A media revolution is underway. Last time, I discussed how Google may be leading the charge, testing marketers’ willingness to purchase print advertising with Google acting as the broker, trafficker, and, with the test ads, the production agency putting together the layouts.
Today, I’ll look at ways search network platforms might evolve and the suitability of each medium for automation via a digital auction marketplace.
“Friction” is a term economists apply to markets, marketplaces, and economic systems. It relates to inefficiencies within a marketplace that result in mis-pricing of the assets being traded, bought, or sold in the market. Friction elimination makes a market more efficient. Many laws relating to the stock market regarding insider trading, disclosure of material information about publicly traded companies, and accounting statement accuracy are based on maintaining an efficient, fair information flow. Similarly, commodities are sold in an open marketplace because sellers feel it results in the highest commodity prices.
The search engine marketplace has proven that valuable search media can be auctioned for a high price. Those auction systems are being deployed for increasing amounts of online inventory. Aside from search, the most common online advertising to be auctioned are channel-based text or banner placements; contextually targeted text or banner ads; and behaviorally targeted inventory.
Though auction billing methods may differ, such as CPA (define), CPC (define), and CPM (define), auction management systems have one thing in common: they are designed to maximize publisher and network profit. Network targeting and ad-serving systems, such as Google’s AdSense, calculate in almost real time the highest predicted yield among all the ads in a large database, then serve those ads.
Valuable media assets other than online text and banners are likely to start showing up in the auction systems because:
- The engines have a billing relationship with hundreds of thousands of marketers.
- Major SEM (define) marketers are used to the auction marketplace’s uncertainty, even if they don’t always like the ambiguity of delivery cost and visibility (position).
- Most search players have deep pockets. If publishers aren’t willing to release inventory on a revenue-sharing basis, the engines can either buy the inventory or, in a more extreme tactic, buy the media companies.
Non-search auction systems for online media, such as Right Media, are also launching. Online ad auction companies and systems, such as AdAuction.com and AdOutlet.com, have launched and failed due to many factors, including timing, critical mass, and publisher-provided inventory being difficult to classify by a generally accepted value. Much of the inventory tended to be remnant inventory with poor overall quality.
One can easily imagine a new world of media auctions, in which the search engine networks with their active-marketer customer bases and deep pockets might attack major media markets. Below, some of the major media markets that might evolve into truly auction-based marketplaces (note: spending estimates are based on TNS Media Intelligence reports):
- Local and national newspapers. 2004 ad spend: $27.8 billion. Most major newspapers deliver ads primarily in high-resolution digital files. Generally, the editorial department knows how much news copy to write based on how many pages of advertising have been sold by the sales force or a rep firm. Ads sold far in advance are already slotted into page layouts before any news copy is written. Reporters and editors write in an inverted pyramid style (define) to make layout adjustments easy based on last-minute ads, as well as to accommodate breaking news. If additional advertising is sold, the newspaper happily adds a few more content pages by running stories a bit longer to keep the ad-to-content ratio in the same range.
Were an auction system set up to allocate premium ad slots to the highest bidder, many marketers would bid immediately, after recovering from the shock of not having an insertion order months in advance. Though it might take years before the majority of newspaper ad space is sold in an auction format, if auctions result in a higher net CPM to the publisher, that trend might be accelerated. Here’s an added twist: the digital printing revolution allows advertising to be segmented to different households by geography or demographics. In search advertising, MSN’s AdCenter (which is not yet released in the U.S.) currently does this.
- Network and spot TV. 2004 ad spend: $39.8 billion. TV spots are edited digitally on Avid and Final Cut Pro. More often than ever, these :15, :30, and :60 spots are delivered to networks and stations as broadcast-quality MPEG files. An auction for premium national and regional TV ad slots could evolve where the advertiser who wants the audience the most gets the slot. Of course, this auction could run concurrently with auctions within cable TV. IP-addressable cable boxes could assure we never again see an ad completely irrelevant to our household.
- Cable TV and DVRs. 2004 ad spend: $14.2 billion. Your cable company knows a lot about you and your family based on what your watch. TiVo and other DVRs know just as much, maybe more. They could deliver advertising on such a targeted basis that you might like advertising again.
- All types of magazines. 2004 ad spend: $28.4 billion. Like newspapers, magazines have some premium ad spaces, such as inside the front cover. These could be auctioned across the full circulation or by geography. Again, digital printing could result in highly personalized magazine ad (not to mention content) delivery.
- All types of radio. 2004 ad spend: $11.0 billion. Radio ad spots, like TV spots, are already produced and delivered in digital formats.
Will the ad spend managed by the search networks increase from $6 billion this year to $150 billion in the near future? Probably not. However, the search engines have some major advantages, should they choose to sell other media in an auction format. Those who love offline media because costs are completely fixed in the annual media plan and insertion orders are locked in by January may have to rethink how they buy media if the search engines have anything to say about it.
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