Commentary
10 Shifts Defining Advertising's Entrance Into 2009
- by dave.b , Max Kalehoff , December 5, 2008
They will have growing consequence for media and advertising, and many of them are already rocking your world! And if they aren't agreed upon as absolute fact, they are prompting serious and emotional debate. Interactive is at the root, and it's heralding a new era that is challenging all the old assumptions of media economics.
Ten shifts defining advertising's entrance into 2009:
1. Media are commodities. Media are commodities, but media companies often fail to acknowledge that. The fact is that media units are more likely to be sold through open-floor trading, in transparent marketplaces at fair prices. The notion of media sales organizations actively promoting and managing artificial scarcity is eroding.
2. Premium is over. Defenders of "premium" inventory are losing because, still, nobody can define what it really means. Indeed, this is not an absolute rule. The idea of premium is something that probably will hold far more gravity, but in far fewer circumstances. Publishers no longer have a universal right to premium.
3. Remnant is the new premium. "Inventory may be so-called remnant, but there's no such thing as a remnant customer," one high-ranking exec at a huge CPG company told me recently. Value matters, and value is result minus price. The fact is that remnant can work very well -- and be valuable -- if it is managed and optimized to performance. Several ad networks are poised to benefit.
4. CPMs plummet. O.K, this really is a cold, hard fact. CPMs are plummeting and they will continue to drop amidst exploding inventory and marketers' migration to performance. Nobody knows how far this will go, but it's reality for the foreseeable future.
5. Demand dictates. "Media supply used to lead demand, but now demand leads supply," former AOL Media President Michael Kelly recently told me on a panel at Web 2.0. It's a simple statement, but it describes well the role-reversal of inventory and demand. The relevance of that principle expands everyday.
6. Buyer resurgence. When demand leads supply, it means that advertisers are garnering the power to dial up or down according to their business goals --- for no other reason.
7. From clicks to profit. It's shocking how many marketers still manage advertising based on efficiency of output (i.e,. cost per click) versus goal-based business outcomes (i.e., profitability). However, it appears that advertisers are moving in the latter direction, through best-practice enlightenment and tools that allow tighter management and optimization. Marketers are placing faith in analytics.
8. Instant gratification. For better or worse, tolerance for discovery and latent ROI decline in deteriorating economies. Marketers will be more inclined to experiment, because it's a best practice that leads to greater profitability. But they want impact that can be tested and optimized with immediate outcome.
9. Economic decisiveness. In case you haven't noticed, we're now officially in a recession -- and have been for a year. Everything I posed above is already happening fast, but continuing economic downfall will accelerate it.
10. Optimism wins. Despite personal concerns around the economy, I believe we're entering an important period of business cleansing and rebalancing. There's too much clutter, waste and distrust. Now, more than ever, it's important to focus on fundamentals, especially deeper purpose. It is a return to purpose and customer value that will separate advertising companies and models that win versus those that die.
Do you agree? There are certainly additional key shifts defining our time, so please share what you think.
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9 comments about "10 Shifts Defining Advertising's Entrance Into 2009".
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Max
This is a great view into what the future holds, but I have to comment on two things:
1. CPMs plummet. In general I think that is true, but driven by so much inventory coming from social media sites, ad inventory arbitrage, and international ads (never mind the bump in traffic caused by historic events like the election the economy, and the attacks in Mumbai, to name a few). On well-lit sites with loyal audiences, advertisers are still willing to pay a higher rate to get a quality, engaged audience. Will that hold up in 2009? I think so, but it depends on publishers recognizing that custom efforts should be sold at a premium (there I said it, see below) level and standard units may take a hit.
2. Premium is over. Not true. Premium is just not a banner ad. Premium is the complex sponsorship, roadblock, takeover, wallpaper, or other technically unique concept that only can be done by the owner of the web site. These placements are what I believe publisher sales teams should be focused on in 2009 as their lead sales tool for online. Look at the WSJ.com site or think about the Apple ads that have been running across ad units, and you see where premium placements exist.
Oh, and 3. Remnant is the new premium. I agree (which is why 1 and 2 are working for us at Burst).
Very thoughtful piece. The ad biz is due for a dose of reality. I would nit pick on one point, we have not been in a recession for a year. A recession is defined by two consecuticve quarters of decline in the GDP -- we have only recently seen that number. The loose use of the term recession is far too common. It taints arguments and has led to some bad decision making already. I think, to a certain degree, we talked ourselves into a bad economy. It served the purpose of the previous opposing party and now, it services the new opposition.
David from Burst has it right. there will always be premium. The search model is obsolete and is a time wasting frustrating consumer experience and skews the metrics of time spent online. Like old media engages emtionally and is micro targeted, new media needs to discover this metric.
Max,
Thank you for reminding everybody that all electronic and digital media behaves like a commodity. An incredibly complex commodity to be sure, but CPMs/CPCs are the place where buyers and sellers come together regarding PRICE and the price is driven by supply and demand.
That said, the online media world tends to have a very narrow perspective regarding VALUE. The world of marketing does not myopically focus on direct response metrics the way that the digerati do. The "R" in ROI is a very sophisticated concept for world class marketing executives. That is why they are happy to pay a "premium" CPM if that is necessary to achieve some of their objectives that do not fall into the box of lowest common denominator direct response metrics.
Yes, it is a commodity. As with all commodities, the seller is primarily focused on the price and the buyer is primarily focused on value. Online media is challenged because the hands-on buyer is often inexperienced when it comes to understanding the full definition of advertising value that the top business strategists at their own clients are using.
The dissonance between the digerati's definition of value and the CMO's definition of value is the reason we get so perplexed about the concept of "Premium" pricing.
It is most certainly a new era and the online transition continues. I agree with #1. However, premium reach/positions will always be a part of our world, 'remnant' is the definition for non-optimized value, 'faith in' & 'understanding of' analytics & optimization will heavily influence: cpms, demand & profit and instant gratification is 'clutter, waste and distrust.' There's no where to go - -but optimistically up.
Very true. It's back to the fundamentals and core business development. The same for media, if the content is good - you can charge a premium just as with products. Consumers and businesses will always want true value vs. perceived value when they are forced to really evaluate the product or the model. That is human nature when defaulting to a "survival" mode (bad economy, etc.)
It will be interesting considering the last ten years of companies managing themselves based on quarterly performance and short term ROI, to see if "brand building" becomes relevant again since consumers, brands and companies have been "strip mined" and "value exhaused" for near term benefits. In other words, to have true value you need to build it over time and sometimes focusing on immediate marketing ROI counteracts with long term brand development.
Thanks again for a thought provoking article on a Friday.
Max,
Thanks for #10. Instead of looking at everything through a recessionary lens, it would be much more useful if everyone thought of this as a healthy pruning phase. Getting back to basics, to real value, to honesty are all good things. Authenticity has value in every cycle of our economy.
I disagree with the notion that "premium [inventory] is over". Content is and will remain king. Look at the ability of Hulu to effectively monetize video, over Google's YouTube. Why? Better content carries a premium.
While remnant space can be valuable and efficient (all media carries some value to someone), it is called remnant for a reason - it's "below the fold" positions, less popular ad sizes, less popular site content, etc... Running remnant has it's place for some advertiser (just look for the flashy "you just won an Internet lottery" ads). But the GIGO - Garbage in garbage out rule still applies. Anyone who truly analyzes the quality of leads (don't stop your ROI analysis at "my cost per lead was $X"), will find that good quality premium inventory will delivery good quality leads -- while remnant (while managed well, can delivery some value) will also fill your database with dollar and time wasting deadbeats.
There's a reason high quality publisher and inventory was labeled "premium" in the first place... because <b><i>premium</i></b> is "of superior quality or value" (definition: answers.com).
R.J. Lewis
<a href="http://www.e-healthcaresolutions.com">e-Healthcare Solutions</a>
Max,
I read your article with a great deal of interest since one of the companies I own is in the remnant radio business -- Bid4Spots.com. I'm not sure if everyone knows this but in the radio business the vast majority of remnant (unsold) inventory is not transacted at all because sellers (stations) fear that selling it at "fire sale" rates would devalue it for future sale. So, they just sweep it under the rug and kick that inventory back to the programming department to run more music or more talk. Their thinking is that this will boost ratings and it might or might not but the sad fact is that it was originally intended for commercials and thus remains unsold inventory.
For the radio industry, I'm happy to say that the model I created seems to solve this problem. By keeping rates confidential, stations feel protected in our auctions. By pitting stations against one another in a reverse auction, advertisers feel like they get value (lots of audience delivered at crazy low rates)...and they do. I'm told by many in the industry that ours is now the largest online exchange for radio airtime in the US and UK.