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The Geico Gecko meets The AOL Way: Are display advertisers too obsessed with click-through rates?

Late last year, AOL announced it would be revamping its ad platform, shrinking the number of ads it serves and expanding the sizes of those ads. In some cases the ad units would be four times larger than they were before. The move was seen by many as AOL’s attempt to address the abysmally-low click-through rates on display advertising, and senior executives admitted that they would see an immediate drop in revenue as a result of it; their hope was that in the long run advertisers would flock to the new platform and pay higher rates for these more successful ads.

According to several studies, click-through rates — the number of people who actually click on an ad — run well below 1 percent on most sites, and each year these rates get lower and lower. Some industry analysts have said this is a result of “banner blindness,” the idea that we inadvertently train our eyes to ignore certain parts of a web page, including sidebar and banner ads.

Depending on which side of the aisle you are on, these metrics are either a blessing or a curse. On the one hand, the Internet allows us to measure ad success like never before. In the past, advertising agencies would have to employ arcane formulas using Nielsen or circulation numbers to guess how many eyeballs saw a 30-second spot on television or a full-page ad in The New York Times. Now, we can open up Google Analytics or click-tracking software to determine exactly how many users engaged with an ad. We can even in some cases determine conversion rates, measuring not only how many people clicked on an ad, but also how many actually purchased a product after making the click. These metrics are a welcome relief to the client who famously said, “I know I am wasting half my advertising budget; I just don’t know which half.”

But many publishers and advertising agencies have expressed frustration that their industry is beholden to such confined measurement. By focusing so much on direct response, they argue, advertisers are missing out on the larger branding opportunities afforded by creative advertising. The Geico Gecko is not successful because he inspires people to jump up from their couches and purchase car insurance; he’s successful because when a person decides months later to shop around for car insurance, his image springs to mind.

Earlier this month, a company called MediaMind released a comprehensive study on the performance of financial services display ads. MediaMind specializes in hosting ads and collecting a variety of performance metrics for advertisers. If Goldman Sachs wanted to advertise on NYTimes.com, for example, MediaMind would host the ad on its own servers and give the NYT a link to pull the ad onto its site. The company would then measure how many times the ad is loaded, how many people click on it, and even how many hover their mouse over the ad without clicking — what MediaMind refers to as “dwell.”

For this particular study, MediaMind analyzed 28 billion ad impressions and terabytes of data to determine what kinds of financial service ads — whether for banks, credit cards, or insurance companies — performed best. The average click-through rate on such ads is .09 percent, with an even lower post-click conversion rate of .03 percent. Perhaps more encouragingly, though, the “dwell” rate for these ads was 4.26 percent, meaning that nearly one in every 20 users hovered his or her mouse over an ad — an indication, MediaMind said, that the ad carried influence even if it didn’t lead to a click. The study claimed financial service ads had an overall conversion rate higher than their click-through conversion rate — .16 percent vs .03 percent — because some of the users who didn’t actually click on the ad still visited the advertiser later. One of the biggest takeaways from the study was that a user’s engagement with an ad sharply falls after the first time he has seen it, meaning that if he sees an ad on NYTimes.com and then later on WashingtonPost.com, he’s much less likely to click on the Post’s ad than a reader who is seeing it there for the first time.

To understand the click-through rate dilemma many advertisers face, one merely has to dive into MediaMind’s findings about which kinds of ads perform best: The highest click-through rates were for credit cards, while the lowest were for car and home-owners’ insurance. Ariel Geifman, MediaMind’s principal research analyst, explained to me in a phone interview that the credit card ads perform better because many people are almost always willing to try a new credit card with a better rate. But why did the insurance ads perform so poorly? “We think it’s because users only need a policy once a year, so you only need to get people at the point when they’re thinking about it — which is really hard,” Geifman said. “Unlike credit cards, users are not actively shopping for better insurance offers all the time, only once a year. You have to tempt them with an offer exactly at that point in order to get them to consider it.”

Display advertising, in other words, is lacking a Geico Gecko strategy.

Geifman told me that despite pushes for advertisers to take a much more “holistic” view, they’re still measuring their success on click-through and conversion metrics. “People try to focus more on the tangible rather than the intangible metrics,” he said. “In the furture, display advertising is going to be a lot more focused on branding.”

But will it? John Battelle, founder of Federated Media and a board member of the Interactive Advertising Bureau, has spent a lot of time contemplating this question. Federated Media is an ad network that provides advertising for hundreds of publishers, seeing more than a billion ad impressions a month. (I’ve written for some outlets that use FM advertising.) “No matter what, we have to live in a world where the question, ‘Does the consumer click on my ad?’ is the fundamental and only consistent signal in display advertising that is universally understood,” Battelle said in a phone conversation. “That impulse has a lot of implications. When people optimize click-through rates, it changes all sorts of decisions that can inevitablly lead down a path towards, in essence, the direct-response approach to advertising. Which is to say, if you optimize your creative — your media buy, your placement, everything — to this one signal, and you tell your agencies and your publishing partners that’s what’s most important, you’re going to get behaviors that drive clicks. And that sort of ignores a very large percentage of the value of advertising, which has to do with changing the perception, awareness, and potentially other important signals of value in the ecosystem. Unfortunately, it’s something we’ve had to live with because it’s the only standard that’s easily measured.”

To show the short-sightedness of such metrics, Battelle cited a comScore study that found in 2009 that 4 percent of Internet users drive a whopping 67 percent of all advertising clicks. Do we really want to target our ads, he asked rhetorically, to such a small user base — the online equivalent to those who respond to late-night infomercials?

Though the display advertising industry has been slow to battle this trend, it has taken steps to ameliorate it. Part of the problem, as the recent AOL ad revamp indicated, is that display ads are small. It’s very difficult to replicate the full-page ad of a print newspaper or magazine, and there’s only so much you can convey in a tiny box on a website’s sidebar. In 2009, Federated Media launched a product called an Ad STAMP that allows an advertiser to purchase multiple ad slots and effectively take over an entire page. The same year, Daily Kos hosted a “skin” advertising platform for a then-upcoming Frontline program called “Obama’s War.” The skin wrapped around all the Kos content, effectively bombarding the reader with the brand (while not intruding on the actual blog posts). BlogAds, a North Carolina-based ad network that serves ads to Daily Kos and hundreds of other blogs, has also experimented with including social content from sites like Twitter directly into the ads themselves.

In an interview last year, I asked BlogAds founder Henry Copeland which industries should rely less on click-through rates and more on long-term brand influence. He pointed to the entertainment industry as one example. “For instance, with TV shows or with a movie, very few people buy the ticket online,” he said. “So the real measure is you spent X amount in advertising and then you put this many seats in movie theaters.”

In the AOL Way, leaked to the Business Insider last year, the company indicated that an individual blog post needs about 7,000 pageviews to generate a profitable amount of advertising revenue. With the average cost per piece of content pegged at $84 and a target of an average gross margin of 50 percent, that puts AOL’s CPM at $18. In other words, it hopes to generate $18 for every thousand pageviews it generates. At a .09 percent click-through rate, we’re looking at about $18 per click. Given that you can get much better rates on advertising platforms like Google Adwords and Facebook’s targeted display advertising, it isn’t hard to see why a publisher would want to steer an advertiser’s focus away from raw clicks alone.

“You don’t build brands by optimizing for clicks,” Battelle told me. “There needs to be other measurments as to whether your audience is aware of and gaining value from the messaging you’re doing on these sites through display advertising.”

Of course, some would accuse these publishers of trying to put the new clothes back on the emperor. But as AOL shifts further away from its declining subscription revenue and more toward an ad-based model, it’s not surprising that it wants to convince advertisers that there is, in fact, value in a banner and sidebar ad. How much value is there will determine whether Tim Armstrong’s quest to build a content-based company will result in success or dismal failure.

Portrait of the Geico Gecko by Thomas23 used under a Creative Commons license.

                                   
What to read next
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Mark Coddington    April 18, 2014
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  • http://twitter.com/chris_meares Christopher Meares

    Without a doubt, this is the future of online advertising. The big branding dollars continue to go to TV but branding your product/service online is just as effective as television, especially when you are branding on a website that has high visitor engagement. The advertising community has to begin to look at online as a vehicle for branding and look past the direct marketing approach, even without click throughs it is still the most track-able advertising medium available.

  • http://digitalb2b.wordpress.com/ Eric Wittlake

    Very few advertisers make investment decisions based on click rate or cost per click today. I believe these measures persist only because (1) they are common across all advertisers and (2) publishers have access to them.

    They are useful, just incomplete, measures for DR marketers. If the metric is a sale or other conversion activity, then CPM * CTR * ConvRate = Cost Per. Media cost is known, conversion rate isn’t readily shared. The only variable all parties see for performance is CTR. [Ignoring view through data, there are other implications that this article doesn't touch on when using viewthrough].

    Brand marketers have a dilemma with online. Online has trained marketers to expect granular and immediate measurements. However, true brand lift and impact measurements are rarely granular, and never immediate. This is driving more ‘brand’ marketers to focus on various actions, from video plays to expansions to (gasp) clicks, as proxies to indicate the advertising was at least noticed. [Note they DO pay lip-service to brand, advertising on sites with far higher cost per click or sale than they would ever allow on a pure DR program.]

    The big question for brand marketers is if this optimization really moves brands forward? Do marketers need to step back and use traditional modeling or survey approaches to measure the impact of online advertising?

    As the article points out, DR metrics fall dramatically after the first impression. But traditional advertising theory dictates that higher frequencies are necessary to change perceptions and maintain that change over time.

    Personally, I believe brand measurement is critical for the best results. Due to the time and expense involved though, many marketers will continue to use various derivatives of direct response measurement to gauge success, even for brand campaigns.

    Sadly, marketers and agencies alike will justify this behavior by focusing on the brand site, not the advertising, as the core of the brand experience, while continuing to go to great pains to integrate brand messaging into the advertising itself, instinctively understanding its importance but never directly measuring it.

  • http://twitter.com/michaeltoedman Michael Toedman

    no doubt CTR is an inappropriate measure for the majority of digital campaigns, yet it continues, mainly as no simple alternative – media owners (and industry associations) unhappy with being mis-measured need to create an alternative measure to allow agencies & advertisers insight on the real performance, and it’s long overdue

  • Andy Robinson

    Advertising goes beyond immediate response. The gecko example is great as it reminds us all that value come from brans equity and awareness. Getting adoption to your brand is foremost, getting a long term bond or stickiness to your brand is optimum.

  • http://twitter.com/FreeRadicalSynd Laura Luckman Kelber

    More and more evidence that classic “big, conceptual” ideas are critical to any marketing tactic success.

  • http://twitter.com/FreeRadicalSynd Laura Luckman Kelber

    More and more evidence that classic “big, conceptual” ideas are critical to any marketing tactic success.

  • http://twitter.com/FreeRadicalSynd Laura Luckman Kelber

    More and more evidence that classic “big, conceptual” ideas are critical to any marketing tactic success.

  • http://twitter.com/FreeRadicalSynd Laura Luckman Kelber

    More and more evidence that classic “big, conceptual” ideas are critical to any marketing tactic success.

  • Pingback: OwnerIQ Blog » Blog Archive » Neiman Journalism Lab: “Are Display Advertisers Too Obsessed With Click Through Rates?”

  • http://twitter.com/MichaelMiller27 MikeMiller

    Want to avoid “banner blindness”? Check out http://www.AdBull.com and http://www.CursorMarketing.com. These products raise brand awareness and intent to purchase. Check them out.

  • http://twitter.com/MichaelMiller27 MikeMiller

    Want to avoid “banner blindness”? Check out http://www.AdBull.com and http://www.CursorMarketing.com. These products raise brand awareness and intent to purchase. Check them out.

  • http://twitter.com/MichaelMiller27 MikeMiller

    Want to avoid “banner blindness”? Check out http://www.AdBull.com and http://www.CursorMarketing.com. These products raise brand awareness and intent to purchase. Check them out.

  • http://twitter.com/MichaelMiller27 MikeMiller

    Want to avoid “banner blindness”? Check out http://www.AdBull.com and http://www.CursorMarketing.com. These products raise brand awareness and intent to purchase. Check them out.

  • http://marketingworldblog.com H Chimoff

    Excellent discussion. Online advertising is a tactic and like any other marketing tactic, needs to support the marketing/business strategy and help produce results (usually the sale of a product or service). Given that CTRs are low and understanding that there are many other methods to achieve communication via the Internet, marketers should rethink their approach. Figure out ways to optimize and maximize display ads if that’s the route you choose. Test differenct tactics. And, rely on some bottom-line metric or set of metrics to evaluate your total marketing performance.

  • http://marketingworldblog.com H Chimoff

    Excellent discussion. Online advertising is a tactic and like any other marketing tactic, needs to support the marketing/business strategy and help produce results (usually the sale of a product or service). Given that CTRs are low and understanding that there are many other methods to achieve communication via the Internet, marketers should rethink their approach. Figure out ways to optimize and maximize display ads if that’s the route you choose. Test differenct tactics. And, rely on some bottom-line metric or set of metrics to evaluate your total marketing performance.

  • http://marketingworldblog.com H Chimoff

    Excellent discussion. Online advertising is a tactic and like any other marketing tactic, needs to support the marketing/business strategy and help produce results (usually the sale of a product or service). Given that CTRs are low and understanding that there are many other methods to achieve communication via the Internet, marketers should rethink their approach. Figure out ways to optimize and maximize display ads if that’s the route you choose. Test differenct tactics. And, rely on some bottom-line metric or set of metrics to evaluate your total marketing performance.

  • David Honig

    Click through rates have been embraced by Google and are the industry expectation. But it is worth taking a few minutes to look behind the curtain at Google’s model, to see if it is serving the advertisers or only itself, at the advertiser’s expense. Theoretically, Google pays hosting websites for every click-through it generates. In reality, though, Google only makes those payments when an account exceeds $100. Also, when sites near that $100 threshold Google reviews the account to see if the blogger clicked on any of the ads themselves. If the site owner did so too many times (as determined by Google), they can term it a contract violation, terminate the account, and refuse to pay out the fees generated. In the meantime, though, Google keeps 100% of the income generated through click-throughs. It actually benefits Google to keep the income low enough, with rules stringent enough, to avoid paying out their vendors. Who knows how many millions of dollars Google is sitting on that it “owes” bloggers who dabbled for a while then closed their site, or who clicked on an ad?

    I posit that the entire on-line advertising paradigm is based, not on a system that increases brand awareness, but one that benefits Google through non-payment of millions of dollars, in sub-$100 increments. Indeed, a system that generated more money, one that caused Google to actually pay all the websites running their ads, might cost Google more money.

  • A Searcher

    Branding online works. If anyone says it doesn’t then I will ask them; if it works on TV and on billboard, then why not online..?

    I was on YouTube and some display ad’s came up for an online appliances site (fridges, cookers etc) These ad’s were viewable on many pages and a month later when my fridge packed up guess what site I searched for on Google to look for a new one…

    People who feel that you can’t brand online are kidding themselves. Agency people who believe that you cant brand online must have an ‘old media’ agenda. (Their business model is probably reliant on production charges to clients…

    For companies not branding online; you are missing out to the smart adopters who are and will be gaining marketshare as a result(.)

  • Pingback: Are display advertisers too obsessed with click-through rates? | Bannerworks

  • http://twitter.com/beatdallas Paul Andrews

    Why clicks are not the answer….

  • Pingback: Are advertisers too obsessed with click-through rates? | Inside the Nerdery

  • Pingback: On-Line Advertising: Branding or Direct Sales? · The Palate Press Advertising Network

  • http://www.storitz.com Storitz

    I agree with the comment above that it is flawed but the best metric available

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  • Pingback: Why online advertising isn’t a $120 Billion industry in the USA today « excapite

  • Pingback: Are clicks overratted? | Neo Blog

  • http://twitter.com/mfischka Michaela Fischerova

    One of the best articles on display adverts metrics limitations. Great summary.

  • http://twitter.com/mfischka Michaela Fischerova

    Probably the best article on display advertising metrics limitations. Nice summary!

  • http://twitter.com/thedom Domenico Tassone

    Viewthrough anyone?

    tipofthespearblog.com/2010/11/new-for-2011-toward-standardized.html

  • Pingback: Winning Search Is Not the Best Measure | Primatir – The Pinnacle of Website Performance