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Scale: A Third-Party Data Killer

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alanpearlsteinnewData-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Alan Pearlstein, CEO and co-founder of Cross Pixel Inc.

A fundamental difference between offline and online data usage is associated marketing cost.

Digital ads (banners) delivered to specific audiences across RTB average around $3 cost per thousand (CPM). A direct marketer, however, must invest significantly more per customer or prospect to drive a sale via direct mail, typically more than a $600 CPM. These cost constraints mean offline marketers have no choice but to be data efficient and highly focused. Scale is a very expensive enemy.

In the digital world, we see an opposite effect. Rather than apply a vigorous focus and discipline on identifying the most viable targets, digital data suppliers bloat categories to drive scale and increase revenue. Data suppliers, for example, license audiences of auto intenders in segment sizes as large as 20 million users, yet only 7 million to 8 million cars are purchased in the United States each year. This approach commoditizes data, mitigates its effectiveness and is why data buyers complain that third-party data doesn’t work.

Third-party data works if you use it correctly. That usually means making the audience smaller and more targeted.

The Commoditization Of Data

However, it isn’t just cost that is driving commoditization of digital data. There are several other factors in play.

The first is accuracy. Offline shopping and address data is more accurate and reliable than anonymous online, cookie-based behavioral data. When you purchase offline data, such as mailing addresses or catalog shopping activity, you usually reach the desired target. In the online world, which is currently cookie- and browser-based, it is hard to be sure that the ad is being presented to the intended target.

I am not suggesting offline data points are of higher quality; I would actually argue the opposite. Offline data focuses on analyzing past purchases and activity, while online behavior provides predictive data points, based on online research and future purchases. Mailing data is more reliable than digital audience data, although I foresee that this will change when the dominant players, such as Google and Facebook, begin to apply advertising IDs across their extended ecosystems.

Creative is a second problem. Banners are a bad solution, and showing them to a less targeted, bloated audience is an even worse solution. But that’s what digital marketers do. Direct mailers get a printed piece to their desired specs in the home of their targeted prospect. What do digital buyers receive — a fleeting moment in a banner ad that is ignored? Digital marketers get exactly what they pay for, and it’s not good. The industry needs better creative formats and executions. I think in-stream ad placements are a great move in this direction, but we need a lot more progress.

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A third issue is infrastructure constraints, which is painful to say given the investment that has been made in ad tech. In the offline world, a direct marketer knows which mailing list generated each sale. The conversion data can be used effectively to plan future mailing efforts and improve targeting and performance.

In the online world, most campaigns are not measured as rigorously. The problem is that it is very difficult for a data-driven buyer to set up campaigns in DSPs so that they can measure and optimize by each individual audience against every media opportunity, such as Facebook, display or video. To do this requires a significant amount of work up front to set up dozens of individual campaigns for each of the audience targets. Buyers don’t have the time to do this and many end up bundling data sources together into one campaign. This is a serious problem that needs to be addressed by the DSPs and DMPs. If we want to move our industry forward, buyers need to know which audiences work, and they need the capability to do this easily and efficiently.

It is unfortunate that the knee-jerk reaction to these challenges has been to create oversized, commoditized audiences on the premise that it helps cover flaws in the current system. The truth is that it does the exact opposite.

It’s time to fix the problems the right way and to start thinking small.

Follow Alan Pearlstein (@alanpearlstein), Cross Pixel (@crosspix) and AdExchanger (@adexchanger) on Twitter.

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