DVRs are coming

Some new data points last week on the inexorable march of DVRs into US households.

I am obviously quite focused on brand advertising (the majority of which is still done on TV), so I have been closely following DVR penetration and its impact on advertising ever since I got my own DVR in 2005.  At that point, my TV consumption increased significantly (taking share from DVDs), but at the same time I stopped watching commercials.  I would estimate I only watch 10% of the commercials embedded in the TV content that I consume.  So more TV, but largely free TV; the only one getting compensated for the content I consume is Comcast.  Great news for them, but not so great news for the (largely brand) advertisers who paid top dollar for my attention and whose advertising I saw at 20X its intended speed, on a different day/daypart, with no sound.   So much for “sight, sound and motion”.

I am not alone.  As I have written earlier, DVR penetration of all US households is now >30% and going to 80% by 2016.  Articles like this one in MediaWeek make it seem like the level of conversation / realization is increasing.  However, when we consider the current market projections and new, penetration-driving technologies like “Virtual” DVR, it’s hard not to feel like the brand advertising community as a whole should be a bit more concerned and thus a bit more active in its search for TV alternatives.

Stay tuned.

Forrester Report: Ad Networks for Brand Advertisers

I was happy to see Brand.net was recommended in a recent recent research report from Forrester Research entitled “Ad Networks for Brand Advertisers”.  Forrester’s research suggests that as brand marketers focus on doing more with less, Brand-focused ad networks are a good solution driving increased efficiency and decreased cost without sacrificing quality or control.  The note is fairly brief, but includes some valuable advice for online brand marketers evaluating networks.  In particular,  Forrester recommends careful vetting of potential network partners.  In a crowded ad network market it’s important to separate the networks that can deliver against complex brand requirements from those with more DR-focused capabilities.  Good advice.

The summary of the report is available here.

Digital Marketing: Is it Time to Forget Measurement?

The following is a re-post from my guest blog column published today in AdAge. It ties in very nicely with coverage on measurement coming out of the IAB Annual Meeting, including my previous boss, Wenda Harris Millard’s keynote and this piece by AdAge’s Abbey Klaassen

Digital Marketing: Is it Time to Forget Measurement?

Why Online Advertising is Hindered by its Biggest Strength

In several recent pieces I have written about the opportunities and limitations of measurement in online media, particularly for branding. If you read those articles, the title of this byline might seem strange. For the rest of you, this title might seem like downright heresy. Please, read on before you call the exorcist.

The internet wasn’t always the multibillion dollar industry that it is today. Less than 15 years ago, most websites we know today didn’t exist. The relatively few that did were searching for business models. Some went with a subscription model, at least for a while (most notably AOL), while most content-focused sites honed in on advertising as the main source of revenue. As they did, they faced a huge challenge: how could they sell advertising against more established media with what then was an extremely short list of assets.

Recall the internet circa 1996, the year one of the biggest and best known content sites, Yahoo, went public: bandwidth was narrow, content was thin, audiences were small, creative was primitive. However, the internet did excel in one area: it was awash with data. Page views, time spent, clicks, conversions — a treasure trove of new metrics, along with some “old” ones that hadn’t been as readily available with other media.

I was recently talking this over with my former boss from Yahoo, Wenda Harris Millard, and she added that the measurability of this new medium also tapped into a broader theme in the advertising business at the time — growing dissatisfaction with measurement of traditional media. So, quite rationally, the internet advertising value proposition focused on measurement.

As the industry grew — faster than any media in history — more sophisticated targeting (behavioral, retargeting, “hyper-targeting”) and measurement (“engagement,” “search lift”) capabilities were developed. The focus on measurement evolved and became more ingrained, almost to the point of being the unquestioned orthodoxy. It was as if the core benefit of the internet vs. other media was measurement. Period.

Therefore, to sell more ads you need more measurement. (Two secondary factors, customization and short lead-times, also received significant emphasis—but those are topics for another day.)

The reason for my provocative headline is this: if today, in February 2009, we started with a blank PowerPoint slide and asked the same question that was asked some 15 years ago — how do we sell ads against more established media — would we select the same strategy? I think the answer is no.

Consider the “balance sheet” of the Internet now compared to then. Assets have grown tremendously: bandwidth is broad, content is deep and compelling; audiences are huge; sight sound and motion have entered the creative mix, through rich media and video. And the balance sheets of the other major consumer media have accumulated significant liabilities: print is facing declining circulation and, especially in newspapers, a rapidly aging demographic; radio ad sales are off sharply, while at the same time the once-promising satellite radio subscription model has proved endlessly unprofitable; TV, after getting past the “fragmentation” issue that was the obsession of the 1990s, has been covered by the huge black storm cloud that is DVR penetration. In 2008, 29% of all US households used DVRs, according to Barclay’s Capital — and that number is forecast to double by 2012 and reach nearly 80% by 2016. Those of us with DVRs watch dramatically fewer commercials. It’s just a fact.

So, if we were starting fresh in today’s environment, I would simply argue that we wouldn’t (and thus shouldn’t) lead with measurement. The measurement pitch has obviously worked extremely well for direct response; about 30% of DR-focused measured media spend is now online. But 95% of brand spending, or more than $100 billion, is still offline. For those budgets, I think our collective pitch should be more like “Your audience moved. Your marketing needs to follow them. Let us show you how the internet can deliver the same quality, scalability and value as TV.” Measurement should still be an important part of the story — we’d be foolish to ignore all the opportunities there — but I submit that it should be the sizzle not the steak.

That’s one of my missions at Brand.net: as stakeholders in the biggest, most powerful consumer media today, how do we provide the world’s leading brand advertisers the quality, scale and value of TV, the prior generation’s No. 1 consumer mass media? By making the critical, powerful, yet fragmented content environment of the internet more consistent and more buyable. And more measurable, of course — but measurable by the criteria and metrics brands have developed over decades to evaluate efficacy of 100s of billions of dollars of spend.

When we as an industry can do this, we can finally move large brand budgets online, following the audiences that are already there. This shift will in turn provide financial support for publishers to develop yet deeper, richer, more engaging online content experiences.

Some of you may still want to call the exorcist, but for the rest of you, let’s get to work.

A Brief Analysis of the Ad Supply/Demand Imbalance

It’s true that there’s an imbalance between supply and demand, which is putting downward pressure on rates as highlighted in this morning’s WSJ article “Future Shock for Internet Ads?”.  However, I think there are some important details missing that would add richness and perspective to this article and other similar ones.

First off, the writer cites PubMatic data at the beginning of the article. I have every confidence that the PubMatic data is accurate for what it is, but articles quoting the data rarely mention that it reflects a very specific sub-segment of the overall online ad market. That is direct response campaigns running on primarily small publishers with poor average content quality (with many exceptions I am sure) and weak/non-existent direct sales channels (likely not many exceptions here). This market sub-segment is the most volatile and most sensitive to changing market conditions so in that sense the trend numbers (48% Y/Y decline in Q4) really represent a “worst case”. The absolute numbers ($0.26 average CPM in Q4) are similarly non-representative; the significant majority of money that was spent in the display market during Q4 was spent at CPMs an order of magnitude higher than that. PubMatic actually makes some attempt to clarify in the text of the report itself, but in general these numbers are too often represented to be a broad barometer of display advertising, which they simply are not.

Two other important points: In general much of the online ad supply that’s being created is not being created in areas that advertisers have figured out how to use yet. Social networking sites and long tail content sites are good examples. The consumer applications are evolving so rapidly that effective ad models are lagging behind, so spend stays concentrated in areas that advertisers understand better.

Finally, in any analysis of supply/demand balance and particularly when CPMs are involved, it’s important to note that there are two distinct high-level market segments in online ads – Direct response and Brand. Across all measured media, Brand spend is 2x DR spend but this dynamic is very different online. Nearly 30% of DR spend is now online, but only 5% of Brand spend is. This imbalance is a big reason why the overall supply/demand balance is out of whack. The author mentions this at the end of the WSJ article I reference above but I think these more specific details help clarify why this is happening.

The Importance of Brand Advertising

This week Randall Rothenberg, the President of the IAB, released a self-proclaimed “manifesto” which picks up many relevant themes to our work at Brand.net.

It’s quite long, but the first 3 sections and the last 2 echo conversations we have with partners (advertisers, agencies and publishers) literally on a daily basis.  As I said in my comment to Randall’s article, there’s more confusion than information in too much of the ongoing debate about CPMs, formats/standards and the role of networks.   Everyone – advertisers, agencies, publishers and networks – would be better served if we could collectively take a step back from today’s disproportionate focus on DR and think more broadly about what it takes to make the Internet work for the full funnel.  In doing so we will find long-term, sustainable solutions to many of today’s challenges.