the ad creative would contain, for example one or two or more products that are very relevant to you, drawn from the merchandise of this advertiser, along with personalized landing sites that these ads would lead to. That caught my attention. They were doing an extensive test with Overstock.com, and they were being tested against different vendors and against internal technology. I told Steve, ‘Great, I’m a data guy, so I will wait a few months before I accept your offer, because I would like to see how this test turns out.’
The results were pretty phenomenal, as far as I’m concerned. They consistently achieved a 10x increase in click-through rates, but more importantly a 10x increase in ROI. So, three times the revenue realized from each dollar spent on ads. That really caught my attention for a couple of reasons. One was the economic downturn. There is a hell of a lot more pressure towards performance-based advertising. And two, I’ve always felt that display ads were giving the industry a bad reputation. A lot of sites, especially in the social networking area, have flooded the market with a lot of untargeted or untargetable inventory. Banner ads were shown without targeting all over the Internet for many years, without a lot of thought to the long-term negative cost of showing the wrong ad to the wrong person. Every time you show that wrong ad you are subtracting from the value of that medium. So any technology that takes us out of that—behavioral targeting being an example—and takes display ads into another regime where you can get high click-through rates and more important, higher conversion rates, is a very important technology.
Long-term, I am a believer that display ads are here to stay, and as we apply these advanced technologies to stage them, they were become much more competitive with search ads, and long-term they will even dominate search ads. The right thing to do will be a combination of search and display advertising. That’s a controversial view today, with everybody thinking that Google is the end-all of marketing. Search alone is not efficient. You only get to show your message once, and that’s it. Users may see it or not. In real marketing, everybody knows that if you don’t get frequency and repeatability, it’s not worth it. So this is a great direction, at the right time, and that’s why I agreed to join the board.
X: I guess that because I haven’t written about ChoiceStream, I wasn’t very aware of their history of producing recommendation engines. You’re saying that the early ChoiceStream technology you used at Yahoo was not advertising-related?
UF: It was not advertising-related at all. It was very much focused on content—‘Let’s figure out what else a user might be interested in seeing so that we can increase their activity.’ That’s the reason I like them a lot. They were focused for the longest time on solving the problem of doing personalization of content, which is way harder than optimizing ads. The other part I like is that if you look at the instrumentation that publishers and networks use to track user behavior and figure out how to target ads, it’s easy for a publisher to remove one instrumented ad network and put another one in place. The difference with ChoiceStream is that it’s a very sticky implementation. The reason publishers install it is because they either want to increase activity on their website, or increase sales through cross-selling and upselling. So there is a huge barrier to removing Choicestream, because it’s plugged into increasing the revenue of the site. It sounds like a no-brainer today, and I wonder why for years none of us thought of this.
X: What kind of instrumentation are you talking about? Explain a little bit about what ChoiceStream actually does, behind the scenes.
UF: The instrumentation is the same kind you would use if you were doing any kind of website tracking. What’s different is what you do with the data. ChoiceStream has in the background some pretty deep models of what the products are and what they mean to people. What does the brand someone is buying tell you about the person, in terms of their preferences and their affinities? It’s not just about suggesting products that are similar to the ones already in your basket. ChoiceStream has these knowledge bases, so it’s a lot more powerful. It will include things like ‘Is this product a high-end product that is really liked by people who have esoteric tastes in X, Y, or Z;’ or ‘Is this product associated with consumers who are looking for such-and-such an activity.’ So an event captured by ChoiceStream is worth a hell of a lot more because of the knowledge they can add from outside.
X: How much information does ChoiceStream have about users? Do they know that ‘This is Suzie and she’s planning a wedding’ or ‘This is Chuck and he’s into Jeeps and ski equipment?’
UF: The tracking is not based on any personally identifiable information. They use anonymized cookies that say only that this user is a unique user, and the question is, when do I see him again? The other thing is that ChoiceStream doesn’t mix data between different advertisers. Let’s use the Overstock example. On Overstock the engine is being used to do cross-selling and upselling on the site itself. And there’s an agreement with a network of publishers where they basically say, ‘If I ever see a customer whom I know has been to the Overstock site before, I will use whatever I learned about that customer from their visit to Overstock to pitch them the right message to bring them back to Overstock.’ So think of it as increasing the reach of Overstock across a network of publishers. That’s important. They are not trying to
