Online advertising is now about 15 years old. Certainly you could claim longer if you look back on what Prodigy was doing in the '80s. But modern online advertising -- essentially display ads -- have been around in the current model since about 1994, when Rick Boyce sold the first banner to AT&T at HotWired. And it's only now that I'm realizing the extent to which we screwed up when we created it.
There are many mistakes I could point to from the early days of online advertising, and mistakes surrounding the formation of a new medium -- and the advertising business models associated to it -- shouldn't be surprising. But in this case, online advertising was the first new media industry that was created in an age of software. Shortly after the first banner ads began appearing on the web, ad servers began appearing -- with the intent of managing delivery and enabling billing.
Since the new sales models and metaphors for online ads were based on traditional media, we should have been OK. But we weren't.
Traditional media sales processes are designed around throughput. It's exceedingly easy to spend a few million dollars across TV, print, or radio. Spending a few million dollars in the online advertising space is hard by comparison. One major CPG advertiser told me that the company's online ad buys are eight to 10 times less efficient than its traditional media buys.
In traditional media, the currency is the gross rating point (GRP) and targeted rating point (TRP). This currency enables immense substitutability of inventory, meaning that there is a way to value an ad across media types -- there is, essentially, an exchange rate. When planners compare ad buys across several TV shows, or several magazines, they can clearly understand the opportunity. When they negotiate a buy, and fail to come to terms on the purchase, they can easily find another vehicle to get the ad in front of the target audience.
You can imagine that in traditional media, the RFP process is pretty straightforward. I'm trying to reach a specific audience, I've contacted you because your show/magazine/radio station has the right mix of that target audience, and I want to buy an ad. In TV, you want an ad in a specific pod of a specific show. In magazines, you want a half- or full-page ad associated with a specific article, column, or section of the magazine.
In online advertising, the RFP process is much more complicated. There is a much greater expectation that the salesperson at the online publisher will be creative, will read a very broad RFP, and return a comprehensive plan to achieve advertiser goals. Essentially, we've made the sales process so complex that the buyer has an expectation of the salesperson doing work that would sit with the buyer in traditional media.
When the first salespeople figured out how to sell online ads and the first ad servers were built to service that market, the requirements for how to handle online advertising were pulled from the sales teams. Unfortunately, media salespeople had no background in providing software requirements, and the engineers building those early systems didn't have the foresight to build much more flexible architectures. The sales models were influenced mostly by magazine sales, but were designed to take advantage of the strength of online ads at that moment -- strengths that should have been short lived, but that were crystallized in code, locking us into a very inflexible set of sales models and metaphors.
We essentially hard-coded the software that manages online ads based on very small media buys with extensive controls at a granular level to manage optimization of campaigns. The second part sounds great, but in reality it causes serious problems. Since we've optimized our workflows and buying processes around small granular buys, it's hard to do anything but that in online advertising. There is frequent discussion about the amount of management required on the buy side during the life of a campaign. But there's very little public discussion about all the work done behind the scenes in hundreds of ad operations teams across our industry, just to ensure campaigns deliver properly.
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