Solving the Inventory Problem, Part 1

Ask several online publishers to identify their most pressing problem. You’ll invariably hear the same answer over and over: inventory.

The problem isn’t sales. It’s not advertiser acceptance, nor a lack of industry standards. It isn’t keeping complex Web systems running or finding great talent.

The inventory problem is behind all these oft-heard publisher laments:

• We over- or under-deliver every campaign we run. We can never accurately predict our audience.
• We don’t know what numbers to believe. Our systems never agree with each other.
• The best parts of our site are sold out. The worst parts are hard to even give away.
• Our salespeople are always selling things we can’t deliver.
• The whole inventory thing is too complicated. Why can’t this be like other media where inventory is fixed?
• Audience-based targeting only makes things worse. Inventory was difficult enough when we only sold page placements.
• We must generate more money per page. Page growth and audience growth are slowing. We reduced the number of ads per page, but revenue budgets continue to rise. How do we close the gap?

Many online publishers can easily point to the symptoms; few can get at the root of the problem, much less solve it. Many hope it’s nothing more than a temporary growing pain on the industry’s path to maturity.

It won’t just disappear; not without help. The inventory problem is real and requires a solution.

Today, some specific strategic and basic policy issues to address the problem. In part two, I’ll tackle the core of the tactical and operational issues in designing and implementing inventory yield management processes and systems.

The Strategic Front

• Forget simplicity in the online media business, at least for the next few years. Too many media executives hope selling and delivering online advertising will be as simple as selling other media, such as magazine pages or TV spots. They forget not only that online media are dynamic, fully addressable, and fully measurable but also these very complicated characteristics are what make online attractive to advertisers. Online media provide marketers with a robust platform that supports classic brand advertising, complex direct marketing, and powerful hybrids of both. Making it work is hard.
• Recognize there’s a publisher/advertiser mismatch, and create product accordingly. There’s currently a buyers’ market for online media. Things may remain this way for a long time. Advertisers can and will buy only what they need and pay for it according to how well it performs. Optimizing audience inventory for the publisher is hardly at the top of advertisers’ minds.

  Few publishers achieve an optimal balance between their audience, their content, and must-have advertiser needs. Fewer still have figured out how to package inventory to maximize audience yield. Those who do will win. Those who don’t will lose.

• Don’t wait for silver-bullet technology solutions. There are no simple, silver-bullet solutions to the inventory problem. And they aren’t likely to appear any time soon. This isn’t a technology problem. It’s a business problem. The issues surround packaging and product, not silicon science.
• Invest in business intelligence. Understanding your audience is essential. Who are they? Where do they go on your site? What audience do your advertisers want to reach? Where do they want to reach them? You cannot create proper inventory or the right products without this information.
• Don’t force compromised products on advertisers. Many publishers sell bad inventory (undifferentiated, run-of-site impressions) in combination with sponsorships or inventory in their best content sections (technology shopping or personal finance). On the surface this may help move the bad inventory. But then the publisher never gets full value for the good inventory. The advertiser discounted it to make up for the bad stuff. The advertiser isn’t happy. He’s compromised the buy and will look for alternatives rather than renew.

  Long term, the publisher loses even more. He doesn’t confront the fact bad inventory is not worth investing editorial budget into.

• Is the inventory valuable? Prove it. If you believe a run-of-site inventory package adds real reach or frequency value to contextual targeting, prove it. Measure the audience. Match it to the advertiser’s target and objectives. You may be able to get premium value for it instead of making it a worthless value-add.
• Don’t sell what you don’t have. Understand the inventory you have. Put systems in place to communicate to the sales and marketing teams. Create rules, and stick to them. More inventory problems occur because of internal breakdowns than for any other reason.
• Sell people and places, not just places. Advertisers want to reach people. Publishers want to sell places. That’s the core of the inventory problem. Online media’s power (and what differentiates it from direct marketing) is the ability to deliver people in a valuable context. It delivers people who are in places. Publishers too often try to sell only the places, not the people.

  The challenge this creates is the future inventory of online places (pages) is very unpredictable. But future visits of people, although not perfectly knowable, are much easier to predict, particularly when historic loyalty patterns are taken into account. Simply put, people are more predictable than pages. Managing audience instead of pages creates significantly greater long-term strategic value. Page content can generate revenue as long as it has traffic, usually days or weeks. A loyal audience can generate revenue for years, if properly managed.

• Clean up your inventory. If certain content areas are neither valuable to advertisers nor attractive to audiences, cut them. Building roads that don’t expect traffic made sense during the dot-com era when online media companies were valued by their quantity of pages. Those days are over. Online media companies are now valued for the quality of people they deliver to advertisers.

  Keeping valuable content and killing marginal content is a simple concept but difficult to put into practice. Newspapers don’t have big food sections one day a week because their readers only care about food on that day. They do it because they can only get advertisers to support that content one day per week.

Solving the inventory problem won’t be easy. Making tough inventory policy decisions is only half the battle.

In Part 2: The tactical and operational challenges of managing online media inventory and optimizing audience inventory yield and the elusive notion of “audience lifetime value.”