Thursday, August 23, 2007

The YouTube Dilemma. And Why It Will Affect All Digital Platforms.

Okay, so YouTube has finally found a way that may be acceptable (to most) to put advertising on their platform.

The cost to advertisers: $20 for every thousand viewers of the video. Not of the commercial mind you, but of the video on which the commercial will run as an overlay.

YouTube tells us that the click-in rate to the commercials themselves is anywhere from 2.5% to 5% of viewers of the video.

Let’s take those numbers and for purposes of discussion say that 100,000 watched the video in question. And we’ll take YouTube’s high number of 5% click-in to the commercial. That means that of the 100,000 viewers, 95,000 ignored the commercial. Or, in other words, only 5,000 started watching it.

And yet advertisers are required to pay for all 100,000 viewers, even when they're told by YouTube that only 5,000 will have any interest in their commercial.

As an advertiser, this would tend to stick in my craw. It’s like paying for a six-pack of beer, but knowing that five of the bottles of beer are already empty.

Not a good value.

The CPM model worked fine on broadcast TV because of a lack of data. In many ways, ignorance was bliss. Oh, yes, advertisers would buy 20M viewers knowing that not all were interested in their product or commercial. But advertisers would kid themselves into believing that the interested figure was much higher than 5%.

The best part was that there was no data to confirm how few were actually interested.

Now there is. And for YouTube to ask an advertiser to pay for 95,000 viewers that their data can prove will ignore the advertiser’s commercial is somewhat presumptuous.

So, okay, what’s the alternative? I mean, can’t it be argued that an impression is worth something, even if the viewer does not click-in to the commercial?

Yes. But all impressions are not created equal.

And an Advertiser-Initiated Impression is not worth as much as a User-Activated Impression. After all, a User-Activated Impression means that the user has also determined relevance, not just the advertiser.

Big difference.

So what if YouTube offered a new media metric?

Call it a Cost-Per-Click-Per-Thousand, or CPCPM. Obviously, it would need to make YouTube the same amount of money as a straight $20 CPM does now, but do it in a way that is less insulting than asking advertisers to waste 95% of their budget.

It could work like this.

Say 100,000 viewed the video. A straight $20 CPM would make YouTube $2,000. So, that’s the figure we need to hit.

We know, according to YouTube, that 5% may click-in to the commercial. So what if YouTube charged 1 cent for the 95,000 that didn’t click-in ($10 CPM) and 20 cents for every viewer that did?

Working under this model, YouTube would make $950 on the $10 CPM and $1,000 on the 20 cent cost-per-click. That totals up to $1,950, pretty much the same as the $2,000 they would make under a straight $20 CPM.

The difference is accountability.

Under the CPCPM model, the more people that click-in to the commercial, the more YouTube would make. The reverse would also be true.

In other words, the more targeted YouTube can make their platform, the less waste for the advertiser, the more the advertiser pays. This models also gives more value to a User-Activated Impression than an Advertiser-Initiated Impression, which, in my opinion, is as it should be.

The CPCPM metric could be displayed as a 20/10 CPCPM, with the first number referring to the cost-per-click price in cents and the second number referring to the cost per unviewed thousand in dollars.

Of course, the real issue here is a much larger one. And that is that the digital platform is about data. More of it then the industry’s current business models were designed to handle.

The current advertising financial infrastructure has been designed around waste. Advertisers had to pay for 20M viewers even when they knew, at least in their gut, that maybe only 2M might truly be interested.

It was the best we could do with the data we had.

The digital platform eliminates waste through knowledge. Yes, the commercial viewer numbers will be smaller because they’re actual numbers. But the fact is, it’s truly no different than it was before, except that now we have the data that reveals the truth.

As this data becomes more available, Marketing Managers will no longer be able to hide from the truth. Which means they will no longer be willing to pay for waste.

Nor should they.

On digital platforms we will know exactly how many started to watch the commercials. We should pay a premium for those that do. And much less for those that don’t.

We will also know how long they watch the commercials for. We should pay a premium for agencies that can deliver this viewer involvement. And less for those that can’t.

Agencies and media platforms can no longer hide behind the possibility of success.

They must deal with the actuality of results.

Worth can indeed be measured. And monetized.

Failure will no longer be lucrative.

It should prove interesting.

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