Merchant Joe Wanamaker’s famously groused ”I know that half my advertising dollars are wasted but I just don’t know which half!”
The age-old promise of the web is to eliminate inefficiency in ad spending by targeting users with precision, but for much of the commercial web’s 15-year existence, that hasn’t been easy. Most display advertising on the web was bought and sold on an impression basis just like traditional mass media.
That’s changing now, and it has big implications for all media. Wanamaker’s complaint is about to be answered.
Big changes are underway now. The first radical innovation was the pay-for-performance model introduced by Overture about a decade ago (and subsequently perfected by Google). Those tiny blue ads inline on your favorite blog do not generate money for the publisher until a visitor clicks on them. In other words, ad dollars are spent after a measurable result has been delivered.
For years, the pay-per-click model existed as the
ugly stepchiid of fancier display ads: the big colorful banner ads with animation and rich imagery.
For years, these display units were considered the prestige units, much preferred by big media. They were sold just like pages in a magazine. But today even the display ads are changing.
Two big advances make that possible:
1. Real Time Bidding (Real Time Advertising)
During the past two years, the rise of real-time bidding (and real-time exchanges) has made it possible for advertisers to purchase the fleeting attention of visitors at the exact moment they are looking at a particular piece of content. The ads are dynamically inserted when the audience requests a page. No other medium (print, radio, TV) has the ability to do this at present.
2. Behavioral Targeting
It is now possible to segment the audience into ever-more-precise slices. Audience behavior profiles are compiled by inserting tracking code into the browsers of those who visit a particular page on a publisher’s web site. Over time, the tracking code accumulates enough information about the content you view to infer a great deal about your demographics, taste and preferences.
The combination of both technologies means that the web can finally fulfill the promise of delivering ultra-precise advertising messages to customers who are in the market for a particular product or service. This approach is validated by the dramatic increase in CPM that publishers get when they sell using both technologies. It works, and advertisers put their money where they see the value.
These advances are not without controversy. Today, a great article by Eric Picard of Traffiq explains why publishers are afraid of real-time bidding and user profiling.
But this is clearly the future of advertising, and it will shape the future of all ad-supported media.
Why it matters
The dirty secret of the mass media business is that they overcharge advertisers on a routine basis for rather spongey results. It is notoriously difficult to correlate the viewing of ads on television or radio with a change in customer behavior.
Media companies and agencies go to elaborate lengths to justify their pricing. Some conduct experiments which seek to isolate the variables in a particular market, so that they can point to the mass media campaign and say “See, it works! Purchases in this area increased 5% when we ran the spots in local media.” But there’s always leakage: variables such as price, packaging, availability, shelf space and other point-of-purchase factors conspire to blur these results.
Most big media companies insist that there is a benefit of association with their famous brands. As if a magical “brand glow” is transferred from a game show or reality TV show onto the products marketed by the show’s sponsors. Evidence for this is elusive.
For nearly a decade in her annual Web 2.0 “Web Trends” address, Mary Meeker would point out that the web was by far the best value for advertisers who wanted to reach an individual household. Not too long ago, in her estimation, web advertising was six times cheaper than reaching the same household via print media.
Now that’s about to change in a big way. The combination of real time delivery of ads with ever-greater precision in audience targeting means that the web will very likely command a significant premium over one-way mass media in the near future.
We’re in the second half of the chessboard, folks. From this point onwards, there are fewer and fewer moves left for major media. Broadcasters have been able to get away with steadily increasing their prices for ever-dwindling audiences on one-way platforms for a long time. And conservative advertisers have been willing to go along with them… until now.
As we emerge from the 2008 recession, advertisers have begun to rotate dollars away from traditional print magazine and newspaper ads towards the web. Next we’ll see dollars moving away from TV and radio Advertisers are putting ever-greater amounts of money into RTB and behavioral targeting. Ultimately this is likely to comprise the largest share of the advertising dollar. Because the results are immediate and empirically demonstrable.
Soon Wanamaker’s complaint will fade away along with one-way broadcast media.