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The link between advertising and revenue

If you’re not reading Asymco for insight into the business behind mobile technology you’re missing out. Writer and analyst Horace Dediu put a great tweet out earlier today about the marketing spend of some of the worlds biggest retail companies:

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Interesting to see that Samsung spends the most although this does make sense in that they’re advertising everything from the latest Galaxy phone to a TV or laptop (for full info on what falls under Samsung Electronics click here). These are interesting numbers but nothing without context. Twitter user @Chiphanna went and ran these numbers in order to compare marketing spend vs revenue and came up with some interesting figures:

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Essentially for every dollar Apple spends on marketing, they make $156 in revenue. Compare that to Samsung that have to spend a dollar to only make a  relatively low $46 in revenue and you wonder if someone like Samsung is doing something wrong?

The fascinating insight is that of Coca-Cola, they spend over three billion dollars a year to and only make $14 for every dollar they spend. This brings us to wonder whether the advertising that Coca-Cola puts out is actually irrelevant or are they over advertising?

Another interesting question is what would happen if Dell spent $200 million more a year (bringing them into parity with HP spend) would their sales increase to the level of HP? I would assume this is unlikely as proportionally they need to spend more than the $200 million in order to get to a level of parity.

Coca-Cola continually have to spend billions for the reason that they need to be top of mind before anyone heads to the soda fridge to buy a drink. More expensive products from brands such as HP and Apple require more research, more information and aren’t impulse purchases. As such, they can advertise less.

The number one take out for me: You don’t to have great adverts or spend billions, you need to have a product people love. Apple makes so much revenue per ad dollar for the simple reason that their products are great. As a whole this can be seen for HP and even to some extent Microsoft.

The issue with digital media

This Sunday the Superbowl took place in America and for marketers it’s a massive excuse to spend copious amounts of money on half-time T.V. ads. Placing an ad costs $4 million, a lot of money regardless of how much it costs to create the ads. Lets ignore the production costs for a moment and focus on that $4 million figure. Digiday pointed out some interesting stats about what you can do with that kind of money:

Over 100 million video impressions on Hulu

According to media buyers, Hulu currently sells its video ad inventory at around a $30 CPM. Therefore: $4 million / $30 CPM = 130 million impressions

 

Twitter’s Promoted Trending Topic every day for a month

Promoted trending topics on the social network currently sell for up to $120,000 a day. Based on that figure, $4 million would afford you the paid placement every day for at least a month. $4 million / $120,000 = 33 days

 

50 million Forbes.com first-page interstitials

Media buyers say Forbes charges around an $80 CPM for its welcome interstitial ads. At that price you could buy around 50 million impressions, but even if every impression hit a unique user, that’d still only be half the potential audience for a Super Bowl ad. $4 million / $80 CPM = 50 million impressions

That’s a lot of advertising bang for your buck. Locally if you wanted to put that figure into perspective $4 million equates to R36 million, which at a CPM rate of R250, equates to around 145 million impressions. According to the DMMA you could essentially buy every single publishers impressions for about two weeks with this kind of money. Considering this is a high-ish CPM for such volume you’d be looking at even more impressions and reach possible.

If marketers can get such “bang for their buck” why aren’t they pumping even more money into digital ad placement? Yes I know digital grows 20% year-on-year but the truth is that it’s going to take a while for the revenues to be meaningful and massive T.V. productions such as the Superbowl will still need impressive adverts.

The reason marketers will still spend $4 million simply placing an advert is because of the flash and the story. The one thing a banner, rich media or interstitial ad will never do is make you enjoy a story. Viewers watch the Superbowl adverts then go home and Youtube the videos again and again. No one in the history of the world has said “wow I want to watch that banner ad again!” Have you ever heard of model Kate Upton (who appears in an ad this year for Mercedes) in a digital ad campaign? I think not.

What’s the solution? It’s time to add a narrative to online advertising. Hire a writer, a storyteller or someone who can help create a reason for a user to go from a banner to a site that has a story that really engages the user.

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Charging for your blog is career limiting

Prolific blogger Cape Town Girl has come out with a post about how you should start charging for content on your site. Her argument is summed up in one sentence:

The short answer is: start charging.

I must applaud CTG for her stance on this. For too long bloggers have been taken advantage of, excited by the free “stuff” that PR companies fob on them. As a blogger if you receive said “free stuff” you’re considered to have “made it” and are someone worth listening to. PR people call you “influential”. Sadly, free stuff doesn’t pay the bills and you can only eat so many canapés at the latest launch event. Charging for space on your blog makes sense; you’ve got an audience so make some money hawking stuff to them.

There is one problem that I don’t think CTG has considered: she looks like a brand whore pedalling other people’s crap. This quote by Mad Men’s Don Draper pretty much hits the mark on what I’m talking about:

“What you call love was invented by guys like me to sell nylons.”

To illustrate my point I’ve childishly cribbed from CTG’s Instagram stream. This a real picture, I have in no way modified it (except maybe for the writing in red):

You don’t go around telling people how much money you made last month (unless you’re nouveau riche, which in that case how is the Range Rover Evoque treating you?) and you really shouldn’t go around telling people you can be bought. I’m not naive enough to talk about integrity, morals and ethics but I can tell you it’s bad business to only do things for a profit. I have no idea if “Bread Milk & Forgot a comma” paid for that that image and even if they didn’t, I’ll avoid it like the plague from now on.

You know those annoying 30-minute fillers on TV where a family of four talk about how much they love Maggie Two Minute Noodles? Everyone knows that’s an advertorial and the same goes for magazines, newspapers or radio. Anyone with more than two IQ points knows that the moment you’re basically putting a rate card on your blog the content becomes bumpf and insincere. Charging for your work is great, making yourself look like a gigantic billboard is really silly. As someone who has worked in real online publishing I’ll give you a tip: begging is probably more lucrative.

Charge for your blog so you can make enough money to buy everyone at &Union a round of Weiss beer but don’t be so ignorantly blunt about it.