Jim Spanfeller, who is leaving his role of CEO of Forbes.com, recently wrote a provocative piece about online advertising entitled, “Publishers Are Killing Web Advertising’s Potential With Misguided Pricing.”
His compelling complaints have to do with publishers undervaluing online advertising, putting the wrong conceptual model around it, and not pursuing the value of it aggressively enough.
Spanfeller believes publishers have been convinced that online advertising lacks scarcity — that the amount traffic and number of positions make it virtually endless in its capacity. Therefore, vast tracts of it go unsold, so publishers think they should sell these remnants for a fraction of the price. It’ll be gravy.
Well, while the scarcity/abundance model has shifted for information, it hasn’t really shifted for advertising:
[buyers and sellers want to say that] unlike with offline media, there is no scarcity online – that there are countless unsold impressions that are going to waste and that we now have the technology to at least achieve some value around this inventory. But while that’s a commonly held theory, it isn’t completely accurate. The only medium in recent history that has had true advertising scarcity is network television, and, with this year’s upfront, one might suggest that even this is no longer true. In every other case there has been either unlimited inventory available (magazines and newspapers) or limits that have rarely, if ever, been reached (radio, cable and spot TV).
Spanfeller’s right. In print, if you sold more advertising, you added pages to the book (or created splits) until you reached some magical postal service proportion, one that most publishers never exceeded (especially in STM publishing). The same held for radio and television. The answer to a capacity limit was to simply run more ads.
In fact, online advertising might have more scarcity in scholarly publishing since we have such stringent prohibitions against advertising in or near content. This makes the spots we do have more valuable.
Countless research has shown that almost all positions in magazines and newspapers have similar impact with readers. Print publishers have aggressively argued this for years—for the most part, successfully. They have not backed away from this even in the current brutal media marketplace.
Reaching the audience is what has value. And while there are no click-throughs for print or television ads, their proponents have done a much better job asserting and demonstrating their value — as advertising.
Imagine if I could sell you a print ad that, in addition to doing everything you’re paying $X to get now, would also ensure — virtually guarantee — that 0.x% of customers seeing it would go to your online store. You’d pay me $X++, wouldn’t you?
Instead, online advertising has gone the other direction, into the realm of remnant inventory and ad networks that liquidate precious inventory for pennies on the dollar.
Online advertising’s lack of relative success has perplexed me for years. How could a medium that reaches a more desirable demographic (younger, richer, more tech-savvy, more information- and product-centric) sell for a fraction of the cost of passive print advertising?
The answer comes from the unfortunate fact that online advertising was viewed as measurable. And who did publishers look to for analytics about a measurable form of marketing? Their direct marketers, of course.
Because of this, the notion that advertising only mattered when it was clicked on, and should be priced accordingly, drove down the prices of advertising thanks to the anchor of performance metrics. Who cares if it attained the same goals as print advertising (be seen, remembered — you know, advertise)? Instead, experts quickly proclaimed that online advertising only shows its value when it’s clicked on.
Google’s AdWords, which uses text ads to drive clicks, only reinforced this notion. (Interestingly, Google just announced that it is selecting ad networks to participate in Ad Sense).
Text ads are more like direct-response marketing — there’s no real branding accomplished, no visual or aesthetic experience created, no palpable advertising draw. And they work because they’re there in response to a search query.
Text ads fulfill demand — they don’t create it.
And that’s how advertising is different — advertising creates demand. As Spanfeller says:
we have allowed the internet to become a demand-fulfillment medium almost exclusively, to our detriment.
This situation has spawned ad networks, which aggregate ad positions publishers have given up on selling and sell the bundles at distressed prices. How are these ad networks viewed? As David Koretz put it in April:
They are a cancer that slowly eats away at you from the inside, doing severe damage even though you feel fine. They are a cancer that has spread to nearly every publisher, and threaten to do irreversible damage to our industry.
How imbalanced are things? Koretz calculates that ad networks get $0.27 CPM compared to publishers who make an average of $20.17 CPM. In other words, publishers make 74.7 times as much money when they sell advertising.
It is time for publishers to spend our collective efforts to crack the code on display advertising and start innovating on ad formats, reporting, measurements, and sales channels.
In addition, ad networks gain the connections publishers need to make it with online advertising, further separating them from the online advertising world.
Is your audience valuable? Do advertisers want to reach them? Sell advertising, not something less. And look hard at the ad network spiel. You may be undervaluing your audience by 75 times.