The Slow Death of Display Advertising…
The online marketing landscape is ever evolving. Today, we use an integrated approach that includes, search marketing, SEO, display advertising, and many more. But, as consumers change so do our marketing strategies…
We often see marketing tactics gain and lose power as users become more aware of them or consumer intent changes. It seems as if we’re at a marketing crossroads again.
There’s been a recent trend, showing that social media marketing has been growing, while display advertising has become less effective.
What is Display Advertising?
Before exploring how display advertising has become less effective, we have to first explain how it works.
There are currently three advertising models in the display-marketing world: Cost per Click (CPC), Cost per Action (CPA), and Cost per Mille (CPM).
In the CPC model, an advertiser pays every time a banner ad is clicked on.
The CPA model charges the advertiser only when a user that clicked on a banner ad actually performs an action. For most this means a product was bought or a lead generated.
Currently, the most common model is the CPM payment style. In this instance, ads are sold by inventory based on impressions. Advertisers pay for the number of times the ad is shown to a consumer.
The reason why CPM is most common is because banner ads generally have a low click through rate. This makes it difficult to make an ad that maximizes CPC and CPA rates.
Content producers try to minimize the focus on conversions and instead focus on impressions.
How Does it Work?
The actual process for building and executing a display campaign is extremely in-depth. It’s difficult and definitely takes a specific skill set. In it’s most basic form the process follows these steps:
- Advertisers identifies campaign’s target demographic
- Based on tools such as Quantcast or Google Ads Planner, the advertiser decides which sites their banner ads should run on
- The advertiser sends an proposal outlining what they’d like to do and what their goals are
- The content provider responds to the proposal with either a general run-of-the-mill ad campaign or some form of sponsorship
- The advertiser decides which proposals fulfill their goals at the price they’ve outlined and the campaign begins
- Once a campaign is completed a report is generated that outlines the total number of impressions and total cost
- Then the whole process is repeated again
The problem with this process happens when site owners allow advertisers to create custom ad units, full-page takeovers, and other sponsorship ideas. If you can think of it, and are willing to pay for it, site owners will do it. Creating an interesting predicament.
The Economic Concerns
For an economy to be sustainable, the laws of supply and demand need to be in equilibrium.
If there isn’t enough supply, then the price must go up to lessen the demand. If there is too much supply, then the price must go down to increase the demand.
But what happens when the supply is infinite? The economy begins to break down because the commodity starts to become worthless.
This is what’s happening in the display-advertising world. Site owners are continually reducing their value instead of increasing it.
The supply of advertising space continues to grow as new content producers enter the space, and as current content producers continue to add more advertising space to their online platforms.
Demand is having a hard time keeping up with the increased and potential supply.
The User Problem: Ad Blockers & Ad Blindness
Even if we ignore the economic concerns, there are a number of user concerns. As site owners and advertisers become overzealous with ad units, consumers have started experiencing “ad blindness”.
Ad blindness is a term used to denote the state of conscious or subconscious ignorance of advertisements placed in a web page by visitors due to various reasons like irrelevance, vanilla design and familiarization of the webpage layout. For example, ad blindness is a behavioral challenge presented by frequently re-visited portals like news portals, discussion forums and blogs. Worst affected tended to be the right hand column of standard tri-column layouts, which usually holds text ads. In this case users tended to ignore this column even if non-ad content was placed there. [source]
Some users have taken their disdain of ads to a new level and have started using ad blockers. These plugins allow a visitor to block ads from their site entirely; a problem sites like digg are extremely familiar with.
So what is the future? If content providers and advertisers don’t find an innovative way to evolve the display advertising medium, what will happen?
The Future for Content Creators
If nothing changes, content providers will have a hard time being profitable while trying to sell an ever-devaluing commodity.
Instead, content providers will be forced to look for new ways to monetize their content through new business models.
This has already started as a trend. A number of social media sites have shown that they’re supporting their advertising income with paid programs and commercial accounts.
For many sites, the commodity is changing from impressions and content to data and engagement.
Twitter is the prime example of this evolution in online profits. Even though they’ll be launching an advertising platform, they’ve also announced commercial accounts and data partnerships with major search engines.
But these business models aren’t feasible for everyone. What about pure content producers, like newspapers?
The Newspaper Model
Newspapers struggle with a predicament in that currently the only business model that has worked has been a pure advertising one.
Only a select few sites have seen success in changing to a business model that includes subscriptions. Even those that have succeeded have been extremely niche, with content that has been deemed more valuable than straightforward news. Example: FT.com.
So how do the other pure content producers survive? They must find a balance between free, ad driven content, and paid content.
Many newspapers are experiencing this flux as they tackle the question of how much is too much free content and what are consumers willing to pay for?
As more content producers begin to rely less on advertisers for profit, they’ll lessen supply of ad units. Decreasing the number of ad units would make them more scarce, decreasing the effect of ad blindness and allowing demand to finally catch up to the supply.
The Future for Advertisers
Content producers are not the only ones that will be forced to evolve; advertisers will be forced to think of new innovative ways to reach consumers.
As display advertising becomes more and more marginalized, new mediums such as social media will begin to gain importance.
Advertising will need to be subtler. We’re moving away from interruption marketing and enter a world where advertising blends harmoniously with consumers in their everyday life.
How are you preparing for this shift? Have you noticed a changed in display advertising? What do you think will happen next?