Editor’s note: The below column has been significantly updated from the version published Monday morning.
"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Ben Legg, CEO at Adknowledge.
Video is digital advertising’s biggest opportunity. I talk with a lot of marketers, including clients, business partners and friends, about where the industry is headed. The question I increasingly hear is, “How much should I spend, and what is the ROI vs. other forms of advertising?”
To be clear, this is not about the end game of TV or video advertising. As soon as all TVs become smart, the word “digital” will be dropped because everything will be digital. TVs will become just another screen to add to the mix of laptops, tablets and smart phones which consumers already digest content on and interact with. TV schedules – apart from live events, such as sports and “The Voice” – will become a thing of the past.
Content will be a mixture of paid (ad-free), free (with ads) and some kind of ad-subsidized model, which is a hybrid of the two. All ads will be targeted based on viewer data, relevant content and price. Nearly all TV advertising as we know it will disappear and become digital/programmatic. The boundaries between TV advertising and video advertising will all but disappear. TV and video advertising combined will become a $200 billion per year global industry.
But in 2015, ROI from online video is more of a budget-allocation question. Many marketers will fearlessly venture into this new, ambiguous space. Some will fail, but others will reach incredible new heights.
The key differentiator will come down to one question: How are you measuring ROI?
These steps can help answer this question.
Embrace Video As A Paradigm Shift
US advertisers will spend $6 billion on digital video ads in 2014, compared to nearly $70 billion for television, according to eMarketer. The study forecasts that TV will continue to outpace digital 6-to-1, even in 2018. Media buyers are still skeptical about video’s value proposition, says eMarketer analyst David Hallerman.
“The digital video audience is spread more thinly than a mass television audience, and that segmentation makes digital video ad buys more complex and less reliable than TV advertising,” Hallerman said.
But this perspective only tells part of the story. As I see it, there are three increasingly complex ways to measure the ROI of your video campaigns.
1. Absolute ROI: This is helpful when a campaign drives a positive ROI on its own. Metrics may include cost per subscriber, cost per mobile app installed, cost per purchase, and cost per test drive.
In my experience, fewer than 10% of video campaigns fall into this bucket.
2. Relative ROI: This is the way many TV advertisers think about ROI: “What is the ROI on my video campaigns vs. my TV campaigns?”
The simplest way to do this is to measure the cost per relevant view of video vs. TV ads. The methodology used here is to look at the price you pay for current TV advertising, filter for nonviewers and relevant audiences, and then compare TV costs to video.
Based on my discussions with major brands, agencies, and advertisers, TV advertisers hope to shift roughly 30% of their $70 billion TV ad budgets to digital video by 2015. That would increase the US market to $21 billion, up from $6 billion in 2013.
As it stands, television – as a marketing channel – is partially effective. With consumers, especially millennials, TV’s a leaky bucket.
To advertisers, TV’s appeal is mass-market reach, the opposite of what today’s consumers want. Consumers instead want information tailored for them. They’re open to engaging with ads, but only ones catering to their specific needs and interests. Everything else is background noise, which is easier than ever to filter.
3. Attribution Models: This is the holy grail of ROI measurement.
What digital can do that TV cannot is allow attribution – tracking sales based on specific points of engagement. It’s tougher to connect the dots with TV.
When I recently had a workshop with a group of diverse, experienced, and highly intelligent marketing people on the subject of attribution, we went around in circles.
We had questions like: “A video builds a brand for more than a single campaign, so what is the impact on next year’s campaign?”
“The quality and price of the product are massive drivers of success. How do we measure their impact on a campaign?”
“Past customer experiences also drive sales. How do we account for that?”
Clear attribution is, and always should be, the eventual goal of marketing ROI measurement. Maybe, when all marketing campaigns are digital and all consumer databases in the world are linked to each other, we’ll get much closer to this nirvana.
Invest In Testing
Talking to marketers makes it clear that testing is invaluable, especially for digital video campaigns. Testing is at the heart of learning in digital advertising. No two video ad networks are the same, and every audience your brand targets will yield different results. That’s why advertisers need to think about more than what they can measure and prioritize what they should measure.
Not all video views are created equal. There will always be variation in ad performance, and these nuances are specific to your brand.
Experimentation provides answers to these questions and also insight into the audiences and ad networks being tested. Between pre-roll, native ads and the many syndication partners out there, there are a lot of options. Luckily, it takes a relatively modest budget to get up and running and to start learning.
This is clearly an industry going through massive flux. However, holding back budget or not experimenting just means falling behind the market. This is, after all, the future of TV advertising, not just some sideline digital experiment. Hundreds of companies have intense learning campaigns going on right now. If you snooze, you will lose.
Instead, develop a meaningful strategy by staying close to your key performance indicators.