Tuesday, August 27, 2002
Making Internet Advertising Media Work Affordable
By David L. Smith Much has been written about the inefficiencies of buying and selling Internet advertising. But what about the cost of research and resources to the buyers and sellers? This is another factor in the willingness of major agencies and major clients to participate in all that the medium has to offer.A friend looking for a job called me the other day to ask if I had a certain resource. He was looking for some site information. When I said no, I felt obligated to explain how we at Mediasmith, proponent of many of these sources do not subscribe to them all.
There are several issues, but money is at the root of it all. Because of the nature of the Web, many more resources are needed than with traditional media. Web dollars are in no way equivalent to spending in other media. Sure, they probably will be some day soon. Web spending, no matter whose numbers you look at, is far below that of National Cable TV, Local or National TV or Radio all of which have one source for the industry to support. Consumer magazines, 3-4 times the size of the Web in spending has two sources for audience research. This research is good for defining media vehicle audience, programming audience, reach and frequency, pre-buy estimates for campaigns and post buy-delivery on a proof of performance basis. The interesting thing is that, whether there is only one resource (ARB for radio or Nielsen for TV) or two (MRI or Simmons for consumer magazines), economies of scale and the competitive marketplace are recognized and pricing reflects that competitive aspect. In addition, all of these are priced based on the spending of the agency within the medium or client subscribing and taking into account ability to pay.
The Web has yet to settle down to a few vendors. This has pricing policies all over the lot, seemingly without any sensitivity to the pricing of the rest of the media world. Most of these companies that started out early have a flat fee model. Everybody pays the same. This means that as the major agencies get more and more of the pie, the vendors do not get more money unless they raise their price to everyone. The result, in addition to shutting out medium and small size players, is that the vendors leave money on the table by servicing fewer and fewer agencies over time.
Right now, from a pure research standpoint, we have @Plan and NetRatings from Nielsen, NetScore and Media Metrix from comScore but all that they can give us so far by themselves is site-based data. We depend on third party ad servers like DART and Atlas DMT for POP data and soon for R/F. Because of the complexity of the data, we will need both ratings data (User Centric Measurement) and third party server data (Server Centric Measurement) to compute accurate reach and frequency. And don't even get me started on the cost of third party ad serving. With lower CPMs, it is just plain too expensive to the client to sign off on for many campaigns. The result being we don't always get the tracking we need and cannot prove the efficacy of the campaign.
So, no matter how you cut it, we must buy at least three resources to do all of the jobs I can do with one for other media. Each of these resources costs 2-5 times what the resources for other media cost on an absolute basis. And the other media involve more spending in the industry. So what is the delta? On a marketplace basis, my company is probably paying at lease ten times what we should be paying for Interactive media resources.
We are paying for development. I recognize that. But to some degree, development must be paid for out of equity, not the customer base. Then the customer base pays back over time. That's how it generally works. But not apparently in this case. I don't know whether to pray for consolidation or more competition. But to paraphrase Jackson Browne "we need either more of it or less of it". The competitive mix in Interactive media research right now is not working in the markets' favor.
It is no wonder that many of the heads of the major media and advertising agencies think that doing Web advertising is inefficient and that they cannot make money at it.
