"Displaying Search" is a column capturing the intersection of display advertising and search marketing.
Jonathan Mendez wrote a good post on his blog several months ago entitled “The True Media Value Delta”.
In that post, he shared a highly profitable display campaign where an education advertiserwas paying only 25% of the “true value” to the publisher. They were pocketing the rest as profit while the publisher was getting rooked.
But there’s something missing from this equation. Are advertisers truly getting a free ride with display advertising, making 75% margins on their buys as standard fare? In an auction-driven marketplace with lots of arbitrageurs ready to fill gaps, why haven’t prices risen in the same way they have in the search marketplace?
The answer lies in the cost of exploration. Jonathan’s example is like staring at a gushing oil well and concluding that the wildcatter was printing money. A fuller picture would reveal a trail of dry holes in the ground that didn’t yield any oil. Each failed experiment costs money but doesn’t generate any future profit. The burden falls on the gushers to make up for these losses.
Online advertising has a lot in common with drilling for oil. The best online advertisers are constantly exploring for the right audiences that will drive profitable growth. One of the reasons that search was adopted so quickly is because the exploration costs are very low; Come up with a list of keywords that a buyer might use to find you on Google and you’re off to a great start.
In contrast, it’s very hard to know where to get started with display. Many opportunities look like they have potential, but testing reveals dry wells. And every failed test puts a heavier burden on the gushers to make the overall picture profitable.
Circling back to the original example, the online education advertiser has probably spent millions testing lots of failed placements. Most advertisers throw up their hands before this point and give up on display altogether. This means there are fewer auction participants, lower prices, and disappointment on both the advertiser and publisher sides. Conversely, when buyers are able to reduce the sea of placements to a few discrete opportunities with high potential, they’ve got a lot more budget to allocate to the winners.
Sellers of inventory (media or data) need to understand this dynamic to maximize their yield. Making it cheaper and easier for buyers to find their best performing placements means that fewer dollars are spent digging dry holes, and more finding gushers in your front lawn. There’s plenty of time to extract future concessions – the key is getting them to understand the value you’re providing and getting them hooked.
How can you get full value for your inventory? Get as many educated buyers as possible bidding on your inventory. What can you do to encourage more bidders? I’d eliminate floor CPMs, high monthly minimums, and make inventory easily accessible. These are all “taxes” on learning that keep buyers out of the auction for your media and create the “true media delta”.
Similarly, buyers of media– especially those coming from a search marketing background – can do a few things to reduce their cost of exploration. As I laid out in a previous post, a three-step approach to display buying can reduce your upfront costs and lead to better ROI:
- Launch and optimize a re-marketing campaign.
- Build a profile of your site visitors and high value converters.
- Find the most efficient way to reach your target audience.