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11/15/2006
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Online Ad Startup Aims to Automate Marketing

Turn Inc. provides tools designed to help advertisers move away from the cost-per-click model, which is prone to click fraud.

Internet advertising is booming, reaching $4.2 billion for the third quarter, according to the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers. But Jim Barnett, CEO of online advertising startup Turn Inc., believes advertisers deserve better.

Advertisers want better targeting for their ads and simpler systems for managing them, Barnett contends.

Just as Google simplified search, Turn aims to simplify online advertising. Despite the fact that Google, Microsoft, and Yahoo share that goal, Turn debuted last week with over 1,000 participating advertisers and $18 million in venture funding.

Barnett believes online ad providers have to automate and move away from cost-per-click (CPC) advertising to cost-per-action (CPA).

"What if we could automate online advertising?" says Barnett. "That's really the foundation of what we've created. We call it automatic targeting simply because that was the best name we could come up with. But it's really the concept of radical simplification and blending all of these targeting methods."

Online advertising is already automated to some extent, though it's far from simple. Advertisers face a wide array of targeting methodologies that weigh different kinds of data, such as demographic, contextual, and behavioral information, to deliver the most relevant ads. For many advertisers today, initiating an online ad campaign often requires significant setup in terms of site targeting and keyword selection.

"Our vision is that advertisers should be able to come to an ad network, and regardless of their goals, regardless of the ad type they want to use, regardless of how they want to price their campaign, they should be able to do it in a one-stop shop," says Barnett.

Turn's technology blends over 60 different variables so it can target ads more efficiently than manual methods. Whether or not the system works as advertised is an issue advertisers will have to evaluate for themselves. But the company's belief in the superiority of the CPA approach over the CPC approach appears to be reasonable in light of the incidence of click fraud.

Google refers to fraudulent clicks using the more neutral term "invalid clicks," which it defines as "clicks generated by prohibited methods. Examples of invalid clicks may include repeated manual clicking or the use of robots, automated clicking tools, or other deceptive software." Typically, the aim is to inflict a cost upon the advertisers, who pay per click, and often to collect some portion of that payment by colluding with the publisher hosting the ad.

"Click fraud is manageable if correct technical defenses are in place, as most click fraud is accomplished through massive bot networks that infect PCs with malicious code," says Ryan Sherstobitoff, product technology office at security vendor Panda Software. "For advertisers such as Google and Yahoo, the problem is out of control because they can't control what the users have on their PCs. There are several schemes to trick users so they become infected such as through a phishing e-mail or through hidden injection of malicious code when visiting a Web site."

Click auditing company Click Forensics puts click fraud at just under 14% for the major search engines. Though Google insists it can handle click fraud and maintains that alarmists have a vested interest in exaggerating the problem, advertisers remain concerned that they're not getting what they've paid for.

CPA advertising is more resistant to click fraud because many of the actions advertisers may pay for, such as the sale of an item, can be verified more easily than whether a real person clicked on an ad with the intent to buy. As a consequence, many in the online ad industry, including Barnett, predict a movement toward the CPA model.

Beyond the issue of click fraud, Barnett argues that the CPC model isn't flexible enough. "There are a lot of inefficiencies in the CPC world for both advertisers and publishers," he says. "If the price for the number-one slot on a CPC network is 50 cents a click, every publisher gets 50 cents, whether or not you're a high-quality, converting publisher.

"The question is how much of the market will CPA, broadly as we define it, capture over the next two to three years," says Barnett. "That's an open question, but we think it's the future."

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