Business partnership is about sharing risk

Media pricing is driven by supply and demand. The more money in the system chasing limited inventory the higher the price goes.

Today changes in technology have created changes in behavior and componded by a weak economy impressions in traditional media are down, budgets gets are down also yet cost per impression in many media is up as many advertisers chase the remaining high reach inventory on which their brands were built.

In the online world we have a different situation. An abundance of inventory, with almost zero marginal cost of creation,  with ever more precise targeting tools yet an advertiser community that seems reluctant to pay significant dollars other than to the search community and performance networks.

It’s an interesting notion that Google and other paid search vendors sell 100% of their inventory on a ‘no action, no pay’ model. They display ads for nothing and only invoice as an action or transaction occurs. Looked at this way it’s no surprise that they have become the vendor of choice to a vast number of advertisers and why (incidentally) their CPM products where the risk belongs to the advertiser are so much less successful.

This begs the obvious question of what would happen if vendors of display inventory across the spectrum adopted a policy of re-balancing risk with the advertiser.

The clear requirement here is the combination of being able to identify relevant actions that are analogous to clicks or sales and an attribution model to ensure that the media partner could be identified in relations to those actions.

This is the first of a short series on this topic and all contributions to identifying workable models and attribution methodologies are very welcome.

1 Comment

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One response to “Business partnership is about sharing risk

  1. One of the less obvious media channels that responds well to “pay for performance only”, where vendors assume the risk of message distribution, is e-mail.
    It’s unfortunate that most agency planners have not yet caught up with the channel as a stand-alone carrier, often mistakenly relegating e-mail to the CRM discipline or simply tagging e-mail as a (value-added) add-on to a portal or site buy.
    E-mail, as a powerful distribution and response channel, can be tightly controlled to fit brand directives without the fear of “spam”.
    It deserves a place in the communications planning “wheel” and can afford smart agencies a new revenue stream that has likely been overlooked.
    As a competing channel, it also places defensive pressure on networks and portals to reduce pricing.

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