The dark side of performance

One of those truisms that keeps ringing true is: Show me the incentives, and I’ll show you the outcome. That means you need to start with who is setting the incentives. In the digital ad market, the incentives are set largely from those who spend the money. 

The ad ecosystem has never been bigger. GroupM expects it to just about reach $1 trillion this year. The early part of digital advertising’s growth was powered by reallocating spending from channels with shrinking reach to those where people were spending more of their time. It’s why that Mary Meeker slide was always trotted out, as if there was a magic correlation between time spent and budget. Now, that growth is in large part being led by performance.

One of the ironies of performance marketing eating the ad industry is that it relied on rebranding direct marketing. Why deal with the Wannamaker issue at all when you have all the data to direct spend on what works and take it away from what doesn’t. What could go wrong?

Well, a lot. The overemphasis on performance marketing has created a set of incentives for players through the advertising ecosystem to get as close as possible to the sale. The front of the parade is crowded, and so too is the bottom of the funnel. 

Direct marketing was seen as a backwater. Not so to the engineers of Silicon Valley, who obviously gravitated to the math of direct to the art of brand. Google created the greatest money-making machine in history by creating the greatest direct marketing system to exist, powered by vast pools of data. The incentives were clear: Google could claim credit for driving a sale on a search for “best buy flat screen tvs” even if it did little to create that demand that led the searcher to think of Best Buy when shopping for a new TV. Better to harvest the demand.

To win in this kind of ecosystem, you need to control distribution, collect and use large amounts of data, and produce receipts. The last part is key. Most companies do not want to advertise. What they want is to acquire customers and sell products. The advertising is a means to an ends that most CFOs and all small businesses would like to skip. This is why retail media is the fastest growing part of the digital ad economy. 

Joe Marchese, a media veteran turned venture capitalist at Human Ventures (and tequila entrepreneur with Komos), warns that this is short term thinking that’s created a situation where “culture is on sale.” The example Joe uses is the Porsche buyer. That purchase decision started not during the midlife crisis at 40 but as a 13-year-old. But the current programmatic ad systems are architected around taking plausible credit for a conversion.

"We've kind of created an entire ecosystem of machines seeking credit for commerce, not creating commerce,” Joe said. He knows this first hand having built TrueX, a programmatic ad platform Fox  bought for $200 million in 2014. 

The endless saga around the third-party cookie is a great case in point. The impact of the deprecation of the third-party cookie isn’t about ad effectiveness for the most part. It’s about measurement. It’s about showing the effectiveness of the ads to assign (or take) credit for a sale. 

All this signal loss didn’t seem to dent people’s spending, Joe notes, which calls into question just why exactly. 

"When Apple shut down ad tracking, we didn't have less consumer spending,” he said. “Maybe a couple of people didn't buy some impulse purchases here and there."

For marketers, an overreliance on performance marketing is unsustainable, Joe argues, because anyone can feed quarters into the customer machine that’s offered by programmatic ad platforms. The DTC world learned this the hard way. Most of these companies never built real brands and only rented their customers from Meta and Google. 

"Anyone who relies completely on performance media, their margins will eventually go to zero because someone else will pop up that has more margin to spend on advertising," Joe said. "The only way to reduce customer acquisition costs over time is brand. And you can't measure brand on a short feedback loop."

Other topics we discussed with Joe:

• Content and commerce is hard to make work. Hodinkee is the latest publisher to reverse course on pivot to e-commerce, returning to its roots as an editorial brand for watch obsessives. "It's very hard to make media that keeps an audience and make the best products,” Joe said.
• The TV advertising ecosystem will shrink. The end of the bundle also means an end to the heavy ad loads that came with the bundle. “Netflix is not going to get advertising back to 20 minutes per hour of advertising,” Joe said.
• The creator economy has a platform problem. Platforms have fully embraced the explosion of creators because it cements the power of the platforms, despite what they might say about creator empowerment. 
• The Kamala Harris “feminomenon.” The meming of the presidential election is a sign of things to come as the Information Space swallows media.

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EX.CO’s new resource: “Rebaking the Cookie: A Guide to Privacy-Safe Online Video Advertising" provides actionable strategies and best practices for how to navigate the evolving landscape of privacy-safe video advertising without cookies. It also includes thoughts from 12 industry leaders who weigh in about the cookieless future. Get the guide.

The homepage is back?

Semafor’s Ben Smith has a great line about the homepage: It wasn’t dead, it was just resting. (Semafor has a new homepage.) The return of the homepage is both real and overblown. The real part is that many publishers are focused again on the homepage, if only out of necessity. The torrent of social traffic has completely stopped, and search is growing less reliable for many publishers. 

That's made the homepage more viable. The Verge, for instance, focused on its homepage to build habit. It's now nearly attracting as much direct traffic as from search, according to SimilarWeb.

The role of the homepage has changed as publishers have grown more sophisticated with their audience segmentation strategies. The new homepages are designed not for “the audience” but for a smaller subset of a publisher’s overall audience: the true loyalists. Each brand has a different number of those die hards. And the homepage is built for them, as highlighted in my conversation with Marissa Zanetti, global head of product at Bloomberg Media, during the Media Product Forum, an event The Rebooting co-hosted with WordPresss VIP earlier this month.

The site overall is still the overwhelming focus of publisher product teams, according to recent research The Rebooting did with WordPress VIP, far outpacing AI.

Thanks to WordPress VIP for partnering with The Rebooting on this project and the Media Product Forum. Read the report. 

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