Will Search Ever Get Its Fair Share Of Spend?

While macroeconomists fritter over whether the U.S. economy is in a genuine recession or just passing over a rough patch, it's clear that online marketers are reacting to these tighter times by reallocating spend towards more targeted media, with SEM appearing to be the main beneficiary. Recent earnings reports from Google record no diminution of spend or deflation of keyword prices, but a new report by ad network broker Pubmatic tracked a dramatic 23% month-to-month decline in effective CPM for Web sites across the board.

Pubmatic's report was especially sobering for the proprietors of large sites with more than 100 million monthly page views, for which ad rates dropped 55%. Social networking sites fared almost as poorly, dropping 52%., with smaller, more niche-oriented sites either breaking even or gaining slightly.

What's behind these depressing numbers? Well, you have to take a step back and look at the big picture to see what's happening.

Why Are CPMs Declining?
The high CPMs commanded by large "premium inventory" sites have long been inflated by brand marketers whose general attitude towards online media is clouded by the fact that the impressions they're buying are a bargain compared to the other channels they're accustomed to buying. Put bluntly, most CPMs for this premium inventory equate to what ad sales teams can convince marketers to pay. This economic anomaly lies at the heart of the current high-profile battle we're seeing in the industry, in which reps of premium sites such as Forbes and ESPN duke it out with ad exchange advocates accused of "commoditizing" publisher inventory like so many pork bellies.

But more advertisers are going the network and exchange route with more inventory, and we are rapidly moving towards a world where advertisers and publishers will meet at the CPM that they each will agree on; a market where the price of media is not arbitrarily set by anyone. Search engines are driving this trend, and as the "big three" ramp up development of bid platforms for more of this media, we will continue to see online advertising become a commodity whose prices will continue to be driven down by buyers and networks. This is an unstoppable trend, folks, and no amount of talk about "taking back our inventory" is going to stop it.

Why Is Social Media Sputtering?
Pubmatic's depressing numbers accord with a separate report by eMarketer revising projected growth for social media advertising from a torrid 163% growth in 2007 to just 55% this year.  Why the drastic downgrade? Well, the social media space is riddled with nettlesome issues that are only now becoming evident in the wake of experimental failures such as Facebook Beacon. I would question whether social media is truly an advertiser-friendly medium, given the task-oriented, profile-fiddling mindset of users operating there.

In my view, the primary strategy for social media should be empowering customers to act as brand/product ambassadors using the media of branded tools (widgets, branded profile pages, blogs, etc.) that foster dialogue, awareness, and sharing (viral activity).  Everything else, like Facebook Flyers, is nothing more than glorified banner ads placed at a time when the content or discussion happens to (possibly) be relevant to the ad.

We shouldn't be treating any of this as anything ground-breaking; it's just another kind of targeted (but potentially annoying) media that hits a couple of hundred people. We can believe that the deep targeting ability of these ads can someday justify very high CPMs, but limited impression volume and click-throughs will likely keep these CPMs down.

Is There Any Good News?
Better tracking and more pressure on display media to become smarter and more accountable is actually a driver of progress for the industry.  But, even as a proponent of using rich media to convey messages, I have questions about whether display media will ever outperform plain old text ads.  Study after study has shown that users systematically refuse to click on image ads or rich-media placements. Many think that BT can "save" graphic advertising, but BT advocates have had a lot of time and traffic to play with their technologies and I've yet to hear any compelling success stories.

What is clear, however, is that the artificial (institutional) division between the two types of branded and DR media buyers must end, and so should our perpetual obsession with "trend du jour" marketing channels that look great until you start getting real metrics from them.  This isn't to say that new channels aren't exciting and promising; we just need to question how well they influence and drive consumers to an action that has clear business value and return. By contrast, SEM is a comparatively mature channel, we know it works, its best practices are well known, and one can argue that without it, the online ad business would have collapsed a long time ago.  Ironically, it's not the ways of traditional media and online display that are driving new products and smarter media buying, it's the ways of search (based on data and DR fundamentals) that are leading the charge, yet we in search are still struggling to make our case in boardrooms across the U.S.

In the very near future, we will likely see smart advertisers wanting their SEM agencies (or in-house search managers) to poke around in their larger media plans to lend their opinions on how to leverage data, pare waste, and optimize media so it can truly deliver. Who's better qualified to make media more genuinely accountable and ROI-driven than the folks who are living this daily in real time, with the pressure to make it perform at every turn



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