Shahar Solomianik

In-text advertising is a controversial niche advertising market that on one hand has huge reach and on the other hand has absence of big players. It was a virtual paradise for in-text players during the last several flourishing years, but how will this niche market survive the downturn?

What is In-Text Advertising?

In-text advertising according to wikipedia is:

A form of contextual advertising where specific words within the text of a webpage are associated with advertising content.

In-text advertising is not a new type of online advertising. In its primitive form, it dates back to the early 2000’s when a company named eZula distributed an adware client that turned words into links while surfing. Later on, VibrantMedia launched intelliTXT, probably the first ever online in-text advertising product. When eZula morphed into Kontera,  they joined VibrantMedia as a leader the in-text advertising market.

The basic idea behind in-text was to bridge the traditional separation between content and ad space derived from the newspaper advertising industry. Advertising was merged into the content itself. Kontera explains this nicely in their website:

In 1982, to increase the sagging sales for Reese’s Pieces, Hershey’s accepted a product placement deal in Steven Spielberg’s “E.T.”. After Elliot used Reese’s Pieces to lure E.T. from his hiding place, Reese’s Pieces experienced a 65% increase in sales and succeeded in reinvigorating the brand. Though this wasn’t the first case of product placement, it is one of the best examples of increasing sales and supporting brand marketing objectives through contextually relevant product placement.

Low click-through rates on graphical banner ads, in contrast to the relatively high rates and conversions of CPA ads embedded as text links, gave an additional push to in-text innovation during the early days. In-text innovators tried to implement an online advertising service that could take advantage of those high click-through rates from textual links.

The Controversy

In-text advertising was, and still is, somewhat controversial. For the content consumer, it may not be so obvious that a hyper link is a sponsored ad. Some publishers and critics claim that these links are deceiving in nature, and users’ reactions are mixed. I believe this is the reason that in-text advertising is not embraced publicly. Market leaders are also aware of this.

Yet this controversy served another purpose. It appears to have prevented the big players from joining the market. The absence of Google, Yahoo, Microsoft and AOL allowed VibrantMedia and Kontera to increase their distribution and control over this niche-market. In fact, VibrantMedia and Kontera have become so dominant that regardless of their niche, they are both considered to be among the top advertising networks today. With impressive numbers such as 42% US reach for VibrantMedia and 34% US reach for Kontera, they have proven that publishers do end up implementing in-text advertising, regardless of how controversial it may be.

Today

When the online advertising industry started to flourish we saw many other networks launching their in-text services. These networks were all trying to get in on one of the only niches from which the big players were absent. Exponential’s EchoTopic, AdBrite’s Inline Ads, Clicksor and others are examples of these smaller networks.

None of these companies threatened VibrantMedia and Kontera. But on the other hand, none of them relied solely on in-text.

The lack of real competition from the big guys had its drawbacks. It didn’t drive VibrantMedia and Kontera to increase their efficiency. One of the strangest things to me is that neither company introduced a self-service interface for advertisers. Both still rely on their sales force and target only large advertisers. Moreover, they seem to prefer sharing their CPC revenue with other providers over getting higher rates themselves. Kontera is known to link its ads to Yahoo CPC ads:

The company also has access to thousands of advertisers through a partnership with Yahoo.

We can assume VibrantMedia does the same.

The Downturn

Now with this economic downturn upon us, the in-text advertising market is fragile. Because it is a controversial niche market, it may be one of the first cut from an advertiser’s budget. Moreover, as their partners begin to focus on their core business rather then nurture their in-text partnerships, VibrantMedia and Kontera will realize that relying on deals with other networks may have been a major error. Perhaps they should have developed direct relationships with advertisers as well.

In a separate issue, both VibrantMedia and Kontera rely heavily on VC funding which may also fall short in the near future.

Launching a self-service option for advertisers could help, but it may be too late. Advertisers traction is hard to gain in this environment.

The apparent solution for both companies is acquisition. Yes – their valuation may not be as high as it was last year, and yes – maybe they will not be hurt so badly from the downturn. But after all, they are VC funded start-ups looking for an exit and this downturn could be precisely what they need – a special opportunity for them to be acquired by a big player, despite the in-text controversy.

Acquisitions?

Lately, Google has demonstrated an increasing willingness to experiment with innovative, questionable and controversial advertising products. Just a few days after launching expandable ads, they also announced behavioral targeting. They are becoming more aggressive in penetrating advertising in new ways. This is understandable since Google started laying off employees and shutting projects down, proving it is not immune to the downturn. Don’t be surprised if Google enters the in-text market as well.

The question is, will Google acquire an existing player? Or will they develop their own product?

Google has shown that it acquires companies either for their distribution (YouTube, FeedBurner) or for their technology (Urchin). The bad news for VibrantMedia and Kontera is that Google neither their technology nor their distribution.

While in-text technology is not a known Google product, it may have already been developed. Even if it wasn’t, it’s not difficult for them to do. I don’t believe that Google will aquire VibrantMedia and Kontera for the amount they would like to see, especially when the technologies are so similar and could be implemented much better by Google themselves.

As for distribution, Google’s publishers network is much bigger than both VibrantMedia’s and Kontera’s. This certainly does not justify an acquisition.

So Google won’t be acquiring any of them. Who will, then?

Maybe another network will see value in their technology or distribution. Lately, Yahoo is a mystery, which leaves us with Microsoft – a great candidate for the first buyer in this market. They have the cash, they wish to expand their ad network reach, and they may be interested in in-text advertising. And, they already are working with Kontera in some capacity, which could be a catalyst for acquisition.

The Future of In-Text Advertising

If Microsoft ends up acquiring Kontera, another player (AOL? IAC?) will follow and acquire VibrantMedia. In this case, Google won’t sit on the sidelines; they will launch their own in-text advertising solution for sure. By the time we’re out of this downturn, all major players will run in-text advertising, thus legitimizing it for the future.

So all in all, if these predictions play out, the downturn will serve in-text advertising well. It won’t be lead anymore by relatively anonymous companies, and it may loose some of its charm, but it will become a legitimate way of advertising and will gain public acceptance.

And what if my predictions are wrong? Can the in-text market survive? What do you think?