What happens to the business of digital media when emphasis shifts from targeting content to targeting audiences via scientific aggregation and optimization? The short answer is: it’s complicated.
To drive some clarity around this question, I moderated the “The New Science of Advertising” panel at the recent OMMA Global Hollywood conference. To understand the dynamics, we must first break down the major players:
- Ad Networks: We have 400-plus ad networks today, depending on how you count them. Many are marginal and opaque, yet they squeeze significant margins (for now). Other networks, and exchanges, can be innovative, transparent and promising. Nearly all position themselves around better technology, targeting and control for media buyers, and more monetization for publishers.
- Publishers: Publishers are seeking to better manage and monetize their inventory amid unsold inventory and declining CPMs. Many publishers are embracing ad networks, with upwards of 40% of inventory being sold on the secondary market, up from just 5% three years ago. Indeed, many publishers avoid networks like the plague, in fear of brand and price erosion.
- Publisher-Network Optimization Technologies: There is a new breed of optimization services, like Rubicon Project, that make it easier for publishers to manage hosting with multiple ad networks while maximizing profitability.
- Advertiser-Network Optimization Technologies: There also are new technologies that optimize media for marketers. My own startup, Clickable, is a good example. Our technology integrates the major pay-per-click ad networks into one simple experience, and optimizes media buys to drive marketer profitability.
- Second-Generation Media Agencies: Several agencies are trying to add new levels of intelligence and targeting to media inventory acquired from numerous sources, including publishers, ad exchanges and ad networks. Mixed with proprietary technology, client-side data and analysis, these new efforts, like MDC Partners’ Varick Media Management, represent a second wave of audience aggregation and behavioral targeting.
- Marketers: Marketers, the final link in the buy chain, must make sense of the complex web of audience aggregation and targeting. They also must think about how to integrate new audience aggregation techniques with customer relationship management. Surely, they question the many layers of middlemen, and see a lot of room for improved efficiency and effectiveness.
- Consumers: Consumers are the most valuable piece of the entire media ecosystem. Ironically, their interests are rarely brought up in discussions about the future. But their influence will only grow because technology is introducing more choice and voice. David Meer, chief research officer at WPP’s Enfactico, told me recently: “We need to stay grounded in high-level theories of what customers want, how we can meet their needs profitably, and how we can communicate to motivate them. And we must do this in a world where consumers control the conversation.”
After evaluating these stakeholders, it’s clear everyone’s jockeying for position. Publishers and ad networks are dancing with each other, but with skepticism. Network optimization technologies would like to insert themselves between publishers and the ad networks. Marketers like the idea of ad networks, but still see a mostly undifferentiated market.
And agencies? They, especially, have demonstrated frustration as technology companies have become successful at their own game: making margins on media. Rob Norman, chief of WPP’s digital media unit Group M Worldwide, said it well in a recent interview with the Wall Street Journal: “The ad-network business, we almost shouldn’t have allowed it to exist. The tech firms got there first and dealt with the science before we did.”
The jury’s out over whether agencies can succeed in audience aggregation technology, but we’re sure to see an intensified mix of disintermediation and codependence throughout the entire ecosystem. We also can expect several other trends to follow:
- More transparency: Everyone’s demanding it, and technology is fueling it. It’s a competitive advantage, and it will drive quality.
- Flight To performance: It’s not just the economy that’s fueling a flight to performance. It’s also the desire for everyone to one-up each other, no matter where you sit. More efficiency and effectiveness, rooted in new methods of audience aggregation, are strong selling points in open, transparent markets.
- Growing demand for simplicity: If the digital media landscape is broken in any way, it’s because it’s so complex. Complexity creates friction to anything getting done; the only way out is to simplify.
- More media formats: It won’t happen immediately, but an intensifying science of audience aggregation will begin to spread and normalize across other digital measured media. In the next five years? Probably not. But eventually.
- Consumer scrutiny: As noted, technologies are empowering consumers. We also must not forget federal legislators who are becoming fiercer consumer advocates, especially around privacy. That’s an area the ad industry is failing miserably on.
The endgame? Nobody knows. But the outcome will be far different than what we know today. What do you think?
(The above also was my latest column for MediaPost.)