The Emerging Structure of the Digital Display Marketplace - A Simple Overview - Leo Scullin

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During the month of January 2011, and in review of all the market buzz of 2010, the author interviewed a coterie of thought leaders and expert practitioners in the digital advertising arena. As a result of the dialogue with the panel of experts, from the buyers and sellers perspectives, a simple picture of the structure of the digital display marketplace emerged:

Simple Tiers, Explained

  Digital Display Advertising: Marketplace Tiers
    Highest Cost Per 1000 (CPM)  
  Primary Tier
  Features: highest CPM but smallest % inventory; primarily sponsorships and customized packages; high credibility, quality content
  Secondary Tier
  Features: the bulk of the "negotiated" market; involves labor, sales cycles; tends to harbor the most inefficiencies in process; complexities being addressed with technology for some "non-negotiated" premium inventory
 
 
 
  Tertiary Tier
  Features: largely remnant inventory; "non-negotiated" low CPMs; networks and exchanges operate this tier
    Lowest CPMs  
  Source: Arkose Consulting LLC
       

The IAB reported that the display market in 2009 accounted for $8.0 billion, or 35%, of the total Internet Advertising spend. For the first half of 2010 total US Internet ad revenues totaled $12.1billion, the best first-half revenue ever. Display ad revenues were $4.36 billion, or 36% of the total spend, up 16% over 2009. According to the IAB, "upward bound display, impression-based and hybrid revenue models indicate an influx of brand dollars." Further spending breakdowns are not aggregated in an industry spending database, like Publishers Information Bureau (PIB) offers for magazines and Kantar Media Intelligence and Nielsen Monitor Plus provides the major media. However, Arkose Consulting estimates the 2010 ad revenue breakout by tiers as follows:

Digital Display 2010 Revenue Estimates

  Digital Display Advertising: $9.083 Billion  
  2010 Revenue Estimates:   
  Primary Tier  
  Size: $0.500 billion Notes: Extrapolation of IAB 1st Half 2010 Sponsorship estimate  
  Secondary Tier  
  Size: $6.249 billion Notes: Includes estimated $0.850 B in Demand Side Platforms  
  Tertiary Tier  
  Size: $2.334 billion Notes: Assumed to be all network and exchange $$ for remnant inventory  
  Source: Arkose Consulting LLC  
           

In addition to the dollar allocations by tier, ascribing pricing to each segment would then define a marketplace that's easier to understand and to embrace. Such a pricing tool would be an industry cost database. This would permit clients and their partners to evaluate the cost and implications of different strategies before they set foot in the actual transaction marketplace. As will become apparent, any tools that help address the key challenges facing this multi-tiered market can be of enormous value.

Two key challenges:

· Managing "infinite inventory" – There is an overabundance of advertising supply across thousands of sites, in what could easily be called an "Infinite inventory" of ad impressions. Each of the marketplace tiers has different needs and opportunities and, as a result, this makes it difficult to exploit;

· The Ad Operations Work Flow – The ad operations work flow that supports digital campaigns is complex, costly and is notoriously dependent on manual labor. Reliable estimates from media agencies, large and small, suggest that for every dollar spent in digital, an additional $0.15 – 0.20 is spent to manage it. Compare this to $0.02 – 0.04 for broadcast and $0.05 – 0.09 for print. An industry that is complex and also expensive raises the threshold of resistance.

These are serious impediments and the developments in each of these two arenas, and the implications for positive change driven by more widespread support for an industry cost database, are the focal point of the next few posts on this subject.

Leo Scullin is a Partner at Arkose Consulting LLC of New York, a firm that offers strategic, tactical and management guidance to clients seeking to leverage their interactive marketing investments and initiatives. He has extensive experience in internet professional services, as well as deep expertise in launching and positioning online and traditional media. lscullin@arkoseconsulting.com

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