WSJ: Shakeout Threatens to Thin Out Web-Ad Brokers

The financial crisis on Wall Street (and now the Global Economy) has many industries including banks and brokerages cutting spending. Other industries such as telecommunications and automotive have also cut spending as well.

These events have had a disastrous effect on the world of online advertising as reported by Emily Steel of WSJ, that a couple of start-up ad networks like Adzilla and JellyCloud have already ceased operations and larger ad networks like AdBrite have cut as much as 40% of its workforce.

I agree with Emily Steel that when faced with tighter budgets, media buyers will buy ad networks that offer sophisticated targeting and the largest audience reach. Sophisticated targeting is how many of these new start-up ad networks have attempted to differentiate themselves. But where they fall short is providing the large audience reach that other ad networks like a Tribal Fusion and ValueClick can provide. To media buyers, you cannot offer one (targeting) without the other (reach).

Start-up ad network will have continued difficulties increasing audience reach as publishers now have more than 300 ad networks to select from. Publishers make decisions on ad networks based on pay-outs and “eCPM” rates. Top publishers typically work with several ad networks already and convincing them to implement a new ad network these days require a lot of data (on other publishers) and sometimes guarantees. There’s a chicken-egg scenario because often times, you can’t get data without having the publishers first.

I anticipate ecommerce companies to increase holiday online ad spending over last year. But I am not confident that the ad spending by ecommerce companies will offset the loss of key advertiser verticals like banks, brokerages, and automotive. Look for more coverage of failed ad networks by early 2009.

Event Recap: TheFunded.com Connect :: Tesla Motors

TheFunded.com put on a great event last night at the Tesla Motors dealership in Menlo Park.

In attendance were over 300 CEOs & Founders of bay area start-ups. The energy and excitement were at an unmatched high level. There was such a tremendous feeling of optimism from these entrepreneurs despite the events on Wall St.

I would guess that approx. 80% of the companies in attendance were in the early development to alpha release phase which means no real user base and revenues yet. Lot of the companies I ran in to tonight were actively meeting with angels and VC’s so the main topics of conversation tonight were “how are you talking to” and can we share investor contacts. I met a couple of real interesting companies including one that took online surveys to the next level (I won’t mention the company name because they’re still in stealth).

I think one of the greatest misconceptions most entrepreneurs have is on how difficult/easy it is to raising financing. Having gone through the process myself recently (and meeting with several top early stage VCs and angel groups), I learned that it’s extremely difficult. Especially in these tough times, investors are looking for sure things which means companies with proven product and engineering capabilities, customer base, distribution partnerships, and most importantly revenues.

What would have been really valuable tonight is if they had 1-2 entrepreneurs present their stories on successfully raising capital. Capital is the #1 priority for all of these companies tonight and it would have been a great opportunity for shared learning amongst all the attendees tonight.