Digging a little deeper into the IAB report, two trends jump out at me.
One is that, of that almost $11 billion in online advertising in the first half of 2009, 47% of it was spent on search, up from 44% a year prior and from about 40% in 2006. Display, on the other hand, accounted for only 34% of online ad spend.
The other is that the share of Internet advertising sold via performance-based pricing continues to increase, and was at 58% for the first half of 2009. CPM pricing accounted for 38% of the dollars, with the remaining 4% based on hybrid pricing.
From these stats, I draw two conclusions: one, that there is still a lot of potential upside in attracting brand advertising, which generally comes under display. Indeed, as Brand.net has noted, the Internet only commands about 5% of total brand advertising spend in the U.S, but 30% of direct response advertising. And two, that the prevalence of performance-based pricing is impeding our ability to attract that branding money.
Now, I know that the digiterati hate CPM pricing. CPM is old-school, and you don't want to look at this modern dynamic medium -- or rather, the collection of media that exist online --through the same lens that your great-aunt Sophie used when she bought radio at Ted Bates in the early '50s. Too, CPM pricing takes you directly down the path of commoditization, where inventory aggregators undercut the pricing of branded, differentiated media outlets, basically squeezing money out of the business. (That's a rant we've done already.)
But the problem with performance-based pricing -- search aside -- is that there's no way to price for the majority of display advertising's performance. Some Internet marketers are enamored of the click, even as click-throughs are declining, and more and more research comes out quantifying the value -- the effectiveness -- of display advertising with respect to impact on consumer attitude, awareness, predisposition, purchase intent, and actual purchase (on or offline.)
Pay for performance might be better conceptualized as pay for instant gratification. But brands are built over time, not click to click.
If I see an ad for your advertiser's product, and in the next five minutes I put my coat on, go outside, and buy it, did that ad perform? No, it isn't a trick question; it's a rhetorical one. But I didn't click on anything, so if you sold that impression on a performance basis, you didn't get paid. And that's not good.
At comScore, we've done research into the phenomenon of the click-through. In "Natural Born Clickers 2," a study we just released with Starcom USA, we found that only 16% of Internet users clicked on any display ad in a month; this was down from 32% in 2007. Half these clickers -- a scant 8% of the total US online universe -- accounted for 86% of all clicks.
So evaluating online advertising by the click is great -- if you're targeting that 8%.
Conversely, while clicks are down, and fewer users are accounting for more and more of the clicks, the body of knowledge quantifying the effectiveness and ROI of online advertising keeps expanding. We know that consumers exposed to a campaign online, but who do not click on it, spend disproportionately more time on that advertiser's site in the next month.
The IAB Revenue Report notes that retail is the leading category in online ad spend, so let's focus for a moment on retail. In the retail/consumer electronics category, for example, we saw that 66% of the online universe was exposed to a campaign within a month but did not click; another 0.1% (that's a tenth of a percent) was exposed and clicked. But that 66% of exposed non-clickers accounted for 89% of the page views at advertised Web sites over the course of the month. These data strongly support a conclusion that the ad exposures are pulling those consumers a little further through the funnel.
While click-through rates at fractions of a percent are judged by some to be successful, in the comScore/OPA study "The Silent Click" earlier this year, we found that about 18% of consumers exposed to an average major advertiser campaign eventually searched for the brand, and that 29% visited the advertiser's site. Compare a typical click-through rate of two tenths of a percent, to 18% of exposed consumers searching for the brand. Exposure to a campaign is a contributing variable to driving search 90 times as often as it is a source of click-through. Even if we just limited the impact of brand advertising to driving search, click-through fails to account for the vast majority of the value of the typical display ad campaign.
So what are we to do?
I think ultimately the secret to effective display advertising is that there aren't any secrets, no shortcuts, no magic algorithms. Ultimately there are the same three things that have marked good advertising since the days of Claude Hopkins (look him up): creativity, testing, and measurement. But you have to be sure to measure the right things. Because the Internet is so immediately interactive, we tend to underestimate the communication value of messaging that doesn't immediately produce an interaction. The obvious and classical stimulus-response nature of the click is so eminently measurable, so "on the nose," that we fall into the trap of measuring it, and then stopping measurement.
But compelling selling messages, delivered in creative new ways and formats, carried in differentiated content environments and presented thusly to the right consumers, and evaluated based on holistic measures against communications objectives (from awareness through sales, depending on the particular brand's goals) are never going to get old in this business. What has already gotten old is deploying advertising in the service of the click. Doing so misrepresents the true value of online advertising, and forces advertisers to see only a small sliver of the value we provide. Let's show them the whole pie. They're going to come back for seconds.
If you want to learn more about the state of online display advertising, visit your local library. Or, better, here's an "Easter egg" for you for reading this far: check out Kathryn Koegel's paper "The State of Digital Display." Definitely worth a read.