Tag Archives: media buying

3 reasons that data will save online advertising

It’s been nearly 15 years since Rick Boyce and HotWired famously popularized the use of banner advertising campaigns as a model for generating revenue online. Since then, there have been many, significant innovations in online advertising, including new ad formats, new pricing models, new targeting technologies and new metrics for effectiveness. Yet the value of online display advertising is being questioned now more than ever before, particularly in the current economic environment. Numerous organizations are projecting that online display advertising spend will be flat or slightly down in 2009. Growth is expected to recover in 2010, but at much lower rates than earlier in the decade and than search advertising. But the explosion of data and its increasingly effective use hold great promise for online display advertising. There are many types of data for online advertising, including keywords, contextual, behavioral, semantic, demographic, psychographic and social. The relative value of each of these forms of data is still an unknown, but I believe that the value (and cost) of data will soon exceed the value of inventory, which is already deteriorating. Here are three reasons that the use of data will save online ads and help restore their growth.

– Data makes media buying easier: Data from comScore, the IAB and others suggests that while the top 50 online publishers only account for 25%-35% of user attention, as measured by page views or time spent, they represent about 90% of online advertising spend. Why is that? As I’ve written before, the job of an online media buyer is seemingly impossible. Audience fragmentation, the proliferation of ad networks and the emergence of ad exchanges have created incredible amounts of complexity in the marketplace. Learning about all of these sources of inventory, let alone buying from them, is an unenviable task. On the other hand, buying from large, known publishers is simple. This is the default behavior for many online media buyers because it doesn’t entail extra effort or risk. Further, the buying of traditional media, rightly or wrongly, is done largely based on gross rating points, viewership, circulation, listenership, etc. Media buyers purchase audiences at scale. In the online world, media fragmentation has made it a necessity to buy from multiple places to achieve desired scale. Data allows traditional buying behavior (again, independent of whether it’s good or bad) to be replicated online. Data enables media buyers to purchase a specific, consistent audience at scale across many different publishers. Data makes the jobs of media buyers easier, allowing more dollars to be spent online.

– Data increases the value of remnant inventory: Somewhere between 30%-40% of online ad inventory at most major publishers goes unsold by their direct sales organizations. That number is closer to 80-90% for most social media sites, the fastest growing segment of inventory and the one with the most ad effectiveness challenges. Remnant inventory is the direct result of highly ineffective ads that are not relevant to the consumer. There was a time when NYTimes.com could sell its inventory because of the association with its brand. That time is long gone as metrics have told advertisers that they are not earning a return on their dollars. Getting value from advertising on social media, where consumers are largely not engaged in commercial activity, is even more difficult. And inventory, both premium and remnant is increasingly being commoditized by the ad exchanges. Effective use of data for targeting (with more engaging creatives) the right audience yields better ad performance and generates real value from remnant inventory. In the end, today’s gap between demand and supply diminishes as data-defined audiences, rather than impressions, are being purchased.

– Data is available to all: The traditional ad agency model is widely recognized as broken. The economics of the agency business dictate that they find more efficient and effective ways to engage consumers on behalf their advertising clients. Along these lines, agencies have come to realize that one of their greatest assets is their consumer and ad performance data. Data, in combination with more innovative creative, can target the right audience at the right time with the right conversation, interactivity and engagement. Publishers also see that it’s becoming more difficult to aggregate sizable audiences and to sell their ad real estate. Differentiation in the face of commoditization comes from their data. And ad networks know that they are in danger of being disintermediated unless they bring unique value to the both advertisers and publishers in the form of greater access to data or better targeting through data. Fortunately, all of these players have their own data assets and increasingly have access to data from traditional offline data vendors, such as Acxiom and TARGUSinfo, as well as from emerging online data exchanges, such as BlueKai (where I am an investor) and eXelate. The competitive dynamics in the online ad industry dictate that the various players leverage data to provide greater value to their constituents.

While data doesn’t solve all of the problems in the online advertising market, it’s clear that data is going to have a huge impact on the future of the industry. The companies that develop the platforms, tools and services to make it easier to aggregate, analyze and utilize data will be the next category of winners in the online ad market. More importantly, they will help grow the online advertising market for all of us. Even as the value of inventory decreases, the increasing use and value of data and the resulting greater sell-through of inventory will yield a larger online advertising market.

Quick hits: Target, ad networks and the Super Bowl

I’ve been remiss in posting on some fascinating things that have taken place in the digital media industry over the past month. Fortunately, the two major reasons there has been a delay are because of closing an investment that we announced early this week and because of my total engrossment in the transformation of my New York Giants from playoff afterthoughts to Super Bowl Champions (which I’ll comment on below). I’ll do better going forward (I hope). Without further ado…..

Target and customer dialogue: Last month, Amy Jussel of ShapingYouth.org published a blog post in which she shared an opinion about a recent Target billboard advertisement. She also called Target several times, to which Target responded in an email by saying that “Target does not participate with non-traditional media outlets.” Now whether you agree with Amy’s perspective or not, I think we can agree that corporations are doomed if their response to feedback from customers, in any form, is to dismiss it outright. If Amy had written a letter or sent an email, would Target have responded similarly? My guess is only if the customer service representative wanted to lose his or her job. The impact of customer service on word-of-mouth, brand perception and profits can’t be overestimated, particularly in a digital world where switching costs are negligible and customer acquisition costs can be sky high. Emerging companies like Satisfaction and Bazaarvoice (a Battery portfolio company) are focusing on the dialogue between and amongst brands and their customers to create new commerce and service opportunities. Leveraging consumers’ increasingly visible and explicit perception of brands and products in this way is just beginning. In addition, we’ve already seen that the empowering of consumers via digital media can save television shows and change company policy. Undoubtedly, we will eventually see an online consumer uprising that results in a tumbling stock price and executive job losses. The companies that fail to take advantage of the availability of consumer data and to engage in an open dialogue with customers do so at their own peril.

OnMediaNYC and ad networks: I had the pleasure of speaking at the OnMediaNYC conference at the end of January. One of the major things that struck me coming out of the conference is the incredible challenge that advertisers and agencies face in sifting through all of the various media outlets and ad networks now vying for their ad dollars. And that is exactly why scale matters so much. With multi-million dollar budgets to deploy and limited human and research resources, advertisers and agencies can only purchase media in so many places. And the simple rule of thumb is to pay attention to the outlets that can provide them with the most reach. Until there are better research, buying and analytical tools (if you know of any, send them my way!) for them, advertisers and agencies will only spend time with the largest publishers and networks. The challenge then for the publishers and networks is to achieve the scale necessary to rise above the noise and get the attention of potential buyers. Too many of the ad networks that I saw at OnMediaNYC focused on nifty targeting technologies and whiz bang ad formats. Very few talked about how they intend to achieve the scale necessary to have advertisers and agencies even spend time learning about their approaches. There are well over 300 ad networks in the market today, but I expect that there will be far fewer that achieve the scale needed to survive over the long term.

New York Giants, Super Bowl Champions, and teams: As a life-long Giants fan, I was fortunate to attend not only one of the great games in Super Bowl history, but also a game that ended in an unbelievable victory by my favorite team. There are lessons for business to be drawn from many parts of life, but as I left the stadium that night I was struck by a particular message. It sounds flowery and obvious, but it’s worth reminding ourselves that a team of individuals committed to each other and to a common goal always have a fighting chance, even in the face of naysayers and accepted theory. As venture capitalists, we tend to place a great deal of emphasis on the teams with which we partner. The Giants’ Super Bowl victory reminded me that there is a reason that we seek traits like focus, persistence and commitment in our entrepreneurs and that we strive to give them the same in return. In our business, often times market opportunities are not obvious to outsiders or simple to address. But a determined team that believes in its abilities can sometimes achieve outstanding results, even while those on the outside criticize its ideas and approaches. Just ask the Giants.

 

Super Bowl XLII