Good Behaviour

A recent article in the Economist entitled “Many ways to skin a cat” (Dec 1^st to 7^th) prompted me to write this post. Essentially it is because I disagree with the statement “Whether or not there is truth in advertising there is certainly none for online advertisers…”.

The article mainly discusses the different metrics that can be used to price online advertising, these being page views (actually should be ad views as there is often more than one ad position per page), sessions, unique visitors, average session time / average page views per visitor (arguably basic engagement) etc. But there is in fact a more relevant way of buying online media space and one which most savvy advertisers are looking towards, that is cost per sale or cost per action.

To return briefly to some of the metrics discussed in-depth in the article; many of them mentioned are already being used but in pricing different types of advertising:

• page / ad views for banner advertising on sites which do not utilise Web 2.0 site build techniques
• sessions or more likely unique visitors for media owners offering sponsorship deals across an entire section or high traffic page
• “dwell time” for media owners selling “top and tail” video ads on streamed video content or “web 2.0″ sites.

John Wanamaker once famously said: “I know half the money I spend on advertising is wasted, but I can never find out which half”. Contrary to the comment quoted at the start of this post, I believe Wanamaker’s comment is becoming less true of online advertising. I think the reason for this is revealed in how online advertising should now be being bought.

Google is a good place to advertise for many reasons but also because while ad space is bought on a CPC (cost per click) basis, campaigns are increasingly managed on a CPA or CPS (cost per action / cost per sale) basis enabling advertisers to realise true return on investment. This is achieved by tagging the target page on an advertiser’s website and measuring the number times this page is requested as a result of a response to an ad on Google.

The tag is a little piece of code that sits on the final page of a process that represents the desired outcome for an advertiser e.g. the Order Complete page. The tag enables a report to be produced that tells the advertiser how many desired outcomes occurred and so when set against total cost of the media spend allows a rough cost per action can be calculated.

The process of measuring visitor behaviour on websites has become much more sophisticated with the advent of web analytics tools, the most popular of which by far is Google Analytics - no surprise there. These tools are most commonly implemented on websites using similar little pieces of tracking code to the ones used to track pay per click advertising.

Google bought Urchin Software (an independent web analytics service provider) a couple of years ago and now gives away this service for free. Microsoft is about to provide its own free package called Gatineau - currently in Beta testing. These are highly complimentary technologies to pay per click advertising as they enable advertisers to associate far greater value to their campaigns based on what a visitor did after clicking on an ad and arriving on a website.

Among many other things, web analytics tools can be used to measure campaigns from sources other than pay per click. So an advertiser could use Google Analytics to measure the worth of advertising from banner campaigns, email, affiliate marketing and so on as well as Google pay per click. They can even be used to track offline advertising if they are set up correctly.

Advertisers can now use a single measurement tool to compare their media spend based on cost per action or cost per sale (or what ever the desired outcome they chose).

Whilst some media buying agencies have reported the performance of their media campaigns on a CPA basis for a while, for many especially the smaller agencies and advertisers, CPA has perhaps been harder to track. With these free web measurement packages from Google and Microsoft the loop can now be closed by everybody and the benefits to the advertiser can be realised in the media buying process across all their online advertising.

The next trick for big advertisers that are engaged in multi channel acquisition strategies is to discover which channel and acquisition source has the biggest impact on sales or the desired outcome.

This can now be achieved using some of the most sophisticated web analytics tools on the market, such as Visual Science, to do complex sequential segmentation. This kind of segmentation allows advertisers to look at website conversion based only on specific combined acquisition sources and the order in which a single visitor responded to one or more of these sources.

The specified aquisition sources can then be included or excluded from a super segment to discover which has the greatest impact on the overall level of conversion to the desired outcome.

Assuming that most advertisers online are driving traffic to a website and that most online ad campaigns and associated websites have a desired outcome, all this means that the traditional method of pricing and buying online advertising as mentioned in the article should actually be much easier; simply look at whatever price is being offered, take the known click through and conversion rates if the media owner has been used already, or estimate if it hasn’t, and see if this will reach the CPA target. If not negotiate accordingly.

Caveat: For advertisers that are only interested in branding and / or awareness and where there is no goal beyond that then I accept the above is less / not applicable and you’re back at the mercy of dwell time and estimated unique visitors being quoted by the media owner.