Are Poor Metrics Holding the Online Industry Back?

 Interactive, Media, Strategy, Web 2.0  3 Responses »
Oct 292008
 

A recent survey by McKinsey highlights the growing challenge faced by marketers in deciding how to allocate their media spending:

The rapid growth of online advertising hides a serious challenge: the digital world has developed faster than the tools needed to measure it…A June 2008 McKinsey digital-advertising survey of 340 senior marketing executives around the world shows the breadth of the gap between what’s needed and what’s available. Hobbled by nascent technologies, inconsistent metrics, and a reliance on outdated media models, marketers are failing to tap the digital world’s full power. Unless this problem is addressed, the inability to make accurate measurements of digital advertising’s effectiveness across channels and consumer touch points will continue to promote the misallocation of media budgets and to impede the industry’s growth.

There are three problem areas:

1. Media Planning – New tools are needed to help media planners compare the impact of on- and offline efforts.

2. Conversion measurement – Greater insight is required into how online messaging converts target consumers into making online and offline purchases.

3. Social optimisation – Targeting methodologies have not yet adapted to the changing context in which individuals are consuming online content; in particular, changed context(s) within social environments and how word-of-mouth and recommendations fit within this category.

The survey found that over 50% of respondents were not happy with the current processes for media allocation and measurement. Surprisingly, only 50% of respondents indicated that they used click-through rates to determine the effectiveness of their direct-response advertising – which suggests the rest are preferring qualitative over quantitative measures. Only 30% of respondents indicated that they considered the offline impact of online advertising.

Few in the online industry would claim that the ‘measurement challenge’ has been solved, but it doesn’t seem fair to suggest that poor metrics alone is holding the industry back. Despite having access to over a decade of data on how to use the online medium effectively (either as a stand-alone channel or in conjunction with other channels), it seems that a sizeable number of marketers have failed to adapt their toolkits and processes, or invested in the requisite skills to optimise the ROI of their online spend.

 

Advertisers re-considering social networks?

 Interactive, Media, Web 2.0  2 Responses »
Apr 072008
 

A recent article in Wired magazine highlights the problems social networks like MySpace, Facebook and Bebo are having with their cost-per-thousand (CPM) rates on display advertising.

They are averaging $0.13 (yes, 13c) per thousand, compared with industry averages around the $20 mark (higher for more targeted sites).

In particular, LinkedIn is said to be achieving $75 CPM because of its more targeted, business-oriented audience.

Now a CPM of 13c is very, very surprising – that means that each ad impression is being valued at $0.00013.

Page inventory (over)supply is probably a factor in the cost differential between the sites mentioned in the article.

There are likely to be fewer total impressions available on a site like LinkedIn than on a site like Facebook, which would cause price increases. Nonetheless, this supply/demand mismatch wouldn’t fully explain the pricing disparity.

My initial take on the economics of the CPMs quoted by Wired was that it shows that marketers are reinforcing their preference for targeted audiences.

However, this does not provide an adequate explanation for such minute CPMs. Even on sites with a broad spectrum of users, ad placement/serving technologies can very quickly provide more-than-adequate targeting. This is especially so in environments rich in audience profile data, as is the case with these social networking sites.

So if poor targeting is not the rationale underlying the low CPMs, what is?

I believe it is due to a growing awareness among more sophisticated marketers that different sites have different degrees of engagement with their audiences.

Users of social networking sites like Bebo and Facebook are absolutely ‘engaged’ with the site – they are using its features, browsing pages, consuming content etc. But the context of that engagement is wholly different to the engagement context on a site like LinkedIn.

I think this is the true explanation for the pricing differential.

The challenge for social networking sites, then, is to re-cast their advertising inventory around a new ‘stratification’ model that more accurately reflects the layers of engagement – including the different engagement contexts – within their sites. Only then will they be able to claim greater CPMs..but, then, only for some of their inventory.

Is the trend towards Cost-Per-Acquisition campaigns sustainable?

 Interactive, Media  No Responses »
Apr 022008
 

One thing that is interesting in the on-going digital marketing metrics/engagement debate is that marketers expect a much higher correlation between digital marketing activities and confirmed sales than they do in any of the ‘offline’ media.

The interactive industry certainly made its own bed here. It has long touted itself as the only ‘accountable’ medium, and highlighted the fact that everything can be counted, tracked + analysed etc. It used this as the basis for talking up the value of advertising inventory in the online environment, but the very same arguments are now being used to dramatically erode the value of digital advertising inventory.

The reality is that there will only be a direct correlation between viewing an ad/offer and a sale in a small percentage of cases.

The consumer purchase cycle generally proceeds as follows:

awareness –> consideration –> intent –> purchase –> use

In most cases, it is very difficult for an online marketer to know where the consumer sits within that cycle at the time they see their ad. If your ad is the mechanism that puts a consumer into ‘awareness’ mode (as is the case where seeing an advertisement for a cruise makes the consumer think  ‘Ah, I think I need a  holiday’), then you’re not going to be able to draw a direct correlation between the ad view and revenue. Many months may elapse between the initial ad view and the final purchase. But without that ad view, there may be no prospects of a sale at all.

Online marketers seem to want to have their cake and eat it too. They only want to pay for performance, but they want the broadest possible reach at little or no cost (unless there is a confirmed buy). This ignores the fact that at any time a large percentage of viewers won’t actually be at the ‘purchase’ end of the cycle.

(It also ignores the fact that there are a range of other factors that need to be present to achieve a sale, including quality of advertising elements, attractiveness of offer, user-friendliness of purchase mechanism, brand, past experience, and myriad others…but that’s a discussion for another day).

Marketers must make the investment requited to move their target consumers through the purchase cycle, rather than expect their media partners to give them a free ride until the consumer is ready to buy.

The online industry (and content publishers in particular) certainly needs to remain an active participant in the evolving discussions around developing a new ‘engagement model’ and related metrics for digital advertising. However, it also needs to become more proactive in rebutting some of the implicit assumptions underlying advertiser’s increasing insistence that advertising inventory buys be struck on a cost-per-acquisition or similar performance-related basis.

Certainly there is a time and place for CPA-type agreements – such as where the marketer has already stimulated demand by an appropriate investment in online/offline campaigns designed to move customers through the purchase cycle. Nonetheless, the growing expectation that most, if not all digital campaigns should be structured on this basis is clearly unsustainable.

Key Trends in Digital Media 2008

 Interactive, Media  1 Response »
Mar 152008
 

I launched a regular column in Digital Media magazine (published by Reed Business Australia) this year. Below is an early draft of my first column (which was published in the February issue).

—8<—

Increasing Control

A string of 2007 research studies into changing digital media and entertainment consumption habits, including the persuasive survey by the IBM Institute for Strategic Value titled The End of Advertising as We Know It, demonstrated that audiences have gained even greater control over their media consumption.

This position will become entrenched in 2008. The more responsive digital media players will introduce services that further enable audiences to access digital content on their terms, which will stimulate audience appetite for control. Early examples include iGoogle, the increasing ‘widgetisation’ of the Web, and Tivo’s move to allow viewers to access Web-based video content.

Advertising Pull-back

Increased audience control has as its corollary increased filtering of ads. Impatience with irrelevant advertising content will become more marked. Audiences are already embracing tools and services – from ad blockers to P2P networks – that allow them to consume content with fewer irrelevant commercial messages.

This will not lead to the kind of advertising implosion witnessed earlier this decade, because the business case for online advertising remains solid. Audiences are not rejecting all advertising, only irrelevant advertising. They recognise that the presence of advertising subsidises the cost of content (in many cases, making it ‘cost free’ to them) and are willing to accept advertising as a necessary trade off.

However, they will increasingly reject non-targeted advertising as a sign of disrespect and a failure on the part of advertisers to appreciate the value of their attention (more on this shortly).

Social Networking goes off the boil

The exponential growth in social networking activity witnessed in 2007 is not sustainable. There will be both a reduction in activity and the beginnings of a widespread migration away from the current market leaders.

The very human desire for belongingness will remain as strong as ever. However, ‘community fatigue’ will set in as individuals’ tire of the social-networking-as-a-game metaphor (where the highest number of friends/links wins). They will seek instead tools that simplify the process of connecting, organising and creating meaning from true, trust-based relationships – online and off.

Community Is A Commodity

The mainstream market has witnessed the commoditisation of social interaction toolsets, which has led to a proliferation of special interest social networking sites. In 2008, social networking’s focus will shift from the technology platform to brand messaging. An early example of this trend is Kylie Minogue’s social networking site – KylieKonnect.

Around the edges, we will start to see devolution of control over relationship data and interactions into the hands of individuals. While branded sites will provide an anchor for initiating relationships, the current ‘walled garden’ approach will erode. Initiatives like Google’s Open Social will fuse with open source identity management tools such as OpenID. The result will be tools that empower individuals to interact with all of their friends, regardless of the specific social network site they use, via a single interface.

This trend will enflame existing tensions over the level and type of advertising interjected into social interactions and the (often involuntary) disclosure of personal information. The failure of Facebook’s ‘Beacon’ advertising program reflects growing unease concerning the blurring of ‘public’ and ‘private’ domains within social networking sites. Expect further skirmishes, as individuals attempt to reclaim control over their relationships.

Redefining Media’s Currency

Despite natural advantages in audience measurement, the digital media industry will remain unable to value audiences.

After struggling with evolving methodologies that largely replicated the clumsy ‘reach and frequency’ paradigm of traditional media, it is unlikely that a universally agreed metric for audience engagement (and, in turn, value) will emerge in 2008.

However, several themes will surface:

(i) The channel via which the content is consumed is more relevant than the medium via which it is delivered;

(ii) The consumption context is more relevant than the channel;

(iii) Algorithmic differentiation between higher and lower value audience members is possible;

(iv) The level of trust between the individual and content brand is a significant determinant of engagement and therefore value.

Individuals will increasingly regard their attention as a valuable ‘currency’, and expect a less lop-sided value exchange when they ‘spend’ this currency. Regardless of the proposed valuation metric, it is clear audiences themselves will expect a say.

Digital Content Issues Map

 Interactive, Media  1 Response »
Mar 032008
 

I moderated a panel at last week’s AIMIA conference on The Business of Digital Content. The panel itself explored the alternative branded content model that is starting to emerge in response to the fragmentation of traditional media channels.

I was asked by the conference organiser to put together a mindmap of the key issues involved in the digital content industry, and I thought I’d share what I came up with.

There is also a PDF version – email me if you’d like a copy.

Digital Content Issues Overview - Mark Neely

Remaking the Advertising Industry

 Interactive, Media  No Responses »
Sep 192007
 

An interesting interview with Professor Stephen P. Bradley on the Harvard Business Review web site, about his research for a forthcoming book titled Broadband: Remaking the Advertising Industry.

The background to the research:

We are looking at industries that are being transformed by broadband such as the news and information industry-the younger you get, the more you get your news strictly online. Who reads newspapers? Old guys. So this is an industry that is being dramatically transformed.

As broadband enables new forms of entertainment and new ways to consume and manage media we see radical transformation in the music and television industries as well. Their audiences are fragmented and people are demanding mobility, immediacy, and control over their media consumption.

This makes some industries’ traditional business and delivery models no longer viable. The networks, for instance, struggled with a time-shift in television viewing as digital video recorders (DVR) became commonplace. With broadband they must now also contend with a place-shift. The family no longer sits in the living room together with all eyes focused on the television.

But this is the key observation made in the article (and one that I fully agree with):

Advertising companies have been transformed because they are now media companies. The dollars they receive from their overall media businesses are much higher percentages compared with the pure advertising portion of it. It’s the connectedness between the traditional ads and online that counts. In the online world you can link your advertisements to action; that’s the difference. If you’re willing to click, it links you to a potential transaction or at least to get more information, which can then pull you in further. The ease of broadband gets people much more integrated and interactive, much closer to doing a transaction.

A very worthwhile read.

Should Yahoo! quit the search business?

 Interactive, Leadership, Media  No Responses »
Jun 212007
 

Reports that News Corp has made overtures to Yahoo! about swapping MySpace for a 25% equity stake has led the New York Times to speculate about whether Yahoo! should exit the search business and, instead, contract Google to provide search capabilities (ironically, this would have the company performing a full-loop, as it was Google’s contract with Yahoo to provide search functionality that gave Google its initial fillip).

The article quotes Jim Breyer, a Silicon Valley VC who invested in Facebook, as saying: ”They should take a hard look at the search business, and it may well be the right time to stop trying to out-Google Google”.

He’s completely right, but probably not for the reasons advocated in the article.

The primary distinction between Google and Yahoo! – which now seems firmly entrenched in their respective corporate cultures – is that Google is an engineering-led company, whereas Yahoo! is a media-led company.

While Yahoo!’s founders David Filo and Jerry Yang were PhD candidates in electrical engineering, and thus every bit as ‘techy’ as Google’s founders, Larry Page and Sergey Brin, who were graduate computer science students, both sets of founders made very different choices about the CEOs appointed to grow their businesses.

Page and Brin recruited (Dr) Eric Schmidt from Novell, a technology company with deep engineering roots. Filo and Yang, on the other hand, recruited Terry Semel, a media industry executive who was co-CEO of Warner Bros (and who admitted he was no Internet or technology expert).

Their choices of CEO reflected the founders’ visions for their companies – Google saw itself as a “pure” search company, whereas Yahoo! (aggressively pursuing its portal strategy) saw itself as a media company.

Yahoo! won’t be able to “out-Google Google” because they are very different companies, designed to serve very different market needs.

Search is very individualistic, egocentric and task-oriented. Media, on the other hand, is implicitly social. Consumers approach each service with different expectations, and, accordingly, expect a different experience.

The business of search is all about optimising algorithms, and Google has hired some of the best brains in the business to focus on precisely that. The business of media, however, is not about algorithms (although they do play a role in making the media experience ‘smarter’). Media is about intangible, mushy concepts like emotions, relationships, connectedness, ‘tribalism’ and  other socio-cultural drivers.

Where Yahoo! has come unstuck is that while it professes to be a media services company, it hasn’t adequately managed cultural change to facilitate that vision.

It still has an engineering core, onto which it has bolted some media divisions and executives. The end result is a business environment that is not aligned with, or capable of delivering, the services and experiences its consumers expect. Nor has it been capable of creating revenue models and advertising offerings that better integrate with its products, audience and (importantly) audience behavioural patterns.

Consequently it has not been able to make significant in-roads into the gap between Google’s ability to ‘monetise’ traffic (analysts report that Google is able to extract twice as much revenue per page of content served than Yahoo!).

Yahoo! should certainly stop trying to out-Google Google, because it isn’t in the same market.

Where did this come from?

 Austereo, Interactive, Media, Radio, Strategy  No Responses »
Apr 072007
 

As many of you already know, I left my previous position with Austereo earlier this year, and have returned to the ‘coal face’, as it were.

After 2+ yrs of living and breathing the process of both devising and implementing a business case + strategy for launching an ‘interactive’ division within a traditional broadcast media company, the future of media is very, very clear – at least, in my eyes.

Which is what you would expect!

Why would you launch a blog unless you had an opinion, or a position, or, at the very least, a rather doggedly held perspective?

I do. Which is why this blog – 3rd Horizon – exists.

So, I suppose you’re asking yourself – “What does ’3rd Horizon’ mean?”. A good question. I’ll be right back with a good answer!