Who owns the risk of advertising
Advertising used to be simple.
The advertiser took all the risk, and the agency and publishers and media companies focused on delivering audience.
But the risk of advertising is shifting away from the advertiser buying audience.
This shift began with guaranteed delivery of impressions.
Web banners and other online display advertising guaranteed a certain number of impressions. “Pay me x dollars, and I will deliver y impressions.”
Then, Pay-Per-Click advertising only collected a fee when the shopper took action by clicking on the ad.
A few innovative companies such as Rent.com moved to “Extreme Pay for Performance” because they only collected a fee when a lease was signed. Rent.com could charge a hefty fee of many hundreds of dollars because they only collected after the landlord won.
Groupon created a new form of advertising that does two things:
1. They deliver a check to the advertiser, and the advertiser promises to deliver goods and services to those who purchased.
2. Groupon promises to deliver a minimum amount of revenue as part of the transaction.
This model is so popular with advertisers that well over 500 services similar to Groupon have launched, and a surprising number are doing quite well.
This business model isn’t easy to copy to other mediums such as newspapers, Yellow Pages, and television. However, the shift of risk is going to continue.
Advertisers will reward the companies that shoulder more of the risk.