The Ad Inventory Dilemma

There’s always been a contract between advertiser, media company, and consumer. The consumer puts up with advertising that pays for free or inexpensive content so long as the advertiser and media company respect the fact their economy lives at the fickle whim of the consumer. To punish a violation of this contract, consumers need only withhold their participation. This plays out every time a magazine, TV show, or any other media vehicle fails.

This relationship is an example of quid pro quo, “something for something.” Advertisers get sales. Media companies get revenue. Consumers get free or inexpensive content. And this is a good thing. Consumers don’t particularly love advertising, but until the past few years they didn’t quite hate it, either.

That’s changing for a number of reasons, and in a number of ways.

Ad Overload

We’re supersaturating consumers with ad messages. Consumers are annoyed and overloaded. The more we pile on them, the more they rebel and seek methods to clear their airspace. Advertising has ceased to be a good deal for consumers. It frequently costs more than they’re willing to pay.

Reduced Consumer Value

We’re hammering consumers with more intrusive messages in ways in which they gain nothing. Spam is an example, as is much of the adware on the market.

There’s no quid pro quo in spam. With few exceptions, adware doesn’t offer value, it just displays ads. It rarely has anything to do with content. We’re subjecting consumers to ad formats that drive them batty. How much more evidence do we need that consumers hate pop-ups? We’re breaking our contract with them, and we need to stop.

Evolving Technology

Technological advances on the consumer side change the old models; PVRs enable consumers to skip TV ads, and ad-blocking software lets them surf the Web without viewing ads.

Of the two, the PVR is more wholesome for advertising. It lets consumers scan an ad, and stop and watch if it catches their interest. Studies show PVR-enabled consumers actually watch a lot of ads, though they skip frequently when they have the chance. At least this behavior has an analogue in magazines; consumers skip pages of ads, stopping to focus on ones that interest them.

Ad-blocking software is far worse. It’s an example of consumers not living up to their part of the inherent advertising contract. They get something for nothing. This growing phenomenon is about consumers flexing their muscles because they can.

Strengthen Consumer Value in Online Ads

Let’s forget the fringe for a moment, people who vocally and venomously hate advertising on principal. They’re out there. But most consumers understand and accept the basic facts of the quid pro quo between content and advertising.

Publishers must reduce advertising clutter on their Web sites (the number of ads on each page) and the number of intrusive ad formats, or there will be a backlash.

Where’s the Beef?

If publishers reduce the amount of inventory they have on each page, they must justify higher prices for ads they do run. Publishers must provide higher-quality advertising products to advertisers and their agencies. Ad products that give better results to advertisers and are measurable in ways advertisers care about.

That’s a problem. Publishers already sell out the inventory they have. What can they do besides raise prices for the newly reduced inventory? Back in the day, let’s say 1999 or 2000, we had problems with inventory availability, so prices were high.

Back then, we proved when inventory was in short supply, more could be created without adversely affecting the value of existing inventory. If you have a category of advertiser who wants to buy ads, there’s no reason a publisher can’t build more content to tack additional inventory to. This is an electronic medium. The cost of creating more content isn’t as high as it is offline.

Publishers have trouble with this way of thinking. They’re stifled by the post-boom mentality of fixed inventory. They must tinker with experimental content based on advertiser demand.

Compelling Ad Products

Usually, this is where rich media comes up. Giving the advertiser more effective ad units is a good idea. Advertisers are traditionally willing to pay more for ad units with more sizzle, that are larger, and that are more intrusive. They pay more because the units are more effective.

But it’s a double-edged sword. Pop-ups wouldn’t be sold in such high volume if advertisers didn’t want to buy them, and they wouldn’t be in demand if they didn’t work. Layer-based ads may be the next victim of consumer wrath. Rich media and compelling ad unit types should be liberally mixed with other methods of increasing ad unit value.

Selling by Audience

One thing publishers can do that advertisers desire is to sell by audience rather than placement. Publishers could easily sell their audience to the advertiser in a way that provides more value than advertisers get today. Selling by audience is a bit of a gamble for the publisher because the site audience is beyond its immediate control. Building audience isn’t so simple. The following issues must be weighed by publishers as they decide how to evolve:

• Reach and frequency. Publishers could sell unique audience at a specific frequency. Advertisers are used to buying ads this way offline, and there’s been lots of work done online toward making this work. But it hasn’t arrived, in large part due to technical difficulties in delivering such a solution.
• Surround sessions. Launched two years ago by NYTimes.com, this simple method of selling ads gives unique user ownership to an advertiser. That advertiser follows the user around the site and “surrounds” her with its message. There are some complexities when you sell inventory in multiple ways like this. You must forecast availability across audience-based and content-based delivery methods.
• Percent of audience. Publishers with strong statistics showing past behavior can move beyond some of the technical complexities of reach and frequency-based selling. They can simply sell an advertiser a percentage of the audience, or site section for larger sites, and not worry as much about the number of impressions ahead of time. There may be issues of makegoods if significant deviation from past history occurs, but it gets rid of many complexities of forecasting and inventory control that even some of the largest sites have difficulty handling.
• Behavioral targeting. Tacoda and Revenue Science have really heated up this topic over the past few years. Essentially, these companies build profiles of individual users based on their behavior on one specific site. This allows the publisher to sell ads based on the value of its audience, rather than on specific pages of the site. It’s technically complex and requires creating profile databases that can be targeted in real time. Lots of moving parts, but the consensus so far is it’s working.

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