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0.2 0.0 SALES Connecting Publishers and Clients SALES 1.0 0.8 1.0 The Internet Economy: Six Pence and None the Richer The race to add uniques is distracting media companies from the real challenges of fighting the commoditization of advertising and an unhealthy and short-sighted reliance on it. By Kosha Gada and Greg Portell M arketers continue to salivate over the prospect of being able to reach millions of unique users per day, the power of which translates into rich advertising potential. Or does it? To truly understand the value of a “unique”, it is essential to understand the advertising-based Internet economy at a macro level. For there is a ceiling on how much time consumers can physically (and mentally) spend online—and while this time is finite, the explosion of Internet-based content is not. And so for every dazzling story of overnight Internet success that lures entrepreneurs and major content brands to the quest for maximizing uniques there is an inevitable saturation point—and it is fast approaching. A ‘Unique’ Bubble According to recent comScore research, the average American Internet user spends 8-10 hours per day engaged on-line. Roughly 80 percent of this time is spent locked into captive platforms such as Facebook, Twitter, search and mail services. Content providers are left scrambling to compete for the remaining two hours per day of leisure surfing. Imagine, thousands of publishers pouring millions of dollars into the fight for two hours of your time per day. And the average American Internet user visits about 15 pages during this two-hour leisure period. The math from this consumer-centric point of view is quite simple even if the result is not intuitive: 15 pages visited per Internet user per day at 2.3 ads/page * an average CPM of $1.80 = six cents in revenue contribution to the Internet economy per consumer per day during this two-hour leisure period. That’s right, the average Internet user today gen- 24 Folio: MAY 2012 | foliomag.com 34% Email 20% Other 0.8 0.6 16% Facebook 22% Search 8% Twitter How the Average Person Spends Time on the Web Source: A.T. Kearney Analysis erates six cents per day for all the news, opinion, fashion, celebrity, retail and other websites competing for his or her time every day. Clearly, this result is an unsustainable business model. And yet the quest for unique visitors remains stronger than ever, as illustrated by deals like the recent $315 million Huffington Post acquisition. More disturbingly, the race to add uniques is distracting media companies from the real challenges: How to fight the commoditization of advertising and avoid the reliance on advertising revenue that plagues virtually all media platforms. Economically, an advertising-reliant business model simply does not work in the long-run— across all mediums—particularly as capacity increases while consumption stands still. The Commoditization of Advertising The growth of ad networks (for display, video and audio) has shifted advertising value away from the media companies who own the space to those who deal in the arbitrage of information. Exponential growth of content creates almost unlimited inventory of digital ad space, but the demand for online advertising is ultimately limited. This is the mark of extreme commoditization. And what does this mean for media companies and for advertisers? In the end, it becomes a Paradox of the Average: How do media companies take advantage of scale (both in terms of technology and uniques) made 0.4 0.2 0.0 0.6 0.4 possible by such growth without following the descendExtend Your Brand Experience ing revenue curve to unsustainable levels? Once a media company’s core brand equity has been built, 0.2 Unlike other media such as television, out-of-home the foundation has been laid to extend into valuable adjaand print where advertisers are paying for the “chance” cencies. Multichannel media companies further have the 0.0 to be seen—through non-descript GRPs or rate base— advantage of their scale and name recognition to do this. digital media is granular. Digital advertising reach can be compared and arbitraged with a precision much Reset Expectations greater than with traditional media. This has led to a The standard mechanisms to track and measure digital more transparent market and hence a lowering of the consumption fail to recognize the multi-faceted attributes price curve for digital advertising. While specific ecoof digital media. Further, ROI on many digital marketing nomics will vary by pubinvestments makes it even lisher, the universal truth harder for companies to 1.0 remains: Ad inventory develop campaign strategies Daily Advertising Revenue Generated is increasing at a rate within traditional planning $0.96 Per Consumer by 0.8 faster than the ability of cycles. U.S. Media Channel Source: A.T. Kearney Analysis consumers to view it. Traditional consumer $0.68 0.6 This commoditization marketers still have a of the current advertistendency to think of the 0.4 ing model in fact ignites online world as simply an $0.39 an opportunity to create extension of the offline one. 0.2 entirely new value They are used to measur$0.06 propositions—for media ing effectiveness in terms of 0.0 TV Magazine Newspaper Digital companies that underreach and frequency, neither stand this new reality of which offers a corollary in rather than fear it. digital. The resulting chaos has opened a door for media companies to re-educate marketers. For example, ESPN has begun to frame metrics Seizing the Opportunity in terms of “share”—similar to traditional television While every marketer understands the need for and is terminology. In other words, it isn’t a matter of how many actively adopting digital marketing strategies to engage eyeballs their sites capture as much as it is their share of their customers, there remains much debate on what the sports media consumption across all platforms. right marketing mix should be, how it should be evaluBeyond the traditional chase to lock in competitive ated and when it should be planned. Multiplatform media CPM and GRP costs, marketers are more than ever searchcompanies are in the prime position to solve these probing for partners to help them decode an unclear adverlems. Here, we offer a few guiding principles to survive tising reality. As the “owners” of that landscape, media and even thrive during this industry revolution. companies are uniquely positioned to play that role. To be successful, media companies need to identify Build Your Media Brand which capabilities offer them the most benefit and then To overcome clutter in a sustainable way, media compalock them in. This may include upgraded consumer datanies must approach their value proposition through the bases, response models, cross-platform programs or even lens of brand building. character licensing. One thing is for sure: Only adding While maximizing reach will always be a powerful more uniques is not the path to success. asset, maximizing impact will always surpass it. And while not always mutually exclusive, activities that dilute brand standards in favor of more cheap eyeballs should Kosha Gada and Greg Portell are senior manager and partner, be pursued with caution lest they risk diluting long-term respectively, with A.T. Kearney, a global management consultbrand status. ing firm. Folio: MAY 2012 | foliomag.com 25