What do "A Beautiful Mind" (either the book or the movie, both set 40 years ago) and advertising in today's digital age have in common? The Nobel prize-winning mathematic theory described in the movie, the Nash Equilibrium, should motivate us all to adopt an audience-centric view of advertising that will allow digital media to reach its full potential.
The Internet has gone through incredible growth in terms of content, technology and share of media use, meanwhile the media world is becoming more fragmented. Despite these advancements the Internet is lagging far behind competing media whose audiences are in steady decline. There's no question that a portion of the $50 billion or so spent on TV advertising today is shifting to other media -- including the online space -- as evidenced by this year's up-fronts. But the speed of this transition has been slow. Digital media remains a secondary choice, especially when it comes to large brand advertisers.
For those dollars to move online now, the industry as a whole needs to understand why the current approach has stuck digital media in this inferior role. I believe the reason is the focus on -- some might say obsession with -- place-based advertising. Fixation on the place-based model is a dam that is keeping advertisers from reaching large, highly qualified audiences; as a result, it holds back billions of media dollars from entering the online advertising market.
The place-based model is hugely popular. Unfortunately, it is as limiting as it is dominant. Place creates only two possibilities: either premium editorial adjacency that is high-value but scarce or run-of-network that has little value for target focused advertisers and makes little money for publishers. This creates an advertising landscape like a neighborhood with a few mansions that are surrounded by acres of tenements.
The limitations of quality place-based inventory make it nearly impossible to achieve broad, high quality reach. In the hope of maximizing their media buy, advertisers feel they must choose between two options: running campaigns on high-value content areas to reach a smaller, but more targeted audience, or running campaigns on lower-value areas in the hopes of reaching their target audience among a huge number of out-of-target viewers.
In truth, choosing between the two -- and making choices based on hope alone -- is the last thing advertisers should be forced to do. To some degree, the industry knows this but has not made a move to change it, partly because both sides understand place and are used to it, and partly because the technology solutions weren't there. However, the lack of change is largely because publishers have done everything they can to make money on the premium editorial-adjacent advertising.
Those who saw "A Beautiful Mind" may recognize that the current situation is evocative of the Nash Equilibrium, which states that if a set of people all focus on a single premium item, there can only be one winner, and all other players leave empty handed. In the movie, the premium item was a particularly attractive woman at a Princeton University bar. In online advertising it is editorial adjacency. After this place sells out, all others are forced to buy run-of-site advertising which fails to maximize the value of their media buy.
The solution is to refocus on a new economic model that will bring more dollars into the market. Changing the industry sounds next to impossible, yet newer technology solutions are enabling a simple but fundamental shift in thinking about online advertising. This shift has the potential not only to speed the flow of dollars to online, but also to increase the overall market size and provide greater value to advertisers. That shift is for the audience to complement (and in some cases supplant) place as the currency of online advertising.
Place has always been the currency of advertising because it was the only way to reach a somewhat specific audience. But the Internet is an addressable medium where the audience can be bought and sold directly based on real-world data about its behavior and interests over time, rather than at one specific moment that may never be repeated. With a focus on the audience, much of the chance and risk inherent in place-based advertising is eliminated as it removes the scarcity and reduces costs of editorial adjacency.
In the Nash version of online advertising, advertisers are no longer forced to choose between two risky, place-based advertising options. Instead, they can make media buys that optimize the value of every campaign. Suddenly, that neighborhood mentioned earlier has homes available for every taste and potential resident. This is the Nash Equilibrium at work: the industry, as a whole, shifts its mindset from one focused on place to one focused on maximizing the value of the audience. This is what they've been trying to get all along anyway. When editorial adjacency (the attractive girl in the room) is discarded, suddenly online media properties make more money per buy, the overall market size increases due to less scarcity of premium inventory, and advertisers get greater reach to their high-quality audiences.
The audience-based model makes digital media the most effective channel for achieving quality reach and brings it into the advertising mainstream for the benefit of everyone. Simply put, if you sell advertisers what they want then they will buy more of it.
Bill Gossman is CEO of Revenue Science, a provider of behavioral targeting to Web publishers.
