Advertising Must Create Value

    January 4, 2008

Scott Karp kicked off the new year with a good post called Five Guiding Principles For The Transformation Of Media Companies.

It’s a good post that needs to be read by every executive at major media companies today, and in many ways a lot of it seems like common sense to those who have been watching the transformation occur and understand what’s going on.

Specifically though I wanted to address Scott’s final principle:

Advertising must create value

Google turned search advertising into the most profitable media business on the web by following the basic principle that advertising must create value for consumers. Search advertising is so powerful because the ads are relevant and USEFUL.

The most successful new advertising models will be those that create huge value for consumers, not those that manipulate users or violate their privacy (i.e. be like Google, not Facebook)

As we browse the web today, display advertising is generally not as relevant and as useful as search advertising. Search has a big advantage in that it knows the specific direct intent of the user at that moment in time provided by a keyword. While a lot of the display ads we get are entirely untargeted and seem useless.

To be fair, there are a lot of display ads that are targeted now based on behavior, geography, and other factors that end up creating value for the user.

There is a lot of movement with technologies like Yahoo’s Smart Ads, better behavioral targeting, and other technologies that are going to continually move display advertising to be more useful and relevant to the user. As I posted recently, this should lead to higher click through rates, higher conversion rates, and lead to higher CPM rates for advertisers.

Unfortunately, part of this increased targeting technology effort needs to be focused on scale as the amount of web inventory continues to explode. User-generated content is inventory that has achieved the lowest CPM and response rates due to the engagement of users in the sites they’re on, as well as the high frequency of as impressions each user is seeing. How can improved targeting technologies and ad budgets continue to get more relevant while also scaling to meet the inventory explosion?

When that happens, advertisers, publishers, ad networks, ad exchanges, and most importantly USERS will benefit.