A Small World, After All?

by Doug Weaver on October 10, 2012 at 6:56AM

Last week’s column by Digiday’s Brian Morrissey – “Science vs. Art in Digital Advertising” — got me thinking.  Brian doesn’t necessarily come right out and say that he emperor is naked, but does point out that much of the received wisdom about the online ad marketplace might be flawed.  Among the brilliantly obvious questions is this: Why is it that if everyone hates the display banner so much, most of our ad technology predictions (and tech company growth modeling) rests so firmly on its continued  proliferation.

Then I saw yesterday’s Forrester report which reforecasts the online ad spend growth curve downward.  Growth is going to slow, Forrester tells us, but because of new viewable impression standards CPMs are going to significantly increase.   At the end of the day, both Digiday and Forrester are offering us nothing more than informed opinions about the future.   But I think when you cobble them together and take a dispassionate look at the world around us, it all leads you to the most important question we should all be asking ourselves:  How will we prepare ourselves for a digital ad world that’s smaller and slower?

This week’s Drift is proudly underwritten by AMP by Collective.  The AMP Media and Data Management Platform is the premier sell-side advertising technology suite for premium publishers and networks. Click here to learn how AMP simplifies all aspects of display, video, and mobile ad management, helping brand-name publishing leaders sell more efficiently and increase revenue.

“Heresy” you say!  “There’s nothing but growth ahead, and lots of it!”  Yes, perhaps.  But there are lots of ways for a marketplace to grow.  There’s the wild, speculative growth that depends on an endless supply of cheap impressions and the suspension of disbelief in their ultimate loss of value.  And then there’s the slower growth in quality, value and price that comes from a sustainable ecosystem fueled by publisher investment.

Would this mean the end of ad technology?  Does it lead to some “Planet of the Apes” scenario where we turn the clock back to 1996 and all rely on sponsorships and fuzzy numbers?  Hardly.   But it will challenge all of us to think about the future in fundamentally different ways.  First, our ideas about “yield management” will be radically transformed.  Instead of thinking of unsold impressions like empty airplane seats, publishers will start optimizing against the dollars they need to make.  Ad technology providers may finally start orienting themselves around the needs of those with quality supply, rather than those with cheap demand; working to get the publisher a higher price for the valuable inventory instead of more and more microtargeting and click attribution. I’m just sayin’.

Many readers may dismiss this post and turn right back to the same expectations, metrics and projections.  But before you do, ask yourself just a couple more questions.   In the end, who is really served by an industry built on infinite cheap impressions and endless levels of commodity management, optimization and targeting?  It’s not the marketers, agencies or publishers.  It’s really just the speculators.  And when the air finally comes out of the ad-tech bubble, how many of those speculators will still be engaged in the hard work of building an industry with us?

Reader Comments (11)

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  1. Walker Jacobs October 10, 2012 at 8:43 am

    Brilliant post, Doug. This storm is coming.

  2. Mark McLaughlin October 10, 2012 at 9:49 am

    In the analog era, all new media properties developed their business in more-or-less the same way. When they launch – a new magazine, radio station, or cable network – they have limited content, a small audience and poor data. To jump start ad revenue, they focus on the direct response marketplace which will buy anything with a small budget to see if it generates enough responses to justify the price. If the price/response levels are OK, they will spend more.

    The media property knows that it cannot survive if it gets stuck here.

    A thoughtful business strategy invests in more content, grows the audience size and works hard with research companies like Nielsen and MRI to develop high quality audience data. These investments are critical so that they can climb out of the rat-hole of DR advertising and start attracting BRAND advertising budgets.

    The transformation from a dependency on DR to an attraction for brand advertising is the tipping point where some properties fail and others go on to long term success if they make this transformation.

    Maybe I am just old school, but the Internet publishing companies, the ones who actually invest in content and audience aggregation and research tools like comScore, have willfully allowed their business to cycle downward into ever deeper dependencies on lowest-common-denominator direct response advertising.

    Yahoo! is the poster child for this behavior. Yahoo! worked very hard to tip towards premium brand advertising in the Terry Semel era and enjoyed great success – high CPMs, fast revenue growth, healthy stock price – when it was executing this strategy. Then, after pressure from Wall Street to become “more like Google,” Yahoo! spent almost a billion dollars to buy the Right Media Exchange and to aggressively pursue a path that would maximize benefits for direct response advertisers. The result was a free fall to much lower CPMs, revenue growth stalled, the stock price dropped in half and top management totally lost its way. This was a DELIBERATE choice.

    The digital media industry gets what it wants. I’m just unable to understand why it wants this race to the bottom. My advice is buy Google stock. So long as the industry keeps chasing the bottom feeder DR metrics, Google wins.

  3. Jason Shulman October 10, 2012 at 10:24 am

    agreed with Walker…great post Doug. and I enjoyed Mr Jacobs equally compelling interview with Adexchanger yesterday.

  4. Nicole McCormack October 10, 2012 at 10:52 am

    Great post, Doug. One additional point I would make that we often overlook…consumers don’t win with an endless supply of cheap impressions either. What they get in that scenario is often cluttered pages and lackluster creative executions. Quality inventory will produce a better experience for consumers as well.

  5. Steve Patrizi October 10, 2012 at 11:43 am

    The real elephant in the room is that the online ad industry has become what we always vowed we’d never become: our parents. Just as traditional media companies stubbornly held on to their own ad formats and medium and often refused to acknowledge/embrace the shift to digital, so too has the online industry done the same with standard ad units.

    Think about it: an industry that prided itself on innovation hasn’t produced much of it in the past 15+ years; aside from paid search (which, lets face it, didn’t come from our “industry”), our answer to innovation has been bigger ads, exchange-based buying, and retargeting – all of which amount to little more than incremental changes to buying targeted banner ads, which we’ve been doing since the late 90’s.

    My gut says that in the next few years, a new group of practitioners will emerge who will completely disrupt the current online ad ecosystem in ways that we will have a hard time grokking, just as our forefathers had a hard time grokking digital. Many of us will write them off, ultimately to our own demise – again, we’ve seen this story play out in the ad industry as well as most other industries – tech, automotive, book publishing, music…you name it.

    The challenge for us: can we get past our own innovator’s dilemma, our own conditioned view of the space, and lead that charge, or will we watch as others do it? It’s going to happen either way, the question is, which side will we be on when it happens.

  6. Jon Holm October 10, 2012 at 12:16 pm

    Spot on. Again. Kudos, Doug!

  7. Joe Zahtila October 10, 2012 at 1:14 pm

    Great points as usual, Doug. Mark’s comments are also quite good.
    I still find it fascinating that technological innovation in digital media nearly always brings the industry back to the click, easily the most over-used, poorest indicator of advertising impact.
    It’s incumbent upon us as an industry to guide advertisers in the best practices for winning the hearts, minds and wallets of consumers in careful and disciplined methods for influencing the right people. Not just those that click on ads.

  8. Rich LeFurgy October 10, 2012 at 1:17 pm

    Viewable impressions will quickly get normalized into the system once post buys show both numbers of served and viewable–advertisers will quickly pay on viewable, and publishers will be wise to rethink their inventory on ways to increase their viewable inventory. This, along with the yield management that Doug points out in his article where publishers optimize based on revenue instead of ad counts, will fundamentally change the sell side and the buy side for the better because it’s a better value equation all around, including for consumers.

  9. Jaan Janes October 11, 2012 at 2:47 pm

    The viewable impression is here to stay. Marketers will pay for the certainty that this industry can deliver – that the ad was in view. Simple concept – sad that it’s 2012 and we are only getting to it now.

    See the success YouTube is having with only charging for viewed ads.

    As Doug notes about exploiting cheap demand versus creating quality supply, Yieldbot’s only goal is to help publishers inform their ad impressions through the lens of real-time user Intent. Higher value ad, better performance and publisher, marketer and consumer all win through ad relevance.

    I have been to countless pub side and ops shows this year and have seen literally no one working to build true first-party data about a publisher’s inventory. Many companies layer in third party data matching – i.e., a Caribbean travel intender on a business news site – but virtually NO ONE building data explicit to the site and consumer experience of it.

  10. Julian Baring October 11, 2012 at 3:51 pm

    Great post and agree with points you raise.

    There are some companies investing in helping ensure it isn’t the race to the bottom some folks predict. Facilitate Digital’s workflow and trading platform “Symphony” already serves publishers and agencies by helping protect the high-value direct sales channels through reduced transaction friction. Automating documents, electronic RFP’s, IO’s, billing integrations, ad-serving integrations etc. – to ensure operational and transaction efficiencies so that when the “storm” hits – i.e. a market that is potentially smaller, and potentially growing slower (if indeed your prediction is correct), the parties left can continue to operate in the way they have to – more cost efficiently, less manually and through integrated systems both legacy and future, publisher and agency side.


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