The Value of The Ad Cow

“the executioner” opinion expressed below is written by Karin Blake, Senior Lead of Platform Management, Ad Exchanges, at Razorfish.

An Economist piece two weeks ago centered on the popular question of how social media companies will monetize their networks and whether or not banner advertising could be their revenue savior.  The explosive growth of users for services like Twitter and Facebook has people scrambling to figure out how the new assets, the users themselves + their data, can be used to make money.  The trouble is no one really knows the value of these assets.

An asset is something a company owns that can easily be converted to cash.  For the moment, let’s ignore the “owning” question.  Historically, the ad industry – both digital and traditional alike – has been the mechanism by which content creators turn an audience into an asset.  The method by which these assets are priced has typically been a function of how well the sellers could convince buyers that their assets were unique (scarcity!) or large (scale!) or fantastic (martinis!).   Buyers would then look at sales after they showed the assets some creative stuff and decide whether or not their price was fair.

Then came an exciting new version of these assets – Internet users.  The Internet created an ambiguous world for advertising, as before, you couldn’t really measure the perceived impact of advertisements as directly as you can on the web (or at least as easily).  The amount of money transacting for audience assets in the traditional advertising world had ballooned on that lack of precision and directness.  In the digital world, buyers get a lot more data, often directly connected to the assets they’ve purchased.   However, they essentially still received the same basic information about the assets upfront -like demographic, geographic, and socio-economic attributes.  Enter social media.

Social media companies provide products or services that appear free to users, as they don’t have to pay for use, but instead pony up personal information in order to gain access.  Users go even further by surrendering more than basic information because these social spaces provide a utility to them that exceeds the perceived value of their privacy (or at least the notion of inputting personal info doesn’t concern them enough to be aware of it).

These users – the assets of the social media companies – are easy to convert to cash the old fashioned way.  Package up assets for buyers, and let them show advertisements in return for cash.  Unfortunately, the measurable online world shows buyers that perhaps just purchasing these assets in order to show them advertising doesn’t always get the results their bosses require, so they negotiate lower prices, limiting the scale of total dollars flowing through the system and isolating the value of the assets by forcing them through the basic advertising cash cow.

So, if the ad cow isn’t totally helpful in appropriately pricing or valuing these new assets, what are the other options?  How do you show value to both the user and the user of the information?  If we want advertising to continue converting audiences to cash, we’re going to need a better way to standardize and publicize the value on all sides.

Users: Your personal information is worth something.  Be aware of what the exchange is when you give it away.  It’s probably ads.

Sellers: Find out what your users are worth. Hire analysts to tell you how predictive clicking, geo and content preferences are resulting in specific actions. Do it by industry.

Buyers: Figure out how you actually make money. Do the research and analytics to show how advertising actually contributes. Align objectives with options. Test. Rinse. Repeat.

Follow Karin Blake (@km_blake), Razorfish (@Razorfish) and AdExchanger.com (@adexchanger) on Twitter.