Paradox of virtual promises delivered in the real world

Brand owners are being wowed by assurances of big audiences and measurable ROI from digital media that do not match up to reality

Andrew Harrison

There’s a paradox around new media that continues to perplex traditional media owners. Why, when the digital sector is supposed to be so much more accurate and accountable than traditional media, when it claims to be awash with return on investment and cost per click financial models, do otherwise rational media planners and brand managers, CEOs and CFOs, lose their counting fingers the moment they click on a mouse?

Three stories regarding digital brand valuation, audience measurement and revenue generation from this week alone illustrate my point.

First, brand valuation for internet start-ups (unlike real world companies) has always put a premium on registered users, not paying customers. This is bizarre. It’s like valuing what Tesco is worth from how many people have signed up to Clubcard, not how many customers it has actually shopping in its stores and how much they spend. It means that every year, each fast growing start-up demands a sky-high price tag based on reach not revenues.

It’s easy to acquire users but it’s much more difficult to get them to spend money with you. It’s the high street equivalent of window shoppers versus real shoppers. Take the latest claims on Facebook – arguably the leading social networking site/ 20 million active members in the UK.

This accounts for one-seventh of all UK internet page views during September. If revenue follows that level of audience, then Facebook alone should be a huge media channel. But its advertising revenue performance is less impressive. According to Nielsen, Facebook accounts for less than 1% of all UK display ad revenue.

Another example is Twitter, which has about 2.6 million unique users in the UK. That sounds a lot until you understand a unique user is not a regular user (about 40% of Twitter’s users register once and never tweet again) and a million or so regular users is just one-fortieth of the numbers who regularly listen to the radio in the UK or read the newspapers.

Paradoxically, this doesn’t stop people paying real money for virtual revenues. No wonder that Joost – another hyped digital brand of the past few years – has just closed its UK operation. This marks a major retreat by the company as competition for real revenues in the video-on-demand market hots up – even without the arrival of Kangaroo in its original guise from BBC, ITV and Channel 4. Hulu, the US VoD service owned by Disney, News Corp and NBC Universal, is planning to launch in the UK, while YouTube is planning to introduce a long-form video presence in the coming months.

Brand valuation for internet startups has always put a premium on registered users, not paying customers. This is bizarre. It’s like valuing what Tesco is worth from how many people have signed up to Clubcard, not how many customers it has actually shopping in its stores and how much they spend.

Second, it’s encouraging to read that the digital sector is finally coming together to agree an audience measurement metric. This is a good thing. For the paradox here is that for a sector that markets itself on measurable results, audience measurement has been an unaligned hybrid of page views or unique users, the result being differing sets of audience scores from different providers.

But then again, the proposed new online measurement panel is just 39,000 consumers. Just how representative and realistic is this panel gong to be when they are used to measure the hundreds of thousands of sites online? A robust, established audience survey like Rajar distributes more than 35,000 diaries alone every quarter to capture accurately listening from just 350 radio stations. I fear that the few big, established websites will overwhelm a small user panel trying to accurately capture the breadth and flavour of online surfing. For advertisers, that will make it difficult to know where to focus outside a few select sites.

The final story from last week is the biggest example of numerical amnesia I’ve ever come across. On Saturday previous, England lost away to Ukraine in a World Cup-qualifying game streamed live on the internet to 300,000 subscribers. This is “the future of live sport”, said the more evangelical of the commentators (somewhat oddly forgetting that 10 million people were at the same time happily at home watching The X Factor on ITV). Compare this to the match last Wednesday broadcast on ITV between England and Belarus. That was watched by an audience 30 times bigger.

Yet, paradoxically, planners and buyers are rushing to celebrate the live streaming audience (“the biggest ever live streaming event in the world”, etc), seemingly doing their clients a mis-service. If you’re a brand owner, which is more valuable to you: the 300,000 who pay to watch content ad-free and online, or the 9 million who watch the game, with ads at half-time, on free-to-air TV?

So, here’s a closing paradox: as media planners and agencies rush to demonstrate to clients how they are ahead of the game, how each digital media “first” is an opportunity, the real irony is that all this does in reality is reduce the commercially available audience to their clients and our advertisers. A case of digital turkeys voting for Christmas?

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