More Complicated Than Ever
The Industry Group Perspective
Reprinted from KPMG Thought Leadership Publication 4/10
Full Advisory Document here – KPMG Networked Advertising PDF
Greg Stuart has insights that stem from a diverse advertising career that includes five years as CEO of the Interactive Advertising Bureau (IAB) — an industry group of more than 400 leading media and technology companies that sell nearly 90% of online advertising in the United States — and co-authoring the book What Sticks (Kaplan Business Books, 2006) a research-based look at what makes advertising effective.
“As the digital advertising ecosystem evolves at a furious pace, its myriad technical complications, options, and opportunities seem almost overwhelming,” Greg Stuart says. “The relationships between agencies, media buyers, ad networks, exchanges, data providers, verification services, measurement companies, publishers, and content owners have become complexly interwoven, obscuring participants’ roles, true value, data ownership, and consumer access. If—as an industry joke goes—‘advertising was a business created for C students,’ that isn’t the case any longer.”
To write What Sticks, Stuart and his co-author, Rex Briggs, conducted research against $1 billion of ad spending in TV, radio, magazines, and online — the entire media spectrum. “Our sponsors were top-50 marketers who wanted to answer a simple question: What is the value of each advertising dollar spent, by medium?” Their research led them to the conclusion that more than $112 billion was being wasted of the then-annual total of $300 billion in advertising spending.
Online, a marketer’s dollar dwindles to nickels and pennies en route to a publisher (or whoever touches the consumer last), Stuart explains, because of all the pieces needed to make a buy today. The online marketer can go directly to the publisher or through an agency or an ad network or a connector to the new world of exchanges such as DataXu. “But I’m not sure any stakeholder fully understands how a network connects to other networks, to exchanges, or to publishers, let alone how data gets attached or how ads are measured,” he says.
Despite the fact that the advertising technology ecosystem is so complex, the online sector and other digitally networked channels are well positioned to gauge return on investment (ROI). While still less than 10 percent of ad outlay, online advertising is more oriented to applying ROI theories and processes. Stuart thinks that may ultimately attract the brain power needed to really capitalize on the opportunities.
What Gets Measured…
Stuart hosted about 20 dinners a year with marketers and agency representatives when he headed the IAB. As he listened to dinner conversations, it struck him that marketing professionals had little grasp of how advertising really works and even less understanding of online advertising. “Digital has really shown that the emperor has no clothes — that meaningful education, training, and insight are in very short supply in advertising. That is probably why we found that 47 percent of the 30-odd campaigns we measured for What Sticks failed before a dollar of media was spent, and 83 percent of those campaigns lacked optimized spending allocations,” Stuart says.
“What I think is wrong with advertising overall,” he says, “is that within the industry, incentives are completely misaligned. Agencies often are paid on either percentage of spend or hours invested, neither of which puts the focus on advertising’s effectiveness — which should be the goal. Everyone says that’s the goal, but in my experience their actions suggest otherwise.”
Asked what he thinks has been the biggest mistake made in digital advertising, he says, “No research anywhere in the world validates that a click has any relationship to brand effectiveness, yet click-through is the de facto measure most online marketers and their agencies use. Overreliance on click measurement is a disservice to the field.” Actual sales or purchase intent (or other metrics whose value are still to be proven — the key being “proven”) are a significantly better measure of advertising effectiveness than click-through, Stuart believes.
Numbers Games
One of the best things the industry accomplished during Stuart’s tenure at the IAB was to clean the metrics used to count ad impressions, which is the underlying currency of the industry. “Before 2003, ad servers had major discrepancies in ad impression counts of from minus 50 percent to plus 100 percent. The IAB worked hard to get a global technical standard on how to measure impressions, so such differences now are about 10 percent or less,” Stuart says. “Getting a technical standard in place showed us there was a lot of human error in how campaigns were executed. Process standards are needed, too,” Stuart says.
“If advertisers don’t trust online’s numbers, the medium is dead or dreadfully stalled,” Stuart says. “Also, we made a strategic decision in 2002 to measure actual ad impressions rather than just the content, which is what other media measure based on ‘opportunity-to-see.’ (TV or radio measures average quarter hour in program; print measures the complete magazine or newspaper.) Using numbers/data/research to strategic advantage should apply to more than just ad impression counts. We have a powerful weapon in simple ad effectiveness tools such as Dynamic Logic and Vizu, but our syndicated research needs to be higher quality, too.”
Online advertising’s complexity makes it hard to verify whether an ad reaches the consumer without an independent body tasked to do that. Anchor Intelligence, for example, has “developed technology that a single agency could likely never build” to verify whether a click was valid. Other services to verify that an ad really ran when and where it was supposed to are in development. These services need more support and more industry guidance. To the extent that they validate the effectiveness of digital campaigns, they will provide insight and confidence to marketers and agencies. The days of simply watching to confirm that your commercial aired during “60 Minutes,” are over.
We Need to Turn Up the Heat
Stuart says serious complications also result from the fact that the Internet is a global medium that can be accessed anywhere in the world. “I know of some publishers that knowingly sell international audience impressions — worthless in the United States — to domestic advertisers,” he claims. “That’s egregious,” Stuart says.
“In 2002, we went to the IAB board about the issue of selling international audiences to domestic advertisers without notification. A few publishers did not want this fact made public or to change their practices. When the wrong incentives are in place, companies don’t act in the interest of their customers.”
Similarly, a CEO who realized his company had huge fraud issues in its system wrote to several second-tier companies in the search ecosystem to suggest organizing an industry-level effort to eradicate click fraud. His contacts said “good idea” and went to talk to their internal people. Reportedly, many came back to him and said, “I’m sorry, we can’t participate in this. We make too much money from click fraud.”
So it goes back to incentives, says Stuart: “If the media company or the search companies had been judged solely on producing effective results at the sales level — rather than on revenues or clicks — those people would not have made those choices.”
Costs Will Drop
“Can content be monetized profitably? Of course,” Stuart says. He cites an early-2002 Wall Street Journal editor’s letter on Internet media that said advertising would never support online content. Skeptical, Stuart checked the data of all the relevant public companies. “It was a difficult period,” he says, “but 35 percent of the public companies projected profitability by the end of that year, and 95 percent projected profitability by the end of the following year. And they all did achieve profitability. The Wall Street Journal just hadn’t looked at the data. Meanwhile, advertisers accepted that editorial view as fact and stayed out of the online medium.”
Reports that YouTube doesn’t make money annoy him as well. YouTube generates a lot of revenue, Stuart asserts, and its consumer and content acquisition costs are low. That suggests its reasons for not being profitable may be that the company is choosing to invest for the future. Stuart thinks marketers may be using faulty information to not explore the channel, which is a big missed opportunity for them and their brands.
However, the biggest opportunity right now in online media is likely social media, which is becoming “deeply engrained in consumers’ lives,” Stuart says. “If you had told me five years ago I’d spend four hours or more a month managing my relationships on LinkedIn and Facebook, I’d have thought ‘no way.’ Yet I do just that today.”
It perplexes Stuart that marketers don’t see the opportunities. “As a former CMO, it bugs me that they don’t see the advantage of jumping in early. My background is in economics, and it was clear to me in 2001 that high supply (increasing consumer Internet access) and flat marketer demand would make online media the deal of the century. My book research just proved what should have been intuitively obvious,” Stuart says. Today, he thinks exchanges and demand trading platforms such as DataXu and MediaMath offer great opportunity.
Mobile — a Moving Target?
“I did some research for an Adweek article a few months ago, and 76 percent of advertising people said they would accept advertising on their mobile phones only ‘over my dead body,’” Stuart says with amusement. Regardless, “Mobile meets my qualifiers for being a valuable media vehicle in that it does something unique by offering marketers consumer proximity and greater personalization,” Stuart says.
“Consumers distrust mobile advertising because of how badly other media, including online, have acted. For instance, the television industry is crazy to think that nearly 20 minutes of commercial time in an hour show is acceptable to consumers. And the Internet was nuts to have done pop-ups,” Stuart says.
“Consumers are transferring their distrust to new media, where they have more control. On sensitive issues such as privacy, they have little basis to trust that we, as an industry, will act properly. Those issues are manageable only if the industry really polices itself. Under Randall Rothenberg, the IAB just took a big step to do that, and I applaud him for it,” Stuart says. “Mobile will need to handle the same issues.”
While mobile has been around for more than ten years, Stuart finds it disappointing that it does not yet generate $1 billion in ad support. The Internet was generating revenues of $8 billion per year five years after its birth. “Mobile has got the worst sense of timing of anything I’ve ever seen. Every time it got some legs (in 1999–2000 and 2007–2008), the economy changed,” Stuart says. “They’ve announced ‘This is the year for mobile’ ten years in a row now. The waiting is killing me. Now, though, smart phones might be a game changer.”
Be Careful What You Wish For
In the end, advertising is still all about putting the right message in front of the right person at the right time. Targeting is one element of doing that, but Stuart thinks targeting is both overvalued today and underestimated in what it means for the future. “The challenge of targeting is to avoid ending up with such a narrow audience that it becomes an inefficient channel,” Stuart says. “Most people in media companies think targeting means getting a premium, but the premium seldom offsets the complications of managing inventory, overseeing a campaign, or reading results.”
That said, targeting is potentially the industry’s future salvation, after infrastructure and other systems have been developed to make it work. “But what most people miss when they discuss targeting as Google’s “big idea,” is that Google’s system and economics really worked,” Stuart says. “Against millions of intent-driven opportunities, Google brought hundreds of thousands of advertisers to the table — and made it self-service.” They solved both sides of the equation, not just better targeting.
There Is Still a Lot to Do
Infrastructure needs to be built, including tools to make it easy for big and small, national and local advertisers to come onboard. Ads have to become as dynamic as the content, with increased personalization and targeting of consumer interests.
On the one side, there is this complexity and rate of change that causes the marketers and their agencies so much angst. And on the other it produces so much opportunity and excitement for those of us trying to craft and capitalize on this new world. It’s really all for the better, it is just a matter of when people (i.e., advertisers) want to take advantage of it. “Earlier is better in my experience,” concluded Stuart.
