Harnessing Rightful Ad Value
Wednesday, June 16, 2010
Russell Glass

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It wasn’t long ago that the publishers and content creators held all the cards. Whether it was newspapers, magazines, TV or even radio, they owned the content that drove eyeballs, and advertisers had to follow. The same was initially true with the launch of the Internet.

On the Web, however, things began to change when Google and the other ad networks began to proliferate. The promise that these networks brought to the publishers was better fill rates and monetization of impressions that went unsold. The value to advertisers was efficiency and better results through a combination of lower costs and better targeting. Google’s AdSense was able to monetize pages that the publisher couldn’t sell because Google was able to understand the context of the content, giving Google asynchronous information as to the true value of the impression, using the publisher’s content against them.

Like a developing nation that brings a foreign country in with the right tools to drill for oil, the value accrues primarily to the foreign country. In this case Google is the foreign country. The economics are simple: publisher offloads unused inventory for just about any price since it’s worthless if it goes unsold. Then Google and the networks charge somewhere below 10-20% of premium, keep a 50% cut and pay the publisher and sometimes a data provider the rest. The publisher ends up with roughly 5-10% of the true value of what should still be considered premium inventory, if the publisher was able to package and sell it properly.

Why do publishers still do it? From a publisher’s perspective, the argument boils down to revenue and gross margin. If the alternative is to have an impression go unfilled, then even 5-10% of full value is still valuable. And, with enough raw volume, this can add up to non-trivial dollars. However, the catch-22 that has plagued publishers is that the lower rates have given advertisers a taste of reaching premium audiences at non-premium prices, generally resulting in huge ROI on their spend. In fact, at this point, any direct marketer that isn’t concerned about brand associations has moved most, if not all, of their dollars into low cost, performance-based networks and search engine marketing.

An additional pressure for online publishers is that brand dollars haven’t moved online at nearly the same rate as the audience consumption patterns would suggest. For example, even though big brand budgets are more than 75% of overall advertising spend, they only represent about 25%of online spend. Finally, these networks are supposed to be selling blind—which most of them do—i.e. the advertiser can’t target by site, so there’s no competition with the publisher’s direct sales teams.

(See entire article in min's b2b.)

Russell Glass is CEO of Bizo.

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