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. Labels: