CEO Karnstedt Says Efficient Frontier Seeing Major Impact From Data-Rich Facebook

David Karnstedt is President and CEO of Efficient Frontier, a performance marketing company.

Karnstedt discussed his company’s strategy and recent momentum with AdExchanger.com. Click below or scroll down to read more:

AdExchanger.com: What are some of the trends that you’ve seen emerge in the digital‑advertising space that have particularly caught your interest?

DK: I just reached my two‑year anniversary at Efficient Frontier and the premise we had at that time was that customers would want to be able to manage multiple channels through a single platform. I would say that this trend has really accelerated over the last year — in part driven by the complexity of the online marketing space. I think people are trying to figure out a way to unify an approach, and also unify data and reporting.

In 2011, one area Efficient Frontier is driving is not just using data for effectiveness within the channels, but also using data in an approach to attribute value to how each of the channels interacts together toward an ultimate conversion.

This is something that is resonating in a major way with our clients. For instance, you may convert from a search click but you may see three banners and click on a couple of Facebook ads before you do that. So, holistically understanding how these pieces work together and feeding that into optimization is a hot topic and an area where we’re putting a lot of resources.

What are the roadblocks, maybe, right now, or the challenges, with attribution modeling?

There are three things that I would call challenges.

The first one is that most of the attribution modeling is separated from optimization. While many claim to do attribution modeling, it usually amounts to a post-hoc report and analysis. The key question that is difficult to answer is how to take multi-channel, multi-event behavior of consumers into account and what is the best way to allocate a client’s marketing budget so as to improve overall performance.

So, a marketer may work really hard to attribute value to what happened, but it’s a look‑back. April’s much different than March, which is different than May, which is different than June. Being able to take that data and really integrate it, in real‑time, with optimization has been a big challenge.

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I would also say that structurally, within organizations, there has been a challenge. If I’m the search guy within an organization, and the last click gets attributed 100 percent to search, I get credit for 100 percent of those conversions. Then my willingness and excitement at lessening the impact of search and using a competitive channel like display diminishes, and I have no incentive to say, “Guess what, actually, 30 percent of that attribution really should go to you and not me.”

The internal structural objections are really in some cases, tough to overcome. This is so often the case that we provide real‑time optimization and attribution analysis for clients. We also allow customers to plug in their own approach because we don’t want to be internally brokering how attribution should be allocated amongst the different channels internally.

The third challenge –and an area we are getting increasing questions about — is the impact of Facebook in relation to search and display. We’re doing a lot of that analysis on behalf of our clients already but the next phase will be adding Facebook into real-time optimization.

Efficient Frontier’s core has been in search‑engine marketing, but what channels are you in today?

I think we’re clearly in search‑engine marketing and have been since the company’s beginnings in 2002. We also are very deep into display. And when I say we’re deep into display, I know that we’re the only company out there using search and display with full real‑time bidding capabilities that is currently buying exchange‑based inventory across the U.S., Europe, and Asia.

The other one that’s really emerged to be a major impact for our company is Facebook. With over 600 million users, robust API capabilities and a different kind of advertising opportunity, the demand from our customers has exceeded our expectations in a major way in terms of the excitement and enthusiasm for our customers, and most importantly, the performance.

What would you say are the differences between PC‑based display, and let’s call it Facebook display? Is it a different kind of opportunity for the marketer?

Yes. I think one of the dangers with any emerging channel, and Facebook being square in front of this, is that you try and put it in the construct of old channels. One of the biggest advantages that Facebook offers is an unprecedented level of rich data to advertisers. However, the challenge is that some marketers view the data through the narrow lens of a performance marketer. What we’ve found in Facebook is that you have to be very smart about how you target your audiences, and you have to be very cognizant of how you’re going to measure success. Success may not be a direct conversion – it might in fact be getting someone to like and engage in your brand. A lot of the times search and display can be transactional. And I think, in Facebook, it can be creating a dialog with the brand.

What are the next channels for Efficient Frontier?

I think there’s the build, and there’s the extension of our current products.

In terms of extension of our current products, I look to global expansion, and that’s where we’re focusing a lot of our efforts. Connecting with exchanges and different inventory sources around the world is a near‑term focus for us. Looking a little bit further out and trying to predict what channels will come next, I would say mobile is something that we’re really focused on these days. Google’s acquisition of AdMob and being able to enable the AdMob inventory along with the Google mobile inventory through the DoubleClick Ad Exchange is something that is right around the corner. And as they make that inventory available, certainly that will factor into our more holistic offering.

And I’ve always subscribed to the philosophy that where there’s a lot of inventory and not enough demand chasing that inventory, it’s a ripe market — Facebook being a great example of that. I think you’re going to see video also take on the same characteristics of display down the road, where people are going to try and use an auction environment to connect buyers and sellers for video inventory.

How is Efficient Frontier’s target market evolving?

We’re focused on is cross-selling our new offerings into our existing client base. And we’ve had great success with that, because I think, once you’re set up and familiar with the way we work, and the capabilities of our optimization and the predictability of our simulations and reporting, it’s a lot easier to move into new channels with that kind of relationship already in place. I would also say that we’re moving in that direction globally. There is certainly a ton of interest in both biddable display and Facebook in Western Europe, where we’ve had great success. So it’s not just a US approach; it’s more of a global approach.

Facebook is also opening a whole new channel for us in different categories where there was not a lot of interest in, say, a core search offering. For the first time since I’ve been here, really data‑hungry clients in CPG are very interested in Facebook.

These are new leads that are both coming to us and we’re going out to get – people that understand data and are focused on performance metrics but different performance metrics. Maybe it’s brand engagement. Maybe it’s getting a lot of people to like a brand and then creating a brand dialog. This is a new category that’s opened up, in a more major way than we’ve ever seen before.

Are clients being more proactive about the data they own, the first‑party data?

I would tell you that the sophistication level is growing really quickly. A year ago, when we talked about things like search and site re‑targeting, people would look at us and be like, “I don’t know if I’m sure I want to do that.” And now that’s sort of considered “table stakes,” like, “Yeah, we know we should be doing that. Now let’s talk about what else we could do.” I think people put it in the same bucket as search, as kind of an always‑on type of marketing tool. You always have something going in search, and I think you always have something going on in site re‑targeting.

Can you speak to Efficient Frontier’s profitability and funding? And, what about making acquisitions? Seems to me there are a lot of little companies in the space that might be of interest to your company.

Yes, we’re profitable. Profitability is something that we’ve always focused on in running a very, pardon the pun, efficient business. So that’s always been a focus for us.

In terms of funding, I would tell you that there are a lot of companies that are raising a lot of money, and I’m not sure to what end. Maybe it’s because they’re not profitable but I think the way we would look at a fund raise would be just for what you mentioned. There are a lot of smaller companies out there that are available for sale in the space. From an M&A standpoint, and if we found a company that would either transform the business or extend the business or add new capabilities that we intend to build anyway that would make it readily available right away, that’s something that we’d consider.

Are there any misconceptions about the combination of search and display and its potential?

The one thing that I am still somewhat surprised at is that people view the channels as independent. And by that I mean, “Ok, here’s my strategy for what I want to do with my search‑engine marketing efforts.” And completely separate from that is, “Ok, here’s what I want to do with my display efforts.” The fact that people still run in silos is something that I thought would have been long gone by this stage of the game but it still exists..

Finally, what efforts is Efficient Frontier making around the online behavioral‑advertising guidelines and self‑regulation?

I think we’ve tried to be really sensitive to working with the established organizations that are tackling those issues in each of the different markets that we participate. There are a lot of different approaches, through the EU, then in the U.S. We’re basically trying to make sure that we’re very cognizant of them and follow the established guidelines and participate where available, through third‑party organizations. We also try to influence those guidelines whenever possible and provide input on what we think is the right balance between consumer trust and improved marketing.

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