Performance-based online advertising gets a lot of attention these days, and for good reason. Google, its largest purveyor and most visible champion, has grown from nowhere into a billion-dollar-a-quarter advertising behemoth in matter of just a few years. Performance-based ad networks like ValueClick, Advertising.com (acquired last year by AOL), and Fastclick have seen their revenues grow exponentially and have been all over the headlines as of late as the greater advertising world discovers the measurability, predictability, and cost-effectiveness of cost-per-click (CPC) and cost-per-action (CPA) advertising.
Performance-based online advertising growth won't slow down any time soon. It's going to be a huge year.
Big as it will be, performance-based advertising won't be this year's biggest online advertising story. The real surprise will be the growth of brand advertising online. Here's why:
Increased budgets. Online ad commitments from traditional advertisers and marketers are increasing in a big way this year, probably by more than 30 percent. More importantly, for advertisers at the top end of the range -- those already spending heavily online -- the increase may be as high as 100 percent.
Absolute need to reach critical audiences. As more advertisers move online, and as offline media channels continue to decline among key audience groups; younger audiences, affluent audiences, professional audiences, it's critical for advertisers not only to buy online "leads and sales" from performance-based vendors, but to find ways to stand apart from the competition among these audiences. They need the opportunity to develop quality branding relationships with their audience.
Proof of online branding success. Any questions about the online advertising's ability to deliver branding success were long ago put to rest with the IAB's XMOS research series, and hundreds of brand effectiveness studies from Dynamic Logic.
Measurable ROI. Online brand advertising is just the only way to reach some audiences, it's is also the most measurable and cost-effectiveness way to reach almost any audience. Offline media's ability to deliver ROI continues to decline (production costs are rising against an audience base that continues to decline). The same is true of all of the artificial guerilla marketing efforts that seem the rage among many brand marketers these days. They're hoping for anything that gets them noticed.
What are the implications of a huge year for online brand advertising?
Higher demand for quality inventory. As scarce as valuable search keywords will be in 2005, valuable online inventory in quality online media environments will be rarer still. I'm certain this wasn't lost on The New York Times Company last week, when they announced their acquisition of About.com; or on Dow Jones, when they bought Marketwatch last year.
Higher prices. CPMs for quality inventory will rise this year, but probably not by much. Expanded advertiser budgets are available only because of the medium's cost-effectiveness. Online publishers will only be able to raise prices if they deliver more value. The quid pro quo for this pricing will likely include: more targeting, as publishers will use behavioral and audience targeting to increase yield and decrease waste; more rich media, video will be much more prevalent, so will units that can provide in-depth brand and product information without making it necessary to leave publishers' sites; and more data, as data become part of the ad campaign ROI equation.
Reach will rule. While online brand ad budgets will likely exhibit enormous growth, the fees that marketers pay to their online ad agencies probably won't grow apace. Agencies must continue to do more with less. This means they won't be able to spread spending around to more than a handful of publishers. It's just too expensive to manage multiple relationships and constantly try to reconcile scattered reach and frequency counts. Instead, they'll spend more with fewer publishers. The big will get bigger. Entities that can deliver substantial reach, and deliver it efficiently, will have more power. This requires more efficient processes. The only way buying, billing, and delivery reconciliation can get simpler and easier will be with a shift toward large providers, so portals and networks will do well.
The big getting bigger is an old story in media. But opportunities for smaller, more flexible publishers who can deliver more value through audience composition, refined targeting, or imaginative use of new ad aps, are there. Getting and staying on besieged media buyers' radar screens will be harder, but not impossible. All the experimentation with product placement, guerilla marketing, and unusual ad units (in all media), brand mangers have demonstrated they'll go where they can find their target audience.
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.