With this year’s TV Upfront ad negotiations closing out, with similar volume and pricing upticks, a big sigh of disappointment is ringing out in the digital start-up quarters around the city.
When I talk to most start-ups, I see great talent, I hear great ideas but when I ask how are you going to make money, my heart usually sinks a bit since the answer has more or less been “We will sell data and get those TV dollars!” Of course, this answer comes in many forms like, we are going to make the ad market more efficient or we provide the most targeted/geo/local/social data or the more obfuscated response, we are integrating the supply chain. If that’s your answer, what else you got?
Don’t get me wrong, the TV ad model is challenged and all indications show a shift towards more digital ad spend with more targeted data backing, especially in mobile – but my huge caveat is that it’s probably going to take longer to happen than most pitch plans promise and that it’s probably going to be a lot harder than you think to hit milestones to woo your next round of investors. Coming from a background where I thought long and hard on how to defend TV dollars but at the same time grow digital revenue, it really comes down to two things to make the ad jackpot real: standard accepted currency and easy backroom operations.
You see in TV – everyone has accepted GRPs as the standard currency and Nielsen as the currency keeper. Yes people want more targeted information, they want more ROI, they want more engagement, but they only need one accepted currency to transact business in the billions and to shift those billions around. With ads on mobile and online, CPMs exist but they all need to be qualified by level of engagement, or quality of content network/ social network or other triaging algorithmic data in the absence of quality networks. The data you get online and mobile is deeper and richer, but that’s also a bit of the downfall because with too much of all those things you can’t equate GRPs to impressions. Well technically you can, but everyone has their own formula and in trying to optimize individually, a single formula does not become the accepted currency generally. See where this is going?
But then, your product is amazing, the new and shiny object that everyone is talking about and all these marketers want to work with you! Yes, but the marketer is probably investing a lot of additional time getting the budget approved and convincing people internally right? And what about the agency they work through – do their media planners or their media buyers seem to pop up in the meetings? Getting on marketers’ radar is easy but to make them repeatable business they need to start making tradeoffs internally and perhaps need to dig into other budgets, like say the big TV ad budget and come to terms with what’s an acceptable way to compare the tradeoffs. You may have 5 studies showing how great you are, but then 5 other studies show how great it is to spend with another group.
TV operating systems come from the sixties: they are clunky, not that customizable, involves tapes (yes tapes!) but they work with relative simplicity because they are connected to Nielsen and to the agencies who are in charge of placing the orders, confirming delivery and paying the bills. That’s how during the Upfront negotiations an ad exec can do a $500M dollar TV deal on a napkin at midnight and go to sleep super happy. Ask that same hard dealing exec if he closed a $500M dollar deal on display ads or mobile ads, and you would hear people fainting in ad ops who are in charge of trafficking and delivery. It’s just that much harder. Just as everyone is coming up with their own currency, there is mass proliferation of digital ad technology – case in point the Lumascapes that provides us a snapshot of the crowded space (you need a magnifying glass just to make out all the players).
But now what about search? Well this is where Google gets mad props – they settled on a super easy to understand notion of clicks and search terms in their walled garden of analytics and from the beginning through the self serve model they made the backroom complexity invisible and didn’t rely on anyone else’s backroom. And since they owned such a large share of search, they had the swagger to serve up this ambitious feat. Oh and to top it off, they didn’t start off trying to get the big Brand TV Ad Dollars, they got (and still get a majority) of spend from the long tail of SMBs who became the champions of clicks and search and drove up pricing for AdWords that laid the comfortable foundation for big brands to then start shifting dollars from print and direct mail.
So the lesson? Understand the market ecosystem currency and backroom operations and not just focus on your product innovation. Yes, you only need to be successful on a small scale to make it a win, but if your success depends on big scale guys, know the hoops that they need to go through to give you money.