Thursday, February 26, 2009

Why Yahoo’s Search With Video Has Tremendous Consequences For Advertising

If you go to Yahoo and type in the word Pedigree in their search box you’ll be brought to a page with a blue panel running across the top. In that blue panel lies a key frame, which, when clicked on, takes you to a Pedigree dog food commercial.

Quite simple when you think about it.

What’s interesting is how it’s going to turn the ad business on its head.

How come?

Well, let’s consider the number of people that might type in “Pedigree” on Yahoo search. While I don’t know the number, exactly, I can guarantee you that Yahoo does.

Let’s be generous and say that it’s a hundred thousand.

Which means that a hundred thousand people came to Pedigree and basically said, “Give me more information”. Now while there are 81,200,000 results for Pedigree on Yahoo search, there is only one commercial in the blue panel across the top.

Was this commercial specifically designed for the context in which it will run? In other words, was it designed for people to come to it? Or, was it designed to get attention by interrupting what people are watching?

Two very different approaches are required depending upon whether it’s the advertiser’s intent (intrusive) that drives the interaction, or, the viewer’s (opt-in).

In this case, as is the case with all search, it’s the viewer’s.

As we have said in the past, content must be created in context of control. When the viewer knocks on the advertiser’s door and says, “Tell me more,” that requires a very different kind of advertising than the kind that was designed to cut through the clutter and grab someone’s attention as quickly as possible.

When someone seeks out the advertiser, the advertiser no longer needs to shout. What this means is that re-purposing advertising designed to work off-line will no longer work.

Which takes us back to the hypothetical one hundred thousand that knocked on Pedigree’s door. How much will Pedigree be able to spend on a commercial that will, at most, be seen by one hundred thousand viewers?

When we used to be able to reach 20 million viewers at a pop, the average commercial cost was about $375,000. That cost was justifiable because of the number of people who had the chance to see it.

“Might” is no longer part of the equation. In the digital marketplace, we will know exactly how many see it. And it’s by no means 20 million.

If the viewership is going to be only 100,000, or .005% of 20 million, does the production budget decrease proportionally? If so, then .005% of $375,000 is $1,875

This for an audience that has asked the advertiser to tell them more.

The irony is that as the viewing audience gets smaller due to viewer-control and the industry’s own more precise targeting methods, we have failed to address whether we will be able to afford to talk to these people with any degree of quality in the messaging.

There is an answer to this problem and we think it lies in basing part of the price of content creation on the value received from the commercial rather than costs projected to create the commercial.

In the past, a commercial’s value has always been subjective. Most likely held in higher esteem by those that created it, than those that it was created for.

In the digital marketplace, the amount of time that a viewer spends with a message is not subjective. We know when viewers opt-in to start watching and we know when they opt-out, or stop watching.

The short-term objective of a commercial is to interest the viewer in such a way that they stay involved for the entire length of the commercial. Long term, the objective is to sell more product. Arguably, the less that people watch what an advertiser has to say, the harder it is to sell the product.

What the digital platform measures is how long people are involved with what the advertiser has to say.

We believe that the longer they watch, the better the commercial will probably end up working for the advertiser. Which is why we feel that the longer that the agency can get people to watch, the more they should be paid for creating that particular commercial.

You could call it value-based pricing. By equating time-spent to money-earned, advertisers can start to make a commercial’s “value to the advertiser” objective.

Of course, this means making part of the cost of creating a commercial payable after the fact. Not a practice currently in vogue today.

But then, neither is Yahoo’s search with video. As the circumstances change, so too must the monetization models.

Which is why we think Yahoo’s search with video is going to create great havoc within the industry.

May we be among the first to say well done, Yahoo. Well done.

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