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How to Avoid Online Advertising's $1 Billion Mistake

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In this article, learn how to...

  • Measure beyond the click and CTR to drive success
  • Determine the right metric for your campaign
  • Focus on conversions

The advertising industry is undergoing a massive shift in how its dollars are spent. Money is moving from the offline world to the online world at a rate of roughly $3 to $5 billion a year.

However, in that rapid shift of spend, a major mistake has been made. Almost all marketers are guilty of it, and it is costing them more than $1 billion a year as time goes on.

Most online advertising networks and websites that are delivering ads have a very simple goal: launch a campaign based on the advertiser's requirements and improve the campaign over time based on where they find success.

The goal of the delivery team (or optimization engine if a technology is being used) is to improve the marketer's metrics by employing tactics such as geotargeting, demographic targeting, time of day, frequency capping, etc.

Ideally, a campaign starts with a certain baseline that improves over time as the network, site, or demand-side platform (DSP) optimizes the campaign.

If a campaign is being measured to an action—let's say a purchase—a network can analyze results, see where it is best achieving success, and improve the campaign metrics and return on investment over time.

If a campaign is being measured to clicks, then over time the click-through rate (CTR), or number of times an ad is clicked per impression, should increase.

Although most campaigns are looking to drive conversion goals, many still use the click and CTR as their primary metrics, because those metrics traditionally have been used to measure success and because they're easy to measure.

There are no extra tags to install, and there is no work to do to confirm the tags are operational. The CTR is easily calculable and comes directly from the ad server, so it doesn't take any additional work to access it. Optimization routines (often spreadsheets) are largely set up natively to handle the CTR as the metric to optimize to, which makes it easy to "flip a switch" to get to the proper goal.

However, the click's days are numbered. There is an increasing awareness of some "cracks" in the click's validity, and recent studies by comScore, Microsoft, and others have effectively invalidated the click as an important measure for display advertising.

Bizo's recent study of hundreds of B2B advertising campaigns that ran from January through June of 2010 revealed some interesting findings.

Among campaigns that were being measured and optimized to actions (conversions, downloads, etc.), the CTR was approximately 10% lower than that of campaigns that were being optimized to clicks. In short, campaigns with actions as their goals drive 10% fewer clicks.

The data also shows that of the top 25 inventory sources based on CTR, only six of them fall in the top 25 from a conversion-rate perspective. That means that sites that have great CTRs typically do not offer great conversion rates. Thus, using CTR as a meaningful metric on publisher sites is just as big a mistake as doing so on ad networks, as it would lead a campaign astray almost 80% of the time.

Considering that the goal of any advertising investment is to drive a prospect to a conversion action (e.g., purchase, engagement, a user filling out a form, etc.), the fact that the click-through rate is lower when optimizing to the end action has a profound and clear implication: Optimizing to the click harms a campaign's success.

If you value the online display advertising industry at $10 billion, and we assume that most networks and sites are optimizing to the click today, we estimate that the value lost to the industry is well over $1 billion and growing rapidly as the industry expands.

In fact, the Google Content network (the display adjunct to search) actually forces marketers to make the same giant mistake because they are paying by click and Google is optimizing the delivery of ads to maximize the number of clicks (and revenues for Google).

Unfortunately, the ad exchanges are no better. Considering the ease with which the click is measured, the DSPs are primarily doing the same thing today: measuring to the wrong metric and, in doing so, harming advertisers from reaching the goal they're seeking: an educated consumer who buys from them.

Display advertising is just figuring out what search marketers have known for some time. "Performance marketers in the search-engine-marketing [SEM] space have long understood that it's critical to optimize to the conversion," said Matt Lawson, the director of products for Marin Software.

"It's really about economics. You spend to maximize volume until the point where marginal revenue equals marginal cost. For performance marketers, this means its sound business practice to allocate marketing budget to a particular program until adding one more dollar in spend delivers less than one dollar in incremental revenues.

"For B2B marketers, it's not always as straightforward as that. Sales for B2B marketers often happen weeks or months after an online lead is captured, and, in many cases, deals are closed offline, which makes tracking the sale back to online-marketing programs challenging.

"As a result, many B2B marketers optimize to engagement metrics such as document downloads, registrations, or number of pages viewed—goals that clearly indicate the prospect is progressing through the sales process. Optimizing to the click tells you very little about the true business results driven by your marketing campaign."

The notion that a user would click on a display ad is just as erroneous as thinking a user watching a TV ad for Lexus would pick up the phone and order a Lexus while viewing the ad. Users viewing the ad are not necessarily looking to perform an action. They are not looking to click on something.

As an advertiser, your goal shouldn't always be to drive a click. In many cases, you're looking to educate and ultimately drive an action at some point down the road. So the click can be a highly misleading metric if it's not the right people who are clicking.

In fact, most ads today get 1 click for every 1,000 views, and, on average, more than 40% of those "bounce" from the landing page (i.e., leave as soon as they arrive), suggesting that many of those banner clicks are user mistakes.

To recap: Unless the measurement, and thus optimization, is based on the action, you will often optimize away from success.

So what's an advertiser to do? All advertisers need to start thinking about how to measure beyond the click to drive success in their online-advertising campaigns.

Here is a quick four-step plan to display-advertising success:

  1. Admit that the click is the wrong metric, and tell your vendors that you need to change how campaigns are being measured.
  2. Figure out the right action that you need to measure to for success. Is it a purchase? Download? Form submission? Engagement? All of the above?
    Ultimately, what key actions are clear indicators that your prospects are progressing toward your goals?
  3. Place conversion pixels on a page or pages that load when the goal is accomplished. If your vendor tells you that can't be done, find a new vendor.
  4. Force your vendors to optimize your campaigns to those conversions and give you clear metrics on where those conversions are coming from!

Once you are measuring to conversions, a magical thing will happen: You'll forget the click as a measure for anything and start to understand the value of your other media channels. You'll then be able to effectively work with your vendors, agencies, partners, and colleagues to focus on the activities that will drive your success.

And you'll play your part in correcting our industry's $1 billion mistake.

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Russell Glass is a co-founder and the CEO of (Bizo), a B2B-audience-targeting platform and advertising network.

LinkedIn: Russell Glass

Twitter: @glassruss

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  • by Pam Alvord Wed Oct 27, 2010 via web

    Great post that clearly illustrates the challenges of accountability and measurement facing marketers today. We at Kilgannon have recently been blogging about similar issues:

    - When CPC and CPM Meet:
    - Drowning in Data:

    So many marketers seem to be on a quest to have numbers to rationalize their investments. But if we don't truly understand what the numbers mean, have we really moved forward?


  • by Dan Soschin Thu Oct 28, 2010 via web

    Agreed! CTR is only useful from a branding perspective... We rarely use it as a measure of success. Any vendor that is trying to sell you ads based upon their "historical" CTR hasn't kept up with the times. Conversion rate is by far and away how you should measure your advertising effectiveness. After all, you want new customers, not window shoppers, right?

  • by Eric Brown Fri Oct 29, 2010 via web

    We are all for measuring advertising's impact on consumer behavior especially outside of the click. Great to see others taking a stance.

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