No Pat on the Back in a Buyer’s Market?

I’ve been buying online media since the first ad was sold in ’94. Never have I seen a market like this. With declining cost per thousand (CPM) rates and a large amount of ad space unsold, we are officially in a buyer’s market.

I’m sure all the sellers are cringing as they read. I’m also sure many sellers think we buyers are in our glory — right? Think again.

First, consider the digital media space today. There is residual fallout, we’ve all suffered layoffs, and there is still a high demand for rich content. Ad formats are changing, some sites have folded, and others have merged. Rates for research tools continue to go up, while rates for advertising continue to go down, and our heads continue to spin.

eMarketer recently reported that CPM rates for banner ads continue to decline and that nearly 75 percent of Web advertising space goes unsold. Nielsen//NetRatings reports the average CPM as being $18.45.

What does this mean?

Whether buyers or sellers, we are in the same boat. Both groups continue to defend online advertising as a media vehicle. Ironically, we continue to meet warp-speed requests for campaign planning and implementation.

So what’s the problem, you ask? It’s important to understand how money is made on my side of the fence. This shouldn’t be a secret. Quite often, we work on teams with traditional or offline media folks. The bulk of inventory in this world is still very much a gross/net business (agencies that buy media on behalf of clients pay 15 percent less).

Traditional agencies with online divisions, pure-play interactive shops, and pure-play media shops all tend to “back into” a 15 percent fee. For instance, Client X will be spending $3 million online in ’02; therefore, the agency will try to bill approximately $450,000 in fees. Sound substantial? Maybe at first glance. In traditional media, however, once the buy is placed, the planner’s job is complete. In online media, it’s just the beginning.

Campaign management is challenging and requires the most amount of time. On a typical campaign, I have two people logging onto third-party ad servers, crunching numbers, and pulling reports daily. They look for changes, spikes in activity, and dips in interactivity. They involve the creative and production teams, share predictions of trends and analysis, and constantly optimize. On top of that, we meet with all appropriate internal teams and present key findings to clients.

This becomes a fairly smooth and somewhat automated process as long as creative is to spec, there are no broken links on the site, clients approve optimization changes on the fly, sites don’t close up shop or change creative spec mid flight… you see? Behind the scenes is a world void of glamour, but it’s the backbone of effectiveness.

So when rates go down, how can an agency’s fees? Regardless of rate, the same workload remains. In addition, we seek the same opportunities.

According to Nielsen//NetRatings, despite slower traffic in the summer months, the active Internet audience is 171,611,211. Myers Reports has predicted that online ad spending will grow by about 10 percent this year, reaching $4.73 billion. Growth is expected to reach 12 percent in 2002, 15 percent in 2003, 20 percent in 2004, 15 percent in 2005, and 18 percent in 2006.

Despite all the positive statistics, eMarketer reports that online advertising garners 10 percent of consumers’ daily media usage but only a mere 2.9 percent of media dollars. How can we boost the overall percentage? First off, planners and sellers must bridge the gap. We must partner and work toward a common return on investment.

Tips for Planners and Sellers

  • I don’t want run of the mill, off-the-shelf inventory.
  • I want to take advantage of opportunities that will give my clients the largest share of voice.
  • I want to work with sites that will accept various forms of rich media.
  • I will only deal with sites that accept third-party ad serving.
  • I will seek out sites at which my agency has buying clout.
  • I don’t mind paying higher rates for premium inventory.
  • I view banners as the bread and butter of the Net but seek alternative ad units.
  • Bigger ad units, such as skyscrapers, seem to be working for most of my clients.
  • Don’t underestimate the power of text links.
  • If you are able to secure “bonus” impressions, associate a value to it.

If this rings a bell or you have further comments, write to me.

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