Today's column is written by Scott Portugal, CRO at TRAFFIQ.
Local, hyper-local, super-mega-hyper-local....it's the new black. 2010 and 2011 are shaping up to be the turning point of local advertisers buying into display media with real force. A recent Bain report predicted "that digital - now about 14 percent of total local ad spend - will encompass 25 percent by 2014." There are a confluence of factors causing this shift: accelerated smart phone adoption, macro-economic recovery, organic growth in online traffic and engagement, etc. Ad networks & exchanges make reach in local markets viable for display advertising, and a generation of digital-only buyers & sellers now know how to speak the language to Main Street. But one of the largest players in helping drive this movement forward is also the one that, quite frankly, I am concerned about. And that's Google.
Google's bid to become the dominant ad exchange is something that our industry should welcome, but welcome with a wary eye. Like a guy who is fun to drink with only up to a certain point, Google is going to prove to be a beneficial partner in bringing more digital buyers to the display table - but at a certain point they may very likely be viewed as very real threat to a number of different players in the ecosystem. Here's what I mean:
Stage 1: Google our friend!
Google's AdX exchange is the perfect vehicle for introducing local buyers to display media with real scale. Buying against a targeted set of data (keywords, audiences, geography, etc.) on a dynamic, non-guaranteed basis is a seamless match to how these advertisers buy search today. Making these marketers comfortable with display and how it can change their marketing models could be a boon to the digital world. Certainly a number of advertisers will find audiences and targeting options that work, scaling their buys beyond just the Google AdX exchange.
Stage 2: Google our friend, but are they a good friend?
According to Permuto's AdWords Revenue analysis (http://www.permuto.com/blog/2009/09/10/who-is-lining-googles-pockets-today/), the average daily spend for AdWords advertisers is $39, and the majority of their revenue comes from advertisers outside the top 100. This sums up the Google model very well - accrue VERY long-tail demand, provide targeting technologies, and let the market set the value of the "inventory". However, this doesn't translate as well to the display space for a couple of reasons. First, AdSense as a distribution tool is rife with inventory that is suspect at best. Domain parking sites, torrents, questionable content, all carry the AdSense feed. And remember that AdSense, not Sponsored Listings, is the distribution vehicle for display advertisers. That means inventory controls and therefore brand control becomes a significant problem. Local advertisers are accustomed to broadcast media - it's tangible. When these advertisers find their ad running alongside content they can't control, there is likely going to be a large backlash. Google may very well develop or buy a verification platform, but they face a much larger issue in terms of content control than traditional networks & exchanges due to the fact that Google has never actively policed their AdSense network. Ad nets have always been forced to clean up their content.
Second, the market value of the inventory needs to be set on a host of metrics, not all of which are performance related. Engagement, recall, and the traditional brand metrics we use - plus the coming reach/frequency measures - are factors NOT of scale, but of creative, placement, and smart, targeted buying on a guaranteed basis. As the industry introduces reach measurement metrics that come close to TRP & GRP, placement-level data will need to be accessible so that the market can set the value. Placement-level purchasing means direct engagement with publishers for a suite of opportunities to maximize reach, while Google will be training marketers to think only about performance.
This is going to stymie regional and national publishers who want to open themselves up to these local marketers. Walk-up & self-serve systems will facilitate this somewhat, but if it's not how these buyers are accustomed to buying, it's going to become an uphill battle. Remember that DSP's are sophisticated solutions for agencies who know how to buy BOTH guaranteed and non-guaranteed media and move budgets between the two based on their own business intelligence. Main Street buyers don't have the history nor experience to know how to model the two (heck, even many agencies struggle with this) - and therefore many will take the path of least resistance and ONLY buy on a dynamic basis, without a sense of how to appropriately price and value media.
Stage 3: Google's not helping anybody.
Display advertising is media that allows for marketing throughout the entire sales funnel. From branded engagements through retargeting down to conversion attribution modeling, there are flavors of digital display media that address all parts of the customer acquisition cycle. Buying ONLY exchange based media in a non-guaranteed environment will stifle the development of many local advertisers who need to address growing their brand (awareness, favorability, etc.). Branded keyword buying is essential for search marketers; but this most often occurs in the Sponsored Links product. Display media requires testing a variety of platforms, rich media technologies, targeting options, and pricing models. With a wide variety of options available in any one target, keeping clients in the walled Google garden for too long is going to turn off local buyers and we'll all end up fighting even harder to win these clients back. Therefore I predict we will see a large number of would-be local advertisers abandon display media.
As a local or regionally focused ad agency, I'd be even more nervous. Here's a company that sees likely north of 70% of my clients' search campaigns. They also have all of the site metrics that a client would likely ever be interested in measuring - so when they start running all of my clients' display dollars....and Google has made it clear that they offer agency services to direct clients....AND they can do it at ZERO margins because of the revenue share with the publishers....tell me why my clients would keep running digital media through an agency charging 10% - 12% of spend?
Local advertisers buying display media is an immense opportunity for all of us. Networks offer scale, buying tools offer direct-to-publisher with ease, creative optimizers combined with targeting technologies offer the right user the right ad, and combining all of them makes for a truly targeted, scalable solution for advertisers that have been challenged with leveraging the fastest growing media segment.
To be frank, however, I believe Google's exchange product presents a very real threat to both buyers and sellers - their inventory, their data, and their revenue model could be creating a generation of buyers that struggle with taking full advantage of the medium, making it more challenging to agencies to manage their clients and more difficult for publishers to extract full value of their inventory & audience. Google's famous motto is "Don't Be Evil." When it comes to display media, I challenge them to prove it.