Few things outside of online advertising and putting some meat on the barbecue excite me, but on Friday I had a chance for some rather other-worldly excitement.

My friend Adeo Ressi (founding member of TheFunded.com and Trustee of the X PRIZE Foundation) organized a private tour at NASA/Ames Research Center in Mountain View.  We made a couple of stops along the way but the real eye-opener was the project site of the lunar small exploration vehicle.

You might be wondering what’s so eye-opening about lunar exploration, given that it’s been a part of US space exploration since the 1950s and 1960s.  What’s amazing is the approach that the NASA team working on the lunar small exploration vehicle is taking a team of 12 scientists took less than two years to conceive, design, and create an exploration vehicle that can take a 40-50kg payload to the moon all at a cost of approximately $50M.  Once this exploration vehicle is proven and productized, imagine the number of private or commercial experiments or satellites that could be launched on a $50M budget.

The comparison between this approach to building space exploration vehicles vs. the traditional approach and the comparison between traditional software development and web 2.0 approaches is striking.

A traditional NASA approach to space (space shuttle, recent explorer missions) as far as I can tell, is a 10-20 year project with hundreds if not thousands of people involved at a cost of $1 billion or more dollars.  An infinite amount of analysis is done to ensure that every potential problem has three fail-safe solutions and absolutely all risk is eliminated.

In contrast, the NASA team managing the small exploration vehicle spent 8 months designing a new vehicle from the ground up, got it funded by NASA to the tune of $50M, and then spent the next 8 months building a prototype.  Their first launch is scheduled for next year.  How did all of this happen?  From talking to a few members of the team, it seemed there were several key ingredients:
1)    Risk taking: The team members and their management were not afraid to take risks.  This is probably due in part to the facts that this vehicle is unmanned (so no potential loss of human life) and the total project cost is less than $100M.
2)    Use of off the shelf components:  The team members are using a lot of off the shelf components.  I’m not talking about Home Depot, but pretty close.  The tanks that hold gasses to control lunar descent are literally scuba tanks.  You can see them in the picture.  The gas that is used was developed by the Department of Defense for missile control purposes.
3)    Entrepreneurialism:  There are only 12 members on this team.  Most of them appeared to be in their twenties and thirties.  Their workspace was strewn with sandwich wrappers and pizza boxes.  Is that how you would normally picture a government scientist’s work area?  These guys are going to see the fruits of their labor next year, not in 10 years.

I couldn’t help but compare this to traditional software development from the 80s and 90s to software development today.  The lunar exploration vehicle team is not exactly developing on the timetable of a Facebook application, but it’s not too far off.  Traditional software used to take 1-2 years to develop a beta version and cost $5-$25M in the process.  The end result would be a huge success if there were more than 10 customers.  Fielding a stable v1 could be a 3-5 year process.  Today, that time frame is measured in months and in hundreds of thousands of dollars.

The number of experiments that can be undertaken and satellites that can be launched at a $50M price point has to be several of orders of magnitude greater than what is currently available.  Any small to medium sized company could launch a communications satellite for whatever purpose – traffic information, weather information, wireless communications, etc.  Hundreds or thousands of bio and pharmaceutical companies could conduct experiments outside of Earth’s gravity.  The possibilities are endless.

As a repeat entrepreneur, one additional lesson that I took away from the tour was the efficiency and productivity that can be generated by a small but highly skilled and highly focused team.  In fact, hiring more and more people is often the “easy” solution because it lets a product team get away with lots of manual processes as well as unfinished 90% or “near” solutions.  Constraining the size of a team requires that complete solutions be built end to end, and these types of solutions typically generate the most benefit for the entrepreneur and their customers.

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The PubMatic team will be out in force this Tuesday at SummerMash San Francisco. Mashable founder Pete Cashmore will be hosting the event and several hundred techies, publishers and entrepreneurs have already registered.

Mashable is one of the most popular blogs covering the social networking world and San Francisco is the second stop on its team’s cross-country summer tour.

The party kicks off at 7pm at MightySF and while there are a few tickets available, they’re going fast. If you’re interested in attending head over to EventBrite to register.

We’re sponsoring the event and will have a table set up, so please stop by and chat. We’ll be dolling out drink tickets, showing off demos of our services and giving away some prizes, including an iPod Touch.

If you want to socialize with SummerMash SF attendees before or after the event go to the event pages at Facebook , MySpace , Meetup , Qik , LinkedIn or Upcoming

If you’re not in the San Francisco, you can catch the SummerMash parties in Seattle, Austin, Los Angeles, Miami, Boston and New York overt the next few weeks.

SummerMash SF Details:

When: Tuesday, July 15 from 7pm to 10pm

Where: MightySF 119 Utah Street, San Francisco, CA 94103

RSVP: Register at EventBrite

We look forward to seeing you there!

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Thank you to all of the publishers that attended our breakfast session at OMMA Publish in New York on Tuesday. The session was early, at 8am, but I was pleasantly surprised to see over 50 high quality publishers and ad networks in attendance. Here’s a recap for those of you who couldn’t make the event and the slides from the presentation.

The slowdown in the U.S. economy continues to negatively impact online advertising. In April, overall publisher eCPMs declined by 23%, and stayed virtually flat through May. It’s clear that the online advertising industry is not immune to the challenges facing the economy, including the housing crisis, skyrocketing oil prices and rising unemployment.

While eCPMs are declining for many publishers, others are growing their businesses and increasing their eCPMs. One of those publishers is Technorati, which is optimizing both direct sales and sales of impressions via ad networks. Shani Higgins, Technorati’s VP of Business Development, joined me and explained that her team uses a very targeted direct sales approach and just sold its highest single campaign in the company’s history. Technorati is using PubMatic’s services to optimize some of its inventory, boosting eCPMs by 37.5% on those campaigns.

While Technorati is much larger than most Web sites, publishers of all sizes can increase their eCPMs by segmenting larger Web sites, selling some of their inventory directly to advertisers, and monetizing every impression. In addition, many publishers we talk to simply do not monetize international impressions, which are usually 30% to 40% of their overall traffic. Others are losing significant revenue because of default ads. Using more ad networks and working with PubMatic can help ensure that you’re earning revenue for every impression.

Take a look at the below slides for some more details and some ideas that can help you increase your Web site’s revenue. The economy may be struggling, but there’s plenty you can do to grow your eCPMs.

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What happened:

• After initially aborted merger discussions, Microsoft and Yahoo were pursuing a strategic transaction in which Yahoo would sell its under-performing search business to Microsoft. Yahoo would retain its significant display business (recently bolstered by acquisitions of Right Media Exchange, Blue Lithium, and Maven Networks).

• Microsoft ended talks with Yahoo – it appears as though any deal between the two is now very unlikely.

• Yahoo has struck a non-exclusive deal with Google in which Google will provide ads for search results on Yahoo, alongside Yahoo paid search results and other providers.

Implications:

For search market in general and end users:

• The Search market in general will likely suffer significantly over the next couple of years as the #1 player has consolidated the search market with #2.

• Over time, Yahoo’s ability to compete will further decrease as their R&D investment will be spread across fewer search results. Google could very well pick up 80% of the market as a result.

• With such market dominance, we can safely assume that innovation in the search space will slow significantly – think of your browser from 2001 – 2006, after Netscape and prior to Firefox

For Yahoo:

• Yahoo decided not to sell its search business to Microsoft because Yahoo believes that search and display will converge from the advertiser perspective – advertisers want to go to one place to spend their search and display budgets. As a result, Yahoo wants to maintain control over search as a complement to its display advertising business.

• However, with Google now monetizing search for Yahoo, Yahoo’s solution for convergence will remain unrealized. Yahoo will continue to play a leading role in display advertising but advertisers will continue to look to Google for search monetization.

For Google:

• Search advertisers should be prepared for Google to monetize its market dominance by increasing its margins. As Google will control so much of the paid search inventory, they will have the ability to increase rates and keep the money for itself.

• Interestingly, Google is now best positioned to realize Yahoo’s vision of convergence. Google is the undisputed leader in search monetization and increases its dominance. With its DoubleClick acquisition, Google will now be able to build a leading position in display advertising. Google owns one side (search) and has the tools needed to build the other side (display).

For Microsoft:

• Microsoft is the biggest loser, having failed to acquire a display business or a search business. Worst of all, Microsoft has neither in house and it will take them at least a decade to build either or both.

• If I were a betting man, I would bet that Microsoft will acquire AOL’s Platform A business unit. It’s the only other viable option for Microsoft after losing out on the Yahoo opportunity. The time required to and risk involved in building an advertising business from the ground up is too significant for Microsoft to pursue a go-it-alone strategy.

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We’re going to be in New York on June 17 and invite you to join us at OMMA Publish. PubMatic is hosting a complimentary breakfast where we’ll discuss current data from thousands of publishers.

Recent market data and earnings reports indicate that the economic slowdown in the U.S. is impacting the online advertising industry, with overall monetization rates dropping this quarter.Despite these negative trends, enterprising publishers can protect their revenues and even increase them by adopting a few key strategies.During the workshop we’ll also share a case study that details how these strategies dramatically increased a major web publisher’s eCPMs.

We’re offering a complimentary full pass to OMMA Publish, which normally costs $695, for those that sign up for our session. The complimentary passes are subject to approval.

To sign up, please contact Tabi by email at tabi.ansari@pubmatic.com. Breakfast starts at 8am in the Marquis Ballroom of the New York Marriott Marquis Hotel. We look forward to seeing you there.

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Today we’re introducing a powerful new service that helps publishers recapture revenue they’re losing due to the mismanagement of default ads. We estimate that publishers are leaving more than a billion dollars on the table each year because a sizeable chunk of their inventory is going to waste.

A default ad is what’s served when an ad network is unable to fill an ad impression on a Web site with a paying ad. Often times a non-paying public service announcement or a blank spot is shown. Many web publishers chain several ad networks together to reduce the chances that a non-paying ad is served, but these methods are far from perfect.

We’ve developed a system that detects when an ad network is unable to serve a paid ad and we immediately hold an auction for that impression amongst the rest of the ad networks a publisher is working with. This ensures that each impression is being sold for as much as possible and eliminates public service announcements or the reduced revenues that a static daisy chain solution provides.

Over the past several months we’ve studied just how severely default ads are affect our publishers and the numbers are jaw dropping. We found that ad networks defaulted 56% of the time on average and as much as 87% of the time. We also found that that the traditional static daisy chain of ad networks may be effective at reducing blank ads but is highly ineffective at maximizing a publisher’s revenue. Between 20% and 30% of publishers’ ad inventory is going to waste.

I can’t imagine any other industry that would stand for this kind of waste on a consistent basis. It would be unthinkable for an airline to continually run flights at 70% capacity or for an auto manufacturer to let 30% of the cars they build rust in a parking lot. In fact, some of those industries are doing exactly this and showing record-breaking losses as a result. There’s no reason for Web publishers to continue doing the equivalent with their valuable ad inventory.

So far we’ve optimized default ads for dozens of our publishers and have successfully boosted their revenue by as much as 50%. Flixster, a very popular movie reviews Web site, saw a significant increase in incremental revenue because of this new service.

We’ll continue to perfect this system in the coming months and will share the results with you. In the meantime; we encourage publishers to closely examine how they’re managing defaults and consider automating the process with PubMatic.

Click here to see an illustration of how PubMatic’s ad optimization services are better than managing ad defaults with chains.

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The New York Times published an article today that discusses how the economic slowdown is impacting online advertising. The article cites the Ad Price Index, recent earnings reports and several industry insiders.

The New York Times articles mentions that large portals are finding it harder to make money from display advertising. But publishers should remain optimistic because instability can force marketers to rethink their ad-buying strategies and look to place ads wherever they can find targeted traffic.

I agree with Jeffrey Lindsay, a senior analyst at Sanford C. Bernstein & Company, who said:

“In a moderate or even quite severe downturn, online advertising actually improves, because people switch their advertising budgets out of traditional advertising formats — TV, radio and print — and move more online because it’s got higher performance, it’s cheaper and it’s more measurable.”

We have no way of knowing exactly what the future holds for online advertising, but we do know that more ad dollars will flow from offline media to online media. There are still plenty of very large advertisers that haven’t adapted their marketing plans to include a substantial online advertise budget.

As I mentioned last week, it’s very important for publishers to optimize their ad inventories, even if they’re seeing growth. We’ll be releasing more data in the coming days that shows many publishers are letting significant chunks of their ad inventory go to waste.

Take a few minutes to read the NY Times article when you get a chance. It’s good reading and very thorough.

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We had our first Palo Alto team outing today, which was a blast. We braved 100 degree heat to get outside as a team and have some fun. We went to Malibu Grand Prix for some competitive miniature golf, bumper boats, and go-kart racing.

First was the mini-golf competition. The winner was Rajeev “Did I used to own a golf company?” Goel. Coming in a close second was Jag “I never played mini golf before” Misra.

Kevin sinks one with this stylish shot.

We then moved on to some indoor arcade games, where the talk of the day was the drubbing that Jon “Did I make you bleed again?” Burke gave to Kevin.

We headed out to the track for go-kart racing, battling it out at up to 30 miles per hour for fastest track time. Kevin “I just bought a BMW M5″ Weatherman took first place with Tabi “I need new shoes for the go-kart” Ansari making a strong showing as well.

Kevin Sure Knows How to Take Those Turns!

Tabi in Racer Red

Last but not least, Laura “I’ve never driven over 20 miles per hour because I live in Los Angeles” James seemed most at home hosing down the team during bumper boats.

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Our latest release of the Ad Price Index has generated a lot of discussion about how online advertising is faring as the U.S. economy slows down.

Rob Hof (BusinessWeek), Om Malik (Giga Om), Robin Good (MasterNewMedia), Michael Learmonth (Webware) and Josh Catone (ReadWriteWeb) all blogged about the Ad Price Index.

Advertising trade pubs ClickZ and Adotas had their say about our findings as well. Even the Wall Street Journal chimed in with this article, which is about Microsoft’s challenge of competing against Google without Yahoo! The full article is only accessible to WSJ subscribers, but the reference to PubMatic is here:

Compounding Microsoft’s challenge is a softening online ad market. In March, researcher eMarketer cut its forecast for 2008 online-ad spending in the U.S. to $25.9 billion from a previous forecast of $27.5 billion. While that is still 23% growth over 2007, PubMatic, an online-ad company that measures ad pricing, found this past week that the average price Web sites garner from ads dropped to 38 cents in April from 49 cents the prior month. The Palo Alto, Calif., company concluded that “the economic slowdown in the U.S. is starting to impact the online advertising industry.”

Thanks to all the reporters, bloggers and partners that have shown so much interest in the Ad Price Index. We’re already hard at work collecting statistics for the June edition. If you’re interested in subscribing to Ad Price Index updates, click here and leave your email address.

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Toady we’re sharing an updated PubMatic AdPrice Index, which shows the slowing U.S. economy is negatively impacting the monetization rates of many Web publishers. Ad network payouts are falling, but many publishers are bucking the trend and increasing their eCPMs through the adoption of specific techniques.

According to the May edition of the PubMatic AdPrice Index, publisher monetization across the board has dropped by 23 percent during the past month. The index shows large Web sites (more than 100 million page views per month) dropped 52 percent, from an average of 38 cents eCPM in March to 18 cents in April. Medium Web sites (1 million to 100 million page views per month) were nearly flat, with monetization dropping from 34 cents in March to 33 cents in April. Smaller Web sites (less than 1 million page views per month) increased their eCPMs from an average of $1.17 in March to $1.29 in April.

Click here to see the full PubMatic AdPrice Index details and findings.

While this downturn is unwelcome, there are several things publishers can do to make the most out of their ad inventory. Many of our top performing publishers are increasing their overall revenues and eCPMs month over month by focusing on the following three key strategies:

Diversification: Expand the number of ad networks you’re affiliated with. Our top performing publishers work with five to seven ad networks.

Segmentation: Segment your Web site into distinct channels, each with its own ad tags to help ad networks target the most relevant inventory. This increases ad performance by optimizing ad targeting.

Globalization: U.S. based Web-sites have an average of 30% international traffic, but most publishers don’t properly monetize this traffic. Analyze where your international visitors are coming from and work with ad networks that are strong in those countries. Capitalize on favorable exchange rates and stronger international economies.

Consider making changes even if you’re one of the lucky publishers that is seeing gains while others are faltering. Online advertising isn’t recession proof, but there are still incredible opportunities to make more money from your Web sites.

We’re interested in hearing about how your Web sites are performing and what you’re doing to optimize your ads. Please leave a comment below and we look forward to sharing an updated PubMatic AdPrice Index with you next month.

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