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Tuesday, February 9th, 2010

Are You Missing The Boat on Performance Advertising?

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The popular and talented Lisa Riolo stopped by my virtual office the other day to talk about Performance Advertising, why it’s important to your business and her new Impact Radius startup.

Here’s our Q&A:

Q: Hi Lisa, what is your definition of Performance Advertising

Most everyone understands how “advertising” works.  The difference with a performance model is primarily how the pricing works.

When the media with the audience (sometimes called the publisher) agrees to receive their revenue after the advertisements generate results (meaning the consumer actually responds to the ad and, usually, buys something)–you’ve got performance advertising.

This approach creates a lot of accountability within the advertising model and let’s everyone involved measure their effectiveness in promoting and selling products.

Lisa After Her 60 Mile Breast Cancer Walk

Lisa After Her 60 Mile Breast Cancer Walk

Q: You have enormous experience in this space…would you walk us through the history of performance advertising (at least the major milestones)?

Sure.  About ten years ago–performance represented about 5% of the total spend in advertising for both online and traditional media.  In the time since, the processes used to buy and sell traditional media haven’t changed much.

Performance advertising online, on the other hand, has grown substantially and now represents more than 60% of the spend.  Why the difference?

Affiliate networks, which aggregates the companies willing to advertise on a performance-basis, started gaining real momentum in the late 90s and early 2000s.

Search engines have also played a key role by opening up greater distribution of ads to a proactive audience.

Offline media hasn’t had a centralized location to discover the real value of performance deals.  Instead, the brokers often times pocket up to half of the money being offered for a sale or lead.

Further, I think technology was a big factor in the enormous growth online. Not only do we easily track consumer response online, we deliver the associated data and metrics real-time.

So, the speed of optimization (which is critical to effective performance advertising) is rapid–especially compared to traditional media.

We were amazed to learn that traditional media, which is equally metric-driven as online, waits days, sometimes weeks, to see the data associated with a performance campaign.

Our objective, with Impact Radius, was to deliver the same type of technology that online advertising considers commonplace to offline media.

If all of performance advertising were to have a single technology platform to manage their relationships–the opportunities for growth are exponential.

Q: Which types of businesses should care about Performance Advertising and why?

On the advertiser-side, any business that has established basic awareness of its brand and products should take a serious look at running performance campaigns.

Media partners (meaning companies with media properties that generate some revenue through advertising) should, at the minimum, run some ads on a performance-basis in order to continually establish the baseline value of their ad inventory.

I’ve had so many business-owners, after hearing about this model, say that all advertising should be priced with a performance component.

Unfortunately, they also doubt that the media will agree to run ads on a performance basis.  So, finding a willing media partner is usually the challenge for a smaller or new business trying to sell their products and services.

This is why it makes sense for an advertiser to list their “offer” with a company like Impact Radius.  It’s easier to discover media partners that will promote them on a performance basis.

That said, either company (the advertiser or the media partner) can usually get a deal in place if they are willing to add a performance component.

It is the metric driven approach and the resulting accountability that brings a negotiation together.

Q: Can you share any success stories of businesses using Performance Advertising?

I love to reference companies like Zappos and Netflix as great examples of online businesses that built their original customer acquisition strategy on a performance advertising model.

Each one of these companies let performance-pricing drive their early advertising efforts and partnered with companies large and small to refer new customers.

Perhaps more interesting, though, are the companies that earn significant advertising revenue on a performance basis.

Many companies recognize that Google makes a lot of money advertising within their search engine.

Google doesn’t charge for eyeballs, though.  Google only charges its advertisers if consumers actually respond to an ad and click through.

The measured response and resulting fees makes that a performance advertising model.

Other companies, like Upromise, earn revenue not only for sending visitors to an online retailer like Zappos, but because those visitors actually complete a purchase.  Upromise takes a portion of the money earned on a performance-basis and sets it aside for a child or grandchild’s college tuition.

What I find most exciting, though, is that TV, radio and print media are (to varying extents) struggling to generate ad revenue.

In doing market research for Impact Radius, we discovered that many of these media companies will run more ad inventory on a performance basis than was previously believed.

The media companies understand that if their audiences respond to ads and generate new sales for the advertisers they can earn big dollars.  Local newspapers can get a piece of every coupon redeemed or every phone call made.

Q: What are some Performance Advertising tips that you can provide businesses out there?

Advertisers, when approaching media partners, should start off with a “hybrid” pricing model.

Spend some up-front money on placement and add the performance element (e.g. $5 for every incoming phone call or 5% of all merchandise sold) on the back end.  Track the results and make sure both sides have access to the performance reports.

Once your local radio station starts getting reports showing their effectiveness at driving sales or leads–they can optimize their efforts.  This approach gets everyone aligned and working toward the same end objective.

As a deal grows, it makes sense to utilize a third-party tracking technology.

This is also a relationship business.  It is critical, for the model to work, that both advertisers and media partners are in direct communication.

Nobody should be in the dark about your partner or its capabilities.

Q: Who are the main players in the Performance Advertising space right now?

In the online world, most all advertising is managed on either a CPA or affiliate network.

The upside of this is that most of these networks do offer the ‘trusted’ third-party tracking technology.

The downside is that the partners do not work together directly and, in the case of the CPA networks, are completely hidden.

The biggest companies selling merchandise or acquiring new customers (i.e. with performance advertising campaigns) include nationally recognized brands like Amazon and eBay.

There are a lot of small to mid-size businesses, and even start-ups, that build performance advertising into their plans.

There are literally thousands of companies, from bloggers to coupon and deal sites to media brokers, that get paid on a performance basis.

Q: How is Impact Radius positioned in the Performance Advertising market?

We’ve brought the tools and technology to both online and traditional channels–and have introduced a “clear box” philosophy that ensures direct negotiation and communication.  We can track online, call and promo code conversions.

What is also unique about Impact Radius is that we’ve automated all of the processes involved with ad placement, deliver of the data and the exchange of money.

Media partners are excited, for a number of reasons, including that they can paid for the results they’ve driven as often as daily.  This improvement in cash flow gives them significant potential for accelerating growth.

Q: I understand Impact Radius has some unique capabilities — that said, who do you consider Impact Radius’s closest competitor?

Some people have said we’re a better alternative to the affiliate and CPA networks.

I do think we’ve improved on some of the standard product features you’d find in a network, of course.

But the biggest adoption I think we’ll see are the private relationships that migrated off network.  The private, in-house relationships are usually kept off network either because of the costs or rules established by the third-party.

So, we really compete with in-house solutions since we’re providing the flexibility and controls of their internal tracking with the added scalability and features usually found only within a network environment. And our pricing is aligned with the advertisers and media partners interests.

Q: What’s the best way for someone to get in touch with you or Impact Radius?

Visit the recently unveiled Impact Radius or you can find me on Twitter @lisariolo or at my blog.

Thanks, Lisa

My pleasure.  I look forward to sharing more in the future.  Until then, wishing you and your readers continued prosperity!

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