The following post was originally published as a guest post for the AdMonsters blog in advance of my speaking at their Leadership Forum. For more reading on the ideas contained here I also recommend this post and this post on Chris Dixon's blog.
Fragmentation =
Problems & Opportunities
No one will argue that the Display marketplace is an
incredibly fragmented and inefficient system. Try as they might this advertiser
driven ecosystem has created a few problems long hidden by overinflated CPMs.
First are the serious issues in the market’s ability to scale. Second, is the
arbitrage and optimization often occurring in conflict and silos. Third and worst
of all, the ads suck.
In contrast to Display, Search over a shorter period and having
grown-up as a publisher side solution has 2 million active advertisers – all participating
in a realtime auction based systems based on a single criterion, ad
performance. The contrast is startling as are the results – Search spend will
double that of display this year.
Enter the Network
Paradigm
Just like Wall Street, Madison Avenue also has that New York
City reality – if you’re losing money then someone else is making money. Once
spend hits the street it is a zero sum game. Into this fragmented world of
media buyers, planners, ad serving and publishers came the ad networks – ostensibly
filling a huge need for publishers. Yet it now seems ad networks are the collateralized
mortgages of the online world. Just the other day Tim Armstrong declared the
AOL want to be the digital equivalent of Goldman Sachs, so the analogy has some
credence.
This has allowed two things to happen. On the sell side as
inventory increases and prices drop, the media ROI for performance marketers
continues to increase. So too does their spending. 57% of display advertising
was performance last year (IAB/PWC). This year the number will increase for fifth
consecutive year at the expense of branded CPM. First half 2009 online display
ad spending continues shifting to pay for performance with greater velocity: (TNS
+6.5% (CPM +CPC/CPA); Nielsen -1% (CPM only).
On the buy side what’s happening is that while Premium CPMs
keep dropping those rising performance spends are being kept at huge margins by
networks. For every remnant media dollar roughly a quarter of that is kept by
the agencies, a quarter goes to the pubs and half
or more of it goes to networks. It’s a damn fine business. No wonder VC’s
have funded it up the wazoo to the tune of 2 billion over the past few years.The problem is all of this is cannibalizing the channel. Better
tools have produced lower yield for publishers and higher ROI for performance
advertisers.
Consequences of Alternate Realities
If there is too much weight on one side it sinks the ship.
Publishers can’t survive with this inequity much longer. They own the audience
and the content. The value is being created in their environment. They deserve
more.
The media reality
is that publishers are getting $7k in revenue from inventory being monetized at
$48k (I know, I’ve run these RON performance campaigns). The content reality is that in digital power
shifts away from the content and towards the distribution of it. The same way
Search has done this with content so too have the ad networks done it on the ad
side. It’s time for pubs to take the power back.
It’s beginning to happen. A number of publishers are turning
into marketing agencies themselves. Meredith has just hired Martin Riedy CEO of
Publicis Modem to lead its 400 employee integrated marketing unit. Publishers
are now building microsites and custom ads for advertisers in order to get
their spend. Are we that far away from NYTimes going to Ford and delivering 500,000
leads over a year for $25M? I don’t think so. Disintermediation anyone?
The Final Frontier
But this change doesn’t happen in display unless there is a
fundamental shift in the mindset and technology. Like search, visitor and
advertiser value can only be delivered and game-changing revenues can only be
achieved for publishers if we start optimizing for people and performance, not
pages and prices.
For example, we know from Search that content consumption
and temporal trends provide amazing intelligence to deliver relevance. Most
large publishers are privy to these interest trends but they do not have the
data capture systems to quantify it or the targeting systems to leverage it or
the advertising systems to monetize it.
Just like Search the forces that drive monetization are
everything from personal needs to macroeconomic or geographic issues. By
studying content consumption patterns publishers can understand even earlier than
Search the opportunities to match the information and services needs of their
audience. Intent is not generated in
Search. Intent is generated in publishers content and then moved to Search by
the user.
These huge changes require new platforms and tools. For
publishers the revenue generation tools available to them have not kept pace
with the investment and innovation on the ad side. The irony is that while agencies are not staffed to leverage
most of the more analytic and technical tools publishers sit on a goldmine of
optimization mindshare in with their ad ops teams. If it’s ever going to
happen, now is the time. Nothing less than the future of the Display market is
at stake.
jonathanmendezblog.com 
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