Jonah Goodhart is a New York based entrepreneur who has spent the last 13 years building and investing in digital media companies. Goodhart was a founding investor and board member of Right Media, the online advertising exchange which was acquired by Yahoo! in 2007. Recently, Goodhart co-founded WGI Group, a seed stage fund which invests in technology and media companies, and launched Moat in 2011, an advertising technology company that aims to replace the click as a standard of measurement and help branding companies by putting attention metrics in every ad. Goodhart believes that the present ad technology landscape needs a major shift in orientation, from clicks to engagement and consumer attention.
The Makegood: Jonah, you have a long history in ad tech. What in your background led you to this rejection of the standard ad technology model that focuses on clicks?
To provide a bit of context, I’ve been in ad tech for about 13 years and have started a few companies in the space. When I was at Cornell University in the late 90’s I started a company with my brother Noah Goodhart where we were basically doing customer acquisition in display advertising. We were one of the first companies doing that at the time. We were purely focused on direct response – meaning does a consumer take an immediate action after seeing an ad such as clicking, buying a product, etc. At the time we were helping companies like Columbia House, Paypal and American Express get customers with minimal risk to them – they would only pay us when we were able to deliver customers online– these were the early days of performance marketing. What we would do is go out and buy ad inventory on a CPM, take media risk, and then only get paid when we successfully drove customers. It was a performance-based model that worked really well and we ended up spending a lot of money through major companies like DoubleClick through which we quickly became one of the larger media buyers in the space. We were buying billions of ad impressions at the time.
Over the next few years, one main sales person at DoubleClick, Mike Walrath, sold us the majority of our inventory and over time became the top sales person at his company. In 2002 he called my brother and I to explore a new opportunity he was pursuing. Basically his division had been sold and he had an idea to start his own company to address some of the inefficiencies he saw in the market. He asked if we wanted to partner with him on his new venture – we were excited about trying to disrupt the ad landscape and so we agreed to put the funds up for the new company as well as become the first client – Mike agreed to leave his job and pursue his idea fulltime, thus Right Media was born.
Noah and I served on the Board of Right Media through the sale to Yahoo! in 2007. Since then the three of us have made a bunch of investments in the ad tech space. Interestingly though, almost all of the development in the ad industry has been focused on the click funnel and the likelihood that someone is going to click on an ad. Right Media as well as the rest of the ecosystem it helped to spawn created complex algorithms focused on predicting whether or not someone is going to click on an ad. There are a few challenges that arise though. For one, very few people click on ads– 99.97 percent of the time ad impressions do not result in a click. Second, clicks are not the right success metric for brand advertisers. Clicks are not correlated to brand impact and are generally a very poor indicator of whether someone is paying attention to a brand advertisement. If you think about your daily life – how many ads do you click on? I know I click on very few but I do notice them and most importantly I continually make brand-driven decisions whether it’s drinking Coke or Pepsi, wearing Nikes or Reeboks, or eating Special K in the morning, as many of us do. Yet very few of us click on the ads for these same companies – therein lies part of the problem and this is really why we started Moat.
The Makegood: So is this unworkable model based on CTR the reason that major brands are still hesitant to venture online?
It’s part of it. I remember looking at a list of our top advertisers early on at Right Media – a platform that even a few years ago was doing hundreds of millions of dollars in transactions, and I was somewhat surprised to see the list made up mostly of direct marketers.Direct response companies and campaigns are great and are often the early adopters when it comes to new technology, but they make up a minority share of total advertising spend in the United States– the majority almost two-thirds is from brand campaigns. Today, digital advertising and specifically display is almost completely the opposite– of the $20 billion spent annually in the space, the majority of it is on direct response campaigns.
So the real question is why haven’t brands moved online with the appropriate spend based on the number of consumers and amount of time being spent exposed to ads as they do offline? What’s holding them back? One idea that’s getting some attention recently is the digital version of the GRP or the so called “eGRP” or “vGRP” depending on which research company you’re talking about. It’s a good first step to basically understand how many people potentially saw an ad and what that audience looks like in terms of demographics. This solution though is a partial one as GRP only measures whether people could have seen an ad– but not whether they actually saw it or better yet paid attention to it. That seems like a fine distinction, but the difference between “could have” and “did” is quite significant in digital. Unlike when we’re watching TV where the viewing experience is relatively consistent, the viewing experience of ads online is completely inconsistent. It depends on what site you’re on, how big the ad is, where it was on the page, whether you scrolled down enough to see entire ad, whether it had motion or sound that caught your attention, etc. Not to mention the fact that when we’re online we’re usually not sitting passively watching something, rather we’re actively consuming. We’re navigating. We’re researching. We’re messaging with friends. We’re sharing photos. We’re reading news or perhaps even doing work. What we’re doing has a huge impact on whether or not we’re likely to notice an ad.
If you combine inconsistent placements and presentation with a wide variety of activities, you can see how simply measuring how many times the ad was theoretically shown to a user can fall short as the right metric of success in digital. Performance, which we should begin defining as whether a consumer actually paid attention to an ad, is going to vary dramatically based on a number of factors, so the real key becomes measuring that attention and ultimately optimizing campaigns to it. When brands can truly optimize digital campaigns to consumers who are paying attention, we will start to see significant increases in digital budgets.
The Makegood: You believe that you are fomenting an alternative with Moat, your startup. What type of paradigm shift is necessary to get brands online?
Here’s where Moat comes in: what we now know is that clicks are the wrong metric for brand building. We spent more than a decade helping build this ecosystem but in that time the space and our thinking has evolved. What is good for direct response campaigns is not the right solution for brand campaigns. Brands need metrics that measure whether or not someone saw the ad and paid attention.
When brands create a Superbowl commercial, they’re trying to create a memorable experience not generate a direct response– think Bud Light, Volkswagen, Pepsi, Coca-Cola, and even Google.Branding is about storytelling and that’s what Superbowl commercials do so well. The difference though is that it’s fairly straightforward to measure the success of a Superbowl commercial and the presentation from a format and creative perspective is very consistent and so is the consumption of that ad by the user watching it on the other end.Online that’s not the case– presentation and consumption of the ads are not consistent and neither is any sort of brand focused measurement of success.
Moat is trying to help solve some of these problems by providing a single brand analytics platform that will enable brands to measure whether and how consumers pay attention to their ads – whether that’s in display ads on websites, in video ads, on mobile phones, or even on tablets. Once a brand can understand which creative works best, which website placements work best, and which types of consumers are most responsive, they can begin to optimize both their media and ultimately their creative to achieve their objectives.
The Makegood: So in practical terms, what does the landscape have to do to make online advertising a more logical place for brand dollars?
I think it has to do two primary things: one, focus on measuring consumer attention not clicks; and two, focus on creative innovation whether that be the right agency or simply the best ad units.
The Makegood: So what supplants the click? Better ad technology?
I don’t think the click ever completely goes away but I think it becomes one signal of many collected in a given campaign. Major brands are already starting to look beyond the click in search of a better solution. Our approach compliments all existing measures including surveys of brand lift measurement and it actually helps make those measures more accurate by being able to provide more granular attribution of success. We believe the answer is in a collection of metrics or signals that in totality present a much better understanding of ad performance.
Once you begin adopting and optimizing to any combination of those metrics, the world has shifted and the next question becomes getting creative people to drive increases in those metrics through innovative ads. That’s where creative solutions that focus on consumer attention such as AOL’s Pictela ads or Google Billboard ads come into play. It’s not a mistake that the largest companies in the digital advertising world are focusing their efforts on ads where the primary goal is no longer a click. The rest of the ecosystem will change as well, we’re only just at the beginning but it’s going to be a fun ride.
The Makegood: Thanks, Jonah.