Premium vs. Remnant — (Part III — Remnant)

May 16th, 2007

If you haven’t already, be sure to read Part I and Part II first.

We’ve already discussed my two major reasons why we should stop talking about premium vs. remnant, namely:

  1. Inventory is deemed premium based on the buyer and has absolutely nothing to do at all with the actual ad impression beind sold
  2. The best techniques for maximizing revenue for publishers are not specific to performance or brand

In this point I’d like to talk about remnant specifically. Namely, looking at recent patterns I expect non reserved inventory to grow at a far faster pace than reserved inventory. Specifically, I think more and more dollars are going to shift from traditional reserved inventory over to unreserved. Here are five reasons why:

1. Brand advertisers are starting to care about performance

All advertisers are realizing how much quality matters. Although brand metrics might be fuzzier than pure conversion metrics, an ad on Yahoo’s homepage will perform better than on a random article page on the New York Times. More and more brand advertisers are realizing that they can efficiently track performance with online media. The challenge is, how do you track performance when there is no direct online purchase? Sure, clicks measure some sort of performance, but a click from one person might be worth far less than a click from another.

As more inventory becomes available, I expect brand focused advertisers to think of more and more inventive ways to track campaign performance. My Coke Rewards is a great example of a traditional brand advertiser tying traditional sales with online performance. I’ve seen these ads everywhere and I’m sure they’re tracking signups and repeat visitors per media buy.

2. You cannot reserve inventory and optimize on performance

Reserving means setting a price before you buy. Setting a price before you buy means that you can’t adjust your price based on how different slices of inventory perform. Although you can track performance with a reserved/premium buy, you cannot easily optimize. Changing pricing will be a manual and slow process.

3. Ad quality differs greatly between publishers

I’ve looked at a lot of data over the past couple years and performance between sites differs greatly. Some sites will literally have 100x the click and conversion rates over crappier sites. Quality impacts price, and this huge differential in price makes it rather difficult to reserve inventory. Tie this with #1 and #2 above and for any advertiser to start buying effectively they are going to have to start pricing based on performance. This means fewer bulk fixed reserved buys and more CPC, CPA and easily adjusted CPM campaigns. As I pointed out in Part I and Part II of this series, whether or not inventory if premium or remnant depends solely on who the buyer of the impression is, not the actual impression. Hence, fewer reserved guaranteed means more remnant inventory.

4. Optimization technologies are getting better

It’s amazing what people are coming up with these days. Optimization technologies are getting a lot of press these days, and it seems that at every Ad-Tech there are a couple dozen new companies with some new cool modeling technology. I’ve worked with a couple of these companies and it seems that every one I talk to is better than the last. As these technologies improve, the incentive to buy based on performance becomes far more interesting than buying a fixed chunk of inventory at a flat rate — hence, more remnant.

5. User-Gen content is growing like crazy

There’s just a plain shitload of user-gen content out there nowadays. Myspace, Facebook, Youtube, Xanga, Photobucket… shall I keep going? Most of this inventory goes unreserved. Everyone is expecting this to grow more and more.

Thoughts

A lot of the arguments above are dependent on my definition of premium as any reserved inventory. Essentially I believe that more and more online buying is going to move towards performance based pricing. This will strike a good blow to the traditional “premium vs. remnant” selling strategies. It’s also about time we start to talk about the marketplace as a whole, no more about two separate worlds.

In fact, I think we should scrap the word ‘remnant’ altogether. Hell, lets scrap the word premium too! Instead of these two, lets talk about — pre-reserved vs. optimized inventory. Or, the forward-contract vs spot-exchange markets. How about relationship vs. performance based advertisers? Anything but premium vs. remnant!

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Posted by Mike Filed in online advertising, premium, remnant, supply and demand
4 Comments »

  • dan

    Almost agree with your suggestion that premium vs remnant is outdated for the above reasons.

    However, if an advertiser is reserving the inventory, then you betcha it is to ensure a target Reach and/or Frequency goal is achieved. Perhaps it is helpful to think of premium as ads that reached the most viewers – during their first few page impressions on a site vs viewers that have already consumed many page impressions during their session as remnant.

  • http://www.mikeonads.com Mike

    But where do the target Reach & Frequency goals come from? Some sort of performance measure based on exposure, brand awareness, something else? Shouldn’t an optimization engine be able to manage these goals somehow?

  • http://www.rightmedia.com Bennett Zucker

    Mike, An optimization engine *should* be able to manage against reach & frequency objectives. Atlas, Doubleclick and others have tried to address this for years. The challenges are many: (1) access to enough measurable audience (not impressions) to be representative of the targeted population; (2) standardization of site hierarchies and user behaviors in order to ensure equivalent metrics across many sites; (3) consistency among central and site-side servers; (4) agreement on what constitutes sufficient reach and efficient frequency across categories, etc.

    Of course we know that a large-scale exchange platform addresses many of these issues. But the exchange model’s focus on campaign performance needs to evolve further to incorporate audience metrics just as comprehensively in order to meet the needs of buyers for projectable R&F data.

    R&F goals come from marketers’ studies of their target markets – who they are, what they do, where they live, how they make purchase decisions, etc. – which must then be translated into media objectives. If there is no media objective related to clicks, online purchases, or other online-based measures, which is the case with many consumer goods and high consideration products, then the marketer must rely on surveys, store sales, and other measures that all require active or passive audience participation. BZ

  • Joydeep

    i don’t think this is a convincing case.

    brand advertisers can make relative comparisons between different inventories/campaigns using click through rates – but i would strongly argue that they still cannot figure out the value of a click. it’s still a cost center with money to spend – not earn. absent concrete valuation measures – the demand curve for these folks would tend to be price inelastic as u depicted in the previous article.

    so the underlying dynamics that drive publishers to segment inventory have not changed. there’s still a price inelastic curve and a price elastic curve. yes – clicks have become more important than before – but this is with respect to the competition (as opposed to arguing that the demand side has become homogenous).

    also – we should be able to draw parallels here. for example – Ross and Marshall stores (or for that matter Priceline) are analogous to remnant ad-networks. in even businesses that are decades (if not centuries old) – we find pricing and marketing differentiation based on the heterogeneity of demand . (Appeal to the image sensitive customer through upscale stores and charge premium prices, send unsold inventory to stores that appeal to price conscious customers).