Mastering Basic Economic Concepts 201: Commoditization vs. Value Proposition

Interesting piece on the Daily AdAge video regarding the pros and cons associated with the growth of online ad networks.

Within that discussion, Wenda Harris Millard from Martha/Omnimedia points out that we are potentially in a place where online media is becoming commoditized before the true and full value proposition is understood.

Hmm, that’s an interesting point and very much related to the Supply and Demand post from last week, but I think it’s a bit too simplistic and doesn’t really follow the history of where online media has been – or even take into account phenomenon such as direct response TV. Of course, the context is a short soundbite from a daily video report of the trade news, so I’ll assume the points I’m about to make were subsequently brought to light by Wenda or others…

Online media came out of the box as a commodity, initially a boon to marketers of the direct orientation due to it’s measurability and inherent ability to balance supply and demand. And though returns on such approaches are waning as more and more people come online (another basic economic concept for you – the funnel is getting fuller at the top and people are getting a lot smarter on how to use the web lower in the funnel), it is still an extremely efficient medium for acquisition.

However, now that we are at a point of cable-like penetration (70%+ last I cared to look) and huge swaths of people using the media as a social mechanism, I’d say we are at a state of truly defining the new value proposition that digital media provides.

It’s not CPC, CPA or CPM based, that’s for sure. However, the rate of exchange to negotiate the medium has to live somewhere in there because deriving value from a more social medium involves personally relevant metrics. It doesn’t make sense to expect media companies to define value in a social space in a universally acceptable media unit of exchange.

That means marketers and agencies will have to do more work in cultivating the relevant metrics and insights they want from “the community”, benchmark them, then negotiate front-end costs in such a way that the value derived at the other end is acceptable, and maybe even develop hybrid models that provide incentives for media partners that can best deliver these personal goals/metrics.

It’s not rocket science, folks (it’s pretty much what affiliate marketing already is), but I don’t think it’s commodity vs. value proposition either. It’s understanding the role you want the medium to play, then developing the correct programs to pay it off.

I know some scoff when folks say digital media can be used against practically any objective. Perhaps we should consider broadcast – home of beautiful brand advertising as well as bastion for informercials, HSN and QVC. Pretty broad spectrum of objectives being delivered there, and mostly done with hybrid pricing models that may start with a CPM but end with response.

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Filed under advertising effectiveness, measurement, media on media, monetizing media

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