Download The internet Economy: Six pence and none the richer

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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-
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Folio: MAY 2012 | foliomag.com
34%
Email
20%
Other
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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
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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,
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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
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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
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remains: Ad inventory
develop campaign strategies
Daily Advertising
Revenue Generated
is increasing at a rate
within traditional planning
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Per Consumer by
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faster than the ability of
cycles.
U.S. Media Channel
Source: A.T. Kearney Analysis
consumers to view it.
Traditional consumer
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This commoditization
marketers still have a
of the current advertistendency to think of the
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ing model in fact ignites
online world as simply an
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an opportunity to create
extension of the offline one.
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entirely new value
They are used to measur$0.06
propositions—for media
ing effectiveness in terms of
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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.
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