The advertising feedback loop

 
There are many reasons behind Google’s singular success in Internet advertising. One big reason: it developed an advertising feedback loop with AdWords. It figured out a way to take the clickstream data to improve ads. Get more clicks, pay less. Irrelevant ad that nobody clicks on? The system will spit it out. That’s the big improvement it made on the search ad system Overture pioneered. As the tech people say, it’s non-trivial.

For the most part, advertising doesn’t have that kind of feedback loop. Great ads and shitty ads are pretty much treated the same. This is a problem for Web publishers still stuck in the business of selling space for impressions. Digg is trying to take a page out of Google’s playbook with its new ad system that will let users vote up and down ads. Ads that are Dugg a lot will end up paying less on a cost per click basis than ads that get buried and draw fewer clicks. Jeff Jarvis is right that this is an experiment worth watching. Google will bring this to TV eventually. It’s already collecting clickstream data there in the form of viewers switching channels during commercial breaks. Engagement-based pricing systems like Videoegg’s optimize to show more popular ads.

The advertising feedback loop will probably have bias toward prom king brands and movie trailers. But then, those are the advertisers closest to truly creating ads that are viewed as content. It’s only fair they shouldn’t pay as much for attention.

Comments

[Ben Kunz]

Keep in mind not all media wants a feedback loop, because not all media has the same incentive.

Google wants relevance in its ads, because more relevance = more utility = more web traffic = a rising tide of clicks = more ad revenue. Google is threatened by new portals to the internet, especially social media and mobile apps. For Google, ad relevance is thus a virtuous cycle and required to keep its traffic.

Mass media such as cable TV, however, doesn't need or necessarily want relevance in ads. About $26 billion is spent annually on cable ads in the U.S., for example, tied to fictional CPMs tied to fictional "impressions." Cable needs to sell its ad inventory. Measuring actual relevance of ads could be a risk for cable -- because, yes, it might charge more for ads that reach the right people, but the act of measurement also might expose a huge inventory of advertising that never really worked. That $26 billion could become $13 billion really fast, as Wanamaker's wish comes true.

The Portable Personal Meter rollout to improve radio metrics is a perfect example; it exposed many radio stations as having lower ratings than previously thought, and the industry immediately disputed the findings. Charges of racism and bad technology got thrown around. Arbitron launched a BS campaign in MediaWeek telling planners that "70 GRPs are the new 100." It all got rather silly, but beneath it all, radio was simply defending its inventory.

Expect to see old mass media confront and fight new attempts to make advertising more relevant, targeted, and measurable as they protect their revenues. Remember, Brian, impressions in mass media aren't real -- they are simply a form of currency used to set advertising market rates. Economies run into trouble when currencies are deflated.

[Ben Kunz]

(Correction: It's the Portable People Meter. Whups. But I stick by my story...)

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