The digital marketing space has recently seen a considerable move towards sponsored social as the next great alternative to traditional display ads. With the decline in click through rates and the ubiquitous aversion to banner ads, brands have begun to actively pursue ways to market themselves in a way that is more genuine and engaging. As advertisers move towards the programmatic buying of social, they have also begun to utilize exchange networks to lean out their social operations. In doing so, they must adapt to new ways to price engagement and rethink the ways in which they purchase and assign value.
As with any product sold on an open market, the perception of value and availability are major contributing aspects of price determination. The same is true for products within digital advertising space, whether they are traditional display units or sponsored posts. With traditional display advertisement, the focus of advertisers has been placed squarely cost-per-click (cpc) and cost-per-mille (cpm), as they are measured as the “standard” in that perception of value and ultimately, return. Pricing is understood within this realm and campaigns are crafted to reach minimum standards of key performance indicators because the availability of ad placement is relatively uniform with limited volatility.
When advertisers utilize new sponsored social exchanges to purchase content, they raise questions about pricing and have limited understanding of the various factors that add value to that sponsored content. Unlike display, sponsored content is user generated and crafted in a way that adds genuine sentiment and can be seeded across multiple social media outlets– all with differing audience demographics depending on the platform. Given these differences, sponsored content must be purchased and measured on a cost-per-opportunity basis if campaigns and performance are to be scalable. Pricing on an individual sponsorship opportunity basis front-loads the advertising spend. This incentivizes advertisers to solicit the best possible content for their campaign, as they are no longer paying more as performance increases. This concept of influencer-generated content is something that a standard display ad cannot achieve and front-loading spend is often a new concept to some advertisers. Thus, pricing becomes integral to adoption of the exchange model as these new concepts introduce some uncertainty into the eyes of the advertiser– especially when multiple social channels are utilized.
So where can exchange operators and advertisers look for insights?
As exchange networks create open marketplaces where brands actively pursue influencers to create sponsored content on their behalf, they can look to established markets to understand their adoption and potentially forecast growth. As a brief example, let’s draw some parallels between the commodities market and sponsorship marketplaces; doing so in an effort to learn more about market dynamics that exchange networks may encounter as they scale.
Though not a true sense of the word by definition, there are some similarities between sponsored social posts and commodities. For instance, these posts are utilized by brands as an input within the sales cycle, much like a commodity is utilized as an input within the production of a good. With a cost-per-opportunity model, sponsored content is purchased as a future where funds are committed by the advertiser in advance of the delivery, and performance of the post. As exchanges complete more transactions, they eliminate the most notable difference between a sponsored post and a traditional commodity- the lack of uniformity among content. With more volume, a better understanding of return can be created, thus grouping content creators into subsets where their value is more precisely measured.
There are many existing examples that advertisers may look to when trying to understand the market dynamics within sponsored social exchanges. Leveraging these insights and demonstrating a scalable model with benefits that outweigh display is of the utmost importance to exchange operators. Virtually any open market will have some similarity and may serve as a rough model from which an advertiser may draw conclusions about the scalability of sponsorship marketplaces. The burden; however, is shared. For native advertising to be successful, advertisers must adopt forward-looking strategies that assess value and examine the potential outcomes of new marketing efforts rather than adhering to an “old guard” mentality of relying solely on traditional display. Shifting marketing efforts to capture the benefits of native advertising will be no easy task and may require a certain amount of faith in the model, but the value of sponsored social is worth the initial risk.
To start seeing increased return on digital advertising dollars, advertisers will need to place faith in the dynamics of the sponsorship marketplace and be willing to overcome their unease with the cost-per-opportunity model– knowing that as they commit budgets to sponsored posts they are contributing to the realization of a much greater future return.
About the Author: James Michalak is Senior Manager of Corporate Business Development. Keep up with him on Twitter @JEMichalak!
