Gregan McMahon & Associates

Over the past two months I’ve been doing the rounds, buying coffees for a large number of luminaries in the Australian digital media industry.

The purpose of these discussion has been two-fold. Firstly to fuel my spiralling caffeine addiction and secondly to start developing a map of the digital industry and the issues and opportunities facing it.

A couple of themes have surfaced with alarming frequency – in fact in almost every meeting I’ve had it’s been mentioned that value and success are getting harder to quantify and to communicate. While there are established pricing models and success metrics, some are questioning whether these are still as appropriate as they once were. Others are questioning whether they’re even valid.

Two articles I’ve come across in the last few days have served to shine a spotlight on these issues.

The first “Let’s Kill The CPM” by the illustrious Shelby Bonnie (a founder of CNet and former Chairman of the IAB in the US) argues that the CPM – cost per thousand impressions, the basic sales model of virtually digital display advertising – should be scrapped.

Are online advertising metrics really broken?

The second, “What to Measure? Only 16% of the Web Is Clicking Display Ads” from Advertising Age, reviews a study from ComScore and media buying giant Starcom. The report showed that “the number of people online who click display ads has dropped 50% in less than two years, and only 8% of internet users account for 85% of all clicks”.

Given that all digital media buys are based on CPM and the success of all of each of these buys is measured on click-through rate (CTR), these seem to amount to a call for a fairly radical rework of digital advertising worldwide.

Why now?

It seems that the GFC has had a fairly profound impact on the advertising industry in general – and the digital advertising industry in particular.

Online display advertising is still growing in Australia – 19% for the last financial year according to Frost & Sullivan with similar rates of growth predicted over the next few years. However some Australian internet execs are privately suggesting that the GFC has resulted in – or accelerated a tectonic shift in the way “traditional” online media is bought and sold.

At first glance this shift seems to be a product of basic economics – advertisers reduce budget, publishers compete harder for this budget, and prices come down. High school economics, right?

This paradigm would also suggest that when things start picking up, the pendulum will swing back in the publishers’ favour and prices will rise. In this case it doesn’t necessarily seem to be happening – prices seem to be coming back, but not necessarily as far or as fast.

There could be any number of things behind this shift. But in my opinion increased fragmentation of the online has worked in the favour of the advertising buy side. There are simply more sellers willing to compete harder for digital advertising kitty that’s not growing fast enough to sustain them all.

What next?

While Shelby Bonnie suggests writing off the CPM model, that’s easier said than done. The entire digital media buying, selling and fulfilment infrastructures are based on the concept of CPM. And moving to cost per click (CPC) or cost per acquisition (CPA) models are going to cause even bigger problems for display advertising. If people aren’t clicking on display ads there is no CPC, and by extension how can they be acquired as customers from ads they haven’t clicked on?

And as for ComScore/Starcom – while they are pretty bleak in their assessment of click-through as a measure of success, they are not writing off digital display. Their contention is that online display coupled with search advertising can be a potent combination – that is, display advertising drives search behaviour.

So to my mind it seems that online display – while theoretically accountable for delivering customers – is and always has been a square peg in a round hole. Marketers perhaps need to accept that engaging consumers with their brand is a different process from driving purchase activity.

Neither is more important than the other, but you can’t necessarily achieve both objectives from the same piece of creative.