Digital Media Limitations of Online Advertising
Digital Media: Limitations of Online Advertising
(Abhishek Uppal)
From discussions with advertisers, agencies, and industry experts, there do not appear to be any structural limitations on the online advertising medium that may inhibit or undermine future growth. There are, however, some issues that are unique to online advertising, including the following:
' Inventory shortages. Over the last two to three years, there has been a shortage of premium inventory, including Yahoo! or MSN's front page or the home page of key vertical sites such as ESPN. While there is a shortage of premium inventory spots, I do not believe there is an overall inventory shortage. This is evidenced by a run of site inventory pricing, which has maintained relative stability over the past few years.
"Utility" aspect of Internet activity not conducive to advertising. Many of the areas where people spend time on the Internet today, including email, instant messaging, and VoIP, may not be conducive to online advertising. While advertisers will continue to find ways to target these users, it could prove very difficult to reach users actively engaged in using Internet utility functions. Likewise, for publishers providing these tools (including the portals), it will prove very difficult to monetize these services without losing efficacy of the service, and hence alienating the users.
Effectiveness of Usites for General Advertising. User-generated content is clearly seeing high growth as evidenced by the strong rise of sites like Facebook and YouTube. While these sites are popular among users, their ability to deliver impactful advertisements may be limited. Usites can be strong advertising platforms, but only if the advertisers and their messages are carefully selected and are well integrated with the content of the site. Also, many Usites require a relatively ad-free or minimal presence of the ads for the site to be effective. Many Usites are designed to be interactive with user-generated content, and thus differ materially from a traditional online publishing model, where content is created by the Website (and users expect to see advertisements).
Finally, the Usites tend to have a wide range of content quality with some content that could be objectionable to some groups, and certain advertisers may be reluctant to associate their brands with such content. Despite these challenges, the growing popularity of Usites and their important position in the long-term evolution of Internet media is likely to compel most advertisers to use these sites, although I expect advertisers to continue to tread slowly near term, resulting in very low prices for the Usite inventory.
Manual Media Buying Process. My discussions with advertisers, agencies, and media buyers indicate that the online media buying process is more manual than the offline media buying process, which results in a more people-intensive process. Online buying is a manual process in that rates are often negotiated over the phone versus offline media, which typically has standardized rates. The manual media buying process is a function of the medium's relative newness combined with the lack of pricing transparency for display advertising. While the online media buying process is relatively manual today, several companies are working to automate the process through the development of such things as online ad inventory auctions.
