luma digital brief 008 - scape of cards

Digitaladvertisingisdoinggreat.Revenuefromthischannelgrew20%in2015andissettosurpassTVadvertisingnextyearasthelargestcategoryofadspend.Butyouwouldn’tknowitfromthepress.Everywhereyoulookfromtradepublicationstoindustryconferencesandnowthegeneralmedia,allyouhearaboutaretheproblemswithdigitaladvertising.It’snosecretthatthesectorsuffersfromafragmentedecosystemofintermediaries(asdepictedbyoureponymousLUMAscapes)andsuchaconvolutedsupplychainhasbeenblamedforaseriesofissuesthatplaguethesector.Theseissueshaveimplications forall thekeyconstituentsfrommarketerstoagencies,techintermediaries,publishersandconsumers.It’sascapeofcards!

Weforcerankedtheissuesbasedontheirimpactontheecosystemasawholewithincreasingimportancefromserioustocritical toexistential.Thefirstfourissuesareeitherbetweenconstituents(Transparency,HeaderBidding)orareuniversalproblemsthatwilleventuallygetsolvedviatechnologyorconsolidation(Measurement,Latency).ThePrivacy/Trackingissueisabigonewithconsumergroups,especially inEurope.Itiscritical totreatconsumers’datafairlyandsofartheindustryhasnotexactlydeliveredonitspromiseofabetteruserexperiencefromincreasedadrelevancy.Mostly,weseeretargetedadsoftheproductwealreadypurchased!Theindustryneedstodobetterandasclosedloopattributionbecomesmorepervasive,thisproblemshouldimprove.

Thenthere’sthebottomhalfofthelist.Theseissuesarecritical ifnotexistential.Let’stakeacloserlookatthese.

ToassesstheimpactofViewability,FraudandAdBlocking, considerthelifecycleofamediaimpression.Everyloadofawebpageorvideocreatesanadopportunity (denotedinblue).However,adblocking (nowestimatedat22%inNorthAmerica)preventsadsfrombeingservedtoaperson(a“consumer”inournomenclature).Oftheadsserved,someareseenbybots(machines thatrecordfraudulent impressions)andanotherportion isdeliveredtohumansbutnotseen.

Whetheranadis“viewable”ornotdependsontheviewabilitystandardsthatvarybyplatform.Forexample,invideo,YouTubecounts4 secondsasaviewwhereasFacebookis3secondsandSnapchatonesecond.

Oftheadsactuallyviewed,asmallportionoftheseinstigatesengagementbyconsumersandanevensmallerportionresultsinaconversion toapurchase.Theselasttwoelementsareprimarily relevantfordirectresponseadvertising(demand fulfillment)whereasbrandadvertising’sobjectiveistohelpbuilddemandgenerationorpreferenceovertimeandmaybenefitfromanimpressionalone.

Ifyouanalyzetheseissuesfromaneconomicperspective,thereissignificant valueleakage.Marketers’“lostvalue”isthesumoffraudandnon-viewableimpressions.Inbothinstancestheypaidforanadthatwasneverseenbyapotentialconsumer.Publishersontheotherhandlosevaluefrombothfraudandadblocking.Needlesstosay,thisistoomuch leakageforasupplychain insuchanimportantandgrowingmarket!

Whilewedon’tpurporttohaveanswerstoalloftheseissues,wewouldsuggestthatwhateversolutionsappliedbedonesowithconsiderationofthetwoprincipalsofthemarketingequation:themarketerandtheconsumer.Onadblockinginparticular,webelievethatthebestwaytopreventfurtherproliferationofsuchsoftwaredownloadsistocreateabetterconsumerexperience.Whilewesympathizewiththepublishers’predicamentandvaluetheeconomicconstructthatsupportsjournalism,forcingtheconsumers’handwithdraconianmeasuresisnotthewaytogo.Consumerchoiceisheretostay!

Thetrendtowardsperformancemetricsinadvertisingservestomitigatesomeoftheseissues.Whenmarketersarepayingforbusinessoutcomesandnotproxieslikeimpressions, italleviatesmanyillsfrommeasurementtofraud.Ifthemarketerisnotpayingbasedonimpressions, it’sirrelevantthatimpressionsarenotseen.Thisisanaturalandhealthytrendforbothmarketersandconsumers.It’snowonderthecompanies thatdeploythesemodelshaveseenhigherratesofgrowth.

TheWalledGardenissuerelatestothegrowingdigitalduopolyenjoyedbyGoogleandFacebook.Arecentanalystreportsuggeststhattheircombinedshareofallincrementaladspendhasexceeded85%,afrighteningfigureforthethousandsofcompaniesvyingfortheremainder.Wewouldcallthisissueexistential!Thisdominancehashelpedfuelabovemarketrevenuegrowth.Andthefinancialmarkethasrewardedthisgrowth:Google’sandFacebook’smarketcapshaveincreased$250billioninthelastyearalone!

Finallythere’stheparamount issueoffragmentation, acondition thatisunsustainableforboththeprincipalsandintermediaries.Marketersandpublishersstrugglewiththecomplexitycausedbythemyriadofpointsolutions ontheLUMAscapes.Fortheintermediaries,it’saconstantchallengetodifferentiateandgrowwithsomuchcompetition,whichhasledtoapullbackinventurefunding.Tovaryintoanotheranalogy,Winterishere!Theobvioussolution isindustryconsolidation, andLUMAisdoingallitcantohelpoutinthisregard!

LUMAhasrecentlylaunched theLUMAInstitute,thedivisionthatincorporatesourresearch,contentandeventsinitiatives.ThemissionoftheLUMAInstituteistoprovideeducation,insightsandsupporttoallconstituentsofthedigitalecosystem.Wepartnerwithmedia,marketingandtechnologycompaniestoprovideadviceandeducationatleadershipoff-sitesandcustomereventsonacustomizedbasis.IfLUMAcanhelpyourorganizationsortthroughthiscomplicatedanddynamic sector,contactGayleMeyersatgayle@lumapartners.com.