Wetpaint CEO Ben Elowitz on the Future of Digital Media
This article was published as a guest post in AllThingsD, and is republished here for Digital Quarters readers.
These are exciting times for advertising, as new technology and new forms of media are bringing advertisers new ways to reach audience, with far better targeting and measurement than ever before. It’s truly a boom time for ad tech, and one might think that means the sky’s the limit for the growth of advertising. The only bad news is that instead, this explosion of technology is exactly what’s going to make the advertising market go bust.
That’s because ad technology advances are moving in one consistent direction toward commoditization and efficiency, contracting the market as they straighten it out. Unfortunately, the dark matter of topline can’t be ignored. But the good news is there is still time to achieve escape velocity, if you plot the right course. The way to resist the gravity is to think differently about your value proposition.
Ever since the 18th century handbill, there has been only a fuzzy link between what an advertiser pays and what the advertising is actually worth. Even today, most ad spend is nearly untraceable – television still gets the lion’s share, and it’s one of the least measurable and most expensive mediums.
The definition of advertising nirvana is meaningful measurement: knowing not just how much advertising was delivered, but to whom and to what end. Digital media promised deliverance with its rich data and constant monitoring, and on this promise waves of ad-tech startups have been born. Want to boost your ROI by programmatically buying the best ads in the best placements at any given moment? AppNexus has an app for that. Want to eliminate wasted impressions by targeting your audience with surgical precision? BlueKai’s got your back.
And there are hundreds of other upstarts vying to fix your inefficient ad spend with their own proprietary software. While they’re at it, they each hope to bite off a piece of the $500 billion advertising market.
The problem is that once they get that bite, they’ll find the new pie of advertising-made-efficient to be a comparatively meager meal.
This is the way disruption often works – new improvements don’t always equal bigger profits. The Open Source movement in the late 90s – which gave rise to a whole generation of new technologies and businesses – actually cost the software market $60 billion per year in lost revenue, in large part because it enabled developers to unbundle expensive enterprise packages and sell the customer only the necessary bits. In 2001, the decimalization of the US stock market – initiated by the SEC to make the market more investor-friendly and efficient – narrowed spreads and consequently shrank NASDAQ trading floor revenues by 70%. And let’s not forget about what happened when device manufacturers digitized the music industry.
With the explosion of digital media, ad space inventory is increasing quickly (anyone checked their mobile traffic chart lately?), while at the same time advertisers are making more focused and efficient buys than ever before. If that efficiency is working, then net fewer dollars need to be spent to drive better results. Great news for advertisers – but bad news for publishers with inventory to sell. With CPMs seemingly lower all the time, a continuation of the trend toward efficient ad buys will mean a dramatic contraction of the advertising market.
Software industry disruptor Marten Mickos (former MySQL CEO) once told investors: “The relational database market is a $9 billion a year market. I want to shrink it to $3 billion and take a third of the market.” Make no mistake – today’s ad tech players are plotting the same.
Is there any chance of maintaining the $500 billion advertising market that we know today? Probably not. Like Clayton Christensen says, it’s only a matter of time before disruption wins.
But if we can take a lesson from the industries that have gone through disruption before us, it’s that the incumbents should have embraced the new business models much, much earlier. Publishers have no choice but to act now and get involved in inventing the next wave of advertising.
So how do you compete when your market is collapsing? Change the way you think about your market.
Yes, publishers sell space to advertisers. But advertisers want to buy results, not space. When media companies measure their monetizable assets, they tally up the display inventory they can sell, and the data that can boost an advertiser’s expected returns. But your assets are actually much more diverse. Embrace your range – you have a lot more than space for rent. You have:
A new age of advertising is upon us, and while it may be a golden age in terms of technological advancements, it certainly won’t be one of abundance. The contraction of the advertising market will force publishers to get creative and add real value with new offerings of our own. The days of selling space and access to a general audience are over. But advertisers will always need great media brands to align themselves with – which is why the biggest opportunity for media companies is to combine new technology and new formats with strong brands, and make that alignment more valuable than ever.