SpectatorBytes

I recently attended an interesting “unconference” organized by WPP’s Mark Read and Yossi Vardi in Athens, Greece (Thanks to both of them for hosting this event). After reflecting about the many conversations I had in Athens about online advertising, I thought I would start outlining my thoughts on what is going in online advertising today - specifically around display. Clearly, Google continues to be a leading force in paid search. So, this would not be the focus of my posts. On the other hand, the dynamics in display advertising deserve a closer look.

I would start by saying that online display advertising is evolving into two distinct segments: performance/direct response and brand advertising. Understanding the specific nature of each of these segments will help publishers better positioned themselves to grow their ad revenues.

1) Direct Response/Performance Advertising

Today, most of the infrastructure of online advertising has been built around solutions for performance-driven advertisers. Performance ad networks (e.g., Ad.com, Tribal Fusion, Valueclick, Adconion, Specific) have led the way in building the display ad business. These solutions are systems-driven and build around algorithms.

Performance ad network offerings have attracted primarily direct response advertisers in categories such as telcos, autos, financial products, online education, online services, etc. This is not to say that some of these advertisers are not interested in building brand awareness. However, their primary goal is in getting consumers to act, to respond to their ads by filling out a form, signing up for a new service, buying a product, etc.

This segment is a well-developed one. Industry standards have been established in formats (e.g., banners, towers, etc.) and metrics (CPM, CPC and CPAs). Competition is now intense with many new networks emerging which promised to deliver “better than the competition” performance-enhancing solutions. Both advertisers and publishers are putting pressure on ad networks. Publishers are using yield optimizers (e.g., Rubicon Project, Ad melds) to get the most out of the ad network ecosystem. Advertisers are asking for same or better results at lower CPMs. Furthermore, ad exchanges threaten the overall ad network model by offering greater transparency and lower friction among publishers and advertisers. (Plan to write about Ad Networks and Exchanges battle in the next post).

In this segment, CPMs tend to reach only $2. Most publishers on average get $0.30-$0.50 CPMs from performance networks.

2) Brand Advertising

Brand advertisers have different objectives and approach from those of direct response advertisers. Traditionally, brand advertisers have relied on magazines and TV to execute their campaigns, Their objectives have evolved around context, reach and timing. In the online world, as I have discussed before (see here), brand advertisers are seeking to fulfill the same objectives but via unique interactive solutions. Brands have little interest in simple banners (they already have magazines for that) or video spots (they already have TV for that). So, they are asking for custom formats that deliver highly engage experiences. As a result of this, metrics are non-standard in online brand advertising. Every solution seems to require a unique set of metrics that prove audience engagement/delivery. Serving the specific needs of brand advertisers require a sales-force. Like with traditional media, brand advertisers want to build relationships with their media before they decide to trust them with their marketing dollars. No brand advertiser wants to risk getting fired for advertising on the wrong site. For this custom solution and high touch service, brands are willing to pay $4+ CPMs.

One problem, today, this spend comes primarily out of their “experimentation” budgets rather than their ongoing media buys. As a result, the shift in brand advertising to the Web has been slow and remains sub-scale. It certainly has not helped that the large Internet networks have de-emphasized their brand ad sales business. However, this is likely to start changing due to Vertical Ad Networks and Online Video (I will discuss this thought on a follow up post).

This is my angle on the online advertising world today. Please share your angle if is a different one.