The online marketing landscape is ever evolving. Today, we use an integrated approach that includes, search marketing, SEO, display advertising, and many more. But, as consumers change so do our marketing strategies…
We often see marketing tactics gain and lose power as users become more aware of them or consumer intent changes. It seems as if we’re at a marketing crossroads again.
There’s been a recent trend, showing that social media marketing has been growing, while display advertising has become less effective.
What is Display Advertising?
Before exploring how display advertising has become less effective, we have to first explain how it works.
There are currently three advertising models in the display-marketing world: Cost per Click (CPC), Cost per Action (CPA), and Cost per Mille (CPM).
In the CPC model, an advertiser pays every time a banner ad is clicked on.
The CPA model charges the advertiser only when a user that clicked on a banner ad actually performs an action. For most this means a product was bought or a lead generated.
Currently, the most common model is the CPM payment style. In this instance, ads are sold by inventory based on impressions. Advertisers pay for the number of times the ad is shown to a consumer.
The reason why CPM is most common is because banner ads generally have a low click through rate. This makes it difficult to make an ad that maximizes CPC and CPA rates.
Content producers try to minimize the focus on conversions and instead focus on impressions.
How Does it Work?
The actual process for building and executing a display campaign is extremely in-depth. It’s difficult and definitely takes a specific skill set. In it’s most basic form the process follows these steps:
- Advertisers identifies campaign’s target demographic
- Based on tools such as Quantcast or Google Ads Planner, the advertiser decides which sites their banner ads should run on
- The advertiser sends an proposal outlining what they’d like to do and what their goals are
- The content provider responds to the proposal with either a general run-of-the-mill ad campaign or some form of sponsorship
- The advertiser decides which proposals fulfill their goals at the price they’ve outlined and the campaign begins
- Once a campaign is completed a report is generated that outlines the total number of impressions and total cost
- Then the whole process is repeated again
The problem with this process happens when site owners allow advertisers to create custom ad units, full-page takeovers, and other sponsorship ideas. If you can think of it, and are willing to pay for it, site owners will do it. Creating an interesting predicament.
The Economic Concerns
For an economy to be sustainable, the laws of supply and demand need to be in equilibrium.
If there isn’t enough supply, then the price must go up to lessen the demand. If there is too much supply, then the price must go down to increase the demand.
But what happens when the supply is infinite? The economy begins to break down because the commodity starts to become worthless.
This is what’s happening in the display-advertising world. Site owners are continually reducing their value instead of increasing it.
The supply of advertising space continues to grow as new content producers enter the space, and as current content producers continue to add more advertising space to their online platforms.
Demand is having a hard time keeping up with the increased and potential supply.
The User Problem: Ad Blockers & Ad Blindness
Even if we ignore the economic concerns, there are a number of user concerns. As site owners and advertisers become overzealous with ad units, consumers have started experiencing “ad blindness”.
Ad blindness is a term used to denote the state of conscious or subconscious ignorance of advertisements placed in a web page by visitors due to various reasons like irrelevance, vanilla design and familiarization of the webpage layout. For example, ad blindness is a behavioral challenge presented by frequently re-visited portals like news portals, discussion forums and blogs. Worst affected tended to be the right hand column of standard tri-column layouts, which usually holds text ads. In this case users tended to ignore this column even if non-ad content was placed there. [source]
Some users have taken their disdain of ads to a new level and have started using ad blockers. These plugins allow a visitor to block ads from their site entirely; a problem sites like digg are extremely familiar with.
So what is the future? If content providers and advertisers don’t find an innovative way to evolve the display advertising medium, what will happen?
The Future for Content Creators
If nothing changes, content providers will have a hard time being profitable while trying to sell an ever-devaluing commodity.
Instead, content providers will be forced to look for new ways to monetize their content through new business models.
This has already started as a trend. A number of social media sites have shown that they’re supporting their advertising income with paid programs and commercial accounts.
For many sites, the commodity is changing from impressions and content to data and engagement.
Twitter is the prime example of this evolution in online profits. Even though they’ll be launching an advertising platform, they’ve also announced commercial accounts and data partnerships with major search engines.
But these business models aren’t feasible for everyone. What about pure content producers, like newspapers?
The Newspaper Model
Newspapers struggle with a predicament in that currently the only business model that has worked has been a pure advertising one.
Only a select few sites have seen success in changing to a business model that includes subscriptions. Even those that have succeeded have been extremely niche, with content that has been deemed more valuable than straightforward news. Example: FT.com.
So how do the other pure content producers survive? They must find a balance between free, ad driven content, and paid content.
Many newspapers are experiencing this flux as they tackle the question of how much is too much free content and what are consumers willing to pay for?
As more content producers begin to rely less on advertisers for profit, they’ll lessen supply of ad units. Decreasing the number of ad units would make them more scarce, decreasing the effect of ad blindness and allowing demand to finally catch up to the supply.
The Future for Advertisers
Content producers are not the only ones that will be forced to evolve; advertisers will be forced to think of new innovative ways to reach consumers.
As display advertising becomes more and more marginalized, new mediums such as social media will begin to gain importance.
Advertising will need to be subtler. We’re moving away from interruption marketing and enter a world where advertising blends harmoniously with consumers in their everyday life.
How are you preparing for this shift? Have you noticed a changed in display advertising? What do you think will happen next?
{ 19 comments read them below or add one }
Thank you for this interesting article.
I would be interested in an example of the following:
“For many sites, the commodity is changing from impressions and content to data and engagement.”
Most social media sites are an example. Especially Facebook and Twitter. Other content providers have also been putting together eBooks and Membership Sites as another business model.
Interesting take. As an independent, local online magazine, we have had to adjust to advertiser demand for premium placement like the Front page, while balancing reader engagement and interruption. The effect of this has been premium pricing on our in-demand display advertising, which I believe is the antithesis of what you said will happen for display advertising. Perhaps your thesis proves true at the macro level, but for hyper-local publications like OnMilwaukee.com we are finding an increase in demand and pricing.
That’s an interesting result. I’d imagine it’s because of your niche demographic. The demographic itself becomes the supply versus the actual ad unit. I’d love to know if you’re looking for other ways to monetize as well though.
Very well written and explained. In fact, I am one of those who avoid looking at banner ads.
Samir, how can you disagree with that! However, I would add that advertisers have been looking at the performance issue concentrating their attention only on the last mile . This has also stressed the cpm price and publishers, in order to reach their budgets had to introduce more ad impression contributing to the creation of the curves you have described. A new “inventory dimension” is need and this could be built on the basis of “time” allowing brand advertisers and publishers to trade on the web using an old well known media “currency” , reach and frequency.
Definitely. Inventory but also attention. A big problem right now is that most advertisers and content producers ignore the fact that there are diminishing returns for ads, which allows the supply curve to continue to infinity. At the end of the day without a cap on supply, the display advertising industry will hurt.
I am not sure if I agree with your point of view that display is dying out. I think the attribution model and the purchase cycle where display fits in has changed. Initially, display advertising was touted as being the best new medium to drive leads and sales. As time went by people started getting annoyed with display ads and like you mentioned blocking them has become lot easier. However, display is advertising is still a big part of the campaign attribution model and it biggest impact is on search marketing.
Display advertising not only increases the non brand / brand search but also increases the conversion from search.
Here is a nice article that explains the display & search synergies.
http://www.emarketer.com/Article.aspx?R=1007533
Thoughts??
I agree there are synergies and it can be useful. None the less, if the current model continues content providers will be hurting from the low cost for ad sales. If content providers cannot be profitable then display advertising as a whole hurts. The balance between advertisers and producers is the main reason for display advertising pains.
I don’t agree with the basic premise, as it treats all display inventory as the same. Just like on TV, there are premium placements and low-value remnant placements. When an advertiser is positioned in a relevant environment, they become part of the solution for the consumer (not an interruption). If many content site move the direct Samir describes (which I agree, too many are!), it just makes quality sites/placements stand out more. Brand placement and positioning is an extremely important part of the advertising matrix and one that cannot be achieved via CPC and CPA.
Bingo Rich.
As long as there are finite eyeballs and finite hours in the day, (useful) inventory will always be finite.
This essay glosses over this central fact, and therefore any conclusions based upon the faulty assumption must be looked upon with doubt.
-st
That’s not actually true Scott, because the number of eyeballs on the web can and seems to be growing at a faster rate than the demand. As long as one outpaces the other there cannot be equilibrium.
Very nicely put. This can definitely be seen from both points of view, but nice job in presenting your argument with very good points in doing so.
What a great post! In any industry – there will always be room for Premium Providers. Same in Display – and the content providers that have a premium brand and operate their business better than other providers – will be rewarded. I agree with your economic arguement in general and I think the publishers that get hurt are the ones in the middle. They will see their prices pushed to the bottom tier. I also agree that this industry needs advertisers and publishers to come to a happy equilibrium – which probably means one that is ultimately based on CPA of some kind. However, the industry is a long way from having the requisite technology and process (on both advertiser and publisher side) in place to support that.
Hey Samir – this is a fascinating subject and one you and I could talk about for days. While I understand the basis of your theory there is a flaw in the logic. You are basing your infinite amount of inventory on the sheer volume of content being produced. What you have missed is the limited number of eyeballs and hours in the day. With 207 Million people online (quantcast.com) in the US, a population growth rate of less then 1% according to the CIA (https://www.cia.gov/library/publications/the-world-factbook/geos/us.html), and our internet penetration rate flattening out over the past few years (http://www.internetworldstats.com/am/us.htm) I would argue that the number of eyeballs is a finite number. According to ComScores 2009 US Digital Year in Review “Display Advertising Posts Gradual Gains Throughout the Year
U.S. Internet users viewed a total of 4.3 trillion display ads (standard and non-standard IAB ads, includes both static and rich media, but not video) during the past twelve months, representing a growth rate of 21 percent versus year ago. These gains were driven by an 8-percent increase in the number of people exposed to display ads online and a 12-percent increase in average frequency.”
So, if we are only adding 8% new people and 12% in frequency of ads seen then I question if there is really an infinite amount of inventory out there to buy.
All of the above considered, publishers are finding it impossible to make money on their website advertising model. Why? Because they are not taking ownership of their media impressions – they are selling them at extremely low CPMs to ad networks. Don’t get me wrong – this is a great thing for us as we can often buy premium sites through an ad network, layer on all sorts of behavioral, re-messaging, re-targeting efforts and pay rock bottom CPMs. However, it raises the question of why would I buy from a content publisher directly when I can get the inventory for pennies on the dollar from a network? The people who are answering this well are folks like Conde Nast and Time Inc. who are pulling their ad inventory off of the networks and selling it exclusively.
What they have realized is that advertisers value not just the eyeballs that are seeing their ads but the content they are associating their brands with. If they continue to invest in that content and continue to attract the right eyeballs, advertisers will pay a premium for their inventory. In effect this limits supply (or maybe more accurately it limits distribution). If you are the exclusive seller and I can’t get it for a discount down the road then I am left with no option than to buy it from you.
This is of course all well and good for folks who have fantastic content and large enough sites to warrant a sales team. But what is the JoeSchmo.com blogger supposed to do with his advertising? Continue to sell it through a behavioral/re-messaging network at rock bottom rates? This is where the model has to change and where aggregators/brokers/network developers can have value if they are aggregating sites that meet a certain demographic and aesthetic threshold into like verticals to package and sell they can start to change their market positioning and grow their revenue.
When we measure offline media we are often talking about Reach/Frequency and GRPs. All of those metrics are now available to us online as well – although not as an apples-to-apples comparison to offline. Because of the level of targeting we have available to us online we often get into the argument of buying the person vs. buying the place. And I will argue that a savvy advertiser will eventually (when their brand is ready for it) buy both. They will be just as concerned about who is seeing their ad as they are where they are seeing it. And a well placed, highly targeted ad can be amazingly effective – even to the ad blind.
Dear publisher – know your audience – know your value – control your distribution channels. You can make a profit online!
Very thought-provoking post. Although I struggle to agree with you on the infinite supply vs finite demand model driving display advertising out of business. I agree that content is definitely being created at a fast pace. But arguably the content is being consumed by an increasingly more granular audience thereby being spread over the long tail. so a downward spiral of CPM rate can be contained or even reversed as long as a content provider or a vertically integrated ad network can reach a targeted audience that an advertiser seeks to reach.
I think that’s where vertical ad networks provide their value add. Individually if each content provider seeks out its own advertisers, there’s a potential of over supplying and thus diluting CPM. the example is of a farmer who, in the face of lower prices of his commodity produces more to sell more only to realize he’s only increasing the supply and thus further reducing the price of his commodity. The key for vertical ad networks is to de-commoditize the supply of impressions and approach advertisers with a very focused demographic that they can reach.