I will be presenting a very practical use case of the integration of WordPress and OpenX. OpenX is an ad server. More information about OpenX can be found on my blog. OpenX is free open source software, just like WordPress, and can be downloaded from www.openx.org.

On large websites with a variety of sections, it can be a good strategy to enable advertisers to place their ads only next to those sections that match their product or service. By assigning a category to each blog post, this can easily be achieved. In my presentation I will demonstrate how the post category can be passed on the ad server, and how the ads can be targeted to the precise category or categories that the advertiser is looking for. That way, the ads will only show up on articles that match the targeting criteria.

There are many advantages to helping advertisers target only relevant blog posts:

• advertisers can target their ads more precisely, and as a result their ad spending will have a higher return on investment
• publisher of a site or blog will be able to sell advertising more easily and find multiple advertisers for a better segmented website
• site visitors will see more relevant ads, which means they will appreciate them more than just ‘random generic advertising’

This presentation is intended for beginning WordPress users with some experience adapting their theme (or a willingness to learn).

More information about WordCamp NL 2009 is on the webite, including a registration form. there are only 200 seats, and they are filling fast, so speed is of the essence!

OpenX is an ad server, a system used for online and simple management of advertising space. It is free open source software. Because it is very powerful and has a lot of features, in some cases it can be a real plus to hire a consultant.

In recent weeks I had a number of questions from people asking me what ‘OpenX‘ is. Clients that I help with their OpenX system and implementation know the answer, of course, but since I write about it on my weblog all the time, others have noticed the term too. A valid question, and below is a short introduction about OpenX, how it can be used and what my work around OpenX involves.

Short introduction of the OpenX Ad Server

OpenX Ad Server is an ad server, created and published by the British-American company OpenX.org. It is a system that can be used to manage and optimize the advertising space on one or more websites. It is a tool for web site owners (called ‘publishers’ in the online advertising industry).

What is an ad server used for?

When managing a website, or perhaps even multiple websites, there can be a lot of work involved in putting advertisements on the site and removing them again, especially when this is done by entering the ads directly into the site’s coding. It takes a lot of time and it reduces flexibility. An advertising server (usually shortened to ad server) like OpenX can provide a real solution in this scenario.

How does OpenX work?

Websites and zones
In the OpenX Ad Server, one can define websites, and also one or more zones for each website. A zone represents a space on the webpages where ads are supposed to be displayed. For every zone there is a little snippet of HTML code, which must be placed in the site, at the exact spot where the zone should go. This forms the integration between the site and the OpenX Ad Server. It is a one time job, that will take little time for an experienced webmaster or developer. The word ‘zone’ is a term in OpenX, other systems refer to it as ‘location’, ’spot’, ‘placement’ or ‘position’.

Advertisers, campaigns and ads
One can also create advertisers, campaigns and ads in the OpenX Ad Server. Those can be internal campaigns or campaigns from direct advertisers, but also ads from external ad networks like Google AdSense, from affiliate networks like Commission Junction, or from advertisers and agencies that use systems like DoubleClick.

Targeting: the right ad at the right spot
The final step is to link the right campaigns to the right zones, effectively determining which ads will appear where. This can be combined with various forms of targeting, matching the display of ads to specific situations. OpenX Ad Server can handle targeting based on date, day and time, geographic are (country or city, and more), web browser used by the visitor, and language set by the visitor, to name just a few. There are also advanced targeting options, using known information about members or customers (like their gender, education or age range), or from known details about the site’s content and structure (for instance: display the ad only in the ‘news’ section or anywhere but the ’sports’ pages).

Statistics: to measure is to manage
The OpenX Ad Server measures how often ads are displayed and clicked, and has reports for these numbers plus ad revenue for the publisher, advertiser and webmaster. It also has functionality to measure conversions, leads or transactions on the advertiser’s website that occur as a result on a click on a banner that was displayed on the publisher’s site.

Starting to use OpenX: hosting and scalability

OpenX Ad Server is a free open source application that can be installed on a publisher’s server. It was developed in the PHP programming language and stores data using the MySQL database, both of which are also open source software. Except for time and hardware, there are no additional costs, and no license fees. Another option is to hire a specialized hosting company to handle the technical aspects.

The OpenX Ad Server can be utilized by small and large websites. The system has been designed to enable installation on a cluster of web servers, allowing it to grow alongside the growth of the sites. There are companies that display in excess of 1 billion ads per month using OpenX Ad Server. That does involve quite a bit of hardware of course.

Nowadays one can also open an account on OpenX Hosted, on offer by the OpenX.org company. This is free of charge up to a volume of 100 million ads per month. For anything above that, there are paid enterprise accounts.

OpenX Market: an advertising market place

Giving away an open source system for free obviously isn’t generating any revenue for the developers. In April of 2009 the OpenX.org company launched a new product that is going to take care of that: OpenX Market. It is effectively an extension to the ad server. With any campaign defined, the ad server can contact the OpenX Market in real time, looking for an ad that has a higher bid than a floor price that is determined by the publisher. Advertisers are bidding against each other, and the highest bidder wins the ad position. If there are no bids that exceed the floor price, the publisher’s own campaign will be displayed. For site owners, this provides a risk free way of testing the open market for higher ad revenue. The OpenX.org company makes money from the OpenX Market through a 15% markup on the floor price, as part of the bidding process.

The features I mentioned above are in fact only the tip of the iceberg. There are many more advanced features and use cases.

Advanced applications and extensions

With the release of version 2.8 of the OpenX Ad Server software, another important feature was released for the first time: the plug in architecture. This enables developers to change or extend the functionality of the core system without having to modify that same core directly. This is an approach that has proven to be highly successful in other open source software like blogging tool WordPress or web shop system Magento.

More information about OpenX?

There is a lot of information about the system and functionality on the www.openx.org website. The software is available for free download there, but one can also open a free account on OpenX Hosted.

Consulting and Support for OpenX

OpenX Ad Server is a large system, and it will take a bit of effort and energy to get acquainted with it. One can get external help too, since there are a number of independent consultants around the world, and I’m one of them. The OpenX.org site shows my profile, reviews and references. I work for clients from all over the world. I have a page on my site that lists which services and support options for OpenX I have on offer. There is also a request form to contact me about OpenX consulting and support.

Direct ad sales is hard work

In my work as an internet business consultant, I often help site owners and publishers with their online advertising programs. The objective is usually to optimize or maximize ad revenue, or to reduce the costs involved in operating the advertising. And very often people will want to try out if they can sell advertising directly, instead of just using an ad network or programs like Google AdSense.

As it turns out, trying to sell advertising takes time and energy, and it has a remarkable resemblance to normal work. It requires dedication, perseverance, patience, and a keen sense of business. In some cases, people are a little bit disappointed. They had the impression from stories in the papers that just setting up a web site would be enough to start making serious money without putting any hours in.

John Ramey, CEO over at isocket, did a four part series on his blog, that goes into a lot of detail about selling advertising. The first article explains the difference beteen remnant advertising and direct advertising. Then he goes on to explain why selling direct advertising can generate more ad revenue than just running ad networks and exchanges. There is another article on the blog that gives some pointers to help you decide if direct ad sales is a good idea or not. Once you’ve decided that direct ad selling is something worth trying, the next question is: how? John’s third blog in the series describes what isocket.com will do to power direct ad selling. Of course, isocket.com isn’t the only option for doing direct ad sales, and they are still in private beta when I write this, but it is something to keep an eye on.

Update November 13, 2009

OpenX, the makers of the free open source ad server, recently did a survey of over 450 publishers, asking them about their approach to direct ad selling and the results. Based on the feedback, they put together a 3 page report that lists the five most important factors that can lead to an increase in the CPMs from direct ad sales. The announcement and a download link for this report can be found on the OpenX Blog.

Researchers at market research firm MetrixLab have studied what influences the effectiveness of banner ads, looking at aspects like size, timing of showing the logo and brand name, and interaction. They also investigated how site visitors respond in terms of attention, memorization and attitude.

The study reveals eight tips for effective banner ads:

1. Show the logo or brand name at the end of an animated banner, because otherwise it will be too much of a distraction.
2. The message that needs to get across must also be at the end, that will demand the most attention from the viewer.
3. The bigger the better: people will notice large ads more often and look at them for a longer period of time.
4. Fast moving text will be memorized better, but slow moving text results in a more intention to buy.
5. Continuously repeating the same message does not have any additional effect. Once is enough, but make sure that the final image is right, because that’s going to stick.
6. Showing images of people has a positive result and will increase click through ratios.
7. By explicitly asking to click the ad, the click through ratio decreases. People don’t want to be bullied, they want to make their own decisions.
8. Interaction doesn’t lead to better memorization, but it does help attract attention.

OpenX: impressive growth, new software version

A press releases and a software upgrade from OpenX were published almost at the same time yesterday. Almost 1 year after joining OpenX as CEO, Tim Cadogan picked April fool’s day to make some very serious announcements.

The first story was a press release about the phenomenal growth in the usage of the OpenX Ad Server product and the accompanying OpenX Market. A few highlights:

• More than 8,000 publishers have opened accounts on OpenX Hosted, together serving about 5 billion ads per month.
• OpenX Ad Server has been downloaded and installed by more than 35,000 publishers, and together they serve a huge number of ads, estimated at 300 billion per month.
• OpenX.org Ltd is doing very well in the transition from being a developer of open source software into a commercial company offering software, services and monetization opportunities. In spite of the economic climate, revenues are increasing. Even more important in my opinion: the potential for OpenX Market is not just a concept anymore, because participating publishers can tell from their revenues that OpenX is also generating revenues.

Just a few hours later, a major new software release was announced on the OpenX company blog: OpenX Ad Server version 2.8 is now available to anyone. It has some exciting new features and benefits, including the new plugin framework, general availability of OpenX Market, and improvements in the user interface, scabability and performance. More about the new software in my earlier blog post.

In the first article in this series, I suggested changing the pricing of advertising campaigns based on impressions to pricing them based on the number of clicks. And in the second article, I went a little bit further and argued that it might be even better to agree on a cost per action pricing scheme.

If an advertiser is considering ending an impression based or click based advertising campaign, a publisher could try to turn the relationship into a partnership by offering CPA (cost per action) advertising. In that scenario, the site publisher will get paid for a specifically defined outcome that the advertiser is aiming for.

I think many people know the phenomenon of ‘affiliate marketing’. Programs like Amazon Associates are a very good example. The publisher sends people to Amazon’s website, where they can buy a product. The publisher gets a percentage of the sale, which varies depending on the product category. This is actually a win-win scenario for the publisher and for Amazon. The publisher doesn’t have to convince Amazon to run an advertising campaign on her site. Instead, it’s as simple as applying for the program and placing the links or graphical elements on the site. For Amazon, it’s very efficient as well, because they don’t have to pay any upfront advertising, they only have to pay when the desired result occurs, i.e. the sale of a book, DVD or any of the millions of other products they have on offer.

In the online advertising industry, every time a site visitor becomes a buyer, we call that a ‘conversion’. And if the outcome is a subscription to an e-mail newsletter, a membership to a website, or just a lead, that’s also called a conversion.

For the publisher, the only limit is the number of buying customers sent to Amazon. And for Amazon, strange as it may sound, the more the have to pay the publisher, the happier they are, because they’ve sold more than without the publishers help.

There are numerous affiliate marketing companies. However, for a business there are costs involved in joining them. As a publisher, your advertiser might be just too small or too specialized to join any of those companies. And not always is the desired result a sale.

Most modern ad servers have the ability to measure conversions. For instance, the open source ad server OpenX has a feature called ‘trackers’. The typical work flow is like this:

• A person visits a website and sees an ad for a product or service she likes. That is called an impression.
• When the visitor clicks the ad, she is taken to the advertiser’s website. That click is also counted.
• On the advertiser’s website, she then buys the product that was promoted. At the very end of the sales process, the transaction is recorded by means of an invisible tracking code. This code sends a signal back to the ad server reporting the occurrence of the sale, typically including the total value of the transaction. That’s called a conversion.
• The ad server will then link that conversion to the impression and click that started it all.

In most ad server, there are four basis elements that can be reported: number of impressions, number of clicks, number of sales, and sales value. The publisher and the advertiser must agree, preferably upfront, how the publisher should be compensated. One scenario is that the advertiser will pay a fixed amount for every sale. Another scenario is that the publisher gets a percentage of the sales. Combinations of the two are also an option.

The math involved in cost per action campaigns is simple and sometimes sobering:

• From 100,000 impressions, typically only 200 or so clicks occur. The CTR (click through ratio) is 200 divided by 100,000 equals 0,2%.
• These 200 clicks result in maybe only 5 sales.
• If the average sales value is $15 and the publisher gets a 5% commission, those initial 100,000 impressions will pay out $3.75.
• The eCPM for this deal is then $3.75 divided by 100, equals $0.0375.

Of course, the parameters in this equation could be very different. Let’s assume a publisher is displaying affiliate ads for rental cars. The number of transactions might still be just as low as 5 out of every 100,000 impressions, but the transaction value could be a lot higher than $15, maybe even $500. Still using a 5% commission, the payout to the publisher is $125, resulting in an eCPM of $1.25.

The ability to link the sales back to the impressions is important for publishers. It allows them to calculate how much affiliate revenue they’re getting for every 1,000 impressions. The outcome is often referred to as ‘eCPM’, or ‘earned cost per thousand’. That number can them be compared with other affiliate programs, or with more traditional advertising programs. After all, it wouldn’t be smart to run an affiliate campaign that looks good on paper but actually pays less than other campaigns.

For advertisers, it is also important to keep a close eye on that eCPM their publishers are getting. Having it too low will mean publishers will start looking for other opportunities. Having it too high means they’re paying more than they should (publishers won’t mind that of course).

As a publisher, stepping into affiliate marketing with your (former) advertisers effectively means risk reversal. The advertiser might not be willing anymore to pay up front for an uncertain outcome. Allowing them to pay for their desired result just might make the difference, especially in a climate of shrinking marketing budgets but increasing focus on sales efforts.

This completes the route that publishers and advertisers can travel together from a traditional display advertising relationship into the partnership called affiliate marketing.

In the first article in this series, I discussed switching from CPM to CPC campaigns (see that article for an explanation of these terms). In this second article, I’ll go one step further than just getting paid for clicks, by introducing conversion tracking.

Advertisers don’t buy a campaign because they like the site’s publisher. Their business goal is to increase sales. While there is a place for just raising brand awareness, ultimately it’s all about bringing in potential buyers, presenting them an attractive offer for a product or service, and completing the transaction.

In the past, publishers often found it easy to sell campaigns based on monthly tenancy or CPM (a fixed amount per thousand impressions). With budgets shrinking, advertisers find these deals are the easiest to cancel. That’s because there is no direct and measurable correlation between the money invested and the resulting sales. The alternative I presented in my previous article was to offer a campaign based on a price per click instead of a fee for the ad impressions.

In some scenarios, offering a cost per click campaign may not convince the advertiser, for various reasons. They might be concerned about click fraud, they might not have the metrics telling about their effectiveness turning site visitors into buyers, or their sales value per buyer might vary wildly. In those cases it’s hard to agree on a reasonable price for a click.

The beauty of online advertising is that everything is measurable. That’s a strong contrast with advertising in traditional media (print, radio, TV, outdoor), where it’s hard to find out what the exact effect of the ad is. If the publisher has a modern online ad management system like OpenX, ad impressions and ad clicks can be counted and reported. In addition, these advertising servers can also count something called a conversion.

For an advertiser, there can be several positive outcomes when someone visits their website. The visitor might submit a contact form, sign up for a newsletter, request a quote or buy a product or service, just to name a few examples. All of these have in common that the visitor changed into much more than just a visitor, she was converted into a contact or client. The publisher can offer to help measure these conversions, and have them link back to the initial ad impression and click that started the process. That will give both the publisher and the advertiser a very clear insight into the effectiveness of the ad campaign.

The ad server will report the number of ad impressions, the number of clicks, and the ‘click through ratio’ (CTR). That’s the number of clicks expressed as a percentage of the number of impressions. It will also be able to report the number of conversions. The financial compensation that the publisher and the advertiser have assigned to a conversion will be shown in the report as well.
Being able to offer an advertiser a campaign that’s going to be paid on the basis of real results will probably give the publisher a competitive advantage over other publishers. It shows real interest and understanding in the business needs of advertisers. And when a modern ad server (like OpenX) is being used, the ability to measure conversions takes hardly any effort from the advertiser.

It will take a bit of negotiating, obviously, to come to an agreement on the financial value of a conversion. For the advertiser, the value of a sale is much higher than the benefit of having a potential buyer submitting a contact form. But it will definitely be an advantage that the publisher is able to offer easy measurements of conversions. When the advertiser is a small business with a relatively simple website, they might not have that ability themselves but welcome the opportunity to use it.

In the next article in this series I’m going to discuss how conversions can be measured and valued.

In the past few weeks, I’ve talked to a number of publishers who had a remarkably similar story: advertisers are starting to cut their ad budgets, and as a result site owners see their ad revenue decline. Whether or not it is a good idea to reduce advertising budgets is not my call, only time will tell. But for site publishers, it’s a real problem.

In a series of articles, I’ll present steps publishers can take to act on this trend. You’ll see that the overall strategy is to reduce the risk for advertisers and to find ways of adding more value than just offering display advertising. In this first part, I will discuss switching from CPM to CPC campaigns (I’ll explain these terms below).

According to the publishers I talked to, most of the campaigns that were terminated were based on a monthly tenancy or a CPM contract. CPM means ‘cost per mille’, where the advertiser pays a fixed amount for every 1,000 ad impressions on the publisher’s site. That’s understandable. An advertiser looking to reduce his ad spending has an easy choice here. It’s an out of pocket cost, with no direct or measurable result. Strange as it might sound, this is both the reason but also the solution for this problem.

Let’s face it, an advertiser isn’t really running ads on a site because they like the site or the site’s owner (actually, they may like the site and the publisher a lot, but it’s a business decision to run advertising or not). No, what an advertiser wants are results. They are trying to get people to visit their site or business and then buy their products and services.

So as a site owner you might want to contact the advertiser, and make them a proposal that is based on results, not just on input. Using a modern ad management system allows you to measure and manage ad campaigns on numbers of clicks, not just ad impressions. It’s all about changing the focus from selling ad space to delivering potential buyers. And at the same time you should focus on taking the risk away for the advertiser.

Your advertisers usually have a pretty good idea about how effective they are in turning a visitor into a buyer. Let’s say that they can sell a product to 1 in every 100 of the people visiting their site. That’s called the conversion rate, in this example it’s 1%. In other words, every single visitor you send to their site contributes 1% of all sales that originate from clicks on your site. It’s only reasonable to assign a financial value to these clicks. After all, without them those sales wouldn’t have happened in the first place. The hard part is agreeing on what a reasonable compensation for the site owner would be. In some markets, it’s not that hard, the margins are well known. In other markets, it requires a bit of openness and trust between the two parties.

When the advertiser makes 5 dollars net profit on a single sale, every visitor contributes 1% or 5 cents to that net profit (for our fictional scenario). The site owner and the advertiser might come to an agreement to split that, so each gets half. In terms of the ad campaign, this comes down to 2.5 cents per click. That’s where the term cost per click, or CPC, comes from.

By switching from display advertising to pay per click advertising, you’re becoming more than just a publisher. The site owner and the advertiser are stepping into a partnership which a shared interest: both will benefit from sending as many new visitors as possible to the advertiser’s site. There is little risk for the advertiser, they’re only paying for clicks and their ability to turn visitors into buyers becomes the key factor. As a publisher you might think it’s a bad deal compared to CPM campaigns. However, since you had lost those CPM campaigns already, this is better than not having the campaign at all.

It’s not always this simple, for instance the advertiser’s sales value might vary widely per transaction, or the conversion rate might not be as easy to predict. In the next part of this series I will discuss how you can still offer performance based advertising in that scenario.