Why Display Will Continue to Struggle Against Traditional Media
By Guest Author May 7th, 2009
Guest post by Ryan Floyd
Ever since its debut, online’s share of advertising has lagged behind its share of usage. The impressive ROI of search and contextual advertising by Google and its competitors raised expectations even higher, with many saying it was just a matter of time before online advertising earned its share of total advertising spend. Strong double-digit growth online advertising rates through most of the mid-2000s, while traditional media advertising foundered, seemed to corroborate the conventional web wisdom. But can web advertising really continue to capture, dollar for dollar, the spend traditionally spent on television? I’m not so sure.
Even while the online advertising world weathers the current downturn, expectations for a rebound are common. Why? Usage patterns continue to shift, with more time being spent online (particularly watching video and on social networking sites). Online advertising consumes only 8% of total US ad spend, but Web usage comprises some 30% of leisure time among American Internet users (more than half of the entire population). The gap must be filled, right? And what better than an advertising medium that provides exceptional visibility into its value, in the form of impressions, clicks and conversions.
The problem is that the performance basis of evaluating the effectiveness of online advertising is really only the case for search/contextual, and indeed that continues to grow at a healthy clip. Lead generation and transaction-oriented advertising has proved remarkably efficient and cost-effective in many cases. Display advertising’s value relies on the promise of expanding brand awareness and engagement, and current display and rich-media advertising fails to deliver the same impact as a 30-second spot in front of a passive, captive audience. If you remove high quality online video, like Hulu, from the discussion, since it is simply replicating television’s advertising model through a different distribution medium, it gets harder to believe that engagement across social networking platforms or content sites has the potential to create the same market size as compared to dollars spent in traditional media with similar objectives.
It should come as no surprise that the IAB is championing more inspirational, creative online ads, and that startups like VideoEgg are introducing CPE (cost per engagement) and other revenue models that emphasize the depth of users’ interaction with online advertising. When it comes to delivering on its own objectives, the finest online ad creatives have to do a lot to catch up to your average Super Bowl TV ad.
It’s not difficult to imagine that the spend-usage gap will continue to close, but it is easier to imagine that ROI-driven search and contextual advertising will take a larger portion of that growth. Display and rich media will likely fare much worse, growing in dollar terms but far less than the 1:1 spend we’d expect to be flowing to the likes of Facebook and Google publishers from traditional media.
Ryan Floyd is a founding member of Storm Ventures, and sits on the board of directors at YieldBuild.
This entry was posted on Thursday, May 7th, 2009 at 1:02 pm and is filed under Online Advertising. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
May 7th, 2009 at 9:14 pm
This analysis is not accurate and it is not informed about the technology shifts that are occurring in display.
Here are some counter points:
- Lack of efficacy of display advertising has nothing to do with the format or the delivery vehicle. It has to do with lack of sufficient horsepower and innovation in the underlying technology platforms.
- There is significant inertia and bad taste in the mouth left by the likes of DoubleClick in the early days, with pop ups and the like. These things are gone now. Rich media vendors brought an era of real branding to display, and many DR advertisers make a lot of extremely profitable usage of this channel.
- Display is both a brand awareness and DR platform at the same time. No other interactive medium offers the kind of reach, or the intent extraction opportunities as display. Search is only about 10% of the user’s activity, anyway. It is clear that it is going to do well, but the real technology and business opportunity is in display.
- Display is far more captive than traditional media, in terms of where the user is encountering it. Traditional media is constantly subject to DVR skips and there exist no real solutions to that model. TV and Print are decent brand awareness media with no accountability, and one can’t even figure out what the brand engagement/recall metrics are. Can anyone really tell me why/how their traditional media spend is effective?
- Facebook and the social media platforms are poised to implement advertising as content, with the social graph being embedded into marketing for word of mouth with some creative innovation and product placement in a manner that is not offensive. They simply have not gotten around to understanding this part of the value proposition yet.
- Consistently people submit that they don’t want to pay for content, and they would be fine for marketers to be using their anonymous information for more relevant ads in support of content. Note – they are NOT talking about search, they are talking about display.
Please do some research before going about predicting where the market is or is going to be. It appears that you are not aware of the dynamics in the display advertising market. You should perhaps talk to some advertisers and agencies before you start writing about this. Search is tapped out, affiliate space is around the edges. The big performance + brand opportunity is in display ad inventory – whether it be video, social media or just traditional online publishers.
May 8th, 2009 at 10:12 am
Paddy
You make some good points. You are certainly articulating conventional wisdom with respect to advertising as content and you are right that the social networks in particular are doing some very interesting innovative things around trying to engage with their users.
I certainly agree that traditional media spend can present a lot of challenges in trying to determine ROI. No disagreement there.
I just don’t believe that 1:1 ad dollars will shift to those “brand engagement” campaigns online. The market will grow for online but perhaps as fast or as big as the analysts believe.
May 29th, 2009 at 2:36 pm
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