The Market Forces Killing Display Advertising
Display advertising is at a crossroads. Its core foundation, the publisher, is crumbling. The latest technology advances are little more than band-aids that invite scrutiny. The channel that once seemed destined to define digital is latching onto as many operating principles from Search as it can. It might be time to make a deal with the devil.
From my perspective the causality is two fold:
Market forces: Optimization conflict on the buy side.
Technology forces: Relevance is rarely achieved in a user-controlled medium by anyone except the user.
So WTF is wrong with this market and can it be fixed?
A major failing of display media is that market participants are in conflict with one another each optimizing for selfish interests -- advertisers trying to get the most for the least, networks trying to allocate impressions efficiently, exchanges with bottomless “shares outstanding,” data hawkers opening trench coats lined with user profiles, while yield optimizers are doing their best Drew Rosenhaus impersonation.
In the midst of massive fragmentation like this there is always opportunity. In the case of display the opportunity is for performance marketing. If you’ve gone one click into NYTimes.com from the homepage to “premium” content you’ve seen the opportunity. It’s the original business of the web. Arbitration. In many ways despite the inevitable future FTC inquiries into the use of Oprah & Barbara Walter’s likeness it has a certain model of purity. It's vigorish that you control based on your performance. Game on.
This is only getting bigger. The “brand” dollar world that display thought it was building is DOA. Sure digital spends will increase but that brand money is going into building digital assets, not ads. For the “move the needle” spenders online isn’t going to eat into TV anytime soon while radio and print budgets seem gone forever.
There is another opportunity. Fix the underlying problem with online advertising. Build advertising as web services. This requires new technology and creation of new market platforms. So be it. The channel is only sustainable when publishers and advertisers capture an equitable amount of performance value from the audience and content. This is the only type of market you can have when media is attributable. It is also precisely why Search is so efficient.
As it stands now this value delta between advertisers performance and publishers revenue is huge and growing. Is the true value what someone will pay for it or is the value in how it will perform? Of course the answer is both however this doesn’t work unless there is a meeting close to the middle.
Here’s a back-of-the-napkin equation (understanding some readers will pick at it) to see the media value delta:
6,000,000 Impressions @ a brazenly high $1 CPM = $6,000 (Publishers gets portion of this while ad networks getting 45-60% margins)
.10 CTR on creative
7% conversion rate (if you want 10% give me a call ;)
= 480 leads @ $40 value per = $19,200 Gross or $13,200 NET (assuming they only sell the lead once).
So I’ll make the case that publishers are getting about 10-20% of the total value of their audience & content. Even if I’m off by a factor this is not a sustainable model. Worse off, there are not other ad dollars coming in if performance media can’t keep performing -- display’s current catch-22.
I don’t see the new or current buying and technology systems making things more equitable. In fact from what I have seen already exchanges are going to drive down media costs even further and become a new haven for performance advertising at the expense of pubs.
The solution falls on the back of publishers, as it should, to create new platforms with new revenue models. Pubs need to solve the problem by removing the fragmentation, leveraging their internal sales teams and owning the technology. Instead of deals with the devil pubs must recognize that they alone have the most valuable and constant parts of the media equation, traffic & data. They need to own it.