So to those not in that industry here is the best I can do in summarizing what’s going on here.

The amount of display ad inventory available online is absolutely massive… far more than the supply of advertising dollars chasing it… so the price someone is willing to pay to serve any old advertisement to a random Internet user is pretty negligible. Meanwhile, the internet advertising industry long ago went down the path of selling itself as a data intensive, highly measurable and result oriented medium… and for better or worse is generally stuck with that description.

So… the name of the game nowadays is to not just serve anyone on the Internet any old ad and call it a day, but to serve a very specific group of people, sometimes a very specific ad, and measure what happened afterwards to see if it ‘worked’ in terms of driving clicks or purchases… rinsing and repeating until one gets the desired result or gives up and tries for a new result instead.  The more highly correlated a given piece of information is with some desired activity like a click or purchase, the more valuable it is.

So some folks are making tens of millions of dollars doing very little more than going to an open advertising exchange and buying low cost impressions generated by people they know, and then adding in the information they have on those folks in order to more effectively target ads in a game of information arbitrage.

The vast majority of folks are focusing on the part of the equation around WHO will be shown what ad… which can be things like people who shopped online for flat screen tvs in the past 30 days, or people who checked an online stock portfolio in the past 24 hours, or someone who just read reviews of new cars on an auto oriented site.

A great recent example of this is a company called Magnetic (http://www.magnetic.is) which just raised $5 million in funding some top VCs, and a company that PaidContent thinks could be part of the next big wave in online advertising.  What Magnetic  does is provides advertising re targeting data off of searches conducted at one’s site. So not only can site owners continue to run a Google AdSense for search program directly on their own site, but let’s say you’re running a car blog and someone searches for “Ford Mustang” on your site and later heads over to  somewhere like cnn.com to read about the disaster in the Gulf.  Ordinarily there is no way to know that a reader on cnn.com reading about the disaster in the Gulf may be interested in a Ford Mustang, but using a system like Magnetic allows CNN to directly get this information and try to use it to charge more for their ads, or alternatively ad buyers for someone like Ford may not even concern themselves with specific sites and instead simply buy people who have searched for their brand or products wherever they may go across the web, through purchases of ‘individual cookies’ via blind advertising inventory exchanges. 

Another similar example is aCerno which was recently acquired by Akamai for $95 million. aCerno uses consumer shopping data gathered from a co-operative of approximately 550 major e-commerce sites, to re target advertisements across the web based on their online shopping behavior. 

The key words to keep in mind about where the industry stands today is terms like “shopped online”, “checked an online portfolio”, “read an auto site”… notice one thing in common here… all these behaviors are taking place in front of a computer screen. But what about the vast majority (95%) of the times when all those folks walked into a Best Buy store, Fidelity retail brokerage or stepped foot onto a Ford auto lot to do their commerce the old fashioned way offline?

There is no reason why this game of information arbitrage needs to be limited to purely online behaviors, or to the traditional browser of the PC based Internet.

Is a guy who spent three and a half hours sitting in Yankee Stadium four separate times last month probably a better prospect to buy Yankee hats, mugs, and jerseys gear than the general public? You betcha. 

Is a user who spent 45 minutes at a local Ford dealer lot last Saturday, potentially someone in the market for a car with higher than average intent to purchase a Ford vehicle? Probably.

So you have to think that it won’t be long before all of that algorithmic, arbitraging media trading that we’re seeing online these days begins to bleed over into the world of offline meets online, using location data at the center, in fact it’s nearly here.

Now this could very easily turn into another rah-rah post about why mobile social applications like Foursquare, Gowalla, Loopt and MyTown are going to take over the world… they get you to fork over information about your whereabouts and that information can be digital adverting gold.

But I am not sure I am ready to concede that this is something for mobile social networks to own…  do you really need a user to push a button to tell you where they are in order to get that location information? Per a recent L.A. Times article, the latest Apple iPhone terms and conditions changed to include a section related to LBS where they declare that “Apple and our partners and licensees may collect, use, and share precise location data, including the real-time geographic location of your Apple computer or device” and the article also makes note of Google’s similar geo data collection policies for Android Phones. 

For at least a few years now companies like Sense Networks and Placecast  have been working with large volumes of aggregated location data, collected from a variety of places, in an attempt to unlock the value contained within a long history of geospatial locates.  So there are obviously other ways to get at this raw data and make it valuable beyond the self reported (and self serving?) check in, which after all is just a small snapshot of activity of a few million users at best. But how valuable is a string of user locates as stand alone data?

In the current online world, tracking a search query or information from a web page to turn it around for re targeting purposes is relatively straightforward since everything already exists digitally. But when someone goes SOMEPLACE in the real world now, the digital documentation about that place is currently pretty weak…  so going to a position in space at some point needs to get digitally mapped back to the vast reservoir of digitized knowledge that we have about that space.

Folks like Localeze have started us down this path by making business listings more rich versus the dry name, address and phone numbers of the days of the yellowpages, but they’re coming at it from a perspective of web and local search.

Meanwhile an interesting new company called PlaceIQ is coming at it from the perspective of painting a better contextual picture of the places people visit. In the same way that ContextWeb tries to understand the context of the content on a webpage to serve a better ad, PlaceIQ is looking to better understand the context of a place to serve a more relevant mobile ad to folks at that location, not based on the content within a mobile site or app, but on the geographic space surrounding the customer at that time.  Taking it a step further PlaceIQ, similar to companies like Magnetic and aCerno,  will look to extend that knowledge of place to using information about historical presence at places to better target advertising via re targeting… like a mobile ad for a Derek Jeter jersey targeted to someone who attended a game in Yankee stadium a few days earlier.

Just knowing that a person is at a given latitude and longitude alone may turn out to be about as useful as knowing someone is on the web… and from an advertisers point of view, pretty low value. But if that latitude and longitude can be resolved to a place, and a ton of other information assigned to that place, then a new rich dataset for targeting and re targeting across the mobile and geoweb will evolve with location and presence at its center.

Stat: There is a huge discrepancy between time spent on local content and advertising spent for local online advertising. If the ratio comes in line with other mediums, it’s a $30 billion market
So what? It’s potentially a $30 billion market… maybe something to pay attention to.

Stat: Last year 1.4 million companies bought search advertising versus only 44,000 that purchased online display.
So what? Well the opportunity seems to be finding a way to make it easier for those 1.4 million local companies to buy display online.
 
Stat: 80% of consumer dollars are spent within a 50-mile radius near their home, and 96% of consumer purchases  happen in retail store environments; e-commerce is still quite small in the grand scheme of things.
So what? The opportunity to use new technologoy to help connect consumers with stores and items in the stores around them is significant.

Stat: Quick service restaurants spend $3.04B per year and only 2% goes to Internet, and according to MerchantCircle research, 60% of SMBs never heard of Facebook…..
So what? There is still a long way to go with many retail oriented segments, they’re still not online, let alone on mobile, social networking or location aware advertising.

Stat: On Yelp, 3 million of 16 million local businesses have reviews.
So What? Well if you’re one running one of those 3 million businesses, you should keep an eye on what is being said. Online reputations management systems are popping up to help make this a more quick and painless process.

Stat: currently local digital advertising is getting placed via:
Self service: 49% (presumably Google AdWords primarily)
Yellow page sales team: 24%
TV and Radio sales: 9% (SMBs preferred method)
Newpaper sales team: 8%
Ad Agencies: 8%

So what? Well as you may have expected, folks that have always sold local advertising to the local SMB market, are now also selling someone else’s digital advertising to those same customers.  But many local business are buying digtital media themselves, likely out of necessity, even though they’d prefer using their TV and radio sales contacts. Looks like there may be an opportunity to provide high quality sales service selling  digital advertising to the local SMB maket.

I’ve grown to the believe that there is a huge opportunity in the area that ReachLocal is targeting… there is so much advertising money floating around in the local markets and until recently so little attention being paid to servicing brick and mortar retail folks who just have a few thousand dollars a month to spend on digital advertising.

While Google is now up to something like 1.5 million advertisers, and has done a great job of servicing the long tail of online oriented advertisers. It’s the long tail of offline advertisers, which is proving to be a bit tricky to convert to online, not just because they’re the long tail and there are tens of millions of them, but they don’t live and die by traffic to their website… heck many don’t even have websites and can be pretty ambivalent toward the whole thing!

One of the newest companies to pop up on my radar screen in this area is a company called Paper G recently started by some Yale and Harvard students.  Paper G is focused on the digital display advertising space and one of their products PlaceLocal is trying to solvea familiar problem for this market which is how you make it super easy for folks with very little time, digital resources and digital wherewithal to develop and run digital display ad creative. 

The PlaceLocal product greatly simplifies the process of making an online display ad. I gaveit a trial with a popular burger joint, Five Napkin Burger, that opened a new location on the Upper West Side a few months ago.  Essentially all I had to do was type the name of the business and the city andPlace Local did most of the rest.  After typing in “Five Napkin Burger” and  “New York” PlaceLocal first found the business (ok so it was really the old location in Hells Kitchen, but I give them credit there anyway) and one click later it was busy scraping the web or hitting various APIs to find stuff to  put into the ad. While I waited a minute or two for it to do its thing, I must admit that I was pretty skeptical that it could be this easy and still be good, but I must say the result was pretty damn impressive.

After more than a few minutes of whirling ‘working’ icons… woo hoo it had found a bunch of content to use in the ad!  At this point you get to pick some VERY basic components to put in your ad like the logo, the design style and click through URL and PlaceLocal populates the rest with a slick flash movie full of restaurant images, menu images, and snippets from reviews from popular restaurant review sites like Yelp. 

There were a few hiccups with my trial run with Five Napkin Burger… PlaceLocal couldn’t come up with a logo so I had to crop the company name out of another image, but it was super easy to do with the tools provided by PlaceLocal.  And while at first pass most of the reviews selected were stellar there is one looping through that disses the endive leaves on their burger, and another Yelp snippet which simply says “a perfect side for this perfect burger” with no reference to what that side may be.   Fortunately they have great tool so you can easily get back in there and see the whole review and then edit what appears in the snippet in the ad.  In fact their tool for messing around with the assets that go into the ad were pretty good… you can add various photos and change things like business category and hours etc… and the whole thing is vey well designed to make it powerful enough to change many of the things you wanted to change without introducing too much complexity to the process.

Once the ad is created you can buy into three simplified buckets of media buying with spends ranging from $300 to $1,000 at what works out to about a $15 CPM.  

I am not sure how much traction they’ll get as a stand alone place to create and run local advertising but as a tool for easily creating local oriented ads the product does very, very well.  So it’s not surprising to see local newspapers and folks like Time Out New York flocking to check out their service as a valuable tool for their sales force selling their own owned and operated sites.  Over time too many of the similar format of intertwined user reviews and photography in a flash movie may begin to get old, but I suspect that they can develop some new templates to keep the ad creative options fresh and flexible.

It shouldn’t take long before folks like CitySearch, ReachLocal and others take notice and try to rip it off or partner with these guys.

Now in the olden days when you just bought a printed foldable map this didn’t really matter much, but nowadays in the modern inter networked world of digital maps and folks creating a dizzying array of new services helping connect people with locations, it matters more.  Now within a single stand alone application like say a TomTom navigation device there is probably not much thought put into what you name a place, but in the web2.0 world where interoperability and information sharing reign, everyone needs to know what location everyone else is talking about when someone is talking about the business at 4151 North Central Expressway.

So rather than just getting everyone to try to agree on a standard, which could take years and years and would probably be a lot like herding cats, Placecast has announced today that it has developed a technological solution to the whole problem and they’re opening it up for free use.

The product is called the Placecast Match API…. and it’s described as “a Rosetta Stone for location data”. For those that need a refresh on their ancient Egpytian artifacts, this basically just means that they will provide a way to translate between the different “languages” that different services use to describe locations for the purposes of enabling interoperability between those services.

There is a great article on Tech Crunch that demonstrates how this problem manifested itself in the hot area of mobile social networking and the battle of the check-ins where folks may want to check in somewhere on a number of different services without having to fire up each service independently and do it manually. Given the viral and social nature of services like Foursquare and Gowalla, I guess it’s not surprising that this is where we’d first see the need for better interoperability between services.

One area where this is particularly interesting is around the area of location based advertising. One of the things that needs to happen to help ramp up growth in this area is more scale in order to make hyper local and location oriented advertising finally get on the radar screen of folks that control advertising dollars. It’s not that there are not a lot of consumers using these types of services today, there are… but usage is spread around among a lot of player.  Consumers may look up directions via Google Maps, Yahoo Maps or Mapquest, others may rely on their Garmin or TomTom devices, while urbanites without cars may just be checking in with FourSquare, Goawalla or Loopt or using one of a hundreds of local discovery services like UrbanSpoon, Yelp, Where, Geodellic, etc.

The amount of traffic to any one hyper local area on any one of these systems is likely not significant enough to create a media buy, but centrally tether them all together with a common reference point and pretty soon you have what begins to look like the beginnings of a network… a point of interest advertising network. 

Putting banners in apps and on wap pages is one approach to the location based advertising opportunity, but there certainly seems to be just as much opportunity if not more around “listings ads” connecting mobile users with the businesses they’re looking for from mobile search and discovery services and then capturing, sharing and aggregating the related check ins at scale across the ecosystem.

I am not saying that this is the Placecast end game, but something like the Match API and other similar offerings by competitors certainly seem like it could help spawn competitors to what folks like CitySearch are doing with CityGrid around the creation of ad networks tied to places.

What will be interesting  is to see how publisher view participating in such a system and the more thorough socialization of content from their system… when the depth, richness and accuracy of that content may be a significant source of unique competitive advantage.

Before getting into the details of this, a couple of interesting stats from the MetaPlaces conference that I picked up last week as background:
• There are currently 21 million small and medium sized local businesses spending an average of $4k per year on yellow page advertising (~$25B ) and other local advertising
• 75% of Internet user have used the internet in the past three months to look up a place on a map or to get driving directions

In other words:
1. there is a lot of money being spent locally, by local business to get customers to patronize their businesses
2. customers are increasingly consulting with internet base maps to find their way around and to find new businesses to patronize

So it’s just a matter of time before those local business owners begin to direct some of that $4k per year to the providers of internet and mobile map services.

For users of Google map, the Place Pages make it easier for you to find some of the important information about places in a single, simple webpage without having to interrupt your experience and getting side tracked on a mini research expedition to determine if the place is worth a visit. Place pages include an ‘entire page of rich details, like photos, videos, a Street View preview, nearby transit, reviews and related websites.’ According to Mike Sterling, Google is running a separate algorithm that ranks content providers like review sites within the pages.

While certainly a benefit for consumers and users of Google Maps, you can’t help but note that this will be a very compelling tool to help Google in its efforts to sell in advertising to local brick and mortar businesses which may not have had a meaningful website or online presence before now.

Businesses that have a big, or solely, e-commerce business have for years been big users of search engine marketing , but the e-commerce market is still just a tiny fraction of the total commerce market, and Google’s CEO Eric Schmidt famously noted in Davos last year how a truly mobile Web, offering a new generation of location-based advertising, is set to unleash a “huge revolution.” Google Place Pages are just the beginning of this revolution…. the battle on Yodle and Yelp Hill.

Google Place Pages pull brick and mortar businesses online whether they like it or not. They now all have a web page at http://maps.google.com/places/us/city/street/ZIP/-business-name which in many cases may be quite simple information, but all the better reason to engage with Google to claim that listing and potentially turn into an AdWords client.

A quiet, but nonetheless impressive and potentially game changing development.

All the panelists were great and included the CEOs of NearbyNow and Placecast as well as agency and research firm representation. It was a good general backgrounder on the state of things in location based advertising and a couple of the comments by Derek Leedy from Mediasmith resonated in particular with regard to what was unique about the ability to use “location” as a criteria for delivering advertising. Derek made some observation about how the location element adds an important new element to what marketers can infer, based on ones physical surroundings, and how it allows advertisers to reach customers when they’re potentially more action oriented and in a different consideration mode than when they’re on the web… emphasizing the benefits of the real time nature and the added relevance it brings.

It reminded me in many ways of how online search advertising is different than online display advertsing… with search being more action oriented and a generally different frame of mind… and we all know how that worked out.

Scott Dunlop of NearbyNow also had some telling stats to quantify some of the lift they’ve seen from better location relevance and I was generally surprised to hear of some of the success they were seeing. The last time I used NearbyNow I found myself time afer time back at an e-commerce web site rather than a real nearby store… I decided to give NearbyNow another run, but I’ll save that for another post.

Could be worth checking out… and if you think you’ll want to ask questions, be sure to have your Twitter account up and handy, as question for the event will be handled via Greg Sterling, via his Twitter, @gsterling.