Image by bigyahu via Flickr
The statement above has been historically used to declare ascension of one king to the throne upon the death of his predecessor. Today we see many reports about the death of display advertising and the vehicles (newspapers and magazines) supported by it. But display advertising isn't dead, it just taking new forms. In the process of taking new forms, it is changing modernizing its business model and supporting new vehicles for display advertising.Just as Google revolutionized online display advertising by changing the business model from impressions to performance based (cost-per-click) pricing, there is an emerging generation of companies changing the business model and primary media of display advertising. (One of those companies is LivingSocial, upon whose board I sit, and get to see this sea change first hand.)
One area where this change in the display advertising market is visible is in online group buying. It is my belief that people often mistake online group buying as a fad. I would argue it is a far more fundamental change, a seismic shift in the display advertising market. This shift is from simple display to performance advertising. And just like in online advertising before it, this is a big, compelling shift. What makes it even more significant, is that group buying is bringing performance advertising to smaller, local merchants.
The idea of group buying, usually of coupons, where everybody gets half off at restaurant ($50 coupon foor product priced at $25) so long as 100 people commit to participate, is but one of the shifts in the display advertising market. The restaurant industry employs 12.7 million Americans in 945,000 locations — and 2010 sales are expected to reach $580 billion. Even at 5% of sales for marketing/advertising expenditures, the restaurant industry is a potent economic force.
Image via CrunchBase
The restaurant industry has historically done its customer acquisition through advertisements. The performance associated with the investment, like all display advertising, has been largely unclear. The restaurant management is never fully aware of the specific impact of the
advertising effort or expenditure. This essentially is, in a world of CPC/CPA, why display advertising is losing its market share
Image via Wikipedia
Let's consider, Option 2, our restaurant owner's chooses to pursue performance based advertising via something like LivingSocial DailyDeal. (Hey, had to get that in there somewhere) LS offers the restaurant owner the following deal. LivingSocial will create an advertisement for your free of charge and promote the advertisement to its 10's or 100's of thousands of our users for 24 hours, also free of charge. LivingSocial DailyDeals will structure a deal with you, the offer/call to action of the ad, that will entice customers to buy a coupon for your restaurant. (This offer will usually coincide with the restaurant cost of goods which is around 1/3 of retail on average. The restaurant can set a minimum level of purchases for the deal to be sold so there is no risk of expending effort here unless it is worthwhile. All of which minimizes or almost eliminates financial risk)
The restaurant can set a maximum number of deals to be sold via the advertising. Just like Google adwords, by the way, which allows advertisers to cap and control expenditures. Now, here's kicker for the restaurant owner, LivingSocial will cut a check TO the restaurant owner following the ad campaign's successful run. Hmmm, for the restaurant to weigh, write a check or receive a check, write a check or receive, ok they don't get to a third consideration. Who would?
But the benefits don't end there, after the campaign has run, the restaurant owner will see numerically and obviously the impact of the advertisement (that they didn't pay to create or run) on their business in the following weeks as coupons are redeemed by customers (new and old). The restaurant owner can now advertise via Cost per Acquisition for customers without any upfront investment or financial risk. On the back end, they can see how many coupons were redeemed with a full assessment of the return on investment of the campaign. The restaurant owner can look at display advertising in a whole new way. She can drive her business with cost per acquisition rather the uncertainty of projected yield . That is a big change.
It is a powerful change. Not one limited in scope or reach to groups buying in unison.
It is bigger than that.
It is the future of display advertising.The King is Dead. Long live the King.