Wednesday, July 09, 2008

Relevancy Versus Reach? The Question That Is Changing The Business.

The report last week that Google is tailoring the advertising it shows users based on past queries seemed to raise little concern in the advertising world. It appears that most have accepted the fact that as targeting becomes more precise through technology, relevancy is quickly becoming the new frequency.

Google is making this change in order to make even more money. As it stands now, Google gets paid each time a user clicks on a sponsored link. According to recent reports, 95% of Google’s search advertising inventory never gets clicked on.

Obviously, the more relevant the ad, the more likely it is that a user will click on it. Even if this leads to just 5% more of their sponsored links being clicked on, it should come close to doubling Google's revenue.

Once again, Google is far ahead of everyone else in the advertising business. One reason why is that Google has never been too worried about reach. They have always attracted advertisers through results. An advertiser pays only if their ad is clicked on. Exposure is worth nothing to Google. Engagement, on the other hand, seems to be worth billions.

Now if this follows the typical pattern, relevancy will quickly become the mantra of many other media platforms. Nothing wrong with that on the surface. But if you dig a little deeper, you’ll see the cracks that have formed in the advertising monetization infrastructure are becoming even larger.

Reach, after all, is what modern advertising’s foundation is built on. Mass media, exposure, impressions, how many, how many, how many, were all that we were ever really concerned about. Whether anyone actually paid any attention to the ad in question was not measurable, so it was deemed irrelevant.

As engagement replaces exposure as the gold metric, it means that media will no longer be paid well for wasting an advertiser’s dollars. For most advertising platforms, and those that profit from them, it has always been far more lucrative to be paid for the possibility of success than it was to be paid for the actuality of results.

Damn that Google for monetizing the actuality of results. Obviously, they have little interest on what side the bread is buttered for most in this business.

This will have an enormous impact on how media is bought and paid for. As it will in regards to how creative is bought and paid for.

As targeting becomes more relevant, audience size has no choice but to become smaller. The term now being bandied about—“relevant reach”—is just a fancier way of saying "tiny viewing audience."

As relevancy replaces reach, mass media becomes unmass media. Agencies know how to justify large production budgets for the mass media. They will be at a loss as to how to do it for the unmass media.

Is the answer smaller production budgets and creative fees? For many, unfortunately, yes. But it doesn’t make sense to me.

We have finally figured out a way to stop paying for those that aren’t interested in what we are selling. For advertisers to now reduce what they’ll pay for creating the work, in other words, lessening its impact, seems ludicrous.

But that’s what is going on in boardrooms across the country.

“I can justify $800,000 for production if I know 20 million might see it,” the marketing manager might say. “But I can’t justify $800,000 if only 2 million might see it. How about $80,000?"

While some will argue, the fact is that production budgets, in the past, were bought and sold based on reach. Production budgets in the future will need to be bought and sold based on results.

It’s a Digital MindChange that will not come quickly to most.

If ever.

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