Monday, December 3, 2007

"Digital Dashboard” Approach to Media Buying

At a high level, Google’s success has demonstrated that advertisers are willing to pay more than anyone thought possible for highly-targeted advertising with measurable results. Over time, advertisers will demand the same type of targeting and measurability as they get on search across the other ad mediums. While most other ad mediums will never be as targeted a search (where users self select and ask for information), targeting on virtually all advertising mediums can certainly be improved from current levels. Additionally, advertisers are looking for ways to measure their non-search ad spend as efficiently and effectively as they can with search. When discussing measurement, the old adage that “50% of advertising dollars work, but we just don’t know which 50%” remains true for most ad mediums. Over time, as more media becomes digital, a digital dashboard approach will become the norm for advertisers. Advertisers will use a digital dashboard platform to execute their advertising plans. Such a platform will enable advertisers to upload their advertising creative and more effectively execute their campaigns with better targeting and measurability across multiple ad mediums, further enabling optimization for both publishers and advertisers. At the end of the day, the ability to optimize, manage and target is the key catalyst to drive a digital dashboard approach to advertising.


The key questions surrounding the opportunity are:


􀁑 Who will control the digital dashboard?
— While the answers are not entirely clear at this early stage, Google, Yahoo, and Microsoft are best positioned to become the early leaders.

􀁑 On what mediums will it work?
— Mediums that go digital earliest will be the primary beneficiaries of this platform strategy. Internet is already there, television has very large potential, and radio and mobile also should work well.

􀁑 How will the business models and economics change?
— While the economics and business models are still evolving, better targeting and measurement capabilities will enable platform owners to charge a commission on the total ad spend. However, if a simpler ASP/license model develops that is not based on the percentage of dollars flowing through the system, the potential revenue could be lower than expected.

􀁑 How long will it take for the digital dashboard approach to gain traction?
— As far as timing, it is still too early. The market will develop over the coming decade. Interestingly, the major impediments will not be technological, but instead overcoming the resistance to change among many, many players. As stated in the recent IBM report, “The End of Advertising as We Know It,” there will be more change in the industry in the next five years than in the past 50 years.

􀁑 How big is the potential opportunity for the platform provider?
— While sizing the opportunity is difficult (this is an understatement), the dollars flowing through such a digital dashboard could reach $500b world-wide in roughly two decades.

The skeptics’ view
This concept is exactly that, a concept. The acceptance or inevitability of the digital dashboard is far from certain. When discussing this concept with various industry contacts, there is a high level of skepticism for a variety of reasons, including:
􀁑 Platform Independence - Users of the dashboard might object to the lack of- independence of the dashboard provider. Conflicts of interest could arise between purchases of owned inventory versus partner inventory, each of which would offer different economics to the dashboard owner. The dashboard would probably offer both types of inventory; will dashboard users allow their ad spend to be allocated for them? This issue of “independence” could be the most important factor for advertisers, particularly as it relates to Google.
􀁑 Resistance to change - The digital dashboard represents a massive change from the current method of ad buying. Change often takes more time than expected, even if it is more efficient. There are many players in the advertising industry with vested interests that are challenged by the concept of the digital dashboard and they do not want change. While the dashboard concept will eventually take hold, the timing is unclear. Advertiser adoption and education will take time.
􀁑 Opposition from advertisers – ironically, given the potential scope for improvements in efficiency, one of the main barriers to change could be the advertisers themselves, particularly the bigger advertisers. The current system, where advertising budgets are pooled by media buyers who then buy space on media platforms, is beneficial for larger advertisers, who are able to use the size of their budgets to demand the slots that they want. Under a more transparent system such as the dashboard, advertisers run an increased risk of not getting the slots that they want due to being outbid in an auction process.
􀁑 Inventory and commoditization - Can a player acquire inventory across multiple ad mediums and various partners? Different aspiring dashboard providers will approach this issue differently. Google has already signed agreements to acquire inventory across multiple mediums, but many current and potential partners are reluctant to cede control of their inventory. The traditional media players certainly have a leg-up in creating a dashboard to sell their owned inventory, although they have made limited progress at developing a scalable, off-network model. Publishers also worry about the commoditization of their inventory.
􀁑 Lower overall advertising spend - There may be zero-sum relationships. For example, if ROI is higher on one medium than for others, will spend decrease on one and increase on the other, leading to flat or declining overall spending? Basically, if the platform takes hold and increases efficiency, could that lower the overall spend?
􀁑 Regulatory and legal concerns – Consumers and consumer advocacy groups will likely try to limit ad targeting capabilities because of privacy concerns. Potential legal and regulatory developments could limit the effectiveness of a digital dashboard/platform approach to ad buying.

What is the “digital dashboard”?
This concept is simple: give advertisers and agencies one digital platform through which to buy advertising, both online and off (television, radio, mobile, print, etc.) and manage their advertising assets. The platform will be used to better manage and target and, as importantly, better measure the advertising flowing through the digital dashboard platform. As more advertising becomes digital, advertisers will be able to house and manage all their digital assets through one platform; managing, deploying, targeting, and measuring the effectiveness.

Better targeted and measured advertising will increase pricing
Google’s success has shown that better targeting and measurability can lead to higher pricing for ad inventory. The digital dashboard providers will use this lesson as a key selling point in driving advertiser and publisher adoption. As targeting and measurability continue to increase, spending on mediums and platforms that incorporate these capabilities should rise. If advertisers can target and measure, then they should be better able to understand the ROI. This should lead to higher pricing for inventory. Think about how much more valuable television advertising would be if an ad was targeted directly at a viewer such that when two people are watching the same television program in the same town, they are shown two different, customized ads. While this is likely a long, long way off (if ever), the value of the inventory would be multiples higher than under the current model. (Note that technology may make this type of customizable advertising possible, but that privacy concerns could limit the extent of its deployment.)

Scale and data across mediums
Coupling greater measurement and targeting with increased inventory across mediums is a meaningful selling point as media firms try to garner a larger share of ad spending. Google is quick to explain that the targeting and measurement of its products make them desirable to advertisers. This underpins their partnerships with EchoStar, Clear Channel, and various other offline partners, as well as their decision to make Google Analytics free to users of its search product. The near real-time reporting that Google offers advertisers allows them to have greater insight and understanding of their campaigns and the associated ROI. Google is moving towards a situation where they may be able to offer an advertiser a view of their ad campaigns across multiple mediums with analytics and ROI for each piece as well as in aggregate. The level of complexity here is enormous, but the potential reward may make the goal worthwhile. This is a winner-take-all model. At the end of the day, all the potential platform providers will try to position their digital dashboard as the largest and most efficient. However, alliances and other general competitive pressures should eventually cause the market to consolidate around the top 2-3 players.

Thanks UBS, November 2007

No comments: