(Originally published in iMediaConnection, November 2009) by Eric Picard
While you were going about your day-to-day business over the past year, the world changed, and you didn’t realize it. Everything you think you know is simply wrong. I’ve been predicting this change for years, I’ve spoken about it at conferences, and I’ve written articles predicting that this change was coming. But even I didn’t realize it had happened.
Last week, at the ad:tech New York conference, keynoter Sir Martin Sorrell, chief executive at WPP, talked about the massive oversupply of manufacturing capacity in every manufacturing category, in every market in the world. And he succinctly pointed out that another way to describe this oversupply of products was a shortage of customers. This hit me hard. Although the whole market has been talking for months about the vast (some even have said unlimited) over-supply of impressions, the reality is that there is a vast shortage of opportunities to expose advertising messages to actual potential customers. The glut of impressions is a glut of low value impressions — impressions that don’t get the message in front of the right person to achieve the campaign objectives. I thought about this for the rest of the day. It was like getting tapped in the nose with a series of quick jabs. Thwap, thwap, thwap.
Later at ad:tech, Quentin George, chief digital officer of Interpublic Group’s Mediabrands, sat on the panel “The Rise of the Audience Marketplace.” He followed up Sorrell’s eye-opening remarks with a few more taps on the nose. Thwap, thwap. He articulated much the same message as Sir Martin, but then added this: “In a world with such massive overcapacity, the only way for companies to differentiate and capture a disproportionate share of dollars is through building a brand.” It was the follow-up — the second half of a one-two punch — that just about knocked me flat.
What really caught me off-guard with this revelation was something I’ve understood intuitively, but hadn’t crystallized for me yet. These new models are not just about direct response buying of cheap remnant inventory based on CPA calculations. The opportunity is much bigger than this. It’s about everything: every methodology, every type of inventory — every type of objective. We’ll be able to measure brand effectiveness, target ads to audiences, and pay for reach as well as for performance. We’re witnessing a radical shift in an industry worth hundreds of billions of dollars — and most people haven’t even realized it yet.
On the panel, George spoke mostly about Cadreon, the new-model agency that IPG has rolled out on top of the various ad exchanges — which competes with Publicis Groupe’s VivaKi, among others. He talked about how efficiency and effectiveness has been improved between four and 10 times on campaigns run across the exchanges in this new model, and that the demand among the IPG agencies worldwide was immense. “If I don’t roll this out in the next six months in China, I’m going to be in trouble,” George said. He also described the complexities of this, given the lack of standards in formats and provisioning across each market.
In a brief conversation with my friend Dave Smith, CEO of San Francisco-based Mediasmith, he talked about his agency’s experiences in investing in these new models for buying, and expressed a deep excitement about how quickly and completely this was already changing things. Smith is the original innovator in our space — he’s been applying technology to the problem of media buying in more innovative, sophisticated, and effective ways for longer than anyone else out there. Thwap.
Also while at ad:tech, I sat with Joe Zawadzki, CEO of New York-based MediaMath, one of the new so-called “demand-side platforms” or “demand-side buying systems.” He talked about his company’s technology investments and the way that MediaMath is extending its system to support buying in every marketplace it can get access to. He talked about efficiency and effectiveness. We talked about the ability of these systems to bid in real time on every impression, about how the technology was going to change the face of the ad ecosystem. Thwap, thwap, thwap. Zawadzki has been at this for a long time now, as he was one of the founders of [x+1], now one of his competitors in this space.
Prior to attending ad:tech, I spoke with Brian O’Kelley, CEO of AppNexus, another player in this space. Like Zawadzki, O’Kelley is one of the early players in this space; he was a cofounder and CTO of Right Media. We talked about the advances in bidding mechanisms, the massive scale that this new segment of the industry is going to need to support, and how AppNexus was building applications to support this, as well as plumbing and infrastructure that he hopes the rest of the companies in the space come to rely upon. Thwap.
Up on the stage of the ad:tech panel, alongside Quentin George, Bill Demas, CEO of Turn, spoke about the differences in the way the market is currently working from more “traditional” online display ad buys. He talked about how the inventory that the players in this space have access to currently is “non-premium” inventory — that for now, at least, the premium inventory is still being represented by human sales forces. He also noted that media buyers and agencies are still negotiating on guaranteed buys, and he talked about how this new medium is primarily about discounts on the inventory.
But the panel was quick to point out that this idea of “premium inventory” was a relative concept. While brands certainly care about running ads alongside content that is of a premium nature, the quality of an audience is not qualified by this alone. While Demas talked about the discounts that advertisers are getting on inventory purchased this way today (since there is a disparity between those bidding on the high quality inventory that is “lying fallow” on sites today), I believe there is another dynamic that will play out.
Much like the early participants in the various paid search marketplaces were able to find incredible bargains on keyword buys due to a lack of competition, these early participants in these online display marketplaces are finding steep discounts on highly targeted audiences. But this is bound to change. George raised this issue specifically, pointing out that advertisers are more than willing to pay a fair price to get their messages in front of valuable audiences and reward publishers for attracting them. But the difference is that only the impressions created by valuable audiences would be rewarded in a world where every impression could be analyzed and bid upon in real time.
This does beg the question of what value premium versus non-premium publishers would provide to the market. One interpretation of all this is that The New York Times is only as valuable as the individual audiences it represents — and that the same users reading a blog would be monetized the same way.
I have my own theory on this. I believe that valuable audiences are going to drive high eCPMs, regardless of the publisher. Combining high-value audiences with high-quality content will drive that price up even higher. And impressions that contain fewer targeting parameters will drop in value. But I believe that untargeted impressions on non-premium publishers will become almost completely worthless in this world.
This bodes very well for premium publishers, which will get ultra-high eCPMs on their most highly targeted impressions of quantifiably valuable audiences. They will get lower, but still respectable eCPMs on their less qualified impressions that are still associated with high-quality browsing experiences. It’s the lower quality content — the UGC and impression 15-1,000 in an online photo gallery on a social networking site — that is going to take a hit on a blended eCPM basis. The hope is that some small portion of their impressions will cover a valuable enough audience that they’ll still monetize effectively.
Now don’t get me wrong. It’s going to take years for the industry to shift to this new model. Agencies will continue to hire armies of liberal arts majors for the foreseeable future and arm them with massive budgets and negotiating power. And publishers will still hire armies of salespeople to answer the RFPs and buy drinks, dinners, and golf games for the buyers. But I’ll officially call the fight at this point. Thud!
While we were going about our day-to-day, this new model has been playing rope-a-dope with us and is winding up for a haymaker. Ignore this message at your peril. Ding, ding, ding!