The Activ8 guide to quantifying website monetisation

“In the language of mathematics, equations are like poetry. They state truth with a unique precision, [and] convey volumes of information in rather brief terms... And, just as conventional poetry helps us to see deep within ourselves, mathematical poetry helps us to see far beyond ourselves – if not all the way up to heaven, then at least out to the brink of the visible universe”. Prof. Michael Guillen PhD, Harvard University. Introduction to “Five equations that changed the world” (Abacus Books, 2000).

Activ8 is frequently asked how to monetise a site. In this paper we define key levers that determine the revenue potential for a website. We have set this out as a simple equation:

R f ( [P x A x N x G] x [S x C] x [D] x [Ym] )

Revenue (R) is a function (f) of [Page Views (P) x Adsize (A) x Number of ads per page (N) x Geographic locale (G)] x [Seasonality (S) x Content Channel (C)] x [Number of days after the month end that ad payments are received (D)] x [Yield management (Ym)]

For Adsize (A) the general rule is “the bigger the banner the greater the revenue potential”. Assume that the 728x90 banner represents one basic unit of revenue; based on Activ8 experience, the yield for various banner sizes is as follows:• 728x90 banner equates to 1.0 revenue unit• 120x600 banner is 2.2 times as valuable.• 160x600 banner is 2.5 times as valuable.• 300x250 banner is 3.3 times as valuable.• 468x60 banner is 0.37 times as valuable.

Activ8 guide to quantifying website monetisation 1Peter Burton | Operations Director Activ8 Limited, Unit 1106-08, Cyberport 2, 100 Cyberport Road, Telegraph Bay, Hong Kong.12 Oct 2007

The Number of ads per page (N) combined with Adsize (A) can have a significant impact on the revenue earning potential of a web page, as you can see in this illustration:

The Geographic factor (G) is a modifier to revenue earned resulting from the level of maturity of Internet advertising within a specific country. Assume that Africa (excluding South Africa), South America and the Rest of World represent one basic unit of revenue; based on Activ8 experience, the yield for traffic from the following locales is:• Africa (excluding South Africa), South America and the Rest of World: 1

revenue unit.• USA, UK and Canada is 33.5 times as valuable.• Europe (excluding the UK) is 10 times as valuable.• Australia, New Zealand and South Africa is 8 times as valuable.• Hong Kong, Singapore and Malaysia is 5 times as valuable.• Asia (excluding Hong Kong, Singapore, Malaysia) is 1.5 times as valuable.

Similarly, Seasonality (S) and Channel content (C) are external factors that also play a role in determining advertising revenue. These variables are described below based on data from the Activ8 network.

Seasonality (S) consists of the following:• October to December is high season.• January to February is mid season (the Christmas follow-on, mainly holiday

bookings).• March to May is mid-to-low season.• June to August is low season (summer heat and holidays).• September to October is mid season (beginning of the Christmas run up).

Content Channel (C) plays an important role in the perceived value to advertisers. Because different Content Channels entail different markets and demographics, each Content Channel therefore confers a specific premium for

Activ8 guide to quantifying website monetisation 2Peter Burton | Operations Director Activ8 Limited, Unit 1106-08, Cyberport 2, 100 Cyberport Road, Telegraph Bay, Hong Kong.12 Oct 2007

advertising revenue. If we assume that sites containing user-generated content represents one basic unit of revenue; based on Activ8 experience, Content Channel premiums look something like this:• User-generated content sites: 1 revenue unit.• Webmail sites have a premium of 2 times.• Automobile, Shopping sites have a premium of 4 times.• Business, Technology, Travel sites have a premium of 6 times.• Investing, Parenting, Games sites have a premium of 8 times.• IT sites have a premium of 10 times.• Winter Sports, Extreme Sports sites have a premium of 12 times.

Cash flow is significantly impacted by the number of days after the end of the month when ad payments are received (D). When working with ad networks, revenue cheques are typically paid 30 to 90 days after the month’s end.

The final external factor is Yield management (Ym). To some, yield management is seen as a “black art”. In our field, the goal of yield management is simply to maximise the return from every banner, across every geographic locale, across every time-slice. Doing this is impacted by the number of advertising suppliers, their deal flow, and an understanding of their capacity. What one might call Supplier Risk Management. For example, an increase in volume to a given high performing advertising supplier sometimes results in a decrease in effective CPM [total revenue/(total impressions /1000)], particularly if the advertising supplier does not have the capacity for the additional volume and therefore ends up filling the additional capacity with lower grade ads from secondary providers.

Activ8’s yield management methodology borrows elements from the airline, supermarket and the express distribution industries. Sir Colin Marshall's when he was CEO of BA in the 1990’s would describe an airline seat as "the ultimate perishable item" and that once an aircraft had taken off with an empty seat, how, the airline had lost the opportunity to earn revenue. A banner on a website can be viewed similarly.

Activ8 sees yield management as the alchemist stone for publishers. It’s not a “black art” by any means, but a methodical process that involves both science and human judgement - a point perhaps reinforced by the recent negative performance of algorithmically driven quantitative funds in the financial markets.

Activ8 guide to quantifying website monetisation 3Peter Burton | Operations Director Activ8 Limited, Unit 1106-08, Cyberport 2, 100 Cyberport Road, Telegraph Bay, Hong Kong.12 Oct 2007

Some caveats:• This paper is written purely from the perspective of a media accountant.

Website revenue potential is a trade-off between Adsize (A) x Number of ads per page (N) and the impact of that on user experience.

• The yield numbers given for Adsize (A), Geographic factor (G) and Seasonality (S) are indicative only. These are variable and based on supply and demand.

A follow on paper, “Activ8 on Yield Management” is also available.

About the authorPeter Burton is Operations Director at Oriented Media and a veteran of the internet. He is a co-founder of Activ8 (now Oriented Media) a digital marketing and adserving company. Prior to starting Oriented Media he was a member of the start-up team for SpaceAsia Media, Asia’s first adserving network which was subsequently sold to CMGI in 2000. Peter has honed his online advertising alchemy skills at Oriented Media and SpaceAsia Media.

Prior to that Peter was part of the start-up team at Magictel, Hong Kong’s first VoIP phone card business which subsequently became e-Kong and is listed on the Hong Kong Stock Exchange.

In an earlier life as a Management Consultant Peter worked with a range of Telecom and Financial Services organisations in Europe and in Asia. He has a track record for managing turn-arounds and of leading trouble-shooting and business rescue projects.

Peter has a degree in Engineering and an MBA from Henley Management College in the UK. Originally from the West Indies, Peter has worked in Asia for 12 years and is currently based in Hong Kong. He has a 7 year old daughter and 3 year old son.

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Activ8 guide to quantifying website monetisation 4Peter Burton | Operations Director Activ8 Limited, Unit 1106-08, Cyberport 2, 100 Cyberport Road, Telegraph Bay, Hong Kong.12 Oct 2007