Expensive Clutter: The Next Inventory Problem

  |  April 21, 2005   |  Comments

The way publishers price and sell their online inventory is too often in inverse proportion to its value.

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:

  • Publishers must price valuable contextual inventory at what it's worth -- a lot! Great content, loyal audiences, and a strong media brand should command a premium rate. Publishers shouldn't be afraid to ask for it. They must point out to media buyers that online audience numbers and online ad views are real, unlike TV ratings or print circulation, which only measure distribution and have little connection to actual ad views. On that basis, online ad CPMs should be valued at least three times more than their offline counterparts.

  • Publishers should stop selling out-of-context inventory in ways that devalue their own brands and hurt consumers who are tired of cluttered Web pages with irrelevant ads. They should use the extraordinary array of audience analytics tools and targeting services and learn how to deliver relevant ads in these pages.

    Not all advertising is about context. NFL games are rarely interrupted with ads to buy footballs, helmets, or tickets; they sell beer, trucks, and snacks. Delivering relevant out-of-context ads could become a new premium ad product. Real value can be created by delivering an automotive ad to someone in market for a car when they're checking local weekend weather. If a car is important to them, the car ad needn't fight with three competing car ads and competing car content to have an effect.

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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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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