Comments on: more efficiency means less profit

By: Kata beach

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By: Rory Sutherland

Rory Sutherland — Sun, 12 Dec 2010 00:10:01 +0000

I think Don Martin is very largely right here.

A very intelligent British adman makes the distinction between ads which create sales and ads which create saleability. The kind of adspend-as-signalling Don refers to is very much about creating saleability rather than sales. Conventional media do a better job of this signalling, which may be complementary to – and not replaceable by – money spent online.

By contrast, because it is more immediately measurable, online activities are mostly valued for their transactional effects – sales, rather than saleability. The lower prices do not necessarily show that online ads are less valuable to the people who buy them, only that online advertising space has less scarcity. Interestingly behavioural targeting further reduces scarcity, and so may make ads more valuable but less expensive.

Incidentally Becker and Murphy on ads as complementary goods is worth reading here.

Rory Sutherland, Vice Chairman, Ogilvy, London.

PS I am not an economist (but I play one on television).

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By: dude

dude — Fri, 10 Dec 2010 14:40:56 +0000

Kind off off topic, but oops, NYT getting kicked out the SP 500. ]]>

By: Don Marti

Don Marti — Tue, 07 Dec 2010 16:51:37 +0000

What if better-targeted ads aren’t more valuable to the advertisers? Tracking makes it easier for advertisers to conceal their level of spending, and signaling the willingness to back up a product with “wasteful” ad spending is the main economic reason for advertising. If it’s hard for a potential customer to tell a mass buy from a targeted buy, the signal isn’t being sent. So maybe a privacy-hawk Web would command higher ad rates.

Web ad targeting: can customers get a better deal?

Ad targeting: better is worse?

(The second has some citations to interesting papers on advertising and signaling.)

(Of course, it would be better to see the problem resolved with privacy technology on the browser side than through top-down regulation, which the major advertisers would pack with loopholes anyway.)

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By: dude

dude — Mon, 06 Dec 2010 23:35:51 +0000

This 2010 article has figures similar to what I had at . The average cost per impression for Internet is lower, but that’s because the Internet has potential to reach a wider audience (online bigger than print for a reason). Sites like Hulu with more advanced ads will obviously command better rates for their video ads than a random blogspot with little text ads. ]]>

By: dude

dude — Mon, 06 Dec 2010 23:23:39 +0000

Your 1st link is about the NYT’s paper revenue vs its online revenue. It’s not surprising that a newspaper would sell more on paper. The publishing2 also sloppily calculated CPM based upon face figures rather than the undisclosed actual numbers. I go to nytimes every now and then because of memeorandum or other sites, but I don’t read it thoroughly like I would its paper, that certainly contributes to the disparity. The new york times isn’t exactly thrivingnyin the age of the web anyway (stock at its 1984 levels), not sure why you would study them.

I don’t see the structural problem that you are describing. Google Analytics, Quantcast, other data analyzers have existed for a while. Because of them, companies are better able to target certain demographics. There is limited ad space for Archer on Hulu. Knowing the behavior of the demographics and the ads response, companies are more willing to bid up the cost per impression for the space. Contrast that to the newspaper biz, which with just a 5% dip in http://www.huffingtonpost.com/2010/10/25/newspaper-circulation-dow_0_n_773362.html#s164307"circulation, flatin 2009, online ad revenues continued to climb to $24.2 billion, while print ads fell 28.6% to $24.8 billion. Online ads are expected to rake in $34.4 billion by 2014, which means print ads should dip below their online counterparts in a matter of months.

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By: Tom

Tom — Mon, 06 Dec 2010 21:11:05 +0000

My intent was to discuss a structural problem, not to perform a quantitative analysis. The back-of-the-envelope figuring you link to leaves me unimpressed, I’m afraid. It’s easy to find similar accounts that find exactly the opposite result (or even analyses that make it look like web attracts higher CPMs than print). All of these suffer from accounting tricks and apples-to-oranges problems.

The one figure that everyone seems to agree on is that the online market is about 10% of the print market. It’s not surprising that growth rates are high — that’s what tends to happen when your base is small. But you can’t count on that effect lasting forever. The concern is that even for publications where the audience is well-developed for both print and online (e.g. the NYT) there remains a large disparity in what can be charged for the online medium. And of course the situation is even worse for smaller brands.

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By: dude

dude — Mon, 06 Dec 2010 19:31:11 +0000

Here’s some actual numbers for traditional media.

Online = $5-30 CPM
Network/Local TV = $20 CPM
Magazine = $10-30 CPM
Newspaper = $30-35 CPM

Hulu is also doing better than traditional TV. Running an ad during The Simpsons on Hulu, for example, costs about $60/CPM, Bloomberg reports; running the same ad during prime-time on TV costs about $20-$40/CPM—or over 60 percent less in some cases.

Your premise that “Online ads sell for pathetic rates relative to broadcast or print. This is because by all accounts online advertising doesn’t work very well.” seems rather dubious.

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By: dude

dude — Mon, 06 Dec 2010 19:24:05 +0000

Yet online ad spending accelerates. I an millions of others watch Youtube, and we can’t ignore that stupid Oprah OWN ad.

I don’t really see any quantitative analysis in this post. Finer measurement of data is a good thing, companies save on spending, Google has results it can boast about, viewers get more relevant advertising. In contrast to the past where small businesses may be hesitant to engage in print advertising in random coupon books, they are now in more control, and therefore, more willing to spend and advertise.

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By: Tom

Tom — Mon, 06 Dec 2010 15:39:30 +0000

Tim: maybe so. I’m less sanguine about online ads’ potential. There’s still an order of magnitude standing between print and digital advertising sales. I agree that closing this gap is conceivable, but I think we’re past the early days where optimism made sense as a default.

In terms of informational vs. persuasive ads: I’m reading The Master Switch now, and I know you’ve finished it. Wu makes the point that the early days of radio advertising involved just such a model — persuasion was only introduced gradually, and became more insistent over time. If informational advertising is really more effective, why would that be (perhaps Wu discusses this; if so, I haven’t gotten there yet)? I suppose the best answer at hand might be “personalization.” I’m a little skeptical of that: I suspect the type of material being broadcast goes a very long way to defining the audience and the products they’re interested in. Google’s made incremental improvements to this approach, but is it really a complete break from the past?

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