Digital Thoughts - The Seller’s Market: What’s a Media Buyer to Do?
by Sam Harrelson 

Finding inventory or data has become much more difficult for the media buyer or advertiser in the online space.  Having worked on both sides of the equation, I am fascinated by this turn of macro-economic events and how it has affected our industry in terms of relationships, pricing, media used and long-term solvency.  Just a few short years ago, we were heralding the return of the “Buyer’s Market” in which advertisers were able to pick and choose from the variety of email publishers and banner placements at outrageous low costs.  There were seemingly no worries for the media buyer with a budget because there was always another “opt-in” publisher out there who would accept a lower payout or cheaper CPM.  However in 2004, the industry is bloated with offers and devoid of quality inventory with the space to run the offers.  The result is the continuing rise of inventory price. 

Generally, there is no fault to blame for this economic cycle.  Scarcity always brings price fluctuations.  However, there are anomalies in the economic cycle that are producing serious side effects for the industry at large.  As discussed in the March 18 edition of the DM Trends Report, the pops and banner markets are suffering from an inverse pricing curve resulting from the decline of email response rates and CAN-SPAM fears.  Essentially, their pricing is inflated because of the lack of another medium’s responsiveness which once provided a form of release on the friction produced by the supply/demand formula. 

However, even with the general decline in email response rates, email publishers are favoring the CPM rate over the more performance based CPC or CPA models.  The rates being charged by some publishers are bordering on the high price threshold that came shortly before the bubble deflated at the turn of the century.  Essentially, pricing for buying media is being held at “tourist” levels.  Companies which experienced the “dotcom bust” should focus on sustaining and maintaining their profits rather than charging higher than market rates, or the industry will again suffer the effects of a bust in a rather short time.  Finding the sweet spot and being able to charge rates for quality inventory is optimal, however it seems that in a seller’s market this isn’t always the case.  It seems that the areas of pop, banner, email and registration paths have priced themselves out of the average advertiser or media buyer’s budget.

The wrenches in this economic conundrum are the search engine and the affiliate markets.  These two areas provide media buyers and advertisers with an effective way to reach potentially quality and targeted consumers with the ability to find fair pricing.  However, both of these markets also have their own faults which can easily hamper a campaign.  Should a media buyer or advertiser with a limited budget (as most have in the current situation) focus more on the search market or the affiliate market? Where is the better pricing and quality found?  Let’s look at each:

By speaking of search engine marketing, one inevitably turns to Google.  For the purposes of this piece, I will refer to the Google model.  The platform that Google works on provides advertisers with a sure fire way to determine cost-per acquisition.  Instead of dropping $7500 on an email or banner prepay with the promise of more traffic if the offer “performs well” only to have the campaign bomb with no hope of getting a return on the $7500 invested, Google provides a way for advertisers to set a daily limit on their campaign and to determine exactly how much they want to spend for consumers.  Metrics become important in the Google model, and the advertiser is empowered to make decisions that will benefit them the most in their acquisition campaigns. 

Nevertheless, Google has its downsides for an advertiser.  Keywords in popular categories can be expensive enough to drive any advertiser or media buyer away (try Paris Hilton).  There are also brand considerations for advertisers to fret over when dealing with keyword search listings (we’ll hit on this below).  Finding keywords that translate into profitable sales or leads can be a tedious, slow and ultimately frustrating process as any Google newbie can tell you.  A whole cottage industry has developed to hawk “beat the SEM game” books and conferences at local hotel ballrooms.  Another consideration for advertisers and media buyers working with Google is the targeting that can be provided by Google Ads.  It seems that search keywords are much more specific than the contextual ads seen on websites.  Even with this newsletter, we’ve seen examples of poor targeting from Google ads.  An article in last week’s edition by Candise Miller entitled “Cynics Should Find a Clinic--Keeping the faith in the digital world” generated ads on evangelical Christianity and “life coaching” (what exactly is “life coaching”??).  Google gets it right for advertisers in so many ways, but there is still work to be done in the contextual side of things such as the example above.   

For a transition to affiliate marketing, it is important to note that Google provides an automatic platform for advertising or appealing to a consumer at the moment they are interested in making a purchase.  In effect, you are pulling rather than pushing, or convincing, a user to buy or make a decision on a service or product.  In this way, the quality of lead or sell is generally higher than in a push equation where the individual must first be convinced to become a consumer, then convinced that as a consumer they must consume your product or service on your site at a fixed moment in time after they have been delivered to you by the publisher who (in a CPA model) are themselves hoping to make a commission on the act.  There are a lot of variables in such a convoluted route to making a sell.  Even after the sell/lead is generated, the advertiser still may be on the loosing end because the quality of the consumer may be good enough to make one sell or lead, but their chances of coming back might be slim to nil.  In effect, the advertiser’s cost per consumer/lead is held at a plateau for all traffic.  The optimal situation is one where the advertiser can benefit from a quality lead/consumer that is not only interested in making a one time transaction, but willing and able to come back to the advertiser’s site in the future.  In this way, the advertiser benefits much more from their marketing campaign and the effect is a cost per consumer curve which slopes downwards (which is very good!).  That is the advantage of affiliate marketing, which we’ll turn to next.

Affiliate marketing has an incredible amount of positives for advertisers to explore.  In fact, there are too many for us to discuss here.  On the other side of the coin, there are a plethora of negatives in the affiliate marketing sphere that advertisers and media buyers must be aware of if they are going to turn a profit.  For reasons of length and fairness, we can’t list all of those, either.  In future issues of DM Digital Thoughts we hope to cover these areas.  What is relevant to this article is the ability of affiliate marketing to produce low priced, quality traffic and sales/leads from a wide variety of sites and publishers.  The ability of affiliates to produce long standing customers that continually revisit an advertiser’s website is quite attractive, even if the advertiser is generous (and smart enough) to offer lifetime commissions.  Downsides especially include the time it takes to establish relationships with affiliates (especially the high producing ones).  To learn more about affiliate marketing, we suggest visiting ABestWeb or contacting Linda Buquet of 5 Star Affiliate Programs for more information.

What a seller’s market requires of a media buyer or an advertiser is a core competency at all areas of the market.  There is no magic bullet that will provide the highest quality leads/sells for the lowest costs.  What exists is a continually evolving and changing equilibrium that exists somewhere between these modes of marketing.  By evaluating the search market (keywords and placements), the affiliate marketing spectrum and the traditional modes of generating leads/sells online (email, banners, pops, reg path), an advertiser can apply metrics and best come to a conclusion as to what their constantly flexible marketing plan should encompass. 

Sam Harrelson is the Co-Editor of the Digital Moses Confidential. Send comments and questions to sam@digitalmoses.com