Commodity Based Buying for Local Businesses

Within my business we have been talking alot about impressions, pay per action, service based contracts, all-you-can eat pricing and various other pricing models we and other players in our industry (local) are using. Its also interesting to see what the agency world is buzzing about in terms of the future of digital buying. (I think most people don’t understand the influence agencies have on the technology side of advertising, at least I didn’t until recently) Its interesting for me to look at the dicotomy between massive media buys and those media buys of the small local business. While their procurement and distribution might be similar, the methodology behind the initial purchase is entirely different. Foremost is the role that research plays in the buy, and put quite simply at one end of it there is a lot of research and at the other end there is very little.

In thinking of how to properly explain this difference, and sticking with the commodity theme that is growingly pervasive in the industry today, I want to compare a large media buyer, at the very basic level, and the average small business. Take the large brand media planner for example, this person might be working for Coca Cola and looking at a 20 million dollar digital ad budget, new technologies are allowing hyper targeting, re-targeting, behavioral targeting and real-time impression buys. In order to make sense of this world, the planner is analyzing audiences, demographics, entire neighborhoods of the web down to real time pages across the exchanges and networks they are plugged into then matching up the appropriate buys with Coca Cola’s plan. This planner wants to know who else is competing for specific buys, they want to know where users are coming from and where they will go after they view the Coca Cola ads; they want to see the entire supply chain of the impressions they are buying, from start to finish. The planner then recommends which impressions to buy, from which sites, at which times, etc. Brands can target specific individuals that fit their demographic profile for a specific campaign, and thus manage and run a very effective campaign.

Compare that to a local business with a $1000 they just cancelled from their local newspaper and want to move that budget online. Who do they talk to? They have no idea what an ad exchange even is, let alone where to find and implement a campaign in one. They might want to reach a more educated buyer than less, but they are going to rely mostly on gut, and what their local salesperson tells them is the right place for their dollar.

- Wait, a local salesperson?

Yes, dear rest of the world, local businesses want to deal with a local sales person who is an expert in their field and can give them valued advice on where to spend their money. Just as your average oil consumer doesn’t want to stress about the market fluctuations in a barrel of oil when they fill their car up, the local business just wants to get some new customers in the door, hopefully before he runs out of olive oil and with enough cash left over to replace the boiler.

When consumers go to the pump, they realize that the price of a barrel of oil correlates to the price they pay at the pump, and some weeks its more expensive than last, but generally they know they can go, fill up their tank for $30-40 and drive off. We don’t have time to calculate the cost savings of purchasing that oil at 11am rather than at 3pm as investors are loading up for tomorrows news, because frankly at the volumes most of us buy gas, the savings really isn’t significant.

Contrasting the media planner, purchasing the commodity of impressions at a vast scale and with micro targeting and specific demos in mind, executing on these buys in near real time; contrasting that media planner with the local business is fascinating. There are very few levels of size between Madison Ave/Varick St, and Main Street, USA - but a massive difference, both in scale and targeting. Commodity style impression buying is the new new, and its really intriguing, but the same way your average investor is not going to get into derivative trading or bond re-insurance, your average local media buyer isn’t going to get into the targeting, research and buying detail that is required to effectively execute commodity style buys - at least not on their own.

Yes, local businesses will figure out how to properly deal with commodity style impression purchasing and the Cost Per Action models becoming more pervasive. Yes, innovators across the world will build technology to make it easier for those small businesses to do so. But by the time the SMB’s adopt and adapt, impressions might not even be a metric. Or maybe they will. Regardless, who will always control the local ad budgets of those small businesses and ultimately the direction of their adoption? Their trusted local sales people and the brands they work for. At the end of the day self-service only platforms will not penetrate truly local businesses, feet on the street will be needed to ultimately unlock and capture the transition of local ad dollars to digital.

The sales people, and their overhead organizations will have to evolve, the businesses will demand new solutions, but as they demand new solutions they will look to experts for advice. Expert sales teams these small businesses trust. And right now, today, there exist thousands of local sales teams, many with years of brand equity invested and vested in their publications and properties. As ad dollars transition across the board away from traditional media, those properties and their local equity will in basic Darwinism adapt or die; and out of self-preservation many will adapt. Some will not, but many will.

Getting to my point that local businesses will evolve, that is inevitable, they are small and agile and represent the true grit of American capitalism. They will adapt, they will transition their ad dollars from traditional to digital, but they question remains - where and how? A second question remains - will the local media companies serving those companies adapt to the needs of their local customers, and if they do what solutions will they offer?

Many of the big publishers believe they have the solution. They do not, I have seen their solutions and they are not solutions to current problems. The biggest problem in the marketplace is that the majority of small local media companies don’t know what the solution is, or even really what the problem is. Over all in 2009 print revenues declined by about 20% +/- and digital revenues increased by about 9% +/-,  given the lower CPMs of Digital compared to print - that is not a zero sum game. Dollars are disappearing from the market entirely. And traditional media is suffering from that loss most acutely.

When those dollars come back to the market (as some have seen recently), they will not be returning to traditional media, they will be migrating to digital options, both web and mobile. And just as agencies control ad dollars for major brands, local media companies control ad dollars for pockets of local businesses. Big chunks of local media siphoned off into individual properties across the country. As local businesses demand different solutions and more digital options the local media companies that adapt and deliver new solutions will thrive. They may have to adjust their content models, but if they bring the right technologies to their customers, paired with true knowledge of their offering they will keep their customers both in business and doing business with their brand.

There are several technology companies which have developed strong local products and have had success with local sales teams. But these technology companies are not media companies - how will traditional content-to-display dollars transition to digital? As a basic consumer a more efficient PPC campaign does nothing to quench my need for a write up of local-celebrity gossip. Most importantly, as those companies are opening in new markets, they are ignoring what can often be valuable local media brands, along with the years of brand equity they have with local customers. Will local businesses receive a PPC optimizing technology better from the local salesperson they already deal with - from the brand they know and trust? Or will they prefer the new comer with the sizzle?

I believe that small businesses want to know and trust that the technology they are using is the best in the market, but that fundamentally they want to take their marketing problems and talk about them with their local salesperson. Looking to them for answers - solutions. I believe the smart media companies will adapt to their customers needs, where they will fail is the technology.

Technology that should be centralized, technology that should live in the cloud and distributed out through multiple markets, multiple sales teams. Technology that is easy to use, brought to market by the best local media brands in each market and made easier to understand by knowledgeable sales people, trusted by their customers. Coupled with a strong media property using a second decade content model, commodity based ad buys will thrive in the future.

Many local media companies will realize they need to adapt to a changing market place; adapt or die. Once they see this as fact, they will seek out technology to serve their local customers. They are experts in their local markets, in their traditional media and in sales/customer service. In true efficiency economics these adapting local media companies will seek expert solutions to their customer problems. And with success comes the desire for more solutions and that ultimately translates to more dollars flowing through local media companies.

Ad dollars flowing through traditional media companies? Yes, but those dollars will flow through the media company and into the cloud where they will be curated and optimized and from there those dollars with buy commodities - impressions, clicks, calls, etc. Ultimately those local ad dollars will originate from the local sales teams talking to local businesses on a daily basis, and over the next 3-5 years it is up to those local media companies to defend their turf. Adapt and deliver new solutions to their market, or sit by as new companies come in and drink their milkshakes.