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What's Going on With Internet Ad Inventory?

  |  September 25, 2006   |  Comments

The ad inventory shortage has more to do with inefficiency than with any actual shortage.

A year or so ago, the headlines began to appear. They were impressive and a bit unsettling. It seemed we were beginning to run out of Internet advertising inventory. Had we really reached the end of the Internet?

There was an online ad inventory shortage, particularly for the hot automotive categories. I actually remember a few conference sessions where the speaker asked all the publishers in the house to raise their hands. Then he said, "Keep your hand up if you could handle me buying a million impressions, starting tomorrow." The hands sank like the Hesperus.

A few, though, never quite bought the story. Clearly the home pages of the big sites were sold out for months, but that was only the high-visibility premium inventory. Plus, the secret was, if you made good friends with the publishers, you'd get the occasional call: someone cancelled her buy at the last minute because the product didn't ship (or whatever); do you want the space for a drastic discount? Sure, said the shopping search engines, mortgage retailers, and super affiliates.

But wait. Yahoo warned its revenue for Q3 will be on the low end, thanks to a slowdown in online advertising, especially in auto and financial services. What?! How could that possibly be? What happened to our shortage?

The Real Story: Inefficiency

I don't want to pick on Yahoo. I've actually been extremely impressed with its recent evolution. In particular, the way Terry Semel has brought social media into the mix, not just by purchasing Flickr and del.icio.us but also by bringing the community into the local listings. It creates a better service that attracts a bigger audience, which ultimately attracts advertisers. It's even been inventive, doing things like connecting with Current TV to bring in new, high-quality video content.

OK, enough of the love letter to Yahoo. The shortage has more to do with inefficiency than with an actual shortage. Most of those publishers who lowered their hands, unable to take on a pile of new impressions, likely haven't gotten their sites well tuned enough and the metrics under firm enough control to even know if they have the impressions to sell.

It's (comparatively) easy to sell high-visibility inventory. You can count and sell the home page of the autos section, clearly. You can offer the home page, and you can serve up an ad when someone searches for "mortgage." But once you're done with that, to suddenly declare there's a shortage? No way. There's way more to sell, but it's not nearly as apparent. If a publisher declares a shortage, the first question to ask is, "How efficiently are you managing your inventory?"

The Evolving Story: A Blossoming of Inventory

Yet the headlines still read shortage. It seemed to everyone this was a seller's market, and that was good news. Two things happened: new inventory started to appear, and new sites began to appear... totally without advertising.

Let's talk about the new inventory first. We've seen a blossoming of inventory, some of it very interesting. We've clearly had the video stuff, but there are also things like in-text advertising and a new sort of sponsorship. I talked to the group at Federated Media Publishing a while ago. They totally forgo (when possible) CPM (define) or impression-based buys. They have a network of very influential bloggers and are more interested in creating clever, new connections between brands and consumers via these people.

The second phenomenon is a derived effect of a perceived shortage. Web 2.0 is dotted with companies that act as though they operate separately from the commercial world. That's fine, but I have a feeling they can do that in part because they tell investors, "Look, there's this ad shortage. When we're ready, we'll put ads on the service and companies will jump at the chance."

Well, what if that's not really the case?

The Real Solution: Targeting

Behavioral targeting, dear friends, remains the steadfast answer to this situation. Yahoo has a couple of behavioral targeting solutions. Within the last weeks, both MSN and Google debuted behavioral layers on top of contextual systems. Targeting, particularly based on behavior, is the way to cut through inefficient, ineffectual piles of impressions foisted on the poor consumer. Behavioral targeting is about efficiency, through and through. You are only serving ads directly to those you want to (more or less). The number of ads you serve goes down, creating more opportunities for others, and click through generally goes straight up.

Hopefully, advertisers will begin to sort through the issue of whether there's actually any space available for them. The rule of thumb, through these ups and downs, is to remember if you have a relevant message for someone, you can find a way to deliver it.

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Gary Stein

Gary Stein is SVP, strategy and planning in iCrossing's San Francisco office. He has been working in marketing for more than a decade. Gary lives in San Francisco with his family. Follow him on Twitter: @garyst3in. The opinions expressed in Gary's columns are his alone.

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