OpenMobile

A reality check for online advertising

(From McKinsey)

A rising demand for online ad vehicles could surpass supply in the near term.

Chris Grosso, Amy Guggenheim Shenkan, and Hobart P. Sichel

2006 Number 3

Internet advertising has recaptured the imagination of marketers, who see an enormous potential to raise the profile of their brands through vehicles such as paid search and online video. But the fact that scarcity is an issue for digital-advertising often gets lost in the enthusiasm. McKinsey research finds that bottlenecks in supply could limit the pace of online ad growth and raise prices over the next 24 months.¹ The study also suggests that a dearth of ad agencies that can manage both traditional and digital campaigns could further slow the shift in spending to online ads.

Our research combined quantitative analysis and more than 50 interviews with leading digital advertisers, ad agencies, and media companies. We compared both current and projected US ad spending for online vehicles—including video, banners, and paid search (ads tied to keywords that consumers enter in search engines)—with the maximum amount of advertising such vehicles could theoretically absorb today. This analysis revealed that the utilization of the most attractive digital-ad vehicles is already quite high and that, without large increases in the level of online advertising "inventory," demand could outstrip supply over the next 24 months (exhibit). While prices are a closely guarded secret, our interviews indicate that they are already rising and likely to jump further as advertisers bump up against constrained supply.

Short-term mismatches between supply and demand appear greatest for the video ads that interrupt or precede online content, such as news clips. The inability of consumers to skip these ads and their use of sound and motion—proven tools for driving brand awareness among consumers—make online video highly attractive to marketers. According to many of the video suppliers we interviewed, very little unsold advertising capacity remains today. Assuming that marketers don't increase the number of ads they place in each video stream, the maximum supply of video ads is currently about $600 million a year—far less than future demand, which we expect to reach $1.4 billion to $3.2 billion in 2007. Help will come from new strategies (such as Disney–ABC Cable Networks' recent offering of television shows for download and the creation, by Ford Motor's Mercury division, of a series of short online films), but they don't seem likely to meet burgeoning demand on their own.

The situation is similar for paid search. Annual growth in the overall number of searches is slowing, from 30 percent in 2004 to 20 percent in 2005. Without significant changes in consumer click-through rates or in the prices advertisers are willing to pay, we estimate—using our analysis of the prevailing cost per thousand impressions (CPM) and Nielsen Media Research figures on paid search—that the maximum current value of paid-search advertising is about $7 billion. Meanwhile, our analysis of current and forecast page views, ads per page, and CPM rates suggests that advertisers will want to spend $9 billion to $12 billion on paid search in 2007, up from around $5 billion in 2005. Even without severe supply bottlenecks, there won't be room to handle rapid near-term growth.

Finally, although the inventory of banner ads—$4 billion to $8 billion—appears more than sufficient to accommodate the likely demand of $2.5 billion, advertisers probably won't be interested in much of what's available. The complex task of spreading media spending across thousands of small Web sites, many with different ad formats, means that advertisers tend to return to heavily trafficked sites, where supply is at a premium. Even on the big portals, marketers are leery of having their ads placed near consumer-generated content that might be objectionable. In fact, advertisers currently direct 96 percent of their spending for online display ads to pages that represent just 30 percent of overall Web traffic.

Our interviews highlighted two additional hindrances. First, most advertisers expressed frustration at the small number of ad agencies with the skills to manage both traditional and digital campaigns. Many advertisers have no choice but to employ separate agencies and to coordinate cross-media efforts themselves, which makes it more challenging to manage—and evolve—their marketing mix. Second, the absence of a widely accepted independent metric for digital media (such as the NielsenTV ratings) makes it difficult to compare the results of online campaigns and to measure their impact—an uncomfortable fact for marketers considering major spending reallocations.

Of course, digital advertising won't be permanently constrained. Consumers will eventually come to spend more time watching video on PCs and mobile devices. By some measures, they already focus upward of 30 percent of their media attention online—a far higher proportion than advertisers currently spend there. Marketers and media players thus have an enormous incentive to innovate and increase supply, which, along with better measurement technologies, will allow marketers to shift more of their budgets online.

Marketers must build the capabilities necessary to thrive in an environment where audiences and vehicles are highly fragmented, prices change quickly, and advertising's performance differs by customer, vehicle, brand, offer, and message. This transition will require not only new management skills but also a detailed understanding of the marginal economics of products, customers, and customer conversion.

Sandi Thorn- Top UK single last Week.

First Thank You UK Music fans for reading my blog entry about Sandi Thorn. It is much appreciated. I am glad you are as fascinated by what I now call "The Sandi Thorn Phenomenon" as I am. I mean think about it! You can produce your own music for very little money and webcast it for very little money and build not only a paying audience but a passionate fan base!

I wish I Was A Punk Rocker' is the first hit single to be released from Sandi Thom's debut album. Other highlights on the album include: 'Little Remedy', where Sandi throws down the gauntlet to a prospective lover; 'Lonely Girl' an ode to the lost, isolated and the abandoned; 'Time' a comment on the current hare and tortoise race between humanity and the clock; and 'What If I'm Right' which explores the bittersweetness of a newfound relationship, where the excitement of what there is to gain is eclipsed by the fear of what there could be to lose. (This paragraph is from Sandi Thorn's own website-not my writing)

I'd love to hear your comments, since I will be devoting a small section of this blog on the Sandi Thorn Phenomenon. Let me know how you think I can do more here and if you would like to write something (About Sandi related stuff)

Teens Online Doing Homework, Text Messaging and Watching TV

I know none of this is a surprise, but read on...
(From AdAge.com)

Survey: A Third of Teens Spend Three Hours Each Day on the Web

By Gavin O'Malley

Published: June 12, 2006

NEW YORK (AdAge.com) -- As any parent of teenagers will attest, the internet is occupying an ever greater portion of young peoples' time. Indeed, nearly four in 10 teens -- 37.4% -- are spending at least three hours online daily outside of school settings, according to a Burst Media survey of more than 1,800 connected teens between the ages of 13 and 17. Just one in five -- 19.6% -- say they're spending less than an hour online outside of school.

For teens, the web is a more meaningful source for movie and TV news than word of mouth or local newspapers.

Photo Credit: AP

Today's kids are multitaskers, however, so internet time is simultaneously homework time, or TV time. About half -- 48.9% -- at least claim to be working on homework assignments while online, while 33.8% say TV or a movie usually competes for their attention.

Additionally, a combined 40% say they're also text messaging or talking with friends on their mobile phones while online.

"Corralling these distractions to minimize their disruption is a significant challenge for marketers," said Chuck Moran, manager of market research for Burst Media.

Net gaining on TV
How do brands overcome this challenge? "Use the internet to create a central content point for teens on a variety of subjects and interests," Mr. Moran said. "By doing so, marketers can then develop integrated-marketing campaigns with advertising creative and programs referencing a central platform and working in tandem to get teens' attention."

Notably, the internet is now seen by teens as the top source of information on music artists and bands. And, while teenagers are still more likely to cite TV as their main source for movie and TV-show updates -- 29% in the survey did so -- the web isn't far behind, at 25.5%. That makes the web a more meaningful source for movie and TV news than word of mouth (15.7%) or local newspapers (10.3%).

The Burst findings mirror broader research surfacing today. About 20% of all Web usage occurs while viewing TV or immediately before or after, according to a study just released by the Online Publishers Association and conducted by Ball State University. More than 60% of all web users spend two hours a day online, the OPA study found.

Review of Cyber-Budget, the French Budget Game

This review by Ian Bogost, is very good. Thanks Ian! I have posted it unembellished...

By          Ian Bogost         

Educational Games, Political Games

               

               

I mentioned the French Cyber Budget game a week or so ago, but I couldn't find the actual game until Mark Nelson sent me the link this week. You can play Cyber-Budget online, but keep in mind that it's in French only, and pretty language-heavy.

Budgets are comprised of multiple allocations in conflict. They are abstract--numbers on balance sheets--but their effects are concrete. It's hard to personalize them and create empathy around them. This game is an interesting attempt to make budgeting playable. The main strategy is to contextualize the budgeting process in the material world through a map interface to buildings where you do the necessary business. Unlike previous efforts like Mass Balance, the focus of Cyber-Budget is not on allocating and reallocating numbers to actually balance the budget. Instead, the player gets a more abstract, higher-level sense of the fiscal and social issues at work in budgeting, and then a highly abstracted representation of the budgeting process itself.

The game has high production values and an interesting, welcoming approach to a dry topic. But it doesn't start that way. First, the game drops the player off in the library, where the player is expected to research and learn esoteric budgeting terms. I think the designers were trying to familiarize the player with the fact that such a resource exists and can be used at any time during play (via a persistent button), but the effect risks overwhelming the new player with the complexity of the system.

The majority of play between this step and the actual budgeting mission is comprised of minigames. The minigames themselves are couched as tests that you must complete to be deemed competent to construct a budget of your own. The first challenges the player to identify the components of the federal budget. A second minigame follows, asking the player to identify items in and out of the federal budget via a TV quiz-show format. I love the idea of a minigame for this purpose, but the implemented one requires the player to place abstract objects in income/expenditure columns. It doesn't explain the concepts, reinforcing the idea that the player was expected to do a bunch of digital reading in the library. The final minigame in the sequence is both the most interesting and the most maddening. It asks the player to match budget expenditures to their equivalent in "common" goods like Airbus aircraft, computers, or single-family homes. For example, non-fiscal income for 2005 totaled 25 million euros, or the equivalent of 161 155 million euro Airbus A380s. The player is given the unit cost of the Airbus and a choice of three answers (see at right). It's somewhat akin to a Brain Age-style rapid arithmetic/estimation game, and each response is timed, which made it a lot harder for me to appreciate, even if the idea is sound: contextualize unthinkable sums of money in terms of comprehensible products.

After each minigame, the game shows you the media response to your performance, which is a nice touch. I wonder how they modeled French popular opinion.

In the second mission, the player starts to make gestures that influence the actual budget he will create. It starts with a deeply metaphorical minigame, a hot-air balloon ride that tests your "budget piloting" (seriously, check out the image at right). You have limited fuel, which represent financial resources. You can collect Euro symbols to get more fuel. The environment is very trippy, with a dreamy soundtrack and magenta sky. The player must avoid the sharp "growth curve" on the top and the "deficit curve" on the bottom of a cave, and a Defender-style radar helps the player guide the craft through the environment. It's very hard to do. At first I thought this minigame was an interesting allegory. "Piloting" the budget too aggressively toward growth or deficit puts you at higher risk of crashing. Flying through the middle of the course and collecting the easy to reach income (not every Euro you see) is a more sound strategy. But, upon completing the game using that strategy, I realized I was being scored based on the number of Euro tokens I picked up (I only got 25%). In retrospect, I wonder if this apparently conflicting strategy wasn't intentional: the game is structured to require careful piloting of the budget from the policymaker's perspective, but the public will demand new programs and incentives no matter.

In the next minigame, the player answers questions for the press, for the first time offering opinions about what tradeoffs are important to him in preparing a budget. Then the player must balance different resources in another minigame, applying different fund types to funding requests. The game literally takes place on a scale, and the player must put the appropriate weight on one side to counterbalance the demand.

The last minigame allows the player to travel into the hypothetical future of various budget decisions. The choices are fixed rather than based on a set of allocations or even the funding requests the player just completed (unless the system had calculated them transparently for me), but they include different conflicting options like Public Services or Tax Reductions. I was a bit surprised to see that the future machine seemed to have a strong political opinion; it was not simply showing the pros and cons of decisions, but rather one or the other. Improving public services brings "a dynamism to the French economy and allows it to address social problems." The image on screen depicts a bunch of British immigrants fleeing to France. Increasing taxes causes French businesses and investments to flee the country. Reducing funding and public services makes it impossible to finance even basic federal functions. The image on screen depicts a rusted and cob-webbed tank. In the next segment, the player provides his opinion on a variety of budget proposals.

In the third mission, the player actually manages the budget for a three year term. The approach is unique; the budget numbers are fixed (again, I assume this is based on the opinions I gave previously) and the player cannot change them wholesale during the simulation. Instead, as time passes different interests around the country and world make requests. The player uses the map interface to speed around the city, considering proposals and responding to them through budget reallocations or refusals. While this concretization of budgeting trade-offs succeeded at personalizing the decisions, the sense of conflicting interests was hard to comprehend fully. When I reduced certain expenditures, the proper groups would request new aid, but inevitably they felt isolated. The strongest response I noticed was related to debt. When surpluses arose, both domestic and foreign opinion responded very positively to reducing the debt rather than investing in new programs or even leaving the budget untouched. Interestingly, all my decisions felt very short-lived. Opinion would dip back down even soon after a popular decision, based on other factors.

In this sense, the game was very successful in telegraphing the challenges of the political process of budgeting, but not so successful in representing the real-world effects of conflicting decisions. I appreciated the minigame design, the idea of slowly bringing players to the numbers, and the production value. There were some design issues, some mechanical (the mouse interface to the map is somewhat wonky), some functional (it's not possible to go back and change things you've already done in the game, so you have to start a whole new one).

But I felt myself pondering the game's intentions. It was commissioned by the French government, and by the end of one session with it (which took around an hour) I got the sense that they were not interested in fiscal literacy so much as political empathy. The game seems tuned to create an appreciation of the tough job of the fiscal policymaker rather than the fiscal policy. Rhetorically, I wonder if this wasn't the actual goal of the project, a kind of videogame foil Liz Losh has observed in other government-sponsored games. Cyber-Budget may not be intended to help citizens consider difficult social tradeoffs as they think about ways to balance the budget, but rather to coerce players into assent, given the difficult choices such a process demands politically.