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Tuesday, September 18, 2007

Yes, Ad Dollars Matter -- Rubel

Many Web 2.0 businesses fail to grasp the fundamental guiding principle of media and publishing over the past century: you're delivering an audience of "buyers" to paying advertisers. So says Steve Rubel in a thought-provoking post "Why Some Web 2.0 Sites Will Never Attract Big Ad Dollars," arguing: "Quantifying eyeballs is not the answer." Brilliant. I agree with Rubel wholeheartedly.

Naturally, some commenters were given to disagree with him, on the grounds that the web is not a direct response medium and that many of the blogs, social networks, etc. are hotbeds of value for advertisers (the "just trust us!" economics of painting certain online properties as "hot places" without any real proof).

A great way to prove whether your inventory is valueless or valuable to an advertiser is to put it to a harsher market test. Let's just say that there are some valuable online properties that never needed to persuade anyone they were valuable - not even advertisers. They made money because people really kept returning to these sites, and frequently enough, clicked on links while engaging with the content, and really did something, like booked a holiday. The accompanying referral revenues were 100% proof of value.

[Does that mean I think every advertising transaction should be CPA-based? No, of course not. Advertisers can see value without needing to complete transactions in that manner. But focusing on the direct referral model is a great way to simplify the debate: what if you had to give up all display advertising that had a CPM-based "brand" rationale, to earn all of your money from clicks that led to someone buying something from your partner?]

Not long ago, a great friend and educator who has been lucky enough to own a piece of a major dot com vertical site in the travel industry gave a private whiteboard talk roughly titled "Why TripAdvisor got bought for $200 million." In this informal chat, lines were drawn, consumer intent was graphed, and the fact that consumers at a point very close to purchase were using this site was clearly shown to translate into value to advertisers. The case was made that even without advertisers, the referral links to bookings engines were making money, and pegging a certain value on all that traffic. TripAdvisor, on the strength of this alone, was no doubt quite profitable. The referral partners (IAC), in the end, wanted to own TripAdvisor directly so they bought the company.

This example and quite a few others bear out what Rubel is saying. At the other end of the spectrum, there are huge swaths of online activity with zero commercial intent and thus, nearly no value. You can try to persuade someone of that value with fancy brand talk and WOM magic, but as the advertising market gets closer to being a true exchange, I think the low value of some of this online inventory will only become more evident.

Case in point: Google's contextual matching tech recently thought it had accurately seen a fit between a friend's (product oriented in a high tech field) keywords, his 40 cent bids on content targeting, and the published content on a huge number of pages on one of the major social networking engines (let's just say it was one of Bebo, Facebook, or MySpace). The traffic suddenly came fast and furious. 50,000 clicks and about $8,500 later, no one had bought a thing (zero conversions). 50,000 clicks on other swaths of inventory in that same account would usually bring about $30,000-50,000 in revenue. ($8,500 worth of clicks might have brought in $15,000 in initial revenue.) That's a very long way from the $0 achieved on that inappropriate inventory! Yes, arguably that inventory would have been appropriate for some advertiser. But I'm going to say: not very often, and not worth very much.

So often publishers see things only from their own distorted perspective. Look how big, respected, and impressive we are! Advertisers care a lot more about... you guessed it, direct response. Ad industry people selling things other than direct response often try to change the subject, and often there is a great case to be made for public relations impacts and other lifts that are harder to measure than direct response. But there's this thing about direct response... you can prove it. ROI-positive campaigns will end the "debate" about value and turn it into an ongoing ad buy.

There is some value to everything, but I'm looking forward to the furthering of models that give quality publishers a fair CPM rate for their commercially-relevant properties. Unfortunately that will also have to mean the poor quality inventory will continue to be classed as "remnant" until proven otherwise. Hopefully, the upcoming online ad downturn will actually be favorable to the proven properties who have a track record of relevance not just to readers and users, but to advertisers.

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