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Publishers and agencies: Use your people skills to bring brand dollars online or Google will eat your lunch
When markets are opaque and information is imperfect, sitting between buyers and sellers as a resource to both is a great place to be. However, as transparency comes to a market, often in the form of technology, the value chain shrinks and intermediaries struggle to justify their position.
That conversation might look like this:
Think of travel as an example. When I was in elementary school, we lived in California and every summer we would go to Boston and travel a bit on the east coast visiting family. This was a big trip and involved lots of planning — flights, rental cars, hotels, special dinner reservations etc. My parents spent hours on the phone with a travel agent to create an itinerary and make all the arrangements.
I have no idea if she was successful or not, but I bet she is doing something different today.
The airlines have not done much better. They tried to increase their margins by reducing and then eliminating commissions for travel agents. They did this by exposing inventory directly to consumers with technology. In the process, they mis-judged their ability to differentiate their service from their competitors and turned the luxury of air travel into an experience customers tolerate to get from point A to point B quickly. In general, the consumer views the product as a commodity and price drives the purchasing decision.
The same thing is happening in the advertising space and Google is leading the charge. The seed was planted in search, but the whole ad world has fallen into a trap similar to the one that changed the fortunes of the travel industry. To increase margins, publishers were happy to shift from CPMs to higher eCPMs made up of CPCs and CPAs. The shift to pay per action models changed the way advertisers thought about online marketing from a demand creation mechanism to a demand capture mechanism and today you are 50x more likely to see a direct response ad than a branded ad in your travels around the web.
The problem that publishers did not anticipate as they focused on the dollars available in direct response formats is demand capture is granular — specific to individual customers who the publishers do not own — while demand generation is broad — about building awareness across a specific type of customer and associating a brand with content/presentation that can be found at a specific site. Publishers chased the near-term dollars of direct response and in the process they commoditized their inventory.
The Right Media Open 2010 conference last week confirmed for me that sometime very soon the vast majority of existing ad units will be sold via real time bidding platforms and audience management platforms turning publisher inventory and publisher audience into commodities unless they can bring brand building ad dollars online.
The Fortune 100 views the bulk of online ad volume as ineffective for brand building and sees it as undifferentiated. They also see digital media buying as inefficient from a budget perspective. They are used to paying 2% on top of a TV buy, so 12% on top of a display buy does not make sense. This highlights the challenge of attribution as brands want to understanding where this 12% is going and what specific value they derived from it. On average there are 14 stops on the way from ad call to ad served and this inefficiency leads to 2.7x the cost to buy digital advertising over offline media.
Today, big brands are focused on direct response and don’t care where the ad appears (with some obvious XXXceptions) — they just want it to be relevant to the person and to drive a specific conversion behavior.
This puts publishers in a tough place and agencies are not much better off. However, this shifting landscape creates opportunities for entrepreneurs in the branded advertising space. I know there are some great people building companies around this massive opportunity with new ad units, video advertising and leveraging data to drive and measure awareness rather than direct response and I hope to meet some of them in the coming months.