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March 22, 2007

Google Enters Affiliate Marketing

google adsense

Google has finally unveiled its Cost Per Action tariff model for its Adsense network. What was the exclusive domain of affiliate marketing networks is disrupted by Google's huge publisher and merchant base, and its superior system. In one move, Google becomes the biggest affiliate network in the sector.

The impact on the online advertising ecosystem will be considerable. Not only to affiliate networks, but also to the community of market makers - affiliates, which have thrived on arbitrage opportunities around CPM, CPC and CPA advertising. CPM (Costs per Thousand banner impressions), CPC (cost per click) and CPA (cost per action). The different tariff models provided enough market inefficiency for price imbalances to arise.

Over the last few years entrepreneurial affiliates have been acquiring traffic from Google's adsense at the minimum 0.01 per click, and driving it directly to an affiliate network merchant's site under the CPA tariff model, and got paid when and if the customer converted. The arbitrage actually resulted in positive margins. And many other similar arbitrage moves.

Google's offer of the CPA tariff model to advertisers adds new price transparency, as clients can now work out the ROI of all three tariff models on one simple user interface. The arbitrage opportunities will invariably dissappear.

Clear winners are advertisers; CPA tariff model pushes the onus of conversion onto the publisher. The advertising merchant only pays if the clickthrough actually makes a purchase. CPA is the solution for advertisers with click-fraud problems.

[Official Inside AdWords: Pay-per-action beta test]

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March 15, 2007

Structuring and Regulating Advertising Market Places

On the subject of electronic market places, one of the key issues in the new marketplace is how much the products can be structured, and how much the buying/selling needs to be regulated.

In eBay's media marketplace, buyers will be able to submit Web forms akin to requests for proposals specifying what dates they want to run ads, what their budget is, target demographics they seek in the audience and other information. They then invite networks to review their proposal. Sellers also will have the option to initiate auctions, following the eBay model, where they specify the ad space they have available to sell and choose the highest bidder. The same model as ebay's main buying and selling model.

A model similar to the unregulated over-the-counter marketplaces in banking.

The AAAA has contracted Arbinet to structure the marketplace more. Using the financial regulated exchanges model, the AAAA is creating a registry of buyers and sellers and their respective needs to structure the marketplace with formats and standards. A standardised market allows easier and confident trading, which leads to much higher volumes, higher liquidity and market makers.

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March 12, 2007

Electronic Marketplaces Coming to Advertising

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The American Association of Advertising Agencies (AAAA) is creating an electronic platform for trading ads across media. The Association is bowing to the inevitable and modernizing ad space buying and selling.

Advertising agencies have historically leveraged their personal relationships, privileged access to clients and media, and poor price and inventory information to generate large buy-sell margins. The practice of end of year kick-backs from media publishers to ad wholesalers to ensure continued patronage is still rampant.

Incumbent agencies and institutions will fight to retain their place and margin in the value chain, in spite of the dis-intermediation alternatives.

"The world is changing faster than we can keep up with it," said Ray Warren, president of ad agency Carat Media Group Americas.

"Phones will still work....It's just a way to communicate electronically." said Peggy Green of ad agency Zenith Media USA.

Electronic trading is the natural solution for such inefficient markets. AdECN, an independent trading exchange platform for advertising is already online. Google and eBay are deploying the private marketplace platforms into adverting media buy and selling. Google is introducing radio ads onto its Adwords platform, in addition to ads in magazines, and ads in newspapers.

ebaymedia

eBay, in turn, has its private marketplaces; eBay Media Marketplace is to go live in a few weeks. While marketers like Lexus, Hewlett-Packard, Microsoft and Home Depot are participating in eBay Media marketplace, no cable networks have signed on yet.

As ever, volume on these trading exchanges is an all or nothing proposition; community of buyers and sellers tip from one market platform to another en mass. Similar migration of buy/sell volumes have been occurring between trading exchanges in the financial market since the first electronic exchanges appeared in the 1990s.

city open outcry trading

I lived through just such a loss of trading volume while at the London Financial Futures and Options Exchange during the mid-1990s; 30% of our trading volume deserted from our trading pits onto Frankfurt's electronic trading platform. The automated platform fees were 10% of our trading fees and the buy/sell spread margins were narrower. Our response was to close the open-outcry trading pits with their 3000 colourful pit traders, and launch a competing electronic exchange, CONNECT (TM).

The only alternative left to media agencies is to own and host the new electronic marketplace.

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March 9, 2007

UK Conservative Party Pro Open Source

conservative party

Shadow Chancellor George Osborne has promised that an incoming Conservative (UK) government would create a level playing field for open source software in the UK, in a move which could save taxpayers more than 600 million a year. Mr Osborne stated that

"What it is about is better and more effective government. The problem is that the cultural change has not taken place in government. There isn't a level playing field for open source software. As it stands, too many companies are frozen out of government IT contracts, stifling competition and driving up costs."

"All too often, a government IT system is incompatible with other types of software, which stifles competition and hampers innovation. Looking at the litany of IT projects that have collapsed or spiralled over budget, it's clear too that this has meant billions of pounds wasted and public service reform being hampered

Mr Osborne reckoned that opening up the market in software would enable the Government to slash 5 per cent off Whitehall's annual IT bill, because open software allows users to read, change and improve its code, in contrast to proprietary software where a company controls the source code.

The motion makes adoption of Open Document Format (ODF) standard a likelihood for the UK government.

Conservative Party - News Story

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