Trying to Make a Connection

While explaining to an investor why Buzznet, one of the early commercial Web sites, was a financial black hole, co-founder Tara Lemmey drew a quick diagram. On the left were hundreds of specialized Web sites, on the right was a fragmented viewership, and on top were the advertisers struggling to reach a mass audience.

There is no way, Lemmey says, for advertisers to reach the audience they want without advertising on many different sites. Yet it is an almost impossible task for an advertiser to sort through the profusion of possible advertising locations on the World Wide Web. Most of them just give up.

“That,” said the investor, pointing to the space in the middle of the diagram, “looks like a much better business than the one you’re currently in.”

Two years later, Lemmey and a host of others are ready to fill that space, connecting buyers and sellers of Web advertising. If they are successful at acting as middlemen, it will enable many niche Web sites to flourish. But if they aren’t, the Web will continue heading in its current direction--toward a few “super sites” like Yahoo Inc. and CNet Inc. that dominate advertising dollars just as the big networks do with television.

Yet, how to best help connect ad buyers with sellers is still up in the air. Taking a look at two different systems--Lemmey’s San Francisco-based Narrowline and the New York-based DoubleClick Direct--illustrates how difficult it can be to mesh the new world of the Web with the traditional world of advertising.

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“Narrowline’s system is like the Sabre airline reservation system or the Nasdaq Stock Market, but for ad space,” Lemmey says. As with those systems, Narrowline uses network and database technology to help buyers navigate through a thicket of options to find what they want to buy. Instead of using proprietary equipment and protocols, Narrowline uses the Web.

A potential ad buyer connects to the Narrowline Web site, called “Brought to You By,” using a standard Web browser that sets up a secure, encrypted link. She then steps through a series of forms that allow her to specify exactly what audience demographics she wants to reach.

The Narrowline system then searches through its database for ad space locations that meet the requirements. One of the key distinctions, Lemmey says, is that the database does not just check against descriptions of Web sites; instead it operates on finer-grained units called “salable net units.”

These SNUs may describe a section in a Web site, a specific page, even a billboard in a virtual world. This allows advertisers to hone in on the audience they want.

The Narrowline Web site then presents a list of matching ad spots to the buyer and allows her to visit them or look up their price. Unlike with a true market, such as Nasdaq, prices in the “Brought to You By” system are fixed by the seller. This, Lemmey says, is necessary because selling ad space at a discount can hurt a site’s reputation.

“The Wall Street Journal will give away their ad space to a pro bono cause before marking it down,” she points out.

The strength of the Narrowline scheme is that it’s very similar to what ad executives are used to. Instead of looking up ad rates and demographics in a guidebook, buyers can use Narrowline’s system to help cope with the diversity of offerings. But the system’s conservative use of technology is also its weakness.

It’s not clear how much labor the system really saves. After all, ad space sellers must describe their site in excruciating detail before it can be entered into the database, and buyers must work their way through a questionnaire that has everything but instructions on how to use No. 2 pencils. Doing things the old-fashioned way and meeting with ad representatives from well-known sites over drinks will surely seem more compelling to some.

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DoubleClick Direct, a new offering from DoubleClick Inc. in New York, takes a more technologically aggressive approach to reducing the laborious process of finding ad space. But it comes with drawbacks.

While Narrowline was driven by the needs of niche Web sites looking to sell ad space, DoubleClick Direct was motivated by the needs of direct marketers.

Traditional direct marketers such as 1-800-Flowers don’t care whether or not their ad runs on a big, name-brand Web site, says Wenda Harris Millard, DoubleClick’s vice president of marketing and programming. Instead, the focus is on “cost-per-action”--how much the company has to pay for each lead.

That’s well-suited to the Web, where it’s very easy to count each person who responds to an ad by ordering flowers or taking some other action online.

Here’s how the DoubleClick Direct system works: As an advertiser, I specify how much I am willing to pay per action. My ad then goes up on a bunch of different sites--some small, some large--that have extra ad space inventory. Then, using a natural-selection algorithm, DoubleClick monitors to see which sites are the most successful at generating leads for my ad. Once it decides, my ad will be pulled off other sites and left just on the good ones.

“The most important implication for Web sites is that their ad space inventory becomes very, very fluid,” Millard says. A site might choose to sell 60% of its ad space to brand-name advertisers and keep the remaining 40% free for use by DoubleClick Direct. But if the site suddenly needed more space for an important advertiser, it could quickly “take back” the direct-marketing ad space and those ads would be automatically routed somewhere else.

It’s a clever system, but some Web sites worry that the cost-per-action model will devalue the ad space they sell to advertisers on a cost-per-view basis.

As Jakob Nielsen, a distinguished engineer at Sun Microsystems Inc. who studies the future of the Internet, points out, 99% of the people seeing an ad online don’t even bother clicking on it. Those kinds of numbers may push advertisers toward a model more suited to rational cost-profit calculation--but one that may be less lucrative for Web sites.

Neither Narrowline nor DoubleClick Direct has quite hit on a system that will completely satisfy both Web ad buyers and sellers. However, they both show the direction the industry needs to go to ensure that the Web fulfills its promise of supporting many different sites for many different audiences. The alternative is too dismal to consider.

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Steve G. Steinberg (steve@steinberg.org) is a contributing editor at Wired magazine and a technology consultant for a New York investment firm.