Digital advertising is big business. In Australia it reached $2.2bn last year and is forecast to be the largest in terms of ad spend by 2014 reaching as high as $3.4bn (according to neo@Ogilvy). It’s equally a big industry elsewhere in the World, in the US for example, digital advertising generated $7.3bn in Q1 of ‘11, representing a 23% YOY increase. And it’s expected to grow still.
Much of this growth is predicted to come from video and mobile. And because these are still relatively new platforms in the digital mix, publisher will have an opportunity to correct some of the catastrophic pricing mistakes of the past.
Anyone working in the industry knows that from the beginning, online advertising had fixed CPM (cost per thousand) rates, based on showing a particular ad unit a 1000 times. However, while all audience metrics (time spent online, unique visitors, page views, etc.) exponentially grew over the last ~10 years, ad dollars failed to follow, creating a huge discrepancy between supply and demand. To make at least some money of the millions and billions page impressions, publishers started ‘flogging’ their unsold inventory via ad networks, achieving on average less than a dollar for a thousand page views.
But as time went by, supply continued to grow and advertisers continued to press for more by paying less. Soon publishers yielded under the pressure and started offering CPC (cost per click) or a CPA (cost per acquisition) models, receiving revenue only, when the advertising banners were clicked upon. This was great for advertisers, as it enabled measuring every dollar spent online and reduced their risk to almost none. At the same time it also created a perception that online media is of little value unless it generates user action (click or acquisition). Awareness, Interest, Desire to purchase (first 3 letters of the AIDA acronym that describes the traditional purchase funnel, that ends in Acquisition, standing for the 4th letter), became unnecessary accessories of a digital campaign, as did brand awareness and recall.
Digital is soon to be commoditised further still, through online ad exchanges, which enable real time buying and selling of online inventory, based on price alone.
So, why are video and mobile well placed to break the cycle of performance driven buys in Australia? Mobile is set to overtake online media (debated, but seems completely conceivable), and video is set to see a boost from the current 1bn streams per month, once the new fibre optic cable is rolled out in the not so distant future.
Publishers have a real opportunity to position these platforms in a way that will see the premium ad dollars migrate to these channels. The audience is consuming it, its effectiveness has been proven, the only thing left is to determine and stick to pricing based on true value.
(Matt Berriman: how to devalue one of your own key propositions, Australian, page 27.)
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