Saturday, August 19, 2006

Better Ad Targeting = Better Content

There was a recent article in the NY Times about behavioral targeting on the Internet. I’ve read many posts by people who expose how they block ads and if they found content of value on the Internet they would pay the owner for it. I’m not going to debate about how much of this follow through occurs, what I will debate is whether better targeting is bad.

Disclaimer, I’m an Internet ad guy, my career has been about maximizing revenue per thousand impressions. Simple, yet not as easy as you think, I’ve cut my teeth on optimizing Match.com and Smoker’s surveys to name a few.

Those of you who think I’m evil you can stop now, otherwise read on.

Let’s lay out some assumptions:

We are a consumptive society – we have jobs to make money to buy things that increase our standard of living.

We are like entertainment – that comes in the form of tv, magazines, Internet, etc. We consume media, which is made up of content, which costs money to produce.

Now let’s discuss the business of media on a simple level:

Media companies make money by the following math:

Sell advertising space to companies who want to reach the consumers of their content
Minus
The cost of creating the content
Minus
The cost of potential advertising to bring the right people to the content and hopefully then become a customer of the content (their advertising)

What’s left?

Profit

Now let’s remember back to our Economics 101 college class:

Demand and supply must cross at some point and that’s the point of equilibrium.

It’s the point where everyone pays a certain price and the supply is a certain level.

Let’s wrap in the quote, “50% of my advertising is wasted, I just don’t know which 50%.”

Now let’s take a look at consumer behavior:

I talk to people about the digital herd, the people on MySpace, the herd is clearly grazing there. Look at their traffic numbers, their amazing. One miss-step and you might see the herd stamped elsewhere. My guess is that they will focus on things that enforce the network effects. Similar to why banks want you to signup for online checking. It’s sticky, MySpace needs to make sure they have sticky offerings.

The digital herd will graze where the grass is tastiest, if someone else can offer tastier grass and get enough people aware of it the stamped is on to the new patch of grass.

This threat of stamped then leads to innovation. Stop innovating, your grass is stale, and the herd is off. Investment in better grass is critical.

Now back to my main point:

Investment is needed to make sure the content is the best to keep the consumers consuming. Better targeting of advertising which yields higher rates for the ads potentially leads to higher profits, which then gives the media company resources to create better content.

Profits allow them to keep their pastures fertilized and green.

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