• by Steve Smith , Staff Writer @popeyesm, April 7, 2010

Online display heads for the middle ground

In 2009, you couldn't tell if the market for display advertising was coming back or finally falling off a cliff. Revenue numbers were all over the map. When some CPM stats early in the year indicated declining CPMs, and the largest display seller, Yahoo, reported a revenue drop, several pundits warned that the notoriously low click-through rates and infinite supply finally had caught up with a "broken" display economy. The recession would force ad budgets to shift into performance-based channels, many argued. Banners and buttons seemed to have become permanently invisible to users. And the proverbial 500 ad networks appeared ready to implode amid plummeting CPMs. The market in display advertising couldn't tell if it was coming or going.

But by year's end, many in the industry were voicing optimism that a new art and science for display was emerging that would drive considerable advertiser confidence and serious agency investment in coming years. Forrester was predicting 17 percent annual growth for display spending, to $17 billion by 2014, and even the agencies were getting enthused. "We are definitely seeing the most exciting things for us in display in our ability to target across many dimensions," says David Cohen, U.S. director of digital communications at Universal McCann. "Whether that is behavioral targeting or third-party data or our own platform - that is where we are seeing the most excitement - in targetability."

It's the Data Economy, Stupid
While there is still plenty of money and interest left in buying premium, and increasingly creative placements, at major publishing destinations, much of the energy in display now is aimed at finding audiences wherever else they may be online. "Instead of relying on site content, these advertisers are buying audiences and data directly," says Joe Apprendi, CEO of ad network and technology provider Collective Media. While, according to an AdMeld study, only about 30 percent of display spending went to non-premium networked buys in recent years, he predicts a 50-50 split in the near future. Technology is driving the tectonic shift.

"If you are an owner of display advertising, this is a great time to be in the marketplace," says Dave Zinman, vice president and general manager of display advertising at Yahoo, which delivered 521 billion ad impressions in 2009. Yahoo and four other brands - Fox, Facebook, Microsoft and AOL, now dominate display. While comScore generally reported a down year in 2009 (-11.5 percent in display revenues), Yahoo ended the year boasting that display grew 26 percent in the last quarter. Zinman says that display is coming out of the recession fueled by new targeting technology and a radically shifting marketplace. "It's a very different world from before 2007 to after 2009," he says.

And a dizzyingly complicated one. 

A new alphabet soup of suppliers and technologies emerged last year that promised at long last to apply better science to the art of display. Data providers like BlueKai or Media6Degrees helped marketers find the right audiences amidst the endless inventory of the Web. Much hope is circulating around real-time bidding (RTB) at ad-exchange engines like PubMatic, Yahoo's RightMedia and The Rubicon Project. In these models, user data combines with real-time analysis of available inventory so an advertiser can buy individual impressions across a wide array of sites. Your ad appears only when just the right person hits a page, and proponents argue this introduces an efficiency that will attract more ad money and brand confidence. "I can maximize ROI for an advertiser," claims Rajeev Goel, CEO of PubMatic. "I can change the pricing based on who the user is and the content on the page." Goel claims that one partner is seeing a 10 times increase in click-throughs on an RTB-fueled campaign. "When you get that order of magnitude of difference, it is a game changer."

And the buy-side definitely is interested in data-driven, audience-centric models, especially if they can own the changed game. "Content is not the driving factor there," says Sean Kegelman, senior vice president, partnerships, at VivaKi. To add yet another acronym to the mix, agencies have jumped on board with their own demand-side platforms (dsps) that buy inventory on the exchanges and networks along with third-party data in order to create their own audiences for clients. dsps like Publicis's VivaKi or Interpublic's Cadreon have helped solidify the agency stake in making the science of display work. "Audience buying has been the domain of ad networks and portals," adds Kegelman. "With the advent of the DSPs you will see the agency take control of that and really own it and define the audience to the needs of specific advertisers."

Blinded With Science
But before striking up "kumbayas" over a golden age of Display 2.0, there is some worry about the costs, complexity and power shifts that an audience- and data-driven system entails. "We may be victims of our own creative intelligence," says a top executive at one of the largest online ad agencies. However much the new precision is adding to buyer confidence about the effectiveness of display, the system is far from proven. Paying for and managing all of these new layers of data providers, optimizers, exchanges, and back-end verification systems could nullify the supposed efficiencies the technology introduces. "One of the dirty, dark secrets of display is the size of the stack," he says. "At the end of the day, only half of your million-dollar budget is going to buying audience or media, and the other half is going to fund these technology companies."

Some of the networks are feeling the cost of complexity as well. "The amount that actually is going to the publishers and the networks shows flat growth. The increase is going to the data providers," says Apprendi. At the No. 2 seller of display, Fox, Mark Papia, senior vice president of the Fox Audience Network, is as enthused as anyone about the prospects for laser-targeting through the technologies and data layers that have been assembled over the last year. With 158 million uniques combined with data from Fox and 800 other publishing partners, he believes FAN has the scale and data to profit from next-gen display. But advertisers have to start paying more for this stuff. "We have brought enhanced targeting technologies during a tough economy, and we priced it accordingly and took out razor-sharp pencils to help our advertising partners. At some point, the advertisers have to start paying for that knowledge and increase their CPM offers. There is a value add that in some instances is not being paid for yet," Papia says.

"Cry me a river," quips Cohen at McCann. CPMs are being guided by results, and this is a year when he and other buyers will be testing - and testing some more - to see which data providers and technology partners are adding real value and ease of use. "It is very difficult to peel the onion and see what is going on behind the scenes," he says. "I anticipate that this time next year a couple of winners will emerge." But is the testing ever really over in a world where every ad, audience and site are measured, evaluated and kicked in and out of the campaign, on a real-time basis? An unintended consequence of such low-level automation is a perennial volatility, as agencies set up back-end metrics to evaluate (and perhaps overreact to) everything against prescribed goals. "When you don't hit that number, the agency will optimize away from your site to someone else's site or network," says Papia. "With the commoditization of data, you're only as good as your last campaign."   

But now that the agency side has its own skin in the game via their DSPs, there seems to be a new determination to legitimize display, after years of seeing search grab most of the money and the glory. Agencies themselves now are looking beyond the simplistic click-through metrics that failed to attribute to the platform its complex role in brand and buying lifts. Display campaigns have been effectively tied to the increased effectiveness of search, and both Kegelman and Cohen say their companies are trying to get beyond "last-click attribution" and build clearer pictures of display roi. "It is incumbent on the industry to get a better sense of how to look at the spectrum and longer-term behavioral impact," says Kegelman. Ultimately, the arrival of the DSPs may mean that agencies themselves become the biggest proselytizers of the digital cause, the effectiveness of audience creation and a dynamic display ad economy. "The agencies are going out and talking to their advertisers," says Papia. "It softens the beaches for folks like us."

Artful Dodge
But for all of the technology that companies are throwing at this shift to automated, audience-centric systems, both publishers and agencies resist the idea that display advertising is just another engineering problem for the wizards of Silicon Valley to solve with science. Creative - or the lack thereof - remains this industry's weakest link. "It is all like the complexion of a teenager," says one media buyer. "It needs to come a long way." But the lack of emotionally engaging, even memorable, online display advertising has been a decade-long lament. Everyone in the supply chain agrees that there is now as much interest in premium, contextual branding experiences as there is energy around the massive tech-driven inventories. Agencies contend that most campaigns will still start with the big idea anchored at premium sites.

But there seems to be less agreement here about how to make good on the unmet promise of blending art, science and scale. Zinman and others point to the enhanced takeover and push-down ad units that Yahoo just adopted from the Online Publishers Association. "This is really key," he says. "For the first time we can really push the boundaries around display and finally get them to scale." Others see the Web moving closer to a TV experience, where video embedded in a page replicates tvs tried-and-tested attention-grabbing branding power. And still others say that the answer to invisible banners comes only when the Web itself stops looking like a NASCAR racer. "There are way too many ads per page," says Kathryn Koegel, an analyst and marketing practice lead at Primary Impact. According to her research, most publishers responded to the recession by desperately tossing even more ads on a page, even though most studies show that better integration with content of fewer ads improves performance. With the Web's infinite inventory always threatening price, publishers need to re-create some scarcity, at least on a given page, she argues.

But publishers are being squeezed along with everyone else. "As we get bigger, immersive, more TV-like ad units, the CPMs will go up," says Cohen. But there are only so many times and so many pages that a limited number of top-tier publishers can run whiz-bang units. Interest in the very top-ranking sites is high, but most are agreed that a revived display platform is not going to solve the ongoing problems that media companies have with their business models. Even the biggest media brands are just adding more inventory every day. Most will need to maximize the select premium custom sales, but also become much more sophisticated in managing the rest of their inventory through network and exchange partnerships.

Ultimately, display advertising needs to support a vast and diverse content economy. Right now, however, the attention and money seems bifurcated between a high end of branded, but scarce, premium placements, and a bottomless pit of low-priced inventory that science is promising to make more valuable. Is there room in such a world for middle-tier publishers at all? Can even the major media brands support the content production to which they are accustomed on the revenues culled from even the best-tuned premium-plus networked inventory? "It is going to be much tougher for them to monetize and break even just on ad revenue," says Apprendi. We may see more consolidation among top-tier brands in order to achieve scale for premium inventory, and some that can't make the comScore top five or ten in a category will fall away. And just about everyone in the ad network and agency sphere seems to agree that content production simply needs to get cheaper in order to survive on what is still a transition from offline dollars to digital dimes.

The banner ad that registers with all members of the ad and publishing economy clearly displays the one unmistakable message coming out of the recession:

"Do More with Less."