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Dealing With a Soft Market

  |  August 7, 2001   |  Comments

There is no doubt that buyers as well as sellers are experiencing some hard times. The market is softer than a microwaved gummy bear. How should buyers and sellers all live in harmony until things improve?

If you are reading this, chances are you are among the few, the proud, the survivors. You have been working in the digital marketing space for a while and have seen the very best of times become the very worst of times. We went from realizing dreams beyond those of avarice to a state of subsistence farming.

Those of you on the agency side went from letting your answering service pick up new business calls while you bathed in tubs of beluga to scrounging for business like a Dickensian rag collector. Those of you in sales saw the times change from one when dot-com advertisers were backing dump trucks of money up to your front door to a time when digging for grubs in the Australian outback seems like a worthwhile occupation.

Well, hopefully, if you are still around, you see the digital marketing space as something more than a fad that has already been cashed in on and destined for the dustbin of novel ideas grown old. You might also realize that though the days of a ceaseless supply of manna from heaven may be over, the days of wandering in the desert won't go on forever.

There is no doubt that buyers as well as sellers are on some hard times. The market is softer than a microwaved gummy bear. Not just for advertising, but for most all industries. This is not to say there isn't still some activity out there. But the go-go Gadget days of two years ago will likely not be seen again until those of us who were there at the beginning are retired, writing poems, soaking our partials in blue liquid, or growing tomatoes in our back yards.

But while we are here sticking it out, what are we to do? How should buyers and sellers all live in harmony until things improve?

It all breaks down to how we will go about doing two things: the pricing of existing inventory and the creativity with which it is packaged.

Price pressures on vendors right now are so great that they would make a diamond blush. This isn't exactly new, but I personally have never seen client-dictated downward pressures on inventory costs such as I am seeing now. The irrational exuberance that had the Yahoos of the world spitting in agencies' eyes and screaming for $60 cost per thousand (CPM) -- in spite of 80 percent of their inventory going unsold every month -- is now being countered with a kind of mania for revenge-inspired bargain hunting that is making the rest of the industry suffer.

As a buyer, I would be remiss in my duties to my clients if I didn't do everything I could to take advantage of this situation. My job as a media buyer is to get the best deals available for my client -- deals that yield effective advertising that helps to accomplish my client's goals. We buyers and planners should negotiate the best prices possible for our clients, striking pay-for-performance deals when and where appropriate and being clever with putting together hybrid deals that get everyone's skin in the game of advertising.

But as an enthusiast for the continued survival and evolution of the industry, I would also be remiss if I did not strike a balance in my statements and point out a few of the philosophical uncertainties in the pay-for-performance-at-all-costs mirage.

Naturally, the impression among those still out there buying online media is that given the marketplace, most sites should reduce their rates or propose performance pricing structures; however, there are reasons for stating that this is not entirely so. Many sites still maintain minimum CPM levels as a function of cost, philosophy, and their vision of the future. In terms of price, there are certain variable costs that go along with an ad, namely ad-serving and sales maintenance. For some sites, these costs are higher, and they can only accept CPMs that are above the costs of these factors.

Other sites will not offer any kind of performance pricing because it does not fit with their company's philosophy regarding online advertising. Some sites stand by their belief in the branding effect of online advertising, and they price their ads accordingly. It is true that most of these sites are bigger, branded properties that have the fiscal viability to weather the storm. But many more sites realize that no matter the current state of online advertising, the industry will improve in due time. Knowing this, they don't want to set a precedent with low rates or performance-pricing deals. They are going to stay fast to their minimum rates and hope to make it out to the other side of this dark tunnel.

Again, as a buyer, I am going to do everything in my power to get the sweetest prices and the most value possible for my clients, but I am not going to do that in violation of the fundamentals of business best practices.

Even in the most negotiable of environments, say a Mexican public market or Moroccan bazaar, a buyer's offer can be too low. Let's treat our reps at least as well as we do the blanket salesman in Juarez.

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ABOUT THE AUTHOR

Jim Meskauskas Jim Meskauskas has had a long career in both traditional and interactive media. He was most recently the Chief Internet Strategist at Mediasmith Inc., where he worked with a range of clients -- from BabyCenter and CBS MarketWatch to Eidos Interactive, Roxio, and LuckySurf. He has also been in media at Hawk Media, Left Field, and USWeb/CKS. He is a founding board member of the Society for Internet Advancement San Francisco, where he oversaw communications. Jim is now developing an independent media consultancy called Media Darwin.

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