Hidden Costs of Ad Inventory – Finding Your Innovation Fulcrum

Blog   |   Lorne Brown   |   July 2, 2009

As I talk to clients and prospects, one of the most common fallacies I run across is the idea is that inventory costs are fixed and cheap. However, when we dig a little deeper we find that isn’t necessarily the case. Many people I work with in digital media feel there is little risk to adding another layer of targeting or packaging capability to their portfolio. The assumption is that if the targeting isn’t used, it doesn’t cost the publisher anything. In other words, more is more.

How did this approach come to be? In my opinion, the roots are in our DNA so it’s especially hard to resist. We are a medium founded on technological advances – it’s natural to keep adding capabilities. In the 90’s header info (geo-targeting, OS and browser targeting) and registration info (gender, HHI, etc.) were major leaps forward. But now we’ve layered on behavioral targeting, re-targeting, performance targeting, keyword phrases, social media profile info etc. and it shows no signs of stopping. Companies like DoubleClick/Google, BlueKai, MediaSix Degrees, Tacoda/Ad.com Quantcast have helped with this proliferation. In part this comes from a renaissance of entrepreneurial companies seeking to meet or exceed the power of Google’s ad-word target benchmarks as focus returns to performance. As always, marketers seek to avoid wasting budget as much as possible. Often publishers are challenged to say no to new capabilities that seemingly all their competitors are adopting.

Well, if we turn everything on but don’t use it, what’s the harm? In a word, clutter. I liken some sites I know to the homes we see on the show Clean House. Verdict: Foolishness! There are two challenges with having a bloated product catalog:

1)      The operational costs to manage. These hidden costs are everywhere – extra time to get complex avails into the plan, extra time explaining (and re-explaining) what a specific capability is to all parties, product sheets, added trafficking time, potential vendor management time, product catalog analysis, campaign reporting, optimization, invoicing, etc.

2)      Distraction from Core Competency. Advertisers buy your site because you have a great audience. The further you winnow out ‘waste’, the further away you get from what makes your site unique and the more your impressions become commoditized.

So is RON the answer? I hope not. The trick is finding your Innovation Fulcrum.

To do this, you’ll want to create the simplest product catalog, baseline the effort and revenue associated with it throughout the selling process, then add in layers until you find the point where the margin becomes unacceptable. This is called the Model T method. You then have two options.

1)      Stop. Create artificial constraints for the overall health of the company

2)      Change the equation – perhaps with a targeting premium or a change of process, an additional layer or two becomes profitable

All participants in the digital ecosystem should be going through this exercise in this climate. Given their position in the company, Ad Operations has an opportunity to take the lead in assessing the right balance of operational complexity and revenue opportunity. Only sites that have a compelling product offering with an internal efficiency will be able to thrive. Taking steps to assess what the right mix of capabilities are for your business will pay for itself for years to come.