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Don’t count on ad targeting to lift CPMs in the near term October 2, 2008

Posted by jeremyliew in advertising, contextual targeting, targeting.

The online ad market is not immune to the overall advertising recession, and growth has slowed. Many online media companies and ad networks are counting on targeting to help lift CPMs.

But Julie Ruvolo reports from the Adweek conference last week that media buyers are still hesitant about highly targeted ad campaigns:

In the traditional media-buying paradigm, advertisers buy audiences by buying content. Coca-Cola sponsors American Idol, Nissan sponsors Heroes, and so forth. But social media, ad networks, and especially behavioral ad networks, are chipping away at the “content as a proxy” mentality and positing that ads can be as or more effective if they’re tied directly to people and not to content…

But for all the talk it’s garnering, media buyers remain hesitant about jumping on the addressability band-wagon for several reasons.

First, while agencies are opening up to a more data-centric approach, operational challenges abound. One of the key issues is that it’s easier to buy a national TV ad than to set up and constantly manage a million-word AdSense campaign, or develop video creative for hundreds of demographics instead of one broad demographic…

Further, advertisers are struggling with the sheer volume and sophistication of data available to them. As digital marketing agency Avenue A’s Andy Fisher said, “We’re drowning in data.” …

We can talk all day about how wonderful digital media is, how addressable and trackable and cheap the media is, but the reality is that there’s a decades-long and multi-billion-dollar symbiosis between the ad industry and the TV industry. It’s going to take more than superior product, logic and efficiency to supplant that relationship.

I think Ruvolo is right.

Online advertising has typically been sold in one of three ways:

1. Endemic advertising targeted against relevant content, typically commanding double digit CPMs. An example would be selling movie advertising against Flixster (a Lightspeed portfolio company).
2. Demographically targeted advertising, typically targeted against relevant content, typically commanding low single digit CPMs. An example would be selling a “women” demo against TMZ.
3. Broad reach inventory, typically commanding $1 or below CPMs. An example would be a selling Yahoo email inventory.

Advertisers are comfortable with buying advertising against content adjacencies.

There are four flavors of ad targeting popular today:

1. Geographic
2. Demographic
3. Contextual
4. Behavioral

Through demographic and behavioral targeting, online media companies are asking advertisers to follow the user instead of following the content:

But, online ads should follow users and communities, since users are the ones to decide what content they want to put where, says David Carlick, Managing Director at Vantage Point Venture Partners.

“[I] say no, now you [the advertiser] are sponsoring the consumer—not the content online, but what they want to do online. If they want to go on MySpace and look at half-naked drunk photos, who are you to say that’s not good for my brand? You need to go where the people are and sponsor what they do, and not attach yourself to the 5% of content that looks like TV.”

Or as Jeff Jarvis says:

That’s [buying content adjacencies] still treating us like a mass. That’s still about lazy advertisers who want to buy upfront and don’t want to converse with us as individuals or at least communities. We need advertisers’ money; that will be the primary support of online media. But we need to both retrain them and give them the infrastructure and data to enable them to market smarter and create meaningful relationships — and, in the process, support small instead of big.

In my experience, when the guys with the money [advertisers] want to do things one way, and the guys who want the money [media companies] want to do things another way, then it is usually the guys with the money who walk away happy.

Behavioral and demographic targeting to the user level will likely have success with direct response advertisers who can readily measure and potential lift in response rates. But brand advertisers will want to continue doing business the way they are used to doing business. Furthermore, an advertising recession is not going to be an easy time to “retrain” advertisers. Content adjacencies will likely be the way most brand advertising is sold for the next couple of years at least.


1. Joe Wilson - October 3, 2008

While I agree with most of the above, I think it oversimplifies the current digital ad market and in the process leads to inaccurate conclusions.

First, targeting has never led to higher CPMs as compared to the comparable content targeting. From the earliest days, targeting (particularly behavioral) has been about extending frequency to the same audience that views the premium content – but drawing similar or somewhat lower CPMs for that audience.

Second, targeting isn’t an either/or proposition. Frankly, major brand advertisers are concerned about the impact of positioning their ads next to non-branded and potentially questionable content. This isn’t about the audience, it’s about the brand perception the results. Brand advertisers prefer to be associated with branded content. This can still (and does) happen while using targeting. True, it complicates the campaign management, but the tools are quickly adapting to address this complexity.

If I can raise an issue that I have not heard widely discussed that I think has a bigger impact than the above (and is related to the discussion as well), it is the lack of scarcity online that is holding back national brand advertisers from putting more money online. In traditional TV (or newspaper, magazine, radio) advertising, the number of ad slots is constrained. For example, if we assume 50 branded channels on a given cable system, there is a limit of roughly 15,000 commercial minutes per day (assuming 16 hours of premium viewing). Compare that to a minimum of 5MM display impressions per day per branded media site, and you begin to see where brand advertisers are not seeing the value in paying premium CPMs for the inventory while increasing their spend. At a certain point, it is cheaper to buy ROS/RON inventory (from an ROI perspective) than to continue buying the premium inventory as most branded sites still have tons of non-premium content that they are forced to sell at CPC rates (eCPM of < $2).

2. Which online media companies will survive the ad recession? « Lightspeed Venture Partners Blog - October 6, 2008

[…] Posted by jeremyliew in advertising, start-up, startup, startups. trackback As I have mentioned previously, we are entering an overall advertising recession and even online advertising growth has slowed. […]

3. Don’t Worry About Ads, They’ll Still Be Profitable | KillerBlog - October 7, 2008

[…] Don’t count on ad targeting to lift CPMs in the near term […]

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