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.

Most people don’t care how search engines make money. They are free, right? This “free” attitude is similar to a home buyer that tells you that they didn’t care how much the real estate agent made because “the seller paid the agent’s commission.” But most people realize that the commission is factored into the price of the house they just bought. In other words, that 6% commission just came out of their bank account. Score one for the intermediary.

Now consider what technology is doing to the traditional residential real estate broker. The “For Sale by Owner” (FSBO) industry has used the power of the Internet to create a more efficient intermediary to match buyers and sellers of homes. New intermediaries like Fsbo.com, forsalebyowner.com, and a host of others charge significantly lower flat fee rates to market a home. The rationale: you don’t need to pay 6% of the sales price because technology allows us to be much more efficient in finding a buyer for your home. Even with the real estate industry controlling the MLS database, this new intermediary has been extremely successful. Experts estimate that close to 20% of all home sellers now go the FSBO route. ForSaleByOwner.com, for example, says in a recent Washington Post article that it has helped sell more than 90,000 homes since 1997, saving about $1 billion in commissions in the process. The residential real estate industry makes strong arguments for the value they provide, but new services continue to chip away (Zillow for pricing expertise, for example). I think the 6% commission will continue to go the way of the dinosaur.

Like FSBO for real estate, Internet search engines make money by selling advertising-they connect buyers and sellers on an incredible range of products and services. So the question I have is this: are these search engines using technology to lower transaction fees (and ultimately end prices) like the FSBO intermediaries claim to have done? Have Google or Shopping.com, for example, saved companies billions of dollars of advertising fees that are no longer built into the prices consumers pay for products and services?

Pay per click search advertising started out with this kind of promise. The engines used technology to efficiently harness the value of consumer attention and created tremendously targeted connections between buyers and sellers in the process. Lots of extra value was created. In the early days of paid search advertising, the transaction cost of matching up a buyer and a seller (e.g., advertising/customer) was dramatically lower than the cost in other media, creating lower customer acquisition costs for advertisers. But paid search pioneer Goto.com set this system up in a brilliant fashion; they lured advertisers into paid search in an auction environment, often at really low initial pay per click fees. Thus, as the advertising got better and competition for it increased, the advertisers began paying higher and higher fees to the search engine intermediaries. The existing auction system is very efficient at moving these fees to ensure the intermediary gets maximum benefit.

What does this mean? It means that as paid search advertising becomes ever more targeted and powerful, the intermediary will continue to soak up all of the value in the form of higher and higher advertising fees. At a macro level, the result is that even if search advertising becomes dominant, advertisers aren’t going to be saving money in any predictable, industry-wide fashion that would allow the added value created by technology to find its way back to consumers in the form of lower end prices.

Let’s turn our attention back to the FSBO analogy. Consider what would happen if the FSBO sites used the advertising auction system used by most search engines instead of a flat fee. Wouldn’t this system go something like this: you can advertise your house for sale in San Francisco by agreeing to pay us $$ each time someone looks at your house on our site, and the more $$ you agree to pay us, the more prominent you will be on our site, the more buyers will see you, and the faster you will sell. If this system took off and became mainstream (think Google/Yahoo) by creating a really fast and easy way for you to find a qualified buyer, everyone would start to use it and that competition would drive up the cost to advertise very quickly (the efficiency of markets). Ultimately, that increasingly expensive advertising would again get factored into the price of homes at a macro level. The system may not go all the way back to average 6% of the sales price (or would it as it became more powerful?), but I’m guessing it would be more than the low flat fee you pay on a FSBO site today. This analogy isn’t perfect because over time the FSBO’s of the world will also raise their prices if they gain market share, but right now home buyers and sellers are getting lots of extra $’s in their bank accounts.

You may be able to poke holes in my analogy (please do!), but I hope it gets you thinking about the inherent misalignment of interests at play here. The simple fact is that the more powerful, targeted and valuable paid search advertising becomes in the existing ppc auction system, the more $$’s search engines will extract from the system. The increased value is very efficiently soaked up before it can find its way to end-consumers in the form of lower prices.

Think about what would happen if Google became so powerful it could predict with 99% accuracy what advertising you wanted to see. Advertisers would compete to get their message in front of such a pure targeted audience (you). Fees would be incredibly high. Would you get any of that extra value? You certainly would obtain relevant advertising, but is that enough? And to make it worse, this system is hidden from you (you have no idea what a business paid for your click). It is like you are buying a home, but you can’t tell whether you are talking to a fully commissioned broker or someone who is getting a $90 flat fee. But don’t worry; you can take the attitude of our home buyer at the beginning of this post that doesn’t worry about the broker commission because he isn’t paying it. Search engines are free, right?

At Jellyfish, we think consumers need to be brought directly into this value chain. Technology can make consumers an equal participant in the advertising ecosystem. We look forward to showing you how when we launch.

It is early in the first quarter of a long game, but Internet advertising is way behind technology. I was talking about this fact with our CEO Brian Wiegand yesterday and he came up with the title of this post. My goal is to show you how this is true.

Let’s first consider our relationship with advertising. To most people advertising is a dirty word. Look at the traditional world. We have been bombarded and interrupted by unwanted advertisements from the time we could walk and most of us have developed a healthy animosity towards ads. In fact, we hate them so much we actually spend money to avoid the damn things by buying things like Tivo DVR’s and Satellite Radio. Yet, advertisements fly around our heads every day like pesky insects on everything from city buses to products placed in our favorite movies. Occasionally, we find one entertaining or relevant, but mostly we simply endure them as a necessary evil.

But technology has given us the tools to dramatically change this relationship. Think about it. The potential of online advertising is astounding. For the first time in the history of the world, it is now possible to accurately measure and track how consumers are actually interacting with each individual advertising unit on a global scale and in almost real time. Advertising now has the potential to become 100% accountable; a scientific certainty instead of a crap shoot; a laser beam instead of a shotgun. Technology has given us the potential to turn advertising on its head.

Yet, for all its potential, most people still view advertising as a dirty word. We avoid banners, and hate things like pop-ups and interstitials that continue to interrupt us. We have to sit through a full page ad on our screen before we can enjoy our New York Times or CBS Sportsline and we try to avoid these ads as much as we can (Steve Gilmor even correctly pointed out that RSS is like a Tivo DVR for the Internet). Businesses sell us “free” versions of their products with ads included and paid versions that are ad-free. We fret openly when the pesky insects start to invade previously pure environments like video games or organic search results.

This problem is true even of paid search advertising, the current superstar of online advertising. Google may have scored a touchdown with this model through its AdWords/AdSense program, but this touchdown isn’t going to win the game (I’m sure Google would agree with me on this). On occasion, people view Google sponsored links as helpful, kind of like the yellow pages are helpful. But don’t you still try to avoid these ads? Aren’t you happy that they are pushed off to the margins of the screen and conspicuously labeled “Sponsored” to help you tune them out? This is even more true of Adsense syndication. Think about all of the Web 2.0 companies that are using Adsense as their revenue model. Aren’t these ads simply a necessary evil and a minor distraction that interrupt you from what you are really doing on the site?

At the end of the day, most people still view sponsored links with mistrust; the necessary taint of capitalism that is included to support a better world of pure organic, trusted content (if you had the choice to use a site with or without ads, which would you choose?). Even in their purest form, paid keywords on the engines (Google/Yahoo/MSN) still suffer from an inherent misalignment of incentives and potential for mistrust. The GYM ad bidding systems fuel the inverse relationship between the amount a company paid for a sponsored link and the end value to the customer because the cost of that advertising is built into the end product price. And how does GYM organize these ads? By their revenue potential, which doesn’t directly equate to customer relevance. To add insult, this whole auction system is hidden from users (isn’t this why we mistrust ads?).

In short, even with Google’s touchdown, technology is still kicking advertising’s butt.

Our mission at Jellyfish is to turn the tables by using technology to dramatically change the relationship people have with advertising. To use the “database of intentions” that John Battelle writes about to make advertising something that people actually seek out, something that they control and love to receive. We think this new form of transparent advertising will transform how you view advertising and how the Internet connects buyers and sellers. We hope it will create the holy grail of advertising that marketing guru Seth Godin defines as “perfectly matching sellers to highly receptive buyers.”

How does our advertising work? By creating a transparent market in which advertising and consumer value ALWAYS flow in the same direction. The precision of the Internet makes this possible. We can use technology to empower individuals to take control of advertising in a new and radically different way. We aren’t the only ones working on this problem (see Root.net and Attentiontrust.org, for example), but we think our form of transparent advertising will be the tipping point that takes this idea to the mainstream consumer.

I hope you agree that this is a big idea and that you stay tuned.