A version of this piece was published in Marketing in 2008
As economic belts tighten, advertisers are looking with renewed vigour at getting the best from their media deals. Since the last recession, online has become a major medium – expected to overtake TV this year – and budgets are now substantial.
Encouraged by some agencies, advertisers are looking more closely at how cross-media dealing might create greater pricing efficiencies (procurement speak for cheaper) as increasingly, media groups own properties which span both the traditional and the digital worlds.
But amidst all this hype about synergies and leverage there are some real bear-traps for the unwary here, and some agendas that aren’t altogether straightforward…
Let’s look first at some of the bear-traps.
First, this isn’t a big market opportunity. There’s actually little crossover between the Top 10 traditional media operators and the top 10 in digital – the top ranking traditional media owner in traffic terms is the Daily Mail in July, and that scrapes in at number 10.
The online display market is dominated by the big portals – MSN, Yahoo and AOL, the smallest of which delivers twice the audience of the Mail’s site. Sky might be a 500lb gorilla in the TV market, but it’s at number 14 online. And this raises a further consideration.
When a media owner is selected to meet planning criteria arrived at for the offline property, there’s often a mismatch online. The Telegraph’s audience online is much younger, Channel 4’s is more upmarket and most of the Guardian’s audience is in the US. So plans created for one medium can struggle to translate effectively to the other.
Then there’s measurement. Whilst TV is traded in share and ratings, online is traded in impressions, clicks and outcomes. Smart operators have been using rating points in online for years – it’s a useful way of creating a point of comparison across media, as well as a sense of the scale of a campaign against the audience size. But the danger here is that the tail comes to wag the dog, as lowest common denominator traditional media metrics can replace more business-centric outcome measures in setting objectives.
Of course, there are positives. Editorial teams can be more effectively motivated, and publishers are often more willing to integrate commercial messages into their content. But of course if it’s just running creative on radio and online that you want, arguably that’s possible without a cross-media deal – your online and offline agencies should work together to make this happen for you; it’s their job. And of course if they do, you’re not constrained to using just the properties of that particular media group – you can do anything you like (almost like media planning really).
Where it really gets sticky though is when you try to account for the value. Both agencies and media owners can get into a media version of find the lady – a great price on one medium concealing poor value in others.
This is particularly the case if the agency creating the deal isn’t particularly expert in one of the media channels – they’re keen to show their openness to using that channel (usually digital) but wouldn’t know a good deal if it jumped up and bit them on the nose.
Worse though, since auditors are often employed on a single medium, these deals are often removed from the audit altogether. So a press audit might omit a deal because it has a substantial online component – and it might be tempting for an agency to load the pricing up on that deal in order to demonstrate deeper discounts on that media owner on the parts of their business that are subject to scrutiny.
Heaven forefend, and I’m sure that never happens.
We all want value for money. But as the economic weather gets wetter, it’s wise to remember that nowhere is the free lunch more elusive than in media.
Showing posts with label Trading. Show all posts
Showing posts with label Trading. Show all posts
Thursday, September 11, 2008
Thursday, May 15, 2008
Is digital advertising recession-proof?
A version of this piece was published in Marketing in 2008
News from the sharp end of the financial sector informs us that UK banking lunch budgets are slashed to £54 a head, whilst their German counterparts are barred from expensing trips to brothels. There are probably no more indicative measures for the climate in the city, so it’s safe to assume that it’s tough out there right now.
And whilst everybody’s assiduously avoiding mentioning the ‘R’ word, there’s no doubt that retailers are starting to worry as the credit crunch starts to bite. Share prices in many of the major high street retailers have halved over the last year as the city factors in expected consumer belt-tightening, and retail sales have only been propped up on the high street by deep discounting, with non-food prices falling at their fastest rate for 20 years.
Last time there was a recession, the internet took the full brunt of it. There was carnage as the dotcom bust ripped through the economy, taking hundreds of flaky web companies (and some good ones) with it.
So this time around, is the internet recession-proof, are stock market woes going to hit digital too?
Back in 2001, many internet businesses were still in the pre-profit stages of development. Their markets lacked scale, many of the management teams lacked the experience to weather a storm, and the online advertising market (a key revenue stream for many businesses today) that year was worth just £166m.
Online retail has been the key driver of growth in online advertising, and online retail is a capital intensive business, requiring heavy upfront investment to create a service. This means that scale is critical to businesses online, whether they’re selling airline tickets or insurance policies, because there’s a very low marginal cost of sales.
As the business scales, volume efficiencies develop much faster than in traditional retail where staff and premises are forced to grow in line with expansion.
The pre-profit phase of an online business is a scary place to be. You could be down a lot of money and still waiting for that tipping point to be hit. No wonder many investors pulled the plug back in 2001 – it looked then that the world had lost confidence in the web, and there were real concerns about whether that tipping point could ever be reached.
But this is 2008, and a lot has changed.
For a start, the audience is bigger. 32m people are now online compared to just 18m back in 2001. So any online business now has access to a potential customer base that’s 75% bigger – a crucial scale element that’s driving scale economies into web companies.
And those people now transact more online, 74% agreeing that credit card use is safe online (60% did in 2001). So they’re spending more – the average online shopper’s six monthly spend is now £628, up 37% on 2001.
So there’s a bigger, more economically active audience online now, and they’re spending much more time online than before, driven by broadband penetration that ranks the UK 11th in the world.
All this has created a vigorous online ad market that’s grown 1600% since 2001, reaching £2.8bn last year. For online businesses this is a double benefit. It’s a substantial revenue stream for many, but it’s also a key sales driver.
Advertising in traditional media is (wrongly) often regarded as a cost. But the accountability that comes with both display and search advertising online has caused it to be regarded differently. Whether this is formally reflected in their P&L or not, many enterprises now see online advertising as a cost of sale – which means they can directly gauge the impact on revenue that cutting ad budgets will have.
There’s no leap of faith here – spending less generates less. So whilst the rest of the economy may be in for a torrid time over the coming months, scale, accountability and attitudes are likely to mean digital’s unlikely to share the pain.
News from the sharp end of the financial sector informs us that UK banking lunch budgets are slashed to £54 a head, whilst their German counterparts are barred from expensing trips to brothels. There are probably no more indicative measures for the climate in the city, so it’s safe to assume that it’s tough out there right now.
And whilst everybody’s assiduously avoiding mentioning the ‘R’ word, there’s no doubt that retailers are starting to worry as the credit crunch starts to bite. Share prices in many of the major high street retailers have halved over the last year as the city factors in expected consumer belt-tightening, and retail sales have only been propped up on the high street by deep discounting, with non-food prices falling at their fastest rate for 20 years.
Last time there was a recession, the internet took the full brunt of it. There was carnage as the dotcom bust ripped through the economy, taking hundreds of flaky web companies (and some good ones) with it.
So this time around, is the internet recession-proof, are stock market woes going to hit digital too?
Back in 2001, many internet businesses were still in the pre-profit stages of development. Their markets lacked scale, many of the management teams lacked the experience to weather a storm, and the online advertising market (a key revenue stream for many businesses today) that year was worth just £166m.
Online retail has been the key driver of growth in online advertising, and online retail is a capital intensive business, requiring heavy upfront investment to create a service. This means that scale is critical to businesses online, whether they’re selling airline tickets or insurance policies, because there’s a very low marginal cost of sales.
As the business scales, volume efficiencies develop much faster than in traditional retail where staff and premises are forced to grow in line with expansion.
The pre-profit phase of an online business is a scary place to be. You could be down a lot of money and still waiting for that tipping point to be hit. No wonder many investors pulled the plug back in 2001 – it looked then that the world had lost confidence in the web, and there were real concerns about whether that tipping point could ever be reached.
But this is 2008, and a lot has changed.
For a start, the audience is bigger. 32m people are now online compared to just 18m back in 2001. So any online business now has access to a potential customer base that’s 75% bigger – a crucial scale element that’s driving scale economies into web companies.
And those people now transact more online, 74% agreeing that credit card use is safe online (60% did in 2001). So they’re spending more – the average online shopper’s six monthly spend is now £628, up 37% on 2001.
So there’s a bigger, more economically active audience online now, and they’re spending much more time online than before, driven by broadband penetration that ranks the UK 11th in the world.
All this has created a vigorous online ad market that’s grown 1600% since 2001, reaching £2.8bn last year. For online businesses this is a double benefit. It’s a substantial revenue stream for many, but it’s also a key sales driver.
Advertising in traditional media is (wrongly) often regarded as a cost. But the accountability that comes with both display and search advertising online has caused it to be regarded differently. Whether this is formally reflected in their P&L or not, many enterprises now see online advertising as a cost of sale – which means they can directly gauge the impact on revenue that cutting ad budgets will have.
There’s no leap of faith here – spending less generates less. So whilst the rest of the economy may be in for a torrid time over the coming months, scale, accountability and attitudes are likely to mean digital’s unlikely to share the pain.
Thursday, April 17, 2008
Media auctions are taking off
A version of this piece was published in Marketing in 2008
Time was, if you wanted to buy space in a particular national newspaper and it was after lunch, you needed the number of the pub in which the sales director did business. You needed to know him, of course, he wouldn’t have taken your call otherwise, and your rates depended on the strength of your relationship with him – a factor not unconnected with your handicap.
Golf’s perhaps a little less important nowadays (that’s probably going to cause more upset than anything else) but what’s changed almost beyond measure is the buying environment, which has become more professional but has perhaps lost some of its vigorous trader culture.
Better research, international competition and increased shareholder and client scrutiny have pulled media’s socks up – but despite all this, it’s still a business that runs on relationships.
It’s not surprising then, that people brought up in this environment struggled with the bare logic of the Google auction. Google challenged the industry because it required a fundamentally different approach - a real-time process that needed continuous input – not the ‘set it and forget it’ approach of traditional media. Pricing is governed not by leveraging scale, but by skill at managing the auction and by quality of technical input through SEO. And the outcome is measured in terms of sales, not discounts.
But if some investors are right, these skills aren’t going to remain the province of search – they’re coming to media itself, as media auctions start to gain traction.
Google’s acquisition of Doubleclick was partly driven by the belief that they could drive their successful auction model out into display advertising, a belief that lay behind their earlier deal to buy Dmarc, a radio trading platform, and agreements to sell newspaper advertising.
They’re not alone. Last year, Yahoo took control of RightMedia, paying $680m for a business that’s expanding out across Europe.
But buying media at auction isn’t for the faint-hearted. Predicting volume is often unreliable, and there are no guaranteed deliveries. The web interfaces of some auction businesses are fiercely complex – revealing the level of sophistication available in targeting, but at the same time providing a training and skills challenge for customers.
For auctions of online media, every individual impression is sold separately, meaning that publishers can set rules within their own adservers to prioritise customers based on yield – the system will serve a high-yielding direct-sold ad if one is available, followed by a lower-yield run of site ad, a network ad and finally an ad from the auction if none of the above is available or the auction yields a better return for that ad impression.
Adding behavioural targeting into the mix makes auctions more effective still for online media – improving yields for publishers and performance for advertisers.
So the auction is an efficient way of trading remaindered inventory – sellers get what the market will bear for their surplus advertising, buyers get cheap media with no guarantees, and market liquidity improves for both.
The system is attractive, and is likely to make headway in media markets – but it’s not going to take over the world.
Auctions work best when the value of a commodity can’t readily be established, and whilst this is true of remaindered inventory, the majority of value will continue to be traded where planners want to specify the location, timing and delivery of advertising.
And far from reducing transaction costs, auctions are likely to increase agency overheads, as greater monitoring, complexity and new skills are required. These were the very factors that held many agencies back from investing in online media in the first place, and they’re significant obstacles for success here too.
To thrive in these new marketplaces, advertisers and agencies will need to fuse competencies from search (auction markets), data (behavioural targeting and predictive modelling) and financial markets (real-time dealing). It’s going to make media more complex – but it could be a revitalising force for the sector.
Time was, if you wanted to buy space in a particular national newspaper and it was after lunch, you needed the number of the pub in which the sales director did business. You needed to know him, of course, he wouldn’t have taken your call otherwise, and your rates depended on the strength of your relationship with him – a factor not unconnected with your handicap.
Golf’s perhaps a little less important nowadays (that’s probably going to cause more upset than anything else) but what’s changed almost beyond measure is the buying environment, which has become more professional but has perhaps lost some of its vigorous trader culture.
Better research, international competition and increased shareholder and client scrutiny have pulled media’s socks up – but despite all this, it’s still a business that runs on relationships.
It’s not surprising then, that people brought up in this environment struggled with the bare logic of the Google auction. Google challenged the industry because it required a fundamentally different approach - a real-time process that needed continuous input – not the ‘set it and forget it’ approach of traditional media. Pricing is governed not by leveraging scale, but by skill at managing the auction and by quality of technical input through SEO. And the outcome is measured in terms of sales, not discounts.
But if some investors are right, these skills aren’t going to remain the province of search – they’re coming to media itself, as media auctions start to gain traction.
Google’s acquisition of Doubleclick was partly driven by the belief that they could drive their successful auction model out into display advertising, a belief that lay behind their earlier deal to buy Dmarc, a radio trading platform, and agreements to sell newspaper advertising.
They’re not alone. Last year, Yahoo took control of RightMedia, paying $680m for a business that’s expanding out across Europe.
But buying media at auction isn’t for the faint-hearted. Predicting volume is often unreliable, and there are no guaranteed deliveries. The web interfaces of some auction businesses are fiercely complex – revealing the level of sophistication available in targeting, but at the same time providing a training and skills challenge for customers.
For auctions of online media, every individual impression is sold separately, meaning that publishers can set rules within their own adservers to prioritise customers based on yield – the system will serve a high-yielding direct-sold ad if one is available, followed by a lower-yield run of site ad, a network ad and finally an ad from the auction if none of the above is available or the auction yields a better return for that ad impression.
Adding behavioural targeting into the mix makes auctions more effective still for online media – improving yields for publishers and performance for advertisers.
So the auction is an efficient way of trading remaindered inventory – sellers get what the market will bear for their surplus advertising, buyers get cheap media with no guarantees, and market liquidity improves for both.
The system is attractive, and is likely to make headway in media markets – but it’s not going to take over the world.
Auctions work best when the value of a commodity can’t readily be established, and whilst this is true of remaindered inventory, the majority of value will continue to be traded where planners want to specify the location, timing and delivery of advertising.
And far from reducing transaction costs, auctions are likely to increase agency overheads, as greater monitoring, complexity and new skills are required. These were the very factors that held many agencies back from investing in online media in the first place, and they’re significant obstacles for success here too.
To thrive in these new marketplaces, advertisers and agencies will need to fuse competencies from search (auction markets), data (behavioural targeting and predictive modelling) and financial markets (real-time dealing). It’s going to make media more complex – but it could be a revitalising force for the sector.
Thursday, February 28, 2008
The agency deal: poor value for advertisers
A version of this piece was published in Marketing in 2008
See also this later post from 2010 - nothing changes!.
Media folk are hitting the slopes or heading south for the sun right now – the year’s work is done, and it’s time to hand over the reigns to the enforcers, those beleaguered media buyers who will spend the rest of the year chasing media owners and winkling the delivery out of the deals their masters struck in December and January.
The Agency Deal has been a feature of media trading right back to the mid-eighties, when Media Independents wrested control of the budget from full-service agencies.
The theory is, an agency’s advertisers all gain. By lumping their budgets together and trading as one, the argument goes, greater leverage is exercised over media owners – and that translates into better value.
But balancing the books becomes a constant challenge for the agency – particularly as the year-end approaches. If trading has been mismanaged, the agency may have to play catchup – and it could be you that’s funding that shortfall, finding your ads in less appropriate environments.
It’s a prix-fixe menu for media. You know you don’t get the best dishes and the portions are going to be smaller, but you do know what it’s going to cost.
Except of course, you don’t. Because once a deal has been struck over an agency’s entire trading book it becomes very hard to tell who’s getting what, and the agency is often taking a rake off the top as undeclared ‘volume’ discounts.
But all of this relates to traditional media right? Wrong.
The two staples of the agency deal, the ‘volume discount’ and the limited menu are alive and well in digital advertising too.
You might ask why in a world of super-diverse media options, with thousands of websites to choose from and tools that allow management of advertising across hundreds of sites, do agencies use the agency deal model?
Surely, you’d think, it’s a model best applied to media where supply is limited, and share is one of the few levers you’ve got to play with? Surely when a media market is changing constantly, it’s disadvantageous to tie yourself into year-long deals?
You’d be forgetting one important factor.
Aside from the extra income it can generate, an agency deal is cheap for the agency to run. A month or two’s running around, and you can tie up the whole agency’s trading for the year, fixing prices, quality and delivery parameters for the enforcers to work to until next Christmas. Buyers don’t need to buy, and planners don’t need to plan – the menu’s there for them, and the decisions have been made.
Put 80% of your trading into just a few sites, and you’ve got a dealbase that’s easy to administer, and you’ve maximised your leverage against those sites by offering them the bulk of your trading. Using the diversity of the medium to reflect the nuance of a brand’s requirements is subjugated to the prime aim of getting away the media at the lowest administrative cost.
This model has been letting advertisers down for years in traditional media, and it has been enthusiastically imported wholesale into the online advertising business.
The problem as ever, is one of money. All this non-standardisation costs. If you ever asked yourself; how come no matter what my brief says, I always get the same three sites on the media plan, then this is probably the answer.
Digital media gives us accountability. It’s amazingly adaptable and enables us to react quickly – pumping investment into stuff that works, diverting funds away from areas that underperform. Stick an agency deal on the front of that, and you’ve just limited your options. Growth is slower, performance weaker, flexibility hampered.
It’s time for the agency deal to die. And the best way to kill it is to evaluate agencies on the value they bring, rather than how cheap the media is, or how low their fees are.
See also this later post from 2010 - nothing changes!.
Media folk are hitting the slopes or heading south for the sun right now – the year’s work is done, and it’s time to hand over the reigns to the enforcers, those beleaguered media buyers who will spend the rest of the year chasing media owners and winkling the delivery out of the deals their masters struck in December and January.
The Agency Deal has been a feature of media trading right back to the mid-eighties, when Media Independents wrested control of the budget from full-service agencies.
The theory is, an agency’s advertisers all gain. By lumping their budgets together and trading as one, the argument goes, greater leverage is exercised over media owners – and that translates into better value.
But balancing the books becomes a constant challenge for the agency – particularly as the year-end approaches. If trading has been mismanaged, the agency may have to play catchup – and it could be you that’s funding that shortfall, finding your ads in less appropriate environments.
It’s a prix-fixe menu for media. You know you don’t get the best dishes and the portions are going to be smaller, but you do know what it’s going to cost.
Except of course, you don’t. Because once a deal has been struck over an agency’s entire trading book it becomes very hard to tell who’s getting what, and the agency is often taking a rake off the top as undeclared ‘volume’ discounts.
But all of this relates to traditional media right? Wrong.
The two staples of the agency deal, the ‘volume discount’ and the limited menu are alive and well in digital advertising too.
You might ask why in a world of super-diverse media options, with thousands of websites to choose from and tools that allow management of advertising across hundreds of sites, do agencies use the agency deal model?
Surely, you’d think, it’s a model best applied to media where supply is limited, and share is one of the few levers you’ve got to play with? Surely when a media market is changing constantly, it’s disadvantageous to tie yourself into year-long deals?
You’d be forgetting one important factor.
Aside from the extra income it can generate, an agency deal is cheap for the agency to run. A month or two’s running around, and you can tie up the whole agency’s trading for the year, fixing prices, quality and delivery parameters for the enforcers to work to until next Christmas. Buyers don’t need to buy, and planners don’t need to plan – the menu’s there for them, and the decisions have been made.
Put 80% of your trading into just a few sites, and you’ve got a dealbase that’s easy to administer, and you’ve maximised your leverage against those sites by offering them the bulk of your trading. Using the diversity of the medium to reflect the nuance of a brand’s requirements is subjugated to the prime aim of getting away the media at the lowest administrative cost.
This model has been letting advertisers down for years in traditional media, and it has been enthusiastically imported wholesale into the online advertising business.
The problem as ever, is one of money. All this non-standardisation costs. If you ever asked yourself; how come no matter what my brief says, I always get the same three sites on the media plan, then this is probably the answer.
Digital media gives us accountability. It’s amazingly adaptable and enables us to react quickly – pumping investment into stuff that works, diverting funds away from areas that underperform. Stick an agency deal on the front of that, and you’ve just limited your options. Growth is slower, performance weaker, flexibility hampered.
It’s time for the agency deal to die. And the best way to kill it is to evaluate agencies on the value they bring, rather than how cheap the media is, or how low their fees are.
Subscribe to:
Posts (Atom)
