Convince and Convert Blog: Where Social Media and Email Collide

From Dot Bomb to Dot Boom

Let’s face it. The economy is taking on the distinctive, sickly pallor of a post Mardi Gras Keith Richards.

Generally, recessions hit the advertising business with the ferocity of a rabid wolverine, and the last one trimmed overall ad spending by 9% according to market researchers Veronis Suhler Stevenson. The wolverine in question mauled and devoured online advertising, which plummeted 27% over two years during the last recession.

This time it will be different. Not only will online marketing survive, it may actually thrive during the lean times, continuing its inexorable theft of ad spend from traditional media tactics. Online is far more mature and proven now, and there are five specific reasons why it will be the go-to tactic among increasingly budget-conscious marketers.

Money Talks

First, online is typically less expensive than many other marketing tactics, and a sizable and impactful online effort can be undertaken more quickly and cost-effectively than can an offline campaign.

Wiggle Room

Like an Elizabeth Taylor marriage, online doesn’t require much long-term commitment. PPC ads can go up and down on a day-to-day basis. Email can be sent (or not sent) based on financial considerations. Even banner ads can usually be negotiated with an advantageous cancellation clause of 72 hours or so. Try that with your local TV station or newspaper. Other than keeping your Web site up to date, the only core online tactics that require substantial ongoing effort are organic search optimization, and Web site analytics and testing.

More Juice for the Squeeze

With diminished outbound marketing budgets, companies will shift focus toward increasing revenue from current customers, either through more frequent purchases, or larger ones. Email marketing is the perfect vehicle for communicating with customers and incentivizing additional purchases. Customer lifecycle marketing (persuasively combining email with direct mail, voice mail and text messaging) will gain favor as companies strive to close a higher percentage of a reduced flow of leads.

Waste Not

There is meaningful financial waste associated with advertising to people who have no interest in your product or service. The superior targeting ability of online marketing will enable companies to focus their reduced marketing dollars solely on likely prospects. This will accelerate the trend toward use of behavioral targeting and retargeting in online ad placement.

Behavioral targeting mines a person’s Web page visits and search terms to serve relevant ads. If a prospect reads several pages on Yahoo! about Nissan Altimas and does a search on Yahoo! using a related term, an ad for Valley Nissan dealers can be served up just in time.

Retargeting (a nascent industry led by local company Fetchback) takes the concept one step further, enabling companies to advertise only to people who have visited their Web site previously without making a purchase. With average conversion rates hovering around 2%, this is an ideal way to reach the other 98% that have taken the time to visit your site but haven’t yet converted.

Additionally, search marketing will continue to expand since it is the only tactic (other than Yellow Pages) that puts the marketer in the middle of the consumer’s purchase psychology funnel. I expect heavier bidding on specific, “long tail” search terms that often correlate with greater intent to purchase.

Numbers Don’t Lie

Online marketing of all types offers superior measurability and trackability in comparison to traditional tactics. This is of course due to the Orwellian nature of the Web, where every mouse click is tracked, usually anonymously. While the availability of this data may give you the same creepy feeling you get when gazing upon Joan Rivers, it makes for effective marketing.

When implemented correctly, banner ads, organic search, paid search, blogs and social media, email, lifecycle marketing and all other online marketing tactics provide a user by user scoreboard that can be utilized to ascertain precise return on investment metrics for each campaign.

In this way, online marketing provides companies the ability to test a wide array of tactics, evaluate which generates the best response, and then adjust the marketing program accordingly.

The old saying is “I know half my marketing dollars are wasted. I just don’t know which half.” This problem is even more acute and painful in a down economy when advertising dollars are curtailed. The inherent cost, targeting, and tracking advantages of online marketing make it more likely to succeed (or at least able to minimize losses from a failed campaign). And when a wolverine is at your door, that’s the type of assurance you want from your marketing strategy.

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A groundbreaking study by the Interactive Advertising Bureau (IAB) and Bain & Company shows that ad networks’ share of display ad sales soared from 5% to 30% from 2006-2007. (Read the excellent full report here)

It seems the rise in Internet advertising (~20% per year, according to eMarketer) is creating a flurry of new sites, and a scenario where established sites keep adding more content, and thus more ad inventory.

For agencies, the opportunity is tremendous because ad networks charge $2-$3 per one thousand ad impressions, while buying ads direct from a site can run $20 or more. Certainly, sites often hold back premier ad placements for direct sales, giving ad networks less attractive, run of site inventory. However, if one ad buy is at a $2 CPM, and the other ad buy is at a $20 CPM, it is extremely unlikely that the premium inventory will perform 10 TIMES better than the non-premium placements.

There are literally dozens of ad networks now, each willing to place ads for your clients on Web sites, including highly targeted behavioral and retargeting opportunities. (Decent list of reputable ad networks here) Given that you can buy solid inventory at a fraction of the cost, why wouldn’t you use ad networks almost exclusively, especially for test campaigns when you’re trying to optimize creative and call to action? (my blog post on how to optimize online ads)

From 2006 to 2007, sell out rate (the percentage of overall ad inventory sold) by premium publishers covered in the IAB study actually went UP from 55% to 72%, but that was due almost entirely to the huge increase in ad network placements. Thus, sites are turning more and more of their ad inventory over to networks that are paying them a pittance for it, figuring “some dollars are better than no dollars.” This of course is true in the short-term, but eventually this house of cards will fall.

Sites cannot continue to sell an increasing share of their ads at a couple bucks per thousand, unless their content creation overhead is extremely low. And even ad networks that are booming at present with a 600% annual growth rate, cannot sustain it. As more ad networks come online, downward price pressure will only increase, making it difficult for ad networks to make much margin on their arbitrage. Failures and consolidation will occur quickly.

Advice for Agencies

Consequently, my advice for agencies is to use ad networks as much as possible for your online media purchases, especially in the testing phase. However, use first-tier networks at all times, and use multiple networks.

Realize that your preferred network may not be around very long, and when the consolidation begins, it will happen FAST, so make sure your in-house team (either media or account executives) legitimately know enough to be dangerous about Internet advertising placement to keep you in the game if the precarious ad network situation blows up in your face.

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Internet advertising is an orgy of choice. There are literally tens of thousands of potential sites on which an ad could be placed, and dozens of different ad sizes and formats. Add a variety of pricing schemes and an often inexperienced sales force, and you get a casserole  of confusion that makes buying radio or newspaper ads look like a game of Go Fish.

The one comfort for the online advertiser has been the relatively narrow targeting alternatives available. There have really only been two ways to segment your audience online: basic demographic characteristics (location, gender, age, Internet provider); and content type (ESPN site reaches exceedingly bored hockey fans, CourtTV site reaches Michael Jackson fans, etc.).

Now, however, the online advertising game is changing, adding a new wrinkle that geometrically increases the complexity – but also the potential power – of Internet ads. The age of behavioral targeting is upon us.

A behavioral targeted ad is an online marketing message that appears on a Web site for you to see based on actions you have previously performed online. For instance, if you’ve searched for “Nissan Maxima” on Google, and then went to Edmunds.com to look at the Maxima review, under a behavioral targeting scenario you would see an ad for Nissan (or a competitor) shortly thereafter. There’s no question that this is vaguely creepy, but you better get used to enjoying your online ads with some fava beans and a nice Chianti, because unlike the pilloried pop ups, these ads won’t be easily driven away by a pitchfork wielding online mob.

To date the most successful behavior targeters are consumer product advertisers such as Snapple and American Airlines, whose deep pockets and legitimacy are imperative if the Internet ad business is going to continue stealing dollars from other media types. No invasion of privacy outcry is going to curb this advance – the financial stakes won’t allow it. Further, the ubiquity of today’s Internet has made the hard core privacy advocates look downright quaint when they pine for the good old days of anonymous surfing, butter churning, and barn raising.

And in truth, while the notion that a database is tracking many of my online moves and subsequently sending me ads it believes I’ll respond to is unnerving, these newly enhanced targeting methodologies don’t know it’s me. They just know me by my computer’s IP address.

This provides at least a modicum of privacy, which is a lot more than was intended for this technology originally. Long-time Internet watchers may remember the first shot across the behavioral targeting bow, when ad network DoubleClick bought Abacus – a huge catalog and database marketing firm – and attempted to hook up their targeting apparatus with Abacus’ information to sync online and offline behavior and track people by name. That was back in 1999, and the whiplash of negative reaction to that scheme required chiropractic care, and nearly brought down the whole company. The idea never took flight.

This new more acceptable behavior targeting opportunity comes in three flavors. Ads can be purchased on an individual site (most of the big national sites either have it or are rolling it out in 2005). Ads can also be purchased on advertising networks (conglomerations of thousands of sites, mostly mid-sized). These networks, such as 24/7 Media, Advetising.com and others, offer a good option for first time behaviorists since their pricing and minimum buy is generally lower. Last is the behavior ad software companies such as Claria, WhenU and others. These firms use software included as part of presumably helpful downloads such as password storage wallets or browser toolbars to track usage and deliver behavior targeted ads. These “adware” firms are especially noteworthy (or dubious depending on your perspective) for their ability to handle competitive ambush advertising whereby an ad appears on your screen for the direct competitor of the site you are visiting, usually hawking a discount offer.

Imagine you’re walking into Bashas’ and right when you reach the door a guy jumps out from behind one of those benches featuring an ad with a glamour shot of a smiling Realtor and hands you a coupon for 10% off for the Safeway across the street. That’s what adware firms do online. If you’re  Safeway in that equation, you’re laughing all the way to the bank. If you’re Bashas’ you want to hunt down the Safeway marketing director and make him watch Fear Factor reruns over and over and over. As you might imagine, the adware companies are embroiled in several lawsuits brought by competitors of their advertisers.

Behavior targeted ads cost more than regular ads of course, generally 20% or so. The philosophy is that since these ads are based on your proclivities they are more likely to be viewed favorably and acted upon by you, thus boosting response rate and justifying the increased cost.

This idea of targeting based not just on what people want, but also when they want it most is a unique attribute of online ads and behavioral targeting. The fine points are still being worked out, and determining when it’s most effective to show behavior targeted ads (after two similar actions? Four?) is as mysterious as the Cardinals’ faux logo change.

Projections from analysts at eMarketer show that behavioral targeting will account for just 8.3% of the $11.3 billion in total online ad spending this year. So, it’s not huge yet and there’s still plenty of time for you to outfox your competition by ramping up this tactic first.

But, like all Internet advertising, the key to success is to start small and test results before expanding the program. Like most things Internet, not a perfect system. And remember, multiple people use the same computer (driven home recently when I recently borrowed my wife’s computer and was startled to receive a series of what I imagine were behavior-targeted ads for Vitabath Shower Gelee).

The good news? My skin is now moist and supple.