The Advertising Big Picture

I’m getting a bunch of pings from all sorts of advertising folks (probably because I’ve worked in the past at places like Overture and AdMob, worked in mobile for a while, and my current company is in the process of getting sold off). First of all let me say there’s nothing out there that I’m interested in on that end. Not least of all because I’m still involved with AdMob and there would be some nasty conflict of interest stuff going on if I were even talking to competing ad networks. But primarily because there seems to be almost as much cluelessness in this round of media expansion as there was in the last. I was working for a company doing primarily banner advertising around 1998, so that’s my basis for comparison – and we all know how that turned out. Allow me to elaborate on “cluelessness” a bit if I may.

I think the current round of confusion is being driven primarily by the amazingly high value that Facebook is commanding and the mistaken belief that that value is associated with the information that Facebook has about their users and the corresponding margin that supposedly translates to with advertisers. Just untrue top to bottom. Take this advertisement which has been darkening the valuable rightmost column of my Facebook pages for nigh on 6 months now:

Facebook Ad

If they were really paying that much attention to media rotation and customer profiling and advertiser fill they would have way more interesting stuff to put in there for me. None of this is to say that Facebook isn’t worth their enormous valuation, just that I don’t think that user data and advertising is the reason for it.

However the outcome of stuff like this, and other commentary floating around about mobile devices being able to provide the ultimate in personalized media (because they’re always on, always connected, one-person devices loaded with a wealth of information about their user) is that folks link that “the more I know about my users the more valuable I am as a media property.” That’s an awfully dangerous generalization. To see why allow me enumerate the basic models of advertising and how they relate advertisers (just the basics, there are enough shades of gray in there already):

  • CPM – which stands for cost per mille, or cost per thousand impressions. Not cost per million, like everyone would assume. Which is the first bit of evidence that lots of advertising is based on some rather twisted and introverted opaque set of dogma if even the base terminology starts off confusing. If you’re running CPM stuff someone is paying you some set amount of money for every thousand times you show their ad. When advertisers are paying you for CPM advertising they love to know information about the people they’re advertising to, so knowing a lot about your users will help here – IF (and this is a big big IF) you have enough users displaying any given trait to make it worthwhile for the advertiser to buy against. The first part is easy: “I know I have 15 people in Kentucky who like to wear red shoes when they go line dancing.” The second part is hard, who gives a crap about that trait? Do they care enough to try to reach 15 people? Are they willing to pay you enough to reach them that it’s worth your while? See all the questions that come out of this? You’ve got to think these things through before you say “the more we know about our customers the more we can make in advertising,” cause for the most part you’re wrong.
  • CPC – which stands for cost per click, just like you would expect it to. Whew. Advertisers running CPM ads eventually said “this is stupid, why do I pay you to show stuff as if I were advertising on a billboard, when this whole Internet thing is supposed to be about interactivity and measurement?” Thus was born CPC, where your advertisers pay you every time someone clicks on one of their ads. Hmmm. So how do you use all that information you have about customers here? Well you can ask your advertisers to fill out a bunch of info about who they think would respond best to their ads and to describe their services and offerings. But ultimately most advertisers don’t care, if they’re only paying when someone clicks they really don’t need to do your job for you. So when you’re selling CPC your customer information is useful TO YOU the property owner, but only when combined with the knowledge and algorithms to optimize the inventory you have (and a deep network of advertisers).
  • CPA – and we’re back to slippery terminology, CPA stands for something like cost per action, or cost per acquisition. Advertisers again said “hey, why am I paying someone to drive clicks to some random webpage when what I really want is to sell widgets?” and thus was born the concept of CPA, where you as a property owner get paid once one of your users goes somewhere else and performs some desired action. Once again, like CPC the advertiser no longer really cares about demographics and user info. Hell, they care even less now. If the user is going to buy something on the advertiser site, great. The advertiser normally doesn’t care if the person is in Palo Alto or Pakistan (barring weapons classification of strong crypto of course, but that’s a different story).

See, as you climb up the scale of advertiser value the burden of using all that customer information shifts from the advertiser to the property owner. The game starts to come down to automated systems of optimization and segmentation and having enough inventory and fill to be able to shift values around in search of optimal methods for running the property. The inventory number requirements and complexity of response optimization really make this stuff best suited to a network of advertisers and properties working in unison – which is why Google and AdMob are doing so well. It’s a hard nut to crack for all but the largest media companies, and even they tend to bank as much on the demographic skew of their audience as deep information about their users (and still only directly rep part of their inventory frequently and backfill with general networks or piggyback on external sales). So being part of a network is the best way to make sure you have access to advertisers and the kinds of algorithms that drive pageview value, but it also restricts how you can use all that information you have about your users. Does not compute.

Right now I’m just not buying the overall pitch for much of the expansion of mobile advertising. Much of it seems like technologists building systems for their own sake without paying much attention to how the whole thing fits into the overall market – or even what the real desires of advertisers are. All these little niche networks keep popping up all over the place, trying to substitute depth of information about users for reach. That doesn’t work. You’ve got to have reach first, no matter how much information you have about your users, doesn’t matter. And you want user info, sure. That helps you more effectively manage the inventory you have and maximize yield, but it doesn’t drive the cost to the advertisers.

If you’re building a company planning to make money through advertising you can not count on depth of user information to allow you to command a premium unless you have a corresponding plan to reach large groups of motivated advertisers with a pressing need to reach exactly your users. When you talk to folks and they ask “so who are your users?” that’s the reason they’re asking. As technologists we tend to think the answer “Everyone! Anyone can sign up and use it” would be the natural answer all should be happy with. Definitely not.

Now, all of that being said, does that mean that all this jazz about always-on connected mobile devices being the way to the future of media is just a load of crap? No. Just that it’s going to take a model shift for that kind of customization and leverage of information to make it out to mass use. Someone or something is going to have to change advertisers minds about the fundamental way to interact with their potential customers and engage with an audience. We’ve been talking about that for a decade with the web already, and every few months we discover the next great new game changer. Over and over. And for reasons like that if you step back and look at the total number of dollars spent on advertising, the amount of adverting spend going into online vs offline is still pretty small.

So that’s it, you can stop calling me about mobile advertising networks now.

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2 Responses to The Advertising Big Picture

  1. Steve Roberts says:

    Mike,

    I found a potential gem in this ad debacle… there’s a little start-up that is playing with online and offline and in cases with social networks. The company is Hippopost. The facebook app is http://apps.facebook.com/hippopost.

    What they have is an ad sponsored model for physical postcards via the web (in this case facebook) where you can send your digital assets out to friends and family in the physical world with via an ad selected by the user. You as the sender choose the ad that is most likely got some relevant to the recipient of the card. in either case – it’s more of a blend on traditional direct marketing – the catch being that mail is targeted by the sender and the volume can only be pushed by a sender – and online media. Both ends seem to make sense. everyone that uses the tool registers so that’s at the CPA level or above (a database addition) and the recipient will run by DM stats – competing with a low current return on junk mail. The big win on the DM side is 9 out of 10 pcs will end up on a fridge and not in the garbage can. Ahhh the old school mail. Nice to get something other than a bill or junk mail every once in a while.

    -Steve

  2. Pingback: Analysis: MySpace and Facebook challenge mobile-only social networks » VentureBeat

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