“Data-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 Jean-Baptiste Rudelle, CEO and co-founder at Criteo.
Digital advertising moves quickly — sometimes too quickly.
The market and technology has evolved significantly over the past five years to drive the best possible price for digital ad inventory for publishers and maximize impressions for the brands they serve. But, of course, there are growing pains when you're working in a fast-paced, rapidly evolving market like display advertising.
But there's a solution that's picking up speed that can solve some of the biggest challenges advertisers are tackling with display today. These challenges can be broken down into three buckets:
The quality of ad inventory relies on four key parameters: the audience (who's looking at the ad), the placement (where the ad is located on the page), the context (what's surrounding the ad) and the format (what's the shape and size of the ad).
In theory, inventory is supposed to be priced according to its intrinsic quality. However, the market is far from efficient, and for the same price, quality can vary quite a bit. The issue is advertisers' ability to verify audience, placement and context of the ad (it's pretty straightforward to verify the format).
Amazingly, users never see nearly 30% of all paid display impressions, particularly when they are below the fold. For a client, it's almost impossible to ensure they will pay the right price for each impression. All too often they end up paying an average of all impressions, which is highly inefficient.
A common tactic to guarantee a certain level of quality is to restrict the buy to easy-to-verify premium inventory, like high-end websites. However, as competition for this well-controlled inventory is very high, there is a huge premium in price per impression. In the end, the choice is between high uncertainty or premium price. Sound familiar? Not very appealing.
2. What is the right level of capping per user?
Everyone knows that beyond a certain number of impressions, the impact of advertising diminishes significantly, and could even become negative at some point. Too much advertising kills advertising.
So how do advertisers set the right limit? In practice, hard capping is set at an arbitrary number per day or in total. This creates inefficiencies, as some users receive too many impressions while others are underexposed.
3. What's the value for each impression and how do we measure the ROI of the campaign overall?
This is a direct consequence of the lack of visibility into actual quality. Some impressions might have a lot of impact, while others are completely useless, especially those below the fold that we're still charged for. Unfortunately, tracking software has no way to know that the ad is positioned below the fold and it automatically attributes the same weight to all impressions regardless of their actual quality. Amazingly, there are still several bad apples in our industry that push this dirty cookie-stuffing model — blasting the Web with super cheap, almost invisible impressions and taking credit.
In this context, how would an advertiser know if this particular interaction has done anything for their campaign? It's almost impossible to definitively say if it's had an impact or not. And this creates a very serious limitation on how brands can measure ROI of an online display campaign, to say nothing of the serious fraud issues.
A Different Approach
The good news is there's a solution to these challenges. But it requires a change in approach, a change in how the industry defines value for display advertising, and a change in what's bought and sold by advertisers and publishers. Impressions are great, but they're a bit ambiguous and it's hard to really measure the value, which is why cost-per-click (CPC) is gaining more momentum in the market for display. Advertisers want to know what they're getting for their investment, and clicks mean more than impressions.
So, how does buying on CPC solve the quality issue for the advertiser?
It automatically adjusts the price of each impression, depending on the actual quality. It's easy to understand that highly visible banners shown to the right audience at the right time have a much higher click-through rate than those randomly buried down in the site. And interestingly, it does not mean that an impression without any click has no value. CPC is just a powerful mechanism to guarantee that each impression will be paid at the right price. In other words, by paying per click, the advertiser has the guarantee that they will never overpay for any impression, which is important.
And similarly, the CPC model also ensures automatically optimal capping per user. For each new impression shown to a user, the likelihood to engage tends to decline. With this fast-diminishing click through rate, the advertiser is in a much better position to put the brakes on the ad as needed. This will automatically cap the number of impressions per user at the most optimal level – and ensure again that advertisers are not overinvesting in wasteful impressions.
The True ROI
Last, but not least, CPC pricing makes it easier for brands to understand the true ROI of their campaign. Multiple large-scale studies have shown repeatedly that clickers are much more likely than non-clickers to engage later with brands and ultimately buy. Getting a user who is willing to interrupt their browsing to click on a banner ad is a rare event but it is an incredibly strong signal. Again, this doesn't mean that impressions without clicks don't have any value. Clicks simply have much more value.
The market is evolving and more advertisers are making the transition to a pay-for-performance style of media buying, which is why the CPC model is picking up speed.
The shift in defining ad value won't happen overnight, but it's happening fast and we can expect to see the demand for clearer forms of ROI and results across the board — beyond just display — because technology is advancing and advertisers want more tangible results for their money.