

Why internet ads pay less than other media ads - daniel-cussen

My (very uninformed, but somewhat plausible) take:<p>It's because you can measure the results.  With TV, it's hard to determine the ROI of a marketing campaign.  In a Steven Levitt interview, he said the ROI for big-corp marketing departments is usually about 30 cents on the dollar [1].  The question is, why don't they shrink their budget until they have a minimalist campaign that gets a rational ROI?<p>My guess is that there's a conflict of interest between the marketing department and the shareholders.  The marketing VP (or the CMO or whatever it says on the door of his office) is interested in furthering his career.  I would guess he isn't judged by employers based on the ROI he produced, but on the size of the budget he managed and how many famous (i.e. expensive) campaigns he headed.  So he wants to spend as much as possible, particularly on high-profile campaigns that get him a lot of PR.<p>However, with internet advertising, it's much easier to know what the ROI is, because all the stats are there.  The CEO will not put up with bullshit if the stats are staring him in the face.  If the only way to get marketihg data for TV campaigns is paying consulting firms 400,000 for a one-time analysis, the marketer can put a spin on things.  On the internet, you get real-time data on everything.  It's blatantly obvious if your marketing campaign sucks.<p>The marketing VPs can't play the game with internet advertising, so they don't, and leave web 2.0 companies wondering why they can't get as much for an ad as Fox does.<p>My hypothesis is based on a lot of guesses, a little knowledge of internet advertising, and a Steven Levitt podcast where he talks about some pretty weird (as in irrational) business decisions:<p>http://www.chicagogsb.edu/news/2006-07-14_xpkickoff.aspx?modeset=audio
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boredguy8
There are two quick flaws with this argument.

1) It assumes you can't track ROI on 'traditional' marketing. You can. There
are a myriad of ways: Using advertising-specific numbers with call forwarding;
Statistics modeling; asking the customer, &c. People generally don't spend
millions unless they know it's going to matter, and traditional advertising
has defended itself more than once.

2) It assumes the purpose of advertising is 'click-through'. Most
advertisement is building name recognition: not everyone needs an ACME Widget
right now, but I want to make sure they know to go ACME when they need it.

3) It forgets you're competing in a shared environment. If Pepsi shrinks its
ad budget, Coke wins. "Many manufacturers secretly question whether
advertising really sells their product, but are vaguely afraid that their
competitors might steal a march on them if they stopped."

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daniel-cussen
I agree with most of what you're saying, but would like to point a few things
out:

1) Yes, you can track ROIs of that nature, and many people do. But as Steven
Levitt says, it seems to not be a part of corporate culture to do so. And
according to him, they often do waste millions. It's not the marketer's money,
after all. They'll often say things like, "It's my job to spend the budget"
when Levitt points out their losses.

2) There's more to online ads than clickthrough, I agree. I didn't say there
wasn't. My point was that the stats are easier to come by, and they'll be
harder to weasel up.

3) That is a legitimate concern, I agree. However, being in a marketing arms
race should already have been factored into the ROI, IRR, or whatever all-
inclusive metric or set of metrics you are basing the budget decisions on. I
don't mean Pepsi should give up, or that its marketing budget is bloated, but
that even in an arms-race you can go too far.

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rms
Good analysis, but there's still room to fudge internet numbers, especially
when you're getting high priced CPM banner/skyscraper ads for "branding"
purposes.

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marcus
Exactly branding was our marketing department go-to excuse for ROI negative
campaigns.

We ended up trying to measure the branding by tracking users who came to our
site directly by typing the url into the address bar, or who googled our
website by name, so we can estimate how strong the branding was.

The only problem is you can't really do this on a per campaign basis, but if
you geo target your campaigns and check the brand strength stats on the same
geo targets you can get a rough estimate.

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daniel-cussen
Just out of curiosity, how would these events unfold?

1) They do the campaign and 2) rationalize [what I presume is] a failure, or
1) Rationalize a bad campaign and 2) get it going?

Also, how valuable was branding? Were the bad ROI's justified after all?

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aston
You may be very spot on there. There's an old adage in advertising, something
like "Half of money spent on ads is wasted, but you can't tell which half."
Online, you can, so you have to make smarter investments to maintain the
appearance of being a good marketer.

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mixmax
I think you have some good points, I have friends in (offline) marketing -
these people are the greatest bullshitters of all time...

But I think that there is another simpler explanation: supply and demand.
Since everyone has a blog with banners, and one on five people runs a website
with ads the supply is enormous, and this naturally drives prices down.

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daniel-cussen
The supply of banners might be huge, but companies don't buy the banners as
much as the eyeballs that see them. It's the same with TV; marketers buy a
spot for its viewers; the price of an ad depends on the show's ratings.

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mixmax
That is not true. A marketing campaign is based on a media-mix, where it is
decided what ratio of money will be spent on what. For instance 25% print, 25%
outdoor, 25%television and 25% web.

You reach different demographics in different ways with each channel.
Marketers know this.

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rms
I'm not sure that internet ads truly pay that much less... is it cheaper to
deliver a 15 second video ad to 250,000 untargeted people on the internet or
on TV?

