Online advertising is facing a significant inventory problem this year and next. Online ad budgets are growing faster than online audiences. This means the most trusted, most trafficked sites are selling out their most valuable inventory. Pamela Parker wrote a great column on the issue last week.
The numbers don't lie. Among the industry analysts Pamela quoted in her column was Piper Jaffrey's Safa Rashtchy. Rashtchy noted U.S. consumer Internet activity (proprietary usage index based on Nielsen//NetRatings panel data) was down almost 3 percent last month. Meanwhile he and every other analyst covering this industry are predicting U.S. online ad expenditures will grow at least 25 percent this year.
What gives? (Something has to.)
What do we think will happen as increasingly more ad money chases scarcer, slower-growing Web page audiences? Most online ad buyers I informally polled over the past few weeks gave me the same answer: Web pages will become increasingly crowded, expensive, and less desirable.
No question, online advertising works. That's why there's an inventory problem in the first place. It works for brand advertisers. It works for retailers. It works for direct marketers. It's without question the most effective and efficient form of advertising yet. And more important, it's still very young and getting better by the day.
Yet the way much online advertising is bought is a little topsy-turvy. The best stuff is under-priced, usually dramatically so, and the worst stuff is over-priced (though generally not as dramatically).
It's a well-known secret some publishers' pages and audiences produce extraordinary results that justify CPM (define) pricing of well over $100 and, in some cases, significant multiples of that. Consider the effective CPMs Google and Yahoo generate for their best search and contextual terms, if you don't believe me.
Media buyers, particularly those who work within more traditional agencies and holding companies, don't like to submit plans to clients with rates dramatically above the $8-18 CPM they typically pay for offline media, such as TV and print. So what do they do?
Sellers and buyers add significant amounts of "value add" bad inventory to the buy: untargeted run-of-network impressions, untargeted buttons, and untargeted text links. This creates an average CPM that's more palatable to buyers' bosses and the client. The tightly focused $45, $85, or $125 CPM of a contextual buy on branded content disappears into an $8 blended CPM buy. That's the market reality more often than people care to admit.
No one wins in this scenario for long.
Publishers devalue their audience and content by falling into the value-add trap. They may wrongly believe they maximized the value of their total inventory. But basically, they told the buyers 70 percent of their inventory is worthless, and they're happy to hand over their best stuff if the buyer agrees to take the worst stuff. Though this has worked for years in TV and print, it won't work online. It's too measurable.
Online is about the consumer. If you deliver cluttered pages to consumers, over time they'll find other places to go for news and entertainment. Saturate them with untargeted ads 70 percent of the time, and they'll develop resistance and apathy to those ads and advertiser brands.
Buyers and clients lose because they miss that in online advertising, you don't need to move massive amounts of impressions at tonnage-style rates to do a good job for clients. I've seen major national advertisers generate massive returns on investment (ROI) and returns on very limited, very focused buys. In a world where brands such as Tide and Diet Coke have realized 10 percent of their consumers consume 90 percent of their products, massive waste won't be tolerated much longer.
Eternal optimist that I am, I hope for something better. I hope buyers and sellers working together will create a more effective way of using valuable Web page inventory. I hope for better online advertising that delivers better results and ROI for advertisers and better pricing and profitability for publishers.
Is this possible? Yes. It will occur via pricing:
If publishers give buyers better products and help them sell those products up the ladder to their bosses and clients (which requires providing real reports with lots of data, audience information, and ROI material), everyone wins. Advertisers will get better advertising. Media buyers will be promoted. Publishers will increase profits. And most important, consumers will get more relevant advertising and less irrelevant clutter.
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