As you might imagine, I read with great interest a summary of Google’s new payment service release today under the name Google Checkout. The benefits are pretty limited at this point and you can read great summaries of the service at Search Engine Journal, Search Engine Watch, TechCrunch, and SearchBlog, among many others.

Although Checkout may not be a PayPal Killer, I think the big take away is that Google will now be watching and collecting buying data from its Checkout customers and will have the ability to track user behavior from their first search to their final purchase. Elise Ackerman at the Mercury News summed this up nicely in her article today:

Since its birth more than five years ago, Google’s mighty Internet advertising machine has suffered from a major flaw. No matter how much information the Mountain View company collected from users of its popular search engine, it has no idea if, at the end of the day, people bought anything after searching for “Nike shoes” or “hip sunglasses” or “doggie sweaters” or “Toyota Prius.” That will change today, when Google launches its own payment service called Google Checkout.

Is this a bad thing? Forrester analyst Charlene Li predicts today “an eventual backlash” because “Google wants the monopoly on your information” and expressed concern that they “could fall into a situation where they’re the next Microsoft.” But I don’t think Google has current plans to do anything evil with this data (sorry, I couldn’t resist). What they will do is use it to extract more and more money from the advertisers trying to reach you. Again, Elise Ackerman sums this up nicely in her article:

If Google checkout is successful, the company could reap big rewards. The transaction data for each person who makes a purchase, combined with their search history, could lead to advertising that takes into account their favorite stores and preferred brands. The more targeted the advertising, the more advertisers are willing to pay.

Marshall Kirkpatrick in the post at TechCrunch, sings a similar tune, saying:

Maybe someday all of this data on my shopping habits will be used to better serve ads I’m interested in via Minority Report type billboards, Google Style.

Is this a fair trade off? I give Google all of my purchase data (what I buy, when I buy, how much I buy) and they use it to benefit me by: 1) offering me the convenience of Checkout; and 2) giving me more advertising that will be more targeted to things I’m potentially interested in (to quote Marshall Kirkpatrick “Minority Billboards”). And you know what Google gets? They get to jack up their ad rates, charging bigger dollars to the companies that have to pay to reach you because you might buy what they are selling. I’m pretty sure Google has done the math here and fully expects their increased ad rates to outweigh the cost of the Checkout service. And you, as the end consumer will have no idea what that increase will be because Google’s advertising market isn’t transparent.

At Jellyfish, we don’t think this is a fair trade off. Targeted ads are nice, but the ad’s Google will likely show you are from the advertisers that paid the most to get to you (Just because company X outbids Company Y to get in front of you at Google doesn’t mean that company X is the most relevant for your needs). And most importantly, you won’t benefit from the competition that is fueled by Google having access to your buying information (or what we would call your historical record of buying intentions).

At the end of the day, I think Google is doing some major free riding on the extreme value you create by allowing them to store and sell off the database of your buying intentions (e.g., your purchase history) to the highest bidding advertisers.

We intend to do this much differently at Jellyfish, because with our VPA advertising we always share back at least half of the advertising dollars that a merchant pays for your attention (both historical buying intention and present intention to buy when you search for a product at our site). Thus, anytime a merchant pays more to get your attention at Jellyfish, you will get a direct, tangible benefit in the form of lower prices. It’s the way we hope to show consumers that when it comes to their buying activity and attention, there is a better way.

We just flipped the switch on the Jellyfish.com beta search engine, opening it up to the outside world. It is an amazing feeling and I’m really proud to be working with such a great group of dedicated people. Alright, enough sappy talk, let’s get down to business.

Over the past few months, we have been talking a lot about problems with online advertising, particularly some of the misalignment of incentives and limitations of pay per click advertising. We’ve also talked a fair bit about the coming Attention Economy and how we hope to be a tipping point for consumers to realize how much value their attention has online.

When Brian and I set out to start Jellyfish, we saw a remarkable opportunity to create a powerful new value proposition by evolving the underlying revenue model for search: pay per click advertising. So many start-up companies today create a better mouse trap and then try to figure out how to attach a revenue model to it (typically by slapping up some advertisements on their site). We did the opposite; we developed a revenue model that provided us a compelling value proposition for our end customer. We aren’t aware of many start-ups that are doing this today (we would love to hear of others), which likely means we are either idiots or geniuses (I’m guessing you will tell us pretty quick). I’m not sure which one we are, but at least we are different.

If you’ve followed our thoughts in the Jellyfish blog, you are aware that we think we’ve come up with a new form of consumer-centric search advertising that:

• More efficiently connects buyers and sellers
• Eliminates Click Fraud
• Provides online merchants with a risk-free sales channel
• Makes advertising transparent and unbiased for consumers
• Maximizes the value of a customer’s intention to buy something online

The Pay Per Click Auction

Like many people, Brian and I have been impressed with the efficiency and power of the Pay Per Click advertising auction that takes place every day at Google, Yahoo!, MSN and the other major search engines. As John Battelle so eloquently detailed in The Search, this NASDAQ-like market does an amazing job of setting the maximum value on our intentions through advertising competition, which has allowed search engines to reap huge rewards.

But we saw a limitation in this advertising auction, namely, the fact that it doesn’t directly connect consumers to the monetary value being generated. This isn’t much of a limitation when you use the search engines to find information. In fact, we love using search engines for this purpose and think that they do a great job. But when you want to buy something online—when advertising is the focus of your search—we think this limitation creates a big opportunity. Why? Two reasons:

1. Limited Relevancy. The sponsored results are ranked with one primary goal in mind; to maximize the amount of click revenue the search engines make. The results you see are from the companies that write the best ad copy and pay the most to get in front of you. But are these listings showing you the best product choice for you? Is there a less expensive option, a product with better value, or a store that is more trusted? This is a secondary consideration. What matters most is that the search engine derives maximum click revenue. Isn’t this why paid search results have to be labeled as Sponsored?
2. Failure to Maximize the Return on Your Intent to Buy. A consumer with a present intent to buy something online is the gold of the Internet. The more search engines can connect your search and the data they collect on you to some buying motivation, the more money they can continue to extract from advertisers. Thus, when a consumer announces their intention to buy something at a search engine, the advertising auction works its magic and the search engine makes increasing sums of money, none of which ends up in the pocket of the end consumer.

Enter Jellyfish.

Introducing Value Per Action (VPA) Search Advertising

At Jellyfish, we want to pioneer a new form of search advertising we call Value Per Action. Instead of charging fees on the click, we charge our advertisers only when people actually buy, and we share at least half of this fee back with those buyers in a cash back account. In other words, we connect people directly to the value of the advertising market. Instead of measuring how much money WE make when you click, we measure how much value the advertiser is willing to pay YOU for your sale. With VPA, the advertising value of your attention becomes transparent (you see it in the form of cash back) and changes from annoying advertising into a new kind of currency (we call it buying currency) that lowers your end price.

And to help you get the maximum amount of savings when you buy, we are launching VPA in the same kind of advertising auction system used by the major search engines. But instead of ranking our results by the amount companies pay us in the form of hidden advertising fees, we rank results by the end price for a product, after our cash back. We think this will create a perfect retail marketplace because retailers will increase their VPA advertising rates (keeping pricing constant on their own sites) to get to the top of our rankings and the value of that advertising competition will flow directly to our users in the form of lower net prices. You can see a simple picture of this system on our site here.

The power of the VPA auction is this: The more stores compete for buying attention, the more end consumers save. In this way, we think we hope to create a system that delivers the maximum return on a consumer’s intention to buy, and they don’t have to do anything more than search they way they would at one of the existing comparison shopping engines.

And what does this do for retailers? It allows them to spend the same $1 of advertising on both search promotion (paying for higher rankings) and price promotion (dropping price to drive conversion) in a risk free channel where click fraud is impossible.

A Big Idea–In Beta

We think this could represent is a major shift in online advertising and help advertising evolve to continue to be relevant in a world where the end consumer has ever increasing choices and control over their attention. You can read our vision of online advertising on the site here. But we also recognize that we are a start-up company with a beta search engine. Like the first PPC auction that started bids a 1 cent/click, we have to start somewhere as well. We could have waited a lot longer to build a perfect site with lots more products, but that doesn’t make sense. We wanted to introduce the VPA concept and start the bidding and the conversation as soon as possible.

Day one on our beta site you will see roughly five million products from approximately 1,000 online retailers. You will be able to search for individual products, narrow searches by store, manufacturer, and price range, shop by store, compare products, and earn cash back on most everything you buy. Things won’t always work perfectly, but we hope you will be able to visualize the power of Jellyfish.com as stores start to compete in a VPA system.

What We Promise During Beta

We recognize that our site will have limitations and bugs like most beta launches. Here are the main things we will be working on tirelessly during our beta period to get ready for our full consumer launch this fall:

• Adding thousands of additonal retailers and millions of additonal products at Jellyfish.com
• Promoting VPA-product level bidding and store competition
• Creating enhanced search functionality
• Expanding the tools to narrow your search results
• Launching better product review, merchant review, relevancy systems that leverage consumer buying data

We recognize that our site is far from perfect and we appreciate your patience while we move through our beta period. We also really look forward to your feedback and comments, both positive and negative, as we bring Jellyfish.com to market.

It is official: Jellyfish.com will open to the public on Monday, June 26th.

It is time to pull back the curtain and introduce what we hope will be a major shift towards a more transparent and consumer-centric form of search advertising. The site certainly isn’t going to be everything we want it to be day one, but the Jellyfish concept will be on full display. And besides, our team needs to go home and sleep sometime this month.

Thanks to everyone in the blogosphere that has been paying attention to our pre-launch ideas (especially the great posts and commentary by Brian Smith, Garrett French, Ed Batista and Scott Karp). The blogosphere really helps level the playing field and allows interesting ideas to percolate to the surface regardless of whether those ideas come from Silicon Valley or Madison Wisconsin. And if you need additional evidence as to how blogs are changing things, check out this post from Adam Trachtenberg, an eBay technical evangelist who apparently overheard Brian and I talking about Jellyfish at the San Francisco airport late last night. Thanks for the link to Jellyfish Adam! You can’t make this stuff up.

We really look forward to hearing your feedback next week post-launch.

We have officially entered the pre-launch vortex: that surreal time just before a start up company goes live and everyone is a bit frantic. Time changes, sleep changes, everything changes.

If you have been there before, you know what I’m talking about. This analogy is over used, but it feels a bit like when my wife tapped me on the shoulder one night and told me she was in labor for the first time. You aren’t sure what is going to happen, you just know your world is changing: fast. You may not sleep much for awhile and you’d better be ready to adapt fast or you’re going to be in trouble buddy. (Note to Maddie: you are more important than a company, but I like the analogy)

Jellyfish is launching in the next several days and our team is in the vortex. We will announce the exact launch date very soon. In the meantime, forgive me for not posting much. Someone is tapping me on the shoulder . . ..

Jellyfish is really pleased to be participating at this year’s SuperNova conference, to be held next week in San Francisco. We are one of a dozen or so emerging technology companies that will be participating in the Technology Showcase, held on Weds. evening, June 21st. You can see details here.

The SuperNova conference is a fantastic opportunity for us to show how Jellyfish will change the underlying economic model for search and replace Pay Per Click advertising with a patent-pending, competitive marketplace in which consumers always receive the maximum value from their buying attention. We think our new model makes a powerful new connection between buyers and sellers online and will allow us to stand out from the rest of the search engine crowd.

If you plan to be at SuperNova, please stop by on Wednesday evening to see a demo.

Seth Radwell, President of the e-Scholastic Division of Scholastic gave an interesting talk in Chicago this week at the Internet Retailer Conference. One of his key points was that the Internet creates “enablers” that allow retailers to change the traditional relationship they have with customers. In particular, he stressed the following three enablers:

1. Transparency-don’t hide anything from your customers
2. Control-give customers control over how they gain value from you
3. Simplicity-make it simple and easy

There are many examples of how Internet retailers are applying these enablers in new ways online, but what struck me was how far we still need to go for online advertising to catch up to these pillars of customer value. If users are in control, why do we continue to see intrusive, annoying advertising (like pop-ups talked about by Jeremy Wagstaff here) that interrupt and annoy? And why are customers in the dark about paid search bid rates and completely cut off from the daily online advertising auction that creates millions of $’s of value for companies like Google and Yahoo?

At Jellyfish, we believe the future of advertising is to create advertising units that customers find valuable in and of themselves. Technology enables companies to bring customers directly into the advertising value chain and create an environment where it is easy for them to seek out valuable messages on their terms. Transparency, Control of Value, and Simplicity. It is the future of online advertising.

Like many people, I think the Attention Economy (discussed here and here and here is a big thing). Why is it big? Because technology makes your attention a quantifiable asset of ever-increasing value. You have access to more and more information from a diversity of sources (attention scarcity) and you also have tremendous control over what you pay attention to (including not paying attention to advertising as I mention here). What’s more, technology allows others to record and quantify this precious asset in powerful new ways.

Access to your attention (both your historical attention profile as well as your dynamic “here and now” attention) is the precious currency that every company on the Internet is seeking. It will continue to become more valuable as new companies compete for it. The Internet will always provide us with an unbelievable number of options, but it won’t give you more than 24 hours in a day.

Online companies that figure ways to control/broker/protect/enhance your attention will reap huge rewards. John Hagel has a great post on this idea here, in which he states that people will seek out infomediaries that provide ever increasing returns on their attention. And the folks at Attentiontrust.org write about this all the time.

You may be thinking, if this is true, why don’t people think about their attention as a form of currency? In the future I think we will. But let’s face it; this is complicated stuff (it is for me anyway). Making it more complicated, a lot of the recent discussion about attention has centered on the concept of getting attention online as a new form of self-worth. Esther Dyson recently commented on this here and others have chimed in (see this post for example, “I can be Googled, therefore I am”).

I’d like to stay away from this more esoteric discussion. Although important, I don’t think we will get to this level in the attention economy until we show the mainstream how their attention currency can help them obtain more pragmatic benefits. (Andy Lark makes a similar point in his blog here). What kinds of pragmatic benefits am I talking about? For starters, how about the delivery of increased relevance and direct monetary value.

This is what Jellyfish is all about. Our mission is to provide consumers with an easy way to obtain maximum benefit from the most valuable form of attention they provide online: their buying attention. From this frame of reference, attention is better referred to as intention; the intent to do something. Both the present intent of an online consumer to buy some product or service and their historical record of buying intentions is the gold of the Internet. Buying intention is to Internet companies what crude oil is to Saudi Arabia: it is the underlying resource that funds everything. Before talking specifically about how Jellyfish wants to help you leverage this intention, let’s explore the primary way your intentions are being tapped by search and content providers online today, namely, to sell advertising.

Advertising and the Database of Intentions. Credit to John Battelle and his seminal post on the Database of Intentions here for recognizing that Search Engines collect individuals’ intentions on a massive scale and profit from those intentions through advertising. Google, to name one intermediary, has already made billions by connecting the intentions of its users to advertising (e.g., millions of people type their intentions into that magic search box every day and Google’s Adwords program auctions off those intentions to the highest bidder). The more these intentions can be tied to commercial (buying) intent, the more money Google and the other big engines make. In this way, Google makes money because it is a marketplace of intentions (see post here on Google as a market).

Thus, advertising subsidizes the true value proposition of Google and the other major search engines, which is to try to connect you to the world’s information. Similarly, advertising subsidizes all kinds of other content provided online, from blogs to the latest Web 2.0 companies. This isn’t new. Media has sold your attention to advertising for a long time. It is the bargain you have struck: I’ll put up with advertising on my television so I can watch this football game without any extra charges. Thus, there is a very established marketplace for your attention. It’s called advertising.

This isn’t necessarily a bad thing. For example, I love Google and Yahoo! when I want to find something (like the text of the Bill of Rights or fuel mileage on the Toyota Prius) because I can get a great return on my intent to find that information. The advertising doesn’t mess anything up because it isn’t the focus of this kind of search. It is more of a necessary evil so I can use the engine for “free.”

But what about when I have my credit card out and want to buy something? Do I get the best return on this kind of intention? Is there an intermediary that does for buying what Google has done for general search? I don’t think so. Why? Because these kinds of searches are primarily about advertising (connecting buyers and sellers) and the existing online advertising models (CPM, PPC) fail to align incentives properly between the consumer, the advertiser and the intermediary connecting them. The existing advertising models are all about the intermediary. The system is set up to maximize the intermediary’s return on my intention, often at my expense.

When I enter an “intent to buy” search today, the current advertising model creates a misalignment both in terms of the relevance of my search results as well as the distribution of $’s generated by those searches. Here is how: Let’s say I want to buy a coffee maker. When I type in this search at Google or any other intermediary (Yahoo! or Shopping.com, for example) the intermediary works hard to put the companies in front of me that have agreed to pay the most for my intention in the form of advertising fees. Thus, the more the intermediary is able to collect about me (my zip code, clickstream, etc.) and the more I use it to find things to buy, the more money it can continue to extract from the advertisers for access to me. The current system is misaligned because the search engine puts the company with the highest advertising costs in front of me (which creates the need for higher prices) with little regard to whether this is the best choice for my particular needs (relevance). As I have mentioned before, it reminds me of the mistrust we have for commissioned sales people that try to sell me the product or service that garners them the highest commission. Most of the value created by my buying intention is flowing to the intermediary in the form of advertising fees that primarily benefit the intermediary at the expense of the buyer and seller. To make it worse, this advertising system is hidden from me in that I have no idea why a particular advertisement was put as a top result and what it cost that company to get in front of me. Is this the best use of my intention data for either the buyer or the seller?

You can start to find discussions about this across the blogosphere. For example compare Robert Scoble’s post here about the use of attention data to create more and more advertising value for intermediaries with this Blogation post here, which argues that Google is keeping increasing amounts of information on its clients and advertisers alike to further its profit at expense of everyone else involved.

I think we will soon reach a tipping point where consumers are going to realize that when it comes to their buying intentions, search intermediaries like Google/Yahoo/MSN (and a host of vertical engines) are keeping too much value for themselves (advertising $’s) without delivering a corresponding increase of value to the consumers participating in this system.

At Jellyfish, we want to be this tipping point. We think the way to do so is to fix the underlying advertising model to align the incentives of all three parties involved in a sale (buyer, seller and intermediary). The advertising market does a good job of maximizing the value your intention (GYM have PPC auctions that do this everyday); it just hasn’t done such a good job of fairly allocating that value among the key stakeholders. In our marketplace, we plan to allow the existing advertising system to set a value on your intent to buy, but that value (e.g., your intention currency) will flow to you, to the advertiser, and to us only when we do a good job of using that intent (and your historical buying intentions) to connect you to the product or service that is right for you. This will happen seamlessly and without you even thinking about it in terms of driving a maximum return on your buying intention. In the transparent marketplace at Jellyfish, advertising will transform into intention currency and that currency will be used to efficiently match buyers and sellers.

And this is the way we think the attention economy will start to catch on for the masses: By integrating its core concepts into an easy to use application that has direct, tangible benefits to the end consumer and advertiser alike. The average consumer may not think about it as intention currency, but we hope the increased value to that consumer will ensure that she continues to come back each time she has intent to buy something online as opposed to just an intent to search for information.