If you failed to notice big data as a force in the advertising industry the merger between Publicis Groupe and Omnicom Group to create the world’s largest advertising firm should convince you: the July 28 announcement cited “the explosion of big data” as a key factor. Data-driven decision-making in the advertising industry is growing, and an examination of the role of performance-based pricing for online ads helps to show why.
According to the recent IAB Internet Advertising Revenue Report, performance-based advertising remains the preferred pricing model for brands, ahead of other choices. The performance model appealed to 66 percent of total Internet ad revenues in 2012, up slightly from the previous year. The reason for this is simple: performance-based advertising allows marketing leaders to make decisions and allocate budgets based on measurable outcomes. However, understanding how the data behind performance-based advertising works isn’t so simple and requires deeper investigation.
Performance-based advertising is a method of online advertising where advertisers pay only for measurable results. This kind of advertising consists of various pricing models, such as cost-per-impression (advertiser pays for number of people exposed to ad) cost-per-click (advertiser pays only if a consumer clicks an ad), cost-per-lead (advertiser pays when interested consumers provide their contact information) and cost-per-action (advertiser pays only when a consumer completes an actual sale). Every completed result generates a new piece of data for that consumer touch point.
When you understand how performance-based advertising works, you then realize how different types of online advertising verticals such as search, display, affiliate and social media generate massive amounts of data. The ability to optimize online advertising performance depends on how well you understand this data.
To achieve measurable results such as clicks, leads and sales, and uncover the effectiveness of various performance-based ads, you must consider three factors of the data involved: the environment, the timing and the context.
Data Environment: The ‘Where’
Today’s volume and variety of performance-advertising data requires a highly scalable and centralized data environment, a place where you can visualize and make sense of all your data in order to make informed decisions.
Today, efficiency is all about the flow of data and how accessible it is. The right environment can help marketing teams run more efficiently if it consolidates and centralizes data (including moving reports out of Excel spreadsheets). Centralized data allows team members to collaborate and doesn’t require marketers to analyze dozens of different reports. The right environment can also enable teams to view and move data around internally in real-time, which allows CMOs and other marketers to make more informed decisions.
There are many challenges to create an environment that allows practitioners to have a view that cuts across different online advertising verticals—from capturing large amounts of product data, to displaying this data in a central location and in real time. Another challenge is creating a data environment that can be applied at scale across multiple countries for global brands.
Previously, many enterprises built out multiple best-in-breed technologies to capture and analyze data. But that meant the data could only be viewed in silos. The challenge for many enterprises today is to how to remove these data silos. Performance data requires a centralized, unified view.
Data Timing: The ‘When’
Advertising performance data has not only increased in volume and variety but also in velocity. In today’s competitive and fast-moving online environment, you must be able to react quickly as circumstances change. In social channels like Facebook where brands run performance-based ads, week- and month-old data becomes useless when real-time consumer engagement is vital to driving sales with these online campaigns. Social analytics used to mean counting “likes” and follows, but brands can now use real-time data to track social campaigns down to the point of sale and make adjustments on the fly.
Twitter, for example, not only allows advertisers to post promotional messages that can be seen by users interested in certain keywords, but also allows advertisers to avoid matching specific phrases or hashtag trends, The New York Times reported.
While insights allow brands to make quick adjustments to online ad campaigns, online performance advertisers can also use real-time data to do the same thing. This fast-adjustment capability can be effective at raising conversion rates in performance-based advertising.
Data Context: The ‘How’
Data doesn’t hold any intrinsic value, nor can it drive decisions by itself. In performance-based advertising, context helps you measure and understand data-driven results.
For example, with correct context, a consumer electronics retailer can use data to not only identify top-selling products but to know which performance advertising verticals and specific platforms are converting sales. An investment bank can contextualize its online inquiry or new account data to understand which sites that are running its ads generate the most qualified leads. An airline can apply context to online ticket sales data and discover whether search or affiliate provide them with the best response to its online travel deals. It isn’t enough just to know that online ads drove a million tablet sales. What was the time period? Where did the ad run? Who clicked the ad and what was the actual path to conversion? The contextual answers drive better decisions.
In performance-based advertising, success comes from understanding which ads generate high return on marketing investment and which ones need to be adjusted or eliminated. It requires applying the correct environment, timing and context to performance-advertising data.
As the technology continues to improve, advertisers and agencies will be able to use data to better target consumers, employ predictive analytics and help ensure their ads appear on appropriate sites that both target their consumers and reflect the brand’s values.
Malcolm Cowley is CEO and co-founder of Performance Horizon Group, an enterprise software and global services firm in the performance-marketing sector. Prior to PHG, Malcolm co-founded the buy.at affiliate marketing network, which AOL acquired in 2008. You can connect with Malcolm on LinkedIn.