The Wandering Tribe of Hopeful Advertising Dollars…

Imagine a band of tribespeople, wandering the vast plains, looking for a place to call home.  As they travel, all they want is a place where they can set up their camp and live prosperous lives.

The trouble is that everywhere they go, they almost immediately deplete the area’s resources, befoul the skies, poison the water and then of course, they have to move on.

But this isn’t a tribe of people.  It’s a tribe made up of money.  To be specific, it’s advertising money, and as long as I’ve been in the Internet business, it’s been on the move.

For decades, advertisers could rely on the efficacy of television, radio and print.  It was home for this wandering band of money because it worked.  It was expensive and not targeted, but it was effective and big, if you were smart.

But then the world changed.  Advertising itself became less and less relevant, particularly because the Internet put the power to choose content in the hands of the user/viewer.

Naturally, the tribe of money tried to migrate to the Internet, but one format after another went from productive to unresponsive.

When I was at GeoCities, a mediocre banner ad got about 1 to 1.5% click through.

Today, the industry standard is more like .1%, and perhaps it’s even lower.  Can you imagine spending money to have one person in a thousand click on your ad?  You can talk about branding with banners all you like, but a total lack of interest on the part of at least 999 out of 1000 people in what you’re ‘branding’ is a good indicator that you’re not communicating.

Of course, there are other formats too.  The dedicated email was effective for a time, but over the last couple years, it’s fallen victim to the same thing, as the wandering tribe of money moved through it.  If advertisers were honest with themselves, they’d be willing to admit that the only reason dedicated emails remain somewhat viable is that CPMs have crashed.  (And by CPMs, I mean what people are REALLY charging.)  And even that’s not enough in many cases anymore to match the ROIs of just a couple years ago.

So I thought this post on Techcrunch was interesting but somewhat naive.  The story is that video ad CPMs are down, but overall revenue is up.  Seems reasonable.  After all, the Internet grows all the time, so any network in 2009 should be bigger than in 2008, thus generating more impressions to sell.

Lowering CPMs, by the first law of economics, should increase the quantity demanded, and if the product is price elastic (which is certainly is), total revenue should go up.

But it’s this comment which is both correct and totally wrong:

“If BrightRoll’s data is indicative of the industry as a whole, online video advertising should remain a bright spot this year.”

I don’t doubt that video advertising could be a bright spot, and it might even be an ROI-positive tool for advertisers at the moment (although I doubt it, I don’t have any data on that, and notice that Brightroll isn’t discussing that.)

But there are two things that we can say with near certainty: CPMs will continue to come down (not ‘level off’ as the article suggests) and the effectiveness of the medium will decline.

Why?

My question would be the opposite: why wouldn’t it?  Because the internet allows so much new advertising inventory to be created so quickly, a successful medium will be massively overdone until it becomes ineffective.  There will be a lag between advertisers beginning to abandon that medium or demand really, really low CPMs, and in that interval, the business models at BrightRoll and others will look sharp.

But unless they can create enduring value, it’s going to take more than a supposedly recovering economy to keep BrightRoll and others going in the right direction.

There are always two factors working in favor of all online ad networks: there are more impressions to sell every year, and there are dollars falling out of offline media that HAVE to go somewhere attached to marketing managers who don’t know what to do with them.

But in terms of bottom-line value, all that does is buy time because eventually even the most retrograde ad buyer will flee a negative ROI.

As I see it, any online advertising program that can’t survive on a pay for performance basis is doomed in the not so long term.  (And by ‘doomed,’ I guess I mean destined not to continue to have profitable growth.)

In the meantime, you might as well enjoy the “post-recession comeback” of online video advertising!

The Tribe will be moving on soon enough.