This could be called a rant. And it briefly draws on basic economic theory. So unless you like rants based on forgotten college coursework, use the navigation or category links above to find another post. Otherwise, read on, and please share your thoughts below or with me on Twitter.
According to eMarketer’s Ad Dollars Still Not Following Online and Mobile Usage, on hour spent online drives 77% fewer advertising dollars than an hour spent with newspapers. Digital media proponents have been misled, believing somehow that time spent and budget should equalize. In reality, time and spend should never have been compared. Saying Online is 77% Less Impactful than Newspaper (like in this title) is just as accurate, and despite how ludicrous that statement may seem, is likely even more accurate than comparing time and budget.
Look at Google and Facebook. Time spent on Facebook passed all Google sites in September 2010 (including YouTube), yet Google will capture 44% of 2011 online spending, Facebook will only get 8%, because of the impact of search. Alternatively, look at the difference between newspaper and TV spending. Neither are new channels, yet spending on newspapers is 3.3x TV spending for every minute spent.
In an efficient market, media spend is driven by its impact, not time spent with media. And differences in spend reflect differences in impact or market inefficiencies. What does real equilibrium look like?
Pricing across media channels will be in equilibrium when the last dollar spent has the same impact in every channel. Impact is media channel agnostic (for that matter, it can come from PR, customer service or social), it can be perfectly substituted across channels. If a marketer can get 1 unit of impact for a dollar on TV, but only 0.9 impact units from online, that dollar will go to TV. Each channel has traditional supply and demand curves and the entire marketplace is in equilibrium when the incremental impact of the last dollar spent is the same across media channels.
How do online media proponents (and I am one) increase the share of budget going to online? Quite simply, increase the impact of every dollar spent online. Improve targeting, so each dollar goes further. Reduce transaction costs of online advertising, so more dollars directly drive results. Increase the quality of creative, so every impression has more impact. In short, if you want to see more dollars, quit showing how much time people spend, and start showing the impact those dollars will have.
What other changes are needed for online to capture more share? Or do you disagree, should time spent and budget allocation be equal for each media channel? Comment below, or share your perspective with me on Twitter at @wittlake.