Before there was digital. Way before there was anything digital there was this gentleman: Adam Smith. This is a statue of him located in Edingburgh .In 1776 he published his seminal work ‘The Wealth of Nations’ laying the groundwork for modern laws of supply and demand by stating that ”The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to market, and the demand of those who are willing to pay”
Here is how that supply demand model works:For any given product there is supply. Firms will produce additional supply as long as the cost of producing is an additional unit is covered by the price people pay for it. At each price there is certain demand.Here where the supply curve and demand curve intersect, at the economic equilibrium, we have the market clearing price. The price where everything offered is sold.
Now if we shift the demand curve a little bit to the right, thereby increasing demand, –the price goes up!
Now if we fix - limit - the quantity so it can not change. What happens if demand increases
What does that mean for us in the digital ad business. We see - although reluctantly – more and more marketing dollars shifting online. That increased demand drives up the prices, right?
Unfortunately, this is not guaranteed. The standard supply and demand model from 1691 is based on two assumption, first that supply and demand are independent from each other (we have that) and that the production of more supply is constrained by a fixed resource.
Let’s see if that is true for advertising media.TV Scarcity: Limited to 36 spots per hour at 5 hours per viewer you are limited to 180 spotsYou can see the powereof scarcity here, because overall ratings are down, millenials are cutting the cable cord, the TV subscriber base is aging and dying out, yet CPM continue to increases.
This is opposite to the common digital impression. There is no scarcity, the incremental cost of putting out one more impression is academic and the ad space is virtually, literally virtually, unlimited. Without constraints there is no scarcity, and without scarcity CPMs are on a downward spiral. And we can’t act surprised when John Locke could have told us that three centuries ago.
Let’s apply this 312 year old insight to digital ads. We have the demand curve, here, but the supply curve is now a straight line, because digital ad supply does only have negligible production constraints. Adding a digital ad unit is virtually effortless, creating a new website, adding more ad space on a site, more ads below the fold, there is no constraint on increasing supply. The cost are CMP and the quantity is expressed in impressions. Now if we increase demand by shifting the demand curve, the CPM does not change.
So here is the problem the practice of counting unlimited impressions has destroyed the demand and supply model in digital advertising. Demand is increasing, but prices aren’t following. The solution is to restore the economics of demand and supply by introducing scarcity to the system. Because we know that a scarce supply drives up prices.
The current economics of impression counting led the industry down a path of declining CPMs and declining effectiveness. This hurts everybody, because it increases the reluctance of traditional advertisers to bring their marketing dollars online. We can stop that by achieving digital scarcity, by adding a quality to component to the mix, because not all impressions are created equal. Instead of counting every impression served we need to move to only counting impressions that actually had a chance to make an impact because they were actually seen.Ideally, we don’t stop their and ramp up the quality by only counting- not fraudulent.- delivered to the target audience and in the target geography.- And shown in an brand-safe environment.This is not an artificial way to construct scarcity, but it is a common sense approach that introduces quality control to system that desperately needs it. With the higher quality standards, the unlimited supply of bad apples is subtracted and the remaining supply of quality impressions is very limited, scarce in fact.
comScore conducted are study on this, because if there is no difference between the current way we count impressions and the proposed way, or only a marginal difference than all of this is academic.We called it the vCE charter study and it spanned 18 campaigns, across 380 thousand different sites and a total of more than 1.7 billion impressions, working with some of the top brands in digital advertising today.
The first thing we looked at were the in-view rates. How many of the ads served were actually in view, meaning at least 50% of their pixels loaded and unobscured for at least 1 second? We limited this to the top 500 publisher sites, so this excludes any fringe sites.What percentage of the ads were actually in view? 69%! 3 out of 10 ads were never seen. The best case is 98% and since sometimes another browser windows overlays another it is actually not reasonable to ever expect a 100% here.What is your guess for the worst case scenario – within the top 500 publishers? Turns out that only 7% were in view, meaning 9 out of 10 never had a chance to make an impact.
To clarify, being in-view has nothing to do with being above or below the fold. In fact, there are some myths the charter study helped to debunk. For some campaigns less than half of the above the fold placements where actually seen.
On the other hand some placements below the fold where in almost 70% of the time.
Digital ScarcityReversing the curse of the unlimited impressions economyOMMA Display Europe, 17 September, 2012Kirby Winfield, SVP, comScore
… price is regulated by the proportion between thequantity brought to market, and the demandof those who are willing to pay…- Adam Smith ‘The Wealth of Nations’, 1776 2
Demand SupplyPrice When supply is constrained, price is extremely sensitive to demand.CPM Impressions Quantity 5
… with more marketing dollars comingonline, CPM will go up, right?
The supply and demand model has two requirements: Supply & Demand are Independent Supply is Resource Constrained
Media Market ExamplesAd Medium: USA Network TVConstraint: 32 spots per hour, 5 hours per viewer = 160 spots Scarcity: Ad Pricing: Increasing 8
Media Market ExamplesAd Medium: Inventory sold through Display Exchanges Constraint: None! Cost are negligible, ad space is virtually unlimited. Scarcity: Ad Pricing: Declining 9
If demand increases, Demand but supply is unconstrained Price DoesPrice NOT Increase!CPM Supply Impressions Quantity 10
The Problem unlimited servedCountingimpressions hurts advertisingeconomics.The SolutionIntroduce Digital Scarcity to the system.
Achieving Digital ScarcityOnly count impressions that reached a real userand had a chance to make a real impact. were in-view delivered in the target geography displayed in a brand safe environment not fraudulent 12
vCE Charter Study18campaigns380,898sites1,772,117,123impressions Allstate 13
comScore vCE charter study results in-view rates across top 500 publishers Sites 7 % in-view 100% in-view 69% in-view ? ? ? best average worst On average 69% of ads were in-view, meaning 3 out of 10 were never seen. 14 source: comScore vCE charter study
The Above-the-Fold Myth?Above-the-fold in-view rates ranged from 48% to 100% source: comScore vCE charter study
Some Below-the-Fold ads areactually premium inventory.Below-the-fold in-view ranged from 3% to 67%. source: comScore vCE charter study
impressions CPM % served $5 ÷ 100% = $5 nominal CPMimpressions CPM % viewed1,000 $5 ÷ 75% = $6.67 effective CPM If only 75% of ads were seen the Effective CPM is 33% higher! 17
The Viewable-Impression-Guarantee Model:Publisher EconomicsValidate Value | If impression viewability isguaranteed, publishers can sell currentnon-premium inventory at premium prices.Sell More | Publisher is able to sell 15% moreguaranteed viewability premium impressions than theycurrently sell in gross premium impressions. 18
Conclusions Moving from served to validated impressions introduces scarcity and drives attractive economics:1. Above/below the fold placement becomes irrelevant.2. Most validated non-premium inventory becomes premium. 19
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