April 8, 2022

Ad Revenue Is A Lagging Indicator of Performance

In the AMO Slack channel (you get access as a premium member), there was a short discussion about increasing the value of ads for partners to then increase revenue for the publication. And as I spent some time thinking about that, I realized how simple a concept that is. We should always think about how we can drive more success to our advertising partners.

But I don’t believe this is a conversation that comes up at so many media companies. They forget there is a direct link between ad revenue and how those ads perform for the partner. This might explain why advertising has become such a challenging business for many media companies, while at the same time, it’s the lifeblood of so many b2b media companies.

It all goes back to the late 1800s. John Wanamaker was the first marketer to buy a half-page or full-page ad in a newspaper. And he is credited with an interesting quote: “Half my advertising spend is wasted; the trouble is, I don’t know which half.” But, of course, he knew that his ads were working. Revenue at his business reportedly increased from $4m to $8m when he was running ads. But he had no way of knowing which ads were working.

Ironically, the same can be said today as 150 years ago. According to a 2020 article in FT:

Publishers receive just half the money spent on their digital ads by premium brands such as Unilever and Nestlé, according to research which lays bare the fees taken by adtech companies and untraceable middlemen.

The two-year study by PwC, prompted by the deep concerns of publishers and advertisers, is the first end-to-end look at the inner workings of a market worth £2bn in the UK and about £100bn worldwide. 

As well as finding that at least half of a brand’s digital marketing spend is absorbed before reaching a publisher, the researchers also discovered that almost a third of those ad-placing costs were completely untraceable.

Half of the ad spend does nothing for brands. If they’re spending $10,000, only $5,000 of it is actually getting to its destination. And as the story says, 33% is entirely untraceable. The brand and the publisher are both victims of the middleman.

But there has often not been much ink spent on the fact that publishers have, historically, cared very little about performance. Run down the list of site experiences:

  • Pages jam-packed with banner ads of all shapes and sizes
  • Auto-playing video ads, frustrating audiences
  • Chum box ad units
  • Auto-refreshing of ads

All of that is commonly found across a variety of different media companies. Performance? Who cares? When it has come to so much of this programmatic advertising, publishers haven’t cared how the ads perform; they simply want as many on the page as humanly possible.

I’ve been there. When I was running ads at a media company, a partner explained that if we added another advertisement to the page, we could see revenue increase by 10%. They said, “all that matters is that half the ad is in view for one second.” That’s the IAB standard. Is that performance?

It’s not.

But the only way that so many media companies think about increasing ad revenue is by increasing the number of ads. This explains why there has been a race to the bottom on programmatic ad rates and why there was a massive rush to the major platforms over the past 5-10 years.

That’s why I really liked what this operator was suggesting in Slack. “I’m really looking for practical ways to increase the value for advertisers to increase revenue in turn.” He was taking a partner-first approach and then figuring out how that increased revenue for him.

I think about a conversation I had with Neil Vogel, CEO of Dotdash Meredith, on the AMO podcast. Look at how many times he says the word perform:

Everything begins with an audience and begins with performance. When we had to restart our business, nobody knew what our brands were. We knew we had to get in the door and take real premium ad dollars from people that our advantage was going to have to be audience and performance. We knew we were building this great content and building this machine to get these intent-based users at scale. If we could convince an advertiser to do a test buy, we knew we would keep them because our performance was unbelievable.

We knew this because the first brand we launched was Verywell and we had some carryover ad deals from About.com onto Verywell our clients called us and were like “what are you guys doing, you’re cheating, your performance like quadrupled, what is going on here?” And we were like, “no, no, here’s what we did.” We have found our way in is different. We got in the door by saying “give us a shot and we’ll outperform anyone else on your plan.”

Dotdash Meredith is absolutely crushing it today. Crushing it so much that Dotdash, the much smaller company, acquired Meredith, the much larger one. It figured out that if it drove performance for its partners, the rest would fall into place, and boy has it worked. Ad revenue is a lagging indicator of performance.

But how, exactly, do you increase performance? Honestly, it depends. The first thing you have to do is understand what performance is. So, ask your partner what they are trying to achieve. This can then drive the conversation.

Most partners will start with something easily measurable, like clicks and leads. This is the lifeblood of performance marketing. The marketer gets something tangible and can easily make the case to their boss that they should continue investing.

This means you need to provide products that are going to entice people. There’s a reason b2b media companies lead with white papers, gated content, and webinars. These are things that readers want, and it results in the direct promotion of something that company wants out in the world. So when both sides are benefiting, you have a good product.

But I’ve often believed that focusing too much on tangible benefits like clicks and leads misses half the battle. There is a serious benefit to brand building. The B2B Institute at LinkedIn has a great interview with Colin Fleming, Senior VP of Global Brands, Events and Customer Marketing at Salesforce. This part about why the company spends so much on brand advertising jumps out to me:

Peter: This is one of biggest challenges in brand marketing: we often confuse “awareness” with “availability.” You don’t just want people to have heard of your brand (awareness). You want people to think of your brand in an actual buying situation (mental availability). Awareness is helpful, but what you really want is “situational awareness” or “salience.” Otherwise you’re going to struggle to turn that awareness into cash flows. So how did you overcome that challenge at Salesforce?  

Colin: Well, even when you have a compelling customer insight, and we did, you still need to connect that to the bottom line. We found a great study on B2B buying behavior showing that two-thirds of the time, when a business decision-maker purchases software, they already have a brand in mind. And 94% of the time, the buyer ends up sticking with that brand. So if you’re not part of the original consideration set, there’s no way you’re getting bought. And that’s how we tied this marketing problem around unaided awareness to a downstream business problem. That made everyone sit up and take notice. 

That bolded part is my emphasis. But it is critical to understand. Tangible performance feels excellent, but without the soft performance—brand—it doesn’t really matter. 94% of the time a buyer has a brand in mind; they pick that brand. No amount of clicks or leads can overcome that.

Therefore, performance here has to be doing things that make the brand look good. Here is where banner ads, editorial & podcast sponsorships, or other types of branded content can really help. The goal is not the immediate conversion, but instead, it’s to ensure that people are constantly aware of your brand so that when they are in a buying situation, you come to mind for them.

This means less is more. For example, Dotdash Meredith has fewer ads on its page than most consumer media companies. But the ads that are there are easy to see. And since they are contextually related to the content, the advertiser knows that the audience is more likely to be interested. This is good for their brands.

But how do you prove it? You should consider running brand lift surveys. These are broken into two parts. The first survey is a list of questions that creates a benchmark of how aware an audience is of a brand. Then you run the advertising campaign. At the close of the campaign, you ask that same audience questions to see if the brand’s awareness improved. Did it? You’ve performed.

This is why ad revenue follows performance. If you’re driving clicks and leads plus helping the partner improve its brand, the marketer will come back. I’ve been part of situations where advertisers spend three-quarters of their yearly budget with us for one campaign. And then, a year later, they come back with a much larger budget. This can only happen if your ad campaign directly translates into revenue for their business.

When these scenarios happen, you can start charging more. If you have limited supply to work with and demand increases, you get to charge more. It’s the wonderful part of highly performing ad businesses. Now, this means your ads can’t stop working, of course. If they start to underperform, you’re back to square one. And what performs at one price might not perform at a higher price.

If you ask me, though, this is the kind of problem you want to have. Finding that balance where you can maximize revenue while also driving performance for your partners is a solid place to be.

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