How to ‘Fix’ Online Advertising, Part 1

A few months ago, I wrote an article about some of the problems with online advertising. As a follow up, today I’m going to discuss some major industry problems, but this time from the perspective of how these problems can be addressed. Those problems are:

  • Media costs are too low.

  • Discrepancies between site-side ad servers and third-party ad servers are too high.
  • Inventory control systems are too unpredictable.

I’m going to be so bold as to offer a solution to the industry — probably not the actual solution, but a potential solution — that is, a viable solution that, at least on paper, would solve these problems plaguing the industry.

Today I’ll lay the groundwork for my proposal, and next month I’ll offer a version of the proposal to the industry. This is a big undertaking… and a bit of a risk. Frankly, I know the solution I come up with is not going to be a final solution, but at least it will be a starting point for discussion.

First, let me clarify my definitions of ad servers (for the millionth time) just to make sure I don’t get yelled at by misunderstanding vendors. I’ll refer to any ad server representing a publisher’s inventory as a “site-side ad server” (SSAS). Any ad server that delivers an advertiser or agency campaign on their behalf I’ll call a “third-party ad server” (3PAS).

How Do We Get Online Media to Be Valued Properly?

As I said last time, media costs are low for a number of reasons. But the general consensus in the industry (not complete consensus, mind you) is costs are low because “traditional” offline media teams cannot plan and buy media online the same way they do offline. There isn’t even a translation mechanism available, as far as I am concerned. Therefore, online media does not get valued properly.

Offline media teams plan their buys using reach- and frequency-based tools. The idea is simple. Reach is defined as the unique audience who saw an ad over the course of four weeks. Frequency is the number of times you reached the members of that audience over four weeks. This translates into a system of gross rating points (GRPs) by which each media vehicle is valued.

A number of companies are developing media planning solutions for the online space based on offline metrics. But even if they succeed, there are still big holes that must be filled.

Offline media is very predictable compared to online media. A radio media plan, for instance, is very accurate when it is bought — the planner knows almost exactly how many GRPs he is going to get. Online media is much less reliable — it fluctuates wildly. This means a stabilization factor must be added to online media buying to compensate for this.

Luckily, there is an answer — frequency caps. The idea is simple. Once an individual member of your target audience has seen your ad the desired number of times (across publishers), turn off your campaign for that user.

Unfortunately, implementation isn’t as simple as the idea, because currently no technology is available that the market could adopt to meet this need. It just isn’t available today, nor is it possible for one company alone to build this solution. A broad cross-industry solution is needed to enable this, and it won’t be easy to build.

Media Planning, Buying, Trafficking, and Discrepancy Resolution

The next two problems may seem very unrelated but are actually tied together in the chain of processes within our industry. Let’s look first at the way our industry processes work together.

As you can see in the graphic below, the business model for working online is complex.

Working Online Business Model

For an ad to actually appear on a Web site:

  1. The media planner must research the available Web sites and assemble a group of sites from which to buy inventory.

  2. A media buyer contacts the sales teams at the short list of publishers she’s interested in with a request for proposals (RFP).
  3. The publisher’s media sales team must review the company’s inventory management system to see if the inventory is available, generate an RFP, and send it to the media buyer.
  4. The media buyer reviews the RFP and, if approved, sends an insertion order (IO) over to the media salesperson.
  5. Next, the IO is handed off to the ad operations team on both ends.
  6. The publisher ad operations team gets the space reserved within inventory control.
  7. The agency (or advertiser, if it’s handled internally) creative team and ad operations team put the campaign into a 3PAS.
  8. The creative team creates the ads; the placements are generated with creatives assigned.
  9. The agency ad operations team traffics the ads through the 3PAS to the publisher.
  10. The publisher ad operations team picks up the ad tags through the 3PAS and places the ad tags into the SSAS.
  11. The campaign runs, and the agency reviews reports from both the 3PAS and the SSAS.

Now, in a perfect world, the campaign would run perfectly. The publisher would run the exact number of impressions specified in the agency’s IO. The impressions and clicks shown by the publisher’s SSAS and those shown by the agency’s 3PAS would match exactly. Unfortunately, in the real world, this just isn’t common.

Most likely, the campaign will be either under- or overdelivered by the SSAS. This happens for many reasons, but primarily because the problem of managing real-time inventory is very difficult. Also, the media buy is negotiated by volume of general delivery rather than by audience delivery, which makes the whole thing less predictable.

In addition, there will always be a discrepancy between the SSAS and the 3PAS. It is inherent in the nature of the technology — the SSAS counts before the 3PAS does, and users sometimes close a browser or click an available link before the ad call is received by the third party. This is just a basic fact. Because the SSAS and the 3PAS count separately, the likelihood of them having matching numbers is almost nonexistent.

These are three big problems. How do we fix them? I’ll tell you my answer next time. But I’ll leave you with one last issue to ponder.

Today, SSAS and 3PASs support the workflow model I’ve shown above. Below is a diagram of the way these systems interact, so ads run on the user’s browser when she views a Web page.

SSAS and 3PAS Interaction

When a user calls a publisher’s Web site in her browser:

  1. The publisher’s Web server asks the SSAS inventory control system for an ad tag.

  2. The browser calls back to the SSAS for the ad (an impression is recorded) and is then redirected to the 3PAS.
  3. The 3PAS delivers the ad to the browser (and counts an impression).
  4. The user clicks on the ad, is sent to the SSAS (a click is counted) — and then is redirected to the 3PAS.
  5. The 3PAS counts the click, then redirects the user to her final destination.

This process is far too complicated. Even though these redirects typically take less than a second, the fact we’re counting at different times makes discrepancies unavoidable. This model also requires publishers to bear the brunt of coordinating complex delivery schemas, when they’re already dealing with a difficult inventory control issue.

In addition, this system requires publishers to continually upgrade their ad-serving systems to manage increasingly complex rich media implementations. Meanwhile, the 3PAS has a far more demanding reporting role and must serve much of the rich media content anyway, so rich media and post-event (beyond banner) tracking can occur.

My proposal will be a comprehensive plan to solve all three of these problems in one rebuilding of the existing process. I hope this column and the next will spark some ideas with readers — ideas that will move the industry forward. See you next time when I make my proposal.

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