Commentary

Cheating Your Way To The Bottom

I am tired of listening to the same tired ideas.

As creativity coach Julie Cameron once said, "Nothing dies harder than a bad idea." This industry spends more energy defending and perpetuating bad ideas than any I have ever witnessed. We cannot thrive in an environment that perpetuates bad ideas.

Here are the four worst arguments in our industry that need to be left for dead in a ditch somewhere:

Terrible Idea #1: Advertisers will only buy from a few people. This is the other half of the incorrect idea that small publishers cannot sell direct. While individual advertisers may only buy from a handful of properties, the collective group of advertisers needs to buy from thousands. A consumer packaged goods company might be best off buying Yahoo, but a local retailer is most certainly better off buying from local sites.

If buyers are only willing to buy from a handful of companies, as ad networks claim, then why are there 400 ad networks?

Terrible Idea #2: Selling on CPMs is better for you. In less than 10 years, search has managed to capture more than 50% of all online advertising dollars by reducing risk to advertisers in the form of CPC.

If display advertising was managed like Google, publishers would make more money selling on CPC.

The top 100 publishers collectively generate 2,000% more page views than Google, yet less total revenue.

The problem is that publishers lack the technology to efficiently match advertisers with interested buyers. Every single page view needs to be optimized against a database of hundreds of thousands of ad units, coupled with deep audience matching to maximize CTR. Add in better quality ad units, and you have a killer combination.

CPC pricing is not bad for publishers. In fact, reducing risk for advertisers will enable you to charge more. It just needs to be accompanied by great technology.

Terrible Idea #3: aggregating content. Vertical ad networks that bundle and package inventory are stripping away your brand value.

The reason you don't see Viagra, Cialis, or Levitra selling as generic erectile dysfunction pills, is because they would leave billions on the table.

Whether it is drugs or content, everybody makes less money when customers buy generic.

You are in the business of selling your brand and audience to advertisers. You cannot tell advertisers a unique story when you are being sold by a third party as part of a bundled package.

Terrible Idea #4. Channel conflict is normal.  This is the craziest of all the ideas, the one that is most capable of destroying your business.

Some women pay $1,000 for a handbag because it has a high perceived value and they cannot get it anyplace else.

What do you think would happen to Gucci if you could buy the same purse down the street for pennies on the dollar? Why do you think retailers have teams dedicated solely to fighting counterfeits?  Why do retailers wait a season before handing off inventory to discount stores? Why do they open their own outlet stores in locations so far from their regular stores?

Retailers learned long ago that they must protect their brand at all costs.

Brand management is the art of effectively leveraging sales channels to balance maximum distribution with minimum commoditization.

Customers catch on quick. If you sell your inventory through multiple channels, customers will start buying from the cheapest one.

This is the real reason that ad networks continue to grow, yet total display ad dollars are declining.

I am not a mathematician, but if you shrink the total size of the market, and add in another mouth to feed, you are guaranteed to make less money.

The Last Word
We have enough challenges in our industry without chasing losing ideas. 

Let's celebrate this Independence Day by using some independent thinking, and throw out the ideas that are not supported by data.

Can I get an amen, brother?
8 comments about "Cheating Your Way To The Bottom ".
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  1. Neil Squillante from PeerViews Inc., July 2, 2009 at 2:31 p.m.

    David, I agree with Points 1, 3, and 4. But Point 2 ignores the elephant in the room -- terrible creative (at least in terms of generating clickthroughs). Does any publisher -- even a large one -- that sells directly as you suggest and with which I agree have enough prospective clients to demote ads that don't generate enough clicks as Google does?

    Sure, Google mostly sells niche ads -- but Google sells every imaginable niche! That's a big difference and a key advantage.

    One of the surest routes to failure in business is to try to copy another company instead of innovating on your own. With the CPM model, if you can help clients achieve more clicks (herein lies the innovation part), you can provide greater value than Google can provide.

  2. Jim Courtright from Big Thinking By The Hour, July 2, 2009 at 2:49 p.m.

    You get an amen from us.

    In our upcoming book, Become Your Own Broadcaster, (BYOB) we predict brands will fight for content the way broadcast networks bid for TV shows from content producers. Soon the content producers, be they writers, bloggers, or filmmakers, will sell to the highest bidder to deliver unique content directly to brands, who can now distribute the content to audiences directly over the Internet, without the traditional broadcasters taking their cut.

    Good content will always attract an audience. Who's to stop marketers and brands from cutting out the middleman? What brand will want to be just another ad in the middle of clutter when they can have their own focused audience?

    Jim Courtright
    Partner
    Big Thinking By The Hour, Inc.
    jc@bigthinkingbythehour.com

  3. Mark allen Roberts from Out of the Box Solutions, LLC, July 2, 2009 at 3:03 p.m.

    AMEN
    The days of relying on Gut and intuition are over!
    Get your butt out of that board room chair and get in your market!
    I blogged about this at You’re “gut” and “intuition” are not enough…today http://nosmokeandmirrors.wordpress.com/2009/02/13/youre-gut-and-intuition-are-not-enoughtoday/
    Great post
    Mark Allen Roberts

  4. Stuart Long, July 2, 2009 at 4:04 p.m.

    Wonderful article and insightful replies. Writing like this is what gives Online Publishing Insider real value. Thank you David, great job.

  5. Stephen Rowe, July 3, 2009 at 8:59 a.m.

    David,
    I believe you got most of it correct. You however failed to address a couple of key points. In #1 you stated, “a local retailer is most certainly better off buying from local sites.” The reality these day with the ability to geo-target national sites is that quite often, actually I would say that a majority of the time, a specific interest national site will most likely have a better penetration and better response than a local site and will perform better.
    In #3 a CPM model is useful for branding a product which is where research shows that on-line display shines. Therefore, to change this category to a CPC could decrease revenue based on the current prices in the bid system. In addition, most of companies who operate these sites do not have the ability to run the bid systems that would be required.

  6. David Peterson harvey from The Hidden Art, July 5, 2009 at 10:47 a.m.

    According to the "Chicago Manual of Style," the first time you use letters such as CPM or CPC, you should use the full term followed by the abbreviation in parentheses, as in "Cost Per Click (CPC)." This is an industry standard norm that seems to be ignored in MediaPost Publications. The problem is that it alienates new readers who may be marketers who are unfamiliar with the Internet terms.

    May I suggest you follow normal writing standards to make your content more readable to viewers who are not online marketers but want to learn from your material? It won't hurt your popularity in the least and you may find your readership growing.

    Warmest regards,
    David Peterson Harvey
    thehiddenart.com

  7. Jon Levy from Hype Circle, July 7, 2009 at 4:33 p.m.

    Wow, This is a serious crusade against ad networks! Gotta disagree with you on this. The internet is a wonderful tool for efficiently matching buyers and sellers. Ad networks provide that matching service in all shapes and sizes - Google being the lowest common denominator. Yes, advertisers should place ads on many properties, but they don't have the manpower in-house to do this. So they outsource the job to ad networks. It's an efficient use of capital. Can you imagine an ad agency sending out 1000 RFPs? They are overworked as it is.

    Regarding the CPC vs CPM argument. Brand advertising cannot be measured by click rates alone. Unless the only objective of the campaign is direct response, CPC is an unfair pricing model for the publisher.

  8. Jonas Halpren from Federated Media, July 14, 2009 at 5:58 p.m.

    Once again you write an article with a controversial, but very general premise backed by assumptions, not data.

    Let me demonstrate:

    Advertisers will only buy from a few people.

    Not only does your assumption support the need for networks as serve to make the buying process more efficient for marketers, but the fact remains that Google, MSFT, Yahoo and a handful the largest publishers see over 80% of all ad dollars.

    The fact is that media buyers get paid terribly and only have so much time in the day. So 1) they do not have the time to meet with, vet and negotiate with thousands of publishers you say they should. 2) They are most likely to buy from trusted sources and people they have relationships with, when they buy a small site, it is most likely because they read it themselves.

    Selling on CPMs is better for you

    Sure it is if you are a Google Search and get people at the end of the buying funnel. Reality is, most content sites do not serve the bottom of the funnel, people are immersed in that experience, the type of ads that well here for branding, not DR. Google is a DR vehicle. Google basically has what you describe as a solution for publishers. It is a called Adsense for content and it is not great. Oh, it is a network. So using Adsense is contrary to your point #3.

    Basically you are suggesting every publisher develop a system that will house hundreds of cpc ads that are sold exclusively by their own sales force. Some large publishers *may* be able to pull this off.

    Aggregating content

    I get your point here, but this only makes sense to the largest sites. Many smaller properties benefit from being sold in bundles with other similar sites. A media buyer may over look a site with 50k uniques, because they don’t have the bandwidth to execute the buy in just that site. A vertical aggregation or “network” suddenly, that small site can make sense for the buyer as they can buy it and other on one IO. These buys do not need to be blind, which I think you are assuming they are. Remember not all “networks” are created equal.

    Channel Conflict

    Yes, actually it is normal. Many physical brands have been managing sales conflict for years. Even in your example, Gucci bags have found their way to Costco. The brand works hard to mitigate this conflict. Online brands have the ability to benefit from 3rd party relationships and manage sales conflict. It doesn’t have to be an all or nothing proposition.

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