I was speaking with our Head of Gen Z engagement yesterday, the brilliant Nasya Munga, when we stumbled across something that I hadn’t ever really considered until that moment. And I’m not sure anyone else has. Now that may be because it’s not worth exploring any further, but for the sake of a few moments, let’s agree it is worth thinking through.
What is the cost of the significant inefficiency of digital advertising as it exists today? Let’s dig in.
90% of the world’s digital media spend is controlled by media agencies. The widely accepted commercial model is that brands provide the agency with a monthly budget and the agency fee is somewhere between 12% – 15%. So, it is *not* in the agency’s interest to do more with less, their interests are clearly aligned with spending LOTS of their customers’ money. So, metrics such as CPM (cost per thousand impressions) are accepted as the status quo.
Cost per THOUSAND impressions.
The net result is that a ‘good’ engagement rate in the industry is around 1%. So, to get 1,000 click throughs, you need 100,000 impressions. Or looked at the other way, you need to waste 99,000 impressions. I wonder, how much energy does it take to light up 99,000 phone screens for the 1/2 second that impression consumes? Now that 1/4 posts on social media feeds are adverts and that those feeds are infinite and designed to be addictive, how much energy is the advertising industry wasting in exchange for 1% engagement rates?!
A quick search online informs me that to charge the average smartphone battery costs about £1.09 a year. With 55.5m smart phones in the UK, that means that we spend £60,495,000 in energy charging our phones every year. I’ll overlook the fact that I often charge mine twice a day. Now a huge sweeping statement here, but let’s assume that 25% of that battery is used to power social media and that 25% of that is space taken up by adverts – some of which you have to watch all the way before you can ‘skip’. My very rough calculations would indicate that £3,780,937 is spent on powering unwanted ads on our phones.
Now let’s come back to the agency commercial model and the 12% fee they charge.
In the UK, the digital advertising industry is worth £16.5 billion. 90% of that is £14.85 Bn that agencies control and therefore revenues of circa £1.7Bn that comes from maximising reach (waste) in order to spend their clients’ budgets.
I recently saw a social spend report from a premium sports brand. They spent £100,000 a week on social media which gave them a ‘reach’ of 6m impressions. With an average order value of over £100, they only need 1,120 to break even (don’t forget the 12% to their agency!). 6,000,000 impressions resulting in just over 1,200 orders means 5,998,800 wasted impressions (but that made them a profit!). At 1/2 a second an impression, that’s 2,999,400 seconds or 49,990 minutes of consumer time wasted, or 2,083 days!
So, brands are very happy wasting our energy and our time – neither of which are free and the latter certainly not renewable!
Why does it have to be so inefficient? Why is the industry totally obsessed with scale instead of hyper efficiency? Well aside from the fact agencies are heavily incentivised to spend large budgets on ‘reach’, they are also using the wrong data sets. My browsing habits and all the data it produces are not an effective means of targeting me (or anyone judging by the interaction rates!). To call this targeting is totally misleading – it assumes there’s a focus. 6 million impressions is not a focus, even if it is a small percentage of the total addressable user base.
What if instead you could be efficient with your targeting and messaging? What if instead that premium sports brand could target 5,000 users who made purchases with their competitors, had active gym memberships and bought smoothies every day and who had been paid in the last 48 hours. Would that targeted population have more chance of converting to orders? Possibly and you’d avoid a tonne of waste in the process. You’d annoy your agency though but risk delighting your customers by providing relevant content to them and to make sure they engage with it….maybe pay THEM instead of your agency!?
This was all written in a bit of a rush but hopefully some valid points come across. Stop wasting your money. Stop obsessing over ‘reach’. Start rewarding the consumers whose attention you actually want and stop wasting energy! Oh, and maybe make more profit in the process.