Those Elusive Industry Standards

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blog-header-rr.gifQuestion: When does an industry need a standard?

Answer: Never, if you can help it.

That’s a curious sentiment, considering that the Interactive Advertising Bureau today issued two fundamentally important documents that will help shape industry standards. The first is the Rich Internet Application Ad Measurement Guidelines, which help marketers, agencies, and media determine at what point an ad impression is counted in rich internet application environments built with technologies such as AJAX and JSON. The second is The Video Game Interactive Advertising Platform Status Report developed by the IAB Games Committee, which provides a detailed overview of the current state of advertising in and around video games.

So why call industry standardization into question at exactly the point when the IAB is fashioning vitally important standards? It’s to highlight an unarticulated debate that’s central to the evolution of interactive media and advertising - the debate between standardization and innovation. My strong belief is that standards must support innovation; if they can’t or don’t, their pursuit probably should be abandoned. I’ll explain - and hope I can provoke your response and guidance.

Dynamism vs. Control

If there’s a single foundation myth in the American economy, it’s that businesses love competition. They do not. In the outwardly combative chest of every successful business leader lies the stable, beating heart of a monopolist. And so should it be: If the goal of the business leader is to continually increase shareholder value, then there’s no better means to that end than the ability to establish prices and make them stick.

That business truism wars against the American character. Having fled a Europe where ancient land grants and royal monopolies locked in the benefits of the privileged few and blocked opportunity for the disenfranchised many, the United States’ founding fathers - and, notably, their offspring - recognized this natural predisposition and strived through the years to thwart it. A large swath of U.S. economic and business regulation (Federal anti-trust laws, for example) aims to offset businesses’ monopolistic tendency.

Still, over the years, some businesses have managed to create, and even receive Government blessing for, their monopolistic or oligopolistic positions. The arguments they have mustered have not changed much through the decades: national defense, public safety, efficiency, and public improvement top the list. AT&T wrapped these contentions together; beginning in the 1920’s with its “One Policy, One System, Universal Service” advertising and lobbying campaign, Ma Bell turned itself into what the late historian Roland Marchand called a “loved monopoly,” and maintained its regulated market control over the U.S. telephone system for more than a half century.

The thing is, these arguments can be valid. For good reasons, suburban towns and large cities don’t want to grant every cable television company an unfettered right to dig up the streets and lay wires, so they bestow temporary monopolies. For public safety reasons, we frequently provide Government a monopoly over the development and enforcement of regulations; for example, there’s a public interest in not having airplanes fall from the sky, hence pilot licensing, and the government-managed air traffic control system.

Reducing Friction

When regulation is recommended or imposed by non-governmental bodies, it often takes the form of standards - “concepts, doctrines, products and designs to achieve and maintain the required levels of compatibility, interchangeability or commonality in the operational, procedural, material, technical and administrative fields to attain interoperability,” in Wikipedia’s definition. Such standardization can do more than protect the public: It can also make markets blossom, and lead to widespread economic growth. The Institute of Electrical and Electronics Engineers, Inc. (IEEE), the professional organization for the electronics industry, for decades has used a consistent, open approach to instantiate standards across a wide range of technical fields. It identifies seven benefits to the development and acceptance of industry standards:

  • Market growth for new and emerging technologies
  • Reduced development time and cost
  • Sound engineering practices
  • Decreased trading costs and lowered trade barriers
  • Increased product quality and safety
  • Reduced market risks
  • Protection against obsolescence

Because of their importance in reducing and eliminating market friction, standards play a vital role in innovation. They also can be a coveted commodity; being first to market with an eventually accepted standard can be akin to owning a patent. Indeed, frequently a standard is a patent, or a set of patents, which allow their owners to extract rents from across a value chain. That’s a major reason why the quest for standardization has been a driving force in the history of interactive media - satirized only slightly in the title of that late, great interactive industry trade publication, The Industry Standard.

There’s no one way to get to a standard. Sometimes government bodies dictate winners and losers. Sometimes consumers anoint a victor - as they did with the MP3 codec, which, although far from the first digital audio encoding standard, won out over others because of its openness. Sometimes multiple players across an industry ecosystem come together to develop standards in open forums, as do the IEEE, the World Wide Web Consortium, and the Interactive Advertising Bureau. And sometimes well-heeled corporations buy or bully their way into the de facto imposition of a standard.

Whatever the process, the tension here should be obvious. By reducing risk, standards can promote innovation - but by locking out competition, they can also prevent innovation from occurring.

Self-regulation by industries can be particularly susceptible to this lockout problem. For the best of reasons, Herbert Hoover, as Secretary of Commerce, encouraged companies in an industry to band together in their own self-interest. “When legislation penetrates the business world it is because there is abuse somewhere,” Hoover said in 1924 about the rising tide of regulation. But, he added, “Legislative action is always clumsy—it is incapable of adjustment to shifting needs. It often enough produces new economic currents more abusive than those intended to be cured. Government too often becomes the persecutor instead of the regulator. The thing we all need to searchingly consider is the practical question of the method by which the business world can develop and enforce its own standards and thus stem the tide of governmental regulation.”

Yet what Hoover called “associational activities” became, in many instances, a vehicle by which industries could curtail competition, especially from new market entrants. Consider, for a moment, how many states still require the licensing of barbers and cosmetologists. Then ask yourself: Why in the world would we want to license barbers and cosmetologists? Is it “to ensure the health and safety of …consumers by promoting ethical standards and by enforcing the laws of the beauty industry,” as the California State Board of Barbering and Cosmetology professes? Or does it simply recreate the discriminatory guild mentality that ossified European economies over a period of centuries?

Making Markets Matter

Trade associations, if we’re not careful, can be like these ancient guilds. Our members want us to establish standards for the best of reasons: to make markets. But standards established in the wrong way or the wrong time can hinder dynamism.

In my 10 months leading the IAB, I have been struck by how frequently we are asked to develop industry standards in areas ripe with innovation, and bubbling in utter ferment. Digital-video insertion standards, mobile advertising creative standards and, most recently, widget size standards are among the requests that have been made to our various committees. In most cases, I believe such standards are premature and inadvisable.

Take the case of digital video. Online video advertising is one of the fastest growing areas in interactive marketing, its growth propelled by the entry of major consumer products companies into the marketplace. For several years, but with great insistency during these past 12 months of brisk expansion, some media companies and advertising agencies have been seeking format standardization to encourage even more rapid uptake. Pre-roll, post-roll, mid-roll, in-banner, five seconds, 15 seconds, three seconds - let’s just get together and do something to drive the market.

But had we done so at IAB, we would have rendered a disservice to our members, and potentially sent the industry down a pockmarked path. Most mainstream advertisers placing video advertising online are still using 30 second spots repurposed from their existing advertising inventory; many probably would prefer a 30-second standard as a way of keeping production costs, if nothing else, in control. But among their media and agency partners, experimentation is rampant. In May, NBC Universal announced it would no longer accept pre-roll ads longer than 15 seconds for short form content. More recently, Google introduced a transparent overlay format for YouTube which, research suggested, would be non-intrusive and effective. Meanwhile, creative geniuses deep in the bowels of agencies and startup publishers are innovating far wilder ideas.

Why in the world would the IAB want to do anything that could potentially impede that dynamism?

There is an indirect response. Five years ago, the IAB’s development of format standards for banner advertising did eliminate much of the chaos that then enveloped this nascent medium, and successfully created a market for online advertising. Had IAB’s founders not done so, the evolution of online advertising could well have been a lot slower than it was. Instead, about half of all banner ads today hew to IAB standards.

But when the IAB’s founders set out to develop those banner ad standards, their aim was to prove the viability of the medium itself as an advertising platform. Today, no one doubts the medium’s utility for advertisers, at least as evidenced by the market caps of the IAB’s largest members and by the 25-35 percent year-on-year growth in interactive advertising spend. Is there, then, still a role for standardization?

The answer is yes - but it’s a limited role. My view is still developing, but I see three conditions under which IAB should explore and work with its members toward the instantiation of industry standards:

  • When the primary goal is to reduce operational complexity and lower cost barriers
  • When it will not impede creativity or innovation
  • When there is real market demand across the value chain, certainly from both sellers and buyers in the market, and ideally from participants outside the core vertical market

New RIA Guidelines

The IAB’s Rich Internet Application Ad Measurement Guidelines fulfill all three conditions. During my first few months at our trade association, I was asked no single question more frequently than “what will be the new metrics that matter, now that AJAX and other rich internet applications are rendering pageviews obsolete?” The question came daily, from agencies, media companies, measurement suppliers, and marketers. The reason is insistent: measurement of ad impressions is, quite literally, the currency of the economic relationship between advertising buyers and sellers. Agreement on how impressions should be measured, even as technology evolves, is central to the smooth operations of the entire industry.

These new guidelines provide an answer, by specifically addressing online browser or browser-equivalent-based Internet activity, where page-content changes and ad serving are no longer linked. The guidelines, developed openly, are applicable to Internet media companies and ad-serving organizations, and are being welcomed by the agencies.

“We support the IAB’s continuing efforts to create guidelines that can become lingua franca,” said Mike Donahue, executive vice president of the American Association of Advertising Agencies. “These guidelines have been reviewed and endorsed by the AAAA’s Digital Marketing Committee.”

(In an effort to educate the industry on the use of these guidelines, the IAB RIA Ad Measurement Working Group will host a webinar, including participation from the Media Rating Council, to review and explain key components of the guidelines on Friday, October 19, at 12 noon EST. All members of the industry are invited to attend. To register for the webinar, and to download the guidelines, please visit www.iab.net/standards/RIA.aspx.)

The Communications Game

Such standardization efforts are critical. But they are not the only path to market-making. One of the best activities in which a trade association can engage is to help markets make themselves. How? By communication.

Markets can be a remarkably efficient means of allocating resources, and should be left to their own whenever they do not compromise other important values. But they can be hobbled by obstacles in the information flow. Critical issues central to the smooth functioning of marketplaces remain obscured by lack of interaction among and between buyers and sellers. Who’s buying? Who’s staying away? What are the success factors? What doesn’t work? What’s going on with pricing? Where are there supply chain inefficiencies that need active intervention to resolve?

IAB’s Video Game Interactive Advertising Platform Status Report seeks to remedy the information-inefficiency problem in one such marketplace: the market for advertising in online game environments. The report provides a detailed overview of the current state of advertising in and around video games, and outlines the myriad opportunities for advertisers to reach and engage consumers in the highly immersive environment of video games.

“The growing number of video game players across multiple demographics coupled with the intrinsically engaging gaming environment offers a unique opportunity for marketers to deliver brand messages to consumers at a moment when they are most involved and attentive,” said Dave Madden, EVP Sales, Marketing and Business Development at WildTangent and Chair of the IAB Games Committee. “This report educates the industry on how to best leverage this fast-growing platform.

(To showcase the variety of games, advertising formats and insights for successful campaigns the Committee will host a seminar for agencies and marketers on November 6 in New York City. For more information on the seminar, or to download the complete report, please visit www.iab.net/standards/games.aspx.)

The Games report is the first of a steady stream of qualitative research studies IAB intends to launch to help markets make themselves. Our intent is to conduct original research, gather case studies, and communicate market opportunities across the marketing ecosystem, in all the vertical segments we touch - from mobile to digital video to search and beyond. They’ll answer, we hope, a critical need for guidance that surfaces everywhere in interactive marketing these days. Our aim is to be quick-to-market, cogent, instructive, and aimed at growing the marketplaces that can serve marketers’ and consumers’ needs.

And if in the process we discover a need for an industry standard, we’ll work to create one - as aggressively as we always have done, but with the promise that promoting innovation always will come first.

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