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The Once and Future King: Pay-for-Performance

  |  September 12, 2000   |  Comments

A few weeks ago, Jim attended the Jupiter Online Advertising Forum. All the topics covered in the name of online advertising were discussed, except one: pay-for-performance model advertising. The Yahoos of the world are discovering even now that the days of the megadeal are over. So why not start giving the market what it is asking for?

A few weeks ago, I attended the Jupiter Online Advertising Forum here in New York City (my new home). All the topics that we've all heard covered at all of the conferences that have ever been held in the name of online advertising were discussed: email marketing, effective interactive creative strategies, guerrilla marketing, snapshots of the current digital denizen, and prognostications on where online ad spending is headed ($16.5 billion per year by the year 2005).

Newer topics for the online advertising conference arena were cross-media platform sales and strategies, how old-school traditional brands are embracing the web, and the changing nature and structures of ad agencies. One of the phrases floated time and again during the conference in relation to the changing structure of agencies was "disintermediation." I guess Christopher Norris and Jacques Derrida work for Jupiter now, because only such swollen deconstructionists as they are would have the gumption to introduce into the lexicon such a word. I want to address this issue next time.

But the one thing on everyone's mind that no one was willing to talk about was pay-for-performance model advertising.

In the very early days of online advertising, though most ad inventory price structures were CPM-based like the rest of the ad industry, advertisers got hot for the idea of being able to do pay-for-performance deals with publishers. Given the kind of accountability possible with the medium and the relative ease with which it was available, advertisers wanted right away to tie their use of the online ad space to results borne of doing so.

Procter & Gamble's first foray into "webvertising" was to ask Grey Advertising to negotiate only cost-per-click buys. Given the significance of getting an advertiser like P&G on one's site, publishers begrudgingly complied.

But other than that and since that time, publishers have been and continue to be reluctant to commit to pay-for-performance deals. It was abundantly clear that the major players like Yahoo, AOL, and Lycos didn't even want to talk about it. Every time one of the Jupiter analysts hosting a discussion or a Q&A broached the subject, representatives from any of the major ad-supported properties would blanche, sweat, and stutter.

When asked why they wouldn't consider pay-for-performance buys, there was a lot of hemming and hawing about compromising the integrity of their inventory, and how they have so much value, etc. But how much integrity can inventory have when 80% of it is left unsold every month?

And how is it that publishers can continue to resist what the market is clamoring for? Eventually the go-to-clients-direct-and-snow-them modus operandi is not going to be viable. The Yahoos of the world are discovering even now that the days of the megadeal are over. So why not start giving the market what it is asking for? Last I checked the advertisers still paid the bills, not the publishers.

Blessedly, the Internet is desperately capitalistic, and folks have moved into place to undermine the publisher's unwillingness to deal with pay-for-performance.

ValueClick and eAds are just two of a wide range of cost-per-click networks that live and breathe on pay-for-performance. Freebie sites and lotto sites like LuckySurf and WebMillion are awesome performers for advertisers who are looking for cost-per-click.

But that isn't all. There are also cost-per-acquisition properties that are coming on to the scene. Outfits like WebClients, Go4Media, and Tools.com are filling in where the major publishers refuse to go. And the buyers are running to them at full throttle.

The major publishers need to take more of an attitude like that of the airlines: Once that plane takes off, you can never sell that empty seat again. The same is true for all that remnant inventory sites have every month. Doesn't it make sense to monetize the property any way you can, even if it isn't for the price you think it's worth? Would I rather let the fruit at my stand rot than lower the price to sell it?

Don't let the flies get your inventory.

Next week: Heidegger, Derrida, and the evils of "disintermediation."

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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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