Publishers Be Warned: Audience buying is the new dominant trend in online advertising

By now the message should be clear to all publishers; advertisers are not going to continue to pay high CPMs without appropriate, measurable ROI. The days when a website could demand high CPM rates for their content are long gone, even the so called "premium" sites aren't immune to this phenomenon. Any site who still believes that a marketer will spend premium dollar for a placement on their "premium" site without measurable return is nuts. Direct marketers don't care where a customer came from just as long as they have money and they're interested in buying. This is the main reason why PPC search advertising is so popular and valuable to advertisers. Performance is the name of the new game and any publisher who isn’t working tirelessly at improving the performance of their advertising inventory is going to foul out in the first quarter.

In a recent report by Price Waterhouse Coopers done on behalf of the IAB, performance based online advertising pricing models were shown to have taken a clear lead in overall revenue share. According to the report, 57% of all online advertising dollars in 2008 was spent on a performance based pricing model while only 39% was CPM based. Up to 2 years ago CPM based models were still in the lead, however the performance model share has been steadily increasing since 2001 and shows no immediate signs of abating. Any publisher that is still depending on above market CPM rates to support their business model needs to start rethinking their approach to profitability before the rug gets completely pulled from under them.

In a 2009 ad effectiveness survey conducted by Forbes advertisers were asked to list the most effective online marketing tactics for generating conversions. Behavioral targeting was 4th on the list after SEO, email, and PPC/search respectively. CPM ads were listed 8th with only 10% of all respondents seeing then as effective. If this survey can be trusted as a true indication of advertiser sentiment then it’s no wonder why CPMs are falling fast. Marketers believe that behavioral online tactics are most effective because they provide the greatest bang for the digital advertising buck and ultimately the best performance.

Behavior is the pathway to relevance and relevance is the only thing that will substantially increase online advertising performance. Publishers should be constantly trying to figure out how to mine their user’s behaviors to better target their advertiser’s ads and achieve greater relevance. Ignoring this trend is bad for business, specifically your business. So consider yourself warned. Act now or be completely left behind.

How can you use advance advertising reports?

Advance Reports Are For Losers. Yes, I said it, advance reports are for losers. Those advertisers who are obsessed with acquiring or building advance media or performance reports either have no clue what they're doing or are just giving in to the latest hype. Technology providers continue to roll out new advance reports as additional dimensions of competition, features that will distinguish them from other technology providers, though these reports provide little if any true incremental value to advertisers. The only reporting metrics an effective advertiser will ever need to review are cost, impressions, clicks, and conversion (CPA and CPC can be easily derived). Any other metric is statistical noise that will only distract you from what is really important, acquiring and retaining customers.

Quite often I will be asked to help an advertiser or agency scope out some new advance report that combines their data in a way that has never been done before. Invariably I will ask the client why, what's the purpose of this report. The answer, 80% of the time, comes from the belief that the new report will help them optimize the performance of their campaigns. Those advertisers for whatever reason believe in the notion of audience consistency, the idea that at any given point in time the audience of a website is relatively homogenous and behaviorally consistent with all other points in time. This notion is the bedrock of current online media buying and the guiding light behind audience aggregation. However, a close look at the empirical performance of any online advertising campaign will completely disprove this belief. If you run the same campaign, with the exact same ads, on the same site for the same length of time at two different periods you will see two completely different rates of performance. The audience of a website, their affinity, behavior, and propensity to convert is extremely fickle and changes from day to day without warning or visible cause. Using an advance report to optimize your online advertising campaign is like driving along a winding mountain road while looking out the rear window. In short, it's a recipe for failure.

Advertisers need to be forward looking when it comes to designing their advertising campaigns and leave history to the historians. Stop shuffling those silly spreadsheets that nobody can understand. Focus on what you know about a user, an individual, and not what you know about an entire site. Individual behavior doesn't change much. What a person likes and wants stays relatively consistent across time even though the sites they visit don't. Get rid of the practice of audience aggregation and denounce the notion of audience consistency. Target ads to users based on their expressed behaviors and make sure those ads are as relevant as possible, something that I’ve preached about tirelessly in the past. Focus on the inputs to your advertising campaigns because those are what decide its faith.

Campaign optimization should be about changing the target profiles of your campaign, adjusting the individual users who you are targeting, or adding more behavioral data to your current profiles. It should be about trying new creative variations with your profiles to get a better understanding of what resonates. If the performance isn’t what you would like then get more profile data. Build and nurture a better understanding of your prospects and manage your relationship with them. Technologically this is no simple task but then winning at online display advertising may never be simple.

Ad/message relevance is the most important element in online advertising

Advertising is about relevance, period. The more relevant your ad is to the consumer the more impactful it will be and the greater your aggregate return. No amount of creative genius, cutting edge ad format, or dynamic interaction can save an ad campaign from poor relevance. Search marketing, a $15 billion business in the US which dwarfs display's $8 billion, is completely based on relevance. When a user searches for something online they are both interested in the product or service and are currently seeking information. Search marketing allows advertisers to place themselves at an early stage of the consumer purchase decision process with a highly relevant message so they may influence the buying decision.

Display advertising technology providers, however, have played primarily in the branding and awareness arenas and have only made halfhearted attempts at providing greater relevance to their customers. As a result most display ads are scatter shot attempts at making consumers aware of a need which they didn't know they had. The issue with this approach is that advertising ROI is sure to be low since your ads are by default poorly targeted and irrelevant to most people who encounter them. This approach has been the cornerstone of display advertising despite the enormous potention of the channel to have greater reach than search and place advertisers further down the purchase decision process. Thankfully recent trends in display marketing are taking the industry squarely in the direction of relevance, something that will eventually allow it to grow much larger than search.

Media buying and targeting for online display ads is built on the principle of audience aggregation. A media planner will make media buys on sites that they believe has an audience with a high propensity to respond to an ad. These audience characteristics are often self-reported by sites or inferred by the site's content. The planner will then combine multiple sites that they think have the same audience affinity into their media plan depending on whether they're going for reach or saturation. The problem with this approach is that relevance is an individual property, on aggregate it diminishes exponentially. So while an ad may be highly relevant to part of a site's audience, when delivered to the entire audience its overall relevance becomes marginal. If an advertiser is lucky their ad will make it to the segment of the site's audience that it is most relevant to, however since they're paying for all impressions of the ad their ROI is bound to suffer.

To make things worse the structure of most third party ad delivery systems is also built around this audience aggregation model. These systems care very little about the individual characteristics of a single user on a site nor do they easily allow an advertiser to leverage those characteristics in a meaningful way. Unfortunately there is very little alternative purchasing and delivery mechanisms available to an advertiser, at least nothing that is easy to understand and execute. This is the first hurdle to increasing relevance within the online display media channel.

There have been relatively recent attempts at solving this aggregation problem. Yahoo's RightMedia which launched in 2005 started the trend towards display ad exchanges where advertisers and publishers can buy and sell ad inventory on an impression basis. While this idea was novel and certainly in the direction that display needs to go the execution, i.e. setup and payment resolution, was tedious and cumbersome. DoubleClick's AdExchange which launched in 2007 took the exchange model one evolutionary step forward by providing payment clearing services and a more automated, streamlined transasction process. These exchanges will serve as the foundation for the display advertising industry in the future, but before they can get there they must imrove their interconnectivity and interoperability. Ad exchanges need to make it easy and seamless for publisher to sell inventory, which entails integrating with the various major publisher systems. They also need to make the buying and execution process as painless and data-driven as possible for advetisers and agencies, otherwise the buyers simply would not come. To succeed, these systems must be open to accepting invetory and bids from any other third party advertising systems in real-time. A feat which none have been able to accomplish to date.

Media buying and delivery on an impression basis en masse is only half of the relevance equation. The other half, which rarely gets any attention at all, is about building enough knowledge about individual consumers to make your ad relevant to them. Part of the reason why this side of the equation never gets any press has to do with the industry's long standing defensive posture towards consumer privacy. Any hint of consumer information gathering makes users twitch and advertisers and technology providers go running for cover. However, this is something that must occur in order for ads to be more relevant though it must be done responsibly. Search has not been plagued by the same privacy issues as display, and this is where the display industry has a lot to learn. If you provide incremental value to consumers, real value, then they'll be less wary about telling you something about themselves.

Large agencies recognize that online advertising is moving towards data-driven media buying, targeting, and optimization. They also understand that whoever controls the data used in these transactions controls the power in the online advertising ecosystem. The trend towards data-driven media transactions poses a significant threat to one of the most profitable agency revenue streams, media buying. As a result, agencies are looking for ways to control this data and prevent themselves from being crossed out of the equation. Agencies are building out data warehouses that will store data from many disparate sources including online advertising and web analytics systems. Using this data and their own data insights technologies agencies plan to be the engines of data-driven media buying and improve media transactions for their clients.

Increasing ad relevance is by no means a simple task. It requires all parties to take a major stake in the solution, this is probably the main reason why it has stumbled and stuttered for so long. Publishers need to make their inventory accessible in a granular and normalized fashion. They'll have to get out of the mindset of segmenting and selling their inventory based on sections of their site and start selling it based on intangible information known only to the advertiser. Increased relevance is one of the only ways to save publishers from falling CPMs and low inventory sale ratios so they must jump on board. Advertisers will have to start tracking consumer behavior on their own websites, and hopefully on others, and intelligently analyse these consumers so they know which offer will be best for each. Technology provides must provide seamlessly integrated systems that provide enormous reach, individual impression buying, and are trivial to use for all advertisers. None of these pieces are completely in place as of now, howver increased relevance in the ad display industry is something that I believe we can all look forward to in the future.