.

More importantly, AdSense clicks are converted differently than clicks on Google's search page. Getting people to talk about this on the record is hard. Off the record, many advertisers/marketers and ad agencies will tell you that those conversions are not the same.

Conversions matter. Clicks are only the first step in the process of earning revenue. Conversions, either directly into revenue or into something deeper in the conversion funnel, such as a free trial, are what advertisers care about.

Logically, an AdSense click wouldn't convert as well as a click on Google's search page. That ingredient of direct intention on the part of the user is missing. Some advertisers may not be savvy about tracking conversions and will therefore pay the same for both types of clicks. But Google can hardly rely on dumb advertisers for its growth strategy.

Advertisers will pay less for AdSense clicks, then. This could cause AdSense revenue to decline (more on that later). Or instead, Google might "dial back" the percentage it pays out to publishers, which would almost certainly spur the system's decline in a vicious cycle. Smart publisher and smart advertisers would desert AdSense, leaving Google to profit by mediating between dumb publishers and dumb advertisers. Not a good long-term strategy.

And then there is the "brand safety" issue. The keyword approach to contextual relevance can create those ugly mismatches that you occasionally see. You know, like when you see an ad for kitchen knives while reading an article about a vicious stabbing? Readers are only faintly upset or annoyed by it when they notice it, but advertisers consider it a major issue. This is the kind of thing that keeps brand-builders up at night.

Weaker conversions and brand safety issues in search-based advertising will only fuel the excitement and creativity in social media advertising. Is AdSense simply a bottom-fishing volume game?

Why is it hard to get advertisers and their agencies to talk about this on the record? Martin Sorrel, founder and CEO of WPP (the world's largest advertising agency) speaks of Google as a "frenemy." Actually, now he has renamed it a "froe." WPP buys $850 million worth of ads per year from Google, which would normally give WPP a lot of clout with media firms. Yet Google also disintermediates ad agencies. One just buys AdWords ads directly from Google.

The relationship between advertisers and Google is delicate, one that would not be helped by advertisers speaking to journalists on the record about weaknesses in one part of Google's services. Advertisers with clout prefer to negotiate behind closed doors.

Users

The most important person in the AdSense eco-system is the user. As long as the user is clicking and buying, all is well. Publishers and advertisers will both be happy. Users may be buying less now, but that is a simple cyclical issue: we are in a consumer recession. When the economy recovers, AdSense will recover.

Well, maybe. There are three reasons to doubt this:

1. Ad blindness. Advertisers are in an arms race for attention, leading them to produce ever more creative ads, in turn leading users to tune out those bland, familiar old AdSense ads all the more.
2. Social media alternatives. People trust other people more than they trust ads. That is why Ad-land is channeling its creativity into inserting its brands into their conversations.
3. Declining relevance. Users who do not get what they want from clicks will stop clicking. If they don't see AdSense ads on high-quality websites, and if the ads they do see are not relevant to what they are thinking about at the time, they won't click.

Google's Investors

Let's jump to Google's Q1 2009 results. The headline was that Google's revenue grew 6% (compared to the same quarter a year prior) to $5.51 billion. We can break that down as follows:

• Revenue from Google websites grew by 9% to $3.70 billion,
• Revenue from Google's partner sites, also known as network revenue or AdSense revenue, fell 3% to $1.64 billion.

According to the numbers, not all is well with AdSense. Still, a 3% decline does not sound like much; it would raise questions only with a fast-track company such as Google. Maybe this is simply the effect of the recession.

But maybe it is an early sign of a fundamental weakness in AdSense. With AdSense making up about 30% of Google's revenue, such a sign is big enough to matter. This should be a serious concern for investors. If I owned Google stock, I would be looking very hard at network revenues in Q2. Network effects can lead to explosive, hockey-stick-like growth on the way up... and falling-off-a-cliff declines on the way down. When all three constituents (publishers, advertisers, and users) were getting great value from AdSense, revenue exploded. If all three suddenly lost interest, that virtuous cycle of growth could turn into a vicious cycle of decline.

Judging from its actions, Google management fully understands the issue. Follow the money. Look at what Google is acquiring. Its two biggest acquisitions have been:

1. DoubleClick, which it purchased for $3.1 billion, allowing Google to diversify from search-based advertising, so that it could have more clout with advertisers;
2. YouTube, which it purchased for $1.65 billion, allowing it to lock up the fastest-growing inventory, video.

Look at the websites and services Google invests in. It plays to control inventory so that it doesn't have to depend on publishers, and so that it has better control over relevancy matching. Some of this has gotten a few publishers riled enough for them to go on record, particularly when their services lie directly in Google's path.

So, don't feel sorry for Google. It's taking care of the AdSense problem. We'll have to see, though, whether investors buy that story. Investor reaction to Google's Q2 report will be interesting.

Opportunities For Entrepreneurs, New Venture Intermediaries

If AdSense is in decline, that leaves open a big market for entrepreneurs. Publishing is not a winner-take-all market. Google will not control all online inventory. Advertisers and their agencies like choice. And users click on whatever is relevant.

We see two plays in this environment:

1. Match relevance. Match relevance means parsing content to deliver more relevant ads. This is easy to say and hard to do. A lot of smart semantic tech ventures are focusing on this problem. This is smarter use of search technology than Quixotic tilting at Google's search bar dominance.
2. Connecting CPM to CPA. This is another hard problem to solve but promises a huge payoff for the winner. Publishers like selling CPM (cost per mille): it is easy for them, and the burden of performing lies with the advertiser. Advertisers, on the other hand, like CPA (cost per action or acquisition): it is easy for them, and the burden of performing lies with the publisher. Both parties look at the CPC (cost per click), because that is trackable from both sides of the transaction. But CPC is just a proxy for what each really wants: CPM and CPA, respectively. Any venture that brings publishers and advertisers together with a deal that satisfies the needs of both will do very well. There is a huge opportunity here. High-quality websites that really engage with their audience will certainly do well by CPA metrics, but the solution will have to be really easy to implement.

What Do You See?

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