Archive | May 2010

Newspaper Advertising’s Future – Value Ad for Online?

Do you remember the first few years in online media buying when the major print publishers offered banner ads to their advertisers as a value ad?  It wasn’t that long ago and it didn’t do anything to help save the newspaper industry.  While most of the talk is about the decline in subscribers and readership, I believe that this problem is secondary to the newspapers key problem – their inventory was overvalued by a magnitude and they could get away with it because they controlled distribution and had “exclusive” access into our homes.  We all know those days are gone, but there is still a fairly robust group of people that like a physical newspaper and haven’t shifted to reading the local news online.

Now the newspaper publishers that are successful online are facing a different issue – they have way more inventory than they can sell directly to advertisers at full price.  So what is an offline/online publisher to do to compete with hundreds of other news sites and brands that capture our online attention?  I suggest they start throwing in print as a value ad.  Print advertising is still very valuable, and I believe that the newspaper industry could use this as a key differentiator to garner a larger share of full price, online display advertising.  I know that my clients would value newsprint ads if they were included in a package and I am sure it would lead them to more buys from newspaper sites.

I think this is inevitable, but it probably won’t happen on a major scale for a while.  When print becomes a value ad it will be the final confirmation of the end of newspapers as a print advertising medium and few newspaper owners are willing to accept this fate, even if they know it is coming.   I suggest they learn from the past and jump ahead of the issue and use it to their benefit.  I would be interested in learning if any large advertisers have received this type of an offer from the newspaper companies.

CPM vs. CPA For Retargeting and Display

I believe that right pricing model for an advertiser to execute retargeting campaigns and other targeted display campaigns is usually CPM.  While it is intuitive to select CPA as a pricing model because it ensures a specific performance, the reality is that buying on a CPA often limits the scale of your campaign. CPA buying shifts the risk and the responsibility for the arbitrage from the advertiser to the media seller.  The typical reaction of a media seller in this scenario is to limit it’s risk and only pursue media buys that are performing well below the CPA earn out.  For example,  an advertiser is willing to pay $50 for every sale generated during a retargeting campaign.  The retargeting company starts buying media to determine what the right price is for the inventory.  Because the retargeter is taking all of the risk, they will typically set their allowable ad spend, i.e. what they are willing to spend on advertising per order, at a low level to make sure that they do not lose money.  For this example, the retargeting company might set the allowable at $25 so they can try and earn a healthy markup on each order.   The problem with this model is that the retargeting company has very little incentive to push the envelope anywhere near the real allowable.  The basically go after the low hanging fruit, make a very high margin, and avoid the risky arbitrage.  In this example, the company may have figured out that a $1.50 CPM backs into the $25 allowable for the retargeting company.  The company will not bid on any inventory above $1.50 and the advertiser suffers because there are many orders that can be acquired by bidding above $1.50 that will fall within their $50 allowable.

CPM buying is much more scalable because it eliminates the arbitrage.  The retargeting company in a CPM scenario is working on a smaller fee and their portion of the revenue is tied to the media spend.  In a CPM scenario, the company is motivated to help the advertiser  maximize the number of sales they can generate within the allowable.  In the example above, a CPM retargeter will bid well above $1.50 to make sure the client gets all of the orders possible.  In a CPA scenario, the retargeting company is motivated to maximize its own profit margins.  This fundamental difference results in many lost sales for the advertiser.

Many advertisers are still concerned that the CPM based programs motivate media companies to spend, simply because that’s how they make money, while they don’t have to worry about this in a CPA buy.  White it is true that the CPA buy has a built in regulator, CPM buying can be easily controlled through daily reporting and the reality that every smart performance oriented company knows they have to meet the CPA goal to satisfy the client and keep the business.  As long as you know the company and trust them, an advertiser is almost always better off buying on a CPM because it can lead to many more sales , particularly on high performing programs like retargeting.

Most Algorithms are Bullshit – Part 2

The two most valuable data points in online marketing, in terms of delivering ROI for a client, do not require a complex alogorithm or a secret sauce.  When someone conducts a search, they are giving up one data point.  Based on that one data point, a buyer can place a related ad and generally get a good return.  In the Audience Targeting space, the same is true.  A site visitor provides one data point – a browser reached a product page on a site.  Based on that one data point, marketers are generating terrific ROI executing retargeting campaigns. My point is that the two most effective online marketing tactics are based on a single data point.  No doubt there are algorithms that can measure the effectiveness of these single data point activities, extrapolate and increase performance, but the primary efficacy of these strategies centers around a single data point.

Of course this doesn’t mean that a sophisticated algorithm based on the analysis of many data points can’t work, but in most cases advertisers don’t buy enough media to provide enough data to make the algorithm reliable and actionable.  When you are analyzing volumes of data points, you need a lot of volume to deliver actionable information (I’m sure that comment will not sit well with some of the company’s developing predictive models based on limited data, but I have never seen this strategy work for a client and I remain very wary).  There was good post I read this morning on Cogblog that illustrated my point – even at Ad.com, arguably the biggest ad network out there, with volumes of data, more data is needed to improve the algorithms.  In his post, Brent Haliburton argues: “I worked at Ad.com and I am not gonna lie, I took away from that place a sense that algorithms are hard, you need tons of data to figure out how to improve them, and there are few shortcuts other than “been there, done that”. Unlikely that any small company has a better algorithm today.”  I’m no techie but its hard to fight Brent’s logic.

I have been focusing on this subject because I fear that algorithms have become a smokescreen for fraudulent operators and advertisers need to be wary.  My advice to ad buyers and online marketing people is this – before you place an order with a new DSP or Ad Net that relies on their secret sauce to deliver results – just make sure that the secret sauce isn’t View Conversion Spam – because it usually is.  When you have had a lot of success with single data points, it’s easy to be cynical.

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