In an industry where we need to count in ‘thousands or millions’, (think CPM, RPM, eCPM), an industry in which we navigate gigabytes, terabytes and petabytes and more, I often question the massive over supply of inventory and the fact we have to invest in technology and solutions to better understand the vast numbers we create. The leads me to the question ‘do we need so many ads?’ Prices are low, as is fill rate, there is massive fragmentation in market, inefficiencies in RTB auction technology due to volumes, and users are adopting ad blocking at an alarming rate. I wanted to consider if reducing ads could actually answer a question. Can less be more?
So how can I conduct a test, to work out if ‘less can be more’? Fortunately, there are some theorists I can call upon to give me some insight and ideas to work with, including a clever Italian, Vilfredo Pareto, who created the Pareto Theory – or what many of us know as the 80/20 rule.
What is this rule/principal and can I see the 80/20 rule in play already?
The principle states that 20% of the invested input is responsible for 80% of the results obtained.
Working with various publishers and technologies, I have observed examples of the 80/20 rule in action: –
- 80% of revenue is driven from 20% of the advertisers
- 80% of traffic is generated from 20% of the users
- 80% of revenue is generated from 20% of ads.
So how can we test ‘Pareto’s theory’ and the concept of ‘less is more’?
If we assume 80% of revenue is generated by 20% of ads, we can we test the following statement –
‘Can we make 80% of today’s revenue with 20% of the todays volume of ads ?’
Using a publisher, I increased the floor price for the inventory and ensured that any auction failing to hit this new floor resulted in the collapsing of this ad format and no ad being served. This would create the effect of reducing the volume of ads displayed. By increasing the floor, I was also able to increase the price paid for the ads which beat the floor in RTB.
This test ran on a UK based publisher over multiple millions of ad impressions being traded 100% via RTB.
- Overall, we saw a decrease of just over 22% of RTB revenue, delivering 78% of the original revenue figure.
- However, we saw a 69% decrease in the volume of ads being delivered, so generated this revenue with just 31% of the original ad volume.
- The RTB CPM traded price for this publisher went up over 300%.
So, in this test – we have proved a kind of 78/31 rule! I appreciate it doesn’t have such a ‘catchy’ ring to it, but we are able to demonstrate the Pareto principles in action.
In this publisher’s case we can say Pareto’s theory of the 80/20 rule is reliably evident and consistent. (All be it the 78/31 rule). This test is ongoing and most interestingly since starting the test, the revenue gap has slowly been closing, this is now more (the 82/31 rule). However, the test has led to me needing to answer more questions:-
- Does the fact users are seeing 69% less ads, mean the users consume more content?
- Does the fact pages have less ‘page weight’ and are quicker to load encourage more page views?
- Do users now have more recall or interaction with the ads now there are less ads to be seen?
- Are ads which cost more perceived as better quality and relevant by the advertiser and therefore deemed more valuable to the consumer?
- Will advertisers spend more on sites, which have less ad clutter?
- Will DSPs value this site more if better results are achieved?
- Could the reduction in ads drive more value from other revenue streams, ecommerce, sharing, syndication revenues etc?
- Does scarcity drive demand?
Does a combination of less ads, better ads, better recall, ad engagement, ad quality, better user journey, lower page weight result in enough revenue to close the 22% drop they experienced? Can in fact ‘less be more’?
In this scenario, by making a single change to the floor price and collapsing ad units that don’t meet the floor price, we have made huge changes in the metrics and dynamics of this website. I believe we are seeing the DSPs and buyside adjust to this new ‘grade’ of inventory. Less cluttered pages and less ads, must have a benefit to an advertiser, and will be a relief to the user, and the editorial teams within this publisher are much happier. However, the CFO is concerned as we have reduced revenue by 22% – but this gap is closing. Will it completely close? The bigger question is, can this change exceed the original revenue? And in turn this answers the question of ‘can less be more‘?
Rob Brett, Publisher Consultant
Rob Brett is an experienced and highly effective professional VP with over 18 years’ experience in Digital Marketing. Highly analytical with a financial degree, he develops and delivers strategies for digital businesses in conjunction with emerging technologies. The above article is republished from Rob’s LinkedIn page with kind permission.