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Michael Sprouse joined Epic Advertising as Chief Marketing Officer on June 1, 2007. His current responsibilities include overseeing all marketing strategy for the company, media buying, direct marketing programs, public relations strategy and outreach, internal communications, corporate development and cross-platform initiatives.

Prior to Epic Advertising, Sprouse served as Senior Vice President of Marketing for Playboy Enterprises, Inc. In his time at Playboy, Sprouse helped to oversee a business transformation as the youngest senior executive in the company's 54 year history. His marketing leadership opened up many public speaking and PR opportunities including the Keynote presentation at ETail (twice) as well as numerous press mentions.

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Performance Marketing Just Works

Written on
February 7th 2008
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by Mike Sprouse  |
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I was recently reviewing several reports showing U.S. Online Advertising Revenue by Pricing Model. Every year, with one exception, revenue from purely performance-based pricing models grew at a higher rate than the CPM (cost-per-impression) pricing model or a hybrid of the two. This growth has resulted in almost an equal split between advertising revenue from performance-based models and CPM. This is significant for a few reasons.

First, it shows how an industry can truly “grow-up”. As recently as 2001, Performance-based advertising revenue totaled approximately $856 million, or about 12% of overall online advertising revenue. At the end of 2006, it totaled $7.9 billion, or about 47%. This growth signifies the change in how advertisers use the web for their bottom line versus a few years ago. Advertisers no longer view online advertising as a place where money gets placed and then forgotten. They’ve found that online advertising is measured as part of an ROI calculation tied to campaign performance and overall marketing dollars.

I asked Gregg Coccari, CEO of  NetQuote, Inc. to comment on the differences in their online advertising now versus even a year or two ago, weighing CPM advertising goals against Performance Marketing campaign goals. “For our business, it’s vital to take a direct marketing approach,” Coccari said. “Specifically, we’re focused on performance marketing.  It’s not that we don’t see value in testing CPM programs; but it’s far more important for us to focus on how much ROI we’re getting for the service we provide to our customers and to take a much more analytical approach to our marketing.”

The second thing these statistics tell us is how an industry can get over crucial hurdles or stigmas in a short period of time. One of the “slights” against performance marketing historically, mostly relating to CPA (or cost-per-action), was that it did nothing to further an advertiser’s brand or name recognition. So a few years ago if you were the head of marketing at a top-tier advertiser who historically bought spots on TV, you would never consider “performance-based” online spend because your marketing dollars were tabbed solely as “brand dollars”.

One could argue that this dynamic occurs with far less frequency now, and performance marketing is growing past this. As online advertisers garner more and more customers, and those online leads turn into lifelong users or fanatics, aren’t those customers in essence acting as brand-builders? Five or six years ago when performance marketing was less than 10% of overall online ad revenue, more advertisers began to funnel their budgets towards the web, aka “the black hole” at that time. They were concerned with how their brand would “translate” online, often a brand they’d worked incredibly hard to build offline - in some cases over years or even decades. However, what companies are now finding out is that performance marketing does not have to eschew brand-building – the simple act of garnering more traffic or customers, and creating a sustainable relationship with those customers IS brand-building in itself. And that’s not even considering the positive effects on brand after conversion and customer acquisition in terms of viral marketing, word-of-mouth, customers posting blogs, writing online reviews – all of which are inherently brand building too.

So what really happens to the brand by not spending CPM dollars but rather focusing on gaining customers and keeping them via CRM tactics in an ultra-competitive online industry? “In our particular industry, we’ve found that the average consumer chooses 2-3 services at any given time; thereby making the brand name a bit less important in the short-term,” says Jason Jacobi, VP of Acquisition Marketing for True.com, a prominent performance marketer in the Online Dating industry. “Performance Marketing for our specific industry, in my opinion, is a core component of an effective online Marketing Strategy for an early product life-cycle with a multi-competitive landscape. CRM efforts are also a very important piece of the Direct Response model. Specifically in a good DR-focused Online Advertising business model, it’s a significant amount of Performance marketing, followed by effective CRM all layered onto a simply superior user experience.”

A corollary to this is that many advertisers now employ performance-based ad networks because of their size, scale, reach and marketing expertise. These ad networks, of which AzoogleAds is a prominent one, undoubtedly account for a chunk of the impressive growth in the performance marketing channel overall through the past five years.

There was a time when ad networks were very much not en vogue, because they were considered ‘blind’. In other words, an advertiser would market their product via an ad network, pay some level of performance threshold for the network to drive customers, clicks or leads, but not have real insight into where those leads come from. Now, advertisers demand more insight into the origination of their customers and where their brand and ads are being displayed. The onus is increasingly on ad networks to give a proper level of disclosure, smartly media plan for specific clients, and ensure they are policing themselves as well as their network. Credible networks should, and will, do all of this to protect an advertiser’s brand. This is why reputable ad networks invest so much in money, time and resources in the area of marketing compliance. Why is this important? The answer is, of course, that online advertising compliance is of utmost importance to the consumer. The secondary, but no less important, answer is that it is the right thing for the advertiser too.

It will be interesting to watch how the performance-based advertising industry continues to grow up and evolve in the coming years. I, for one, think there’s no reason the trend towards performance marketing will slow down. If you’re an Advertiser currently working with an ad network on performance-based campaigns, make sure your partner is in it for the long haul and committed to your success and safety and not just theirs. If you currently don’t use an ad network and manage your own campaigns, think about seeking advice from a reputable network since the industry is only becoming more and more complex. Finally, if you’re an Advertiser that does not engage in anything other than CPM advertising, what are you waiting for?



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Reader Comments.

What is the source for this data? What pricing models are included in this definition of performance marketing (CPC, CPS, CPL)?

Posted by Emma G | 2:12 pm on February 7, 2008.

It is always good to see stats for our industry. Can you tell me where you got this one?

“”At the end of 2006, it totaled $7.9 billion…”"

Posted by Steve | 5:41 pm on February 7, 2008.

Sure, the statistics used above were from a Lehman Bros. report in January 2008 “Internet Data Book”, which they sourced from the IAB. Hope this helps.

Posted by Mike | 9:50 am on February 8, 2008.

How does Think network stand up with your article in mind?
Thank you for a resposce!

Tom

Posted by Tom Osman | 3:19 pm on February 11, 2008.

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