"80 percent of the publishers getting an RFP don't even stand a chance." — Doug Weaver, Upstream Group
Direct mail is an amazing thing. It costs something like $750 CPM to put a glossy catalogue in the mail, but somehow direct marketers make those numbers work. Mailing lists are constantly optimized to make sure they hit the right houses, fresh lists acquired to create new demand, and non-performing lists ruthlessly culled if they don't meet certain KPIs. Direct marketers actually can tell just how much money a mailing will produce in sales.
Contrast that with a banner campaign, in which "good" performance means a 0.05% click-through rate, 40% non-viewable inventory, and fairly dim transparency. I recently overheard a marketer at a conference saying that 70% of clicks on her last campaign with a big, popular "platform" came from Yahoo Mail subdomains. It doesn't take a genius to figure out that the marketer's e-mail program was creating sales, but the fancy platform's banners were making sure they were "last viewed" before the purchase.
The Hidden Pricing Problem
So, how to get display advertising more like direct mail? It must start with procurement. Marketers should be able to tell how much the media costs, who will view it, and who to buy it from. Unfortunately, unlike almost every other form of media on the planet, that doesn't exist today for the digital marketer.
Publishers didn't help themselves when they decided to hide pricing information from agencies. With an endless supply of inventory (some 5 trillion impressions per month), banner sales has always been a bit more art than science. Buy 1,000,000 homepage impressions at $20 CPM, and I'll throw in 5,000,000 "ROS" impressions. Presto! You get a reasonable eCPM of just over three bucks. Everybody's happy—except for publishers.
According to recent research, publishers spend an average of 1,600 man hours a month on RFPs, and 18% of their revenue churning through RFPs that have an average "stick rate" of about 25%. Ouch!
The Future is Programmatic
Despite this, agencies would also like to see this procurement methodology perish. They want to buy impressions at scale, control the price they pay, and be able to "out-clause" on demand. Programmatic RTB offers all of the above—but only on lower classes of inventory.
New programmatic direct technologies seem to be the answer to the problem of transactional RFPs. Whether they leverage existing RTB pipes (private deals) or are API-driven solutions connected to the publisher's ad server, more and more higher-class inventory is starting to find its way to programmatic channels.
The question for publishers is whether or not they are going to take a part in deciding what the next stage of digital media procurement looks like. Will it still be driven by the demand side, or can publishers have a bigger seat at the table?
The RFP is dying, and publishers may applaud the last breaths of an over complex and inefficient process. But they should be careful of what may take its place.