One Question: How Are The Slices In The Marketing Dollar Evolving Today?

One QuestionOften, a question doesn’t have an easy answer in the digital advertising business. This is a new column devoted to an answer to a single question – and providing a bit of space for it.

Today’s participant is Tolman Geffs, Co-President of Jordan, Edmiston Group, which provides investment banking services in the media and information industries. He recently answered the following question during a conversation with… From the Internet Advertising Bureau annual meeting over a year ago, you offered a slide which showed all the slices being taken from the marketing dollar before it ever gets to the publisher. How are the “slices” in the marketing dollar evolving today?

TG: I think right now the chain is even more fragmented. Pricing is even more opaque – particularly with the separation between data and inventory and a more robust market for both. The $1-to-$5 spread can be even wider now than a year ago.

Simply put, publishers are willing to sell “remnant” inventory for a $1 or similarly low CPM. To often, “remnant” means “what our sales team did not know how to sell” rather than “audience that no marketers value”. Ad networks and other intermediaries are able to associate those impressions with desirable audiences using user data and tracking cookies, delivering those to advertisers who are willing to pay something on the order of $5 or more for that user. While difficult to broadly measure, our view is that this spread has if anything been widening – publisher pricing for second tier inventory remains soft while the ability of intermediaries and agency trading desks to package desirable audiences based on user data has been accelerating very rapidly.

There are a couple tidal forces at work that will compress this spread over time.

One is that publishers are slowly – and I emphasize slowly – becoming aware of the value of their data. I’ve joked that they’re like little old ladies walking down the street with dollar bills fluttering out of their purse.  They’re not aware of the value of the data they’re giving up, let alone how to manage it, set rules around it, and monetize it. And monetize doesn’t mean put it up on an advertising exchange and sell it to anybody who wants it. It means to extract value from it under certain rules. That’s shifting, but it’s shifting slowly.

The other tidal force that is coming is that some very big players are building businesses here, and it’s not just Google and Microsoft. People like Experian and Alliance Data Systems in their Epsilon division, and Acxiom – people who make a living handling massive amounts of data on behalf of large marketers and are doing so at very efficient margins. They’re looking hard at how they play in this space.

Other new competitors have emerged – such as Adobe which has been clear they want to play a greater role in the display business. And with that competition and scale, you will see more efficiency and transparency coming back into the system.

So there are a couple of tidal forces at work, but right now it’s like the tide rolling back and forth across the rocks in the harbor. There’s a lot of turmoil.

Follow Jordan, Edmiston (@JordanEdmiston) and (@adexchanger) on Twitter.

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  1. The presence of that slide is exactly what is problematic with this industry. It completely ignores any notion of value creation (through specialization & integration) along the supply chain and depicts everything as a tax or a cost, which couldn’t be further from reality.

    In order to successfully deliver value at scale, you must find the optimal combination of data, inventory, and creative. This is known as supply chain management, as boring as it may sound. And as supply chains become mature, specialization along the value chain occurs; which is exactly what we have seen in this industry with the data players, rich media & dynamic creative guys, and the inventory aggregators (SSP’s and exchanges).

    This slide implies that for $5.00, advertisers are only getting $1.00 worth of value and that value is only being derived from the publisher inventory, which completely ignores the effect of targeting data and/or great creative on a campaign’s success.

    The slide also implies that the value to the advertiser remains fixed and that “new entrants” are not capable of improving the amount of value delivered. Additionally, it implies a zero sum game in which data and creative take away from inventory which could not be further from the truth.

    Lastly, with the proliferation of specialists in this space, the importance of integration is greater than ever in order to maximize value by delivering the optimal data/inventory/creative combination. The companies who do it well have seen great financial success as a result.

    Simply put the slide shouldnt exist, and the people commenting from the sidelines need to stay on the sidelines.

  2. I totally agree with Michael. If publisher could actually get the full $5 selling their rement themselves directly they would have succeed in doing that years ago. To the extent that no advertiser can ever deal with the millions of publishers that are out there, or do any of the other very complex tasks required to turn low quality undifferentiated inventory into valuable audiences, there is a huge role for intermediares to add value.

  3. Great points made above by Michael and Zach. This should not be about the negatively-positioned “slices being taken” from the marketing dollar. This should be about the positive innovation in the online ad ecosystem and identifying the shift in who contributes how much value to the advertisers. Tolman’s chart does provide an interesting heuristic to see how media dollar allocation is shifting.

    To Michael’s point, there’s not a fixed value to advertisers. Over time, advertisers should get more value, and be willing to pay more for that value, as the vendor constituents continue to innovate and provide increasingly efficient and precise campaigns. Some of that innovation may very well come from different vendor types coordinating to create value better than the sum of their parts. We should all be striving to reduce the impression waste that does not get the right message in front of the right consumer at the right time in the right place.

    One must also be cognizant that the value is allocated very differently for every campaign. Some campaigns are best served by focusing on niche publishers that don’t require 3rd party audience data to reach the right audience. In this case, the publishers provide and receive the lion’s share of the value. In other cases, audience data provides say 3x more value than the RTB inventory it’s applied to. The audience data CPM will thereby also be 3x the CPM for the actual media. The campaign goals define the approach. As long as the advertisers are reaching or exceeding their performance or ROI metrics, everyone should be satisfied.