Social Advertising Intelligence. How to reach consumers with active advertising

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1 _XSL_FactSheet_ _v1.indd 4 Social Advertising Intelligence How to reach consumers with active advertising Xtract Ltd. White Paper October 3, :22:26

2 Executive Summary: Customers are increasingly moving from mass broadcast media to social media, making current advertising processes less effective than before. To adapt to this change, advertisers need to use more dynamic advertising strategies that take advantage of two-way communication with consumers. Until now, the tools for planning and buying online and mobile advertising have been lacking. This has slowed the transition to these new media forms. Xtract Social Advertising Intelligence is the first solution to provide accurate targets for advertisements and to track campaign performance in social media, online and mobile advertising. Advertising faces a radical change It is widely recognized that customer and user focus has moved to online media. According to a study by IDC, Internet users spend 32.7 hours per week online and only 16.4 hours watching television. The younger the users, the greater the extent by which Internet has replaced traditional media. The time spent using the Internet will continue to increase at the expense of television and, to a lesser extent, print media, writes Karsten Weide, IDC s programme director. This suggests that advertising budgets will continue to be shifted out of television, newspapers, and magazines into Internet advertising. Advertisers have noticed this change in customer focus and advertising spending in web, mobile and games is growing dramatically. Advertising Advertising budgets will continue to be shifted out of television, newspapers, and magazines into Internet advertising. expenditure on the web has grown annually at a compound rate of 18.3 percent and will reach $73 billion by 2011, according to PriceWaterhouseCoopers. By that year Internet advertising will comprise 14 percent of all global advertising. Billion USD Mobile advertising Internet advertising The focus of customers is moving to social media. Internet advertising will reach $73 billion by 2011 (PriceWaterhouseCoopers), while mobile advertising will grow to $14.4 billion (Strategy Analytics). 1 XTRACT LTD 2008 ALL RIGHTS RESERVED

3 Mobile advertising is also expected to grow in the next few years. Strategy Analytics forecasts that mobile advertising, which currently is around $1.4 billion market, will grow to $14.4 billion in Other estimates range from $11.4 billion (Informa) to up to $20 billion. Fragmented media The media landscape is more fragmented than previously. Twenty years ago one could reach maybe one third of the viewing audience with a single well-placed ad. Nowadays getting the attention of individuals requires sending multiple messages via different channels to consumers. Simply placing the advertising message in front of the audience is not enough. During the last twenty years traditional interruptive advertising has become more expensive and less effective. Advertisers have to find more innovative and expressive ways to reach consumers, who have become immune to mass advertising. Advertising is no longer just about content distribution. It is about people, connections and social networks. Brands and advertisers need to get into a dialogue with their customers: instead of push marketing advertisers should engage in pull marketing where the customer asks for and can obtain information and knowledge about the products and services on offer. It is impossible to manage all of a brand s communication via different channels manually and also keep the brand s message consistent at the same time. This is why intelligent and automated tools are needed so that marketers can adjust their marketing messages dynamically, and can also analyse campaign results. Challenges faced by advertisers There is a large gap between the amount of time users spend online as a fraction of their media consumption (20-40%) and the amounts of marketing budgets spent on Internet (around 7.5%). Much of this is due to the lack of tools and experience of traditional marketers to undertake online marketing activities as efficiently as possible. For online advertising spends to grow to its full potential, these obstacles need to be overcome. Advertising is not anymore just about content distribution. It is about people, connections and social networks. 1. Measuring the full impact of the ads Currently, the advertiser can at best receive information about how many people clicked on an online or mobile ad and what pages they were directed to. However, for most advertisers, it is not easy to get information about the spread of word-of-mouth, or how well the ad was received by different user groups. It is possible to get information about the success of advertising campaigns only through indirect questioning and traditional market research techniques. These are primarily developed to measure the impact of traditional advertising within traditional broadcast media and do not work well tracking advertising success in the fragmented landscape of online media. 2. Lack of tools Advertisers need tools and measurements that give them the confidence to invest in online and mobile advertising. A challenge for marketers is that there are no tried and tested tools for planning integrated campaigns across all media types that could be used for testing different advertising strategies and for reporting results accurately. Online advertising simply doesn t enjoy the confidence of major advertisers, many of whom are unwilling to take risks involving moving large amounts of money from measured media with a heritage of delivering measured results. One reason for this is that the standards and measurements for campaign success are still lacking for online advertising. 3. Ads cannot be bought in a unified way It is difficult for a media agency to buy and manage advertisements for different channels and purposes in a unified way. Optimally, media agencies should be able to plan campaigns for all channels, such as mobile and the Internet, from one single user interface. 2 XTRACT LTD 2008 ALL RIGHTS RESERVED

4 4. Lack of information on online users The main challenge with the current ad targeting tools is the lack of information on online users. Even though publishers have rich data on customer behaviour, planners and buyers haven t been able to use that for truly accurate targeting of customers. At best, advertisers are able to target messages based on the content on the web page (contextual targeting) or to specific demographic groups, based on age and gender. However, it has been impossible to target messages to individuals that participate in communities and social networks, so that the true interests and behaviour of the users is taken into account. Relevant content with digital advertising To increase the impact of advertising, marketers try to maximize the relevance of each piece of communication. This means that (in an ideal world) consumers would be targeted with advertising that is relevant and interesting to them. This is important because, if consumers find advertising mostly irrelevant, they will start to ignore it. For example, traditional banner advertisements and marketing (spam) are nowadays very inefficient, since online users do not notice them anymore. In traditional marketing, segmentation has been the tool for targeting consumers with relevant content. Segmentation means dividing consumers into rough segments, typically based on past behaviour, demographics or interests. Then campaigns may be targeted to specific segments or messages can be altered based on these segments. If traditional marketing corresponds to dropping an atom bomb on a city, then segmentation is at best dropping conventional bombs on villages. However, segmentation is clearly not enough in today s fragmented and complex media world. As the Chief Innovation Officer of Publicis commented in an interview in the Economist: if traditional marketing corresponds to dropping an atom bomb on a city, then segmentation is at best dropping conventional bombs on villages. This is clearly an improvement, but there is still a lot of collateral damage. The main selling point for digital advertising is that more relevant content can be presented to consumers. Digital advertisements can be focused to only those consumers, whose profiles (however defined) match that of the advertisement. The success of the ad can be also validated by analyzing, how many consumers click on it and how large a proportion of those clicks lead to new customers. Another challenge with traditional marketing is that usually the marketer pays for the advertisements with a constant CPM (cost per thousand viewers) rate, regardless of how well the advertisement has been received by the audience or how much impact it has caused. On the web and mobile, more effective pricing strategies can be used, such as paying only for those ads that have been clicked (pay per click, PPC) or CPA (cost per action), where the advertiser pays for each specified action linked to the advertisement. Media agencies need to have the right tools to help them plan campaigns and analyze the results. Advertisers and creative advertising agencies do not usually have the expertise, interests and resources to set up technical platforms or tools to manage campaigns and advertisement processes. This is why it makes sense for them to outsource the process of negotiating media channels and targeting their advertisements. With better pricing models and live customer feedback, new revenue sharing models are possible. These allow advertising and media agencies to concentrate on the message, and the placement of the advertising, while other parties can provide the final delivery of the message and the analysis of the results. In this way, even small ad and media agencies can take full advantage of online marketing channels without large investments in technology and tools. Publishers too can benefit from the ability to learn about their audiences leading both to more appropriate content and to improved ad revenues. 3 XTRACT LTD 2008 ALL RIGHTS RESERVED

5 Digital footprint & behavioural targeting Consumers SMS Instant Messaging MMS Online Gaming Social Media IPTV Digital marketing provides new opportunities for directing advertising to buyers by making use of their digital footprints. When customers browse the web, and communicate in social media they leave footprints. This includes the content they have created, the pages they have visited and the content they have viewed. The business around behavioural marketing is growing quickly. According to emarketer, spending on behavioural targeting will nearly double from 2007 to $1 billion US in 2008 and reach $3.8 billion by Some companies, such as Amazon, have been using this approach effectively in targeting customers with products based on past behaviour and the products they have been interested in. Footprint features Contribution to Digital Footprint 3rd party data Social Interactions Values & Attitudes Digital Footprint Behaviour Demographics The digital footprint of individuals provides the data for understanding consumer behaviour in social media. For example, visiting a web site or sending SMS messages leaves these footprints. By taking advantage of these footprints, buyers can be targeted with advertisements, which match their lifestyle and interests. These can also be combined with their demographic features and advertising history, to target them with relevant messages that they would be interested in receiving. Social interactions and viral effects The best opportunities in behavioural marketing come from utilizing the social networks of the users. Social networks are about interaction between people and they can be used to answer questions on where, how and with whom people communicate. This social network of individuals has clear community structure. Social interactions between individuals can be observed both online and in mobile device usage. Online sources of social interaction information include, for example, social networking services, but also message forums, instant messaging services and online games. Social networking services, such as Facebook and MySpace, have a wealth of information. This information is used already to target advertisements to users. However, according to JupiterResearch analyst Kevin Heisler, the targeting potential is used still very inefficiently and there is huge potential in creating and analyzing campaigns that utilize the inherent strengths of these interconnected social networks. 4 XTRACT LTD 2008 ALL RIGHTS RESERVED

6 71% of car buyers are influenced by what their friends say, whereas only 17% are influenced by TV ads. The interactions between individuals are a valuable asset marketers and advertisers. As strategy consultant Tomi T. Ahonen puts it, Give me two months of your phone behaviour, and the total traffic in the network, and I ll know more about you than any marketing manager could ever capitalize upon. Social networks can be used in a number of ways. They provide information on how advertisements spread in networks. They can also be used for finding communities of similar individuals and for making word-of-mouth advertising campaigns. They tell us also about individuals and their social role. For advertisers, the social context is most effective when combined with demographics and behavioral data on customers. For example, if one would advertise an event, it would be possible to send an SMS campaign to just those, who are year old, use their phones after ten in the evening and who are influential in their communities. This would be difficult, or even impossible, without the combination of social, demographical and behavioral information. Understanding social networks and communities is an extremely important element within efficient marketing and advertising in the digital world. Traditionally, marketing and advertising has been based on unidirectional broadcasting to undifferentiated customers. Today, brands need to engage their customers into multi-way dialogues taking place within customer communities, in order to gain a competitive edge. The importance of word-of-mouth effects, communities and social networks is backed up by both research and our everyday life experiences. For example, Nokia has found out that, in many consumer segments, as much as 50% of new phone selection decisions are primarily based on recommendations by friends. A Capgemini study showed that 71% of car buyers are influenced by what their friends say, whereas only 17% are influenced by TV ads. Active advertising Digital media requires active advertising, where advertisers send different messages fine-tuned for specific communities and constantly monitor and modify campaigns to make the advertising more effective. Instead of running campaigns for fixed periods of time, advertisers have to be able to monitor the campaigns in real time, add new content if needed, modify marketing messages and refocus them. This is quite different from the standard approach in mass advertising, such as newspaper, TV and radio, where campaigns are first defined in as detailed a way as possible, then advertising material is created that matches the brand message and finally the advertisements are shown to customers for a fixed period of time. Targeting and monitoring campaigns requires processes for obtaining data on customers and having tools to analyze campaign success. This requires a data-driven approach to advertising. This is more familiar to direct marketers and media agencies than to creative agencies. This transition from traditional static advertising to a more dynamic advertising model is going to happen gradually. Those brand managers, advertising agencies and media agencies understanding 1. Mass media Age Gender Postal code Occupation 2. Context sensitive Web or WAP page Search Time Location 3. Social Advertising Intelligence Combine market segmentation and context with customer behavior and social network profiles Context sensitive advertising is more effective than mass media, but it is limited since it is the same for everyone in the same context. Social Advertising Intelligence recognises consumers as individuals within their communities and networks. 5 XTRACT LTD 2008 ALL RIGHTS RESERVED

7 Advertisers Ad brokers Media companies Media houses Campaign Managers Identifying Social Advertising Intelligence Audiences Social Media Mobile Application Providers Content Providers Social Advertising Intelligence makes it possible for advertisers, advertising agencies and media houses to reach audiences in multiple channels. this change will be the ones that benefit the most from the transition to digital advertising. However this requires both changes in the mindsets of the advertisers as well as tools to support the processes of creating and managing active advertising campaigns. Xtract Social Advertising Intelligence There is a gap between advertisers, who need to reach consumers and the audiences available in social media. To fill this gap there is a need for a service that matches available audiences to advertisers and gives advertisers solid tools for finding the targets for their campaigns. Xtract Social Advertising Intelligence (SAI) is a solution for advertisers to target and manage personalised and automated advertising campaigns. Participating advertisers can choose the types of users they are interested in and the features of these users. Based on these choices, the advertiser is offered a set of customers that would be the most suitable candidates for the campaign. The basis of Xtract SAI is a three-dimensional profiling engine, which uses a combination of social, behavioural and demographic info rmation of customers from different sources for effective advertisement targeting and segmentation. When In one campaign, by using Xtract SAI, average ad income was increased by 82% from 11 cents to 20 cents. demographics and customer behaviour are combined with the analysis of social networking, one obtains a rich understanding of individuals and can serve them only those products and services likely to be of the greatest interest and relevance to them. Xtract SAI is the only approach that enables the efficient use of word-of-mouth and community based methods for the spreading of advertisements and marketing messages. These benefits are impossible via traditional or behaviour-based advertising. Xtract SAI is already providing true, measurable benefits in customer advertising campaigns. In one campaign, by using Xtract SAI, average ad income was increased by 82% from 11 cents to 20 cents. In mobile campaigns SAI has given 30% better response rates than previous campaigns and increased response rates from an average of 3-6% to 13-43%. About Xtract Xtract is the global trusted partner and innovator in Social Advertising Intelligence. Xtract has the technology and competence to turn large user data into cash flow. The solutions of Xtract create accurate and automated consumer profiles for mobile and online advertisers based on social interactions, behavioural and demographic data. Xtract operates across Europe and Asia, working with over 50 companies with intensive customer data ranging from global leaders such as Nokia, T- Mobile and Vodafone to innovative challengers such as BLYK and Fonecta. Headquarters are in Helsinki, Finland and London, UK. For further information, see: 6 XTRACT LTD 2008 ALL RIGHTS RESERVED

8 Bibliography Ahonen, Moore (2008). Communities Dominate Brands. Avenue A Razorfish (2007). Digital Outlook Report Business Week (2007). Struggles of a Mad Man. ClickZ (2007). Fred Aun. Social Nets Sit on Goldmine of Behavioral Data, Says Jupiter. emarketer (2007). Behavioral Targeting: Advertising Gets Personal. IDC (2008). IDC Finds Online Consumers Spend Almost Twice as Much Time Using the Internet as Watching TV. PWC (2008). Global Entertainment and Media Outlook: The Economist (2007). The next big thing. The Economist (2008). Hard sell. TNS Media Intelligence (2008). Harnessing Influence How Savvy Brands are Unleashing the New Power of Blogs and other Social Media. IBM (2007). The end of advertising as we know it. IBM Global Business Services. Xtract Corporation Ltd. Venture House Arlington Square Downshire Way Bracknell RG12 1WA UK Xtract Ltd. Hitsaajankatu 22 FIN Helsinki Finland Xtract online: Office:+44 (0) Fax: +44 (0) Office: Fax: Xtract_XSL_FactSheet_ _v1.indd :22:26 7 XTRACT LTD 2008 ALL RIGHTS RESERVED