Everyone fears being commoditized. Once you’re in a commodity business, margins plunge and the going gets tougher. That's where Internet ads are. Dave Karnstedt, CEO of Efficient Frontier and formerly Yahoo’s top ad sales exec, told me today the dynamics of search will kick in with display media now that it’s so fragmented. That means more inventory moving to exchanges and advertisers buying audiences, not pages, with strict performance metrics. It is inevitable.
t can’t noted enough that the plunging prices for banners aren’t a short-term blip because of the sucky economy. Simulmedia CEO and Tacoda founder Dave Morgan wrote a sobering post recently that warned display ad prices aren’t rebounding -- ever. There’s a complete imbalance in supply and demand. Thanks to the social media and ever more spent online, there’s a glut of ad inventory. The shift of ad bugets online hasn’t kept up the demand part of the equilibrium. That’s driving down prices. Publishers like Forbes and The New York Times find themselves in that unhappy place where they’re trading offline dollars for digital pennies.
There's a need to differentiate. The undifferentiated ad networks will perish. So too will undifferentiated publishers offering advertisers undifferentiated banners. (Undifferentiated journalists won't fare well, either.) A Pepsi marketing director told me the last thing she needs is a new place to run banner ads. Too many publishers think their job is done once they’ve gathered an audience, she said. Not even close. Advertisers are demanding more. They want new ways to capture attention than the passive impression or carpet bombing for clicks. Otherwise the exchanges will work just fine. That’s going to lead to some interesting experiments with new attention-based models online. I predict it will push more publishers into the fuzzy area of advertorial/sponsored conversation/custom content. The mini-hullabaloo over Gawker’s mix of advertising content with editorial shows how tricky this is. HBO didn’t want to simply buy banners, so Gawker took over production of the “True Blood” blog and syndicated its posts throughout its network of sites. Could the execution have been better? Probably. More ad-supported sites will need to find ways to differentiate with programs like this that link advertisers more directly to their audiences than keeping them off in the fringes. There are just too many options.
Yeah OK I agree that editorial and money just don't really mix. At least that's what I'm getting out of this. but the bottom line is that the struggle for both advertising efficacy and editorial sustainability are bound to bottom out, and possibly at about the same moment.
It doesn't take a genius to see how obviously both industries are flailing to prove that they're still meaningful - and that neither is doing a particularly good job of it. Maybe it's a media apocalypse, but the forest needs to burn down now and then so new life can bloom. And I think events like Blood Copy are the little spark.
Posted by: matt | May 27, 2009 at 15:04
Brian, until recently I believed this -- that banner CPMs were falling pulled by Chris Andersonian gravity -- and did a BusinessWeek riff on it. But I'm rethinking it.
Perhaps the inventory is being pulled in two directions, with a vast mass of online space falling in prices, but a small nugget of inventory still worth high CPMs to advertisers.
Mobile phones point in this direction. Inventory on small screens is actually very limited -- the iPhone can hold only 1/5 the ads of a standard web browser page. Points of entry are fragmented in mobile and most apps don't get used again after 48 hours -- but a few apps, NYTimes, Bloomberg, Weatherbug, get used again and again. An advertiser would be willing to pay, and pay well, for position in one of these durable portals.
The irony of all of this is that the migration to mobile may bring back the portal "sticky" argument of the mid-1990s. Most ad inventory online sucks, is fragmented, and is a low-CPM commodity. But the few key doorways that get traffic and attention are worth a price.
Pareto was right after all.
Posted by: Ben Kunz | May 28, 2009 at 19:50