Inventory Management Problems: The Buy-Side Angle

  |  September 23, 2004   |  Comments

The saturation bottleneck.

Inventory management has been a much-discussed topic in this industry for years. It's been the subject of several columns over the past few months, but almost always from the publisher's perspective. There's another side to inventory management, one I'm not sure many people are really thinking about yet. We're facing a large, looming saturation problem.

The first time I heard this issue well articulated was at Avenue A's Las Vegas Summit earlier this year. A marketing director from WeightWatchers.com told the audience that though the company wanted to increase online ad spend, it's instead shifting more of its marketing budget to TV because its online programs reached the "saturation" point. As I listened, I wondered how that could be. The Web delivers hundreds of billions of page views every month to 140 million U.S. consumers. We can't possibly be already bumping the ceiling of available inventory. It can't be possible WeightWatchers.com is at the point where it already regularly reaches all these online consumers.

I was again reminded of the issue this week, Advertising Week here in New York. I've ran into no less than half a dozen folks from the buy side who wanted to talk about their own saturation problems.

Increasingly, large online advertising buyers can't cost-effectively buy enough audience reach. Publishers have an "inventory problem" in that 20 percent of their audiences generate 80 percent of page views. Buyers find the problem is just being passed on them.

It seems that for large online ad buyers in particular, 80 percent of their campaign frequency goes to only 20 percent of their target audience. That 20 percent audience share is becoming saturated with messages from the top online advertisers. There's almost no way to effectively segregate, buy, and deliver audience-coordinated campaigns across multiple publishers, portals, and networks. As a result, every time the buyers try to extend their reach, they end up receiving more frequency against that saturated 20 percent.

This means lots of wasted impressions -- and lots of wasted money.

This problem is only going to get worse as marketers try to grow their online budgets and shift more of their focus into online ad programs. Here's how the problem is managed today:

  • Pricing. Advertisers recognize that to get a certain guaranteed reach and frequency at significant scale, they must pay a premium for it. When targeted reach is a priority, publishers generally have no choice but to preempt other campaigns accordingly. This requires pricing that can justify that preemption. Whether advertisers will continue to pay premiums, or just make them a cost of doing business, remains to be seen. Certainly there are limits on how much buyers will spend to make an online buy work before they shift the money elsewhere -- where it's easier to add more reach.

  • Coordinated frequency capping. The only way to ensure even ad distribution and frequency across multiple sites and networks is with coordinated frequency capping. Though it's not hard to cap the frequency of campaigns delivered to particular browsers (it only requires a cookie-sensitive ad server, which all vendors offer), it's almost impossible to plan. It's hard to plan and execute a buy when you never know on what sites each user will receive the ads first, or most. Some companies, such as Atlas DMT, DoubleClick, and Poindexter, offer technologies that can aggregate the targeted buys with other buys, or "return" to the publishers the inventory that's beyond the desired frequency cap limit.

  • Spreading out the buy. One of the simplest ways to spread out a buy's reach and frequency is to spread it out among sites where there's the least amount of anticipated or actual audience overlap. Planning services from comScore and Neilson//NetRatings can help. Of course, that type of planning is only strategic and directional. It can't guarantee saturation won't occur.

None of the above solutions is very exact or offers much long-term scale on its own. This is a problem the industry must sort out. Otherwise, saturation could become a significant bottleneck on our growth.

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ABOUT THE AUTHOR

Dave Morgan Dave Morgan founded TACODA Systems in July 2001 and serves as its CEO. TACODA is a pioneer and leading provider of behavioral-targeted online advertising solutions for driving quality branding relationships. TACODA delivers advertisers high quality, targeted audiences from premium sites, powering successful online advertising campaigns. TACODA-enabled Web sites, which number over 2,000, reach over 70 percent of the U.S. Internet audience monthly. Its roster of customers, mostly Fortune 1000 business, includes branded national, regional and vertical sites, and 75 percent of the top 20 U.S. newspaper companies. Customers include the New York Times Digital, Weather.com, iVillage, Gannett/USATODAY.com, The Tribune Company, Belo Interactive, BusinessWeek.com, About.com, Advance Publications' Advance Internet and Forbes.com. Virtually every top 50 online marketer has run campaigns on TACODA-enabled sites, including travel, automotive, packaged goods, consumer/health products and consumer electronics companies.

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