I started my professional career working with small and local businesses in a medium-sized city. This experience not only proved to be extremely valuable when I moved to the then nascent digital advertising world in the late nineties, but also gave me a perspective different from many of my peers.
Most of my peers and our leaders were focused on the 'big opportunity'. In the agency world, we sought accounts that were national in scope; later at Microsoft, we looked at opportunities that were global. In each case, the focus was always 'bigger'.
Adweek sets the tone for conversation and prospects. The large budgets and (presumably) higher margins confirm the focus on Madison Avenue or big brands.
If this perspective was the appropriate priority, should it be the only priority? My experience was that this priority often excluded other considerations, particularly at the media and technology levels.
And here is where it gets ironic. With the growth of programmatic advertising - where technology allows for thousands of advertisers to compete for ad inventory across millions of placements - there is a pattern of policy and process that demonstrates little understanding of the economics for small and local business segments.
This is not specific to the big DSPs (Demand Side Platforms), but the entire digital marketing technology sector.
So much of the thinking of how to design ad technology, platforms, reporting and (most importantly) how to price and promote these services is often developed through the lens of what 'big players' want, and how they operate.
As mentioned above, this is intentional for many; the revenue and cash for start-ups is much easier to get from ten national accounts than a hundred local accounts.
But there is also a resistance or disinterest in pursuing the SMB sector. They either find it unappealing or uninteresting to merit consideration. I have met enough senior and mid-level managers to know that they think it either too hard or too expensive.
And it might be easy to assume that this is correct, if not for the example of Google and Facebook who created a platform to enable any size advertiser anywhere.
Google and Facebook defied much of the industry and discovered a very big market. According to the latest data from BIA/Kelsey, local digital ad spending is currently a $43 billion dollar industry - and will continue to grow for the foreseeable future:
The title of this post assumes I am targeting just DSPs, but this applies to publishers and social media platforms and all sorts of ad technology which is being designed as if we were still a three-network broadcast nation.
Here are some examples:
A very popular and extremely well-regarded ad-funded, OTT/streaming video network is looking to grow its revenue stream with local advertisers. Their user base is large enough in most metropolitan areas to be able to reach enough persons in the market to make it a legitimate media vehicle for local advertisers to reach potential customers.
So far so good. Then comes the killer: Their monthly minimum is $10,000. Now that may not sound like much to the people who design and market these products. And frankly, in some larger markets, that might be a bargain.
But it's also the problem.
UPDATE: Right before I posted this I had an advertiser willing to take the plunge, but their minimum had now increased to....$30,000 per month.
MINIMUM SPENDS:
First, there’s the ‘one-size-fits-all’ minimum spend requirement. The problem with this is that the same 'minimum' spend requirement is the same for every market. So a DMA/metro area of seven million requires the same minimum spend as a metro or DMA of one million. That doesn’t make sense, does it?
Even worse (in my opinion) is the failure to recognize that $10,000 is the entire monthly - or even annual - marketing spend for many small businesses. Of course, this ranges based on the type of business, number of locations and so on, and there are as many different answers as there are local advertisers!
But let's take a look at the problem...assuming a method of allocating a marketing budget based on annual revenues the math reveals that only some of the biggest local advertisers will have a large enough overall budget to meet the monthly minimum spends (assuming, as well, that these advertisers spend consistently each month, which is not often the case):
Even for the bottom example, a generous four percent marketing allocation of four percent based on $10 million in annual revenues has a considerable budget, but would they be smart to risk 30% of that budget on something that is a new, untested, platform? No, it's crazy. I've been doing digital marketing long enough to know that it takes time with any tactic to learn and optimize - putting 30% (or more) of a finite budget into something new is a significant risk and opportunity cost when compared to safer tried and true media.
Look, I get it. Ad tech providers need to have a revenue stream to support the engineers, sales, marketing, support and all the other functions to support their business. But they are passing up potential revenue by setting minimums that are out of touch with baselines for the very local marketers that can help them grow revenues and be more profitable.
Yes, it can be done. Here’s an example of a company that figured out how to do it.
NATIONAL-ONLY AD PRODUCTS:
On the other side of the spectrum is the coolest, fastest-growing 'next' social media platform. As advertisers (local or regional) we see users adopting these new platforms, so a lot of us want to be there. However, the decision-makers behind these platforms, have an understandable desire to demonstrate to their shareholders/ VC funders the viability of their platform that is designed for large national brands.
That may get them the great PR coverage in Ad Age that will make the CEO and Marketing VP look great (for a while), but they are again focused on the wrong side of the market when they overlook the MILLIONS of small businesses (including their agencies) who would gladly give them a credit card to reach audiences in their area on their platform.
Is it too difficult to develop a social media ad platform to support all those SMB advertisers? Well, here’s an example of someone who did it.
THE DSP'S SHOULD KNOW BETTER:
Finally, we come to the DSP’s. The “Demand Side Platforms” are an amazing tool for today’s marketer to precisely identify likely customers and reach them with all sorts of digital ads. Their connection to a vast landscape of websites and apps, combined with the ability to precision target with amazing data sources, is the fantastic innovation that is referred to when people praise the word “programmatic”.
But as with the above, they are terrified of the local marketer. So they require monthly minimum spend amounts. Whether it's $5,000 or $25,000, they want the assurance of a revenue stream from local marketers. Again; understandable.
But also self-defeating.
Years ago, the Newspaper industry would require advertisers to sign iron-clad annual commitments to get better rates for advertising. Naturally, advertisers and agencies don’t like this inflexibility. As media consumption patterns changed, and local newspapers have lost that preeminent role in the local marketing mix, this requirement has mostly disappeared.
But it’s the same sort of inflexible handcuffs that some DSP’s want to place on local marketers now.
The irony is that DSP’s – of all digital marketing technology providers – should know better. The best way for them to generate better yield and margins is to have more advertisers competing for inventory. Classic supply and demand. This is one of the foundations of how bidding and monetization are accomplished in this new programmatic economy.
In that light, why does it make sense to limit potential demand for new marketers (who, from their perspective, may not want to commit to such untested or unproven technologies despite all its promises) by requiring such high minimum spends (in relative, LOCAL marketing budget terms)?
A NEW HOPE:
To be clear, not all DSP’s are thinking this way, and several firms are aggressively addressing this market gap and providing solutions that don’t require a minimum spend. However, for many of the larger ones, I find this oversight fascinating.
As I started out, my opinion is that it’s a question of perspective; maybe it's a mindset where the ‘SMB’ or ‘long tail’ market is seen as basically uninteresting (this is something I have seen first hand many times), or the real challenge of generating enough scale while limiting operating costs appears so formidable that investing in the SMB /local channel is a low priority.
Fortunately, others have figured it out. We’ll see how this shakes out in the years to come. I suspect that we’ll discover that the potential scale of millions of advertisers spending a couple hundred to several thousand dollars per month is going to provide the financial success to a few smart and open-minded providers.