62 Responses to “Publishers Are Killing Web Advertising's Potential With Misguided Pricing”

  1. Alastair Thompson

    Wessel,

    Great catch and very relevant especially the bit at the end.

    “The problem with online is that many of the [media] costs are so much lower that it’s dragging everything down,” he says. “But for agencies, the irony is that their costs are so much higher online than they were on television,” he adds. That eats into their profit margins.Because the internet audience is more fragmented, every pound spent on advertising space online costs almost three times more, in terms of time and labour, than it would if you spent it on traditional media."

    This has always been a problem for agencies and Networks offer an attractive solution. Only its not really a solution at all as it doesn't work for the publishers – and is therefore unsustainable.

    My experience is that everybody online is always looking for the "tech" solution to the systems problem.

    In reality the solution is probably in people. Web publishers (like me) love an opportunity to work for our clients. Invariably we know the parameters of our audience better than the agencies and are better able to optimise for their clients than they are. Publishers – especially the minnows – will work very hard for regular income if given the opportunity. Unfortunately they seldom are.

    Instead of a cooperative dynamic being set up – agencies and networks both seek keep publishers as far away from clients as possible – largely for fear of losing their extortionate margins. Often clients have little idea where they are advertising at all – except for the headline names at the top of the schedules.

    The other aspect of what is being talked about in the article referenced is that agencies for economic and management reasons feel harassed by the internet.

    When you also make it cheap as chips the margins for agencies are squeezed as well as for the publishers making the situation even worse.

    Looking in the discussion above I cannot help but get the impression that there are several people in the advertising/marketing industry who are fed up with the internet and who on a bunch of levels would really rather it just went away.

    There is a lot of work to do.

  2. Wessel van Rensburg

    Interesting piece in the FT…

    "Long-established agencies are floundering in a sea of social media, viral marketing, behavioural targeting and three-dimensional “augmented reality” (see left and below). They are reacting to these buzzwords, not coining them. And their businesses, little changed since Draper’s day, are ill-equipped to cope. “In the old world, agencies were way out in front of clients,” Mary Beth West, chief marketing officer at Kraft Foods, said in a panel debate in Cannes. “Now … clients are ahead of the agencies – and the consumer is ahead of all of us.”

    Economic pressures are making change in the marketing business more urgent, according to Jim Stengel, who as chief marketing officer of Procter & Gamble until last year was the industry’s biggest single client, before leaving to establish his own consultancy. As marketing budgets are increasingly spent on “service and utility and help for customers”, a smaller slice of the pie may be left for what agencies have traditionally done. “What was already a volatile and changing situation is just accelerating,” says Mr Stengel. However, he adds: “In the long term, it’s positive because I think it has opened people’s minds up to different ideas and models, and to taking more risks.”

    Some agency chiefs admit that their model is ill-suited to the internet age. Fernando Rodés Vilà, chief executive of Havas, the French agency group, says the old wartime metaphors of “campaign, target and launch” no longer apply. “The model that started with world war two was based on control in a few hands: very few media, two or three relevant brands in each sector and a few agencies,” he says. “We are [now] facing a very different panorama, which is much more democratic, much more social, much more interesting but much more difficult for marketers.”

    This change has been under way since well before the recession started to bite last year. Global advertising expenditure as a percentage of gross domestic product has been falling since 2002. Up until then, it had risen and fallen in line with the broader economy since the 1970s, according to Robert Shaw, a professor at London’s Cass Business School. He blames the divergence on the shift of budgets to the internet. “The problem with online is that many of the [media] costs are so much lower that it’s dragging everything down,” he says. “But for agencies, the irony is that their costs are so much higher online than they were on television,” he adds. That eats into their profit margins.

    Because the internet audience is more fragmented, every pound spent on advertising space online costs almost three times more, in terms of time and labour, than it would if you spent it on traditional media, says Quentin George, chief digital officer at Interpublic’s Mediabrands.

    The traditional time-based billing model is tough to uphold when developing online campaigns, says Rich Silverstein, co-founder of Goodby, Silverstein & Partners, an agency owned by Omnicom, the global marketing giant. “The internet is so deep it’s like drilling for oil,” he says. “So far, I don’t think we’ve really charged for all the time we’ve put into it.” "

    http://www.ft.com/cms/s/0/92d4daf4-933c-11de-b146-00144feabdc0.html?nclick_check=1