A short project that seeks to explore a disruptive advertising company called Pixazza, and how they run a 'different' sort of marketing campaign than the traditional internet marketers.

1. An innovative business model in Internet advertising
Introduction
We have chosen to examine Pixazza1, a start-up company employing innovative means to
provide image-based advertising on the Internet. After describing and classifying the business
model we will discuss its customers, what they value, and how Pixazza provides that value.
Finally we will explain whether we would invest in this company, and why.
Business model description and classification
Pixazza offers a platform to online publishers that superimposes content-relevant advertising
onto published images. The platform identifies and links products so that when a user runs
his or her cursor over the image, a pop-up vignette appears containing information and links
to the exact or similar products for sale on retailers’ websites. This is achieved by, firstly,
partnering with both advertisers (retailers) and publishers to create databases of images and
products; then, instead of using a fully automated process, Pixazza employs an army of
individual ‘experts’ to supplement their digital recognition algorithms and manually identify
and match the objects to sellable products2. Potential experts sign up through the Pixazza site,
and if determined to be suitably qualified they become part of the working community. They
are paid a commission and have flexibility in the quantity of work they carry out.
The result is a concept that creates value through supporting some of the classic web-based
business models set out by Michael Rappa3. Considering Rappa’s classification, broadly
speaking Pixazza facilitates an advertising model where the publisher generates revenue by
inserting advertising messages from a wide range of possible advertisers (merchants). The
Pixazza platform itself, through the embedding of links, provides purchase opportunities to
the users by means of a “purchase-point click-through to the merchant”, and it generates
revenue by negotiating financial incentives related to the success of the links themselves. It
therefore most closely resembles the affiliate model. As Rappa notes, this model runs on a
pay-for-performance basis, so if the links do not lead to the success criteria stipulated (based
on clicks, acquisitions, or impressions), the advertiser will not incur a cost.
Behind this combination of affiliate and content targeted advertising models, the Pixazza
structure also uses aspects of an open content community model to outsource it’s labour to a
group of experts. This ‘crowd’ develops the “picture to product mapping” required, thus
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2. An innovative business model in Internet advertising
focusing the advertising. However, the business model does not go quite so far as being
completely open content since contributors are selected and then work on a commission basis.
Therefore, in line with Rappa’s
discussion of the web reinventing
existing models, a new sub-group
might best represent the model,
perhaps called community content. In
this case the motivation for the
contributors is the economic benefit,
flexible volume of work, and the fact
that they are engaged in an activity
Exhibit 1:
The Pixazza that is fun and interesting to them.
Model
In general the business model has a
clear revenue model: by efficiently distributing the benefits amongst its various stakeholders,
and taking a cut of the proceeds, Pixazza obtains money for the value it provides.
Furthermore, it is a smart system because it motivates all members to participate actively in
order to maximise the total revenue generated.
Customers and Value
In many ways, the lines of customer and client are blurred with the Pixazza business model.
However, in terms of cash, its revenue comes directly from the advertisers, who might be
classified as the traditional customers. They value a number of Pixazza’s key offerings: higher
quality, more accurate product-image matching than other, fully automated, service providers;
targeted advertising to an automatically segmented audience; higher response rates than with
traditional banner ads; and flexible pay for performance criteria (costs are directly linked to
benefits) giving scope to set strategy and even experiment. In general, the value-for-money is
higher than with both traditional and other forms of targeted advertising. Furthermore, they
receive quantifiable information on buying patterns which may be valuable in their marketing.
In this model, the publisher is also a customer, in the sense that it receives a service from
Pixazza in return for access to its content. They derive value in several ways: additional
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3. An innovative business model in Internet advertising
revenue, without sacrificing either further investment or existing webpage real estate; choice
of merchants, allowing control over the associated branding; an innovative feature that
encourages visitor involvement; and an unobtrusive ad framework that minimises annoyance
to users. Therefore, in addition to the clear value from monetising their content at no real
expense, they also make their website potentially more attractive to their customers. This may
result in longer session times and more traffic, further amplifying the benefits.
Would we invest in Pixazza?
In deciding whether or not to invest we need to examine the value proposition to the
customers in the context of the market and competitors today, and in the future. Importantly,
the market itself offers ample opportunity for exploitation with an estimated three trillion
images on the web and an enormous online sales industry4. Pixazza appears to have
developed the means to capture a significant share of this market. To maximise the value
proposition discussed above they have developed a diverse and comprehensive set of partners,
and with the numerous merchants involved they have established an inventory of ten million
items5. In focusing on their unique process they have also differentiated themselves well from
their fully automated competitors (such as GumGum6 and Image Space Media7).
Moving forward, the plans to expand to other consumer markets and countries, and the
ongoing innovations to the business model8, are evidence of the future growth required to
justify an investment. The risks that this expansion might bring - for instance expanding the
volume of images and products and growing the size of the community of workers, whilst still
maintaining sufficient speed and quality - are mitigated by the competencies of the
management team. Their wealth of experience in the field supports confidence in their ability
to overcome future obstacles and maintain a high value proposition to the customers9.
In conclusion, Pixazza has created a mutually-beneficial, efficient, and innovative way for
advertisers to reach the consumer. The subsequent monetisation of this hybrid model presents
a compelling investment proposition. Based on the reasoning above we would invest, with the
expectation of good returns and acceptable risk.
© IE Business School | IMBA Nov 2010 Section N1, Group B 3