The Commodification of Online Media

Is media a commodity or not? Are price and service the only distinguishing factors that a buyer should take into consideration when putting together a media buy? Is there ever a consideration for quality, and does that quality make a difference to an advertiser’s bottom line?

The debate about whether media should be treated as a commodity has been a long time running. The issue has been raised time and again in traditional media, and the feelings about it run deep. The question is, If I can buy media cheaper than the next guy, does it really matter what that media is or whether or not the planning is savvier?

The debate includes online media and has almost from the start. With the abundance of unsold inventory and the drive to pay-for-performance pricing models, online media was almost instantly subject to being seen as a raw commodity. But the question for online is really the same as it is for offline: If I can buy media cheaper than the next guy, does it really matter what that media is or whether or not the planning is savvier?

Most sellers would argue that, indeed, there is something to be said about quality and that the distinction of quality should play a role in dictating price. This is, after all, where demographics of age, gender, profession, and — most important — income level come most to bear.

Those selling you The Wall Street Journal both online and offline would certainly argue that the upscale target the Journal reaches justifies the CPMs. A trade effort using industry-specific magazines has the same principle at its foundation: The audience of Modern Healthcare, either the magazine or the Web site, is of a different quality than the audience of a run-of-site buy on Yahoo.

Buyers are a little less united. Some argue very strongly that both media inventory and the art used to plan and buy it are not commodities. There is, indeed, a qualitative difference between a buy put together with research versus one that is not, and industry savvy is worth more than a buy put together based strictly on who has the lowest CPMs.

Others are more willing to accept the notion that maybe media really is a commodity after all. I mean, think about it. Advertising’s real project is to positively affect the advertiser’s bottom line. What better way to accomplish that goal than having the lowest costs at the outset?

Just to illustrate the point, let’s look at Enron, a Houston-based company that trades energy and broadband services online. The company announced plans to trade media inventory, becoming a buyer and reseller of spot TV and radio time. This could result in futures contracts allowing advertisers to manage their media costs and supply risks in the same way companies manage electric power, natural gas, and broadband supplies now.

So, is online media simply a commodity to be bought and sold for the lowest costs possible? Does it matter what site my advertising runs on if a visitor coming from that site engages in my value proposition and perhaps makes a transaction?

Well, it depends.

In our enthusiasm to drive all online advertising into pay-for-performance pricing models, we have forced media into being a commodity. If I am eliminating “ineffective” impressions from my costs by paying only for those occurrences of messages that result in action, then the quality of the media doesn’t really matter. In this situation, I don’t care where a user comes from as long as the user comes. If you buy a widget, and I’m only paying an ad vehicle for the number of individuals sent to me who buy widgets, then the quality of the site didn’t matter, just the fact that a visitor bought something.

But are we selling short the more sublime effects of the advertising when immediate action does not occur? Studies have shown that a significant percentage of site visitors make a transaction without clicking on a banner. In fact, some figures suggest that in some instances more nonclicking visitors make transactions at the site than those who did click on a banner.

And what about the lifetime value of a new customer? That’s the question more and more advertisers are going to ask that we in the industry will eventually have to answer. Sure, I can get a visitor to my site with a $0.25 CPC paid to a CPC network. But what is that visitor worth to me in the long run versus someone who came to my site from a high-CPM buy that resulted in a $1.50 CPC?

Though the industry is still young, we are already wrestling with the issues of a mature industry. It is going to take mature marketers to accept that perhaps media is not, in all cases, a pork belly, despite appearances that sometimes it is.

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