Wednesday, February 18, 2009
The Primary Problem With Online Display Is Audience Value
By Cory Treffiletti Online display advertising is getting hammered these days -- and as a result, it's truly a buyer's market out there. But maybe this is an opportunity for the industry to take an objective look at itself and determine the correct path to follow for the future?
According to both an IAB and an eMarketer study from late 2008, the average CPM delivered via ad network inventory is 60 cents to $1.10. This is in opposition to an average CPM for direct-sold inventory of $10-$20. Regardless of the exact nature of these studies, no one disagrees that the trend over the last five to six years has been a decline in display ad pricing, but the primary reason that pricing has dropped is not because of an increased supply vs. a steady demand, it's because publishers don't believe in the quality of their audience.
Over the last two years, publishers have designated more and more of their inventory for the ad networks, with as much as 30% of inventory being pushed through them in 2007 (an increase from 5% in 2006) and likely much higher in 2008 (publishers like ESPN are the exception, as they no longer sell their inventory to networks). As more inventory goes into ad networks, buyers know they can push harder on prices, driving them downward.
Online display pricing is also eroding, as marketers are acting on metrics that publishers cannot control. The simple fact is, the majority of marketers who spend online are spending to drive metrics, which are evaluated on actions --- but the publishers can only maintain control on exposure. Many publishers will tell you they don't sell their inventory on a CPC or CPA, but those same publishers will tell you they have an established rate card, too.
The fact is that everybody sells a portion of their inventory on performance, and everyone can be manipulated by an advertiser with a large enough budget! If you look at the top 10 advertisers online, I expect you'll see that at least 75% of what they run is evaluated against some type of immediate or intermediate response metrics (meaning they evaluate performance based on clicks or conversions). When they optimize budget they optimize against clicks or conversions, they do not optimize against CPM or efficiency, and yet in many cases they will claim they're running a "brand campaign."
What compounds my frustration is, these marketers are optimizing solely on response metrics and media methodologies rather than including creative methodologies, meaning they throw all their hard work under the bus from a targeting and media mix perspective and cut the placements they thought would do well -- when in fact they should be optimizing creative! If you default to optimizing the media, then you're basically stating that your media planning was flawed and the creative you have is perfect (let me be the first one to tell you: it's not).
Many marketers pretend to be driving "brand awareness" and default to response metrics so the pricing follows suit when it cannot be held to the same standard. Brand campaigns should be about efficiency of exposure and reaching the largest possible targeted audience -- but almost no one looks at it that way, and the publishers let it happen. In many cases, especially when you pay a premium for a targeted placement, the creative needs to do a better job of conveying the message -- or maybe, just maybe, your expectations of immediate action are unrealistic!
Some publishers may begin to consider shifting to CPC- from CPM-based pricing for their display. My response to that tactic is, you're missing the boat! Display can be priced at a premium if you ensure the media buyers cannot go around your direct sales team and buy the same inventory from a network! Your premium pricing can be maintained if you feel your audience is of quality. If you jump to pure CPC pricing, that translates to an utter lack of confidence in your audience and your ability to maintain a competitive advantage. That effectively drags down the value of exposure in this medium and damages more than just your perception in the marketplace.
The other side of the coin is that all online marketing should be about actions and all pricing should convert to a CPC or a CPA, but I would use video to disprove that theory. Online video does a great job of maintaining its pricing and conveying the value of an audience. Online video CPMs are maintaining pricing around $20, according to an eMarketer survey. That price may be less than it was two years ago, but that's due to the increase in volume of inventory and is a natural expectation of an emerging market. Marketers appear to value video as an exposure, so why can't they value display as an exposure as well?
Maybe the solution lies in the actual size and use of display itself. Maybe the sizes we have and the methods of how they're being used are the problem, and not the solution? Maybe publishers need to evaluate the sizes they're offering and their effectiveness at breaking through the clutter to present a message to consumers? Remember the 468x60? Its days are long gone -- all because we woke up to its ineffectiveness. Maybe therein lies the solution for display?
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Cory is president and managing partner for Catalyst SF.
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