This guest post is authored by Alex Rampell, the founder and CEO of TrialPay. This is a follow on to an earlier article “The End Of Brand Advertising,” where Rampell argues that the collision of online and offline advertising paradigms will have a profound impact on free content. Rampell’s most recent guest post for us was in the wake of the Scamville series: Tragedy Of The Social Gaming Commons: A Blueprint For Change
The marriage of brand advertising and free content is facing peremptory annulment. There is no shortage of punditry around â€śthe death of the media companyâ€ť and whether it is a just dessert or a societal travesty. But thatâ€™s looking at it from the media company and consumer viewpoint â€“ what do advertisers think about all of this? Where is online advertising headed and what does that mean for free content?
Making content free was not a well thought out business model. Rather, before the days of Sirius XM and DirecTV, there was no more of a way to charge for freely accessible radio waves than there was to charge for air or sunshine. Making content free, and charging for advertising interspersed in that free content, was pretty much the ONLY business model back then.
And it worked pretty well, because supply (advertising â€śunitsâ€ť) was limited by the amount of content produced and, more importantly, by the narrow â€śchannelsâ€ť where such content was made available. With such low supply, high demand, and massive reach, it was easy to reach large swaths of the populace. The advertisers couldnâ€™t really quantify their results, but they came up with a wide variety of methods to attempt to do so. Market research firms such as ACNielsen flourished to fill the need for â€śmetrics.â€ť
But, as I argued in my last piece, brand advertising doesnâ€™t really work â€“ or, perhaps better put, is superseded by â€śtransactional advertising.â€ť
The old logic went like this — people were more likely to buy Coca-Cola versus Carbonated Dark-Colored Sugar Water X because Coca-Cola had a brand (which Coca-Cola has spent billions on). Whatâ€™s the value of Coca-Colaâ€™s brand? Pure math â€“ itâ€™s the Net Present Value (NPV) of the difference that consumers will pay for Coca-Cola versus, say, RC Cola, for the lifetime of the consumer and duration of the brand. When you pay $1 for a Coke versus $.50 for an RC Cola, the $.50 difference is chalked up to the â€śbrand.â€ť (Yes, perhaps there are differences in taste, too â€“ but even with an identical formula and taste, I would argue RC Cola wouldnâ€™t sell as well as Coke). Multiply $.50 times billions upon billions of cans of Coke, and you see the power of brand.
I donâ€™t disagree with this notion, but I would argue that it is becoming largely irrelevant for a large class of goods and service providers (think soda or television set, not Rolex or BMW), and that the â€śbrandâ€ť advertising money can be better spent, thereby imperiling expensively produced, freely distributed content. To wit: what if Walmart refused to stock Coca-Cola, instead stocking just RC Cola? Granted, Walmart stocks Coca-Cola because consumers demand it, and consumers demand it because of the brand that Coca-Cola has created, but that can easily be reversed. If Walmart decided to stock only RC Cola and expel Coca-Cola from its shelves, this would change RC Colaâ€™s fortunes, and harm Coca-Cola, quite a bit.
Preferential placement of a good or service at/near the point of a transaction is something I call â€śtransactional advertising,â€ť which I predict will expand as a category in the coming years. Transactional advertising describes a clear food chain of brand and positioning; the titans at the top are Google, Amazon, Walmart, and other â€śaggregatorsâ€ť who themselves hold considerable brand equity and/or organic traffic. Smaller players exist in niche fields: BankRate, Shopping.com, Edmunds.com, Lending Tree, even Diapers.com have become destinations that steer consumer decisions. These have potential to be the new â€śmediaâ€ť companies in a transactional advertising universe, odd as that might sound.
This form of transactional advertising exists today, although you might not know it. Proctor & Gamble spends great effort and expense (though it pales in comparison to their brand advertising spend) to ensure eye-level placement wherever its products are sold. Many retailers â€śchargeâ€ť for shelf-space, with the clear understanding that better merchandised goods have a better chance of ending up in consumersâ€™ shopping carts.
Today you see very little in the way of transactional advertising online; rarely does one brand pop up in another brandâ€™s checkout experience. Thereâ€™s a good chance that will change in a major way in the near future. If old media companies can figure out how to attach themselves to more transactions, they have a fighting chance of sticking it out online.
Alex Rampell is the co-founder and CEO of TrialPay, where he is responsible for general management and building corporate infrastructure. Prior to TrialPay, Alex co-founded FraudEliminator, the first consumer anti-phishing company, which merged into SiteAdvisor and was acquired by McAfee in April 2006. Alex began his career writing and selling consumer software on bulletin board systems and the nascent Internet. His first successful company, started at age 11, gained hundreds of thousands of paying consumers worldwide and had products...