A Tale of Two Tiers: The End of Premium Display Advertising as We Know It

For a while now advertisers and publishers have thought of display ads in two main buckets: premium and remnant. Premium campaigns were sold to the advertiser, either directly or through a network, by a salesperson. The advertiser would be sold a specific number of impressions during a specific time period and they would theoretically have some control over where the ads would appear — on which websites and sometimes even alongside which content.

But publishers were always left with some unsold impressions and would typically sell them to a network like Google AdSense as remnant inventory. On a good month the impressions sold as remnants would be single digit percentages, but on a bad month they could be a much larger share of the overall number of impressions.

The canary in the premium advertising coal mine was the massive difference between the CPM (cost per thousand impression) rates that a publisher could charge for their premium and remnant inventory. In my experience the difference could be an order of magnitude.

This screamed two things:

  1. Benefits that premium ads offer to advertisers would have to be big enough to support this level of price discrimination between premium and remnant inventory.
  2. Remnant inventory represented a big opportunity for arbitrage, so it was inevitable that new players would enter the market with ad products that packaged so-called remnant inventory in interesting ways.

When I started seeing ads from our premium advertisers also appearing on youlookfab.com via AdSense, I realized that #1, the price discrimination, was getting harder to justify. Identical creative, appearing in the exact same ad position on the same day. Just 10x cheaper.

Then came #2 — the rise of the machines — ad exchanges that to a large extent automate the matching of ad inventory supply and demand. Although the remnant inventory for an individual publisher was often a small percentage of their overall inventory, the aggregate remnant inventory across thousands of sites represented a lot of eyeballs. And at a much lower cost per eyeball.

Not only that, but purchasing ads from an exchange involves no sales people and no traditional sales cycle. Want a few million impressions for your ad during the first week of May? Bam. You got it. Sure, you don’t know exactly where those ads are going to appear, but the buy took you 5 minutes and cost a fraction of the price.

Of course, the more overall inventory that is sold programmatically, the better the average “quality” of those impressions and therefore the better the value proposition that programmatic buying offers. So we can expect ad exchanges, demand side buying and their ilk to accelerate their inroads into the premium market. In fact, this process is already quite far along. Case in point is a company like Federated Media, which was one of the pioneers of high touch premium campaigns and conversational media, but through their acquisition of Lijit they have pivoted to make programmatic buying of ads a central part of their offering.

Although companies like FM are still doing high touch, premium campaigns, they are only doing them with very large companies that have very large budgets. For these campaigns the economics of a costly sales cycle still make sense. The question is, for how long?

It is tempting to view this as yet another example of the innovator’s dilemma, but I don’t think all is lost for premium, bespoke campaigns. Yes, the pendulum will overshoot in the direction of programmatic buying, and the days of easy CPMs are over, but there will be a new normal where both high volume programmatic buying and high margin premium campaigns co-exist.

Already there are innovators moving to fill the gap left by larger networks that now only focus on campaigns with 6 figure budgets. Nativ.ly, founded by ex-FM veterans, is one example of a company looking to define new kinds of carefully thought out, high value campaigns for advertisers that want more precision and more care taken with their brand. And opportunities to advertise in more creative ways than an IAB banner or the latest frightening ad unit that takes over your browser window. Companies like Nativ.ly look more like boutique agencies than ad networks. After all, to make the economics of the sales cycle work at a smaller scale they need to be adding a lot of creative value 2.

The key question: How will boutique networks and the niche publishers they partner with quantify the value that premium campaigns can offer to a brand? Intuitively, we all know it is there — we despair of the dumb banner advertising we see all over the web and laud campaigns that are creative, targeted and intelligently tied into social media — but how will we measure awareness and brand uplift that doesn’t translate into immediate business? “We know it when we see it” still isn’t an effective way to present ROI.

  1. “Native” is the buzzword that has emerged to describe campaigns that are more, well, native to the places they appear. The canonical example is the ads alongside search results in Google or Bing. But for publishers it is about getting advertisers closer to the editorial content. If the potential conflict of interest challenges are negotiated properly, this can be very powerful. Advertisers can associate themselves with specific content and specific publishers that reflect their brand values. And their message appears in a context that makes sense. However, I hesitate to use the term “native” to describe what a company like Nativ.ly is doing because the now ubiquitous “You might also like” or “Also on the web” sponsored links under articles — mostly automated, sometimes annoying and often spammy — are also referred to as native advertising.