Thursday, May 7, 2009

Online Publishing Insider: There Is No Excess of Inventory, There Is A Shortage Of Intent

There Is No Excess of Inventory, There Is A Shortage Of Intent

Arguing that we have an oversupply of display inventory is like arguing that Google suffers from too many searches.

It is a silly argument that completely misses the point. Search engines rightly view the number of queries they serve each month and the growth of their query volume as an asset. Yet, after more than a decade focused on tweaking the algorithms to drive click-through rate, the majority of searches still do not end in a click. This will be true in perpetuity, because not every search has commercial intent.

Hundreds of millions of searches each month where not a single ad is delivered (try searching for hemorrhagic fever on Google), is not the sign of an inventory problem. It is a signal that neither the search engine nor the advertiser sees a relevant commercial match for those queries.

Similarly, the real issue in display advertising has nothing to do with inventory.  The real issue is intent.

The fact that billions of page views go unsold each month is not, alone, an indicator of a supply problem. You have to first understand the quality of the supply.

Measuring the Quality of Inventory
Most publishers today take an incredibly simplistic view of inventory. Inventory that is easily recognizable by both advertiser and publisher as having intent, such as a stock portfolio or an allergen count, is quickly sold off at premium advertising rates.

This is where it gets tricky.

The rest of the inventory does not demonstrably show a commercial intent just by a visitor showing up.  Rather, you need to understand a lot more about your audience to deliver intent on these pages.

Yet unlike search, most publishers have very little visibility into the success of a display ad campaign. They cannot see the correlation between the audience delivered, and the interaction with the ad unit. 

Even worse, most publishers lack both the contractual ability and the technology to optimize the ads. They cannot tweak creative.  They cannot test multiple ad formats. They cannot test the ad against multiple audience profiles.

Publishers cannot continue to have the responsibility for a campaign's performance, without the authority to optimize the ad and align it with intent.

The Rules of Intent-Driven Advertising:
In order to correctly identify and satisfy intent in display ads, there is a bevy of information you need.

Here are the Six Rules of Intent-Driven Advertising:

1.       You need to understand the audience.

2.       You need to understand the context of the content where the ad is being served.

3.       You need to be able to deliver an ad format that integrates with the content.

4.       You need creative that resonates with a given audience and in a given context.

5.       You need to have reporting that measures success at a finite level.

6.       You need an optimization system that will tweak the results to maximize success.

Interestingly, all six of these rules are successfully addressed in search advertising today, and all are addressed by a single company.

Search advertising will continue to capture an inordinately large share of advertising dollars until publishers begin delivering intent-driven advertising.

Unlike search, display advertising is a highly fragmented business with one set of companies that owns the content, another set that owns ad serving, yet another owns creative, and still others own the technology. Layer in an overabundance of industry associations whose members have divergent interests, and you have a recipe for disaster.

We need to deliver an integrated solution.

iPods, Steel, Operating Systems, and the Benefits of Vertical Integration
History shows us that when companies deliver an integrated product, they gain a huge (sometimes monopolistic) market advantage.

Apple was able to create a superior user experience with the iPod because it owned the hardware, the OS, the desktop software, and the music store.

As Amazon, Wal-Mart, and others that attempted online music stores can tell you, it is really hard to compete against a piece of an integrated solution.

In display advertising, we have the exact same problem. We cannot compete against search with a piecemeal solution. We need to deliver a deeply integrated solution for intent-driven advertising.

A Great Job Solving the Wrong Problem
Smart guys like Dave Morgan recently argued that display ad CPMs won't recover, but they are looking at the wrong metrics.

There is a three-year wait list for the new Ferrari, while Hummers collect dust waiting for an insecure guy to walk in. Inventory is not created equal.

When are we going to realize that we are not in the business of supplying page views, we are in the business of delivering intent?

David Koretz is President & CEO of BlueTie, Inc.

Online Publishing Insider for Thursday, May 7, 2009:

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