Commentary
How To Make Online Advertising Easier To Buy And Sell
- by Ari Rosenberg , Op-Ed Contributor, July 7, 2011
This has to get simpler; we can all agree on that. Where opinions fracture is on "the how" causing the market to limp behind its potential. I have a remedy for the leaders buying and selling online inventory to consider -- a solution so simple I can share it over a cup of coffee.
Walk into Starbucks in New York City, order a tall coffee, and you are charged $1.75 (plus tax). You pay, then step aside to receive your cup containing 12 ounces of liquid, and the next person steps up in line.
What if this simple process of purchasing coffee included an incremental step of weighing the coffee after you received it to verify you were given a full 12 ounces before you hand over your $1.75 or $0.14583 per ounce? If it weighs in at a minimum of 12 ounces on a contractually agreed-upon scale, you pay your $1.75 plus a serving tax. If the amount were 11 ounces instead of the 12 ounces, you were verbally invoiced for, you would go back to the cash register and pay $1.60 instead. Now factor an additional variable on the cost based on the richness of each ounce, and you can see how this extra step at your local Starbucks would cause a line of people to spill onto the sidewalk and frustration to brew behind the counter.
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Online's indigestion comes from reconciling the differences in what publishers book at their cash register versus what advertisers end up forking over. Help alleviate this pressure without jeopardizing the value of the inventory, and the entire industry will feel less bloated.
The culprit is the number of line items that make up an online buy. Instead of one cost for the entire buy, each line item is treated like a separate purchase, with a separate cost and impression delivery goal. Multiple line-item pricing for one campaign practically ensures a discrepancy between total dollars booked versus the amount billed and paid.
Say what you want about print advertising, but the effort required to resolve billing discrepancies is a breeze compared to online. In print advertising, a magazine's rate base acts like 12 ounces of coffee. You pay for your ad and move to the side. If you feel your cup was light or the blend was weak, you vote with your feet and buy coffee elsewhere next time -- but you can't renegotiate the price you contracted to pay for the cup in your hand.
So how can online advertising create a cup of 12 ounces to sell, instead of selling on a per-ounce basis, and still serve up great-tasting coffee?
Individual line items (not just sponsorships) all become estimates --and publishers are only responsible for meeting the total impression goal of the buy to earn the entire budget booked.
So if I sold you ten million impressions with five line items, each line item may have various impression estimates with estimated CPMs and budget allocations, but as long as I deliver a total of ten million impressions, I can bill you the amount I booked. If my total delivery misses by 5%, for example, I would bill you 5% less.
This simplified process would greatly diminish discrepancies, causing those in accounting to cheer, buyers to leave work earlier, and sellers to be more accurate in delivering revenue booked. The growing angst you might feel with this oversimplified approach to billing reconciliation is that it opens the door for publishers to behave poorly (publishers could over deliver their ROS inventory and under deliver the "good stuff," and still get paid). I think the opposite will occur, however. This approach will force publishers to behave better, not worse.
Think about print advertising again. Buy a PG4C in a magazine, and you are going to pay your contracted rate regardless if the magazine hits its rate base. So why don't magazines skimp on their circulation delivery? Because that's how buyers judge them. If a magazine misses rate base, that magazine won't land on future plans.
In online, buyers would judge sites based on their consistency in hitting and exceeding their promised estimates. Fail to deliver, and those sites will invariably fail to make the next plan, putting greater pressure on publishers to compete based on better behavior.
Billing is the plumbing of any industry, and ours has been blocked-up for years. Oversimplifying how buyers pay publishers will make buying online easier for everyone. Everyone agrees we need to do something, so why not this?
Ari,
Great insights as usually. The "managing" of these billing discrepancies was such a pain point for us as a network for so long, that I helped co-found www.Ad-Juster.com precisely for this reason.
While I agree whole-heatedly with your approach, and think it would be ideal. The reality is that it is probably overly optimistic. The proverbial cat is out of the bag and the $.15 that gets "saved" the the agency pushing for make-goods, change orders, etc... ads up and is built into expectations today. For a change like this to occur, it has to be client driven. Clients should insist on seeing the ROI for this nickel and dime'ing (my guess is it is not there financially, and certainly not there when you consider reputational damage).
One of the big complaints in online is the cost of managing it. Agency fees on reissuing change orders, etc... probably far out-weigh the value received from them. In the world we live in, tools such as Ad-Juster, help to ease the pain points and frictions by applying technology to the "manual" parts of online billing reconciliation that exist today. My expectation is that this will get far worse before it gets better as pricing continues to shift and payments are made not on impressions and clicks, but on engagement, leads, and various other actions (another trend that is out of the bag and probably won't reverse, but accelerate).
Thank you for at least getting the dialogue going though... the friction costs in this business are huge, and I'm sure clients would like to see more of those dollars going to media, rather than to the shuffling of paperwork.
Ari, yes. Online media buying needs to be simplified. Google has done a good job with it. The DSP's are also helping but for those direct to publisher deals, your suggestion is right on. Will an agency agree to this? Or if you are buying multiple items - video + display + rich media ads for example should they be listed seperately? It's hard to buy ads online when it doesn't need to be.
Cheers,
Bill Flitter
I'm all for simplicity, but why would the online advertising industry willingly move towards a simpler system with inherently slimmer profit margins? There's an awful lot of money to be made right now as long as the whole system remains complex and difficult for advertisers to navigate. If the system suddenly became simplified, a whole economy of middlemen, experts, and helpers would go out of business or be acquired on the cheap. Therefore, very few companies have an economic incentive to pursue true simplicity for the buyer. A move towards simplicity is a move towards commoditization. Commoditization is generally great for the buyer, but it creates industries where relatively few monolithic sellers earn profits mostly on the volume of business they can transact (i.e., market share). And online advertising is still pretty far from being monolithic...just look at any of Terence Kawaja's industry maps. All that being said, this column has some cool ideas...unfortunately there are still some pretty big barriers to simplicity right now. I suppose one of the "leading indicators" would be when M&A activity starts to outpace the emergence of new online advertising hatchlings and the industry starts to consolidate (i.e., get simpler).
Ari, I hope the following doesn't ruin your ideal. Newspaper (all print for that matter) can be renegotiated after publishing. If the ad prints out off register, appears in the wrong section, an error as a typo (local pubs still put ads together for local businesses that won't or can't do it themselves/pay someone to do them) or runs on the wrong day, for example. Just as an additional kicker, it doesn't matter which department makes the mistake; the commission salesperson takes the hit. There is also more to circulation/distribution claim vs delivery of why the advertiser will or will not be putting the same on the next buy or regotiate off rate card. But you know this.
I am not expert in the mechanics of online media buying but I do like this approach for all the reasons already stated. The bottom line still rules: If I can't show ROI on any media buy, I am less concerned with managing a make good solution than I am with finding a better media channel to place my ad dollars. I suspect that this is exactly where the industry is headed and I applaud those who help move us there.
Ari, I agree with your premise. This is how TV works, and nobody seems to worry too much about it. Now, there is an inherent difference - in TV you're purchasing a specific demographic, so it doesn't matter if you buy it in "The Office" or "Parks and Recreation". Either way, if one overdelivers versus the other, regardless of CPM applied to the programming, you're getting the demographic you've purchased overall.
In online, you're just buying a vague "impression" of some nature. You know it may be male if you're on a site that is male dominated, but you can't know for sure. You probably don't have a good idea about the age group, at all. So the CPM "value" comes from residing on a specific page or placement ON a page.
HOWEVER, there IS A SOLUTION TO EVEN THIS!
How about tweaking your idea just slightly. Let's say I have 5 line items, each priced differently, for 1,000,000 impressions. 3 line items deliver 100%. 2 do not. One line item falls short (90,000 imps) and is priced at a $10 CPM at 100,000 impressions, while the other overdelivers (120,000 imps versus 100,000 in the IO) and is priced at $5. I've now delivered twice as many impressions to make up for the revenue "value" of the lost impressions.
This will keep the advertiser "whole" on dollar, it's easy to optimize this way, and agencies should be (though likely may not) be amenable to the solution.
Your solution to easing billing is something I've been all for, and have implemented at other publishers in the early days of the digital business. However, over time the line item guarantee has been something agencies have requested and publishers have complied with regularly. Publishers often swim in the direction of the lowest common denominator - whoever is doing the least runs the risk of losing revenues.
But what you've raised is an issue that has concerned me for quite some time. Line item guarantees are difficult to manage and bill. They lead to discrepancies and require quite a bit of oversight. In TV, it was fairly regular for me to pick up the phone and ask an agency if I could switch units between shows if I had problems with inventory. The goal, of course, was to make the switch beneficial in some fashion.
The "solution" I've proposed (managing impressions to revenue) would maintain minimum standards for the agency - the shift may be from one of a higher CPM to a lower CPM, but not always. In fact, sometimes high value sponsorships often overdeliver. So there could be situations where the $5 placement comes in slightly short - but the $10 placement overdelivers. In that case, the agency has a clear win. At least when the situation is reversed, they've lost very little.
Richard,
that's a great post/enhancement -- makes perfect sense / it's not nearly as radical as my suggestion so your idea has a better shot of being implemented -- but my drastic over simplification of the process would make it SO much easier for everyone and I contend induce better publishing behavior -- not worse.
Bill Flitter,
how are you man -- good to hear from you on here. you see what I see :)
Myles,
I did not think this as throughly through as you might think I did so I appreciate your red flags but see them more as speed bumps -- everyone can still grab their slice in the solution I envision. Thanks for adding to the conversation so smartly.
RJ -- you feel my pain I feel yours -- now what can we do about it? Thanks for contributing as always.
Paula --those sound like "make good examples" or anomalies -- most print ads run as priced. Thanks for reading and responding with more food for thought.
Bruce May,
I hear what you are saying but contend publishers can only own 50% of the responsibility to deliver ROI and buyers keep placing 100% on them. Not gonna work best that way...
Hope everyone enjoyed the long Holiday weekend -- thanks for taking the time to respond....
Ari,
I'd LOVE if either idea (yours or mine) were adopted. I continue to preach the value of bottom line billing. In reality, there aren't alot of benefits to line item billing, certainly not enough to offset the costs which often go along with it.
A long time ago, I learned a valuable lesson about inventory and marketing. Sometimes focusing on the audience you deem valuable limits your exposure. For one reason, you may be preaching to the choir. For another, you have automatically limited your message's reach. For a third, if anything inhibits your ability to reach the goals you set for a particular placement, you fall short in terms of not only placing the revenue, but reaching your audience in general.
Adding the flexibility a system such as bottom line billing has many benefits, as long as the publisher enters into the arrangement with the main goal of at least TRYING to hit the line item guarantees. Where it gets murky is (as in all things) when the lowest common denominator kicks in. When a borderline publisher sells something they know they can't deliver and then does a wholesale "optimization" into inventory the agency considers far less valuable. This undermines everyone's credibility.
To your point in the article, the solution is "they get no more buys". But it also makes the agency wary of everyone.
It's a great idea, but we need to stay wary of those who would take advantage of a system like this. Gresham's Law exists even in Ad Sales.
Ari,
Most clients want a simple, easily-understood solution.
When radio and TV AEs talked Arbitron figures, CPM, GRPs and impressions, clients nodded & glazed over. Then, they'd politely (or not so politely) go back to print media or outdoor. (Print which seldom offered make goods unless color or artwork was extremely poor.)
Bad weather and poor delivery conditions were never conditions for make-goods. Why? Because make goods, instead of being a part of life, should serve as a warning flag that what's been presented, purchased, and fulfilled isn't meeting expectations.
Print media seldom has make goods because it has clear statements of distribution, image size and color, and display date. Digital needs to do likewise and verify it.
What's missing is credibility built upon simplicity. One view =one impression, not 1, or 4, or 5, above or below the fold-- with page peels included etc. , It appears as snake oil salesmanship.
When electronic media needed credibility it used notarized affidavits, scripts and logs that were verified. Print industry uses ABC audits. What's a standard for digital?
Clients don't want to decipher extensive details. They want to know: "How many clicked to my message?, How do we know they did or didn't become my customer?, What do you have to prove it?, How do I get more customers and make money with them ?"
In vertical industry segments, clients gladly pay a premium if markets are targeted accurately. Tools and methods must focus on simple clear reports any CFO can understand, since most times they're really the final authority. (Not the web guys.)
Digital media's growth and credibility will be best served by establishing clear media standards across multiple online platforms which meet a set performance criteria mutually understood and agreed upon for all.
Remember, most industry must meet an established set of technical standards. Why not digital media? Advertisers with tangible goods demand established criteria.They only remanufacture if the product is deficient.
Make goods are tell-tale signs alerting all to the problem of poor communications.
C. Michael,
Agree with your premise on a good, solid standard, but disagree that it has anything to do with makegoods.
Is TV without standards? Makegoods there are not a result of poor communications at all. Perhaps faulty forecasting.
Clients eyes may glaze over when CPM, GRP and impressions are discussed, but they still spend alot of money in Cable and Network TV. And they get plenty of makegoods.
Ari's point is relevant whether we have solid standards or not.
Or - if I'm wrong - how would solid standards cause makegoods to go away?
Ari, I wish you were right about anomalis. If you had written as many non-standard rate forms or lost as much money as I had, your opinion may be different. There were millionssssssssss - n/c, m/g, etc. - lost via production. And that's just for one publication.