New dynamics in digital advertising

OvumThe digital advertising value chain is changing  fast; consumers are taking  greater control of their viewing  and innovative new forms  of advertising are emerging.

Consequently, companies are re-evaluating their digital media  assets and developing new ways  of engaging with consumers.

Meanwhile,the recession is  turning up the pressure on  advertising to deliver improved performance and profits.

Reconfiguring the value chain

Changes and developments in  technology and consumer behaviour  are forcing the reconfiguration of  the value chain as the real and  comparative value offered by primary and support providers in the chain  shifts significantly. Advertisers,  technology providers, multiservice  operators and even consumers  themselves are set to gain value share and power within the chain.

Full-service ad agencies, direct  marketing agencies, and traditional media planning and buying will lose  value share and power; however,  the position of content providers  and media owners will remain  comparatively unchanged.

The combination of disruption in the  value chain, market fragmentation, and significant growth in ad inventory  capacity and format types will create confusion in the pricing and valuation  of ad inventory and technology.

All players in the value chain will  therefore need to revalue the assets they sell and purchase in order to optimise their margins. Expect market makers such as ad exchanges to  thrive in such dynamic conditions.

New metrics to identify the media really doing the work

New metrics are digging deeper into  the user ’s path to sales conversion and uncovering issues with the  current method of measuring and  tracking the user.

The issue is this:  the currently accepted system,  sometimes called the ‘last ad  wins ’ model, doesn’t show all the  advertising and promotional collateral  that actually has an influence on the  user ’s eventual purchase, instead  it just credits the last ad clicked by  the user.

However,a new technique,  known as ‘engagement mapping ’,  identifies ads other than the last  ad that have also influenced the purchase, enabling advertisers and  media buyers to alter their media  plans accordingly. Successful  adoption of engagement mapping will  likely lead to a modest but noticeable  shift away from search ,as marketers  realise the last ad was a search  listing used to navigate to, rather  the final purchase.  Even at this nascent stage, Ovum  believes media owners should be prepared, acting quickly to ascertain  where their ad inventory stands in  the engagement-mapping landscape  and planning the reorganisation of  their digital assets and strategies  accordingly.

Granular targeting is  here to stay but deep packet investigation (DPI) techniques are heading for a regulatory wall. The latest online targeting techniques  that have captured the industry ’s  imagination (and investment)are  based on capturing behavioural  data. This tells advertisers about the  sites users visit and what they are  doing there. Behavioural targeting  is raising concerns over consumer  privacy, although if handled carefully  this should not automatically lead to  transgression .However, behavioural  targeting based on DPI techniques has  hit the wall when it comes to privacy.  DPI enables the inspection and  monitoring of individual data packets,  meaning it ’s possible (for instance)to  read people ’s emails ,and this has not  been helped by Internet companies  not always keeping users properly  informed about DPI practices.

Earlier in 2009,the All-Party  Parliamentary Group on  Communication (APPGC)in the

UK launched an investigation into  online practices including behavioural  targeting using DPI. The difficulty is \ the lack of clarity over who exactly  should be responsible for protecting  consumer privacy — the government,  ISP or perhaps even the consumer?  Self-regulation is the obvious (and in  many respects preferable)route, but  whether it proves effective remains  to be seen.

Rich media drives greater  consumer engagement

Revenue growth in digital advertising  continues to be driven by search,  which is actually benefitting from the  recession as people use it to seek  product reviews, price comparisons  and other information that gives them  the best deals. Established display  formats follow search, while rich media  like video and environments such as social networks show fast growth  although revenue contributions are  currently modest. However,  growth  in rich media-related advertising will  accelerate going forward because of  the need for greater engagement and  to counter growing ‘banner blindness ’,  particularly among low-end ad  inventory.

Social networks foster new models of engagement but should not be seen as an  advertising nirvana

Social networks are creating a new  dialogue between consumer and advertiser that is highly interactive and  holds the potential for a deep level of  engagement. However, engagement  works both ways; this is a dialogue  and users can answer back, for  better or worse. This is one of the key reasons that advertisers are still treating social networks with caution.

There is also the question of how well adverts perform in a context where people are communicating and are  therefore arguably less susceptible  to advertising. The counter-view to social networks as a new frontier for  ad spend (and the view we support)is  that the business case for advertising  on social networks is more challenging than anticipated, and social networks  should be seen as only one element  of an aggregate online spend by advertisers.

Do not underestimate how difficult it is to get application-based  advertising right.

Application-related advertising  appeals to brands because it is  interactive and has great viral  marketing potential as people share  the application. Media Buddy,a  company that specialises in this area,  claims people ’s engagement with  its branded applications is 75 times  greater than the time consumers  spend interacting with traditional  banner ads. But the reality is that  this only happens with a fraction of application-related ads.Many are too  overtly branded with no real value to  the consumer; at the opposite end of the spectrum, others are over- elaborated and hard to use.

The best applications in any context  are the very simple ones. Branded  applications for social networks are  becoming popular with advertisers  who want to tap into viral distribution.

But this requires applications  designed with strong interactivity  and hooks for sharing and this is not  always the case.Applications rarely go viral as a matter of course, and in  most cases need to be marketed – a  fact often overlooked.

Twitter has potential as a marketing and advertising channel

There are some clear potential  benefits in using Twitter as an  advertising platform. Twitter has a fast-growing, international base of around  7 million users. The most normal use  of Twitter for marketing purposes is  for brands to create their own ‘micro- blogs ’ to share information and create  buzz around a product or service,  encourage customer interaction, and  respond more quickly to customers.

More imaginatively though, one  company integrated edited Twitter  feeds into a widget-based campaign.  Meanwhile, Twitter itself is reported  to be experimenting with the mobile  advertising potential of ‘tweets ’ through integrated advertising within  the SMS bearer. This does limit room  for manoeuvre as tweets are up  to 140 characters long, leaving 20  characters of the SMS for advertisers  to play with. People using Twitter  typically communicate by pushing out  information and/or seeking advice  and information from other twitterers.

Search advertising could play in what is returned.