The Economics of Online Advertising
The current online advertising ecosystem has in many ways become very complex, featuring a host of contenders with heavy pockets. They are stranded in a crowded value chain all across the web with limited transparency as to which ads were visible and where they appeared. Unlike other forms of media, in digital marketing, it’s possible for ads to be served, but not appear in front of a consumer. In fact, some served ads never make it into a consumer’s viewport, and are therefore never have the chance to be seen. In addition, the cost of producing an incremental digital ad is either zero or near zero. These dynamics have created an unlimited supply of display ad inventory with a gaping inability to differentiate high quality inventory from low or no quality inventory.
Most of the Digital Marketing agencies attribute it to the “served impression” standard, which has historically been the basis of buying and selling digital ads. While it’s understandable that this came to be the currency as there were no better alternatives, the reality is that when each of the players in the ecosystem gets credit for an ad simply being served as opposed to actually being viewable by a consumer, the incentive is to promote quantity over quality. The result is that the average web page is cluttered with ads in every corner of the screen, many of which never have the opportunity to make an impact. Low quality or non-visible ad impressions leads to weaker campaign performance, providing advertisers less incentive to advertise and ultimately leading to lower CPMs for publishers.
At the closing of an ad run schedule, these digital ad agencies set out to radically improve and simplify the measurement of display ad campaigns by determining when an ad is actually viewable, delivered legitimately to consumers absent non-human traffic, in the right geography and in a brand safe environment. When ad campaigns are validated across these dimensions, advertisers can ensure that the only ads being counted are the one with an ability to impact their target audience and that their campaign performance is not being polluted by the existence of wasted impressions. Having greater confidence in the medium helps advertisers justify increased investment in digital.
For publishers, the increased transparency around the viewability of certain ad inventory incentivizes them to remove ad clutter and optimize their design to deliver an improved aesthetic for users and a better canvas for advertisers. This increased transparency will also enable publishers to ‘unearth the gold below the fold’ and better monetize their existing inventory, particularly those ads which appear further down the page but still draw a strong audience and maintain high viewability.
The long-held promise of online advertising is that as the most measurable of all media it would inevitably pull advertising budget from print and TV. While it has clearly been able to do so from print, the same cannot be said of TV, in part because of the uncertainty that has continued to surround the performance of digital ads. With validated impressions and validated GRPs, the digital channel now offers metrics that are truly cross-media comparable with TV because ad impressions are predicated on the same ‘opportunity to see’ standard.
It’s time for the Digital Marketing Agency to get its fair value as an advertising medium, and that will only happen through improved transparency and better accountability for the ads that are delivered. Embracing digital scarcity will necessarily change the supply-and-demand equation for online ads, and with it the fundamental economics of an industry ready to realize its full potential.