Thu

Feb 21
2008

Tim O'Reilly

Tim O'Reilly

Online Advertising Undervalued?

On a publishing-related mailing list that he moderates, Peter Brantley highlighted a great interview on Silicon Alley Insider with David Moore, CEO of search ad firm 24/7 Real Media, recently bought by advertising giant WPP. Moore hammered home a point that hit me the first time I saw Imran Khan's spreadsheet showing the internet's share of global ad dollars vs. share of viewing time: there's a lot of upside still in online advertising. This is not breaking news, but well worth circulating more widely:

SAI: Assuming we're facing an ad slowdown, what's going to happen to online ad rates?

Moore: The fact of the matter is the Internet has been either dramatically underpriced or offline media is dramatically overpriced. Right now a reader of the Wall Street Journal might be worth a dollar, but for someone reading the online Journal you get a nickel. That's 20 to 1 offline versus online pricing. You need 20 online readers to replace one offline reader. So when you talk a bout pricing overall I think the web is dramatically underpriced already.

SAI: Haven't ad networks played a role in holding down online CPMs?

Moore: I dont think its the networks that are doing it. I haven't spoken to anybody who thinks media fragmentation is going to stop. I think we are dramatically underpriced compared to offline. The amount of money newpapers and magazines have been getting per thousand is outrageous. Newpapers and magazines are still getting roughly 30% of all advertising expenditures--yet if you look at their share of media usage, they've got between 7% and 9%. Thats why they're having so much trouble.

SAI: Google is adding video to search advertising. What happens to video ads in 2008?

Moore: It's still a small part of the overall online ad spend, but its the fastest growing part. Advertisers are starting to realize: "If I spend half million to produce a commercial why just put it on TV? If they see it online versus on TV--does it diminish?" No! Godaddy's strategy was to get a spot rejected from the Super Bowl and it got 14 million views online.


tags: advertising, google, web 2.0  | comments: 8   | Sphere It
submit:

 
Previous  |  Next

0 TrackBacks

TrackBack URL for this entry: http://blogs.oreilly.com/cgi-bin/mt/mt-t.cgi/6328

Comments: 8

  Christian [02.21.08 11:22 PM]

This isn't any kind of unexpected diagnosis. How far had the TV ad space grown 10 years after its initiation?

Now traditional media have obviously reached their point of saturation, and the new media are catching up. That's nothing more the usual technology shift our ancestors have seen many times before.

  marco [02.22.08 12:54 AM]

Just a couple of thoughts.
first. we could consider as worth not the numbers but what kind of advertising and business are using the online media.
second. TV and Internet are really two very different media. obviously both the media could shows a video to the potential customers, but the real difference is represented by how the user behave in front of them.
third. papers and internet are more similar. but in most case the magazines have reached a trend-setter status that sites have not reached yet.

Actually internet advertising is undervalued by the business leading class because they are not able to see the effectiveness of it. For example a fashion business know very well the effect to be on vogue, but they don't know at all how to reach the same effect using the online media.

  Alex Tolley [02.22.08 09:19 AM]

This analysis seems very un-analytic to me. Are we really comparing apples to apples in any real sense between internet and dead tree media?

Why does DM end up with web advertising as under-priced, when he earlier says it could be under-priced OR traditional media over-priced?

Rather than thinking in supply side terms, perhaps he should be thinking about the demand side. Consider that the value is the eyeball attention time and the total GDP. If advertising is already at saturation, then at best we could get a shift from traditional to online advertising. However, advertising is about signaling availability, persuading a purchase. But both these are features of an information poor world. The web has changed the rules to quite a large extent. Networks become the medium of attention gathering and information dissemination. "Collective intelligence" is readily available to overcome information asymmetry in purchasing, so this class of advert should decline. Thus I make a case that the value of advertising is declining in the face of net centric information flows. Arguably the web value of advertising with its more accurate monitoring is a more accurate reflection of value and that the real losers are going to be traditional media as the net becomes not just the medium for information, but also the way purchasing decisions are made.

  Alex Tolley [02.22.08 10:37 AM]

Perfect example of my comment above. I comment on the "state of the book market pt 2". The author points me to the upcoming O'Reilly books list where I see: "Programming S3, EC2, SQS, and FPS". Immediately it goes to my Amazon wish list. I'll use that as a reminder to check early ratings on Amazon's site and look for online reviews. If reasonably favorable I'll buy the book. If it is very good, no doubt I will talk about the book with my colleagues. No advertising in the traditional sense required. This surely must be the trend that is going to be more important in the future for purchases beyond toothpaste.

  Tim O'Reilly [02.22.08 02:09 PM]

Alex,

I agree, but with one proviso: much of the "content" appearing on the internet is actually advertising. It's the part of the iceberg below the surface. What is oreilly.com? In many ways, it's an advertisement for our products -- books, conferences etc. -- and we use content (like the radar blog) and the generation of commentary to draw people who ultimately pay for what we do by buying those products.

This was the subject of a talk I gave last week at our Tools of Change for Publishing conference called "Free is More Complicated than You Think."

But even with all this "signaling availability" that isn't actually paid advertising, it's still the case that relative to the amount of time people spend with online media vs. offline media, offline is more heavily monetized. Because my point applies equally well to newspapers and magazines. Content draws eyeballs to commerce. It's not a simple equation, but it still seems that the ratio of ad spending to media consumption is higher offline.

Even with free signaling, people will still try to add advertising signal till the system stops producing incremental results.

  BILLinBCN [02.26.08 11:27 AM]

I think Moore's initial question is the clincher: Is Online Advertising undervalued, or is Offline Advertising overvalued?

Ad networks determine CPM rates by objectively documenting ROI. This is the core differentiator from Offline. But if Advertisers are measuring ROI and determining the market price, then it's hard to conclude that the CPMs are dramatically undervalued.

More likely, if business were able to measure the ROI of offline ads, we would see a substantial deflation in their CPM. After all (using Moore's example) does every WSJ reader really spend $1 for each ad they read in the paper?

  CRG/Top Producer [03.12.08 09:21 PM]

The economy has entered into recession because the high prices of the houses and the sub prime loans. Now that the market is turning alot of people who buy their house 100% with adjustable loans are suffering the consequences. We need to prompt action of the executive power and also the continued intervention of the Bank of Federal Reserve. lowering more the interest rate but they need to be more effetely in getting this low interest to the new buyers to reboots the economy, and we can continue growing strong to be the first potential world wide. We should uses the internet to promote our business and be more innovator in any industry more in the real estate you need that in the time of adjusments.

  lydia [03.25.08 03:05 PM]

Depending on what type of ad it is yes it can be under priced. But for the most part you generally gonna get a whole heck of a lot more people viewing ads online then offline. Places like stumblehere.com alow free classfied ads which advertise things for sale which are free but still viewed a lot more the off line classified ads in the papers. So i wouldnt say that it's undervalued more like under appriceated.

Post A Comment:

 (please be patient, comments may take awhile to post)






Type the characters you see in the picture above.

RECOMMENDED FOR YOU

RECENT COMMENTS