Three Ups & Three Downs for Online Advertising
According to the IAB, online advertising brought in $7.9 billion in the third quarter of 2011 – representing a 22% increase over the preceding, record breaking quarter. These results shed a bright light on the success of online advertising. Looking closely at these results will also tell us what will be needed in order for the industry to flourish over the long haul.
Online advertising is increasingly taking a larger share of advertising budgets, and the drivers of this growth can be attributed to the economy, the rise of social platforms, and improved education.
Economy – As we see and hear every day a lack of economic confidence is driving cost containment and risk avoidance across the entire consumer economy. Despite businesses becoming more cautious about spending, they know that they need to continue to promote their products and reach new customers. Online advertising has emerged as one way for advertisers to manage promotional costs and still reach a large audience. Shifting dollars from the traditional print ads to online venues is taking online advertising from an experimental channel to a cornerstone of the marketing mix.
Social Platforms – Perhaps the single largest impact on online advertising is the coalescence of the social media advertising model. Social media channels now represent as much as 12% of online ad spending, according to EMarketer. More importantly, in 2011 social platforms have represented as much as 40% of the growth in the overall online advertising market. The leader in social platforms, Facebook, will generate $4.27 billion in revenue in 2011 and is projecting 36% revenue growth to $5.8 billion in 2012. Although small by comparison, Twitter is also expected to rapidly increase its revenue from $45 million last year, to $140 million for 2011.
Education – As online advertising has evolved into a major marketing channel, there has also been an evolution in business models. Up until now Ad Networks and Publisher inventory management was about managing contextual key words and cookies as proxies for interest. Today the game is about building audiences by aggregating data enhanced cookies across multiple sites, and accessing those cookies through real-time bidding exchanges. Advertisers are even able to make decisions based on audience profiles and inferred real world data. This focus of building audiences closely aligns with how advertisers and marketers plan campaigns for other markets. Online advertising with audiences is now more transparent than the former black box methods of running campaigns into closed Ad Networks.
Despite the positive trends for online advertising, the growth is beginning to expose business model challenges, technological limitations, and some institutional issues.
Audience Reach – The current online ad serving infrastructure is almost entirely dependent on behavioral targeting and cookie-based technologies. Most Ad Networks, Exchanges, DSPs, and Trading Desks are designed to recognize and serve ads against a pool of cookies. As these pools of similar cookies are gathered to form "target ready" audience clusters, advertisers are beginning to notice that the overall reach or number of unique users is severely limited. As reported by Nielsen and Forrester only 30%-45% of the unique users in many locations are available as part of the qualified cookie pool.
Tracking users around the Internet has caused the industry and users to respond with technical limits that also limit the availability of cookies:
- More and more users have set their browsers to not permit cookies on their computers at all
- Most browsers limit the number of cookies they can store, usually around 300 cookies, of which there may be 20 cookies per domain name – a single user can represent multiple cookies and as more sites are visited, a cookie from the latest visit replaces the oldest visit, limiting useful data
- Cookies are set to expire after a certain length of time – 60 percent plus of cookies survive for less than 30 days
- A growing number of people who were surveyed by analysts reported that they routinely deleted their cookies at least monthly. Forrester Research reported 39 percent deleted their cookies at least monthly, Nielsen reported 44 percent. And Redeye Communications report 55 percent
- The more affluent and sophisticated the online consumer is, the more likely they are to block cookies and delete them on a regular basis. For many campaigns the affluent are the targets of a campaign.
As more and more businesses move to online advertising, qualified audiences are being bought by the largest national advertisers. This will serve to starve the market for qualified prospects, especially for new advertisers. The next advance for online advertising will be to go beyond the limits of behavioral targeting technology and provide access to everyone online in the form of qualified IP Address Targeting.
Verified Relevancy - As organizations commit more dollars to online advertising there is going to be increased expectations that the audiences being targeted are demographically and psycho-graphically appropriate for each campaign. Currently there is no direct way to connect a cookie to the breadth and depth of data and analysis that most professional marketers have come to depend on. Due to privacy concerns a cookie cannot be identified or tied to a specific user and, as such, must be aggregated into clusters of other supposedly similar users. As more advertisers go online, the pressure to create larger, generically qualified audience clusters from a diminishing pool of cookies is going to increase – in the end inventory will become less qualified and response rates will decline.
A change in advertising technology that creates nearly 100% coverage will also allow advertisers to buy inventory that is classified by hundreds of demographic attributes. Audience targeting, that allows marketers to consider the entire pool of IP Addresses at a location while characterizing the pool through predictive models or by demographic, life stage, ownership and preference data, means that the online targeting becomes much more robust . This approach also becomes much more familiar to the typical marketer who is constantly working to characterize what their best prospects looks like.
Privacy - The online ad industry continues to push for a self-regulatory policy for online advertising believing that tracking devices such as cookies or pixel placements can be best managed through guidelines and opt-out compliance standards. Requiring an opt-out provision in all privacy policies for every website provides the illusion of privacy to end users, while at the same time limiting consequential damages should an invasion of privacy occur. These proposals by the FTC and Congress effectively serve to shift the responsibility of privacy to the end user and away from the industry.
A privacy policy focused on an "opt-out" provisioning system will certainly be gamed as long as there is a profit motive. The next generation of privacy management should be focused on managing the permissible use of certain specific data "types".
- The most objectionable illustration of the privacy issue is knowing that our banks, Internet browser vendors, online auction houses, book clubs, airline mileage programs, travel sites, and online newspapers may all be re‐selling our visits and buying history to whoever is willing to pay for it. Consumers would never knowingly opt‐in to this behavior. Account information being resold to third‐party marketers like this is a violation of trust.
- Consumer "transaction data" should be designated as a new class of "permissible use ‐ private data". Establishing who owns the data has been done before. The concept of permissible use data was established as precedent in the Fair Credit Reporting Act of 1970. The FCRA established limits on banks and credit agencies from using or reselling customer information for marketing purposes. Binding our private Internet transactions in a similar manner would go a long way toward establishing trust with the consumer.
If we can strike a balance with privacy around what data is available for targeting (as we do with direct mail and email) we can eliminate the inventory bottlenecks that exist with behavioral targeting and replace it with an alternative that opens up commerce to the other two thirds of the qualified audience. Adopting an alternative technological approach such as IP Audience Zones represents one path, however, it is critical that whichever solution that the industry adopts be bulletproof from a privacy perspective.
Contact Us
If you'd like more information about the solutions introduced in this newsletter, or would like to discuss planning for your next direct marketing campaign, please do not hesitate to contact us at marketing@semcasting.com.
