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Friday, November 06, 2009

PPC Has Always Been the Wrong Term

It may seem like a small point, but "pay-per-click" was the nickname given to paid search advertising back when it started out, but it only describes a pricing method, not the nature of the media or what we seek from it. (In the proto-days of that same technology, "paid keywords" or "buying keywords" was another way of describing it.)

I was reminded of this whole mental muddle today reading the headline from an email solicitation, something about "getting more PPC without using Google".

But that whole line is kind of old hat. It's the come-on that opportunistic, non-search-based ad platform companies used to sell their crummy, remnant, and sometimes fraudulent contextual text ad inventory. Sometimes it couldn't have even been described that neatly. It was traffic, and you paid for the clicks, and potentially you used keywords to guide the system towards certain publishers, but that was about it. You might as well have paid the effective CPM rate, as bid on clicks. Didn't matter.

That's why I always advocated paid search as the term of choice for people who really wanted to go after clicks from ordered results placed near search engine results, but it scarcely matters what I advocate! -- people will use all kinds of terms.

SEM is another term that arose. Agenda-setters in the business tried to remind everyone that paid search (or "PPC") is one sub-type of SEM (search engine marketing), and SEO (on the "organic side") is another sub-type. But the fight to make SEM exclusively the global term, and not to be used as synonymous with PPC or paid search, was lost. SEM is often used interchangeably with PPC or paid search.

No matter. With all of these nomenclature battles being unwinnable, we should turn our attention to the whole reason "PPC" was so attractive as a pricing mechanism. It's because it represented a happy medium between CPM (paying only for impressions -- "cost per thousand impressions") and CPA ("cost per acquisition" -- paying for lead conversions or even revenue-generating sales conversions).

You can draw up equivalents across these mechanisms, and measure or express them all for your keyword (paid search) campaigns. So the click isn't anything special. It can be expressed in its CPM equivalent and you can and should also be measuring ROI, ROAS, or CPA.

Indeed, according to some scholars [see "Greedy Bidding Strategies for Keyword Auctions"], the most rational strategy for bidding in a digital media auction would take you straight to CPA or revenue if that was possible. If you could bid directly on the customer acquisition or revenue, you would. (And in fact, that's what some forms of bid management automation attempt to do, at one or two removes. And it's what manual campaign management also attempts to do, painstakingly.)

But step back further. Are search, keywords, or clicks inherently special? Why the drive to distinguish them from other forms of media? Is it for what they are, or what they represent?

It has to be the latter. They represent potentially the most extreme (and measurable) form of granular targeting and flexible bidding, of a certain type. This is reflected in the sky-high effective CPM rates for some keywords.

But that means that all of this distinguishing one type or another is done mostly for economic or practical reasons.

Search and keywords (and clicks) fall into the general category of auction-based digital media. Whether we're bidding on clicks, acquisitions, impressions, or other, the universe of digital media is amenable to similar tests. From a rational bidder's standpoint, there should be no inherently good or bad media, nothing inherently "creepy" or "wrong," nothing inherently above reproach either.

That's mostly true. It's not entirely true. (Dropping ad-laden anvils on prospects' vehicles is interruption media, and some companies would pay for it, but it's stupid and illegal.) But isn't it a good starting point for analysis?

"PPC" doesn't matter per se. So pitches like "now you can get 'PPC' from other channels than Google" shouldn't have any special weight. You shouldn't be looking too hard for that inventory if your economic criteria show it's not going to pay off for you. Nor should you have been ignoring it all along just because you thought that "PPC" or "Google" were special for some inherent reason.

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Posted by Andrew Goodman




Friday, September 18, 2009

DoubleClick Ad Exchange: Myth (2009) and Reality (2012) of Display Ad Market Efficiency

Google has finally launched DoubleClick Ad Exchange with full plans to integrate the system with the AdWords platform. Although a long-anticipated development, it's still a "wow" time for our industry.

Google joins a number of other true exchanges of note, companies that have pioneered the idea of a true "bid-ask" system on display ad inventory. The most notable of these are ContextWeb, having gone so far as to dub their system "ADSDAQ," and Yahoo-owned Right Media.

The designers of such systems are the best ones to provide detailed explanations of how ad exchanges differ from ad networks, but transparency of bid and ask prices is probably how to sum it up. If you're a publisher in an ad network like AdSense or the thousands of others that have graced the industry since the 1990's, there is no direct communication with ad buyers. The intermediary tells you what you're going to get on a CPM or CPC basis, either in advance, or after the fact. You don't get to enter into a direct transaction with the buyer, and you don't have any clear sense of what the intermediary's "markup" is. That might lead publishers and advertisers to want to make a lot of individual transactions with one another, to cut out the intermediaries.

And that leads to a patchwork quilt whereby inefficient individualized ad buying and selling is taking place on "premium" inventory, and networks are stereotyped as buyers and sellers of "remnant" inventory only.

Meaning: the state of display today combines two unattractive qualities: a lack of transparency and a lack of efficiency. That there are too many networks just adds to the inefficiency problem: it's an industry ripe for consolidation.

Jonathan Mendez, in one ("The Market Forces Killing Display Advertising") of a series of complex posts, seems to agree that this is the sort of problem facing the display advertising sector. He also, however, predicts that the new exchanges will only make the problem worse: they'll "drive down media costs even further and become a new haven for performance advertising at the expense of [publishers]." If so, I suppose that's great news for advertisers. But there could be a different long-term dynamic at work. Mendez's point seems sound in that he integrates it with a perspective that shows market forces from search advertising being rudely applied to the formerly fat and happy world of display. In short, direct response is what drives much of paid search, whereas something else entirely (brand integration) is supposed to drive display, like it does on radio and TV. If display is being forced to play in the direct response world, those who formerly profited from that channel are at a loss as to what to do next as their margins (and raison d'etre) fade. If I interpret even 10% of Mendez's message right, it's sobering food for thought, regardless of how many brand channel strategists Google layers on top of its direct response and search-savvy core.

Perhaps, though, it's simply far too early to make this call. I'm drafting a potential counterpoint to Mendez's analysis that roughly says: maybe the display ad market today is simply prehistoric and inappropriately organized as far as buying and selling dynamics goes; what if it's like Google AdWords in the pre-CPC, fixed-CPM, non-tested, non-measured, clueless-buyer era of 2001? What if the number of participants in a well-designed auction matters a lot to publisher revenues, and we simply need more? What if measurement and attribution right now are in the dark ages, and the introduction of assists will help? What if new technology (features) to rate publishers, classes of inventory, characteristics of content, got built into the system for either manual or automated use? But that could be another 1,500 words.

For now, a few more thoughts on where the DoubleClick ad exchange may take us.

Here are some principles to consider:
  • Interoperability of networks: ecosystem sensitivity
  • Continued migration of ad dollars away from inefficient media
  • Applying the efficient auction principles of paid search to media buying as a whole
  • Chicken-egg scale issues
  • What kind of market is this? Will Google win with a capital W?
First, if a variety of networks can plug into the exchange and act as buyers, publishers may have a decent floor on their middling and remnant inventory. A "buyer" for a particular ad impression, then, could be any number of direct bidders participating in the DoubleClick exchange, or it could come in through outside networks who are also publishing in the DoubleClick exchange. That could mean a dual role for Google: (1) on one hand, hoping to create "the" platform for buying and selling ads, that improves the overall viability of the industry as it grows in size; (2) on the other, keeping the better outside networks in business, allowing them to buy and sell and even play around with arbitrage opportunities.

Second, the trend that won't appeal to traditional ad agencies and traditional publishers: dollars that can show clear ROI will be happier, so they'll be spend in this medium. The ongoing stampede continues.

Third - and this point is either scary or a forgone conclusion depending on your perspective - these principles will apply to all media someday: billboards, television, radio, product placement, etc. If you're a company like Google or Microsoft, you're thinking about organizing a platform to run that. Google did a pretty embarrassing job of doing this the first time around (radio, newspapers), which just proves you don't just snap your fingers and accomplish something like this. It's very early days.

Fourth, it looks like the early exchanges were sort of unsatisfying in the sense that their scale was understandably limited by how many participants were on either side of the transaction. If the buy isn't big enough, it's not worth the time to monitor your involvement with the platform. Signing up "sellers" (publishers) is a major prerequisite to making this work. And the pitch to them has to say something like: "we have millions of advertisers eagerly logging into our platform every day". Pretty much only Google (and maybe one or two other companies...maybe) can say that. This is a game-changer, potentially.

Point 4.5 is simply along the same lines, but it's probably important not to sidestep this issue. You don't draw up "market maker" logic in the abstract and then from there find great success. If the results to advertisers or publishers are lukewarm, they won't hide that fact, they'll simply stop using you. And unlike traditional ad networks and traditional media buying, your whole principle is that the exchange technology itself drives liquidity and sets prices. If that isn't working, you can't fall back on the sales team to grease the wheels; that would be incoherent. To date, some existing exchanges have suffered from the critical mass problems. Others have meted out condescending treatment to ad buyers, reverting to salespeople who promise to make a custom buy on the system, or work the system for you, as long as you commit to a certain budget. Hey guys, if you're trying to prevent me from logging in directly, then you're a mutual fund salesman exacting a fee; same old, same old.

So, point 5: is this a market like the one Amazon took by storm - a winner-take-all market where Google will enjoy market dominance? Or is it a market where first and second movers continue to do well (like the browser market, where Google only has 3% share, or the -opedia market, where the Google upstart product knol has nowhere the brand adoption of the original, Wikipedia)? How will Yahoo and Microsoft respond? For the record, I caught up with Jay Sears, EVP of ContextWeb, and he said: "We welcome Google to the ad exchange business. It's a terrific market validation to now have the two top exchanges in the market, including one that is independent."

We'll see how things shake out.

Something to think about: interoperable networks -- those less evolved creatures -- may do better in this ecosystem than competing exchanges. A clash of platforms is a true clash of superpowers; non-superpowers die. At most 2-3 leading platforms will win. Meanwhile, "app" creators (sub-players in the system) that work well within the leading platform are non-threatening to the leading platform makers, and don't need critical mass to be profitable within that environment.

In any case, to conclude by explaining what I meant by the title of this post: the display ad business is in a frustrating state, as every company developing products and services to serve that market seems to tell you in their booth pitch. The problem is that virtually none of these companies solve the problem; most make it worse, or sell you a futuristic solution adorned with "truthy" FAQ's, and then revert to old-school methods. In 2009, it's simply a myth that there is any satisfactory display ad system that is built to scale with a scaled-up marketplace of buyers and sellers. If that scale is reached - and I don't think it will be before 2012 - we may be in a quantitatively new ballpark.

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Posted by Andrew Goodman




Wednesday, September 19, 2007

Google's Gadget Ads Rolling Out

Today Google is announcing the wider availability of Google Gadgets in ad format, something that has been in testing for months. Several advertisers are cited as happy beta partners, including Intel, Six Flags, and a fizzy beverage company.

They're considered "non-traditional ad units with rich, interactive capabilities." Google further explains that you might want to think of these as "mini versions of your website" in any AdSense ad size.

At this early stage, I wonder if the poster examples - Pepsi, Intel, Six Flags - really make the most sense as "gadget oriented" or "widget oriented" players.

Also, positioning widgets/gadgets as paid ads puts a new spin on something that no doubt cropped up in the grassroots as a tactic for viral marketing. I come up with a widget that gives your website something unique & cool, like relevant content or a customizable toy of some sort... your users enjoy themselves... I get traffic and brand awareness in return.

The new math would be: I as a creator of said unit have to rely less on the compellingness of the widget/gadget to your user base, because now I'll be willing to actually pay you to put it there. Where does Google come in? Well, they have a content network, so they're facilitating the distribution of the ads, as usual.

Recall, flash and video ads were already part of the AdSense menu. So a gadget takes it up another level - offering custom functionality of some sort.

There are editorial policies governing Google Gadget Ads. These include "not exceeding 50% utilization of a user's computer" through things like "heavy animation sequences."

More to come on this.

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Posted by Andrew Goodman




Monday, July 30, 2007

LookSmart's "We're Not Dead Yet" Act Attracts Few Spectators

Somewhat submerged in the news about Wikia acquiring Grub to move forward with an open-source-flavored search project to rival Google is the news that Google lost the contextual ad contract with Wikipedia powered sites to non-rival LookSmart, who now offers a contextual ad product.

Household name, publicly traded, with at least a few million dollars left to burn, and now with a toe in the door of a multibillion dollar business long chased by the top players. You might think: if a startup wanted a quick fast track towards further development of its upstart ad network, why not engineer a reverse takeover of LookSmart, change the name of the company, restructure, and let the good times roll? If nothing else, LOOK still has a sizeable database of advertisers. It probably has some handy buildings and lease agreements that figure to be underutilized unless someone figures something out soon.

Evidently, this kind of deal isn't imminent, as no one is making any suggestions of anything of the sort. Even with bubbling news, LOOK strains to trade 100,000 shares in a day. The company releases Q2 earnings later this week.

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Posted by Andrew Goodman




Monday, June 04, 2007

Yahoo to Release Quality-Based Content Click Pricing

Today Yahoo! announced quality-based pricing for clicks coming from distribution partners in the sponsored search and content match programs. Similar in intent and implementation to Google's "Smart Pricing," it will automatically discount a publisher's click revenue (and the amount the advertiser pays for that click) by "a certain percentage" based on traffic quality as measured by conversion rates and other factors.

This systematizes the same process that has taken place with interactive ads for years: advertisers run tests, find out which sites convert well, and reprice their offers when they re-order, lowballing the low quality publishers.

My take:

This is a much-needed initiative for Yahoo!. Although it will initially dampen revenue, it will put Yahoo's relationship with advertisers on a solid foundation, allowing for future growth. I've witnessed first hand the slow increase in the ROI graph on Google's content network, to the point where we now feel confident bidding on this inventory in almost every advertiser account (although still lower than we bid for search inventory, usually). Smart Pricing has been an important part of this picture, as blunt an instrument as it may seem to some publishers. It's worth noting that by taking away ill-gotten revenue from bad publishers, these networks can afford to pay out better to quality publishers.

This initiative will further cramp click arbitrageurs' style, though not all forms of arbitrage will be negatively impacted, because not all publishers are part of the same content network (did you know that?) so different rules might apply. That being said, these distribution partners that are classified as falling under "sponsored search" appear to be subject to the new quality-based pricing; however, nothing some select partners won't be whitelisted or made exempt from the policy.

One possible criticism of such policies (I called this an "actuarial" approach to content pricing when Google rolled it out 38 months ago) is that it's a way of blunting criticisms of fraud-prone distribution partners without actually offending the partner network by taking direct action. In other words, it's an abdication of past responsibility for click fraud in the network, while trying to quietly rectify the problem. A further indication of a gradual acceptance of responsibility for the quality of the partner network is in point 17 of the FAQ's: "Although we do not currently offer the ability for advertisers to opt-out of particular sources of traffic, this is a feature that we plan to begin offering later in 2007." Good thing, because for some partner traffic, as far as many advertisers are concerned, the only smart price is zero.

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Posted by Andrew Goodman




Monday, May 07, 2007

Welcome to the Hype Zone

Google, you do realize you zoned and built this neighborhood, don't you?

What you get when you search for "Google AdSense" -- (ok minus the spray paint):

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Posted by Andrew Goodman




Tuesday, April 17, 2007

ContextWeb: The Would-Be Online Ad Market-Maker

A few weeks before the recent announcement that Google is buying DoubleClick, DoubleClick announced it'll be developing a "NASDAQ-like exchange" for the buying and selling of online advertising. Proof positive that the online ad space continues to heat up, rather than diving into an irrational "bust" as in 2000-2003.

Wait a minute, though, you may be saying. Aren't ad networks and the way ads are bought and sold today somewhat "market-like"?

Not as much as you might think. Check out Google's current contextual offerings, for example. As a publisher, do you think you can signal to the advertiser using an "ask" price? Do you have much control at all if you join one of the various ad networks and let their system allocate inventory, as opposed to using your own inside sales force? Nope. And what about the ability to stand out as a quality publisher amidst the crowd of remnant type inventory? Again, tough to do. So, tough to monetize to your fullest potential. Because the current market maker is not facilitating a true market. In that sense, DoubleClick's new promised offering, and Google's acquisition of DoubleClick, could constitute a significant step forward in online advertising efficiency.

DoubleClick won't be the only one working on a great way of putting online ad buyers and sellers together. ContextWeb, quietly licensing its matching technology since 2000, and more recently, acting as a media middleman in its own right, is working on a new "name your price" functionality in a new, highly automated ad marketplace system. I had the chance to walk through a demo yesterday with CEO Anand Subramanian and VP of Business Development Jay Sears. While the release isn't slated for a couple of months, publishers are already being targeted for a beta signup. The hook, "Ready to Make More Money than AdSense?," is not new to publishers, admits Subramanian. "Typically a publisher will become dissatisfied with their AdSense earnings, will install code from a competing network, but that will be even worse, so it's right back to AdSense," he says. But that's because these competing networks don't present a credible alternative. They represent the old school of what ContextWeb calls "Yet Another Ad Network," with fewer features, not a true marketplace, and no critical mass of buyers and sellers.

The company won't yet disclose the full range of features of its new system. To me, it seems to address the combined needs of advertisers and publishers very well, leaving neither the "prime inventory" nor the "long tail" unaddressed. ContextWeb's quiet long-term presence in the space seems to have given the company a wealth of ideas. A decent revenue stream from its current agency relationships, plus venture funding from, among others, Draper Fisher Jurvetson, has given them the long view needed to build a better platform.

If you're a publisher of quality content, here's hoping the days of "Yet Another Ad Network" will soon be a thing of a past in your balance sheet.

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Posted by Andrew Goodman




Friday, April 13, 2007

Admitted: "We Do Arbitrage"

At Search Engine Strategies New York this week I had the opportunity to model a panel on the latest with buying contextual ads with particular focus on the top contextual programs through Google, Yahoo, IndustryBrains, and a couple of others.

One of the most fascinating was by a major cable television network that uses low-cost, broadly-based terms to drive traffic keying on all kinds of current pop culture related content. It's an actively managed campaign that requires constant innovation to stay ahead of the curve. What's so interesting about it is how cost-effective this is as a way of generating buzz, if you get the tone right. It's basically using online media to deflect user attention back into the media vortex, in a subtle manner.

The two main economic benefits stated by the panelist were:

* Low-cost awareness-building for their flagship hit programs;

* Traffic arbitrage, sometimes breaking even or better on the ad inventory they show on their own sites.

Let me repeat that again. In a world where we've suddenly been conditioned to believe that PPC arbitrage is wrong, this marketing executive unabashedly admitting to doing it.

This paralleled my own presentation the same week, on how Google currently measures site and landing page quality. In short, I wanted to make clear that you could technically call a lot of the media companies advertising on Google "arbitragers," because they know the rough CPC's and effective CPM's on their ad campaign with Google, and they know the rough payback on an impression basis from their already sold inventory. So in fact the distinction is not a literal one, where you point a finger at someone making a profit on a media buy/sell and call it evil; rather, Google's quality scoring formula aims to disincentivize certain advertisers from offering deceptive or particularly annoying user experiences as defined by user input and user behavior. In an upcoming column I'll look more at the distinctions between "arbitrage," "nearbitrage," and "garbitrage."

In short, to have an exec admitting to arbitrage is not scandalous. If they have advertising on their site, and are buying ads to drive to that site, anyone could have figured it out anyway. That's what they're doing. As a bonus, they get cheap promotion for their TV lineup. And some publishers get paid too. Win-win-win.

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Posted by Andrew Goodman




Wednesday, April 11, 2007

The Coffee Fool Got My Attention

You know you're doing something right when a speaker hanging out in the green room here at SES NYC unplugs his laptop and wanders over to show a fellow marketer a marketing campaign, as sort of a 15-second case study. This Coffee Fool appears to be a fairly heavy user of contextual advertising at the moment, showing up adjacent to GMail and such. (Not a really surprising semantic match given that you probably type a lot of messages like "meet for coffee?" in email.)

I'm not sure what "coffee secrets" are really "exposed," but hey.

Disclaimer: I don't endorse or know much about their marketing methods. I don't know the company. I just noticed them.

Very important disclosure: I was not paid to post this!

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Posted by Andrew Goodman




Monday, February 26, 2007

Seth on Contextual Ad Targeting

Seth Godin wonders whether media buyers are right to pull ads off Google's and Yahoo's contextual networks because of how loosey-goosey they are with their approach to placement -- they match ads to pages, rather than allowing the advertiser "channel control."

While it's true that Y!&Goog would benefit from better sites joining their networks, I agree with Seth that being so afraid to show your ads on "Joe Schmo's Sports site" could be doing the client a disservice.

I thought we already had this debate. In the early going, lot of us were critical of the contextual ad programs for a number of reasons - mine was simply the poor performance, fraudulent or crapulent publisher partners, etc. Others in the biz, with more of an agency bent (and most likely to cheer for Quigo, Sprinks, etc.), demanded that Google's content targeting allow more direct control of what websites ads show up on, as opposed to forcing advertisers to accept the open-ended "smart matching" concept that used semantic technology to match ads with content.

So... first Google responded with site exclusion. Then, they released a site-targeted flavor of content targeting, in a parallel program. That as a direct response to these agency-style demands. Site targeting allows you to browse a menu of sites, add them to your list, and only show your ads on them.

I monitored ads running in both flavors for several months. A funny thing happened: the old "flawed" content targeting program got better, and my approach to managing those campaigns improved. The ROI came in line with search. Meanwhile, nothing on the "site targeting" side was converting. The performance was much worse.

At a couple of conference presentations I guessed that this is in part because computers do a lot better job of matching my ads against a million potential candidate pages than I possibly can in scanning down a list of 50 so-so potential publisher targets. You settle on 20 or so of these sites, then become obsessed with spending the full budget on just those. They convert poorly, so you've overspent on this handful of websites. That's a fairly typical scenario.

In short, because of computers aiding in the matching, classic content targeting offers more efficiency, as the systems get perfected.

Seth, both the intuition and the data point towards there being nothing inherently wrong with Google's approach to matching ads with content. No, the program isn't perfect, but placing high-CPM ads on big brand sites just because I want to appear respectable isn't exactly a challenge. It's more of the same: take too much of the client's money, and waste it, and claim the blue-chippiness of that approach as a benefit.

Both approaches -- the finicky put-me-only-here approach, and the "ROI-or-else" approach -- work in the marketplace. For very different reasons. Funnily enough, Google now offers two parallel programs to suit different ad buying constituencies, and are working on rolling out multiple ad products down the road, to keep everyone happy.

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Posted by Andrew Goodman




Contextual Ad Transparency Coming: Google's Malone

Search Engine Land has it. Expect more Google announcements re: click transparency in the near future.

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Posted by Andrew Goodman




Tuesday, February 13, 2007

Google Shifting Site Targeting Program to CPC?

At least one panelist (David Szetela) on the Ad Program Strategies: Compare and Contrast panel here at SES London, argued that while he liked the control of Google's Site Targeted flavour of content targeting, he wasn't so fussy about the CPM-based pricing model.

Coincidentally, today Google is announcing that they're beta testing a CPC-based version of Site Targeting, so advertisers who like the idea of paying by the click (that's pretty much anyone who is used to PPC as it's implemented in the rest of your account, and on YSM and MSN adCenter too) can do so.

Seems like advertisers just don't like switching to CPM-based thinking inside of a CPC-oriented platform.

Related Traffick posts:
Note, even if we go entirely over CPC's, it's always a snap to track the associated cost in CPM, if you're into apples to apples comparisons. In previous posts I had argued that even in traditional CPC-based content targeting, some of my favorite campaigns were successful precisely because of the price - which was effectively about $0.25 CPM.

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Posted by Andrew Goodman




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